It was established that the two bulls were
PEOPLE vs. CONCEPCION, 44 Phil. 126 returned, thus, there is no more obligation on the
FACTS: Venancio Concepcion, President of the
Philippine National Bank and a member of the
Board thereof, authorized an extension of credit in
favor of "Puno y Concepcion, S. en C.” to the
manager of the Aparri branch of the Philippine
National Bank. "Puno y Concepcion, S. en C." was
a co-partnership where Concepcion is a partner.
Subsequently, Concepcion was charged and found
guilty in the Court of First Instance of Cagayan
with violation of section 35 of Act No. 2747. Section
35 of Act No. 2747 provides that the National Bank
shall not, directly or indirectly, grant loans to any
of the members of the board of directors of the
bank nor to agents of the branch banks. Counsel
for the defense argue that the documents of record
do not prove that authority to make a loan was
given, but only show the concession of a credit.
They averred that the granting of a credit to the co-
partnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine
National Bank, is not a "loan" within the meaning
of section 35 of Act No. 2747.
ISSUE: Whether or not the granting of a credit of
P300,000 to the co-partnership "Puno y
Concepcion, S. en C." by Venancio Concepcion,
President of the Philippine National Bank, a "loan"
within the meaning of section 35 of Act No. 2747.
HELD: The Supreme Court ruled in the affirmative.
The "credit" of an individual means his ability to
borrow money by virtue of the confidence or trust
reposed by a lender that he will pay what he may
promise. A "loan" means the delivery by one party
and the receipt by the other party of a given sum of
money, upon an agreement, express or implied, to
repay the sum loaned, with or without interest. The
concession of a "credit" necessarily involves the
granting of "loans" up to the limit of the amount
fixed in the "credit,"
REPUBLIC v. BAGTAS, 116 SCRA 262
FACTS: On May 8, 1948, Jose Bagtas borrowed
from the Bureau of Animal Industry three bulls for
one year for breeding purposes upon payment of a
breeding fee of 10% of the book value of the bulls.
After one year, the contract was renewed but only
for one bull. Bagtas offered to buy the bulls at book
value less depreciation, but the Bureau told him
that he should either return the bulls or pay for
their book value. Bagtas failed to pay the book
value, so the Republic filed an action with the CFI
Manila to order the return of the bulls or the
payment of the book value. Felicidad Bagtas, the
surviving spouse and administratrix of the
decedent’s estate, said that the two bulls have
already been returned in 1952, and that the
remaining one died of gunshot during a Huk raid.
part of Bagtas. With regards the bull not returned,
Felicidad maintained that the obligation is
extinguished since the contract is that of a
commodatum and that the loss through fortuitous
event should be borne by the owner.
ISSUE: Whether or not the contract entered into
between Bagtas and the Republic is that of
commodatum making Bagtas not liable for the
death of the bull.
HELD: A contract of commodatum is essentially
gratuitous. If the breeding fee be considered
compensation, then the contract would be a lease
of the bull. Under article 1671 of the Civil Code the
lessee would be subject to the responsibilities of a
possessor in bad faith because she had continued
possession of the bull after the expiry of the
contract. Even if the contract be commodatum,
still Bagtas is liable because article 1942 of the
Civil Code provides that a bailee in a contract
of commodatum is liable for loss of the things even
if it should be through a fortuitous event if he
keeps it longer than the period stipulated or if the
thing loaned has been delivered with appraisal of
its value, unless there is a stipulation exempting
the bailee from responsibility in case of a fortuitous
event. The loan of one bull was renewed for
another period of one year but Bagtas kept and
used the bull more than one year where during a
Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the
deceased husband of Bagtas, the bulls had each an
appraised book value. It was not stipulated that in
case of loss of the bull due to fortuitous event the
late husband of the appellant would be exempt
from liability.
CAROLYN M. GARCIA vs. RICA MARIE S. THIO,
GR. No. 154878, March 16, 2007
FACTS: Sometime in February 1995, respondent
Rica Marie S. Thio received from petitioner Carolyn
M. Garccia a crossed check in the amount of
$100,000.00 payable to the order of Marilou
Santiago. Thereafter, Carolyn received from Rica
payments of the sum due. In June 1995, Rica
received another check in the amount of
P500,000.00 from Carolyn and payable to the
order of Marilou. Payments were made by Rica
representing interests. There was failure to pay the
principal amount hence a complaint for sum of
money with damages was filed by Carolyn. Rica
contended that she had no obligation to petitioner
as it was Marilou who was indebted as she was
merely asked to deliver the checks to the latter and
that the check payments she issued were merely
intended to accommodate Marilou. The RTC ruled
in favor of Carolyn but the CA reversed on the
ground that there was no contract between Rica
and Carolyn as there is nothing in the record that
shows that respondent received money from
petitioner and that the checks received by
respondent, being crossed, may not be encashed
but only deposited in the bank by the payee
thereof, that is, by Marilou Santiago herself.
ISSUE: Whether or not there was a contract of loan
between petitioner and respondent.
HELD: There Court ruled in the affirmative. A loan
is a real contract, not consensual, and as such is
perfected only upon the delivery of the object of the
contract. Art. 1934 of the Civil Code provides that
“an accepted promise to deliver something by way
of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself
shall not be perfected until the delivery of the
object of the contract.” Upon delivery of the object
of the contract of loan (in this case the money
received by the debtor when the checks were
encashed the debtor acquires ownership of such
money or loan proceeds and is bound to pay the
creditor an equal amount. It is undisputed that the
checks were delivered to respondent. However,
these checks were crossed and payable not to the
order of respondent but to the order of a certain
Marilou Santiago. The Supreme Court agrees with
petitioner that delivery is the act by which
the res or substance thereof is placed within the
actual or constructive possession or control of
another. Although respondent did not physically
receive the proceeds of the checks, these
instruments were placed in her control and
possession under an arrangement whereby she
actually re-lent the amounts to Santiago. Hence,
Rica is the debtor and not Marilou.
Pantaleon vs American Express
Facts:
1. The petitioner (Pantaleon) and his family,
joined an escorted tour of Western Europe.
2. In Coster Diamond House, Amsterdam,
Mrs. Pantaleon (wife) was about to bought a
2.5 karat diamond brilliant cut, a pendant
and a chain, all of which totaled U.S.
$13,826.00.
3. To pay these purchases, around 9:15am,
Pantaleon presented his American Express
Credit Card together with his passport.
4. By 9:40am, Pantaleon was already worried
about further inconveniencing the tour
group, he asked the store clerk to cancel
the sale. the store manager though asked
him to wait a few more minutes.
5. Around 10:00am (around 45 minutes after
Pantaleon had presented his AmexCard),
Coster decided to release the items even
without American Express International,
Inc.’s (herein respondent, Amex for brevity)
approval of the purchase. This was 30
minutes after the tour group was supposed
to have left the store.
6. The spouses Pantelon returned. Their offers
of apology were met by their tourmates with
stony silence. The tour group’s visible
irritation was aggravated when the tour
guide announced that the city tour of
Amsterdam was to be canceled due to lack
of remaing time. Mrs. Pantaleon ended up
weeping.
7. After the star-crossed tour had ended, the
Pantaleon family proceeded to the United
States before returning to Manila. While in
the United States, Pantaleon continued to
use his AmEx card, several times without
hassle or delay, but with two other
incidents similar to the Amsterdam
brouhaha.
Issue/s:
1. Whether or not Amex was in default or
mora.
2. Whether Amex (Credit Card Company) is
in mora solvendi or in mora accipiendi.
Ruling:
1. Yes. The Court is convinced that Amex’s
delay constituted breach of its contractual
obligation to act on his use of the card
abroad “with special handling.:
Notwithstanding the popular notion that credit
card purchases are approved “WITHIN SECONDS,”
there really is no strict, legally determinative point
of demarcation on how long must it take for a
credit car company to approve or disapprove a
customer’s purchase, much less one specifically
contracted upon by the parties. yet this is one of
those instances when “you’d know it what you’d
see it,” and one hour appears to be an awfully long,
patently unreasonable length of time to approve or
disapprove a credit card purchases. It is long
enough time for the customer to walk to a bank a
kilometer away, withdraw money over the counter,
and return to the store.
The Credit Authorization System (CAS) record on
the Amsterdam transaction shows how Amexco
Netherlands viewed the delay as unusually
frustrating. In sequence expressed in Phoenix time
from 01:20 when the charge purchased was
referred for authorization:
01:22 – the authorization is referred to manila
Amexco.
01:32 – Netherlands gives information that the
identification of the card member has been
presented and he is buying jewelries worth US
$13,826
01:33 – Netherlands asks “How long will this take?”
02:08 – Netherlands is still asking “How long will
this take?”
The Amex has a right to verify whether the credit
it is extending upon on a particular purchase was
indeed contracted by the cardholder, and that the
cardholder is within his means to make such
transaction. The culpable failure of respondent
herein is not the failure to timely approve
petitioner’s purchase, but the more elemental
failure to timely act on the same, whether favorably
or unfavorably. Even assuming the respondent’s
credit authorizers did not have sufficient basis on
hand to make a judgment, we see no reason why
Amex could not have promptly informed petitioner
the reason for the delay, and duly advised him that
resolving the same could take some time. In that
way, petitioner would have had informed basis on
whether or not to pursue the transaction at Coster,
given the attending circumstances. instead,
Pantaleon was left uncomfortably dangling in the
chilly autumn winds in a foreign land and soon
forced to confront the wrath of foreign folk.
The delay committed by Amex was clearly attended
by unjustified neglect and bad faith, since it alleges
to have consumed more than one hour to simply go
over Pantaleon’s pas credit history with Amex, his
payment record and his credit and bank
references, when all such data are already stored
and readily available from its computer. There is
nothing in Pantaleon’s billing history that would
warrant the imprudent suspension of action by
Amex in processing the purchase.
2. Amex is in mora solvendi. Generally, the
relationship between a credit card provided
and its card holder is that of creditor-
debtore, with the card company as a the
creditor extending loans and credit to the
card holder, who as debtor is obliged to
repay the creditor. The relationship already
takes exception to the general rule that as
between a bank and its depositors, the
bank is deemed as the debtor while the
depositor is considered as the creditor. In
the present case, we should shift
perspectives and again see the credit card
company as the debtor/obligor, insofar as it
has the obligation to the customer as
creditor/obligee to act promptly on its
purchases on credit.
If there was delay on the part of Amex in its normal
role as creditor to the cardholder, such delay would
not have been in acceptance of the performance of
the debtor’s obligation (i.e., the repayment of the
debt), but it would be delay in the extension of the
credit in the first place. Such delay would not fall
under mora accipiendi, which contemplates that
the obligation of the debtor, such as the actual
purchases on credit has already been instituted.
The establishment of the debt itself (purchases on
credit of the jewelry) had not yet been perfected, as
it remained pending the approval or consent of the
credit card company.
BPI INVESTMENT CORPORATION, petitioner, vs.
HON. COURT OF APPEALS and ALS
MANAGEMENT & DEVELOPMENT CORPORATION,
respondents.
FACTS:
Frank Roa obtained a loan at 16 1/4% per annum
from Ayala Investment and Development
Corporation for the construction of his house. To
secure the loan, the said house and lot were
mortgaged to AIDC. In 1980, Roa sold the house
and lot to ALS and Antonio Litonjua. AIDC,
however, refused to extend the old interest rate to
ALS and proposed to grant them an additional loan
at a rate of 20% per annum and service fee of 1%
per annum on the outstanding principal balance
and penalty interest at 21% per annum per day
from the date the amortization became due and
payable.
Consequently, in 1984, BPIIC instituted
foreclosure proceedings against ALS for failure of
payment of mortgage.
ISSUE:
Whether 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.
SAURA IMPORT and EXPERT CO., INC., vs DBP
[G.R. No. L-24968, April 27, 1972]
MAKALINTAL, J.
FACTS:
 In July 1952, Saura, Inc., applied to
Rehabilitation Finance Corp., now DBP, for
an industrial loan of P500,000 to be used
for the construction of a factory building, to
pay the balance of the jute mill 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. But then, later on, was cancelled
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 almost 9 years, Saura Inc,
commenced an action against RFC, alleging
failure on the latter to comply with its
obligations to release the loan applied for
and approved, thereby preventing the
plaintiff from completing or paying
contractual commitments it had entered
into, in connection with its jute mill project.
 The trial court ruled in favor of Saura,
ruling that there was a perfected contract
between the parties and that the RFC was
guilty of breach thereof.
ISSUE: Whether or not there was a perfected
contract between the parties. YES. There was
indeed a perfected consensual contract.
HELD:
·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. The application of Saura, Inc. for a loan
of P500,000.00 was approved by resolution of the
defendant, and the corresponding mortgage was
executed and registered. The defendant failed to
fulfill its obligation and the plaintiff is therefore
entitled to recover damages.
· 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.
· However, it should be noted that RFC imposed
two conditions (availability of raw materials and
increased production) when it restored the loan to
the original amount of P500,000.00.
· Saura, Inc. obviously was in no position to
comply with RFC’s conditions. So instead of doing
so and insisting that the loan be released as agreed
upon, Saura, Inc. asked that the mortgage be
cancelled.The action thus taken by both parties
was in the nature of mutual desistance which is
a mode of extinguishing obligations. It is a
concept that derives from the principle that
since mutual agreement can create a contract,
mutual disagreement by the parties can cause
its extinguishment.
·WHEREFORE, the judgment appealed from is
reversed and the complaint dismissed.
PRODUCERS BANK OF THE PHILIPPINES vs.
COURT OF APPEALS, GR No. 115324
FACTS: Sometime in 1979, private respondent
Franklin Vives, upon request of his friend Angeles
Sanchez and relying on the assurance that he
could withdraw his money within a month’s time,
issued a check in the amount of Two Hundred
Thousand Pesos in favor of Sterela Marketing and
Services owned by one Col. Arturo Doronilla.
Subsequently, private respondent and his wife
found out that Sterela can’t be found on the
address previously given to then, so they went to
petitioner Producer’s Bank of the Philippines to
verify if their money was still intact. They were
informed that part of the amount had been
withdrawn by Doronilla and that the latter
instructed the bank to debit from the savings
account the amount and deposit it in his current
account Private respondent filed an action for
recovery of sum of money against Doronilla,
Sanchez, Dumagpi and petitioner. The trial court
ruled in favour of herein private respondents. On
appeal of the case, the appellate court affirmed the
decision of the RTC. Petitioner contends that the
transaction between private respondent and
Doronilla is a simple loan (mutuum) since all the
elements of a mutuum are present: first, what was
delivered by private respondent to Doronilla was
money, a consumable thing; and second, the
transaction was onerous as Doronilla was obliged
to pay interest. Hence, petitioner argues that it
cannot be held liable because it is not privy to the
transaction between the latter and Doronilla.
Private respondent, on the other hand, argues that
the transaction between him and Doronilla is not a
mutuum but an accommodation, since he did not
actually part with the ownership of
his P200,000.00 but retained some degree of
control over his money through his wife who was
made a signatory to the savings account and in
whose possession the savings account passbook
was given.
ISSUE: Whether or not the contract between
Sanchez and Doronilla and Vives is a contract of
commodatum, thus making petitioner Bank liable.
HELD: Supreme Court held that the contract is
commodatum. Although in view of Article 1933 of
the Civil Code, the object in commodatum is non-
consumable, but Article 1936 of the Civil Code
provides “Consumable goods may be the subject of
commodatum if the purpose of the contract is not
the consumption of the object, as when it is merely
for exhibition.” Thus, if consumable goods are
loaned only for purposes of exhibition or when the
intention of the parties is to lend consumable
goods and to have the very same goods returned at
the end of the period agreed upon, the loan is
commodatum and not a mutuum. The evidence
shows that private respondent merely
"accommodated" Doronilla by lending his money
without consideration, as a favor to his good friend
Sanchez. It was however clear to the parties to the
transaction that the money would not be removed
from Sterela’s savings account and would be
returned to private respondent after thirty (30)
days.
Catholic Vicar Vs CA
Facts:
- 1962: Catholic Vicar Apostolic of the Mountain
Province (Vicar), petitioner, filed with the court an
application for the registration of title over lots 1,
2, 3 and 4 situated in Poblacion Central, Benguet,
said lots being used as sites of the Catholic
Church, building, convents, high school building,
school gymnasium, dormitories, social hall and
stonewalls.
- 1963: Heirs of Juan Valdez and Heirs of Egmidio
Octaviano claimed that they have ownership over
lots 1, 2 and 3. (2 separate civil cases)
- 1965: The land registration court confirmed the
registrable title of Vicar to lots 1 , 2, 3 and 4. Upon
appeal by the private respondents (heirs), the
decision of the lower court was reversed. Title for
lots 2 and 3 were cancelled.
- VICAR filed with the Supreme Court a petition for
review on certiorari of the decision of the Court of
Appeals dismissing his application for registration
of Lots 2 and 3.
- During trial, the Heirs of Octaviano presented one
(1) witness, who testified on the alleged ownership
of the land in question (Lot 3) by their predecessor-
in-interest, Egmidio Octaviano; his written demand
to Vicar for the return of the land to them; and the
reasonable rentals for the use of the land at
P10,000 per month. On the other hand, Vicar
presented the Register of Deeds for the Province of
Benguet, Atty. Sison, who testified that the land in
question is not covered by any title in the name of
Egmidio Octaviano or any of the heirs. Vicar
dispensed with the testimony of Mons. Brasseur
when the heirs admitted that the witness if called
to the witness stand, would testify that Vicar has
been in possession of Lot 3, for 75 years
continuously and peacefully and has constructed
permanent structures thereon.
Issue: WON Vicar had been in possession of lots 2
and 3 merely as bailee borrower in commodatum, a
gratuitous loan for use.
Held: YES.
Private respondents were able to prove that their
predecessors' house was borrowed by petitioner
Vicar after the church and the convent were
destroyed. They never asked for the return of the
house, but when they allowed its free use, they
became bailors in commodatum and the petitioner
the bailee.
The bailees' failure to return the subject matter of
commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee
held in trust the property subject matter of
commodatum. The adverse claim of petitioner
came only in 1951 when it declared the lots for
taxation purposes. The action of petitioner Vicar by
such adverse claim could not ripen into title by
way of ordinary acquisitive prescription because of
the absence of just title.
The Court of Appeals found that petitioner Vicar
did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2
and 3. Neither did it satisfy the requirement of 10
years possession for ordinary acquisitive
prescription because of the absence of just title.
The appellate court did not believe the findings of
the trial court that Lot 2 was acquired from Juan
Valdez by purchase and Lot 3 was acquired also by
purchase from Egmidio Octaviano by petitioner
Vicar because there was absolutely no
documentary evidence to support the same and the
alleged purchases were never mentioned in the
application for registration.
COLITO T. PAJUYO vs. COURT OF APPEALS,
GR. No. 146364, June 3, 2004
FACTS: In June 1979, petitioner Colito T. Pajuyo
purchased the rights over a property from Pedro
Perez. Thereafter, he constructed a house therein
and he and his family lived there. Later, Pajuyo
agreed to let private respondent Eddie Guevarra to
live in the house for free provided that the latter
maintain the cleanliness and orderliness of the
house. They also agreed that Guevarra should
leave the premises upon demand. Subsequently,
when Pajuyo told Guevarra that he needed the
house, Guevarra refused, hence an ejectment case
was filed. Guevarra claimed that Pajuyo had no
valid title or right of possession over the lot where
the house stands because the lot is within the 150
hectares set aside for socialized housing. The MTC
ruled that the subject of the agreement between
Pajuyo and Guevarra is the house and not the lot.
Pajuyo is the owner of the house, and he allowed
Guevarra to use the house only by tolerance. Thus,
Guevarra’s refusal to vacate the house on Pajuyo’s
demand made Guevarra’s continued possession of
the house illegal. Aggrieved, Guevarra appealed to
the Regional Trial Court which only affirmed the
MTC decision. At the CA, the latter reversed the
RTC decision. The Court of Appeals ruled that the
Kasunduan is not a lease contract but
a commodatum because the agreement is not for a
price certain. Since Pajuyo admitted that he
resurfaced only in 1994 to claim the property, the
appellate court held that Guevarra has a better
right over the property under Proclamation No.
137. At that time, Guevarra was in physical
possession of the property.
ISSUE: Whether or not the contract between
petitioner and private respondent is one of
commodatum.
HELD: The Supreme Court held that the contract
is not a commodatum. “In a contract of
commodatum, one of the parties delivers to
another something not consumable so that the
latter may use the same for a certain time and
return it. An essential feature of commodatum is
that it is gratuitous. Another feature is that the use
of the thing belonging to another is for a certain
period. Thus, the bailor cannot demand the return
of the thing loaned until after the expiration of the
period stipulated, or after accomplishment of the
use for which the commodatum is constituted. If
the bailor should have urgent need of the thing, he
may demand its return for temporary use. If the
use of the thing is merely tolerated by the bailor,
he can demand the return of the thing at will, in
which case the contractual relation is called a
precarium. The Kasunduan reveals that the
accommodation accorded by Pajuyo to Guevarra
was not essentially gratuitous. While
the Kasunduan did not require Guevarra to pay
rent, it obligated him to maintain the property in
good condition. The imposition of this obligation
makes the Kasunduan a contract different from
a commodatum. The effects of the Kasunduan are
also different from that of a commodatum.
REPUBLIC v. BAGTAS, 116 SCRA 262
FACTS: On May 8, 1948, Jose Bagtas borrowed
from the Bureau of Animal Industry three bulls for
one year for breeding purposes upon payment of a
breeding fee of 10% of the book value of the bulls.
After one year, the contract was renewed but only
for one bull. Bagtas offered to buy the bulls at book
value less depreciation, but the Bureau told him
that he should either return the bulls or pay for
their book value. Bagtas failed to pay the book
value, so the Republic filed an action with the CFI
Manila to order the return of the bulls or the
payment of the book value. Felicidad Bagtas, the
surviving spouse and administratrix of the
decedent’s estate, said that the two bulls have
already been returned in 1952, and that the
remaining one died of gunshot during a Huk raid.
It was established that the two bulls were
returned, thus, there is no more obligation on the
part of Bagtas. With regards the bull not returned,
Felicidad maintained that the obligation is
extinguished since the contract is that of a
commodatum and that the loss through fortuitous
event should be borne by the owner.
ISSUE: Whether or not the contract entered into
between Bagtas and the Republic is that of
commodatum making Bagtas not liable for the
death of the bull.
HELD: A contract of commodatum is essentially
gratuitous. If the breeding fee be considered
compensation, then the contract would be a lease
of the bull. Under article 1671 of the Civil Code the
lessee would be subject to the responsibilities of a
possessor in bad faith because she had continued
possession of the bull after the expiry of the
contract. Even if the contract be commodatum,
still Bagtas is liable because article 1942 of the
Civil Code provides that a bailee in a contract
of commodatum is liable for loss of the things even
if it should be through a fortuitous event if he
keeps it longer than the period stipulated or if the
thing loaned has been delivered with appraisal of
its value, unless there is a stipulation exempting
the bailee from responsibility in case of a fortuitous
event. The loan of one bull was renewed for
another period of one year but Bagtas kept and
used the bull more than one year where during a
Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the
deceased husband of Bagtas, the bulls had each an
appraised book value. It was not stipulated that in
case of loss of the bull due to fortuitous event the
late husband of the appellant would be exempt
from liability.
QUINTOS vs. BECK, 69 Phil 108
FACTS: Beck is a tenant of defendant Margarita
Quintos. As such, Beck occupied Quintos’ house.
Quintos granted Beck the use of the furniture
found on the leased house, among these were three
gas heaters and 4 electric lamps, subject to the
condition that the defendant would return them to
the plaintiff upon the latter's demand. Quintos sold
the pieces of furniture to Maria Lopez and Rosario
Lopez and thereafter notified Beck of the
conveyance. Beck informed Quintos that the latter
can get the furniture at the ground floor of the
house, however, at a later date, Beck told Quintos
that he will return only the other furniture but not
the gas heaters and the electric lamps as he is to
return them only after the expiration of the lease
contract. When the lease contract expires, Beck
deposited the furniture to the sheriff’s warehouse.
Quintos refused to get the furniture in view of the
fact that the defendant had declined to make
delivery of all of them. Consequently, Quintos
brought an action to compel Beck to return her
certain furniture which she lent him for his use.
The trial court ruled in favour of Beck holding that
Quintos failed to comply with her obligation to get
the furniture when they were offered to her. On
appeal of the case, the Court of First Instance of
Manila affirmed the lower court’s decision. Hence,
this petition.
ISSUE: Whether or not the trial court erred in
ruling that Quintos failed to comply with her
obligation to get the furniture when they were
offered to her.
HELD: The contract entered into between the
parties is one of commadatum. Under it the
plaintiff gratuitously granted the use of the
furniture to the defendant, reserving for herself the
ownership thereof. By this contract the defendant
bound himself to return the furniture to the
plaintiff, upon the latter’s demand. The obligation
voluntarily assumed by the defendant to return the
furniture upon the plaintiff's demand, means that
he should return all of them to the plaintiff at the
latter's residence or house. The defendant did not
comply with this obligation when he merely placed
them at the disposal of the plaintiff, retaining for
his benefit the three gas heaters and the four
electric lamps. The trial court, therefore, erred
when it came to the legal conclusion that the
plaintiff failed to comply with her obligation to get
the furniture when they were offered to her.
People v Puig & Porras
Facts
A case of Qualified Theft was filed against the
respondents. This was filed by the Iloilo provincial
prosecutor, for the private complainant, Rural
Bank of Potoan. It was alleged in the complaint
that Puig was the cashier & Porras was the
Bookkeeper in the said bank, and that they took
away money amounting to 15k without the consent
of the bank owner, to the prejudice of the bank.
However, the RTC dismissed the complaint for
insufficiency of the information ruling that the real
parties in interest are the depositors-clients and
not the bank because the bank does not acquire
ownership of the money deposited in it. It also
denied the MR.
Issue: WON the bank was the owner and thus, the
real party in interest?
Held & Rationale
Yes. Under Art 1980 of the CC, "fixed, savings, and
current deposits of money in banks shall be
governed by the provisions concerning simple
loans." And, Art 1953 provides that "a person who
receives a loan of money 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.
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.
BPI vs Franco
Banks are exhorted to treat the accounts of their
depositors with meticulous care and utmost
fidelity. We reiterate this exhortation in the case at
bench.
Before us is a Petition for Review
on Certiorari seeking the reversal of the Court of
Appeals (CA) Decision[1] in CA-G.R. CV No. 43424
which affirmed with modification the judgment [2] of
the Regional Trial Court, Branch
55, Manila (Manila RTC), in Civil Case No. 90-
53295.
This case has its genesis in an ostensible fraud
perpetrated on the petitioner BPI Family Bank
(BPI-FB) allegedly by respondent Amado Franco
(Franco) in conspiracy with other
individuals,[3] some of whom opened and
maintained separate accounts with BPI-FB, San
Francisco del Monte (SFDM) branch, in a series of
transactions.
On August 15, 1989, Tevesteco Arrastre-
Stevedoring Co., Inc. (Tevesteco) opened a savings
and current account with BPI-FB. Soon thereafter,
or on August 25, 1989, First Metro Investment
Corporation (FMIC) also opened a time deposit
account with the same branch of BPI-FB with a
deposit of P100,000,000.00, to mature one year
thence.
Subsequently, on August 31, 1989, Franco opened
three accounts, namely, a current,[4] savings,[5] and
time deposit,[6] with BPI-FB. The current and
savings accounts were respectively funded with an
initial deposit of P500,000.00 each, while the time
deposit account had P1,000,000.00 with a
maturity date of August 31, 1990. The total
amount of P2,000,000.00 used to open these
accounts is traceable to a check issued by
Tevesteco allegedly in consideration of Francos
introduction of Eladio Teves,[7] who was looking for
a conduit bank to facilitate Tevestecos business
transactions, to Jaime Sebastian, who was then
BPI-FB SFDMs Branch Manager. In turn, the
funding for the P2,000,000.00 check was part of
the P80,000,000.00 debited by BPI-FB from FMICs
time deposit account and credited to Tevestecos
current account pursuant to an Authority to Debit
purportedly signed by FMICs officers.
It appears, however, that the signatures of FMICs
officers on the Authority to Debit were
forged.[8] On September 4, 1989, Antonio
Ong,[9] upon being shown the Authority to Debit,
personally declared his signature therein to be a
forgery. Unfortunately, Tevesteco had already
effected several withdrawals from its current
account (to which had been credited
the P80,000,000.00 covered by the forged
Authority to Debit) amounting to P37,455,410.54,
including the P2,000,000.00 paid to Franco.
On September 8, 1989, impelled by the
need to protect its interests in light of FMICs
forgery claim, BPI-FB, thru its Senior Vice-
President, Severino Coronacion, instructed Jesus
Arangorin[10] to debit Francos savings and current
accounts for the amounts remaining
therein.[11] However, Francos time deposit account
could not be debited due to the capacity limitations
of BPI-FBs computer.[12]
In the meantime, two checks[13] drawn by Franco
against his BPI-FB current account were
dishonored upon presentment for payment, and
stamped with a notation account under
garnishment. Apparently, Francos current account
was garnished by virtue of an Order of Attachment
issued by the Regional Trial Court of Makati
(Makati RTC) in Civil Case No. 89-4996 (Makati
Case), which had been filed by BPI-FB against
Franco et al.,[14] to recover the P37,455,410.54
representing Tevestecos total withdrawals from its
account.
Notably, the dishonored checks were issued
by Franco and presented for payment at BPI-FB
prior to Francos receipt of notice that his accounts
were under garnishment.[15] In fact, at the time the
Notice of Garnishment dated September 27,
1989 was served on BPI-FB, Franco had yet to be
impleaded in the Makati case where the writ of
attachment was issued.
It was only on May 15, 1990, through the service of
a copy of the Second Amended Complaint in Civil
Case No. 89-4996, that Franco was impleaded in
the Makati case.[16]Immediately, upon receipt of
such copy, Franco filed a Motion to Discharge
Attachment which the Makati RTC granted on May
16, 1990. The Order Lifting the Order of
Attachment was served on BPI-FB on even date,
with Franco demanding the release to him of the
funds in his savings and current accounts. Jesus
Arangorin, BPI-FBs new manager, could not
forthwith comply with the demand as the funds, as
previously stated, had already been debited
because of FMICs forgery claim. As such, BPI-FBs
computer at the SFDM Branch indicated that the
current account record was not on file.
With respect to Francos savings account, it
appears that Franco agreed to an arrangement, as
a favor to Sebastian, whereby P400,000.00 from
his savings account was temporarily transferred to
Domingo Quiaoits savings account, subject to its
immediate return upon issuance of a certificate of
deposit which Quiaoit needed in connection with
his visa application at the Taiwan Embassy. As
part of the arrangement, Sebastian retained
custody of Quiaoits savings account passbook to
ensure that no withdrawal would be effected
therefrom, and to preserve Francos deposits.
On May 17, 1990, Franco pre-terminated his time
deposit account. BPI-FB deducted the amount
of P63,189.00 from the remaining balance of the
time deposit account representing advance interest
paid to him.
These transactions spawned a number of cases,
some of which we had already resolved.
FMIC filed a complaint against BPI-FB for the
recovery of the amount of P80,000,000.00 debited
from its account.[17] The case eventually reached
this Court, and in BPI Family Savings Bank, Inc. v.
First Metro Investment Corporation,[18] we upheld
the finding of the courts below that BPI-FB failed to
exercise the degree of diligence required by the
nature of its obligation to treat the accounts of its
depositors with meticulous care. Thus, BPI-FB was
found liable to FMIC for the debited amount in its
time deposit. It was ordered to pay P65,332,321.99
plus interest at 17% per annum from August 29,
1989 until fully restored. In turn, the 17% shall
itself earn interest at 12% from October 4,
1989 until fully paid.
In a related case, Edgardo Buenaventura,
Myrna Lizardo and Yolanda Tica (Buenaventura, et
al.),[19] recipients of a P500,000.00 check
proceeding from the P80,000,000.00 mistakenly
credited to Tevesteco, likewise filed suit.
Buenaventura et al., as in the case of Franco, were
also prevented from effecting withdrawals[20] from
their current account with BPI-FB, Bonifacio
Market, Edsa, Caloocan City Branch. Likewise,
when the case was elevated to this Court docketed
as BPI Family Bank v. Buenaventura,[21] we ruled
that BPI-FB had no right to freeze
Buenaventura, et al.s accounts and adjudged BPI-
FB liable therefor, in addition to damages.
Meanwhile, BPI-FB filed separate civil and criminal
cases against those believed to be the perpetrators
of the multi-million peso scam.[22] In the criminal
case, Franco, along with the other accused, except
for Manuel Bienvenida who was still at large, were
acquitted of the crime of Estafa as defined and
penalized under Article 351, par. 2(a) of the
Revised Penal Code.[23] However, the civil
case [24] remains under litigation and the respective
rights and liabilities of the parties have yet to be
adjudicated.
Consequently, in light of BPI-FBs refusal to heed
Francos demands to unfreeze his accounts and
release his deposits therein, the latter filed on June
4, 1990 with the Manila RTC the subject suit. In
his complaint, Franco prayed for the following
reliefs: (1) the interest on the remaining
balance[25] of his current account which was
eventually released to him on October 31, 1991; (2)
the balance[26] on his savings account, plus interest
thereon; (3) the advance interest[27] paid to him
which had been deducted when he pre-terminated
his time deposit account; and (4) the payment of
actual, moral and exemplary damages, as well as
attorneys fees.
BPI-FB traversed this complaint, insisting that it
was correct in freezing the accounts of Franco and
refusing to release his deposits, claiming that it
had a better right to the amounts which consisted
of part of the money allegedly fraudulently
withdrawn from it by Tevesteco and ending up in
Francos accounts. BPI-FB asseverated that the
claimed consideration of P2,000,000.00 for the
introduction facilitated by Franco between George
Daantos and Eladio Teves, on the one hand, and
Jaime Sebastian, on the other, spoke volumes of damages) and increasing the award
Francos participation in the fraudulent of attorneys fees from P30,000.00
transaction. to P75,000.00.

On August 4, 1993, the Manila RTC rendered Cost against [BPI-FB].

judgment, the dispositive portion of which reads as
follows: SO ORDERED.[29]

WHEREFORE, in view of all the

foregoing, judgment is hereby In this recourse, BPI-FB ascribes error to the CA
rendered in favor of [Franco] and when it ruled that: (1) Franco had a better right to
against [BPI-FB], ordering the latter the deposits in the subject accounts which are part
to pay to the former the following of the proceeds of a forged Authority to Debit; (2)
sums: Franco is entitled to interest on his current
account; (3) Franco can recover the P400,000.00
1. P76,500.00 representing the legal deposit in Quiaoits savings account; (4) the
rate of interest on the amount dishonor of Francos checks was not legally in
of P450,000.00 from May 18, order; (5) BPI-FB is liable for interest on Francos
1990 to October 31, 1991; time deposit, and for moral and exemplary
damages; and (6) BPI-FBs counter-claim has no
2. P498,973.23 representing the factual and legal anchor.
balance on [Francos] savings
account as of May 18, 1990, The petition is partly meritorious.
together with the interest thereon in
accordance with the banks We are in full accord with the common ruling of
guidelines on the payment therefor; the lower courts that BPI-FB cannot unilaterally
freeze Francos accounts and preclude him from
3. P30,000.00 by way of attorneys withdrawing his deposits. However, contrary to the
fees; and appellate courts ruling, we hold that Franco is not
entitled to unearned interest on the time deposit as
4. P10,000.00 as nominal damages. well as to moral and exemplary damages.

The counterclaim of the defendant is First. On the issue of who has a better right to the
DISMISSED for lack of factual and deposits in Francos accounts, BPI-FB urges us
legal anchor. that the legal consequence of FMICs forgery claim
is that the money transferred by BPI-FB to
Costs against [BPI-FB]. Tevesteco is its own, and considering that it was
able to recover possession of the same when the
SO ORDERED.[28] money was redeposited by Franco, it had the right
to set up its ownership thereon and freeze Francos
accounts.
Unsatisfied with the decision, both parties filed
their respective appeals before the CA. Franco BPI-FB contends that its position is not unlike that
confined his appeal to the Manila RTCs denial of of an owner of personal property who regains
his claim for moral and exemplary damages, and possession after it is stolen, and to illustrate this
the diminutive award of attorneys fees. In affirming point, BPI-FB gives the following example: where
with modification the lower courts decision, the Xs television set is stolen by Y who thereafter sells
appellate court decreed, to wit: it to Z, and where Z unwittingly entrusts
possession of the TV set to X, the latter would have
WHEREFORE, foregoing considered, the right to keep possession of the property and
the appealed decision is hereby preclude Z from recovering possession thereof. To
AFFIRMED with modification bolster its position, BPI-FB cites Article 559 of the
ordering [BPI-FB] to pay Civil Code, which provides:
[Franco] P63,189.00 representing
the interest deducted from the time Article 559. The possession of
deposit of plaintiff- movable property acquired in good
appellant. P200,000.00 as moral faith is equivalent to a title.
damages and P100,000.00 as Nevertheless, one who has lost any
exemplary damages, deleting the movable or has been unlawfully
award of nominal damages (in view deprived thereof, may recover it from
of the award of moral and exemplary
 the person in possession of the
same.
If the possessor of a movable lost or
of which the owner has been
unlawfully deprived, has acquired it
in good faith at a public sale, the
owner cannot obtain its return
without reimbursing the price paid
therefor.
BPI-FBs argument is unsound. To begin with, the
movable property mentioned in Article 559 of the
Civil Code pertains to a specific or determinate
thing.[30] A determinate or specific thing is one that
is individualized and can be identified or
distinguished from others of the same kind.[31]
In this case, the deposit in Francos
accounts consists of money which, albeit
characterized as a movable, is generic and
fungible.[32] The quality of being fungible depends
upon the possibility of the property, because of its
nature or the will of the parties, being substituted
by others of the same kind, not having a distinct
individuality.[33]
Significantly, while Article 559 permits an
owner who has lost or has been unlawfully
deprived of a movable to recover the exact same
thing from the current possessor, BPI-FB simply
claims ownership of the equivalent amount of
money, i.e., the value thereof, which it had
mistakenly debited from FMICs account and
credited to Tevestecos, and subsequently traced to
Francos account. In fact, this is what BPI-FB did in
filing the Makati Case against Franco, et al. It
staked its claim on the money itself which passed
from one account to another, commencing with the
forged Authority to Debit.
It bears emphasizing that money bears no
earmarks of peculiar ownership,[34] and this
characteristic is all the more manifest in the
instant case which involves money in a banking
transaction gone awry. Its primary function is to
pass from hand to hand as a medium of exchange,
without other evidence of its title.[35] Money, which
had passed through various transactions in the
general course of banking business, even if of
traceable origin, is no exception.
Thus, inasmuch as what is involved is not a
specific or determinate personal property, BPI-FBs
illustrative example, ostensibly based on Article
559, is inapplicable to the instant case.
There is no doubt that BPI-FB owns the
deposited monies in the accounts of Franco, but
not as a legal consequence of its unauthorized
transfer of FMICs deposits to Tevestecos account.
BPI-FB conveniently forgets that the deposit of
money in banks is governed by the Civil Code
provisions on simple loan or mutuum.[36] As there
is a debtor-creditor relationship between a bank
and its depositor, BPI-FB ultimately acquired
ownership of Francos deposits, but such
ownership is coupled with a corresponding
obligation to pay him an equal amount on
demand.[37] Although BPI-FB owns the deposits in
Francos accounts, it cannot prevent him from
demanding payment of BPI-FBs obligation by
drawing checks against his current account, or
asking for the release of the funds in his savings
account. Thus, when Franco issued checks drawn
against his current account, he had every right as
creditor to expect that those checks would be
honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a
unilateral right to freeze the accounts of Franco
based on its mere suspicion that the funds therein
were proceeds of the multi-million peso scam
Franco was allegedly involved in. To grant BPI-FB,
or any bank for that matter, the right to take
whatever action it pleases on deposits which it
supposes are derived from shady transactions,
would open the floodgates of public distrust in the
banking industry.
Our pronouncement in Simex International
(Manila), Inc. v. Court of Appeals[38] continues to
resonate, thus:
The banking system is an
indispensable institution in the
modern world and plays a vital role
in the economic life of every civilized
nation. Whether as mere passive
entities for the safekeeping and
saving of money or as active
instruments of business and
commerce, banks have become an
ubiquitous presence among the
people, who have come to regard
them with respect and even
gratitude and, most of all,
confidence. Thus, even the humble
wage-earner has not hesitated to
entrust his lifes savings to the bank
of his choice, knowing that they will
be safe in its custody and will even
earn some interest for him. The
ordinary person, with equal faith,
usually maintains a modest
checking account for security and
convenience in the settling of his
monthly bills and the payment of
ordinary expenses. x x x.
 In every case, the depositor expects
the bank to treat his account with
the utmost fidelity, whether such
account consists only of a few
hundred pesos or of millions. The
bank must record every single
transaction accurately, down to the
last centavo, and as promptly as
possible. This has to be done if the
account is to reflect at any given
time the amount of money the
depositor can dispose of as he sees
fit, confident that the bank will
deliver it as and to whomever
directs. A blunder on the part of the
bank, such as the dishonor of the
check without good reason, can
cause the depositor not a little
embarrassment if not also financial
loss and perhaps even civil and
criminal litigation.
The point is that as a business
affected with public interest and
because of the nature of its
functions, the bank is under
obligation to treat the accounts of its
depositors with meticulous care,
always having in mind the fiduciary
nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary
relationship, is duty bound to know the signatures
of its customers. Having failed to detect the forgery
in the Authority to Debit and in the process
inadvertently facilitate the FMIC-Tevesteco
transfer, BPI-FB cannot now shift liability thereon
to Franco and the other payees of checks issued by
Tevesteco, or prevent withdrawals from their
respective accounts without the appropriate court
writ or a favorable final judgment.
Further, it boggles the mind why BPI-FB,
even without delving into the authenticity of the
signature in the Authority to Debit, effected the
transfer of P80,000,000.00 from FMICs to
Tevestecos account, when FMICs account was a
time deposit and it had already paid advance
interest to FMIC. Considering that there is as yet
no indubitable evidence establishing Francos
participation in the forgery, he remains an
innocent party. As between him and BPI-FB, the
latter, which made possible the present
predicament, must bear the resulting loss or
inconvenience.
Second. With respect to its liability for
interest on Francos current account, BPI-FB
argues that its non-compliance with the Makati
RTCs Order Lifting the Order of Attachment and
the legal consequences thereof, is a matter that
ought to be taken up in that court.
The argument is tenuous. We agree with
the succinct holding of the appellate court in this
respect. The Manila RTCs order to pay interests on
Francos current account arose from BPI-FBs
unjustified refusal to comply with its obligation to
pay Franco pursuant to their contract of mutuum.
In other words, from the time BPI-FB refused
Francos demand for the release of the deposits in
his current account, specifically, from May 17,
1990, interest at the rate of 12% began to accrue
thereon.[39]
Undeniably, the Makati RTC is vested with
the authority to determine the legal consequences
of BPI-FBs non-compliance with the Order Lifting
the Order of Attachment. However, such authority
does not preclude the Manila RTC from ruling on
BPI-FBs liability to Franco for payment of interest
based on its continued and unjustified refusal to
perform a contractual obligation upon
demand. After all, this was the core issue raised by
Franco in his complaint before the Manila RTC.
Third. As to the award to Franco of the
deposits in Quiaoits account, we find no reason to
depart from the factual findings of both the Manila
RTC and the CA.
Noteworthy is the fact that Quiaoit himself
testified that the deposits in his account are
actually owned by Franco who simply
accommodated Jaime Sebastians request to
temporarily transfer P400,000.00 from Francos
savings account to Quiaoits account.[40] His
testimony cannot be characterized as hearsay as
the records reveal that he had personal knowledge
of the arrangement made between Franco,
Sebastian and himself.[41]
BPI-FB makes capital of Francos belated
allegation relative to this particular arrangement. It
insists that the transaction with Quiaoit was not
specifically alleged in Francos complaint before the
Manila RTC. However, it appears that BPI-FB had
impliedly consented to the trial of this issue given
its extensive cross-examination of Quiaoit.
Section 5, Rule 10 of the Rules of Court
provides:
Section 5. Amendment to conform to
or authorize presentation of
evidence. When issues not raised
by the pleadings are tried with
the express or implied consent of
the parties, they shall be treated
in all respects as if they had been
raised in the pleadings. Such
 amendment of the pleadings as
may be necessary to cause them
to conform to the evidence and to
raise these issues may be made
upon motion of any party at any
time, even after judgment; but
failure to amend does not affect
the result of the trial of these
issues. If evidence is objected to at
the trial on the ground that it is now
within the issues made by the
pleadings, the court may allow the
pleadings to be amended and shall
do so with liberality if the
presentation of the merits of the
action and the ends of substantial
justice will be subserved thereby.
The court may grant a continuance
to enable the amendment to be
made. (Emphasis supplied)
In all, BPI-FBs argument that this case is not the
right forum for Franco to recover the P400,000.00
begs the issue. To reiterate, Quiaoit, testifying
during the trial, unequivocally disclaimed
ownership of the funds in his account, and pointed
to Franco as the actual owner thereof. Clearly,
Francos action for the recovery of his deposits
appropriately covers the deposits in Quiaoits
account.
Fourth. Notwithstanding all the foregoing, BPI-FB
continues to insist that the dishonor of Francos
checks respectively dated September 11 and 18,
1989 was legally in order in view of the Makati
RTCs supplemental writ of attachment issued
on September 14, 1989. It posits that as the party
that applied for the writ of attachment before the
Makati RTC, it need not be served with the Notice
of Garnishment before it could place Francos
accounts under garnishment.
The argument is specious. In this argument, we
perceive BPI-FBs clever but transparent ploy to
circumvent Section 4,[42] Rule 13 of the Rules of
Court. It should be noted that the strict
requirement on service of court papers upon the
parties affected is designed to comply with the
elementary requisites of due process. Franco was
entitled, as a matter of right, to notice, if the
requirements of due process are to be
observed. Yet, he received a copy of the Notice of
Garnishment only on September 27, 1989, several
days after the two checks he issued were
dishonored by BPI-FB on September 20 and 21,
1989. Verily, it was premature for BPI-FB to freeze
Francos accounts without even awaiting service of
the Makati RTCs Notice of Garnishment on Franco.
Additionally, it should be remembered that the
enforcement of a writ of attachment cannot be
made without including in the main suit the owner
of the property attached by virtue thereof.Section
5, Rule 13 of the Rules of Court specifically
provides that no levy or attachment pursuant to
the writ issued x x x shall be enforced unless it is
preceded, or contemporaneously accompanied, by
service of summons, together with a copy of the
complaint, the application for attachment, on the
defendant within the Philippines.
Franco was impleaded as party-defendant only
on May 15, 1990. The Makati RTC had yet to
acquire jurisdiction over the person of Franco
when BPI-FB garnished his accounts.[43]Effectively,
therefore, the Makati RTC had no authority yet to
bind the deposits of Franco through the writ of
attachment, and consequently, there was no legal
basis for BPI-FB to dishonor the checks issued by
Franco.
Fifth. Anent the CAs finding that BPI-FB was in
bad faith and as such liable for the advance
interest it deducted from Francos time deposit
account, and for moral as well as exemplary
damages, we find it proper to reinstate the ruling of
the trial court, and allow only the recovery of
nominal damages in the amount of P10,000.00.
However, we retain the CAs award of P75,000.00
as attorneys fees.
In granting Francos prayer for interest on his time
deposit account and for moral and exemplary
damages, the CA attributed bad faith to BPI-FB
because it (1) completely disregarded its obligation
to Franco; (2) misleadingly claimed that Francos
deposits were under garnishment; (3)
misrepresented that Francos current account was
not on file; and (4) refused to return
the P400,000.00 despite the fact that the
ostensible owner, Quiaoit, wanted the amount
returned to Franco.
In this regard, we are guided by Article 2201 of the
Civil Code which provides:
Article 2201. In contracts and
quasi-contracts, the damages for
which the obligor who acted in good
faith is liable shall be those that are
the natural and probable
consequences of the breach of the
obligation, and which the parties
have foreseen or could have
reasonable foreseen at the time the
obligation was constituted.
In case of fraud, bad faith, malice
or wanton attitude, the obligor
shall be responsible for all
damages which may be reasonably
 attributed to the non-performance
of the obligation. (Emphasis
supplied.)
We find, as the trial court did, that BPI-FB acted
out of the impetus of self-protection and not out of
malevolence or ill will. BPI-FB was not in the
corrupt state of mind contemplated in Article 2201
and should not be held liable for all damages now
being imputed to it for its breach of obligation. For
the same reason, it is not liable for the unearned
interest on the time deposit.
Bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it
partakes of the nature of fraud.[44] We have held
that it is a breach of a known duty through some
motive of interest or ill will.[45] In the instant case,
we cannot attribute to BPI-FB fraud or even a
motive of self-enrichment. As the trial court found,
there was no denial whatsoever by BPI-FB of the
existence of the accounts. The computer-generated
document which indicated that the current
account was not on file resulted from the prior
debit by BPI-FB of the deposits. The remedy of
freezing the account, or the garnishment, or even
the outright refusal to honor any transaction
thereon was resorted to solely for the purpose of
holding on to the funds as a security for its
intended court action,[46] and with no other goal
but to ensure the integrity of the accounts.
We have had occasion to hold that in the absence
of fraud or bad faith,[47] moral damages cannot be
awarded; and that the adverse result of an action
does not per se make the action wrongful, or the
party liable for it. One may err, but error alone is
not a ground for granting such damages.[48]
An award of moral damages contemplates the
existence of the following requisites: (1) there must
be an injury clearly sustained by the claimant,
whether physical, mental or psychological; (2) there
must be a culpable act or omission factually
established; (3) the wrongful act or omission of the
defendant is the proximate cause of the injury
sustained by the claimant; and (4) the award for
damages is predicated on any of the cases stated in
Article 2219 of the Civil Code.[49]
Franco could not point to, or identify any
particular circumstance in Article 2219 of the Civil
Code,[50] upon which to base his claim for moral
damages.
Thus, not having acted in bad faith, BPI-FB cannot
be held liable for moral damages under Article
2220 of the Civil Code for breach of contract. [51]
We also deny the claim for exemplary damages.
Franco should show that he is entitled to moral,
temperate, or compensatory damages before the
court may even consider the question of whether
exemplary damages should be awarded to
him.[52] As there is no basis for the award of moral
damages, neither can exemplary damages be
granted.
While it is a sound policy not to set a premium on
the right to litigate,[53] we, however, find that
Franco is entitled to reasonable attorneys fees for
having been compelled to go to court in order to
assert his right. Thus, we affirm the CAs grant
of P75,000.00 as attorneys fees.
Attorneys fees may be awarded when a party is
compelled to litigate or incur expenses to protect
his interest,[54] or when the court deems it just and
equitable.[55] In the case at bench, BPI-FB refused
to unfreeze the deposits of Franco despite the
Makati RTCs Order Lifting the Order of Attachment
and Quiaoits unwavering assertion that
the P400,000.00 was part of Francos savings
account. This refusal constrained Franco to incur
expenses and litigate for almost two (2) decades in
order to protect his interests and recover his
deposits. Therefore, this Court deems it just and
equitable to grant Franco P75,000.00 as attorneys
fees. The award is reasonable in view of the
complexity of the issues and the time it has taken
for this case to be resolved.[56]
Sixth. As for the dismissal of BPI-FBs counter-
claim, we uphold the Manila RTCs ruling, as
affirmed by the CA, that BPI-FB is not entitled to
recover P3,800,000.00 as actual damages. BPI-FBs
alleged loss of profit as a result of Francos suit is,
as already pointed out, of its own
making. Accordingly, the denial of its counter-
claim is in order.
WHEREFORE, the petition is PARTIALLY
GRANTED. The Court of Appeals Decision
dated November 29, 1995 is AFFIRMED with
the MODIFICATION that the award of unearned
interest on the time deposit and of moral and
exemplary damages is DELETED.
No pronouncement as to costs.
SO ORDERED.
SIGA-AN vs. VILLANUEVA, GR. No. 173227,
January 20, 2009
FACTS: Herein respondent Alicia Villanueva is
engaged in supplying office materials and
equipments to the Philippine Navy Office (PNO)
where herein Sebastian Siga-an works as a military
officer and comptroller. Villanueva alleged that
Siga-an offered to loan her the amount of
P540,000.00. Having needed capital for her
business transactions with the PNO, Villanueva
accepted petitioner’s proposal. The loan agreement
was not reduced in writing and there was no
stipulation as to the payment of interest for the
loan. Villanueva issued two checks worth
P500,000.00 and P200,000.00. Siga-an wanted to
apply the payment of P540,000.00 to the principal
amount and the excess amount of P160,000.00
would be applied for the interest. He demanded
from Villanueva to pay additional interest with a
threat to block or disapprove her transactions with
the PNO if she would not comply with his demand
thus respondent paid additional amounts as
interests for the loan. Villanueva asked Siga-an for
receipt but petitioner refused to give as it was not
necessary as there was mutual trust and
confidence between them. The total amount paid
by Villanueva totalled P1,200,000.00. When
Villanueva was advised by her lawyer that she
made an overpayment, she sent a demand letter to
Siga-an asking for the return of the excess amount
of P660,000.00. Siga-an just ignored Villanueva’s
claim for reimbursement. Hence, Villanueva
instituted a complaint for sum of money against
herein petitioner Sebastian Siga-an. After trial of
the case, the Trial Court ordered petitioner Siga-
an to refund the excess amount to Villanueva
pursuant to the principle of solutio indebiti. On
appeal of the case, the appellate court affirmed the
decision of the RTC. Petitioner filed a motion for
reconsideration but this was denied. Hence, the
instant petition.
ISSUE: Whether or not there was interest due to
petitioner.
HELD: There was no interest due to petitioner.
Article 1956 of the Civil Code, which refers to
monetary interest, specifically mandates that no
interest shall be due unless it has been expressly
stipulated in writing. Payment of monetary interest
is allowed only if there was an express stipulation
for the payment of interest; and the agreement for
the payment of interest was reduced in writing.
The concurrence of the two conditions is required
for the payment of monetary interest. Thus, the
collection of interest without any stipulation
therefore in writing is prohibited by law. It appears
that petitioner and respondent did not agree on the
payment of interest for the loan. Neither was there
convincing proof of written agreement between the
two regarding the payment of interest.
Compensatory interest is not chargeable in the
instant case because it was not duly proven that
respondent defaulted in paying the loan. Also, as
earlier found, no interest was due on the loan
because there was no written agreement as regards
payment of interest.
SPS Juico vs CHINA BANK
DOCTRINE : the escalation clause is void if it
grants respondent the power to impose an
increased rate of interest without a written
notice to petitioners and their written consent.
Concurring doctrine by CJ Sereno
these points must be considered by creditors and
debtors in the drafting of valid escalation clauses.
Firstly, as a matter of equity and consistent with
P.O. No. 1684, the escalation clause must be paired
with a de-escalation clause.9 Secondly, so as not to
violate the principle of mutuality, the escalation
must be pegged to the prevailing market rates, and
not merely make a generalized reference to "any
increase or decrease in the interest rate" in the event
a law or a Central Bank regulation is passed.
Thirdly, consistent with the nature of contracts, the
proposed modification must be the result of an
agreement between the parties. In this way, our
credit system would be facilitated by firm loan
provisions that not only aid fiscal stability, but also
avoid numerous disputes and litigations between
creditors and debtors.
Spouses Ignacio F. Juico and Alice P. Juico
(petitioners) obtained a loan from China Banking
Corporation (respondent) as evidenced by two
Promissory Notes both dated October 6, 1998 and
numbered 507-001051-34and 507-001052-0,5 for
the sums of !!6,216,000 and P4, 139,000,
respectively. The loan was secured by a Real Estate
Mortgage (REM) over petitioners’ property located at
49 Greensville St., White Plains, Quezon City
respondent demanded the full payment of the
outstanding balance with accrued monthly interests.
As of February 23, 2001, the amount due on the two
promissory notes totaled P19,201,776. On the same
day, the mortgaged property was sold at public
auction, with respondent China bank as highest
bidder for the amount of P10,300,000.
petitioners received 8a demand letter9 dated May 2,
2001 from respondent for the payment
ofP8,901,776.63, the amount of deficiency after
applying the proceeds of the foreclosure sale
respondent prayed that judgment be rendered
ordering the petitioners to pay jointly and severally:
(1)P8,901,776.63 representing the amount of
deficiency, plus interests at the legal rate, from
February 23, 2001 until fully paid; (2) an additional
amount equivalent to 1/10 of 1% per day of the total
amount, until fully paid, as penalty; (3) an amount
equivalent to 10% of the foregoing amounts as
attorney’s fees; and (4) expenses of litigation and
costs of suit.
Ms. Annabelle Cokai Yu, its Senior Loans Assistant
stated that as of now the outstanding balance of
petitioners was P15,190,961.48. Yu reiterated that
the interest rate changes every month based on the
prevailing market rate. she notified petitioners of the
prevailing rate by calling them monthly .It was
increased unilaterally
RTC: ordered Spouses to pay bank 9M plus the
interest which amounted to 15M.CA AFFIRMED
PETITIONER: They insist that the increase in
interest rates were unilaterally imposed by the
bank and thus violate the principle of mutuality of
contracts.
Issue: whether the increase in interest rates is void
for violating the mutuality of contracts
HELD:Yes
RATIO:
Article 1308. The contract must bind both
contracting parties; its validity or compliance cannot
be left to the will of one of them. Article 1956 of the
Civil Code likewise ordains that "no interest shall be
due unless it has been expressly stipulated in
writing."
The binding effect of any agreement between parties
to a contract is premised on xxx (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
Escalation clauses refer to stipulations allowing an
increase in the interest rate agreed upon by the
contracting parties. This Court has long recognized
that there is nothing inherently wrong with
escalation clauses
Nevertheless, an escalation clause "which grants
the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving
the debtor of the right to assent to an important
modification in the agreement" is void. A stipulation
of such nature violates the principle of mutuality of
contracts. In a case,SC said that petitioner’s assent
to the modifications in the interest rates cannot be
implied from their lack of response to the memos
sent by respondent
It is now settled that an escalation clause is void
where the creditor unilaterally determines and
imposes an increase in the stipulated rate of interest
without the express conformity of the debtor. Such
unbridled right given to creditors to adjust the
interest independently and upwardly would
completely take away from the debtors the right to
assent to an important modification in their
agreement and would also negate the element of
mutuality in their contracts.
More recently in Solidbank Corporation v.
Permanent Homes, Incorporated,39 we upheld as
valid an escalation clause which required a written
notice to and conformity by the borrower to the
increased interest rate
In Polotan, Sr. v. CA ,On petitioner’s contention that
the interest rate was unilaterally imposed and
based on the standards and rate formulated solely
by respondent credit card company, we held:
Cardholder hereby authorizes Security Diners to
correspondingly increase the rate of such interest in
the event of changes in prevailing market rates x x
x" is an escalation clause. However, it cannot be
said to be dependent solely on the will of private
respondent as it is also dependent on the prevailing
market rates. Thus, it was valid because it wasnt
solely potestative as it was based on the market
rates(something outside the control of respondent)
Here, the interest rates would vary as determined
by prevailing market rates. Evidently, the parties
intended the interest on petitioners’ loan, including
any upward or downward adjustment, to be
determined by the prevailing market rates and not
dictated by respondent’s policy.
HOWEVER, SC hold that the escalation clause
here is still void because it grants respondent
the power to impose an increased rate of
interest without a written notice to petitioners
and their written consent. Respondent’s monthly
telephone calls to petitioners advising them of the
prevailing interest rates would not suffice. A
detailed billing statement based on the new
imposed interest with corresponding computation of
the total debt should have been provided by the
respondent to enable petitioners to make an
informed decision. An appropriate form must
also be signed by the petitioners to indicate
their conformity to the new rates. Compliance
with these requisites is essential to preserve the
mutuality of contracts. For indeed, one-sided
impositions do not have the force of law between the
parties, because such impositions are not based on
the parties’ essential equality.
In the absence of consent on the part of the
petitioners to the modifications in the interest rates,
the adjusted rates cannot bind them. Hence, we
consider as invalid the interest rates in excess of
15%, the rate charged for the first year.
Based on the August 29, 2000 demand letter of
China Bank, petitioners’ total principal obligation
under the two promissory notes which they failed to
settle is P10,355,000. However, due to China
Bank’s unilateral increases in the interest rates
from 15% to as high as 24.50% and penalty charge
of 1/10 of 1% per day or 36.5% per annum for the
period November 4, 1999 to February 23, 2001,
petitioners’ balance ballooned to P19,201,776.63.
Note that the original amount of principal loan
almost doubled in only 16 months. The Court also
finds the penalty charges imposed excessive and
arbitrary, hence the same is hereby reduced to 1%
per month or 12% per annum.
Concurring by CJ Sereno:
not all escalation clauses in loan agreements are
void per se .it is to maintain fiscal stability and to
retain the value of money in long term
contracts.however, a contract containing a provision
that makes its fulfillment exclusively dependent
upon the uncontrolled will of one of the contracting
parties is void.
Hence the provision on the promissory note:
I/We hereby authorize the CHINA BANKING
CORPORATION to increase or decrease as
the case may be, the interest rate/service
charge presently stipulated in this note
without any advance notice to me/us in the
event a law or Central Bank regulation is
passed or promulgated by the Central Bank
of the Philippines or appropriate government
entities, increasing or decreasing such
interest rate or service charge.
Is void.
The floating rate of interest in the trust
receipt agreement is also void. It reads:
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
I% per month until the amount/s or installments/s
due and unpaid under the trust receipt on the
reverse side hereof is/are fully paid.
It is ok, for banks to stipulate that interest rates on
a loan not be fixed and instead be made dependent
upon prevailing market conditions as long as 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" 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.
Here, the use of the phrase "any increase or
decrease in the interest rate" is without reference to
the prevailing market rate actually imposed by the
regulations of the Central Bank. 8 It is thus not
enough to state, as akin to China Bank's provision,
that the bank may increase or decrease the interest
rate in the event a law or a Central Bank regulation
is passed. To adopt that stance will necessarily
involve a determination of the interest rate by the
creditor since the provision spells a vague condition
- it only requires that any change in the imposable
interest must conform to the upward or downward
movement of borrowing rates.
And if that determination is not subjected to the
mutual agreement of the contracting parties, then
the resulting interest rates to be imposed by the
creditor would be unilaterally determined.
Consequently, the escalation clause violates the
principle of mutuality of contracts.
Based on jurisprudence, therefore, these points
must be considered by creditors and debtors in the
drafting of valid escalation clauses. Firstly, as a
matter of equity and consistent with P.O. No. 1684,
the escalation clause must be paired with a de-
escalation clause.9 Secondly, so as not to violate the
principle of mutuality, the escalation must be
pegged to the prevailing market rates, and not
merely make a generalized reference to "any
increase or decrease in the interest rate" in the event
a law or a Central Bank regulation is passed.
Thirdly, consistent with the nature of contracts, the
proposed modification must be the result of an
agreement between the parties. In this way, our
credit system would be facilitated by firm loan
provisions that not only aid fiscal stability, but also
avoid numerous disputes and litigations between
creditors and debtors.
ESCANO and SILOS vs. ORTIGAS, Jr., GR. No.
151953, June 29, 2007
FACTS: Private Development Corporation of the
Philippines (PDCP) entered into a loan agreement
with Falcon Minerals, Inc. whereby PDCP agreed to
make available and lend to Falcon a sum certain.
Respondent Rafael Ortigas, Jr., et al., stockholder
officers of Falcon, executed an Assumption of
Solidary Liability whereby they agreed to assume in
their individual capacity, solidary liability with
Falcon for the due and punctual payment of the
loan contracted by Falcon with PDCP. Two
separate guaranties were executed to guarantee
the payment of the same loan by other
stockholders and officers of Falcon, acting in their
personal and individual capacities. One Guaranty
was executed by petitioner Salvador Escaño, while
the other by petitioners Mario M. Silos, Ricardo C.
Silverio, et al. Two years later, an agreement
developed to cede control of Falcon to Escaño, Silos
and Joseph M. Matti. Thus, contracts were
executed whereby Ortigas, George A. Scholey,
Inductivo and the heirs of then already deceased
George T. Scholey assigned their shares of stock in
Falcon to Escaño, Silos and Matti. Part of the
consideration that induced the sale of stock was a
desire by Ortigas, et al., to relieve themselves of all
liability arising from their previous joint and
several undertakings with Falcon, including those
related to the loan with PDCP. Thus, an
Undertaking was executed by the concerned
parties with Escaño, Silos and Matti identified in
the document as “sureties,” on one hand, and
Ortigas, Inductivo and the Scholeys as “obligors,”
on the other. However, Falcon subsequently
defaulted in its payments. After PDCP foreclosed
on the chattel mortgage, there remained a
subsisting deficiency of P5,000,000, which Falcon
did not satisfy despite demand. In order to recover
the indebtedness, PDCP filed a complaint for sum
of money against Falcon, Ortigas, Escaño, Silos,
Silverio and Inductivo. Ortigas filed together with
his answer a cross-claim against his co-defendants
Falcon, Escaño and Silos, and also manifested his
intent to file a third-party complaint against the
Scholeys and Matti. The cross-claim lodged against
Escaño and Silos was predicated on the 1982
Undertaking, wherein they agreed to assume the
liabilities of Ortigas with respect to the PDCP loan.
Escaño, Ortigas and Silos each sought to seek a
settlement with PDCP. The first to come to terms
with PDCP was Escaño, who entered into a
compromise agreement. In exchange, PDCP waived
or assigned in favor of Escaño 1/3 of its entire
claim in the complaint against all of the other
defendants in the case. Then Ortigas entered into
his own compromise agreement with PDCP,
allegedly without the knowledge of Escaño, Matti
and Silos. Thereby, Ortigas agreed to pay PDCP
P1.3M as full satisfaction of the PDCP’s claim
against Ortigas. Silos and PDCP entered into a
Partial Compromise Agreement whereby he agreed
to pay P500k in exchange for PDCP’s waiver of its
claims against him. In the meantime, after having
settled with PDCP, Ortigas pursued his claims
against Escaño, Silos and Matti, on the basis of the
1982 Undertaking. He initiated a third-party
complaint against Matti and Silos, while he
maintained his cross-claim against Escaño. RTC
issued the Summary Judgment, ordering Escaño,
Silos and Matti to pay Ortigas, jointly and
severally, the amount of P1.3M, as well as P20K in
attorney’s fees. The trial court ratiocinated that
none of the third-party defendants disputed the
1982 Undertaking.
ISSUE: Whether or not petitioners are solidarily
liable to respondent Ortigas.
Held: Petitioners are not solidarily liable to
respondent Ortigas. In case there is a concurrence
of two or more creditors or of two or more debtors
in one and the same obligation, Article 1207 of the
Civil Code states that among them, there is a
solidary liability only when the obligation expressly
so states, or when the law or the nature of the
obligation requires solidarity.” Article 1210
supplies further that the indivisibility of an
obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply
indivisibility. Thus, the presumption is that the
obligation is only joint. It thus becomes incumbent
upon the party alleging that the obligation is
indeed solidary in character to prove such fact with
a preponderance of evidence. The Undertaking
does not contain any express stipulation that the
petitioners agreed “to bind themselves jointly and
severally” in their obligations to the Ortigas group,
or any such terms to that effect. Hence, such
obligation established in the Undertaking is
presumed only to be joint. Ortigas, as the party
alleging that the obligation is in fact solidary, bears
the burden to overcome the presumption of
jointness of obligations. He has failed to discharge
such burden. The term “surety” has a specific
meaning under our Civil Code. As provided in
Article 2047 in a surety agreement the surety
undertakes to be bound solidarily with the
principal debtor. Thus, a surety agreement is an
ancillary contract as it presupposes the existence
of a principal contract. It appears that Ortigas’
argument rests solely on the solidary nature of the
obligation of the surety under Article2047. In
tandem with the nomenclature “sureties” accorded
to petitioners and Matti in the Undertaking,
however, this argument can only be viable if the
obligations established in the Undertaking do
partake of the nature of a suretyship as defined
under Article 2047 in the first place. That clearly is
not the case here, notwithstanding the use of the
nomenclature “sureties” in the Undertaking.
LIGUTAN vs. COURT OF APPEALS, GR. No.
138677, February 12, 2002
FACTS:
Petitioners Tolomeo Ligutan and Leonidas dela Lla
na obtained a loan from private respondent
Security Bank and Trust Company. Petitioners
executed a promissory note to pay the sum loaned
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. On maturity of the obligation, petitioners
failed to settle the debt despite several demands
from the bank. Consequently, the bank filed a
complaint for recovery of the due amount. After
trial of the case, the Trial court ruled in favour of
the Bank, ordering petitioners to pay the
respondent the sum of P114,416.00 with interest
thereon at the rate of 15.189% per annum and 5%
per month penalty charge among others. On
appeal of the case, petitioners prayed for the
reduction of the 5% stipulated penalty for being
unconscionable. The Court of Appeals ruled that
in the interest of justice and public policy, a
penalty of 3% per month or 36% per annum would
suffice. But still, petitioners dispute the said
decision.
ISSUE: Whether or not 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 exorbitant, iniquitous and
unconscionable.
HELD: 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. The
essence or rationale for the payment of interest is
not exactly the same as that of a surcharge or a
penalty. A penalty stipulation is not necessarily
preclusive of interest. 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. The Court of Appeals, exercising its good
judgment in the instant case, has rightly reduced
the penalty interest from 5% a month to 3% a
month.
EASTERN SHIPPING LINES, INC. vs. CA, GR. No.
97412, July 12, 1994
FACTS: Two fiber drums of riboflavin were shipped
from Yokohama, Japan on board the vessel owned
by herein petitioner Eastern Shipping Lines. When
it arrives in Manila, it was put unto the custody of
Metro Port Service, Inc. The latter excepted to one
drum which is said to be in bad order and which
damage was unknown to Eastern Shipping Lines.
Later, Allied Brokerage Corporation received the
shipment from Metro Port Service, Inc. With one
drum damaged, Allied Brokerage Corporation made
deliveries to the consignee's warehouse. The latter
excepted to one drum that is damaged. Eastern
Shipping Lines averred that due to the one drum
that is damaged and due to the fault and
negligence of Metro Port Service, Inc. and Allied
Brokerage Corporation, the consignee suffered
losses. The two failed and refused to pay the claims
for damages. Consequently, Eastern Shipping
Lines was compelled to pay the consignee being
subrogated to all the rights of action of said
consignee against Metro Port Service, Inc. and
Allied Brokerage Corporation. Trial ensued and on
appeal of the case, the appellate court affirmed the
decision of the trial court ordering Metro Port
Service and Allied Brokerage to pay Eastern
Shipping Lines, jointly and severally, the amount of
P19,032.95, with the present legal interest of
12% per annum from the date of filing of the
complaints, until fully paid. Metro Port Service and
Allied Brokerage opposed especially as to the
payment of interest contending that the legal
interest on an award for loss or damage should be
6% in view of Article 2209 of the Civil Code.
ISSUE: Whether or not the payment of legal
interest on an award for loss or damage is twelve
percent (12%) or six percent (6%).
HELD: Article 2209 of the New Civil Code provides
that 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. 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, 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 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.
Hermojina Estores vs. Spouses Arturo and Laura
Supangan
G.R. No. 175139 April 18, 2012
DEL CASTILLO, J.:
Facts:
1. In Oct. 1993, Hermojina Estores and Spouses
Supangan entered into a Conditional Deed of
Sale where Estores offered to sell, and Spouses
offered to buy a parcel of land in Cavite for
P4.7M.
2. After almost 7 years and despite the payment of
P3.5M by the Spouses, Estores still failed to
comply with her obligation to handle the
peaceful transfer of ownership as stated in 5
provisions in the contract.
3. In a letter in 2000, Spouses demanded the
return of the amount within 15 days from
receipt
4. In reply, Estores promised to return the same
within 120 days
5. Spouses agreed but imposed an interest of 12%
annually
6. Estores still failed despite demands
7. Spouses filed a complaint with the RTC against
Estores and Roberto Arias (allegedly acted as
Estores’ agent)
8. In Answer, Estores said they were willing to pay
the principal amount but without the interest
as it was not agreed upon
a. That since the Conditional Deed of Sale
provided only for the return of the
downpayment in case of breach, they
cant be liable for legal interest as well
9. RTC ruled saying that the Spouses are entitled
to the interest but only at 6% per annum and
also entitled to atty’s fees
10. On appeal, CA said that the issue to resolve is
a. whether it is proper to impose interest
for an obligation that does not involve a
loan or forbearance of money in the
absence of stipulation of the parties
11. CA affirmed RTC
a. That interest should start on date of
formal demand by Spouses to return
the money not when contract was
executed as stated by the RTC
b. That Arias not be solidarily liable as he
acted as agent only and did not
expressly bind himself or exceeded his
authority
12. Estores contends:
a. Not bound to pay interest because the
deed only provided for the return of the
downpayment in case of failure to
comply with her obligations
b. That atty fees not proper because both
RTC and CA sustained her contention
that 12% interest was uncalled for so it
showed that Spouses did not win
13. Spouses contend:
a. It is only fair that interest be imposed
because Estores failed to return the
amount upon demand and used the
money for her benefit
b. Estores failed to relocate the house
outside the perimeter of the subject lot
and complete the necessary documents
c. As to the fees, they claim that they were
forced to litigate when Estores unjustly
held the amount
Issue:
Is the imposition of interest and attorney’s fees is
proper? YES
Interest based on Art 2209 of CC (6%) or under Central
Bank Circular 416 (12%)? 12%

Held:
Interest may be imposed even in the absence of
stipulation in the contract.
 Article 2210 of the Civil Code expressly provides
that “[i]nterest may, in the discretion of the court,
be allowed upon damages awarded for breach of
contract.”
 Estores failed on her obligations despite demand.
o She admitted that the conditions were
not fulfilled and was willing to return
the full amount of P3.5M but hasn’t
done so
o She is now in default
The interest at the rate of 12% is applicable in
the instant case.
 Gen Rule: the applicable interest rate shall be
computed in accordance with the stipulation of
the parties
 Exc: if no stipulation, applicable rate of interest
shall be 12% per annum
o When obligation arises out of a loan or
forbearance of money, goods or credits
 In other cases, it shall be 6%
 In this case, no stipulation was made
 Contract involved in this case is not a loan
but a Conditional Deed of Sale.
o No question that the obligations were
not met and the return of money not
made
 Even if transaction was a Conditional Deed
of Sale, the stipulation governing the return
of the money can be considered as a
forbearance of money which requires 12%
interest
 In Crismina Garments, Inc. v. Court of Appeals,
Forbearance-- “contractual obligation of lender or
creditor to refrain during a given period of time,
from requiring the borrower or debtor to repay
a loan or debt then due and payable.”
o In such case, “forbearance of money, goods
or credits” will have no distinct definition
from a loan.
o however, the phrase “forbearance of money,
goods or credits” is meant to have a
separate meaning from a loan, otherwise
there would have been no need to add that
phrase as a loan is already sufficiently
defined in the Civil Code
o Forbearance of money, goods or credits
should therefore refer to arrangements
other than loan agreements, where a
person acquiesces to the temporary use of
his money, goods or credits pending
happening of certain events or fulfillment of
certain conditions.
 Estores’ unwarranted withholding of the money
amounts to forbearance of money which can be
considered as an involuntary loan so rate is 12%
starting in Sept. 2000
The award of attorney’s fees is warranted.
 no doubt that the Spouses were forced to litigate to
protect their interest, i.e., to recover their
money. The amount of P50,000.00 more
appropriate
UCPB vs Spouses Beluso
GR No. 159912, August 17, 2007
Ponente: Chico-Nazario, J.
Facts:
1. Petition for Review
on Certiorari declaring void the
interest rate provided in the
promissory notes executed by the
respondents Spouses Samuel and
Odette Beluso (spouses Beluso) in
favor of petitioner United Coconut
Planters Bank (UCPB)
2. UCPB granted the spouses Beluso a
Promissory Notes Line under a
Credit Agreement whereby the latter
could avail from the former credit of
up to a maximum amount of P1.2
Million pesos for a term ending
on 30 April 1997. The spouses
Beluso constituted, other than their
promissory notes, a real estate
mortgage over parcels of land
in Roxas City, covered by Transfer
Certificates of Title No. T-31539 and
T-27828, as additional security for
the obligation. The Credit
Agreement was subsequently
amended to increase the amount of
the Promissory Notes Line to a
maximum of P2.35 Million pesos
and to extend the term thereof to 28
February 1998.
3. On 30 April 1997, the payment of
the principal and interest of the
latter two promissory notes were
debited from the spouses Beluso’s
account with UCPB; yet, a
consolidated loan for P1.3 Million
was again released to the spouses
Beluso under one promissory note
with a due date of 28 February
1998. To completely avail
themselves of the P2.35 Million
credit line extended to them by
UCPB, the spouses Beluso executed
two more promissory notes for a
 total of P350,000.00. However, the
spouses Beluso alleged that the
amounts covered by these last two The provision stating that the interest shall be
promissory notes were never at the “rate indicative of DBD retail rate or as
released or credited to their account determined by the Branch Head” is indeed
and, thus, claimed that the principal dependent solely on the will of petitioner
indebtedness was only P2 Million. UCPB. Under such provision, petitioner UCPB
4. The spouses Beluso, however, failed has two choices on what the interest rate shall
to make any payment of the be: (1) a rate indicative of the DBD retail rate;
foregoing amounts. or (2) a rate as determined by the Branch
5. On 2 September 1998, UCPB Head. As UCPB is given this choice, the rate
demanded that the spouses Beluso should be categorically determinable
pay their total obligation in both choices. If either of these two choices
of P2,932,543.00 plus 25% presents an opportunity for UCPB to fix the rate
attorney’s fees, but the spouses at will, the bank can easily choose such an
Beluso failed to comply option, thus making the entire interest rate
therewith. On 28 December 1998, provision violative of the principle of mutuality
UCPB foreclosed the properties of contracts.
mortgaged by the spouses Beluso to
secure their credit line, which, by
that time, already ballooned
In addition, the promissory notes, the copies of
to P3,784,603.00.
which were presented to the spouses Beluso
6. On 9 February 1999, the spouses
after execution, are not sufficient notification
Beluso filed a Petition for
from UCPB. As earlier discussed, the interest
Annulment, Accounting and
rate provision therein does not sufficiently
Damages against UCPB with the
indicate with particularity the interest rate to be
RTC of Makati City.
applied to the loan covered by said promissory
7. Trial court declared in its judgment
notes which is required in TRuth in Lending Act
that:
a. the interest rate used by [UCPB]
void
b. the foreclosure and Sheriff’s 2. Whether or not Spouses Beluso are
Certificate of Sale void subject to 12% interest and compounding
c. UCPB is ordered to return to [the interest stipulations even if declared amount
spouses Beluso] the properties by UCPB was excessive.
subject of the foreclosure
d. UCPB to pay [the spouses
Beluso] the amount
of P50,000.00 by way of Yes. Default commences upon judicial or
attorney’s fees extrajudicial demand.[26] The excess amount in
e. UCPB to pay the costs of suit. such a demand does not nullify the demand
f. Spouses Beluso] are hereby itself, which is valid with respect to the proper
ordered to pay [UCPB] the sum amount. There being a valid demand on the
of P1,560,308.00. part of UCPB, albeit excessive, the spouses
8. Court of Appeals affirmed Trial Beluso are considered in default with respect to
court's decision subject to the the proper amount and, therefore, the interests
modification that defendant-appellant and the penalties began to run at that point. As
UCPB is not liable for attorney’s fees or regards the award of 12% legal interest in favor
the costs of suit. of petitioner, the RTC actually recognized that
said legal interest should be imposed, thus:
“There being no valid stipulation as to interest,
the legal rate of interest shall be charged.”[27] It
ISSUES: seems that the RTC inadvertently overlooked its
non-inclusion in its computation. It must
1. Whether or not interest rate stipulated likewise uphold the contract stipulation
was void providing the compounding of interest. The
provisions in the Credit Agreement and in the
Yes, stipulated interest rate is void because it
promissory notes providing for the
contravenes on the principle of mutuality of
compounding of interest were neither nullified
contracts and it violates the Truth in lending
by the RTC or the Court of Appeals, nor
Act.
assailed by the spouses Beluso in their petition
 with the RTC. The compounding of interests
has furthermore been declared by this Court to
be legal.
3. Whether or not foreclosure was void
No. The foreclosure proceedings are valid since
there was a valid demand made by UCPB upon
the spouses Beluso. Despite being excessive,
the spouses Beluso are considered in default
with respect to the proper amount of their
obligation to UCPB and, thus, the property they
mortgaged to secure such amounts may be
foreclosed. Consequently, proceeds of the
foreclosure sale should be applied to the extent
of the amounts to which UCPB is rightfully
entitled.
CARPO vs. CHUA & DY NG, GR. Nos. 150773 &
153599, September 30, 2005
FACTS: Herein petitioner spouses David Carpo
and Rechilda Carpo contracted a loan from Eleanor
Chua and Elma Dy Ng for a certain sum of money
payable within six (6) months with an interest rate
of six percent (6%) per month secured by a
mortgaged of the spouses Carpo of their residential
house and lot. Petitioners failed to pay the loan
upon demand. Consequently, the real estate
mortgage was extrajudicially foreclosed, mortgaged
property sold at a public auction, and the house
and lot was awarded to respondents, who were the
only bidders. Unable to exercise their right of
redemption by petitioners, a certificate of sale was
issued in the name of respondents. However,
petitioners continued to occupy the said house and
lot, thus respondents file a petition for writ of
possession which was granted by the Trial Court.
Petitioners filed a complaint for annulment of real
estate mortgage and the consequent foreclosure
proceedings claiming that the rate of interest
stipulated in the principal loan agreement is clearly
null and void for being excessive, iniquitous,
unconscionable and exorbitant. Consequently, they
also argue that the nullity of the agreed interest
rate affects the validity of the real estate mortgage.
ISSUE: Whether or not the agreed rate of interest
of 6% per month or 72% per annum is so
excessive, iniquitous, unconscionable and
exorbitant that it should have been declared null
and void.
HELD: In a long line of cases, the Supreme Court
has invalidated similar stipulations on interest
rates for being excessive, iniquitous,
unconscionable and exorbitant. Pursuant to the
freedom of contract principle embodied in Article
1306 of the Civil Code, contracting parties may
establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs,
public order, or public policy. In the ordinary
course, the codal provision may be invoked to
annul the excessive stipulated interest. In the case
at bar, the stipulated interest rate is 6% per
month, or 72% per annum. By the standards set
by jurisprudence, this stipulation is similarly
invalid.
ADVOCATES FOR TRUTH IN LENDING, INC. VS.
BANGKO SENTRAL NG PILIPINAS
Advocates for Truth in Lending, Inc. vs. BSP, et. al.
G.R. No. 192986 / January 15, 2013
REYES, J.
FACTS:
Advocates for Truth in Lending, Inc. and its
President, Eduardo Olaguer claim that they are
raising issues of transcendental importance to the
public and so they filed Petition for Certiorari
under Rule 65 ROC seeking to declare that the
Bangko Sentral ng Pilipinas Monetary Board (BSP-
MB), replacing the Central Bank Monetary Board
(CB-MB) by virtue of R.A. No. 7653, has no
authority to continue enforcing Central Bank
Circular No. 905, issued by the CB-MB in 1982,
which "suspended" the Usury Law of 1916 (Act No.
2655).
R.A. No. 265, which created the Central Bank (CB)
of the Philippines, empowered the CB-MB to,
among others, set the maximum interest rates
which banks may charge for all types of loans and
other credit operations, within limits prescribed by
the Usury Law.
In its Resolution No. 2224, the CB-MB issued CB
Circular No. 905, Series of 1982. Section 1 of the
Circular, under its General Provisions, removed the
ceilings on interest rates on loans or forbearance of
any money, goods or credits.
On June 14, 1993, President Fidel V. Ramos
signed into law R.A. No. 7653 establishing the
Bangko Sentral ng Pilipinas (BSP) to replace the
CB.
ISSUE/S:
1. Whether the CB-MB exceeded its authority when it
issued CB Circular No. 905, which removed all
interest ceilings and thus suspended Act No. 2655
as regards usurious interest rates. NO
2. Whether under R.A. No. 7653, the BSP-MB may
continue to enforce CB Circular No. 905. YES
RULING:
1. The CB-MB merely suspended the effectivity of
the Usury Law when it issued CB Circular No. 905.
The power of the CB to effectively suspend the
Usury Law pursuant to P.D. No. 1684 has long
been recognized and upheld in many cases. As the
Court explained in the landmark case of Medel v.
CA, citing several cases, CB Circular No. 905 "did
not repeal nor in anyway amend the Usury Law
but simply suspended the latter’s effectivity;" that
"a CB Circular cannot repeal a law, [for] only a law
can repeal another law;" that "by virtue of CB
Circular No. 905, the Usury Law has been
rendered ineffective;" and "Usury has been legally
non-existent in our jurisdiction. Interest can now
be charged as lender and borrower may agree
upon."
By lifting the interest ceiling, CB Circular No. 905
merely upheld the parties’ freedom of contract to
agree freely on the rate of interest. It cited Article
1306 of the New Civil Code, under which the
contracting parties may establish such
stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not
contrary to law, morals, good customs, public
order, or public policy.
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. Act No. 2655, an earlier
law, is much broader in scope, whereas R.A. No.
265, now R.A. No. 7653, merely supplemented it as
it concerns loans by banks and other financial
institutions. Had R.A. No. 7653 been intended to
repeal Section 1-a of Act No. 2655, it would have
so stated in unequivocal terms.
Further, the lifting of the ceilings for interest rates
does not authorize stipulations charging excessive,
unconscionable, and iniquitous interest. It is
settled that nothing in CB Circular No. 905 grants
lenders a carte blanche authority to raise interest
rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their
assets. Stipulations authorizing iniquitous or
unconscionable interests have been invariably
struck down for being contrary to morals, if not
against the law.

2. The BSP-MB has authority to enforce CB

Circular No. 905.
Section 1 of CB Circular No. 905 provides that,
"The rate of interest, including commissions,
premiums, fees and other charges, on a loan or
forbearance of any money, goods, or credits,
regardless of maturity and whether secured or
unsecured, that may be charged or collected by
any person, whether natural or juridical, shall not
be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended." It does
not purport to suspend the Usury Law only as it
applies to banks, but to all lenders.

Petitioners contend that, granting that the CB had

power to "suspend" the Usury Law, the new BSP-
MB did not retain this power of its predecessor, in
view of Section 135 of R.A. No. 7653, which
expressly repealed R.A. No. 265. The petitioners
point out that R.A. No. 7653 did not reenact a
provision similar to Section 109 of R.A. No. 265.

A closer perusal shows that Section 109 of R.A. No.

265 covered only loans extended by banks,
whereas under Section 1-a of the Usury Law, as
amended, the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money,