Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

DURBAN APARTMENTS CORPORATION, G.R. No. 179419

doing business under the name and style of
City Garden Hotel, Present:
Petitioner,
CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
- versus - ABAD, and
MENDOZA, JJ.

PIONEER INSURANCE AND SURETY Promulgated:

CORPORATION,
Respondent. January 12, 2011

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

DECISION

NACHURA, J.:

For review is the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which affirmed the decision [2] of the Regional Trial Court

(RTC), Branch 66, Makati City, in Civil Case No. 03-857, holding petitioner Durban Apartments Corporation solely liable to respondent Pioneer

Insurance and Surety Corporation for the loss of Jeffrey Sees (Sees) vehicle.

The facts, as found by the CA, are simple.

On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x x, by right of subrogation, filed [with the RTC of
Makati City] a Complaint for Recovery of Damages against [petitioner] Durban Apartments Corporation, doing business under
the name and style of City Garden Hotel, and [defendant before the RTC] Vicente Justimbaste x x x. [Respondent averred]
that: it is the insurer for loss and damage of Jeffrey S. Sees [the insureds] 2001 Suzuki Grand Vitara x x x with Plate No. XBH-
510 under Policy No. MC-CV-HO-01-0003846-00-D in the amount of P1,175,000.00; on April 30, 2002, See arrived and
checked in at the City Garden Hotel in Makati corner Kalayaan Avenues, Makati City before midnight, and its parking
attendant, defendant x x x Justimbaste got the key to said Vitara from See to park it[. O]n May 1, 2002, at about 1:00 oclock in
the morning, See was awakened in his room by [a] telephone call from the Hotel Chief Security Officer who informed him that
his Vitara was carnapped while it was parked unattended at the parking area of Equitable PCI Bank along Makati Avenue
between the hours of 12:00 [a.m.] and 1:00 [a.m.]; See went to see the Hotel Chief Security Officer, thereafter reported the
incident to the Operations Division of the Makati City Police Anti-Carnapping Unit, and a flash alarm was issued; the Makati
City Police Anti-Carnapping Unit investigated Hotel Security Officer, Ernesto T. Horlador, Jr. x x x and defendant x x x
Justimbaste; See gave his Sinumpaang Salaysay to the police investigator, and filed a Complaint Sheet with the PNP Traffic
Management Group in Camp Crame, Quezon City; the Vitara has not yet been recovered since July 23, 2002 as evidenced by
a Certification of Non- Recovery issued by the PNP TMG; it paid the P1,163,250.00 money claim of See and mortgagee ABN
AMRO Savings Bank, Inc. as indemnity for the loss of the Vitara; the Vitara was lost due to the negligence of [petitioner]
Durban Apartments and [defendant] Justimbaste because it was discovered during the investigation that this was the second
time that a similar incident of carnapping happened in the valet parking service of [petitioner] Durban Apartments and no
necessary precautions were taken to prevent its repetition; [petitioner] Durban Apartments was wanting in due diligence in the
selection and supervision of its employees particularly defendant x x x Justimbaste; and defendant x x x Justimbaste and
[petitioner] Durban Apartments failed and refused to pay its valid, just, and lawful claim despite written demands.

Upon service of Summons, [petitioner] Durban Apartments and [defendant] Justimbaste filed their Answer with Compulsory
Counterclaim alleging that: See did not check in at its hotel, on the contrary, he was a guest of a certain Ching Montero x x x;
defendant x x x Justimbaste did not get the ignition key of Sees Vitara, on the contrary, it was See who requested a parking
attendant to park the Vitara at any available parking space, and it was parked at the Equitable Bank parking area, which was
within Sees view, while he and Montero were waiting in front of the hotel; they made a written denial of the demand of
[respondent] Pioneer Insurance for want of legal basis; valet parking services are provided by the hotel for the convenience of
its customers looking for a parking space near the hotel premises; it is a special privilege that it gave to Montero and See; it
does not include responsibility for any losses or damages to motor vehicles and its accessories in the parking area; and the
same holds true even if it was See himself who parked his Vitara within the premises of the hotel as evidenced by the valet
parking customers claim stub issued to him; the carnapper was able to open the Vitara without using the key given earlier to
the parking attendant and subsequently turned over to See after the Vitara was stolen; defendant x x x Justimbaste saw the
Vitara speeding away from the place where it was parked; he tried to run after it, and blocked its possible path but to no avail;
and See was duly and immediately informed of the carnapping of his Vitara; the matter was reported to the nearest police
precinct; and defendant x x x Justimbaste, and Horlador submitted themselves to police investigation.

During the pre-trial conference on November 28, 2003, counsel for [respondent] Pioneer Insurance was present. Atty. Monina
Lee x x x, counsel of record of [petitioner] Durban Apartments and Justimbaste was absent, instead, a certain Atty. Nestor
Mejia appeared for [petitioner] Durban Apartments and Justimbaste, but did not file their pre-trial brief.

On November 5, 2004, the lower court granted the motion of [respondent] Pioneer Insurance, despite the opposition of
[petitioner] Durban Apartments and Justimbaste, and allowed [respondent] Pioneer Insurance to present its evidence ex
parte before the Branch Clerk of Court.

See testified that: on April 30, 2002, at about 11:30 in the evening, he drove his Vitara and stopped in front of City Garden
Hotel in Makati Avenue, Makati City; a parking attendant, whom he had later known to be defendant x x x Justimbaste,
approached and asked for his ignition key, told him that the latter would park the Vitara for him in front of the hotel, and issued
him a valet parking customers claim stub; he and Montero, thereafter, checked in at the said hotel; on May 1, 2002, at around
 1:00 in the morning, the Hotel Security Officer whom he later knew to be Horlador called his attention to the fact that his Vitara
was carnapped while it was parked at the parking lot of Equitable PCI Bank which is in front of the hotel; his Vitara was insured
with [respondent] Pioneer Insurance; he together with Horlador and defendant x x x Justimbaste went to Precinct 19 of the
Makati City Police to report the carnapping incident, and a police officer came accompanied them to the Anti-Carnapping Unit
of the said station for investigation, taking of their sworn statements, and flashing of a voice alarm; he likewise reported the
said incident in PNP TMG in Camp Crame where another alarm was issued; he filed his claim with [respondent] Pioneer
Insurance, and a representative of the latter, who is also an adjuster of Vesper Insurance Adjusters-Appraisers [Vesper],
investigated the incident; and [respondent] Pioneer Insurance required him to sign a Release of Claim and Subrogation
Receipt, and finally paid him the sum of P1,163,250.00 for his claim.

Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer Insurance tasked, among others, with the receipt
of claims and documents from the insured, investigation of the said claim, inspection of damages, taking of pictures of insured
unit, and monitoring of the processing of the claim until its payment; he monitored the processing of Sees claim when the latter
reported the incident to [respondent] Pioneer Insurance; [respondent] Pioneer Insurance assigned the case to Vesper who
verified Sees report, conducted an investigation, obtained the necessary documents for the processing of the claim, and
tendered a settlement check to See; they evaluated the case upon receipt of the subrogation documents and the adjusters
report, and eventually recommended for its settlement for the sum of P1,163,250.00 which was accepted by See; the matter
was referred and forwarded to their counsel, R.B. Sarajan & Associates, who prepared and sent demand letters to [petitioner]
Durban Apartments and [defendant] Justimbaste, who did not pay [respondent] Pioneer Insurance notwithstanding their
receipt of the demand letters; and the services of R.B. Sarajan & Associates were engaged, for P100,000.00 as attorneys fees
plus P3,000.00 per court appearance, to prosecute the claims of [respondent] Pioneer Insurance against [petitioner] Durban
Apartments and Justimbaste before the lower court.

Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer Insurance assigned to Vesper the
investigation of Sees case, and he was the one actually assigned to investigate it; he conducted his investigation of the matter
by interviewing See, going to the City Garden Hotel, required subrogation documents from See, and verified the authenticity of
the same; he learned that it is the standard procedure of the said hotel as regards its valet parking service to assist their
guests as soon as they get to the lobby entrance, park the cars for their guests, and place the ignition keys in their safety key
box; considering that the hotel has only twelve (12) available parking slots, it has an agreement with Equitable PCI Bank
permitting the hotel to use the parking space of the bank at night; he also learned that a Hyundai Starex van was carnapped at
the said place barely a month before the occurrence of this incident because Liberty Insurance assigned the said incident to
Vespers, and Horlador and defendant x x x Justimbaste admitted the occurrence of the same in their sworn statements before
the Anti-Carnapping Unit of the Makati City Police; upon verification with the PNP TMG [Unit] in Camp Crame, he learned that
Sees Vitara has not yet been recovered; upon evaluation, Vesper recommended to [respondent] Pioneer Insurance to settle
Sees claim for P1,045,750.00; See contested the recommendation of Vesper by reasoning out that the 10% depreciation
should not be applied in this case considering the fact that the Vitara was used for barely eight (8) months prior to its loss; and
[respondent] Pioneer Insurance acceded to Sees contention, tendered the sum of P1,163,250.00 as settlement, the former
accepted it, and signed a release of claim and subrogation receipt.

The lower court denied the Motion to Admit Pre-Trial Brief and Motion for Reconsideration field by [petitioner] Durban
Apartments and Justimbaste in its Orders dated May 4, 2005 and October 20, 2005, respectively, for being devoid of merit. [3]

Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as follows:

WHEREFORE, judgment is hereby rendered ordering [petitioner Durban Apartments Corporation] to pay [respondent Pioneer
Insurance and Surety Corporation] the sum of P1,163,250.00 with legal interest thereon from July 22, 2003 until the obligation
is fully paid and attorneys fees and litigation expenses amounting to P120,000.00.

SO ORDERED.[4]

On appeal, the appellate court affirmed the decision of the trial court, viz.:

WHEREFORE, premises considered, the Decision dated January 27, 2006 of the RTC, Branch 66, Makati City in Civil Case
No. 03-857 is hereby AFFIRMED insofar as it holds [petitioner] Durban Apartments Corporation solely liable to [respondent]
Pioneer Insurance and Surety Corporation for the loss of Jeffrey Sees Suzuki Grand Vitara.

SO ORDERED.[5]

Hence, this recourse by petitioner.

The issues for our resolution are:

1. Whether the lower courts erred in declaring petitioner as in default for failure to appear at the pre-trial conference and to file a pre-trial brief;

2. Corollary thereto, whether the trial court correctly allowed respondent to present evidence ex-parte;

3. Whether petitioner is liable to respondent for attorneys fees in the amount of P120,000.00; and

4. Ultimately, whether petitioner is liable to respondent for the loss of Sees vehicle.

The petition must fail.

We are in complete accord with the common ruling of the lower courts that petitioner was in default for failure to appear at the pre-trial
conference and to file a pre-trial brief, and thus, correctly allowed respondent to present evidence ex-parte. Likewise, the lower courts did not err

in holding petitioner liable for the loss of Sees vehicle.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate court, are accorded

the highest degree of respect and are considered conclusive between the parties. [6] A review of such findings by this Court is not warranted

except upon a showing of highly meritorious circumstances, such as: (1) when the findings of a trial court are grounded entirely on speculation,

surmises, or conjectures; (2) when a lower courts inference from its factual findings is manifestly mistaken, absurd, or impossible; (3) when there

is grave abuse of discretion in the appreciation of facts; (4) when the findings of the appellate court go beyond the issues of the case, or fail to

notice certain relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a misappreciation of facts; (6) when

the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised on the absence of evidence,

or are contradicted by evidence on record. [7] None of the foregoing exceptions permitting a reversal of the assailed decision exists in this

instance.

Petitioner urges us, however, that strong [and] compelling reason[s] such as the prevention of miscarriage of justice warrant a suspension of the

rules and excuse its and its counsels non-appearance during the pre-trial conference and their failure to file a pre-trial brief.

We are not persuaded.

Rule 18 of the Rules of Court leaves no room for equivocation; appearance of parties and their counsel at the pre-trial conference, along with the

filing of a corresponding pre-trial brief, is mandatory, nay, their duty. Thus, Section 4 and Section 6 thereof provide:

SEC. 4. Appearance of parties.It shall be the duty of the parties and their counsel to appear at the pre-trial. The non-
appearance of a party may be excused only if a valid cause is shown therefor or if a representative shall appear in his behalf
fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to
enter into stipulations or admissions of facts and documents.

SEC. 6. Pre-trial brief.The parties shall file with the court and serve on the adverse party, in such manner as shall ensure their
receipt thereof at least three (3) days before the date of the pre-trial, their respective pre-trial briefs which shall contain, among
others:

xxxx

Failure to file the pre-trial brief shall have the same effect as failure to appear at the pre-trial.

Contrary to the foregoing rules, petitioner and its counsel of record were not present at the scheduled pre-trial conference. Worse, they did not
file a pre-trial brief. Their non-appearance cannot be excused as Section 4, in relation to Section 6, allows only two exceptions: (1) a valid

excuse; and (2) appearance of a representative on behalf of a party who is fully authorized in writing to enter into an amicable settlement, to

submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and documents.

Petitioner is adamant and harps on the fact that November 28, 2003 was merely the first scheduled date for the pre-trial conference, and a

certain Atty. Mejia appeared on its behalf. However, its assertion is belied by its own admission that, on said date, this Atty. Mejia did not have in

his possession the Special Power of Attorney issued by petitioners Board of Directors.

As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial on October 27, 2003, thirty-two (32) days prior to the

scheduled conference. In that span of time, Atty. Lee, who was charged with the duty of notifying petitioner of the scheduled pre-trial

conference,[8] petitioner, and Atty. Mejia should have discussed which lawyer would appear at the pre-trial conference with petitioner, armed with

the appropriate authority therefor. Sadly, petitioner failed to comply with not just one rule; it also did not proffer a reason why it likewise failed to

file a pre-trial brief. In all, petitioner has not shown any persuasive reason why it should be exempt from abiding by the rules.

The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and with only his bare allegation that he is counsel for

petitioner, was correctly rejected by the trial court. Accordingly, the trial court, as affirmed by the appellate court, did not err in allowing
respondent to present evidence ex-parte.

Former Chief Justice Andres R. Narvasas words continue to resonate, thus:

Everyone knows that a pre-trial in civil actions is mandatory, and has been so since January 1, 1964. Yet to this day its place
in the scheme of things is not fully appreciated, and it receives but perfunctory treatment in many courts. Some courts consider
it a mere technicality, serving no useful purpose save perhaps, occasionally to furnish ground for non-suiting the plaintiff, or
declaring a defendant in default, or, wistfully, to bring about a compromise. The pre-trial device is not thus put to full use.
Hence, it has failed in the main to accomplish the chief objective for it: the simplification, abbreviation and expedition of the
trial, if not indeed its dispensation. This is a great pity, because the objective is attainable, and with not much difficulty, if the
device were more intelligently and extensively handled.

xxxx

Consistently with the mandatory character of the pre-trial, the Rules oblige not only the lawyers but the parties as well
to appear for this purpose before the Court, and when a party fails to appear at a pre-trial conference (he) may be non-suited
or considered as in default. The obligation to appear denotes not simply the personal appearance, or the mere physical
 presentation by a party of ones self, but connotes as importantly, preparedness to go into the different subject assigned by law
to a pre-trial. And in those instances where a party may not himself be present at the pre-trial, and another person substitutes
for him, or his lawyer undertakes to appear not only as an attorney but in substitution of the clients person, it is imperative for
that representative of the lawyer to have special authority to make such substantive agreements as only the client otherwise
has capacity to make. That special authority should ordinarily be in writing or at the very least be duly established by evidence
other than the self-serving assertion of counsel (or the proclaimed representative) himself. Without that special authority, the
lawyer or representative cannot be deemed capacitated to appear in place of the party; hence, it will be considered that the
latter has failed to put in an appearance at all, and he [must] therefore be non-suited or considered as in default,
notwithstanding his lawyers or delegates presence.[9]

We are not unmindful that defendants (petitioners) preclusion from presenting evidence during trial does not automatically result in a judgment in

favor of plaintiff (respondent). The plaintiff must still substantiate the allegations in its complaint. [10] Otherwise, it would be inutile to continue with

the plaintiffs presentation of evidence each time the defendant is declared in default.

In this case, respondent substantiated the allegations in its complaint, i.e., a contract of necessary deposit existed between the insured See and

petitioner. On this score, we find no error in the following disquisition of the appellate court:

[The] records also reveal that upon arrival at the City Garden Hotel, See gave notice to the doorman and parking attendant of
the said hotel, x x x Justimbaste, about his Vitara when he entrusted its ignition key to the latter. x x x Justimbaste issued a
valet parking customer claim stub to See, parked the Vitara at the Equitable PCI Bank parking area, and placed the ignition
key inside a safety key box while See proceeded to the hotel lobby to check in. The Equitable PCI Bank parking area became
an annex of City Garden Hotel when the management of the said bank allowed the parking of the vehicles of hotel guests
thereat in the evening after banking hours.[11]

Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by persons in hotels or

inns:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the
obligation of safely keeping it and returning the same. If the safekeeping of the thing delivered is not the principal purpos e of
the contract, there is no deposit but some other contract.

Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of
hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of
the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their
substitutes advised relative to the care and vigilance of their effects.

Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner, through the latters

employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from Sees delivery, when

he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with the obligation of safely keeping and returning it.

Ultimately, petitioner is liable for the loss of Sees vehicle.

Lastly, petitioner assails the lower courts award of attorneys fees to respondent in the amount of P120,000.00. Petitioner claims that the

award is not substantiated by the evidence on record.

We disagree.

While it is a sound policy not to set a premium on the right to litigate, [12] we find that respondent is entitled to reasonable attorneys fees.

Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect its interest, [13] or when the court deems it just

and equitable.[14] In this case, petitioner refused to answer for the loss of Sees vehicle, which was deposited with it for safekeeping. This refusal

constrained respondent, the insurer of See, and subrogated to the latters right, to litigate and incur expenses. However, we reduce the award

of P120,000.00 to P60,000.00 in view of the simplicity of the issues involved in this case.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 86869 is AFFIRMED with

the MODIFICATION that the award of attorneys fees is reduced to P60,000.00. Costs against petitioner.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson
 DIOSDADO M. PERALTA ROBERTO A. ABAD
Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

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

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

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

RENATO C. CORONA
Chief Justice
CA-Agro Industrial Devt Corp vs CA 219 SCRA 426
Facts:

On July 3, 1979, petitioner (through its President- Sergio Aguirre) and the Spouses Ramon and Paula Pugao entered into an agreement
whereby the former purchase two parcel of lands from the latter. It was paid of downpayment while the balance was covered by there postdated
checks. Among the terms and conditions embodied in the agreement were the titles shall be transferred to the petitioner upon full payment of the
price and the owner's copies of the certificate of titles shall be deposited in a safety deposit box of any bank. Petitioner and the Pugaos then
rented Safety Deposit box of private respondent Security Bank and Trust Company.

Thereafter, a certain Margarita Ramos offered to buy from the petitioner. Mrs Ramos demand the execution of a deed of sale which necessarily
entailed the production of the certificate of titles. In view thereof, Aguirre, accompanied by the Pugaos, then proceed to the respondent Bank to
open the safety deposit box and get the certificate of titles. However, when opened in the presence of the Bank's representative, the box yielded
no such certificate. Because of the delay in the reconstitution of the title, Mrs Ramos withdrew her earlier offer to purchase.

Hence this petition.

Issue:

Whether or not the contract of rent between a commercial bank and another party for the use of safety deposit box can be considered alike to a
lessor-lessee relationship.

Ruling:

The petitioner is correct in making the contention that the contract for the rent of the deposit box is not a ordinary contract of lease as defined in
Article 1643 of the Civil Code. However, the Court do not really subscribe to its view that the same is a contract of deposit that is to be strictly
governed by the provisions in Civil Code on Deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as an
ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the
joint renters- the petitioner and the Pugaos. The guard key of the box remained with the respondent bank; without this key, neither of the renters
could open the box. On the other hand, the respondent bank could not likewise open the box without the renter's key. The Court further assailed
that the petitioner is correct in applying American Jurisprudence. Herein, the prevailing view is that the relation between the a bank renting out
safe deposits boxes and its customer with respect to the contents of the box is that of a bail or/ and bailee, the bailment being for hire and mutual
benefits. That prevailing rule has been adopted in Section 72 of the General Banking Act.

Section 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other that building and loan
associations may perform the following services:

(a) Receive in custody funds, document and valuable objects and rents safety deposits taxes for the safeguard of such effects.

xxx xxx xxx

The bank shall perform the services permitted under subsections (a) (b) and (c) of this section as depositories or as agents.
 [G.R. No. 160544. February 21, 2005]

TRIPLE-V vs. FILIPINO MERCHANTS

THIRD DIVISION

Gentlemen:

Quoted hereunder, for your information, is a resolution of this Court dated FEB 21 2005.

G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants Insurance Company, Inc.)

Assailed in this petition for review on certiorari is the decision [1]cralaw dated October 21, 2003 of the Court of Appeals in CA-G.R. CV No. 71223,
affirming an earlier decision of the Regional Trial Court at Makati City, Branch 148, in its Civil Case No. 98-838, an action for damages thereat
filed by respondent Filipino Merchants Insurance, Company, Inc., against the herein petitioner, Triple-V Food Services, Inc.

On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-Anne De Asis (De Asis) dined at petitioner's Kamayan
Restaurant at 15 West Avenue, Quezon City. De Asis was using a Mitsubishi Galant Super Saloon Model 1995 with plate number UBU 955,
assigned to her by her employer Crispa Textile Inc. (Crispa). On said date, De Asis availed of the valet parking service of petitioner and
entrusted her car key to petitioner's valet counter. A corresponding parking ticket was issued as receipt for the car. The car was then parked by
petitioner's valet attendant, a certain Madridano, at the designated parking area. Few minutes later, Madridano noticed that the car was not in its
parking slot and its key no longer in the box where valet attendants usually keep the keys of cars entrusted to them. The car was never
recovered. Thereafter, Crispa filed a claim against its insurer, herein respondent Filipino Merchants Insurance Company, Inc. (FMICI). Having
indemnified Crispa in the amount of P669.500 for the loss of the subject vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at
Makati City an action for damages against petitioner Triple-V Food Services, Inc., thereat docketed as Civil Case No. 98-838 which was raffled to
Branch 148.

In its answer, petitioner argued that the complaint failed to aver facts to support the allegations of recklessness and negligence committed in the
safekeeping and custody of the subject vehicle, claiming that it and its employees wasted no time in ascertaining the loss of the car and in
informing De Asis of the discovery of the loss. Petitioner further argued that in accepting the complimentary valet parking service, De Asis
received a parking ticket whereunder it is so provided that "[Management and staff will not be responsible for any loss of or damage incurred on
the vehicle nor of valuables contained therein", a provision which, to petitioner's mind, is an explicit waiver of any right to claim indemnity for the
loss of the car; and that De Asis knowingly assumed the risk of loss when she allowed petitioner to park her vehicle, adding that its valet parking
service did not include extending a contract of insurance or warranty for the loss of the vehicle.

During trial, petitioner challenged FMICI's subrogation to Crispa's right to file a claim for the loss of the car, arguing that theft is not a risk insured
against under FMICI's Insurance Policy No. PC-5975 for the subject vehicle.

In a decision dated June 22, 2001, the trial court rendered judgment for respondent FMICI, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff (FMICI) and against the defendant Triple V (herein
petitioner) and the latter is hereby ordered to pay plaintiff the following:

1. The amount of P669,500.00, representing actual damages plus compounded (sic);

2. The amount of P30,000.00 as acceptance fee plus the amount equal to 25% of the total amount due as attorney's fees;

3. The amount of P50,000.00 as exemplary damages;

4. Plus, cost of suit.

Defendant Triple V is not therefore precluded from taking appropriate action against defendant Armando Madridano.

SO ORDERED.

Obviously displeased, petitioner appealed to the Court of Appeals reiterating its argument that it was not a depositary of the subject car and that
it exercised due diligence and prudence in the safe keeping of the vehicle, in handling the car-napping incident and in the supervision of its
employees. It further argued that there was no valid subrogation of rights between Crispa and respondent FMICI.

In a decision dated October 21, 2003,[2]cralaw the Court of Appeals dismissed petitioner's appeal and affirmed the appealed decision of the trial
court, thus:

WHEREFORE, based on the foregoing premises, the instant appeal is hereby DISMISSED. Accordingly, the assailed June 22, 2001 Decision of
the RTC of Makati City - Branch 148 in Civil Case No. 98-838 is AFFIRMED.

SO ORDERED.

In so dismissing the appeal and affirming the appealed decision, the appellate court agreed with the findings and conclusions of the trial court
that: (a) petitioner was a depositary of the subject vehicle; (b) petitioner was negligent in its duties as a depositary thereof and as an employer of
the valet attendant; and (c) there was a valid subrogation of rights between Crispa and respondent FMICI.

Hence, petitioner's present recourse.

We agree with the two (2) courts below.

When De Asis entrusted the car in question to petitioners valet attendant while eating at petitioner's Kamayan Restaurant, the former expected
the car's safe return at the end of her meal. Thus, petitioner was constituted as a depositary of the same car. Petitioner cannot evade liability by
arguing that neither a contract of deposit nor that of insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of
its free valet parking service.

In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and returning the
same.[3]cralaw A deposit may be constituted even without any consideration. It is not necessary that the depositary receives a fee before it
becomes obligated to keep the item entrusted for safekeeping and to return it later to the depositor.

Specious is petitioner's insistence that the valet parking claim stub it issued to De Asis contains a clear exclusion of its liability and operates as
an explicit waiver by the customer of any right to claim indemnity for any loss of or damage to the vehicle.

The parking claim stub embodying the terms and conditions of the parking, including that of relieving petitioner from any loss or damage to the
car, is essentially a contract of adhesion, drafted and prepared as it is by the petitioner alone with no participation whatsoever on the part of the
customers, like De Asis, who merely adheres to the printed stipulations therein appearing. While contracts of adhesion are not void in
themselves, yet this Court will not hesitate to rule out blind adherence thereto if they prove to be one-sided under the attendant facts and
circumstances.[4]cralaw

Hence, and as aptly pointed out by the Court of Appeals, petitioner must not be allowed to use its parking claim stub's exclusionary stipulation as
a shield from any responsibility for any loss or damage to vehicles or to the valuables contained therein. Here, it is evident that De Asis
deposited the car in question with the petitioner as part of the latter's enticement for customers by providing them a safe parking space within the
vicinity of its restaurant. In a very real sense, a safe parking space is an added attraction to petitioner's restaurant business because customers
are thereby somehow assured that their vehicle are safely kept, rather than parking them elsewhere at their own risk. Having entrusted the
subject car to petitioner's valet attendant, customer De Asis, like all of petitioner's customers, fully expects the security of her car while at
petitioner's premises/designated parking areas and its safe return at the end of her visit at petitioner's restaurant.

Petitioner's argument that there was no valid subrogation of rights between Crispa and FMICI because theft was not a risk insured against under
FMICI's Insurance Policy No. PC-5975 holds no water.

Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa contains, among others things, the following item: "Insured's Estimate
of Value of Scheduled Vehicle- P800.000".[5]cralaw On the basis of such item, the trial court concluded that the coverage includes a full
comprehensive insurance of the vehicle in case of damage or loss. Besides, Crispa paid a premium of P10,304 to cover theft. This is clearly
shown in the breakdown of premiums in the same policy. [6]cralaw Thus, having indemnified CRISPA for the stolen car, FMICI, as correctly ruled
by the trial court and the Court of Appeals, was properly subrogated to Crispa's rights against petitioner, pursuant to Article 2207 of the New Civil
Code[7].

Anent the trial court's findings of negligence on the part of the petitioner, which findings were affirmed by the appellate court, we have
consistently ruled that findings of facts of trial courts, more so when affirmed, as here, by the Court of Appeals, are conclusive on this Court
unless the trial court itself ignored, overlooked or misconstrued facts and circumstances which, if considered, warrant a reversal of the outcome
of the case.[8]cralaw This is not so in the case at bar. For, we have ourselves reviewed the records and find no justification to deviate from the
trial court's findings.

WHEREFORE, petition is hereby DENIED DUE COURSE.

SO ORDERED.

Very truly yours,

(Sgd.) LUCITA ABJELINA-SORIANO

Clerk of Court
March 11, 2005

Food chain owner Triple-V Food Services, Inc. was recently found liable for the loss of a car entrusted to the valet parking service of one of its
restaurants.

In a seven-page resolution, the Supreme Court’s Third Division denied due course to Triple-V’s petition and held it responsible for the loss of a
Mitsubishi Galant car deposited by one Mary Jo-Anne De Asis with the valet parking service of Kamayan restaurant on West Avenue, Quezon
City.

The Court said Triple-V cannot evade liability by claiming that availing of its free valet parking service did not give rise to a contract of deposit or
insurance for the safety of the car. “When De Asis entrusted the car to the restaurant’s valet attendant, she expected the car’s safe return at the
end of her meal. Thus, petitioner was constituted as a depositary of the same car,” the Court said.

The Court brushed aside Triple-V’s claim that under the terms of the valet parking claim stub, the restaurant was relieved from responsibility for
any loss or damage to the vehicle and that by availing of the service, De Asis had waived her right to claim indemnity. The Court pointed out that
the parking claim stub was a contract of adhesion prepared by the company with no participation from customers, who merely adhered to the
stipulations. Triple-V could not be allowed to use this stipulation as a shield from liability, it said.

The Court added, “[w]hile contracts of adhesion are not void in themselves, yet this Court will not hesitate to rule out blind adherence thereto if
they prove to be one-sided under the attendant facts and circumstances.”

The Court also said that the free valet service was part of the restaurant’s enticement for customers since it assured them that their vehicles
would be safely kept within the restaurant’s vicinity, rather than parked elsewhere at their own risk. Having then entrusted the car to Triple-V’s
valet attendant, De Asis, like all of the restaurant’s customers, fully expected the security of her car while in the designated parking area and its
safe return at the end of her visit, the Court stressed.

The controversy stemmed from a case for damages filed with the Makati Regional Trial Court by the Filipino Merchants Insurance Company, Inc.
against Triple-V. FMICI filed the suit after it paid the car insurance claims of Crispa Textile, Inc., owner of the vehicle and De Asis’ employer. The
trial court ruled in FMICI’s favor, which ruling was affirmed by the Court of Appeals. (GR No. 160544, Triple-V Food Services, Inc. v. Filipino
Merchants Insurance Company, Inc., February 21, 2005)
 THIRD DIVISION

[G.R. No. 142591. April 30, 2003]

JOSEPH CHAN, WILSON CHAN and LILY CHAN, petitioners, vs. BONIFACIO S. MACEDA, JR., respondent.

DECISION
SANDOVAL-GUTIERREZ, J.:

A judgment of default does not automatically imply admission by the defendant of the facts and causes of action of the plaintiff. The Rules
of Court require the latter to adduce evidence in support of his allegations as an indispensable condition before final judgment could be given in
his favor.[1] The trial judge has to evaluate the allegations with the highest degree of objectivity and certainty. He may sustain an allegation for
which the plaintiff has adduced sufficient evidence, otherwise, he has to reject it. In the case at bar, judicial review is imperative to avert the
award of damages that is unreasonable and without evidentiary support.
Assailed in this petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the Decision [2] dated June 17, 1999
of the Court of Appeals in CA-G.R. CV No. 57323, entitled Bonifacio S. Maceda, Jr. versus Joseph Chan, et. al., affirming in toto the
Decision[3] dated December 26, 1996 of the Regional Trial Court, Branch 160, Pasig City, in Civil Case No. 53044.
The essential antecedents are as follows:
On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a P7.3 million loan from the Development Bank of the Philippines
for the construction of his New Gran Hotel Project in Tacloban City.
Thereafter, on September 29, 1976, respondent entered into a building construction contract with Moreman Builders Co., Inc.,
(Moreman). They agreed that the construction would be finished not later than December 22, 1977.
Respondent purchased various construction materials and equipment in Manila. Moreman, in turn, deposited them in the warehouse of
Wilson and Lily Chan, herein petitioners. The deposit was free of charge.
Unfortunately, Moreman failed to finish the construction of the hotel at the stipulated time. Hence, on February 1, 1978, respondent filed
with the then Court of First Instance (CFI, now Regional Trial Court), Branch 39, Manila, an action for rescission and damages against Moreman,
docketed as Civil Case No. 113498.

On November 28, 1978, the CFI rendered its Decision [4] rescinding the contract between Moreman and respondent and awarding to the
latter P 445,000.00 as actual, moral and liquidated damages; P20,000.00 representing the increase in the construction materials;
and P35,000.00 as attorneys fees. Moreman interposed an appeal to the Court of Appeals but the same was dismissed on March 7, 1989 for
being dilatory. He elevated the case to this Court via a petition for review on certiorari. In a Decision[5] dated February 21, 1990, we denied the
petition. On April 23, 1990,[6] an Entry of Judgment was issued.
Meanwhile, during the pendency of the case, respondent ordered petitioners to return to him the construction materials and equipment
which Moreman deposited in their warehouse. Petitioners, however, told them that Moreman withdrew those construction materials in 1977.
Hence, on December 11, 1985, respondent filed with the Regional Trial Court, Branch 160, Pasig City, an action for damages with an
application for a writ of preliminary attachment against petitioners, [7] docketed as Civil Case No. 53044.
In the meantime, on October 30, 1986, respondent was appointed Judge of the Regional Trial Court, Branch 12, San Jose Antique.[8]
On August 25, 1989, or after almost four (4) years, the trial court dismissed respondents complaint for his failure to prosecute and for lack
of interest.[9] On September 6, 1994, or five years thereafter, respondent filed a motion for reconsideration, but the same was denied in the Order
dated September 9, 1994 because of the failure of respondent and his counsel to appear on the scheduled hearing.[10]
On October 14, 1994, respondent filed a second motion for reconsideration. This time, the motion was granted and the case was
ordered reinstated on January 10, 1995, or ten (10) years from the time the action was originally filed. [11]Thereafter, summons, together
with the copies of the complaint and its annexes, were served on petitioners.
On March 2, 1995, counsel for petitioners filed a motion to dismiss on several grounds. [12] Respondent, on the other hand, moved to
declare petitioners in default on the ground that their motion to dismiss was filed out of time and that it did not contain any notice of hearing.[13]
On April 27, 1995, the trial court issued an order declaring petitioners in default. [14]
Petitioners filed with the Court of Appeals a petition for certiorari[15] to annul the trial courts order of default, but the same was dismissed in
its Order[16] dated August 31, 1995. The case reached this Court, and in a Resolution dated October 25, 1995, [17] we affirmed the assailed order
of the Court of Appeals. On November 29, 1995,[18] the corresponding Entry of Judgment was issued.
Thus, upon the return of the records to the RTC, Branch 160, Pasig City, respondent was allowed to present his evidence ex-parte.
Upon motion of respondent, which was granted by the trial court in its Order dated April 29, 1996, [19] the depositions of his witnesses,
namely, Leonardo Conge, Alfredo Maceda and Engr. Damiano Nadera were taken in the Metropolitan Trial Court in Cities, Branch 2, Tacloban
City.[20] Deponent Leonardo Conge, a labor contractor, testified that on December 14 up to December 24, 1977, he was contracted by petitioner
Lily Chan to get bags of cement from the New Gran Hotel construction site and to store the same into the latters warehouse in Tacloban
City. Aside from those bags of cement, deponent also hauled about 400 bundles of steel bars from the same construction site, upon order of
petitioners. Corresponding delivery receipts were presented and marked as Exhibits A, A-1,A-2,A-3 and A-4.[21]
Deponent Alfredo Maceda testified that he was respondents Disbursement and Payroll Officer who supervised the construction and kept
inventory of the properties of the New Gran Hotel. While conducting the inventory on November 23, 1977, he found that the approximate total
value of the materials stored in petitioners warehouse was P214,310.00. This amount was accordingly reflected in the certification signed by
Mario Ramos, store clerk and representative of Moreman who was present during the inventory. [22]
Deponent Damiano Nadera testified on the current cost of the architectural and structural requirements needed to complete the
construction of the New Gran Hotel.[23]
On December 26, 1996, the trial court rendered a decision in favor of respondent, thus:

WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendants to jointly and severally pay plaintiff:

1) P1,930,000.00 as actual damages;

2) P2,549,000.00 as actual damages;

3) Moral damages of P150,000.00; exemplary damages of P50,000.00 and attorneys fees of P50,000.00 and to pay the costs.

SO ORDERED.

The trial court ratiocinated as follows:

The inventory of other materials, aside from the steel bars and cement is found highly reliable based on first, the affidavit of Arthur Edralin dated
September 15, 1979, personnel officer of Moreman Builders that he was assigned with others to guard the warehouse; (Exhs. M & O); secondly,
the inventory (Exh. C) dated November 23, 1977 shows (sic) deposit of assorted materials; thirdly, that there were items in the warehouse as of
February 3, 1978 as shown in the balance sheet of Moremans stock clerk Jose Cedilla.

Plaintiff is entitled to payment of damages for the overhauling of materials from the construction site by Lily Chan without the knowledge and
consent of its owner. Article 20 of the Civil Code provides:

Art. 20. Every person who contrary to law, willfully or negligently caused damage to another, shall indemnify the latter for the same.

As to the materials stored inside the bodega of defendant Wilson Chan, the inventory (Exh. C) show (sic), that the same were owned by the New
Gran Hotel. Said materials were stored by Moreman Builders Co., Inc. since it was attested to by the warehouseman as without any lien or
encumbrances, the defendants are duty bound to release it. Article 21 of the Civil Code provides:

Art. 21. Any person who willfully caused loss or injury to another in a manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.

Plaintiff is entitled to payment of actual damages based on the inventory as of November 23, 1977 amounting to P1,930,080.00 (Exhs. Q & Q-
1). The inventory was signed by the agent Moreman Builders Corporation and defendants.

Plaintiff is likewise entitled to payment of 12,500 bags of cement and 400 bundles of steel bars totaling P2,549,000.00 (Exhs. S & S-1; Exhs. B &
B-3).

Defendants should pay plaintiff moral damages of P150,000.00; exemplary damages of P50,000.00 and attorneys fees of P50,000.00 and to pay
the costs.

The claim of defendant for payment of damages with respect to the materials appearing in the balance sheets as of February 3, 1978 in the
amount of P3,286,690.00, not having been established with enough preponderance of evidence cannot be given weight. [24]

Petitioners then elevated the case to the Court of Appeals, docketed as CA-G.R. CV No. 57323. On June 17, 1999, the Appellate Court
rendered the assailed Decision[25] affirming in toto the trial courts judgment, ratiocinating as follows:

Moreover, although the prayer in the complaint did not specify the amount of damages sought, the same was satisfactorily proved during the
trial. For damages to be awarded, it is essential that the claimant satisfactorily prove during the trial the existence of the factual basis thereof and
its causal connection with the adverse partys act (PAL, Inc. vs. NLRC, 259 SCRA 459. In sustaining appellees claim for damages, the court a
quo held as follows:

The Court finds the contention of plaintiff that materials and equipment of plaintiff were stored in the warehouse of defendants and admitted by
defendants in the certification issued to Sheriff Borja. x x x

Evidence further revealed that assorted materials owned by the New Gran Hotel (Exh. C) were deposited in the bodega of defendant Wilson
Chan with a total market value of P1,930,000.00, current price.

The inventory of other materials, aside from the steel bars and cement, is highly reliable based on first, the affidavit of Arthur Edralin dated
September 15, 1979, personnel officer of Moreman Builders; that he was assigned, with others to guard the warehouse (Exhs. M & O); secondly,
the inventory (Exh. C) November 23, 1977 shows deposit of assorted materials; thirdly, that there were items in the warehouse as of February 3,
1978, as shown in the balance sheet of Moremans stock clerk, Jose Cedilla (pp. 60-61, Rollo).

The Court affirms the above findings.

Well settled is the rule that absent any proper reason to depart from the rule, factual conclusions reached by the trial court are not to be
disturbed (People vs. Dupali, 230 SCRA 62). Hence, in the absence of any showing that serious and substantial errors were committed by the
lower court in the appraisal of the evidence, the trial judges assessment of the credibility of the witnesses is accorded great weight and respect
(People vs. Jain, 254 SCRA 686). And, there being absolutely nothing on record to show that the court a quo overlooked, disregarded, or
misinterpreted facts of weight and significance, its factual findings and conclusions must be given great weight and should not be disturbed on
appeal.

WHEREFORE, being in accord with law and evidence, the appealed decision is hereby AFFIRMED in toto.

Hence, this petition for review on certiorari anchored on the following grounds:
I

The Court of Appeals acted with grave abuse of discretion and under a misapprehension of the law and the facts when it affirmed in
toto the award of actual damages made by the trial court in favor of respondent in this case.

II

The awards of moral and exemplary damages of the trial court to respondent in this case and affirmed in toto by the Court of Appeals
are unwarranted by the evidence presented by respondent at the ex parte hearing of this case and should, therefore, be eliminated or
at least reduced.

III

The award of attorneys fees by the trial court to respondent in this case and affirmed by the Court of Appeals should be deleted
because of the failure of the trial court to state the legal and factual basis of such award.

Petitioners contend inter alia that the actual damages claimed by respondent in the present case were already awarded to him in Civil Case
No. 113498[26] and hence, cannot be recovered by him again. Even assuming that respondent is entitled to damages, he can not
recover P4,479,000.00 which is eleven (11) times more than the total actual damages of P365,000.00 awarded to him in Civil Case No.
113498.[27]
In his comment on the petition, respondent maintains that petitioners, as depositaries under the law, have both the fiduciary and
extraordinary obligations not only to safely keep the construction material deposited, but also to return them with all their products, accessories
and accessions, pursuant to Articles 1972, [28] 1979,[29] 1983,[30] and 1988[31] of the Civil Code. Considering that petitioners duty to return the
construction materials in question has already become impossible, it is only proper that the prices of those construction materials in 1996 should
be the basis of the award of actual damages. This is the only way to fulfill the duty to return contemplated in the applicable laws.[32] Respondent
further claims that petitioners must bear the increase in market prices from 1977 to 1996 because liability for fraud includes all damages which
may be reasonably attributed to the non-performance of the obligation. Lastly, respondent insists that there can be no double recovery because
in Civil Case No. 113498,[33] the parties were respondent himself and Moreman and the cause of action was the rescission of their building
contract. In the present case, however, the parties are respondent and petitioners and the cause of action between them is for recovery of
damages arising from petitioners failure to return the construction materials and equipment.

Obviously, petitioners assigned errors call for a review of the lower courts findings of fact.
Succinct is the rule that this Court is not a trier of facts and does not normally undertake the re-examination of the evidence submitted by
the contending parties during the trial of the case considering that findings of fact of the Court of Appeals are generally binding and conclusive
on this Court.[34] The jurisdiction of this Court in a petition for review on certiorari is limited to reviewing only errors of law, [35] not of fact, unless it
is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures; (2) the inference is manifestly
mistaken, absurd and impossible; (3) there is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the findings
of fact are conflicting; and (6) the Court of Appeals, in making its findings went beyond the issues of the case and the same is contrary to the
admission of both parties.[36]
Petitioners submit that this case is an exception to the general rule since both the trial court and the Court of Appeals based their
judgments on misapprehension of facts.
We agree.
At the outset, the case should have been dismissed outright by the trial court because of patent procedural infirmities. It bears stressing
that the case was originally filed on December 11, 1985. Four (4) years thereafter, or on August 25, 1989, the case was dismissed for
respondents failure to prosecute. Five (5) years after, or on September 6, 1994, respondent filed his motion for reconsideration. From here, the
trial court already erred in its ruling because it should have dismissed the motion for reconsideration outright as it was filed far beyond the fifteen-
day reglementary period.[37] Worse, when respondent filed his second motion for reconsideration on October 14, 1994, a prohibited
pleading,[38] the trial court still granted the same and reinstated the case on January 10, 1995. This is a glaring gross procedural error committed
by both the trial court and the Court of Appeals.
Even without such serious procedural flaw, the case should also be dismissed for utter lack of merit.

It must be stressed that respondents claim for damages is based on petitioners failure to return or to release to him the construction
materials and equipment deposited by Moreman to their warehouse. Hence, the essential issues to be resolved are: (1) Has respondent
presented proof that the construction materials and equipment were actually in petitioners warehouse when he asked that the same be turned
over to him? (2) If so, does respondent have the right to demand the release of the said materials and equipment or claim for damages?
Under Article 1311 of the Civil Code, contracts are binding upon the parties (and their assigns and heirs) who execute them. When there is
no privity of contract, there is likewise no obligation or liability to speak about and thus no cause of action arises. Specifically, in an action against
the depositary, the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of
action.[39] A depositary is obliged to return the thing to the depositor, or to his heirs or successors, or to the person who may have been
designated in the contract. [40]
In the present case, the record is bereft of any contract of deposit, oral or written, between petitioners and respondent. If at all, it was only
between petitioners and Moreman. And granting arguendo that there was indeed a contract of deposit between petitioners and Moreman, it is
still incumbent upon respondent to prove its existence and that it was executed in his favor. However, respondent miserably failed to do so. The
only pieces of evidence respondent presented to prove the contract of deposit were the delivery receipts.[41] Significantly, they are unsigned
and not duly received or authenticated by either Moreman, petitioners or respondent or any of their authorized representatives. Hence,
those delivery receipts have no probative value at all. While our laws grant a person the remedial right to prosecute or institute a civil action
against another for the enforcement or protection of a right, or the prevention or redress of a wrong, [42] every cause of action ex-contractu must
be founded upon a contract, oral or written, express or implied.
Moreover, respondent also failed to prove that there were construction materials and equipment in petitioners warehouse at the time he
made a demand for their return.
Considering that respondent failed to prove (1) the existence of any contract of deposit between him and petitioners, nor between the latter
and Moreman in his favor, and (2) that there were construction materials in petitioners warehouse at the time of respondents demand to return
the same, we hold that petitioners have no corresponding obligation or liability to respondent with respect to those construction materials.
Anent the issue of damages, petitioners are still not liable because, as expressly provided for in Article 2199 of the Civil Code, [43] actual or
compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. A court cannot rely on speculations,
conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the
injured party and on the best obtainable evidence of the actual amount thereof. It must point out specific facts which could afford a basis for
measuring whatever compensatory or actual damages are borne. [44]
Considering our findings that there was no contract of deposit between petitioners and respondent or Moreman and that actually there were
no more construction materials or equipment in petitioners warehouse when respondent made a demand for their return, we hold that he has no
right whatsoever to claim for damages.
As we stressed in the beginning, a judgment of default does not automatically imply admission by the defendant of plaintiffs causes of
action. Here, the trial court merely adopted respondents allegations in his complaint and evidence without evaluating them with the highest
degree of objectivity and certainty.
WHEREFORE, the petition is GRANTED. The challenged Decision of the Court of Appeals dated June 17, 1999 is REVERSED and SET
ASIDE. Costs against respondent.
SO ORDERED.
Puno, (Chairman), Panganiban, Corona, and Carpio-Morales, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 181045 July 2, 2014

SPOUSES EDUARDO and LYDIA SILOS, Petitioners,

vs.
PHILIPPINE NATIONAL BANK, Respondent.

DECISION

DEL CASTILLO, J.:

In loan agreements, it cannot be denied that the rate of interest is a principal condition, if not the most important component. Thus, any
modification thereof must be mutually agreed upon; otherwise, it has no binding effect. Moreover, the Court cannot consider a stipulation
granting a party the option to prepay the loan if said party is not agreeable to the arbitrary interest rates imposed. Premium may not be placed
upon a stipulation in a contract which grants one party the right to choose whether to continue with or withdraw from the agreement if it discovers
that what the other party has been doing all along is improper or illegal.

This Petition for Review on Certiorari1 questions the May 8, 2007 Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 79650, which
affirmed with modifications the February 28, 2003 Decision 3 and the June 4, 2003 Order4 of the Regional Trial Court (RTC), Branch 6 of Kalibo,
Aklan in Civil Case No. 5975.

Factual Antecedents

Spouses Eduardo and Lydia Silos (petitioners) have been in business for about two decades of operating a department store and buying and
selling of ready-to-wear apparel. Respondent Philippine National Bank (PNB) is a banking corporation organized and existing under Philippine
laws.

To secure a one-year revolving credit line of P150,000.00 obtained from PNB, petitioners constituted in August 1987 a Real Estate
Mortgage5 over a 370-square meter lot in Kalibo, Aklan covered by Transfer Certificate of Title No. (TCT) T-14250. In July 1988,the credit line
was increased to P1.8 million and the mortgage was correspondingly increased to P1.8 million.6

And in July 1989, a Supplement to the Existing Real Estate Mortgage 7 was executed to cover the same credit line, which was increased to P2.5
million, and additional security was given in the form of a 134-square meter lot covered by TCT T-16208. In addition, petitioners issued eight
Promissory Notes8 and signed a Credit Agreement.9 This July 1989 Credit Agreement contained a stipulation on interest which provides as
follows:

1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5% per annum. Interest shall be payable in advance every one hundred
twenty days at the rate prevailing at the time of the renewal.

(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending on whatever policy the Bank may adopt in the future,
including without limitation, the shifting from the floating interest rate system to the fixed interest rate system, or vice versa. Where the Bank has
imposed on the Loan interest at a rate per annum, which is equal to the Bank’s spread over the current floating interest rate, the Borrower
hereby agrees that the Bank may, without need of notice to the Borrower, increase or decrease its spread over the floating interest rate at any
time depending on whatever policy it may adopt in the future.10 (Emphases supplied)

The eight Promissory Notes, on the other hand, contained a stipulation granting PNB the right to increase or reduce interest rates "within the
limits allowed by law or by the Monetary Board." 11

The Real Estate Mortgage agreement provided the same right to increase or reduce interest rates "at any time depending on whatever policy
PNB may adopt in the future."12

Petitioners religiously paid interest on the notes at the following rates:

1. 1st Promissory Note dated July 24, 1989 – 19.5%;

2. 2nd Promissory Note dated November 22, 1989 – 23%;

3. 3rd Promissory Note dated March 21, 1990 – 22%;

4. 4th Promissory Note dated July 19, 1990 – 24%;

5. 5th Promissory Note dated December 17, 1990 – 28%;

6. 6th Promissory Note dated February 14, 1991 – 32%;

7. 7th Promissory Note dated March 1, 1991 – 30%; and

8. 8th Promissory Note dated July 11, 1991 – 24%.13

In August 1991, an Amendment to Credit Agreement14 was executed by the parties, with the following stipulation regarding interest:

1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of each Availment up to but not including
the date of full payment thereof at the rate per annum which is determined by the Bank to be prime rate plus applicable spread in effect as of the
date of each Availment.15 (Emphases supplied)

Under this Amendment to Credit Agreement, petitioners issued in favor of PNB the following 18 Promissory Notes, which petitioners settled –
except the last (the note covering the principal) – at the following interest rates:

1. 9th Promissory Note dated November 8, 1991 – 26%;

 2. 10th Promissory Note dated March 19, 1992 – 25%;

3. 11th Promissory Note dated July 11, 1992 – 23%;

4. 12th Promissory Note dated November 10, 1992 – 21%;

5. 13th Promissory Note dated March 15, 1993 – 21%;

6. 14th Promissory Note dated July 12, 1993 – 17.5%;

7. 15th Promissory Note dated November 17, 1993 – 21%;

8. 16th Promissory Note dated March 28, 1994 – 21%;

9. 17th Promissory Note dated July 13, 1994 – 21%;

10. 18th Promissory Note dated November 16, 1994 – 16%;

11. 19th Promissory Note dated April 10, 1995 – 21%;

12. 20th Promissory Note dated July 19, 1995 – 18.5%;

13. 21st Promissory Note dated December 18, 1995 – 18.75%;

14. 22nd Promissory Note dated April 22, 1996 – 18.5%;

15. 23rd Promissory Note dated July 22, 1996 – 18.5%;

16. 24th Promissory Note dated November 25, 1996 – 18%;

17. 25th Promissory Note dated May 30, 1997 – 17.5%; and

18. 26th Promissory Note (PN 9707237) dated July 30, 1997 – 25%.16

The 9th up to the 17th promissory notes provide for the payment of interest at the "rate the Bank may at any time without notice, raise within the
limits allowed by law x x x."17

On the other hand, the 18th up to the 26th promissory notes – including PN 9707237, which is the 26th promissory note – carried the following
provision:

x x x For this purpose, I/We agree that the rate of interest herein stipulated may be increased or decreased for the subsequent Interest Periods,
with prior notice to the Borrower in the event of changes in interest rate prescribed by law or the Monetary Board of the Central Bank of the
Philippines, or in the Bank’s overall cost of funds. I/We hereby agree that in the event I/we are not agreeable to the interest rate fixed for any
Interest Period, I/we shall have the option top repay the loan or credit facility without penalty within ten (10) calendar days from the Interest
Setting Date.18 (Emphasis supplied)

Respondent regularly renewed the line from 1990 up to 1997, and petitioners made good on the promissory notes, religiously paying the
interests without objection or fail. But in 1997, petitioners faltered when the interest rates soared due to the Asian financial crisis. Petitioners’ sole
outstanding promissory note for P2.5 million – PN 9707237 executed in July 1997 and due 120 days later or on October 28, 1997 – became past
due, and despite repeated demands, petitioners failed to make good on the note.

Incidentally, PN 9707237 provided for the penalty equivalent to 24% per annum in case of default, as follows:

Without need for notice or demand, failure to pay this note or any installment thereon, when due, shall constitute default and in such cases or in
case of garnishment, receivership or bankruptcy or suit of any kind filed against me/us by the Bank, the outstanding principal of this note, at the
option of the Bank and without prior notice of demand, shall immediately become due and payable and shall be subject to a penalty charge of
twenty four percent (24%) per annum based on the defaulted principal amount. x x x19 (Emphasis supplied)

PNB prepared a Statement of Account20 as of October 12, 1998, detailing the amount due and demandable from petitioners in the total amount
of P3,620,541.60, broken down as follows:

Principal P 2,500,000.00

Interest 538,874.94

Penalties 581,666.66

Total P 3,620,541.60

Despite demand, petitioners failed to pay the foregoing amount. Thus, PNB foreclosed on the mortgage, and on January 14, 1999, TCTs T-
14250 and T-16208 were sold to it at auction for the amount of P4,324,172.96.21 The sheriff’s certificate of sale was registered on March 11,
1999.

More than a year later, or on March 24, 2000, petitioners filed Civil Case No. 5975, seeking annulment of the foreclosure sale and an accounting
of the PNB credit. Petitioners theorized that after the first promissory note where they agreed to pay 19.5% interest, the succeeding stipulations
for the payment of interest in their loan agreements with PNB – which allegedly left to the latter the sole will to determine the interest rate –
became null and void. Petitioners added that because the interest rates were fixed by respondent without their prior consent or agreement, these
rates are void, and as a result, petitioners should only be made liable for interest at the legal rate of 12%. They claimed further that they overpaid
interests on the credit, and concluded that due to this overpayment of steep interest charges, their debt should now be deemed paid, and the
foreclosure and sale of TCTs T-14250 and T-16208 became unnecessary and wrongful. As for the imposed penalty of P581,666.66, petitioners
alleged that since the Real Estate Mortgage and the Supplement thereto did not include penalties as part of the secured amount, the same
should be excluded from the foreclosure amount or bid price, even if such penalties are provided for in the final Promissory Note, or PN
9707237.22

In addition, petitioners sought to be reimbursed an alleged overpayment of P848,285.00 made during the period August 21, 1991 to March 5,
1998,resulting from respondent’s imposition of the alleged illegal and steep interest rates. They also prayed to be awarded P200,000.00 by way
of attorney’s fees.23

In its Answer,24 PNB denied that it unilaterally imposed or fixed interest rates; that petitioners agreed that without prior notice, PNB may modify
interest rates depending on future policy adopted by it; and that the imposition of penalties was agreed upon in the Credit Agreement. It added
that the imposition of penalties is supported by the all-inclusive clause in the Real Estate Mortgage agreement which provides that the mortgage
shall stand as security for any and all other obligations of whatever kind and nature owing to respondent, which thus includes penalties imposed
upon default or non-payment of the principal and interest on due date.

On pre-trial, the parties mutually agreed to the following material facts, among others:

a) That since 1991 up to 1998, petitioners had paid PNB the total amount of P3,484,287.00;25 and

b) That PNB sent, and petitioners received, a March 10, 2000 demand letter. 26

During trial, petitioner Lydia Silos (Lydia) testified that the Credit Agreement, the Amendment to Credit Agreement, Real Estate Mortgage and
the Supplement thereto were all prepared by respondent PNB and were presented to her and her husband Eduardo only for signature; that she
was told by PNB that the latter alone would determine the interest rate; that as to the Amendment to Credit Agreement, she was told that PNB
would fill up the interest rate portion thereof; that at the time the parties executed the said Credit Agreement, she was not informed about the
applicable spread that PNB would impose on her account; that the interest rate portion of all Promissory Notes she and Eduardo issued were
always left in blank when they executed them, with respondent’s mere assurance that it would be the one to enter or indicate thereon the
prevailing interest rate at the time of availment; and that they agreed to such arrangement. She further testified that the two Real Estate
Mortgage agreements she signed did not stipulate the payment of penalties; that she and Eduardo consulted with a lawyer, and were told that
PNB’s actions were improper, and so on March 20, 2000, they wrote to the latter seeking a recomputation of their outstanding obligation; and
when PNB did not oblige, they instituted Civil Case No. 5975. 27

On cross-examination, Lydia testified that she has been in business for 20 years; that she also borrowed from other individuals and another
bank; that it was only with banks that she was asked to sign loan documents with no indicated interest rate; that she did not bother to read the
terms of the loan documents which she signed; and that she received several PNB statements of account detailing their outstanding obligations,
but she did not complain; that she assumed instead that what was written therein is correct. 28

For his part, PNB Kalibo Branch Manager Diosdado Aspa, Jr. (Aspa), the sole witness for respondent, stated on cross-examination that as a
practice, the determination of the prime rates of interest was the responsibility solely of PNB’s Treasury Department which is based in Manila;
that these prime rates were simply communicated to all PNB branches for implementation; that there are a multitude of considerations which
determine the interest rate, such as the cost of money, foreign currency values, PNB’s spread, bank administrative costs, profitability, and the
practice in the banking industry; that in every repricing of each loan availment, the borrower has the right to question the rates, but that this was
not done by the petitioners; and that anything that is not found in the Promissory Note may be supplemented by the Credit Agreement. 29

Ruling of the Regional Trial Court

On February 28, 2003, the trial court rendered judgment dismissing Civil Case No. 5975. 30

It ruled that:

1. While the Credit Agreement allows PNB to unilaterally increase its spread over the floating interest rate at any time depending on
whatever policy it may adopt in the future, it likewise allows for the decrease at any time of the same. Thus, such stipulation authorizing
both the increase and decrease of interest rates as may be applicable is valid,31 as was held in Consolidated Bank and Trust
Corporation (SOLIDBANK) v. Court of Appeals;32

2. Banks are allowed to stipulate that interest rates on loans need not be fixed and instead be made dependent on prevailing rates upon
which to peg such variable interest rates;33

3. The Promissory Note, as the principal contract evidencing petitioners’ loan, prevails over the Credit Agreement and the Real Estate
Mortgage.

As such, the rate of interest, penalties and attorney’s fees stipulated in the Promissory Note prevail over those mentioned in the Credit
Agreement and the Real Estate Mortgage agreements; 34

4. Roughly, PNB’s computation of the total amount of petitioners’ obligation is correct; 35

5. Because the loan was admittedly due and demandable, the foreclosure was regularly made;36

6. By the admission of petitioners during pre-trial, all payments made to PNB were properly applied to the principal, interest and
penalties.37

The dispositive portion of the trial court’s Decision reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the respondent and against the petitioners by DISMISSING the latter’s
petition.

Costs against the petitioners.

SO ORDERED.38

Petitioners moved for reconsideration. In an Order39 dated June 4, 2003, the trial court granted only a modification in the award of attorney’s
fees, reducing the same from 10% to 1%. Thus, PNB was ordered to refund to petitioner the excess in attorney’s fees in the amount
of P356,589.90, viz:
WHEREFORE, judgment is hereby rendered upholding the validity of the interest rate charged by the respondent as well as the extra-judicial
foreclosure proceedings and the Certificate of Sale. However, respondent is directed to refund to the petitioner the amount of P356,589.90
representing the excess interest charged against the latter.

No pronouncement as to costs.

SO ORDERED.40

Ruling of the Court of Appeals

Petitioners appealed to the CA, which issued the questioned Decision with the following decretal portion:

WHEREFORE, in view of the foregoing, the instant appeal is PARTLY GRANTED. The modified Decision of the Regional Trial Court per Order
dated June 4, 2003 is hereby AFFIRMED with MODIFICATIONS, to wit:

1. [T]hat the interest rate to be applied after the expiration of the first 30-day interest period for PN. No. 9707237 should be 12% per
annum;

2. [T]hat the attorney’s fees of10% is valid and binding; and

3. [T]hat [PNB] is hereby ordered to reimburse [petitioners] the excess in the bid price of P377,505.99 which is the difference between
the total amount due [PNB] and the amount of its bid price.

SO ORDERED.41

On the other hand, respondent did not appeal the June 4,2003 Order of the trial court which reduced its award of attorney’s fees. It simply raised
the issue in its appellee’s brief in the CA, and included a prayer for the reversal of said Order.

In effect, the CA limited petitioners’ appeal to the following issues:

1) Whether x x x the interest rates on petitioners’ outstanding obligation were unilaterally and arbitrarily imposed by PNB;

2) Whether x x x the penalty charges were secured by the real estate mortgage; and

3) Whether x x x the extrajudicial foreclosure and sale are valid.42

The CA noted that, based on receipts presented by petitioners during trial, the latter dutifully paid a total of P3,027,324.60 in interest for the
period August 7, 1991 to August 6, 1997, over and above the P2.5 million principal obligation. And this is exclusive of payments for insurance
premiums, documentary stamp taxes, and penalty. All the while, petitioners did not complain nor object to the imposition of interest; they in fact
paid the same religiously and without fail for seven years. The appellate court ruled that petitioners are thus estopped from questioning the
same.

The CA nevertheless noted that for the period July 30, 1997 to August 14, 1997, PNB wrongly applied an interest rate of 25.72% instead of the
agreed 25%; thus it overcharged petitioners, and the latter paid, an excess of P736.56 in interest.

On the issue of penalties, the CA ruled that the express tenor of the Real Estate Mortgage agreements contemplated the inclusion of the PN
9707237-stipulated 24% penalty in the amount to be secured by the mortgaged property, thus –

For and in consideration of certain loans, overdrafts and other credit accommodations obtained from the MORTGAGEE and to secure the
payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR, including interest and expenses, and other
obligations owing by the MORTGAGOR to the MORTGAGEE, whether direct or indirect, principal or secondary, as appearing in the accounts,
books and records of the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE x x
x43 (Emphasis supplied)

The CA believes that the 24% penalty is covered by the phrase "and other obligations owing by the mortgagor to the mortgagee" and should
thus be added to the amount secured by the mortgages.44

The CA then proceeded to declare valid the foreclosure and sale of properties covered by TCTs T-14250 and T-16208, which came as a
necessary result of petitioners’ failure to pay the outstanding obligation upon demand.45The CA saw fit to increase the trial court’s award of 1% to
10%, finding the latter rate to be reasonable and citing the Real Estate Mortgage agreement which authorized the collection of the higher rate. 46

Finally, the CA ruled that petitioners are entitled to P377,505.09 surplus, which is the difference between PNB’s bid price of P4,324,172.96 and
petitioners’ total computed obligation as of January 14, 1999, or the date of the auction sale, in the amount of P3,946,667.87.47

Hence, the present Petition.

Issues

The following issues are raised in this Petition:

A. THE COURT OF APPEALS AS WELL AS THE LOWER COURT ERRED IN NOT NULLIFYING THE INTEREST RATE PROVISION
IN THE CREDIT AGREEMENT DATED JULY 24, 1989 X X X AND IN THE AMENDMENT TO CREDIT AGREEMENT
DATEDAUGUST 21, 1991 X X X WHICH LEFT TO THE SOLE UNILATERAL DETERMINATION OF THE RESPONDENT PNB THE
ORIGINAL FIXING OF INTEREST RATE AND ITS INCREASE, WHICH AGREEMENT IS CONTRARY TO LAW, ART. 1308 OF THE
[NEW CIVIL CODE], AS ENUNCIATED IN PONCIANO ALMEIDA V. COURT OF APPEALS,G.R. [NO.] 113412, APRIL 17, 1996, AND
CONTRARY TO PUBLIC POLICY AND PUBLIC INTEREST, AND IN APPLYING THE PRINCIPLE OF ESTOPPEL ARISING FROM
THE ALLEGED DELAYED COMPLAINT OF PETITIONER[S], AND [THEIR] PAYMENT OF THE INTEREST CHARGED.

B. CONSEQUENTLY, THE COURT OF APPEALS AND THE LOWER COURT ERRED IN NOT DECLARING THAT PNB IS NOT AT
ALL ENTITLED TO ANY INTEREST EXCEPT THE LEGAL RATE FROM DATE OF DEMAND, AND IN NOT APPLYING THE EXCESS
OVER THE LEGAL RATE OF THE ADMITTED PAYMENTS MADE BY PETITIONER[S] FROM 1991-1998 IN THE ADMITTED TOTAL
 AMOUNT OF P3,484,287.00, TO PAYMENT OF THE PRINCIPAL OF P2,500,000.[00] LEAVING AN OVERPAYMENT OFP984,287.00
REFUNDABLE BY RESPONDENT TO PETITIONER[S] WITH INTEREST OF 12% PER ANNUM.

II

THE COURT OF APPEALS AND THE LOWER COURT ERRED IN HOLDING THAT PENALTIES ARE INCLUDEDIN THE SECURED
AMOUNT, SUBJECT TO FORECLOSURE, WHEN NO PENALTIES ARE MENTIONED [NOR] PROVIDED FOR IN THE REAL ESTATE
MORTGAGE AS A SECURED AMOUNT AND THEREFORE THE AMOUNT OF PENALTIES SHOULDHAVE BEEN EXCLUDED FROM [THE]
FORECLOSURE AMOUNT.

III

THE COURT OF APPEALS ERRED IN REVERSING THE RULING OF THE LOWER COURT, WHICH REDUCED THE ATTORNEY’S FEES
OF 10% OF THE TOTAL INDEBTEDNESS CHARGED IN THE X X X EXTRAJUDICIAL FORECLOSURE TOONLY 1%, AND [AWARDING]
10% ATTORNEY’S FEES.48

Petitioners’ Arguments

Petitioners insist that the interest rate provision in the Credit Agreement and the Amendment to Credit Agreement should be declared null and
void, for they relegated to PNB the sole power to fix interest rates based on arbitrary criteria or factors such as bank policy, profitability, cost of
money, foreign currency values, and bank administrative costs; spaces for interest rates in the two Credit Agreements and the promissory notes
were left blank for PNB to unilaterally fill, and their consent or agreement to the interest rates imposed thereafter was not obtained; the interest
rate, which consists of the prime rate plus the bank spread, is determined not by agreement of the parties but by PNB’s Treasury Department in
Manila. Petitioners conclude that by this method of fixing the interest rates, the principle of mutuality of contracts is violated, and public policy as
well as Circular 90549 of the then Central Bank had been breached.

Petitioners question the CA’s application of the principle of estoppel, saying that no estoppel can proceed from an illegal act. Though they failed
to timely question the imposition of the alleged illegal interest rates and continued to pay the loan on the basis of these rates, they cannot be
deemed to have acquiesced, and hence could recover what they erroneously paid. 50

Petitioners argue that if the interest rates were nullified, then their obligation to PNB is deemed extinguished as of July 1997; moreover, it would
appear that they even made an over payment to the bank in the amount of P984,287.00.

Next, petitioners suggest that since the Real Estate Mortgage agreements did not include nor specify, as part of the secured amount, the penalty
of 24% authorized in PN 9707237, such amount of P581,666.66 could not be made answerable by or collected from the mortgages covering
TCTs T-14250 and T-16208. Claiming support from Philippine Bank of Communications [PBCom] v. Court of Appeals,51 petitioners insist that the
phrase "and other obligations owing by the mortgagor to the mortgagee" 52 in the mortgage agreements cannot embrace the P581,666.66
penalty, because, as held in the PBCom case, "[a] penalty charge does not belong to the species of obligations enumerated in the mortgage,
hence, the said contract cannot be understood to secure the penalty"; 53while the mortgages are the accessory contracts, what items are secured
may only be determined from the provisions of the mortgage contracts, and not from the Credit Agreement or the promissory notes.

Finally, petitioners submit that the trial court’s award of 1% attorney’s fees should be maintained, given that in foreclosures, a lawyer’s work
consists merely in the preparation and filing of the petition, and involves minimal study. 54 To allow the imposition of a staggering P396,211.00 for
such work would be contrary to equity. Petitioners state that the purpose of attorney’s fees in cases of this nature "is not to give respondent a
larger compensation for the loan than the law already allows, but to protect it against any future loss or damage by being compelled to retain
counsel x x x to institute judicial proceedings for the collection of its credit." 55 And because the instant case involves a simple extrajudicial
foreclosure, attorney’s fees may be equitably tempered.

Respondent’s Arguments

For its part, respondent disputes petitioners’ claim that interest rates were unilaterally fixed by it, taking relief in the CA pronouncement that
petitioners are deemed estopped by their failure to question the imposed rates and their continued payment thereof without opposition. It adds
that because the Credit Agreement and promissory notes contained both an escalation clause and a de-escalation clause, it may not be said
that the bank violated the principle of mutuality. Besides, the increase or decrease in interest rates have been mutually agreed upon by the
parties, as shown by petitioners’ continuous payment without protest. Respondent adds that the alleged unilateral imposition of interest rates is
not a proper subject for review by the Court because the issue was never raised in the lower court.

As for petitioners’ claim that interest rates imposed by it are null and void for the reasons that 1) the Credit Agreements and the promissory notes
were signed in blank; 2) interest rates were at short periods; 3) no interest rates could be charged where no agreement on interest rates was
made in writing; 4) PNB fixed interest rates on the basis of arbitrary policies and standards left to its choosing; and 5) interest rates based on
prime rate plus applicable spread are indeterminate and arbitrary – PNB counters:

a. That Credit Agreements and promissory notes were signed by petitioner[s] in blank – Respondent claims that this issue was never
raised in the lower court. Besides, documentary evidence prevails over testimonial evidence; Lydia Silos’ testimony in this regard is
self-serving, unsupported and uncorroborated, and for being the lone evidence on this issue. The fact remains that these documents
are in proper form, presumed regular, and endure, against arbitrary claims by Silos – who is an experienced business person – that she
signed questionable loan documents whose provisions for interest rates were left blank, and yet she continued to pay the interests
without protest for a number of years.56

b. That interest rates were at short periods – Respondent argues that the law which governs and prohibits changes in interest rates
made more than once every twelve months has been removed 57 with the issuance of Presidential Decree No. 858.58

c. That no interest rates could be charged where no agreement on interest rates was made in writing in violation of Article 1956 of the
Civil Code, which provides that no interest shall be due unless it has been expressly stipulated in writing – Respondent insists that the
stipulated 25% per annum as embodied in PN 9707237 should be imposed during the interim, or the period after the loan became due
and while it remains unpaid, and not the legal interest of 12% as claimed by petitioners. 59

d. That PNB fixed interest rates on the basis of arbitrary policies and standards left to its choosing – According to respondent, interest
rates were fixed taking into consideration increases or decreases as provided by law or by the Monetary Board, the bank’s overall costs
of funds, and upon agreement of the parties.60

e. That interest rates based on prime rate plus applicable spread are indeterminate and arbitrary – On this score, respondent submits
there are various factors that influence interest rates, from political events to economic developments, etc.; the cost of money,
profitability and foreign currency transactions may not be discounted. 61

On the issue of penalties, respondent reiterates the trial court’s finding that during pre-trial, petitioners admitted that the Statement of Account as
of October 12, 1998 – which detailed and included penalty charges as part of the total outstanding obligation owing to the bank – was correct.
Respondent justifies the imposition and collection of a penalty as a normal banking practice, and the standard rate per annum for all commercial
banks, at the time, was 24%.

Respondent adds that the purpose of the penalty or a penal clause for that matter is to ensure the performance of the obligation and substitute
for damages and the payment of interest in the event of non-compliance.62 And the promissory note – being the principal agreement as opposed
to the mortgage, which is a mere accessory – should prevail. This being the case, its inclusion as part of the secured amount in the mortgage
agreements is valid and necessary.

Regarding the foreclosure of the mortgages, respondent accuses petitioners of pre-empting consolidation of its ownership over TCTs T-14250
and T-16208; that petitioners filed Civil Case No. 5975 ostensibly to question the foreclosure and sale of properties covered by TCTs T-14250
and T-16208 in a desperate move to retain ownership over these properties, because they failed to timely redeem them.

Respondent directs the attention of the Court to its petition in G.R. No. 181046,63 where the propriety of the CA’s ruling on the following issues is
squarely raised:

1. That the interest rate to be applied after the expiration of the first 30-day interest period for PN 9707237 should be 12% per annum;
and

2. That PNB should reimburse petitioners the excess in the bid price of P377,505.99 which is the difference between the total amount
due to PNB and the amount of its bid price.

Our Ruling

The Court grants the Petition.

Before anything else, it must be said that it is not the function of the Court to re-examine or re-evaluate evidence adduced by the parties in the
proceedings below. The rule admits of certain well-recognized exceptions, though, as when the lower courts’ findings are not supported by the
evidence on record or are based on a misapprehension of facts, or when certain relevant and undisputed facts were manifestly overlooked that,
if properly considered, would justify a different conclusion. This case falls within such exceptions.

The Court notes that on March 5, 2008, a Resolution was issued by the Court’s First Division denying respondent’s petition in G.R. No. 181046,
due to late filing, failure to attach the required affidavit of service of the petition on the trial court and the petitioners, and submission of a
defective verification and certification of non-forum shopping. On June 25, 2008, the Court issued another Resolution denying with finality
respondent’s motion for reconsideration of the March 5, 2008 Resolution. And on August 15, 2008, entry of judgment was made. This thus
settles the issues, as above-stated, covering a) the interest rate – or 12% per annum– that applies upon expiration of the first 30 days interest
period provided under PN 9707237, and b)the CA’s decree that PNB should reimburse petitioner the excess in the bid price of P377,505.09.

It appears that respondent’s practice, more than once proscribed by the Court, has been carried over once more to the petitioners. In a number
of decided cases, the Court struck down provisions in credit documents issued by PNB to, or required of, its borrowers which allow the bank to
increase or decrease interest rates "within the limits allowed by law at any time depending on whatever policy it may adopt in the future." Thus,
in Philippine National Bank v. Court of Appeals,64 such stipulation and similar ones were declared in violation of Article 130865 of the Civil Code.
In a second case, Philippine National Bank v. Court of Appeals, 66 the very same stipulations found in the credit agreement and the promissory
notes prepared and issued by the respondent were again invalidated. The Court therein said:

The Credit Agreement provided inter alia, that —

(a) The BANK reserves the right to increase the interest rate 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 accommodation shall be correspondingly decreased in the event that the applicable
maximum interest is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on
the effectivity date of the increase or decrease in the maximum interest rate.

The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time without notice, beyond the stipulated rate of 12% but
only "within the limits allowed by law."

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 provision 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.

xxxx

In making the unilateral increases in interest rates, petitioner bank relied on the escalation clause contained in their credit agreement which
provides, as follows:

The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in
the future and provided, that, the interest rate on this accommodation shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take
effect on the effectivity date of the increase or decrease in maximum interest rate.

This clause is authorized by Section 2 of Presidential Decree (P.D.) No. 1684 which further amended Act No. 2655 ("The Usury Law"), as
amended, thus:

Section 2. The same Act is hereby amended by adding a new section after Section 7, to read as follows:

Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of interest agreed
upon may be increased in the event that the applicable maximum rate of interest is increased bylaw or by the Monetary Board; Provided, That
such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the
event that the applicable maximum rate of interest is reduced by law or by the Monetary Board; Provided further, That the adjustment in the rate
of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest.

Section 1 of P.D. No. 1684 also empowered the Central Bank’s Monetary Board to prescribe the maximum rates of interest for loans and certain
forbearances. Pursuant to such authority, the Monetary Board issued Central Bank (C.B.) Circular No. 905, series of 1982, Section 5 of which
provides:
Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other Financial Intermediaries) is hereby amended to read as follows:

Sec. 1303. Interest and Other Charges.

— The rate of interest, including commissions, premiums, fees and other charges, 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.

P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding any subsequent adjustment in the
interest rate that shall accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward, the
interest previously stipulated. However, contrary to the stubborn insistence of petitioner bank, the said law and circular did not authorize either
party to unilaterally raise the interest rate without the other’s consent.

It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this
assent is wanting on the part of the one who contracts, his act has no more efficacy than if it had been done under duress or by a person of
unsound mind.

Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed
modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of
interest is always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is
bereft of any binding effect.

We cannot countenance petitioner bank’s posturing that the escalation clause at bench gives it unbridled right to unilaterally upwardly adjust the
interest on private respondents’ loan. That would completely take away from private respondents the right to assent to an important modification
in their agreement, and would negate the element of mutuality in contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA
536, 544-545 (1991) we held —

x x x 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 fulfillment dependent exclusively upon the uncontrolled will of one of
the contracting parties, is void . . . . Hence, even assuming that the . . . 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" . . . . Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against
abuse and imposition.67 (Emphases supplied)

Then again, in a third case, Spouses Almeda v. Court of Appeals, 68 the Court invalidated the very same provisions in the respondent’s prepared
Credit Agreement, declaring thus:

The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from
contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. Any
contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation
regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid.

It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally altered the terms of its contract with
petitioners by increasing the interest rates on the loan without the prior assent of the latter. In fact, the manner of agreement is itself explicitly
stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be due unless it has been expressly stipulated in writing."
What has been "stipulated in writing" from a perusal of interest rate provision of the credit agreement signed between the parties is that
petitioners were bound merely to pay 21% interest, subject to a possible escalation or de-escalation, when 1) the circumstances warrant such
escalation or de-escalation; 2) within the limits allowed by law; and 3) upon agreement.

Indeed, the interest rate which appears to have been agreed upon by the parties to the contract in this case was the 21% rate stipulated in the
interest provision. Any doubt about this is in fact readily resolved by a careful reading of the credit agreement because the same plainly uses the
phrase "interest rate agreed upon," in reference to the original 21% interest rate. x x x

xxxx

Petitioners never agreed in writing to pay the increased interest rates demanded by respondent bank in contravention to the tenor of their credit
agreement. That an increase in interest rates from 18% to as much as 68% is excessive and unconscionable is indisputable. Between 1981 and
1984, petitioners had paid an amount equivalent to virtually half of the entire principal (P7,735,004.66) which was applied to interest alone. By
the time the spouses tendered the amount of P40,142,518.00 in settlement of their obligations; respondent bank was
demanding P58,377,487.00 over and above those amounts already previously paid by the spouses.

Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on reasonable and valid
grounds. Here, as clearly demonstrated above, not only [are] the increases of the interest rates on the basis of the escalation clause patently
unreasonable and unconscionable, but also there are no valid and reasonable standards upon which the increases are anchored.

xxxx

In the face of the unequivocal interest rate provisions in the credit agreement and in the law requiring the parties to agree to changes in the
interest rate in writing, we hold that the unilateral and progressive increases imposed by respondent PNB were null and void. Their effect was to
increase the total obligation on an eighteen million peso loan to an amount way over three times that which was originally granted to the
borrowers. That these increases, occasioned by crafty manipulations in the interest rates is unconscionable and neutralizes the salutary policies
of extending loans to spur business cannot be disputed.69 (Emphases supplied)

Still, in a fourth case, Philippine National Bank v. Court of Appeals, 70 the above doctrine was reiterated:

The promissory note contained the following stipulation:

For value received, I/we, [private respondents] jointly and severally promise to pay to the ORDER of the PHILIPPINE NATIONAL BANK, at its
office in San Jose City, Philippines, the sum of FIFTEEN THOUSAND ONLY (P15,000.00), Philippine Currency, together with interest thereon at
the rate of 12% per annum until paid, which interest rate the Bank may at any time without notice, raise within the limits allowed by law, and I/we
also agree to pay jointly and severally ____% per annum penalty charge, by way of liquidated damages should this note be unpaid or is not
renewed on due dated.

Payment of this note shall be as follows:

*THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE

On the reverse side of the note the following condition was stamped:

All short-term loans to be granted starting January 1, 1978 shall be made subject to the condition that any and/or all extensions hereof that will
leave any portion of the amount still unpaid after 730 days shall automatically convert the outstanding balance into a medium or long-term
obligation as the case may be and give the Bank the right to charge the interest rates prescribed under its policies from the date the account was
originally granted.

To secure payment of the loan the parties executed a real estate mortgage contract which provided:

(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 provision 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.

xxxx

To begin with, PNB’s argument rests on a misapprehension of the import of the appellate court’s ruling. The Court of Appeals nullified the
interest rate increases not because the promissory note did not comply with P.D. No. 1684 by providing for a de-escalation, but because the
absence of such provision made the clause so one-sided as to make it unreasonable.

That ruling is correct. It is in line with our decision in Banco Filipino Savings & Mortgage Bank v. Navarro that although P.D. No. 1684 is not to be
retroactively applied to loans granted before its effectivity, there must nevertheless be a de-escalation clause to mitigate the one-sidedness of
the escalation clause. Indeed because of concern for the unequal status of borrowers vis-à-vis the banks, our cases after Banco Filipino have
fashioned the rule that any increase in the rate of interest made pursuant to an escalation clause must be the result of agreement between the
parties.

Thus in Philippine National Bank v. Court of Appeals, two promissory notes authorized PNB to increase the stipulated interest per annum" within
the limits allowed by law at any time depending on whatever policy [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." The real
estate mortgage likewise provided:

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.

Pursuant to these clauses, PNB successively increased the interest from 18% to 32%, then to 41% and then to 48%. This Court declared the
increases unilaterally imposed by [PNB] to be in violation of the principle of mutuality as embodied in Art.1308 of the Civil Code, which provides
that "[t]he contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them." As the Court explained:

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

A similar ruling was made in Philippine National Bank v. Court of Appeals. The credit agreement in that case provided:

The BANK reserves the right to increase the interest rate 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 accommodation shall be correspondingly decreased in the event that the applicable
maximum interest is reduced by law or by the Monetary Board. . . .

As in the first case, PNB successively increased the stipulated interest so that what was originally 12% per annum became, after only two years,
42%. In declaring the increases invalid, we held:

We cannot countenance petitioner bank’s posturing that the escalation clause at bench gives it unbridled right to unilaterally upwardly adjust the
interest on private respondents’ loan. That would completely take away from private respondents the right to assent to an important modification
in their agreement, and would negate the element of mutuality in contracts.

Only recently we invalidated another round of interest increases decreed by PNB pursuant to a similar agreement it had with other borrowers:

[W]hile the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said circular could possibly be read as granting
respondent bank carte blanche authority to raise interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of
their assets.

In this case no attempt was made by PNB to secure the conformity of private respondents to the successive increases in the interest rate.
Private respondents’ assent to the increases can not be implied from their lack of response to the letters sent by PNB, informing them of the
increases. For as stated in one case, no one receiving a proposal to change a contract is obliged to answer the proposal. 71 (Emphasis supplied)

We made the same pronouncement in a fifth case, New Sampaguita Builders Construction, Inc. v. Philippine National Bank, 72 thus –

Courts have the authority to strike down or to modify provisions in promissory notes that grant the lenders unrestrained power to increase
interest rates, penalties and other charges at the latter’s sole discretion and without giving prior notice to and securing the consent of the
borrowers. This unilateral authority is anathema to the mutuality of contracts and enable lenders to take undue advantage of borrowers. Although
the Usury Law has been effectively repealed, courts may still reduce iniquitous or unconscionable rates charged for the use of money.
Furthermore, excessive interests, penalties and other charges not revealed in disclosure statements issued by banks, even if stipulated in the
promissory notes, cannot be given effect under the Truth in Lending Act. 73(Emphasis supplied)

Yet again, in a sixth disposition, Philippine National Bank v. Spouses Rocamora,74 the above pronouncements were reiterated to debunk PNB’s
repeated reliance on its invalidated contract stipulations:

We repeated this rule in the 1994 case of PNB v. CA and Jayme Fernandez and the 1996 case of PNB v. CA and Spouses Basco. Taking no
heed of these rulings, the escalation clause PNB used in the present case to justify the increased interest rates is no different from the escalation
clause assailed in the 1996 PNB case; in both, the interest rates were increased from the agreed 12% per annum rate to 42%. x x x

xxxx

On the strength of this ruling, PNB’s argument – that the spouses Rocamora’s failure to contest the increased interest rates that were
purportedly reflected in the statements of account and the demand letters sent by the bank amounted to their implied acceptance of the increase
– should likewise fail.

Evidently, PNB’s failure to secure the spouses Rocamora’s consent to the increased interest rates prompted the lower courts to declare
excessive and illegal the interest rates imposed. Togo around this lower court finding, PNB alleges that the P206,297.47 deficiency claim was
computed using only the original 12% per annum interest rate. We find this unlikely. Our examination of PNB’s own ledgers, included in the
records of the case, clearly indicates that PNB imposed interest rates higher than the agreed 12% per annum rate. This confirmatory finding,
albeit based solely on ledgers found in the records, reinforces the application in this case of the rule that findings of the RTC, when affirmed by
the CA, are binding upon this Court.75 (Emphases supplied)

Verily, all these cases, including the present one, involve identical or similar provisions found in respondent’s credit agreements and promissory
notes. Thus, the July 1989 Credit Agreement executed by petitioners and respondent contained the following stipulation on interest:

1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5% [per annum]. Interest shall be payable in advance every one hundred
twenty days at the rate prevailing at the time of the renewal.

(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending on whatever policy the Bank may adopt in the future,
including without limitation, the shifting from the floating interest rate system to the fixed interest rate system, or vice versa. Where the Bank has
imposed on the Loan interest at a rate per annum which is equal to the Bank’s spread over the current floating interest rate, the Borrower hereby
agrees that the Bank may, without need of notice to the Borrower, increase or decrease its spread over the floating interest rate at any time
depending on whatever policy it may adopt in the future. 76 (Emphases supplied)

while the eight promissory notes issued pursuant thereto granted PNB the right to increase or reduce interest rates "within the limits allowed by
law or the Monetary Board"77 and the Real Estate Mortgage agreement included the same right to increase or reduce interest rates "at any time
depending on whatever policy PNB may adopt in the future." 78

On the basis of the Credit Agreement, petitioners issued promissory notes which they signed in blank, and respondent later on entered their
corresponding interest rates, as follows:

1st Promissory Note dated July 24, 1989 – 19.5%;

2nd Promissory Note dated November 22, 1989 – 23%;

3rd Promissory Note dated March 21, 1990 – 22%;

4th Promissory Note dated July 19, 1990 – 24%;

5th Promissory Note dated December 17, 1990 – 28%;

6th Promissory Note dated February 14, 1991 – 32%;

7th Promissory Note dated March 1, 1991 – 30%; and

8th Promissory Note dated July 11, 1991 – 24%.79

On the other hand, the August 1991 Amendment to Credit Agreement contains the following stipulation regarding interest:

1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of each Availment up to but not including
the date of full payment thereof at the rate per annum which is determined by the Bank to be prime rate plus applicable spread in effect as of the
date of each Availment.80 (Emphases supplied)

and under this Amendment to Credit Agreement, petitioners again executed and signed the following promissory notes in blank, for the
respondent to later on enter the corresponding interest rates, which it did, as follows:

9th Promissory Note dated November 8, 1991 – 26%;

10th Promissory Note dated March 19, 1992 – 25%;

11th Promissory Note dated July 11, 1992 – 23%;

12th Promissory Note dated November 10, 1992 – 21%;

13th Promissory Note dated March 15, 1993 – 21%;

14th Promissory Note dated July 12, 1993 – 17.5%;

15th Promissory Note dated November 17, 1993 – 21%;

16th Promissory Note dated March 28, 1994 – 21%;

 17th Promissory Note dated July 13, 1994 – 21%;

18th Promissory Note dated November 16, 1994 – 16%;

19th Promissory Note dated April 10, 1995 – 21%;

20th Promissory Note dated July 19, 1995 – 18.5%;

21st Promissory Note dated December 18, 1995 – 18.75%;

22nd Promissory Note dated April 22, 1996 – 18.5%;

23rd Promissory Note dated July 22, 1996 – 18.5%;

24th Promissory Note dated November 25, 1996 – 18%;

25th Promissory Note dated May 30, 1997 – 17.5%; and

26th Promissory Note (PN 9707237) dated July 30, 1997 – 25%.81

The 9th up to the 17th promissory notes provide for the payment of interest at the "rate the Bank may at any time without notice, raise within the
limits allowed by law x x x."82 On the other hand, the 18th up to the 26th promissory notes – which includes PN 9707237 – carried the following
provision:

x x x For this purpose, I/We agree that the rate of interest herein stipulated may be increased or decreased for the subsequent Interest Periods,
with prior notice to the Borrower in the event of changes in interest rate prescribed by law or the Monetary Board of the Central Bank of the
Philippines, or in the Bank’s overall cost of funds. I/We hereby agree that in the event I/we are not agreeable to the interest rate fixed for any
Interest Period, I/we shall have the option to prepay the loan or credit facility without penalty within ten (10) calendar days from the Interest
Setting Date.83 (Emphasis supplied)

These stipulations must be once more invalidated, as was done in previous cases. The common denominator in these cases is the lack of
agreement of the parties to the imposed interest rates. For this case, this lack of consent by the petitioners has been made obvious by the fact
that they signed the promissory notes in blank for the respondent to fill. We find credible the testimony of Lydia in this respect. Respondent failed
to discredit her; in fact, its witness PNB Kalibo Branch Manager Aspa admitted that interest rates were fixed solely by its Treasury Department in
Manila, which were then simply communicated to all PNB branches for implementation. If this were the case, then this would explain why
petitioners had to sign the promissory notes in blank, since the imposable interest rates have yet to be determined and fixed by respondent’s
Treasury Department in Manila.

Moreover, in Aspa’s enumeration of the factors that determine the interest rates PNB fixes – such as cost of money, foreign currency values,
bank administrative costs, profitability, and considerations which affect the banking industry – it can be seen that considerations which affect
PNB’s borrowers are ignored. A borrower’s current financial state, his feedback or opinions, the nature and purpose of his borrowings, the effect
of foreign currency values or fluctuations on his business or borrowing, etc. – these are not factors which influence the fixing of interest rates to
be imposed on him. Clearly, respondent’s method of fixing interest rates based on one-sided, indeterminate, and subjective criteria such as
profitability, cost of money, bank costs, etc. is arbitrary for there is no fixed standard or margin above or below these considerations.

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

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

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

In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB as to the interest to be imposed, as both options
violate the principle of mutuality of contracts.84 (Emphases supplied)

To repeat what has been said in the above-cited cases, any modification in the contract, such as the interest rates, must be made with the
consent of the contracting parties.1âwphi1 The minds of all the parties must meet as to the proposed modification, especially when it affects an
important aspect of the agreement. In the case of loan agreements, the rate of interest is a principal condition, if not the most important
component. Thus, any modification thereof must be mutually agreed upon; otherwise, it has no binding effect.

What is even more glaring in the present case is that, the stipulations in question no longer provide that the parties shall agree upon the interest
rate to be fixed; -instead, they are worded in such a way that the borrower shall agree to whatever interest rate respondent fixes. In credit
agreements covered by the above-cited cases, it is provided that:

The Bank reserves the right to increase the interest rate 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 accommodation shall be correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the
effectivity date of the increase or decrease in maximum interest rate. 85 (Emphasis supplied)

Whereas, in the present credit agreements under scrutiny, it is stated that:

IN THE JULY 1989 CREDIT AGREEMENT

(b) The Borrower agrees that the Bank may modify the interest rate on the Loan depending on whatever policy the Bank may adopt in the future,
including without limitation, the shifting from the floating interest rate system to the fixed interest rate system, or vice versa. Where the Bank has
imposed on the Loan interest at a rate per annum, which is equal to the Bank’s spread over the current floating interest rate, the Borrower
hereby agrees that the Bank may, without need of notice to the Borrower, increase or decrease its spread over the floating interest rate at any
time depending on whatever policy it may adopt in the future.86 (Emphases supplied)
IN THE AUGUST 1991 AMENDMENT TO CREDIT AGREEMENT

1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of each Availment up to but not including
the date of full payment thereof at the rate per annum which is determined by the Bank to be prime rate plus applicable spread in effect as of the
date of each Availment.87 (Emphasis supplied)

Plainly, with the present credit agreement, the element of consent or agreement by the borrower is now completely lacking, which makes
respondent’s unlawful act all the more reprehensible.

Accordingly, petitioners are correct in arguing that estoppel should not apply to them, for "[e]stoppel cannot be predicated on an illegal act. As
between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy." 88

It appears that by its acts, respondent violated the Truth in Lending Act, or Republic Act No. 3765, which was enacted "to protect x x x citizens
from a lack of awareness of the true cost of credit to the user by using a full disclosure of such cost with a view of preventing the uninformed use
of credit to the detriment of the national economy."89 The law "gives a detailed enumeration of the specific information required to be disclosed,
among which are the interest and other charges incident to the extension of credit."90 Section 4 thereof provides that a disclosure statement
must be furnished prior to the consummation of the transaction, thus:

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

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

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

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

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

(5) the total amount to be financed;

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

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

Under Section 4(6), "finance charge" represents the amount to be paid by the debtor incident to the extension of credit such as interest or
discounts, collection fees, credit investigation fees, attorney’s fees, and other service charges. The total finance charge represents the difference
between (1) the aggregate consideration (down payment plus installments) on the part of the debtor, and (2) the sum of the cash price and non-
finance charges.91

By requiring the petitioners to sign the credit documents and the promissory notes in blank, and then unilaterally filling them up later on,
respondent violated the Truth in Lending Act, and was remiss in its disclosure obligations. In one case, which the Court finds applicable here, it
was held:

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

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

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

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

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

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

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

(5) the total amount to be financed;

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

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

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

In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not sufficient notification from
UCPB. As earlier discussed, the interest rate provision therein does not sufficiently indicate with particularity the interest rate to be applied to the
loan covered by said promissory notes.92 (Emphases supplied)

However, the one-year period within which an action for violation of the Truth in Lending Act may be filed evidently prescribed long ago, or
sometime in 2001, one year after petitioners received the March 2000 demand letter which contained the illegal charges.
The fact that petitioners later received several statements of account detailing its outstanding obligations does not cure respondent’s breach. To
repeat, the belated discovery of the true cost of credit does not reverse the ill effects of an already consummated business decision.93

Neither may the statements be considered proposals sent to secure the petitioners’ conformity; they were sent after the imposition and
application of the interest rate, and not before. And even if it were to be presumed that these are proposals or offers, there was no acceptance
by petitioners. "No one receiving a proposal to modify a loan contract, especially regarding interest, is obliged to answer the proposal."94

Loan and credit arrangements may be made enticing by, or "sweetened" with, offers of low initial interest rates, but actually accompanied by
provisions written in fine print that allow lenders to later on increase or decrease interest rates unilaterally, without the consent of the borrower,
and depending on complex and subjective factors. Because they have been lured into these contracts by initially low interest rates, borrowers
get caught and stuck in the web of subsequent steep rates and penalties, surcharges and the like. Being ordinary individuals or entities, they
naturally dread legal complications and cannot afford court litigation; they succumb to whatever charges the lenders impose. At the very least,
borrowers should be charged rightly; but then again this is not possible in a one-sided credit system where the temptation to abuse is strong and
the willingness to rectify is made weak by the eternal desire for profit.

Given the above supposition, the Court cannot subscribe to respondent’s argument that in every repricing of petitioners’ loan availment, they are
given the right to question the interest rates imposed. The import of respondent’s line of reasoning cannot be other than that if one out of every
hundred borrowers questions respondent’s practice of unilaterally fixing interest rates, then only the loan arrangement with that lone complaining
borrower will enjoy the benefit of review or re-negotiation; as to the 99 others, the questionable practice will continue unchecked, and respondent
will continue to reap the profits from such unscrupulous practice. The Court can no more condone a view so perverse. This is exactly what the
Court meant in the immediately preceding cited case when it said that "the belated discovery of the true cost of credit does not reverse the ill
effects of an already consummated business decision;" 95 as to the 99 borrowers who did not or could not complain, the illegal act shall have
become a fait accompli– to their detriment, they have already suffered the oppressive rates.

Besides, that petitioners are given the right to question the interest rates imposed is, under the circumstances, irrelevant; we have a situation
where the petitioners do not stand on equal footing with the respondent. It is doubtful that any borrower who finds himself in petitioners’ position
would dare question respondent’s power to arbitrarily modify interest rates at any time. In the second place, on what basis could any borrower
question such power, when the criteria or standards – which are really one-sided, arbitrary and subjective – for the exercise of such power are
precisely lost on him?

For the same reasons, the Court cannot validly consider that, as stipulated in the 18th up to the 26th promissory notes, petitioners are granted
the option to prepay the loan or credit facility without penalty within 10 calendar days from the Interest Setting Date if they are not agreeable to
the interest rate fixed. It has been shown that the promissory notes are executed and signed in blank, meaning that by the time petitioners learn
of the interest rate, they are already bound to pay it because they have already pre-signed the note where the rate is subsequently entered.

Besides, premium may not be placed upon a stipulation in a contract which grants one party the right to choose whether to continue with or
withdraw from the agreement if it discovers that what the other party has been doing all along is improper or illegal.

Thus said, respondent’s arguments relative to the credit documents – that documentary evidence prevails over testimonial evidence; that the
credit documents are in proper form, presumed regular, and endure, against arbitrary claims by petitioners, experienced business persons that
they are, they signed questionable loan documents whose provisions for interest rates were left blank, and yet they continued to pay the
interests without protest for a number of years – deserve no consideration.

With regard to interest, the Court finds that since the escalation clause is annulled, the principal amount of the loan is subject to the original or
stipulated rate of interest, and upon maturity, the amount due shall be subject to legal interest at the rate of 12% per annum. This is the uniform
ruling adopted in previous cases, including those cited here. 96 The interests paid by petitioners should be applied first to the payment of the
stipulated or legal and unpaid interest, as the case may be, and later, to the capital or principal. 97 Respondent should then refund the excess
amount of interest that it has illegally imposed upon petitioners; "[t]he amount to be refunded refers to that paid by petitioners when they had no
obligation to do so."98 Thus, the parties’ original agreement stipulated the payment of 19.5% interest; however, this rate was intended to apply
only to the first promissory note which expired on November 21, 1989 and was paid by petitioners; it was not intended to apply to the whole
duration of the loan. Subsequent higher interest rates have been declared illegal; but because only the rates are found to be improper, the
obligation to pay interest subsists, the same to be fixed at the legal rate of 12% per annum. However, the 12% interest shall apply only until June
30, 2013. Starting July1, 2013, the prevailing rate of interest shall be 6% per annum pursuant to our ruling in Nacar v. Gallery Frames99 and
Bangko Sentral ng Pilipinas-Monetary Board Circular No. 799.

Now to the issue of penalty. PN 9707237 provides that failure to pay it or any installment thereon, when due, shall constitute default, and a
penalty charge of 24% per annum based on the defaulted principal amount shall be imposed. Petitioners claim that this penalty should be
excluded from the foreclosure amount or bid price because the Real Estate Mortgage and the Supplement thereto did not specifically include it
as part of the secured amount. Respondent justifies its inclusion in the secured amount, saying that the purpose of the penalty or a penal clause
is to ensure the performance of the obligation and substitute for damages and the payment of interest in the event of non-
compliance.100 Respondent adds that the imposition and collection of a penalty is a normal banking practice, and the standard rate per annum
for all commercial banks, at the time, was 24%. Its inclusion as part of the secured amount in the mortgage agreements is thus valid and
necessary.

The Court sustains petitioners’ view that the penalty may not be included as part of the secured amount. Having found the credit agreements
and promissory notes to be tainted, we must accord the same treatment to the mortgages. After all, "[a] mortgage and a note secured by it are
deemed parts of one transaction and are construed together." 101 Being so tainted and having the attributes of a contract of adhesion as the
principal credit documents, we must construe the mortgage contracts strictly, and against the party who drafted it. An examination of the
mortgage agreements reveals that nowhere is it stated that penalties are to be included in the secured amount. Construing this silence strictly
against the respondent, the Court can only conclude that the parties did not intend to include the penalty allowed under PN 9707237 as part of
the secured amount. Given its resources, respondent could have – if it truly wanted to – conveniently prepared and executed an amended
mortgage agreement with the petitioners, thereby including penalties in the amount to be secured by the encumbered properties. Yet it did not.

With regard to attorney’s fees, it was plain error for the CA to have passed upon the issue since it was not raised by the petitioners in their
appeal; it was the respondent that improperly brought it up in its appellee’s brief, when it should have interposed an appeal, since the trial court’s
Decision on this issue is adverse to it. It is an elementary principle in the subject of appeals that an appellee who does not himself appeal cannot
obtain from the appellate court any affirmative relief other than those granted in the decision of the court below.

x x x [A]n appellee, who is at the same time not an appellant, may on appeal be permitted to make counter assignments of error in ordinary
actions, when the purpose is merely to defend himself against an appeal in which errors are alleged to have been committed by the trial court
both in the appreciation of facts and in the interpretation of the law, in order to sustain the judgment in his favor but not when his purpose is to
seek modification or reversal of the judgment, in which case it is necessary for him to have excepted to and appealed from the judgment.102

Since petitioners did not raise the issue of reduction of attorney’s fees, the CA possessed no authority to pass upon it at the instance of
respondent. The ruling of the trial court in this respect should remain undisturbed.
For the fixing of the proper amounts due and owing to the parties – to the respondent as creditor and to the petitioners who are entitled to a
refund as a consequence of overpayment considering that they paid more by way of interest charges than the 12% per annum103 herein allowed
– the case should be remanded to the lower court for proper accounting and computation, applying the following procedure:

1. The 1st Promissory Note with the 19.5% interest rate is deemed proper and paid;

2. All subsequent promissory notes (from the 2nd to the 26th promissory notes) shall carry an interest rate of only 12% per
annum.104 Thus, interest payment made in excess of 12% on the 2nd promissory note shall immediately be applied to the principal, and
the principal shall be accordingly reduced. The reduced principal shall then be subjected to the 12% 105 interest on the 3rd promissory
note, and the excess over 12% interest payment on the 3rd promissory note shall again be applied to the principal, which shall again be
reduced accordingly. The reduced principal shall then be subjected to the 12% interest on the 4th promissory note, and the excess
over12% interest payment on the 4th promissory note shall again be applied to the principal, which shall again be reduced accordingly.
And so on and so forth;

3. After the above procedure is carried out, the trial court shall be able to conclude if petitioners a) still have an OUTSTANDING
BALANCE/OBLIGATION or b) MADE PAYMENTS OVER AND ABOVE THEIR TOTAL OBLIGATION (principal and interest);

4. Such outstanding balance/obligation, if there be any, shall then be subjected to a 12% per annum interest from October 28, 1997
until January 14, 1999, which is the date of the auction sale;

5. Such outstanding balance/obligation shall also be charged a 24% per annum penalty from August 14, 1997 until January 14, 1999.
But from this total penalty, the petitioners’ previous payment of penalties in the amount of P202,000.00made on January 27,
1998106 shall be DEDUCTED;

6. To this outstanding balance (3.), the interest (4.), penalties (5.), and the final and executory award of 1% attorney’s fees shall be
ADDED;

7. The sum total of the outstanding balance (3.), interest (4.) and 1% attorney’s fees (6.) shall be DEDUCTED from the bid price
of P4,324,172.96. The penalties (5.) are not included because they are not included in the secured amount;

8. The difference in (7.) [P4,324,172.96 LESS sum total of the outstanding balance (3.), interest (4.), and 1% attorney’s fees (6.)] shall
be DELIVERED TO THE PETITIONERS;

9. Respondent may then proceed to consolidate its title to TCTs T-14250 and T-16208;

10. ON THE OTHER HAND, if after performing the procedure in (2.), it turns out that petitioners made an OVERPAYMENT, the interest
(4.), penalties (5.), and the award of 1% attorney’s fees (6.) shall be DEDUCTED from the overpayment. There is no outstanding
balance/obligation precisely because petitioners have paid beyond the amount of the principal and interest;

11. If the overpayment exceeds the sum total of the interest (4.), penalties (5.), and award of 1% attorney’s fees (6.), the excess shall
be RETURNED to the petitioners, with legal interest, under the principle of solutio indebiti; 107

12. Likewise, if the overpayment exceeds the total amount of interest (4.) and award of 1% attorney’s fees (6.), the trial court shall
INVALIDATE THE EXTRAJUDICIAL FORECLOSURE AND SALE;

13. HOWEVER, if the total amount of interest (4.) and award of 1% attorney’s fees (6.) exceed petitioners’ overpayment, then the
excess shall be DEDUCTED from the bid price of P4,324,172.96;

14. The difference in (13.) [P4,324,172.96 LESS sum total of the interest (4.) and 1% attorney’s fees (6.)] shall be DELIVERED TO THE
PETITIONERS;

15. Respondent may then proceed to consolidate its title to TCTs T-14250 and T-16208. The outstanding penalties, if any, shall be
collected by other means.

From the above, it will be seen that if, after proper accounting, it turns out that the petitioners made payments exceeding what they
actually owe by way of principal, interest, and attorney’s fees, then the mortgaged properties need not answer for any outstanding
secured amount, because there is not any; quite the contrary, respondent must refund the excess to petitioners.1âwphi1 In such case,
the extrajudicial foreclosure and sale of the properties shall be declared null and void for obvious lack of basis, the case being one of
solutio indebiti instead. If, on the other hand, it turns out that petitioners’ overpayments in interests do not exceed their total obligation,
then the respondent may consolidate its ownership over the properties, since the period for redemption has expired. Its only obligation
will be to return the difference between its bid price (P4,324,172.96) and petitioners’ total obligation outstanding – except penalties –
after applying the latter’s overpayments.

WHEREFORE, premises considered, the Petition is GRANTED. The May 8, 2007 Decision of the Court of Appeals in CA-G.R. CV No. 79650 is
ANNULLED and SET ASIDE. Judgment is hereby rendered as follows:

1. The interest rates imposed and indicated in the 2nd up to the 26th Promissory Notes are DECLARED NULL AND VOID, and such
notes shall instead be subject to interest at the rate of twelve percent (12%) per annum up to June 30, 2013, and starting July 1, 2013,
six percent (6%) per annum until full satisfaction;

2. The penalty charge imposed in Promissory Note No. 9707237 shall be EXCLUDED from the amounts secured by the real estate
mortgages;

3. The trial court’s award of one per cent (1%) attorney’s fees is REINSTATED;

4. The case is ordered REMANDED to the Regional Trial Court, Branch 6 of Kalibo, Aklan for the computation of overpayments made
by petitioners spouses Eduardo and Lydia Silos to respondent Philippine National Bank, taking into consideration the foregoing
dispositions, and applying the procedure hereinabove set forth;

5. Thereafter, the trial court is ORDERED to make a determination as to the validity of the extrajudicial foreclosure and sale, declaring
the same null and void in case of overpayment and ordering the release and return of Transfer Certificates of Title Nos. T-14250 and
TCT T-16208 to petitioners, or ordering the delivery to the petitioners of the difference between the bid price and the total remaining
obligation of petitioners, if any;
 6. In the meantime, the respondent Philippine National Bank is ENJOINED from consolidating title to Transfer Certificates of Title Nos.
T-14250 and T-16208 until all the steps in the procedure above set forth have been taken and applied;

7. The reimbursement of the excess in the bid price of P377,505.99, which respondent Philippine National Bank is ordered to reimburse
petitioners, should be HELD IN ABEYANCE until the true amount owing to or owed by the parties as against each other is determined;

8. Considering that this case has been pending for such a long time and that further proceedings, albeit uncomplicated, are required,
the trial court is ORDERED to proceed with dispatch.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO* JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

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

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

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

MARIA LOURDES P. A. SERENO

Chief Justice
 THIRD DIVISION

[G.R. No. 138677. February 12, 2002]

TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. COURT OF APPEALS & SECURITY BANK & TRUST
COMPANY, respondents.

DECISION
VITUG, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the decision and resolutions of the Court
of Appeals in CA-G.R. CV No. 34594, entitled "Security Bank and Trust Co. vs. Tolomeo Ligutan, et al."
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount of P120,000.00 from respondent
Security Bank and Trust Company. Petitioners executed a promissory note binding themselves, jointly and severally, to pay the sum borrowed
with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of
default. In addition, petitioners agreed to pay 10% of the total amount due by way of attorneys fees if the matter were indorsed to a lawyer for
collection or if a suit were instituted to enforce payment. The obligation matured on 8 September 1981; the bank, however, granted an extension
but only up until 29 December 1981.
Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982, amounted to P114,416.10. On 30
September 1982, the bank sent a final demand letter to petitioners informing them that they had five days within which to make full payment.
Since petitioners still defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court of Makati, Branch 143, a
complaint for recovery of the due amount.
After petitioners had filed a joint answer to the complaint, the bank presented its evidence and, on 27 March 1985, rested its
case. Petitioners, instead of introducing their own evidence, had the hearing of the case reset on two consecutive occasions. In view of the
absence of petitioners and their counsel on 28 August 1985, the third hearing date, the bank moved, and the trial court resolved, to consider the
case submitted for decision.
Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the order of the trial court declaring them as having
waived their right to present evidence and prayed that they be allowed to prove their case. The court a quo denied the motion in an order,
dated 5 September 1988, and on 20 October 1989, it rendered its decision,[1] the dispositive portion of which read:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the latter to pay, jointly and severally, to
the plaintiff, as follows:

"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge and 5% per month penalty
charge, commencing on 20 May 1982 until fully paid;
"2. To pay the further sum equivalent to 10% of the total amount of indebtedness for and as attorneys fees; and
"3. To pay the costs of the suit.[2]
Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the trial court of their motion to present evidence
and assailing the imposition of the 2% service charge, the 5% per month penalty charge and 10% attorney's fees. In its decision[3] of 7 March
1996, the appellate court affirmed the judgment of the trial court except on the matter of the 2% service charge which was deleted pursuant to
Central Bank Circular No. 783. Not fully satisfied with the decision of the appellate court, both parties filed their respective motions for
reconsideration.[4] Petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable. The bank, on the other hand,
asked that the payment of interest and penalty be commenced not from the date of filing of complaint but from the time of default as so stipulated
in the contract of the parties.
On 28 October 1998, the Court of Appeals resolved the two motions thusly:

We find merit in plaintiff-appellees claim that the principal sum of P114,416.00 with interest thereon must commence not on the date of filing of
the complaint as we have previously held in our decision but on the date when the obligation became due.

Default generally begins from the moment the creditor demands the performance of the obligation. However, demand is not necessary to render
the obligor in default when the obligation or the law so provides.

In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the obligation on its maturity date 'without
necessity of demand.' They also agreed to pay the interest in case of non-payment from the date of default.

xxxxxxxxx

While we maintain that defendants-appellants must be bound by the contract which they acknowledged and signed, we take cognizance of their
plea for the application of the provisions of Article 1229 x x x.

Considering that defendants-appellants partially complied with their obligation under the promissory note by the reduction of the original amount
of P120,000.00 to P114,416.00 and in order that they will finally settle their obligation, it is our view and we so hold that in the interest of justice
and public policy, a penalty of 3% per month or 36% per annum would suffice.

xxxxxxxxx

WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The defendants-

appellants Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-appellee Security Bank and Trust Company the
following:

1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and 3% per month penalty charge
commencing May 20, 1982 until fully paid;
2. The sum equivalent to 10% of the total amount of the indebtedness as and for attorneys fees.[5]
On 16 November 1998, petitioners filed an omnibus motion for reconsideration and to admit newly discovered evidence,[6] alleging that
while the case was pending before the trial court, petitioner Tolomeo Ligutan and his wife BienvenidaLigutan executed a real estate mortgage
on 18 January 1984 to secure the existing indebtedness of petitioners Ligutan and dela Llana with the bank. Petitioners contended that the
execution of the real estate mortgage had the effect of novating the contract between them and the bank. Petitioners further averred that the
mortgage was extrajudicially foreclosed on 26 August 1986, that they were not informed about it, and the bank did not credit them with the
proceeds of the sale. The appellate court denied the omnibus motion for reconsideration and to admit newly discovered evidence, ratiocinating
that such a second motion for reconsideration cannot be entertained under Section 2, Rule 52, of the 1997 Rules of Civil
Procedure.Furthermore, the appellate court said, the newly-discovered evidence being invoked by petitioners had actually been known to them
when the case was brought on appeal and when the first motion for reconsideration was filed. [7]
Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case to this Court on 9 July 1999 via a petition
for review on certiorari under Rule 45 of the Rules of Court, submitting thusly -
I. The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty of three (3%) percent per
month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners loan obligation are still
manifestly exorbitant, iniquitous and unconscionable.
II. The respondent Court of Appeals gravely erred in not reducing to a reasonable level the ten (10%) percent award of attorneys fees
which is highly and grossly excessive, unreasonable and unconscionable.
III. The respondent Court of Appeals gravely erred in not admitting petitioners newly discovered evidence which could not have been
timely produced during the trial of this case.
IV. The respondent Court of Appeals seriously erred in not holding that there was a novation of the cause of action of private
respondents complaint in the instant case due to the subsequent execution of the real estate mortgage during
the pendency of this case and the subsequent foreclosure of the mortgage. [8]
Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be deleted by petitioners was even
insufficient to fully cover and compensate for the cost of money brought about by the radical devaluation and decrease in the purchasing power
of the peso, particularly vis-a-vis the U.S. dollar, taking into account the time frame of its occurrence. The Bank would stress that only the
amount of P5,584.00 had been remitted out of the entire loan of P120,000.00.[9]
A penalty clause, expressly recognized by law, [10] is an accessory undertaking to assume greater liability on the part of an obligor in case of
breach of an obligation. It functions to strengthen the coercive force of the obligation [11] and to provide, in effect, for what could be the liquidated
damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the
existence and on the measure of damages caused by the breach. [12]Although a court may not at liberty ignore the freedom of the parties to agree
on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated
penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or
irregularly complied with.[13]
The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on
such factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and
its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is
addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. vs. Court of Appeals,[14] just an example, the Court has
tempered the penalty charges after taking into account the debtors pitiful situation and its offer to settle the entire obligation with the creditor
bank. The stipulated penalty might likewise be reduced when a partial or irregular performance is made by the debtor. [15] The stipulated penalty
might even be deleted such as when there has been substantial performance in good faith by the obligor, [16] when the penalty clause itself
suffers from fatal infirmity, or when exceptional circumstances so exist as to warrant it. [17]
The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty interest from 5% a month to 3% a month
which petitioner still disputes. Given the circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation,
the Court sees no cogent ground to modify the ruling of the appellate court..
Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its reasonableness and prays that the Court
reduce the amount. This contention is a fresh issue that has not been raised and ventilated before the courts below. In any event, the interest
stipulation, on its face, does not appear as being that excessive. The essence or rationale for the payment of interest, quite often referred to as
cost of money, is not exactly the same as that of a surcharge or a penalty.A penalty stipulation is not necessarily preclusive of interest, if there is
an agreement to that effect, the two being distinct concepts which may separately be demanded. [18] What may justify a court in not allowing the
creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-
payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business
and the core of a bank's existence.[19]
Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's fees for being grossly excessive,
exorbitant and unconscionable vis-a-vis the time spent and the extent of services rendered by counsel for the bank and the nature of the
case. Bearing in mind that the rate of attorneys fees has been agreed to by the parties and intended to answer not only for litigation expenses
but also for collection efforts as well, the Court, like the appellate court, deems the award of 10% attorneys fees to be reasonable.
Neither can the appellate court be held to have erred in rejecting petitioners' call for a new trial or to admit newly discovered evidence. As
the appellate court so held in its resolution of 14 May 1999 -

Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of a judgment or final resolution by the
same party shall be entertained. Considering that the instant motion is already a second motion for reconsideration, the same must therefore be
denied.

Furthermore, it would appear from the records available to this court that the newly-discovered evidence being invoked by defendants-appellants
have actually been existent when the case was brought on appeal to this court as well as when the first motion for reconsideration was
filed. Hence, it is quite surprising why defendants-appellants raised the alleged newly-discovered evidence only at this stage when they could
have done so in the earlier pleadings filed before this court.

The propriety or acceptability of such a second motion for reconsideration is not contingent upon the averment of 'new' grounds to assail the
judgment, i.e., grounds other than those theretofore presented and rejected. Otherwise, attainment of finality of a judgment might be stayed off
indefinitely, depending on the partys ingenuousness or cleverness in conceiving and formulating 'additional flaws' or 'newly discovered errors'
therein, or thinking up some injury or prejudice to the rights of the movant for reconsideration.[20]

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

[G.R. No. 125817. January 16, 2002]

ABELARDO LIM and ESMADITO GUNNABAN, petitioners, vs. COURT OF APPEALS and DONATO H. GONZALES, respondents.

DECISION
BELLOSILLO, J.:

When a passenger jeepney covered by a certificate of public convenience is sold to another who continues to operate it under the same
certificate of public convenience under the so-called kabit system, and in the course thereof the vehicle meets an accident through the fault of
another vehicle, may the new owner sue for damages against the erring vehicle? Otherwise stated, does the new owner have any legal
personality to bring the action, or is he the real party in interest in the suit, despite the fact that he is not the registered owner under the certificate
of public convenience?
Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu passenger jeepney from Gomercino Vallarta, holder of a
certificate of public convenience for the operation of public utility vehicles plying the Monumento-Bulacan route. While private respondent
Gonzales continued offering the jeepney for public transport services he did not have the registration of the vehicle transferred in his name nor
did he secure for himself a certificate of public convenience for its operation. Thus Vallarta remained on record as its registered owner and
operator.
On 22 July 1990, while the jeepney was running northbound along the North Diversion Road somewhere in Meycauayan, Bulacan, it
collided with a ten-wheeler-truck owned by petitioner Abelardo Lim and driven by his co-petitioner Esmadito Gunnaban. Gunnaban owned
responsibility for the accident, explaining that while he was traveling towards Manila the truck suddenly lost its brakes. To avoid colliding with
another vehicle, he swerved to the left until he reached the center island.However, as the center island eventually came to an end, he veered
farther to the left until he smashed into a Ferroza automobile, and later, into private respondent's passenger jeepney driven by one Virgilio
Gonzales. The impact caused severe damage to both the Ferroza and the passenger jeepney and left one (1) passenger dead and many others
wounded.
Petitioner Lim shouldered the costs for hospitalization of the wounded, compensated the heirs of the deceased passenger, and had the
Ferroza restored to good condition. He also negotiated with private respondent and offered to have the passenger jeepney repaired at his
shop. Private respondent however did not accept the offer so Lim offered him P20,000.00, the assessment of the damage as estimated by his
chief mechanic. Again, petitioner Lim's proposition was rejected; instead, private respondent demanded a brand-new jeep or the amount
of P236,000.00. Lim increased his bid to P40,000.00 but private respondent was unyielding. Under the circumstances, negotiations had to be
abandoned; hence, the filing of the complaint for damages by private respondent against petitioners.
In his answer Lim denied liability by contending that he exercised due diligence in the selection and supervision of his employees. He
further asserted that as the jeepney was registered in Vallartas name, it was Vallarta and not private respondent who was the real party in
interest.[1] For his part, petitioner Gunnaban averred that the accident was a fortuitous event which was beyond his control. [2]
Meanwhile, the damaged passenger jeepney was left by the roadside to corrode and decay. Private respondent explained that although he
wanted to take his jeepney home he had no capability, financial or otherwise, to tow the damaged vehicle.[3]
The main point of contention between the parties related to the amount of damages due private respondent. Private respondent Gonzales
averred that per estimate made by an automobile repair shop he would have to spend P236,000.00 to restore his jeepney to its original
condition.[4] On the other hand, petitioners insisted that they could have the vehicle repaired for P20,000.00.[5]
On 1 October 1993 the trial court upheld private respondent's claim and awarded him P236,000.00 with legal interest from 22 July 1990 as
compensatory damages and P30,000.00 as attorney's fees. In support of its decision, the trial court ratiocinated that as vendee and current
owner of the passenger jeepney private respondent stood for all intents and purposes as the real party in interest. Even Vallarta himself
supported private respondent's assertion of interest over the jeepney for, when he was called to testify, he dispossessed himself of any claim or
pretension on the property. Gunnaban was found by the trial court to have caused the accident since he panicked in the face of an emergency
which was rather palpable from his act of directing his vehicle to a perilous streak down the fast lane of the superhighway then across the island
and ultimately to the opposite lane where it collided with the jeepney.
On the other hand, petitioner Lim's liability for Gunnaban's negligence was premised on his want of diligence in supervising his
employees. It was admitted during trial that Gunnaban doubled as mechanic of the ill-fated truck despite the fact that he was neither tutored nor
trained to handle such task.[6]
Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996, affirmed the decision of the trial court. In upholding the
decision of the court a quo the appeals court concluded that while an operator under the kabit system could not sue without joining the registered
owner of the vehicle as his principal, equity demanded that the present case be made an exception. [7] Hence this petition.
It is petitioners' contention that the Court of Appeals erred in sustaining the decision of the trial court despite their opposition to the well-
established doctrine that an operator of a vehicle continues to be its operator as long as he remains the operator of record. According to
petitioners, to recognize an operator under the kabit system as the real party in interest and to countenance his claim for damages is utterly
subversive of public policy. Petitioners further contend that inasmuch as the passenger jeepney was purchased by private respondent for
only P30,000.00, an award of P236,000.00 is inconceivably large and would amount to unjust enrichment. [8]
Petitioners' attempt to illustrate that an affirmance of the appealed decision could be supportive of the pernicious kabit system does not
persuade. Their labored efforts to demonstrate how the questioned rulings of the courts a quo are diametrically opposed to the policy of the law
requiring operators of public utility vehicles to secure a certificate of public convenience for their operation is quite unavailing.
The kabit system is an arrangement whereby a person who has been granted a certificate of public convenience allows other persons who
own motor vehicles to operate them under his license, sometimes for a fee or percentage of the earnings. [9] Although the parties to such an
agreement are not outrightly penalized by law, the kabit system is invariably recognized as being contrary to public policy and therefore void and
inexistent under Art. 1409 of the Civil Code.
In the early case of Dizon v. Octavio[10] the Court explained that one of the primary factors considered in the granting of a certificate of
public convenience for the business of public transportation is the financial capacity of the holder of the license, so that liabilities arising from
accidents may be duly compensated. The kabit system renders illusory such purpose and, worse, may still be availed of by the grantee to
escape civil liability caused by a negligent use of a vehicle owned by another and operated under his license. If a registered owner is allowed to
escape liability by proving who the supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another who
possesses no property withwhich to respond financially for the damage done. Thus, for the safety of passengers and the public who may have
been wronged and deceived through the baneful kabit system, the registered owner of the vehicle is not allowed to prove that another person
has become the owner so that he may be thereby relieved of responsibility. Subsequent cases affirm such basic doctrine.[11]
It would seem then that the thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to identify the person
upon whom responsibility may be fixed in case of an accident with the end view of protecting the riding public. The policy therefore loses its force
if the public at large is not deceived, much less involved.
 In the present case it is at once apparent that the evil sought to be prevented in enjoining the kabit system does not exist. First, neither of
the parties to the pernicious kabit system is being held liable for damages. Second, the case arose from the negligence of another vehicle in
using the public road to whom no representation, or misrepresentation, as regards the ownership and operation of the passenger jeepney was
made and to whom no such representation, or misrepresentation, was necessary. Thus it cannot be said that private respondent Gonzales and
the registered owner of the jeepney were in estoppel for leading the public to believe that the jeepney belonged to the registered owner. Third,
the riding public was not bothered nor inconvenienced at the very least by the illegal arrangement. On the contrary, it was private respondent
himself who had been wronged and was seeking compensation for the damage done to him. Certainly, it would be the height of inequity to deny
him his right.
In light of the foregoing, it is evident that private respondent has the right to proceed against petitioners for the damage caused on his
passenger jeepney as well as on his business. Any effort then to frustrate his claim of damages by the ingenuity with which petitioners framed
the issue should be discouraged, if not repelled.
In awarding damages for tortuous injury, it becomes the sole design of the courts to provide for adequate compensation by putting the
plaintiff in the same financial position he was in prior to the tort. It is a fundamental principle in the law on damages that a defendant cannot be
held liable in damages for more than the actual loss which he has inflicted and that a plaintiff is entitled to no more than the just and adequate
compensation for the injury suffered. His recovery is, in the absence of circumstances giving rise to an allowance of punitive damages, limited to
a fair compensation for the harm done. The law will not put him in a position better than where he should be in had not the wrong happened. [12]
In the present case, petitioners insist that as the passenger jeepney was purchased in 1982 for only P30,000.00 to award damages
considerably greater than this amount would be improper and unjustified. Petitioners are at best reminded that indemnification for damages
comprehends not only the value of the loss suffered but also that of the profits which the obligee failed to obtain. In other words, indemnification
for damages is not limited to damnum emergens or actual loss but extends to lucrum cessans or the amount of profit lost.[13]
Had private respondent's jeepney not met an accident it could reasonably be expected that it would have continued earning from the
business in which it was engaged. Private respondent avers that he derives an average income of P300.00 per day from his passenger jeepney
and this earning was included in the award of damages made by the trial court and upheld by the appeals court. The award therefore
of P236,000.00 as compensatory damages is not beyond reason nor speculative as it is based on a reasonable estimate of the total damage
suffered by private respondent, i.e. damage wrought upon his jeepney and the income lost from his transportation business. Petitioners for their
part did not offer any substantive evidence to refute the estimate made by the courts a quo.
However, we are constrained to depart from the conclusion of the lower courts that upon the award of compensatory damages legal
interest should be imposed beginning 22 July 1990, i.e. the date of the accident. Upon the provisions of Art. 2213 of the Civil Code, interest
"cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." It is
axiomatic that if the suit were for damages, unliquidated and not known until definitely ascertained, assessed and determined by the courts after
proof, interest at the rate of six percent (6%) per annum should be from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to be reasonably ascertained). [14]
In this case, the matter was not a liquidated obligation as the assessment of the damage on the vehicle was heavily debated upon by the
parties with private respondent's demand for P236,000.00 being refuted by petitioners who argue that they could have the vehicle repaired easily
for P20,000.00. In fine, the amount due private respondent was not a liquidated account that was already demandable and payable.
One last word. We have observed that private respondent left his passenger jeepney by the roadside at the mercy of the elements. Article
2203 of the Civil Code exhorts parties suffering from loss or injury to exercise the diligence of a good father of a family to minimize the damages
resulting from the act or omission in question. One who is injured then by the wrongful or negligent act of another should exercise reasonable
care and diligence to minimize the resulting damage. Anyway, he can recover from the wrongdoer money lost in reasonable efforts to preserve
the property injured and for injuries incurred in attempting to prevent damage to it. [15]
However we sadly note that in the present case petitioners failed to offer in evidence the estimated amount of the damage caused by
private respondent's unconcern towards the damaged vehicle. It is the burden of petitioners to show satisfactorily not only that the injured party
could have mitigated his damages but also the amount thereof; failing in this regard, the amount of damages awarded cannot be proportionately
reduced.
WHEREFORE, the questioned Decision awarding private respondent Donato Gonzales P236,000.00 with legal interest from 22 July 1990
as compensatory damages and P30,000.00 as attorney's fees is MODIFIED. Interest at the rate of six percent (6%) per annum shall be
computed from the time the judgment of the lower court is made until the finality of this Decision. If the adjudged principal and interest remain
unpaid thereafter, the interest shall be twelve percent (12%) per annum computed from the time judgment becomes final and executory until it is
fully satisfied.
Costs against petitioners.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 189871 August 13, 2013
DARIO NACAR, Petitioner,
vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., Respondents.

DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision 1 dated September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No.
98591, and the Resolution2 dated October 9, 2009 denying petitioner’s motion for reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National Labor Relations Commission
(NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that he was dismissed from employment without a
valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of reinstatement in the amount of P158,919.92. The
dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant was dismissed from
employment for a just or valid cause. All the more, it is clear from the records that complainant was never afforded due process before he was
terminated. As such, we are perforce constrained to grant complainant’s prayer for the payments of separation pay in lieu of reinstatement to his
former position, considering the strained relationship between the parties, and his apparent reluctance to be reinstated, computed only up to
promulgation of this decision as follows:

SEPARATION PAY

Date Hired = August 1990

Rate = P198/day

Date of Decision = Aug. 18, 1998

Length of Service = 8 yrs. & 1 month

P198.00 x 26 days x 8 months = P41,184.00

BACKWAGES

Date Dismissed = January 24, 1997

Rate per day = P196.00

Date of Decisions = Aug. 18, 1998

a) 1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos. = P62,986.56

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day = P62,986.00

P198.00 x 26 days x 6.4 mos. = P32,947.20

TOTAL = P95.933.76

xxxx
WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal and are therefore,
ordered:
To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and 56/100 (P62,986.56) Pesos
representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and 36/100 (P95,933.36)
representing his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution 5 dated February 29, 2000. Accordingly, the NLRC
sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but it was denied. 6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA issued a Resolution dismissing the
petition. Respondents filed a Motion for Reconsideration, but it was likewise denied in a Resolution dated May 8, 2001. 7
Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error on the part of the CA, this
Court denied the petition in the Resolution dated April 17, 2002.8
An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27, 2002. 9 The case was, thereafter,
referred back to the Labor Arbiter. A pre-execution conference was consequently scheduled, but respondents failed to appear.10
On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed from the date of his dismissal
on January 24, 1997 up to the finality of the Resolution of the Supreme Court on May 27, 2002.11 Upon recomputation, the Computation and
Examination Unit of the NLRC arrived at an updated amount in the sum of P471,320.31.12
On December 2, 2002, a Writ of Execution 13 was issued by the Labor Arbiter ordering the Sheriff to collect from respondents the total amount
of P471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among other things, that since the Labor Arbiter awarded
separation pay of P62,986.56 and limited backwages of P95,933.36, no more recomputation is required to be made of the said awards. They
claimed that after the decision becomes final and executory, the same cannot be altered or amended anymore. 14 On January 13, 2003, the
Labor Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution 17 granting the appeal in favor of the respondents
and ordered the recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and executory. Consequently, another
pre-execution conference was held, but respondents failed to appear on time. Meanwhile, petitioner moved that an Alias Writ of Execution be
issued to enforce the earlier recomputed judgment award in the sum of P471,320.31.18
The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the judgment award of
petitioner was reassessed to be in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as determined by the Labor Arbiter
in his Decision dated October 15, 1998, pending the final computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was due to petitioner in the amount
of P147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the appropriate interests. 19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount of P11,459.73. The Labor Arbiter reasoned
that it is the October 15, 1998 Decision that should be enforced considering that it was the one that became final and executory. However, the
Labor Arbiter reasoned that since the decision states that the separation pay and backwages are computed only up to the promulgation of the
said decision, it is the amount of P158,919.92 that should be executed. Thus, since petitioner already received P147,560.19, he is only entitled
to the balance of P11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution 22 dated September 27, 2006. Petitioner
filed a Motion for Reconsideration, but it was likewise denied in the Resolution 23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision 24 denying the petition. The CA opined that since petitioner no longer appealed the October
15, 1998 Decision of the Labor Arbiter, which already became final and executory, a belated correction thereof is no longer allowed. The CA
stated that there is nothing left to be done except to enforce the said judgment. Consequently, it can no longer be modified in any respect,
except to correct clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution 25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF DISCRETION AND
DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED THE
MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF
LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION.26
Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiter’s decision, the same is not final
until reinstatement is made or until finality of the decision, in case of an award of separation pay. Petitioner maintains that considering that the
October 15, 1998 decision of the Labor Arbiter did not become final and executory until the April 17, 2002 Resolution of the Supreme Court in
G.R. No. 151332 was entered in the Book of Entries on May 27, 2002, the reckoning point for the computation of the backwages and separation
pay should be on May 27, 2002 and not when the decision of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that
he is also entitled to the payment of interest from the finality of the decision until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by the October 15, 1998
decision of the Labor Arbiter, no more recomputation is required to be made of said awards. Respondents insist that since the decision clearly
stated that the separation pay and backwages are “computed only up to [the] promulgation of this decision,” and considering that petitioner no
longer appealed the decision, petitioner is only entitled to the award as computed by the Labor Arbiter in the total amount of P158,919.92.
Respondents added that it was only during the execution proceedings that the petitioner questioned the award, long after the decision had
become final and executory. Respondents contend that to allow the further recomputation of the backwages to be awarded to petitioner at this
point of the proceedings would substantially vary the decision of the Labor Arbiter as it violates the rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division),27 wherein the issue
submitted to the Court for resolution was the propriety of the computation of the awards made, and whether this violated the principle of
immutability of judgment. Like in the present case, it was a distinct feature of the judgment of the Labor Arbiter in the above-cited case that the
decision already provided for the computation of the payable separation pay and backwages due and did not further order the computation of the
monetary awards up to the time of the finality of the judgment. Also in Session Delights, the dismissed employee failed to appeal the decision of
the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter’s original computation of the awards
made, pegged as of the time the decision was rendered and confirmed with modification by a final CA decision, is legally proper. The question is
posed, given that the petitioner did not immediately pay the awards stated in the original labor arbiter’s decision; it delayed payment because it
continued with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds from the way the original labor arbiter framed his decision.
The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is the finding of the illegality of
the dismissal and the awards of separation pay in lieu of reinstatement, backwages, attorney’s fees, and legal interests.
The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows that it was time-bound as
can be seen from the figures used in the computation. This part, being merely a computation of what the first part of the decision established and
declared, can, by its nature, be re-computed. This is the part, too, that the petitioner now posits should no longer be re-computed because the
computation is already in the labor arbiter’s decision that the CA had affirmed. The public and private respondents, on the other hand, posit that
a re-computation is necessary because the relief in an illegal dismissal decision goes all the way up to reinstatement if reinsta tement is to be
made, or up to the finality of the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter’s decision, at the same time that it found that an illegal dismissal had taken place, also made a computation of the award,
is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which requires that a computation be made. This Section
in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall embody in any such decision or
order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor arbiter’s decision. As we noted above, this implication is
apparent from the terms of the computation itself, and no question would have arisen had the parties terminated the case and implemented the
decision at that point.
However, the petitioner disagreed with the labor arbiter’s findings on all counts – i.e., on the finding of illegality as well as on all the consequent
awards made. Hence, the petitioner appealed the case to the NLRC which, in turn, affirmed the labor arbiter’s decision. By law, the NLRC
decision is final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed Rule 65 petition for certiorari. The
CA decision, finding that NLRC exceeded its authority in affirming the payment of 13th month pay and indemnity, lapsed to finality and was
subsequently returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor arbiter’s decision, the
implementing labor arbiter ordered the award re-computed; he apparently read the figures originally ordered to be paid to be the computation
due had the case been terminated and implemented at the labor arbiter’s level. Thus, the labor arbiter re-computed the award to include the
separation pay and the backwages due up to the finality of the CA decision that fully terminated the case on the merits. Unfortunately, the labor
arbiter’s approved computation went beyond the finality of the CA decision (July 29, 2003) and included as well the payment for awards the final
CA decision had deleted – specifically, the proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision now
questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the labor arbiter’s original decision
in accordance with its basic component parts as we discussed above. To reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or monetary consequences of the illegal dismissal, computed as of the time of
the labor arbiter’s original decision.28
Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the petitioner, no essential
change is made by a recomputation as this step is a necessary consequence that flows from the nature of the illegality of dismissal declared by
the Labor Arbiter in that decision.29 A recomputation (or an original computation, if no previous computation has been made) is a part of the law
– specifically, Article 279 of the Labor Code and the established jurisprudence on this provision – that is read into the decision. By the nature of
an illegal dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor Code. The
recomputation of the consequences of illegal dismissal upon execution of the decision does not constitute an alteration or amendment of the
final decision being implemented. The illegal dismissal ruling stands; only the computation of monetary consequences of this dismissal is
affected, and this is not a violation of the principle of immutability of final judgments.30
That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk that it ran when it
continued to seek recourses against the Labor Arbiter’s decision. Article 279 provides for the consequences of illegal dismissal in no uncertain
terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of reinstatement is allowed. When that happens, the
finality of the illegal dismissal decision becomes the reckoning point instead of the reinstatement that the law decrees. In allowing separation
pay, the final decision effectively declares that the employment relationship ended so that separation pay and backwages are to be computed up
to that point.31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,32 the Court laid down the
guidelines regarding the manner of computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, t he interest due
should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting 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 the judgment of the court
is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved the
amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, 35 Series of 2013, effective July 1, 2013,
the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in the absence
of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. 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
an express contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 36 of the Manual of Regulations for Banks and Sections 4305Q.1, 37 4305S.338 and
4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest
for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum –
as reflected in the case of Eastern Shipping Lines 40 and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 – but
will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come
July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral Monetary Board,41 this Court
affirmed the authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled that “the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans of
low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It even
 authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes,
or loans of financial intermediaries.”
Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said judgments shall not be disturbed
and shall continue to be implemented applying the rate of interest fixed therein.
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines 42 are accordingly modified to
embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:

1. When the obligation 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 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting 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 the judgment of
the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall continue to
be implemented applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP No. 98591, and the
Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002, when the Resolution of this
Court in G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June 30, 2013 and six percent
(6%) per annum from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and due to petitioner in
accordance with this Decision.
SO ORDERED.
Sereno, Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Bersamin, Del Castillo, Abad, Villarama, Jr., Perez, Mendoza, Reyes, Perlas-Bernabe,
Leonen, JJ., concur.

NACAR vs GALLERY FRAMES

703 SCRA 439 – Civil Law – Torts and Damages – Actual and Compensatory Damages – Legal Rate of Interest is now 6%
Labor Law – Labor Relations – Illegal Dismissal – Computation of Monetary Benefits
Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar alleged that he was dismissed without cause by
Gallery Frames on January 24, 1997. On October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence the
Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and separation pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed the decision of the Labor Arbiter and the decision
became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he alleged that his backwages should be computed
from the time of his illegal dismissal (January 24, 1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied the
motion as he ruled that the reckoning point of the computation should only be from the time Nacar was illegally dismissed (January 24, 1997)
until the decision of the LA (October 15, 1998). The LA reasoned that the said date should be the reckoning point because Nacar did not appeal
hence as to him, that decision became final and executory.
ISSUE: Whether or not the Labor Arbiter is correct.
HELD: No. There are two parts of a decision when it comes to illegal dismissal cases (referring to cases where the dismissed employee wins, or
loses but wins on appeal). The first part is the ruling that the employee was illegally dismissed. This is immediately final even if the employer
appeals – but will be reversed if employer wins on appeal. The second part is the ruling on the award of backwages and/or separation pay. For
backwages, it will be computed from the date of illegal dismissal until the date of the decision of the Labor Arbiter. But if the employer appeals,
then the end date shall be extended until the day when the appellate court’s decision shall become final. Hence, as a consequence, the liability
of the employer, if he loses on appeal, will increase – this is just but a risk that the employer cannot avoid when it continued to seek recourses
against the Labor Arbiter’s decision. This is also in accordance with Article 279 of the Labor Code.
Anent the issue of award of interest in the form of actual or compensatory damages, the Supreme Court ruled that the old case of Eastern
Shipping Lines vs CA is already modified by the promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 which
lowered the legal rate of interest from 12% to 6%. Specifically, the rules on interest are now as follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated
b. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon extra-judicial demand or upon judicial demand whichever is appropriate and subject
to the provisions of Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum
2. Non-Monetary Obligations (such as the case at bar)
a. If already liquidated, rate of interest shall be 6% per annum, demandable from date of judicial or extra-judicial demand (Art. 1169, Civil
Code)
b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per annum demandable from the date of judgment because such on
such date, it is already deemed that the amount of damages is already ascertained.
3. Compounded Interest
– This is applicable to both monetary and non-monetary obligations
– 6% per annum computed against award of damages (interest) granted by the court. To be computed from the date when the court’s decision
becomes final and executory until the award is fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:
– Final and executory judgments awarding damages prior to July 1, 2013 shall apply the 12% rate;
– Final and executory judgments awarding damages on or after July 1, 2013 shall apply the 12% rate for unpaid obligations until June 30, 2013;
unpaid obligations with respect to said judgments on or after July 1, 2013 shall still incur the 6% rate.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 183360 September 8, 2014

ROLANDO C. DE LA PAZ,* Petitioner,

vs.
L & J DEVELOPMENT COMPANY, Respondent.

DECISION

DEL CASTILLO, J.:

"No interest shall be due unless it has been expressly stipulated in writing." 1

This is a Petition for Review on Certiorari2 assailing the February 27, 2008 Decision 3 of the Court of Appeals (CA) in CA-G.R. SP No. 100094,
which reversed and set aside the Decision4 dated April 19, 2007 of the Regional Trial Court (RTC), Branch 192, Marikina City in Civil Case No.
06-1145-MK. The said RTC Decision affirmed in all respects the Decision5 dated June 30, 2006 of the Metropolitan Trial Court (MeTC), Branch
75, Marikina City in Civil Case No. 05-7755, which ordered respondent L & J Development Company (L&J) to pay petitioner Architect Rolando C.
De La Paz (Rolando) its principal obligation of P350,000.00, plus 12% interest per annumreckoned from the filing of the Complaint until full
payment of the obligation.

Likewise assailed is the CA’s June 6, 2008 Resolution 6 which denied Rolando’s Motion for Reconsideration.

Factual Antecedents

On December 27, 2000, Rolando lent P350,000.00 without any security to L&J, a property developer with Atty. Esteban Salonga (Atty. Salonga)
as its President and General Manager. The loan, with no specified maturity date, carried a 6% monthly interest, i.e., P21,000.00. From
December 2000 to August 2003, L&J paid Rolando a total of P576,000.007 representing interest charges.

As L&J failed to pay despite repeated demands, Rolando filed a Complaint8 for Collection of Sum of Money with Damages against L&J and Atty.
Salonga in his personal capacity before the MeTC, docketed as Civil Case No. 05-7755. Rolando alleged, amongothers, that L&J’s debtas of
January 2005, inclusive of the monthly interest, stood at P772,000.00; that the 6% monthly interest was upon Atty. Salonga’s suggestion; and,
that the latter tricked him into parting with his money without the loan transaction being reduced into writing.

In their Answer,9 L&J and Atty. Salonga denied Rolando’s allegations. While they acknowledged the loan as a corporate debt, they claimed that
the failure to pay the same was due to a fortuitous event, that is, the financial difficulties brought about by the economic crisis. They further
argued that Rolando cannot enforce the 6% monthly interest for being unconscionable and shocking to the morals. Hence, the payments already
made should be applied to the P350,000.00 principal loan.

During trial, Rolando testified that he had no communication with Atty. Salonga prior to the loan transaction but knew him as a lawyer, a son of a
former Senator, and the owner of L&J which developed Brentwood Subdivision in Antipolo where his associate Nilo Velasco (Nilo) lives. When
Nilo told him that Atty. Salonga and L&J needed money to finish their projects, heagreed to lend them money. He personally met withAtty.
Salonga and their meeting was cordial.

He narrated that when L&J was in the process of borrowing the P350,000.00 from him, it was Arlene San Juan (Arlene), the secretary/treasurer
of L&J, who negotiated the terms and conditions thereof.She said that the money was to finance L&J’s housing project. Rolando claimed that it
was not he who demanded for the 6% monthly interest. It was L&J and Atty. Salonga, through Arlene, who insisted on paying the said interest as
they asserted that the loan was only a short-term one.

Ruling of the Metropolitan Trial Court

The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly interest. In so ruling, it ratiocinated that since L&J agreed thereto and
voluntarily paid the interest at suchrate from 2000 to 2003, it isalready estopped from impugning the same. Nonetheless, for reasons of equity,
the saidcourt reduced the interest rate to 12% per annumon the remaining principal obligation of P350,000.00. With regard to Rolando’s prayer
for moral damages, the MeTC denied the same as it found no malice or bad faith on the part ofL&J in not paying the obligation. It likewise
relieved Atty. Salonga of any liability as it found that he merely acted in his official capacity in obtaining the loan. The MeTC disposed of the case
as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff, Arch. Rolando C. Dela Paz, and against the
defendant, L & J Development Co., Inc., as follows:

a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Three Hundred Fifty Thousand Pesos
(P350,000.00) representing the principal obligation, plus interest at the legal rate of 12% per annum to be computed from January 20,
2005, the date of the filing of the complaint, until the whole obligation is fully paid;

b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Five Thousand Pesos (P5,000.00) as and for
attorney’s fees; and

c) to pay the costs of this suit.

SO ORDERED.11

Ruling of the Regional Trial Court

L&J appealed to the RTC. It asserted in its appeal memorandum 12 that from December 2000 to March 2003, it paid monthly interest
of P21,000.00 based on the agreed-upon interest rate of 6%monthly and from April 2003 to August 2003, interest paymentsin various
amounts.13 The total of interest payments made amounts to P576,000.00 – an amount which is even more than the principal obligation
of P350,000.00

L&J insisted that the 6% monthly interest rate is unconscionable and immoral. Hence, the 12% per annumlegal interest should have been
applied from the time of the constitution of the obligation. At 12% per annum interest rate, it asserted that the amount of interestit ought to pay
from December 2000 to March 2003 and from April 2003 to August 2003, only amounts to P105,000.00. If this amount is deducted from the total
interest paymentsalready made, which is P576,000.00, the amount of P471,000.00 appears to have beenpaid over and above what is due.
Applying the rule on compensation, the principal loan of P350,000.00 should be set-off against the P471,000.00, resulting in the complete
payment of the principal loan.

Unconvinced, the RTC, inits April 19, 2007 Decision,14 affirmed the MeTC Decision, viz: WHEREFORE, premises considered, the Decision
appealed from is hereby AFFIRMED in all respects, with costs against the appellant.

SO ORDERED.15

Ruling of the Court of Appeals

Undaunted, L&J went to the CA and echoed its arguments and proposed computation as proffered before the RTC.

In a Decision16 dated February 27, 2008, the CAreversed and set aside the RTC Decision. The CA stressed that the parties failedto stipulate in
writing the imposition of interest on the loan. Hence, no interest shall be due thereon pursuant to Article 1956 of the Civil Code.17 And even if
payment of interest has been stipulated in writing, the 6% monthly interest is still outrightly illegal and unconscionable because it is contrary to
morals, if not against the law. Being void, this cannot be ratified and may be set up by the debtor as defense. For these reasons, Rolando cannot
collect any interest even if L&J offered to pay interest. Consequently, he has to return all the interest payments of P576,000.00 to L&J.

Considering further that Rolando and L&J thereby became creditor and debtor of each other, the CA applied the principle of legal compensation
under Article 1279 of the Civil Code.18 Accordingly, it set off the principal loan of P350,000.00 against the P576,000.00 total interest payments
made, leaving an excess of P226,000.00, which the CA ordered Rolando to pay L&J plus interest. Thus:

WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET ASIDE.

CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is ordered to pay to the petitioner the amount of P226,000.00,plus
interest of 12% per annumfrom the finality of this decision.

Costs of suit to be paid by respondent Dela Paz.

SO ORDERED.19

In his Motion for Reconsideration,20 Rolando argued thatthe circumstances exempt both the application of Article 1956 and of jurisprudence
holding that a 6% monthly interest is unconscionable, unreasonable, and exorbitant. He alleged that Atty. Salonga, a lawyer, should have taken
it upon himself to have the loan and the stipulated rate of interest documented but, by way of legal maneuver, Atty. Salonga, whom he fully
trusted and relied upon, tricked him into believing that the undocumented and uncollateralized loan was withinlegal bounds. Had Atty. Salonga
told him that the stipulated interest should be in writing, he would have readily assented. Furthermore, Rolando insisted that the 6% monthly
interest ratecould not be unconscionable as in the first place, the interest was not imposed by the creditor but was in fact offered by the
borrower, who also dictated all the terms of the loan. He stressed that in cases where interest rates were declared unconscionable, those meant
to be protected by such declaration are helpless borrowers which is not the case here.

Still, the CA denied Rolando’s motion in its Resolution 21 of June 6, 2008.

Hence, this Petition.

The Parties’ Arguments

Rolando argues that the 6%monthly interest rateshould not have been invalidated because Atty. Salonga took advantage of his legal knowledge
to hoodwink him into believing that no document was necessaryto reflect the interest rate. Moreover, the cases anent unconscionable interest
rates that the CA relied upon involve lenders who imposed the excessive rates,which are totally different from the case at bench where it is the
borrower who decided on the high interest rate. This case does not fall under a scenariothat ‘enslaves the borrower or that leads to the
hemorrhaging of his assets’ that the courts seek to prevent.

L&J, in controverting Rolando’s arguments, contends that the interest rate is subject of negotiation and is agreedupon by both parties, not by the
borrower alone. Furthermore, jurisprudence has nullified interestrates on loans of 3% per month and higher as these rates are contrary to
moralsand public interest. And while Rolando raises bad faithon Atty. Salonga’s part, L&J avers thatsuch issue is a question of fact, a matter that
cannot be raised under Rule 45.

Issue

The Court’s determination of whether to uphold the judgment of the CA that the principal loan is deemed paid isdependent on the validity of the
monthly interest rate imposed. And in determining such validity, the Court must necessarily delve into matters regarding a) the form of the
agreement of interest under the law and b) the alleged unconscionability of the interest rate. Our Ruling

The Petition is devoid of merit.

The lack of a written stipulation to pay interest on the loaned amount disallows a creditor from charging monetary interest.

Under Article 1956 of the Civil Code, no interest shall bedue unless it has been expressly stipulated in writing. Jurisprudence on the matter also
holds that for interest to be due and payable, two conditions must concur: a) express stipulation for the payment of interest; and b) the
agreement to pay interest is reduced in writing.

Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no interest is due. The collection of interest without any
stipulation in writing is prohibited by law.22

But Rolando asserts that his situation deserves an exception to the application of Article 1956. He blames Atty. Salonga for the lack of a written
document, claiming that said lawyer used his legal knowledge to dupe him. Rolando thus imputes bad faith on the part of L&J and Atty. Salonga.
The Court, however, finds no deception on the partof L&J and Atty. Salonga. For one, despite the lack of a document stipulating the payment of
interest, L&J nevertheless devotedly paid interests on the loan. It only stopped when it suffered from financial difficulties that prevented it from
continuously paying the 6% monthly rate. For another,regardless of Atty. Salonga’s profession, Rolando who is an architect and an educated
man himself could have been a more reasonably prudent person under the circumstances. To top it all, he admitted that he had no prior
communication with Atty. Salonga. Despite Atty. Salonga being a complete stranger, he immediately trusted him and lent his
company P350,000.00, a significant amount. Moreover, as the creditor,he could have requested or required that all the terms and conditions of
the loan agreement, which include the payment of interest, be put down in writing to ensure that he and L&J are on the same page. Rolando had
a choice of not acceding and to insist that their contract be put in written form as this will favor and safeguard him as a lender. Unfortunately, he
did not. It must be stressed that "[c]ourts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise
investments, relieve him from one-sided contracts,or annul the effects of foolish acts. Courts cannotconstitute themselves guardians of persons
who are not legally incompetent."23

It may be raised that L&J is estopped from questioning the interest rate considering that it has been paying Rolando interest at such ratefor more
than two and a half years. In fact, in its pleadings before the MeTCand the RTC, L&J merely prayed for the reduction of interest from 6% monthly
to 1% monthly or 12% per annum. However, in Ching v. Nicdao, 24 the daily payments of the debtor to the lender were considered as payment of
the principal amount of the loan because Article 1956 was not complied with. This was notwithstanding the debtor’s admission that the payments
made were for the interests due. The Court categorically stated therein that "[e]stoppel cannot give validity to an act that is prohibited by law or
one thatis against public policy."

Even if the payment of interest has been reduced in writing, a 6% monthly interest rate on a loan is unconscionable, regardless of who between
the parties proposed the rate.

Indeed at present, usury has been legally non-existent in view of the suspension of the Usury Law25 by Central Bank Circular No. 905 s.
1982.26 Even so, not all interest rates levied upon loans are permitted by the courts as they have the power to equitably reduce unreasonable
interest rates. In Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction Corporation, 27 we said:

While the Court recognizes the right of the parties to enter into contracts and who are expectedto comply with their terms and obligations, this
rule is not absolute. Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to temper interest rates when
necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of
each case. What may be iniquitous and unconscionable in onecase, may be just in another. x x x28

Time and again, it has been ruled in a plethora of cases that stipulated interest rates of 3% per month and higher, are excessive, iniquitous,
unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law.29 The Court, however, stresses that
these rates shall be invalidated and shall be reduced only in cases where the terms of the loans are open-ended, and where the interest rates
are applied for an indefinite period. Hence, the imposition of a specific sum of P40,000.00 a month for six months on a P1,000,000.00 loan is not
considered unconscionable.30

In the case at bench, there is no specified period as to the payment of the loan. Hence, levying 6% monthly or 72% interest per annumis
"definitely outrageous and inordinate." 31 The situation that it was the debtor who insisted on the interest rate will not exempt Rolando from a
ruling that the rate is void. As this Court cited in Asian Cathay Finance and Leasing Corporation v. Gravador, 32 "[t]he imposition of an
unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a
repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man." 33 Indeed, "voluntariness does notmake
the stipulation on [an unconscionable] interest valid." 34

As exhaustibly discussed,no monetary interest isdue Rolando pursuant to Article 1956.1âwphi1 The CA thus correctly adjudged that the excess
interest payments made by L&J should be applied to its principal loan. As computed by the CA, Rolando is bound to return the excess payment
of P226,000.00 to L&J following the principle of solutio indebiti.35

However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on July 1, 2013, 36 the interest imposed by the CA must be
accordingly modified. The P226,000.00 which Rolando is ordered to pay L&J shall earn an interest of 6% per annumfrom the finality of this
Decision.

WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CA-G.R. SP No. 100094 is hereby AFFIRMED with modification
that petitioner Rolando C. De La Paz is ordered to pay respondent L&J Development Company the amount of ,P226,000.00, plus interest of 6o/o
per annum from the finality of this Decision until fully paid.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO**
Associate Justice

ARTURO D. BRION MARTIN S. VILLARAMA, JR.***

Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

CERTIFICATION

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

ANTONIO T. CARPIO
Associate Justice
Acting Chief Justice
 THIRD DIVISION

SAMSON CHING, G.R. No. 141181

Petitioner,

Present:

YNARES-SANTIAGO, J.,

Chairperson,

- versus - AUSTRIA-MARTINEZ,

CALLEJO, SR.,

CHICO-NAZARIO, and

NACHURA, JJ.

CLARITA NICDAO and

HON. COURT OF APPEALS, Promulgated:

Respondents.

April 27, 2007

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

DECISION

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari filed by Samson Ching of the Decision[1] dated November 22, 1999 of the Court of Appeals

(CA) in CA-G.R. CR No. 23055. The assailed decision acquitted respondent Clarita Nicdao of eleven (11) counts of violation of Batas Pambansa

Bilang (BP) 22, otherwise known as The Bouncing Checks Law. The instant petition pertains and is limited to the civil aspect of the case as it

submits that notwithstanding respondent Nicdaos acquittal, she should be held liable to pay petitioner Ching the amounts of the dishonored

checks in the aggregate sum of P20,950,000.00.

Factual and Procedural Antecedents

On October 21, 1997, petitioner Ching, a Chinese national, instituted criminal complaints for eleven (11) counts of violation of BP 22 against

respondent Nicdao. Consequently, eleven (11) Informations were filed with the First Municipal Circuit Trial Court (MCTC) of Dinalupihan-

Hermosa, Province of Bataan, which, except as to the amounts and check numbers, uniformly read as follows:

The undersigned accuses Clarita S. Nicdao of a VIOLATION OF BATAS PAMBANSA BILANG 22, committed as follows:

That on or about October 06, 1997, at Dinalupihan, Bataan, Philippines, and within the jurisdiction of this Honorable
Court, the said accused did then and there willfully and unlawfully make or draw and issue Hermosa Savings &
Loan Bank, Inc. Check No. [002524] dated October 06, 1997 in the amount of [P20,000,000.00] in payment of her
obligation with complainant Samson T.Y. Ching, the said accused knowing fully well that at the time she issued the
said check she did not have sufficient funds in or credit with the drawee bank for the payment in full of the said
check upon presentment, which check when presented for payment within ninety (90) days from the date thereof,
was dishonored by the drawee bank for the reason that it was drawn against insufficient funds and notwithstanding
receipt of notice of such dishonor the said accused failed and refused and still fails and refuses to pay the value of
the said check in the amount of [P20,000,000.00] or to make arrangement with the drawee bank for the payment in
full of the same within five (5) banking days after receiving the said notice, to the damage and prejudice of the said
Samson T.Y. Ching in the aforementioned amount of [P20,000,000.00], Philippine Currency.
 CONTRARY TO LAW.

Dinalupihan, Bataan, October 21, 1997.

(Sgd.) SAMSON T.Y. CHING

Complainant

The cases were docketed as Criminal Cases Nos. 9433 up to 9443 involving the following details:

Check No. Amount Date Private Reason for

Complainant the Dishonor

002524[2] P 20,000,000 Oct. 6, 1997 Samson T.Y. Ching DAIF*

008856[3] 150,000 Oct. 6, 1997 " "

012142[4] 100,000 Oct. 6, 1997 " "

004531[5] 50,000 Oct. 6, 1997 " "

002254[6] 100,000 Oct. 6, 1997 " "

008875[7] 100,000 Oct. 6, 1997 " "

008936[8] 50,000 Oct. 6, 1997 " "

002273[9] 50,000 Oct. 6, 1997 " "

008948[10] 150,000 Oct. 6, 1997 " "

008935[11] 100,000 Oct. 6, 1997 " "

010377[12] 100,000 Oct. 6, 1997 " "

At about the same time, fourteen (14) other criminal complaints, also for violation of BP 22, were filed against respondent Nicdao by Emma

Nuguid, said to be the common law spouse of petitioner Ching. Allegedly fourteen (14) checks, amounting to P1,150,000.00, were issued by

respondent Nicdao to Nuguid but were dishonored for lack of sufficient funds. The Informations were filed with the same MCTC and docketed as

Criminal Cases Nos. 9458 up to 9471.

At her arraignment, respondent Nicdao entered the plea of not guilty to all the charges. A joint trial was then conducted for Criminal Cases Nos.

9433-9443 and 9458-9471.

For the prosecution in Criminal Cases Nos. 9433-9443, petitioner Ching and Imelda Yandoc, an employee of the Hermosa Savings & Loan

Bank, Inc., were presented to prove the charges against respondent Nicdao. On direct-examination,[13] petitioner Ching preliminarily identified

each of the eleven (11) Hermosa Savings & Loan Bank (HSLB) checks that were allegedly issued to him by respondent Nicdao amounting

to P20,950,000.00. He identified the signatures appearing on the checks as those of respondent Nicdao. He recognized her signatures because

respondent Nicdao allegedly signed the checks in his presence. When petitioner Ching presented these checks for payment, they were

dishonored by the bank, HSLB, for being DAIF or drawn against insufficient funds.

Petitioner Ching averred that the checks were issued to him by respondent Nicdao as security for the loans that she obtained from him. Their

transaction began sometime in October 1995 when respondent Nicdao, proprietor/manager of Vignette Superstore, together with her husband,

approached him to borrow money in order for them to settle their financial obligations. They agreed that respondent Nicdao would leave the

checks undated and that she would pay the loans within one year. However, when petitioner Ching went to see her after the lapse of one year to

ask for payment, respondent Nicdao allegedly said that she had no cash.
Petitioner Ching claimed that he went back to respondent Nicdao several times more but every time, she would tell him that she had no

money. Then in September 1997, respondent Nicdao allegedly got mad at him for being insistent and challenged him about seeing each other in

court. Because of respondent Nicdao's alleged refusal to pay her obligations, on October 6, 1997, petitioner Ching deposited the checks that she

issued to him. As he earlier stated, the checks were dishonored by the bank for being DAIF. Shortly thereafter, petitioner Ching, together with

Emma Nuguid, wrote a demand letter to respondent Nicdao which, however, went unheeded. Accordingly, they separately filed the criminal

complaints against the latter.

On cross-examination,[14] petitioner Ching claimed that he had been a salesman of the La Suerte Cigar and Cigarette Manufacturing for almost

ten (10) years already. As such, he delivered the goods and had a warehouse. He received salary and commissions. He could not, however,

state his exact gross income. According to him, it increased every year because of his business. He asserted that aside from being a salesman,

he was also in the business of extending loans to other people at an interest, which varied depending on the person he was dealing with.

Petitioner Ching confirmed the truthfulness of the allegations contained in the eleven (11) Informations that he filed against respondent

Nicdao. He reiterated that, upon their agreement, the checks were all signed by respondent Nicdao but she left them undated. Petitioner Ching

admitted that he was the one who wrote the date, October 6, 1997, on those checks when respondent Nicdao refused to pay him.

With respect to the P20,000,000.00 check (Check No. 002524), petitioner Ching explained that he wrote the date and amount thereon

when, upon his estimation, the money that he regularly lent to respondent Nicdao beginning October 1995 reached the said sum. He likewise

intimated that prior to 1995, they had another transaction amounting to P1,200,000.00 and, as security therefor, respondent Nicdao similarly

issued in his favor checks in varying amounts of P100,000.00 and P50,000.00. When the said amount was fully paid, petitioner Ching returned

the checks to respondent Nicdao.

Petitioner Ching maintained that the eleven (11) checks subject of Criminal Cases Nos. 9433-9443 pertained to respondent Nicdaos
loan transactions with him beginning October 1995. He also mentioned an instance when respondent Nicdaos husband and daughter

approached him at a casino to borrow money from him. He lent them P300,000.00. According to petitioner Ching, since this amount was also

unpaid, he included it in the other amounts that respondent Nicdao owed to him which totaled P20,000,000.00 and wrote the said amount on one

of respondent Nicdaos blank checks that she delivered to him.

Petitioner Ching explained that from October 1995 up to 1997, he regularly delivered money to respondent Nicdao, in the amount

of P1,000,000.00 until the total amount reached P20,000,000.00. He did not ask respondent Nicdao to acknowledge receiving these

amounts. Petitioner Ching claimed that he was confident that he would be paid by respondent Nicdao because he had in his possession her

blank checks. On the other hand, the latter allegedly had no cause to fear that he would fill up the checks with just any amount because they had

trust and confidence in each other. When asked to produce the piece of paper on which he allegedly wrote the amounts that he lent to

respondent Nicdao, petitioner Ching could not present it; he reasoned that it was not with him at that time.

It was also averred by petitioner Ching that respondent Nicdao confided to him that she told her daughter Janette, who was married to a
foreigner, that her debt to him was only between P3,000,000.00 and P5,000,000.00.Petitioner Ching claimed that he offered to accompany

respondent Nicdao to her daughter in order that they could apprise her of the amount that she owed him. Respondent Nicdao refused for fear

that it would cause disharmony in the family. She assured petitioner Ching, however, that he would be paid by her daughter.

Petitioner Ching reiterated that after the lapse of one (1) year from the time respondent Nicdao issued the checks to him, he went to her

several times to collect payment. In all these instances, she said that she had no cash. Finally, in September 1997, respondent Nicdao allegedly

went to his house and told him that Janette was only willing to pay him between P3,000,000.00 and P5,000,000.00 because, as far as her

daughter was concerned, that was the only amount borrowed from petitioner Ching. On hearing this, petitioner Ching angrily told respondent
Nicdao that she should not have allowed her debt to reach P20,000,000.00 knowing that she would not be able to pay the full amount.
 Petitioner Ching identified the demand letter that he and Nuguid sent to respondent Nicdao. He explained that he no longer informed

her about depositing her checks on his account because she already made that statement about seeing him in court. Again, he admitted writing

the date, October 6, 1997, on all these checks.

Another witness presented by the prosecution was Imelda Yandoc, an employee of HSLB. On direct-examination,[15] she testified that

she worked as a checking account bookkeeper/teller of the bank. As such, she received the checks that were drawn against the bank and

verified if they were funded. On October 6, 1997, she received several checks issued by respondent Nicdao. She knew respondent Nicdao

because the latter maintained a savings and checking account with them. Yandoc identified the checks subject of Criminal Cases Nos. 9433-

9443 and affirmed that stamped at the back of each was the annotation DAIF. Further, per the banks records, as of October 8, 1997, only a

balance of P300.00 was left in respondent Nicdaos checking account and P645.83 in her savings account. On even date, her account with the

bank was considered inactive.

On cross-examination,[16] Yandoc stated anew that respondent Nicdaos checks bounced on October 7, 1997 for being DAIF and her

account was closed the following day, on October 8, 1997. She informed the trial court that there were actually twenty-five (25) checks of

respondent Nicdao that were dishonored at about the same time. The eleven (11) checks were purportedly issued in favor of petitioner Ching

while the other fourteen (14) were purportedly issued in favor of Nuguid. Yandoc explained that respondent Nicdao or her employee would

usually call the bank to inquire if there was an incoming check to be funded.

For its part, the defense proffered the testimonies of respondent Nicdao, Melanie Tolentino and Jocelyn Nicdao. On direct-

examination,[17] respondent Nicdao stated that she only dealt with Nuguid. She vehemently denied the allegation that she had borrowed money

from both petitioner Ching and Nuguid in the total amount of P22,950,000.00. Respondent Nicdao admitted, however, that she had obtained a

loan from Nuguid but only for P2,100,000.00 and the same was already fully paid. As proof of such payment, she presented a Planters Bank

demand draft dated August 13, 1996 in the amount of P1,200,000.00. The annotation at the back of the said demand draft showed that it was

endorsed and negotiated to the account of petitioner Ching.

In addition, respondent Nicdao also presented and identified several cigarette wrappers [18] at the back of which appeared

computations. She explained that Nuguid went to the grocery store everyday to collect interest payments.The principal loan was P2,100,000.00

with 12% interest per day. Nuguid allegedly wrote the payments for the daily interests at the back of the cigarette wrappers that she gave to

respondent Nicdao.

The principal loan amount of P2,100,000.00 was allegedly delivered by Nuguid to respondent Nicdao in varying amounts

of P100,000.00 and P150,000.00. Respondent Nicdao refuted the averment of petitioner Ching that prior to 1995, they had another transaction.

With respect to the P20,000,000.00 check, respondent Nicdao admitted that the signature thereon was hers but denied that she issued
the same to petitioner Ching. Anent the other ten (10) checks, she likewise admitted that the signatures thereon were hers while the amounts

and payee thereon were written by either Jocelyn Nicdao or Melanie Tolentino, who were employees of Vignette Superstore and authorized by

her to do so.

Respondent Nicdao clarified that, except for the P20,000,000.00 check, the other ten (10) checks were handed to Nuguid on different

occasions. Nuguid came to the grocery store everyday to collect the interest payments.Respondent Nicdao said that she purposely left the

checks undated because she would still have to notify Nuguid if she already had the money to fund the checks.

Respondent Nicdao denied ever confiding to petitioner Ching that she was afraid that her daughter would get mad if she found out

about the amount that she owed him. What allegedly transpired was that when she already had the money to pay them (presumably referring to

petitioner Ching and Nuguid), she went to them to retrieve her checks. However, petitioner Ching and Nuguid refused to return the checks
claiming that she (respondent Nicdao) still owed them money. She demanded that they show her the checks in order that she would know the

exact amount of her debt, but they refused. It was at this point that she got angry and dared them to go to court.

After the said incident, respondent Nicdao was surprised to be notified by HSLB that her check in the amount of P20,000,000.00 was

just presented to the bank for payment. She claimed that it was only then that she remembered that sometime in 1995, she was informed by her

employee that one of her checks was missing. At that time, she did not let it bother her thinking that it would eventually surface when presented

to the bank.

Respondent Nicdao could not explain how the said check came into petitioner Chings possession. She explained that she kept her

checks in an ordinary cash box together with a stapler and the cigarette wrappers that contained Nuguids computations. Her saleslady had

access to this box. Respondent Nicdao averred that it was Nuguid who offered to give her a loan as she would allegedly need money to manage

Vignette Superstore. Nuguid used to run the said store before respondent Nicdaos daughter bought it from Nuguids family, its previous

owner. According to respondent Nicdao, it was Nuguid who regularly delivered the cash to respondent Nicdao or, if she was not at the grocery

store, to her saleslady. Respondent Nicdao denied any knowledge that the money loaned to her by Nuguid belonged to petitioner Ching.

At the continuation of her direct-examination,[19] respondent Nicdao said that she never dealt with petitioner Ching because it was

Nuguid who went to the grocery store everyday to collect the interest payments. When shown the P20,000,000.00 check, respondent Nicdao

admitted that the signature thereon was hers but she denied issuing it as a blank check to petitioner Ching. On the other hand, with respect to

the other ten (10) checks, she also admitted that the signatures thereon were hers and that the amounts thereon were written by either Josie

Nicdao or Melanie Tolentino, her employees whom she authorized to do so. With respect to the payee, it was purposely left blank allegedly upon

instruction of Nuguid who said that she would use the checks to pay someone else.

On cross-examination,[20] respondent Nicdao explained that Josie Nicdao and Melanie Tolentino were caretakers of the grocery store
and that they manned it when she was not there. She likewise confirmed that she authorized them to write the amounts on the checks after she

had affixed her signature thereon. She stressed, however, that the P20,000,000.00 check was the one that was reported to her as lost or

missing by her saleslady sometime in 1995. She never reported the matter to the bank because she was confident that it would just surface

when it would be presented for payment.

Again, respondent Nicdao identified the cigarette wrappers which indicated the daily payments she had made to Nuguid. The latter

allegedly went to the grocery store everyday to collect the interest payments. Further, the figures at the back of the cigarette wrappers were

written by Nuguid. Respondent Nicdao asserted that she recognized her handwriting because Nuguid sometimes wrote them in her

presence. Respondent Nicdao maintained that she had already paid Nuguid the amount of P1,200,000.00 as evidenced by the Planters Bank

demand draft which she gave to the latter and which was subsequently negotiated and deposited in petitioner Chings account. In connection

thereto, respondent Nicdao refuted the prosecutions allegation that the demand draft was payment for a previous transaction that she had with

petitioner Ching. She clarified that the payments that Nuguid collected from her everyday were only for the interests due. She did not ask Nuguid

to make written acknowledgements of her payments.

Melanie Tolentino was presented to corroborate the testimony of respondent Nicdao. On direct-examination,[21] Tolentino stated that

she worked at the Vignette Superstore and she knew Nuguid because her employer, respondent Nicdao, used to borrow money from her. She

knew petitioner Ching only by name and that he was the husband of Nuguid.

As an employee of the grocery store, Tolentino stated that she acted as its caretaker and was entrusted with the custody of respondent
Nicdaos personal checks. Tolentino identified her own handwriting on some of the checks especially with respect to the amounts and figures

written thereon. She said that Nuguid instructed her to leave the space for the payee blank as she would use the checks to pay someone

else. Tolentino added that she could not recall respondent Nicdao issuing a check to petitioner Ching in the amount of P20,000,000.00. She
confirmed that they lost a check sometime in 1995. When informed about it, respondent Nicdao told her that the check could have been issued

to someone else, and that it would just surface when presented to the bank.

Tolentino recounted that Nuguid came to the grocery store everyday to collect the interest payments of the loan. In some instances,

upon respondent Nicdaos instruction, Tolentino handed to Nuguid checks that were already signed by respondent Nicdao. Sometimes, Tolentino

would be the one to write the amount on the checks. Nuguid, in turn, wrote the amounts on pieces of paper which were kept by respondent

Nicdao.

On cross-examination,[22] Tolentino confirmed that she was authorized by respondent Nicdao to fill up the checks and hand them to

Nuguid. The latter came to the grocery store everyday to collect the interest payments. Tolentino claimed that in 1995, in the course of

chronologically arranging respondent Nicdaos check booklets, she noticed that a check was missing. Respondent Nicdao told her that perhaps

she issued it to someone and that it would just turn up in the bank. Tolentino was certain that the missing check was the same one that petitioner

Ching presented to the bank for payment in the amount of P20,000,000.00.

Tolentino stated that she left the employ of respondent Nicdao sometime in 1996. After the checks were dishonored in October 1997,

Tolentino got a call from respondent Nicdao. After she was shown a fax copy thereof, Tolentino confirmed that the P20,000,000.00 check was

the same one that she reported as missing in 1995.

Jocelyn Nicdao also took the witness stand to corroborate the testimony of the other defense witnesses. On direct-examination,[23] she

averred that she was a saleslady at the Vignette Superstore from August 1994 up to April 1998. She knew Nuguid as well as petitioner Ching.

Jocelyn Nicdao further testified that respondent Nicdao was indebted to Nuguid. Jocelyn Nicdao used to fill up the checks of respondent

Nicdao that had already been signed by her and give them to Nuguid. The latter came to the grocery store everyday to pick up the interest

payments. Jocelyn Nicdao identified the checks on which she wrote the amounts and, in some instances, the name of Nuguid as payee.

However, most of the time, Nuguid allegedly instructed her to leave as blank the space for the payee.

Jocelyn Nicdao identified the cigarette wrappers as the documents on which Nuguid acknowledged receipt of the interest

payments. She explained that she was the one who wrote the minus entries and they represented the daily interest payments received by

Nuguid.

On cross-examination,[24] Jocelyn Nicdao stated that she was a distant cousin of respondent Nicdao. She stopped working for her in

1998 because she wanted to take a rest. Jocelyn Nicdao reiterated that she handed the checks to Nuguid at the grocery store.

After due trial, on December 8, 1998, the MCTC rendered judgment in Criminal Cases Nos. 9433-9443 convicting respondent Nicdao of

eleven (11) counts of violation of BP 22. The MCTC gave credence to petitioner Chings testimony that respondent Nicdao borrowed money from

him in the total amount of P20,950,000.00. Petitioner Ching delivered P1,000,000.00 every month to respondent Nicdao from 1995 up to 1997

until the sum reached P20,000,000.00. The MCTC also found that subsequent thereto, respondent Nicdao still borrowed money from petitioner

Ching. As security for these loans, respondent Nicdao issued checks to petitioner Ching. When the latter deposited the checks (eleven in all)

on October 6, 1997, they were dishonored by the bank for being DAIF.

The MCTC explained that the crime of violation of BP 22 has the following elements: (a) the making, drawing and issuance of any
check to apply to account or for value; (b) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient

funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (c) subsequent dishonor of the check by

the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the

bank to stop payment.[25]

 According to the MCTC, all the foregoing elements are present in the case of respondent Nicdaos issuance of the checks subjec t of

Criminal Cases Nos. 9433-9443. On the first element, respondent Nicdao was found by the MCTC to have made, drawn and issued the

checks. The fact that she did not personally write the payee and date on the checks was not material considering that under Section 14 of the

Negotiable Instruments Law, where the instrument is wanting in any material particular, the person in possession thereof has a prima facie

authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making th e signature in order

that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount x x

x. Respondent Nicdao admitted that she authorized her employees to provide the details on the checks after she had signed them.

The MCTC disbelieved respondent Nicdaos claim that the P20,000,000.00 check was the same one that she lost in 1995. It observed

that ordinary prudence would dictate that a lost check would at least be immediately reported to the bank to prevent its unauthorized

endorsement or negotiation. Respondent Nicdao made no such report to the bank. Even if the said check was indeed lost, the MCTC faulted

respondent Nicdao for being negligent in keeping the checks that she had already signed in an unsecured box.

The MCTC further ruled that there was no evidence to show that petitioner Ching was not a holder in due course as to cause it (the

MCTC) to believe that the said check was not issued to him. Respondent Nicdaos admission of indebtedness was sufficient to prove that there

was consideration for the issuance of the checks.

The second element was also found by the MCTC to be present as it held that respondent Nicdao, as maker, drawer or issuer, had

knowledge that at the time of issue she did not have sufficient funds in or credit with the drawee bank for the payment in full of the checks upon

their presentment.

As to the third element, the MCTC established that the checks were subsequently dishonored by the drawee bank for being DAIF or

drawn against insufficient funds. Stamped at the back of each check was the annotation DAIF. The bank representative likewise testified to the
fact of dishonor.

Under the foregoing circumstances, the MCTC declared that the conviction of respondent Nicdao was warranted. It stressed that the
mere act of issuing a worthless check was malum prohibitum; hence, even if the checks were issued in the form of deposit or guarantee, once

dishonored, the same gave rise to the prosecution for and conviction of BP 22. [26] The decretal portion of the MCTC decision reads:

WHEREFORE, in view of the foregoing, the accused is found guilty of violating Batas Pambansa Blg. 22 in 11 counts,
and is hereby ordered to pay the private complainant the amount of P20,950,000.00 plus 12% interest per annum from date of
filing of the complaint until the total amount had been paid. The prayer for moral damages is denied for lack of evidence to
prove the same. She is likewise ordered to suffer imprisonment equivalent to 1 year for every check issued and which penalty
shall be served successively.

SO ORDERED.[27]

Incidentally, on January 11, 1999, the MCTC likewise rendered its judgment in Criminal Cases Nos. 9458-9471 and convicted respondent

Nicdao of the fourteen (14) counts of violation of BP 22 filed against her by Nuguid.

On appeal, the Regional Trial Court (RTC) of Dinalupihan, Bataan, Branch 5, in separate Decisions both dated May 10, 1999, affirmed in toto the

decisions of the MCTC convicting respondent Nicdao of eleven (11) and fourteen (14) counts of violation of BP 22 in Criminal Cases Nos. 9433-

9443 and 9458-9471, respectively.

Respondent Nicdao forthwith filed with the CA separate petitions for review of the two decisions of the RTC. The petition involving the eleven

(11) checks purportedly issued to petitioner Ching was docketed as CA-G.R. CR No. 23055 (assigned to the 13th Division). On the other hand,

the petition involving the fourteen (14) checks purportedly issued to Nuguid was docketed as CA-G.R. CR No. 23054 (originally assigned to the

7th Division but transferred to the 6thDivision). The Office of the Solicitor General (OSG) filed its respective comments on the said
petitions. Subsequently, the OSG filed in CA-G.R. CR No. 23055 a motion for its consolidation with CA-G.R. CR No. 23054. The OSG prayed

that CA-G.R. CR No. 23055 pending before the 13th Division be transferred and consolidated with CA-G.R. CR No. 23054 in accordance with the

Revised Internal Rules of the Court of Appeals (RIRCA).

Acting on the motion for consolidation, the CA in CA-G.R. CR No. 23055 issued a Resolution dated October 19, 1999 advising the OSG to file

the motion in CA-G.R. CR No. 23054 as it bore the lowest number. Respondent Nicdao opposed the consolidation of the two cases. She

likewise filed her reply to the comment of the OSG in CA-G.R. CR No. 23055.

On November 22, 1999, the CA (13th Division) rendered the assailed Decision in CA-G.R. CR No. 23055 acquitting respondent Nicdao of the

eleven (11) counts of violation of BP 22 filed against her by petitioner Ching. The decretal portion of the assailed CA Decision reads:

WHEREFORE, being meritorious, the petition for review is hereby GRANTED. Accordingly, the decision dated May
10, 1999, of the Regional Trial Court, 3 rd Judicial Region, Branch 5, Bataan, affirming the decision dated December 8, 1998, of
the First Municipal Circuit Trial Court of Dinalupihan-Hermosa, Bataan, convicting petitioner Clarita S. Nicdao in Criminal
Cases No. 9433 to 9443 of violation of B.P. Blg. 22 is REVERSED and SET ASIDE and another judgment rendered
ACQUITTING her in all these cases, with costs de oficio.

SO ORDERED.[28]

On even date, the CA issued an Entry of Judgment declaring that the above decision has become final and executory and is recorded in the

Book of Judgments.

In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the CA made the following factual findings:

Petitioner [respondent herein] Clarita S. Nicdao, a middle-aged mother and housekeeper who only finished high
school, has a daughter, Janette Boyd, who is married to a wealthy expatriate.

Complainant [petitioner herein] Samson Ching is a Chinese national, who claimed he is a salesman of La Suerte
Cigar and Cigarette Factory.

Emma Nuguid, complainants live-in partner, is a CPA and formerly connected with Sycip, Gorres and Velayo. Nuguid
used to own a grocery store now known as the Vignette Superstore. She sold this grocery store, which was about to be
foreclosed, to petitioners daughter, Janette Boyd. Since then, petitioner began managing said store. However, since petitioner
could not always be at the Vignette Superstore to keep shop, she entrusted to her salesladies, Melanie Tolentino and Jocelyn
Nicdao, pre-signed checks, which were left blank as to amount and the payee, to cover for any delivery of merchandise sold at
the store. The blank and personal checks were placed in a cash box at Vignette Superstore and were filled up by said
salesladies upon instruction of petitioner as to amount, payee and date.

Soon thereafter, Emma Nuguid befriended petitioner and offered to lend money to the latter which could be used in
running her newly acquired store. Nuguid represented to petitioner that as former manager of the Vignette Superstore, she
knew that petitioner would be in need of credit to meet the daily expenses of running the business, particularly in the daily
purchases of merchandise to be sold at the store. After Emma Nuguid succeeded in befriending petitioner, Nuguid was able to
gain access to the Vignette Superstore where petitioners blank and pre-signed checks were kept.[29]

In addition, the CA also made the finding that respondent Nicdao borrowed money from Nuguid in the total amount of P2,100,000.00 secured by

twenty-four (24) checks drawn against respondent Nicdaos account with HSLB. Upon Nuguids instruction, the checks given by respondent

Nicdao as security for the loans were left blank as to the payee and the date. The loans consisted of (a) P950,000.00 covered by ten (10) checks
subject of the criminal complaints filed by petitioner Ching (CA-G.R. CR No. 23055); and (b) P1,150,000.00 covered by fourteen (14) checks

subject of the criminal complaints filed by Nuguid (CA-G.R. CR No. 23054). The loans totaled P2,100,000.00 and they were transacted between

respondent Nicdao and Nuguid only. Respondent Nicdao never dealt with petitioner Ching.
Against the foregoing factual findings, the CA declared that, based on the evidence, respondent Nicdao had already fully paid the loans. In

particular, the CA referred to the Planters Bank demand draft in the amount of P1,200,000.00 which, by his own admission, petitioner Ching had

received. The appellate court debunked petitioner Chings allegation that the said demand draft was payment for a previous

transaction. According to the CA, petitioner Ching failed to adduce evidence to prove the existence of a previous transaction between him and

respondent Nicdao.

Apart from the demand draft, the CA also stated that respondent Nicdao made interest payments on a daily basis to Nuguid as evidenced by the

computations written at the back of the cigarette wrappers. Based on these computations, as of July 21, 1997, respondent Nicdao had made a

total of P5,780,000.00 payments to Nuguid for the interests alone. Adding up this amount and that of the Planters Bank demand draft, the CA

placed the payments made by respondent Nicdao to Nuguid as already amounting to P6,980,000.00 for the principal loan amount of

only P2,100,000.00.

The CA negated petitioner Chings contention that the payments as reflected at the back of the cigarette wrappers could be applied only to the

interests due. Since the transactions were not evidenced by any document or writing, the CA ratiocinated that no interests could be collected

because, under Article 1956 of the Civil Code, no interest shall be due unless it has been expressly stipulated in writing.

The CA gave credence to the testimony of respondent Nicdao that when she had fully paid her loans to Nuguid, she tried to retrieve her

checks. Nuguid, however, refused to return the checks to respondent Nicdao. Instead, Nuguid and petitioner Ching filled up the said checks to

make it appear that: (a) petitioner Ching was the payee in five checks; (b) the six checks were payable to cash; (c) Nuguid was the payee in

fourteen (14) checks. Petitioner Ching and Nuguid then put the date October 6, 1997 on all these checks and deposited them the following

day. On October 8, 1997, through a joint demand letter, they informed respondent Nicdao that her checks were dishonored by HSLB and gave

her three days to settle her indebtedness or else face prosecution for violation of BP 22.

With the finding that respondent Nicdao had fully paid her loan obligations to Nuguid, the CA declared that she could no longer be held liable for
violation of BP 22. It was explained that to be held liable under BP 22, it must be established, inter alia, that the check was made or drawn and

issued to apply on account or for value. According to the CA, the word account refers to a pre-existing obligation, while for value means an

obligation incurred simultaneously with the issuance of the check. In the case of respondent Nicdaos checks, the pre-existing obligations

secured by them were already extinguished after full payment had been made by respondent Nicdao to Nuguid.Obligations are extinguished by,

among others, payment.[30] The CA believed that when petitioner Ching and Nuguid refused to return respondent Nicdaos checks despite her

total payment of P6,980,000.00 for the loans secured by the checks, petitioner Ching and Nuguid were using BP 22 to coerce respondent

Nicdao to pay a debt which she no longer owed them.

With respect to the P20,000,000.00 check, the CA was not convinced by petitioner Chings claim that he delivered P1,000,000.00 every month to

respondent Nicdao until the amount reached P20,000,000.00 and, when she refused to pay the same, he filled up the check, which she earlier

delivered to him as security for the loans, by writing thereon the said amount. In disbelieving petitioner Ching, the CA pointed out that, contrary to

his assertion, he was never employed by the La Suerte Cigar and Cigarette Manufacturing per the letter of Susan Resurreccion, Vice-President

and Legal Counsel of the said company. Moreover, as admitted by petitioner Ching, he did not own the house where he and Nuguid lived.

Moreover, the CA characterized as incredible and contrary to human experience that petitioner Ching would, as he claimed, deliver a total sum
of P20,000,000.00 to respondent Nicdao without any documentary proof thereof, e.g., written acknowledgment that she received the same. On

the other hand, it found plausible respondent Nicdaos version of the story that the P20,000,000.00 check was the same one that was missing

way back in 1995. The CA opined that this missing check surfaced in the hands of petitioner Ching who, in cahoots with Nuguid, wrote the

amount P20,000,000.00 thereon and deposited it in his account. To the mind of the CA, the inference that the check was stolen was anchored

on competent circumstantial evidence. Specifically, Nuguid, as previous manager/owner of the grocery store, had access thereto. Likewise
applicable, according to the CA, was the presumption that the person in possession of the stolen article was presumed to be guilty of taking the

stolen article.[31]
The CA emphasized that the P20,000,000.00 check was never delivered by respondent Nicdao to petitioner Ching. As such, the said check

without the details as to the date, amount and payee, was an incomplete and undelivered instrument when it was stolen and ended up in

petitioner Chings hands. On this point, the CA applied Sections 15 and 16 of the Negotiable Instruments Law:

SEC. 15. Incomplete instrument not delivered. Where an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose
signature was placed thereon before delivery.

SEC. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards
a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the
authority of the party making, drawing, accepting or indorsing, as the case may be; and, in such case, the delivery may be
shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property. But where
the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them
liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature
appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved.

The CA held that the P20,000,000.00 check was filled up by petitioner Ching without respondent Nicdaos authority. Further, it was incomplete

and undelivered. Hence, petitioner Ching did not acquire any right or interest therein and could not assert any cause of action founded on the

stolen checks.[32] Under these circumstances, the CA concluded that respondent could not be held liable for violation of BP 22.

The Petitioners Case

As mentioned earlier, the instant petition pertains and is limited solely to the civil aspect of the case as petitioner Ching argues that

notwithstanding respondent Nicdaos acquittal of the eleven (11) counts of violation of BP 22, she should be held liable to pay petitioner Ching

the amounts of the dishonored checks in the aggregate sum of P20,950,000.00.

He urges the Court to review the findings of facts made by the CA as they are allegedly based on a misapprehension of facts and manifestly

erroneous and contradicted by the evidence. Further, the CAs factual findings are in conflict with those of the RTC and MCTC.

Petitioner Ching vigorously argues that notwithstanding respondent Nicdaos acquittal by the CA, the Supreme Court has the jurisdiction and

authority to resolve and rule on her civil liability. He invokes Section 1, Rule 111 of the Revised Rules of Court which, prior to its amendment,

provided, in part:

SEC. 1. Institution of criminal and civil actions. When a criminal action is instituted, the civil action for the recovery of
civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil action, reserves his right to
institute it separately, or institutes the civil action prior to the criminal action.

Such civil action includes the recovery of indemnity under the Revised Penal Code, and damages under Articles 32,
33, 34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused. x x x

Supreme Court Circular No. 57-97[33] dated September 16, 1997 is also cited as it provides in part:
 1. The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to necessarily include the
corresponding civil action, and no reservation to file such civil action separately shall be allowed or recognized. x x x

Petitioner Ching theorizes that, under Section 1, Rule 111 of the Revised Rules of Court, the civil action for the recovery of damages under

Articles 32, 33, 34, and 2176 arising from the same act or omission of the accused is impliedly instituted with the criminal action. Moreover,

under the above-quoted Circular, the criminal action for violation of BP 22 necessarily includes the corresponding civil action, which is the

recovery of the amount of the dishonored check representing the civil obligation of the drawer to the payee.

In seeking to enforce the alleged civil liability of respondent Nicdao, petitioner Ching maintains that she had loan obligations to him

totaling P20,950,000.00. The existence of the same is allegedly established by his testimony before the MCTC. Also, he asks the Court to take

judicial notice that for a monetary loan secured by a check, the check itself is the evidence of indebtedness.

He insists that, contrary to her protestation, respondent Nicdao also transacted with him, not only with Nuguid. Petitioner Ching pointed out that
during respondent Nicdaos testimony, she referred to her creditors in plural form, e.g. [I] told them, most checks that I issued I will inform them if

I have money. Even respondent Nicdaos employees allegedly knew him; they testified that Nuguid instructed them at times to leave as blank the

payee on the checks as they would be paid to someone else, who turned out to be petitioner Ching.

It was allegedly erroneous for the CA to hold that he had no capacity to lend P20,950,000.00 to respondent Nicdao. Petitioner Ching clarified

that what he meant when he testified before the MCTC was that he was engaged in dealership with La Suerte Cigar and Cigarette

Manufacturing, and not merely its sales agent. He stresses that he owns a warehouse and is also in the business of lending money. Further, the

CAs reasoning that he could not possibly have lent P20,950,000.00 to respondent Nicdao since petitioner Ching and Nuguid did not own the
house where they live, is allegedly non sequitur.

Petitioner Ching maintains that, contrary to the CAs finding, the Planters Bank demand draft for P1,200,000.00 was in payment for

respondent Nicdaos previous loan transaction with him. Apart from the P20,000,000.00 check, the other ten (10) checks (totaling P950,000.00)

were allegedly issued by respondent Nicdao to petitioner Ching as security for the loans that she obtained from him from 1995 to 1997. The

existence of another loan obligation prior to the said period was allegedly established by the testimony of respondent Nicdaos own witness,

Jocelyn Nicdao, who testified that when she started working in Vignette Superstore in 1994, she noticed that respondent Nicdao was already

indebted to Nuguid.

Petitioner Ching also takes exception to the CAs ruling that the payments made by respondent Nicdao as reflected on the computations

at the back of the cigarette wrappers were for both the principal loan and interests. He insists that they were for the interests alone. Even

respondent Nicdaos testimony allegedly showed that they were daily interest payments. Petitioner Ching further avers that the interest payments

totaling P5,780,000.00 can only mean that, contrary to respondent Nicdaos claim, her loan obligations amounted to much more

than P2,100,000.00. Further, she is allegedly estopped from questioning the interests because she willingly paid the same.

Petitioner Ching also harps on respondent Nicdaos silence when she received his and Nuguids demand letter to her. Through the said

letter, they notified her that the twenty-five (25) checks valued at P22,100,000.00 were dishonored by the HSLB, and that she had three days to
settle her ndebtedness with them, otherwise, face prosecution. Respondent Nicdaos silence, i.e., her failure to deny or protest the same by way

of reply, vis--vis the demand letter, allegedly constitutes an admission of the statements contained therein.

On the other hand, the MCTCs decision, as affirmed by the RTC, is allegedly based on the evidence on record; it has been esta blished
that the checks were respondent Nicdaos personal checks, that the signatures thereon were hers and that she had issued them to petitioner

Ching. With respect to the P20,000,000.00 check, petitioner Ching assails the CAs ruling that it was stolen and was never delivered or issued by

respondent Nicdao to him. The issue of the said check being stolen was allegedly not raised during trial. Further, her failure to report the alleged

theft to the bank to stop payment of the said lost or missing check is allegedly contrary to human experience. Petitioner Ching describes

respondent Nicdaos defense of stolen or lost check as incredible and, therefore, false.
 Aside from the foregoing substantive issues that he raised, petitioner Ching also faults the CA for not acting and ordering the

consolidation of CA-G.R. CR No. 23055 with CA-G.R. CR No. 23054. He informs the Court that latter case is still pending with the CA.

In fine, it is petitioner Chings view that the CA gravely erred in disregarding the findings of the MCTC, as affirmed by the RTC, and

submits that there is more than sufficient preponderant evidence to hold respondent Nicdao civilly liable to him in the amount

of P20,950,000.00. He thus prays that the Court direct respondent Nicdao to pay him the said amount plus 12% interest per annum computed

from the date of written demand until the total amount is fully paid.

The Respondents Counter-Arguments

Respondent Nicdao urges the Court to deny the petition. She posits preliminarily that it is barred under Section 2(b), Rule 111 of the

Revised Rules of Court which states:

SEC. 2. Institution of separate of civil action. - Except in the cases provided for in Section 3 hereof, after the criminal
action has been commenced, the civil action which has been reserved cannot be instituted until final judgment in the criminal
action.

xxxx

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a
declaration in a final judgment that the fact from which the civil might arise did not exist.

According to respondent Nicdao, the assailed CA decision has already made a finding to the effect that the fact upon which her civil liability

might arise did not exist. She refers to the ruling of the CA that the P20,000,000.00 check was stolen; hence, petitioner Ching did not acquire

any right or interest over the said check and could not assert any cause of action founded on the said check. Consequently, the CA held that

respondent Nicdao had no obligation to make good the stolen check and cannot be held liable for violation of BP 22. She also refers to the CAs

pronouncement relative to the ten (10) other checks that they were not issued to apply on account or for value, considering that the loan

obligations secured by these checks had already been extinguished by her full payment thereof.

To respondent Nicdaos mind, these pronouncements are equivalent to a finding that the facts upon which her civil liability may arise do not

exist. The instant petition, which seeks to enforce her civil liability based on the eleven (11) checks, is thus allegedly already barred by the final

and executory decision acquitting her.

In any case, respondent Nicdao contends that the CA did not commit serious misapprehension of facts when it found that the P20,000,000.00

check was a stolen check and that she never made any transaction with petitioner Ching.Moreover, the other ten (10) checks were not issued to

apply on account or for value. These findings are allegedly supported by the evidence on record which consisted of the respective testimonies of
the defense witnesses to the effect that: respondent Nicdao had the practice of leaving pre-signed checks placed inside an unsecured cash box

in the Vignette Superstore; the salesladies were given the authority to fill up the said checks as to the amount, payee and date; Nuguid beguiled

respondent Nicdao to obtain loans from her; as security for the loans, respondent Nicdao issued checks to Nuguid; when the salesladies gave

the checks to Nuguid, she instructed them to leave blank the payee and date; Nuguid had access to the grocery store; in 1995, one of the
salesladies reported that a check was missing; in 1997, when she had fully paid her loans to Nuguid, respondent Nicdao tried to retrieve her

checks but Nuguid and petitioner Ching falsely told her that she still owed them money; they then maliciously filled up the checks making it

appear that petitioner Ching was the payee in the five checks and the six others were payable to cash; and knowing fully well that these checks

were not funded because respondent Nicdao already fully paid her loans, petitioner Ching and Nuguid deposited the checks and caused them to

be dishonored by HSLB.

It is pointed out by respondent Nicdao that her testimony (that the P20,000,000.00 check was the same one that she lost sometime in 1995) was

corroborated by the respective testimonies of her employees. Another indication that it was stolen was the fact that among all the checks which

ended up in the hands of petitioner Ching and Nuguid, only the P20,000,000.00 check was fully typewritten; the rest were invariably handwritten

as to the amounts, payee and date.

Respondent Nicdao defends the CAs conclusion that the P20,000,000.00 check was stolen on the ground that an appeal in a criminal case

throws open the whole case to the appellate courts scrutiny. In any event, she maintains that she had been consistent in her theory of defense

and merely relied on the disputable presumption that the person in possession of a stolen article is presumed to be the author of the theft.

Considering that it was stolen, respondent Nicdao argues, the P20,000,000.00 check was an incomplete and undelivered instrument in the

hands of petitioner Ching and he did not acquire any right or interest therein. Further, he cannot assert any cause of action founded on the said

stolen check. Accordingly, petitioner Chings attempt to collect payment on the said check through the instant petition must fail.

Respondent Nicdao describes as downright incredible petitioner Chings testimony that she owed him a total sum of P20,950,000.00 without any

documentary proof of the loan transactions. She submits that it is contrary to human experience for loan transactions involving such huge

amounts of money to be devoid of any documentary proof. In relation thereto, respondent Nicdao underscores that petitioner Ching lied about

being employed as a salesman of La Suerte Cigar and Cigarette Manufacturing. It is underscored that he has not adequately shown that he
possessed the financial capacity to lend such a huge amount to respondent Nicdao as he so claimed.

Neither could she be held liable for the ten (10) other checks (in the total amount of P950,000,000.00) because as respondent Nicdao

asseverates, she merely issued them to Nuguid as security for her loans obtained from the latter beginning October 1995 up to 1997. As

evidenced by the Planters Bank demand draft in the amount of P1,200,000.00, she already made payment in 1996. The said demand draft was

negotiated to petitioner Chings account and he admitted receipt thereof. Respondent Nicdao belies his claim that the demand draft was payment

for a prior existing obligation. She asserts that petitioner Ching was unable to present evidence of such a previous transaction.

In addition to the Planters Bank demand draft, respondent Nicdao insists that petitioner Ching received, through Nuguid, cash payments as

evidenced by the computations written at the back of the cigarette wrappers. Nuguid went to the Vignette Superstore everyday to collect these

payments. The other defense witnesses corroborated this fact. Petitioner Ching allegedly never disputed the accuracy of the accounts appearing

on these cigarette wrappers; nor did he dispute their authenticity and accuracy.

Based on the foregoing evidence, the CA allegedly correctly held that, computing the amount of the Planters Bank demand draft (P1,200,000.00)

and those reflected at the back of the cigarette wrappers (P5,780,000.00), respondent Nicdao had already paid petitioner Ching and Nuguid a

total sum of P6,980,000.00 for her loan obligations totaling only P950,000.00, as secured by the ten (10) HSLB checks excluding the

stolen P20,000,000.00 check.

Respondent Nicdao rebuts petitioner Chings argument (that the daily payments were applied to the interests), and claims that this is

illegal. Petitioner Ching cannot insist that the daily payments she made applied only to the interests on the loan obligations, considering that
there is admittedly no document evidencing these loans, hence, no written stipulation for the payment of interests thereon. On this point, she

invokes Article 1956 of the Civil Code, which proscribes the collection of interest payments unless expressly stipulated in writing.
Respondent Nicdao emphasizes that the ten (10) other checks that she issued to Nuguid as security for her loans had already been discharged

upon her full payment thereof. It is her belief that these checks can no longer be used to coerce her to pay a debt that she does not owe.

On the CAs failure to consolidate CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054, respondent Nicdao proffers the explanation that

under the RIRCA, consolidation of the cases is not mandatory. In fine, respondent

Nicdao urges the Court to deny the petition as it failed to discharge the burden of proving her civil liability with the required preponderance of

evidence. Moreover, the CAs acquittal of respondent Nicdao is premised on the finding that, apart from the stolen check, the ten (10) other

checks were not made to apply to a valid, due and demandable obligation. This, in effect, is a categorical ruling that the fact from which the civil

liability of respondent Nicdao may arise does not exist.

The Courts Rulings

The petition is denied for lack of merit.

Notwithstanding respondent Nicdaos

acquittal, petitioner Ching is entitled

to appeal the civil aspect of the case

within the reglementary period

It is axiomatic that every person criminally liable for a felony is also civilly liable. [34] Under the pertinent provision of the Revised Rules of Court,

the civil action is generally impliedly instituted with the criminal action. At the time of petitioner Chings filing of the Informations against

respondent Nicdao, Section 1,[35] Rule 111 of the Revised Rules of Court, quoted earlier, provided in part:

SEC. 1. Institution of criminal and civil actions. When a criminal action is instituted, the civil action for the recovery of
civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil action, reserves his right to
institute it separately, or institutes the civil action prior to the criminal action.

Such civil action includes the recovery of indemnity under the Revised Penal Code, and damages under Articles 32,
33, 34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused.

xxxx

As a corollary to the above rule, an acquittal does not necessarily carry with it the extinguishment of the civil liability of the accused. Section

2(b)[36] of the same Rule, also quoted earlier, provided in part:

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a
declaration in a final judgment that the fact from which the civil might arise did not exist.

It is also relevant to mention that judgments of acquittal are required to state whether the evidence of the prosecution absolutely failed to prove

the guilt of the accused or merely failed to prove his guilt beyond reasonable doubt. In either case, the judgment shall determine if the act or

omission from which the civil liability might arise did not exist. [37]
In Sapiera v. Court of Appeals,[38] the Court enunciated that the civil liability is not extinguished by acquittal: (a) where the acquittal is based on

reasonable doubt; (b) where the court expressly declares that the liability of the accused is not criminal but only civil in nature; and (c) where the

civil liability is not derived from or based on the criminal act of which the accused is acquitted. Thus, under Article 29 of the Civil Code

ART. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond
reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a
preponderance of evidence. Upon motion of the defendant, the court may require the plaintiff to file a bond to answer for
damages in case the complaint should be found to be malicious.

If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of
any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground.

The Court likewise expounded in Salazar v. People[39] the consequences of an acquittal on the civil aspect in this wise:

The acquittal of the accused does not prevent a judgment against him on the civil aspect of the criminal case where: (a) the
acquittal is based on reasonable doubt as only preponderance of evidence is required; (b) the court declared that the liability of
the accused is only civil; (c) the civil liability of the accused does not arise from or is not based upon the crime of which the
accused is acquitted. Moreover, the civil action based on the delict is extinguished if there is a finding in the final judgment in
the criminal action that the act or omission from which the civil liability may arise did not exist or where the accused did not
commit the act or omission imputed to him.

If the accused is acquitted on reasonable doubt but the court renders judgment on the civil aspect of the criminal case, the
prosecution cannot appeal from the judgment of acquittal as it would place the accused in double jeopardy. However, the
aggrieved party, the offended party or the accused or both may appeal from the judgment on the civil aspect of the case within
the period therefor.

From the foregoing, petitioner Ching correctly argued that he, as the offended party, may appeal the civil aspect of the case notwithstanding

respondent Nicdaos acquittal by the CA. The civil action was impliedly instituted with the criminal action since he did not reserve his right to

institute it separately nor did he institute the civil action prior to the criminal action.

Following the long recognized rule that the appeal period accorded to the accused should also be available to the offended pa rty who

seeks redress of the civil aspect of the decision, the period to appeal granted to petitioner Ching is the same as that granted to the

accused.[40] With petitioner Chings timely filing of the instant petition for review of the civil aspect of the CAs decision, the Court thus has the

jurisdiction and authority to determine the civil liability of respondent Nicdao notwithstanding her acquittal.

In order for the petition to prosper, however, it must establish that the judgment of the CA acquitting respondent Nicdao falls under any of the
three categories enumerated in Salazar and Sapiera, to wit:

(a) where the acquittal is based on reasonable doubt as only preponderance of evidence is required;

(b) where the court declared that the liability of the accused is only civil; and

(c) where the civil liability of the accused does not arise from or is not based upon the crime of which the accused is acquitted.

Salazar also enunciated that the civil action based on the delict is extinguished if there is a finding in the final judgment in the criminal

action that the act or omission from which the civil liability may arise did not exist or where the accused did not commit the act or omission

imputed to him.
 For reasons that will be discussed shortly, the Court holds that respondent Nicdao cannot be held civilly liable to petitioner Ching.

The acquittal of respondent Nicdao

likewise effectively extinguished her

civil liability

A painstaking review of the case leads to the conclusion that respondent Nicdaos acquittal likewise carried with it the extinction of the action to

enforce her civil liability. There is simply no basis to hold respondent Nicdao civilly liable to petitioner Ching.

First, the CAs acquittal of respondent Nicdao is not merely based on reasonable doubt. Rather, it is based on the finding that she did not commit

the act penalized under BP 22. In particular, the CA found that the P20,000,000.00 check was a stolen check which was never issued nor

delivered by respondent Nicdao to petitioner Ching. As such, according to the CA, petitioner Ching did not acquire any right or interest over

Check No. 002524 and cannot assert any cause of action founded on said check, [41] and that respondent Nicdao has no obligation to make good

the stolen check and cannot, therefore, be held liable for violation of B.P. Blg. 22. [42]

With respect to the ten (10) other checks, the CA established that the loans secured by these checks had already been extinguished after full
payment had been made by respondent Nicdao. In this connection, the second element for the crime under BP 22, i.e., that the check is made or

drawn and issued to apply on account or for value, is not present.

Second, in acquitting respondent Nicdao, the CA did not adjudge her to be civilly liable to petitioner Ching. In fact, the CA explicitly stated that
she had already fully paid her obligations. The CA computed the payments made by respondent Nicdao vis--vis her loan obligations in this

manner:

Clearly, adding the payments recorded at the back of the cigarette cartons by Emma Nuguid in her own handwriting
totaling P5,780,000.00 and the P1,200,000.00 demand draft received by Emma Nuguid, it would appear that petitioner
[respondent herein] had already made payments in the total amount of P6,980,000.00 for her loan obligation of
only P2,100,000.00 (P950,000.00 in the case at bar and P1,150,000.00 in CA-G.R. CR No. 23054).[43]

On the other hand, its finding relative to the P20,000,000.00 check that it was a stolen check necessarily absolved respondent Nicdao of any civil

liability thereon as well.

Third, while petitioner Ching attempts to show that respondent Nicdaos liability did not arise from or was not based upon the criminal
act of which she was acquitted (ex delicto) but from her loan obligations to him (ex contractu), however, petitioner Ching miserably failed to

prove by preponderant evidence the existence of these unpaid loan obligations. Significantly, it can be inferred from the following findings of the

CA in its decision acquitting respondent Nicdao that the act or omission from which her civil liability may arise did not exist. On

the P20,000,000.00 check, the CA found as follows:

True, indeed, the missing pre-signed and undated check no. 002524 surfaced in the possession of complainant Ching who, in
cahoots with his paramour Emma Nuguid, filled up the blank check with his name as payee and in the fantastic amount
of P20,000,000.00, dated it October 6, 1997, and presented it to the bank on October 7, 1997, along with the other checks, for
payment. Therefore, the inference that the check was stolen is anchored on competent circumstantial evidence. The fact
already established is that Emma Nuguid , previous owner of the store, had access to said store. Moreover, the possession of
a thing that was stolen , absent a credible reason, as in this case, gives rise to the presumption that the person in possession
of the stolen article is presumed to be guilty of taking the stolen article (People v. Zafra, 237 SCRA 664).

As previously shown, at the time check no. 002524 was stolen, the said check was blank in its material aspect (as to the name
of payee, the amount of the check, and the date of the check), but was already pre-signed by petitioner. In fact, complainant
 Ching himself admitted that check no. 002524 in his possession was a blank check (TSN, Jan. 7, 1998, pp. 24-27, Annex J,
Petition).

Moreover, since it has been established that check no. 002524 had been missing since 1995 (TSN, Sept. 9, 1998, pp. 14-15,
Annex DD, Petition; TSN, Sept. 10, 1998, pp. 43-46, Annex EE, Petition), it is abundantly clear that said check was never
delivered to complainant Ching. Check no. 002524 was an incomplete and undelivered instrument when it was stolen and
ended up in the hands of complainant Ching. Sections 15 and 16 of the Negotiable Instruments Law provide:

xxxx

In the case of check no. 002524, it is admitted by complainant Ching that said check in his possession was a blank check and
was subsequently completed by him alone without authority from petitioner. Inasmuch as check no. 002524 was incomplete
and undelivered in the hands of complainant Ching, he did not acquire any right or interest therein and cannot, therefore,
assert any cause of action founded on said stolen check (Development Bank of the Philippines v. Sima We, 219 SCRA 736,
740).

It goes without saying that since complainant Ching did not acquire any right or interest over check no. 002524 and cannot
assert any cause of action founded on said check, petitioner has no obligation to make good the stolen check and cannot,
therefore, be held liable for violation of B.P. Blg. 22.[44]

Anent the other ten (10) checks, the CA made the following findings:

Evidence sufficiently shows that the loans secured by the ten (10) checks involved in the cases subject of this petition had
already been paid. It is not controverted that petitioner gave Emma Nuguid a demand draft valued at P1,200,000 to pay for the
loans guaranteed by said checks and other checks issued to her. Samson Ching admitted having received the demand draft
which he deposited in his bank account. However, complainant Samson Ching claimed that the said demand draft represents
payment for a previous obligation incurred by petitioner. However, complainant Ching failed to adduce any evidence to prove
the existence of the alleged obligation of the petitioner prior to those secured by the subject checks.

Apart from the payment to Emma Nuguid through said demand draft, it is also not disputed that petitioner made cash
payments to Emma Nuguid who collected the payments almost daily at the Vignette Superstore. As of July 21, 1997, Emma
Nuguid collected cash payments amounting to approximately P5,780,000.00. All of these cash payments were recorded at the
back of cigarette cartons by Emma Nuguid in her own handwriting, the authenticity and accuracy of which were never denied
by either complainant Ching or Emma Nuguid.

Clearly, adding the payments recorded at the back of the cigarette cartons by Emma Nuguid in her own handwriting
totaling P5,780,000.00 and the P1,200,000.00 demand draft received by Emma Nuguid, it would appear that petitioner had
already made payments in the total amount of P6,980,000.00 for her loan in the total amount of P6,980,000.00 for her loan
obligation of only P2,100,000.00 (P950,000.00 in the case at bar and P1,150,000.00 in CA-G.R. CR No. 23054).[45]

Generally checks may constitute evidence of indebtedness. [46] However, in view of the CAs findings relating to the eleven (11) checks -

that the P20,000,000.00 was a stolen check and the obligations secured by the other ten (10) checks had already been fully paid by respondent

Nicdao they can no longer be given credence to establish respondent Nicdaos civil liability to petitioner Ching. Such civil liability, therefore, must

be established by preponderant evidence other than the discredited checks.

After a careful examination of the records of the case,[47] the Court holds that the existence of respondent Nicdaos civil liability to petitioner Ching

in the amount of P20,950,000.00 representing her unpaid obligations to the latter has not been sufficiently established by preponderant

evidence. Petitioner Ching mainly relies on his testimony before the MCTC to establish the existence of these unpaid obligations. In gist, he

testified that from October 1995 up to 1997, respondent Nicdao obtained loans from him in the total amount of P20,950,000.00. As security for
her obligations, she issued eleven (11) checks which were invariably blank as to the date, amounts and payee. When respondent Nicdao

allegedly refused to pay her obligations despite his due demand, petitioner filled up the checks in his possession with the corresponding

amounts and date and deposited them in his account. They were subsequently dishonored by the HSLB for being DAIF and petitioner Ching

accordingly filed the criminal complaints against respondent Nicdao for violation of BP 22.
It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations Et incumbit probatio, qui dicit, non qui negat;

cum per rerum naturam factum negantis probatio nulla sit (The proof lies upon him who affirms, not upon him who denies; since, by the nature of

things, he who denies a fact cannot produce any proof). [48] In civil cases, the party having the burden of proof must establish his case by a

preponderance of evidence.Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually

considered to be synonymous with the term greater weight of evidence or greater weight of the credible evidence.Preponderance of evidence is

a phrase which, in the last analysis, means probability of the truth. It is evidence which is more convincing to the court as worthy of belief than

that which is offered in opposition thereto. [49] Section 1, Rule 133 of the Revised Rules of Court offers the guidelines in determining

preponderance of evidence:

SEC. 1. Preponderance of evidence, how determined. In civil cases, the party having the burden of proof must establish his
case by a preponderance of evidence. In determining where the preponderance or superior weight of evidence on the issues
involved lies, the court may consider all the facts and circumstances of the case, the witnesses manner of testifying, their
intelligence, their means and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or want of interest, and also their personal credibility so
far as the same may legitimately appear upon the trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.

Unfortunately, petitioner Chings testimony alone does not constitute preponderant evidence to establish respondent Nicdaos civil

liability to him amounting to P20,950,000.00. Apart from the discredited checks, he failed to adduce any other documentary evidence to prove

that respondent Nicdao still has unpaid obligations to him in the said amount. Bare allegations, unsubstantiated by evidence, are not equivalent

to proof under our Rules.[50]

In contrast, respondent Nicdaos defense consisted in, among others, her allegation that she had already paid her obligations to petitioner Ching

through Nuguid. In support thereof, she presented the Planters Bank demand draft for P1,200,000.00. The said demand draft was negotiated to

petitioner Chings account and he admitted receipt of the value thereof. Petitioner Ching tried to controvert this by claiming that it was payment

for a previous transaction between him and respondent Nicdao. However, other than his self-serving claim, petitioner Ching did not proffer any

documentary evidence to prove the existence of the said previous transaction. Considering that the Planters Bank demand draft was dated

August 13, 1996, it is logical to conclude that, absent any evidence to the contrary, it formed part of respondent Nicdaos payment to petitioner

Ching on account of the loan obligations that she obtained from him since October 1995.

Additionally, respondent Nicdao submitted as evidence the cigarette wrappers at the back of which were written the computations of the

daily payments that she had made to Nuguid. The fact of the daily payments was corroborated by the other witnesses for the defense, namely,

Jocelyn Nicdao and Tolentino. As found by the CA, based on these computations, respondent Nicdao had made a total payment

of P5,780,000.00 to Nuguid as of July 21, 1997.[51] Again, the payments made, as reflected at the back of these cigarette wrappers, were not

disputed by petitioner Ching. Hence, these payments as well as the amount of the Planters Bank demand draft establish that respondent Nicdao

already paid the total amount of P6,980,000.00 to Nuguid and petitioner Ching.

The Court agrees with the CA that the daily payments made by respondent Nicdao amounting to P5,780,000.00 cannot be considered

as interest payments only. Even respondent Nicdao testified that the daily payments that she made to Nuguid were for the interests

due. However, as correctly ruled by the CA, no interests could be properly collected in the loan transactions between petitioner Ching and

respondent Nicdao because there was no stipulation therefor in writing. To reiterate, under Article 1956 of the Civil Code, no interest shall be

due unless it has been expressly stipulated in writing.

Neither could respondent Nicdao be considered to be estopped from denying the validity of these interests. Estoppel cannot give

validity to an act that is prohibited by law or one that is against public policy. [52] Clearly, the collection of interests without any stipulation therefor

in writing is prohibited by law. Consequently, the daily payments made by respondent Nicdao amounting to P5,780,000.00 were properly
considered by the CA as applying to the principal amount of her loan obligations.
 With respect to the P20,000,000.00 check, the defense of respondent Nicdao that it was stolen and that she never issued or delivered

the same to petitioner Ching was corroborated by the other defense witnesses, namely, Tolentino and Jocelyn Nicdao.

All told, as between petitioner Ching and respondent Nicdao, the requisite quantum of evidence - preponderance of evidence -

indubitably lies with respondent Nicdao. As earlier intimated, she cannot be held civilly liable to petitioner Ching for her acquittal; under the

circumstances which have just been discussed lengthily, such acquittal carried with it the extinction of her civil liability as well.

The CA committed no reversible error

in not consolidating CA-G.R. CR No.

23055 and CA-G.R. CR No. 23054

During the pendency of CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054 in the CA, the pertinent provision of the RIRCA on

consolidation of cases provided:

SEC. 7. Consolidation of Cases. Whenever two or more allied cases are assigned to different Justices, they may be
consolidated for study and report to a single Justice.

(a) At the instance of any party or Justice to whom the case is assigned for study and report, and with the conformity
of all the Justices concerned, the consolidation may be allowed when the cases to be consolidated involve the same parties
and/or related questions of fact and/or law.[53]

The use of the word may denotes the permissive, not mandatory, nature of the above provision, Thus, no grave error could be imputed to the CA

when it proceeded to render its decision in CA-G.R. CR No. 23055, without consolidating it with CA-G.R. CR No. 23054.

WHEREFORE, premises considered, the Petition is DENIED for lack of merit.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice

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

Associate Justice Associate Justice

 ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTESTATION

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

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson

CERTIFICATION

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

REYNATO S. PUNO

Chief Justice
 SECOND DIVISION

PRISMA CONSTRUCTION & DEVELOPMENT G.R. No. 160545

CORPORATION and ROGELIO S. PANTALEON,
Petitioners,

Present:

*NACHURA, J.,
- versus -
BRION, Acting Chairperson,

DEL CASTILLO,

ABAD, and

PEREZ, JJ.

ARTHUR F. MENCHAVEZ ,

Respondent.

Promulgated:

March 9, 2010

x------------------------------------------------------------------------------------------x
DECISION

BRION, J.:

We resolve in this Decision the petition for review on certiorari[1] filed by petitioners Prisma Construction & Development Corporation (PRISMA)

and Rogelio S. Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set aside the Decision[2] dated May 5, 2003 and the

Resolution[3] dated October 22, 2003 of the Former Ninth Division of the Court of Appeals (CA) in CA-G.R. CV No. 69627. The assailed CA

Decision affirmed the Decision of the Regional Trial Court (RTC), Branch 73, Antipolo City in Civil Case No. 97-4552 that held the petitioners

liable for payment of P3,526,117.00 to respondent Arthur F. Menchavez (respondent), but modified the interest rate from 4% per month to 12%

per annum, computed from the filing of the complaint to full payment. The assailed CA Resolution denied the petitioners Motion for

Reconsideration.

FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.

On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a P1,000,000.00[4] loan from the

respondent, with a monthly interest of P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid within six (6)

months,[5] under the following schedule of payments:

January 8, 1994 . P40,000.00

February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00[6]

Total P1,240,000.00

To secure the payment of the loan, Pantaleon issued a promissory note [7] that states:
 I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION TWO HUNDRED FORTY THOUSAND
PESOS (P1,240,000), Philippine Currency, from Mr. Arthur F. Menchavez, representing a six-month loan payable according to
the following schedule:

January 8, 1994 . P40,000.00

February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00

The checks corresponding to the above amounts are hereby acknowledged. [8]

and six (6) postdated checks corresponding to the schedule of payments. Pantaleon signed the promissory note in his personal capacity, [9] and

as duly authorized by the Board of Directors of PRISMA. [10] The petitioners failed to completely pay the loan within the stipulated six (6)-month

period.

From September 8, 1994 to January 4, 1997, the petitioners paid the following amounts to the respondent:

September 8, 1994 P320,000.00

October 8, 1995.P600,000.00
November 8, 1995.....P158,772.00
January 4, 1997 P30,000.00[11]

As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that the petitioners still had an

outstanding balance of P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest.[12] Thus, on August 28, 1997, the

respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in attorneys

fees, P1,000.00 per court appearance and costs of suit. [13]

In their Answer dated October 6, 1998, the petitioners admitted the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest,

arguing that the interest was not provided in the promissory note. Pantaleon also denied that he made himself personally liable and that he made

representations that the loan would be repaid within six (6) months.[14]

THE RTC RULING

The RTC rendered a Decision on October 27, 2000 finding that the respondent issued a check for P1,000,000.00 in favor of the petitioners for a

loan that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month period. It noted that the petitioners made

several payments amounting to P1,228,772.00, but they were still indebted to the respondent for P3,526,117.00 as of February 11,[15] 1999 after

considering the 4% monthly interest. The RTC observed that PRISMA was a one-man corporation of Pantaleon and used this circumstance to

justify the piercing of the veil of corporate fiction. Thus, the RTC ordered the petitioners to jointly and severally pay the respondent the amount

of P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.[16]

The petitioners elevated the case to the CA via an ordinary appeal under Rule 41 of the Rules of Court, insisting that there was no express

stipulation on the 4% monthly interest.

THE CA RULING

The CA decided the appeal on May 5, 2003. The CA found that the parties agreed to a 4% monthly interest principally based on the board

resolution that authorized Pantaleon to transact a loan with an approved interest of not more than 4% per month. The appellate court, however,

noted that the interest of 4% per month, or 48% per annum, was unreasonable and should be reduced to 12% per annum. The CA affirmed the

RTCs finding that PRISMA was a mere instrumentality of Pantaleon that justified the piercing of the veil of corporate fiction. Thus, the CA

modified the RTC Decision by imposing a 12% per annum interest, computed from the filing of the complaint until finality of judgment, and

thereafter, 12% from finality until fully paid.[17]

After the CA's denial[18] of their motion for reconsideration,[19] the petitioners filed the present petition for review on certiorari under Rule 45 of the

Rules of Court.

THE PETITION

The petitioners submit that the CA mistakenly relied on their board resolution to conclude that the parties agreed to a 4% monthly interest

because the board resolution was not an evidence of a loan or forbearance of money, but merely an authorization for Pantaleon to perform

certain acts, including the power to enter into a contract of loan. The expressed mandate of Article 1956 of the Civil Code is that interest due

should be stipulated in writing, and no such stipulation exists. Even assuming that the loan is subject to 4% monthly interest, the interest covers

the six (6)-month period only and cannot be interpreted to apply beyond it. The petitioners also point out the glaring inconsistency in the CA

Decision, which reduced the interest from 4% per month or 48% per annum to 12% per annum, but failed to consider that the amount

of P3,526,117.00 that the RTC ordered them to pay includes the compounded 4% monthly interest.

THE CASE FOR THE RESPONDENT

The respondent counters that the CA correctly ruled that the loan is subject to a 4% monthly interest because the board resolution is attached to,

and an integral part of, the promissory note based on which the petitioners obtained the loan. The respondent further contends that the

petitioners are estopped from assailing the 4% monthly interest, since they agreed to pay the 4% monthly interest on the principal amount under

the promissory note and the board resolution.

THE ISSUE

The core issue boils down to whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to the 6-

month payment period only or until full payment of the loan?

OUR RULING

We find the petition meritorious.

Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.[20] When the

terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.[21] In

such cases, courts have no authority to alter the contract by construction or to make a new contract for the parties; a court's duty is confined to

the interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material

stipulations or read into the contract words the contract does not contain. [22] It is only when the contract is vague and ambiguous that courts are

permitted to resort to the interpretation of its terms to determine the parties intent.

In the present case, the respondent issued a check for P1,000,000.00.[23] In turn, Pantaleon, in his personal capacity and as authorized by the

Board, executed the promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable within six (6) months, or from January 8,

1994 up to June 8, 1994. During this period, the loan shall earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for

the six-month period. We note that this agreed sum can be computed at 4% interest per month, but no such rate of interest was

stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. Under this

provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of

interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the
payment of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza[24] and Ching v. Nicdao[25] that collection of interest without any

stipulation in writing is prohibited by law.

Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of the loan, or from

January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal

interest rate of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals:[26]

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. (Emphasis supplied)

We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61,[27] Sulit v. Court of Appeals,[28] Crismina Garments, Inc. v. Court of

Appeals,[29] Eastern Assurance and Surety Corporation v. Court of Appeals,[30]Sps. Catungal v. Hao,[31] Yong v. Tiu,[32] and Sps. Barrera v. Sps.

Lorenzo.[33] Thus, the RTC and the CA misappreciated the facts of the case; they erred in finding that the parties agreed to a 4% interest,

compounded by the application of this interest beyond the promissory notes six (6)-month period. The facts show that the parties agreed to the

payment of a specific sum of money of P40,000.00 per month for six months, not to a 4% rate of interest payable within a six (6)-month period.

Medel v. Court of Appeals not applicable

The CA misapplied Medel v. Court of Appeals[34] in finding that a 4% interest per month was unconscionable.

In Medel, the debtors in a P500,000.00 loan were required to pay an interest of 5.5% per month, a service charge of 2% per annum,

and a penalty charge of 1% per month, plus attorneys fee equivalent to 25% of the amount due, until the loan is fully paid. Taken in conjunction

with the stipulated service charge and penalty, we found the interest rate of 5.5% to be excessive, iniquitous, unconscionable, exorbitant and

hence, contrary to morals, thereby rendering the stipulation null and void.

Applying Medel, we invalidated and reduced the stipulated interest in Spouses Solangon v. Salazar[35] of 6% per month or 72% per

annum interest on a P60,000.00 loan; in Ruiz v. Court of Appeals,[36] of 3% per month or 36% per annum interest on a P3,000,000.00 loan;

in Imperial v. Jaucian,[37] of 16% per month or 192% per annum interest on a P320,000.00 loan; in Arrofo v. Quio,[38] of 7% interest per month or

84% per annum interest on a P15,000.00 loan; in Bulos, Jr. v. Yasuma,[39] of 4% per month or 48% per annum interest on a P2,500,000.00 loan;

and in Chua v. Timan,[40] of 7% and 5% per month for loans totalling P964,000.00. We note that in all these cases, the terms of the loans were

open-ended; the stipulated interest rates were applied for an indefinite period.

Medel finds no application in the present case where no other stipulation exists for the payment of any extra amount except a specific

sum of P40,000.00 per month on the principal of a loan payable within six months. Additionally, no issue on the excessiveness of the stipulated

amount of P40,000.00 per month was ever put in issue by the petitioners; [41] they only assailed the application of a 4% interest rate, since it was

not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they

have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to

law, morals, public order or public policy. [42] The payment of the specific sum of money of P40,000.00 per month was voluntarily agreed upon

by the petitioners and the respondent. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims

of fraud when they entered into the agreement with the respondent.

Therefore, as agreed by the parties, the loan of P1,000,000.00 shall earn P40,000.00 per month for a period of six (6) months, or from

December 8, 1993 to June 8, 1994, for a total principal and interest amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum

shall apply. The amounts already paid by the petitioners during the pendency of the suit, amounting to P1,228,772.00 as of February 12,
1999,[43] should be deducted from the total amount due, computed as indicated above. We remand the case to the trial court for the actual

computation of the total amount due.

Doctrine of Estoppel not applicable

The respondent submits that the petitioners are estopped from disputing the 4% monthly interest beyond the six-month stipulated period, since

they agreed to pay this interest on the principal amount under the promissory note and the board resolution.

We disagree with the respondents contention.

We cannot apply the doctrine of estoppel in the present case since the facts and circumstances, as established by the record, negate its

application. Under the promissory note,[44] what the petitioners agreed to was the payment of aspecific sum of P40,000.00 per month for six

months not a 4% rate of interest per month for six (6) months on a loan whose principal is P1,000,000.00, for the total amount

of P1,240,000.00. Thus, no reason exists to place the petitioners in estoppel, barring them from raising their present defenses against a 4% per

month interest after the six-month period of the agreement. The board resolution,[45] on the other hand, simply authorizes Pantaleon to contract

for a loan with a monthly interest of not more than 4%. This resolution merely embodies the extent of Pantaleons authority to contract and does

not create any right or obligation except as between Pantaleon and the board. Again, no cause exists to place the petitioners in estoppel.

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA.

The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and distinct corporate

personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud

cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a

corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and

controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. [46] In the

absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally

liable for corporate liabilities.[47]

In the present case, we see no competent and convincing evidence of any wrongful, fraudulent or unlawful act on the part of PRISMA to justify

piercing its corporate veil. While Pantaleon denied personal liability in his Answer, he made himself accountable in the promissory note in his

personal capacity and as authorized by the Board Resolution of PRISMA.[48] With this statement of personal liability and in the absence of any

representation on the part of PRISMA that the obligation is all its own because of its separate corporate identity, we see no occasion to consider

piercing the corporate veil as material to the case.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision dated May 5, 2003 of the Court of Appeals in

CA-G.R. CV No. 69627. The petitioners loan of P1,000,000.00 shall bear interest of P40,000.00 per month for six (6) months from December 8,

1993 as indicated in the promissory note. Any portion of this loan, unpaid as of the end of the six-month payment period, shall thereafter bear
interest at 12% per annum. The total amount due and unpaid, including accrued interests, shall bear interest at 12% per annum from the finality
of this Decision. Let this case be REMANDED to the Regional Trial Court, Branch 73, Antipolo City for the proper computation of the amount due

as herein directed, with due regard to the payments the petitioners have already remitted. Costs against the respondent.

SO ORDERED.

ARTURO D. BRION

Associate Justice

Acting Chairperson
WE CONCUR:

ANTONIO EDUARDO B. NACHURA

Associate Justice

ROBERTO A. ABAD

MARIANO C. DEL CASTILLO Associate Justice

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ATTESTATION

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

ARTURO D. BRION

Associate Justice

Acting Chairperson

CERTIFICATION

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

REYNATO S. PUNO
 Chief Justice

PRISMA VS. MENCHAVEZ

MARCH 28, 2013 ~ VBDIAZ

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S. PANTALEON vs ARTHUR F. MENCHAVEZ

G.R. No. 160545; March 9, 2010

FACTS:

December 8, 1993, Pantaleon, President and Chairman of the Board of PRISMA, obtained a P1M loan from the respondent, with monthly

interest of P40,000.00 payable for 6 months, or a total obligation of P1,240,000.00 payable within 6 mos. To secure the payment of the loan,

Pantaleon issued a promissory. Pantaleon signed the promissory note in his personal capacity and as duly authorized by the Board of Directors

of PRISMA. The petitioners failed to completely pay the loan within the 6-month period.

As of January 4, 1997, respondent found that the petitioners still had an outstanding balance of P1,364,151.00, to which respondent applied a

4% monthly interest.

On August 28, 1997, respondent filed a complaint for sum of money to enforce the unpaid balance, plus 4% monthly interest. In their Answer,

the petitioners admitted the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest was not

provided in the promissory note. Pantaleon also denied that he made himself personally liable and that he made representations that the loan

would be repaid within six (6) months.

RTC found that the respondent issued a check for P1M in favor of the petitioners for a loan that would earn an interest of 4% or P40,000.00 per

month, or a total of P240,000.00 for a 6-month period. RTC ordered the petitioners to jointly and severally pay the respondent the amount of

P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.

Petitioners appealed to CA insisting that there was no express stipulation on the 4% monthly interest. CA favored respondent but noted that the

interest of 4% per month, or 48% per annum, was unreasonable and should be reduced to 12% per annum. MR denied hence this petition.

ISSUE:

Whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to the 6-month payment period only or

until full payment of the loan?

RULING:

Petition is meritorious. Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. When the

terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.

Courts have no authority to alter the contract by construction or to make a new contract for the parties; a court’s duty is confined to the

interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material

stipulations or read into the contract words the contract does not contain. It is only when the contract is vague and ambiguous that courts are

permitted to resort to the interpretation of its terms to determine the parties’ intent.

In the present case, the respondent issued a check for P1M. In turn, Pantaleon, in his personal capacity and as authorized by the Board,

executed the promissory note. Thus, the P1M loan shall be payable within 6 months. The loan shall earn an interest of P40,000.00 per month,

for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest per month, but no

such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that “no interest shall be due unless it has been expressly stipulated in writing.” The payment

of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the

agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of interest at a

stipulated rate. The collection of interest without any stipulation in writing is prohibited by law.
The interest of P40,000.00 per month corresponds only to the six-month period of the loan, or from January 8, 1994 to June 8, 1994, as agreed

upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum.

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.

The facts show that the parties agreed to the payment of a specific sum of money of P40,000.00 per month for six months, not to a 4% rate of

interest payable within a 6-month period.

No issue on the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by the petitioners; they only assailed the

application of a 4% interest rate, since it was not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed

to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals,

public order or public policy. The payment of the specific sum of money of P40,000.00 per month was voluntarily agreed upon by the petitioners

and the respondent. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they

entered into the agreement with the respondent.

Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per month for a period of 6 months, for a total principal and interest

amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners during the

pendency of the suit, amounting toP1,228,772.00 as of February 12, 1999, should be deducted from the total amount due, computed as

indicated above. We remand the case to the trial court for the actual computation of the total amount due.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision CA
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-35697-99 April 15, 1988

ELADlA DE LIMA, POTENCIANO REQUIJO, NEMESIO FLORES, REYNALDO REQUIJO, DOMINADOR REQUIJO and MARIO
REQUIJO, petitioners,
vs.
LAGUNA TAYABAS CO., CLARO SAMONTE, SANTIAGO SYJUCO, INC., (SEVEN-UP BOTTLING CO., OF THE PHILIPPINES) and
PORVENIR ABAJAR BARRETO, respondents.

Leon O. Ty, Gesmundo and Gesmundo and Renato B. Vasquez for petitioners.

Domingo E. de Lara and Associates for respondents.

GANCAYCO, J.:

Before Us is a petition for review on certiorari of the decision De Lima vs. Laguna Tayabas Co. of the Court of Appeals 1 affirming the decision of
the court a quo with modification to include an award of legal interest on the amounts adjudged in favor of the petitioners from the date of the
decision of the Court of Appeals to the time of actual payment.

This present action arose from a collision between a passenger bus of the Laguna Tayabas Bus Co. (LTB) and a delivery truck of the Seven-up
Bottling Co. of the Philippines which took place on June 3, 1958 resulting in the death of Petra de la Cruz and serious physical injuries of Eladia
de Lima and Nemesio Flores, all passengers of the LTB bus. Three civil suits were filed against herein respondents which were consolidated for
trial before the Court of First Instance of Laguna (San Pablo City).

On December 27, 1963, the court a quo rendered its decision, the dispositive part of which reads as follows:

WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered against the defendants LTB Co. Inc.
and Claro Samonte, who are hereby ordered to pay jointly and severally, the resolve plaintiffs.

In Civil Case No. SP-239; Plaintiff Eladia de Lima:

1. For loss P960.00

of money
and
medical
expenses.

2. For loss
of
earnings
from June
3, 1958 to

November . 924.00
3, 1958

3. For
expenses
of
litigation
and
attorney's

fees .
.1,000.00

TOTAL P
2,884.00

In Civil Case No. SP-240; Plaintiffs Requijos:

1 For the P 3,883.82

death of
Petra de
la Cruz

including
funeral
expenses

2 For the 800.00

money
lost
during
the trip

3 Moral
damages
for
 mental
anguish

(of 3,000.00
Mercado
vs. Lira,
et al.)

4 For the
loss of
earning
capacity
for

5 years 8,000.00

5 For
expenses
of
litigation
and

attorney's 2,500.00
fees

TOTAL P18,183.82

In Civil Case No. SP-268: To Plaintiff Nemesio Flores:

1. For loss of
earning
capacity
for

5 year
from June
3, 1958 at
the

rate of P 3,680.00
P228.00 a
month

2. For
expenses
of
litigation
and

attorney's 1,000.00
fees.

TOTAL P14,680.00

Plaintiffs in Civil Cases Nos. SP-239 and SP-240 filed a motion for reconsideration of the decision seeking an award of legal interest on the
amounts adjudged in their favor from the date of the said decision but their motion was not acted upon by the court a quo.

All of the plaintiffs voluntarily desisted from appealing the decision by reason of financial necessity and in the hope that the defendants LTB Co.
and its driver Claro Samonte will be persuaded to make immediate payment to them as adjudged by the court a quo. Only the said defendants
appealed the decision to the Court of Appeals.

In the motion of petitioners dated December 29, 1971 filed with the Court of Appeals, 2 they sought for an immediate decision of the case with a
prayer for the granting of legal interest from the date of the decision of the court a quo and for the increase to P12,000.00 of the civil indemnity of
P3,000.00 awarded for the death of Petra de la Cruz.

3
On January 31, 1972, the now disputed decision of the Court of Appeals was promulgated.

Petitioners moved for a reconsideration of this decision 4 seeking its modification so that the legal interest awarded by the Appellate, Court will
start to run from the date of the decision of the trial court on December 27, 1963 instead of January 31, 1972, the date of the decision of the
Court of Appeals. Petitioner potenciano Requijo as heir of the deceased Petra de la Cruz further sought an increase in the civil indemnity of
P3,000.00 to P 12,000.00.

The Appellate Court denied the motion for reconsideration holding that since the plaintiffs did not appeal from the failure of the court a quo to
award interest on the damages and that the court on its own discretion awarded such interest in view of Art. 2210 of the Civil Code, the effectivity
of the interest should not be rolled back to the time the decision of the court a quo was rendered. 5

Hence this petition.

The assignment of errors raised the following issues, to wit:

1) Whether or not the Court of Appeal; erred in granting legal interest on damages to start only from the date of its decision instead of from the
date of the trial court's decision;

2) Whether or not the Court of Appeals erred in not increasing the indemnity for the death of Petra de La Cruz (in Civil Case No. SP-240) from
P3,000 to P12,000.00.

We find merit in the petition.

Under the first issue, petitioners contend that the ruling of she Appellate Court departs from the consistent rulings of this court that the award of
the legal rate of interest should be computed from the promulgation of the decision of the tonal court.

Respondents counter that petitioners having failed to appeal from the lower court's decision they. are now precluded from questioning the ruling
of the Court of Appeals.

It is true that the rule is well-settled that a party cannot impugn the correctness of a judgment not appealed from by him, and while he may make
counter assignment of errors, he can do so only to sustain the judgment on other grounds but not to seek modification or reversal thereof, 6 for in
such case he must appeal. 7 A party who does not appeal from the decision may not obtain any affirmative relief from the appellate court other
than what he has obtained from the lower court, if any, whose decision is brought up on appeal. 8

However, respondents failed to note that the legal interest was awarded by the Appellate Court in its discretion based on equitable grounds
which is duly sanctioned by Art. 2210 of the Civil Code which provides —

Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.

Thus, the Appellate Court pointed out —

A further examination of the record will also show that the plaintiffs in Civil Cases Nos. SP-239 and SP-240 moved for the
reconsideration of the decision appealed from to include the award of legal interest on the amounts adjudicated from the date
of the decision, but said motion was not acted upon by the court a quo. Although said plaintiffs failed to appeal on this issue,
and did not file their brief to reiterate their claim for interest thereon, the plaintiff in Civil Case No. SP-268, Nemesio Flores,
filed his brief and prayed for the imposition of interest from the date of the decision. We are not left without discretion to
resolve this issue, considering the provision of Article 2210, New Civil Code, stating that "Interest may, in the petition of the
court, be allowed upon damages awarded for breach of contract." There is no doubt that the damages awarded in these civil
cases arise from the breach of a contractual obligation on the part of the defendants- appellants. But to grant the imposition of
interest on the amounts awarded to and as prayed for by one of the plaintiffs and deny the same to the others considering that
the cases arose from one single incident would be, to Our mind, unfair and inequitous. In the light, therefore, not only of the
provision of the Civil Code above referred to, but also the facts and circumstances obtaining in these cases. We believe that
on equitable grounds legal interest, should be allowed on the amounts adjudged in favor of the plaintiffs from the date of this
decision up to the time of actual payment thereof.

Also noteworthy is the case of Fores v. Miranda 9 where this Court upheld the granting by the Court of Appeals of attorney's fees even if the
respondent, a jeepney passenger injured in a vehicular accident, did not appeal from the decision of the trial court. The Appellate Court found
the award to be justified because the respondent asked for damages in his answer and the said court considered the attorney's fees as included
in the concept of damages which can be awarded whenever the court deems it just and equitable (Art. 2208, Civil Code of the Philippines).

At any rate, this Court is inclined to adopt a liberal stance in this case as We have done in previous decisions where We have held that litigations
should, as much as possible be decided on their merits and not on technicality. 10

We take note of the fact that petitioners are litigating as paupers. Although they may not have appealed, they had filed their motion for
reconsideration with the court a quo which unfortunately did not act on it. By reason of their indigence, they failed to appeal but petitioners De
Lima and Requijo had filed their manifestation making reference to the law and jurisprudence upon which they base their prayer for relief while
petitioner Flores filed his brief.

Pleadings as well as remedial laws should be construed liberally in order that the litigants may have ample opportunity to pursue their respective
claims and that a possible denial of substantial justice due to legal technicalities may be avoided. 11

Moreover, under the circumstances of this case where the heirs of the victim in the traffic accident chose not to appeal in the hope that the
transportation company will pay the damages awarded by the lower court but unfortunately said company still appealed to the Court of Appeals,
which step was obviously dilatory and oppressive of the rights of the said claimants: that the case had been pending in court for about 30 years
from the date of the accident in 1958 so that as an exception to the general rule aforestated, the said heirs who did not appeal the judgment,
should be afforded equitable relief by the courts as it must be vigilant for their protection. 12 The claim for legal interest and increase in the
indemnity should be entertained in spite of the failure of the claimants to appeal the judgment.

We take exception to the ruling of the Appellate Court as to the date when the legal interest should commence to ran. In view of the consistent
rulings of this Court, We hold that the legal interest of six percent (6) 13 on the amounts adjudged in favor of petitioners should start from the time
of the rendition of the trial court's decision on December 27, 1963 instead of January 31, 1972, the promulgation of the decision of the Court of
Appeals. 14

As to the second issue, civil indemnity for the death of Petra de la Cruz was properly awarded by virtue of Art. 1764 in relation to Art. 2206 of the
Civil Code of the Philippines which allows a minimum indemnity of P3,000.00 for the death of a passenger caused by the breach of contract by a
common carrier. In accordance with prevailing jurisprudence the indemnity of P3,000.00 should be increased to P30,000.00 and not P12,000.00
as prayed for by petitioner.

If the transportation company had only accepted the judgment of the trial court and paid its just awards instead of appealing the same to the
Court of Appeals, no further delay would have been occasioned on the simple issue of interest and indemnity. To mitigate the impact of such a
great delay in this case the Court finds ample justification in the aforesaid award for interest and indemnity. We hope this relief is not too late.

WHEREFORE, the petition is hereby GRANTED, the subject decision is modified in that the legal interest on the damages awarded to
petitioners commences from the date of the decision of the court a quo until actual payment while the civil indemnity for the death of Petra de la
Cruz is increased to P 30,000.00. This judgment is immediately executory and no motion for extension of time to file motion for reconsideration
shall be entertained.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Griño-Aquino, JJ., concur.

 SECOND DIVISION

[G.R. No. 120262. July 17, 1997]

PHILIPPINE AIRLINES, INC., petitioner, vs. COURT OF APPEALS and LEOVIGILDO A. PANTEJO, respondents.

DECISION
REGALADO, J.:

In this appeal by certiorari, petitioner Philippine Airlines, Inc. (PAL) seeks to set aside the decision of respondent Court of
Appeals,[1] promulgated on December 29, 1994, which affirmed the award for damages made by the trial court in favor of herein private
respondent Leovegildo A. Pantejo.
On October 23, 1988, private respondent Pantejo, then City Fiscal of Surigao City, boarded a PAL plane in Manila and disembarked in
Cebu City where he was supposed to take his connecting flight to Surigao City. However, due to typhoon Osang, the connecting flight to Surigao
City was cancelled.
To accommodate the needs of its stranded passengers, PAL initially gave out cash assistance of P100.00 and, the next day, P200.00, for
their expected stay of two days in Cebu. Respondent Pantejo requested instead that he be billeted in a hotel at PALs expense because he did
not have cash with him at that time, but PAL refused. Thus, respondent Pantejo was forced to seek and accept the generosity of a co-
passenger, an engineer named Andoni Dumlao, and he shared a room with the latter at Sky View Hotel with the promise to pay his share of the
expenses upon reaching Surigao.
On October 25, 1988 when the flight for Surigao was resumed, respondent Pantejo came to know that the hotel expenses of his co-
passengers, one Superintendent Ernesto Gonzales and a certain Mrs. Gloria Rocha, an auditor of the Philippine National Bank, were reimbursed
by PAL. At this point, respondent Pantejo informed Oscar Jereza, PALs Manager for Departure Services at Mactan Airport and who was in
charge of cancelled flights, that he was going to sue the airline for discriminating against him. It was only then that Jereza offered to pay
respondent Pantejo P300.00 which, due to the ordeal and anguish he had undergone, the latter declined.
On March 18, 199l, the Regional Trial Court of Surigao City, Branch 30, rendered judgment in the action for damages filed by respondent
Pantejo against herein petitioner, Philippine Airlines, Inc., ordering the latter to pay Pantejo P300.00 for actual damages, P150,000.00 as moral
damages, P100,000.00 as exemplary damages, P15,000.00 as attorneys fees, and 6% interest from the time of the filing of the complaint until
said amounts shall have been fully paid, plus costs of suit. [2] On appeal, respondent court affirmed the decision of the court a quo, but with the
exclusion of the award of attorneys fees and litigation expenses.
The main issue posed for resolution is whether petitioner airlines acted in bad faith when it failed and refused to provide hotel
accommodations for respondent Pantejo or to reimburse him for hotel expenses incurred by reason of the cancellation of its connecting flight to
Surigao City due to force majeure.
To begin with, it must be emphasized that a contract to transport passengers is quite different in kind and degree from any other
contractual relation, and this is because of the relation which an air carrier sustains with the public. Its business is mainly with the travelling
public. It invites people to avail of the comforts and advantages it offers. The contract of air carriage, therefore, generates a relation attended
with a public duty. Neglect or malfeasance of the carriers employees naturally could give ground for an action for damages.[3]
In ruling for respondent Pantejo, both the trial court and the Court of Appeals found that herein petitioner acted in bad faith in refusing to
provide hotel accommodations for respondent Pantejo or to reimburse him for hotel expenses incurred despite and in contrast to the fact that
other passengers were so favored.
In declaring that bad faith existed, respondent court took into consideration the following factual circumstances:

1. Contrary to petitioners claim that cash assistance was given instead because of non-availability of rooms in hotels where petitioner had
existing tie-ups, the evidence shows that Sky View Hotel, where respondent Pantejo was billeted, had plenty of rooms available.

2. It is not true that the P300.00 paid to Ernesto Gonzales, a co-passenger of respondent, was a refund for his plane ticket, the truth being that it
was a reimbursement for hotel and meal expenses.

3. It is likewise not denied that said Gonzales and herein respondent came to know about the reimbursements only because another passenger,
Mrs. Rocha, informed them that she was able to obtain the refund for her own hotel expenses.

4. Petitioner offered to pay P300.00 to private respondent only after he had confronted the airlines manager about the discrimination committed
against him, which the latter realized was an actionable wrong.

5. Service Voucher No. 199351, presented by petitioner to prove that it gave cash assistance to its passengers, was based merely on the list of
passengers already given cash assistance and was purportedly prepared at around 10:00 A.M. of October 23, 1988. This was two
hours before respondent came to know of the cancellation of his flight to Surigao, hence private respondent could not have possibly refused the
same.[4]

It must be stressed that these factual findings, which are supported by substantial evidence, are binding, final and conclusive upon this
Court absent any reason, and we find none, why this settled evidential rule should not apply.
Petitioner theorizes that the hotel accommodations or cash assistance given in case a flight is cancelled is in the nature of an amenity and
is merely a privilege that may be extended at its own discretion, but never a right that may be demanded by its passengers. Thus, when
respondent Pantejo was offered cash assistance and he refused it, petitioner cannot be held liable for whatever befell respondent Pantejo on
that fateful day, because it was merely exercising its discretion when it opted to just give cash assistance to its passengers.
Assuming arguendo that the airline passengers have no vested right to these amenities in case a flight is cancelled due to force majeure,
what makes petitioner liable for damages in this particular case and under the facts obtaining herein is its blatant refusal to accord the so-called
amenities equally to all its stranded passengers who were bound for Surigao City. No compelling or justifying reason was advanced for such
discriminatory and prejudicial conduct.
More importantly, it has been sufficiently established that it is petitioners standard company policy, whenever a flight has been cancelled, to
extend to its hapless passengers cash assistance or to provide them accommodations in hotels with which it has existing tie-ups. In fact,
petitioners Mactan Airport Manager for departure services, Oscar Jereza, admitted that PAL has an existing arrangement with hotels to
accommodate stranded passengers,[5] and that the hotel bills of Ernesto Gonzales were reimbursed[6] obviously pursuant to that policy.
Also, two witnesses presented by respondent, Teresita Azarcon and Nerie Bol, testified that sometime in November, 1988, when their flight
from Cebu to Surigao was cancelled, they were billeted at Rajah Hotel for two nights and three days at the expense of PAL. [7] This was never
denied by PAL.
 Further, Ernesto Gonzales, the aforementioned co-passenger of respondent on that fateful flight, testified that based on his previous
experience hotel accommodations were extended by PAL to its stranded passengers either in Magellan or Rajah Hotels, or even in Cebu
Plaza. Thus, we view as impressed with dubiety PALs present attempt to represent such emergency assistance as being merely ex gratia and
not ex debito.
While petitioner now insists that the passengers were duly informed that they would be reimbursed for their hotel expenses, it miserably
and significantly failed to explain why the other passengers were given reimbursements while private respondent was not. Although Gonzales
was subsequently given a refund, this was only so because he came to know about it by accident through Mrs. Rocha, as earlier explained.
Petitioner could only offer the strained and flimsy pretext that possibly the passengers were not listening when the announcement was
made. This is absurd because when respondent Pantejo came to know that his flight had been cancelled, he immediately proceeded to
petitioners office and requested for hotel accommodations. He was not only refused accommodations, but he was not even informed that he may
later on be reimbursed for his hotel expenses. This explains why his co-passenger, Andoni Dumlao, offered to answer for respondents hotel bill
and the latter promised to pay him when they arrive in Surigao. Had both known that they would be reimbursed by the airline, such arrangement
would not have been necessary.
Respondent Court of Appeals thus correctly concluded that the refund of hotel expenses was surreptitiously and discriminatorily made by
herein petitioner since the same was not made known to everyone, except through word of mouth to a handful of passengers. This is a sad
commentary on the quality of service and professionalism of an airline company, which is the countrys flag carrier at that.
On the bases of all the foregoing, the inescapable conclusion is that petitioner acted in bad faith in disregarding its duties as a common
carrier to its passengers and in discriminating against herein respondent Pantejo. It was even oblivious to the fact that this respondent was
exposed to humiliation and embarrassment especially because of his government position and social prominence, which altogether necessarily
subjected him to ridicule, shame and anguish. It remains uncontroverted that at the time of the incident, herein respondent was then the City
Prosecutor of Surigao City, and that he is a member of the Philippine Jaycee Senate, past Lt. Governor of the Kiwanis Club of Surigao, a past
Master of the Mount Diwata Lodge of Free Masons of the Philippines, member of the Philippine National Red Cross, Surigao Chapter, and past
Chairman of the Boy Scouts of the Philippines, Surigao del Norte Chapter. [8]
It is likewise claimed that the moral and exemplary damages awarded to respondent Pantejo are excessive and unwarranted on the ground
that respondent is not totally blameless because of his refusal to accept the P100.00 cash assistance which was inceptively offered to him. It
bears emphasis that respondent Pantejo had every right to make such refusal since it evidently could not meet his needs and that was all that
PAL claimed it could offer.
His refusal to accept the P300.00 proffered as an afterthought when he threatened suit was justified by his resentment when he belatedly
found out that his co-passengers were reimbursed for hotel expenses and he was not. Worse, he would not even have known about it were it not
for a co-passenger who verbally told him that she was reimbursed by the airline for hotel and meal expenses. It may even be said that the
amounts, the time and the circumstances under which those amounts were offered could not salve the moral wounds inflicted by PAL on private
respondent but even approximated insult added to injury.
The discriminatory act of petitioner against respondent ineludibly makes the former liable for moral damages under Article 21 in relation to
Article 2219 (10) of the Civil Code.[9] As held in Alitalia Airways vs. CA, et al.,[10] such inattention to and lack of care by petitioner airline for the
interest of its passengers who are entitled to its utmost consideration, particularly as to their convenience, amount to bad faith which entitles the
passenger to the award of moral damages.
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded only to allow the
former to obtain means, diversion, or amusements that will serve to alleviate the moral suffering he has undergone due to the defendants
culpable action and must, perforce, be proportional to the suffering inflicted. [11] However, substantial damages do not translate into excessive
damages.[12] Except for attorneys fees and costs of suit, it will be noted that the Court of Appeals affirmed point by point the factual findings of
the lower court upon which the award of damages had been based.[13] We, therefore, see no reason to modify the award of damages made by
the trial court.
Under the peculiar circumstances of this case, we are convinced that the awards for actual, moral and exemplary damages granted in the
judgment of respondent court, for the reasons meticulously analyzed and thoroughly explained in its decision, are just and equitable. It is high
time that the travelling public is afforded protection and that the duties of common carriers, long detailed in our previous laws and jurisprudence
and thereafter collated and specifically catalogued in our Civil Code in 1950, be enforced through appropriate sanctions.
We agree, however, with the contention that the interest of 6% imposed by respondent court should be computed from the date of rendition
of judgment and not from the filing of the complaint. The rule has been laid down in Eastern Shipping Lines, Inc. vs. Court of Appeals, et
al.[14] that:

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court
is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

This is because at the time of the filing of the complaint, the amount of damages to which plaintiff may be entitled remains unliquidated and
not known, until it is definitely ascertained, assessed and determined by the court, and only after the presentation of proof thereon.[15]
WHEREFORE, the challenged judgment of respondent Court of Appeals is hereby AFFIRMED, subject to the MODIFICATION regarding
the computation of the 6% legal rate of interest on the monetary awards granted therein to private respondent.
SO ORDERED.
Romero, and Puno, JJ., concur.
Mendoza, J., no part.
Torres, Jr., J., on official leave.
 Philippine Air Lines vs. Court of Appeals
GR 120262, 17 July 1997)

FACTS:

On 23 October 1988, Leovigildo A. Pantejo, then City Fiscal of Surigao City, boarded a PAL plane in Manila and disembarked in Cebu City
where he was supposed to take his connecting flight to Surigao City. However, due to typhoon Osang, the connecting flight to Surigao City was
cancelled. To accommodate the needs of its stranded passengers, PAL initially gave out cash assistance of P 100.00 and, the next day,
P200.00, for their expected stay of 2 days in Cebu. Pantejo requested instead that he be billeted in a hotel at the PAL’s expense because he did
not have cash with him at that time, but PAL refused. Thus, Pantejo was forced to seek and accept the generosity of a co-passenger, an
engineer named Andoni Dumlao, and he shared a room with the latter at Sky View Hotel with the promise to pay his share of the expenses upon
reaching Surigao. On 25 October 1988 when the flight for Surigao was resumed, Pantejo came to know that the hotel expenses of his co-
passengers, one Superintendent Ernesto Gonzales and a certain Mrs. Gloria Rocha, an Auditor of the Philippine National Bank, were
reimbursed by PAL. At this point, Pantejo informed Oscar Jereza, PAL’s Manager for Departure Services at Mactan Airport and who was in
charge of cancelled flights, that he was going to sue the airline for discriminating against him. It was only then that Jereza offered to pay Pantejo
P300.00 which, due to the ordeal and anguish he had undergone, the latter declined.

Pantejo filed a suit for damages against PAL with the RTC of Surigao City which, after trial, rendered judgment, ordering PAL to pay Pantejo
P300.00 for actual damages, P150,000.00 as moral damages, P100,000.00 as exemplary damages, P15,000.00 as attorney’s fees, and 6%
interest from the time of the filing of the complaint until said amounts shall have been fully paid, plus costs of suit.

On appeal, the appellate court affirmed the decision of the court a quo, but with the exclusion of the award of attorney’s fees and litigation
expenses.

The Supreme Court affirmed the challenged judgment of Court of Appeals, subject to the modification regarding the computation of the 6% legal
rate of interest on the monetary awards granted therein to Pantejo.

ISSUE:

Whether petitioner airlines acted in bad faith when it failed and refused to provide hotel accommodations for respondent Pantejo or to reimburse
him for hotel expenses incurred by reason of the cancellation of its connecting flight to Surigao City due to force majeur.

HELD:
A contract to transport passengers is quite different in kind and degree from any other contractual relation, and this is because of the relation
which an air carrier sustains with the public. Its business is mainly with the travelling public. It invites people to avail of the comforts and
advantages it offers. The contract of air carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance of the
carrier’s employees naturally could give ground for an action for damages.

The discriminatory act of PAL against Pantejo ineludibly makes the former liable for moral damages under Article 21 in relation to Article 2219
(10) of the Civil Code. As held in Alitalia Airways vs. CA, et al., such inattention to and lack of care by the airline for the interest of its passengers
who are entitled to its utmost consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to the award of
moral damages.

Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded only to allow the former to
obtain means, diversion, or amusements that will serve to alleviate the moral suffering he has undergone due to the defendant’s culpable action
and must, perforce, be proportional to the suffering inflicted. However, substantial damages do not translate into excessive damages. Herein,
except for attorney’s fees and costs of suit, it will be noted that the Courts of Appeals affirmed point by point the factual findings of the lower
court upon which the award of damages had been based.

The interest of 6% imposed by the court should be computed from the date of rendition of judgment and not from the filing of the complaint.

The rule has been laid down in Eastern Shipping Lines, Inc. vs. Court of Appeals, et. al. that “when an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.” This is because at the time of the filling of the complaint, the amount of the damages to which Pantejo may be entitled
remains unliquidated and not known, until it is definitely ascertained, assessed and determined by the court, and only after the presentation of
proof thereon.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 114061 August 23, 1995

KOREAN AIRLINES CO., LTD., petitioner,

vs.
COURT OF APPEALS and JUANITO C. LAPUZ, respondents.

G.R. No. 113842 August 23, 1995

JUANITO C. LAPUZ, petitioner,

vs.
COURT OF APPEALS and KOREAN AIRLINES CO., LTD., respondents.

RESOLUTION

FRANCISCO, J.:

The case is of 1980 vintage. It originated from the Regional Trial Court, appealed to the Court of Appeals, then finally elevated to this Court.
From the Court's disposition of the case stemmed incidents which are now the subjects for resolution. To elaborate:

In an action for breach of contract of carriage, Korean Airlines, Co., Ltd., (KAL) was ordered by the trial court to pay actual/compensatory
damages, with legal interest, attorney's fees and costs of suit in favor of plaintiff Juanito C. Lapuz. 1 Both parties appealed to the Court of
Appeals, but the trial court's judgment was merely modified: the award of compensatory damages reduced, an award for moral and exemplary
damages added, with 6% interest per annum from the date of filing of the complaint, and the attorney's fees and costs deleted.

The parties subsequently elevated the case to this Court, docketed as G.R. No. 114061 and G.R. No. 113842. On August 3, 1994, the Court in a
consolidated decision affirmed the decision of the Court of Appeals, modified only as to the commencement date of the award of legal
interest, i.e., from the date of the decision of the trial court and not from the date of filing of the complaint. 2 The parties filed their respective
motions for reconsideration with KAL, for the first time, assailing the Court's lack of jurisdiction to impose legal interest as the complaint allegedly
failed to pray for its award. In a resolution dated September 21, 1994, the Court resolved to deny both motions for reconsideration with finality.
Notwithstanding, KAL filed subsequent pleadings asking for reconsideration of the Court's consolidated decision and again impugning the award
of legal interest. Lapuz, meanwhile, filed a motion for early resolution of the case followed by a motion for execution dated March 14, 1995,
praying for the issuance of a writ of execution. KAL, in response, filed its Opposition and Supplemental Argument in Support of the Opposition
dated March 28, 1995, and March 30, 1995, respectively. Additionally, on May 3, 1995, Lapuz filed another Urgent Motion for Early Resolution
stating that the case has been pending for fifteen years which KAL admitted in its Comment filed two days later, albeit stressing that its pleadings
were not intended for delay. 3

KAL's asseveration that the Court lacks jurisdiction to award legal interest is devoid of merit. Both the complaint and amended complaint against
KAL dated November 27, 1980, and January 5, 1981, respectively, prayed for reliefs and remedies to which Lapuz may be entitled in law and
equity. The award of legal interest is one such relief, as it is based on equitable grounds duly sanctioned by Article 2210 of the Civil Code which
provides that: "[i]nterest may, in the discretion of the Court, be allowed upon damages awarded for breach of contract". 4

Furthermore, in its petition for review before the Court of Appeals, KAL did not question the trial court's imposition of legal interest. Likewise, in
its appeal before the Court, KAL never bewailed the award of legal interest. In fact, KAL took exception only with respect to the date when legal
interest should commence to run. 5 Indeed, it was only in its motion for reconsideration when suddenly its imposition was assailed for having
been rendered without jurisdiction. To strengthen its languid position, KAL's subsequent pleadings clothed its attack with constitutional import for
alleged violation of its right to due process. There is no cogent reason and none appears on record that could sustain KAL's scheme as KAL was
amply given, in the courts below and in this Court, occasion to ventilate its case. What is repugnant to due process is the denial of opportunity to
be heard 6 which opportunity KAL was extensively afforded. While it is a rule that jurisdictional question may be raised at any time, this, however,
admits of an exception where, as in this case, estoppel has supervened. 7 This court has time and again frowned upon the undesirable practice
of a party submitting his case for decision and then accepting the judgment, only if favorable, and attacking it for lack of jurisdiction when
adverse. 8 The Court shall not countenance KAL's undesirable moves. What attenuates KAL's unmeritorious importuning is that the assailed
decision has long acquired finality. It is a settled rule that a judgment which has acquired finality becomes immutable and unalterable, hence
may no longer be modified in any respect except only to correct clerical errors or mistake. 9 Once a judgment becomes final, all the issues
between the parties are deemed resolved and laid to rest.

KAL's filing of numerous pleadings delayed the disposition of the case which for fifteen years remained pending. This practice may constitute
abuse of the Court's processes for it tends to impede, obstruct and degrade the administration of justice. In Li Kim Tho v. Go Siu Ko, et al., 10 the
Court gave this reminder to litigants and lawyers' alike:

Litigation must end and terminate sometime and somewhere, and it is essential to an effective and efficient administration of
justice that, once a judgment has become final, the winning party be not, through a mere subterfuge, deprived of the fruits of
the verdict. Courts must therefore guard against any scheme calculated to bring about the result. Constituted as they are to
put an end to controversies, courts should frown upon any attempt to prolong them. 11

Likewise, in Banogan v. Zerna 12 the Court reminded lawyers of their responsibility as officers of the court in this manner:

As officers of the court, lawyers have a responsibility to assist in the proper administration of justice. They do not discharge
this duty by filing pointless petitions that only add to the workload of the judiciary, especially this Court, which is burdened
enough as it is. A judicious study of the facts and the law should advise them when a case, such as this, should not de
permitted to be filed to merely clutter the already congested judicial dockets. They do not advance the cause of law or their
clients by commencing litigations that for sheer lack of merit do not deserve the attention of the courts. 13

A lawyer owes fidelity to the cause of his client, but not at the expense of truth and the administration of justice. 14Counsel for KAL is reminded
that it is his duty not to unduly delay a case, impede the execution of a judgment or misuse Court processes. 15
With respect to Lapuz' motion for execution, suffice to state that the application for a writ of execution should be addressed to the court of origin
and not to this Court. As the judgment has become final and executory then all that is left of the trial court is the ministerial act of ordering the
execution thereof.

ACCORDINGLY, KAL's motion for reconsideration is DENlED. Counsel for KAL is hereby warned that repetition of his undesirable practice shall
be dealt with severely.

Regalado, Puno and Mendoza, JJ., concur.

Narvasa, C.J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,

vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

VITUG, J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint
and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award
for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c)
whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are
hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a
shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such
losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN
COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port
Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc.,
one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's
warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake
(per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95,
due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the
same (Exhs. H, I, J, K, L).

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated
marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per
"Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for
defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of
Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to
the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its
custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of
action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when
received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to
consignee in the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose
respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief,
Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums
were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad
order.
 Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the
respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator
(Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report
(Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the
shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was
observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order
Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the
shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened
without seal, cello bag partly torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with
adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment
reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New
Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in
full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the
carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity
to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-
Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was
found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the
date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant
Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied

Brokerage Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient
evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable
to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court
a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court
when —

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND
CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM
THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF
FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good
number of previous decisions this Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or
unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable
time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui
Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises
against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil
Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of
course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are
exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too,
been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier
and the arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua
Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to
that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the
duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore
charged with the obligation to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and
necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has
been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any
event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is
sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are
others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case,
appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the
stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment
ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of
P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then
assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally
is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or
damages, except when the demand can be established with reasonable certainty." And as was held by this Court in Rivera
vs. Perez, 4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco
v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of
Property." After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants
and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following
persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III
together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and
the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to
the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of
the complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs.
(Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal
interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the case was remanded to the
lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per
annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank
Circular
No. 416, providing thus —

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622
dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or credits and
the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) percent per
annum. This Circular shall take effect immediately. (Emphasis found in the text) —

should have, instead, been applied. This Court 6 ruled:

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

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to
persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As
correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which
reads —

Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed
upon, and in the absence of stipulation, the legal interest which is six percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case was for damages
occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory
damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina
v. Tomol case, this Court 8 modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from
the filing of the complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the collapse of a building,
ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint
until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's
decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental
circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the
defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with
the exception to attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an
additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon
aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except
Roman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per
annum imposed on the total amount of the monetary award was in contravention of law." The Court 10ruled out the applicability of the
Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only
in the following: (1) loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or
credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260
[1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final
judgment, that will cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the
complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the instant case.
(Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review on certiorari from the
decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by
the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded
by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from
notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to
recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The
Court 12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of
One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach of employment contract. For
having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any
legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed
in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay,
jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of
compensatory damages, with interest at the legal rate from the date of the filing of the complaint until fully paid (Emphasis
supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment
was made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per
annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition
for certiorari assailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the filing of
the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment
contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the
amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14 decided on 08 May 1992,
involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the
petitioner to pay the private respondents certain sums of money as just compensation for their lands so expropriated "with legal interest thereon .
. . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain
parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged
by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just
compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment
thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case
is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the
similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina
v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v. Manila Port Service (1969),
Nakpil and Sons v. Court of Appeals (1988), and American Express International v. Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular)
interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the
12% interest per annum applies only to loans or forbearance 16 of money, goods or credits, as well as to judgments involving such loan or
forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these
cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.
 The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending on whether or not
the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first
group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully
paid, the "second group" varied on the commencement of the running of the legal interest.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo, explaining that "if the suit were
for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should
be from the date of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by
ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be
imposed from the finality of the decision until the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the
courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of
clarification and reconciliation, to suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the contravenor can be
held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages. 20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid
is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount
upon finality of this decision until the payment thereof.

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ.,
concur.

Mendoza, J., took no part.

Eastern Shipping vs CA Credit Digest

Eastern Shipping vs CA

GR No. 97412, 12 July 1994

234 SCRA 78

FACTS

Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured with a marine policy. Upon arrival in
Manila unto the custody of metro Port Service, which excepted to one drum, said to be in bad order and which damage was unknown the
Mercantile Insurance Company. Allied Brokerage Corporation received the shipment from Metro, one drum opened and without seal. Allied
delivered the shipment to the consignee’s warehouse. The latter excepted to one drum which contained spillages while the rest of the contents
was adulterated/fake. As consequence of the loss, the insurance company paid the consignee, so that it became subrogated to all the rights of
action of consignee against the defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance company filed before the trial
court. The trial court ruled in favor of plaintiff an ordered defendants to pay the former with present legal interest of 12% per annum from the date
of the filing of the complaint. On appeal by defendants, the appellate court denied the same and affirmed in toto the decision of the trial court.

ISSUE

(1) Whether the applicable rate of legal interest is 12% or 6%.

(2) Whether the payment of legal interest on the award for loss or damage is to be computed from the time the complaint is filed from the date the
decision appealed from is rendered.

HELD
 (1) The Court held that the legal interest is 6% computed from the decision of the court a quo. When an obligation, not
constituting a loan or forbearance of money, is breached, an interest on the amount of damaes awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty.

When the judgment of the court awarding a sum of money becomes final and executor, the rate of legal interest shall be 12% per
annum from such finality until satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of money.

The interest due shall be 12% PA to be computed fro default, J or EJD.

(2) From the date the judgment is made. Where the demand is established with reasonable certainty, the interest shall begin to
run from the time the claim is made judicially or EJ but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shll begin to run only from the date of judgment of the court is made.

(3) The Court held that it should be computed from the decision rendered by the court a quo.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 123498 November 23, 2007

BPI FAMILY BANK, Petitioner,

vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.

DECISION

NACHURA, J.:

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

Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA) Decision 1 in CA-G.R. CV No. 43424 which
affirmed with modification the judgment2 of the Regional Trial Court, Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.

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

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

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

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

On September 8, 1989, impelled by the need to protect its interests in light of FMIC’s forgery claim, BPI-FB, thru its Senior Vice-President,
Severino Coronacion, instructed Jesus Arangorin10 to debit Franco’s savings and current accounts for the amounts remaining
therein.11 However, Franco’s time deposit account could not be debited due to the capacity limitations of BPI-FB’s computer.12

In the meantime, two checks13 drawn by Franco against his BPI-FB current account were dishonored upon presentment for payment, and
stamped with a notation "account under garnishment." Apparently, Franco’s current account was garnished by virtue of an Order of Attachment
issued by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-FB against
Franco et al.,14 to recover the P37,455,410.54 representing Tevesteco’s total withdrawals from its account.

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

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

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

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

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

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

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.), 19 recipients of a P500,000.00 check
proceeding from the P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit. Buenaventura et al., as in the case of Franco, were
also prevented from effecting withdrawals20 from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise,
when the case was elevated to this Court docketed as BPI Family Bank v. Buenaventura, 21 we ruled that BPI-FB had no right to freeze
Buenaventura, et al.’s accounts and adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multi-million peso scam.22 In the
criminal case, Franco, along with the other accused, except for Manuel Bienvenida who was still at large, were acquitted of the crime of Estafa
as defined and penalized under Article 351, par. 2(a) of the Revised Penal Code. 23 However, the civil case24 remains under litigation and the
respective rights and liabilities of the parties have yet to be adjudicated.

Consequently, in light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and release his deposits therein, the latter filed on
June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco prayed for the following reliefs: (1) the interest on the remaining
balance25 of his current account which was eventually released to him on October 31, 1991; (2) the balance 26 on his savings account, plus
interest thereon; (3) the advance interest27 paid to him which had been deducted when he pre-terminated his time deposit account; and (4) the
payment of actual, moral and exemplary damages, as well as attorney’s fees.

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

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

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

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

2. P498,973.23 representing the balance on [Franco’s] savings account as of May 18, 1990, together with the interest thereon in
accordance with the bank’s guidelines on the payment therefor;

3. P30,000.00 by way of attorney’s fees; and

4. P10,000.00 as nominal damages.

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

Costs against [BPI-FB].

SO ORDERED.28

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

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

Cost against [BPI-FB].

SO ORDERED.29

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

The petition is partly meritorious.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the Authority to Debit, effected the transfer
of P80,000,000.00 from FMIC’s to Tevesteco’s account, when FMIC’s account was a time deposit and it had already paid advance interest to
FMIC. Considering that there is as yet no indubitable evidence establishing Franco’s participation in the forgery, he remains an innocent party.
As between him and BPI-FB, the latter, which made possible the present predicament, must bear the resulting loss or inconvenience.

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

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

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

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

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

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

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

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

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

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

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

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

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

Fifth. Anent the CA’s finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted from Franco’s time deposit
account, and for moral as well as exemplary damages, we find it proper to reinstate the ruling of the trial court, and allow only the recovery of
nominal damages in the amount of P10,000.00. However, we retain the CA’s award of P75,000.00 as attorney’s fees.

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

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

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

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

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

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of
wrong; it partakes of the nature of fraud.44 We have held that it is a breach of a known duty through some motive of interest or ill will. 45 In the
instant case, we cannot attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court found, there was no denial whatsoever by
BPI-FB of the existence of the accounts. The computer-generated document which indicated that the current account was "not on file" resulted
from the prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the garnishment, or even the outright refusal to honor any
transaction thereon was resorted to solely for the purpose of holding on to the funds as a security for its intended court action,46 and with no
other goal but to ensure the integrity of the accounts.
We have had occasion to hold that in the absence of fraud or bad faith, 47 moral damages cannot be awarded; and that the adverse result of an
action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for granting such
damages.48

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

Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code, 50 upon which to base his claim for moral
damages.1âwphi1

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

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

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

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

Sixth. As for the dismissal of BPI-FB’s counter-claim, we uphold the Manila RTC’s ruling, as affirmed by the CA, that BPI-FB is not entitled to
recover P3,800,000.00 as actual damages. BPI-FB’s alleged loss of profit as a result of Franco’s suit is, as already pointed out, of its own
making. Accordingly, the denial of its counter-claim is in order.

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

No pronouncement as to costs.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

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

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

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

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

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

REYNATO S. PUNO
Chief Justice
 THIRD DIVISION

PEOPLE OF THE PHILIPPINES, G.R. No. 173654-765

Petitioners, Present:

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,

CHICO-NAZARIO,

REYES, and

DE CASTRO,* JJ.
- versus -

Promulgated:

August 28, 2008

TERESITA PUIG and ROMEO PORRAS,
Respondent.
x---------------------------------------------------x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the Philippines, represented by the

Office of the Solicitor General, praying for the reversal of the Orders dated 30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC)

of the 6th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against respondents Teresita Puig and

Romeo Porras, and denying petitioners Motion for Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.

The following are the factual antecedents:

On 7 November 2005, the Iloilo Provincial Prosecutors Office filed before Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of

Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of

private complainant Rural Bank of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-3054 to 05-3165.

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

commission, to wit:

INFORMATION

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

After perusing the Informations in these cases, the trial court did not find the existence of probable cause that would have necessitated the

issuance of a warrant of arrest based on the following grounds:

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

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

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would be violative of the right of the

respondents under Section 14(2), Article III of the 1987 Constitution which states that in all criminal prosecutions, the accused shall enjoy the

right to be informed of the nature and cause of the accusation against him. Following Section 6, Rule 112 of the Revised Rules of Criminal

Procedure, the RTC dismissed the cases on 30 January 2006 and refused to issue a warrant of arrest against Puig and Porras.

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

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

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

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

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

Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006 and 9 June 2006 issued by the trial

court, and that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.

Petitioner explains that under Article 1980 of the New Civil Code, fixed, savings, and current deposits of money in banks and similar institutions

shall be governed by the provisions concerning simple loans. Corollary thereto, Article 1953 of the same Code provides that a person who
receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the

same kind and quality. Thus, it posits that the depositors who place their money with the bank are considered creditors of the bank. The bank

acquires ownership of the money deposited by its clients, making the money taken by respondents as belonging to the bank.
Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft, citing th at a perusal of the

Informations will show that they specifically allege that the respondents were the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc.,

respectively, and that they took various amounts of money with grave abuse of confidence, and without the knowledge and consent of the bank,

to the damage and prejudice of the bank.

Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a Petition for Review on Certiorari via Rule

45 is the wrong mode of appeal because a finding of probable cause for the issuance of a warrant of arrest presupposes evaluation of facts and

circumstances, which is not proper under said Rule.

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

We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and, therefore, because of this defect,

there is no basis for the existence of probable cause which will justify the issuance of the warrant of arrest. Petitioner assails the dismissal
contending that the Informations for Qualified Theft sufficiently state facts which constitute (a) the qualifying circumstance of grave abuse of

confidence; and (b) the element of taking, with intent to gain and without the consent of the owner, which is the Bank.

In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the allegations in the Information
inadequate. He ruled that the Information failed to state facts constituting the qualifying circumstance of grave abuse of confidence and the

element of taking without the consent of the owner, since the owner of the money is not the Bank, but the depositors therein. He also

cites People v. Koc Song,[4] in which this Court held:

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

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause simply on the insufficiency of the

allegations in the Informations concerning the facts constitutive of the elements of the offense charged. This, therefore, makes the issue of

sufficiency of the allegations in the Informations the focal point of discussion.

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

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

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of anothers property without violence or intimidation

against persons or force upon things. The elements of the crime under this Article are:

1. Intent to gain;

2. Unlawful taking;

3. Personal property belonging to another;

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

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

1. Taking of personal property;

2. That the said property belongs to another;

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

4. That it be done without the owners consent;

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

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

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the information must state the acts or

omissions complained of as constitutive of the offense.

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

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

It is evident that the Information need not use the exact language of the statute in alleging the acts or omissions complained of as constituting

the offense. The test is whether it enables a person of common understanding to know the charge against him, and the court to render judgment

properly.[5]

The portion of the Information relevant to this discussion reads:

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

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of the monies deposited

therein enjoy the confidence reposed in them by their employer. Banks, on the other hand, where monies are deposited, are considered the

owners thereof. This is very clear not only from the express provisions of the law, but from established jurisprudence. The relationship between
banks and depositors has been held to be that of creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out

by petitioner, provide as follows:

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

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

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the Bank of the money deposits

therein, and the duties being performed by its employees who have custody of the money or have come into possession of it. The Court has

consistently considered the allegations in the Information that such employees acted with grave abuse of confidence, to the damage and

prejudice of the Bank, without particularly referring to it as owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a
graphic illustration, we cite Roque v. People,[6] where the accused teller was convicted for Qualified Theft based on this Information:

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

In convicting the therein appellant, the Court held that:

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

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

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

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

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

The judgment of conviction elaborated thus:

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

From another end, People v. Locson,[10] in addition to People v. Sison, described the nature of possession by the Bank. The money in this

case was in the possession of the defendant as receiving teller of the bank, and the possession of the defendant was the possession of the

Bank. The Court held therein that when the defendant, with grave abuse of confidence, removed the money and appropriated it to his own use

without the consent of the Bank, there was taking as contemplated in the crime of Qualified Theft. [11]

Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the respondents; that the crime was

committed with grave abuse of confidence, with intent to gain and without the knowledge and consent of the Bank, without necessarily stating
the phrase being assiduously insisted upon by respondents, of a relation by reason of dependence, guardianship or vigilance, between the

respondents and the offended party that has created a high degree of confidence between them, which respondents abused, [12] and

without employing the word owner in lieu of the Bank were considered to have satisfied the test of sufficiency of allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is even no reason to quibble on the

allegation in the Informations that they acted with grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence by

accused herein is even more precise, as this is exactly the requirement of the law in qualifying the crime of Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the Bank, who are entrusted with the

possession of money of the Bank due to the confidence reposed in them, occupy positions of confidence. The Informations, therefore,

sufficiently allege all the essential elements constituting the crime of Qualified Theft.

On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling in Mobilia Products, Inc. v. Hajime

Umezawa[13] is instructive. The Court thus enunciated:

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

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in appeals by certiorari under Rule 45 of the

Rules of Court, only errors of law may be raised,[14] and herein petitioner certainly raised a question of law.

As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the records of the preliminary investigation

conducted will show that, indeed, probable cause exists for the indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of

Court, the judge shall issue a warrant of arrest only upon a finding of probable cause after personally evaluating the resolution of the prosecutor
and its supporting evidence. Soliven v. Makasiar,[15] as reiterated in Allado v. Driokno,[16] explained that probable cause for the issuance of a

warrant of arrest is the existence of such facts and circumstances that would lead a reasonably discreet and prudent person to believe that an

offense has been committed by the person sought to be arrested. [17] The records reasonably indicate that the respondents may have, indeed,

committed the offense charged.

Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case may be, to relieve the respondents from the

pain of going through a trial once it is ascertained that no probable cause exists to form a sufficient belief as to the guilt of the respondents,
conversely, it is also equally imperative upon the judge to proceed with the case upon a showing that there is a prima facie case against the

respondents.

WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders dated 30 January

2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET ASIDE. Let the corresponding

Warrants of Arrest issue against herein respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in

Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive, with reasonable dispatch. No

pronouncement as to costs.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

W E CONCUR:

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson

MA. ALICIA AUSTRIA-MARTINEZ RUBEN T. REYES

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

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

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson, Third Division

CERTIFICATION

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

REYNATO S. PUNO

Chief Justice
 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.:

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 latters 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 attorneys fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the award of attorneys fees in favor of
respondents and, instead, ordering respondent Corporation to pay petitioner P37,469.22 as and for attorneys 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 courts 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, petitioners 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.[10] 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[11] 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[12] 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 Corporations Bulacan plant commenced on July
7, 1982 and was completed by July 19, 1982.[13] Further, the oil was used up by respondent Corporation in its normal operations by August,
1982.[14] 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 petitioners 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. BAAGA:
That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:
Proceed.
ATTY. BAAGA:
Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.?
A - Gregory Lim.[15]
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. Petitioners 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. [16]
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., (Chairman), Puno, and Kapunan, JJ., concur.
Pardo J., no part.
 FIRST DIVISION

[G.R. No. 90828. September 5, 2000]

MELVIN COLINARES and LORDINO VELOSO, petitioners, vs. HONORABLE COURT OF APPEALS, and THE PEOPLE OF THE
PHILIPPINES, respondents.

DECISION
DAVIDE, JR., C.J.:

In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a consideration of P40,000 by the Carmelite
Sisters of Cagayan de Oro City to renovate the latters convent at Camaman-an, Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2x4x, 300 SF tanguile wood tiles 12x12, 260 SF Marcelo
economy tiles and 2 gallons UMYLIN cement adhesive from CM Builders Centre for the construction project. [1] The following day, 31 October
1979, Petitioners applied for a commercial letter of credit[2] with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC)
in favor of CM Builders Centre. PBC approved the letter of credit[3] for P22,389.80 to cover the full invoice value of the goods. Petitioners signed
a pro-forma trust receipt[4] as security. The loan was due on 29 January 1980.
On 31 October 1979, PBC debited P6,720 from Petitioners marginal deposit as partial payment of the loan. [5]
On 7 May 1980, PBC wrote[6] to Petitioners demanding that the amount be paid within seven days from notice. Instead of complying with
PBCs demand, Veloso confessed that they lost P19,195.83 in the Carmelite Monastery Project and requested for a grace period of until 15 June
1980 to settle the account.[7]
PBC sent a new demand letter[8]to Petitioners on 16 October 1980 and informed them that their outstanding balance as of 17 November
1979 was P20,824.40 exclusive of attorneys fees of 25%.[9]
On 2 December 1980, Petitioners proposed [10] that the terms of payment of the loan be modified as follows: P2,000 on or before 3
December 1980, and P1,000 per month starting 31 January 1980 until the account is fully paid. Pending approval of the proposal, Petitioners
paid P1,000 to PBC on 4 December 1980,[11] and thereafter P500 on 11 February 1981,[12] 16 March 1981,[13] and 20 April 1981.[14] Concurrently
with the separate demand for attorneys fees by PBCs legal counsel, PBC continued to demand payment of the balance. [15]
On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the
Revised Penal Code in an Information which was filed with Branch 18, Regional Trial Court of Cagayan de Oro City. The accusatory portion of
the Information reads:

That on or about October 31, 1979, in the City of Cagayan de Oro, Philippines, and within the jurisdiction of this Honorable Court, the above-
named accused entered into a trust receipt agreement with the Philippine Banking Corporation at Cagayan de Oro City wherein the accused, as
entrustee, received from the entruster the following goods to wit:

Solatone Acoustical board

Tanguile Wood Tiles

Marcelo Cement Tiles

Umylin Cement Adhesive

with a total value of P22,389.80, with the obligation on the part of the accused-entrustee to hold the aforesaid items in trust for the entruster
and/or to sell on cash basis or otherwise dispose of the said items and to turn over to the entruster the proceeds of the sale of said goods or if
there be no sale to return said items to the entruster on or before January 29, 1980 but that the said accused after receipt of the goods, with
intent to defraud and cause damage to the entruster, conspiring, confederating together and mutually helping one another, did then and there
wilfully, unlawfully and feloniously fail and refuse to remit the proceeds of the sale of the goods to the entruster despite repeated demands but
instead converted, misappropriated and misapplied the proceeds to their own personal use, benefit and gain, to the damage and prejudice of the
Philippine Banking Corporation, in the aforesaid sum of P22,389.80, Philippine Currency.

Contrary to PD 115 in relation to Article 315 of the Revised Penal Code.[16]

The case was docketed as Criminal Case No. 1390.

During trial, petitioner Veloso insisted that the transaction was a clean loan as per verbal guarantee of Cayo Garcia Tuiza, PBCs former
manager. He and petitioner Colinares signed the documents without reading the fine print, only learning of the trust receipt implication much
later. When he brought this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a mere formality.[17]
On 7 July 1986, the trial court promulgated its decision [18] convicting Petitioners of estafa for violating P.D. No. 115 in relation to Article 315
of the Revised Penal Code and sentencing each of them to suffer imprisonment of two years and one day of prision correccional as minimum to
six years and one day of prision mayor as maximum, and to solidarily indemnify PBC the amount of P20,824.44, with legal interest from 29
January 1980, 12 % penalty charge per annum, 25% of the sums due as attorneys fees, and costs.
The trial court considered the transaction between PBC and Petitioners as a trust receipt transaction under Section 4, P.D. No. 115. It
considered Petitioners use of the goods in their Carmelite monastery project an act of disposing as contemplated under Section 13, P.D. No.
115, and treated the charge invoice [19] for goods issued by CM Builders Centre as a document within the meaning of Section 3 thereof. It
concluded that the failure of Petitioners to turn over the amount they owed to PBC constituted estafa.
Petitioners appealed from the judgment to the Court of Appeals which was docketed as CA-G.R. CR No. 05408. Petitioners asserted
therein that the trial court erred in ruling that they violated the Trust Receipt Law, and in holding them criminally liable therefor. In the alternative,
they contend that at most they can only be made civilly liable for payment of the loan.
In its decision[20] 6 March 1989, the Court of Appeals modified the judgment of the trial court by increasing the penalty to six years and one
day of prision mayor as minimum to fourteen years eight months and one day of reclusion temporal as maximum. It held that the documentary
evidence of the prosecution prevails over Velosos testimony, discredited Petitioners claim that the documents they signed were in blank, and
disbelieved that they were coerced into signing them.
On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsideration [21] alleging that the Disclosure Statement on Loan/Credit
Transaction[22] (hereafter Disclosure Statement) signed by them and Tuiza was suppressed by PBC during the trial. That document would have
proved that the transaction was indeed a loan as it bears a 14% interest as opposed to the trust receipt which does not at all bear any
interest. Petitioners further maintained that when PBC allowed them to pay in installment, the agreement was novated and a creditor-debtor
relationship was created.
In its resolution[23]of 16 October 1989 the Court of Appeals denied the Motion for New Trial/Reconsideration because the alleged newly
discovered evidence was actually forgotten evidence already in existence during the trial, and would not alter the result of the case.
Hence, Petitioners filed with us the petition in this case on 16 November 1989. They raised the following issues:

I. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE GROUND OF NEWLY DISCOVERED EVIDENCE,
NAMELY, DISCLOSURE ON LOAN/CREDIT TRANSACTION, WHICH IF INTRODUCED AND ADMITTED, WOULD CHANGE THE
JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF DUE PROCESS.

2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE ACCUSED WERE PROPERLY CHARGED, TRIED AND
CONVICTED FOR VIOLATION OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315 PARAGRAPH (I) (B) NOTWITHSTANDING THE
NOVATION OF THE SO-CALLED TRUST RECEIPT CONVERTING THE TRUSTOR-TRUSTEE RELATIONSHIP TO CREDITOR-DEBTOR
SITUATION.

In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny the petition for lack of merit.
On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that they had already fully paid PBC on 2 February 1990
the amount of P70,000 for the balance of the loan, including interest and other charges, as evidenced by the different receipts issued by
PBC,[24] and that the PBC executed an Affidavit of desistance. [25]
We required the Solicitor General to comment on the Motion to Dismiss.
In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan was akin to a voluntary surrender or plea of guilty
which merely serves to mitigate Petitioners culpability, but does not in any way extinguish their criminal liability.
In the Resolution of 13 August 1990, we gave due course to the Petition and required the parties to file their respective memoranda.
The parties subsequently filed their respective memoranda.
It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter, we required the parties to move in the premises and
for Petitioners to manifest if they are still interested in the further prosecution of this case and inform us of their present whereabouts and
whether their bail bonds are still valid.
Petitioners submitted their Compliance.
The core issues raised in the petition are the denial by the Court of Appeals of Petitioners Motion for New Trial and the true nature of the
contract between Petitioners and the PBC. As to the latter, Petitioners assert that it was an ordinary loan, not a trust receipt agreement under the
Trust Receipts Law.
The grant or denial of a motion for new trial rests upon the discretion of the judge. New trial may be granted if: (1) errors of law or
irregularities have been committed during the trial prejudicial to the substantial rights of the accused; or (2) new and material evidence has been
discovered which the accused could not with reasonable diligence have discovered and produced at the trial, and which, if introduced and
admitted, would probably change the judgment. [26]
For newly discovered evidence to be a ground for new trial, such evidence must be (1) discovered after trial; (2) could not have been
discovered and produced at the trial even with the exercise of reasonable diligence; and (3) material, not merely cumulative, corroborative, or
impeaching, and of such weight that, if admitted, would probably change the judgment. [27] It is essential that the offering party exercised
reasonable diligence in seeking to locate the evidence before or during trial but nonetheless failed to secure it.[28]
We find no indication in the pleadings that the Disclosure Statement is a newly discovered evidence.
Petitioners could not have been unaware that the two-page document exists. The Disclosure Statement itself states, NOTICE TO
BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN.[29] Assuming Petitioners copy was then
unavailable, they could have compelled its production in court, [30] which they never did. Petitioners have miserably failed to establish the second
requisite of the rule on newly discovered evidence.
Petitioners themselves admitted that they searched again their voluminous records, meticulously and patiently, until they discovered this
new and material evidence only upon learning of the Court of Appeals decision and after they were shocked by the penalty imposed. [31] Clearly,
the alleged newly discovered evidence is mere forgotten evidence that jurisprudence excludes as a ground for new trial. [32]
However, the second issue should be resolved in favor of Petitioners.
Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction by and between a person referred to
as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds absolute title or security interest over
certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery
to the entruster of a signed document called a trust receipt wherein the entrustee binds himself to hold the designated goods, documents or
instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears
in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the
terms and conditions specified in the trust receipt.
There are two possible situations in a trust receipt transaction. The first is covered by the provision which refers to money received under
the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which
refers to merchandise received under the obligation to return it (devolvera) to the owner. [33]
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to the entruster or to return said
goods if they were not disposed of in accordance with the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the
Revised Penal Code,[34] without need of proving intent to defraud.
A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by the parties was a simple loan, not
a trust receipt agreement.
Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that day, ownership over the merchandise was
already transferred to Petitioners who were to use the materials for their construction project. It was only a day later, 31 October 1979, that they
went to the bank to apply for a loan to pay for the merchandise.
This situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the bank and only released to the
importer in trust subsequent to the grant of the loan. The bank acquires a security interest in the goods as holder of a security title for the
advances it had made to the entrustee.[35] The ownership of the merchandise continues to be vested in the person who had advanced payment
until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale should be turned over t o him by the importer
or by his representative or successor in interest.[36] To secure that the bank shall be paid, it takes full title to the goods at the very beginning and
continues to hold that title as his indispensable security until the goods are sold and the vendee is called upon to pay for them; hence, the
importer has never owned the goods and is not able to deliver possession. [37] In a certain manner, trust receipts partake of the nature of a
conditional sale where the importer becomes absolute owner of the imported merchandise as soon as he has paid its price. [38]
 Trust receipt transactions are intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to
finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased.[39]
The antecedent acts in a trust receipt transaction consist of the application and approval of the letter of credit, the making of the marginal
deposit and the effective importation of goods through the efforts of the importer. [40]
PBC attempted to cover up the true delivery date of the merchandise, yet the trial court took notice even though it failed to attach any
significance to such fact in the judgment. Despite the Court of Appeals contrary view that the goods were delivered to Petitioners previous to the
execution of the letter of credit and trust receipt, we find that the records of the case speak volubly and this fact remains uncontroverted. It is not
uncommon for us to peruse through the transcript of the stenographic notes of the proceedings to be satisfied that the records of the case do
support the conclusions of the trial court.[41] After such perusal Grego Mutia, PBCs credit investigator, admitted thus:
ATTY. CABANLET: (continuing)
Q Do you know if the goods subject matter of this letter of credit and trust receipt agreement were received by the accused?
A Yes, sir
Q Do you have evidence to show that these goods subject matter of this letter of credit and trust receipt were delivered to the accused?
A Yes, sir.
Q I am showing to you this charge invoice, are you referring to this document?
A Yes, sir.
xxx
Q What is the date of the charge invoice?
A October 31, 1979.
COURT:
Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral 1. [42]
During the cross and re-direct examinations he also impliedly admitted that the transaction was indeed a loan. Thus:
Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the accused you admit that?
A Because in the bank the loan is considered part of the loan.
xxx
RE-DIRECT BY ATTY. CABANLET:
ATTY. CABANLET (to the witness)
Q What do you understand by loan when you were asked?
A Loan is a promise of a borrower from the value received. The borrower will pay the bank on a certain specified date with interest[43]
Such statement is akin to an admission against interest binding upon PBC.
Petitioner Velosos claim that they were made to believe that the transaction was a loan was also not denied by PBC. He declared:
Q Testimony was given here that that was covered by trust receipt. In short it was a special kind of loan. What can you say as to that?
A I dont think that would be a trust receipt because we were made to understand by the manager who encouraged us to avail of their
facilities that they will be granting us a loan[44]
PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted with Petitioners, to refute Velosos testimony, yet it only
presented credit investigator Grego Mutia. Nowhere from Mutias testimony can it be gleaned that PBC represented to Petitioners that the
transaction they were entering into was not a pure loan but had trust receipt implications.
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. [45]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. [46]
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.
WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16 October 1989 of the Court of Appeals in CA-GR. No.
05408 are REVERSED and SET ASIDE. Petitioners are hereby ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in relation to
Article 315 of the Revised Penal Code.
No costs.
SO ORDERED.
Kapunan, and Pardo, JJ., concur.
Puno, J., no part.
Ynares-Santiago, J., on leave.

Colinares v CA G.R. No. 90828. September 5, 2000

MARCH 15, 2014LEAVE A COMMENT

The ownership of the merchandise continues to be vested in the person who had advanced payment until he has been paid in full, or if
the merchandise has already been sold, the proceeds of the sale should be turned over to him by the importer or by his representative
or successor in interest.
Facts: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a consideration of P40,000 by the Carmelite Sisters of
Cagayan de Oro City to renovate the latter’s convent at Camaman-an, Cagayan de Oro City. Colinares applied for a commercial letter of
credit with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC approved the
letter of credit for P22,389.80 to cover the full invoice value of the goods. Petitioners signed a pro-forma trust receipt as security.
PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of the loan. After the initial payment, the spouses defaulted. PBC
wrote to Petitioners demanding that the amount be paid within seven days from notice. Instead of complying with PBC’s demand, Veloso
confessed that they lost P19,195.83 in the Carmelite Monastery Project and requested for a grace period of until 15 June 1980 to settle the
account. Colinares proposed that the terms of payment of the loan be modified P2,000 on or before 3 December 1980, and P1,000 per month .
Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and thereafter P500 on 11 February 1981, 16 March
1981, and 20 April 1981. Concurrently with the separate demand for attorney’s fees by PBC’s legal counsel, PBC continued to demand payment
of the balance. On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of
the Revised Penal Code
During trial, petitioner Veloso insisted that the transaction was a “clean loan” as per verbal guarantee of Cayo Garcia Tuiza, PBC’s former
manager. He and petitioner Colinares signed the documents without reading the fine print, only learning of the trust receipt implication much
later. When he brought this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a mere formality. 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.

Issue: Whether or not the transaction of Colinares falls within the ambit of the Law on Trust Receipt

Held: Colinares received the merchandise from CM Builders Centre on 30 October 1979. On that day, ownership over the merchandise was
already transferred to Petitioners who were to use the materials for their construction project. It was only a day later, 31 October 1979, that they
went to the bank to apply for a loan to pay for the merchandise. This situation belies what normally obtains in a pure trust receipt transaction
where goods are owned by the bank and only released to the importer in trust subsequent to the grant of the loan.

The bank acquires a “security interest” in the goods as holder of a security title for the advances it had made to the entrustee. The ownership of
the merchandise continues to be vested in the person who had advanced payment until he has been paid in full, or if the merch andise has
already been sold, the proceeds of the sale should be turned over to him by the importer or by his representative or successor in interest. To
secure that the bank shall be paid, it takes full title to the goods at the very beginning and continues to hold that title as his indispensable security
until the goods are sold and the vendee is called upon to pay for them; hence, the importer has never owned the goods and is not able to deliver
possession. In a certain manner, trust receipts partake of the nature of a conditional sale where the importer becomes absolute owner of the
imported merchandise as soon as he has paid its price. There are two possible situations in a trust receipt transaction. The first is covered by the
provision which refers to money received under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold.
The second is covered by the provision which refers to merchandise received under the obligation to “return” it (devolvera) to the owner. Failure
of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to the entruster or to return said goods if they
were not disposed of in accordance with the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal
Code, without need of proving intent to defraud.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 84719 January 25, 1991

YONG CHAN KIM, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO, Presiding Judge, RTC, 6th Judicial Region, Branch 28 Iloilo City and Court
of Appeals (13th Division) respondents.

Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.

Hector P. Teodosio for private respondent.

PADILLA, J.:

This petition seeks the review on certiorari of the following:

1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court (Guimbal-Igbaras-Tigbauan-Tubungan) in Guimbal,
Iloilo, in Criminal Case No. 628,1 and the affirming decision of the Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No.
20958, promulgated on 30 July 1987;2

2. The decision of the Court of Appeals, dated 29 April 1988,3

dismissing petitioner's appeal/petition for review for having been filed out of time, and the resolution, dated 19 August 1988, denying petitioner's
motion for reconsideration. 4

The antecedent facts are as follows:

Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department of the Southeast Asian Fisheries Development Center
(SEAFDEC) with head station at Tigbauan, Province of Iloilo. As Head of the Economics Unit of the Research Division, he conducted prawn
surveys which required him to travel to various selected provinces in the country where there are potentials for prawn culture.

On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to different places in Luzon from 16 June to 21 July
1982, a period of thirty five (35) days. Under this travel order, he received P6,438.00 as cash advance to defray his travel expenses.

Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him to travel from the Head Station at Tigbauan, Iloilo to
Roxas City from 30 June to 4 July 1982, a period of five (5) days. For this travel order, petitioner received a cash advance of P495.00.

On 14 January 1983, petitioner presented both travel orders for liquidation, submitting Travel Expense Reports to the Accounting Section. When
the Travel Expense Reports were audited, it was discovered that there was an overlap of four (4) days (30 June to 3 July 1982) in the two (2)
travel orders for which petitioner collected per diems twice. In sum, the total amount in the form of per diems and allowances charged and
collected by petitioner under Travel Order No. 2222, when he did not actually and physically travel as represented by his liquidation papers, was
P1,230.00.

Petitioner was required to comment on the internal auditor's report regarding the alleged anomalous claim for per diems. In his reply, petitioner
denied the alleged anomaly, claiming that he made make-up trips to compensate for the trips he failed to undertake under T.O. 2222 because he
was recalled to the head office and given another assignment.

In September 1983, two (2) complaints for Estafa were filed against the petitioner before the Municipal Circuit Trial Court at Guimbal, Iloilo,
docketed as Criminal Case Nos. 628 and 631.

After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a decision, the dispositive part of which reads as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the accused, Yong Chan Kim, guilty beyond reasonable doubt for
the crime of Estafa penalized under paragraph l(b) of Article 315, Revised Penal Code. Records disclose there is no aggravating
circumstance proven by the prosecution. Neither there is any mitigating circumstance proven by the accused. Considering the amount
subject of the present complaint, the imposable penalty should be in the medium period of arresto mayor in its maximum period
to prision correccional in its minimum period in accordance with Article 315, No. 3, Revised Penal Code. Consonantly, the Court hereby
sentences the accused to suffer an imprisonment ranging from four (4) months as the minimum to one (1) year and six (6) months as
the maximum in accordance with the Indeterminate Sentence Law and to reimburse the amount of P1,230.00 to SEAFDEC.

The surety bond of the accused shall remain valid until final judgment in accordance herewith.

Costs against the accused.5

Criminal Case No. 631 was subsequently dismissed for failure to prosecute.

Petitioner appealed from the decision of the Municipal Circuit Trial Court in Criminal Case No. 628. On 30 July 1987, the Regional Trial Court in
Iloilo City in Criminal Case No. 20958 affirmed in toto the trial court's decision.6

The decision of the Regional Trial Court was received by petitioner on 10 August 1987. On 11 August 1987, petitioner, thru counsel, filed a
notice of appeal with the Regional Trial Court which ordered the elevation of the records of the case to the then Intermediate Appellate Court on
the following day, 12 August 1987. The records of the case were received by the Intermediate Appellate Court on 8 October 1987, and the
appeal was docketed as CA-G.R. No. 05035.

On 30 October 1987, petitioner filed with the appellate court a petition for review. As earlier stated, on 29 April 1988, the Court of Appeals
dismissed the petition for having been filed out of time. Petitioner's motion for reconsideration was denied for lack of merit.
Hence, the present recourse.

On 19 October 1988, the Court resolved to require the respondents to comment on the petition for review. The Solicitor General filed his
Comment on 20 January 1989, after several grants of extensions of time to file the same.

In his Comment, the Solicitor General prayed for the dismissal of the instant petition on the ground that, as provided for under Section 22, Batas
Pambansa 129, Section 22 of the Interim Rules and Guidelines, and Section 3, Rule 123 of the 1985 Rules of Criminal Procedure, the petitioner
should have filed a petition for review with the then Intermediate Appellate Court instead of a notice of appeal with the Regional Trial Court, in
perfecting his appeal from the RTC to the Intermediate Appellate Court, since the RTC judge was rendered in the exercise of its appellate
jurisdiction over municipal trial courts. The failure of petitioner to file the proper petition rendered the decision of the Regional Trial Court final
and executory, according to the Solicitor General.

Petitioner's counsel submitted a Reply (erroneously termed Comment) 7 wherein she contended that the peculiar circumstances of a case, such
as this, should be considered in order that the principle barring a petitioner's right of review can be made flexible in the interest of justice and
equity.

In our Resolution of 29 May 1989, we resolved to deny the petition for failure of petitioner to sufficiently show that the Court of Appeals had
committed any reversible error in its questioned judgment which had dismissed petitioner's petition for review for having been filed out of time. 8

Petitioner filed a motion for reconsideration maintaining that his petition for review did not limit itself to the issue upon which the appellate court's
decision of 29 April 1988 was based, but rather it delved into the substance and merits of the case. 9

On 10 August 1990, we resolved to set aside our resolution dismissing this case and gave due course to the petition. In the said resolution, we
stated:

In several cases decided by this Court, it had set aside technicalities in the Rules in order to give way to justice and equity. In the
present case, we note that the petitioner, in filing his Notice of Appeal the very next day after receiving the decision of the court a
quo lost no time in showing his intention to appeal, although the procedure taken was not correct. The Court can overlook the wrong
pleading filed, if strict compliance with the rules would mean sacrificing justice to technicality. The imminence of a person being
deprived unjustly of his liberty due to procedural lapse of counsel is a strong and compelling reason to warrant suspension of the Rules.
Hence, we shall consider the petition for review filed in the Court of Appeals as a Supplement to the Notice of Appeal. As the Court
declared in a recent decision, '. . . there is nothing sacred about the procedure of pleadings. This Court may go beyond the pleadings
when the interest of justice so warrants. It has the prerogative to suspend its rules for the same purpose. . . . Technicality, when it
deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from
courts. [Alonzo v. Villamor, et al., 16 Phil. 315]

Conscience cannot rest in allowing a man to go straight to jail, closing the door to his every entreaty for a full opportunity to be heard,
even as he has made a prima facie showing of a meritorious cause, simply because he had chosen an appeal route, to be sure,
recognized by law but made inapplicable to his case, under altered rules of procedure. While the Court of Appeals can not be faulted
and, in fact, it has to be lauded for correctly applying the rules of procedure in appeals to the Court of Appeals from decisions of the
RTC rendered in the exercise of its appellate jurisdiction, yet, this Court, as the ultimate bulwark of human rights and individual liberty,
will not allow substantial justice to be sacrified at the altar of procedural rigor. 10

In the same resolution, the parties were required to file their respective memoranda, and in compliance with said resolution, petitioner filed his
memorandum on 25 October 1989, while private respondent SEAFDEC filed its required memorandum on 10 April 1990. On the other hand, the
Solicitor General filed on 13 March 1990 a Recommendation for Acquittal in lieu of the required memorandum.

Two (2) issues are raised by petitioner to wit:

I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL CIRCUIT TRIAL COURT (GUIMBAL, ILOILO) AND THE REGIONAL
TRIAL COURT, BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE FACTS AND EVIDENCE OR CONTRARY TO LAW AND
THAT THE TWO COURTS A QUO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION OR HAVE ACTED WITHOUT OR IN EXCESS OF JURISDICTION.

II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF APPEALS IS CONTRARY TO LAW, ESTABLISHED
JURISPRUDENCE, EQUITY AND DUE PROCESS.

The second issue has been resolved in our Resolution dated 10 August 1990, when we granted petitioner's second motion for reconsideration.
We shall now proceed to the first issue.

We find merit in the petition.

It is undisputed that petitioner received a cash advance from private respondent SEAFDEC to defray his travel expenses under T.O. 2222. It is
likewise admitted that within the period covered by T.O. 2222, petitioner was recalled to the head station in Iloilo and given another assignment
which was covered by T.O. 2268. The dispute arose when petitioner allegedly failed to return P1,230.00 out of the cash advance which he
received under T.O. 2222. For the alleged failure of petitioner to return the amount of P1,230.00, he was charged with the crime of Estafa under
Article 315, par. 1(b) of the Revised Penal Code, which reads as follows:

Art. 315. Swindling (Estafa). Any person who shall defraud another by any of the means mentioned herein below shall be punished by:

xxx xxx xxx

1. With unfaithfulness or abuse of confidence, namely:

(a) x x x xxx xxx

(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by
the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery
of; or to return, the same, even though such obligation be fatally or partially guaranteed by a bond; or by denying having
received such money, goods, or other property.

In order that a person can be convicted under the abovequoted provision, it must be proven that he had the obligation to deliver or return the
same money, good or personal property that he had received. 11

Was petitioner under obligation to return the same money (cash advance) which he had received? We belive not. Executive Order No. 10, dated
12 February 1980 provides as follows:
 B. Cash Advance for Travel

xxx xxx xxx

4. All cash advances must be liquidated within 30 days after date of projected return of the person. Otherwise, corresponding salary
deduction shall be made immediately following the expiration day.

Liquidation simply means the settling of an indebtedness. An employee, such as herein petitioner, who liquidates a cash advance is in fact
paying back his debt in the form of a loan of money advanced to him by his employer, as per diems and allowances. Similarly, as stated in the
assailed decision of the lower court, "if the amount of the cash advance he received is less than the amount he spent for actual travel . . . he has
the right to demand reimbursement from his employer the amount he spent coming from his personal funds. 12 In other words, the money
advanced by either party is actually a loan to the other. Hence, petitioner was under no legal obligation to return the same cash or money, i.e.,
the bills or coins, which he received from the private respondent. 13

Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the
same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

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

The ruling of the trial judge that ownership of the cash advanced to the petitioner by private respondent was not transferred to the latter is
erroneous. Ownership of the money was transferred to the petitioner. Even the prosecution witness, Virgilio Hierro, testified thus:

Q When you gave cash advance to the accused in this Travel Order No. 2222 subject to liquidation, who owns the funds, accused or
SEAFDEC? How do you consider the funds in the possession of the accused at the time when there is an actual transfer of cash? . . .

A The one drawing cash advance already owns the money but subject to liquidation. If he will not liquidate, be is obliged to return the
amount.

Qxxx xxx xxx

So why do you treat the itinerary of travel temporary when in fact as of that time the accused owned already the cash advance. You
said the cash advance given to the accused is his own money. In other words, at the time you departed with the money it belongs
already to the accused?

A Yes, but subject for liquidation. He will be only entitled for that credence if he liquidates.

Q If other words, it is a transfer of ownership subject to a suspensive condition that he liquidates the amount of cash advance upon
return to station and completion of the travel?

A Yes, sir.

(pp. 26-28, tsn, May 8, 1985). 14

Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary relationship was created. Absent this fiduciary
relationship between petitioner and private respondent, which is an essential element of the crime of estafa by misappropriation or conversion,
petitioner could not have committed estafa. 15

Additionally, it has been the policy of private respondent that all cash advances not liquidated are to be deducted correspondingly from the salary
of the employee concerned. The evidence shows that the corresponding salary deduction was made in the case of petitioner vis-a-vis the cash
advance in question.

WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court in Guimbal, Iloilo in Criminal Case No. 628, finding
petitioner guilty of estafa under Article 315, par. 1 (b) of the Revised Penal Code and the affirming decision of the Regional Trial Court, Branch
XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated on 30 July 1987 are both hereby SET ASIDE. Petitioner is ACQUITTED of criminal
charge filed against him.

SO ORDERED.

Melencio-Herrera, Paras, Sarmiento and Regalado JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

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.

MAKASIAR, CJ.:

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;

xxx xxx xxx

(p. 46, rec.).

On June 14, 1968, the Monetary Board, after finding thatIsland 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 PI 7 000.00 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.).

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 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. Afzelius and Afzelius, 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)

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 evaluation 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 reIy 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.

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 PI 7,000.00 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 P 17,000.00 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]). lt 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 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).

Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,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 UNEN FORCEABLE 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.

Saura Import vs DBP Credit Digest
Saura Import & Export Co., Inc.
-vs-
DBP
GR No. L-24968, 27 April 972
44 SCRA 445

FACTS
Saura applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan to be used for construction
of factory building, for payment of the balance of the purchase price of the jute machinery and equipment and as additional working capital. In
Resolution No.145, the loan application was approved to be secured first by mortgage on the factory buildings, the land site, and machinery and
equipment to be installed.

The mortgage was registered and documents for the promissory note were executed. The cancellation of the mortgage was requested to make
way for the registration of a mortgage contract over the same property in favor of Prudential Bank and Trust Co., the latter having issued Saura
letter of credit for the release of the jute machinery. As security, Saura execute a trust receipt in favor of the Prudential. For failure of Saura to
pay said obligation, Prudential sued Saura.

After 9 years after the mortgage was cancelled, Saura sued RFc alleging failure to comply with tits obligations to release the loan proceeds,
thereby prevented it from paying the obligation to Prudential Bank.

The trial court ruled in favor of Saura, ruling that there was a perfected contract between the parties ad that the RFC was guilty of breach
thereof.

ISSUE
Whether or not there was a perfected contract between the parties.

HELD
The Court held in the affirmative. Article 1934 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 delivery of the object of the contract.

There was undoubtedly offer and acceptance in the case. When an application for a loan of money was approved by resolution of the
respondent corporation and the responding mortgage was executed and registered, there arises a perfected consensual contract.
 SECOND DIVISION

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

BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.

DECISION
QUISUMBING, J.:

This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals and its resolution dated April 21, 1998, in
CA-G.R. CV No. 38887. The appellate court affirmed the judgment of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No.
11831, for foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against private respondents ALS Management
and Development Corporation and Antonio K. Litonjua, [1] consolidated with (b) Civil Case No. 52093, for damages with prayer for the issuance of
a writ of preliminary injunction by the private respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of their monthly amortization, hence, the extrajudicial
foreclosure conducted by BPIIC was premature and made in bad faith. It awarded private respondents the amount of P300,000 for moral
damages, P50,000 for exemplary damages, and P50,000 for attorneys fees and expenses for litigation. It likewise dismissed the foreclosure suit
for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation (AIDC), the
predecessor of petitioner BPIIC, for the construction of a house on his lot in New Alabang Village, Muntinlupa.Said house and lot were
mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua
for P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roas indebtedness with AIDC. The latter, however, was not
willing to extend the old interest rate to private respondents and proposed to grant them a new loan of P500,000 to be applied to Roas debt and
secured by the same property, at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding principal balance
payable within ten years in equal monthly amortization of P9,996.58 and penalty interest at the rate of 21% per annum per day from the date the
amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing the above stipulations with the provision that
payment of the monthly amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum of P190,601.35. This reduced Roas principal
balance to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto the proceeds of private respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what was left of their loan after full payment of
Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the mortgage
indebtedness which from May 1, 1981 to June 30, 1984, amounted to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and
31/100 Pesos (P475,585.31). A notice of sheriffs sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among others, that they were not in
arrears in their payment, but in fact made an overpayment as of June 30, 1984. They maintained that they should not be made to pay
amortization before the actual release of the P500,000 loan in August and September 1982. Further, out of the P500,000 loan, only the total
amount of P464,351.77 was released to private respondents. Hence, applying the effects of legal compensation, the balance of P35,648.23
should be applied to the initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093, thus:

WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation and Antonio K. Litonjua and against
BPI Investment Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua was only in the principal sum of P464,351.77,
with interest at 20% plus service charge of 1% per annum, payable on equal monthly and successive amortizations at P9,283.83 for ten (10)
years or one hundred twenty (120) months. The amortization schedule attached as Annex A to the Deed of Mortgage is correspondingly
reformed as aforestated.

The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their publication in a newspaper of general
circulation as defaulting debtors, and therefore orders BPI to pay ALS and Litonjua the following sums:

a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

c) P50,000.00 as and for attorneys fees and expenses of litigation.

The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.

Costs against BPI.

SO ORDERED.[2]

Both parties appealed to the Court of Appeals. However, private respondents appeal was dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads:

WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.

SO ORDERED.[3]

In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of the object of the contract. The
contract of loan between BPIIC and ALS & Litonjua was perfected only on September 13, 1982, the date when BPIIC released the purported
balance of the P500,000 loan after deducting therefrom the value of Roas indebtedness. Thus, payment of the monthly amortization should
commence only a month after the said date, as can be inferred from the stipulations in the contract. This, despite the express agreement of the
parties that payment shall commence on May 1, 1981. From October 1982 to June 1984, the total amortization due was only P194,960.43.
Evidence showed that private respondents had an overpayment, because as of June 1984, they already paid a total amount
of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the publication in newspapers
concerning private respondents delinquency in the payment of their loan. This fact constituted sufficient ground for moral damages in favor of
private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition, where BPIIC submits for resolution the
following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE LIGHT OF THE RULE LAID DOWN
IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN
THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE LAID DOWN IN SOCIAL SECURITY
SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a simple loan is perfected upon the delivery of
the object of the contract, the loan contract in this case was perfected only on September 13, 1982.Petitioner claims that a contract of loan is a
consensual contract, and a loan contract is perfected at the time the contract of mortgage is executed conformably with our ruling in Bonnevie v.
Court of Appeals, 125 SCRA 122. In the present case, the loan contract was perfected on March 31, 1981, the date when the mortgage deed
was executed, hence, the amortization and interests on the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was released only on August 1982, the loan was actually released
on March 31, 1981, when BPIIC issued a cancellation of mortgage of Frank Roas loan. This finds support in the registration on March 31,
1981 of the Deed of Absolute Sale executed by Roa in favor of ALS, transferring the title of the property to ALS, and ALS executing the
Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of the loan should be attributed to private respondents. As
BPIIC only agreed to extend a P500,000 loan, private respondents were required to reduce Frank Roas loan below said amount. According to
petitioner, private respondents were only able to do so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code, [4] a simple loan is perfected upon the delivery of
the object of the contract, hence a real contract. In this case, even though the loan contract was signed on March 31, 1981, it was perfected only
on September 13, 1982, when the full loan was released to private respondents. They submit that petitioner misread Bonnevie. To give meaning
to Article 1934, according to private respondents, Bonnevie must be construed to mean that the contract to extend the loan was perfected
on March 31, 1981 but the contract of loan itself was only perfected upon the delivery of the full loan to private respondents on September 13,
1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was perfected on March 31, 1981, and their
payment did not start a month thereafter, still no default took place. According to private respondents, a perfected loan agreement imposes
reciprocal obligations, where the obligation or promise of each party is the consideration of the other party. In this case, the consideration for
BPIIC in entering into the loan contract is the promise of private respondents to pay the monthly amortization. For the latter, it is the promise of
BPIIC to deliver the money. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Therefore, private respondents conclude, they did not incur in delay when they did not
commence paying the monthly amortization on May 1, 1981, as it was only on September 13, 1982 when petitioner fully complied with its
obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of
the object of the contract.[5] Petitioner misapplied Bonnevie. The contract in Bonnevie declared by this Court as a perfected consensual contract
falls under the first clause of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner applied for a loan of P500,000 with
respondent bank. The latter approved the application through a board resolution. Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to petitioner, the loan was not released. Later, petitioner instituted an action for damages. We
recognized in this case, a perfected consensual contract which under normal circumstances could have made the bank liable for not releasing
the loan. However, since the fault was attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages. However, said contract does not constitute the
real contract of loan which requires the delivery of the object of the contract for its perfection and which gives rise to obligations only on the part
of the borrower.[6]
In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected only
on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties on the commencement of the monthly
amortization, as found by the Court of Appeals, private respondents obligation to pay commenced only on October 13, 1982, a month after the
perfection of the contract.[7]
We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein the obligation or promise of each
party is the consideration for that of the other.[8] As averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon
the consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after the supposed release
of the loan. It is a basic principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to comply
in a proper manner with what is incumbent upon him.[9] Only when a party has performed his part of the contract can he demand that the other
party also fulfills his own obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for the payment of the
monthly amortization after September 13, 1982 for it was only then when it complied with its obligation under the loan contract.Therefore, in
computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13,
1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual release of the loan and whether private
respondents were the cause of the delay in the release of the loan, are factual. Since petitioner has not shown that the instant case is one of the
exceptions to the basic rule that only questions of law can be raised in a petition for review under Rule 45 of the Rules of Court, [10] factual
matters need not tarry us now. On these points we are bound by the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and exemplary damages for it did not act maliciously when
it initiated the foreclosure proceedings. It merely exercised its right under the mortgage contract because private respondents were irregular in
their monthly amortization. It invoked our ruling in Social Security System vs. Court of Appeals, 120 SCRA 707, where we said:

Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of Appeals the negligence of the appellant is not
so gross as to warrant moral and temperate damages, except that, said Court reduced those damages by only P5,000.00 instead of eliminating
them. Neither can we agree with the findings of both the Trial Court and respondent Court that the SSS had acted maliciously or in bad faith. The
SSS was of the belief that it was acting in the legitimate exercise of its right under the mortgage contract in the face of irregular payments made
by private respondents and placed reliance on the automatic acceleration clause in the contract. The filing alone of the foreclosure application
should not be a ground for an award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral
damages.

Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages because it insisted on the payment of
amortization on the loan even before it was released. Further, it did not make the corresponding deduction in the monthly amortization to
conform to the actual amount of loan released, and it immediately initiated foreclosure proceedings when private respondents failed to make
timely payment.
 But as admitted by private respondents themselves, they were irregular in their payment of monthly amortization. Conformably with our
ruling in SSS, we can not properly declare BPIIC in bad faith. Consequently, we should rule out the award of moral and exemplary damages. [11]
However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without checking and
correspondingly adjusting its records on the amount actually released to private respondents and the date when it was released. Such
negligence resulted in damage to private respondents, for which an award of nominal damages should be given in recognition of their rights
which were violated by BPIIC.[12] For this purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private respondents were compelled to litigate, we sustain the award
of P50,000 in favor of private respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution dated April 21, 1998, are AFFIRMED
WITH MODIFICATION as to the award of damages. The award of moral and exemplary damages in favor of private respondents is DELETED,
but the award to them of attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

BPI Investment Corp. v. CA

on 8:30 AM in Case Digests, Commercial Law

0

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

o credit transactions: Loan (Mutuum): A loan contract is not a consensual contract but a real contract. It is perfected upon delivery of the object of
the contract.
o obligations and contracts: Reciprocal Obligations: 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.

FACTS:

Frank Roa obtained a loan at 16 1/4% interest rate per annum from Ayala Investment and Development Corporation. For security, Roa's house
and lot were mortgaged. Later, Roa sold the house and lot to ALS and Antonio Litonjua, who assumed Roa's debt to Ayala Investment. Ayala
Investment, however, granted a new loan to be applied to Roa's debt, secured by the same property at a different interest rate of 20% per
annum.

When ALS and Litonjua failed to pay, BPIIC, successor to Ayala Investment, filed for foreclosure of mortgage.

ISSUE:

o W/N a contract of loan is a consensual contract

HELD:

A loan contract is not a consensual contract but a real contract. It is perfected upon delivery of the object of the contract. Although a perfected
consensual contract can give rise to an action for damages, it does not constitute a real contract which requires delivery for perfection. A
perfected real contract gives rise only to obligations on the part of the borrower.

In the present case, the loan contract was only perfected on the date of the second release of the loan.

A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other. 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.

DECISION:

The payment of amortization should accrue from the time BPIIC released the loan amount to ALS and Litonjua because it was only at that time
(the delivery of the amount -- the object of the contract) that the loan contract was perfected.