CREDIT 01 Loan PDF

CRDIT
(Credit Transactions)
ASG Galandines | 2I | A.Y. 2017-2018
LOAN
No. Case Title Pages Page
General Provisions
1 Saura Import & Export Co., Inc. v. DBP 7 2
2 BPI Investment Corp. v. CA 8 9
3 Bonnevie v. CA 9 17
4 Central Bank of the Philippines v. CA 6 26
Commodatum
5 Republic v. Bagtas 4 32
6 Catholic Vicar Apostolic of the Mountain Province v. CA 6 36
7 Quintos v. Beck 3 42
Mutuum
8 Consolidated Bank & Trust Corp. v. CA 7 45
9 Republic v. Grijaldo 6 52
10 Casa Filipina Development Corp. v. Deputy Exec. Sec. 6 58
11 PNB v. CA 7 64
12 Relucio v. Brillante-Garfin 5 71
13 Eastern Shipping Lines, Inc. v. CA 13 76
14 PHILAM Accident Ins. Co., Inc., v. Flores 2 89
SECOND DIVISION
[G.R. No. L-24968. April 27, 1972.]
SAURA IMPORT & EXPORT CO., INC., plaintiff-appellee, vs.

DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger & Associates & Saura, Magno & Associates for plaintiff-appellee.
Jesus A. Avaceña and Hilario G. Orsolino for defendant-appellant.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS; PERFECTION UPON

ACCEPTANCE OF PROMISE TO DELIVER SOMETHING BY WAY OF SIMPLE LOAN; ART.
1954 OF THE CIVIL CODE. — Where the application of Saura Inc. for a loan of P500,000.00
was approved by resolution of the defendant, and the corresponding mortgage executed
and registered, there is undoubtedly offer and acceptance and We hold that there was
indeed a perfected consensual contract as recognized in Article 1954 of the Civil Code.
2. ID.; ID.; ID.; ID.; DEFENDANT DID NOT DEVIATE FROM PERFECTED CONTRACT IN
CASE AT BAR. — The terms laid down in RFC Resolution No. 145 passed on Jan. 7, 1954
which resolution approved the loan application state that: "the proceeds of the loan shall
be utilized exclusively for the following purposes: for construction of factory building —
P250,000.00; for payment of the balance of purchase price of machinery and equipment —
P240,900.00, for working capital — P9,100.00." There is no serious dispute that RFC
entertained the loan application of Saura Inc., on the assumption that the factory to be
constructed would utilize locally grown raw materials principally kenaf . It was in line with
such assumption that when RFC, by Resolution 9083 approved on December 17, 1954,
restored the loan to the original amount of P500,000.00, it imposed two conditions to wit:
(1) that the raw materials needed by the borrower-corporation to carry out its operation
are available in the immediate vicinity and (2) that there is prospect of increased
production thereof to provide adequately for the requirements of the factory." The
imposition of those conditions was by no means a deviation from the terms of the
agreement, but rather a step in its implementation. There was nothing in said conditions
that contradicted RFC Resolution No. 145.
3. ID.; ID.; ID.; ID.; DEVIATION MADE BY PLAINTIFF. — Evidently Saura Inc., realized that
it could not meet the conditions required by RFC in Resolution 9083, and so wrote its letter
of January 21, 1955, stating that local jute "will not be available in sufficient quantity this
year or probably next year," and asking that out of the loan agreed upon, the sum of
P67,586.09 be released "for raw materials and labor." This was a deviation from the terms
laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did
a diversion of part of the proceeds of the loan to purposes other than those agreed upon.
4. ID.; ID.; EXTINGUISHMENT OF OBLIGATION BY MUTUAL DESISTANCE; IN INSTANT
CASE. — When RFC turned down the request of Saura Inc., the negotiations which had been
going on for the implementation of the agreement reached an impasse. Saura Inc.,
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obviously was in no position to comply with RFC's conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura Inc., asked that the mortgage be
cancelled, which was done on June 15, 1955. The action thus taken by both parties was in
the nature of mutual desistance — what Manresa terms "mutuo disenso" — which is a
mode of extinguishing obligations. It is a concept that derives from the principle that since
mutual agreement by the parties can create a contract, mutual disagreement by the parties
can cause its extinguishment.
DECISION
MAKALINTAL, J : p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was
rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines
(DBP) to pay actual and consequential damages to plaintiff Saura Import and Export
Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the
complaint was led and attorney's fees in the amount of P5,000.00. The present appeal
is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation
Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of
P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building
(for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price
of the jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been
purchased by Saura on the strength of a letter of credit extended by the Prudential Bank
and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without
first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory buildings to be constructed,
the land site thereof, and the machinery and equipment to be installed. Among the other
terms spelled out in the resolution were the following:
"1. That the proceeds of the loan shall be utilized exclusively for
the following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase

price of machinery & equipment 240,900.00
For working capital 9,100.00
—————
TOTAL P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto

Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the
promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the

Rehabilitation Finance Corporation, subject to availability of funds, and as
the construction of the factory buildings progresses, to be certified to by an
appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before,
however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a
letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of
having China Engineers, Ltd. (which was willing to assume liability only to the extent of its
stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory
notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such
subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of
the other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating
of the members of its Board of Governors, for certain reasons stated in the resolution, "to
reexamine all the aspects of this approved loan . . . with special reference as to the
advisability of financing this particular project based on present conditions obtaining in the
operations of jute mills, and to submit his findings thereon at the next meeting of the
Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act
as co-signer for the loan, and asked that the necessary documents be prepared in
accordance with the terms and conditions specified in Resolution No. 145 In connection
with the re-examination of the project to be financed with the loan applied for, as stated in
Resolution No. 736, the parties named their respective committees of engineers and
technical men to meet with each other and undertake the necessary studies, although in
appointing its own committee Saura, Inc. made the observation that the same "should not
be taken as an acquiescence on (its) part to novate, or accept new conditions to, the
agreement already entered into," referring to its acceptance of the terms and conditions
mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R.
Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding
deed of mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the re-
examination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC
Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was
present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution
No. 3989 was approved as follows:
"RESOLUTION No. 3989. Reducing the Loan Granted Saura
Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to
P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-
examination of all the various aspects of the loan granted the Saura Import
& Export Co. under Resolution No. 145, c.s., for the purpose of financing the
manufacture of jute sacks in Davao, with special reference as to the
advisability of financing this particular project based on present conditions
obtaining in the operation of jute mills, and after having heard Ramon E.
Saura and after extensive discussion on the subject the Board, upon
recommendation of the Chairman, RESOLVED that the loan granted the
Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that
releases up to P100,000 may be authorized as may be necessary from time
to time to place the factory in actual operation: PROVIDED that all terms and
conditions of Resolution No. 145, c.s., not inconsistent herewith, shall
remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory
note for China Engineers Ltd. jointly and severally with the other co-signers, wrote RFC that
his company no longer wished to avail of the loan and therefore considered the same
cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that
the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be
granted. The request was denied by RFC, which added in its letter-reply that it was
"constrained to consider as cancelled the loan of P300,000.00 . . . in view of a notification .
. . from the China Engineers, Ltd., expressing their desire to consider the loan cancelled
insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed
RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the
note if RFC releases to us the P500,000.00 originally approved by you."
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original
amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the
promissory notes jointly with the borrower-corporation," but with the following proviso:
"That in view of observations made of the shortage and high cost of
imported raw materials, the Department of Agriculture and Natural
Resources shall certify to the following:
1. That the raw materials needed by the borrower-corporation to
carry out its operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to
provide adequately for the requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December
22, 1954, wherein it was explained that the certification by the Department of Agriculture
and Natural Resources was required "as the intention of the original approval (of the loan)
is to develop the manufacture of sacks on the basis of locally available raw materials." This
point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc.
does not deny that the factory he was building in Davao was for the manufacture of bags
from local raw materials. The cover page of its brochure (Exh. M) describes the project as
a "Joint venture by and between the Mindanao Industry Corporation and the Saura Import
and Export Co., Inc. to finance, manage and operate a Kenaf mill plant, to manufacture
copra and corn bags, runners, floor mattings, carpets, draperies, out of 100% local raw
materials, principal kenaf." The explanatory note on page 1 of the same brochure states
that the venture "is the first serious attempt in this country to use 100% locally grown raw
materials notably kenaf which is presently grown commercially in the Island of Mindanao
where the proposed jutemill is located . . ."
This fact, according to defendant DBP, is what moved RFC to approve the loan application
in the first place, and to require, in its Resolution No. 9083, a certification from the
Department of Agriculture and Natural Resources as to the availability of local raw
materials to provide adequately for the requirements of the factory. Saura, Inc. itself
confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that
according to a special study made by the Bureau of Forestry "kenaf will not be available in
sufficient quantity this year or probably even next year;" (2) requesting "assurances (from
RFC) that my company and associates will be able to bring in sufficient jute materials as
may be necessary for the full operation of the jute mill;" and (3) asking that releases of the
loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00

(For immediate release)
b) For the purchase of materials and equipment
per attached list to enable the jute
mill to operate P182,413.91
c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the opening
of the letter of credit for raw jute
for $25,000 00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
"Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the
release of your loan under consideration of P500,000. As stated in our letter
of December 22, 1954, the releases of the loan, if revived, are proposed to be
made from time to time, subject to availability of funds towards the end that
the sack factory shall be placed in actual operating status. We shall be able
to act on your request for revised purposes and manner of releases upon re-
appraisal of the securities offered for the loan.
With respect to our requirement that the Department of Agriculture
and Natural Resources certify that the raw materials needed are available in
the immediate vicinity and that there is prospect of increased production
thereof to provide adequately the requirements of the factory, we wish to
reiterate that the basis of the original approval is to develop the manufacture
of sacks on the basis of the locally available raw materials. Your statement
that you will have to rely on the importation of jute and your request that we
give you assurance that your company will be able to bring in sufficient jute
materials as may be necessary for the operation of your factory, would not
be in line with our principle in approving the loan."
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue
the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17,
1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F.
Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a
mortgage contract, executed on August 6, 1954, over the same property in favor of the
Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of
the same year within which to pay its obligation on the trust receipt heretofore mentioned.
It appears further that for failure to pay the said obligation the Prudential Bank and Trust
Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, almost 9 years after the mortgage in favor of RFC was cancelled at the
request of Saura, Inc., the latter commenced the present suit for damages, alleging failure
of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the
proceeds of the loan applied for and approved, thereby preventing the plaintiff from
completing or paying contractual commitments it had entered into, in connection with its
jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected
contract between the parties and that the defendant was guilty of breach thereof. The
defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of
action had prescribed, or that its claim had been waived or abandoned; (2) that there was
no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply
with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article
1934 of the Civil Code, which provides:
"ART. 1954. An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until the delivery of
the object of the contract."
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for
a loan of P500,000.00 was approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. But this fact alone falls short of
resolving the basic claim that the defendant failed to fulfill its obligation and that the
plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the
assumption that the factory to be constructed would utilize locally grown raw materials,
principally kenaf. There is no serious dispute about this. It was in line with such
assumption that when RFC, by Resolution No. 9033 approved on December 17, 1954,
restored the loan to the original amount of P500,000.00, it imposed two conditions, to wit:
"(1) that the raw materials needed by the borrower-corporation to carry out its operation
are available in the immediate vicinity; and (2) that there is prospect of increased
production thereof to provide adequately for the requirements of the factory." The
imposition of those conditions was by no means a deviation from the terms of the
agreement, but rather a step in its implementation. There was nothing in said conditions
that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7,
1954, namely — "that the proceeds of the loan shall be utilized exclusively for the following
purposes: for construction of factory building — P250,000.00; for payment of the balance
of purchase price of machinery and equipment — P240,900.00; for working capital —
P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by
RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be available
in sufficient quantity this year or probably next year," and asking that out of the loan agreed
upon the sum of P67,586.09 be released "for raw materials and labor." This was a
deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage
contract, implying as it did a diversion of part of the proceeds of the loan to purposes
other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which
had been going on for the implementation of the agreement reached an impasse. Saura,
Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so
and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage
be cancelled, which was done on June 15, 1955. The action thus taken by both parties was
in the nature of mutual desistance — what Manresa terms "mutuo disenso" 1 — which is a
mode of extinguishing obligations. It is a concept that derives from the principle that since
mutual agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment. 2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against
any alleged breach of contract by RFC, or even point out that the latter's stand was legally
unjustified. Its request for cancellation of the mortgage carried no reservation of whatever
rights it believed it might have against RFC for the latter's noncompliance. In 1962 it even
applied with DBP for another loan to finance a rice and corn project, which application was
disapproved. It was only in 1964, nine years after the loan agreement had been cancelled
at its own request, that Saura, Inc. brought this action for damages. All these
circumstances demonstrate beyond doubt that the said agreement had been extinguished
by mutual desistance — and that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other
issues raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with
costs against the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ.,
concur.
Makasiar, J., took no part.
Footnotes
1. 8 Manresa, p. 294.
2. Castan, p. 560.

SECOND DIVISION
[G.R. No. 133632. February 15, 2002.]
BPI INVESTMENT CORPORATION , petitioner, vs . HON. COURT OF

APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATION ,
respondents.
Benedicto Tale Versoza & Associates for petitioner.

Vicente B. Chuidian for private respondent.
SYNOPSIS
The appellate court affirmed the judgment of the Regional Trial Court of Pasig City in a
case for foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for
brevity) against private respondents ALS Management and Development Corporation and
Antonio K. Litonjua, consolidated with Civil Case No. 52093, for damages with prayer for
the issuance of a writ of preliminary injunction by the private respondents against said
petitioner. The trial court held that private respondents were not in default in the payment
of their monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC was
premature and made in bad faith. In the instant petition, petitioner contended that the
Court of Appeals erred in ruling that because a simple loan is perfected upon the delivery
of the object of the contract, the loan contract in this case was perfected only on
September 13, 1982. Petitioner claimed that a contract of loan is a consensual contract,
and a loan contract is perfected at the time the contract of mortgage is executed
conformably with the Court's ruling in Bonnevie v. Court of Appeals. In the present case,
the loan contract was perfected on March 31, 1981, the date when the mortgage deed was
executed, hence, the amortization and interests on the loan should be computed from said
date.
The Supreme Court affirmed the judgment of the Court of Appeals with modification as to
the damages. The Court ruled that a loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract. Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by the Court as a perfected
consensual contract falls under the first clause of Article 1934, Civil Code. It is an
accepted promise to deliver something by way of simple loan. In the present case, the loan
contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected
only on September 13, 1982, the date of the second release of the loan. Following the
intentions of the parties on the commencement of the monthly amortization, as found by
the Court of Appeals, private respondents' obligation to pay commenced only on October
13, 1982, a month after the perfection of the contract.
SYLLABUS
1. CIVIL LAW; CONTRACTS; LOAN; NOT A CONSENSUAL CONTRACT BUT A REAL

CONTRACT; IT IS PERFECTED ONLY UPON DELIVERY OF THE OBJECT OF THE
CONTRACT; CASE AT BAR. — A loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract. Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by this Court as a perfected
accepted promise to deliver something by way of simple loan. In Saura Import and Export
Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner applied for a loan
of P500,000 with respondent bank. The latter approved the application through a board
resolution. Thereafter, the corresponding mortgage was executed and registered.
However, because of acts attributable to petitioner, the loan was not released. Later,
petitioner instituted an action for damages. We recognized in this case, a perfected
consensual contract which under normal circumstances could have made the bank liable
for not releasing the loan. However, since the fault was attributable to petitioner therein,
the court did not award it damages. A perfected consensual contract, as shown above, can
give rise to an action for damages. However, said contract does not constitute the real
contract of loan which requires the delivery of the object of the contract for its perfection
and which gives rise to obligations only on the part of the borrower. In the present case,
the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was
perfected only on September 13, 1982, the date of the second release of the loan.
Following the intentions of the parties on the commencement of the monthly amortization,
as found by the Court of Appeals, private respondents' obligation to pay commenced only
on October 13, 1982, a month after the perfection of the contract.
2. ID.; ID.; ID.; INVOLVES RECIPROCAL OBLIGATION WHEREIN THE OBLIGATION OR
PROMISE OF EACH PARTY IS THE CONSIDERATION FOR THAT OF THE OTHER. — We also
agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other.
As averred by private respondents, the promise of BPIIC to extend and deliver the loan is
upon the consideration that ALS and Litonjua shall pay the monthly amortization
commencing on May 1, 1981, one month after the supposed release of the loan. It is a
basic principle in reciprocal obligations that neither party incurs in delay, if the other does
not comply or is not ready to comply in a proper manner with what is incumbent upon him.
Only when a party has performed his part of the contract can he demand that the other
party also fulfills his own obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly amortization after
September 13, 1982 for it was only then when it complied with its obligation under the
loan contract. Therefore, in computing the amount due as of the date when BPIIC
extrajudicially caused the foreclosure of the mortgage, the starting date is October 13,
1982 and not May 1, 1981. HESCcA
3. ID.; DAMAGES; NO BASIS FOR AWARD OF MORAL AND EXEMPLARY DAMAGES;

NOMINAL DAMAGES AWARDED TO RESPONDENTS BY REASON OF PETITIONER'S
NEGLIGENCE. — As admitted by private respondents themselves, they were irregular in
their payment of monthly amortization. Conformably with our ruling in SSS, we can not
properly declare BPIIC in bad faith. Consequently, we should rule out the award of moral
and exemplary damages. However, in our view, BPIIC was negligent in relying merely on the
entries found in the deed of mortgage, without checking and correspondingly adjusting its
records on the amount actually released to private respondents and the date when it was
released. Such negligence resulted in damage to private respondents, for which an award
of nominal damages should be given in recognition of their rights which were violated by
BPIIC. For this purpose, the amount of P25,000 is sufficient.
DECISION
QUISUMBING , J : p
This petition for certiorari assails the decision dated February 28, 1997, of the Court of
Appeals and its resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate
court affirmed the judgment of the Regional Trial Court of Pasig City, Branch 151, in (a)
Civil Case No. 11831, for foreclosure of mortgage by petitioner BPI Investment
Corporation (BPIIC for brevity) against private respondents ALS Management and
Development Corporation and Antonio K. Litonjua, 1 consolidated with (b) Civil Case No.
52093, for damages with prayer for the issuance of a writ of preliminary injunction by the
private respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of their
monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC was
premature and made in bad faith. It awarded private respondents the amount of P300,000
for moral damages, P50,000 for exemplary damages, and P50,000 for attorney's fees and
expenses for litigation. It likewise dismissed the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16¼% per annum from Ayala Investment
and Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the
construction of a house on his lot in New Alabang Village, Muntinlupa. Said house and lot
were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot
to private respondents ALS and Antonio Litonjua for P850,000. They paid P350,000 in
cash and assumed the P500,000 balance of Roa's indebtedness with AIDC. The latter,
however, was not willing to extend the old interest rate to private respondents and
proposed to grant them a new loan of P500,000 to be applied to Roa's debt and secured
by the same property, at an interest rate of 20% per annum and service fee of 1% per
annum on the outstanding principal balance payable within ten years in equal monthly
amortization of P9,996.58 and penalty interest at the rate of 21% per annum per day from
the date the amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing
the above stipulations with the provision that payment of the monthly amortization shall
commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roa's arrearages by paying BPIIC the sum
of P190,601.35. This reduced Roa's principal balance to P457,204.90 which, in turn, was
liquidated when BPIIC applied thereto the proceeds of private respondents' loan of
P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to
be what was left of their loan after full payment of Roa's loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the
ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June
30, 1984, amounted to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and
31/100 Pesos (P475,585.31). A notice of sheriff's sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They
alleged, among others, that they were not in arrears in their payment, but in fact made an
overpayment as of June 30, 1984. They maintained that they should not be made to pay
amortization before the actual release of the P500,000 loan in August and September
1982. Further, out of the P500,000 loan, only the total amount of P464,351.77 was
released to private respondents. Hence, applying the effects of legal compensation, the
balance of P35,648.23 should be applied to the initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and
52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and
Development Corporation and Antonio K. Litonjua and against BPI Investment
Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua
was only in the principal sum of P464,351.77, with interest at 20% plus service
charge of 1% per annum, payable on equal monthly and successive amortizations
at P9,283.83 for ten (10) years or one hundred twenty (120) months. The
amortization schedule attached as Annex "A" to the "Deed of Mortgage" is
correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when BPI
caused their publication in a newspaper of general circulation as defaulting debtors, and
therefore orders BPI to pay ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorney's fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being
premature.
Costs against BPI.

SO ORDERED. 2
Both parties appealed to the Court of Appeals. However, private respondents' appeal was
dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive
portion reads:
WHEREFORE, finding no error in the appealed decision the same is hereby
AFFIRMED in toto.
SO ORDERED. 3
In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the
delivery of the object of the contract. The contract of loan between BPIIC and ALS &
Litonjua was perfected only on September 13, 1982, the date when BPIIC released the
purported balance of the P500,000 loan after deducting therefrom the value of Roa's
indebtedness. Thus, payment of the monthly amortization should commence only a month
after the said date, as can be inferred from the stipulations in the contract. This, despite
the express agreement of the parties that payment shall commence on May 1, 1981. From
October 1982 to June 1984, the total amortization due was only P194,960.43. Evidence
showed that private respondents had an overpayment, because as of June 1984, they
already paid a total amount of P201,791.96. Therefore, there was no basis for BPIIC to
extrajudicially foreclose the mortgage and cause the publication in newspapers
concerning private respondents' delinquency in the payment of their loan. This fact
constituted sufficient ground for moral damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this
petition, where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL
CONTRACT IN THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE
VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN THE FACE OF
IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE
LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS,
120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that
because a simple loan is perfected upon the delivery of the object of the contract, the loan
contract in this case was perfected only on September 13, 1982. Petitioner claims that a
contract of loan is a consensual contract, and a loan contract is perfected at the time the
contract of mortgage is executed conformably with our ruling in Bonnevie v. Court of
Appeals, 125 SCRA 122. In the present case, the loan contract was perfected on March 31,
1981, the date when the mortgage deed was executed, hence, the amortization and
interests on the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was released only
on August 1982, the loan was actually released on March 31, 1981, when BPIIC issued a
cancellation of mortgage of Frank Roa's loan. This finds support in the registration on
March 31, 1981 of the Deed of Absolute Sale executed by Roa in favor of ALS, transferring
the title of the property to ALS, and ALS executing the Mortgage Deed in favor of BPIIC.
Moreover, petitioner claims, the delay in the release of the loan should be attributed to
private respondents. As BPIIC only agreed to extend a P500,000 loan, private respondents
were required to reduce Frank Roa's loan below said amount. According to petitioner,
private respondents were only able to do so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code,
4 a simple loan is perfected upon the delivery of the object of the contract, hence a real
contract. In this case, even though the loan contract was signed on March 31, 1981, it was
perfected only on September 13, 1982, when the full loan was released to private
respondents. They submit that petitioner misread Bonnevie. To give meaning to Article
1934, according to private respondents, Bonnevie must be construed to mean that the
contract to extend the loan was perfected on March 31, 1981 but the contract of loan
itself was only perfected upon the delivery of the full loan to private respondents on
September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract
was perfected on March 31, 1981, and their payment did not start a month thereafter, still
no default took place. According to private respondents, a perfected loan agreement
imposes reciprocal obligations, where the obligation or promise of each party is the
consideration of the other party. In this case, the consideration for BPIIC in entering into
the loan contract is the promise of private respondents to pay the monthly amortization.
For the latter, it is the promise of BPIIC to deliver the money. In reciprocal obligations,
neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Therefore, private respondents conclude,
they did not incur in delay when they did not commence paying the monthly amortization
on May 1, 1981, as it was only on September 13, 1982 when petitioner fully complied with
its obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract. 5 Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by this Court as a perfected
accepted promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,
petitioner applied for a loan of P500,000 with respondent bank. The latter approved the
application through a board resolution. Thereafter, the corresponding mortgage was
executed and registered. However, because of acts attributable to petitioner, the loan was
not released. Later, petitioner instituted an action for damages. We recognized in this case,
a perfected consensual contract which under normal circumstances could have made the
bank liable for not releasing the loan. However, since the fault was attributable to
petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the
delivery of the object of the contract for its perfection and which gives rise to obligations
only on the part of the borrower. 6
In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua,
on the other, was perfected only on September 13, 1982, the date of the second release of
the loan. Following the intentions of the parties on the commencement of the monthly
amortization, as found by the Court of Appeals, private respondents' obligation to pay
commenced only on October 13, 1982, a month after the perfection of the contract. 7
We also agree with private respondents that a contract of loan involves a reciprocal
obligation, wherein the obligation or promise of each party is the consideration for that of
the other. 8 As averred by private respondents, the promise of BPIIC to extend and deliver
the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization
commencing on May 1, 1981, one month after the supposed release of the loan. It is a
basic principle in reciprocal obligations that neither party incurs in delay, if the other does
not comply or is not ready to comply in a proper manner with what is incumbent upon him.
9 Only when a party has performed his part of the contract can he demand that the other
party also fulfills his own obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly amortization after
September 13, 1982 for it was only then when it complied with its obligation under the
loan contract. Therefore, in computing the amount due as of the date when BPIIC
extrajudicially caused the foreclosure of the mortgage, the starting date is October 13,
1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of
actual release of the loan and whether private respondents were the cause of the delay in
the release of the loan, are factual. Since petitioner has not shown that the instant case is
one of the exceptions to the basic rule that only questions of law can be raised in a petition
for review under Rule 45 of the Rules of Court, 10 factual matters need not tarry us now. On
these points we are bound by the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and
exemplary damages for it did not act maliciously when it initiated the foreclosure
proceedings. It merely exercised its right under the mortgage contract because private
respondents were irregular in their monthly amortization. It invoked our ruling in Social
Security System vs. Court of Appeals, 120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate damages. As concluded
by the Court of Appeals "the negligence of the appellant is not so gross as to
warrant moral and temperate damages," except that, said Court reduced those
damages by only P5,000.00 instead of eliminating them. Neither can we agree
with the findings of both the Trial Court and respondent Court that the SSS had
acted maliciously or in bad faith. The SSS was of the belief that it was acting in
the legitimate exercise of its right under the mortgage contract in the face of
irregular payments made by private respondents and placed reliance on the
automatic acceleration clause in the contract. The filing alone of the foreclosure
application should not be a ground for an award of moral damages in the same
way that a clearly unfounded civil action is not among the grounds for moral
damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable for said
damages because it insisted on the payment of amortization on the loan even before it
was released. Further, it did not make the corresponding deduction in the monthly
amortization to conform to the actual amount of loan released, and it immediately initiated
foreclosure proceedings when private respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in their payment of
monthly amortization. Conformably with our ruling in SSS, we can not properly declare
BPIIC in bad faith. Consequently, we should rule out the award of moral and exemplary
damages. 11
However, in our view, BPIIC was negligent in relying merely on the entries found in the deed
of mortgage, without checking and correspondingly adjusting its records on the amount
actually released to private respondents and the date when it was released. Such
negligence resulted in damage to private respondents, for which an award of nominal
damages should be given in recognition of their rights which were violated by BPIIC. 1 2 For
this purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorney's fees because private respondents were
compelled to litigate, we sustain the award of P50,000 in favor of private respondents as
attorney's fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of
damages. The award of moral and exemplary damages in favor of private respondents is
DELETED, but the award to them of attorney's fees in the amount of P50,000 is UPHELD.
Additionally, petitioner is ORDERED to pay private respondents P25,000 as nominal
damages. Costs against petitioner. ACTIcS
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
Footnotes

1. While Antonio K. Litonjua was not included in the caption of the petition before this
court, apparently, the intention of petitioner was to include Litonjua as private
respondent for he was a party in all stages of the case both before the Regional Trial
Court and the Court of Appeals and it was clearly indicated in the petition that "ALS"
collectively referred to as ALS Management and Development Corporation and Antonio
K. Litonjua.
2. RTC Records, p. 278.
3. Rollo, p. 32.
4. Art. 1934. An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself shall
not be perfected until the delivery of the object of the contract.
5. Art. 1934, Civil Code of the Philippines; Monte de Piedad vs. Javier, et al., 36 OG 2176; A.
Padilla, Civil Code of the Philippines Annotated, Vol. VI, pp. 474-475 (1987); E. Paras,
Civil Code of the Philippines Annotated, Vol. V, p. 885 (1995).
6. A. Tolentino, Civil Code of the Philippines, V. 5, p. 443 (1992).
7. Supra, note 3 at 30.
8. Rose Packing Co. Inc. vs. Court of Appeals, No. L-33084, 167 SCRA 309, 318-319 (1988).
9. Art. 1169, Civil Code:
xxx xxx xxx

In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
10. American President Lines, Ltd. vs. Court of Appeals, G.R. No. 110853, 336 SCRA 582,
586 (2000).
11. Art. 2234, Civil Code: While the amount of the exemplary damages need not be proved,
the plaintiff must show that he is entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not exemplary damages should
be awarded. In case liquidated damages have been agreed upon, although no proof of
loss is necessary in order that such liquidated damages may be recovered, nevertheless,
before the court may consider the question of granting exemplary in addition to the
liquidated damages, the plaintiff must show that he would be entitled to moral,
temperate or compensatory damages were it not for the stipulation for liquidated
damages.
12. Art. 2221, Civil Code: Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by
him.

SECOND DIVISION
[G.R. No. L-49101. October 24, 1983.]
RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE , petitioners, vs.

THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK
OF COMMERCE , respondents.
Edgardo I. De Leon for petitioners.

Siguion Reyna, Montecillo & Associates for private respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF LOAN WITH

MORTGAGE; BEING A CONSENSUAL CONTRACT, DEEMED PERFECTED AT THE
EXECUTION OF THE CONTRACT OF MORTGAGE; FAILURE TO TAKE IMMEDIATE
COLLECTION OF CONSIDERATION, IMMATERIAL. — From the recitals of the mortgage
deed itself, it is clearly seen that the mortgage deed was executed for and on condition of
the loan granted to the Lozano spouses. The fact that the latter did not collect from the
respondent Bank the consideration of the mortgage on the date it was executed is
immaterial. A contract of loan being a consensual contract, the herein contract of loan was
perfected at the same time the contract of mortgage was executed. The promissory note
executed on December 12, 1966 is only an evidence of indebtedness and does not indicate
lack of consideration of the mortgage at the time of its execution.
2. ID.; ID.; SALE WITH ASSUMPTION OF MORTGAGE; CONSENT OF THlE MORTGAGE
NOT SECURED; VENDEES ESTOPPED FROM QUESTIONING VALIDITY OF THE ORIGINAL
LOAN WITH MORTGAGE. — Petitioners admit that they did not secure the consent of
respondent Bank to the sale with assumption of mortgage. Coupled with the fact that the
sale/assignment was not registered so that the title remained in the name of the Lozano
spouses, insofar as respondent Bank was concerned, the Lozano spouses could rightfully
and validly mortgage the property. Respondent Bank had every right to rely on the
certi cate of title. It was not hound to go behind the same to look for aws in the
mortgagor's title, the doctrine of innocent purchaser for value being applicable to an
innocent mortgage for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo,
32 SCRA 48). Another argument for the respondent Bank is that a mortgage follows the
property whoever the possessor may be and subjects the ful llment of the obligation for
whose security it was constituted. Finally, it can also be said that petitioners voluntarily
assumed the mortgage when they entered into the Deed of Sale with Assumption of
Mortgage. They are, therefore, estopped from impugning its validity whether on the
original loan or renewals thereof.
3. ID.; MORTGAGE; EXTRA-JUDICIAL FORECLOSURE; PERSONAL NOTICE UNDER ACT
3135, NOT REQUIRED NOR TO ANYONE NOT PRIVY TO THE OBLIGATION. — The lack of
notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being
a party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was
not aware of the same and hence, it may not be obliged to notify petitioners. Secondly,
petitioner Honesto Bonnevie was not entitled to any notice because as of May 14, 1968, he
had transferred and assigned all his rights and interests over the property in favor of
intervenor Raoul Bonnevie and respondent Bank was not likewise informed of the same.
For the same reason, Raoul Bonnevie is not entitled to notice. Most importantly, Act No.
3135 does not require personal notice on the mortgagor. In the case at bar, the notice of
sale was published in the Luzon Courier on June 30, July 7 and July 14, 1968 and notices of
the sale were posted for not less than twenty days in at least three (3) public places in the
Municipality where the property is located. Petitioners were thus placed on constructive
notice.
4. ID.; ID.; SANTIAGO CASE; NOT APPLICABLE IN THE CASE AT BAR. — The case of
Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case
involved a judicial foreclosure and the sale to the vendee of the mortgaged property was
duly registered making the mortgagee privy to the sale.
5. ID.; ID.; EXTRA-JUDICIAL FORECLOSURE; PERIOD OF PUBLICATION OF NOTICE OF
AUCTION SALE, CONSTRUED. — As regards the claim that the period of publication of the
notice of auction sale was not in accordance with law, namely: once a week for at least
three consecutive weeks, the Court of Appeals ruled that the publication of notice on June
30, July 7 and July 14, 1968 satis es the publication requirement under Act No. 3133
notwithstanding the fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135
merely requires that "such notice shall be published once a week for at least three
consecutive weeks." Such phrase, as interpreted by the Court in Basa vs. Mercado, 61 Phil.
632, does not mean that notice should be published for three full weeks.
6. REMEDIAL LAW; EVIDENCE; AFFIDAVIT OF PUBLICATION BY THE PUBLISHER,
BUSINESS/ADVERTISING MANAGER OF A NEWSPAPER; PRIMA FACIE EVIDENCE OF
PUBLICATION. — The argument that the publication of the notice in the "Luzon Weekly
Courier" was not in accordance with law as said newspaper is not of general circulation
must likewise he disregarded. The af davit of publication, executed by the publisher,
business/advertising manager of the Luzon Weekly Courier, states that it is "a newspaper
of general circulation in . . . Rizal; and that the Notice of Sheriff's sale was published in said
paper on June 30, July and July 14, 1968." This constitutes prima facie evidence of
compliance with the requisite publication. (Sadang vs.GSlS, 18 SCRA 491). To be a
newspaper of general circulation, it is enough that "it is published for the dissemination of
local news and general information; that it has a bona de subscription list of paying
subscribers; that it is published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The
newspaper need not have the largest circulation so long as it is of general circulation.
(Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they do not read
the Luzon Weekly Courier is not proof that said newspaper is not a newspaper of general
circulation in the province of Rizal.
7. ID.; NOTICE; PUBLICATION; NEWSPAPER OF GENERAL CIRCULATION, CONSTRUED.
— Whether or not the notice of auction sale was posted for the period required by law is a
question of fact. It can no longer be entertained by this Court. (See Reyes, et al. vs. CA, et
al., 107 SCRA 126) Nevertheless, the records show that copies of said notice were posted
in three conspicuous places in the municipality of Pasig, Rizal namely: the Hall of Justice,
the Pasig Municipal Market and Pasig Municipal Hall. In the same manner, copies of said
notice were also posted in the place where the property was located, namely: the
Municipal Building of San Juan, Rizal; the Municipal Market and on Benitez Street. The
following statement of Atty. Santiago Pastor, head of the legal department of respondent
bank namely: "Q - How many days were the notices posted in these two places, if you
know? A- We posted them only once in one day" (TSN, p.45, July 25, 1973) is not a
suf cient countervailing evidence to prove that there was no compliance with the posting
requirement in the absence of proof or even of allegation that the notices were removed
before the expiration of the twenty day period. A single act of posting (which may even
extend beyond the period required by law) satis es the requirement of law. The burden of
proving that the posting requirement was not complied with is now shifted to the one who
alleges non-compliance.
8. CIVIL LAW; MORTGAGE; UNREGISTERED MORTGAGOR; RIGHT TO REDEEM;
DISALLOWED. — On the question of whether or not the petitioners had a right to redeem
the property, the Supreme Court holds that the Court of Appeals did not err in ruling that
they had no right to redeem. No consent having been secured from respondent Bank to the
sale with assumption of mortgage by petitioners, the latter were not validly substituted as
debtors. In fact, their rights were never recorded and hence, respondent Bank is charged
with the obligation to recognize the right of redemption only of the Lozano spouses. But
even granting that as purchaser or assignee of the property, as the case may be, the
petitioners had acquired a right to redeem the property, petitioners failed to exercise said
right within the period granted by law. The certi cate of sale in favor of appellee was
registered on September 2, 1968 and the one year redemption period expired on
September 3, 1969. It was not until September 29, 1969 that petitioner Honesto Bonnevie
rst wrote respondent and offered to redeem the property. Moreover, on September 29,
1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.
9. ID.; OBLIGATIONS AND CONTRACTS; RENEWAL OF LOAN; NOT DEPENDENT
SOLELY ON THE DEBTOR BUT ON THE DISCRETION OF THE CREDITOR BANK; BAD FAITH;
ABSENCE IN THE CASE AT BAR. — On the question of whether or not respondent Court of
Appeals erred in holding that respondent Bank did not act in bad faith, the undeniable fact
is that the loan matured on December 26, 1967. On June 10, 1968, when respondent Bank
applied for foreclosure the loan was already six months overdue. Petitioners' payment of
interest on July 12, 1968 does not thereby make the earlier act of respondent Bank
inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of
a loan may be effected, not only the payment of the accrued interest is necessary but also
the payment of interest for the proposed period of renewal as well. Besides, whether or
not a loan may be renewed does not solely depend on the debtor but more so on the
discretion of the bank. Respondent Bank may not be, therefore, charged of bad faith.
DECISION
GUERRERO , J : p
Petition for review on certiorari seeking the reversal of the decision of the defunct Court of
Appeals, now Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto
Bonnevie vs. Philippine Bank of Commerce, et al.," promulgated August 11, 1978 1 as well
as the Resolution denying the motion for reconsideration.
The complaint led on January 26, 1971 by petitioner Honesto Bonnevie with the Court of
First Instance of Rizal against respondent Philippine Bank of Commerce sought the
annulment of the Deed of Mortgage dated December 6, 1966 executed in favor of the
Philippine Bank of Commerce by the spouses Jose M. Lozano and Josefa P. Lozano as
well as the extrajudicial foreclosure made on September 4, 1968. It alleged among others
that (a) the Deed of Mortgage lacks consideration and (b) the mortgage was executed by
one who was not the owner of the mortgaged property. It further alleged that the property
in question was foreclosed pursuant to Act No. 3135 as amended, without, however,
complying with the condition imposed for a valid foreclosure. Granting the validity of the
mortgage and the extrajudicial foreclosure, it nally alleged that respondent Bank should
have accepted petitioner's offer to redeem the property under the principle of equity and
justice.
On the other hand, the answer of defendant Banks, now private respondent herein,
speci cally denied most of the allegations in the complaint and raised the following
af rmative defenses: (a) that the defendant has not given its consent, much less the
requisite written consent, to the sale of the mortgaged property to plaintiff and the
assumption by the latter of the loan secured thereby; (b) that the demand letters and
notice of foreclosure were sent to Jose Lozano at his address; (c) that it was noti ed for
the rst time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that
the law on contracts requires defendant's consent before Jose Lozano can be released
from his bilateral agreement with the former and doubly so, before plaintiff may be
substituted for Jose Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was
secured by mortgage, after two renewals remain unpaid despite countless reminders and
demands; (f) that the property in question remained registered in the name of Jose M.
Lozano in the land records of Rizal and there was no entry, notation or indication of the
alleged sale to plaintiff; (g) that it is an established banking practice that payments against
accounts need not be personally made by the debtor himself; and (h) that it is not true that
the mortgage, at the time of its execution and registration, was without consideration as
alleged because the execution and registration of the securing mortgage, the signing and
delivery of the promissory note and the disbursement of the proceeds of the loan are mere
implementation of the basic consensual contract of loan.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul S.V. Bonnevie
led a motion for intervention. The intervention was premised on the Deed of Assignment
executed by petitioner Honesto Bonnevie in favor of petitioner Raoul S.V. Bonnevie
covering the rights and interests of petitioner Honesto Bonnevie over the subject property.
The intervention was ultimately granted in order that all issues be resolved in one
proceeding to avoid multiplicity of suits.
On March 29, 1976, the lower court rendered its decision, the dispositive portion of which
reads as follows: LibLex
"WHEREFORE, all the foregoing promises considered, judgment is hereby rendered

dismissing the complaint with costs against the plaintiff and the intervenor."
After the motion for reconsideration of the lower court's decision was denied, petitioners
appealed to respondent Court of Appeals assigning the following errors:
1. The lower court erred in not nding that the real estate mortgage executed
by Jose Lozano was null and void;
2. The lower court erred in not nding that the auction sale made on August
19, 1968 was null and void;
3. The lower court erred in not allowing the plaintiff and the intervenor to
redeem the property;
4. The lower court erred in not nding that the defendant acted in bad faith;
and
5. The lower court erred in dismissing the complaint.
On August 11, 1978, the respondent court promulgated its decision af rming the decision
of the lower court, and on October 3, 1978 denied the motion for reconsideration. Hence,
the present petition for review.
The factual ndings of respondent Court of Appeals being conclusive upon this Court, We
hereby adopt the facts found by the trial court and found by the Court of Appeals to be
consistent with the evidence adduced during trial, to wit:
"It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the
owners of the property which they mortgaged on December 6, 1966, to secure the
payment of the loan in the principal amount of P75,000.00 they were about to
obtain from defendant-appellee Philippine Bank of Commerce; that on December
8, 1966, they executed in favor of plaintiff-appellant the Deed of Sale with
Assumption of Mortgage, for and in consideration of the sum of P100,000.00,
P20,000.00 of which amount being payable to the Lozano spouses upon the
execution of the document, and the balance of P75,000.00 being payable to
defendant-appellee; that on December 6, 1966, when the mortgage was executed
by the Lozano spouses in favor of defendant-appellee, the loan of P75,000.00
was not yet received by them, as it was on December 12, 1966 when they and
their co-maker Alfonso Lim signed the promissory note for that amount; that from
April 28, 1967 to July 12, 1968, plaintiff-appellant made payments to defendant-
appellee on the mortgage in the total amount of P18,944.22; that on May 4, 1968,
plaintiff-appellant assigned all his rights under the Deed of Sale with Assumption
of Mortgage to his brother, intervenor Raoul Bonnevie; that on June 10, 1968,
defendant-appellee applied for the foreclosure of the mortgage, and notice of sale
was published in the Luzon Weekly Courier on June 30, July 7, and July 14, 1968;
that auction sale was conducted on August 19, 1968, and the property was sold
to defendant-appellee for P84,387.00; and that offers from plaintiff-appellant to
repurchase the property failed, and on October 9, 1969, he caused an adverse
claim to be annotated on the title of the property." (Decision of the Court of
Appeals, p. 5)
Presented for resolution in this review are the following issues:

I
Whether the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed.
II
Whether the extrajudicial foreclosure of the said mortgage was validly and legally
effected.
III
Whether petitioners had a right to redeem the foreclosed property.

IV
Granting that petitioners had such a right, whether respondent was justi ed in
refusing their offers to repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold.
They primarily attack the validity of the mortgage executed by the Lozano spouses in favor
of respondent Bank. Next, they attack the validity of the extrajudicial foreclosure and
nally, appeal to justice and equity. In attacking the validity of the deed of mortgage, they
contended that when it was executed on December 6, 1966 there was yet no principal
obligation to secure as the loan of P75,000.00 was not received by the Lozano spouses
"so much so that in the absence of a principal obligation, there is want of consideration in
the accessory contract, which consequently impairs its validity and fatally affects its very
existence." (Petitioners' Brief, par. 1, p. 7)
This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it
is clearly seen that the mortgage deed was executed for and on condition of the loan
granted to the Lozano spouses. The fact that the latter did not collect from the respondent
Bank the consideration of the mortgage on the date it was executed is immaterial. A
contract of loan being a consensual contract, the herein contract of loan was perfected at
the same time the contract of mortgage was executed. The promissory note executed on
December 12, 1966 is only an evidence of indebtedness and does not indicate lack of
consideration of the mortgage at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent
renewals of the original loan, using as security the same property which the Lozano
spouses had already sold to petitioners, rendered the mortgage null and void.
This argument failed to consider the provision 2 of the contract of mortgage which
prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged
properties, without the written consent of the mortgagee, as well as the additional proviso
that if in spite of said stipulation, the mortgaged property is sold, the vendee shall assume
the mortgage in the terms and conditions under which it is constituted. These provisions
are expressly made part and parcel of the Deed of Sale with Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with
assumption of mortgage. Coupled with the fact that the sale/assignment was not
registered so that the title remained in the name of the Lozano spouses, insofar as
respondent Bank was concerned, the Lozano spouses could rightfully and validly
mortgage the property. Respondent Bank had every right to rely on the certi cate of title. It
was not bound to go behind the same to look for aws in the mortgagor's title, the
doctrine of innocent purchaser for value being applicable to an innocent mortgagee for
value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another
argument for the respondent Bank is that a mortgage follows the property whoever the
possessor may be and subjects the ful llment of the obligation for whose security it was
constituted. Finally, it can also be said that petitioners voluntarily assumed the mortgage
when they entered into the Deed of Sale with Assumption of Mortgage. They are, therefore,
estopped from impugning its validity whether on the original loan or renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the
following grounds: LLpr
a) Petitioners were never notified of the foreclosure sale.

b) The notice of auction sale was not posted for the period required by law.
c) The publication of the notice of auction sale in the Luzon Weekly Courier
was not in accordance with law.
The lack of notice of the foreclosure sale on petitioners is a imsy ground. Respondent
Bank not being a party to the Deed of Sale with Assumption of Mortgage, it can validly
claim that it was not aware of the same and hence, it may not be obliged to notify
petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to any notice because
as of May 14, 1968, he had transferred and assigned all his rights and interests over the
property in favor of intervenor Raoul Bonnevie and respondent Bank was not likewise
informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice. Most
importantly, Act No. 3135 does not require personal notice on the mortgagor. The
requirement on notice is that:
"Section 3. Notice shall be given by posting notices of the sale for not less
than twenty days in at least three pub]ic places of the municipality or city where
the property is situated, and if such property is worth more than four hundred
pesos, such notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality or
city."
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7
and July 14, 1968 and notices of the sale were posted for not less than twenty days in at
least three (3) public places in the Municipality where the property is located. Petitioners
were thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because
said case involved a judicial foreclosure and the sale to the vendee of the mortgaged
property was duly registered making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not in
accordance with law, namely: once a week for at least three consecutive weeks, the Court
of Appeals ruled that the publication of notice on June 30, July 7 and July 14, 1968
satis es the publication requirement under Act No. 3135 notwithstanding the fact that
June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely requires that "such
notice shall be published once a week for at least three consecutive weeks." Such phrase,
as interpreted by this Court in Basa vs. Mercado, 61 Phil. 632, does not mean that notice
should be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in
accordance with law as said newspaper is not of general circulation must likewise be
disregarded. The af davit of publication, executed by the publisher, business/advertising
manager of the Luzon Weekly Courier, states that it is "a newspaper of general circulation
in . . . Rizal: and that the Notice of Sheriff's sale was published in said paper on June 30,
July 7 and July 14, 1968." This constitutes prima facie evidence of compliance with the
requisite publication. (Sadang vs. GSIS, 18 SCRA 491) Cdpr
To be a newspaper of general circulation, it is enough that "it is published for the

dissemination of local news and general information; that it has a bona de subscription
list of paying subscribers; that it is published at regular intervals." (Basa vs. Mercado, 61
Phil. 632). The newspaper need not have the largest circulation so long as it is of general
circulation. (Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they do
read the Luzon Weekly Courier is no proof that said newspaper is not a newspaper of
general circulation in the province of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a
question of fact. It can no longer be entertained by this Court. (see Reyes, et al. vs. CA, et
al., 107 SCRA 126). Nevertheless, the records show that copies of said notice were posted
in three conspicuous places in the municipality of Pasig, Rizal namely: the Hall of Justice,
the Pasig Municipal Market and Pasig Municipal Hall. In the same manner, copies of said
notice were also posted in the place where the property was located, namely: the
Municipal Building of San Juan, Rizal; the Municipal Market and on Benitez Street. The
following statement of Atty. Santiago Pastor, head of the legal department of respondent
bank, namely:
"Q How many days were the notices posted in these two places, if you know?
A We posted them only once in one day." (TSN, p. 45, July 25, 1973)
is not a suf cient countervailing evidence to prove that there was no compliance with the
posting requirement in the absence of proof or even of allegation that the notices were
removed before the expiration of the twenty-day period. A single act of posting (which may
even extend beyond the period required by law) satis es the requirement of law. The
burden of proving that the posting requirement was not complied with is now shifted to
the one who alleges non compliance.
On the question of whether or not the petitioners had a right to redeem the property, We
hold that the Court of Appeals did not err in ruling that they had no right to redeem. No
consent having been secured from respondent Bank to the sale with assumption of
mortgage by petitioners, the latter were not validly substituted as debtors. In fact, their
rights were never recorded and hence, respondent Bank is charged with the obligation to
recognize the right of redemption only of the Lozano spouses. But even granting that as
purchaser or assignee of the property, as the case may be, the petitioners had acquired a
right to redeem the property, petitioners failed to exercise said right within the period
granted by law. The certi cate of sale in favor of appellee was registered on September 2,
1968 and the one year redemption period expired on September 3, 1969. It was not until
September 29, 1969 that petitioner Honesto Bonnevie rst wrote respondent and offered
to redeem the property. Moreover, on September 29, 1969, Honesto had at that time
already transferred his rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that
respondent Bank did not act in bad faith, petitioners rely on Exhibit "B" which is the letter of
Jose Lozano to respondent Bank dated December 8, 1966 advising the latter that Honesto
Bonnevie was authorized to make payments for the amount secured by the mortgage on
the subject property, to receive acknowledgment of payments, obtain the Release of the
Mortgage after full payment of the obligation and to take delivery of the title of said
property. On the assumption that said letter was received by respondent Bank, a careful
reading of the same shows that the plaintiff was merely authorized to do acts mentioned
therein and does not mention that petitioner is the new owner of the property nor request
that all correspondence and notice should be sent to him. LLphil
The claim of appellants that the collection of interests on the loan up to July 12, 1968
extends the maturity of said loan up to said date and accordingly on June 10, 1968 when
defendant applied for the foreclosure of the mortgage, the loan was not yet due and
demandable, is totally incorrect and misleading. The undeniable fact is that the loan
matured on December 26, 1967. On June 10, 1968, when respondent Bank applied for
foreclosure, the loan was already six months overdue. Petitioners' payment of interest on
July 12, 1968 does not thereby make the earlier act of respondent Bank inequitous nor
does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may be
effected, not only the payment of the accrued interest is necessary but also the payment
of interest for the proposed period of renewal as well. Besides, whether or not a loan may
be renewed does not solely depend on the debtor but more so on the discretion of the
bank. Respondent Bank may not be, therefore, charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is
hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
Aquino, J., concur.
Makasiar (Chairman), Abad Santos and Escolin, JJ., concur in the result.
Concepcion, Jr., J., did not take part.
De Castro, J., is on leave.
Footnotes
1. Third Division, Reyes, L.B., J., ponente; Busran and Nocon, JJ., concurring.
2. "4. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner encumber
the mortgaged properties without the written consent of MORTGAGEE. If in spite of this
stipulation, a mortgaged property is sold, the Vendee shall assume the mortgaged in the
terms and conditions under which it is constituted, it being understood that the
assumption of the Vendee (does) not release the Vendor of his obligation to the
MORTGAGEE; on the contrary, both the Vendor and the Vendee shall be jointly and
severally liable for said mortgage obligation . . ."

SECOND DIVISION
[G.R. No. L-45710. October 3, 1985.]
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR

ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL
AND SAVINGS BANK, in his capacity as statutory receiver of Island
Savings Bank , petitioners, vs. THE HONORABLE COURT OF APPEALS
and SULPICIO M. TOLENTINO , respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
DECISION
MAKASIAR , C.J : p
This is a petition for review on certiorari to set aside as null and void the decision of the
Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision
dated February 15, 1972 of the Court of First Instance of Agusan, which dismissed the
petition of respondent Sulpicio M. Tolentino for injunction, specific performance or
rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal
department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as
a security for the loan, executed on the same day a real estate mortgage over his 100-
hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and
which mortgage was annotated on the said title the next day. The approved loan
application called for a lump sum P80,000.00 loan, repayable in semi-annual installments
for a period of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino
shall use the loan proceeds solely as an additional capital to develop his other property
into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by
the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note
for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of
the contract at semi-annual installments of P3,459.00 (p. 64, rec.), An advance interest for
the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted
from the partial release of P17,000.00. But this pre-deducted interest was refunded to
Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no
fund yet available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its
vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance
(p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings
Bank was suffering liquidity problems, issued Resolution No. 1049, which provides:
"In view of the chronic reserve deficiencies of the Island Savings Bank against its
deposit liabilities, the Board, by unanimous vote, decided as follows:
"1) To prohibit the bank from making new loans and
investments [except investments in government securities] excluding
extensions or renewals of already approved loans, provided that such
extensions or renewals shall be subject to review by the Superintendent of
Banks, who may impose such limitations as may be necessary to insure
correction of the bank's deficiency as soon as possible;
. . ." (p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to put
up the required capital to restore its solvency, issued Resolution No. 967 which prohibited
Island Savings Bank from doing business in the Philippines and instructed the Acting
Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. 48-49,
rec.).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered
by the promissory note, filed an application for the extra-judicial foreclosure of the real
estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff
scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance
of Agusan for injunction, specific performance or rescission and damages with preliminary
injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance
of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings
Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if
said balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a
temporary restraining order enjoining the Island Savings Bank from continuing with the
foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the
dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the restraining
order, filed by the Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits, rendered its decision, finding
unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings
Bank the amount of P17,000.00 plus legal interest and legal charges due thereon, and
lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. 135-
136, rec.).
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified
the Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's
petition for specific performance, but it ruled that Island Savings Bank can neither
foreclose the real estate mortgage nor collect the P17,000.00 loan (pp. 30-31, rec.). prcd
Hence, this instant petition by the Central Bank.

The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory
note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate
mortgage be foreclosed to satisfy said amount?.
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal
obligations, the obligation or promise of each party is the consideration for that of the
other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1
[1969]); and when one party has performed or is ready and willing to perform his part of
the contract, the other party who has not performed or is not ready and willing to perform
incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay
was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00
loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he
signified his willingness to pay the P80,000.00 loan. From such date, the obligation of
Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in
furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or
when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968,
which prohibited Island Savings Bank from doing further business. Such prohibition made
it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the
P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the
protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on
June 15, 1948, the validity of which is not in question.
The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the
default of Island Savings Bank in complying with its obligation of releasing the P63,000.00
balance because said resolution merely prohibited the Bank from making new loans and
investments, and nowhere did it prohibit Island Savings Bank from releasing the balance of
loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an
engagement does not discharge the obligation of the contract, nor does it constitute any
defense to a decree of specific performance (Gutierrez Repide vs. Afzelins and Afzelins, 39
Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the
non-fulfillment of an obligation but instead it is taken as a breach of the contract by him
(Vol. 17A, 1974 ed., CJS p. 650). LexLib
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-
deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-
month period cannot be taken as a waiver of his right to collect the P63,000.00 balance.
The act of Island Savings Bank, in asking the advance interest for 6 months on the
supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the
P80,000.00 loan was released. A person cannot be legally charged interest for a non-
existing debt. Thus, the receipt by Sulpicio M. Tolentino of the pre-deducted interest was
an exercise of his right to it, which right exist independently of his right to demand the
completion of the P80,000.00 loan. The exercise of one right does not affect, much less
neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral
cannot exempt it from complying with its reciprocal obligation to furnish the entire
P80,000.00 loan. This Court previously ruled that bank officials and employees are
expected to exercise caution and prudence in the discharge of their functions (Rural Bank
of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials
and employees that before they approve the loan application of their customers, they must
investigate the existence and valuation of the properties being offered as a loan security.
The recent rush of events where collaterals for bank loans turn out to be non-existent or
grossly over-valued underscore the importance of this responsibility. The mere reliance by
bank officials and employees on their customer's representation regarding the loan
collateral being offered as loan security is a patent non-performance of this responsibility.
If ever, bank officials and employees totally rely on the representation of their customers
as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral
turn out to be over-valued. The representation made by the customer is immaterial to the
bank's responsibility to conduct its own investigation. Furthermore, the lower court, on
objections of Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the
alleged over-valuation because of their failure to raise the same in their pleadings (pp. 198-
199, t.s.n., Sept. 15, 1971). The lower court's action is sanctioned by the Rules of Court,
Section 2, Rule 9, which states that "defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the
same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their
loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose
between specific performance or rescission with damages in either case. But since Island
Savings Bank is now prohibited from doing further business by Monetary Board Resolution
No. 967, WE cannot grant specific performance in favor of Sulpicio M. Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for
the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar
as such amount is concerned, as there is no doubt that the bank failed to give the
P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino
accepted and executed a promissory note to cover it, the bank was deemed to have
complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note
gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when
it falls due. His failure to pay the overdue amortizations under the promissory note made
him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If
there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is,
Island Savings Bank. If Tolentino had not signed a promissory note setting the date for
payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the
entire loan because he cannot possibly be in default as there was no date for him to
perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the
entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his
P17,000.00 debt within 3 years as stipulated, they are both liable for damages. Cdpr
Article 1192 of the Civil Code provides that in case both parties have committed a breach
of their reciprocal obligations, the liability of the first infractor shall be equitably tempered
by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing
the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of
Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be included in offsetting
the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use
of the P17,000.00, it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely
foreclosed to satisfy his P17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of
the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the
consideration of his obligation to pay is the existence of a debt. Thus, in the accessory
contract of real estate mortgage, the consideration of the debtor in furnishing the
mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation
to Art. 2052, of the Civil Code).
The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no
consideration was then in existence, as there was no debt yet because Island Savings Bank
had not made any release on the loan, does not make the real estate mortgage void for
lack of consideration. It is not necessary that any consideration should pass at the time of
the execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). It
may either be a prior or subsequent matter. But when the consideration is subsequent to
the mortgage, the mortgage can take effect only when the debt secured by it is created as
a binding contract to pay (Parks vs. Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed.,
Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the
mortgage becomes unenforceable to the extent of such failure (Dow, et al. vs. Poore, Vol.
172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually
owing to the holder of the mortgage is less than the sum named in the mortgage, the
mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co.
vs. Peterson, Vol. 19, F(2d) p. 88, cited in 6th ed., Wiltsie on Mortgage, Vol. 1, p. 180). LLpr
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan,
the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100
hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the
remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25
hectares is more than sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil
Code is inapplicable to the facts of this case.
Article 2089 provides:
"A pledge or mortgage is indivisible even though the debt may be divided among
the successors in interest of the debtor or creditor.
"Therefore, the debtor's heirs who has paid a part of the debt can not ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied.
"Neither can the creditor's heir who have received his share of the debt return the
pledge or cancel the mortgage, to the prejudice of other heirs who have not been
paid."
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted

presupposes several heirs of the debtor or creditor which does not obtain in this case.
Hence, the rule of indivisibility of a mortgage cannot apply.
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS
HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN
PETITIONERS THE SUM OF P17,000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST
PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND
12% INTEREST ON THE TOTAL AMOUNT COUNTED' FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE
COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED
UNENFORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M.
TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.

EN BANC
[G.R. No. L-17474. October 25, 1962.]
REPUBLIC OF THE PHILIPPINES , plaintiff-appellee, vs. JOSE V.

BAGTAS , defendant. FELICIDAD M. BAGTAS, Administratrix of the
Intestate Estate left by the late Jose V. Bagtas , petitioner-appellant.
D. T. Reyes, Luison & Associates for petitioner-appellant.

Solicitor General for plaintiff-appellee.
SYLLABUS
1. CONTRACTS; LOAN OF BULLS FOR BREEDING PURPOSES; NATURE OF CONTRACT

AFFECTED BY PAYMENT OF FEE. — The loan by the Bureau of Animal Industry to the
defendant of three bulls for breeding purposes for a period of one year, later on renewed
for another as regards one bull, was subject to the payment by the borrower of breeding
fee of 10% of the book value of the bulls. If the breeding fee be considered a
compensation, the contract would be a lease of the bulls; it could not be a contract of
commodatum, because that contract is essential gratuitous.
2. JUDGMENTS; PROCEEDINGS FOR ADMINISTRATIONS AND SETTLEMENT OF
ESTATE OF THE DECEASED; ENFORCEMENT OF MONEY JUDGMENT. — Where special
proceedings for the administration and settlement of the estate of the deceased have
been instituted, the money judgment rendered in favor of a party cannot be enforced by
means of a writ of execution, but must be presented to the probate court for payment by
the administrator appointed by the court.
DECISION
PADILLA , J : p
The Court of Appeals certified this case to this Court because only questions of law are
raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the
Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a
Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May
1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding
fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949 of the
contract, the borrower asked for a renewal for another period of one year. However, the
Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull
for another year from 8 May 1949 to 7 May 1950 and requested the return of the other
two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that he
would pay the value of the three bulls. On 17 October 1950 he reiterated his desire to buy
them at a value with a deduction of yearly depreciation to be approved by the Auditor
General. On 19 October 1950 the Director of Animal Industry advised him that the book
value of the three bulls could not be reduced and that they either be returned or their book
value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of
the three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of
Manila the Republic of the Philippines commenced an action against him praying that he
be ordered to return the three bulls loaned to him or to pay their book value in the total
sum of P3,241.45 and the unpaid breeding fee in the sum of P499.62, both with interests,
and costs; and that other just and equitable relief be granted it (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered
that because of the bad peace and order situation in Cagayan Valley, particularly in the
barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture
and Natural Resources and the President of the Philippines from the refusal by the Director
of Animal Industry to deduct from the book value of the bulls corresponding yearly
depreciation of 8% from the date of acquisition, to which depreciation the Auditor General
did not object, he could not return the animals nor pay their value and prayed for the
dismissal of the complaint.
After hearing, on 30 July 1956 the trial court rendered judgment —
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value
of the three bulls plus the breeding fees in the amount of P626.17 with interest on
both sums of (at) the legal rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court
granted on 18 October and issued on 11 November 1958. On 2 December 1958 it
granted an ex-parte motion led by the plaintiff on 28 November 1958 for the
appointment of a special sheriff to serve the writ outside Manila. Of this order
appointing a special sheriff, on 6 December 1958 Felicidad M. Bagtas, the surviving
spouse of the defendant Jose V. Bagtas who died on 23 October 1951 and as
administratrix of his estate, was noti ed. On 7 January 1959 she led a motion alleging
that on 26 June 1952 the two bulls, Sindhi and Bhagnari, were returned to the Bureau of
Animal Industry and that sometime in November 1953 the third bull, the Sahiniwal, died
from gunshot wounds in icted during a Huks raid on Hacienda Felicidad Intal, and
praying that the writ of execution be quashed and that a writ of preliminary injunction be
issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959
she led a reply thereto. On the same day, 6 February, the Court denied her motion.
Hence, this appeal certi ed by the Court of Appeals to this Court, as stated at the
beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late
defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the
NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a
memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of 31
January 1959 to the appellant's motion to quash the writ of execution the appellee prays
"that another writ of execution in the sum of P859.5.3 be issued against the estate of
defendant deceased José V. Bagtas." She cannot be held liable for the two bulls which
already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the
Huks in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao,
Cagayan, where the animal was kept, and that as such death was due to force majeure she
is relieved from the duty of the returning the bull or paying its value to the appellee. The
contention is without merit. The loan by the appellee to the late defendant José V. Bagtas
of the three bulls for breeding purposes for a period of one year from 8 May 1948 to 7
May 1949, later on renewed for another year as regards one bull, was subject to the
payment by the borrower of breeding fee of 10% of the book value of the bulls. The
appellant contends that the contract was commodatum and that, for that reason, as the
appellee retained ownership or title to the bull it should suffer its loss due to force majeure
A contract of commodatum is essentially gratuitous.1 If the breeding fee be considered a
compensation, then the contract would be a lease of the bull. Under article 1671 of the
Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith,
because she had continued possession of the bull after the expiry of the contract. And
even if the contract be commodatum, still the appellant is liable, because article 1942 of
the Civil Code provides that a bailee in a contract of commodatum —
. . . is liable for loss of the thing, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated. . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event:
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one
bull was renewed for another period of one year to end on 8 May 1950. But the
appellant kept and used the bull until November 1953 when during a Huk raid it was
killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of
the appellant the bulls had each an appraised book value, to wit: the Sindhi, at
P1,176.46; the Bhagnari, at P1,320.56 and the Sahiniwal; at P744.46. It was not
stipulated that in case of loss of the bull due to fortuitous event the late husband of the
appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the
bull or the payment of its value being a money claim should be presented or filed in the
intestate proceedings of the defendant who died on 23 October 1951, is not altogether
without merit. However, the claim that his civil personality having ceased to exist the trial
court lost jurisdiction over the case against him, is untenable, because section 17 of Rule 3
of the Rules of Court provides that —
After a party dies and the claim is not thereby extinguished, the court shall order,
upon proper notice, the legal representative of the deceased to appear and to be
substituted for the deceased, within a period of thirty (30) days, or within such
time as may be granted . . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with
section 16 of Rule 3 which provides that —
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to
inform the court promptly of such death . . . and to give the name and residence
of the executor or administrator, guardian, or other legal representative of the
deceased . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad
M. Bagtas had been issued letters of administration of the estate of the late José V.
Bagtas and that "all persons having claims for money against the deceased José V.
Bagtas, arising from contract, express or implied, whether the same be due, not due, or
contingent, for funeral expenses and expenses of the last sickness of the said
decedent, and judgment for money against him, to le said claims with the Clerk of this
Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the
date of the rst publication of this order, serving a copy thereof upon the
aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the
said deceased," is not a notice to the court and the appellee who were to be noti ed of
the defendant's death in accordance with the abovequoted rule, and there was no
reason for such failure to notify, because the attorney who appeared for the defendant
was the same who represented the administratrix in the special proceedings instituted
for the administration and settlement of his estate. The appellee or its attorney or
representative could not be expected to know of the death of the defendant or of the
administration proceedings of his estate instituted in another court, if the attorney for
the deceased defendant did not notify the plaintiff or its attorney of such death as
required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late
defendant is only liable for the sum of P859.63, the value of the bull which has not been
returned to the appellee, because it was killed while in the custody of the administratrix of
his estate. This is the amount prayed for by the appellee in its objection on 31 January
1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of
execution.
Special proceedings for the administration and settlement of the estate of the deceased
José V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the
money judgment rendered in favor of the appellee cannot be enforced by means of a writ
of execution but must be presented to the probate court for payment by the appellant, the
administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement
as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala
and Makalintal, JJ., concur.
Barrera, J., concurs in the result.

FIRST DIVISION
[G.R. Nos. 80294-95. September 21, 1988.]
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE ,

petitioner, vs. COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO
AND JUAN VALDEZ , respondents.
Valdez Ereso Polido & Associates for petitioner.

Claustro, Claustro Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cabato Law Office for the Heirs of Juan Valdez.
SYLLABUS
REMEDIAL LAW; JUDGMENT; RES JUDICATA.— The findings of the trial court affirmed by
the appellate court that the private respondent's predecessor were possessors of the lots
in dispute with claim of ownership from 1906 to 1951 while the petitioner was in
possession as borrower in commodatum up to 1951 are res judicata between the parties.
DECISION
GANCAYCO , J : p
The principal issue in this case is whether or not a decision of the Court of Appeals
promulgated a long time ago can properly be considered res judicata by respondent Court
of Appeals in the present two cases between petitioner and two private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the
Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607
(419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of
Possession, which affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge of
the Regional Trial Court of Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case
No. 3655 (429), with the dispositive portion as follows:
"WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic
Vicar Apostolic of the Mountain Province to return and surrender Lot 2 of Plan
Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to
the other set of plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et
al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is
hereby denied. Said defendant is ordered to pay costs." (p 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial
court's conclusions that the Decision of the Court of Appeals, dated May 4, 1977 in CA-G.R.
No. 38830-R, in the two cases affirmed by the Supreme Court, touched on the ownership
of lots 2 and 3 in question; that the two lots were possessed by the predecessors-in-
interest of private respondents under claim of ownership in good faith from 1906 to 1951;
that petitioner had been in possession of the same lots as bailee in commodatum up to
1951, when petitioner repudiated the trust and when it applied for registration in 1962;
that petitioner had just been in possession as owner for eleven years, hence there is no
possibility of acquisitive prescription which requires 10 years possession with just title
and 30 years of possession without; that the principle of res judicata on these findings by
the Court of Appeals will bar a reopening of these questions of fact; and that those facts
may no longer be altered. cdll
Petitioner's motion for reconsideration of the respondent appellate court's Decision in the
two aforementioned cases (CA-G.R. No. CV-05418 and 05419) was denied.
The facts and background of the cases as narrated by the trial court are as follows —
". . . The documents and records presented reveal that the whole controversy
started when the defendant Catholic Vicar Apostolic of the Mountain Province
(VICAR for brevity) filed with the Court of First Instance of Baguio-Benguet, on
September 5, 1962 an application for registration of title over Lots 1, 2, 3, and 4 in
Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed as LRC
N-91, said Lots being the sites of the Catholic Church building, convents, high
school building, school gymnasium, school dormitories, social hall, stonewalls,
etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of Egmidio
Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively,
asserting ownership and title thereto. After trial on the merits, the land registration
court promulgated its Decision, dated November 17, 1965, confirming the
registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the
Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed
the decision of the land registration court to the then Court of Appeals, docketed
as CA-G.R. No. 38830-R. The Court of Appeals rendered its decision, dated May 9,
1977, reversing the decision of the land registration court and dismissing the
VICAR's application as to Lots 2 and 3, the lots claimed by the two sets of
oppositors in the land registration case (and two sets of plaintiffs in the two
cases now at bar), the first lot being presently occupied by the convent and the
second by the women's dormitory and the sisters' convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying
the Court of Appeals to order the registration of Lot 3 in the names of the Heirs of
Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita
Valdez filed their motion for reconsideration praying that both Lots 2 and 3 be
ordered registered in the names of the Heirs of Juan Valdez and Pacita Valdez.
On August 12, 1977, the Court of Appeals denied the motion for reconsideration
filed by the Heirs of Juan Valdez on the ground that there was "no sufficient merit
to justify reconsideration one way or the other . . .," and likewise denied that of the
Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing his (its) application
for registration of Lots 2 and 3, docketed as G.R. No. L-46832, entitled, 'Catholic
Vicar Apostolic of the Mountain Province vs. Court of Appeals and Heirs of
Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration, the
Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the
Supreme Court a petition for review, docketed as G.R. No. L-46872, entitled, 'Heirs
of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio
Octaviano and Amable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both
petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita
Valdez on the other) for lack of merit. Upon the finality of both Supreme Court
resolutions in G.R. No. L-46832 and G.R. No. L-46872, the Heirs of Octaviano filed
with the then Court of First Instance of Baguio, Branch 11, a Motion For Execution
of Judgment praying that the Heirs of Octaviano be placed in possession of Lot
3. The Court, presided over by Hon. Salvador J. Valdez, on December 7, 1978,
denied the motion on the ground that the Court of Appeals decision in CA-G.R. No.
38870 did not grant the Heirs of Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a
petition for certiorari and mandamus, docketed as CA-G.R. No. 08890-R, entitled
'Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar.' In its
decision dated May 16, 1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The Heirs of Egmidio
Octaviano filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of
possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No. 3655 (429)
on September 24, 1979, likewise for recovery of possession of Lot 2 (Decision, pp.
199-201, Orig. Rec.).
"In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio
Octaviano presented one (1) witness, Fructuoso Valdez, who testified on the
alleged ownership of the land in question (Lot 3) by their predecessor-in-interest,
Egmidio Octaviano (Exh. C); his written demand (Exh. B - B-4) to defendant Vicar
for the return of the land to them; and the reasonable rentals for the use of the
land at P10,000.00 per month. On the other hand, defendant Vicar presented the
Register of Deeds for the Province of Benguet, Atty. Nicanor Sison, who testified
that the land in question is not covered by any title in the name of Egmidio
Octaviano or any of the plaintiffs (Exh. 8). The defendant dispensed with the
testimony of Mons. William Brasseur when the plaintiffs admitted that the
witness if called to the witness stand, would testify that defendant Vicar has been
in possession of Lot 3, for seventy-five (75) years continuously and peacefully
and has constructed permanent structures thereon.
"In Civil Case No. 3655, the parties admitting that the material facts are not in
dispute, submitted the case on the sole issue of whether or not the decisions of
the Court of Appeals and the Supreme Court touching on the ownership of Lot 2,
which in effect declared the plaintiffs the owners of the land constitute res
judicata.
"In these two cases, the plaintiffs argue that the defendant Vicar is barred from
setting up the defense of ownership and or long and continuous possession of
the two lots in question since this is barred by prior judgment of the Court of
Appeals in CA-G.R. No. 038830-R under the principle of res judicata. Plaintiffs
contend that the question of possession and ownership have already been
determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and
affirmed by the Supreme Court (Exh. 1, Minute Resolution of the Supreme Court).
On his part, defendant Vicar maintains that the principle of res judicata would not
prevent them from litigating the issues of long possession and ownership.
Because the dispositive portion of the prior judgment in CA-G.R. No. 038830-R
merely dismissed their application for registration and titling of lots 2 and 3.
Defendant Vicar contends that only the dispositive portion of the decision, and
not its body, is the controlling pronouncement of the Court of Appeals." 2
The alleged errors committed by respondent Court of Appeals according to petitioner are
as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;

2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2
AND 3 WERE ACQUIRED BY PURCHASE BUT WITHOUT
DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONER'S CLAIM IT PURCHASED LOTS
2 AND 3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED
ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND
OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE
RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT
LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE
PATENT APPLICATIONS AND THE PREDECESSORS OF PRIVATE
RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE
1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3
ONLY IN 1951 AND JUST TITLE IS A PRIME NECESSITY UNDER
ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR
ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS
IN CA G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830
TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE
RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION
OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH
FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF
LOTS 2 AND 3 MERELY AS BAILEE (BORROWER) IN COMMODATUM,
A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND
BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION AND
REIMBURSEMENT AND IS BARRED BY THE FINALITY AND
CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 033830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and
05149, when it clearly held that it was in agreement with the findings of the trial court that
the Decision of the Court of Appeals dated May 4, 1977 in CA-G.R. No. 38830-R, on the
question of ownership of Lots 2 and 3, declared that the said Court of Appeals Decision
(CA-G.R. No. 38830-R) did not positively declare private respondents as owners of the
land, neither was it declared that they were not owners of the land, but it held that the
predecessors of private respondents were possessors of Lots 2 and 3, with claim of
ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower in
commodatum up to 1951, when it repudiated the trust by declaring the properties in its
name for taxation purposes. When petitioner applied for registration of Lots 2 and 3 in
1962, it had been in possession in concept of owner only for eleven years. Ordinary
acquisitive prescription requires possession for ten years, but always with just title.
Extraordinary acquisitive prescription requires 30 years. 4
On the above findings of facts supported by evidence and evaluated by the Court of
Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no error in respondent
appellate court's ruling that said findings are res judicata between the parties. They can no
longer be altered by presentation of evidence because those issues were resolved with
finality a long time ago. To ignore the principle of res judicata would be to open the door to
endless litigations by continuous determination of issues without end.
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-
G.R. No. 38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be
entitled to register the lands in question under its ownership, on its evaluation of evidence
and conclusion of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years possession for ordinary acquisitive prescription because of the
absence of just title. The appellate court did not believe the findings of the trial court that
Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by
purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely no
documentary evidence to support the same and the alleged purchases were never
mentioned in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and
Octaviano. Both Valdez and Octaviano had Free Patent Application for those lots since
1906. The predecessors of private respondents, not petitioner Vicar, were in possession
of the questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but
not Lots 2 and 3, because the buildings standing thereon were only constructed after
liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in
1951. The improvements on Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was
appointed only in 1947, the church was constructed only in 1951 and the new convent only
2 years before the trial in 1963. prLL
When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to
buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner
Vicar only in 1962.
Private respondents were able to prove that their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed. They never asked for the
return of the house, but when they allowed its free use, they became bailors in
commodatum and the petitioner the bailee. The bailees' failure to return the subject matter
of commodatum to the bailor did not mean adverse possession on the part of the
borrower. The bailee held in trust the property subject matter of commodatum. The
adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by
way of ordinary acquisitive prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents
were possessors under claim of ownership in good faith from 1906; that petitioner Vicar
was only a bailee in commodatum; and that the adverse claim and repudiation of trust
came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No.
38830-R. Its findings of fact have become incontestible. This Court declined to review said
decision, thereby in effect, affirming it. It has become final and executory a long time ago.
Respondent appellate court did not commit any reversible error, much less grave abuse of
discretion, when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is
governing, under the principle of res judicata, hence the rule, in the present cases CA-G.R.
No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that
decision may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of
merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent
Court of Appeals is AFFIRMED, with costs against petitioner. LibLex
SO ORDERED.
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.
Footnotes
1. Associate Justices Conrado T. Limcaoco, Jose C. Campos, Jr. and Gloria C. Paras.
2. Decision in CA-G.R. No. CV Nos. 05148 and 05149 dated August 31, 1987; pp. 112-117,
Rollo.
3. Pp. 5-15, Petition; pp. 6-17, Rollo.
4. Arts. 1134 and 1129, Civil Code.
5. Presiding Justice Magno S. Gatmaitan, Associate Justices Pacifico P. de Castro and
Samuel Reyes.
6. Land Reg. No. N91, LRC Rec. No. N-22991 of the then C.F.I. of Baguio City.

EN BANC
[G.R. No. 46240. November 3, 1939.]
MARGARITA QUINTOS and ANGEL A. ANSALDO , plaintiffs-appellants,

vs . BECK , defendant-appellee.
Mauricio Carlos; for appellants.

Felipe Buencamino, Jr.; for appellee.
SYLLABUS
1. COMMODATUM; OBLIGATION OF THE PARTIES. — The contract entered

into between the parties is one of commodatum, because under t the plaintiff
gratuitously granted the use of the furniture to the defendant reserving for herself the
ownership thereof, by this contract the defendant bound himself to return the furniture
to the plaintiff, upon the latter's demand (Clause 7 of the contract, Exhibit "A"; articles
1740, paragraph, and 1741 of the Civil Code). The obligation voluntarily assumed by the
defendant to return the furniture upon the plaintiff's demand means that he should
return all of them to the plaintiff at the latter's residence or house. The defendant did
not comply with this obligation when he merely placed them at the disposal of the
plaintiff, retaining for his benefit the three gas heaters and the four electric lamps.
2. ID.; ID.; EXPENSES FOR DEPOSIT OF FURNITURE. — AS the defendant had
voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand,
the Court could not legally compel her to bear the expenses occasioned by the deposit
of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place
the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return
the furniture, because the defendant wanted to retain the three gas heaters and the four
electric lamps.
3. ID.; ID.; VALUE OF FURNITURE. — AS to the value of the furniture. we do not
believe that the plaintiff is entitled to the payment thereof by the defendant in case of
his inability to return some of the furniture, because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to nor admitted the correctness
of the said value. Should the defendant fail to deliver some of the furniture, the value
thereof should be later determined by the trial Court through evidence which the parties
may desire to present.
4. COSTS OF LITIGATION. — The costs in both instances should be borne by
the defendant because the plaintiff is the prevailing party (section 487 of the Code of
Civil Procedure). The defendant was the one who breached the contract of
Commodatum, and without any reason he refused to return and deliver all the furniture
upon the plaintiff's demand. In these circumstances, it is just and equitable that he pay
the legal expenses and other judicial costs which the plaintiff would not have otherwise
defrayed.

DECISION
IMPERIAL , J : p
The plaintiff brought this action to compel the defendant to return to her certain
furniture which she lent him for his use. She appealed from the judgment of the Court of
First Instance of Manila which ordered that the defendant return to her the three gas
heaters and the four electric lamps found in the possession of the Sheriff of said city,
that she call for the other furniture from the said Sheriff of Manila at her own expense,
and that the fees which the sheriff may charge for the deposit of the furniture be paid
pro rata by both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's
house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the
contract of lease between the plaintiff and the defendant, the former gratuitously
granted to the latter the use of the furniture described in the third paragraph of the
stipulation of facts, subject to the condition that the defendant would return them to
the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and
Rosario Lopez and on September 14, 1936, these three noti ed the defendant of the
conveyance, giving him sixty days to vacate the premises under one of the clauses of
the contract of lease. There after the plaintiff required the defendant to return all the
furniture transferred to him for his use. The defendant answered that she may call for
them in the house where they are found. On November 5, 1936, the defendant, through
another person, wrote to the plaintiff reiterating that she may call for the furniture in the
ground oor of the house. On the 7th of the same month, the defendant wrote another
letter to the plaintiff informing her that he could not give up the three gas heaters and
the four electric lamps because he would use them until the 15th of the same month
when the lease is due to expire. The plaintiff refused to get the furniture in view of the
fact that the defendant had declined to make delivers of all of them. On November 15th,
before vacating the house, the defendant deposited with the Sheriff all the furniture
belonging to the plaintiff and they are now on deposit in the warehouse situated at No.
1521, Rizal Avenue. in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly
applied the law: in holding that they violated the contract by not calling for all the
furniture on November 5, 1936, when the defendant placed them at their disposal; in
not ordering the defendant to pay them the value of the furniture in case they are not
delivered; in holding that they should get all the furniture from the sheriff at their
expenses; in ordering them to pay one-half of the expenses claimed by the Sheriff for
the deposit of the furniture; in ruling that both parties should pay their respective legal
expenses or the costs; and in denying the motions for reconsideration and new trial. To
dispose of the case, it is only necessary to decide whether the defendant complied with
his obligation to return the furniture upon the plaintiff's demand; whether the latter is
bound to bear the deposit fees thereof, and whether she is entitled to the costs of
litigation.
The contract entered into between the parties is one of commodatum, because
under it the plaintiff gratuitously granted the use of the furniture to the defendant,
reserving for herself the ownership thereof; by this contract the defendant bound
himself to return the furniture to the plaintiff, upon the latter's demand (clause 7 of the
contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code) The
obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should return all of them to the plaintiff at the latter's
residence or house. The defendant did not comply with this obligation when he merely
placed them at the disposal of the plaintiff, retaining for his bene t the three gas
heaters and the four electric lamps. The provisions of article 1169 of the Civil Code
cited by counsel for the parties are not squarely applicable. The trial court, therefore,
erred when it came to the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the
plaintiff, upon the latter's demand, the Court could not legally compel her to bear the
expenses occasioned by the deposit of the furniture at the defendant's behest. The
latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff
under a duty to accept the offer to return the furniture, because the defendant wanted
to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to
the payment thereof by the defendant in case of his inability to return some of the
furniture, because under paragraph 6 of the stipulation of facts, the defendant has
neither agreed to nor admitted the correctness of the said value. Should the defendant
fail to deliver some of the furniture, the value thereof should be later determined by the
trial Court through evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because the
plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). The
defendant was the one who breached the contract of commodatum, and without any
reason he refused to return and deliver all the furniture upon the plaintiff's demand. In
these circumstances, it is just and equitable that he pay the legal expenses and other
judicial costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modi ed and the defendant is ordered to return and
deliver to the plaintiff, in the residence or house of the latter, all the furniture described
in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be
occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for
the account of the defendant. The defendant shall pay the costs in both instances. So
ordered.
Avanceña, C.J., Villa-Real, Diaz, Laurel, Concepcionand Moran, JJ., concur.

FIRST DIVISION
[G.R. No. 114286. April 19, 2001.]
THE CONSOLIDATED BANK AND TRUST CORPORATION

(SOLIDBANK) , petitioner, vs . THE COURT OF APPEALS,
CONTINENTAL CEMENT CORPORATION, GREGORY T.. LIM and
SPOUSE , respondents.
DECISION
YNARES-SANTIAGO , J : p
The instant petition for review seeks to partially set aside the July 26, 1993 Decision 1 of
respondent Court of Appeals in CA-G.R. CV No. 29950, insofar as it orders petitioner to
reimburse respondent Continental Cement Corporation the amount of P490,228.90 with
interest thereon at the legal rate from July 26, 1988 until fully paid. The petition also seeks
to set aside the March 8, 1994 Resolution 2 of respondent Court of Appeals denying its
Motion for Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent
Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner
Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount
of P1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of
P320,445.00 to petitioner. The letter of credit was used to purchase around five hundred
thousand liters of bunker fuel oil from Petrophil Corporation, which the latter delivered
directly to respondent Corporation in its Bulacan plant. In relation to the same transaction,
a trust receipt for the amount of P1,001,520.93 was executed by respondent Corporation,
with respondent Lim as signatory.
Claiming that respondents failed to turn over the goods covered by the trust receipt or the
proceeds thereof, petitioner filed a complaint for sum of money with application for
preliminary attachment 3 before the Regional Trial Court of Manila. In answer to the
complaint, respondents averred that the transaction between them was a simple loan and
not a trust receipt transaction, and that the amount claimed by petitioner did not take into
account payments already made by them. Respondent Lim also denied any personal
liability in the subject transactions. In a Supplemental Answer, respondents prayed for
reimbursement of alleged overpayment to petitioner of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on the following issues:
1) Whether or not the transaction involved is a loan transaction or a trust
receipt transaction;
2) Whether or not the interest rates charged against the defendants by the
plaintiff are proper under the letter of credit, trust receipt and under existing rules
or regulations of the Central Bank;
3) Whether or not the plaintiff properly applied the previous payment of
P300,456.27 by the defendant corporation on July 13, 1982 as payment for the
latter's account; and
4) Whether or not the defendants are personally liable under the transaction
sued for in this case. 4
On September 17, 1990, the trial court rendered its Decision, 5 dismissing the Complaint
and ordering petitioner to pay respondents the following amounts under their
counterclaim: P490,228.90 representing overpayment of respondent Corporation, with
interest thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as
attorney's fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by
deleting the award of attorney's fees in favor of respondents and, instead, ordering
respondent Corporation to pay petitioner P37,469.22 as and for attorney's fees and
litigation expenses.
Hence, the instant petition raising the following issues:
1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED
INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT
THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE
PETITIONER IN THE AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF
ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS
APPLICATION OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL
CODE.
2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL
DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE
WITH BANKING PRACTICE.
3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE

FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE
JURISPRUDENCE AND THE RULES AND REGULATIONS OF THE CENTRAL
BANK.
4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY

ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST
RECEIPT TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS
OF THE PRIVATE RESPONDENTS AND FOR WHICH RESPONDENTS ARE
LIABLE THEREFOR.
5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY

ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE
UNDER THE TRUST RECEIPT TRANSACTION. 6
The petition must be denied.

On the first issue respecting the fact of overpayment found by both the lower court and
respondent Court of Appeals, we stress the time-honored rule that findings of fact by the
Court of Appeals especially if they affirm factual findings of the trial court will not be
disturbed by this Court, unless these findings are not supported by evidence. 7
Petitioner decries the lack of computation by the lower court as basis for its ruling that
there was an overpayment made. While such a computation may not have appeared in the
Decision itself, we note that the trial court's finding of overpayment is supported by
evidence presented before it. At any rate, we painstakingly reviewed and computed the
payments together with the interest and penalty charges due thereon and found that the
amount of overpayment made by respondent Bank to petitioner, i.e., P563,070.13, was
more than what was ordered reimbursed by the lower court. However, since respondents
did not file an appeal in this case, the amount ordered reimbursed by the lower court
should stand.
Moreover, petitioner's contention that the marginal deposit made by respondent
Corporation should not be deducted outright from the amount of the letter of credit is
untenable. Petitioner argues that the marginal deposit should be considered only after
computing the principal plus accrued interests and other charges. However, to sustain
petitioner on this score would be to countenance a clear case of unjust enrichment, for
while a marginal deposit earns no interest in favor of the debtor-depositor, the bank is not
only able to use the same for its own purposes, interest-free, but is also able to earn
interest on the money loaned to respondent Corporation. Indeed, it would be onerous to
compute interest and other charges on the face value of the letter of credit which the
petitioner issued, without first crediting or setting off the marginal deposit which the
respondent Corporation paid to it. Compensation is proper and should take effect by
operation of law because the requisites in Article 1279 of the Civil Code are present and
should extinguish both debts to the concurrent amount. 8
Hence, the interests and other charges on the subject letter of credit should be computed
only on the balance of P681,075.93, which was the portion actually loaned by the bank to
respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside as invalid
the floating rate of interest exhorted by petitioner to be applicable. The pertinent provision
in the trust receipt agreement of the parties fixing the interest rate states:
I, WE jointly and severally agree to any increase or decrease in the interest rate
which may occur after July 1, 1981, when the Central Bank floated the interest
rate, and to pay additionally the penalty of 1% per month until the amount/s or
installment/s due and unpaid under the trust receipt on the reverse side hereof
is/are fully paid. 9
We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there
being no reference rate set either by it or by the Central Bank, leaving the determination
thereof at the sole will and control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic
conditions, for banks to stipulate that interest rates on a loan not be fixed and instead be
made dependent upon prevailing market conditions, there should always be a reference
rate upon which to peg such variable interest rates. An example of such a valid variable
interest rate was found in Polotan, Sr. v. Court of Appeals. 1 0 In that case, the contractual
provision stating that "if there occurs any change in the prevailing market rates, the new
interest rate shall be the guiding rate in computing the interest due on the outstanding
obligation without need of serving notice to the Cardholder other than the required posting
on the monthly statement served to the Cardholder" 1 1 was considered valid. The
aforequoted provision was upheld notwithstanding that it may partake of the nature of an
escalation clause, because at the same time it provides for the decrease in the interest
rate in case the prevailing market rates dictate its reduction. In other words, unlike the
stipulation subject of the instant case, the interest rate involved in the Polotan case is
designed to be based on the prevailing market rate. On the other hand, a stipulation
ostensibly signifying an agreement to "any increase or decrease in the interest rate,"
without more, cannot be accepted by this Court as valid for it leaves solely to the creditor
the determination of what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent Corporation
is really a trust receipt transaction instead of merely a simple loan, as found by the lower
court and the Court of Appeals.
The recent case of Colinares v. Court of Appeals 1 2 appears to be foursquare with the
facts obtaining in the case at bar. There, we found that inasmuch as the debtor received
the goods subject of the trust receipt before the trust receipt itself was entered into, the
transaction in question was a simple loan and not a trust receipt agreement. Prior to the
date of execution of the trust receipt, ownership over the goods was already transferred to
the debtor. This situation is inconsistent with what normally obtains in a pure trust receipt
transaction, wherein the goods belong in ownership to the bank and are only released to
the importer in trust after the loan is granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods
subject of the trust receipt occurred long before the trust receipt itself was executed.
More specifically, delivery of the bunker fuel oil to respondent Corporation's Bulacan plant
commenced on July 7, 1982 and was completed by July 19, 1982. 1 3 Further, the oil was
used up by respondent Corporation in its normal operations by August, 1982. 1 4 On the
other hand, the subject trust receipt was only executed nearly two months after full
delivery of the oil was made to respondent Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a trust receipt transaction was explained in
Colinares, to wit:
The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or
goods to the prejudice of another regardless of whether the latter is the owner.
Here, it is crystal clear that on the part of Petitioners there was neither dishonesty
nor abuse of confidence in the handling of money to the prejudice of PBC.
Petitioners continually endeavored to meet their obligations, as shown by several
receipts issued by PBC acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating
the money for their personal use. The mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved to be present in
Petitioners' situation. Petitioners employed no artifice in dealing with PBC and
never did they evade payment of their obligation nor attempt to abscond. Instead,
Petitioners sought favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods
for re-sale, contrary to the express provision embodied in the trust receipt. They
are contractors who obtained the fungible goods for their construction project. At
no time did title over the construction materials pass to the bank, but directly to
the Petitioners from CM Builders Centre. This impresses upon the trust receipt in
question vagueness and ambiguity, which should not be the basis for criminal
prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to facilitate
collection of loans and place them under the threats of criminal prosecution
should they be unable to pay it may be unjust and inequitable, if not
reprehensible. Such agreements are contracts of adhesion which borrowers have
no option but to sign lest their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks, and is prone to
misinterpretation, as had happened in this case. Eventually, PBC showed its true
colors and admitted that it was only after collection of the money, as manifested
by its Affidavit of Desistance.
Similarly, respondent Corporation cannot be said to have been dishonest in its dealings
with petitioner. Neither has it been shown that it has evaded payment of its obligations.
Indeed, it continually endeavored to meet the same, as shown by the various receipts
issued by petitioner acknowledging payment on the loan. Certainly, the payment of the
sum of P1,832,158.38 on a loan with a principal amount of only P681,075.93 negates any
badge of dishonesty, abuse of confidence or mishandling of funds on the part of
respondent Corporation, which are the gravamen of a trust receipt violation. Furthermore,
respondent Corporation is not an importer which acquired the bunker fuel oil for re-sale; it
needed the oil for its own operations. More importantly, at no time did title over the oil
pass to petitioner, but directly to respondent Corporation to which the oil was directly
delivered long before the trust receipt was executed. The fact that ownership of the oil
belonged to respondent Corporation, through its President, Gregory Lim, was
acknowledged by petitioner's own account officer on the witness stand, to wit:
Q After the bank opened a letter of credit in favor of Petrophil Corp. for the
account of the defendants thereby paying the value of the bunker fuel oil
what transpired next after that?
A Upon purchase of the bunker fuel oil and upon the requests of the
defendant possession of the bunker fuel oil were transferred to them.
Q You mentioned them to whom are you referring to?

A To the Continental Cement Corp. upon the execution of the trust receipt
acknowledging the ownership of the bunker fuel oil this should be
acceptable for whatever disposition he may make.
Q You mentioned about acknowledging ownership of the bunker fuel oil to
whom by whom?
A By the Continental Cement Corp.
Q So by your statement who really owns the bunker fuel oil?

ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in favor of Continental
Cement Corp. so that question has already been answered.
ATTY. BAÑAGA:
That is why I made a follow up question asking ownership of the bunker fuel
oil.
COURT:
Proceed.
ATTY. BAÑAGA:
Q Who owns the bunker fuel oil after purchase from Petrophil Corp.?
A Gregory Lim. 1 5
By all indications, then, it is apparent that there was really no trust receipt transaction that
took place. Evidently, respondent Corporation was required to sign the trust receipt simply
to facilitate collection by petitioner of the loan it had extended to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be
personally liable under the subject trust receipt. Petitioner's argument that respondent
Corporation and respondent Lim and his spouse are one and the same cannot be
sustained. The transactions sued upon were clearly entered into by respondent Lim in his
capacity as Executive Vice President of respondent Corporation. We stress the hornbook
law that corporate personality is a shield against personal liability of its officers. Thus, we
agree that respondents Gregory T. Lim and his spouse cannot be made personally liable
since respondent Lim entered into and signed the contract clearly in his official capacity as
Executive Vice-President. The personality of the corporation is separate and distinct from
the persons composing it. 1 6
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The
Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is
AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno and Kapunan, JJ., concur.
Pardo, J., took no part.
Footnotes
1. Penned by Associate Justice Cezar D. Francisco and concurred in by Associate Justices

Gloria C. Paras and Buenaventura J. Guerrero; Petition for Review, Annex "B"; Rollo, pp.
76-93.
2. Petition for Review, Annex "C"; Rollo, p. 95.
3. Docketed as Civil Case No. 86-38396; Record, pp. 1-11.
4. Pre-Trial Order, p. 3; Record, p. 236.
5. Penned by then Presiding Judge Bernardo P. Pardo, now Associate Justice of this Court;
Record, pp. 435-438.
6. Petition for Review, pp. 10-11; Rollo, pp. 17-18.

7. Bañas, Jr. v. Court of Appeals, G.R. No. 102967, 10 February 2000, citing Guerrero v.
Court of Appeals, 285 SCRA 670 [1998] and Sta. Maria v. Court of Appeals, 285 SCRA
351 [1998].
8. Civil Code, Art. 1290; Abad v. Court of Appeals, 181 SCRA 191 [1990].
9. Exhibit "A".
10. 296 SCRA 247 [1998].

11. Emphasis ours.
12. G.R. No. 90828, 5 September 2000.
13. TSN, 19 April 1989, p. 9; Exhibits "9" and "10"; Record, pp. 301-302.
14. Ibid., p. 12.
15. TSN, 12 April 1989, pp. 4-5.
16. FCY Construction Group, Inc. v. Court of Appeals, 324 SCRA 270 [2000], citing Rustan
Pulp and Paper Mills, Inc. vs. Intermediate Appellate Court, 214 SCRA 665, 672 [1992].

EN BANC
[G.R. No. L-20240. December 31, 1965.]
REPUBLIC OF THE PHILIPPINES , plaintiff-appellee, vs. JOSE

GRIJALDO , defendant-appellant.
Solicitor General for plaintiff-appellee.

Isabelo P. Samson for defendants-appellant.
SYLLABUS
1. OBLIGATIONS AND CONTRACTS; CROP LOANS OBTAINED FROM THE BANK OF

TAIWAN, LTD.; RIGHT OF PHILIPPINE GOVERNMENT TO COLLECT THE LOANS. — In 1943,
appellant obtained crop loans from the Bank of Taiwan, Ltd., Bacolod City Branch
evidenced by promissory notes. To secure payment of the loans, appellant executed a
chattel mortgage over the standing crops on his land. After the war, the Republic of the
Philippines brought the present action to collect from appellant the unpaid account Held: It
is true that the Bank of Taiwan, Ltd. was the original creditor and the transaction between
the appellant and the Bank of Taiwan was a private contract of loans. However, pursuant to
the Trading with the Enemy Act, as amended, and Executive Order No. 9095 of the United
States; and under Vesting Order No. P-4, dated January 21, 1946, the properties of the
Bank of Taiwan, Ltd., an entity which was declared to be under the jurisdiction of the enemy
country (Japan), were vested in the United States Government. Pursuant, further, to the
Philippine Property Act of 1946 and Transfer Agreement dated July 20, 1954 and June 15,
1957, between the United States Government and the Republic of the Philippines, the
assets of the Bank of Taiwan, Ltd., were transferred to and vested in the Republic of the
Philippines. The successive transfers of the rights over the loans in question from the Bank
of Taiwan, Ltd. to the United States Government, and from the United States Government
to the government of the Republic of the Philippines, made the Republic of the Philippines
the successor of the rights, title and interest in said loans, thereby creating a privity of
contract between the appellee and the appellant.
2. ID.; ID,; ID.; DESTRUCTION OF CROP THROUGH ENEMY ACTION; EFFECT ON THE
OBLIGATION. — Appellant maintains, in support of his contention that the appellee has no
cause of action, that because the loans were secured by a chattel mortgage on the
standing crops on the land owned by him and those crops were lost or destroyed through
enemy action his obligation to pay the loans was thereby extinguished. Held: This
argument is untenable. The obligation of the appellant under the promissory notes was not
to deliver a determinate thing; namely, the crops to be harvested from his land, but to pay a
generic thing - the amount of money representing the total sum of his loans, with interest.
The chattel mortgage on the crops simply stood as a security for the fulfillment of
appellant's obligation covered by the promissory notes, and the loss of the crops did not
extinguish his obligation to pay, because the account could still be paid from other
sources aside from the mortgaged crops.
3. ID.; ID.; ID.; PRESCRIPTION OF ACTIONS; PRESCRIPTION DOES NOT RUN AGAINST
THE GOVERNMENT. — The complaint in the present case was brought by the Republic of
the Philippines not as a nominal party but in the exercise of its sovereign functions, to
protect the interests of the State over a public property. This Court has held that the
statute of limitations does not run against the right of action of the Government of the
Philippines (Government of the Philippine Islands vs. Monte de Piedad, etc., 35 Phil. 738-
751).
4. ID.; ID.; ID.; ID.; EFFECT OF MORATORIUM LAWS. — Moreover, the running of the
period of prescription of the action to collect the loan from the appellant was interrupted
by the moratorium laws (Executive Order No. 25, dated November 18, 1944; Executive
Order No. 32, dated March 10, 1945; and Republic Act No. 342 approved on July 26, 1948).
Computed accordingly, the prescriptive period was suspended for 8 years and 6 months.
Hence, appellee's action had not yet prescribed.
5. ID.; ID.; ID.; PAYMENT IN JAPANESE WAR NOTES; APPLICATION OF BALLANTYNE
SCALE OF VALUE. — Contracts stipulating for payments presumably in Japanese war
notes may be enforced after the liberation to the extent of the just obligation of the
contracting parties and, as said notes have become worthless, in order that justice may be
done and the party entitled to be paid can recover their actual value in Philippine Currency,
what the debtor or defendant bank should return or pay is the value of the Japanese
military notes in relation to the peso in Philippine Currency obtaining on the date when and
at the place where the obligation was incurred unless the parties had agreed otherwise.
(Hilado vs. De la Costa, L-150, April 30, 1950, 46 Off. Gaz. 5472.)
DECISION
ZALDIVAR , J : p
In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the
Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate
of 6% per annum, compounded quarterly. These loans are evidenced by five promissory
notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1,
1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on August 9, 1943,
P300.00; on August 13, 1943, P200.00, all notes without due dates, but because the loans
were crop loans it was considered that the loans were due one year after they were
incurred. To secure the payment of the loans the appellant executed a chattel mortgage on
the standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigaran,
Negros Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority
provided for in the Trading with the Enemy Act, as amended, the assets in the Philippines
of the Bank of Taiwan, Ltd. were vested in the Government of the United States. Pursuant
to the Philippine Property Act of 1946 of the United States, these assets, including the
loans in question, were subsequently transferred to the Republic of the Philippines by the
Government of the United States under Transfer Agreement dated July 20, 1954. These
assets were among the properties that were placed under the administration of the Board
of Liquidators created under Executive Order No. 372, dated November 24, 1950, and in
accordance with Republic Act Nos. 8 and 477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the
Chairman of the Board of Liquidators, made a written extra-judicial demand upon the
appellant for the payment of the account in question. The record shows that the appellant
had actually received the written demand for payment, but he failed to pay.
The aggregate amount due as principal of the five loans in question, computed under the
Ballantyne scale of values as of the time that the loans were incurred in 1943, was
P889.64; and the interest due thereon at the rate of 6% per annum compounded quarterly,
computed as of December 31, 1959 was P1,457.39; so that the total account as of
December 31, 1959 was P2,377.23.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of
Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in question.
The Justice of the Peace of Hinigaran, after hearing, dismissed the case on the ground that
the action had prescribed. The appellee appealed to the Court of First Instance of Negros
Occidental and on March 26, 1962 the court a quo rendered a decision ordering the
appellant to pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest
at the rate of 6% per annum compounded quarterly from the date of the filing of the
complaint until full payment was made. The appellant was also ordered to pay the sum
equivalent to 10% of the amount due as attorney's fees and the costs.
The appellant appealed directly to this Court. During the pendency of this appeal the
appellant Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a
resolution of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon
and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo, to appear and be substituted
as appellants in accordance with Section 17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no cause of action
against the appellant; (2) that if the appellee has cause of action at all, that action had
prescribed; and (3) that the lower court erred in ordering the appellant to pay the amount
of P2,377.23.
In discussing his first point of contention, the appellant maintains that the appellee has no
privity of contract with the appellant. It is claimed that the transaction involved in this case
was a private transaction between the Taiwan Bank, Ltd. and the appellant, so that the
appellee, Republic of the Philippines, could not legally bring action against the appellant for
the enforcement of the obligation involved in said transaction. This contention has no
merit. It is true that the Bank of Taiwan, Ltd. was the original creditor and the transaction
between the appellant and the Bank of Taiwan was a private contract of loan. However,
pursuant to the Trading with the Enemy Act, as amended, and Executive Order No. 9095 of
the United States; and under Vesting Order No. P-4, dated January 21, 1946, the properties
of the Bank of Taiwan, Ltd., an entity which was declared to be under the jurisdiction of the
enemy country (Japan), were vested in the United States Government. Pursuant, further, to
the Philippine Property Act of 1946 and Transfer Agreements dated July 20, 1954 and
June 1957, between the United States Government and the Republic of the Philippines, the
assets of the Bank of Taiwan, Ltd. were transferred to and vested in the Republic of the
Philippines. The successive transfers of the rights over the loans in question from the Bank
of Taiwan, Ltd. to the United States Government, and from the United States Government
to the government of the Republic of the Philippines, made the Republic of the Philippines
the successor of the rights, title and interests in said loans, thereby creating a privity of
contract between the appellee and the appellant. In defining the word "privy" this Court, in a
case, said:
"The word `privy' denotes the idea of succession . . . hence, an

assignee of a credit, and one subrogated to it, etc. will be privies; in short, he
who, by succession is placed in the position of one of those who contracted
the juridical relation and executed the private document and appears to be
substituting him in his personal rights and obligation is a privy" (Alpuerto vs.
Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power seized the assets of
the Bank of Taiwan, Ltd. which belonged to an enemy country. The confiscation of the
assets of the Bank of Taiwan, Ltd. being an involuntary act of war, and sanctioned by
international law, the United States succeeded to the rights and interests of said Bank of
Taiwan, Ltd. over the assets of said bank. As successor in interest in, and transferee of, the
property rights of the United States of America over the loans in question, the Republic of
the Philippines had thereby become a privy to the original contracts of loan between the
Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the
Philippines has a legal right to bring the present action against the appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the appellee has no
cause of action, that because the loans were secured by a chattel mortgage on the
standing crops on a land owned by him and those crops were lost or destroyed through
enemy action his obligation to pay the loans was thereby extinguished. This argument is
untenable. The terms of the promissory notes and the chattel mortgage that the appellant
executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The
obligation of the appellant under the five promissory notes was not to deliver a
determinate thing; namely, the crops to be harvested from his land, or the value of the
crops that would be harvested from his land. Rather, his obligation was to pay a generic
thing the amount of money representing the total sum of the five loans, with interest. The
transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five
contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the
parties delivers to another . . . money or other consumable thing upon the condition that
the same amount of the same kind and quality shall be paid." (Article 1933, Civil Code.) The
obligation of the appellant under the five promissory notes evidencing the loans in
question is to pay the value thereof; that is, to deliver a sum of money — a clear case of an
obligation to deliver a generic thing. Article 1263 of the Civil Code provides:
"In an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation."
The chattel mortgage on the crops growing on appellant's land simply stood as a security
for the fulfillment of appellant's obligation covered by the five promissory notes, and the
loss of the crops did not extinguish his obligation to pay, because the account could still
be paid from other sources aside from the mortgaged crops.
In his second point of contention, the appellant maintains that the action of the appellee
had prescribed. The appellant points out that the loans became due on June 1, 1944; and
when the complaint was filed on January 17, 1961 a period of more than 16 years had
already elapsed — far beyond the period of ten years when an action based on a written
contract should be brought to court.
This contention of the appellant has no merit. Firstly, it should be considered that the
complaint in the present case was brought by the Republic of the Philippines not as a
nominal party but in the exercise of its sovereign functions, to protect the interests of the
State over a public property. Under paragraph 4 of Article 1108 of the Civil Code
prescription, both acquisitive and extinctive, does not run against the State. This Court has
held that the statute of limitations does not run against the right of action of the
Government of the Philippines (Government of the Philippine Islands vs. Monte de Piedad,
etc. 35 Phil. 738-751). Secondly, the running of the period of prescription of the action to
collect the loan from the appellant was interrupted by the moratorium laws (Executive
Order No. 25, dated November 18, 1944; Executive Order No. 32, dated March 10, 1945;
and Republic Act No. 342, approved on July 26, 1948). The loan in question, as evidenced
by the five promissory notes, were incurred in the year 1943, or during the period of
Japanese occupation of the Philippines. This case is squarely covered by Executive Order
No. 25, which became effective on November 18, 1944, providing for the suspension of
payments of debts incurred after December 31, 1941. The period of prescription was,
therefore, suspended beginning November 18, 1944. This Court, in the case of Rutter vs.
Esteban (L-3708, May 18, 1953; 93 Phil. 68), declared on May 18, 1953 that the
Moratorium Laws, R.A. No. 342 and Executive Order Nos. 25 and 32, are unconstitutional;
but in that case this Court ruled that the moratorium laws had suspended the prescriptive
period until May 18, 1953. This ruling was categorically reiterated in the decision in the
case of Manila Motors vs. Flores, L-9396, August 16, 1956. It follows, therefore, that the
prescriptive period in the case now before Us was suspended from November 18, 1944,
when Executive Order No. 25 took effect, until May 18, 1953 when R.A. 342 along with
Executive Order Nos. 25 and 32 were declared unconstitutional by this Court. Computed
accordingly, the prescriptive period was suspended for 8 years and 6 months. By the
appellant's own admission, the cause of action on the five promissory notes in question
arose on June 1, 1944. The complaint in the present case was filed on January 17, 1961, or
after a period of 16 years 6 months and 16 days when the cause of action arose. If the
prescriptive period was not interrupted by the moratorium laws, the action would have
prescribed already; but, as We have stated, the prescriptive period was suspended by the
moratorium laws for a period of 8 years and 6 months. If we deduct the period of
suspension (8 years and 6 months) from the period that elapsed from the time the cause
of action arose to the time when the complaint was filed (16 years, 6 months and 16 days)
there remains a period of 8 years and 16 days. In other words, the prescriptive period run
for only 8 years and 16 days. There still remained a period of one year, 11 months and 14
days of the prescriptive period when the complaint was filed.
In his third point of contention the appellant maintains that the lower court erred in
ordering him to pay the amount of P2,377.23. It is claimed by the appellant that it was an
error on the part of the lower court to apply the Ballantyne Scale of values in evaluating the
Japanese war notes as of June 1943 when the loans were incurred, because what should
be done is to evaluate the loans on the basis of the Ballantyne scale as of the time the
loans became due, and that was in June 1944. This contention of the appellant is also
without merit.
The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of
December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly from
the date of the filing of the complaint, The sum total of the five loans obtained by the
appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed
under the Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in Japanese
war notes in June 1943 is equivalent to P889.64 in genuine Philippine Currency. It is this
amount of P889.64 in genuine Philippine Currency which was considered the aggregate
amount due as principal of the five loans, and the amount of P2,377.23 as of December 31,
1959 was arrived at after computing the interest on the principal sum of P889.64
compounded quarterly from the time the obligations were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of value should be applied as of the
time the obligation was incurred, and that was in June 1943. This stand of the appellee
was upheld by the lower court; and the decision of the lower court is supported by the
ruling of this Court in the case of Hilado vs. De la Costa (83 Phil. 471; 46 O. G., 5472),
which states:
". . . Contracts stipulating for payments presumably in Japanese war
notes may be enforced in our Courts after the liberation to the extent of the
just obligation of the contracting parties and, as said notes have become
worthless, in order that justice may be done and the party entitled to be paid
can recover their actual value in Philippine Currency, what the debtor or
defendant bank should return or pay is the value of the Japanese military
notes in relation to the peso in Philippine Currency obtaining on the date
when and at the place where the obligation was incurred unless the parties
had agreed otherwise. . . ." (italics supplied)
IN VIEW OF THE VIEW FOREGOING, the decision appealed from is affirmed, with costs
against the appellant. Inasmuch as the appellant Jose Grijaldo died during the pendency of
this appeal, his estate must answer in the execution of the judgment in the present case.
Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo, Reyes, J.B.L., Dizon, Makalintal
and Bengzon, J.P., JJ., concur.

FIRST DIVISION
[G.R. No. 96494. May 28, 1992.]
CASA FILIPINA DEVELOPMENT CORPORATION , petitioner, vs. THE

DEPUTY EXECUTIVE SECRETARY, OFFICE OF THE PRESIDENT,
MALACAÑANG, MANILA, AND JOSE VALENZUELA, JR. , respondents.
SYLLABUS
1. REMEDIAL LAW; ACTIONS; ESTOPPEL; PRINCIPLE APPLIED IN CASE AT BAR. —

Petitioner is already estopped from raising this issue because in its appeal memorandum
submitted before the HLURB, it pleaded that: "5. Appellant prays that it be given a
period/time to redeem the title or the demand for issuance of title be suspended from the
ComSavings Bank before any deed of absolute sale be executed so that the Transfer
Certificate of Title be issued and/or refund be ordered."
2. ID.; EVIDENCE; FINDINGS OF FACT OF ADMINISTRATIVE BODIES ACCORDED
RESPECT ON APPEAL. — The OAALA found as a fact that "the complainant-appellee was
ready, willing and able to pay for the expenses for the transfer of title as stipulated in the
Contract to Sell . . . ." We accord respect and finality to this finding (Filipinas Manufacturers
Bank v. NLRC, et al., G.R. No. 72805, February 28, 1990, 182 SCRA 848; Vda. de Pineda, et
al. v. Peña, etc., et al., G.R. No. 57665, July 2, 1990, 187 SCRA 22).
3. CIVIL LAW; DAMAGES; RATE OF INTEREST FOR BREACH OF CONTRACT, HOW
DETERMINED. — The ruling in Reformina v. Tomol, it must be underscored, deals
exclusively with cases where damages in the form of interest is due but no specific rate
has been previously set by the parties. In such cases, the legal interest of 12% per annum
must be applied. In Solid Homes Inc. v. Court of Appeals (170 SCRA 63 [1989]), this
Honorable Court ruled: On the matter of interest, we agree with the trial court and the Court
of Appeals that the proper rate of interest is twelve (12%) per centum per annum, which is
the rate of interest expressly agreed upon in writing by the parties, as appearing in the
invoices, and sanctioned by Art. 2209 of the Civil Code, . . . It is, thus, evident that if a
particular rate of interest has been expressly stipulated by the parties, that interest, not the
legal rate of interest, shall be applied.
4. ID.; PRESIDENTIAL DECREE NO. 957 (REGULATING THE SALE OF SUBDIVISION
LOTS AND CONDOMINIUMS); REDEMPTION OF MORTGAGE WITHIN SIX (6) MONTHS
FROM ISSUANCE; ISSUANCE OF TITLE, NOT A PREREQUISITE TO THE RUNNING OF
PERIOD. — Section 25 of P.D. No. 957 imposes an obligation on the part of the owner or
developer, in the event the mortgage over the lot or unit is outstanding at the time of the
issuance of the title to the buyer, to redeem the mortgage or the corresponding portion
thereof within six months from such issuance. We focus Our attention on the period of "six
months" to be reckoned "from the issuance of the title." Supposing there is no such
issuance of the title, as in this case, from what event is the six month period to be
counted? Or, will this period not begin to run at all unless the title has been issued? The
argument of petitioner that the issuance of the title is a prerequisite to the running of the
six month period of redemption, fails to convince Us. Otherwise, the owner or developer
can readily concoct a thousand and one reasons as justifications for its failure to issue the
title and in the process, prolong the period within which to deliver the title to the buyer free
from any liens or encumbrances. Additionally, by not issuing/delivering the title of the lot to
private respondent upon full payment thereof, petitioner has already violated the explicit
mandate of the first sentence of Section 25 of P.D. 957. If We were to count the six month
period of redemption from the belated issuance of the title, petitioner will have a lot to gain
from its own non-observance of said provision. We shall not countenance such absurdity.
DECISION
MEDIALDEA , J : p
This is a petition for review on certiorari (treated as a petition for certiorari) seeking
reversal of the decision of the Office of the President dated April 11, 1989, in O.P. Case No.
3722, entitled "Casa Filipina Development Corporation, Respondent-Appellant, v. Jose
Valenzuela, Jr., Complainant-Appellee," which affirmed the decision of the Housing and
Land Use Regulatory Board dated October 6, 1987; and its resolution dated September 26,
1989, which denied the motion for reconsideration for lack of merit.
The antecedent facts are, as follows:
On June 30, 1986, private respondent Jose Valenzuela, Jr. filed a complaint against
petitioner Casa Filipina Development Corporation before the Office of Appeals,
Adjudication and Legal Affairs (OAALA) of the then Human Settlements Regulatory
Commission (now Housing and Land Use Regulatory Board) for its failure to execute and
deliver the deed of sale and transfer certificate of title. He alleged therein that on May 2,
1984, he entered into a contract to sell with petitioner for the purchase of a 120 sq. m. lot
denominated as Lot 8, Block 9, Phase II of Casa Filipina, Sucat II, Bo. San Dionisio,
Parañaque, Metro Manila, for a total purchase price of P68,400.00 with P16,416.00 as
downpayment and the balance of P51,984.00 to be paid in 12 equal monthly installments
of P4,915.16 with 24% interest per annum starting September 3, 1984; that on October 7,
1985, he made his full and final payment under O.R. No. 6266; that despite full payment of
the lot, petitioner refused to execute the necessary deed of absolute sale and deliver the
corresponding transfer certificate of title to him; that since October 1985, he had offered
to pay for or reimburse petitioner the expenses for the transfer of the title but the latter
refused to accept the same; and that he was constrained to hire a lawyer for a fee to
protect his interests. cdrep
For petitioner's defense, it contended that private respondent's action is premature

because of his failure to comply with the other conditional requirements of their contract
such as payment of transfer expenses, and that had the latter paid said fees, it would have
been very much willing to effect the transfer of the title.
On January 21, 1987, the OAALA rendered judgment in favor of private respondent, relying
on Section 25 of Presidential Decree No. 957 (Regulating the Sale of Subdivision Lots and
Condominiums, Providing Penalties for Violations thereof), which provides:
SEC. 25. Issuance of Title — The owner or developer shall deliver the title of
the lot or unit to the buyer upon full payment of the lot or unit. No fee except those
required for the registration of the deed of sale in the Registry of Deeds, shall be
collected for the issuance of such title. In the event a mortgage over the lot or unit
is outstanding at the time of the issuance of the title to the buyer, the owner of or
developer shall redeem the mortgage or the corresponding portion thereof within
six months from such issuance in order that the title over any fully paid lot or unit
may be secured and delivered to the buyer in accordance herewith.
The dispositive portion of its decision reads (p. 19, Rollo):

"WHEREFORE, PREMISES CONSIDERED, judgment is rendered ordering
respondent, within 15 days from finality of this decision, to execute the deed of
absolute sale for Lot 8, Block 9, Phase II, Casa Filipina, Sucat II, Bo. San Dionisio,
Parañaque, Metro Manila in favor of the complainant and thereafter to bill
complainant the total amount due for the registration and transfer expenses of
the title. Respondent is further ordered, within 15 days from receipt of
complainant's payment for registration and transfer expenses, to deliver to the
latter the transfer certificate of title of subject lot free from all liens and
encumbrances. In the event respondent is unable to deliver the title to the said lot,
respondent is hereby ordered to refund (to) complainant his total payments
amounting to SEVENTY SIX THOUSAND ONE HUNDRED EIGHTY PESOS and
82/100 (P76,180.82) plus 24% interest per annum from June 30, 1986, the date of
the filing of the complaint, until fully paid. Respondent is likewise ordered to pay
complainant TWO THOUSAND PESOS (P2,000.00) by way of attorney's fees, for
compelling the latter to litigate and incur expenses in the protection of his rights.
"It is SO ORDERED."
Petitioner then filed an appeal before the Housing and Land Use Regulatory Board. In
petitioner's memorandum, it narrated the events that transpired which led to its failure to
deliver the title, namely: its original mortgagee bank was Royal Savings Bank which was
absorbed by Comsavings Bank apparently due to bankrun; Comsavings Bank is not
amenable to petitioner's earlier arrangement with Royal Savings Bank on individual
redemption of title, thus, it demanded that petitioner's obligations should be paid prior to
the release of any individual title; petitioner cannot seasonably meet such demand due to
the inability of the past administration to put up a viable and progressive economic
program that brought it into a fix situation wherein it has no participation either
intentionally or by negligence. llcd
On October 6, 1987, the HLURB dismissed petitioner's appeal for lack of merit and
affirmed in toto the questioned decision of the OAALA (p. 23, Rollo). It opined that (ibid):
". . . Suffice it to state that the payment in full by the complainant-appellee of the
purchased (sic) price of the lot should warrant the immediate deliver of the title to
the lot purchased. Section 25 of P.D. 957 clearly provides that the redemption by
the mortgagor or (sic) any mortgage (sic) property shall be within a period of six
(6) months from (the) date of issuance of the title in favor of the buyer. Obviously
from the moment full payment is made by the buyer to (sic) his purchased lot, the
maximum period contemplated by law for delivery of title is only six (6) months.
Within this period it becomes mandatory upon the owner or developer of a
subdivision to deliver (the) title of the lot buyer. In the case at bar, full payment
was made on October 7, 1985 and despite the lapse of one (1) year more or less
from (the) date of full payment, delivery of (the) title is still uncertain.
"The defense of the respondent-appellant that its failure to deliver the title
allegedly due to the inability of the past administration to put up a viable and
progressive economic program which led to the closure of the Royal Savings
Bank as its original mortgagee bank is not well-taken since there is no proof
submitted to this Board to substantiate appellant's claim. On the contrary it was
only the OAALA decision that made the respondent-appellant change its line of
justification which happened to be just an allegation which need not be passed
upon by this Board."
Petitioner appealed further to the Office of the President. Again, on April 11, 1989, its
appeal was dismissed for lack of merit and the questioned decision of the HLURB was
affirmed (p. 32, Rollo). On September 26, 1989, the motion for reconsideration was denied
for lack of merit (p. 36, Rollo). Hence, the present, petition, wherein petitioner raises the
following issues (pp. 9-10, Rollo):
"1. THE RESPONDENT DEPUTY EXECUTIVE SECRETARY, WITH DUE
RESPECT ERRED IN NOT APPLYING SETTLED JURISPRUDENCE AND THE
PROVISION OF LAW APPLICABLE IN THIS CASE."
2. THE RESPONDENT DEPUTY EXECUTIVE SECRETARY, WITH DUE

RESPECT, ERRED IN ARRIVING AT A CONCLUSION CONTRADICTORY OF (sic)
THE FACTS AND EVIDENCE, AMOUNTING TO GRAVE ABUSE OF DISCRETION."
Mainly, petitioner asseverates that in granting both remedies of specific performance and
rescission, public respondent ignored a well-pronounced rule that these remedies cannot
be availed at the same time. There is no evidence showing that private respondent had
offered to pay the expenses for the transfer of the title. Furthermore, the amount of 24%
interest imposed by the OAALA in case of refund is high and without basis: firstly, HLURB
Resolution No. R-421, series of 1988, strictly enjoins the maximum interest to be awarded
in case of refund to 12%; secondly, although condition no. 1 of their contract to sell
provides for said rate of interest, it merely applies to interest on installment payments but
not with respect to refunds; thirdly, since the contract between them is not a forbearance
of money or loan, the doctrine laid down in the case of Reformina v. Tomol, Jr., G.R. No.
59096, 139 SCRA 260 applies, that is, except where the action involves forbearance of
money or loan, interest which courts may award is only up to 12% (should be 6%). Finally,
inasmuch as issuance of the title has not yet been effected because of the take over by
Comsavings Bank of the Royal Savings Bank, the period specified under Section 25 of P.D.
No. 957 has not begun to run for the purpose of redemption. LexLib
The arguments advanced by petitioner utterly lack merit.

It is plain enough in the OAALA decision that rescission is being ordered only in the event
specific performance is not feasible. Moreover, petitioner is already estopped from raising
this issue because in its appeal memorandum submitted before the HLURB, it pleaded that
(p. 28, Rollo):
"5. Appellant prays that it be given a period/time to redeem the title or the
demand for issuance of title be suspended from the ComSavings Bank before
any deed of absolute sale be executed so that the Transfer Certificate of Title be
issued and/or refund be ordered."
The OAALA found as a fact that "the complainant-appellee for the transfer of title as
stipulated in the Contract to Sell . . ." (p. 22, Rollo). We accord respect and finality to this
finding (Filipinas Manufacturers Bank v. NLRC, et al., G.R. No. 72805, February 28, 1990,
182 SCRA 848; Vda. de Pineda, et al. v. Peña, etc., et al., G.R. No. 57665, July 2, 1990, 187
SCRA 22).
We adopt the disposition of the Office of the Solicitor General on the correct rate of
interest as Our own (pp. 124-125, Rollo):
"The ruling in Reformina v. Tomol, it must be underscored, deals exclusively with
cases where damages in the form of interest is due but no specific rate has been
previously set by the parties. In such cases, the legal interest of 12% per annum
must be applied. In the present case, however, the interest rate of 24% per annum
was mutually agreed upon by petitioner and private respondent in their contract to
sell — this was the interest rate imposed on private respondent for the payment of
the installments on the contract price and there is no reason why this same
interest rate should not be equally applied to petitioner which is guilty of violating
the reciprocal obligation.
"In Solid Homes Inc. v. Court of Appeals (170 SCRA 63 [1989]), a subdivision
owner, in violation of their Offsetting Agreement, incurred delay in the delivery of a
house and lot to the supplier of the construction materials. On review, the issue of
which rate of interest — the 6% per annum which was then the legal interest or the
stipulated interest rate of 12% — was raised. This Honorable Court ruled:
'On the matter of interest, we agree with the trial court and the Court
of Appeals that the proper rate of interest is twelve (12%) per centum per
annum, which is the rate of interest expressly agreed upon in writing by the
parties, as appearing in the invoices (Exhibits 'C' and 'D'), and sanctioned
by Art. 2209 of the Civil Code, . . .'. (Emphasis supplied)
"It is, thus, evident that if a particular rate of interest has been expressly stipulated
by the parties, that interest, not the legal rate of interest, shall be applied.
Section 25 of P.D. No. 957 imposes an obligation on the part of the owner or developer, in
the event the mortgage over the lot or unit is outstanding at the time of the issuance of the
title to the buyer, to redeem the mortgage or the corresponding portion thereof within six
months from such issuance. We focus Our attention on the period of "six months" to be
reckoned "from the issuance of the title." Supposing there is no such issuance of the title,
as in this case, from what event is the six month period to be counted? Or, will this period
not begin to run at all unless the title has been issued? The argument of petitioner that the
issuance of the title is a prerequisite to the running of the six month period of redemption,
fails to convince Us. Otherwise, the owner or developer can readily concoct a thousand and
one reasons as justifications for its failure to issue the title and in the process, prolong the
period within which to deliver the title to the buyer free from any liens or encumbrances.
Additionally, by not issuing/delivering the title of the lot to private respondent upon full
payment thereof, petitioner has already violated the explicit mandate of the first sentence
of Section 25 of P.D. No. 957. If We were to count the six month period of redemption
from the belated issuance of the title, petitioner will have a lot to gain from its own non-
observance of said provision. We shall not countenance such absurdity. Of equal
importance as the preceding ratiocination are the reasons behind the enactment of P.D.
No. 957, as expressed succinctly in its "whereas" clauses, to wit:
"WHEREAS, reports of alarming magnitude also show cases of swindling and
fraudulent manipulations perpetrated by unscrupulous subdivision and
condominium sellers and operators, such as failure to deliver titles to the buyers
or titles free from liens and encumbrances, and to pay real estate taxes, and
fraudulent sales of the same subdivision lots to different innocent purchasers for
value; Cdpr
"WHEREAS, these acts not only undermine the land and housing program of the
but also defeat the objectives of the New Society, particularly the promotion of
peace and order and the enhancement of the economic, social and moral
condition of the Filipino people;
"WHEREAS, this state of affairs has rendered it imperative that the real estate
subdivision and condominium businesses be closely supervised and regulated,
and that penalties be imposed on fraudulent practices and manipulations
committed in connection therewith."
ACCORDINGLY, the petition is hereby DISMISSED. The decision of the Office of the
President dated April 11, 1989 and its resolution dated September 26, 1989 are
AFFIRMED.
SO ORDERED.
Cruz, Griño-Aquino and Bellosillo, JJ., concur.

FIRST DIVISION
[G.R. No. 88880. April 30, 1991.]
PHILIPPINE NATIONAL BANK , petitioner, vs. THE HON. COURT OF

APPEALS and AMBROSIO PADILLA , respondents.
The Chief Legal Counsel for petitioner.

Ambrosio Padilla, Mempin & Reyes Law Offices for private respondent.
SYLLABUS
1. COMMERCIAL LAW; BANKING LAWS; RATE OF INTEREST; INCREASE OF INTEREST

RATE; NOT TO BE MADE OFTENER THAN ONCE A YEAR. — PNB, over the objection of the
private respondent, and without authority from the Monetary Board, within a period of only
four (4) months, increased the 18% interest rate on the private respondent's loan
obligation three (3) times: (a) to 32% in July 1984; (b) to 41% in October 1984; and (c) to
48% in November 1984. Those increases were null and void. Although Section 2, P.D. No.
116 of January 29, 1973, authorizes the Monetary Board to prescribe the maximum rate or
rates of interest for loans or renewal thereof and to change such rate or rates whenever
warranted by prevailing economic and social conditions, it expressly provides that "such
changes shall not be made oftener than once every twelve months. "If the Monetary Board
itself was not authorized to make such changes oftener than once a year, even less so may
a bank which is subordinate to the Board.
2. ID.; ID.; ID.; ID.; MAY BE INCREASED WITHIN LIMITS OF LAW; PNB CIRCULARS AND
RESOLUTION ARE NEITHER LAWS NOR RESOLUTIONS OF MONETARY BOARD. — While
the private respondent-debtor did agree in the Deed of Real Estate Mortgage (Exh. 5) that
the interest rate may be increased during the life of the contract "to such increase within
the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe" (Exh.
5-e-1) or "within the limits allowed by law" (Promissory Notes, Exhs. 2, 3, and 4), no laws
was ever passed in July to November 1984 increasing the interest rates on loans or
renewals thereof to 32%, 41% and 48% (per annum), and no documents were executed and
delivered by the debtor to effectuate the increases. The PNB relied on its own Board
Resolution No. 681 (Exh. 10), PNB Circular No. 40-79-84 (Exh. 13), and PNB Circular No.
40-129-84 (Exh. 15), but those resolution and circulars are neither laws nor resolutions of
the Monetary Board.
3. ID.; ID.; ID.; REMOVAL OF USURY LAW CEILING ON INTEREST RATES DOES NOT
AUTHORIZE BANKS TO UNILATERALLY AND SUCCESSIVELY INCREASE INTEREST RATES.
— CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury law ceiling on interest
rates — but it did not authorize the PNB, or any bank for that matter, to unilaterally and
successively increase the agreed interest rates from 18% to 48% within a span of four (4)
months, in violation of P.D. 116 which limits such changes to "once every twelve months."
4. ID.; ID.; ID.; UNILATERAL ACTION TO INCREASE INTEREST RATES, A VIOLATION OF
ARTICLE 1308 OF CIVIL CODE. — Besides violating P.D. 116, the unilateral action of the
PNB in increasing the interest rate on the private respondent's loan, violated the mutuality
of contracts ordained in Article 1308 of the Civil Code: "ART. 1308. The contract must bind
both contracting parties; its validity or compliance cannot be left to the will of one of
them."
5. ID.; ID.; ID.; SUCCESSIVE INCREASE OF INTEREST RATES, A VIOLATION OF ARTICLE
1956 OF CIVIL CODE. — PNB's successive increases of the interest rate on the private
respondent's loan, over the latter's protest, were arbitrary as they violated an express
provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms "may be amended
only by an instrument in writing signed by the party to be bound as burdened by such
amendment." The increases imposed by PNB also contravene Art. 1956 of the Civil Code
which provides that "no interest shall be due unless it has been expressly stipulated in
writing."
DECISION
GRIÑO-AQUINO , J : p
The Philippine National Bank (PNB) has appealed by certiorari from the decision
promulgated on June 27, 1989 by the Court of Appeals in CA-G.R. CV No. 09791 entitled,
"AMBROSIO PADILLA, plaintiff-appellant versus PHILIPPINE NATIONAL BANK, defendant-
appellee," reversing the decision of the trial court which had dismissed the private
respondent's complaint "to annul interest increases." (p. 32, Rollo.) The Court of Appeals
rendered judgment:
". . . declaring the questioned increases of interest as unreasonable, excessive and
arbitrary and ordering the defendant-appellee [PNB] to refund to the plaintiff-
appellant the amount of interest collected from July, 1984 in excess of twenty-
four percent (24%) per annum. Costs against the defendant-appellee." (pp 14-15,
Rollo.)
In July 1982, the private respondent applied for, and was granted by petitioner PNB, a
credit line of 321.8 million, secured by a real estate mortgage, for a term of two (2) years,
with 18% interest per annum. Private respondent executed in favor of the PNB a Credit
Agreement, two (2) promissory notes in the amount of P900,000.00 each, and a Real
Estate Mortgage Contract.
The Credit Agreement provided that
"9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules and
regulations of the Central Bank and the current and general policies of the Bank
and those which the Bank may adopt in the future, which may have relation to or
in any way affect the Line, which rules, regulations and policies are incorporated
herein by reference as if set forth herein in full. Promptly upon receipt of a written
request from the Bank, the Borrowers shall execute and deliver such documents
and instruments, in form and substance satisfactory to the Bank, in order to
effectuate or otherwise comply with such rules, regulations and policies." (p. 85,
Rollo.)
The Promissory Notes, in turn, uniformly authorized the PNB to increase the stipulated 18%
interest per annum "within the limits allowed by law at any time depending on whatever
policy it [PNB] may adopt in the future; Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum interest rate is
reduced by law or by the Monetary Board." (pp. 85-86, Rollo; emphasis ours.)
The Real Estate Mortgage Contract likewise provided that:
"(k) INCREASE OF INTEREST RATE
"The rate of interest charged on the obligation secured by this mortgage as well
as the interest on the amount which may have been advanced by the
MORTGAGEE, in accordance with the provisions hereof, shall be subject during
the life of this contract to such an increase within the rate allowed by law, as the
Board of Directors of the MORTGAGEE may prescribe for its debtors." (p. 86, Rollo;
emphasis supplied.)
Four (4) months advance interest and incidental expenses/charges were deducted from
the loan, the net proceeds of which were released to the private respondent by crediting or
transferring the amount to his current account with the bank. prcd
On June 20, 1984, PNB informed the private respondent that (1) his credit line of P1.8
million "will expire on July 4, 1984,"(2) "[i]f renewal of the line for another year is intended,
please submit soonest possible your request," and (3) the "present policy of the Bank
requires at least 30% reduction of principal before your line can be renewed." (pp. 86-87,
Rollo.) Complying, private respondent on June 25, 1984, paid PNB P540,000 00 (30% of
P1.8 million) and requested that "the balance of P1,260,000.00 be renewed for another
period of two (2) years under the same arrangement" and that "the increase of the interest
rate of my mortgage loan be from 18% to 21%" (p. 87, Rollo.).
On July 4, 1984, private respondent paid PNB P360,000.00.
On July 18, 1984, private respondent reiterated in writing his request that "the increase in
the rate of interest from 18% be fixed at 21% of 24%. (p. 87, Rollo.)
On July 26, 1984, private respondent made an additional payment of P100,000.
On August 10, 1984, PNB informed private respondent that "we can not give due course to
your request for preferential interest rate in view of the following reasons: Existing Loan
Policies of the bank requires 32% for loan of more than one year; our present cost of funds
has substantially increased." (pp. 8788, Rollo.)
On August 17, 1984, private respondent further paid PNB P150,000.00.
In a letter dated August 24, 1984 to PNB, private respondent announced that he would
"continue making further payments, and instead of a 'loan of more than one year,' I shall
pay the said loan before the lapse of one year or before July 4, 1985. . . . I reiterate my
request that the increase of my rate of interest from 18% 'be xed at 21% or 24%.'" (p. 88,
Rollo.)
On September 12, 1984, private respondent paid PNB P160,000.00.
In letters dated September 12, 1984 and September 13, 1984, PNB informed private
respondent that "the interest rate on your outstanding line/loan is hereby adjusted from
32% p.a. to 41% p.a. (35% prime rate + 6%) effective September 6, 1984;" and further
explained "why we can not grant your request for a lower rate of 21% or 24%." (pp. 88-89,
Rollo.)
In a letter dated September 24, 1984 to PNB, private respondent registered his protest
against the increase of interest rate from 18% to 32% on July 4, 1984 and from 32% to 41%
on September 6, 1984.
On October 15, 1984, private respondent reiterated his request that the interest rate
should not be increased from 18% to 32% and from 32% to 41%. He also attached (as
payment) a check for P140,000.00. prLL
Like rubbing salt on the private respondent's wound, the petitioner informed private
respondent on October 29, 1984, that "the interest rate on your outstanding line/loan is
hereby adjusted from 41% p.a. to 48% p.a. (42% prime rate plus 6% spread) effective 25
October 1984." (p. 89, Rollo.)
In November 1984, private respondent paid PNB P50,000.00 thus reducing his principal
loan obligation to P300,000.00.
On December 18, 1984, private respondent led in the Regional Trial Court of Manila a
complaint against PNB entitled, "AMBROSIO PADILLA vs. PHILIPPINE NATIONAL BANK"
(Civil Case No. 84-28391), praying that judgment be rendered:
"a. Declaring that the unilateral increase of interest rates from 18% to 32%, then to
41% and again to 48% are illegal, not valid nor binding on plaintiff, and that an
adjustment of his interest rate from 18% to 24% is reasonable, fair and just;
"b. The interest rate on the P900,000.00 released on September 27, 1982 be
counted from said date and not from July 4, 1984;
"c. The excess of interest payment collected by defendant bank by debiting
plaintiffs current account be refunded to plaintiff or credited to his current
account;
"d. Pending the determination of the merits of this case, a restraining order and or
a writ of preliminary injunction be issued (1) to restrain and or enjoin defendant
bank for [sic] collecting from plaintiff and/or debiting his current account with
illegal and excessive increases of interest rates; and (2) to prevent defendant
bank from declaring plaintiff in default for non-payment and from instituting any
foreclosure proceeding, extrajudicial or judicial, of the valuable commercial
property of plaintiff." (pp. 89-90, Rollo.)
In its answer to the complaint, PNB denied that the increases in interest rates were illegal,
unilateral excessive and arbitrary and recited the reasons justifying said increases.
On March 31, 1985, the private respondent paid the P300,000 balance of his obligation to
PNBN (Exh. 5).
The trial court rendered judgment on April 14, 1986, dismissing the complaint because the
increases of interest were properly made.
The private respondent appealed to the Court of Appeals. On June 27, 1989, the Court of
Appeals reversed the trial court, hence, NB's recourse to this Court by a petition for review
under Rule 45 of the Rules of Court.
The assignments of error raised in PNB's petition for review can be resolved into a single
legal issue of whether the bank, within the term of the loan which it granted to the private
respondent, may unilaterally change or increase the interest rate stipulated therein at will
and as often as it pleased.
The answer to that question is no.
In the rst place, although Section 2, PD. No. 116 of January 29, 1973, authorizes the
Monetary Board to prescribe the maximum rate or rates of interest for loans or renewal
thereof and to change such rate or rates whenever warranted by prevailing economic and
social conditions, it expressly provides that "such changes shall not be made oftener than
once every twelve months."
In this case, PNB, over the objection of the private respondent, and without authority from
the Monetary Board, within a period of only four (4) months, increased the 18% interest
rate on the private respondent's loan obligation three (3) times: (a) to 32% in July 1984; (b)
to 41% in October 1984; and (c) to 48% in November 1984. Those increases were null and
void, for if the Monetary Board itself was not authorized to make such changes oftener
than once a year, even less so may a bank which is subordinate to the Board. LLpr
Secondly, as pointed out by the Court of Appeals, while the private respondent-debtor did
agree in the Deed of Real Estate Mortgage (Exh. 5) that the interest rate may be increased
during the life of the contract "to such increase within the rate allowed by law, as the Board
of Directors of the MORTGAGEE may prescribe" (Exh. 5-e-1) or "within the limits allowed by
law" (Promissory Notes, Ex's. 2, 3, and 4), no law was ever passed in July to November
1984 increasing the interest rates on loans or renewals thereof to 32%, 41% and 48% (per
annum), and no documents were executed and delivered by the debtor to effectuate the
increases. The Court of Appeals observed.
". . . We focus Our attention rst of all on the agreement between the parties as
embodied in the following instruments, to wit: (1) Exhibit '1' — Credit Agreement
dated July 1, 1982; (2) Exhibit '2' — Promissory Note dated July 5, 1982; (3)
Exhibit '(3)' — Promissory Note dated January 3, 1983; (4) Exhibit '4' —
Promissory Note, dated December 13, 1983; and (5) Exhibit '5' — Real Estate
Mortgage contract dated July 1, 1982.
"Exhibit '1' states in its portion marked Exhibit '1-g-1':

'9 .06 Other Conditions. The Borrowers hereby agree to be bound by the
rules and regulations of the Central Bank and the current and general
policies of the Bank and those which the Bank may adopt in the future,
which may have relation to or in any way affect the Line, which rules,
regulations and policies are incorporated herein by reference as if set forth
herein in full. Promptly upon receipt of a written request from the Bank, the
Borrowers shall execute and deliver such documents and instruments, in
form and substance satisfactory to the Bank, in order to effectuate or
otherwise comply with such rules, regulations and policies.'
"Exhibits '2,' '3,' and '4' in their portions respectively marked Exhibits '2-B,' '3-B,' and
'4-B' uniformly authorize the defendant bank to increase the stipulated interest
rate of 18% per annum 'within the limits allowed by law at any time depending on
whatever policy it may adopt in the future: Provided, that, the interest rate on this
note shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board.'
"Exhibit '5' in its portion marked Exhibit '5-e-1' stipulates:

'(k) INCREASE OF INTEREST RATE
'The rate of interest charged on the obligation secured by this

mortgage as well as the interest on the amount which may have been
advanced by the MORTGAGEE, in accordance with the provisions hereof,
shall be subject during the life of this contract to such an increase within
the rate allowed by law, as the Board of Directors of the MORTGAGEE may
prescribe for its debtors.'
"Clearly, then, the agreement between the parties authorized the defendant bank
to increase the interest rate beyond the original rate of 18% per annum but 'within
the limits allowed by law' or 'within the rate allowed by law,' it being declared the
obligation of the plaintiff as borrower to execute and deliver the corresponding
documents and instruments to effectuate the increase." (pp. 11-12, Rollo.)
In Banco Filipino Savings and Mortgage Bank vs. Navarro, 15 SCRA 346 (1987), this Court
disauthorized the bank from raising the interest rate on the borrowers' loan from 12% to
17% despite an escalation clause in the loan agreement signed by the debtors authorizing
Banco Filipino "to correspondingly increase the interest rate stipulated in this contract
without advance notice to me/us in the event a law should be enacted increasing the lawful
rates of interest that may be charged on this particular kind of loan." (emphasis supplied.)
Cdpr
In the Banco Filipino case, the bank relied on Section 3 of CB Circular No. 494 dated July 1,
1976 (72 O.G. No. 3, p. 676-J) which provided that "the maximum rate of interest, including
commissions premiums, fees and other charges on loans with a maturity of more than 730
days by banking institution . . . shall be 19%."
This Court disallowed the increase for the simple reason that said "Circular No. 494,
although it has the effect of law is not a law." Speaking through Mme. Justice Ameurfina M.
Herrera, this Court held:
"It is now clear that from March 17, 1980, escalation clauses to be valid should
speci cally provide: (1) that there can be an increase in interest if increased by
law or by the Monetary Board; and (2) in order for such stipulation to be valid, it
must include a provision for reduction of the stipulated interest 'in the event that
the applicable maximum rate of interest is reduced by law or by the Monetary
Board.'" p. 111, Rollo.).
In the present case, the PNB relied on its own Board Resolution No. 681 (Exh. 10), PNB
Circular No. 40-79-84 (Exh. 13), and PNB Circular No. 40-129-84 (Exh. 15), but those
resolution and circulars are neither laws nor resolutions of the Monetary Board.
CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest
rates —
". . . increases in interest rates are not subject to any ceiling prescribed by the
Usury Law."
but it did not authorize the PNB, or any bank for that matter, to unilaterally and
successively increase the agreed interest rates from 18% to 48% within a span of four
(4) months, in violation of PD. 116 which limits such changes to "once every twelve
months."
Besides violating PD. 116, the unilateral action of the PNB in increasing the interest rate on
the private respondent's loan, violated the mutuality of contracts ordained in Article 1308
of the Civil Code:
"ART. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them."
In order that obligations arising from contracts may have the force of law between the
parties, there must be mutuality between the parties based on their essential equality. A
contract containing a condition which makes its ful llment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21
SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB
and the private respondent gave the PNB a license (although in fact there was none) to
increase the interest rate at will during the term of the loan, that license would have been
null and void for being violative of the principle of mutuality essential in contracts. It would
have invested the loan agreement with the character of a contract of adhesion, where the
parties do not bargain on equal footing, the weaker party's (the debtor) participation being
reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co.,
95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of
justice must protect against abuse and imposition.
PNB'S successive increases of the interest rate on the private respondent's loan, over the
latter's protest, were arbitrary as they violated an express provision of the Credit
Agreement (Exh. 1) Section 9.01 that its terms "may be amended only by an instrument in
writing signed by the party to be bound as burdened by such amendment." The increases
imposed by PNB also contravene Art. 1956 of the Civil Code which provides that "no
interest shall be due unless it has been expressly stipulated in writing."
The debtor herein never agreed in writing to pay the interest increases xed by the PNB
beyond 24% per annum, hence, he is not bound to pay a higher rate than that.
That an increase in the interest rate from 18% to 48% within a period of four (4) months is
excessive, as found by the Court of Appeals, is indisputable.
WHEREFORE, nding no reversible error in the decision of the Court of Appeals in CA-G.R.
CV No. 09791, the Court resolved to deny the petition for review for lack of merit, with
costs against the petitioner.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

THIRD DIVISION
[G.R. No. 76518. July 13, 1990.]
IRENE P. RELUCIO , petitioner, vs. ZEIDA B. BRILLANTE-GARFIN and

COURT OF APPEALS , respondents.
Orlando A. Martizano for petitioner.

Silvestre V. Garfin for private respondent.
RESOLUTION
FELICIANO , J : p
On 22 October 1979, private respondent Zeida B. Brillante-Gar n led a

complaint in the lower court for speci c performance with damages against
petitioner Irene P. Relucio, to compel the latter to: (a) execute, in compliance with
the Contract to Buy and Sell in question, a nal deed of sale in favor of the former
over two (2) residential subdivision lots in the Mariano Village Subdivision, Naga
City; and (b) construct paved roads on the northern and southern sides of the
lots, as well as "necessary facilities, improvements, infrastructures and other
forms of development of the subdivision area." Private respondent alleged that
the lots, which have a total contract price of P10,800.00, have already been paid
for, as she had already paid P200.00 as down payment, and had subsequently
completed payment of 128 equal monthly installments of P89.45 each
amounting to P11,450.00; that as the law allows the charging of interest only as
monetary interest or as compensatory interest, none of which have obtained in
her case, as she had never incurred in delay in the payment of installments due,
the stipulated interest of six percent (6%) per annum on the outstanding balance
is null and void; and that the amount of P650.00 representing overpayment be
returned to her.
Petitioner resisted the complaint, maintaining that private respondent,
contrary to the latter's allegations, is obliged to pay interest on the installment
payments of the unpaid outstanding balance even if paid on their "due dates" per
schedule of payments; that private respondent had actually been in arrears in the
amount of P4,269.40, representing such interest as of June 1979, which therefore
entitled petitioner to cancel the contract in question. Petitioner then prayed for
judicial af rmance of her Notarial Notice of Cancellation over the said contract in
question. prcd
The lower court ordered petitioner:

"1. To execute a deed of absolute sale of the two lots described in the complaint
in favor of the plaintiff to enable the latter to secure the corresponding certi cate
of title in her name within thirty (30) days from the finality of this Decision;
CD Technologies Asia, Inc. 2016 cdasiaonline.com

2. To construct or cause the construction of roads on the Northern and Southern
sides of the said two lots in accordance with the contract, if any, and in
conformity with the City of Naga planning ordinance relative to this case;
3. The return to the plaintiff the excess payment of P650.00, plus 6% interest per
annum from the date of the filing of the complaint; and
To pay to the plaintiff attorney's fees in the sum of P1,000.00 and the costs of
suit." 1
The Court of Appeals af rmed in A.C.-G.R. CV No. 03184 by a Decision 2

dated 17 July 1986.
Petitioner now comes to this Court, arguing that she has the right to
rescind the contract for private respondent's continued refusal to pay the monthly
installments on the contract price. cdll
Two issues are presented for resolution in this petition: (1) whether or not
private respondent has fully paid the stipulated price in the contract so as to be
entitled lawfully to demand the execution of a deed of absolute sale in her favor.
This issue in turn will depend on the question of whether or not petitioner may
validly charge interest on installment payments, notwithstanding that private
respondent had been prompt in her monthly payments; and (2) whether or not
petitioner's notice of cancellation was valid and effective.
Examination of the record shows that the questioned Contract to Buy and
Sell the subdivision lots provided for payment by private respondent of the sum
of P200.00 as downpayment, and that "the balance [of P10,600.00] shall be paid
in 180 monthly installments at P89.45 per month, including interest rate at six
percent (6%) per annum, until the purchase price is fully paid." 3 This stipulation
clearly speci ed that an interest charge of six percent (6%) per annum was
included in the monthly installment price: private respondent could not have
helped noticing that P89.45 multiplied by 180 monthly installments equals
P16,101.00, and not P10,600.00. The contract price of P10,800.00 may thus be
seen to be the cash price of the subdivision lots, that is, the amount payable if the
price of the lots were to be paid in cash and in full at the execution of the
contract; it is not the amount that the vendor will have received in the aggregate
after fteen (15) years if the vendee shall have religiously paid the monthly
installments. The installment price, upon the other hand, of the subdivision lots —
the sum total of the monthly installments (i.e., P16,101.00) — typically, as in the
instant case, has an interest component which compensates the vendor for
waiting fteen (15) years before receiving the total principal amount of
P10,600.00. Economically or nancially, P10,600.00 delivered in full today is
simply worth much more than a long series of small payments totalling, after
fteen (15) years, P10,600.00. For the vendor, upon receiving the full cash price,
could have deposited that amount in a bank, for instance, and earned interest
income which at six percent (6%) per year and for fteen (15) years, would
precisely total P5,501.00 (the difference between the installment price of
P16,101.00 — and the cash price of P10,600.00 — ) To suppose, as private
respondent argues, that mere prompt payment of the monthly installments as
they fell due would obviate application of the interest charge of six percent (6%)
per annum, is to ignore that simple economic fact. That economic fact is, of
course, recognized by law, which authorizes the payment of interest when
contractually stipulated for by the parties 4 or when implied in recognized
commercial custom or usage.
Vendor and vendee are legally free to stipulate for the payment of either the
cash price of a subdivision lot or its installment price. Should the vendee opt to
purchase a subdivision lot via the installment payment system, he is in effect
paying interest on the cash price, whether the fact and rate of such interest
payment is disclosed in the contract or not. The contract for the purchase and
sale of a piece of land on the installment payment system in the case at bar is not
only quite lawful; it also re ects a very wide spread usage or custom in our
present day commercial life. LexLib
Applying the foregoing analysis to the case at bar: when private respondent
started paying monthly installments in September 1968, the initial P89.45 was
apportioned between the principal and the interest, with P53.00 5 being allocated
to service the interest charge and P36.46 6 being credited to the principal. During
the succeeding monthly payments, however, as the outstanding balance on the
principal gradually declined, the interest component (in absolute terms)
correspondingly fell while the component credited to the principal increased
proportionately, thus amortizing the balance of the principal purchase prize as
that balance gradually declined. 7 This explains petitioner's theory of declining
balance, which unfortunately was not appreciated by both the trial and appellate
courts.
Despite private respondent's failure to fully pay the stipulated price of the
two lots in question, petitioner, however, could not validly rescind the contract not
being lawfully entitled to do so. Petitioner failed to rebut private respondents'
allegations that the former had failed to introduce required improvements in the
subdivision; the former's bare allegation that the improvements have already
been donated to the city government was not accepted by the trial court. Section
23 of Presidential Decree No. 957, otherwise known as The Subdivision and
Condominium Buyers' Protective Decree, provides:
"Section 23. Non-forfeiture of Payments. — No installment payment made by the
buyer in a subdivision or condominium project for the lot or unit he contracted to
buy shall be forfeited in favor of the owner or developer when the buyer, after due
notice to the owner or developer desists from further payment due to the failure of
the owner or developer to develop the subdivision or condominium project
according to the approved plans and within the time limit for complying with the
same. Such buyer may, at his option, be reimbursed the total amount paid . . ."
(Emphasis supplied).
In this respect, the trial court was correct in holding that petitioner could not
rescind the contract. As the law vests upon the buyer the option to demand
reimbursement of the total amount paid, or to wait for further development of the
subdivision, private respondent who opted for the latter alternative by waiting for
the proper development of the site, may not be ousted from the subdivision. 8
ACCORDINGLY, the Court Resolved to GRANT the Petition due course and
to SET ASIDE and NULLIFY the Decision of the Court of Appeals. In lieu thereof, a
new Decision is hereby RENDERED requiring —
1. the petitioner to complete the necessary improvements and developments in
the subdivision area in accordance with the approved subdivision plans and
applicable provisions of P.D. No. 957 as well as applicable implementing
administrative regulations and City of Naga zoning ordinances, if any;
2. private respondent immediately to resume paying installment payments under
her Contract to Buy and Sell with petitioner, subject to her right to proceed against
petitioner should petitioner fail again to comply with her obligations under P.D.
No. 957; and
3. petitioner to execute the Deed of Absolute Sale when private respondent shall
have fully paid the purchase price in accordance with the mentioned Contract to
Buy and Sell.
No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr. and Cortes, JJ., concur.
Bidin, J., took no part.
Footnotes
1. Rollo, pp. 26-27.

2. Ponente, Sison, PV, J.
3. Rollo, p. 24.
4. Article 1956 of the Civil Code authorizes payment of interest in a contract of loan
when expressly stipulated in writing. In the case at bar, the nancial situation is
no different from that obtaining had private respondent buyer borrowed
P10,600.00 from a bank, and used that amount to pay the cash price of the two
(2) lots to petitioner, and repaying the loan from the bank by installments over
fteen (15) years with six percent (6%) interest per annum. Petitioner vendor has
in effect herself nanced the purchase of the two (2) lots on the installment
plan.
5. P10,600.00 x 0.06 x 1/12 = P53.00.
6. P89.45 — P53.00 = P36.45.

7. In partial illustration:
Month Outstanding Installment Amount Amount
Balance Payment Credited Credited to
to Interest Outstanding Bal.

1968
Sept. P10,600.00 P89.45 P53.00 P36.45
Oct. 10,563.55 89.45 52.82 36.63
Nov. 10,526.92 89.45 52.63 36.82
Dec. 10,490.10 89.45 52.45 37.00.
1969
Jan. 10,453.10 89.45 52.26 37.19
Feb. 10,415.91 89.45 52.08 37.37
Mar. 10,378.54 89.45 51.89 37.56
Apr. 10,340.98 89.45 51.70 37.75
xxx xxx xxx
1983
Jan. 699.74 89.45 3.50 85.95
Feb. 613.79 89.45 3.07 86.38
Mar. 527.41 89.45 2.64 86.81
Apr. 440.60 89.45 2.21 87.24
May 353.36 89.45 1.77 87.68
June 265.68 89.45 1.38 88.12
July 177.56 89.45 0.89 88.56
Aug. 89.00 89.45 0.45 89.00
Sept. — 0 — (payment completed upon 180th monthly installment in August 1983).
8. Antipolo Realty Corporation v. National Housing Authority, 153 SCRA 399 (1987).

EN BANC
[G.R. No. 97412. July 12, 1994.]
EASTERN SHIPPING LINES, INC. , petitioner, vs. HON. COURT OF

APPEALS AND MERCANTILE INSURANCE COMPANY, INC. ,
respondents.
SYLLABUS
1. CIVIL LAW; COMMON CARRIERS; TIME FRAME WITHIN WHICH DILIGENCE

REQUIRED IN SHIPMENT OF GOODS LAST. — 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).
2. ID.; ID.; ID.; PRESUMPTION OF CARRIER'S FAULT ON LOST OR DAMAGED GOODS
SHIPPED; CASE AT BAR NOT AN EXCEPTION. — 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 nding of negligence to hold it
liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA
8 7 ; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course,
exceptional cases when such presumption of fault is not observed but these cases,
enumerated in Article 1734 of the Civil Code, are exclusive, not one of which can be applied
to this case.
3. ID.; DAMAGES; INTEREST AWARDED AS A CONCEPT THEREOF; RATE AND
ACCRUAL THEREOF, HOW DETERMINED. — With regard particularly to an award of interest
in the concept of actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists
in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code. 2. When a obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the
date of the judgment of the court is made (at which time the quanti cation of damages
may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount of nally adjudged. 3.
When the judgment of the court awarding a sum of money becomes nal and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such nality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
DECISION
VITUG , J : p
The issues, albeit not completely novel, are: (a) whether or not a claim for damage
sustained on a shipment of goods can be a solidary, or joint and several, liability of the
common carrier, the arrastre operator and the customs broker; (b) whether the payment of
legal interest on an award of loss or damage is to be computed from the time the
complaint is led or from the date the decision appealed from is rendered; and (c) whether
the applicable rate of interest, referred to above, is twelve percent (12%) or six percent
(6%). llcd
The ndings 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-forwarded for damages sustained by a shipment while in defendants'
custody, led by the insurer-subrogee who paid the consignee the value of such
losses/damages.
"On December 4, 1981, two ber drums of ribo avin were shipped from
Yokohama, Japan for delivery vessel `SS EASTERN COMET' owned by defendant
Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment
was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.
"Upon arrival of the shipment in Manila on December 12, 1981, it was discharged
unto the custody of defendant Metro Port Services, Inc. The latter excepted to one
drum, said to be in bad order, which damage was unknown to plaintiff.
"On January 7, 1982 defendant Allied Brokerage Corporation received the

shipment from defendant Metro Port Service, Inc., one drum opened and without
seal (per 'Request for Bad Order Survey.' (Exh. D).
"On January 8 and 14, 1982, defendant Allied Brokerage Corporation made
deliveries of the shipment to the consignees' warehouse. The latter excepted to
one drum which contained spillages, while the rest of the contents was
adulterated/fake (per 'Bad Order Waybill' No. 10649, Exh. E).
"Plaintiff contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence of
defendants. Claims were presented against defendants who failed and refused to
pay the same (Exhs. H, I, J, K, L).
Cdpr
"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 led their respective answers, traversing the material allegations of
the compliant 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 he handling/delivery of the cargo to consignee in
the same condition shipment was received by it.
"From the evidence that 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);
prLL
'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 rst 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) ber 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 ling 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);
LexLib
2. P3,000.00 as attorney's fees, and

3. Costs.
B. Dismissing the counterclaims and crossclaim of
defendant/cross-claimant Allied Brokerage Corporation.
SO ORDERED.' (p. 207, Record).
"Dissatisfied, defendant's recourse to US.
"The appeal is devoid of merit.

"After a careful scrutiny of the evidence on record. We nd that the conclusion
drawn therefrom is correct. As there is suf cient 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 Appeal 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. Cdpr
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 nding of negligence to hold it liable (Art.
1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro
Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases
when such presumption of fault is not observed but these cases, enumerated in Article
1734 1 of the Civil Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of
properly delivering the goods to the consignee has, too, been passed upon by the Court. In
Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained in
holding the carrier and the arrastre operator liable in solidum, thus: Cdpr
"The legal relationship between the consignee and the arrastre operator is akin to
that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA
5 [1967]. The relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v.
Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to
take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER.
Both the ARRASTRE and the CARRIER are therefore charged with the obligation to
deliver the goods in goods condition to the consignee."
We do not, of course, imply by the above pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily liable solidarily with the carrier, or
vice-versa, nor that attendant facts in a given case may not vary the rule. The instant
petition has been brought solely by Eastern Shipping Lines which, being the carrier and not
having been able to rebut the presumption of fault, is, in any event, to be held liable in this
particular case. A factual nding of both the court a quo and the appellate court, we take
note, is that "there is suf cient evidence that the shipment sustained damage while in the
successive possession of appellants" (the herein petitioner among them). Accordingly, the
liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it. llcd
It is over the issue of legal interest adjudged by the appellate court that deserves more
than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, 2 decided 3 on 15
May 1969, involved a suit for recovery of money arising out of short deliveries and
pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower
court) averred in its complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was neither
established in its totality nor de nitely ascertained. In the stipulation of facts later entered
into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial
court rendered judgment ordering the appellants (defendants) Manila Port Service and
Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with
legal interest thereon from the date the complaint was led on 28 December 1962 until full
payment thereof. The appellants then assailed, inter alia, the award of legal interest. In
sustaining the appellants, this Court ruled:
"Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the date of
demand, judicial or extrajudicial. The trial court opted for judicial demand as the
starting point.
"But then upon the provisions of Article 2213 of the Civil Code, interest 'cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty.' And as was held by this Court in Rivera vs.
Perez 4 , L-6998, February 29, 1956, if the suit were for damages, 'unliquidated
and not known until de nitely ascertained, assessed and determined by the
courts after proof (Montilla c. Corporacion de P. P. Agustinos, 25 Phil. 447;
Lichauco v. Guzman, 38 Phil. 302), ' then, interest 'should be from the date of the
decision.'" (Emphasis supplied).Cdpr
The case of Reformina vs. Tomol , 5 rendered on 11 October 1985, was for "Recovery of
Damages for Injury to Person and Loss of Property." After trial, the lower court decreed:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third
party defendants and against the defendants and third party plaintiffs as follows:
"Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to
pay jointly and severally the following persons:
"(a) ...
"xxx xxx xxx
"(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III together with its
accessories, shing gear and equipment minus P80,000.00 which is the value of
the insurance recovered and the amount of P10,000.00 a month as the estimated
monthly loss suffered by them as a result of the re 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 ling 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 of the Court of Appeals, the latter modi ed the amount of damages awarded
but sustained the trial court in adjudging legal interest from the ling of the complaint
until fully paid. When the appellate court's decision became nal, 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 — Cdpr
"By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed
that the rate of interest for the loan, or forbearance of any money, goods, or
credits and the rate allowed in judgments, in the absence of express contract as
to such rate of interest, shall be twelve (12%) percent per annum. This Circular
shall take effect immediately." (Emphasis found in the text) —
should have, instead, been applied. This Court 6 ruled:

"The judgments spoken of and referred to are judgments in litigations involving
loans or forbearance of any money, goods or credits. any other kind of monetary
judgment which has nothing to do with, nor involving loans or forbearance of any
money, goods or credits does not fall within the coverage of the said law for it is
not within the ambit of the authority granted to the Central Bank.
"xxx xxx xxx

"Coming to the case at bar, the decision herein sought to be executed
is one rendered in an Action for Damages for injury to persons and loss of
property and does not involve any loan, much less forbearances of any
money, goods or credits. As correctly argued by the private respondents, the
law applicable to the said case is Article 2209 of the New Civil Code which
reads —
'ARTICLE 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
ling of the complaint until fully paid . Relying on the Reformina v. Tomol case, this Court 8
modi ed 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. Cdpr
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 ling
of the complaint until full payment . . . ." Save from the modi cation 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 of attorney's fees) occasioned by the loss of the building 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 nality, twelve (12%) per cent interest per annum shall be imposed
upon aforementioned amounts from nality until paid . Solidary costs against the
defendant and third-party defendants (except Roman Ozaeta)." (Emphasis
supplied).
A motion for reconsideration was led by United Construction, contending that "the
interest of twelve (12%) per cent per annum imposed on the total amount of the
monetary award was in contravention of law." The Court 1 0 ruled out the applicability of
the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April
1988, it explained: LLphil
"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 ling 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. International Appellate
Court 1 1 was a petition for review on certiorari from the decision, dated 27 February 1985,
of the then Intermediate Appellate Court reducing the amount of moral and exemplary
damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its
resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial
court, i.e., P2,000,000,00 as moral damages and P400,000.00 as exemplary damages with
interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a
decision of 09 November 1988, this Court, while recognizing the right of the private
respondent to recover damages, held the award, however, for moral damages by the trial
court, later sustained by the IAC, to be inconceivably large. The Court 1 2 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). Cdpr
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 1 3 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 modi ed hereinabove the decision of the CFI of Negros
Oriental dated October 31, 1972 is af rmed in all respects, with the modi cation
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 ling 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 ling 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, 1 4 decided on 08 May 1992, involved the expropriation of certain
parcels of land. After conducting a hearing on the complaints for eminent domain, the trial
court ordered the petitioner to pay the private respondents certain sums of money as just
compensation for their lands so expropriated "with legal interest thereon . . . until fully
paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 1 5
declared: LLpr
". . ., (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 classi ed 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). LLpr
In the " first group ," the basic issue focus on the application of either the 6% (under the Civil
Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in
these cases that there has been a consistent holding that the Central Bank Circular
imposing the 12% interest per annum applies only to loans or forbearance 1 6 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 of a delay in the performance of obligations in general. Observe, too, that in these
cases, a common time frame in the computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.
The "second group ," did not alter the pronounced rule on the application of the 6% or 12%
interest per annum, 17 depending on whether or not the amount involved is a loan or
forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike,
however, the " rst group" which remained consistent in holding that the running of the legal
interest should be from the time of the ling of the complaint until fully paid, the "second
group" varied on the commencement of the running of the legal interest. cdll
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 de nitely ascertained, assessed and determined by the courts after proof,'
then, interest 'should be from the date of the decision.'" American Express International v.
IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be
"computed from the nality of (the) decision until paid ." The Nakpil and Sons case ruled
that 12% interest per annum should be imposed from the nality of the decision until the
judgment amount is paid.
The ostensible discord is not dif cult to explain. The factual circumstances may have
called for different applications, guided by the rule that the courts are vested with
discretion, depending on the equities of each case, on the award of interest. Nonetheless,
it may not be unwise, by way of clari cation and reconciliation, to suggest the following
rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts 1 8 is breached, the contravenor can be held liable for damages. 1 9
The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the
measure of recoverable damages. 2 0
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows: LibLex
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. 2 1 Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. 2 2 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 2 3 of the Civil Code.
2. When a obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court 2 4 at the rate of 6% per annum. 2 5 No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. 2 6 Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the
date of the judgment of the court is made (at which time the quanti cation of damages
may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount of finally adjudged. LLjur
3. When the judgment of the court awarding a sum of money becomes nal and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph
2, above, shall be 12% per annum from such nality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT(6%) on the amount due
computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE
PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount
upon finality of this decision until the payment thereof. cdll
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo,
Quiason, Puno and Kapunan, JJ., concur.
Mendoza, J., took no part.
Footnotes
1. Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
2. 28 SCRA 65.
3. Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio
Dizon, Querube Makalintal, Calixto Zaldivar, Enrique Fernando, Francisco Capistrano,
Claudio Teehankee and Antonio Barredo, Chief Justice Roberto Concepcion and Justice
Fred Ruiz Castro were on official leave.
4. The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-6998, 29 February
1956," 98 Phil., 516.
5. 139 SCRA 260, 265.
6. Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes Concepcion,

Jr., Vicente Abad Santos, Ameurfina Melencio-Herrera, Venicio Escolin, Lorenzo Relova,
Hugo Gutierrez, Jr., Buenaventura de la Fuente, Nestor Alampay and Lino Patajo. Justice
Ramon Aquino concurred in the result. Justice Efren Plana filed a concurring and
dissenting opinion, concurred in by Justice Claudio Teehankee while Chief Justice Felix
Makasiar concurred with the separate opinion of Justice Plana.
7. 143 SCRA 158.
8. Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by Justices
Pedro Yap, Ameurfina Melencio-Herrera, Isagani A. Cruz and Edgardo Paras.
9. 160 SCRA 334.
10. Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo Fernan,
Teodoro Padilla, Abdulwahid Bidin, and Irene Cortes. Justice Hugo Gutierrez, Jr., took no
part because he was the ponente in the Court of Appeals.
11. 167 SCRA 209.
12. Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan,
Justices Andres Narvasa, Isagani A. Cruz, Emilio Gancayco, Teodoro Padilla, Abdulwahid
Bidin, Abraham Sarmiento, Irene Cortes, CArolina Grino-Aquino, Leo Medialdea and
Florenz Regalado. Justices, Ameurfina Melencio-Herrera and Hugo Gutierrez, Jr., took no
part because they did not participate in the deliberations. Justices Edgardo Paras and
Florentino Feliciano also took no part.
13. 170 SCRA 461.

14. 208 SCRA 542.
15. Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina
Melencio-Herrera, Teodoro Padilla, Florenz Regalado and Rodolfo Nocon.
16. Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth, 22 Wash. 2d
378, 156 P. 2d 408, 411 defines the word forbearance, within the context of usury law, as
a contractual obligation of lender or creditor to refrain, during given period of time, from
requiring borrower or debtor to repay loan or debt then due and payable.
17. In the case of Malayan Insurance, the application of the 6% and 12% interest per
annum has no bearing considering that this case was decided upon before the issuance
of Circular No. 416 by the Central Bank.
18. "ART. 1157. Obligations arise from.
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts."
19. "ART. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages."
20. "ART. 2195. The provisions of this Title (on Damages) shall be respectively applicable
to all obligations mentioned in article 1157."
21. "ART. 1956. No interest shall be due unless it has been expressly stipulated in writing."
22. "ART. 2212. Interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent upon this point."

23. "ART. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
"However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that
the designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond
his power to perform.
"In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins."
24. "ART. 2210. Interest may, in the discretion of the court, be allowed upon damages
awarded for breach of contract.
"ART. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a
proper case, be adjudicated in the discretion of the court."
25. "Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six per cent per annum."
26. "ART. 2213. Interest cannot be recovered upon unliquidated claims or damages, except
when the demand can be established with reasonable certainty."

SECOND DIVISION
[G.R. No. L-47180. May 19, 1980.]
THE PHILIPPINE AMERICAN ACCIDENT INSURANCE COMPANY,

INC. , petitioner-appellant, vs. THE HON. JOSE P. FLORES, and
CONCORDIA G. NAVALTA , respondents-appellees.
DECISION
ABAD SANTOS , J : p
Petition to review the Order of the respondent judge dated August 24, 1977. The facts are
simple.
Private respondent was the plaintiff and the petitioner was the defendant in Civil Case No.
2414 of the Court of First Instance of La Union. On January 22, 1978, the respondent judge
rendered judgment in said case, the dispositive portion of which reads: LLjur
"IN VIEW OF THE FOREGOING, the Court hereby renders judgment and sentences
the defendant to pay Concordia Garcia Navalta the amount of P75,000.00 with
legal interest from October, 1968, P1,000.00, as attorney's fees and the cost of
suit."
The decision was appealed by the petitioner to the Court of Appeals in CA-G.R. No. 52675-
R but was affirmed on February 7, 1977. On February 24, 1977, the petitioner paid the
following amounts to the private respondent:
On the principalP75,000.00
Interest at 6% per annum
from Oct. 1968 * to April 30, 1977P38,250.00
Attorney's feeP 1,000.00
—————
TotalP114,250.00
(*Art. 2209 of the Civil Code provides: "If the obligation consists in the payment of
a sum of money, and the debtor incurs in delay, the indemnity for damages, there
being no stipulation to the contrary, shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six per cent per
annum." This appears to be the basis for awarding interest at the legal rate from
October, 1968, although the debt was judicially demanded only on July 6, 1970.)
The petitioner was advised by the respondent and her counsel that the payment was not in
full satisfaction of the judgment because the former had to pay compound interest or an
additional sum of P10,375.77.
Upon refusal of the petitioner to pay the sum additionally claimed, the private respondent
secure a writ of execution for the same which the former sought to quash over the
opposition of the latter. In resolving the question the respondent judge issued an Order on
August 24, 1977 as follows:
"After hearing and consideration of the motion of the plaintiff for the issuance of
an alias writ of execution, and the written manifestation and opposition filed by
the defendant and finding as it appears that the written schedule of interest
computation, which was submitted, is correct and in order, because compound
interest has been computed from July 6, 1970 when the claim was judicially
demanded, let an alias writ of execution issue to satisfy accordingly the unpaid
balance as demanded."
It is this Order which is the object of this petition and which raises the question as to
whether or not the petitioner is obligated to pay compound interest under the judgment. cdrep
The questioned Order cannot be sustained. The judgment which was sought to be
executed ordered the payment of simple "legal interest" only. It said nothing about the
payment of compound interest. Accordingly, when the respondent judge ordered the
payment of compound interest he went beyond the confines of his own judgment which
had been affirmed by the Court of Appeals and which had become final. Fundamental is
the rule that execution must conform to that ordained or decreed in the dispositive part of
the decision. Likewise, a court can not, except for clerical errors or omissions, amend a
judgment that has become final. (Jabon, et al. vs. Alo, et al., 91 Phil. 750 [1952]; Robles vs.
Timario, et al., 107 Phil. 809 [1960]; Collector of Internal Revenue vs. Gutierrez, et al., 108
Phil. 215 [1960]; Ablaza vs. Sycip, et al., 110 Phil. 4 [1960].)
Private respondent invokes Sec. 5 of the Usury Law which reads in part as follows: "In
computing the interest on any obligation, promissory note or other instrument or contract,
compound interest shall not be reckoned, except by agreement, or, in default thereof,
whenever the debt is judicially claimed in which last case it shall draw six per centum per
annum interest . . ." as well as Art. 2212 of the Civil Code which stipulates: "Interest due
shall earn legal interest from the time it is judicially demanded, although the obligation may
be silent upon this point." Both legal provisions are in applicable for they contemplate the
presence of stipulated or conventional interest which had accrued when demand was
judicially made. (Sunico vs. Ramirez, 14 Phil. 500 [1909]; Salvador vs. Palencia, 25 Phil. 661
[1913]; Bachrach vs. Golingco, 39 Phil. 912 [1919]; Robinson vs. Sackermann, 46 Phil. 539
[1924]; Philippine Engineering Co. vs. Green, 48 Phil. 466 [1925]; and Cu Unjieng vs.
Mabalacat Sugar Co., 54 Phil. 916 [1930].) In this case no interest had been stipulated by
the parties. In other words, there was no accrued conventional interest which could further
earn interest upon judicial demand.
WHEREFORE, the Order dated August 24, 1977, of the respondent judge is hereby set
aside. No special pronouncement as to costs.
SO ORDERED.
Barredo, Aquino, Concepcion, Jr. and De Castro, * JJ ., concur.
Footnotes
*Justice Pacifico de Castro has been designated to sit with the Second Division.

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CRDIT

[G.R. No. L-24968. April 27, 1972.]

SAURA IMPORT & EXPORT CO., INC., plaintiff-appellee, vs.

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS; PERFECTION UPON

For construction of factory building P250,000.00

For payment of the balance of purchase

4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto

5. That release shall be made at the discretion of the

Trust Company P250,000.00

c) For raw materials and labor 67,586.09

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[G.R. No. 133632. February 15, 2002.]

BPI INVESTMENT CORPORATION , petitioner, vs . HON. COURT OF

Benedicto Tale Versoza & Associates for petitioner.

1. CIVIL LAW; CONTRACTS; LOAN; NOT A CONSENSUAL CONTRACT BUT A REAL

3. ID.; DAMAGES; NO BASIS FOR AWARD OF MORAL AND EXEMPLARY DAMAGES;

Costs against BPI.

CD Technologies Asia, Inc. © 2016 cdasiaonline.com

xxx xxx xxx

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[G.R. No. L-49101. October 24, 1983.]

RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE , petitioners, vs.

Edgardo I. De Leon for petitioners.

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF LOAN WITH

"WHEREFORE, all the foregoing promises considered, judgment is hereby rendered

Presented for resolution in this review are the following issues:

Whether petitioners had a right to redeem the foreclosed property.

a) Petitioners were never notified of the foreclosure sale.

To be a newspaper of general circulation, it is enough that "it is published for the

CD Technologies Asia, Inc. © 2016 cdasiaonline.com

[G.R. No. L-45710. October 3, 1985.]

CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR

. . ." (p. 46, rec.).

Hence, this instant petition by the Central Bank.

The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted

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[G.R. No. L-17474. October 25, 1962.]

REPUBLIC OF THE PHILIPPINES , plaintiff-appellee, vs. JOSE V.

D. T. Reyes, Luison & Associates for petitioner-appellant.

1. CONTRACTS; LOAN OF BULLS FOR BREEDING PURPOSES; NATURE OF CONTRACT

(2) If he keeps it longer than the period stipulated. . . .

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[G.R. Nos. 80294-95. September 21, 1988.]

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE ,

Valdez Ereso Polido & Associates for petitioner.

1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;

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[G.R. No. 46240. November 3, 1939.]

MARGARITA QUINTOS and ANGEL A. ANSALDO , plaintiffs-appellants,

Mauricio Carlos; for appellants.

1. COMMODATUM; OBLIGATION OF THE PARTIES. — The contract entered

CD Technologies Asia, Inc. © 2017 cdasiaonline.com

CD Technologies Asia, Inc. © 2017 cdasiaonline.com

[G.R. No. 114286. April 19, 2001.]

THE CONSOLIDATED BANK AND TRUST CORPORATION

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE

4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY

The petition must be denied.

Q You mentioned them to whom are you referring to?

Q So by your statement who really owns the bunker fuel oil?

1. Penned by Associate Justice Cezar D. Francisco and concurred in by Associate Justices

6. Petition for Review, pp. 10-11; Rollo, pp. 17-18.