Petitioner Vs Vs Respondents: Second Division

SECOND DIVISION
[G.R. No. 186550. July 5, 2010.]
ASIAN CATHAY FINANCE AND LEASING CORPORATION , petitioner,

vs . SPOUSES CESARIO GRAVADOR and NORMA DE VERA and
SPOUSES EMMA CONCEPCION G. DUMIGPI and FEDERICO L.
DUMIGPI , respondents.
DECISION
NACHURA , J : p
On appeal is the June 10, 2008 Decision 1 of the Court of Appeals (CA) in CA-G.R.
CV No. 83197, setting aside the April 5, 2004 decision 2 of the Regional Trial Court
(RTC), Branch 9, Bulacan, as well as its subsequent Resolution 3 dated February 11,
2009, denying petitioner's motion for reconsideration.
On October 22, 1999, petitioner Asian Cathay Finance and Leasing Corporation
(ACFLC) extended a loan of Eight Hundred Thousand Pesos (P800,000.00) 4 to
respondent Cesario Gravador, with respondents Norma de Vera and Emma Concepcion
Dumigpi as co-makers. The loan was payable in sixty (60) monthly installments of
P24,400.00 each. To secure the loan, respondent Cesario executed a real estate
mortgage 5 over his property in Sta. Maria, Bulacan, covered by Transfer Certi cate of
Title No. T-29234. 6
Respondents paid the initial installment due in November 1999. However, they
were unable to pay the subsequent ones. Consequently, on February 1, 2000,
respondents received a letter demanding payment of P1,871,480.00 within ve (5)
days from receipt thereof. Respondents requested for an additional period to settle
their account, but ACFLC denied the request. Petitioner led a petition for extrajudicial
foreclosure of mortgage with the Office of the Deputy Sheriff of Malolos, Bulacan.
On April 7, 2000, respondents led a suit for annulment of real estate mortgage
and promissory note with damages and prayer for issuance of a temporary restraining
order (TRO) and writ of preliminary injunction. Respondents claimed that the real estate
mortgage is null and void. They pointed out that the mortgage does not make reference
to the promissory note dated October 22, 1999. The promissory note does not specify
the maturity date of the loan, the interest rate, and the mode of payment; and it illegally
imposed liquidated damages. The real estate mortgage, on the other hand, contains a
provision on the waiver of the mortgagor's right of redemption, a provision that is
contrary to law and public policy. Respondents added that ACFLC violated Republic Act
No. 3765, or the Truth in Lending Act, in the disclosure statement that should be issued
to the borrower. Respondents, thus, claimed that ACFLC's petition for foreclosure
lacked factual and legal basis, and prayed that the promissory note, real estate
mortgage, and any certi cate of sale that might be issued in connection with ACFLC's
petition for extrajudicial foreclosure be declared null and void. In the alternative,
respondents prayed that the court x their obligation at P800,000.00 if the mortgage
could not be annulled, and declare as null and void the provisions on the waiver of
mortgagor's right of redemption and imposition of the liquidated damages.
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Respondents further prayed for moral and exemplary damages, as well as attorney's
fees, and for the issuance of a TRO to enjoin ACFLC from foreclosing their property. DcAEIS
On April 12, 2000, the RTC issued an Order, 7 denying respondents' application
for TRO, as the acts sought to be enjoined were already fait accompli.
On May 12, 2000, ACFLC led its Answer, denying the material allegations in the
complaint and averring failure to state a cause of action and lack of cause of action, as
defenses. ACFLC claimed that it was merely exercising its right as mortgagor; hence, it
prayed for the dismissal of the complaint.
After trial, the RTC rendered a decision, dismissing the complaint for lack of
cause of action. Sustaining the validity of the promissory note and the real estate
mortgage, the RTC held that respondents are well-educated individuals who could not
feign naiveté in the execution of the loan documents. It, therefore, rejected respondents'
claim that ACFLC deceived them into signing the promissory note, disclosure
statement, and deed of real estate mortgage. The RTC further held that the alleged
defects in the promissory note and in the deed of real estate mortgage are too
insubstantial to warrant the nulli cation of the mortgage. It added that a promissory
note is not one of the essential elements of a mortgage; thus, reference to a
promissory note is neither indispensable nor imperative for the validity of the
mortgage. The RTC also upheld the interest rate and the penalty charge imposed by
ACFLC, and the waiver of respondents' right of redemption provided in the deed of real
estate mortgage.
The RTC disposed thus:
WHEREFORE, on the basis of the evidence on record and the
laws/jurisprudence applicable thereto, judgment is hereby rendered DISMISSING
the complaint in the above-entitled case for want of cause of action as well as the
counterclaim of [petitioner] Asian Cathay Finance & Leasing Corporation for
moral and exemplary damages and attorney's fees for abject lack of proof to
justify the same.
SO ORDERED. 8
Aggrieved, respondents appealed to the CA. On June 10, 2008, the CA rendered
the assailed Decision, reversing the RTC. It held that the amount of P1,871,480.00
demanded by ACFLC from respondents is unconscionable and excessive. Thus, it
declared respondents' principal loan to be P800,000.00, and xed the interest rate at
12% per annum and reduced the penalty charge to 1% per month. It explained that
ACFLC could not insist on the interest rate provided on the note because it failed to
provide respondents with the disclosure statement prior to the consummation of the
loan transaction. Finally, the CA invalidated the waiver of respondents' right of
redemption for reasons of public policy. Thus, the CA ordered: CHIaTc
WHEREFORE , premises considered, the appealed decision is REVERSED

AND SET ASIDE . Judgment is hereby rendered as follows:
1) A rming the amount of the principal loan under the REM and
Disclosure Statement both dated October 22, 1999 to be P800,000.00, subject to:
a. 1% interest per month (12% per annum) on the principal from

November 23, 1999 until the date of the foreclosure sale, less P24,000.00
paid by [respondents] as first month amortization[;]

b. 1% penalty charge per month on the principal from December
23, 1999 until the date of the foreclosure sale.
2) Declaring par. 14 of the REM as null and void by reason of public
policy, and granting mortgagors a period of one year from the nality of this
Decision within which to redeem the subject property by paying the redemption
price as computed under paragraph 1 hereof, plus one percent (1%) interest
thereon from the time of foreclosure up to the time of the actual redemption
pursuant to Section 28, Rule 39 of the 1997 Rules on Civil Procedure.
The claim of the [respondents] for moral and exemplary damages and
attorney's fees is dismissed for lack of merit.
SO ORDERED. 9
ACFLC led a motion for reconsideration, but the CA denied it on February 11,
2009.
ACFLC is now before us, faulting the CA for reversing the dismissal of
respondents' complaint. It points out that respondents are well-educated persons who
are familiar with the execution of loan documents. Thus, they cannot be deceived into
signing a document containing provisions that they are not amenable to. ACFLC
ascribes error on the part of the CA for invalidating the interest rates imposed on
respondents' loan, and the waiver of the right of redemption.
The appeal lacks merit.
It is true that parties to a loan agreement have a wide latitude to stipulate on any
interest rate in view of Central Bank Circular No. 905, series of 1982, which suspended
the Usury Law ceiling on interest rate effective January 1, 1983. However, interest rates,
whenever unconscionable, may be equitably reduced or even invalidated. In several
cases, 1 0 this Court had declared as null and void stipulations on interest and charges
that were found excessive, iniquitous and unconscionable. DACaTI
Records show that the amount of loan obtained by respondents on October 22,
1999 was P800,000.00. Respondents paid the installment for November 1999, but
failed to pay the subsequent ones. On February 1, 2000, ACFLC demanded payment of
P1,871,480.00. In a span of three months, respondents' obligation ballooned by more
than P1,000,000.00. ACFLC failed to show any computation on how much interest was
imposed and on the penalties charged. Thus, we fully agree with the CA that the amount
claimed by ACFLC is unconscionable.
In Spouses Isagani and Diosdada Castro v. Angelina de Leon Tan, Sps.
Concepcion T. Clemente and Alexander C. Clemente, Sps. Elizabeth T. Carpio and Alvin
Carpio, Sps. Marie Rose T. Soliman and Arvin Soliman and Julius Amiel Tan, 1 1 this
Court held:
The imposition of an unconscionable rate of interest on a money debt,
even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of property,
repulsive to the common sense of man. It has no support in law, in principles of
justice, or in the human conscience nor is there any reason whatsoever which
may justify such imposition as righteous and as one that may be sustained
within the sphere of public or private morals.
Stipulations authorizing the imposition of iniquitous or unconscionable interest

are contrary to morals, if not against the law. Under Article 1409 of the Civil Code, these
contracts are inexistent and void from the beginning. They cannot be rati ed nor the
right to set up their illegality as a defense be waived. The nullity of the stipulation on the
usurious interest does not, however, affect the lender's right to recover the principal of
the loan. Nor would it affect the terms of the real estate mortgage. The right to
foreclose the mortgage remains with the creditors, and said right can be exercised
upon the failure of the debtors to pay the debt due. The debt due is to be considered
without the stipulation of the excessive interest. A legal interest of 12% per annum will
be added in place of the excessive interest formerly imposed. 1 2 The nulli cation by the
CA of the interest rate and the penalty charge and the consequent imposition of an
interest rate of 12% and penalty charge of 1% per month cannot, therefore, be
considered a reversible error.
ACFLC next faults the CA for invalidating paragraph 14 of the real estate
mortgage which provides for the waiver of the mortgagor's right of redemption. It
argues that the right of redemption is a privilege; hence, respondents are at liberty to
waive their right of redemption, as they did in this case. cEAHSC
Settled is the rule that for a waiver to be valid and effective, it must, in the rst
place, be couched in clear and unequivocal terms which will leave no doubt as to the
intention of a party to give up a right or bene t which legally pertains to him.
Additionally, the intention to waive a right or an advantage must be shown clearly and
convincingly. 1 3 Unfortunately, ACFLC failed to convince us that respondents waived
their right of redemption voluntarily.
As the CA had taken pains to demonstrate:
The supposed waiver by the mortgagors was contained in a statement
made in ne print in the REM. It was made in the form and language prepared by
[petitioner]ACFLC while the [respondents] merely a xed their signatures or
adhesion thereto. It thus partakes of the nature of a contract of adhesion. It is
settled that doubts in the interpretation of stipulations in contracts of adhesion
should be resolved against the party that prepared them. This principle especially
holds true with regard to waivers, which are not presumed, but which must be
clearly and convincingly shown. [Petitioner] ACFLC presented no evidence hence it
failed to show the efficacy of this waiver.
Moreover, to say that the mortgagor's right of redemption may be waived
through a ne print in a mortgage contract is, in the last analysis, tantamount to
placing at the mortgagee's absolute disposal the property foreclosed. It would
render practically nugatory this right that is provided by law for the mortgagor for
reasons of public policy. A contract of adhesion may be struck down as void and
unenforceable for being subversive to public policy, when the weaker party is
completely deprived of the opportunity to bargain on equal footing. 1 4
In ne, when the redemptioner chooses to exercise his right of redemption, it is

the policy of the law to aid rather than to defeat his right. 1 5 Thus, we a rm the CA in
nullifying the waiver of the right of redemption provided in the real estate mortgage.
Finally, ACFLC claims that respondents' complaint for annulment of mortgage is
a collateral attack on its certificate of title. The argument is specious.
The instant complaint for annulment of mortgage was led on April 7, 2000, long
before the consolidation of ACFLC's title over the property. In fact, when respondents
led this suit at the rst instance, the title to the property was still in the name of
respondent Cesario. The instant case was pending with the RTC when ACFLC led a
petition for foreclosure of mortgage and even when a writ of possession was issued.
Clearly, ACFLC's title is subject to the final outcome of the present case. HDacIT
WHEREFORE , the petition is DENIED . The assailed Decision and Resolution of

the Court of Appeals in CA-G.R. CV No. 83197 are AFFIRMED . Costs against petitioner.
SO ORDERED.
Carpio, Peralta, Abad and Mendoza, JJ., concur.
Footnotes
1.Penned by Associate Justice Portia Aliño-Hormachuelos, with Associate Justices Rosemari D.

Carandang and Estela M. Perlas-Bernabe, concurring; rollo, pp. 72-88.
2.Records, pp. 207-215.
3.Rollo, pp. 90-92.

4.Exhibit "C," records, p. 16.
5.Exhibit "B," id. at 14-15.

6.Exhibit "A," id. at 12.
7.Id. at 40.
8.Id. at 215.
9.Rollo, pp. 86-87.
10.Heirs of Zoilo Espiritu v. Landrito, G.R. No. 169617, April 3, 2007, 520 SCRA 383, 393; Ruiz v.
Court of Appeals, 449 Phil. 419, 433-435 (2003); Spouses Solangon v. Salazar n , 412
Phil. 816, 822-823 (2001).
11.G.R. No. 168940, November 24, 2009.
12.Heirs of Zoilo Espiritu v. Landrito, supra note 11, at 398.

13.See Thomson v. Court of Appeals, G.R. No. 116631, October 28, 1998, 358 Phil. 761, 778
(1998).
14.Rollo, pp. 85-86.

15.Iligan Bay Manufacturing Corporation v. Dy, G.R. Nos. 140836 & 140907, June 8, 2007, 524
SCRA 55, 70.
n Note from the Publisher: Written as "Spouses Solan gon v. Salazar" in the original document.

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

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

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

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

FIRST DIVISION
[G.R. No. 160758. January 15, 2014.]
DEVELOPMENT BANK OF THE PHILIPPINES , petitioner, vs . GUARIÑA

AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION ,
respondent.
DECISION
BERSAMIN , J : p
The foreclosure of a mortgage prior to the mortgagor's default on the principal

obligation is premature, and should be undone for being void and ineffectual. The
mortgagee who has been meanwhile given possession of the mortgaged property by
virtue of a writ of possession issued to it as the purchaser at the foreclosure sale may be
required to restore the possession of the property to the mortgagor and to pay reasonable
rent for the use of the property during the intervening period.
The Case
In this appeal, Development Bank of the Philippines (DBP) seeks the reversal of the
adverse decision promulgated on March 26, 2003 in C.A.-G.R. CV No. 59491, 1 whereby the
Court of Appeals (CA) upheld the judgment rendered on January 6, 1998 2 by the Regional
Trial Court, Branch 25, in Iloilo City (RTC) annulling the extra-judicial foreclosure of the real
estate and chattel mortgages at the instance of DBP because the debtor-mortgagor,
Guariña Agricultural and Realty Development Corporation (Guariña Corporation), had not
yet defaulted on its obligations in favor of DBP. AcISTE
Antecedents
In July 1976, Guariña Corporation applied for a loan from DBP to nance the
development of its resort complex situated in Trapiche, Oton, Iloilo. The loan, in the amount
of P3,387,000.00, was approved on August 5, 1976. 3 Guariña Corporation executed a
promissory note that would be due on November 3, 1988. 4 On October 5, 1976, Guariña
Corporation executed a real estate mortgage over several real properties in favor of DBP
as security for the repayment of the loan. On May 17, 1977, Guariña Corporation executed
a chattel mortgage over the personal properties existing at the resort complex and those
yet to be acquired out of the proceeds of the loan, also to secure the performance of the
obligation. 5 Prior to the release of the loan, DBP required Guariña Corporation to put up a
cash equity of P1,470,951.00 for the construction of the buildings and other
improvements on the resort complex.
The loan was released in several instalments, and Guariña Corporation used the
proceeds to defray the cost of additional improvements in the resort complex. In all, the
amount released totalled P3,003,617.49, from which DBP withheld P148,102.98 as
interest. 6
Guariña Corporation demanded the release of the balance of the loan, but DBP
refused. Instead, DBP directly paid some suppliers of Guariña Corporation over the latter's
CD Technologies Asia, Inc. 2018 cdasiaonline.com
objection. DBP found upon inspection of the resort project, its developments and
improvements that Guariña Corporation had not completed the construction works. 7 In a
letter dated February 27, 1978, 8 and a telegram dated June 9, 1978, 9 DBP thus demanded
that Guariña Corporation expedite the completion of the project, and warned that it would
initiate foreclosure proceedings should Guariña Corporation not do so. 1 0
Unsatis ed with the non-action and objection of Guariña Corporation, DBP initiated
extrajudicial foreclosure proceedings. A notice of foreclosure sale was sent to Guariña
Corporation. The notice was eventually published, leading the clients and patrons of
Guariña Corporation to think that its business operation had slowed down, and that its
resort had already closed. 1 1 TSEcAD
On January 6, 1979, Guariña Corporation sued DBP in the RTC to demand speci c
performance of the latter's obligations under the loan agreement, and to stop the
foreclosure of the mortgages (Civil Case No. 12707). 1 2 However, DBP moved for the
dismissal of the complaint, stating that the mortgaged properties had already been sold to
satisfy the obligation of Guariña Corporation at a public auction held on January 15, 1979
at the Costa Mario Resort Beach Resort in Oton, Iloilo. 1 3 Due to this, Guariña Corporation
amended the complaint on February 6, 1979 1 4 to seek the nulli cation of the foreclosure
proceedings and the cancellation of the certi cate of sale. DBP led its answer on
December 17, 1979, 1 5 and trial followed upon the termination of the pre-trial without any
agreement being reached by the parties. 1 6
In the meantime, DBP applied for the issuance of a writ of possession by the RTC. At
rst, the RTC denied the application but later granted it upon DBP's motion for
reconsideration. Aggrieved, Guariña Corporation assailed the granting of the application
before the CA on certiorari (C.A.-G.R. No. 12670-SP entitled Guariña Agricultural and Realty
Development Corporation v. Development Bank of the Philippines ). After the CA dismissed
the petition for certiorari, DBP sought the implementation of the order for the issuance of
the writ of possession. Over Guariña Corporation's opposition, the RTC issued the writ of
possession on June 16, 1982. 1 7
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707,
disposing as follows: cEITCA
WHEREFORE, premises considered, the court hereby resolves that the extra-
judicial sales of the mortgaged properties of the plaintiff by the O ce of the
Provincial Sheriff of Iloilo on January 15, 1979 are null and void, so with the
consequent issuance of certi cates of sale to the defendant of said properties,
the registration thereof with the Registry of Deeds and the issuance of the transfer
certificates of title involving the real property in its name.
It is also resolved that defendant give back to the plaintiff or its

representative the actual possession and enjoyment of all the properties
foreclosed and possessed by it. To pay the plaintiff the reasonable rental for the
use of its beach resort during the period starting from the time it (defendant) took
over its occupation and use up to the time possession is actually restored to the
plaintiff.
And, on the part of the plaintiff, to pay the defendant the loan it obtained
as soon as it takes possession and management of the beach resort and resume
its business operation.
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of
P50,000.00.
So ORDERED. 1 8
Decision of the CA
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the RTC, and
insisted that: CHATEa
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN

DECLARING DBP'S FORECLOSURE OF THE MORTGAGED PROPERTIES AS
INVALID AND UNCALLED FOR.
II
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS INVOKED

BY DBP TO JUSTIFY FORECLOSURE AS "NOT SUFFICIENT." ON THE
CONTRARY, THE MORTGAGE WAS FORECLOSED BY EXPRESS AUTHORITY OF
PARAGRAPH NO. 4 OF THE MORTGAGE CONTRACT AND SECTION 2 OF P.D.
385 IN ADDITION TO THE QUESTIONED PAR. NO. 26 PRINTED AT THE BACK
OF THE FIRST PAGE OF THE MORTGAGE CONTRACT.
III
THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE MORTGAGED

PROPERTIES TO DBP AS INVALID UNDER ARTICLES 2113 AND 2141 OF THE
CIVIL CODE.
IV
THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE] ERROR

IN ORDERING DBP TO RETURN TO PLAINTIFF THE ACTUAL POSSESSION AND
ENJOYMENT OF ALL THE FORECLOSED PROPERTIES AND TO PAY PLAINTIFF
REASONABLE RENTAL FOR THE USE OF THE FORECLOSED BEACH RESORT.
caHCSD
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AGAINST DBP

WHICH MERELY EXERCISED ITS RIGHTS UNDER THE MORTGAGE CONTRACT.
19
In its decision promulgated on March 26, 2003, 2 0 however, the CA sustained the
RTC's judgment but deleted the award of attorney's fees, decreeing:
WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998,
rendered by the Regional Trial Court of Iloilo City, Branch 25 in Civil Case No.
12707 for Speci c Performance with Preliminary Injunction is hereby AFFIRMED
with MODIFICATION, in that the award for attorney's fees is deleted.
SO ORDERED. 2 1
DBP timely led a motion for reconsideration, but the CA denied its motion on
October 9, 2003.
Hence, this appeal by DBP.
Issues
DBP submits the following issues for consideration, namely:
WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS DATED
MARCH 26, 2003 AND ITS RESOLUTION DATED OCTOBER 9, DENYING
PETITIONER'S MOTION FOR RECONSIDERATION WERE ISSUED IN
ACCORDANCE WITH LAW, PREVAILING JURISPRUDENTIAL DECISION AND
SUPPORTED BY EVIDENCE; HSIADc
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED TO THE

USUAL COURSE OF JUDICIAL PROCEEDINGS IN DECIDING C.A.-G.R. CV NO.
59491 AND THEREFORE IN ACCORDANCE WITH THE "LAW OF THE CASE
DOCTRINE." 2 2
Ruling
The appeal lacks merit.
1.
Findings of the CA were supported by the
evidence as well as by law and jurisprudence
DBP submits that the loan had been granted under its supervised credit nancing
scheme for the development of a beach resort, and the releases of the proceeds would be
subject to conditions that included the veri cation of the progress of works in the project
to forestall diversion of the loan proceeds; and that under Stipulation No. 26 of the
mortgage contract, further loan releases would be terminated and the account would be
considered due and demandable in the event of a deviation from the purpose of the loan,
2 3 including the failure to put up the required equity and the diversion of the loan proceeds
to other purposes. 2 4 It assails the declaration by the CA that Guariña Corporation had not
yet been in default in its obligations despite violations of the terms of the mortgage
contract securing the promissory note.
Guariña Corporation counters that it did not violate the terms of the promissory
note and the mortgage contracts because DBP had fully collected the interest
notwithstanding that the principal obligation did not yet fall due and become demandable.
25
The submissions of DBP lack merit and substance.

The agreement between DBP and Guariña Corporation was a loan. Under the law, a
loan requires the delivery of money or any other consumable object by one party to
another who acquires ownership thereof, on the condition that the same amount or quality
shall be paid. 2 6 Loan is a reciprocal obligation, as it arises from the same cause where
one party is the creditor, and the other the debtor. 2 7 The obligation of one party in a
reciprocal obligation is dependent upon the obligation of the other, and the performance
should ideally be simultaneous. This means that in a loan, the creditor should release the
full loan amount and the debtor repays it when it becomes due and demandable. 2 8
In its assailed decision, the CA found and held thusly: EScAHT
xxx xxx xxx

. . . It is undisputed that appellee obtained a loan from appellant, and as
security, executed real estate and chattel mortgages. However, it was never
established that appellee was already in default. Appellant, in a telegram to the
appellee reminded the latter to make good on its construction works, otherwise, it
would foreclose the mortgage it executed. It did not mention that appellee was
already in default. The records show that appellant did not make any demand for
payment of the promissory note. It appears that the basis of the foreclosure was
not a default on the loan but appellee's failure to complete the project in
accordance with appellant's standards. In fact, appellant refused to release the
remaining balance of the approved loan after it found that the improvements
introduced by appellee were below appellant's expectations.
The loan agreement between the parties is a reciprocal obligation.

Appellant in the instant case bound itself to grant appellee the loan amount of
P3,387,000.00 condition on appellee's payment of the amount when it falls due.
Furthermore, the loan was evidenced by the promissory note which was secured
by real estate mortgage over several properties and additional chattel mortgage.
Reciprocal obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the obligation of one
is dependent upon the obligation of the other (Areola vs. Court of Appeals, 236
SCRA 643). They are to be performed simultaneously such that the performance
of one is conditioned upon the simultaneous ful lment of the other (Jaime Ong
vs. Court of Appeals, 310 SCRA 1). The promise of appellee to pay the loan upon
due date as well as to execute su cient security for said loan by way of
mortgage gave rise to a reciprocal obligation on the part of appellant to release
the entire approved loan amount. Thus, appellees are entitled to receive the total
loan amount as agreed upon and not an incomplete amount. cSIADH
The appellant did not release the total amount of the approved loan.
Appellant therefore could not have made a demand for payment of the loan since
it had yet to ful l its own obligation. Moreover, the fact that appellee was not yet
in default rendered the foreclosure proceedings premature and improper.
The properties which stood as security for the loan were foreclosed without
any demand having been made on the principal obligation. For an obligation to
become due, there must generally be a demand. Default generally begins from the
moment the creditor demands the performance of the obligation. Without such
demand, judicial or extrajudicial, the effects of default will not arise (Namarco vs.
Federation of United Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI of
Misamis Occidental, 88 SCRA 576).
xxx xxx xxx
Appellant also admitted in its brief that it indeed failed to release the full
amount of the approved loan. As a consequence, the real estate mortgage of
appellee becomes unenforceable, as it cannot be entirely foreclosed to satisfy
appellee's total debt to appellant (Central Bank of the Philippines vs. Court of
Appeals, 139 SCRA 46).
Since the foreclosure proceedings were premature and unenforceable, it
only follows that appellee is still entitled to possession of the foreclosed
properties. However, appellant took possession of the same by virtue of a writ of
possession issued in its favor during the pendency of the case. Thus, the trial
court correctly ruled when it ordered appellant to return actual possession of the
subject properties to appellee or its representative and to pay appellee reasonable
rents. CAaSHI
However, the award for attorney's fees is deleted. As a rule, the award of
attorney's fees is the exception rather than the rule and counsel's fees are not to
be awarded every time a party wins a suit. Attorney's fees cannot be recovered as
part of damages because of the policy that no premium should be placed on the
right to litigate (Pimentel vs. Court of Appeals, et al., 307 SCRA 38) . 2 9
xxx xxx xxx
We uphold the CA.

To start with, considering that the CA thereby a rmed the factual ndings of the
RTC, the Court is bound to uphold such ndings, for it is axiomatic that the trial court's
factual ndings as a rmed by the CA are binding on appeal due to the Court not being a
trier of facts.
Secondly, by its failure to release the proceeds of the loan in their entirety, DBP had
no right yet to exact on Guariña Corporation the latter's compliance with its own obligation
under the loan. Indeed, if a party in a reciprocal contract like a loan does not perform its
obligation, the other party cannot be obliged to perform what is expected of it while the
other's obligation remains unful lled. 3 0 In other words, the latter party does not incur
delay. 3 1 SIaHDA
Still, DBP called upon Guariña Corporation to make good on the construction works
pursuant to the acceleration clause written in the mortgage contract (i.e., Stipulation No.
26), 3 2 or else it would foreclose the mortgages.
DBP's actuations were legally unfounded. It is true that loans are often secured by a
mortgage constituted on real or personal property to protect the creditor's interest in case
of the default of the debtor. By its nature, however, a mortgage remains an accessory
contract dependent on the principal obligation, 3 3 such that enforcement of the mortgage
contract will depend on whether or not there has been a violation of the principal
obligation. While a creditor and a debtor could regulate the order in which they should
comply with their reciprocal obligations, it is presupposed that in a loan the lender should
perform its obligation — the release of the full loan amount — before it could demand that
the borrower repay the loaned amount. In other words, Guariña Corporation would not
incur in delay before DBP fully performed its reciprocal obligation. 3 4
Considering that it had yet to release the entire proceeds of the loan, DBP could not
yet make an effective demand for payment upon Guariña Corporation to perform its
obligation under the loan. According to Development Bank of the Philippines v. Licuanan, 3 5
it would only be when a demand to pay had been made and was subsequently refused that
a borrower could be considered in default, and the lender could obtain the right to collect
the debt or to foreclose the mortgage. Hence, Guariña Corporation would not be in default
without the demand.
Assuming that DBP could already exact from the latter its compliance with the loan
agreement, the letter dated February 27, 1978 that DBP sent would still not be regarded as
a demand to render Guariña Corporation in default under the principal contract because
DBP was only thereby requesting the latter "to put up the de ciency in the value of
improvements." 3 6
Under the circumstances, DBP's foreclosure of the mortgage and the sale of the
mortgaged properties at its instance were premature, and, therefore, void and ineffectual.
37 CcaASE

Being a banking institution, DBP owed it to Guariña Corporation to exercise the
highest degree of diligence, as well as to observe the high standards of integrity and
performance in all its transactions because its business was imbued with public interest.
3 8 The high standards were also necessary to ensure public con dence in the banking
system, for, according to Philippine National Bank v. Pike : 3 9 "The stability of banks largely
depends on the con dence of the people in the honesty and e ciency of banks." Thus,
DBP had to act with great care in applying the stipulations of its agreement with Guariña
Corporation, lest it erodes such public con dence. Yet, DBP failed in its duty to exercise
the highest degree of diligence by prematurely foreclosing the mortgages and
unwarrantedly causing the foreclosure sale of the mortgaged properties despite Guariña
Corporation not being yet in default. DBP wrongly relied on Stipulation No. 26 as its basis
to accelerate the obligation of Guariña Corporation, for the stipulation was relevant to an
Omnibus Agricultural Loan, to Guariña Corporation's loan which was intended for a project
other than agricultural in nature. EAIcCS
Even so, Guariña Corporation did not elevate the actionability of DBP's negligence to
the CA, and did not also appeal the CA's deletion of the award of attorney's fees allowed by
the RTC. With the decision of the CA consequently becoming nal and immutable as to
Guariña Corporation, we will not delve any further on DBP's actionable actuations.
2.
The doctrine of law of the case
did not apply herein
DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP already
constituted the law of the case. Hence, the CA could not decide the appeal in C.A.-G.R. CV
No. 59491 differently.
Guariña Corporation counters that the ruling in C.A.-G.R. No. 12670-SP did not
constitute the law of the case because C.A.-G.R. No. 12670-SP concerned the issue of
possession by DBP as the winning bidder in the foreclosure sale, and had no bearing
whatsoever to the legal issues presented in C.A.-G.R. CV No. 59491.
Law of the case has been de ned as the opinion delivered on a former appeal, and
means, more speci cally, that whatever is once irrevocably established as the controlling
legal rule of decision between the same parties in the same case continues to be the law
of the case, whether correct on general principles or not, so long as the facts on which
such decision was predicated continue to be the facts of the case before the court. 4 0 STcEIC
The concept of law of the case is well explained in Mangold v. Bacon, 4 1 an American
case, thusly:
The general rule, nakedly and boldly put, is that legal conclusions
announced on a rst appeal, whether on the general law or the law as applied to
the concrete facts, not only prescribe the duty and limit the power of the trial court
to strict obedience and conformity thereto, but they become and remain the law of
the case in all other steps below or above on subsequent appeal. The rule is
grounded on convenience, experience, and reason. Without the rule there would be
no end to criticism, reagitation, reexamination, and reformulation. In short, there
would be endless litigation. It would be intolerable if parties litigants were allowed
to speculate on changes in the personnel of a court, or on the chance of our
rewriting propositions once gravely ruled on solemn argument and handed down
as the law of a given case. An itch to reopen questions foreclosed on a rst
appeal would result in the foolishness of the inquisitive youth who pulled up his
corn to see how it grew. Courts are allowed, if they so choose, to act like ordinary
sensible persons. The administration of justice is a practical affair. The rule is a
practical and a good one of frequent and beneficial use.
The doctrine of law of the case simply means, therefore, that when an appellate
court has once declared the law in a case, its declaration continues to be the law of that
case even on a subsequent appeal, notwithstanding that the rule thus laid down may have
been reversed in other cases. 4 2 For practical considerations, indeed, once the appellate
court has issued a pronouncement on a point that was presented to it with full opportunity
to be heard having been accorded to the parties, the pronouncement should be regarded
as the law of the case and should not be reopened on remand of the case to determine
other issues of the case, like damages. 4 3 But the law of the case, as the name implies,
concerns only legal questions or issues thereby adjudicated in the former appeal. EIAScH
The foregoing understanding of the concept of the law of the case exposes DBP's
insistence to be unwarranted.
To start with, the ex parte proceeding on DBP's application for the issuance of the
writ of possession was entirely independent from the judicial demand for speci c
performance herein. In fact, C.A.-G.R. No. 12670-SP, being the interlocutory appeal
concerning the issuance of the writ of possession while the main case was pending, was
not at all intertwined with any legal issue properly raised and litigated in C.A.-G.R. CV No.
59491, which was the appeal to determine whether or not DBP's foreclosure was valid and
effectual. And, secondly, the ruling in C.A.-G.R. No. 12670-SP did not settle any question of
law involved herein because this case for speci c performance was not a continuation of
C.A.-G.R. No. 12670-SP (which was limited to the propriety of the issuance of the writ of
possession in favor of DBP), and vice versa. CITaSA
3.
Guariña Corporation is legally entitled to the
restoration of the possession of the resort complex
and payment of reasonable rentals by DBP
Having found and pronounced that the extrajudicial foreclosure by DBP was
premature, and that the ensuing foreclosure sale was void and ineffectual, the Court
a rms the order for the restoration of possession to Guariña Corporation and the
payment of reasonable rentals for the use of the resort. The CA properly held that the
premature and invalid foreclosure had unjustly dispossessed Guariña Corporation of its
properties. Consequently, the restoration of possession and the payment of reasonable
rentals were in accordance with Article 561 of the Civil Code, which expressly states that
one who recovers, according to law, possession unjustly lost shall be deemed for all
purposes which may redound to his benefit to have enjoyed it without interruption. aCcEHS
WHEREFORE , the Court AFFIRMS the decision promulgated on March 26, 2003;
and ORDERS the petitioner to pay the costs of suit.
SO ORDERED .
Sereno, C.J., Leonardo-de Castro, Villarama, Jr. and Reyes, JJ., concur.
Footnotes
1. Rollo, at 36-44; penned by Associate Justice Juan Q. Enriquez, Jr. (retired), and concurred in
by Associate Justice Rodrigo V. Cosico (retired) and Associate Justice Edgardo F.
Sundiam (retired/deceased).
2. CA rollo, at 23-34; penned by Judge Bartolome M. Fanuñal.

3. Rollo, p. 37.
4. Records, Vol. 1, p. 8.
5. Id. at 9-10.
6. Rollo, pp. 37-38.
7. Id. at 38.
8. Records, Vol. 1, pp. 23-24.
9. Id. at 25.
10. Rollo, p. 38.
11. Id.
12. Records pp. 1-7.
13. Id. at 30-31.
14. Id. at 40-46.
15. Id. at 55-57.
16. Rollo, pp. 38-39.

17. Id. at 39.
18. CA rollo, p. 34.
19. Id. at 49-51.
20. Supra note 1.
21. Rollo, p. 43.

22. Id. at 23.
23. Id. at 25.
24. Id. at 28-29.
25. Id. at 127-137.

26. Article 1953, in relation to Article 1933, Civil Code.
27. IV Tolentino, The Civil Code of the Philippines, p. 175 (1999).
28. Subic Bay Metropolitan Authority v. Court of Appeals , G.R. No. 192885, July 4, 2012, 675
SCRA 758, 766.
29. Supra note 1, at 41-43.
30. Cortes v. Court of Appeals, G.R. No. 126083, July 12, 2006, 494 SCRA 570, 576.
31. Article 1169, Civil Code; IV Tolentino, op. cit., at 109.
32. Records, Volume 2, at 646-a.
Stipulation No. 26 reads:
26. That the Mortgagee reserves the right to reduce or stop releases/advances if after
inspection and veri cation the accomplishment of the nanced project does not justify
giving the full amount, or if the conditions of the project do not show improvement
commensurate with the amount already advanced/released. In such an event or in the
event of abandonment of the project, all advances/releases made shall automatically
become due and demandable and the Mortgagee shall take such legal steps as are
necessary to protect its interest.
33. Rigor v. Consolidated Orix Leasing and Financing Corporation, 387 SCRA 437, 444.
34. Selegna Management and Development Corporation v. United Coconut Planters Bank , G.R.
No. 165662, May 3, 2006, 489 SCRA 125, 138.
35. G.R. No. 150097, February 26, 2007, 516 SCRA 644.
36. Supra note 8.
37. Development Bank of the Philippines v. Licuanan, supra, note 35, at 654.
38. Comsavings Bank (now GSIS Family Savings Bank) v. Capistrano , G.R. 170942, August 28,
2013; citing Philippine National Bank v. Chea Chee Chong , G.R. Nos. 170865 and
170892, April 25, 2012, 671 SCRA 49, 62-63; Solidbank Corporation v. Arrieta , G.R. No.
152720, February 17, 2005, 451 SCRA 711, 720; and Philippine Commercial International
Bank v. Court of Appeals , G.R. Nos. 121413, 121479 and 128604, January 29, 2001, 350
SCRA 446, 472.
39. G.R. No. 157845, September 20, 2005, 470 SCRA 328, 347.
40. Kilosbayan, Incorporated v. Morato , G.R. No. 118910, July 17, 1995, 246 SCRA 540, 559,
citing People v. Pinuila, 103 Phil. 992, 999 (1958).
41. 237 Mo. 496, cited and quoted in Zarate v. Director of Lands, 39 Phil. 747, 750 (1919).
42. Zarate v. Director of Lands, 39 Phil. 747, 750 (1919).
43. Bachrach Motor Co. v. Esteva, 67 Phil. 16 (1938).

FIRST DIVISION
[G.R. No. 154878. March 16, 2007.]
CAROLYN M. GARCIA , petitioner, vs . RICA MARIE S. THIO , respondent.
DECISION
CORONA , J : p
Assailed in this petition for review on certiorari 1 are the June 19, 2002 decision 2
and August 20, 2002 resolution 3 of the Court of Appeals (CA) in CA-G.R. CV No. 56577
which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati
City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner
Carolyn M. Garcia a crossed check 4 dated February 24, 1995 in the amount of
US$100,000 payable to the order of a certain Marilou Santiago. 5 Thereafter, petitioner
received from respondent every month (speci cally, on March 24, April 26, June 26 and
July 26, all in 1995) the amount of US$3,000 6 and P76,500 7 on July 26, 8 August 26,
September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed check 9 dated
June 29, 1995 in the amount of P500,000, also payable to the order of Marilou Santiago. 1 0
Consequently, petitioner received from respondent the amount of P20,000 every month on
August 5, September 5, October 5 and November 5, 1995. 1 1
According to petitioner, respondent failed to pay the principal amounts of the loans
(US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed
a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against
respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a
month from October 26, 1995 and P500,000, with interest thereon at 4% a month from
November 5, 1995, plus attorney's fees and actual damages. 1 2
Petitioner alleged that on February 24, 1995, respondent borrowed from her the
amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would
mature on October 26, 1995. 1 3 The amount of this loan was covered by the rst check. On
June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly
interest of 4%, the maturity date of which was on November 5, 1995. 1 4 The amount of this
loan was covered by the second check. For both loans, no promissory note was executed
since petitioner and respondent were close friends at the time. 1 5 Respondent paid the
stipulated monthly interest for both loans but on their maturity dates, she failed to pay the
principal amounts despite repeated demands. 1 6
Respondent denied that she contracted the two loans with petitioner and countered
that it was Marilou Santiago to whom petitioner lent the money. She claimed she was
merely asked by petitioner to give the crossed checks to Santiago. 1 7 She issued the
checks for P76,000 and P20,000 not as payment of interest but to accommodate
petitioner's request that respondent use her own checks instead of Santiago's. 1 8

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner. 1 9 It found
that respondent borrowed from petitioner the amounts of US$100,000 with monthly
interest of 3% and P500,000 at a monthly interest of 4%: 2 0
WHEREFORE, nding preponderance of evidence to sustain the instant
complaint, judgment is hereby rendered in favor of [petitioner], sentencing
[respondent] to pay the former the amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3%
per month from October 26, 1995 until fully paid; CcAESI
2. P500,000.00 with interest thereon at 4% per month from November

5, 1995 until fully paid.
3. P100,000.00 as and for attorney's fees; and
4. P50,000.00 as and for actual damages.

For lack of merit, [respondent's] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED. 2 1
On appeal, the CA reversed the decision of the RTC and ruled that there was no
contract of loan between the parties:
A perusal of the record of the case shows that [petitioner] failed to
substantiate her claim that [respondent] indeed borrowed money from her. There
is nothing in the record that shows that [respondent] received money
from [petitioner] . What is evident is the fact that [respondent] received a
MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00,
payable to the order of Marilou Santiago and a CityTrust [crossed] check dated
June 29, 1995 in the amount of P500,000.00, again payable to the order of
Marilou Santiago, both of which were issued by [petitioner]. The checks
received by [respondent], being crossed, may not be encashed but only
deposited in the bank by the payee thereof, that is, by Marilou Santiago
herself .
It must be noted that crossing a check has the following effects: (a) the
check may not be encashed but only deposited in the bank; (b) the check may be
negotiated only once — to one who has an account with the bank; (c) and the act
of crossing the check serves as warning to the holder that the check has been
issued for a de nite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the

issuance and delivery to the payee in contemplation of law since the latter is not
the person who could take the checks as a holder, i.e., as a payee or indorsee
thereof, with intent to transfer title thereto. Neither could she be deemed as an
agent of Marilou Santiago with respect to the checks because she was merely
facilitating the transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there were
really no contracts of loan that existed between the parties. . . . (emphasis
supplied) 2 2

Hence this petition. 2 3
As a rule, only questions of law may be raised in a petition for review on certiorari
under Rule 45 of the Rules of Court. However, this case falls under one of the exceptions,
i.e., when the factual ndings of the CA (which held that there were no contracts of loan
between petitioner and respondent) and the RTC (which held that there were contracts of
loan) are contradictory. 2 4
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the
delivery of the object of the contract. 2 5 This is evident in Art. 1934 of the Civil Code which
provides:
An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan
itself shall not be perfected until the delivery of the object of the
contract . (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by
the debtor when the checks were encashed) the debtor acquires ownership of such
money or loan proceeds and is bound to pay the creditor an equal amount. 2 6
It is undisputed that the checks were delivered to respondent. However, these
checks were crossed and payable not to the order of respondent but to the order of a
certain Marilou Santiago. Thus the main question to be answered is: who borrowed money
from petitioner — respondent or Santiago?
Petitioner insists that it was upon respondent's instruction that both checks were
made payable to Santiago. 2 7 She maintains that it was also upon respondent's instruction
that both checks were delivered to her (respondent) so that she could, in turn, deliver the
same to Santiago. 2 8 Furthermore, she argues that once respondent received the checks,
the latter had possession and control of them such that she had the choice to either
forward them to Santiago (who was already her debtor), to retain them or to return them to
petitioner. 2 9
We agree with petitioner. Delivery is the act by which the res or substance thereof is
placed within the actual or constructive possession or control of another. 3 0 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. STcHDC
Several factors support this conclusion.

First, respondent admitted that petitioner did not personally know Santiago. 3 1 It
was highly improbable that petitioner would grant two loans to a complete stranger
without requiring as much as promissory notes or any written acknowledgment of the
debt considering that the amounts involved were quite big. Respondent, on the other hand,
already had transactions with Santiago at that time. 3 2
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name
appeared in both parties' list of witnesses) testi ed that respondent's plan was for
petitioner to lend her money at a monthly interest rate of 3%, after which respondent would
lend the same amount to Santiago at a higher rate of 5% and realize a pro t of 2%. 3 3 This
explained why respondent instructed petitioner to make the checks payable to Santiago.
Respondent has not shown any reason why Ruiz' testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the
amount of P76,000 each (peso equivalent of US$3,000) for eight months to cover the
monthly interest. For the P500,000 loan, she also issued her own checks in the amount of
P20,000 each for four months. 3 4 According to respondent, she merely accommodated
petitioner's request for her to issue her own checks to cover the interest payments since
petitioner was not personally acquainted with Santiago. 3 5 She claimed, however, that
Santiago would replace the checks with cash. 3 6 Her explanation is simply incredible. It is
di cult to believe that respondent would put herself in a position where she would be
compelled to pay interest, from her own funds, for loans she allegedly did not contract. We
declared in one case that:
In the assessment of the testimonies of witnesses, this Court is guided by
the rule that for evidence to be believed, it must not only proceed from the mouth
of a credible witness, but must be credible in itself such as the common
experience of mankind can approve as probable under the circumstances. We
have no test of the truth of human testimony except its conformity to our
knowledge, observation, and experience. Whatever is repugnant to these belongs
to the miraculous, and is outside of juridical cognizance. 3 7
Fourth, in the petition for insolvency sworn to and led by Santiago, it was
respondent, not petitioner, who was listed as one of her (Santiago's) creditors. 3 8
Last, respondent inexplicably never presented Santiago as a witness to corroborate
her story. 3 9 The presumption is that "evidence willfully suppressed would be adverse if
produced." 4 0 Respondent was not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did
not borrow the amounts of US$100,000 and P500,000 from petitioner. We instead agree
with the ruling of the RTC making respondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly
interest for the US$100,000 and P500,000 loans respectively. There was no written proof
of the interest payable except for the verbal agreement that the loans would earn 3% and
4% interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be
due unless it has been expressly stipulated in writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest
pursuant to Article 2209 of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code. 4 1
Hence, respondent is liable for the payment of legal interest per annum to be
computed from November 21, 1995, the date when she received petitioner's demand
letter. 4 2 From the nality of the decision until it is fully paid, the amount due shall earn
interest at 12% per annum, the interim period being deemed equivalent to a forbearance of
credit. 4 3
The award of actual damages in the amount of P50,000 and P100,000 attorney's
fees is deleted since the RTC decision did not explain the factual bases for these
damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and
August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 are
REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial Court in
Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is directed to
pay petitioner the amounts of US$100,000 and P500,000 at 12% per annum interest from
November 21, 1995 until the nality of the decision. The total amount due as of the date of
nality will earn interest of 12% per annum until fully paid. The award of actual damages
and attorney's fees is deleted. cda
SO ORDERED.
Puno, C.J., Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur.
Footnotes
1. Under Rule 45 of the Rules of Court.

2. Penned by former Associate Justice Eubulo G. Verzola (deceased) and concurred in by
Associate Justices Bernardo P. Abesamis (retired) and Josefina Guevara-Salonga of the
Third Division of the Court of Appeals; rollo, pp. 98-102.
3. Id., pp. 104-105.
4. This was Metrobank check no. 26910; id., pp. 70, 224 and 368.
5. Id., pp. 60, 100-101, 224.
6. Id., pp. 60-61. According to respondent, she originally issued four postdated checks each
in the amount of P76,000 on the same dates mentioned but these were not encashed
and instead each check was replaced by Santiago with US$3,000 in cash given by
respondent to petitioner; id., p. 224.
7. This was the peso equivalent of US$3,000 computed at the exchange rate of P25.50 to
$1.00; id., pp. 17 and 88. These postdated checks were deposited on their respective due
dates and honored by the drawee bank; id., p. 225.
8. According to respondent, this check was replaced by Santiago with cash in the amount
of US$3,000.
9. This was City Trust check no. 467257; rollo, pp. 90 and 327.
10. Id., pp. 60, 101 and 225.
11. Id., p. 109.
12. Docketed as Civil Case No. 96-266; rollo, pp. 15, 60 and 364.
13. Id., p. 109.
14. Id., p. 110.
15. Id., p. 16.
16. Id., p. 110.
17. Id., p. 224.
18. Id.
19. Id., pp. 60-95.
20. Id., pp. 79 and 89.
21. Id., pp. 94-95.
22. Id., pp. 100-101, citation omitted.
23. The issues submitted for resolution are the following:
(A) Is actual and physical delivery of the money loaned directly from the lender to the
borrower the only way to perfect a contract of loan?
(B) Does the respondent's admission that she paid interests to the petitioner on the
amounts represented by the two checks given to her by said petitioner render said
respondent in estoppel to question that there was no loan transaction between her and
the petitioner?
(C) Is respondent's written manifestation in the trial court, through counsel, that she
interposes no objection to the admission of petitioner's documentary exhibits for the
multiple purposes specified in the latter's Formal Offer of Documentary Exhibits a
judicial admission governed by Rule 129, Section 4, Rules of Court?
(D) Is this Honorable Court bound by the conclusions of fact relied upon by the [CA] in
issuing its disputed Decision?
(E) Have the [RTC's] findings of fact on the lone issue on which respondent litigated in
the [RTC], viz. existence of privity of contract between petitioner and respondent, been
overturned or set aside by the [CA]?
(F) May the respondent validly change the theory of her case from one of privity of
contract between her and the petitioner in the [RTC], to one of not being a holder in due
course of the crossed checks payable to a third party in the [CA] and before this
Honorable Court?
(G) Is the petitioner's entitlement to interest, despite absence of a written stipulation on
the payment thereof, justified?
(H) Is the deletion by the [CA] of the [RTC's] award of attorney's fees and actual damages
in favor of the petitioner justified? Id., pp. 401-402.
24. Philippine National Bank v. Andrada Electric & Engineering Co., G.R. No. 142936, 17
April 2002, 381 SCRA 244, 253, citing Fuentes v. CA, 335 Phil. 1163, 1167-1169 (1997).
25. Naguiat v. Court of Appeals, G.R. No. 118375, 3 October 2003, 412 SCRA 591, 597.
26. Article 1953 of the Civil Code states:
A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind
and quality.
27. Rollo, p. 39.

28. Id.
29. Id., pp. 39-40.
30. Buenaflor v. Court of Appeals, G.R. No. 142021, 29 November 2000, 346 SCRA 563, 569,
citing Black's Law Dictionary, 5th ed.
31. Rollo, p. 64.

32. Id., p. 70.
33. Id., pp. 76 and 85.
34. Id., pp. 16-17, 224-225, 411.
35. Id., p. 224.
36. Id., p. 70.
37. People v. Mala, G.R. No. 152351, 18 September 2003, 411 SCRA 327, 337, citing People
v. Dayag, 155 Phil. 421, 431 (1974).
38. Rollo, pp. 88 and 94.
39. Id., p. 93.
40. Sec. 3 (e), Rule 131, Rules of Court.
41. Eusebio-Calderon v. People, G.R. No. 158495, 21 October 2004, 441 SCRA 137, 148-149,
citing Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234
SCRA 78, 95; Cabrera v. People, G.R. No. 150618, 24 July 2003, 407 SCRA 247, 261.
42. Rollo, p. 65.
43. Cabrera v. People, supra.

THIRD DIVISION
[G.R. Nos. 173654-765. August 28, 2008.]
PEOPLE OF THE PHILIPPINES , petitioners, vs . TERESITA PUIG and

ROMEO PORRAS , respondent.
DECISION
CHICO-NAZARIO , J : p
This is a Petition for Review under Rule 45 of the Revised Rules of Court with
petitioner People of the Philippines, represented by the O ce of the Solicitor General,
praying for the reversal of the Orders dated 30 January 2006 and 9 June 2006 of the
Regional Trial Court (RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo,
dismissing the 112 cases of Quali ed Theft led against respondents Teresita Puig
and Romeo Porras, and denying petitioner's Motion for Reconsideration, in Criminal
Cases No. 05-3054 to 05-3165. IDAaCc
The following are the factual antecedents:

On 7 November 2005, the Iloilo Provincial Prosecutor's O ce led before Branch
68 of the RTC in Dumangas, Iloilo, 112 cases of Quali ed Theft against respondents
Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper,
respectively, of private complainant Rural Bank of Pototan, Inc. The cases were
docketed as Criminal Cases No. 05-3054 to 05-3165.
The allegations in the Informations 1 led before the RTC were uniform and pro-
forma, except for the amounts, date and time of commission, to wit:
INFORMATION
That on or about the 1st day of August, 2002, in the Municipality of

Pototan, Province of Iloilo, Philippines, and within the jurisdiction of this
Honorable Court, above-named [respondents], conspiring, confederating, and
helping one another, with grave abuse of con dence , being the Cashier
and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the
knowledge and/or consent of the management of the Bank and with intent of
gain, did then and there willfully, unlawfully and feloniously take, steal and carry
away the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine
Currency, to the damage and prejudice of the said bank in the aforesaid
amount.
After perusing the Informations in these cases, the trial court did not nd the
existence of probable cause that would have necessitated the issuance of a warrant of
arrest based on the following grounds:
(1) the element of 'taking without the consent of the owners ' was
missing on the ground that it is the depositors-clients, and not the Bank,
which led the complaint in these cases, who are the owners of the money
allegedly taken by respondents and hence, are the real parties-in-interest;
and
(2) the Informations are bereft of the phrase alleging "dependence,
guardianship or vigilance between the respondents and the
offended party that would have created a high degree of
con dence between them which the respondents could have
abused ."
ADECcI
It added that allowing the 112 cases for Quali ed Theft led against the respondents
to push through would be violative of the right of the respondents under Section 14 (2),
Article III of the 1987 Constitution which states that in all criminal prosecutions, the
accused shall enjoy the right to be informed of the nature and cause of the accusation
against him. Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure,
the RTC dismissed the cases on 30 January 2006 and refused to issue a warrant of
arrest against Puig and Porras.
A Motion for Reconsideration 2 was filed on 17 April 2006, by the petitioner.
On 9 June 2006, an Order 3 denying petitioner's Motion for Reconsideration was
issued by the RTC, finding as follows:
Accordingly, the prosecution's Motion for Reconsideration should be, as it
hereby, DENIED. The Order dated January 30, 2006 STANDS in all respects.
Petitioner went directly to this Court via Petition for Review on Certiorari under
Rule 45, raising the sole legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT
SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT
OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF
CONFIDENCE.
Petitioner prays that judgment be rendered annulling and setting aside the
Orders dated 30 January 2006 and 9 June 2006 issued by the trial court, and that it be
directed to proceed with Criminal Cases No. 05-3054 to 05-3165.
Petitioner explains that under Article 1980 of the New Civil Code, " xed, savings,
and current deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loans." Corollary thereto, Article 1953 of the same
Code provides that "a person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal amount of
the same kind and quality." Thus, it posits that the depositors who place their money
with the bank are considered creditors of the bank. The bank acquires ownership of the
money deposited by its clients, making the money taken by respondents as belonging
to the bank. aSEHDA
Petitioner also insists that the Informations su ciently allege all the elements of
the crime of quali ed theft, citing that a perusal of the Informations will show that they
speci cally allege that the respondents were the Cashier and Bookkeeper of the Rural
Bank of Pototan, Inc., respectively, and that they took various amounts of money with
grave abuse of con dence, and without the knowledge and consent of the bank, to the
damage and prejudice of the bank.
Parenthetically, respondents raise procedural issues. They challenge the petition
on the ground that a Petition for Review on Certiorari via Rule 45 is the wrong mode of
appeal because a nding of probable cause for the issuance of a warrant of arrest
presupposes evaluation of facts and circumstances, which is not proper under said
Rule.
Respondents further claim that the Department of Justice (DOJ), through the
Secretary of Justice, is the principal party to le a Petition for Review on Certiorari,
considering that the incident was indorsed by the DOJ. HECTaA
We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insu ciency
of the Informations and, therefore, because of this defect, there is no basis for the
existence of probable cause which will justify the issuance of the warrant of arrest.
Petitioner assails the dismissal contending that the Informations for Quali ed Theft
su ciently state facts which constitute (a) the qualifying circumstance of grave abuse
of confidence; and (b) the element of taking, with intent to gain and without the consent
of the owner, which is the Bank.
In determining the existence of probable cause to issue a warrant of arrest, the
RTC judge found the allegations in the Information inadequate. He ruled that the
Information failed to state facts constituting the qualifying circumstance of grave
abuse of con dence and the element of taking without the consent of the owner, since
the owner of the money is not the Bank, but the depositors therein. He also cites People
v. Koc Song, 4 in which this Court held:
There must be allegation in the information and proof of a relation, by
reason of dependence, guardianship or vigilance, between the respondents and
the offended party that has created a high degree of con dence between them,
which the respondents abused.
At this point, it needs stressing that the RTC Judge based his conclusion that there was
no probable cause simply on the insu ciency of the allegations in the Informations
concerning the facts constitutive of the elements of the offense charged. This,
therefore, makes the issue of su ciency of the allegations in the Informations the focal
point of discussion.
Quali ed Theft, as de ned and punished under Article 310 of the Revised Penal
Code, is committed as follows, viz.:
ART. 310. Qualified Theft. — The crime of theft shall be punished by
the penalties next higher by two degrees than those respectively speci ed in the
next preceding article, if committed by a domestic servant, or with grave
abuse of con dence , or if the property stolen is motor vehicle, mail matter or
large cattle or consists of coconuts taken from the premises of a plantation, fish
taken from a shpond or shery or if property is taken on the occasion of re,
earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident
or civil disturbance. (Emphasis supplied.) HcaDIA
Theft, as de ned in Article 308 of the Revised Penal Code, requires the physical
taking of another's property without violence or intimidation against persons or force
upon things. The elements of the crime under this Article are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon
things.
To fall under the crime of Qualified Theft, the following elements must concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owner's consent;
5. That it be accomplished without the use of violence or
intimidation against persons, nor of force upon things;
6. That it be done with grave abuse of confidence.
On the su ciency of the Information, Section 6, Rule 110 of the Rules of Court
requires, inter alia, that the information must state the acts or omissions complained of
as constitutive of the offense.
On the manner of how the Information should be worded, Section 9, Rule 110 of
the Rules of Court, is enlightening:
Section 9. Cause of the accusation. — The acts or omissions
complained of as constituting the offense and the qualifying and aggravating
circumstances must be stated in ordinary and concise language and not
necessarily in the language used in the statute but in terms su cient to enable
a person of common understanding to know what offense is being charged as
well as its qualifying and aggravating circumstances and for the court to
pronounce judgment.
It is evident that the Information need not use the exact language of the statute in
alleging the acts or omissions complained of as constituting the offense. The test is
whether it enables a person of common understanding to know the charge against him,
and the court to render judgment properly. 5
The portion of the Information relevant to this discussion reads: HcTSDa
[A]bove-named [respondents], conspiring, confederating, and helping one

another, with grave abuse of con dence, being the Cashier and
Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the
knowledge and/or consent of the management of the Bank . . . .
It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a
Bank who come into possession of the monies deposited therein enjoy the con dence
reposed in them by their employer. Banks, on the other hand, where monies are
deposited, are considered the owners thereof. This is very clear not only from the
express provisions of the law, but from established jurisprudence. The relationship
between banks and depositors has been held to be that of creditor and debtor. Articles
1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner,
provide as follows:
Article 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions concerning loan.
In a long line of cases involving Quali ed Theft, this Court has rmly established
the nature of possession by the Bank of the money deposits therein, and the duties
being performed by its employees who have custody of the money or have come into
possession of it. The Court has consistently considered the allegations in the
Information that such employees acted with grave abuse of con dence, to the damage
and prejudice of the Bank, without particularly referring to it as owner of the money
deposits, as su cient to make out a case of Quali ed Theft. For a graphic illustration,
we cite Roque v. People , 6 where the accused teller was convicted for Quali ed Theft
based on this Information:
That on or about the 16th day of November, 1989, in the municipality of
Floridablanca, province of Pampanga, Philippines and within the jurisdiction of
his Honorable Court, the above-named accused ASUNCION GALANG ROQUE,
being then employed as teller of the Basa Air Base Savings and Loan
Association Inc. (BABSLA) with o ce address at Basa Air Base, Floridablanca,
Pampanga, and as such was authorized and reposed with the responsibility to
receive and collect capital contributions from its member/contributors of said
corporation, and having collected and received in her capacity as teller of the
BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with
intent of gain, with grave abuse of con dence and without the
knowledge and consent of said corporation, did then and there willfully,
unlawfully and feloniously take, steal and carry away the amount of
P10,000.00, Philippine currency, by making it appear that a certain depositor by
the name of Antonio Salazar withdrew from his Savings Account No. 1359,
when in truth and in fact said Antonio Salazar did not withdr[a]w the said
amount of P10,000.00 to the damage and prejudice of BABSLA in the total
amount of P10,000.00, Philippine currency. aEcHCD
In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of con dence, and the bank places
money in the teller's possession due to the con dence reposed on the teller, the
felony of qualified theft would be committed. 7
Also in People v. Sison , 8 the Branch Operations O cer was convicted of the
crime of Qualified Theft based on the Information as herein cited:
That in or about and during the period compressed between January 24,
1992 and February 13, 1992, both dates inclusive, in the City of Manila,
Philippines, the said accused did then and there wilfully, unlawfully and
feloniously, with intent of gain and without the knowledge and consent of the
owner thereof, take, steal and carry away the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations
belonging to the PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank
for brevity), Luneta Branch, Manila represented by its Branch Manager, HELEN
U. FARGAS, to the damage and prejudice of the said owner in the aforesaid
amount of P6,000,000.00, Philippine Currency.
That in the commission of the said offense, herein accused acted with
grave abuse of con dence and unfaithfulness, he being the Branch Operation
O cer of the said complainant and as such he had free access to the place
where the said amount of money was kept.
The judgment of conviction elaborated thus:
The crime perpetuated by appellant against his employer, the Philippine
Commercial and Industrial Bank (PCIB), is Quali ed Theft. Appellant could not
have committed the crime had he not been holding the position of Luneta
Branch Operation O cer which gave him not only sole access to the bank vault
. . . . The management of the PCIB reposed its trust and con dence in the
appellant as its Luneta Branch Operation O cer, and it was this trust and
con dence which he exploited to enrich himself to the damage and prejudice of
PCIB . . . . 9 cCTAIE
From another end, People v. Locson , 10 in addition to People v. Sison ,

described the nature of possession by the Bank. The money in this case was in the
possession of the defendant as receiving teller of the bank, and the possession of the
defendant was the possession of the Bank. The Court held therein that when the
defendant, with grave abuse of con dence, removed the money and appropriated it to
his own use without the consent of the Bank, there was taking as contemplated in the
crime of Qualified Theft. 1 1
Conspicuously, in all of the foregoing cases, where the Informations merely
alleged the positions of the respondents; that the crime was committed with grave
abuse of con dence, with intent to gain and without the knowledge and consent of the
Bank, without necessarily stating the phrase being assiduously insisted upon by
respondents, "of a relation by reason of dependence, guardianship or vigilance,
between the respondents and the offended party that has created a high
degree of con dence between them, which respondents abused," 1 2 and
without employing the word "owner" in lieu of the "Bank" were considered to have
satisfied the test of sufficiency of allegations.
As regards the respondents who were employed as Cashier and Bookkeeper of
the Bank in this case, there is even no reason to quibble on the allegation in the
Informations that they acted with grave abuse of con dence. In fact, the Information
which alleged grave abuse of con dence by accused herein is even more precise, as
this is exactly the requirement of the law in qualifying the crime of Theft.
In summary, the Bank acquires ownership of the money deposited by its clients;
and the employees of the Bank, who are entrusted with the possession of money of the
Bank due to the con dence reposed in them, occupy positions of con dence. The
Informations, therefore, su ciently allege all the essential elements constituting the
crime of Qualified Theft.
On the theory of the defense that the DOJ is the principal party who may le the
instant petition, the ruling in Mobilia Products, Inc. v. Hajime Umezawa 1 3 is instructive.
The Court thus enunciated: CacTIE
In a criminal case in which the offended party is the State, the interest of
the private complainant or the offended party is limited to the civil liability
arising therefrom. Hence, if a criminal case is dismissed by the trial court or if
there is an acquittal, a reconsideration of the order of dismissal or acquittal may
be undertaken, whenever legally feasible, insofar as the criminal aspect thereof
is concerned and may be made only by the public prosecutor; or in the case of
an appeal, by the State only, through the OSG. . . . .
On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule
is well-settled that in appeals by certiorari under Rule 45 of the Rules of Court, only
errors of law may be raised, 1 4 and herein petitioner certainly raised a question of law.
As an aside, even if we go beyond the allegations of the Informations in these
cases, a closer look at the records of the preliminary investigation conducted will show
that, indeed, probable cause exists for the indictment of herein respondents. Pursuant
to Section 6, Rule 112 of the Rules of Court, the judge shall issue a warrant of arrest
only upon a nding of probable cause after personally evaluating the resolution of the
prosecutor and its supporting evidence. Soliven v. Makasiar , 1 5 as reiterated in
Allado v. Driokno , 1 6 explained that probable cause for the issuance of a warrant of
arrest is the existence of such facts and circumstances that would lead a reasonably
discreet and prudent person to believe that an offense has been committed by the
person sought to be arrested. 1 7 The records reasonably indicate that the respondents
may have, indeed, committed the offense charged.
Before closing, let it be stated that while it is truly imperative upon the scal or
the judge, as the case may be, to relieve the respondents from the pain of going
through a trial once it is ascertained that no probable cause exists to form a su cient
belief as to the guilt of the respondents, conversely, it is also equally imperative upon
the judge to proceed with the case upon a showing that there is a prima facie case
against the respondents.
WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby
GRANTED. The Orders dated 30 January 2006 and 9 June 2006 of the RTC dismissing
Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET ASIDE. Let the
corresponding Warrants of Arrest issue against herein respondents TERESITA PUIG
and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to
proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive, with
reasonable dispatch. No pronouncement as to costs. CDEaAI
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Reyes and Leonardo-de Castro, * JJ., concur.
Footnotes
1. Records, pp. 1, 170-391.
2. Records, pp. 490-495.
3. Id. at 469-470.
4. 63 Phil. 369, 371 (1936).
5. People v. Lab-eo, 424 Phil. 482, 495 (2002).
6. G.R. No. 138954, 25 November 2004, 444 SCRA 98, 100-101.
7. Id. at 119.
8. 379 Phil. 363, 366-367 (2000).
9. Id. at 385.
10. 57 Phil. 325 (1932).
11. Id.
12. Rollo, p. 158.
13. G.R. No. 149357, 4 March 2005, 452 SCRA 736, 757.
14. Reas v. Bonife, G.R. Nos. 54348-49, 17 October 1990, 190 SCRA 493, 501.
15. G.R. No. L-82585, 14 November 1988, 167 SCRA 394.
16. G.R. No. 113630, 5 May 1994, 32 SCRA 192, 201.
17. Id.
* Justice Teresita J. Leonardo-De Castro was designated to sit as additional member
replacing Justice Antonio Eduardo B. Nachura per Raffle dated 16 January 2008. ESCac

SECOND DIVISION
[G.R. No. 165608. December 13, 2007.]
PHILIPPINE PHOSPHATE FERTILIZER CORPORATION , petitioner, vs .

KAMALIG RESOURCES, INC. , respondent.
DECISION
TINGA , J : p
This is an appeal by certiorari under Rule 45 of the Revised Rules of Court from
the Decision 1 dated 26 May 2004 promulgated by the Court of Appeals in CA G.R. No.
52553 which reversed the Decision 2 dated 25 September 1995 of the Regional Trial
Court (RTC) of Makati City, Branch 63, in Civil Case No. 17641, a case for collection of a
sum of money representing overwithdrawals by respondent Kamalig Resources, Inc.
(Kamalig) of fertilizer stocks of various grades from the Iloilo and Manila warehouses
of petitioner Philippine Phosphate Fertilizer Corporation (Philphos).
The factual and legal antecedents follow.
Kamalig purchased fertilizer products from Philphos for eventual sale to its
customers. The agreement governing the business transaction consisted of advance
payment to Philphos for Kamalig's purchases of fertilizer products, followed by
Philphos's issuance of a Sales O cial Receipt and an Authority to Withdraw, indicating
the kind of fertilizer product purchased and the location of the warehouse where the
merchandise would be picked up. Kamalig would subsequently resell the fertilizer
products and issue to its customers the corresponding Delivery Orders signed only by
its authorized o cers. The customers would then present the Delivery Orders to the
proper Philphos warehouse for the release of the fertilizer products.
On 30 September 1985, Kamalig purchased from and made advance payments
for fertilizer products of various grades to Philphos in the total sum of P4,548,152.53,
embodied in Sales O cial Receipt No. 03539, 3 covering the following commercial
invoices: (a) Commercial Invoice (CI) No. 04891 for fertilizer products to be withdrawn
from the warehouse in Poro Point; (b) CI No. 04892 for fertilizer products to be
withdrawn from the Manila supply point; (c) CI No. 04893 for such products to be
withdrawn from the Iloilo warehouse; and (d) CI No. 04894 for the products to be
withdrawn from the Davao supply point. 4
Prior to the release of fertilizer products at the said supply points, however,
Kamalig requested for a readjustment of the various fertilizer grades and a
modi cation of the locations from which the fertilizer stocks would be picked up. The
request was contained in a letter dated 11 October 1985. 5
In a subsequent letter dated 14 October 1985, 6 Kamalig requested another
adjustment, this time a conversion of its stocks in Davao to be delivered and picked up
in Manila.
All these requests were approved by Philphos.
In the letter dated 21 July 1986, 7 Philphos informed Kamalig of its
overwithdrawal of various fertilizer stocks in the supply depots in Manila and Iloilo. This
consisted of 291.45 metric tons (MT) of fertilizer grade 21-0-0 from the Manila supply
point and 50 MT each of fertilizer grades 14-14-14, 16-20-0, and 21-0-0 from the Iloilo
supply station. According to Philphos, the cost of these overwithdrawals by Kamalig
amounted to P1,016,994.21. But since Philphos also had an obligation to Kamalig in
the amount of P470,348.91 representing the Capital Recovery Component, partial
compensation took place by operation of law thereby reducing Kamalig's obligation to
P546,645.30. Thus, Philphos demanded that this sum be settled on or before 31 July
1986, otherwise Kamalig would be charged 34% interest per annum. Kamalig, however,
denied that it had exceeded its withdrawals of fertilizer and thus contended that it
should not be made liable for any amount.
On 20 August 1987, Philphos led the case for collection of a sum of money
against Kamalig before the RTC of Makati City. During pre-trial, the parties agreed to
con ne the issue to whether or not Kamalig overwithdrew 150 MT or 3,000 bags of
various grades of fertilizer products amounting to P441,738.50 from Philphos's
warehouse in Iloilo and 291.45 MT or 5,829 bags of fertilizer grade 21-0-0 amounting
to P575,255.71 from Philphos's warehouse in Manila. 8
After trial, giving more credence to the evidence presented by Philphos, the RTC
disposed of the case in its Decision 9 dated 25 September 1995, thus:
In the light of the foregoing, judgment is hereby rendered as follows:
1) Ordering defendant to pay plaintiff the amount of P546,645.30
representing the overwithdrawn stocks made by defendant to plaintiff plus
34% interest per annum from 20 August 1987 until fully paid;
2) Ordering defendant to pay plaintiff an amount equivalent to 25% of the

total claim as and for attorney's fees; and
3) Ordering defendant to pay the costs of suit.
SO ORDERED. 1 0
The RTC noted that Kamalig did not categorically deny that there were
overwithdrawals of fertilizer products in its stock, and that if there were
overwithdrawals, Kamalig merely claimed that it should not be at fault because some of
the delivery receipts were signed by Kamalig o cers who were not authorized to make
such withdrawals. However, the RTC held that the alleged unauthorized withdrawals did
not relieve Kamalig from liability for the following reasons: rst, Kamalig's policy of not
allowing withdrawals via handwritten forms or forms that are not pre-printed or pre-
numbered was not communicated to Philphos but was only an internal company policy;
second, if it is Kamalig's internal policy not to allow withdrawals by unauthorized
o cers, then it should have been followed by all of its employees, and the withdrawals
by such unauthorized o cers only goes to show that said procedure is actually not an
internal policy of Kamalig. Therefore, such withdrawals should be for the account of
Kamalig. 1 1
Kamalig appealed the decision to the Court of Appeals, which found merit in the
appeal. The dispositive portion of the Decision dated 26 May 2004 reads:
WHEREFORE, the assailed Decision is REVERSED and SET ASIDE . The
complaint is DISMISSED and judgment is rendered ordering Philippine
Phosphate Fertilizer Corporation to pay Kamalig Resources, Inc., the following:
1. Actual damages in the sum of P470,348.91, representing the value
of the Capital Recovery Component, plus legal interest from the date
of the filing of the Complaint;
2. Actual damages in the sum of P174,841.34, representing the value

of unauthorized withdrawals erroneously charged to Kamalig
Resources, Inc.;
3. Attorney's fees in the amount of P30,000.00; and
4. The costs of suit.
SO ORDERED. 1 2
The Court of Appeals disagreed with the RTC's nding that Kamalig failed to
categorically deny Philphos's claim of overwithdrawal of fertilizer stocks. The appellate
court pointed out that there were speci c denials in Kamalig's Answer that it had not
overwithdrawn its stocks, and in its Pre-Trial Brief that it had withdrawn fertilizer stocks
only in such grade and quantity equivalent to the payment it had previously made. A
categorical denial having been made by Kamalig, the Court of Appeals declared that the
burden of proof had shifted to Philphos to prove such overwithdrawals. 1 3 The Court of
Appeals found, however, that Philphos did not overcome the burden of proof as it failed
to prove the alleged overwithdrawal of fertilizer products by Kamalig which is the core
of its cause of action. The Court of Appeals also found that Philphos's computations
not only included improperly documented withdrawals but also violated Kamalig's
policy of authorizing withdrawals based only on pre-printed and numbered forms duly
issued to its customers, which policy according to the Court of Appeals, was
communicated by Kamalig to Philphos. The Court of Appeals likewise found that it was
also Philphos's company policy to disallow withdrawals not using the pre-numbered
and pre-printed delivery receipts. By adopting the same policy, the appellate court
declared, Philphos should have been forewarned that allowing withdrawals without the
proper documentation would be abetting unauthorized withdrawals to its prejudice.
Thus, such unauthorized withdrawals should also be deducted from the value of the
fertilizer products withdrawn by Kamalig. 1 4
Consequently, the unauthorized withdrawals, in the total amount of P378,891.45,
1 5 should be deducted from the total withdrawals made by Kamalig as stated in the
delivery receipts, placed at P4,752,202.62, thereby leaving a difference of
P4,373,311.21. Said difference should then be deducted from the purchase price of
P4,548,152.55 previously paid by Kamalig, leaving an overpayment of P174,841.34 by
Kamalig. Add to this the amount of P470,348.91 representing the Capital Recovery
Component which Philphos admitted it owed Kamalig, resulting in the total amount of
P645,190.25 owed by Philphos to Kamalig, said the Court of Appeals.
FERTILIZER QUANTITY IN PRICE/MT AMOUNT
GRADE METRIC TONS
14-14-14 100 3,499.10 P349,910.00
16-20-0 137.15 3,308.79 453,800.55
Total 237.15 P803,710.55
Second, the Court of Appeals supposedly should not have readily believed
Kamalig's claim that the withdrawals based on handwritten delivery orders or those
that were not pre-printed and pre-numbered were unauthorized. The evidence
presented by Philphos clearly showed that said alleged unauthorized withdrawals
amounting to P378,891.41 were su ciently evidenced by delivery orders signed by
Kamalig's authorized signatories and were received by Kamalig's customers. Philphos
asseverates that it should not be faulted for honoring the delivery orders that were not
written on the standard pre-printed forms. While Kamalig asserts that it communicated
its policy of disallowing withdrawals in non-standard forms, Kamalig's own witness and
former company president, Ma. Lourdes Nicandro, testi ed that the policy was not
communicated o cially through a formal written memorandum or letter. Moreover, the
handwritten delivery orders signed by Kamalig's authorized o cers would negate the
existence of such a policy since said o cers are presumed to be knowledgeable about
Kamalig's policies and accordingly comply with the same. 2 0
Third, the Court of Appeals should have included in its computation the additional
deliveries to Kamalig of 292 MT of fertilizer grade 21-0-0 in Manila per the letter dated
14 October 1985. In said letter, Kamalig misrepresented to Philphos that it still had an
undelivered balance of 200 MT of various fertilizer grades in Davao when in fact it had
none, thus Philphos, in good faith, authorized the delivery of the 292 MT of grade 21-0-0
from the Manila warehouse as requested. The additional withdrawal of 292 MT of
grade 21-0-0 was evidenced by delivery orders and delivery receipts and should have
been included in the computation of Kamalig's obligation.
Thus, according to Philphos's computations, the fertilizer products withdrawn by
Kamalig totals 2,446.55 MT equivalent to P5,556,988.20. Deducting Kamalig's deposit
of P4,548,152.55 and capital recovery component of P470,348.91, Kamalig owes
Philphos the amount of P538,486.74:
FERTILIZER PORO MANILA ILOILO TOTAL COST/MT TOTAL
GRADE POINT MT
14-14-14 - 100 100 250 3,499.10 P874,775.00
16-20-0 37.15 100 150 287.15 3,308.79 950,119.05
21-0-0 - 1,709.4 200 1,909.4 1,954.59 3,732,094.15
TOTAL 37.15 1,909.4 450 2,446.55 P5,556,988.20
Total value of fertilizer withdrawn P5,556,998.20

Less: Amount previously paid by Kamalig - 4,548,152.44
———————————
1,008,835.65
Less: Capital Recovery Component - 470,348.91
———————————
TOTAL AMOUNT owed by Kamalig to Philphos P538,486.74
Since Kamalig's obligation is su ciently established, Philphos adds that Kamalig

is also liable to pay 34% interest per annum as stated in Philphos's demand letters
dated 21 July 1986 and 14 October 1986, starting 21 July 1986 or the date of extra-
judicial demand. To support its claim, Philphos relies on Article 1589 of the Civil Code
which states that the vendee shall owe interest for the period between the delivery of
the thing and the payment of the price, should he be in default, from the time of judicial
or extra-judicial demand for the payment of the price. 2 1
Lastly, Philphos argues that owing to Kamalig's refusal to pay, Philphos was
constrained to institute the instant case and incurred an obligation in the sum
equivalent to 25% of the total claim as and for attorney's fees at P1,000.00 per
appearance, as testi ed to by Philphos's witness, Ms. Vida Delute. Thus, citing Article
2208 of the Civil Code, Philphos contends that it should recover attorney's fees. 2 2
On the other hand, Kamalig, in its Comment 2 3 dated 28 February 2005, contends
that the petition clearly raises questions of fact which are beyond the Court's power to
review, since an appeal by certiorari under Rule 45 of the Rules of Court raises only
questions of law. Thus, ndings of fact of the Court of Appeals being held to be nal
and conclusive, they can no longer be assailed in the instant appeal by certiorari,
especially so when Philphos failed to show that the case falls under any of the
exceptions to the rule. In any event, Kamalig maintains that the evidence on record
shows that Philphos is indebted to Kamalig and no su cient evidence was presented
to prove Philphos's cause of action. Kamalig also agrees with the Court of Appeals'
rulings that there is no basis for the imposition of 34% interest per annum as well as
attorney's fees.
The petition is not meritorious, but we nd that the decision of the Court of
Appeals needs to be modified in certain aspects.
True it is that the jurisdiction of this Court in a petition for review under Rule 45 is
limited to reviewing errors of law since it is not a trier of facts and it is a settled
doctrine that ndings of fact of the Court of Appeals are binding and conclusive upon
this Court, as a general rule. 2 4 In the case at bar, however, two exceptions to the
general rule are present. These are when the ndings of the Court of Appeals are
contrary to those of the trial court and when the Court of Appeals fails to consider
certain facts which would result in a different conclusion.
The complaint for a sum of money led by Philphos arose from Kamalig's refusal
to pay the amount of P575,255.71 of alleged overwithdrawals of fertilizer products
from Philphos's Manila and Iloilo warehouses. As admitted by both parties, Kamalig
purchased from Philphos P4,548,152.53 worth of fertilizer products to be picked up at
different supply points or warehouses of Philphos. According to the CIs, 2 5 Kamalig
purchased the following quantities in metric tons of fertilizer products and paid the
corresponding amounts:
FERTILIZERPORO MANILA ILOILO DAVAO TOTAL COST/MT TOTAL
GRADE POINT MT
14-14-14 - - 200 150 350 3,499.10 P1,224,685.00
16-20-0 300 - 200 150 650 3,308.79 2,150,713.50
21-0-0 175 250 100 75 600 1,954.59 1,172,754.00
P4,548,152.50
A readjustment of the quantities of fertilizer products and pick up points was

made in Kamalig's letter dated 11 October 1985:
GRADE POINT MT
14-14-14 - 100 100 - 200 3,499.10 P699,820.00
16-20-0 37.15 100 100 - 237.15 3,308.79 784,679.54
21-0-0 - 1,417.4 150 - 1,567.4 1,954.59 3,063,624.30
P4,548,123.84
The letter clearly indicates that there were no more stocks for pick up in Davao, as it
appears that the various amounts and grades previously agreed upon for pick up in
Davao were instead distributed among the Poro Point, Manila, and Iloilo supply points.
However, another request for readjustment was made by Kamalig through its
letter dated 14 October 1985, this time asking that all its stocks in Davao be converted
to only one particular fertilizer grade for pick up in Manila:
Davao
14-14-14 50 MT P174,955.00
16-20-0 75 MT 248,159.25
21-0-0 75 MT 146,594.25
———————————
P569,708.50
Converted to:
Manila
21-0-0 292 MT P570,740.28 26
This request was granted and the authority to withdraw was issued accordingly.
Philphos claims it granted the request inadvertently, believing as it did that Kamalig still
had stocks in Davao when in fact the previous letter of 11 October 1985 indicated that
all the stocks in Davao had already been converted to other fertilizer grades for pick up
in the other supply points.
Philphos presented evidence to show the withdrawals made by Kamalig from the
Iloilo warehouse consisting of Delivery Receipts 2 7 which tended to show that 500 MT
of fertilizer were withdrawn from the Iloilo warehouse, or an overwithdrawal of 150 MT
was made as against the total of 350 MT requested in the 11 October 1985 letter.
Kamalig claims that some of the withdrawals from the Iloilo warehouse were
made under handwritten delivery orders 2 8 and not through pre-printed and pre-
numbered forms, contrary to its company policy. Philphos admits, too, that its policy is
only to honor delivery orders in the prescribed pre-printed forms, but that it also allows
withdrawals pursuant to handwritten requests on a "case to case basis," i.e., for as long
as the handwritten request is signed by an authorized o cer or signatory of Kamalig.
2 9 The handwritten requests upon which the unauthorized withdrawals were made were
all signed by one Angel Supetran, Jr., Senior Salesman of Kamalig's Iloilo branch, and
one of the o cials authorized to sign the prescribed delivery orders. 3 0 On this point,
the Court of Appeals correctly ruled that Philphos should have been forewarned that
allowing withdrawals without the approved standard delivery order would be abetting
unauthorized withdrawals to its prejudice.
The pre-printed delivery orders are a vital security measure to prevent
unauthorized withdrawals of fertilizer, and bene ts not only Kamalig but Philphos as
well. As Kamalig explains in its Comment, the pre-printed and pre-numbered forms
were so designed in such a way that the person dealing with it will be informed that the
delivery order is duly issued by Kamalig and can be relied upon; corollarily, if the
customer presents a delivery order that is not in the prescribed pre-printed form, the
person dealing with it should be alerted that it was not issued according to standard
company practice and anyone acting upon it acts at his own risk. 3 1 The practice of
using these pre-printed delivery orders is obviously the modality in the ordinary course
of business between Kamalig and Philphos. Philphos's failure to strictly observe and
implement this practice precludes it from complaining of the adverse effects of such
failure.
In the case at bar, withdrawals of fertilizer in quantities more than what was paid
for was made possible by Philphos's failure to comply with the policy to use the
prescribed forms. The danger sought to be prevented by the policy came to pass
because of Philphos's non-compliance with its policy. It is of no moment that Kamalig's
own authorized signatory, Mr. Supetran, Jr., accomplished the handwritten delivery
orders, since the withdrawals thereon would not have been made had Philphos strictly
implemented the policy and did not honor said delivery orders. As Philphos could have
prevented the loss, it is but fair that it should suffer the loss. Thus, the value of the
unauthorized withdrawals should be for the account of Philphos and not shifted to
Kamalig. The total value of the unauthorized withdrawals in Iloilo is P378,891.41, per
the handwritten delivery orders, as follows:
FERTILIZER TOTAL COST/MT TOTAL
GRADE MT
14-14-14 25 3,499.10 P87,477.50
16-20-0 29 3,308.79 95,954.91
21-0-0 100 1,954.59 195,459.00
P378,891.41
As to the alleged overwithdrawal of stocks in the Manila warehouse, Philphos

presented Delivery Receipts 3 2 which showed that a total of 291.45 MT of fertilizer
grade 21-0-0 valued at P569,665.25 was made in accordance with the letter of 14
October 1985. Philphos did not present the delivery receipts covering all the
withdrawals in the Manila warehouse, or the quantity of fertilizer requested in the 11
and 14 October 1985 letters to be withdrawn in Manila, but only the delivery receipts
allegedly proving the overwithdrawal of 291.45 MT of fertilizer grade 21-0-0. While it
did not present all Manila delivery receipts, Philphos sought to prove that the 1,417.4
MT of fertilizer grade 21-0-0 requested in the 11 October 1985 letter was separate and
distinct from the 291.45 MT of the same fertilizer grade represented by the delivery
receipts and which were delivered pursuant to the 14 October 1985 letter. Philphos
presented the Certi cation dated 25 November 1985 and Summary of Withdrawals, 3 3
jointly prepared by representatives of Kamalig and Philphos, accounting for the 1,417.4
MT of fertilizer grade 21-0-0. According to Philphos's representative, Warehouse
Assistant Mario D. Garcia, said Certi cation and Summary refer to "the con rmation
and acknowledgement of receipt by [Kamalig], after due reconciliation, of 1,417.4 MT
or 28,348 bags of fertilizer grade 21-0-0 withdrawn and received by [Kamalig] from
[Philphos's] Manila warehouse per [Kamalig's] letter dated 11 October 1985." 3 4
It appears, however, that the representative of Kamalig who signed the
Certi cation and Summary, Marketing Assistant Ma. Veronica Porciuncula, was not
authorized to make or sign such certi cations or summaries or to make any
reconciliation of the records of fertilizer withdrawals, the same not being part of her
functions as marketing assistant. 3 5 Even Mr. Garcia admitted that Ms. Porciuncula did
not present any written authority to sign the Certi cation and Summary in behalf of
Kamalig. 3 6 Thus, the Certi cation and Summary cannot be used to prove the delivery
and receipt by Kamalig of the 1,417.4 MT of fertilizer grade 21-0-0 separate and
distinct from the 291.45 MT of the same fertilizer grade withdrawn in accordance with
the 14 October 1985 letter. Neither can the Certi cation and Summary prove the
alleged overwithdrawal of 291.45 MT of fertilizer products from the Manila warehouse.
While the withdrawal of the 291.45 MT of fertilizer grade 21-0-0 was substantiated by
delivery orders and delivery receipts, no other evidence was presented to prove that
said volume was separate and distinct from the 1,417.4 MT withdrawal of the same
fertilizer grade.
Thus, Philphos presented proof of overwithdrawal only from the Iloilo warehouse
but not from the Manila warehouse.
In its computations, the Court of Appeals arrived at the total value of withdrawals
made by Kamalig, pegged at P4,752,202.62, by considering only the withdrawals of
fertilizer grade 21-0-0 in Manila and of all fertilizer grades in Iloilo, i.e., by summing up
all the amounts in the receipts presented by Philphos. The problem with this tack is that
the delivery receipts represent only some but not all of the withdrawals made. In doing
so, the Court of Appeals failed to consider the withdrawals of fertilizer grade 16-20-0 in
Poro Point and of fertilizer grades 14-14-14 and 16-20-0 in Manila. These withdrawals
should have been taken into consideration since the advance deposit of P4,548,152.50
made by Kamalig covered and served as payment for all three kinds of fertilizers to be
taken from supply points in Poro Point, Manila, Iloilo and Davao, and not just in Manila
and Iloilo.
Since the Court of Appeals considered all the receipts in coming up with the total
withdrawals, it also took into account the alleged overwithdrawal of 291.45 MT of 21-0-
0 fertilizer grade in Manila. However, since we have already determined that the claimed
overwithdrawal has not been proven, the same should not be included in the total
withdrawals made by and charged to Kamalig. Thus, the total withdrawals amount to
P4,986,247.92, and not just P4,752,202.62, computed as follows:
GRADE POINT MT
14-14-14 - 100 150 - 250 3,499.10 P874,775.00
16-20-0 37.15 100 150 - 287.15 3,308.79 950,119.05
21-0-0 - 1,417.4 200 - 1,617.4 1,954.59 3,161,353.87
P4,986,247.92
From the total withdrawals, the unauthorized withdrawals of P378,891.41 from

the Iloilo warehouse should be deducted since Kamalig should not be made liable for
such withdrawals but instead entered for the account of Philphos. The difference of
P4,607,356.51 would then represent the actual withdrawals from which Kamalig's
advance payment of P4,548,152.44 should be deducted, leaving only P59,204.07
representing the overwithdrawals in Iloilo that Kamalig owes Philphos. Considering that
Philphos owes Kamalig P470,348.91 as Capital Recovery Component, Kamalig's
liability of P59,204.07 should be deducted from this amount, leaving P411,144.84
which Philphos still owes Kamalig, and not P645,190.25 3 7 as found by the Court of
Appeals. Thus:
Total value of fertilizers withdrawn P4,986,247.92
Less: Unauthorized withdrawals in Iloilo - 378,891.41
————————————
4,607,356.51
Less: Amount previously paid by Kamalig - 4,548,152.41
————————————
Amount owed by Kamalig 59,204.07
Capital Recovery Component P470,348.91
Less: Amount owed by Kamalig - 59,204.07
————————————
TOTAL AMOUNT owed by Philphos to P411,144.84
Kamalig
With respect to the 34% per annum interest claimed by Philphos, we agree with
the Court of Appeals that no evidence was presented that would show that the parties
stipulated on the payment of interest. Under Article 1956 of the Civil Code, no interest
shall be due unless it has been expressly stipulated in writing. Philphos presented only
its demand letters 3 8 insisting on payment of the value of the overwithdrawals and
imposition of 34% interest per annum if payment is not made in due time. Said
unilateral impositions of interest do not su ce as proof of agreement on the alleged
34% per annum interest.
Philphos claims attorney's fees under Article 2208 of the Civil Code which
provides that attorney's fees may be granted where "the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable
claim." Su ce it to say the evidence does not bear out any gross and evident bad faith
on the part of Kamalig.
As to the Court of Appeals' award of attorney's fees to Kamalig, it appears that
the award was granted under the auspices of Art. 2208, par. (4) of the Civil Code which
provides that attorney's fees may be recovered "in case of a clearly unfounded civil
action or proceeding against the plaintiff" — or in this case, against then defendant
Kamalig — since the appellate court reasoned that Kamalig was compelled to hire the
services of a lawyer to defend itself. In this case, overwithdrawals of fertilizer products
in Iloilo had been proven, showing that indeed there was cause for ling of a complaint
against Kamalig. Kamalig is thus not entitled to attorney's fees. The general rule is that
attorney's fees cannot be recovered as part of damages because no premium should
be placed on the right to litigate. 3 9 In short, the grant of attorney's fees as part of
damages is the exception rather than the rule, and counsel's fees are not awarded every
time a party prevails in a suit. 4 0
WHEREFORE, in view of the foregoing, the Decision dated 26 May 2004 of the
Court of Appeals is MODIFIED. Petitioner Philippine Phosphate Fertilizer Corporation is
ORDERED to PAY respondent Kamalig Resources, Inc. the amount of P411,144.84, plus
legal interest from the nality of this Decision, 4 1 and costs of the suit. The award of
attorney's fees by the Court of Appeals in favor of respondent is DELETED.
SO ORDERED.
Quisumbing, Austria-Martinez, * Carpio-Morales and Velasco, Jr., JJ., concur.
Footnotes
1.Rollo, pp. 32-45. Penned by Associate Justice Mariano C. del Castillo and concurred in by
Associate Justices Marina L. Buzon and Magdangal M. de Leon of the Fourteenth
Division.
2.Id. at 50-60. Penned by Judge Ruben A. Mendiola.
3.Records, p. 4. Exhibit "A."

4.Id. at 5-8. Exhibits "A-1" to "A-4."
5.Id. at 9. Exhibit "B."

6.Id. at 10. Exhibit "I."
7.Id. at 133.
8.Id. at 1-3.
9.CA rollo, pp. 162-171.
10.Id. at 171.
11.Id. at 170.
12.Rollo, p. 44.
13.Id. at 37.
14.Id. at 40.
15.Representing the value of fertilizer stocks that were withdrawn using handwritten requests
and not the pre-printed and pre-numbered Delivery Orders prescribed by Kamalig. See
Exhibits "C," "C-1," "C-3," "E-2," "G-3," and "G-4," id. at 67, 68, 70, 83, 94 and 95, respectively.
16.Id. at 41.
17.Id. at 42-43.
18.Id. at 47.
19.Id. at 18-20.
20.Id. at 21-22.
21.Id. at 26-27.
22.Id. at 27.
23.Id. at 255-289.
24.Such factual findings shall not be disturbed unless: (1) the conclusion is a finding grounded
entirely on speculations, surmises, or conjectures; (2) the inference made is manifestly
mistaken, absurd, or impossible; (3) there is grave abuse of discretion; (4) the judgment
is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) the
Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) the findings of
the Court of Appeals are contrary to those of the trial court; (8) the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) the Court
of Appeals manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion; and (10) the findings
of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record. Litonjua, Jr. v. Eternit Corporation, G.R. No.
144805, 8 June 2006, 490 SCRA 204, 218.
25.Records, pp. 5-8. Exhibits "A-1," to "A-4."
26.Supra note 6.
27.Records, pp. 66, 71-80, 84-90, and 96-103, respectively. Exhibits "D," "D-1" to "D-17," "F" to "F-
13," and "H" to "H-13."
28.Id. at 67, 68, 70, 83, 94 and 95, respectively. Exhibits "C," "C-1," "C-3," "E-2," "G-3," and "G-4."
29.Id. at 479, TSN, 30 August 1989; 6 November 1989, id. at 452; 11 November 1992, id. at 387
and 389.
30.Id. at 426-427, TSN, 15 June 1994.
31.Rollo, p. 279.
32.Records, pp. 121-131. Exhibits "L" to "L-19."
33.Id. at 253-258. Exhibits "O" to "O-6."
34.Id. at 162. Affidavit dated 29 September 1989 by Mario D. Garcia.
35.Id. at 428-430, TSN, 15 June 1994.

36.Id. at 441, TSN, 6 November 1989.
37.Rollo, p. 41, See Court of Appeals Decision.
38.Records, pp. 133-134, Exhibits "M" and "N."
39.Sps. Francisco v. Court of Appeals, 449 Phil. 632, 652 (2003).
40.American Home Assurance Company v. Chua, 368 Phil. 555, 569 (1999).
41.Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78,
96-97.
*As replacement of Justice Antonio T. Carpio who inhibited himself from the case for being a
former counsel of a party, per Administrative Circular No. 84-2007.

SECOND DIVISION
[G.R. No. 160545. March 9, 2010.]
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and

ROGELIO S. PANTALEON , petitioners, vs . ARTHUR F. MENCHAVEZ ,
respondent.
DECISION
BRION , J : p
We resolve in this Decision the petition for review on certiorari 1 led by

petitioners Prisma Construction & Development Corporation (PRISMA) and Rogelio S.
Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set aside the
Decision 2 dated May 5, 2003 and the Resolution 3 dated October 22, 2003 of the
Former Ninth Division of the Court of Appeals (CA) in CA-G.R. CV No. 69627. The
assailed CA Decision a rmed the Decision of the Regional Trial Court (RTC), Branch 73,
Antipolo City in Civil Case No. 97-4552 that held the petitioners liable for payment of
P3,526,117.00 to respondent Arthur F. Menchavez (respondent), but modi ed the
interest rate from 4% per month to 12% per annum, computed from the ling of the
complaint to full payment. The assailed CA Resolution denied the petitioners' Motion
for Reconsideration.
FACTUAL BACKGROUND
The facts of the case, gathered from the records, are briefly summarized below.
On December 8, 1993, Pantaleon, the President and Chairman of the Board of
PRISMA, obtained a P1,000,000.00 4 loan from the respondent, with a monthly
interest of P40,000.00 payable for six months , or a total obligation of
P1,240,000.00 to be paid within six (6) months, 5 under the following schedule of
payments:
January 8, 1994 P40,000.00
February 8, 1994 P40,000.00
March 8, 1994 P40,000.00
April 8, 1994 P40,000.00
May 8, 1994 P40,000.00
June 8, 1994 P1,040,000.00 6
–––––––––––––
Total P1,240,000.00
=============
To secure the payment of the loan, Pantaleon issued a promissory note 7 that
states:
I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION
TWO HUNDRED FORTY THOUSAND PESOS (P1,240,000), Philippine Currency,
from Mr. Arthur F. Menchavez, representing a six-month loan payable according
to the following schedule: cACEHI
January 8, 1994 P40,000.00

February 8, 1994 P40,000.00
March 8, 1994 P40,000.00
April 8, 1994 P40,000.00
May 8, 1994 P40,000.00
June 8, 1994 P1,040,000.00
The checks corresponding to the above amounts are hereby

acknowledged. 8
and six (6) postdated checks corresponding to the schedule of payments. Pantaleon
signed the promissory note in his personal capacity, 9 and as duly authorized by the
Board of Directors of PRISMA. 1 0 The petitioners failed to completely pay the loan
within the stipulated six (6)-month period.
From September 8, 1994 to January 4, 1997, the petitioners paid the following
amounts to the respondent:
September 8, 1994 P320,000.00
October 8, 1995 P600,000.00
November 8, 1995 P158,772.00
January 4, 1997 P30,000.00 1 1
As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00.

However, the respondent found that the petitioners still had an outstanding balance of
P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest . 1 2
Thus, on August 28, 1997, the respondent led a complaint for sum of money with the
RTC to enforce the unpaid balance, plus 4% monthly interest , P30,000.00 in
attorney's fees, P1,000.00 per court appearance and costs of suit. 1 3
In their Answer dated October 6, 1998, the petitioners admitted the loan of
P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the
interest was not provided in the promissory note. Pantaleon also denied that he made
himself personally liable and that he made representations that the loan would be
repaid within six (6) months. 1 4
THE RTC RULING
The RTC rendered a Decision on October 27, 2000 nding that the respondent
issued a check for P1,000,000.00 in favor of the petitioners for a loan that would earn
an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month
period. It noted that the petitioners made several payments amounting to
P1,228,772.00, but they were still indebted to the respondent for P3,526,117.00 as of
February 11 , 1 5 1999 after considering the 4% monthly interest. The RTC observed that
PRISMA was a one-man corporation of Pantaleon and used this circumstance to justify
the piercing of the veil of corporate ction. Thus, the RTC ordered the petitioners to
jointly and severally pay the respondent the amount of P3,526,117.00 plus 4% per
month interest from February 11, 1999 until fully paid. 1 6
The petitioners elevated the case to the CA via an ordinary appeal under Rule 41
of the Rules of Court, insisting that there was no express stipulation on the 4% monthly
interest. AEHTIC

THE CA RULING
The CA decided the appeal on May 5, 2003. The CA found that the parties agreed
to a 4% monthly interest principally based on the board resolution that authorized
Pantaleon to transact a loan with an approved interest of not more than 4% per month.
The appellate court, however, noted that the interest of 4% per month, or 48% per
annum, was unreasonable and should be reduced to 12% per annum. The CA a rmed
the RTC's nding that PRISMA was a mere instrumentality of Pantaleon that justi ed
the piercing of the veil of corporate ction. Thus, the CA modi ed the RTC Decision by
imposing a 12% per annum interest, computed from the ling of the complaint until
finality of judgment, and thereafter, 12% from finality until fully paid. 1 7
After the CA's denial 1 8 of their motion for reconsideration, 1 9 the petitioners filed
the present petition for review on certiorari under Rule 45 of the Rules of Court.
THE PETITION
The petitioners submit that the CA mistakenly relied on their board resolution to
conclude that the parties agreed to a 4% monthly interest because the board resolution
was not an evidence of a loan or forbearance of money, but merely an authorization for
Pantaleon to perform certain acts, including the power to enter into a contract of loan.
The expressed mandate of Article 1956 of the Civil Code is that interest due should be
stipulated in writing, and no such stipulation exists. Even assuming that the loan is
subject to 4% monthly interest, the interest covers the six (6)-month period only and
cannot be interpreted to apply beyond it. The petitioners also point out the glaring
inconsistency in the CA Decision, which reduced the interest from 4% per month or 48%
per annum to 12% per annum, but failed to consider that the amount of P3,526,117.00
that the RTC ordered them to pay includes the compounded 4% monthly interest.
THE CASE FOR THE RESPONDENT
The respondent counters that the CA correctly ruled that the loan is subject to a
4% monthly interest because the board resolution is attached to, and an integral part of,
the promissory note based on which the petitioners obtained the loan. The respondent
further contends that the petitioners are estopped from assailing the 4% monthly
interest, since they agreed to pay the 4% monthly interest on the principal amount under
the promissory note and the board resolution.
THE ISSUE
The core issue boils down to whether the parties agreed to the 4% monthly
interest on the loan. If so, does the rate of interest apply to the 6-month payment period
only or until full payment of the loan?
OUR RULING
We find the petition meritorious.
Interest due should be
stipulated in writing;
otherwise, 12% per annum
Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. 2 0 When the terms of a contract are
clear and leave no doubt as to the intention of the contracting parties, the literal
meaning of its stipulations governs. 2 1 In such cases, courts have no authority to alter
the contract by construction or to make a new contract for the parties; a court's duty is
con ned to the interpretation of the contract the parties made for themselves without
regard to its wisdom or folly, as the court cannot supply material stipulations or read
into the contract words the contract does not contain. 2 2 It is only when the contract is
vague and ambiguous that courts are permitted to resort to the interpretation of its
terms to determine the parties' intent. DISEaC
In the present case, the respondent issued a check for P1,000,000.00. 2 3 In turn,
Pantaleon, in his personal capacity and as authorized by the Board, executed the
promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable within six
(6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan
shall earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00
for the six-month period. We note that this agreed sum can be computed at 4%
interest per month, but no such rate of interest was stipulated in the
promissory note; rather a fixed sum equivalent to this rate was agreed upon.
Article 1956 of the Civil Code speci cally mandates that "no interest shall be due
unless it has been expressly stipulated in writing." Under this provision, the payment of
interest in loans or forbearance of money is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the agreement for the payment of
interest was reduced in writing. The concurrence of the two conditions is required for
the payment of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza 2 4 and
Ching v. Nicdao 2 5 that collection of interest without any stipulation in writing is
prohibited by law.
Applying this provision, we nd that the interest of P40,000.00 per month
corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to
June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the
interest on the loan should be at the legal interest rate of 12% per annum, consistent
with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals: 2 6 HcSaTI
When the obligation is breached, and it consists in the payment of a sum

of money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be
computed from default , i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code." (Emphasis supplied)
We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61, 2 7
Sulit v. Court of Appeals, 2 8 Crismina Garments, Inc. v. Court of Appeals, 2 9 Eastern
Assurance and Surety Corporation v. Court of Appeals, 3 0 Sps. Catungal v. Hao, 3 1 Yong
v. Tiu, 3 2 and Sps. Barrera v. Sps. Lorenzo. 3 3 Thus, the RTC and the CA misappreciated
the facts of the case; they erred in nding that the parties agreed to a 4% interest,
compounded by the application of this interest beyond the promissory note's six (6)-
month period. The facts show that the parties agreed to the payment of a specific
sum of money of P40,000.00 per month for six months, not to a 4% rate of interest
payable within a six (6)-month period.
Medel v. Court of Appeals not
applicable
The CA misapplied Medel v. Court of Appeals 34 in nding that a 4% interest per
month was unconscionable. cDaEAS
In Medel, the debtors in a P500,000.00 loan were required to pay an interest of

5.5% per month, a service charge of 2% per annum, and a penalty charge of 1% per
month, plus attorney's fee equivalent to 25% of the amount due, until the loan is fully
paid. Taken in conjunction with the stipulated service charge and penalty, we found the
interest rate of 5.5% to be excessive, iniquitous, unconscionable, exorbitant and hence,
contrary to morals, thereby rendering the stipulation null and void.
Applying Medel, we invalidated and reduced the stipulated interest in Spouses
Solangon v. Salazar 3 5 of 6% per month or 72% per annum interest on a P60,000.00
loan; in Ruiz v. Court of Appeals, 3 6 of 3% per month or 36% per annum interest on a
P3,000,000.00 loan; in Imperial v. Jaucian, 3 7 of 16% per month or 192% per annum
interest on a P320,000.00 loan; in Arrofo v. Quiño, 3 8 of 7% interest per month or 84%
per annum interest on a P15,000.00 loan; in Bulos, Jr. v. Yasuma, 3 9 of 4% per month or
48% per annum interest on a P2,500,000.00 loan; and in Chua v. Timan, 4 0 of 7% and 5%
per month for loans totalling P964,000.00. We note that in all these cases, the terms of
the loans were open-ended; the stipulated interest rates were applied for an inde nite
period.
Medel nds no application in the present case where no other stipulation exists
for the payment of any extra amount except a speci c sum of P40,000.00 per
mont h on the principal of a loan payable within six months. Additionally, no issue on
the excessiveness of the stipulated amount of P40,000.00 per month was ever put in
issue by the petitioners; 4 1 they only assailed the application of a 4% interest rate, since
it was not agreed upon.
It is a familiar doctrine in obligations and contracts that the parties are bound by
the stipulations, clauses, terms and conditions they have agreed to, which is the law
between them, the only limitation being that these stipulations, clauses, terms and
conditions are not contrary to law, morals, public order or public policy. 4 2 The payment
of the speci c sum of money of P40,000.00 per month was voluntarily agreed upon
by the petitioners and the respondent. There is nothing from the records and, in fact,
there is no allegation showing that petitioners were victims of fraud when they entered
into the agreement with the respondent.
Therefore, as agreed by the parties, the loan of P1,000,000.00 shall earn
P40,000.00 per month for a period of six (6) months, or from December 8, 1993 to
June 8, 1994, for a total principal and interest amount of P1,240,000.00. Thereafter,
interest at the rate of 12% per annum shall apply. The amounts already paid by the
petitioners during the pendency of the suit, amounting to P1,228,772.00 as of February
12 , 1999, 4 3 should be deducted from the total amount due, computed as indicated
above. We remand the case to the trial court for the actual computation of the total
amount due.
Doctrine of Estoppel not applicable
The respondent submits that the petitioners are estopped from disputing the 4%
monthly interest beyond the six-month stipulated period, since they agreed to pay this
interest on the principal amount under the promissory note and the board resolution. CacEIS
We disagree with the respondent's contention.

We cannot apply the doctrine of estoppel in the present case since the facts and
circumstances, as established by the record, negate its application. Under the
promissory note, 4 4 what the petitioners agreed to was the payment of a speci c sum
o f P40,000.00 per month for six months — not a 4% rate of interest per
month for six (6) months — on a loan whose principal is P1,000,000.00, for
the total amount of P1,240,000.00 . Thus, no reason exists to place the petitioners
in estoppel, barring them from raising their present defenses against a 4% per month
interest after the six-month period of the agreement. The board resolution, 4 5 on the
other hand, simply authorizes Pantaleon to contract for a loan with a monthly interest of
not more than 4%. This resolution merely embodies the extent of Pantaleon's authority
to contract and does not create any right or obligation except as between Pantaleon
and the board. Again, no cause exists to place the petitioners in estoppel.
Piercing the corporate veil unfounded
We nd it unfounded and unwarranted for the lower courts to pierce the
corporate veil of PRISMA.
The doctrine of piercing the corporate veil applies only in three (3) basic
instances, namely: a) when the separate and distinct corporate personality defeats
public convenience, as when the corporate ction is used as a vehicle for the evasion of
an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a
wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a
corporation is essentially a farce, since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation. 4 6 In the absence of malice, bad faith, or a speci c provision of
law making a corporate officer liable, such corporate officer cannot be made personally
liable for corporate liabilities. 4 7
In the present case, we see no competent and convincing evidence of any
wrongful, fraudulent or unlawful act on the part of PRISMA to justify piercing its
corporate veil. While Pantaleon denied personal liability in his Answer, he made himself
accountable in the promissory note "in his personal capacity and as authorized by the
Board Resolution" of PRISMA. 4 8 With this statement of personal liability and in the
absence of any representation on the part of PRISMA that the obligation is all its own
because of its separate corporate identity, we see no occasion to consider piercing the
corporate veil as material to the case.
WHEREFORE , in light of all the foregoing, we hereby REVERSE and SET ASIDE
the Decision dated May 5, 2003 of the Court of Appeals in CA-G.R. CV No. 69627. The
petitioners' loan of P1,000,000.00 shall bear interest of P40,000.00 per month for six
(6) months from December 8, 1993 as indicated in the promissory note. Any portion of
this loan, unpaid as of the end of the six-month payment period, shall thereafter bear
interest at 12% per annum. The total amount due and unpaid, including accrued
interests, shall bear interest at 12% per annum from the nality of this Decision. Let this
case be REMANDED to the Regional Trial Court, Branch 73, Antipolo City for the proper
computation of the amount due as herein directed, with due regard to the payments the
petitioners have already remitted. Costs against the respondent. HEcTAI
SO ORDERED .
Nachura, * Del Castillo, Abad and Perez, JJ., concur.
Footnotes
*Designated additional Member of the Second Division in lieu of Associate Justice Antonio T.
Carpio per Raffle dated March 1, 2010.

1.Filed under Rule 45 of the 1997 RULES OF CIVIL PROCEDURE.
2.Penned by Associate Justice Jose L. Sabio, Jr. (retired), with Associate Justice B.A. Adefuin-
De La Cruz (retired) and Associate Justice Hakim S. Abdulwahid concurring. See rollo,
pp. 29-38.
3.Id. at 52-53.
4.Exhibit "A," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 1; TSN,
Testimony of Arthur F. Menchavez, April 12, 1999, pp. 2-4.
5.TSN, Testimony of Arthur F. Menchavez, April 12, 1999, pp. 9-10.
6.Original Records, p. 8.
7.Exhibit "C," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 5.
9.Ibid.
10.Exhibit "B," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 2.
11.Exhibit "E," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 2.
12.Ibid.
13.Original Records, pp. 1-7.
14.Id. at 29-31.
15.The date of the last payment made by the petitioners should be "February 12, 1999," per
Exhibit "E," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 2.
16.Id. at 99-106.
17.Supra note 2.
18.Resolution of October 22, 2003; rollo, pp. 52-53.
19.Id. at 43-60.
20.Article 1159, CIVIL CODE; Dumlao v. Marlon Realty Corporation, G.R. 131491, August 17,
2007, 530 SCRA 427, 430.
21.Article 1370, CIVIL CODE.
22.Cuison v. Court of Appeals, G.R. No. 102096, August 22, 1996, 260 SCRA 645, 667.
23.Exhibit "A," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 1; TSN,
Testimony of Arthur F. Menchavez, April 12, 1999, pp. 2-4.
24.160 Phil. 760, 767 (1975).

25.G.R. No. 141181, April 27, 2007, 522 SCRA 316, 361.
26.G.R. No. 97412, July 12, 1994, 234 SCRA 78.
27.331 Phil. 787 (1996).
28.335 Phil. 914 (1997).

29.363 Phil. 701 (1999).
30.379 Phil. 84 (2000).
31.407 Phil. 309 (2001).

32.426 Phil. 331 (2002).
33.438 Phil. 42 (2002).
34.359 Phil. 820 (1998).
35.412 Phil. 816 (2001).
36.449 Phil. 419 (2003).

37.471 Phil. 484 (2004).
38.490 Phil. 179 (2005).
39.G.R. No. 139290, May 19, 2006, 490 SCRA 1.
40.G.R. No. 170452, August 13, 2008.

41.See Sps. Pascual v. Ramos, 433 Phil. 449 (2002).
42.Barredo v. Leaño, G.R. No. 156627, June 4, 2004, 431 SCRA 106, 113-114; Odyssey Park, Inc.
v. CA, 345 Phil. 475, 485 (2001).
43.Supra note 14.
45.Exhibit "B," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 2.
46.General Credit Corporation v. Alsons Development and Investment Corporation, G.R. No.
154975, January 29, 2007, 513 SCRA 225, 235, 238, 239; PNB v. Ritratto Group, Inc., 414
Phil. 494, 505 (2001).
47.McLeod v. National Labor Relations Commission, G.R. No. 146667, January 23, 2007, 512
SCRA 222, 253.
48.Exhibit "C," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 5.

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

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

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

BANK OF TAIWAN, LTD.; RIGHT OF PHILIPPINE GOVERNMENT TO COLLECT THE
LOANS. — In 1943, appellant obtained crop loans from the Bank of Taiwan, Ltd.,
Bacolod City Branch evidenced by promissory notes. To secure payment of the loans,
appellant executed a chattel mortgage over the standing crops on his land. After the
war, the Republic of the Philippines brought the present action to collect from appellant
the unpaid account Held: It is true that the Bank of Taiwan, Ltd. was the original creditor
and the transaction between the appellant and the Bank of Taiwan was a private
contract of loans. However, pursuant to the Trading with the Enemy Act, as amended,
and Executive Order No. 9095 of the United States; and under Vesting Order No. P-4,
dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., an entity which was
declared to be under the jurisdiction of the enemy country (Japan), were vested in the
United States Government. Pursuant, further, to the Philippine Property Act of 1946 and
Transfer Agreement dated July 20, 1954 and June 15, 1957, between the United States
Government and the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd.,
were transferred to and vested in the Republic of the Philippines. The successive
transfers of the rights over the loans in question from the Bank of Taiwan, Ltd. to the
United States Government, and from the United States Government to the government
of the Republic of the Philippines, made the Republic of the Philippines the successor
of the rights, title and interest in said loans, thereby creating a privity of contract
between the appellee and the appellant.
2. ID.; ID,; ID.; DESTRUCTION OF CROP THROUGH ENEMY ACTION; EFFECT
ON THE OBLIGATION. — Appellant maintains, in support of his contention that the
appellee has no cause of action, that because the loans were secured by a chattel
mortgage on the standing crops on the land owned by him and those crops were lost
or destroyed through enemy action his obligation to pay the loans was thereby
extinguished. Held: This argument is untenable. The obligation of the appellant under
the promissory notes was not to deliver a determinate thing; namely, the crops to be
harvested from his land, but to pay a generic thing - the amount of money representing
the total sum of his loans, with interest. The chattel mortgage on the crops simply
stood as a security for the ful llment of appellant's obligation covered by the
promissory notes, and the loss of the crops did not extinguish his obligation to pay,
because the account could still be paid from other sources aside from the mortgaged
crops.
3. ID.; ID.; ID.; PRESCRIPTION OF ACTIONS; PRESCRIPTION DOES NOT RUN
AGAINST THE GOVERNMENT. — The complaint in the present case was brought by the
Republic of the Philippines not as a nominal party but in the exercise of its sovereign
functions, to protect the interests of the State over a public property. This Court has
held that the statute of limitations does not run against the right of action of the
Government of the Philippines (Government of the Philippine Islands vs. Monte de
Piedad, etc., 35 Phil. 738-751).
4. ID.; ID.; ID.; ID.; EFFECT OF MORATORIUM LAWS. — Moreover, the running
of the period of prescription of the action to collect the loan from the appellant was
interrupted by the moratorium laws (Executive Order No. 25, dated November 18, 1944;
Executive Order No. 32, dated March 10, 1945; and Republic Act No. 342 approved on
July 26, 1948). Computed accordingly, the prescriptive period was suspended for 8
years and 6 months. Hence, appellee's action had not yet prescribed.
5. ID.; ID.; ID.; PAYMENT IN JAPANESE WAR NOTES; APPLICATION OF
BALLANTYNE SCALE OF VALUE. — Contracts stipulating for payments presumably in
Japanese war notes may be enforced after the liberation to the extent of the just
obligation of the contracting parties and, as said notes have become worthless, in
order that justice may be done and the party entitled to be paid can recover their actual
value in Philippine Currency, what the debtor or defendant bank should return or pay is
the value of the Japanese military notes in relation to the peso in Philippine Currency
obtaining on the date when and at the place where the obligation was incurred unless
the parties had agreed otherwise. (Hilado vs. De la Costa, L-150, April 30, 1950, 46 Off.
Gaz. 5472.)
DECISION
ZALDIVAR , J : p
In the year 1943 appellant Jose Grijaldo obtained ve loans from the branch
o ce of the Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with
interest at the rate of 6% per annum, compounded quarterly. These loans are evidenced
by ve promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd.,
as follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943,
P22.86; on August 9, 1943, P300.00; on August 13, 1943, P200.00, all notes without
due dates, but because the loans were crop loans it was considered that the loans were
due one year after they were incurred. To secure the payment of the loans the appellant
executed a chattel mortgage on the standing crops on his land, Lot No. 1494 known as
Hacienda Campugas in Hinigaran, Negros Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the
authority provided for in the Trading with the Enemy Act, as amended, the assets in the
Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the United
States. Pursuant to the Philippine Property Act of 1946 of the United States, these
assets, including the loans in question, were subsequently transferred to the Republic
of the Philippines by the Government of the United States under Transfer Agreement
dated July 20, 1954. These assets were among the properties that were placed under
the administration of the Board of Liquidators created under Executive Order No. 372,
dated November 24, 1950, and in accordance with Republic Act Nos. 8 and 477 and
other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by
the Chairman of the Board of Liquidators, made a written extra-judicial demand upon
the appellant for the payment of the account in question. The record shows that the
appellant had actually received the written demand for payment, but he failed to pay.
The aggregate amount due as principal of the ve loans in question, computed
under the Ballantyne scale of values as of the time that the loans were incurred in 1943,
was P889.64; and the interest due thereon at the rate of 6% per annum compounded
quarterly, computed as of December 31, 1959 was P1,457.39; so that the total account
as of December 31, 1959 was P2,377.23.
On January 17, 1961 the appellee led a complaint in the Justice of the Peace
Court of Hinigaran, Negros Occidental, to collect from the appellant the unpaid account
in question. The Justice of the Peace of Hinigaran, after hearing, dismissed the case on
the ground that the action had prescribed. The appellee appealed to the Court of First
Instance of Negros Occidental and on March 26, 1962 the court a quo rendered a
decision ordering the appellant to pay the appellee the sum of P2,377.23 as of
December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly
from the date of the ling of the complaint until full payment was made. The appellant
was also ordered to pay the sum equivalent to 10% of the amount due as attorney's
fees and the costs.
The appellant appealed directly to this Court. During the pendency of this appeal
the appellant Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a
resolution of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben
Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo, to appear and be
substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no cause
of action against the appellant; (2) that if the appellee has cause of action at all, that
action had prescribed; and (3) that the lower court erred in ordering the appellant to
pay the amount of P2,377.23.
In discussing his rst point of contention, the appellant maintains that the
appellee has no privity of contract with the appellant. It is claimed that the transaction
involved in this case was a private transaction between the Taiwan Bank, Ltd. and the
appellant, so that the appellee, Republic of the Philippines, could not legally bring action
against the appellant for the enforcement of the obligation involved in said transaction.
This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original
creditor and the transaction between the appellant and the Bank of Taiwan was a
private contract of loan. However, pursuant to the Trading with the Enemy Act, as
amended, and Executive Order No. 9095 of the United States; and under Vesting Order
No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., an entity
which was declared to be under the jurisdiction of the enemy country (Japan), were
vested in the United States Government. Pursuant, further, to the Philippine Property
Act of 1946 and Transfer Agreements dated July 20, 1954 and June 1957, between the
United States Government and the Republic of the Philippines, the assets of the Bank of
Taiwan, Ltd. were transferred to and vested in the Republic of the Philippines. The
successive transfers of the rights over the loans in question from the Bank of Taiwan,
Ltd. to the United States Government, and from the United States Government to the
government of the Republic of the Philippines, made the Republic of the Philippines the
successor of the rights, title and interests in said loans, thereby creating a privity of
contract between the appellee and the appellant. In de ning the word "privy" this Court,
in a case, said:
"The word `privy' denotes the idea of succession . . . hence, an
assignee of a credit, and one subrogated to it, etc. will be privies; in short, he
who, by succession is placed in the position of one of those who contracted
the juridical relation and executed the private document and appears to be
substituting him in his personal rights and obligation is a privy" (Alpuerto vs.
Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power seized the assets of
the Bank of Taiwan, Ltd. which belonged to an enemy country. The confiscation of the
assets of the Bank of Taiwan, Ltd. being an involuntary act of war, and sanctioned by
international law, the United States succeeded to the rights and interests of said Bank of
Taiwan, Ltd. over the assets of said bank. As successor in interest in, and transferee of, the
property rights of the United States of America over the loans in question, the Republic of
the Philippines had thereby become a privy to the original contracts of loan between the
Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the
Philippines has a legal right to bring the present action against the appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the appellee
has no cause of action, that because the loans were secured by a chattel mortgage on
the standing crops on a land owned by him and those crops were lost or destroyed
through enemy action his obligation to pay the loans was thereby extinguished. This
argument is untenable. The terms of the promissory notes and the chattel mortgage
that the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim
of appellant. The obligation of the appellant under the ve promissory notes was not to
deliver a determinate thing; namely, the crops to be harvested from his land, or the
value of the crops that would be harvested from his land. Rather, his obligation was to
pay a generic thing the amount of money representing the total sum of the ve loans,
with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a
series of ve contracts of simple loan of sums of money. "By a contract of (simple)
loan, one of the parties delivers to another . . . money or other consumable thing upon
the condition that the same amount of the same kind and quality shall be paid." (Article
1933, Civil Code.) The obligation of the appellant under the ve promissory notes
evidencing the loans in question is to pay the value thereof; that is, to deliver a sum of
money — a clear case of an obligation to deliver a generic thing. Article 1263 of the Civil
Code provides:
"In an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation."
The chattel mortgage on the crops growing on appellant's land simply stood as a
security for the ful llment of appellant's obligation covered by the ve promissory
notes, and the loss of the crops did not extinguish his obligation to pay, because the
account could still be paid from other sources aside from the mortgaged crops.
In his second point of contention, the appellant maintains that the action of the
appellee had prescribed. The appellant points out that the loans became due on June 1,
1944; and when the complaint was led on January 17, 1961 a period of more than 16
years had already elapsed — far beyond the period of ten years when an action based
on a written contract should be brought to court.
This contention of the appellant has no merit. Firstly, it should be considered that
the complaint in the present case was brought by the Republic of the Philippines not as
a nominal party but in the exercise of its sovereign functions, to protect the interests of
the State over a public property. Under paragraph 4 of Article 1108 of the Civil Code
prescription, both acquisitive and extinctive, does not run against the State. This Court
has held that the statute of limitations does not run against the right of action of the
Government of the Philippines (Government of the Philippine Islands vs. Monte de
Piedad, etc. 35 Phil. 738-751). Secondly, the running of the period of prescription of the
action to collect the loan from the appellant was interrupted by the moratorium laws
(Executive Order No. 25, dated November 18, 1944; Executive Order No. 32, dated
March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The loan in
question, as evidenced by the ve promissory notes, were incurred in the year 1943, or
during the period of Japanese occupation of the Philippines. This case is squarely
covered by Executive Order No. 25, which became effective on November 18, 1944,
providing for the suspension of payments of debts incurred after December 31, 1941.
The period of prescription was, therefore, suspended beginning November 18, 1944.
This Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953; 93 Phil. 68),
declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and Executive Order
Nos. 25 and 32, are unconstitutional; but in that case this Court ruled that the
moratorium laws had suspended the prescriptive period until May 18, 1953. This ruling
was categorically reiterated in the decision in the case of Manila Motors vs. Flores, L-
9396, August 16, 1956. It follows, therefore, that the prescriptive period in the case
now before Us was suspended from November 18, 1944, when Executive Order No. 25
took effect, until May 18, 1953 when R.A. 342 along with Executive Order Nos. 25 and
32 were declared unconstitutional by this Court. Computed accordingly, the
prescriptive period was suspended for 8 years and 6 months. By the appellant's own
admission, the cause of action on the ve promissory notes in question arose on June
1, 1944. The complaint in the present case was led on January 17, 1961, or after a
period of 16 years 6 months and 16 days when the cause of action arose. If the
prescriptive period was not interrupted by the moratorium laws, the action would have
prescribed already; but, as We have stated, the prescriptive period was suspended by
the moratorium laws for a period of 8 years and 6 months. If we deduct the period of
suspension (8 years and 6 months) from the period that elapsed from the time the
cause of action arose to the time when the complaint was led (16 years, 6 months and
16 days) there remains a period of 8 years and 16 days. In other words, the prescriptive
period run for only 8 years and 16 days. There still remained a period of one year, 11
months and 14 days of the prescriptive period when the complaint was filed.
In his third point of contention the appellant maintains that the lower court erred
in ordering him to pay the amount of P2,377.23. It is claimed by the appellant that it
was an error on the part of the lower court to apply the Ballantyne Scale of values in
evaluating the Japanese war notes as of June 1943 when the loans were incurred,
because what should be done is to evaluate the loans on the basis of the Ballantyne
scale as of the time the loans became due, and that was in June 1944. This contention
of the appellant is also without merit.
The decision of the court a quo ordered the appellant to pay the sum of
P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum
compounded quarterly from the date of the ling of the complaint, The sum total of the
ve loans obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in
Japanese war notes. Computed under the Ballantyne Scale of values as of June 1943,
this sum of P1,281.97 in Japanese war notes in June 1943 is equivalent to P889.64 in
genuine Philippine Currency. It is this amount of P889.64 in genuine Philippine Currency
which was considered the aggregate amount due as principal of the ve loans, and the
amount of P2,377.23 as of December 31, 1959 was arrived at after computing the
interest on the principal sum of P889.64 compounded quarterly from the time the
obligations were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of value should be applied
as of the time the obligation was incurred, and that was in June 1943. This stand of the
appellee was upheld by the lower court; and the decision of the lower court is
supported by the ruling of this Court in the case of Hilado vs. De la Costa (83 Phil. 471;
46 O. G., 5472), which states:
". . . Contracts stipulating for payments presumably in Japanese war
notes may be enforced in our Courts after the liberation to the extent of the
just obligation of the contracting parties and, as said notes have become
worthless, in order that justice may be done and the party entitled to be paid
can recover their actual value in Philippine Currency, what the debtor or
defendant bank should return or pay is the value of the Japanese military
notes in relation to the peso in Philippine Currency obtaining on the date
when and at the place where the obligation was incurred unless the parties
had agreed otherwise. . . ." (italics supplied)
IN VIEW OF THE VIEW FOREGOING, the decision appealed from is a rmed, with
costs against the appellant. Inasmuch as the appellant Jose Grijaldo died during the
pendency of this appeal, his estate must answer in the execution of the judgment in the
present case.
Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo, Reyes, J.B.L., Dizon,
Makalintal and Bengzon, J.P., JJ., concur.

SECOND DIVISION
[G.R. No. L-33084. November 14, 1988.]
ROSE PACKING COMPANY, INC. , petitioner, vs. THE COURT OF

APPEALS, HON. PEDRO C. NAVARRO, Judge of the Court of First
Instance of Rizal (Br. III), PHILIPPINE COMMERCIAL & INDUSTRIAL
BANK & PROVINCIAL SHERIFF OF RIZAL , respondents.
N .J . Quisumbing & Associates for petitioner.

Wilfredo L. Lim & Associates for private respondents.
De Las Alas & De Ocampo for respondents.
SYLLABUS
1. REMEDIAL LAW; PROVISIONAL REMEDIES; INJUNCTION; PURPOSE. — The issuance

of a writ of preliminary injunction could have preserved the status quo of the parties in
relation to the subject matter litigated by them during the pendency of the action (Lasala v.
Fernandez, 5 SCRA 79 [1962]; De Lara v. Cloribel, 14 SCRA 269 [1965]; Locsin v. Climaco,
26 SCRA 816 [1969].
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONDITIONAL OBLIGATIONS;
EFFICACY; SUBORDINATE TO THE HAPPENING OF THE SUSPENSIVE CONDITION. — The
efficacy or obligatory force of a conditional obligation is subordinated to the happening of
a future and uncertain event so that if the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never existed (Gaite v. Fonacier, 2
SCRA 831 [1961]).
3. ID.; ID.; DEMAND, GENERALLY ESSENTIAL FOR AN OBLIGATION TO BECOME DUE.
— For an obligation to become due there must generally be a demand. Default generally
begins from the moment the creditor demands the performance of the obligation. Without
such demand, judicial or extrajudicial, the effects of default will not arise (Namarco v.
Federation of United Namarco Distributors, Inc. 49 SCRA 238 [1973]; Borje v. CFI of
Misamis Occidental, 88 SCRA 576 [1979]). Whether petitioner corporation is already in
default or not and whether demand had been properly made or not had to be determined in
the lower court.
4. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RECIPROCAL OBLIGATIONS;
REMEDIES AVAILABLE TO AN INJURED PARTY WHERE THERE IS DEFAULT; CASE AT BAR.
— Respondent bank was in default in fulfilling its reciprocal obligation under their loan
agreement. By its own admission it failed to release the P710,000.00 loan (Rollo, p. 167) it
approved on October 13, 1966 (Brief for Respondent, p. 44) in which case, petitioner
corporation, under Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case (Central Bank of the Philippines v.
Court of Appeals, 139 SCRA 46 [1985]).
5. ID.; ID.; MORTGAGE CONTRACT; INDIVISIBILITY OF CONTRACT NOT APPLICABLE
WHERE THERE WAS FAILURE OF CONSIDERATION. — The rule of indivisibility of a real
estate mortgage refers to the provisions of Article 2089 of the Civil Code. The rule,
however, is not applicable to the instant case as it presupposes several heirs of the debtor
or creditor which does not obtain in this case (Central Bank of the Philippines v. Court of
Appeals, supra.) Furthermore, granting that there was consolidation of the entire loan of
petitioner corporations approved by respondent bank, the rule of indivisibility of mortgage
cannot apply where there was failure of consideration on the part of respondent bank for
the mismanagement of the affairs of petitioner corporation and where said bank is in
default in complying with its obligation to release to petitioner corporation the amount of
P710,000.00. In fact the real estate mortgage itself becomes unenforceable (Central Bank
of the Philippines v. Court of Appeals, supra).
DECISION
PARAS , J : p
This is a petition for review on certiorari of the decision 1 of the Court of Appeals in CA-
G.R. No. 43198-R promulgated in December 16, 1970 (Rollo, pp. 237-249), the dispositive
portion of which reads as follows:
"WHEREFORE, in view of the foregoing, this Court hereby renders judgment.
1. Denying the petition to set aside and annul the questioned orders dated
January 31, 1969 and May 7, 1969 rendered by respondent Judge, the same
having been issued in consonance with the exercise of the Court's discretion.
2. Declaring valid the foreclosure sale of May 9, 1969 but finding the
consolidation of ownership over the properties sold at such sale to have been
prematurely executed thereby rendering it void ab initio.
3. In accordance with this Court's resolution dated May 8, 1970, petitioner is

hereby granted sixty (60) days from receipt of a copy of this decision within
which to redeem the properties sold at the foreclosure sale of May 9, 1969.
4. Dismissing the charge of contempt against PCIB and its Executive Vice-
President and General Manager, Eugenio R. Unson, for lack of merit."
and its Resolution 2 dated January 12, 1971 (Rollo, p. 280), denying petitioner's motion
for reconsideration, as well as its Resolution 3 dated January 22, 1971 (Rollo, p. 281)
denying petitioner's supplement to motion for reconsideration.
The facts of the case as presented by petitioner and as embodied in the decision of the
Court of Appeals are as follows:
On December 12, 1962 respondent bank (PCIB) approved a letter-request by petitioner for
the reactivation of its overdraft line of P50,000.00 discounting line of P100,000.00 and a
letter of credit-trust receipt line of P550,000.00 as well as an application for a loan of
P300,000.00, on fully secured real estate and chattel mortgage and on the further
condition that respondent PCIB appoint as it is did appoint its executive vice-president
Roberto S. Benedicto as its representative in petitioner's board of directors.
On November 3, 1965 the National Investment & Development Corporation (NIDC), the
wholly owned investment subsidiary of the Philippine National Bank, approved a P2.6
million loan application of petitioner with certain conditions. Pursuant thereto, the NIDC
released to petitioner on November 7, 1965 the amount of P100,000.00. Subsequently,
petitioner purchased (5) parcels of land in Pasig, Rizal making a down payment thereon. prLL
On January 5, 1966, the NIDC released another P100,000.00 to petitioner and on January
12, 1966, the aforesaid releases totalling P200,000.00 were applied to the payment of
preferred stock which NIDC subscribed in petitioner corporation to partially implement its
P1,000,000.00 investment scheme as per agreement. Thereafter, the NIDC refused to
make further releases on the approved loan of petitioner.
On August 3, 1966 and October 5, 1966, respondent PCIB approved additional
accommodations to petitioner consisting of a P710,000.00 loan for the payment of the
balance of the purchase price of those lots in Pasig, required to be bought, P500,000.00
loan for operating capital, P200,000.00 loan to be paid directly to petitioner's creditor's,
while consolidating all previous accommodations at P1,597,000.00 — all of which were
still secured by chattel and real estate mortgages. However, PCIB released only
P300,00.00 of the P710,000.00 approved loan for the payment of the Pasig lands and
some P300,000.00 for operating capital.
On June 29, 1967, the Development Bank of the Philippines approved an application by
petitioner for a loan of P1,840,000.000 and a guarantee for $652,682.00 for the purchase
of can-making equipment. Immediately upon receipt of notice of the approval of the
Development Bank of the loan, petitioner advised respondent PCIB of the availability of
P800,000.00 to partially pay off its account and requested the release of the titles to the
Pasig lots for delivery to the Development Bank of the Philippines. Respondent PCIB
verbally petitioner of its refusal, stating that all obligations should be liquidated before the
release of the titles to the Pasig properties. Following the PCIB's rejection of petitioner's
counter-proposal, petitioner purchased a parcel of land at Valenzuela, Bulacan with the
P800,000.00 DBP loan, with the latter's consent.
On January 5, 1968 respondent PCIB filed a complaint against petitioner and Rene Knecht,
its president for the collection of petitioner's indebtedness as Civil Case No. 71697 of the
Court of First Instance of Manila.
On January 22, 1968, PCIB gave petitioner notice that it would cause the real estate
mortgage to be foreclosed at an auction sale, which it scheduled for February 27, 1968.
Thus, respondent Sheriff served notice of sheriff's sale (of the real properties mortgaged
to respondent PCIB) on July 18, 1968 at 10:00 a.m., more particularly, T.C.T. NO. 76320
(barrio Sto. Domingo, municipality of Cainta); T.C.T. No. 177019 (barrio San Joaquin, Pasig,
Rizal). Subsequently, on July 15, 1968, petitioner filed a complaint docketed as Civil Case
No. 11015 in the Court of First Instance of Rizal to enjoin respondents PCIB and the sheriff
from proceeding with the foreclosure sale, to ask the lower court to fix a new period for
the payment, for the issuance ex-parte of a writ of preliminary with the injunction enjoining
herein respondents from proceeding with the foreclosure sale scheduled to be held on
July 18, 1968.
On January 31, 1969, the lower court issued an order denying the application for
preliminary injunction and dissolving its restraining order which had been issued on July
17, 1968. Petitioner promptly filed a motion for reconsideration which was denied by the
lower court on May 7, 1969.
On May 8, 1969 petitioner filed with respondent Court of Appeals a petition for certiorari
with application for a restraining order and preliminary injunction upon filing by petitioner
of a bond in the amount of P60,000.00. However, petitioner moved for amendment of the
Order issuing the preliminary injunction, on the ground that the aforementioned resolution
of respondent Court came too late to stop the foreclosure sale which was held on May 9,
1969, praying instead that the preliminary injunction should now enjoin respondents,
particularly respondent Provincial Sheriff, from proceeding to give effect to the foreclosure
sale of May 28, 1969 (Rollo, pp. 237-242).
On May 8, 1970, on urgent motion of petitioner, respond Court granted petitioner a period
of sixty (60) days from receipt of the decision to be rendered in CA-G.R. No. 43 within
which to redeem its properties sold, should the said decision be one declaring the
execution sale in dispute to be valid (Rollo, p. 231).
Meantime, on May 12, 1970, an affidavit of consolidation of ownership executed by

Eugenio R. Unson for and in behalf of respondent PCIB concerning the properties involved
in the instant petition for certiorari, was registered with the Register of Deeds of Pasig,
Rizal at 8 00 a.m. Consequently, the old transfer certificates of title covering the
aforementioned properties were cancelled and new ones issued in the name of
respondent PCIB, the buyer at the foreclosure sale. In thereof, petitioner filed a motion
charging respondent and its Executive Vice-President and Assistant General Manager
Eugenio R. Unson with contempt of court. Petitioner prayed that (a) the Deed of Sale dated
May 12, 1970 consolidation of ownership of the same date be declared null and void; (b)
that the new transfer certificates of title TCT Nos. 286174, 286175, and 286176 — be
cancelled and the old ones TCT Nos. 177019, 175595, and 73620 be restored or re the
Register of Deeds of Rizal; and (c) that the respondent PCIB be ordered to surrender and
deposit the TCT Nos. 175595, and 73620 with respondent Court for safekeeping (Rollo. p.
243).
On December 16, 1970 respondent Court promulgated the questioned decision (Rollo, pp.
237-249). On January 12, 1971 it resolved (Rollo, p. 280) to deny petitioner's motion for
reconsideration dated January 5, 1971 (Rollo, p. 250) and on January 22, 1971 it again
resolved (Rollo, p. 281) to deny petitioner's supplement to motion for reconsideration
dated January 18, 1971 (Rollo, p. 260).
The instant Petition for Review on Certiorari (Rollo, p. 12) was filed with the Court on
February 16, 1971. On February 23, 1971, the Court resolved to give due course to the
petition and ordered the issuance of preliminary injunction enjoin respondents from
enforcing or implementing the appeal decision of respondent Court of Appeals, upon
petition; posting a bond of P50,000.00 (Rollo, p. 584). The writ of preliminary injunction
was issued on April 28, 1971 (Rollo, 619).
The Brief for Petitioner was filed on June 18, 1971 (Rollo, p. 631). The Brief for the
Respondents was filed on September 20, 1971 (Rollo, p. 655). The Reply Brief was filed on
December 6, 1971 (Rollo, p. 678).
On April 2, 1971 respondent PCIB filed a motion for leave to lease real estate properties in
custodia legis, more specifically the 31,447 sq. m. lot located at Sto. Domingo, Cainta,
Rizal covered by TCT No. 286176 (Rollo, p. 697). Petitioner filed its opposition to the
motion on May 27, 1971 (Rollo, p. 712). The reply to the opposition was filed on December
6, 1971 (Rollo, p. 730); the rejoinder to respondent PCIB's reply to opposition on
November 19, 1971 (Rollo, p. 736). Meantime the case was transferred to the Second
Division, by a Resolution of First Division dated January 17, 1983 (Rollo, p. 752).

The issues raised in this case are the following:
1. WHETHER OR NOT RESPONDENT COURT ERRED IN FINDING THAT THE
LOWER COURT DID NOT COMMIT AN ABUSE OF DISCRETION IN DENYING
PETITIONER'S APPLICATION FOR A PRELIMINARY INJUNCTION AND
DISSOLVING THE RESTRAINING ORDER PREVIOUSLY ISSUED. (Brief for Petition,
pp. 21-47);
2. WHETHER OR NOT RESPONDENT COURT ERRED IN DECLARING VALID
THE FORECLOSURE SALE ON MAY 9, 1969 OF THE MORTGAGED PROPERTIES
EN MASSE WHEN THEY REFER TO SEVERAL REAL ESTATE MORTGAGES
EXECUTED ON DIFFERENT DATES. (Brief for Petitioner, pp. 47-50).
The main issue is whether or not private respondents have the right to the extrajudicial
foreclosure sale of petitioner's mortgaged properties before trial on the merits. The
answer is in the negative.
Petitioner filed Civil Case No. 11015 in the Court of First Instance of Rizal, Branch II, to
obtain judgment (1) enjoining defendants (respondents herein) from proceeding with the
foreclosure sale of the subject real estate mortgages, (2) fixing a new period for the
payment of the obligations of plaintiff to defendant PCIB sufficiently long to enable it to
recover from the effects of defendant PCIB's inequitable acts, (3) ordering defendant PCIB
to immediately give up management of plaintiff's canning industry and to pay plaintiff such
damages as it may prove in the concept of actual, compensatory and exemplary or
corrective damages, aside from attorney's fees and expenses of litigation, plus costs
(Rollo, p. 98). It is to be noted that petitioner filed the above case mainly to forestall the
foreclosure sale of the mortgaged properties before final judgment. The issuance of a writ
of preliminary injunction could have preserved the status quo of the parties in relation to
the subject matter litigated by them during the pendency of the action (Lasala v.
Fernandez, 5 SCRA 79 [1962]; De Lara v. Cloribel, 14 SCRA 269 [1965]; Locsin v. Climaco,
26 SCRA 816 [1969].
When the lower court denied the issuance of the writ prayed for and dissolved the
restraining order it had previously issued, in its order dated January 31, 1969 (Rollo, p.
138) it practically adjudicated the case before trial on the merits.
While petitioner corporation does not deny, in fact, it admits its indebtedness to
respondent bank (Brief for Petitioner, pp. 7-11), there were matters that needed the
preservation of the status quo between the parties. The foreclosure sale was premature.
First was the question of whether or not petitioner corporation was already in default. In its
letter dated August 12, 1966 to petitioner corporation, among the conditions that
respondent bank set for the consolidation of the outstanding obligations of petitioner was
the liquidation of the said obligations together with the latter's other obligations in the
financing scheme already approved by the NIDC and PDCP. To quote:
"a) These facilities shall be temporary and shall be fully liquidated, together
with other obligations from a refinancing scheme already approved by the NIDC
and PDCP totalling P1 million in equity and P2.6 million in long term financing. In
this connection, the firm shall present to this Bank a certified copy of the terms
and conditions of the approval by the NIDC and PDCP." (Brief for the Respondent,
p. 41).
In other words, the loans of petitioner corporation from respondent bank were supposed
to become due only at the time that it receives from the NIDC and PDCP the proceeds of
the approved financing scheme. As it is, the conditions did not happen. NIDC refused to
make further releases after it had made two releases totalling P20,000.00 which were all
applied to the payment of the preferred stock NIDC subscribed in petitioner corporation to
partially implement its P1,000,000.00 investment scheme (Brief for Petitioner, p. 9). The
efficacy or obligatory force of a conditional obligation is subordinated to the happening of
a future and uncertain event so that if the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never existed (Gaite v. Fonacier, 2
SCRA 831 [1961]).
Petitioner corporation alleges that there had been no demand on the part of respondent
bank previous to its filing a complaint against petitioner and Rene Knecht personally for
collection on petitioner's indebtedness (Brief for Petitioner, p. 13). For an obligation to
become due there must generally be a demand. Default generally begins from the moment
the creditor demands the performance of the obligation. Without such demand, judicial or
extrajudicial, the effects of default will not arise (Namarco v. Federation of United Namarco
Distributors, Inc., 49 SCRA 238 [1973]; Borje v. CFI of Misamis Occidental, 88 SCRA 576
[1979]). Whether petitioner corporation is already in default or not and whether demand
had been properly made or not had to be determined in the lower court.
Granting that the findings of the lower court after trial on the merits answer both questions
in the affirmative, another question that had to be determined was the question of cause or
consideration.
The loan agreements between petitioner and respondent Bank are reciprocal obligations
(the obligation or promise of each party is the consideration for that of the other (Penacio
v. Ruaya, 110 SCRA 46 [1981], cited in Central Bank of the Philippines v. Court of Appeals,
139 SCRA 46 [1985]). A contract of loan is not a unilateral contract as respondent Bank
thinks it is (Brief for the Respondent, p. 19). The promise of petitioner to pay is the
consideration for the obligation of respondent bank to furnish the loan (Ibid.).
Respondent bank had complete control of the financial affairs and the management of
petitioner corporation. It appointed its executive vice-president Roberto S. Benedicto as its
representative in petitioner's board of directors, giving him the position of vice-president in
petitioner corporation (Brief for Petitioner, p. 7). Upon the resignation of Roberto S.
Benedicto as vice-president and member of the board of directors of petitioner
corporation on December 29, 1965 (Brief for Petitioner, p. 8), respondent bank designated
Rafael Ledesma as its representative in petitioner corporation's board of directors, due
representation in the board of petitioner being a condition for the loan granted to the
petitioner (Rollo, p. 166). In fact, Rafael Ledesma was designated Chairman of the Board of
Directors (Rollo, p. 169). Respondent bank required petitioner to appoint Sycip, Gorrez,
Velayo & Co. as full-time comptroller-treasurer of the corporation at a monthly salary of
P1,500.00 (Brief for Petitioner, p. 9; Brief for the Respondent, p. 41). On January 2, 1967, it
also required petitioner to replace its then manager, the Management & Investment
Development Associates (MIDA) and to appoint instead Edmundo Ledesma at a monthly
salary of P3,000.00 and transportation allowance of P1,000.00 plus an assistant manager,
Venancio Concepcion at a salary of P1,000.00 a month. During the next 18 months'
management by defendant's designated manager, no meeting of the board of directors of
petitioner was called - Edmundo Ledesma exercised full control and management (Brief
for Petitioner, pp. 10-11, Rollo, p. 167). Respondent Bank has not given up management of
petitioner's food canning industry and continues to hold it. Even Atty. Juan de Ocampo has
been retained by petitioner as corporate counsel, at the insistence of respondent bank
(Brief for Petitioner, p. 14). This has not been denied by respondent bank.
Respondent bank's designation of its own choice of people holding key positions in
petitioner corporation tied the hands of petitioner's board of directors to make decisions
for the interest of petitioner corporation, in fact, undermined the latter's financial stability.
During the 18 months of Edmundo Ledesma's management, petitioner's factory produced
some P200,000.00 worth of canned goods which according to petitioner is only equivalent
to its normal production in three weeks (Brief for Petitioner, pp. 10-11). Respondent bank
justifies the underproduction by averring that petitioner at that time did not have sufficient
capital to operate the factory, and that said factory was only operating for the purpose of
avoiding spoilage and deterioration of the raw materials then in store at the petitioner's
factory (Rollo. p. 168) and yet respondent bank insists, that it had released the entire
amount of P500,000.00 loan to petitioner (Rollo, p. 167) earmarked for operating capital
purposes (Brief for the Respondent, p. 43) and admits having granted a P40,000.00 loan at
a higher interest of 14% per annum to petitioner at the request of the same Edmundo
Ledesma (Rollo, p. 167). After the Development Bank of the Philippines had approved on
June 29, 1967 a loan of P1,840,000.00 applied for by petitioner in 1961, respondent bank
informed of the availability of P800,000.00 to pay off partially petitioner's account with it
and requested to release the titles of the Pasig parcels for delivery to the Development
Bank of the Philippines, and the amount actually released by the Development Bank, Rafael
Ledesma, in his capacity as Chairman of petitioner's board of directors wrote a letter to
the Development Bank of the Philippines stating that Rene Knecht, petitioner's president,
had no authority to borrow for petitioner, being a mere figure head president, although
Rene Knecht controlled 87% of the stockholding of petitioner and the by-laws authorized
the president to borrow for the company (Brief for Petitioner, pp. 11-13). That Rafael
Ledesma wrote a letter to the Development Bank of the Philippines is admitted by
respondent bank (Rollo, p. 169). The Development Bank of the Philippines refused to make
further releases on the approved loan or to issue the dollar guaranty for the importation of
can-making machinery. It was Atty. Juan de Ocampo, the corporate counsel retained by
petitioner at the insistence of respondent bank that instituted the collection suit and extra-
judicial foreclosure for respondent bank against petitioner (Brief for Petitioner, pp. 13-14;
Rollo, p. 79).
It is apparent that it is respondent bank practically managing petitioner corporation
through its representatives occupying key positions therein. Not even the president of
petitioner corporation could escape control by respondent bank through the Comptroller-
Treasurer assigned "to countersign all checks and other disbursements and decide on all
financial matters regarding the operations and who shall see to it that operations are
carried out" (Brief for the Respondent, p. 41). There is basis for petitioner's complaint of
interference by respondent bank with petitioner's financing (Brief for Petitioner, pp. 31-32)
and such interference is only a consequence of respondent bank's management of
petitioner corporation through the officers occupying key positions therein. Thus, if ever
petitioner corporation was in financial straits instead of being rehabilitated this can be
attributed to the mismanagement of respondent corporation through its representatives in
petitioner corporation.
In a similar case, Filipinas Marble Corporation v. Intermediate Appellate Court (142 SCRA
180 [1986] where the lending institution took over the management of the borrowing
corporation and led that corporation to bankruptcy through mismanagement or
misappropriation of the funds, defeating the very purpose of the loan which is to develop
the projects of the corporation, the Court ruled that it is as if the loan was never delivered
to it and thus, there was failure on the part of the respondent DBP to deliver the
consideration for which the mortgage and the assignment of deed were executed. cdll
It cannot be determined at this point how much of the total loan, most especially the
P500,000.00 loan for operating capital and the P40,000.00 loan of the manager, Edmundo
Ledesma, had been mismanaged or misspent by respondent bank through its
representatives. This matter should rightfully be litigated below in the main action
(Filipinas Marble Corporation v. Intermediate Appellate Court, supra).
Furthermore, respondent bank was in default in fulfilling its reciprocal obligation under
their loan agreement. By its own admission it failed to release the P710,000.00 loan (Rollo,
p. 167) it approved on October 13, 1966 (Brief for Respondent, p. 44) in which case,
petitioner corporation, under Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case (Central Bank of the Philippines v.
Court of Appeals, 139 SCRA 46 [1985]).
As a consequence, the real estate mortgage of petitioner corporation cannot be entirely
foreclosed to satisfy its total debt to respondent bank. (Central Bank of the Philippines v.
Court of Appeals, supra).
The issue of whether the foreclosure sale of the mortgaged properties en masse was valid
or not must be answered in the negative. The rule of indivisibility of a real estate mortgage
refers to the provisions of Article 2089 of the Civil Code, which provides:
"Art. 2089. A pledge or mortgage is indivisible, even though the debt may be
divided among the successors in interest of the debtor or of the creditor.
Therefore the debtor's heir who has paid a part of the debt cannot ask for the
proportionate extinguishment of the pledge or mortgage as the debt is not
completely satisfied.
Neither can the creditor's heir who received his share of the debt return the pledge
or cancel the mortgage, to the prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which, there being several things
given in mortgage or pledge, each one of them guarantees only a determinate
portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debt for which each thing is specially answerable
is satisfied."
Respondent bank cites the above-quoted article in its argument that the mortgage
contract is indivisible and that the loan it secures cannot be divided among the different
lots (Brief for Respondent, p. 27). Respondent Court upheld the validity of the sale en
masse (Rollo, p. 246).
The rule, however, is not applicable to the instant case as it presupposes several heirs of
the debtor or creditor which does not obtain in this case (Central Bank of the Philippines v.
Court of Appeals, supra.) Furthermore, granting that there was consolidation of the entire
loan of petitioner corporations approved by respondent bank, the rule of indivisibility of
mortgage cannot apply where there was failure of consideration on the part of respondent
bank for the mismanagement of the affairs of petitioner corporation and where said bank
is in default in complying with its obligation to release to petitioner corporation the
amount of P710,000.00. In fact the real estate mortgage itself becomes unenforceable
(Central Bank of the Philippines v. Court of Appeals, supra). Finally, it is noted that as
already stated hereinabove, the exact amount of petitioner's total debt was still unknown.
PREMISES CONSIDERED, (1) the decision of the Court of Appeals is REVERSED insofar as
it sustained: (a) the lower court's denial of petitioner's application for preliminary injunction
and (b) the validity of the foreclosure sale; (2) the lower court is ordered to proceed with
the trial on the merits of the main case together with a determination of exactly how much
are petitioner's liabilities in favor of respondent bank PCIB so that proper measures may
be taken for their eventual liquidation; (3) the preliminary injunction issued by this Court on
April 28, 1971 remains in force until the merits of the main case are resolved; and (4) the
motion of respondent bank dated April 1, 1981 for leave to lease the real properties in
custodia legis is DENIED.
SO ORDERED.
Melencio-Herrera, Padilla and Sarmiento, JJ ., concur.
Regalado, J ., No part; did not participate in deliberations.
Footnotes
1. Penned by Justice Antonio Canizares and occurred in by Justices Ruperto G, Martin and
Manuel P. Barcelona.
2. Penned by Justice Antonio Canizares and occurred in by Justices Ruperto G. Martin and
3. Written by Justices Antonio Canizares and occurred in by Justices Ruperto G. Martin and

EN BANC
[G.R. No. L-6313. May 14, 1954.]
THE ROYAL SHIRT FACTORY, INC. , plaintiff-appellee, vs . CO BON TIC ,

defendant-appellant.
Quisumbing, Sycip, Quisumbing & Salazar for appellant.

Ramirez & Ortigas for appellee.
SYLLABUS
1. APPEALS; APPEAL FROM INFERIOR COURTS TO COURTS OF FIRST

INSTANCE; ALL ISSUES WHETHER OR NOT APPEALED UPON MAY BE PASSED UPON
BY THE LATTER COURT. — An appeal from justice of the peace or municipal courts to
Courts of First Instance serves to vacate the judgment appealed from and the action
will stand for trial de novo upon its merits as though the same had never been tried
before and had been originally commenced in the Court of First Instance (Section 9,
Rule 40, of the Rules of Court). Any and all issues involved in the case, whether or not
passed upon by the inferior court and whether or not appealed upon by any or both
parties, are thrown open and may be passed upon by the appellate court.
2. ID.; APPEALS FROM JUDGMENTS OF COURTS OF FIRST INSTANCE TO
SUPERIOR COURTS; ONLY ISSUES DECIDED AGAINST APPELLANT MAY BE REVIEWED;
EXCEPTIONS. — The rule that an appeal brings up for review only that which was
decided against the appellant so that part of the judgment favorable to him is not
reviewable if the other party does not appeal applies only to appeals from judgments of
Courts of First Instance to the Court of Appeals or to the Supreme Court, unless the
appellate court motu proprio takes cognizance of palpable errors committed by the
trial court and proceeds to correct the same even if the correction favors the appellee
(Section 5, Rule 53, Rules of Court).
DECISION
MONTEMAYOR , J : p
The present appeal involves an action originally brought in the Municipal Court of
Manila by the plaintiff, the ROYAL SHIRT FACTORY, INC., to recover from defendant CO
BON TIC the sum of P1,422 said to represent the balance of the purchase price of 350
pairs of "Balleteenas" shoes at P7 a pair, with interest at 12 per cent per annum from
August 27, 1948, and 25 per cent of said sum as attorney's fees, and costs.
The principal issues in the Municipal Court was the nature of the sale of the 350
pairs of shoes by plaintiff to defendant — whether it was an outright sale as contended
by the plaintiff, or a sale merely on consignment as claimed by the defendant who
wanted to return the shoes not yet sold by him. There was also involved the question of
the amount already paid by the defendant to the plaintiff. The Municipal Court held that
the contract was of sale on consignment; that of the 350 pairs of shoes consigned, 207
pairs were sold at the rate of P8 a pair, amounting to a total of P1,656; and that
defendant had paid the sum of P1,028 to plaintiff on account of the purchase price of
the shoes sold, excluding the amount of P420, value of Check No. 790264 issued by
defendant as payment but returned to him by the plaintiff and not replaced with cash.
Judgment was rendered sentencing the defendant to pay plaintiff the sum of P628 with
interest thereon at the legal rate from the date of the ling of the complaint, and to
return to plaintiff the 143 pairs of shoes still unsold, unless he preferred to retain and
pay for them at the rate of P8 a pair within a period of fteen days from receipt of a
copy of the decision.
The defendant appealed from the judgment to the Court of First Instance of
Manila, and after trial, the appellate court held that the transaction involved was one of
outright sale at P7 per pair of shoes, sales tax included, the court accepting the version
given by the plaintiff to the effect that on the basis of the order slip (Exhibit A), the
defendant had 9 days from delivery of the shoes to make his choice of the two
alternatives, that is to consider the sale of the 350 pairs of shoes closed at the at rate
of P7 per pair, sales tax included, or, at the expiration of 9 days to pay for the shoes
sold at P8 per pair, and to return the remaining unsold ones to plaintiff; and that,
inasmuch as defendant, at the expiration of the 9 days stipulated, failed to return the
shoes, and actually began making partial payments on account of the purchase price
agreed upon, the transaction in the nature of a straight sale, was considered closed.
The court also found as did the Municipal Court that the amount of P420 represented
by Check No. 790624 was never replaced or exchanged for cash by the defendant upon
its return to him, and consequently, it may not be considered as part payment.
Judgment was rendered in favor of the plaintiff and against the defendant and
the latter was ordered to pay to the former the sum of P1,422, the unpaid balance of
the sales price of 350 pairs of shoes in question, with interest on the amount due at the
rate of 12 per cent per annum from August 27, 1948 until nal payment, plus the
amount of 25 per cent of the same sum for attorney's fees as stipulated, and costs.
After failing to get a reconsideration of the judgment, the defendant appealed the case
to the Court of Appeals which Tribunal after submission of the briefs for both parties,
and acting upon a motion led by counsel for the appellant that the case be certi ed to
the Supreme Court for the reason that the question raised in his rst and second
assignment of errors involved the jurisdiction of the trial court, granted the same and
certi ed the appeal to us for nal determination pursuant to Section 17, par. 2(3) of
Republic Act 296.
Under the rst and second assignment of errors, the defendant raises the
question of jurisdiction of the Court of First Instance of Manila in reviewing and passing
upon the issues already passed upon and decided by the Municipal Court but not
appealed from by plaintiff. It is the theory of the appellant that as for instance, when the
Municipal Court found that the transaction between plaintiff and defendant was a sale
on consignment and plaintiff failed to appeal from that decision, that part of the
judgment became nal as to him (plaintiff), and should be regarded as res adjudicata,
and that the Court of First Instance in the exercise of its appellate not original
jurisdiction may not review and pass upon the same question or issue, and the in so
doing it exceeded its appellate jurisdiction. Defendant further contends and cites
authorities in support of his contention that regardless of the provisions of Rule 40,
section 9, of the Rules of Court whose provisions are to the effect that a perfected
appeal from a decision of the justice of the peace or the municipal court shall operate
to vacate the said judgment and shall stand for trial de novo upon its merits in
accordance with the regular procedure in that court as though the same had never been
tried before and had been originally commenced there, an appeal brings up for review
only that part of the judgment favorable to him is not reviewable if the other party does
not appeal; that a party who has not appealed a judgment cannot assail it, neither can
he ask for a judgment more favorable to him than that rendered in the court below; that
the party who has not appealed a judgment signi es his acceptance of the correctness
of the said judgment, and that in the appeal his position is merely defensive and he may
only refute appellant's assignment of errors and sustain the judgment of the trial court.
The above contention of appellant might possibly hold with regards to appeals
from judgments of Courts of First Instance to the Court of Appeals or to the Supreme
Court in that one cannot seek further remedy or relief in the appeal not taken by him
than that granted him by the trial court, unless of course, the appellate court motu
proprio takes cognizance of palpable errors committed by the trial court and proceeds
to correct the same even if the correction favors the appellee (Section 5, Rule 53, Rules
of Court). However, we have a special legal provision governing an appeal from justice
of the peace or municipal courts to Courts of First Instance, the very Rule 40, section 9,
of the Rules of Court cited by defendant-appellant. Such appeal serves to vacate the
judgment appealed from and the action will stand for trial de novo upon its merits as
though the same had never been tried before and had been originally commenced in the
Court of First Instance. The Court of First Instance will try the case without regard to
the proof presented in the Justice of the Peace or Municipal Court or the conclusions
arrived by said court. The Court of First Instance will not a rm, or modify the rulings or
the judgment appealed from for the simple reason that there is no ruling or judgment to
a rm, reverse or modify because all the proceedings had in the justice of the peace or
municipal court, including the judgment, do not in contemplation of law exist, having
been vacated; and the only instance when said judgment appealed from is revived is
when the appeal is withdrawn or dismissed (Crisostomo vs. Director of Prisons. 41
Phil., 368; Colegio de San Jose vs. Sison, 56 Phil., 344, 351; Lizo vs. Carandang, 2 Off.
Gaz., 302, March 1943; Co Tiamco vs. Diaz. * 42 Off. Gaz., 1169, 1231; Lichauco vs.
Guash, 42 Off. Gaz., 1863, 1865; Rule 40, Sec. 9, Rules of Court). From all this it is
evident that the contention of the appellant is untenable; and that any and all issues
involved in a case originating in an inferior court, whether or not passed upon by said
court and whether or not appealed upon by any or both parties, are, thrown open and
may be passed upon by the Court of Instance when the case is appealed to it.
Consequently, the Court of First Instance of Manila had jurisdiction and authority to rule
on the issue as to the nature of the transaction between plaintiff and defendant as to
the sale of the shoes. Now, was it an absolute sale or a sale on consignment?
Exhibit A of the plaintiff which was accepted, admitted and considered by the
Court of First Instance of Manila is an order slip which lists down and classi es the 350
shoes in question according to color, and contains the following condition of the sale in
the hand writing of Mr. Chebat, the agent of the plaintiff who sold the shoes to the
defendant —
CONDICION (Terms)
"Al cabo de 9 dias, pagar todo a razon de P7 al par, o pagar lo vendido
a P8 el par".
Explaining said condition, Mr. Chebat testifying, said that it meant that the defendant
could either consider the sale as one on consignment, sell as many shoes as he could
at any price, pay for them at P8 a pair and at the end of nine days return the shoes
unsold to the plaintiff, or, consider the sale of the 350 shoes as absolute at P7 a pair;
and that since the defendant did not return any of the shoes at the expiration of 9 days
he must be held to have chosen the second alternative, namely, that he bought the
whole stock of shoes at P7 a pair. It will be noted, however, that Exhibit "A" was never
accepted, much less signed by the defendant or his sales manager Mr. Bernardo
Geronimo, and therefore, cannot bind the defendant and so is but a self-serving
evidence which should not have been admitted and considered by the trial court.
Disregarding Exhibit "A", the nature of the transaction must be judged by other
evidence, including the conduct of the parties at the time of making the contract and
subsequent thereto (Art. 1282 of the old Civil Code and Art. 1371 of the new Civil
Code). Exhibit "B" of the plaintiff is an invoice of the same 350 pairs of shoes whose
price including sales tax is listed as P2,450. It was evidently not only accepted by the
defendant but on it he noted down in his own handwriting the different partial payments
of P500, P528 and lastly of the controversial P420 by check. It will also be noticed that
the defendant in making said notations of payment considered the full purchase price
of the 350 pairs of shoes at P7.00 or P2,450, and it was against said total that he had
been making the payments, putting down the balance after each payment. For instance,
after paying P500 on account, he put P1,950 as balance, and after paying another P528,
he put down as balance P1,422. In other words, he obviously accepted the straight sale
to him on credit of the whole 350 pairs of shoes for P2,450 and made partial payments
on account thereof. In making said partial payments, he made no mention whatsoever
of the number of shoes sold by him and the number of shoes remaining unsold, which
he should have done had the sale been on the assignment basis. On the other hand, he
merely mentioned the balance of the purchase price after deducting the several partial
payments made by him. Furthermore, if the sale had been on consignment, a stipulation
as to the period of time for the return of the unsold shoes should have been made; but
evidently that had not been done and defendant kept the shoes unsold more or less
inde nitely, but giving the same excuse that he could not return them to the plaintiff
because he did not know where to return them. The plaintiff Royal Shirt Factory, Inc., is
quite well- known. It has a store at the Escolta and according to the invoice (Exhibit B),
it is an importer, wholesaler and manufacturer, and it could not have been hard, much
less impossible for the defendant to return the shoes unsold by him had the transaction
really been a sale on consignment. So, on this issue of the nature of the transaction
between the parties, we agree with the trial court that it was a straight sale at the rate
of P7 per pair of shoes.
As regards Check No. 790264 of the China Banking Corporation, Exhibit F, in the
amount of P420 with which defendant attempted to make another partial payment as
appears in Exhibit 'B', both parties agree that since the check was postdated, it was
returned by the plaintiff to the defendant who however claims that he replaced it with
cash. This was stoutly denied by plaintiff. After a careful review of the evidence, we
agree with the trial court that the preponderance thereof is to the effect that the
amount of said check of P420 was never replaced by the defendant. It is also
interesting to note that the Municipal Court of Manila where this issue was rst
considered, came to the same conclusion that the defendant never replaced the
amount of this check in cash.
The decision appealed from sentences the defendant to pay to the plaintiff
P1,422 with interest at 12 per cent per annum from August 27, 1948, plus 25 per cent
of the same sum for attorney's fees, besides costs. This rate of interest and the 25 per
cent for attorney's fees appears in Exhibit "B" in printed form as terms or conditions. In
Exhibit "A", the order slip, the conditions of sale also printed provide for 20 per cent only
as attorney's fees and no rate of interest in case of litigation. Had the defendant signed
Exhibit "A", which he did not, he would have been bound by it and would be liable to 20
per cent of any amount due from him, but because of the absence of stipulation as to
the rate of interest he would be paying only the legal rate of 6 per cent per annum.
There is no explanation of this difference in conditions of sale about rate of interest and
attorney's fees found in the order slip (Exhibit "A") and the invoice (Exhibit "B") both of
the plaintiff. Anyway, neither did the defendant sign Exhibit "B". If we hold defendant
bound by Exhibit "B" at all, it is because of his tacit acceptance of the total value of 350
pairs of shoes and by his notation against if of his partial payments. We do not think it
fair for him to be bound also by the printed terms of the conditions of sale. Moreover,
we nd under said printed form the clause in pencil: "as agreed with Mr. Chebat." We
may even say that said clause in handwriting may be considered as having overruled
what was printed as to the rate of interest and the attorney's fees. We therefore hold
that the defendant should only pay 6 per cent interest on the amount due him from the
date of the ling of the complaint, with costs, and nothing for attorney's fees. It is also
interesting to note that this was the same ruling of the Municipal Court on this point.
With the above modi cation, the decision appealed from is hereby a rmed, with
costs.
Paras, C. J., Pablo, Bengzon, Reyes, Jugo, Bautista Angelo, Labrador and
Concepcion, JJ., concur.
Footnote
*. 75 Phil., 672.

SECOND DIVISION
[G.R. No. 116285. October 19, 2001.]
ANTONIO TAN , petitioner, vs . COURT OF APPEALS and the CULTURAL

CENTER OF THE PHILIPPINES , respondents.
Arturo S. Santos for petitioner.

Government Corporate Counsel for private respondent.
SYNOPSIS
Upon a complaint for the collection of a sum of money filed against the petitioner
after the latter failed to settle a restructured loan obligation, the trial court ordered the
petitioner to pay the amount of more than seven million pesos representing his
outstanding account with interest, surcharges, and attorney's fees. The CA a rmed the
trial court's decision imposing interest, and surcharges but reduced the amount of
attorney's fees and deleted the exemplary damages.
On appeal, petitioner asked for the non-imposition of interest on the surcharges
inasmuch as the compounding of interest on surcharges is not provided in the
promissory note marked Exhibit "A".
The Supreme Court a rmed with modi cation the penalty charge, ruling: that
penal clauses can be in the form of penalty or compensatory interest, thus, the
compounding of the penalty or compensatory interest is sanctioned by Article 1959 of
the New Civil Code; that the ruling in the case of National Power Corporation vs.
National Merchandising Corporation nding unjust the imposition of interest on the
damages from the ling of the complaint where litigation was prolonged for twenty ve
years through no fault of the defendant is inapplicable to the case at bar inasmuch as
there is a contractual stipulation in the promissory note herein whereby the petitioner
expressly agreed to the compounding of interest in case of failure on his part to pay the
loan at maturity; but that a reduction of the penalty charge appears to be justi ed under
Article 1229 of the New Civil Code in view of the partial payments made by petitioner
showing his good faith. EHTIDA
SYLLABUS
1. CIVIL LAW; NEW CIVIL CODE; LOANS; FORMS OF PENALTIES ON

DELINQUENT LOANS; CASE AT BAR. — In the case at bar, the promissory note (Exhibit "A")
expressly provides for the imposition of both interest and penalties in case of default on
the part of the petitioner in the payment of the subject restructured loan. . . . The stipulated
fourteen percent (14%) per annum interest charge until full payment of the loan constitutes
the monetary interest on the note and is allowed under Article 1956 of the New Civil Code.
On the other hand, the stipulated two percent (2%) per month penalty is in the form of
penalty charge which is separate and distinct from the monetary interest on the principal
of the loan. Penalty on delinquent loans may take different forms. In Government Service
Insurance System v. Court of Appeals , this Court has ruled that the New Civil Code permits
an agreement upon a penalty apart from the monetary interest. If the parties stipulate this
kind of agreement, the penalty does not include the monetary interest, and as such the two
are different and distinct from each other and may be demanded separately.
2. ID.; ID.; ID.; ID.; IMPOSING ON THE PENALTY CHARGE IS SANCTIONED BY
ARTICLE 1959 OF THE NEW CIVIL CODE; CASE AT BAR. — According to the petitioner,
there is no legal basis for the imposition of interest on the penalty charge for the reason
that the law only allows imposition of interest on monetary interest but not the charging of
interest on penalty. He claims that since there is no law that allows imposition of interest
on penalties, the penalties should not earn interest. But as we have already explained,
penalty clauses can be in the form of penalty or compensatory interest. Thus, the
compounding of the penalty or compensatory interest is sanctioned by and allowed
pursuant to the provision of Article 1959 of the New Civil Code.
3. ID.; ID.; ID.; ID.; ID.; CASE OF NPC VS. NATIONAL MERCHANDISING CORP.,
117 SCRA 789 (1982) FINDING IMPOSITION OF INTEREST ON DAMAGES UNJUST, NOT
APPLICABLE TO CASE AT BAR. — The petitioner seeks the elimination of the compounded
interest imposed on the total amount based allegedly on the case of National Power
Corporation v. National Merchandising Corporation , wherein we ruled that the imposition
of interest on the damages from the ling of the complaint is unjust where the litigation
was prolonged for twenty- ve (25) years through no fault of the defendant. However, the
ruling in the said National Power Corporation (NPC) case is not applicable to the case at
bar inasmuch as our ruling on the issue of interest in that NPC case was based on
equitable considerations and on the fact that the said case lasted for twenty- ve (25)
years "through no fault of the defendant." In the case at bar, however, equity cannot be
considered inasmuch as there is a contractual stipulation in the promissory note whereby
the petitioner expressly agreed to the compounding of interest in case of failure on his
part to pay the loan at maturity. Inasmuch as the said stipulation on the compounding of
interest has the force of law between the parties and does not appear to be inequitable or
unjust, the said written stipulation should be respected. EcAHDT
4. ID.; ID.; ID.; ID.; ID.; REDUCTION OF PENALTY CHARGE DUE TO PARTIAL
PAYMENTS MADE IS JUSTIFIED UNDER ARTICLE 1229 OF THE NEW CIVIL CODE; CASE
AT BAR. — There appears to be a justi cation for a reduction of the penalty charge but not
necessarily to ten percent (10%) of the unpaid balance of the loan as suggested by
petitioner. Inasmuch as petitioner has made partial payments which showed his good
faith, a reduction of the penalty charge from two percent (2%) per month on the total
amount due, compounded monthly, until paid can indeed be justi ed under the said
provision of Article 1229 of the New Civil Code.
DECISION
DE LEON, JR., J : p
Before us is a petition for review of the Decision 1 dated August 31, 1993 and
Resolution 2 dated July 13, 1994 of the Court of Appeals a rming the Decision 3 dated
May 8, 1991 of the Regional Trial Court (RTC) of Manila, Branch 27.
The facts are as follows:
On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2) loans
each in the principal amount of Two Million Pesos (P2,000,000.00) or in the total principal
amount of Four Million Pesos (P4,000,000.00), from respondent Cultural Center of the
Philippines (CCP, for brevity) evidenced by two (2) promissory notes with maturity dates
on May 14, 1979 and July 6, 1979, respectively. Petitioner defaulted but after a few partial
payments he had the loans restructured by respondent CCP, and petitioner accordingly
executed a promissory note (Exhibit "A") on August 31, 1979 in the amount of Three Million
Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32) payable in ve (5) installments. Petitioner Tan failed to pay any
installment on the said restructured loan of Three Million Four Hundred Eleven Thousand
Four Hundred Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32), the last
installment falling due on December 31, 1980. In a letter dated January 26, 1982, petitioner
requested and proposed to respondent CCP a mode of paying the restructured loan, i.e.,
(a) twenty percent (20%) of the principal amount of the loan upon the respondent giving its
conformity to his proposal; and (b) the balance on the principal obligation payable in thirty-
six (36) equal monthly installments until fully paid. On October 20, 1983, petitioner again
sent a letter to respondent CCP requesting for a moratorium on his loan obligation until
the following year allegedly due to a substantial deduction in the volume of his business
and on account of the peso devaluation. No favorable response was made to said letters.
Instead, respondent CCP, through counsel, wrote a letter dated May 30, 1984 to the
petitioner demanding full payment, within ten (10) days from receipt of said letter, of the
petitioner's restructured loan which as of April 30, 1984 amounted to Six Million Eighty-
Eight Thousand Seven Hundred Thirty-Five Pesos and Three Centavos (P6,088,735.03).
On August 29, 1984, respondent CCP led in the RTC of Manila a complaint for
collection of a sum of money, docketed as Civil Case No. 84-26363, against the petitioner
after the latter failed to settle his said restructured loan obligation. The petitioner
interposed the defense that he merely accommodated a friend, Wilson Lucmen, who
allegedly asked for his help to obtain a loan from respondent CCP. Petitioner claimed that
he has not been able to locate Wilson Lucmen. While the case was pending in the trial
court, the petitioner led a Manifestation wherein he proposed to settle his indebtedness
to respondent CCP by proposing to make a down payment of One Hundred Forty
Thousand Pesos (P140,000.00) and to issue twelve (12) checks every beginning of the
year to cover installment payments for one year, and every year thereafter until the balance
is fully paid. However, respondent CCP did not agree to the petitioner's proposals and so
the trial of the case ensued.
On May 8, 1991, the trial court rendered a decision, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendant, ordering defendant to pay plaintiff, the amount of P7,996,314.67,
representing defendant's outstanding account as of August 28, 1986, with the
corresponding stipulated interest and charges thereof, until fully paid, plus
attorney's fees in an amount equivalent to 25% of said outstanding account, plus
P50,000.00, as exemplary damages, plus costs.
Defendant's counterclaims are ordered dismissed, for lack of merit.

SO ORDERED. 4
The trial court gave ve (5) reasons in ruling in favor of respondent CCP. First, it
gave little weight to the petitioner's contention that the loan was merely for the
accommodation of Wilson Lucmen for the reason that the defense propounded was not
credible in itself. Second, assuming, arguendo, that the petitioner did not personally bene t
from the said loan, he should have led a third party complaint against Wilson Lucmen, the
alleged accommodated party but he did not. Third, for three (3) times the petitioner
offered to settle his loan obligation with respondent CCP. Fourth, petitioner may not avoid
his liability to pay his obligation under the promissory note (Exh. "A") which he must
comply with in good faith pursuant to Article 1159 of the New Civil Code. Fifth, petitioner is
estopped from denying his liability or loan obligation to the private respondent. ASHaTc
The petitioner appealed the decision of the trial court to the Court of Appeals
insofar as it charged interest, surcharges, attorney's fees and exemplary damages against
the petitioner. In his appeal, the petitioner asked for the reduction of the penalties and
charges on his loan obligation. He abandoned his alleged defense in the trial court that he
merely accommodated his friend, Wilson Lucmen, in obtaining the loan, and instead
admitted the validity of the same. On August 31, 1993, the appellate court rendered a
decision, the dispositive portion of which reads:
WHEREFORE, with the foregoing modification, the judgment appealed from
is hereby AFFIRMED.
SO ORDERED. 5
In a rming the decision of the trial court imposing surcharges and interest, the
appellate court held that:
We are unable to accept appellant's (petitioner's) claim for modi cation on
the basis of alleged partial or irregular performance, there being none. Appellant's
offer or tender of payment cannot be deemed as a partial or irregular performance
of the contract, not a single centavo appears to have been paid by the defendant.
However, the appellate court modi ed the decision of the trial court by deleting the
award for exemplary damages and reducing the amount of awarded attorney's fees to ve
percent (5%), by ratiocinating as follows:
Given the circumstances of the case, plus the fact that plaintiff was
represented by a government lawyer, We believe the award of 25% as attorney's
fees and P500,000.00 as exemplary damages is out of proportion to the actual
damage caused by the non-performance of the contract and is excessive,
unconscionable and iniquitous.
In a Resolution dated July 13, 1994, the appellate court denied the petitioner's
motion for reconsideration of the said decision.
Hence, this petition anchored on the following assigned errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A MISTAKE IN GIVING ITS IMPRIMATUR
TO THE DECISION OF THE TRIAL COURT WHICH COMPOUNDED INTEREST ON SURCHARGES.
II
THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING IMPOSITION OF INTEREST
FOR THE PERIOD OF TIME THAT PRIVATE RESPONDENT HAS FAILED TO ASSIST PETITIONER
IN APPLYING FOR RELIEF OF LIABILITY THROUGH THE COMMISSION ON AUDIT AND THE
OFFICE OF THE PRESIDENT.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT DELETING AWARD OF ATTORNEY'S
FEES AND IN REDUCING PENALTIES.
Signi cantly, the petitioner does not question his liability for his restructured loan
under the promissory note marked Exhibit "A". The rst question to be resolved in the case
at bar is whether there are contractual and legal bases for the imposition of the penalty,
interest on the penalty and attorney's fees.
The petitioner imputes error on the part of the appellate court in not totally
eliminating the award of attorney's fees and in not reducing the penalties considering that
the petitioner, contrary to the appellate court's ndings, has allegedly made partial
payments on the loan. And if penalty is to be awarded, the petitioner is asking for the non-
imposition of interest on the surcharges inasmuch as the compounding of interest on
surcharges is not provided in the promissory note marked Exhibit "A". The petitioner takes
exception to the computation of the private respondent whereby the interest, surcharge
and the principal were added together and that on the total sum interest was imposed.
Petitioner also claims that there is no basis in law for the charging of interest on the
surcharges for the reason that the New Civil Code is devoid of any provision allowing the
imposition of interest on surcharges.
We nd no merit in the petitioner's contention. Article 1226 of the New Civil Code
provides that:
In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of non-compliance,
if there is no stipulation to the contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty of fraud in the ful llment of the
obligation.
The penalty may be enforced only when it is demandable in accordance
with the provisions of this Code.
In the case at bar, the promissory note (Exhibit "A") expressly provides for the
imposition of both interest and penalties in case of default on the part of the petitioner in
the payment of the subject restructured loan. The pertinent 6 portion of the promissory
note (Exhibit "A") imposing interest and penalties provides that:
For value received, I/We jointly and severally promise to pay to the
CULTURAL CENTER OF THE PHILIPPINES at its o ce in Manila, the sum of
THREE MILLION FOUR HUNDRED ELEVEN THOUSAND FOUR HUNDRED + PESOS
(P3,411,421.32) Philippine Currency, . . . .
xxx xxx xxx
With interest at the rate of FOURTEEN per cent (14%) per annum from the
date hereof until paid. PLUS THREE PERCENT (3%) SERVICE CHARGE.
In case of non-payment of this note at maturity/on demand or upon
default of payment of any portion of it when due, I/We jointly and severally agree
to pay additional penalty charges at the rate of TWO per cent (2%) per month on
the total amount due until paid, payable and computed monthly. Default of
payment of this note or any portion thereof when due shall render all other
installments and all existing promissory notes made by us in favor of the
CULTURAL CENTER OF THE PHILIPPINES immediately due and demandable.
(Emphasis supplied)
xxx xxx xxx
The stipulated fourteen percent (14%) per annum interest charge until full payment
of the loan constitutes the monetary interest on the note and is allowed under Article 1956
of the New Civil Code. 7 On the other hand, the stipulated two percent (2%) per month
penalty is in the form of penalty charge which is separate and distinct from the monetary
interest on the principal of the loan.
Penalty on delinquent loans may take different forms. In Government Service
Insurance System v. Court of Appeals, 8 this Court has ruled that the New Civil Code
permits an agreement upon a penalty apart from the monetary interest. If the parties
stipulate this kind of agreement, the penalty does not include the monetary interest, and as
such the two are different and distinct from each other and may be demanded separately.
Quoting Equitable Banking Corp. v. Liwanag , 9 the GSIS case went on to state that such a
stipulation about payment of an additional interest rate partakes of the nature of a penalty
clause which is sanctioned by law, more particularly under Article 2209 of the New Civil
Code which provides that: CSHEAI
If the obligation consists in the payment of a sum of money, and the

debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per annum.
The penalty charge of two percent (2%) per month in the case at bar began to
accrue from the time of default by the petitioner. There is no doubt that the petitioner is
liable for both the stipulated monetary interest and the stipulated penalty charge. The
penalty charge is also called penalty or compensatory interest. Having clari ed the same,
the next issue to be resolved is whether interest may accrue on the penalty or
compensatory interest without violating the provisions of Article 1959 of the New Civil
Code, which provides that:
Without prejudice to the provisions of Article 2212, interest due and unpaid
shall not earn interest. However, the contracting parties may by stipulation
capitalize the interest due and unpaid, which as added principal, shall earn new
interest.
According to the petitioner, there is no legal basis for the imposition of interest on
the penalty charge for the reason that the law only allows imposition of interest on
monetary interest but not the charging of interest on penalty. He claims that since there is
no law that allows imposition of interest on penalties, the penalties should not earn
interest. But as we have already explained, penalty clauses can be in the form of penalty or
compensatory interest. Thus, the compounding of the penalty or compensatory interest is
sanctioned by and allowed pursuant to the above-quoted provision of Article 1959 of the
New Civil Code considering that:
First, there is an express stipulation in the promissory note (Exhibit "A") permitting
the compounding of interest. The fth paragraph of the said promissory note provides
that: "Any interest which may be due if not paid shall be added to the total amount when
due and shall become part thereof, the whole amount to bear interest at the maximum rate
allowed by law." 1 0 Therefore, any penalty interest not paid, when due, shall earn the legal
interest of twelve percent (12%) per annum, 1 1 in the absence of express stipulation on the
specific rate of interest, as in the case at bar.
Second, Article 2212 of the New Civil Code provides that "Interest due shall earn
legal interest from the time it is judicially demanded, although the obligation may be silent
upon this point." In the instant case, interest likewise began to run on the penalty interest
upon the ling of the complaint in court by respondent CCP on August 29, 1984. Hence,
the courts a quo did not err in ruling that the petitioner is bound to pay the interest on the
total amount of the principal, the monetary interest and the penalty interest.
The petitioner seeks the elimination of the compounded interest imposed on the
total amount based allegedly on the case of National Power Corporation v. National
Merchandising Corporation, 1 2 wherein we ruled that the imposition of interest on the
damages from the ling of the complaint is unjust where the litigation was prolonged for
twenty- ve (25) years through no fault of the defendant. However, the ruling in the said
National Power Corporation (NPC) case is not applicable to the case at bar inasmuch as
our ruling on the issue of interest in that NPC case was based on equitable considerations
and on the fact that the said case lasted for twenty- ve (25) years "through no fault of the
defendant." In the case at bar, however, equity cannot be considered inasmuch as there is a
contractual stipulation in the promissory note whereby the petitioner expressly agreed to
the compounding of interest in case of failure on his part to pay the loan at maturity.
Inasmuch as the said stipulation on the compounding of interest has the force of law
between the parties and does not appear to be inequitable or unjust, the said written
stipulation should be respected. CHIEDS
The private respondent's Statement of Account (marked Exhibits "C" to "C-2") 13

shows the following breakdown of the petitioner's indebtedness as of August 28, 1986:
Principal P2,838,454.68
Interest P576,167.89
Surcharge P4,581,692.10
——————
P7,996,314.67
The said statement of account also shows that the above amounts stated therein are net
of the partial payments amounting to a total of Four Hundred Fifty-Two Thousand Five
Hundred Sixty-One Pesos and Forty-Three Centavos (P452,561.43) which were made
during the period from May 13, 1983 to September 30, 1983. 1 4 The petitioner now
seeks the reduction of the penalty due to the said partial payments. The principal amount
of the promissory note (Exhibit "A") was Three Million Four Hundred Eleven Thousand
Four Hundred Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32) when the
loan was restructured on August 31, 1979. As of August 28, 1986, the principal amount
of the said restructured loan has been reduced to Two Million Eight Hundred Thirty-Eight
Thousand Four Hundred Fifty-Four Pesos and Sixty-Eight Centavos (P2,838,454.68).
Thus, petitioner contends that reduction of the penalty is justi able pursuant to Article
1229 of the New Civil Code which provides that: "The judge shall equitably reduce the
penalty when the principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable." Petitioner insists that the penalty should be
reduced to ten percent (10%) of the unpaid debt in accordance with Bachrach Motor
Company v. Espiritu. 1 5
There appears to be a justi cation for a reduction of the penalty charge but not
necessarily to ten percent (10%) of the unpaid balance of the loan as suggested by
petitioner. Inasmuch as petitioner has made partial payments which showed his good
faith, a reduction of the penalty charge from two percent (2%) per month on the total
amount due, compounded monthly, until paid can indeed be justi ed under the said
provision of Article 1229 of the New Civil Code.
In other words, we nd the continued monthly accrual of the two percent (2%)
penalty charge on the total amount due to be unconscionable inasmuch as the same
appeared to have been compounded monthly.
Considering petitioner's several partial payments and the fact he is liable under the
note for the two percent (2%) penalty charge per month on the total amount due,
compounded monthly, for twenty-one (21) years since his default in 1980, we nd it fair
and equitable to reduce the penalty charge to a straight twelve percent (12%) per annum
on the total amount due starting August 28, 1986, the date of the last Statement of
Account (Exhibits "C" to "C-2"). We also took into consideration the offers of the petitioner
to enter into a compromise for the settlement of his debt by presenting proposed
payment schemes to respondent CCP. The said offers at compromise also showed his
good faith despite di culty in complying with his loan obligation due to his nancial
problems. However, we are not unmindful of the respondent's long overdue deprivation of
the use of its money collectible from the petitioner.
The petitioner also imputes error on the part of the appellate court for not declaring
the suspension of the running of the interest during that period when the respondent
allegedly failed to assist the petitioner in applying for relief from liability. In this connection,
the petitioner referred to the private respondent's letter 1 6 dated September 28, 1988
addressed to petitioner which partially reads:
Dear Mr. Tan:
xxx xxx xxx

With reference to your appeal for condonation of interest and surcharge,
we wish to inform you that the center will assist you in applying for relief of
liability through the Commission on Audit and Office of the President . . . .
While your application is being processed and awaiting approval, the
center will be accepting your proposed payment scheme with the downpayment
of P160,000.00 and monthly remittances of P60,000.00 . . . .
xxx xxx xxx
The petitioner alleges that his obligation to pay the interest and surcharge should
have been suspended because the obligation to pay such interest and surcharge has
become conditional, that is dependent on a future and uncertain event which consists of
whether the petitioner's request for condonation of interest and surcharge would be
recommended by the Commission on Audit and the Office of the President to the House of
Representatives for approval as required under Section 36 of Presidential Decree No.
1445. Since the condition has not happened allegedly due to the private respondent's
reneging on its promise, his liability to pay the interest and surcharge on the loan has not
arisen. This is the petitioner's contention.
It is our view, however, that the running of the interest and surcharge was not
suspended by the private respondent's promise to assist the petitioners in applying for
relief therefrom through the Commission on Audit and the Office of the President.
First, the letter dated September 28, 1988 alleged to have been sent by the
respondent CCP to the petitioner is not part of the formally offered documentary evidence
of either party in the trial court. That letter cannot be considered evidence pursuant to Rule
132, Section 34 of the Rules of Court which provides that: "The court shall consider no
evidence which has not been formally offered . . . ." Besides, the said letter does not
contain any categorical agreement on the part of respondent CCP that the payment of the
interest and surcharge on the loan is deemed suspended while his appeal for condonation
of the interest and surcharge was being processed.
Second, the private respondent correctly asserted that it was the primary
responsibility of petitioner to inform the Commission on Audit and the O ce of the
President of his application for condonation of interest and surcharge. It was incumbent
upon the petitioner to bring his administrative appeal for condonation of interest and
penalty charges to the attention of the said government offices.
On the issue of attorney's fees, the appellate court ruled correctly and justly in
reducing the trial court's award of twenty- ve percent (25%) attorney's fees to ve percent
(5%) of the total amount due.
WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED
with MODIFICATION in that the penalty charge of two percent (2%) per month on the total
amount due, compounded monthly, is hereby reduced to a straight twelve percent (12%)
per annum starting from August 28, 1986. With costs against the petitioner. ICHAaT
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and Buena JJ., concur.
Footnotes
1. Penned by Associate Justice Oscar M. Herrera and concurred in by Associate Justices

Quirino D. Abad Santos, Jr. and Alfredo J. Lagamon; Rollo, pp. 72-83.
2. Rollo, p. 84.
3. Penned by Judge Willelmo C. Fortun; Records, pp. 295-306.
4. Records, pp. 295-306.
5. Rollo, pp. 72-83.
6. Records, p. 47.
7. Article 1956. "No interest shall be due unless it has been expressly stipulated in writing".
8. 145 SCRA 311, 321 (1986).
9. 32 SCRA 293 (1970).
10. Records, p. 47.
11. Central Bank Circular 416 series of 1974 — "By virtue of the authority granted to it under
Section 1 of Act 2655, as amended, otherwise known as the 'Usury Law' the Monetary
Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of
interest for the loan, or forbearance of any money, goods, or credits and the rate allowed
in judgments, in the absence of express contract as to such rate of interest, shall be
twelve (12%) per cent per annum. This Circular shall take effect immediately."
12. 117 SCRA 789 ( 1982).
13. RTC Records, p. 125.
14. RTC Records, p. 123.
15. 52 Phil 346 (1928).
16. CA Rollo, p. 67.

FIRST DIVISION
[G.R. No. 172139. December 8, 2010.]
JOCELYN M. TOLEDO , petitioner, vs . MARILOU M. HYDEN , respondent.
DECISION
DEL CASTILLO , J : p
It is true that the imposition of an unconscionable rate of interest on a money

debt is immoral and unjust and the court may come to the aid of the aggrieved party to
that contract. However, before doing so, courts have to consider the settled principle
that the law will not relieve a party from the effects of an unwise, foolish or disastrous
contract if such party had full awareness of what she was doing.
This Petition for Review on Certiorari 1 assails the Decision 2 dated August 24,
2005 of the Court of Appeals (CA) in CA-G.R. CV No. 79805, which a rmed the
Decision dated March 10, 2003 3 of the Regional Trial Court (RTC), Branch 22, Cebu City
in Civil Case No. CEB-22867. Also assailed is the Resolution dated March 8, 2006
denying the motion for reconsideration.
Factual Antecedents
Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the
College Assurance Plan (CAP) Phils., Inc., obtained several loans from respondent
Marilou M. Hyden (Marilou). The transactions are briefly summarized below:
1) August 15, 1993 P30,000.00 with 6% monthly interest
2) April 21, 1994 100,000.00 with 6% monthly interest
3) October 2, 1995 30,000.00 with 6% monthly interest
4) October 9, 1995 30,000.00 with 6% monthly interest
5) May 22, 1997 100,000.00 with 7% monthly interest
——————
TOTAL AMOUNT OF LOAN P290,000.00 4
===========
From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously
paying Marilou the stipulated monthly interest by issuing checks and depositing sums
of money in the bank account of the latter. However, the total principal amount of
P290,000.00 remained unpaid. Thus, in April 1998, Marilou visited Jocelyn in her o ce
at CAP in Cebu City and asked Jocelyn and the other employees who were likewise
indebted to her to acknowledge their debts. A document entitled "Acknowledgment of
Deb t " 5 for the amount of P290,000.00 was signed by Jocelyn with two of her
subordinates as witnesses. The said amount represents the principal consolidated
amount of the aforementioned previous debts due on December 25, 1998. Also on said
occasion, Jocelyn issued ve checks to Marilou representing renewal payment of her
five previous loans, viz.: DEcSaI
Check No. 0010761 dated September 2, 1998 P30,000.00

Check No. 0010762 dated September 9, 1998 30,000.00
——————
TOTAL P290,000.00
========
In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761 in the
amount of P30,000.00 and replaced the same with six checks, in staggered amounts,
namely:
Check No. 0010494 dated July 2, 1998 P6,625.00
Check No. 0010495 dated August 2, 1998 6,300.00
Check No. 0010497 dated October 2, 1998 6,500.00
Check No. 0010498 dated November 2, 1998 5,325.00
Check No. 0010499 dated December 2, 1998 5,000.00
——————
TOTAL P35,725.00
========
After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered
the stop payment on the remaining checks and on October 27, 1998, led with the RTC
of Cebu City a complaint 6 against Marilou for Declaration of Nullity and Payment,
Annulment, Sum of Money, Injunction and Damages.
Jocelyn averred that Marilou forced, threatened and intimidated her into signing
the "Acknowledgment of Debt" and at the same time forced her to issue the seven
postdated checks. She claimed that Marilou even threatened to sue her for violation of
Batas Pambansa (BP) Blg. 22 or the Bouncing Checks Law if she will not sign the said
document and draw the above-mentioned checks. Jocelyn further claimed that the
application of her total payment of P528,550.00 to interest alone is illegal, unfounded,
unjust, oppressive and contrary to law because there was no written agreement to pay
interest.
On November 23, 1998, Marilou led an Answer 7 with Special A rmative
Defenses and Counterclaim alleging that Jocelyn voluntarily obtained the said loans
knowing fully well that the interest rate was at 6% to 7% per month. In fact, a 6% to 7%
advance interest was already deducted from the loan amount given to Jocelyn.
Ruling of the Regional Trial Court
The court a quo did not nd any showing that Jocelyn was forced, threatened, or
intimidated in signing the document referred to as "Acknowledgment of Debt" and in
issuing the postdated checks. Thus, in its March 10, 2003 Decision the trial court ruled
in favor of Marilou, viz.:
WHEREFORE, premised on the foregoing, the Court hereby declares the
document "Acknowledgment of Debt" valid and binding. PLAINTIFF is indebted to
DEFENDANT [for] the amount of TWO HUNDRED NINETY THOUSAND
(P290,000.00) PESOS since December 25, 1998 less the amount of EIGHTEEN
THOUSAND NINE HUNDRED (P18,900.00) PESOS, equivalent to the three checks
made good (P6,625.00 dated 07-02-1998; P6,300.00 dated 08-02-1998; and
P5,975.00 dated 09-02-1998).
Consequently, PLAINTIFF is hereby ordered to pay DEFENDANT the
amount of TWO HUNDRED SEVENTY ONE THOUSAND ONE HUNDRED
(P271,100.00) PESOS due on December 25, 1998 with a 12% interest per annum
or 1% interest per month until such time that the said amount shall have been
fully paid.
No pronouncement as to costs. caADSE
SO ORDERED. 8
On March 26, 2003, Jocelyn led an Earnest Motion for Reconsideration, 9 which
was denied by the trial court in its Order 1 0 dated April 29, 2003 stating that it nds no
sufficient reason to disturb its March 10, 2003 Decision.
Ruling of the Court of Appeals
On appeal, Jocelyn asserts that she had made payments in the total amount of
P778,000.00 for a principal amount of loan of only P290,000.00. What is appalling,
according to Jocelyn, was that such payments covered only the interest because of the
excessive, iniquitous, unconscionable and exorbitant imposition of the 6% to 7%
monthly interest.
On August 24, 2005, the CA issued its Decision which provides:
WHEREFORE, premises considered, the Decision dated March 10, 2003 and
the Order dated April 29, 2003, of the Regional Trial Court, 7th Judicial Region,
Branch 22, Cebu City, in Civil Case No. CEB-22867 are hereby AFFIRMED . No
pronouncement as to costs.
SO ORDERED . 1 1
The Motion for Reconsideration 1 2 led by Jocelyn was denied by the CA through
its Resolution 1 3 dated March 8, 2006.
Issues
Hence, this petition raising the following issues:
I.
Whether the CA gravely erred when it held that the imposition of interest at
the rate of six percent (6%) to seven percent (7%) is not contrary to law, morals,
good customs, public order or public policy.
II.
Whether the CA gravely erred when it failed to declare that the
"Acknowledgment of Debt" is an inexistent contract that is void from the very
beginning pursuant to Article 1409 of the New Civil Code.
Petitioner's Arguments
Jocelyn posits that the CA erred when it held that the imposition of interest at the
rates of 6% to 7% per month is not contrary to law, not unconscionable and not contrary
to morals. She likewise contends that the CA erred in ruling that the "Acknowledgment
of Debt" is valid and binding. According to Jocelyn, even assuming that the execution of
said document was not attended with force, threat and intimidation, the same must
nevertheless be declared null and void for being contrary to law and public policy. This
is borne out by the fact that the payments in the total amount of P778,000.00 was
applied to interest payment alone. This only proves that the transaction was iniquitous,
excessive, oppressive and unconscionable. HTScEI
Respondent's Arguments
On the other hand, Marilou would like this Court to consider the fact that the
document referred to as "Acknowledgment of Debt" was executed in the safe
surroundings of the o ce of Jocelyn and it was witnessed by two of her staff. If at all
there had been coercion, then Jocelyn could have easily prevented her staff from
a xing their signatures to said document. In fact, petitioner had admitted that she was
the one who went to the tables of her staff to let them sign the said document.
Our Ruling
The petition is without merit.
The 6% to 7% interest per month paid by
Jocelyn is not excessive under the
circumstances of this case.
In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury Law
ceiling on interest effective January 1, 1983, parties to a loan agreement have wide
latitude to stipulate interest rates. Nevertheless, such stipulated interest rates may be
declared as illegal if the same is unconscionable. 1 4 There is certainly nothing in said
circular which grants lenders carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a hemorrhaging of their assets. 1 5 In
fact, in Medel v. Court of Appeals , 1 6 we annulled a stipulated 5.5% per month or 66%
per annum interest with additional service charge of 2% per annum and penalty charge
of 1% per month on a P500,000.00 loan for being excessive, iniquitous, unconscionable
and exorbitant.
In this case, however, we cannot consider the disputed 6% to 7% monthly interest
rate to be iniquitous or unconscionable vis-Ã -vis the principle laid down in Medel.
Noteworthy is the fact that in Medel, the defendant-spouses were never able to pay
their indebtedness from the very beginning and when their obligations ballooned into a
staggering sum, the creditors led a collection case against them. In this case, there
was no urgency of the need for money on the part of Jocelyn, the debtor, which
compelled her to enter into said loan transactions. She used the money from the loans
to make advance payments for prospective clients of educational plans offered by her
employer. In this way, her sales production would increase, thereby entitling her to 50%
rebate on her sales. This is the reason why she did not mind the 6% to 7% monthly
interest. Notably too, a business transaction of this nature between Jocelyn and
Marilou continued for more than ve years. Jocelyn religiously paid the agreed amount
of interest until she ordered for stop payment on some of the checks issued to Marilou.
The checks were in fact su ciently funded when she ordered the stop payment and
then led a case questioning the imposition of a 6% to 7% interest rate for being
allegedly iniquitous or unconscionable and, hence, contrary to morals.
It was clearly shown that before Jocelyn availed of said loans, she knew fully well
that the same carried with it an interest rate of 6% to 7% per month, yet she did not
complain. In fact, when she availed of said loans, an advance interest of 6% to 7% was
already deducted from the loan amount, yet she never uttered a word of protest.
After years of bene ting from the proceeds of the loans bearing an interest rate
of 6% to 7% per month and paying for the same, Jocelyn cannot now go to court to have
the said interest rate annulled on the ground that it is excessive, iniquitous,
unconscionable, exorbitant, and absolutely revolting to the conscience of man. "This is
so because among the maxims of equity are (1) he who seeks equity must do equity,
and (2) he who comes into equity must come with clean hands. The latter is a
frequently stated maxim which is also expressed in the principle that he who has done
inequity shall not have equity. It signi es that a litigant may be denied relief by a court
of equity on the ground that his conduct has been inequitable, unfair and dishonest, or
fraudulent, or deceitful as to the controversy in issue." 1 7 HCSAIa
We are convinced that Jocelyn did not come to court for equitable relief with
equity or with clean hands. It is patently clear from the above summary of the facts that
the conduct of Jocelyn can by no means be characterized as nobly fair, just, and
reasonable. This Court likewise notes certain acts of Jocelyn before ling the case with
the RTC. In September 1998, she requested Marilou not to deposit her checks as she
can cover the checks only the following month. On the next month, Jocelyn again
requested for another extension of one month. It turned out that she was only sweet-
talking Marilou into believing that she had no money at that time. But as testi ed by
Serapio Romarate, 1 8 an employee of the Bank of Commerce where Jocelyn is one of
their clients, there was an available balance of P276,203.03 in the latter's account and
yet she ordered for the stop payments of the seven checks which can actually be
covered by the available funds in said account. She then caught Marilou by surprise
when she surreptitiously led a case for declaration of nullity of the document and for
damages.
The document "Acknowledgment of
Debt" is valid and binding.
Jocelyn seeks for the nulli cation of the document entitled "Acknowledgment of
Debt" and wants this Court to declare that she is no longer indebted to Marilou in the
amount of P290,000.00 as she had already paid a total amount of P778,000.00. She
claims that said document is an inexistent contract that is void from the very beginning
as clearly provided for by Article 1409 1 9 of the New Civil Code.
Jocelyn further claims that she signed the said document and issued the seven
postdated checks because Marilou threatened to sue her for violation of BP Blg. 22.
Jocelyn is misguided. Even if there was indeed such threat made by Marilou, the
same is not considered as threat that would vitiate consent. Article 1335 of the New
Civil Code is very specific on this matter. It provides:
Art. 1335.There is violence when in order to wrest consent, serious or
irresistible force is employed.
xxx xxx xxx

A threat to enforce one's claim through competent authority, if
the claim is just or legal, does not vitiate consent . (Emphasis supplied.)
Clearly, we cannot grant Jocelyn the relief she seeks.

As can be seen from the records of the case, Jocelyn has failed to prove her
claim that she was made to sign the document "Acknowledgment of Debt" and draw
the seven Bank of Commerce checks through force, threat and intimidation. As earlier
stressed, said document was signed in the o ce of Jocelyn, a high ranking executive of
CAP, and it was Jocelyn herself who went to the table of her two subordinates to
procure their signatures as witnesses to the execution of said document. If indeed, she
was forced to sign said document, then Jocelyn should have immediately taken the
proper legal remedy. But she did not. Furthermore, it must be noted that after the
execution of said document, Jocelyn honored the rst three checks before ling the
complaint with the RTC. If indeed she was forced she would never have made good on
the first three checks. DaTISc
It is provided, as one of the conclusive presumptions under Rule 131, Section 2

(a), of the Rules of Court that, "Whenever a party has, by his own declaration, act or
omission, intentionally and deliberately led another to believe a particular thing to be
true, and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it." This is known as the principle of
estoppel.
"The essential elements of estoppel are: (1) conduct amounting to false
representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the
party subsequently attempts to assert; (2) intent, or at least expectation, that this
conduct shall be acted upon by, or at least in uence, the other party; and, (3)
knowledge, actual or constructive, of the real facts." 2 0
Here, it is uncontested that Jocelyn had in fact signed the "Acknowledgment of
Debt" in April 1998 and two of her subordinates served as witnesses to its execution,
knowing fully well the nature of the contract she was entering into. Next, Jocelyn issued
ve checks in favor of Marilou representing renewal payment of her loans amounting to
P290,000.00. In June 1998, she asked to recall Check No. 0010761 in the amount of
P30,000.00 and replaced the same with six checks, in staggered amounts. All these are
indicia that Jocelyn treated the "Acknowledgment of Debt" as a valid and binding
contract.
More signi cantly, Jocelyn already availed herself of the bene ts of the
"Acknowledgment of Debt," the validity of which she now impugns. As aptly found by
the RTC and the CA, Jocelyn was making a business out of the loaned amounts. She
was actually using the money to make advance payments for her prospective clients so
that her sales production would increase. Accordingly, she did not mind the 6% to 7%
interest per month as she was getting a 50% rebate on her sales.
Clearly, by her own acts, Jocelyn is estopped from impugning the validity of the
"Acknowledgment of Debt." "[A] party to a contract cannot deny the validity thereof
after enjoying its bene ts without outrage to one's sense of justice and fairness." 2 1 "It
is a long established doctrine that the law does not relieve a party from the effects of
an unwise, foolish or disastrous contract, entered into with all the required formalities
and with full awareness of what she was doing. Courts have no power to relieve parties
from obligations voluntarily assumed, simply because their contracts turned out to be
disastrous or unwise investments." 2 2
WHEREFORE , the instant petition for review on certiorari is DENIED . The
Decision of the Court of Appeals in CA-G.R. CV No. 79805 dated August 24, 2005
a rming the Decision dated March 10, 2003 of the Regional Trial Court, Branch 22,
Cebu City, in Civil Case No. CEB-22867 is AFFIRMED .
SO ORDERED . TDcAIH
Corona, C.J., Leonardo-de Castro, Abad * and Perez, JJ., concur.
Footnotes
*In lieu of Associate Justice Presbitero J. Velasco, Jr., per Special Order No. 917 dated
November 24, 2010.
1.Rollo, pp. 3-26.
2.CA rollo, pp. 65-75; penned by Associate Justice Mercedes Gozo-Dadole and concurred in by
Associate Justices Isaias P. Dicdican and Ramon M. Bato, Jr.
3.Records, pp. 341-349; penned by Judge Pampio A. Abarintos.
4.Id. at 342.
5.Id. at 8.
6.Id. at 1-9.
7.Id. at 12-24.
8.Id. at 349.
9.Id. at 350-354.
10.Id. at 364-365.
11.CA rollo, p. 75.
12.Id. at 76-90.
13.Id. at 113-114.
14.Ruiz v. Court of Appeals, 449 Phil. 419, 434 (2003).
15.Spouses Almeda v. Court of Appeals, 326 Phil. 309, 319 (1996).
16.359 Phil. 820 (1998).
17.University of the Philippines v. Catungal, Jr., 338 Phil. 728, 743-744 (1997).
18.TSN, January 15, 2002, p. 8.

19.Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
xxx xxx xxx
20.Philippine National Bank v. Court of Appeals, 367 Phil. 508, 516 (1999).
21.Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35, 45 (2002).
22.Esguerra v. Court of Appeals, 335 Phil. 58, 69 (1997).

EN BANC
[G.R. No. 9459. October 19, 1914.]
THE UNITED STATES , plaintiff-appellee, vs . SEVERINO CAMARA ,

defendant-appellant.
Lucio Villareal, for appellant.

Solicitor-General Corpus, for appellee.
SYLLABUS
1. ESTAFA; CONTRACT OF SALE. — Paragraph 5 of article 535 of the Penal

Code does not, nor can it, specify a contract of sale as being one that gives rise to the
obligation to surrender or to return the thing received, as occurs with contracts for
safe-keeping, or of commission, or administration, and others such as commodatum,
which certainly involve the obligation to surrender or return the thing received.
2. ID.; ID.; — A person who buys rice on credit becomes the owner of it and
indebted for its price, but is not guilty of the crime of estafa by reason of not paying for
it.
3. ID.; ID. — If a debtor sells to his creditor a piece of land, the agreed and
accepted price of which is equal to the balance owing on a current account, and the
creditor grants to the debtor the right to repurchase the land within a xed period, a
grave error is committed in ling a complaint for estafa in order to collect the sum
alleged to be owing, when such amount is nothing but the price of the resale should the
vendor desire to repurchase the land he had sold.
DECISION
ARELLANO , C.J : p
Severino Camara was charged before the Court of First Instance of Tayabas
"with having, in December, 1912, taken and received from Calixto Berbari, as the
representative of Berbari Hermanos, the sum of P425.10 for the purchase, on
commission, of copra, and with having appropriated the said sum to himself, to the
prejudice of Berbari Hermanos." (Complaint filed by the fiscal.)
The record shows that from this sum of P425.10 there must be deducted the
amount of P8.50, which, according to the document presented in evidence by the said
Calixto Berbari, is the value of one sack of rice that Berbari sold to Camara on credit.
This being the actual fact, the charge made in the complaint is unfounded, to wit, that
the defendant appropriated to himself money, goods, or other personal property
received on commission for the purchase of copra, and therefore he cannot be guilty of
the crime of estafa, but is a debtor for the price of the sale. Paragraph 5 of article 535
of the Penal Code does not, nor can it, specify a contract of sale as one that gives rise
to the obligation to deliver or to return the thing received, as occurs with contracts for
safe-keeping, or of commission, or administration, and others such as commodatum,
which certainly involve the obligation to deliver or return the thing received. A person
who buys rice on credit becomes the owner of it and indebted for its price, but is not
guilty of the crime of estafa by reason of not paying for it. Hence, the sum which the
defendant is alleged to have embezzled is not P425.10, as stated in the complaint, but
P416.60.
Besides this reduction, the trial court makes another of ~36.06, the value of the
copra furnished by the defendant, as admitted by Berbari in his testimony.
Consequently the amount specified in the complaint should be reduced to P380.54.
Severino Camara was an agent of Berbari Hermanos for the purchase of copra
on their order and account. On February 1, 1913, the manager of Berbari Hermanos filed
a complaint of estafa for the aforesaid sum of P425.10. During the trial he was required
to present a statement of the accounts of Severino Camara with the rm, which he did,
and that statement now appears in evidence on page 61 of the record. The title reads
as follows: "Extract from the account current of Mr. Severino Camara with Messrs.
Berbari Hermanos, Atimonan." And at the close: "1913 — January 31 — Balance due us
from him (for this balance he was sued in the justice of the peace court of Atimonan)
P425.10." It is evident that the sum mentioned in the complaint as having been taken
and received on commission is the balance of an account containing entries of
amounts received by Camara and amounts received by Berbari Hermanos.
As the settlement of account ended with a balance sued for in the justice of the
peace court, it also began with a balance likewise sued for in the Court of First Instance.
The account begins thus: "1911 — September 30 — Balance in our favor, as per receipts
(for this balance suit was instituted against him), P413.35." Notwithstanding this, in
May, 1912, the account with Severino Camara was resumed to the extent that, on
October 31st of that year, the d eb it amounted to P3,467.69 and the cred it to
P1,621.82.
In this trial, the manager of Berbari Hermanos, on cross-examination by the
defense, testi ed that in November, 1912, Camara was sued before the Court of First
Instance for the sum of P1,700 and was absolved; and that Camara executed a
contract of sale, under right of repurchase, of two parcels of coconut land, containing
an area of 6 hectares planted to 700 coconut trees, for the price of P1,722.50,
stipulating the term of one year for their redemption. This price of P1,722.50 was
undoubtedly security for the payment of the said balance of P1,700 and appears in the
said settlement of November 12, 1912. Hence, on this date, November 12, 1912, there
was no balance in favor of Berbari Hermanos for which action could be brought as a
sum embezzled, but there was only an amount owed by the defendant as the price he
would have to pay in case of the repurchase of those two parcels of land. Subsequent
to this date and up to December 29, 1912, various items continued to be debited, up to
a total of P729.58, among which were four of P8.50; each of which must have been, as
was seen, the price of one sack of rice, and various items were also credited to an
aggregate total of P770. Hence there is a balance, not in favor of, but against Berbari
Hermanos, and yet, on January 31, 1913 there appeared the 'balance in their favor sued
for in the justice of the peace court of Atimonan" that is the subject matter of the
present case, to wit, P425.10.
Such are the actual facts disclosed by the record. They are the proven facts. A
grave error is committed by bringing a criminal complaint for estafa in order to collect
a sum alleged to be due, when such amount is nothing but the price of the parcels of
land which the vendor sold, should he desire to repurchase them, for, if the repurchase
is not effected. the vendor, far from being a debtor, is for various reasons a creditor.
And even though the said settlement of the account kept by the creditor himself
should disclose that a balance was actually due him, he is not entitled to bring a
criminal action for estafa by reason of such balance in order to obtain its payment by
first imprisoning the debtor.
A mere shortage in an account does not prove the misappropriation and
abstraction for which punishment is provided in the code. (Decisions of June 9, 1884,
and November 7, 1889.) If a previous settlement is necessary in order to determine the
balance, as in the present case, where the court ordered one to be made, the crime of
estafa does not exist. (Decision of May 5, 1886.) Delay in the execution of a
commission, or in the delivery of a sum received by reason thereof, only involves civil
liability. (Decisions of November 24, 1886, and December 23, 1890.) In the case at bar
there was not even any delay, for, after all, there was only an agreement to repurchase
pending. When, in February, 1912, the criminal complaint was led, the defendant was
not in debt to the complainant, even if we take into account the items owed for the rice
purchased on credit, which cannot form the basis of an action for estafa.
The judgment appealed from is reversed and the defendant is acquitted, without
special finding as to the costs in this instance.
Torres, Johnson, Carson, Moreland and Araullo, JJ., concur.

SECOND DIVISION
[G.R. No. 84719. January 25, 1991.]
YONG CHAN KIM , petitioner, vs. PEOPLE OF THE PHILIPPINES, HON.

EDGAR D. GUSTILO, Presiding Judge, RTC, 6th Judicial Region,
Branch 28 Iloilo City and Court of Appeals (13th Division) ,
respondents.
Remedios C . Balbin and Manuel C . Cases, Jr. for petitioner.

Hector P. Teodosio for private respondent.
SYLLABUS
1. CRIMINAL LAW; ESTAFA WITH UNFAITHFULNESS OR ABUSE OF CONFIDENCE;

OBLIGATION TO RETURN THE SAME MONEY, GOODS OR PERSONAL PROPERTY,
INDISPENSABLE. — In order that a person can be convicted under the provision of Article
315, 1(b) of the Revised Penal Code it must be proven that he had the obligation to deliver
or return the same money, goods or personal property that he had received.
2. ID.; ID.; ID.; EMPLOYEE WITHOUT ANY OBLIGATION TO RETURN ANY CASH
ADVANCE RECEIVED NOT GUILTY THEREOF; CASE AT BAR. — Liquidation simply means
the settling of an indebtedness. An employee, such as herein petitioner, who liquidates a
cash advance is in fact paying back his debt in the form of a loan of money advanced to
him by his employer, as per diems and allowances. Similarly, as stated in the assailed
decision of the lower court, "if the amount of the cash advance he received is less than the
amount he spent for actual travel . . . he has the right to demand reimbursement from his
employer the amount he spent coming from his personal funds." In other words, the money
advanced by either party is actually a loan to the other. Hence, petitioner was under no
legal obligation to return the same cash or money, i.e., the bills or coins, which he received
from the private respondent.
DECISION
PADILLA , J : p
This petition seeks the review on certiorari of the following:

1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court
(Guimbal-Igbaras-Tigbauan-Tubungan) in Guimbal, Iloilo, in Criminal Case No. 628, 1 and
the affirming decision of the Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case
No. 20958, promulgated on 30 July 1987; 2
2. The decision of the Court of Appeals, dated 29 April 1988, 3 dismissing petitioner's
appeal/petition for review for having been filed out of time, and the resolution, dated 19
August 1988, denying petitioner's motion for reconsideration. 4
The antecedent facts are as follows:
Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department
of the Southeast Asian Fisheries Development Center (SEAFDEC) with head station at
Tigbauan, Province of Iloilo. As Head of the Economics Unit of the Research Division, he
conducted prawn surveys which required him to travel to various selected provinces in the
country where there are potentials for prawn culture.
On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to
different places in Luzon from 16 June to 21 July 1982, a period of thirty five (35) days.
Under this travel order, he received P6,438.00 as cash advance to defray his travel
expenses.
Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him
to travel from the Head Station at Tigbauan, Iloilo to Roxas City from 30 June to 4 July
1982, a period of five (5) days. For this travel order, petitioner received a cash advance of
P495.00.
On 14 January 1983, petitioner presented both travel orders for liquidation, submitting
Travel Expense Reports to the Accounting Section. When the Travel Expense Reports were
audited, it was discovered that there was an overlap of four (4) days (30 June to 3 July
1982) in the two (2) travel orders for which petitioner collected per diems twice. In sum,
the total amount in the form of per diems and allowances charged and collected by
petitioner under Travel Order No. 2222, when he did not actually and physically travel as
represented by his liquidation papers, was P1,230.00. llcd
Petitioner was required to comment on the internal auditor's report regarding the alleged
anomalous claim for per diems. In his reply, petitioner denied the alleged anomaly,
claiming that he made make-up trips to compensate for the trips he failed to undertake
under T.O. 2222 because he was recalled to the head office and given another assignment.
In September 1983, two (2) complaints for Estafa were filed against the petitioner before
the Municipal Circuit Trial Court at Guimbal, Iloilo, docketed as Criminal Case Nos. 628 and
631.
After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a decision,
the dispositive part of which reads as follows:
"IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the accused,
Yong Chan Kim, guilty beyond reasonable doubt for the crime of Estafa penalized
under paragraph 1(b) of Article 315, Revised Penal Code. Records disclose there is
no aggravating circumstance proven by the prosecution. Neither there is any
mitigating circumstance proven by the accused. Considering the amount subject
of the present complaint, the imposable penalty should be in the medium period
of arresto mayor in its maximum period to prision correccional in its minimum
period in accordance with Article 315, No. 3, Revised Penal Code. Consonantly, the
Court hereby sentences the accused to suffer an imprisonment ranging from four
(4) months as the minimum to one (1) year and six (6) months as the maximum
in accordance with the Indeterminate Sentence Law and to reimburse the amount
of P1,230.00 to SEAFDEC.
"The surety bond of the accused shall remain valid until final judgment in
accordance herewith.
"Costs against the accused." 5
Criminal Case No. 631 was subsequently dismissed for failure to prosecute.
Petitioner appealed from the decision of the Municipal Circuit Trial Court in Criminal Case
No. 628. On 30 July 1987, the Regional Trial Court in Iloilo City in Criminal Case No. 20958
affirmed in toto the trial court's decision. 6
The decision of the Regional Trial Court was received by petitioner on 10 August 1987. On
11 August 1987, petitioner, thru counsel, filed a notice of appeal with the Regional Trial
Court which ordered the elevation of the records of the case to the then Intermediate
Appellate Court on the following day, 12 August 1987. The records of the case were
received by the Intermediate Appellate Court on 8 October 1987, and the appeal was
docketed as CA-G.R. No. 05035.
On 30 October 1987, petitioner filed with the appellate court a petition for review. As
earlier stated, on 29 April 1988, the Court of Appeals dismissed the petition for having
been filed out of time. Petitioner's motion for reconsideration was denied for lack of merit.
Hence, the present recourse.
On 19 October 1988, the Court resolved to require the respondents to comment on the
petition for review. The Solicitor General filed his Comment on 20 January 1989, after
several grants of extensions of time to file the same.
In his Comment, the Solicitor General prayed for the dismissal of the instant petition on the
ground that, as provided for under Section 22, Batas Pambansa 129, Section 22 of the
Interim Rules and Guidelines, and Section 3, Rule 123 of the 1985 Rules of Criminal
Procedure, the petitioner should have filed a petition for review with the then Intermediate
Appellate Court instead of a notice of appeal with the Regional Trial Court, in perfecting his
appeal from the RTC to the Intermediate Appellate Court, since the RTC judge was
rendered in the exercise of its appellate jurisdiction over municipal trial courts. The failure
of petitioner to file the proper petition rendered the decision of the Regional Trial Court
final and executory, according to the Solicitor General. LLphil
Petitioner's counsel submitted a Reply (erroneously termed Comment) 7 wherein she

contended that the peculiar circumstances of a case, such as this, should be considered in
order that the principle barring a petitioner's right of review can be made flexible in the
interest of justice and equity.
In our Resolution of 29 May 1989, we resolved to deny the petition for failure of petitioner
to sufficiently show that the Court of Appeals had committed any reversible error in its
questioned judgment which had dismissed petitioner's petition for review for having been
filed out of time. 8
Petitioner filed a motion for reconsideration maintaining that his petition for review did not
limit itself to the issue upon which the appellate court's decision of 29 April 1988 was
based, but rather it delved into the substance and merits of the case. 9
On 10 August 1990, we resolved to set aside our resolution dismissing this case and gave
due course to the petition. In the said resolution, we stated:
"In several cases decided by this Court, it had set aside technicalities in the Rules
in order to give way to justice and equity. In the present case, we note that the
petitioner, in filing his Notice of Appeal the very next day after receiving the
decision of the court a quo, lost no time in showing his intention to appeal,
although the procedure taken was not correct. The Court can overlook the wrong
pleading filed, if strict compliance with the rules would mean sacrificing justice to
technicality. The imminence of a person being deprived unjustly of his liberty due
to procedural lapse of counsel is a strong and compelling reason to warrant
suspension of the Rules. Hence, we shall consider the petition for review filed in
the Court of Appeals as a Supplement to the Notice of Appeal. As the Court
declared in a recent decision, '. . . there is nothing sacred about the procedure of
pleadings. This Court may go beyond the pleadings when the interest of justice so
warrants. It has the prerogative to suspend its rules for the same purpose . . .
Technicality, when it deserts its proper office as an aid to justice and becomes its
great hindrance and chief enemy, deserves scant consideration from courts.
[Alonzo v. Villamor, et al., 16 Phil. 315]'
Conscience cannot rest in allowing a man to go straight to jail, closing the door to
his every entreaty for a full opportunity to be heard, even as he has made a prima
facie showing of a meritorious cause, simply because he had chosen an appeal
route, to be sure, recognized by law but made inapplicable to his case, under
altered rules of procedure. While the Court of Appeals can not be faulted and, in
fact, it has to be lauded for correctly applying the rules of procedure in appeals to
the Court of Appeals from decisions of the RTC rendered in the exercise of its
appellate jurisdiction, yet, this Court, as the ultimate bulwark of human rights and
individual liberty, will not allow substantial justice to be sacrificed at the altar of
procedural rigor." 1 0
In the same resolution, the parties were required to file their respective memoranda, and in
compliance with said resolution, petitioner filed his memorandum on 25 October 1989,
while private respondent SEAFDEC filed its required memorandum on 10 April 1990. On
the other hand, the Solicitor General filed on 13 March 1990 a Recommendation for
Acquittal in lieu of the required memorandum.
Two (2) issues are raised by petitioner, to wit:
I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL CIRCUIT TRIAL
COURT (GUIMBAL, ILOILO) AND THE REGIONAL TRIAL COURT, BRANCH 28
(ILOILO CITY) ARE SUPPORTED BY THE FACTS AND EVIDENCE OR CONTRARY
TO LAW AND THAT THE TWO COURTS A QUO HAVE ACTED WITH GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF JURISDICTION OR HAVE ACTED
WITHOUT OR IN EXCESS OF JURISDICTION.
II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF

APPEALS IS CONTRARY TO LAW, ESTABLISHED JURISPRUDENCE, EQUITY AND
DUE PROCESS. llcd
The second issue has been resolved in our Resolution dated 10 August 1990, when we
granted petitioner's second motion for reconsideration. We shall now proceed to the first
issue.
We find merit in the petition.
It is undisputed that petitioner received a cash advance from private respondent SEAFDEC
to defray his travel expenses under T.O. 2222. It is likewise admitted that within the period
covered by T.O. 2222, petitioner was recalled to the head station in Iloilo and given another
assignment which was covered by T.O. 2268. The dispute arose when petitioner allegedly
failed to return P1,230.00 out of the cash advance which he received under T.O. 2222. For
the alleged failure of petitioner to return the amount of P1,230.00, he was charged with the
crime of Estafa under Article 315, par. 1(b) of the Revised Penal Code, which reads as
follows:
"Art. 315. Swindling (Estafa). Any person who shall defraud another by any of
the means mentioned herein below shall be punished by:
xxx xxx xxx
"1. With unfaithfulness or abuse of confidence, namely:

(a) ...
(b) By misappropriating or converting, to the prejudice of another, money,

goods, or any other personal property received by the offender in trust or on
commission, or for administration, or under any other obligation involving the
duty to make delivery of; or to return, the same, even though such obligation be
totally or partially guaranteed by a bond; or by denying having received such
money, goods, or other property."
In order that a person can be convicted under the abovequoted provision, it must be
proven that he had the obligation to deliver or return the same money, goods or personal
property that he had received. 1 1
Was petitioner under obligation to return the same money (cash advance) which he had
received? We believe not. Executive Order No. 10, dated 12 February 1980 provides as
follows:
"B. Cash Advance for Travel.
xxx xxx xxx

"4. All cash advances must be liquidated within 30 days after date of
projected return of the person. Otherwise, corresponding salary deduction shall be
made immediately following the expiration day."
Liquidation simply means the settling of an indebtedness. An employee, such as herein

petitioner, who liquidates a cash advance is in fact paying back his debt in the form of a
loan of money advanced to him by his employer, as per diems and allowances. Similarly, as
stated in the assailed decision of the lower court, "if the amount of the cash advance he
received is less than the amount he spent for actual travel . . . he has the right to demand
reimbursement from his employer the amount he spent coming from his personal funds."
1 2 In other words, the money advanced by either party is actually a loan to the other. Hence,
petitioner was under no legal obligation to return the same cash or money, i.e., the bills or
coins, which he received from the private respondent. 1 3
Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan. LexLib
"Art. 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a commodatum; or
money or other consumable thing, upon the condition that the same amount of
the same kind and quality shall be paid, in which case the contract is simply
called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower."
"Art. 1953. — A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality."
The ruling of the trial judge that ownership of the cash advanced to the petitioner by
private respondent was not transferred to the latter is erroneous. Ownership of the money
was transferred to the petitioner. Even the prosecution witness, Virgilio Hierro, testified
thus:
"Q When you gave cash advance to the accused in this Travel Order No.
2222 subject to liquidation, who owns the funds, accused or
SEAFDEC? How do you consider the funds in the possession of the
accused at the time when there is an actual transfer of cash? . . .
A The one drawing cash advance already owns the money but subject
to liquidation. If he will not liquidate, he is obliged to return the
amount.
Q ...
So why do you treat the itinerary of travel temporary when in fact as
of that time the accused owned already the cash advance. You said
the cash advance given to the accused is his own money. In other
words, at the time you departed with the money it belongs already to
the accused?
A Yes, but subject for liquidation. He will be only entitled for that
credence if he liquidates.
Q If other words, it is a transfer of ownership subject to a suspensive
condition that he liquidates the amount of cash advance upon return
to station and completion of the travel?
A Yes, sir.
(pp. 26-28, tsn, May 8, 1985)." 1 4
Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary
relationship was created. Absent this fiduciary relationship between petitioner and private
respondent, which is an essential element of the crime of estafa by misappropriation or
conversion, petitioner could not have committed estafa. 1 5
Additionally, it has been the policy of private respondent that all cash advances not
liquidated are to be deducted correspondingly from the salary of the employee concerned.
The evidence shows that the corresponding salary deduction was made in the case of
petitioner vis-a-vis the cash advance in question.
WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit Trial
Court in Guimbal, Iloilo in Criminal Case No. 628, finding petitioner guilty of estafa under
Article 315, par. 1 (b) of the Revised Penal Code and the affirming decision of the Regional
Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated on 30 July
1987 are both hereby SET ASIDE. Petitioner is ACQUITTED of the criminal charges filed
against him. prLL

SO ORDERED.
Melencio-Herrera, Paras, Sarmiento and Regalado, JJ., concur.
Footnotes
1. Annex "A", pp. 32-51, Rollo.

2. Annex "B", pp. 52-55, id.
3. Annex "C", pp. 56-62, id.
4. Annex "D", pp. 63-64, id.

5. Rollo, pp. 50-51.
6. Id., p. 55.
7. Id., p. 138.
8. Id., p. 142.
9. Id., p. 143.
10. Id., pp. 181-182.
11. Yam vs. Malic, 94 SCRA 30.
12. Rollo, p. 39.
13. Yam vs. Malic, supra.

14. Recommendation for Acquittal, pp. 10-11; Rollo, pp. 257-258.
15. Galvez vs. Court of Appeals, 42 SCRA 278.

Petitioner Vs Vs Respondents: Second Division

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SECOND DIVISION

[G.R. No. 186550. July 5, 2010.]

ASIAN CATHAY FINANCE AND LEASING CORPORATION , petitioner,

WHEREFORE , premises considered, the appealed decision is REVERSED

a. 1% interest per month (12% per annum) on the principal from

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Stipulations authorizing the imposition of iniquitous or unconscionable interest

In ne, when the redemptioner chooses to exercise his right of redemption, it is

WHEREFORE , the petition is DENIED . The assailed Decision and Resolution of

1.Penned by Associate Justice Portia Aliño-Hormachuelos, with Associate Justices Rosemari D.

3.Rollo, pp. 90-92.

5.Exhibit "B," id. at 14-15.

12.Heirs of Zoilo Espiritu v. Landrito, supra note 11, at 398.

14.Rollo, pp. 85-86.

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

CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR

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

Hence, this instant petition by the Central Bank.

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

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[G.R. No. 160758. January 15, 2014.]

DEVELOPMENT BANK OF THE PHILIPPINES , petitioner, vs . GUARIÑA

The foreclosure of a mortgage prior to the mortgagor's default on the principal

It is also resolved that defendant give back to the plaintiff or its

THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN

THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS INVOKED

THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE MORTGAGED

THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE] ERROR

THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AGAINST DBP

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED TO THE

The submissions of DBP lack merit and substance.

xxx xxx xxx

The loan agreement between the parties is a reciprocal obligation.

xxx xxx xxx

We uphold the CA.

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2. CA rollo, at 23-34; penned by Judge Bartolome M. Fanuñal.

16. Rollo, pp. 38-39.

21. Rollo, p. 43.

25. Id. at 127-137.

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[G.R. No. 154878. March 16, 2007.]

CAROLYN M. GARCIA , petitioner, vs . RICA MARIE S. THIO , respondent.

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2. P500,000.00 with interest thereon at 4% per month from November

4. P50,000.00 as and for actual damages.

With costs against [respondent].

Consequently, the receipt of the [crossed] check by [respondent] is not the

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Several factors support this conclusion.

1. Under Rule 45 of the Rules of Court.

27. Rollo, p. 39.

31. Rollo, p. 64.

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[G.R. Nos. 173654-765. August 28, 2008.]

PEOPLE OF THE PHILIPPINES , petitioners, vs . TERESITA PUIG and

The following are the factual antecedents:

That on or about the 1st day of August, 2002, in the Municipality of

We find merit in the petition.

[A]bove-named [respondents], conspiring, confederating, and helping one

In convicting the therein appellant, the Court held that:

From another end, People v. Locson , 10 in addition to People v. Sison ,