G.R. No.

154878

March 16, 2007

CAROLYN M. GARCIA, Petitioner, vs. RICA MARIE S. THIO, Respondent. DECISION CORONA, J.: Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002 resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58. Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago.5 Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,0006 and P76,5007 on July 26,8 August 26, September 26 and October 26, 1995. In June 1995, respondent received from petitioner another crossed check9 dated June 29, 1995 in the amount ofP500,000, also payable to the order of Marilou Santiago.10 Consequently, petitioner received from respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.11 According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual damages.12 Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.13 The amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.14 The amount of this loan was covered by the second check. For both loans, no promissory note was executed since petitioner and respondent were close friends at the time.15 Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands.161awphi1.nt Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed checks to Santiago. 17 She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate petitioners request that respondent use her own checks instead of Santiagos.18 In a decision dated February 28, 1997, the RTC ruled in favor of petitioner. 19 It found that respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a monthly interest of 4%:20 WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of: 1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995 until fully paid; 2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid. 3. P100,000.00 as and for attorneys fees; and 4. P50,000.00 as and for actual damages. For lack of merit, [respondents] counterclaim is perforce dismissed. With costs against [respondent]. IT IS SO ORDERED.21

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties: A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her. There is nothing in the record that shows that [respondent] received money from [petitioner]. What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner]. The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself. It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only onceto one who has an account with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the former and [petitioner]. With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that existed between the parties. x x x (emphasis supplied)22 Hence this petition.23 As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the CA (which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held that there werecontracts of loan) are contradictory.24 The petition is impressed with merit. A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides: An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. (Emphasis supplied) Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount.26 It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question to be answered is: who borrowed money from petitioner respondent or Santiago? Petitioner insists that it was upon respondents instruction that both checks were made payable to Santiago. 27 She maintains that it was also upon respondents instruction that both checks were delivered to her (respondent) so that she could, in turn, deliver the same to Santiago.28 Furthermore, she argues that once respondent received the checks, the latter had possession and control of them such that she had the choice to either forward them to Santiago (who was already her debtor), to retain them or to return them to petitioner.29 We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another.30 Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago. Several factors support this conclusion. First, respondent admitted that petitioner did not personally know Santiago.31 It was highly improbable that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any written

acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on the other hand, already had transactions with Santiago at that time.32 Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of 2%. 33 This explained why respondent instructed petitioner to make the checks payable to Santiago. Respondent has not shown any reason why Ruiz testimony should not be believed. Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four months.34 According to respondent, she merely accommodated petitioners request for her to issue her own checks to cover the interest payments since petitioner was not personally acquainted with Santiago.35 She claimed, however, that Santiago would replace the checks with cash.36 Her explanation is simply incredible. It is difficult to believe that respondent would put herself in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract. We declared in one case that: In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself such as the common experience of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony except its conformity to our knowledge, observation, and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical cognizance.37 Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who was listed as one of her (Santiagos) creditors.38 Last, respondent inexplicably never presented Santiago as a witness to corroborate her story. 39 The presumption is that "evidence willfully suppressed would be adverse if produced."40 Respondent was not able to overturn this presumption. We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent liable for the principal amounts of the loans. We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000 andP500,000 loans respectively. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in writing." Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code. It is well-settled that: When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.41 Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when she received petitioners demand letter.42 From the finality of the decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit.43 The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted since the RTC decision did not explain the factual bases for these damages. WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total amount due as of the date of finality will earn interest of 12% per annum until fully paid. The award of actual damages and attorneys fees is deleted. SO ORDERED.

[G.R. No. 135046. August 17, 1999]

SPOUSES FLORANTE and LAARNI BAUTISTA, petitioners, vs. PILAR DEVELOPMENT CORPORATION, respondent. DECISION PUNO, J.: This petition for review seeks to reverse and set aside the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51363[1] which reversed the Decision of the Regional Trial Court, Makati, Branch 138 in Civil Case No. 17702. [2] The following facts are uncontroverted. In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot in Pilar Village, Las Pinas, Metro Manila. To partially finance the purchase, they obtained from the Apex Mortgage & Loan Corporation (Apex) a loan in the amount of P100,180.00. They executed a promissory note on December 22, 1978 obligating themselves, jointly and severally, to pay the "principal sum of P100,180.00 with interest rate of 12% and service charge of 3%" for a period of 240 months, or twenty years, from date, in monthly installments of P1,378.83. [3] Late payments were to be charged a penalty of one and one-half per cent (1 1/2%) of the amount due. In the same promissory note, petitioners authorized Apex to "increase the rate of interest and/or service charges" without notice to them in the event that a law, Presidential Decree or any Central Bank regulation should be enacted increasing the lawful rate of interest and service charges on the loan.[4] Payment of the promissory note was secured by a second mortgage on the house and lot purchased by petitioners.[5] Petitioner spouses failed to pay several installments. On September 20, 1982, they executed another promissory note in favor of Apex. This note was in the amount of P142,326.43 at the increased interest rate of twenty-one per cent (21%) per annum with no provision for service charge but with penalty charge of 1 1/2% for late payments. Payment was to be made for a period of 196 months or 16.33 years in monthly installments of P2,576.68, inclusive of principal and interest. Petitioner spouses also authorized Apex to "increase/decrease the rate of interest and/or service charges" on the note in the event any law or Central Bank regulation shall be passed increasing or decreasing the same.[6] In November 1983, petitioner spouses again failed to pay the installments. On June 6, 1984, Apex assigned the second promissory note to respondent Pilar Development Corporation without notice to petitioners. On August 31, 1987, respondent corporation, as successor-in-interest of Apex, instituted against petitioner spouses Civil Case No. 17702 before the Regional Trial Court, Makati, Branch 138. Respondent corporation sought to collect from petitioners the amount of P140,515.11 representing the unpaid balance of the principal debt from November 23, 1983, including interest at the rate of twenty-one per cent (21%) under the second promissory note, and 25% and 36% per annum in accordance with Central Bank Circular No. 905, series of 1982. Respondent also sought payment of ten per cent (10%) of the amount due as attorney's fees.[7] In their answer, petitioner spouses mainly contended that the terms of the second promissory note increasing the interest rate to 21% and the escalation clauses authorizing Apex to increase interest rates pursuant to any law or Central Bank regulation are null and void in the absence of a de-escalation clause in the same note.[8] After pre-trial, both parties submitted the case for decision on the sole issue of the interest rate. The trial court rendered judgment on September 22, 1995. It ordered petitioner spouses to pay respondent corporation the sum of P140,515.11, with interest at the rate of 12% per annum, plus service charge, viz: "WHEREFORE, judgment is hereby rendered as follows: (a) Plaintiff is entitled to collect from the defendants the amount of P140,515.11 with interest at the rate of 12% per annum from November 23, 1983 until the amount is fully paid plus the stipulated service charge; (b) Ordering defendants as joint and several obligors to pay plaintiff the amount stated in paragraph (a) hereof; (c) Counterclaim is hereby dismissed.

No pronouncement as to costs. SO ORDERED."[9] Both parties appealed to the Court of Appeals. In a Decision dated May 14, 1998, the appellate court reversed the trial court by applying the interest rate of 21% per annum, and adding attorney's fees of 10%. Thus: "IN VIEW OF ALL THE FOREGOING, the appealed judgment is hereby REVERSED and SET ASIDE and a new one entered ordering the defendants to pay the plaintiffs the amount of P142,326.43, as principal with interest at the rate of 21% from November 23, 1983 until the amount is fully paid; the sum equivalent to 10% of the amount due as attorney's fees and the costs of this suit. SO ORDERED." [10] Petitioner spouses moved for reconsideration. In a Resolution dated August 18, 1998, the Court of Appeals denied the motion but reduced the principal amount of the obligation from P142,326.42 to P140,515.11.[11] Hence this recourse. Petitioner spouses claim that the Court of Appeals erred: I IN RULING THAT THE TWO (2) PROMISSORY NOTES EXECUTED BY THE PARTIES ARE INDEPENDENT OF EACH OTHER. CONVERSELY, IN NOT RULING THAT THE SAID PROMISSORY NOTES CONSTITUTE A SINGLE-LOAN TRANSACTION. II IN RULING THAT THE APPLICABLE RATE OF INTEREST IS 21% PER ANNUM AS STIPULATED IN THE SECOND PROMISSORY NOTE. CONVERSELY, IN NOT RULING THAT THE ESCALATION OF INTEREST RATE FROM 12% PER ANNUM (1ST PROMISSORY NOTE) TO 21% PER ANNUM (2ND PROMISSORY NOTE) IS UNLAWFUL. III IN RULING THAT 10% OF THE AMOUNT DUE IS AWARDABLE AS ATTORNEY'S FEES. CONVERSELY, IN NOT RULING THAT THE AWARD OF 10% ATTORNEY'S FEES IS NOT PROPER UNDER THE CIRCUMSTANCES. IV IN RULING THAT NOTICE OF ASSIGNMENT OF CREDIT IS "POINTLESS AND UNSUSTAINABLE." CONVERSELY, IN NOT RULING THAT NOTICE TO THE DEBTOR IS REQUIRED WHEN CREDIT IS ASSIGNED. V IN NOT RULING THAT UNDER THE CIRCUMSTANCES PETITIONERS ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES.[12] The controversy in this petition involves the rate of interest respondent creditor is entitled to collect on petitioners' loan: whether it be 12% under the promissory note of December 22, 1978, or 21% under the promissory note of September 20, 1982. Petitioners claim that the interest rate of 12% per annum should be adjudged inasmuch as the two promissory notes constitute one transaction. Allegedly, the first note defined the terms and conditions of the loan while the second note is merely an extension of and derives its existence from the former. Hence, the second note is governed by the stipulations in the first note.[13] The two promissory notes are identically entitled "Promissory Note with Authority to Assign Credit." The notes were prepared by Apex in standard form and consist of two (2) pages each. Except for one or two stipulations, they

contain the same provisions and the same blanks for the amount of the loan and other pertinent data subject of each note. However, on the upper right portion of the second note, there appears a typewritten entry which reads: "This cancels PN # A-387-78 dated December 22, 1978."[14] Correspondingly, on the face of each page of the first promissory note, i.e., PN No. A-387-78 dated December 22, 1978, the word "Cancelled" is boldly stamped twice with the date "September 16, 1982" and a signature written in a space inside the letters of the word.[15] The first promissory note was cancelled by the express terms of the second promissory note. To cancel is to strike out, to revoke, rescind or abandon, to terminate.[16] In fine, the first note was revoked and terminated. Simply put, it was novated. The extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first is a novation.[17] Novation is made either by changing the object or principal conditions, referred to as an objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the creditor, which is known as subjective or personal novation.[18] In both objective and subjective novation, a dual purpose is achieved-- an obligation is extinguished and a new one is created in lieu thereof. [19] Novation may either be express, when the new obligation declares in unequivocal terms that the old obligation is extinguished; or implied, when the new obligation is on every point incompatible with the old one.[20] Express novation takes place when the contracting parties expressly disclose that their object in making the new contract is to extinguish the old contract, otherwise the old contract remains in force and the new contract is merely added to it, and each gives rise to an obligation still in force.[21] Novation has four (4) essential requisites: (1) the existence of a previous valid obligation; (2) the agreement of all parties to the new contract; (3) the extinguishment of the old contract; and (4) the validity of the new one.[22] In the instant case, all four requisites have been complied with. The first promissory note was a valid and subsisting contract when petitioner spouses and Apex executed the second promissory note. The second promissory note absorbed the unpaid principal and interest of P142,326.43 in the first note which amount became the principal debt therein, payable at a higher interest rate of 21% per annum. Thus, the terms of the second promissory note provided for a higher principal, a higher interest rate, and a higher monthly amortization, all to be paid within a shorter period of 16.33 years. These changes are substantial and constitute the principal conditions of the obligation.[23] Both parties voluntarily accepted the terms of the second note; and also in the same note, they unequivocally stipulated to extinguish the first note. Clearly, there was animus novandi, an express intention to novate.[24]The first promissory note was cancelled and replaced by the second note. This second note became the new contract governing the parties' obligations. In their second assigned error, petitioners contend that in the second promissory note, the escalation of the interest rate from 12% to 21% per annum is unlawful and cannot be imposed for failure of the escalation provisions to include valid de-escalation clauses. In the absence of de-escalation clauses, the Court of Appeals allegedly erred in applying Central Bank Circulars Nos. 705, 712 and 905 issued by the Monetary Board of the Central Bank of the Philippines.[25] At the time the parties executed the first promissory note in 1978, the interest of 12% was the maximum rate fixed by the Usury Law for loans secured by a mortgage upon registered real estate. [26] On December 1, 1979, the Monetary Board of the Central Bank of the Philippines[27] issued Circular No. 705 which fixed the effective rate of interest on loan transactions with maturities of more than 730 days to twenty-one per cent (21%) per annum for both secured and unsecured loans.[28] On January 28, 1980, The Monetary Board issued Circular No. 712 reiterating the effective interest rate of 21% on said loan transactions.[29] On January 1, 1983, CB Circular No. 905, series of 1982, took effect. This Circular declared that the rate of interest on any loan or forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured, "shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended."[30] In short, Circular No. 905 removed the ceiling on interest rates for secured and unsecured loans, regardless of maturity.[31] When the second promissory note was executed on September 20, 1982, Central Bank Circulars Nos. 705 and 712 were already in effect. These Circulars fixed the effective interest rate for secured loan transactions with maturities of more than 730 days, i.e, two (2) years, at 21% per annum. The interest rate of 21% provided in the second promissory note was therefore authorized under these Circulars. The question of whether the escalation clauses in the second promissory note are valid is irrelevant. Respondent corporation has signified that it is collecting petitioners' debt only at the fixed interest rate of 21% per annum, as expressly agreed upon in the second promissory note, not at the escalated rates authorized under the escalation clauses.[32] The Court of Appeals therefore did not err in applying the interest rate of 21% to petitioner's loan under the second promissory note. Neither did the Court of Appeals err in imposing attorney's fees of ten per cent (10%) on the amount due. The award of attorney's fees is expressly stipulated in the fourth paragraph of the promissory note itself, viz: "In case of non-payment of the amount of this note or any portion of it on demand when given due, or any other amount/s due on account of this note, the entire obligation shall become due and demandable, and if for the enforcement of the payment thereof, APEX MORTGAGE AND LOANS CORP. is constrained to entrust the case to its attorneys, I/We, jointly and severally, bind myself/ourselves to pay TEN (10%) per cent on the amount due on the note as attorney's fees, such

amount in no case to be less than FIVE HUNDRED (P500.00) PESOS in addition to the legal fees and other incidental expenses."[33] Petitioners' lack of bad faith in resisting imposition of the increased interest rate cannot serve to mitigate their liability for liquidated damages. Petitioner Florante Bautista is a lawyer and he should have been aware of the effects of the stipulations in the second promissory note and the pertinent CB Circulars on his obligation. At the same time, there is no showing that the amount of liquidated damages is iniquitous and unconscionable for this court to equitably reduce the same.[34] Finally, the fact that petitioners were not notified of the assignment of their credit by Apex to herein respondent corporation is not material. In the eighth paragraph of the second promissory note, petitioners expressly waived notice to any assignment of credit, viz: "It is understood that APEX MORTGAGE AND LOANS CORPORATION has the right to assign this promissory note, or make use of it as collateral in favor of any third person whomsoever and this will constitute as an authority therefore waiver of notice of such action taken [sic]."[35] The purpose of the notice is only to inform the debtor that from the date of the assignment, payment should be made to the assignee and not to the original creditor.[36] IN VIEW WHEREOF, the petition is denied and the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 51363 are affirmed. SO ORDERED.