(1) If he devotes the thing to any purpose different from that for which it has
CREDIT TRANSACTIONS been loaned;
Full Text Cases
CONCEPT OF CREDIT TRANSACTIONS
LOAN
TITLE XI
LOAN
General Provisions
Article 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. (1740a)
Article 1934. An accepted promise to deliver something by way of
commodatum or simple loan is binding upon parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the object of the
contract. (n)
CHAPTER 1
Commodatum
SECTION 1
Nature of Commodatum
Article 1935. The bailee in commodatum acquires the use of the thing loaned
but not its fruits; if any compensation is to be paid by him who acquires the use,
the contract ceases to be a commodatum. (1941a)
Article 1936. Consumable goods may be the subject of commodatum if the
purpose of the contract is not the consumption of the object, as when it is merely
for exhibition. (n)
Article 1937. Movable or immovable property may be the object of
commodatum. (n)
Article 1938. The bailor in commodatum need not be the owner of the thing
loaned. (n)
Article 1939. Commodatum is purely personal in character. Consequently:
(1) The death of either the bailor or the bailee extinguishes the contract;
(2) The bailee can neither lend nor lease the object of the contract to a third
person. However, the members of the bailee's household may make use of the
thing loaned, unless there is a stipulation to the contrary, or unless the nature of
the thing forbids such use. (n)
Article 1940. A stipulation that the bailee may make use of the fruits of the
thing loaned is valid. (n)
SECTION 2
Obligations of the Bailee
Article 1941. The bailee is obliged to pay for the ordinary expenses for the use
and preservation of the thing loaned. (1743a)
Article 1942. The bailee is liable for the loss of the thing, even if it should be
through a fortuitous event:
(2) If he keeps it longer than the period stipulated, or after the accomplishment
of the use for which the commodatum has been constituted;
(3) If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a member of his
household;
(5) If, being able to save either the thing borrowed or his own thing, he chose
to save the latter. (1744a and 1745)
Article 1943. The bailee does not answer for the deterioration of the thing
loaned due only to the use thereof and without his fault. (1746)
Article 1944. The bailee cannot retain the thing loaned on the ground that the
bailor owes him something, even though it may be by reason of expenses.
However, the bailee has a right of retention for damages mentioned in article
1951. (1747a)
Article 1945. When there are two or more bailees to whom a thing is loaned in
the same contract, they are liable solidarily. (1748a)
SECTION 3
Obligations of the Bailor
ARTICLE 1946. The bailor cannot demand the return of the thing loaned till
after the expiration of the period stipulated, or after the accomplishment of the
use for which the commodatum has been constituted. However, if in the
meantime, he should have urgent need of the thing, he may demand its return
or temporary use.
In case of temporary use by the bailor, the contract of commodatum is
suspended while the thing is in the possession of the bailor. (1749a)
Article 1947. The bailor may demand the thing at will, and the contractual
relation is called a precarium, in the following cases:
(1) If neither the duration of the contract nor the use to which the thing loaned
should be devoted, has been stipulated; or
(2) If the use of the thing is merely tolerated by the owner. (1750a)
Article 1948. The bailor may demand the immediate return of the thing if the
bailee commits any act of ingratitude specified in article 765. (n)
Article 1949. The bailor shall refund the extraordinary expenses during the
contract for the preservation of the thing loaned, provided the bailee brings the
same to the knowledge of the bailor before incurring them, except when they
are so urgent that the reply to the notification cannot be awaited without danger.
If the extraordinary expenses arise on the occasion of the actual use of the thing
by the bailee, even though he acted without fault, they shall be borne equally
by both the bailor and the bailee, unless there is a stipulation to the contrary.
(1751a)
Article 1950. If, for the purpose of making use of the thing, the bailee incurs
expenses other than those referred to in articles 1941 and 1949, he is not entitled
to reimbursement. (n)
Article 1951. The bailor who, knowing the flaws of the thing loaned, does not
advise the bailee of the same, shall be liable to the latter for the damages which
he may suffer by reason thereof. (1752)
Article 1952. The bailor cannot exempt himself from the payment of expenses
or damages by abandoning the thing to the bailee. (n)
 CHAPTER 2
Simple Loan or Mutuum
G.R. No. 146364 June 3, 2004
Article 1953. A person who receives a loan of money or any other fungible COLITO T. PAJUYO, petitioner,
thing acquires the ownership thereof, and is bound to pay to the creditor an vs.
equal amount of the same kind and quality. (1753a) COURT OF APPEALS and EDDIE GUEVARRA, respondents.

Article 1954. A contract whereby one person transfers the ownership of non- DECISION
fungible things to another with the obligation on the part of the latter to give
Short Summary
things of the same kind, quantity, and quality shall be considered a barter. (n)
Facts:
Article 1955. The obligation of a person who borrows money shall be governed
by the provisions of articles 1249 and 1250 of this Code.

If what was loaned is a fungible thing other than money, the debtor owes
another thing of the same kind, quantity and quality, even if it should change in
value. In case it is impossible to deliver the same kind, its value at the time of
the perfection of the loan shall be paid. (1754a)

Article 1956. No interest shall be due unless it has been expressly stipulated in
writing. (1755a)

Article 1957. Contracts and stipulations, under any cloak or device whatever,
intended to circumvent the laws against usury shall be void. The borrower may
recover in accordance with the laws on usury. (n)

Article 1958. In the determination of the interest, if it is payable in kind, its

value shall be appraised at the current price of the products or goods at the time
and place of payment. (n)

Article 1959. Without prejudice to the provisions of article 2212, interest due
and unpaid shall not earn interest. However, the contracting parties may by Issue:
stipulation capitalize the interest due and unpaid, which as added principal, shall
earn new interest. (n)

Article 1960. If the borrower pays interest when there has been no stipulation
therefor, the provisions of this Code concerning solutio indebiti, or natural
obligations, shall be applied, as the case may be. (n) Ruling:

Article 1961. Usurious contracts shall be governed by the Usury Law and other
special laws, so far as they are not inconsistent with this Code. (n)

CARPIO, J.:
The Case

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Before us is a petition for review1 of the 21 June 2000 Decision2 and 14
December 2000 Resolution of the Court of Appeals in CA-G.R. SP No. 43129.
The Court of Appeals set aside the 11 November 1996 decision3 of the Regional
Trial Court of Quezon City, Branch 81,4 affirming the 15 December 1995
decision5 of the Metropolitan Trial Court of Quezon City, Branch 31.6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid ₱400 to a certain
Pedro Perez for the rights over a 250-square meter lot in Barrio Payatas, Quezon
City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo
and his family lived in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra
("Guevarra") executed a Kasunduan or agreement. Pajuyo, as owner of the
house, allowed Guevarra to live in the house for free provided Guevarra would
maintain the cleanliness and orderliness of the house. Guevarra promised that
he would voluntarily vacate the premises on Pajuyo’s demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and
demanded that Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial
Court of Quezon City, Branch 31 ("MTC").
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of
possession over the lot where the house stands because the lot is within the 150
hectares set aside by Proclamation No. 137 for socialized housing. Guevarra
pointed out that from December 1985 to September 1994, Pajuyo did not show
up or communicate with him. Guevarra insisted that neither he nor Pajuyo has
valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The
dispositive portion of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the
plaintiff and against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or
persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (₱300.00)
monthly as reasonable compensation for the use of the premises starting from
the last demand;
C) pay plaintiff the sum of ₱3,000.00 as and by way of attorney’s fees; and
D) pay the cost of suit.
SO ORDERED.7
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City,
Branch 81 ("RTC").
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive
portion of the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the
decision appealed from, being in accord with the law and evidence presented,
and the same is hereby affirmed en toto.
SO ORDERED.8
Guevarra received the RTC decision on 29 November 1996. Guevarra had only
until 14 December 1996 to file his appeal with the Court of Appeals. Instead of
filing his appeal with the Court of Appeals, Guevarra filed with the Supreme
Court a "Motion for Extension of Time to File Appeal by Certiorari Based on
Rule 42" ("motion for extension"). Guevarra theorized that his appeal raised
pure questions of law. The Receiving Clerk of the Supreme Court received the
motion for extension on 13 December 1996 or one day before the right to appeal
expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme
Court.
On 8 January 1997, the First Division of the Supreme Court issued a
Resolution9 referring the motion for extension to the Court of Appeals which
has concurrent jurisdiction over the case. The case presented no special and
important matter for the Supreme Court to take cognizance of at the first
instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a
Resolution10 granting the motion for extension conditioned on the timeliness of
the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on
Guevara’s petition for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC
decision. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo
in Civil Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is
hereby declared that the ejectment case filed against defendant-appellant is
without factual and legal basis.
SO ORDERED.11
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out
that the Court of Appeals should have dismissed outright Guevarra’s petition
for review because it was filed out of time. Moreover, it was Guevarra’s counsel
and not Guevarra who signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying
Pajuyo’s motion for reconsideration. The dispositive portion of the resolution
reads:
WHEREFORE, for lack of merit, the motion for reconsideration is
hereby DENIED. No costs.
SO ORDERED.12
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra
is the house and not the lot. Pajuyo is the owner of the house, and he allowed
Guevarra to use the house only by tolerance. Thus, Guevarra’s refusal to vacate
the house on Pajuyo’s demand made Guevarra’s continued possession of the
house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant
relationship between Pajuyo and Guevarra. The terms of the Kasunduan bound
Guevarra to return possession of the house on demand.
The RTC rejected Guevarra’s claim of a better right under Proclamation No.
137, the Revised National Government Center Housing Project Code of
Policies and other pertinent laws. In an ejectment suit, the RTC has no power
to decide Guevarra’s rights under these laws. The RTC declared that in an
ejectment case, the only issue for resolution is material or physical possession,
not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo
and Guevarra illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter.
Perez had no right or title over the lot because it is public land. The assignment
of rights between Perez and Pajuyo, and the Kasunduan between Pajuyo and
Guevarra, did not have any legal effect. Pajuyo and Guevarra are in pari
delicto or in equal fault. The court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that
the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of
a landlord and tenant relationship. The Court of Appeals ruled that
the Kasunduan is not a lease contract but a commodatum because the
agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the
appellate court held that Guevarra has a better right over the property under
Proclamation No. 137. President Corazon C. Aquino ("President Aquino")
issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra was
in physical possession of the property. Under Article VI of the Code of Policies
Beneficiary Selection and Disposition of Homelots and Structures in the
National Housing Project ("the Code"), the actual occupant or caretaker of the
lot shall have first priority as beneficiary of the project. The Court of Appeals
concluded that Guevarra is first in the hierarchy of priority.
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In denying Pajuyo’s motion for reconsideration, the appellate court debunked
Pajuyo’s claim that Guevarra filed his motion for extension beyond the period
to appeal.
The Court of Appeals pointed out that Guevarra’s motion for extension filed
before the Supreme Court was stamped "13 December 1996 at 4:09 PM" by the
Supreme Court’s Receiving Clerk. The Court of Appeals concluded that the
motion for extension bore a date, contrary to Pajuyo’s claim that the motion for
extension was undated. Guevarra filed the motion for extension on time on 13
December 1996 since he filed the motion one day before the expiration of the
reglementary period on 14 December 1996. Thus, the motion for extension
properly complied with the condition imposed by the Court of Appeals in its 28
January 1997 Resolution. The Court of Appeals explained that the thirty-day
extension to file the petition for review was deemed granted because of such
compliance.
The Court of Appeals rejected Pajuyo’s argument that the appellate court should
have dismissed the petition for review because it was Guevarra’s counsel and
not Guevarra who signed the certification against forum-shopping. The Court
of Appeals pointed out that Pajuyo did not raise this issue in his Comment. The
Court of Appeals held that Pajuyo could not now seek the dismissal of the case
after he had extensively argued on the merits of the case. This technicality, the
appellate court opined, was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS
AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF
JURISDICTION:
1) in GRANTING, instead of denying, Private Respondent’s Motion for an
Extension of thirty days to file petition for review at the time when there was
no more period to extend as the decision of the Regional Trial Court had already
become final and executory.
2) in giving due course, instead of dismissing, private respondent’s Petition for
Review even though the certification against forum-shopping was signed only
by counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in
fact a commodatum, instead of a Contract of Lease as found by the Metropolitan
Trial Court and in holding that "the ejectment case filed against defendant-
appellant is without legal and factual basis".
4) in reversing and setting aside the Decision of the Regional Trial Court in
Civil Case No. Q-96-26943 and in holding that the parties are in pari
delicto being both squatters, therefore, illegal occupants of the contested parcel
of land.
5) in deciding the unlawful detainer case based on the so-called Code of Policies
of the National Government Center Housing Project instead of deciding the
same under the Kasunduan voluntarily executed by the parties, the terms and
conditions of which are the laws between themselves.13
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in
the substantive issues Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright
Guevarra’s petition for review because the RTC decision had already become
final and executory when the appellate court acted on Guevarra’s motion for
extension to file the petition. Pajuyo points out that Guevarra had only one day
before the expiry of his period to appeal the RTC decision. Instead of filing the
petition for review with the Court of Appeals, Guevarra filed with this Court an
undated motion for extension of 30 days to file a petition for review. This Court
merely referred the motion to the Court of Appeals. Pajuyo believes that the
filing of the motion for extension with this Court did not toll the running of the
period to perfect the appeal. Hence, when the Court of Appeals received the
motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate
jurisdiction are appealable to the Court of Appeals by petition for review in
cases involving questions of fact or mixed questions of fact and
law.14 Decisions of the regional trial courts involving pure questions of law are
appealable directly to this Court by petition for review.15These modes of appeal
are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions
of law. Guevarra thus filed his motion for extension to file petition for review
before this Court on 14 December 1996. On 3 January 1997, Guevarra then
filed his petition for review with this Court. A perusal of Guevarra’s petition
for review gives the impression that the issues he raised were pure questions of
law. There is a question of law when the doubt or difference is on what the law
is on a certain state of facts.16 There is a question of fact when the doubt or
difference is on the truth or falsity of the facts alleged.17
In his petition for review before this Court, Guevarra no longer disputed the
facts. Guevarra’s petition for review raised these questions: (1) Do ejectment
cases pertain only to possession of a structure, and not the lot on which the
structure stands? (2) Does a suit by a squatter against a fellow squatter constitute
a valid case for ejectment? (3) Should a Presidential Proclamation governing
the lot on which a squatter’s structure stands be considered in an ejectment suit
filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law
on ejectment and the Presidential Proclamation. At first glance, the questions
Guevarra raised appeared purely legal. However, some factual questions still
have to be resolved because they have a bearing on the legal questions raised in
the petition for review. These factual matters refer to the metes and bounds of
the disputed property and the application of Guevarra as beneficiary of
Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a
petition for review. In Lacsamana v. Second Special Cases Division of the
Intermediate Appellate Court,18 we declared that the Court of Appeals could
grant extension of time in appeals by petition for review. In Liboro v. Court of
Appeals,19 we clarified that the prohibition against granting an extension of time
applies only in a case where ordinary appeal is perfected by a mere notice of
appeal. The prohibition does not apply in a petition for review where the
pleading needs verification. A petition for review, unlike an ordinary appeal,
requires preparation and research to present a persuasive position.20The drafting
of the petition for review entails more time and effort than filing a notice of
appeal.21 Hence, the Court of Appeals may allow an extension of time to file a
petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of
Appeals,22 we held that Liboro’sclarification of Lacsamana is consistent with
the Revised Internal Rules of the Court of Appeals and Supreme Court Circular
No. 1-91. They all allow an extension of time for filing petitions for review with
the Court of Appeals. The extension, however, should be limited to only fifteen
days save in exceptionally meritorious cases where the Court of Appeals may
grant a longer period.
A judgment becomes "final and executory" by operation of law. Finality of
judgment becomes a fact on the lapse of the reglementary period to appeal if no
appeal is perfected.23 The RTC decision could not have gained finality because
the Court of Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it
approved Guevarra’s motion for extension. The Court of Appeals gave due
course to the motion for extension because it complied with the condition set
by the appellate court in its resolution dated 28 January 1997. The resolution
stated that the Court of Appeals would only give due course to the motion for
extension if filed on time. The motion for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the
motion for extension are (1) the date of receipt of the judgment or final order or
resolution subject of the petition, and (2) the date of filing of the motion for
extension.24 It is the date of the filing of the motion or pleading, and not the date
of execution, that determines the timeliness of the filing of that motion or
pleading. Thus, even if the motion for extension bears no date, the date of filing
stamped on it is the reckoning point for determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision.
Guevarra filed his motion for extension before this Court on 13 December 1996,
the date stamped by this Court’s Receiving Clerk on the motion for extension.
Clearly, Guevarra filed the motion for extension exactly one day before the
lapse of the reglementary period to appeal.
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Assuming that the Court of Appeals should have dismissed Guevarra’s appeal
on technical grounds, Pajuyo did not ask the appellate court to deny the motion
for extension and dismiss the petition for review at the earliest opportunity.
Instead, Pajuyo vigorously discussed the merits of the case. It was only when
the Court of Appeals ruled in Guevarra’s favor that Pajuyo raised the procedural
issues against Guevarra’s petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an
adverse decision on the merits, is estopped from attacking the jurisdiction of the
court.25 Estoppel sets in not because the judgment of the court is a valid and
conclusive adjudication, but because the practice of attacking the court’s
jurisdiction after voluntarily submitting to it is against public policy. 26
In his Comment before the Court of Appeals, Pajuyo also failed to discuss
Guevarra’s failure to sign the certification against forum shopping. Instead,
Pajuyo harped on Guevarra’s counsel signing the verification, claiming that the
counsel’s verification is insufficient since it is based only on "mere
information."
A party’s failure to sign the certification against forum shopping is different
from the party’s failure to sign personally the verification. The certificate of
non-forum shopping must be signed by the party, and not by counsel. 27 The
certification of counsel renders the petition defective.28
On the other hand, the requirement on verification of a pleading is a formal and
not a jurisdictional requisite.29 It is intended simply to secure an assurance that
what are alleged in the pleading are true and correct and not the product of the
imagination or a matter of speculation, and that the pleading is filed in good
faith.30 The party need not sign the verification. A party’s representative, lawyer
or any person who personally knows the truth of the facts alleged in the pleading
may sign the verification.31
We agree with the Court of Appeals that the issue on the certificate against
forum shopping was merely an afterthought. Pajuyo did not call the Court of
Appeals’ attention to this defect at the early stage of the proceedings. Pajuyo
raised this procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of
Jurisdiction to Resolve the Issue of Possession
Settled is the rule that the defendant’s claim of ownership of the disputed
property will not divest the inferior court of its jurisdiction over the ejectment
case.32 Even if the pleadings raise the issue of ownership, the court may pass on
such issue to determine only the question of possession, especially if the
ownership is inseparably linked with the possession.33 The adjudication on the
issue of ownership is only provisional and will not bar an action between the
same parties involving title to the land.34 This doctrine is a necessary
consequence of the nature of the two summary actions of ejectment, forcible
entry and unlawful detainer, where the only issue for adjudication is the
physical or material possession over the real property.35
In this case, what Guevarra raised before the courts was that he and Pajuyo are
not the owners of the contested property and that they are mere squatters. Will
the defense that the parties to the ejectment case are not the owners of the
disputed lot allow the courts to renounce their jurisdiction over the case? The
Court of Appeals believed so and held that it would just leave the parties where
they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an
action for recovery of possession. The parties cannot present evidence to prove
ownership or right to legal possession except to prove the nature of the
possession when necessary to resolve the issue of physical possession. 36 The
same is true when the defendant asserts the absence of title over the property.
The absence of title over the contested lot is not a ground for the courts to
withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who
is entitled to the physical possession of the premises, that is, to the possession de
facto and not to the possession de jure.37 It does not even matter if a party’s title
to the property is questionable,38 or when both parties intruded into public land
and their applications to own the land have yet to be approved by the proper
government agency.39 Regardless of the actual condition of the title to the
property, the party in peaceable quiet possession shall not be thrown out by a
strong hand, violence or terror.40 Neither is the unlawful withholding of
property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even
against the owner himself.41Whatever may be the character of his possession, if
he has in his favor prior possession in time, he has the security that entitles him
to remain on the property until a person with a better right lawfully ejects
him.42 To repeat, the only issue that the court has to settle in an ejectment suit
is the right to physical possession.
In Pitargue v. Sorilla,43 the government owned the land in dispute. The
government did not authorize either the plaintiff or the defendant in the case of
forcible entry case to occupy the land. The plaintiff had prior possession and
had already introduced improvements on the public land. The plaintiff had a
pending application for the land with the Bureau of Lands when the defendant
ousted him from possession. The plaintiff filed the action of forcible entry
against the defendant. The government was not a party in the case of forcible
entry.
The defendant questioned the jurisdiction of the courts to settle the issue of
possession because while the application of the plaintiff was still pending, title
remained with the government, and the Bureau of Public Lands had jurisdiction
over the case. We disagreed with the defendant. We ruled that courts have
jurisdiction to entertain ejectment suits even before the resolution of the
application. The plaintiff, by priority of his application and of his entry,
acquired prior physical possession over the public land applied for as against
other private claimants. That prior physical possession enjoys legal protection
against other private claimants because only a court can take away such
physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue44 as
squatters, strictly speaking, their entry into the disputed land was illegal. Both
the plaintiff and defendant entered the public land without the owner’s
permission. Title to the land remained with the government because it had not
awarded to anyone ownership of the contested public land. Both the plaintiff
and the defendant were in effect squatting on government property. Yet, we
upheld the courts’ jurisdiction to resolve the issue of possession even if the
plaintiff and the defendant in the ejectment case did not have any title over the
contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical
possession because of the public need to preserve the basic policy behind the
summary actions of forcible entry and unlawful detainer. The underlying
philosophy behind ejectment suits is to prevent breach of the peace and criminal
disorder and to compel the party out of possession to respect and resort to the
law alone to obtain what he claims is his. 45 The party deprived of possession
must not take the law into his own hands.46 Ejectment proceedings are summary
in nature so the authorities can settle speedily actions to recover possession
because of the overriding need to quell social disturbances.47
We further explained in Pitargue the greater interest that is at stake in actions
for recovery of possession. We made the following pronouncements
in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take
cognizance of possessory actions involving these public lands before final
award is made by the Lands Department, and before title is given any of the
conflicting claimants? It is one of utmost importance, as there are public lands
everywhere and there are thousands of settlers, especially in newly opened
regions. It also involves a matter of policy, as it requires the determination of
the respective authorities and functions of two coordinate branches of the
Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the
old, which was in force in this country before the American occupation, or in
the new, we have a possessory action, the aim and purpose of which is the
recovery of the physical possession of real property, irrespective of the question
as to who has the title thereto. Under the Spanish Civil Code we had the accion
interdictal, a summary proceeding which could be brought within one year from
dispossession (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286,
291); and as early as October 1, 1901, upon the enactment of the Code of Civil
Procedure (Act No. 190 of the Philippine Commission) we implanted the
common law action of forcible entry (section 80 of Act No. 190), the object of
which has been stated by this Court to be "to prevent breaches of the peace
and criminal disorder which would ensue from the withdrawal of the remedy,
and the reasonable hope such withdrawal would create that some advantage
must accrue to those persons who, believing themselves entitled to the
possession of property, resort to force to gain possession rather than to some
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appropriate action in the court to assert their claims." (Supia and Batioco vs.
Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first
Public Land Act (Act No. 926) the action of forcible entry was already available
in the courts of the country. So the question to be resolved is, Did the
Legislature intend, when it vested the power and authority to alienate and
dispose of the public lands in the Lands Department, to exclude the courts from
entertaining the possessory action of forcible entry between rival claimants or
occupants of any land before award thereof to any of the parties? Did Congress
intend that the lands applied for, or all public lands for that matter, be removed
from the jurisdiction of the judicial Branch of the Government, so that any
troubles arising therefrom, or any breaches of the peace or disorders caused by
rival claimants, could be inquired into only by the Lands Department to the
exclusion of the courts? The answer to this question seems to us evident. The
Lands Department does not have the means to police public lands; neither does
it have the means to prevent disorders arising therefrom, or contain breaches of
the peace among settlers; or to pass promptly upon conflicts of
possession. Then its power is clearly limited to disposition and alienation, and
while it may decide conflicts of possession in order to make proper award, the
settlement of conflicts of possession which is recognized in the court herein
has another ultimate purpose, i.e., the protection of actual possessors and
occupants with a view to the prevention of breaches of the peace. The power
to dispose and alienate could not have been intended to include the power to
prevent or settle disorders or breaches of the peace among rival settlers or
claimants prior to the final award. As to this, therefore, the corresponding
branches of the Government must continue to exercise power and jurisdiction
within the limits of their respective functions. The vesting of the Lands
Department with authority to administer, dispose, and alienate public lands,
therefore, must not be understood as depriving the other branches of the
Government of the exercise of the respective functions or powers thereon,
such as the authority to stop disorders and quell breaches of the peace by the
police, the authority on the part of the courts to take jurisdiction over
possessory actions arising therefrom not involving, directly or indirectly,
alienation and disposition.
Our attention has been called to a principle enunciated in American courts to
the effect that courts have no jurisdiction to determine the rights of claimants to
public lands, and that until the disposition of the land has passed from the
control of the Federal Government, the courts will not interfere with the
administration of matters concerning the same. (50 C. J. 1093-1094.) We have
no quarrel with this principle. The determination of the respective rights of rival
claimants to public lands is different from the determination of who has the
actual physical possession or occupation with a view to protecting the same and
preventing disorder and breaches of the peace. A judgment of the court ordering
restitution of the possession of a parcel of land to the actual occupant, who has
been deprived thereof by another through the use of force or in any other illegal
manner, can never be "prejudicial interference" with the disposition or
alienation of public lands. On the other hand, if courts were deprived of
jurisdiction of cases involving conflicts of possession, that threat of judicial
action against breaches of the peace committed on public lands would be
eliminated, and a state of lawlessness would probably be produced between
applicants, occupants or squatters, where force or might, not right or justice,
would rule.
It must be borne in mind that the action that would be used to solve conflicts of
possession between rivals or conflicting applicants or claimants would be no
other than that of forcible entry. This action, both in England and the United
States and in our jurisdiction, is a summary and expeditious remedy whereby
one in peaceful and quiet possession may recover the possession of which he
has been deprived by a stronger hand, by violence or terror; its ultimate object
being to prevent breach of the peace and criminal disorder. (Supia and Batioco
vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere
possession as a fact, of physical possession, not a legal possession. (Mediran
vs. Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in
an action of forcible entry; as a matter of fact, evidence thereof is expressly
banned, except to prove the nature of the possession. (Second 4, Rule 72, Rules
of Court.) With this nature of the action in mind, by no stretch of the
imagination can conclusion be arrived at that the use of the remedy in the courts
of justice would constitute an interference with the alienation, disposition, and
control of public lands. To limit ourselves to the case at bar can it be pretended
at all that its result would in any way interfere with the manner of the alienation
or disposition of the land contested? On the contrary, it would facilitate
adjudication, for the question of priority of possession having been decided in
a final manner by the courts, said question need no longer waste the time of the
land officers making the adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this
case.
Articles 1411 and 1412 of the Civil Code48 embody the principle of pari delicto.
We explained the principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ‘ex dolo malo non eritur
actio’ and ‘in pari delicto potior est conditio defedentis.’ The law will not aid
either party to an illegal agreement. It leaves the parties where it finds them.49
The application of the pari delicto principle is not absolute, as there are
exceptions to its application. One of these exceptions is where the application
of the pari delicto rule would violate well-established public policy.50
In Drilon v. Gaurana,51 we reiterated the basic policy behind the summary
actions of forcible entry and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is
that, regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be turned out by strong hand, violence or
terror. In affording this remedy of restitution the object of the statute is to
prevent breaches of the peace and criminal disorder which would ensue from
the withdrawal of the remedy, and the reasonable hope such withdrawal would
create that some advantage must accrue to those persons who, believing
themselves entitled to the possession of property, resort to force to gain
possession rather than to some appropriate action in the courts to assert their
claims. This is the philosophy at the foundation of all these actions of forcible
entry and detainer which are designed to compel the party out of possession to
respect and resort to the law alone to obtain what he claims is his. 52
Clearly, the application of the principle of pari delicto to a case of ejectment
between squatters is fraught with danger. To shut out relief to squatters on the
ground of pari delicto would openly invite mayhem and lawlessness. A squatter
would oust another squatter from possession of the lot that the latter had
illegally occupied, emboldened by the knowledge that the courts would leave
them where they are. Nothing would then stand in the way of the ousted squatter
from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or
actions for recovery of possession seek to prevent.53 Even the owner who has
title over the disputed property cannot take the law into his own hands to regain
possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment
suit are squatters. The determination of priority and superiority of possession is
a serious and urgent matter that cannot be left to the squatters to decide. To do
so would make squatters receive better treatment under the law. The law
restrains property owners from taking the law into their own hands. However,
the principle of pari delicto as applied by the Court of Appeals would give
squatters free rein to dispossess fellow squatters or violently retake possession
of properties usurped from them. Courts should not leave squatters to their own
devices in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment.
The Court of Appeals refused to rule on the issue of physical possession.
Nevertheless, the appellate court held that the pivotal issue in this case is who
between Pajuyo and Guevarra has the "priority right as beneficiary of the
contested land under Proclamation No. 137."54 According to the Court of
Appeals, Guevarra enjoys preferential right under Proclamation No. 137
because Article VI of the Code declares that the actual occupant or caretaker is
the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part
of a relocation site under Proclamation No. 137. Proclamation No. 137 laid
down the metes and bounds of the land that it declared open for disposition to
bona fide residents.
The records do not show that the contested lot is within the land specified by
Proclamation No. 137. Guevarra had the burden to prove that the disputed lot
is within the coverage of Proclamation No. 137. He failed to do so.
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Second. The Court of Appeals should not have given credence to Guevarra’s
unsubstantiated claim that he is the beneficiary of Proclamation No. 137.
Guevarra merely alleged that in the survey the project administrator conducted,
he and not Pajuyo appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation
No. 137. Pajuyo allowed Guevarra to occupy the disputed property in 1985.
President Aquino signed Proclamation No. 137 into law on 11 March 1986.
Pajuyo made his earliest demand for Guevarra to vacate the property in
September 1994.
During the time that Guevarra temporarily held the property up to the time that
Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never
applied as beneficiary of Proclamation No. 137. Even when Guevarra already
knew that Pajuyo was reclaiming possession of the property, Guevarra did not
take any step to comply with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of
Proclamation No. 137 and Guevarra has a pending application over the lot,
courts should still assume jurisdiction and resolve the issue of possession.
However, the jurisdiction of the courts would be limited to the issue of physical
possession only.
In Pitargue,55 we ruled that courts have jurisdiction over possessory actions
involving public land to determine the issue of physical possession. The
determination of the respective rights of rival claimants to public land is,
however, distinct from the determination of who has the actual physical
possession or who has a better right of physical possession.56 The administrative
disposition and alienation of public lands should be threshed out in the proper
government agency.57
The Court of Appeals’ determination of Pajuyo and Guevarra’s rights under
Proclamation No. 137 was premature. Pajuyo and Guevarra were at most
merely potential beneficiaries of the law. Courts should not preempt the
decision of the administrative agency mandated by law to determine the
qualifications of applicants for the acquisition of public lands. Instead, courts
should expeditiously resolve the issue of physical possession in ejectment cases
to prevent disorder and breaches of peace.58
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyo’s prior possession of the lot and ownership
of the house built on it. Guevarra expressly admitted the existence and due
execution of the Kasunduan. The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon
City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang
manirahan sa nasabing bahay at lote ng "walang bayad." Kaugnay nito,
kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, sila’y kusang aalis ng
walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and
lot free of rent, but Guevarra was under obligation to maintain the premises in
good condition. Guevarra promised to vacate the premises on Pajuyo’s demand
but Guevarra broke his promise and refused to heed Pajuyo’s demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves
the withholding by a person from another of the possession of real property to
which the latter is entitled after the expiration or termination of the former’s
right to hold possession under a contract, express or implied.59
Where the plaintiff allows the defendant to use his property by tolerance
without any contract, the defendant is necessarily bound by an implied promise
that he will vacate on demand, failing which, an action for unlawful detainer
will lie.60 The defendant’s refusal to comply with the demand makes his
continued possession of the property unlawful.61 The status of the defendant in
such a case is similar to that of a lessee or tenant whose term of lease has expired
but whose occupancy continues by tolerance of the owner. 62
This principle should apply with greater force in cases where a contract
embodies the permission or tolerance to use the property.
The Kasunduan expressly articulated Pajuyo’s forbearance. Pajuyo did not
require Guevarra to pay any rent but only to maintain the house and lot in good
condition. Guevarra expressly vowed in the Kasunduan that he would vacate
the property on demand. Guevarra’s refusal to comply with Pajuyo’s demand
to vacate made Guevarra’s continued possession of the property unlawful.
We do not subscribe to the Court of Appeals’ theory that the Kasunduan is one
of commodatum.
In a contract of commodatum, one of the parties delivers to another something
not consumable so that the latter may use the same for a certain time and return
it.63 An essential feature of commodatum is that it is gratuitous. Another feature
of commodatum is that the use of the thing belonging to another is for a certain
period.64 Thus, the bailor cannot demand the return of the thing loaned until
after expiration of the period stipulated, or after accomplishment of the use for
which the commodatum is constituted.65 If the bailor should have urgent need
of the thing, he may demand its return for temporary use. 66 If the use of the
thing is merely tolerated by the bailor, he can demand the return of the thing at
will, in which case the contractual relation is called a precarium. 67 Under the
Civil Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the Kasunduan did not require
Guevarra to pay rent, it obligated him to maintain the property in good
condition. The imposition of this obligation makes the Kasunduan a contract
different from a commodatum. The effects of the Kasunduan are also different
from that of a commodatum. Case law on ejectment has treated relationship
based on tolerance as one that is akin to a landlord-tenant relationship where
the withdrawal of permission would result in the termination of the lease.69 The
tenant’s withholding of the property would then be unlawful. This is settled
jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one
of commodatum, Guevarra as bailee would still have the duty to turn over
possession of the property to Pajuyo, the bailor. The obligation to deliver or to
return the thing received attaches to contracts for safekeeping, or contracts of
commission, administration and commodatum.70 These contracts certainly
involve the obligation to deliver or return the thing received.71
Guevarra turned his back on the Kasunduan on the sole ground that like him,
Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a
contract involving the land they illegally occupy. Guevarra insists that the
contract is void.
Guevarra should know that there must be honor even between squatters.
Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn
the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo
and Guevarra has a right to physical possession of the contested property.
The Kasunduan is the undeniable evidence of Guevarra’s recognition of
Pajuyo’s better right of physical possession. Guevarra is clearly a possessor in
bad faith. The absence of a contract would not yield a different result, as there
would still be an implied promise to vacate.
Guevarra contends that there is "a pernicious evil that is sought to be avoided,
and that is allowing an absentee squatter who (sic) makes (sic) a profit out of
his illegal act."72 Guevarra bases his argument on the preferential right given to
the actual occupant or caretaker under Proclamation No. 137 on socialized
housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra
stayed in the property without paying any rent. There is also no proof that
Pajuyo is a professional squatter who rents out usurped properties to other
squatters. Moreover, it is for the proper government agency to decide who
between Pajuyo and Guevarra qualifies for socialized housing. The only issue
that we are addressing is physical possession.
Prior possession is not always a condition sine qua non in ejectment.73 This is
one of the distinctions between forcible entry and unlawful detainer.74 In
forcible entry, the plaintiff is deprived of physical possession of his land or
building by means of force, intimidation, threat, strategy or stealth. Thus, he
must allege and prove prior possession.75 But in unlawful detainer, the
defendant unlawfully withholds possession after the expiration or termination
of his right to possess under any contract, express or implied. In such a case,
prior physical possession is not required.76
Pajuyo’s withdrawal of his permission to Guevarra terminated the Kasunduan.
Guevarra’s transient right to possess the property ended as well. Moreover, it
was Pajuyo who was in actual possession of the property because Guevarra had
to seek Pajuyo’s permission to temporarily hold the property and Guevarra had
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to follow the conditions set by Pajuyo in the Kasunduan. Control over the G.R. No. 115324 February 19, 2003
property still rested with Pajuyo and this is evidence of actual possession.
PRODUCERS BANK OF THE PHILIPPINES (now FIRST
Pajuyo’s absence did not affect his actual possession of the disputed property. INTERNATIONAL BANK), petitioner,
Possession in the eyes of the law does not mean that a man has to have his feet vs.
on every square meter of the ground before he is deemed in possession. 77 One HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.
may acquire possession not only by physical occupation, but also by the fact
that a thing is subject to the action of one’s will.78 Actual or physical occupation DECISION
is not always necessary.79 Short Summary
Ruling on Possession Does not Bind Title to the Land in Dispute Facts:
We are aware of our pronouncement in cases where we declared that "squatters
and intruders who clandestinely enter into titled government property cannot,
by such act, acquire any legal right to said property."80 We made this declaration
because the person who had title or who had the right to legal possession over
the disputed property was a party in the ejectment suit and that party instituted
the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to
the ejectment case. This case is between squatters. Had the government
participated in this case, the courts could have evicted the contending squatters,
Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded
in this case, we cannot evict on our own the parties. Such a ruling would
discourage squatters from seeking the aid of the courts in settling the issue of
physical possession. Stripping both the plaintiff and the defendant of possession
just because they are squatters would have the same dangerous implications as
the application of the principle of pari delicto. Squatters would then rather settle
the issue of physical possession among themselves than seek relief from the
courts if the plaintiff and defendant in the ejectment case would both stand to
lose possession of the disputed property. This would subvert the policy Issue:
underlying actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is
entitled to remain on the property until a person who has title or a better right
lawfully ejects him. Guevarra is certainly not that person. The ruling in this
case, however, does not preclude Pajuyo and Guevarra from introducing Ruling:
evidence and presenting arguments before the proper administrative agency to
establish any right to which they may be entitled under the law. 81
In no way should our ruling in this case be interpreted to condone squatting.
The ruling on the issue of physical possession does not affect title to the
property nor constitute a binding and conclusive adjudication on the merits on
the issue of ownership.82 The owner can still go to court to recover lawfully the
property from the person who holds the property without legal title. Our ruling
here does not diminish the power of government agencies, including local
governments, to condemn, abate, remove or demolish illegal or unauthorized
structures in accordance with existing laws.
Attorney’s Fees and Rentals
The MTC and RTC failed to justify the award of ₱3,000 attorney’s fees to
Pajuyo. Attorney’s fees as part of damages are awarded only in the instances
enumerated in Article 2208 of the Civil Code.83 Thus, the award of attorney’s
fees is the exception rather than the rule.84 Attorney’s fees are not awarded
every time a party prevails in a suit because of the policy that no premium
should be placed on the right to litigate.85 We therefore delete the attorney’s
fees awarded to Pajuyo.
We sustain the ₱300 monthly rentals the MTC and RTC assessed against
Guevarra. Guevarra did not dispute this factual finding of the two courts. We
find the amount reasonable compensation to Pajuyo. The ₱300 monthly rental
is counted from the last demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000
and Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R.
SP No. 43129 are SET ASIDE. The Decision dated 11 November 1996 of the
Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943,
affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court
of Quezon City, Branch 31 in Civil Case No. 12432,
is REINSTATEDwith MODIFICATION. The award of attorney’s fees is
deleted. No costs.
SO ORDERED. CALLEJO, SR., J.:

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This is a petition for review on certiorari of the Decision1 of the Court of
Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and of its
Resolution2 dated May 5, 1994, denying the motion for reconsideration of said
decision filed by petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his
neighbor and friend Angeles Sanchez to help her friend and townmate, Col.
Arturo Doronilla, in incorporating his business, the Sterela Marketing and
Services ("Sterela" for brevity). Specifically, Sanchez asked private respondent
to deposit in a bank a certain amount of money in the bank account of Sterela
for purposes of its incorporation. She assured private respondent that he could
withdraw his money from said account within a month’s time. Private
respondent asked Sanchez to bring Doronilla to their house so that they could
discuss Sanchez’s request.3
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella
Dumagpi, Doronilla’s private secretary, met and discussed the matter.
Thereafter, relying on the assurances and representations of Sanchez and
Doronilla, private respondent issued a check in the amount of Two Hundred
Thousand Pesos (₱200,000.00) in favor of Sterela. Private respondent
instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez
in opening a savings account in the name of Sterela in the Buendia, Makati
branch of Producers Bank of the Philippines. However, only Sanchez, Mrs.
Vives and Dumagpi went to the bank to deposit the check. They had with them
an authorization letter from Doronilla authorizing Sanchez and her companions,
"in coordination with Mr. Rufo Atienza," to open an account for Sterela
Marketing Services in the amount of ₱200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A
passbook for Savings Account No. 10-1567 was thereafter issued to Mrs.
Vives.4
Subsequently, private respondent learned that Sterela was no longer holding
office in the address previously given to him. Alarmed, he and his wife went to
the Bank to verify if their money was still intact. The bank manager referred
them to Mr. Rufo Atienza, the assistant manager, who informed them that part
of the money in Savings Account No. 10-1567 had been withdrawn by
Doronilla, and that only ₱90,000.00 remained therein. He likewise told them
that Mrs. Vives could not withdraw said remaining amount because it had to
answer for some postdated checks issued by Doronilla. According to Atienza,
after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla
opened Current Account No. 10-0320 for Sterela and authorized the Bank to
debit Savings Account No. 10-1567 for the amounts necessary to cover
overdrawings in Current Account No. 10-0320. In opening said current account,
Sterela, through Doronilla, obtained a loan of ₱175,000.00 from the Bank. To
cover payment thereof, Doronilla issued three postdated checks, all of which
were dishonored. Atienza also said that Doronilla could assign or withdraw the
money in Savings Account No. 10-1567 because he was the sole proprietor of
Sterela.5
Private respondent tried to get in touch with Doronilla through Sanchez. On
June 29, 1979, he received a letter from Doronilla, assuring him that his money
was intact and would be returned to him. On August 13, 1979, Doronilla issued
a postdated check for Two Hundred Twelve Thousand Pesos (₱212,000.00) in
favor of private respondent. However, upon presentment thereof by private
respondent to the drawee bank, the check was dishonored. Doronilla requested
private respondent to present the same check on September 15, 1979 but when
the latter presented the check, it was again dishonored. 6
Private respondent referred the matter to a lawyer, who made a written demand
upon Doronilla for the return of his client’s money. Doronilla issued another
check for ₱212,000.00 in private respondent’s favor but the check was again
dishonored for insufficiency of funds.7
Private respondent instituted an action for recovery of sum of money in the
Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez,
Dumagpi and petitioner. The case was docketed as Civil Case No. 44485. He
also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC.
However, Sanchez passed away on March 16, 1985 while the case was pending
before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157,
promulgated its Decision in Civil Case No. 44485, the dispositive portion of
which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing
defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the
Philippines to pay plaintiff Franklin Vives jointly and severally –
(a) the amount of ₱200,000.00, representing the money deposited, with interest
at the legal rate from the filing of the complaint until the same is fully paid;
(b) the sum of ₱50,000.00 for moral damages and a similar amount for
exemplary damages;
(c) the amount of ₱40,000.00 for attorney’s fees; and
(d) the costs of the suit.
SO ORDERED.8
Petitioner appealed the trial court’s decision to the Court of Appeals. In its
Decision dated June 25, 1991, the appellate court affirmed in toto the decision
of the RTC.9 It likewise denied with finality petitioner’s motion for
reconsideration in its Resolution dated May 5, 1994.10
On June 30, 1994, petitioner filed the present petition, arguing that –
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT
THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND
RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT
PETITIONER’S BANK MANAGER, MR. RUFO ATIENZA, CONNIVED
WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic.
Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE
PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF
NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE
ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND
AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS
OF THE REGIONAL TRIAL COURT WERE BASED ON A
MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT
THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745,
UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS
COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE
DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK
IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER
DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING
THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR
ATTORNEY’S FEES AND THE COSTS OF SUIT.11
Private respondent filed his Comment on September 23, 1994. Petitioner filed
its Reply thereto on September 25, 1995. The Court then required private
respondent to submit a rejoinder to the reply. However, said rejoinder was filed
only on April 21, 1997, due to petitioner’s delay in furnishing private
respondent with copy of the reply12 and several substitutions of counsel on the
part of private respondent.13 On January 17, 2001, the Court resolved to give
due course to the petition and required the parties to submit their respective
memoranda.14 Petitioner filed its memorandum on April 16, 2001 while private
respondent submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and
Doronilla is a simple loan (mutuum) since all the elements of a mutuum are
present: first, what was delivered by private respondent to Doronilla was
money, a consumable thing; and second, the transaction was onerous as
Doronilla was obliged to pay interest, as evidenced by the check issued by
Doronilla in the amount of ₱212,000.00, or ₱12,000 more than what private
respondent deposited in Sterela’s bank account.15 Moreover, the fact that private
respondent sued his good friend Sanchez for his failure to recover his money
from Doronilla shows that the transaction was not merely gratuitous but "had a
business angle" to it. Hence, petitioner argues that it cannot be held liable for
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the return of private respondent’s ₱200,000.00 because it is not privy to the
transaction between the latter and Doronilla.16
It argues further that petitioner’s Assistant Manager, Mr. Rufo Atienza, could
not be faulted for allowing Doronilla to withdraw from the savings account of
Sterela since the latter was the sole proprietor of said company. Petitioner
asserts that Doronilla’s May 8, 1979 letter addressed to the bank, authorizing
Mrs. Vives and Sanchez to open a savings account for Sterela, did not contain
any authorization for these two to withdraw from said account. Hence, the
authority to withdraw therefrom remained exclusively with Doronilla, who was
the sole proprietor of Sterela, and who alone had legal title to the savings
account.17 Petitioner points out that no evidence other than the testimonies of
private respondent and Mrs. Vives was presented during trial to prove that
private respondent deposited his ₱200,000.00 in Sterela’s account for purposes
of its incorporation.18 Hence, petitioner should not be held liable for allowing
Doronilla to withdraw from Sterela’s savings account.1a\^/phi1.net
Petitioner also asserts that the Court of Appeals erred in affirming the trial
court’s decision since the findings of fact therein were not accord with the
evidence presented by petitioner during trial to prove that the transaction
between private respondent and Doronilla was a mutuum, and that it committed
no wrong in allowing Doronilla to withdraw from Sterela’s savings account.19
Finally, petitioner claims that since there is no wrongful act or omission on its
part, it is not liable for the actual damages suffered by private respondent, and
neither may it be held liable for moral and exemplary damages as well as
attorney’s fees.20
Private respondent, on the other hand, argues that the transaction between him
and Doronilla is not a mutuum but an accommodation,21 since he did not
actually part with the ownership of his ₱200,000.00 and in fact asked his wife
to deposit said amount in the account of Sterela so that a certification can be
issued to the effect that Sterela had sufficient funds for purposes of its
incorporation but at the same time, he retained some degree of control over his
money through his wife who was made a signatory to the savings account and
in whose possession the savings account passbook was given.22
He likewise asserts that the trial court did not err in finding that petitioner,
Atienza’s employer, is liable for the return of his money. He insists that Atienza,
petitioner’s assistant manager, connived with Doronilla in defrauding private
respondent since it was Atienza who facilitated the opening of Sterela’s current
account three days after Mrs. Vives and Sanchez opened a savings account with
petitioner for said company, as well as the approval of the authority to debit
Sterela’s savings account to cover any overdrawings in its current account.23
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised
in a petition for review filed with this Court. The Court has repeatedly held that
it is not its function to analyze and weigh all over again the evidence presented
by the parties during trial.24 The Court’s jurisdiction is in principle limited to
reviewing errors of law that might have been committed by the Court of
Appeals.25 Moreover, factual findings of courts, when adopted and confirmed
by the Court of Appeals, are final and conclusive on this Court unless these
findings are not supported by the evidence on record. 26 There is no showing of
any misapprehension of facts on the part of the Court of Appeals in the case at
bar that would require this Court to review and overturn the factual findings of
that court, especially since the conclusions of fact of the Court of Appeals and
the trial court are not only consistent but are also amply supported by the
evidence on record.
No error was committed by the Court of Appeals when it ruled that the
transaction between private respondent and Doronilla was a commodatum and
not a mutuum. A circumspect examination of the records reveals that the
transaction between them was a commodatum. Article 1933 of the Civil Code
distinguishes between the two kinds of loans in this wise:
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.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However,
there are some instances where a commodatum may have for its object a
consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the
contract is not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when
the intention of the parties is to lend consumable goods and to have the very
same goods returned at the end of the period agreed upon, the loan is a
commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. 27 In case of
doubt, the contemporaneous and subsequent acts of the parties shall be
considered in such determination.28
As correctly pointed out by both the Court of Appeals and the trial court, the
evidence shows that private respondent agreed to deposit his money in the
savings account of Sterela specifically for the purpose of making it appear "that
said firm had sufficient capitalization for incorporation, with the promise that
the amount shall be returned within thirty (30) days."29 Private respondent
merely "accommodated" Doronilla by lending his money without
consideration, as a favor to his good friend Sanchez. It was however clear to the
parties to the transaction that the money would not be removed from Sterela’s
savings account and would be returned to private respondent after thirty (30)
days.
Doronilla’s attempts to return to private respondent the amount of ₱200,000.00
which the latter deposited in Sterela’s account together with an additional
₱12,000.00, allegedly representing interest on the mutuum, did not convert the
transaction from a commodatum into a mutuum because such was not the intent
of the parties and because the additional ₱12,000.00 corresponds to the fruits of
the lending of the ₱200,000.00. Article 1935 of the Civil Code expressly states
that "[t]he bailee in commodatum acquires the use of the thing loaned but not
its fruits." Hence, it was only proper for Doronilla to remit to private respondent
the interest accruing to the latter’s money deposited with petitioner.
Neither does the Court agree with petitioner’s contention that it is not solidarily
liable for the return of private respondent’s money because it was not privy to
the transaction between Doronilla and private respondent. The nature of said
transaction, that is, whether it is a mutuum or a commodatum, has no bearing
on the question of petitioner’s liability for the return of private respondent’s
money because the factual circumstances of the case clearly show that
petitioner, through its employee Mr. Atienza, was partly responsible for the loss
of private respondent’s money and is liable for its restitution.
Petitioner’s rules for savings deposits written on the passbook it issued Mrs.
Vives on behalf of Sterela for Savings Account No. 10-1567 expressly states
that—
"2. Deposits and withdrawals must be made by the depositor personally or upon
his written authority duly authenticated, and neither a deposit nor a withdrawal
will be permitted except upon the production of the depositor savings bank book
in which will be entered by the Bank the amount deposited or withdrawn." 30
Said rule notwithstanding, Doronilla was permitted by petitioner, through
Atienza, the Assistant Branch Manager for the Buendia Branch of petitioner, to
withdraw therefrom even without presenting the passbook (which Atienza very
well knew was in the possession of Mrs. Vives), not just once, but several times.
Both the Court of Appeals and the trial court found that Atienza allowed said
withdrawals because he was party to Doronilla’s "scheme" of defrauding
private respondent:
XXX
But the scheme could not have been executed successfully without the
knowledge, help and cooperation of Rufo Atienza, assistant manager and
cashier of the Makati (Buendia) branch of the defendant bank. Indeed, the
evidence indicates that Atienza had not only facilitated the commission of the
fraud but he likewise helped in devising the means by which it can be done in
such manner as to make it appear that the transaction was in accordance with
banking procedure.
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To begin with, the deposit was made in defendant’s Buendia branch precisely of their assigned tasks. To hold the employer liable under this provision, it must
because Atienza was a key officer therein. The records show that plaintiff had be shown that an employer-employee relationship exists, and that the employee
suggested that the ₱200,000.00 be deposited in his bank, the Manila Banking was acting within the scope of his assigned task when the act complained of
Corporation, but Doronilla and Dumagpi insisted that it must be in defendant’s was committed.32 Case law in the United States of America has it that a
branch in Makati for "it will be easier for them to get a certification". In fact corporation that entrusts a general duty to its employee is responsible to the
before he was introduced to plaintiff, Doronilla had already prepared a letter injured party for damages flowing from the employee’s wrongful act done in
addressed to the Buendia branch manager authorizing Angeles B. Sanchez and the course of his general authority, even though in doing such act, the employee
company to open a savings account for Sterela in the amount of ₱200,000.00, may have failed in its duty to the employer and disobeyed the latter’s
as "per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x instructions.33
x x" (Exh. 1). This is a clear manifestation that the other defendants had been
There is no dispute that Atienza was an employee of petitioner. Furthermore,
in consultation with Atienza from the inception of the scheme. Significantly,
petitioner did not deny that Atienza was acting within the scope of his authority
there were testimonies and admission that Atienza is the brother-in-law of a
as Assistant Branch Manager when he assisted Doronilla in withdrawing funds
certain Romeo Mirasol, a friend and business associate of
from Sterela’s Savings Account No. 10-1567, in which account private
Doronilla.1awphi1.nét
respondent’s money was deposited, and in transferring the money withdrawn to
Then there is the matter of the ownership of the fund. Because of the Sterela’s Current Account with petitioner. Atienza’s acts of helping Doronilla,
"coordination" between Doronilla and Atienza, the latter knew before hand that a customer of the petitioner, were obviously done in furtherance of petitioner’s
the money deposited did not belong to Doronilla nor to Sterela. Aside from such interests34 even though in the process, Atienza violated some of petitioner’s
foreknowledge, he was explicitly told by Inocencia Vives that the money rules such as those stipulated in its savings account passbook.35 It was
belonged to her and her husband and the deposit was merely to accommodate established that the transfer of funds from Sterela’s savings account to its
Doronilla. Atienza even declared that the money came from Mrs. Vives. current account could not have been accomplished by Doronilla without the
invaluable assistance of Atienza, and that it was their connivance which was the
Although the savings account was in the name of Sterela, the bank records
cause of private respondent’s loss.
disclose that the only ones empowered to withdraw the same were Inocencia
Vives and Angeles B. Sanchez. In the signature card pertaining to this account The foregoing shows that the Court of Appeals correctly held that under Article
(Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B. 2180 of the Civil Code, petitioner is liable for private respondent’s loss and is
Sanchez. Atienza stated that it is the usual banking procedure that withdrawals solidarily liable with Doronilla and Dumagpi for the return of the ₱200,000.00
of savings deposits could only be made by persons whose authorized signatures since it is clear that petitioner failed to prove that it exercised due diligence to
are in the signature cards on file with the bank. He, however, said that this prevent the unauthorized withdrawals from Sterela’s savings account, and that
procedure was not followed here because Sterela was owned by Doronilla. He it was not negligent in the selection and supervision of Atienza. Accordingly,
explained that Doronilla had the full authority to withdraw by virtue of such no error was committed by the appellate court in the award of actual, moral and
ownership. The Court is not inclined to agree with Atienza. In the first place, exemplary damages, attorney’s fees and costs of suit to private respondent.
he was all the time aware that the money came from Vives and did not belong
WHEREFORE, the petition is hereby DENIED. The assailed Decision and
to Sterela. He was also told by Mrs. Vives that they were only accommodating
Resolution of the Court of Appeals are AFFIRMED.
Doronilla so that a certification can be issued to the effect that Sterela had a
deposit of so much amount to be sued in the incorporation of the firm. In the SO ORDERED.
second place, the signature of Doronilla was not authorized in so far as that
account is concerned inasmuch as he had not signed the signature card provided
by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives
nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been
presented. It is an accepted practice that whenever a withdrawal is made in a
savings deposit, the bank requires the presentation of the passbook. In this case,
such recognized practice was dispensed with. The transfer from the savings
account to the current account was without the submission of the passbook
which Atienza had given to Mrs. Vives. Instead, it was made to appear in a
certification signed by Estrella Dumagpi that a duplicate passbook was issued
to Sterela because the original passbook had been surrendered to the Makati
branch in view of a loan accommodation assigning the savings account (Exh.
C). Atienza, who undoubtedly had a hand in the execution of this certification,
was aware that the contents of the same are not true. He knew that the passbook
was in the hands of Mrs. Vives for he was the one who gave it to her. Besides,
as assistant manager of the branch and the bank official servicing the savings
and current accounts in question, he also was aware that the original passbook
was never surrendered. He was also cognizant that Estrella Dumagpi was not
among those authorized to withdraw so her certification had no effect
whatsoever.
The circumstance surrounding the opening of the current account also
demonstrate that Atienza’s active participation in the perpetration of the fraud
and deception that caused the loss. The records indicate that this account was
opened three days later after the ₱200,000.00 was deposited. In spite of his
disclaimer, the Court believes that Atienza was mindful and posted regarding
the opening of the current account considering that Doronilla was all the while
in "coordination" with him. That it was he who facilitated the approval of the
authority to debit the savings account to cover any overdrawings in the current
account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss
subject of this case. x x x.31
Under Article 2180 of the Civil Code, employers shall be held primarily and
solidarily liable for damages caused by their employees acting within the scope

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 Republic of the Philippines
SUPREME COURT
Manila ARELLANO, C.J.:
EN BANC Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla
acquired during his lifetime, on March 12, 1874, a lot in the center of the town
G.R. No. L-8321 October 14, 1913 of Laoag, the capital of the Province of Ilocos Norte, the property having been
ALEJANDRA MINA, ET AL., plaintiffs-appellants, awarded to him through its purchase at a public auction held by the alcalde
vs. mayor of that province. The lot has a frontage of 120 meters and a depth of 15.
RUPERTA PASCUAL, ET AL., defendants-appellees. Andres Fontanilla, with the consent of his brother Francisco, erected a
N. Segundo for appellants. warehouse on a part of the said lot, embracing 14 meters of its frontage by 11
Iñigo Bitanga for appellees. meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the herein
Short Summary plaintiffs, Alejandro Mina, et al., were recognized without discussion as his
heirs.
Facts:
Andres Fontanilla, the former owner of the warehouse, also having died, the
children of Ruperta Pascual were recognized likes without discussion, though
it is not said how, and consequently are entitled to the said building, or rather,
as Ruperta Pascual herself stated, to only six-sevenths of one-half of it, the other
half belonging, as it appears, to the plaintiffs themselves, and the remaining
one-seventh of the first one-half to the children of one of the plaintiffs, Elena
de Villanueva. The fact is that the plaintiffs and the defendants are virtually, to
all appearance, the owners of the warehouse; while the plaintiffs are
undoubtedly, the owners of the part of the lot occupied by that building, as well
as of the remainder thereof.
This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the
guardian of her minor children, the herein defendants, petitioned the Curt of
First Instance of Ilocos Norte for authorization to sell "the six-sevenths of
the one-half of the warehouse, of 14 by 11 meters, together with its lot." The
plaintiffs — that is Alejandra Mina, et al. — opposed the petition of Ruperta
Pascual for the reason that the latter had included therein the lot occupied by
the warehouse, which they claimed was their exclusive property. All this action
was taken in a special proceeding in reguardianship.
The plaintiffs did more than oppose Pascual's petition; they requested the court,
through motion, to decide the question of the ownership of the lot before it pass
Issue: upon the petition for the sale of the warehouse. But the court before determining
the matter of the ownership of the lot occupied by the warehouse, ordered the
sale of this building, saying:
While the trial continues with respect to the ownership of the lot, the court
orders the sale at public auction of the said warehouse and of the lot on which
Ruling: it is built, with the present boundaries of the land and condition of the building,
at a price of not less than P2,890 Philippine currency . . . .
So, the warehouse, together with the lot on which it stands, was sold to Cu Joco,
the other defendant in this case, for the price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership of the
lot, and the court decided it by holding that this land belonged to the owner of
the warehouse which had been built thereon thirty years before.
The plaintiffs appealed and this court reversed the judgment of the lower court
and held that the appellants were the owners of the lot in question. 1
When the judgment became final and executory, a writ of execution issued and
the plaintiffs were given possession of the lot; but soon thereafter the trial court
annulled this possession for the reason that it affected Cu Joco, who had not
been a party to the suit in which that writ was served.
It was then that the plaintiffs commenced the present action for the purpose of
having the sale of the said lot declared null and void and of no force and effect.
An agreement was had ad to the facts, the ninth paragraph of which is as
follows:
9. That the herein plaintiffs excepted to the judgment and appealed therefrom
to the Supreme Court which found for them by holding that they are the owners
of the lot in question, although there existed and still exists a commodatum by
virtue of which the guardianship (meaning the defendants) had and has the use,
and the plaintiffs the ownership, of the property, with no finding concerning the
decree of the lower court that ordered the sale.
The obvious purport of the cause "although there existed and still exists a
commodatum," etc., appears to be that it is a part of the decision of the Supreme
Court and that, while finding the plaintiffs to be the owners of the lot, we
recognized in principle the existence of a commodatum under which the
defendants held the lot. Nothing could be more inexact. Possibly, also, the

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meaning of that clause is that, notwithstanding the finding made by the Supreme
Court that the plaintiffs were the owners, these former and the defendants agree
that there existed, and still exists, a commodatum, etc. But such an agreement
would not affect the truth of the contents of the decision of this court, and the
opinions held by the litigants in regard to this point could have no bearing
whatever on the present decision.
Nor did the decree of the lower court that ordered the sale have the least
influence in our previous decision to require our making any finding in regard
thereto, for, with or without that decree, the Supreme Court had to decide the
ownership of the lot consistently with its titles and not in accordance with the
judicial acts or proceedings had prior to the setting up of the issue in respect to
the ownership of the property that was the subject of the judicial decree.
What is essentially pertinent to the case is the fact that the defendant agree that
the plaintiffs have the ownership, and they themselves only the use, of the said
lot.
On this premise, the nullity of the sale of the lot is in all respects quite evident,
whatsoever be the manner in which the sale was effected, whether judicially or
extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself. The effect
of the sale being a transfer of the ownership of the thing, it is evident that he
who has only the mere use of the thing cannot transfer its ownership. The sale
of a thing effected by one who is not its owner is null and void. The defendants
never were the owners of the lot sold. The sale of it by them is necessarily null
and void. On cannot convey to another what he has never had himself.
The returns of the auction contain the following statements:
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the
authorization conferred upon me on the 31st of July, 1909, by the Court of First
Instance of Ilocos Norte, proceeded with the sale at public auction of the six-
sevenths part of the one-half of the warehouse constructed of rubble stone, etc.
Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public
auction all the land and all the rights title, interest, and ownership in the said
property to Cu Joco, who was the highest bidder, etc.
Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his
heirs and assigns, all the interest, ownership and inheritance rights and others
that, as the guardian of the said minors, I have and may have in the said
property, etc.
The purchaser could not acquire anything more than the interest that might be
held by a person to whom realty in possession of the vendor might be sold, for
at a judicial auction nothing else is disposed of. What the minor children of
Ruperta Pascual had in their possession was the ownership of the six-sevenths
part of one-half of the warehouse and the use of the lot occupied by his building.
This, and nothing more, could the Chinaman Cu Joco acquire at that sale: not
the ownership of the lot; neither the other half, nor the remaining one-seventh
of the said first half, of the warehouse. Consequently, the sale made to him of
this one-seventh of one-half and the entire other half of the building was null
and void, and likewise with still more reason the sale of the lot the building
occupies.
The purchaser could and should have known what it was that was offered for
sale and what it was that he purchased. There is nothing that can justify the
acquisition by the purchaser of the warehouse of the ownership of the lot that
this building occupies, since the minors represented by Ruperta Pascual never
were the owners of the said lot, nor were they ever considered to be such.
The trial court, in the judgment rendered, held that there were no grounds for
the requested annulment of the sale, and that the plaintiffs were entitled to the
P600 deposited with the clerk of the court as the value of the lot in question.
The defendants, Ruperta Pascual and the Chinaman Cu Joco, were absolved
from the complaint, without express finding as to costs.
The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be
compelled to accept the price set on the lot by expert appraisers, not even though
the plaintiffs be considered as coowner of the warehouse. It would be much
indeed that, on the ground of coownership, they should have to abide by and
tolerate the sale of the said building, which point this court does not decide as
it is not a question submitted to us for decision, but, as regards the sale of the
lot, it is in all respects impossible to hold that the plaintiffs must abide by it and
tolerate, it, and this conclusion is based on the fact that they did not give their
consent (art. 1261, Civil Code), and only the contracting parties who have given
it are obliged to comply (art. 1091, idem).
The sole purpose of the action in the beginning was to obtain an annulment of
the sale of the lot; but subsequently the plaintiffs, through motion, asked for an
amendment by their complaint in the sense that the action should be deemed to
be one for the recovery of possession of a lot and for the annulment of its sale.
The plaintiff's petition was opposed by the defendant's attorney, but was
allowed by the court; therefore the complaint seeks, after the judicial annulment
of the sale of the lot, to have the defendants sentenced immediately to deliver
the same to the plaintiffs.
Such a finding appears to be in harmony with the decision rendered by the
Supreme Court in previous suit, wherein it was held that the ownership of the
lot lay in the plaintiffs, and for this reason steps were taken to give possession
thereof to the defendants; but, as the purchaser Cu Joco was not a party to that
suit, the present action is strictly one for recover against Cu Joco to compel him,
once the sale has been annulled, to deliver the lot to its lawful owners, the
plaintiffs.
As respects this action for recovery, this Supreme Court finds:
1. That it is a fact admitted by the litigating parties, both in this and in the
previous suit, that Andres Fontanilla, the defendants' predecessor in interest,
erected the warehouse on the lot, some thirty years ago, with the explicit consent
of his brother Francisco Fontanilla, the plaintiff's predecessor in interest.
2. That it also appears to be an admitted fact that the plaintiffs and the
defendants are the coowners of the warehouse.
3. That it is a fact explicitly admitted in the agreement, that neither Andres
Fontanilla nor his successors paid any consideration or price whatever for the
use of the lot occupied by the said building; whence it is, perhaps, that both
parties have denominated that use a commodatum.
Upon the premise of these facts, or even merely upon that of the first of them,
the sentencing of the defendants to deliver the lot to the plaintiffs does not
follow as a necessary corollary of the judicial declaration of ownership made in
the previous suit, nor of that of the nullity of the sale of the lot, made in the
present case.
The defendants do not hold lawful possession of the lot in question.1awphil.net
But, although both litigating parties may have agreed in their idea of the
commodatum, on account of its not being, as indeed it is not, a question of fact
but of law, yet that denomination given by them to the use of the lot granted by
Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable.
Contracts are not to be interpreted in conformity with the name that the parties
thereto agree to give them, but must be construed, duly considering their
constitutive elements, as they are defined and denominated by law.
By the contract of loan, one of the parties delivers to the other, either anything
not perishable, in order that the latter may use it during the certain period and
return it to the former, in which case it is called commodatum . . . (art. 1740,
Civil Code).
It is, therefore, an essential feature of the commodatum that the use of the thing
belonging to another shall for a certain period. Francisco Fontanilla did not fix
any definite period or time during which Andres Fontanilla could have the use
of the lot whereon the latter was to erect a stone warehouse of considerable
value, and so it is that for the past thirty years of the lot has been used by both
Andres and his successors in interest. The present contention of the plaintiffs
that Cu Joco, now in possession of the lot, should pay rent for it at the rate of
P5 a month, would destroy the theory of the commodatum sustained by them,
since, according to the second paragraph of the aforecited article 1740,
"commodatum is essentially gratuitous," and, if what the plaintiffs themselves
aver on page 7 of their brief is to be believed, it never entered Francisco's mind
to limit the period during which his brother Andres was to have the use of the
lot, because he expected that the warehouse would eventually fall into the hands
of his son, Fructuoso Fontanilla, called the adopted son of Andres, which did
not come to pass for the reason that Fructuoso died before his uncle Andres.
With that expectation in view, it appears more likely that Francisco intended to
allow his brother Andres a surface right; but this right supposes the payment of
an annual rent, and Andres had the gratuitous use of the lot.
Hence, as the facts aforestated only show that a building was erected on
another's ground, the question should be decided in accordance with the statutes
that, thirty years ago, governed accessions to real estate, and which were Laws
41 and 42, title 28, of the third Partida, nearly identical with the provisions of
articles 361 and 362 of the Civil Code. So, then, pursuant to article 361, the
owner of the land on which a building is erected in good faith has a right to
appropriate such edifice to himself, after payment of the indemnity prescribed
in articles 453 and 454, or to oblige the builder to pay him the value of the land.
Such, and no other, is the right to which the plaintiff are entitled.
For the foregoing reasons, it is only necessary to annul the sale of the said lot
which was made by Ruperta Pascual, in representation of her minor children,
to Cu Joco, and to maintain the latter in the use of the lot until the plaintiffs
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 13
shall choose one or the other of the two rights granted them by article 361 of
the Civil Code.1awphil.net
The judgment appealed from is reversed and the sale of the lot in question is
held to be null and void and of no force or effect. No special finding is made as
to the costs of both instances.
Torres, Johnson, Carson, Moreland and Trent, JJ., concur.

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 EN BANC
G.R. No. L-4150 February 10, 1910
FELIX DE LOS SANTOS, plaintiff-appelle,
vs.
AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea,
deceased, defendant-appellant.
Matias Hilado, for appellant.
Jose Felix Martinez, for appellee.
TORRES, J.:
On the 1st of September, 1906, Felix de los Santos brought suit against Agustina
Jarra, the administratrix of the estate of Magdaleno Jimenea, alleging that in the
latter part of 1901 Jimenea borrowed and obtained from the plaintiff ten first-
class carabaos, to be used at the animal-power mill of his hacienda during the
season of 1901-2, without recompense or remuneration whatever for the use
thereof, under the sole condition that they should be returned to the owner as
soon as the work at the mill was terminated; that Magdaleno Jimenea, however,
did not return the carabaos, notwithstanding the fact that the plaintiff claimed
their return after the work at the mill was finished; that Magdaleno Jimenea died
on the 28th of October, 1904, and the defendant herein was appointed by the
Court of First Instance of Occidental Negros administratrix of his estate and she
took over the administration of the same and is still performing her duties as
such administratrix; that the plaintiff presented his claim to the commissioners
of the estate of Jimenea, within the legal term, for the return of the said ten
carabaos, but the said commissioners rejected his claim as appears in their
report; therefore, the plaintiff prayed that judgment be entered against the
defendant as administratrix of the estate of the deceased, ordering her to return
the ten first-class carabaos loaned to the late Jimenea, or their present value,
and to pay the costs.
The defendant was duly summoned, and on the 25th of September, 1906, she
demurred in writing to the complaint on the ground that it was vague; but on
the 2d of October of the same year, in answer to the complaint, she said that it
was true that the late Magdaleno Jimenea asked the plaintiff to loan him ten
carabaos, but that he only obtained three second-class animals, which were
afterwards transferred by sale by the plaintiff to the said Jimenea; that she
denied the allegations contained in paragraph 3 of the complaint; for all of
which she asked the court to absolve her of the complaint with the cost against
the plaintiff.
By a writing dated the 11th of December, 1906, Attorney Jose Felix Martinez
notified the defendant and her counsel, Matias Hilado, that he had made an
agreement with the plaintiff to the effect that the latter would not compromise
the controversy without his consent, and that as fees for his professional
services he was to receive one half of the amount allowed in the judgment if the
same were entered in favor of the plaintiff.
The case came up for trial, evidence was adduced by both parties, and either
exhibits were made of record. On the 10th of January, 1907, the court below
entered judgment sentencing Agustina Jarra, as administratrix of the estate of
Magdaleno Jimenea, to return to the plaintiff, Felix de los Santos, the remaining
six second and third class carabaos, or the value thereof at the rate of P120 each,
or a total of P720 with the costs.
Counsel for the defendant excepted to the foregoing judgment, and, by a writing
dated January 19, moved for anew trial on the ground that the findings of fact
were openly and manifestly contrary to the weight of the evidence. The motion
was overruled, the defendant duly excepted, and in due course submitted the
corresponding bill of exceptions, which was approved and submitted to this
court.
The defendant has admitted that Magdaleno Jimenea asked the plaintiff for the
loan of ten carabaos which are now claimed by the latter, as shown by two
letters addressed by the said Jimenea to Felix de los Santos; but in her answer
the said defendant alleged that the late Jimenea only obtained three second-class
carabaos, which were subsequently sold to him by the owner, Santos; therefore,
in order to decide this litigation it is indispensable that proof be forthcoming
that Jimenea only received three carabaos from his son-in-law Santos, and that
they were sold by the latter to him.
The record discloses that it has been fully proven from the testimony of a
sufficient number of witnesses that the plaintiff, Santos, sent in charge of
various persons the ten carabaos requested by his father-in-law, Magdaleno
Jimenea, in the two letters produced at the trial by the plaintiff, and that Jimenea
received them in the presence of some of said persons, one being a brother of
said Jimenea, who saw the animals arrive at the hacienda where it was proposed
to employ them. Four died of rinderpest, and it is for this reason that the
judgment appealed from only deals with six surviving carabaos.
The alleged purchase of three carabaos by Jimenea from his son-in-law Santos
is not evidenced by any trustworthy documents such as those of transfer, nor
were the declarations of the witnesses presented by the defendant affirming it
satisfactory; for said reason it can not be considered that Jimenea only received
three carabaos on loan from his son-in-law, and that he afterwards kept them
definitely by virtue of the purchase.
By the laws in force the transfer of large cattle was and is still made by means
of official documents issued by the local authorities; these documents constitute
the title of ownership of the carabao or horse so acquired. Furthermore, not only
should the purchaser be provided with a new certificate or credential, a
document which has not been produced in evidence by the defendant, nor has
the loss of the same been shown in the case, but the old documents ought to be
on file in the municipality, or they should have been delivered to the new
purchaser, and in the case at bar neither did the defendant present the old
credential on which should be stated the name of the previous owner of each of
the three carabaos said to have been sold by the plaintiff.
From the foregoing it may be logically inferred that the carabaos loaned or
given on commodatum to the now deceased Magdaleno Jimenea were ten in
number; that they, or at any rate the six surviving ones, have not been returned
to the owner thereof, Felix de los Santos, and that it is not true that the latter
sold to the former three carabaos that the purchaser was already using;
therefore, as the said six carabaos were not the property of the deceased nor of
any of his descendants, it is the duty of the administratrix of the estate to return
them or indemnify the owner for their value.
The Civil Code, in dealing with loans in general, from which generic
denomination the specific one of commodatum is derived, establishes
prescriptions in relation to the last-mentioned contract by the following articles:
ART. 1740. By the contract of loan, one of the parties delivers to the other,
either anything not perishable, in order that the latter may use it during a certain
period and return it to the former, in which case it is called commodatum, or
money or any other perishable thing, under the condition to return an equal
amount of the same kind and quality, in which case it is merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation to pay interest.
ART. 1741. The bailee acquires retains the ownership of the thing loaned. The
bailee acquires the use thereof, but not its fruits; if any compensation is
involved, to be paid by the person requiring the use, the agreement ceases to be
a commodatum.
ART. 1742. The obligations and rights which arise from the commodatum pass
to the heirs of both contracting parties, unless the loan has been in consideration
for the person of the bailee, in which case his heirs shall not have the right to
continue using the thing loaned.
The carabaos delivered to be used not being returned by the defendant upon
demand, there is no doubt that she is under obligation to indemnify the owner
thereof by paying him their value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of fraud, negligence, or
delay, and those who in any manner whatsoever act in contravention of the
stipulations of the same, shall be subjected to indemnify for the losses and
damages caused thereby.
The obligation of the bailee or of his successors to return either the thing loaned
or its value, is sustained by the supreme tribunal of Sapin. In its decision of
March 21, 1895, it sets out with precision the legal doctrine touching
commodatum as follows:
Although it is true that in a contract of commodatum the bailor retains the
ownership of the thing loaned, and at the expiration of the period, or after the
use for which it was loaned has been accomplished, it is the imperative duty of
the bailee to return the thing itself to its owner, or to pay him damages if through
the fault of the bailee the thing should have been lost or injured, it is clear that
where public securities are involved, the trial court, in deferring to the claim of
the bailor that the amount loaned be returned him by the bailee in bonds of the
same class as those which constituted the contract, thereby properly applies law
9 of title 11 of partida 5.
With regard to the third assignment of error, based on the fact that the plaintiff
Santos had not appealed from the decision of the commissioners rejecting his
claim for the recovery of his carabaos, it is sufficient to estate that we are not
dealing with a claim for the payment of a certain sum, the collection of a debt
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 15
from the estate, or payment for losses and damages (sec. 119, Code of Civil EN BANC
Procedure), but with the exclusion from the inventory of the property of the late
Jimenea, or from his capital, of six carabaos which did not belong to him, and G.R. No. L-17474 October 25, 1962
which formed no part of the inheritance. REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
The demand for the exclusion of the said carabaos belonging to a third party vs.
and which did not form part of the property of the deceased, must be the subject JOSE V. BAGTAS, defendant,
of a direct decision of the court in an ordinary action, wherein the right of the FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by
third party to the property which he seeks to have excluded from the inheritance the late Jose V. Bagtas, petitioner-appellant.
and the right of the deceased has been discussed, and rendered in view of the D. T. Reyes, Liaison and Associates for petitioner-appellant.
result of the evidence adduced by the administrator of the estate and of the Office of the Solicitor General for plaintiff-appellee.
claimant, since it is so provided by the second part of section 699 and by section
703 of the Code of Civil Procedure; the refusal of the commissioners before PADILLA, J.:
whom the plaintiff unnecessarily appeared can not affect nor reduce the
unquestionable right of ownership of the latter, inasmuch as there is no law nor
principle of justice authorizing the successors of the late Jimenea to enrich Short Summary
themselves at the cost and to the prejudice of Felix de los Santos. Facts:
For the reasons above set forth, by which the errors assigned to the judgment
appealed from have been refuted, and considering that the same is in accordance
with the law and the merits of the case, it is our opinion that it should be
affirmed and we do hereby affirm it with the costs against the appellant. So
ordered.

Issue:

Ruling:

The Court of Appeals certified this case to this Court because only questions of
law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines
through the Bureau of Animal Industry three bulls: a Red Sindhi with a book
value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for
a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes
subject to a government charge of breeding fee of 10% of the book value of the
bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked
for a renewal for another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal thereof of only one bull
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 16
for another year from 8 May 1949 to 7 May 1950 and requested the return of
the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of
Animal Industry that he would pay the value of the three bulls. On 17 October
1950 he reiterated his desire to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General. On 19 October 1950 the
Director of Animal Industry advised him that the book value of the three bulls
could not be reduced and that they either be returned or their book value paid
not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of
the three bulls or to return them. So, on 20 December 1950 in the Court of First
Instance of Manila the Republic of the Philippines commenced an action against
him praying that he be ordered to return the three bulls loaned to him or to pay
their book value in the total sum of P3,241.45 and the unpaid breeding fee in
the sum of P199.62, both with interests, and costs; and that other just and
equitable relief be granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
answered that because of the bad peace and order situation in Cagayan Valley,
particularly in the barrio of Baggao, and of the pending appeal he had taken to
the Secretary of Agriculture and Natural Resources and the President of the
Philippines from the refusal by the Director of Animal Industry to deduct from
the book value of the bulls corresponding yearly depreciation of 8% from the
date of acquisition, to which depreciation the Auditor General did not object,
he could not return the animals nor pay their value and prayed for the dismissal
of the complaint.
After hearing, on 30 July 1956 the trial court render judgment —
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value
of the three bulls plus the breeding fees in the amount of P626.17 with interest
on both sums of (at) the legal rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which
the court granted on 18 October and issued on 11 November 1958. On 2
December 1958 granted an ex-parte motion filed by the plaintiff on November
1958 for the appointment of a special sheriff to serve the writ outside Manila.
Of this order appointing a special sheriff, on 6 December 1958, Felicidad M.
Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23
October 1951 and as administratrix of his estate, was notified. On 7 January
1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and
Bhagnari were returned to the Bureau Animal of Industry and that sometime in
November 1958 the third bull, the Sahiniwal, died from gunshot wound
inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the
writ of execution be quashed and that a writ of preliminary injunction be issued.
On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959
she filed a reply thereto. On the same day, 6 February, the Court denied her
motion. Hence, this appeal certified by the Court of Appeals to this Court as
stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the
late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin,
Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong,
Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter
(Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's
motion to quash the writ of execution the appellee prays "that another writ of
execution in the sum of P859.53 be issued against the estate of defendant
deceased Jose V. Bagtas." She cannot be held liable for the two bulls which
already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a
raid by the Huk in November 1953 upon the surrounding barrios of Hacienda
Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such
death was due to force majeure she is relieved from the duty of returning the
bull or paying its value to the appellee. The contention is without merit. The
loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for
breeding purposes for a period of one year from 8 May 1948 to 7 May 1949,
later on renewed for another year as regards one bull, was subject to the
payment by the borrower of breeding fee of 10% of the book value of the bulls.
The appellant contends that the contract was commodatum and that, for that
reason, as the appellee retained ownership or title to the bull it should suffer its
loss due to force majeure. A contract of commodatum is essentially
gratuitous.1 If the breeding fee be considered a compensation, then the contract
would be a lease of the bull. Under article 1671 of the Civil Code the lessee
would be subject to the responsibilities of a possessor in bad faith, because she
had continued possession of the bull after the expiry of the contract. And even
if the contract be commodatum, still the appellant is liable, because article 1942
of the Civil Code provides that a bailee in a contract of commodatum —
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan
of one bull was renewed for another period of one year to end on 8 May 1950.
But the appellant kept and used the bull until November 1953 when during a
Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to
the deceased husband of the appellant the bulls had each an appraised book
value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the
Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to
fortuitous event the late husband of the appellant would be exempt from
liability.
The appellant's contention that the demand or prayer by the appellee for the
return of the bull or the payment of its value being a money claim should be
presented or filed in the intestate proceedings of the defendant who died on 23
October 1951, is not altogether without merit. However, the claim that his civil
personality having ceased to exist the trial court lost jurisdiction over the case
against him, is untenable, because section 17 of Rule 3 of the Rules of Court
provides that —
After a party dies and the claim is not thereby extinguished, the court shall
order, upon proper notice, the legal representative of the deceased to appear and
to be substituted for the deceased, within a period of thirty (30) days, or within
such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply
with section 16 of Rule 3 which provides that —
Whenever a party to a pending case dies . . . it shall be the duty of his attorney
to inform the court promptly of such death . . . and to give the name and
residence of the executory administrator, guardian, or other legal representative
of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that
Felicidad M. Bagtas had been issue letters of administration of the estate of the
late Jose Bagtas and that "all persons having claims for monopoly against the
deceased Jose V. Bagtas, arising from contract express or implied, whether the
same be due, not due, or contingent, for funeral expenses and expenses of the
last sickness of the said decedent, and judgment for monopoly against him, to
file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54,
Quezon City, within six (6) months from the date of the first publication of this
order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the
appointed administratrix of the estate of the said deceased," is not a notice to
the court and the appellee who were to be notified of the defendant's death in
accordance with the above-quoted rule, and there was no reason for such failure
to notify, because the attorney who appeared for the defendant was the same
who represented the administratrix in the special proceedings instituted for the
administration and settlement of his estate. The appellee or its attorney or
representative could not be expected to know of the death of the defendant or
of the administration proceedings of his estate instituted in another court that if
the attorney for the deceased defendant did not notify the plaintiff or its attorney
of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of
the late defendant is only liable for the sum of P859.63, the value of the bull
which has not been returned to the appellee, because it was killed while in the
custody of the administratrix of his estate. This is the amount prayed for by the
appellee in its objection on 31 January 1959 to the motion filed on 7 January
1959 by the appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the
deceased Jose V. Bagtas having been instituted in the Court of First Instance of
Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be
enforced by means of a writ of execution but must be presented to the probate
court for payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without
pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes,
Dizon, Regala and Makalintal, JJ., concur.
Barrera, J., concurs in the result.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 17
 G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN
PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND
JUAN VALDEZ, respondents.
Valdez, Ereso, Polido & Associates for petitioner.
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cotabato Law Office for the Heirs of Juan Valdez.
Short Summary
Facts:
Issue:
Ruling:
GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of
Appeals promulgated a long time ago can properly be considered res
judicata by respondent Court of Appeals in the present two cases between
petitioner and two private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987
of the Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148
[Civil Case No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655
(429)], both for Recovery of Possession, which affirmed the Decision of the
Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio
and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with
the dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic
Vicar Apostolic of the Mountain Province to return and surrender Lot 2 of Plan
Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan
to the other set of plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez,
et al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is
hereby denied. Said defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained
the trial court's conclusions that the Decision of the Court of Appeals, dated
May 4,1977 in CA-G.R. No. 38830-R, in the two cases affirmed by the Supreme
Court, touched on the ownership of lots 2 and 3 in question; that the two lots
were possessed by the predecessors-in-interest of private respondents under
claim of ownership in good faith from 1906 to 1951; that petitioner had been in
possession of the same lots as bailee in commodatum up to 1951, when
petitioner repudiated the trust and when it applied for registration in 1962; that
petitioner had just been in possession as owner for eleven years, hence there is
no possibility of acquisitive prescription which requires 10 years possession
with just title and 30 years of possession without; that the principle of res
judicata on these findings by the Court of Appeals will bar a reopening of these
questions of facts; and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate court's
Decision in the two aforementioned cases (CA G.R. No. CV-05418 and 05419)
was denied.
The facts and background of these cases as narrated by the trail court are as
follows —
... The documents and records presented reveal that the whole controversy
started when the defendant Catholic Vicar Apostolic of the Mountain Province
(VICAR for brevity) filed with the Court of First Instance of Baguio Benguet
on September 5, 1962 an application for registration of title over Lots 1, 2, 3,
and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet,
docketed as LRC N-91, said Lots being the sites of the Catholic Church
building, convents, high school building, school gymnasium, school
dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan
Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on
Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial
on the merits, the land registration court promulgated its Decision, dated
November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3,
and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the
Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607)
appealed the decision of the land registration court to the then Court of Appeals,
docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered its decision,
dated May 9, 1977, reversing the decision of the land registration court and
dismissing the VICAR's application as to Lots 2 and 3, the lots claimed by the
two sets of oppositors in the land registration case (and two sets of plaintiffs in
the two cases now at bar), the first lot being presently occupied by the convent
and the second by the women's dormitory and the sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration
praying the Court of Appeals to order the registration of Lot 3 in the names of
the Heirs of Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan Valdez
and Pacita Valdez filed their motion for reconsideration praying that both Lots
2 and 3 be ordered registered in the names of the Heirs of Juan Valdez and
Pacita Valdez. On August 12,1977, the Court of Appeals denied the motion for
reconsideration filed by the Heirs of Juan Valdez on the ground that there was
"no sufficient merit to justify reconsideration one way or the other ...," and
likewise denied that of the Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing his (its) application
for registration of Lots 2 and 3, docketed as G.R. No. L-46832, entitled
'Catholic Vicar Apostolic of the Mountain Province vs. Court of Appeals and
Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration the
Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the
Supreme Court a petition for review, docketed as G.R. No. L-46872,
entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar,
Heirs of Egmidio Octaviano and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both
petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita
Valdez on the other) for lack of merit. Upon the finality of both Supreme Court
resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano
filed with the then Court of First Instance of Baguio, Branch II, a Motion For
Execution of Judgment praying that the Heirs of Octaviano be placed in
possession of Lot 3. The Court, presided over by Hon. Salvador J. Valdez, on
December 7, 1978, denied the motion on the ground that the Court of Appeals
decision in CA-G.R. No. 38870 did not grant the Heirs of Octaviano any
affirmative relief.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 18
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a
petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R,
entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar.
In its decision dated May 16, 1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The Heirs of Egmidio
Octaviano filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of
possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No. 3655
(429) on September 24, 1979, likewise for recovery of possession of Lot 2
(Decision, pp. 199-201, Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio
Octaviano presented one (1) witness, Fructuoso Valdez, who testified on the
alleged ownership of the land in question (Lot 3) by their predecessor-in-
interest, Egmidio Octaviano (Exh. C ); his written demand (Exh. B—B-4 ) to
defendant Vicar for the return of the land to them; and the reasonable rentals
for the use of the land at P10,000.00 per month. On the other hand, defendant
Vicar presented the Register of Deeds for the Province of Benguet, Atty.
Nicanor Sison, who testified that the land in question is not covered by any title
in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The
defendant dispensed with the testimony of Mons.William Brasseur when the
plaintiffs admitted that the witness if called to the witness stand, would testify
that defendant Vicar has been in possession of Lot 3, for seventy-five (75) years
continuously and peacefully and has constructed permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not in
dispute, submitted the case on the sole issue of whether or not the decisions of
the Court of Appeals and the Supreme Court touching on the ownership of Lot
2, which in effect declared the plaintiffs the owners of the land constitute res
judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred from
setting up the defense of ownership and/or long and continuous possession of
the two lots in question since this is barred by prior judgment of the Court of
Appeals in CA-G.R. No. 038830-R under the principle of res judicata.
Plaintiffs contend that the question of possession and ownership have already
been determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No.
038830-R) and affirmed by the Supreme Court (Exh. 1, Minute Resolution of
the Supreme Court). On his part, defendant Vicar maintains that the principle
of res judicata would not prevent them from litigating the issues of long
possession and ownership because the dispositive portion of the prior judgment
in CA-G.R. No. 038830-R merely dismissed their application for registration
and titling of lots 2 and 3. Defendant Vicar contends that only the dispositive
portion of the decision, and not its body, is the controlling pronouncement of
the Court of Appeals. 2
The alleged errors committed by respondent Court of Appeals according to
petitioner are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS
2 AND 3 WERE ACQUIRED BY PURCHASE BUT WITHOUT
DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED
LOTS 2 AND 3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED
ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND
OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE
RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT
LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE
PATENT APPLICATIONS AND THE PREDECESSORS OF PRIVATE
RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE
1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3
ONLY IN 1951 AND JUST TITLE IS A PRIME NECESSITY UNDER
ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR
ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF
APPEALS IN CA G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME
COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830
TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE
RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION
OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH
FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION
OF LOTS 2 AND 3 MERELY AS BAILEE BOR ROWER) IN
COMMODATUM, A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND
BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION AND
REIMBURSEMENT AND IS BARRED BY THE FINALITY AND
CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos.
05148 and 05149, when it clearly held that it was in agreement with the findings
of the trial court that the Decision of the Court of Appeals dated May 4,1977 in
CA-G.R. No. 38830-R, on the question of ownership of Lots 2 and 3, declared
that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not
positively declare private respondents as owners of the land, neither was it
declared that they were not owners of the land, but it held that the predecessors
of private respondents were possessors of Lots 2 and 3, with claim of ownership
in good faith from 1906 to 1951. Petitioner was in possession as borrower in
commodatum up to 1951, when it repudiated the trust by declaring the
properties in its name for taxation purposes. When petitioner applied for
registration of Lots 2 and 3 in 1962, it had been in possession in concept of
owner only for eleven years. Ordinary acquisitive prescription requires
possession for ten years, but always with just title. Extraordinary acquisitive
prescription requires 30 years. 4
On the above findings of facts supported by evidence and evaluated by the
Court of Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no
error in respondent appellate court's ruling that said findings are res
judicatabetween the parties. They can no longer be altered by presentation of
evidence because those issues were resolved with finality a long time ago. To
ignore the principle of res judicata would be to open the door to endless
litigations by continuous determination of issues without end.
An examination of the Court of Appeals Decision dated May 4, 1977, First
Division 5 in CA-G.R. No. 38830-R, shows that it reversed the trial court's
Decision 6 finding petitioner to be entitled to register the lands in question under
its ownership, on its evaluation of evidence and conclusion of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30
years possession for acquisitive prescription over Lots 2 and 3. Neither did it
satisfy the requirement of 10 years possession for ordinary acquisitive
prescription because of the absence of just title. The appellate court did not
believe the findings of the trial court that Lot 2 was acquired from Juan Valdez
by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano
by petitioner Vicar because there was absolutely no documentary evidence to
support the same and the alleged purchases were never mentioned in the
application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez
and Octaviano. Both Valdez and Octaviano had Free Patent Application for
those lots since 1906. The predecessors of private respondents, not petitioner
Vicar, were in possession of the questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in
question, but not Lots 2 and 3, because the buildings standing thereon were only
constructed after liberation in 1945. Petitioner Vicar only declared Lots 2 and
3 for taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were paid
for by the Bishop but said Bishop was appointed only in 1947, the church was
constructed only in 1951 and the new convent only 2 years before the trial in
1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest
offered to buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by
request of petitioner Vicar only in 1962.
Private respondents were able to prove that their predecessors' house was
borrowed by petitioner Vicar after the church and the convent were destroyed.
They never asked for the return of the house, but when they allowed its free use,
they became bailors in commodatum and the petitioner the bailee. The bailees'
failure to return the subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower. The bailee held in trust the
property subject matter of commodatum. The adverse claim of petitioner came
only in 1951 when it declared the lots for taxation purposes. The action of
petitioner Vicar by such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private
respondents were possessors under claim of ownership in good faith from 1906;
that petitioner Vicar was only a bailee in commodatum; and that the adverse
claim and repudiation of trust came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in
CA-G.R. No. 38830-R. Its findings of fact have become incontestible. This
Court declined to review said decision, thereby in effect, affirming it. It has
become final and executory a long time ago.
Respondent appellate court did not commit any reversible error, much less
grave abuse of discretion, when it held that the Decision of the Court of Appeals
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in CA-G.R. No. 38830-R is governing, under the principle of res judicata, hence
the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The EN BANC
facts as supported by evidence established in that decision may no longer be
altered. G.R. No. L-46240 November 3, 1939
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-
DENIED for lack of merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. appellants,
05148 and 05149, by respondent Court of Appeals is AFFIRMED, with costs vs.
against petitioner. BECK, defendant-appellee.
SO ORDERED. Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.

Short Summary
Facts:

Issue:

Ruling:

IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain
furniture which she lent him for his use. She appealed from the judgment of the
Court of First Instance of Manila which ordered that the defendant return to her
the three has heaters and the four electric lamps found in the possession of the
Sheriff of said city, that she call for the other furniture from the said sheriff of
Manila at her own expense, and that the fees which the Sheriff may charge for
the deposit of the furniture be paid pro rata by both parties, without
pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's
house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the
novation of the contract of lease between the plaintiff and the defendant, the
former gratuitously granted to the latter the use of the furniture described in the

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third paragraph of the stipulation of facts, subject to the condition that the
defendant would return them to the plaintiff upon the latter's demand. The III – MUTUUM & USURY LAW
plaintiff sold the property to Maria Lopez and Rosario Lopez and on September
14, 1936, these three notified the defendant of the conveyance, giving him sixty
days to vacate the premises under one of the clauses of the contract of lease. G.R. No. 84719 January 25, 1991
There after the plaintiff required the defendant to return all the furniture YONG CHAN KIM, petitioner,
transferred to him for them in the house where they were found. vs.
On November 5, 1936, the defendant, through another person, wrote to PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO,
the plaintiff reiterating that she may call for the furniture in the ground floor of Presiding Judge, RTC, 6th Judicial Region, Branch 28 Iloilo City and
the house. On the 7th of the same month, the defendant wrote another letter to Court of Appeals (13th Division) respondents.
the plaintiff informing her that he could not give up the three gas heaters and Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.
the four electric lamps because he would use them until the 15th of the same Hector P. Teodosio for private respondent.
month when the lease in due to expire. The plaintiff refused to get the furniture
in view of the fact that the defendant had declined to make delivery of all of
them. On November 15th, before vacating the house, the defendant Short Summary
deposited with the Sheriff all the furniture belonging to the plaintiff and they Facts:
are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the
custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court
incorrectly applied the law: in holding that they violated the contract by not
calling for all the furniture on November 5, 1936, when the defendant placed
them at their disposal; in not ordering the defendant to pay them the value of
the furniture in case they are not delivered; in holding that they should get all
the furniture from the Sheriff at their expenses; in ordering them to pay-half of
the expenses claimed by the Sheriff for the deposit of the furniture; in ruling
that both parties should pay their respective legal expenses or the costs; and in
denying pay their respective legal expenses or the costs; and in denying the
motions for reconsideration and new trial. To dispose of the case, it is only
necessary to decide whether the defendant complied with his obligation to
return the furniture upon the plaintiff's demand; whether the latter is bound to
bear the deposit fees thereof, and whether she is entitled to the costs of
litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because Issue:
under it the plaintiff gratuitously granted the use of the furniture to the
defendant, reserving for herself the ownership thereof; by this contract the
defendant bound himself to return the furniture to the plaintiff, upon the latters
demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and
Ruling:
1741 of the Civil Code). The obligation voluntarily assumed by the defendant
to return the furniture upon the plaintiff's demand, means that he should return
all of them to the plaintiff at the latter's residence or house. The defendant did
not comply with this obligation when he merely placed them at the disposal of
the plaintiff, retaining for his benefit the three gas heaters and the four eletric
lamps. The provisions of article 1169 of the Civil Code cited by counsel for the
parties are not squarely applicable. The trial court, therefore, erred when it came
to the legal conclusion that the plaintiff failed to comply with her obligation to
get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the
plaintiff, upon the latter's demand, the Court could not legally compel her to
bear the expenses occasioned by the deposit of the furniture at the defendant's
behest. The latter, as bailee, was not entitled to place the furniture on deposit;
nor was the plaintiff under a duty to accept the offer to return the furniture,
because the defendant wanted to retain the three gas heaters and the four electric
lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to
the payment thereof by the defendant in case of his inability to return some of
the furniture because under paragraph 6 of the stipulation of facts, the defendant
has neither agreed to nor admitted the correctness of the said value. Should the
defendant fail to deliver some of the furniture, the value thereof should be latter
determined by the trial Court through evidence which the parties may desire to
present.
The costs in both instances should be borne by the defendant because the
plaintiff is the prevailing party (section 487 of the Code of Civil Procedure).
The defendant was the one who breached the contract of commodatum, and
without any reason he refused to return and deliver all the furniture upon the
plaintiff's demand. In these circumstances, it is just and equitable that he pay
the legal expenses and other judicial costs which the plaintiff would not have PADILLA, J.:
otherwise defrayed. This petition seeks the review on certiorari of the following:
The appealed judgment is modified and the defendant is ordered to return and 1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial
deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in Court (Guimbal-Igbaras-Tigbauan-Tubungan) in Guimbal, Iloilo, in Criminal
the residence or house of the latter, all the furniture described in paragraph 3 of Case No. 628,1 and the affirming decision of the Regional Trial Court, Branch
the stipulation of facts Exhibit A. The expenses which may be occasioned by XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated on 30 July
the delivery to and deposit of the furniture with the Sheriff shall be for the 1987;2
account of the defendant. the defendant shall pay the costs in both instances. So
2. The decision of the Court of Appeals, dated 29 April 1988,3
ordered.
Avanceña, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.

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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 diemstwice. In sum, the total amount in the form of per
diems and allowances charged and collected by petitioner under Travel Order
No. 2222, when he did not actually and physically travel as represented by his
liquidation papers, was P1,230.00.
Petitioner was required to comment on the internal auditor's report regarding
the alleged anomalous claim for per diems. In his reply, petitioner denied the
alleged anomaly, claiming that he made make-up trips to compensate for the
trips he failed to undertake under T.O. 2222 because he was recalled to the head
office and given another assignment.
In September 1983, two (2) complaints for Estafa were filed against the
petitioner before the Municipal Circuit Trial Court at Guimbal, Iloilo, docketed
as Criminal Case Nos. 628 and 631.
After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered
a decision, the dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the
accused, Yong Chan Kim, guilty beyond reasonable doubt for the crime of
Estafa penalized under paragraph l(b) of Article 315, Revised Penal Code.
Records disclose there is no aggravating circumstance proven by the
prosecution. Neither there is any mitigating circumstance proven by the
accused. Considering the amount subject of the present complaint, the
imposable penalty should be in the medium period of arresto mayor in its
maximum period to prision correccional in its minimum period in accordance
with Article 315, No. 3, Revised Penal Code. Consonantly, the Court hereby
sentences the accused to suffer an imprisonment ranging from four (4) months
as the minimum to one (1) year and six (6) months as the maximum in
accordance with the Indeterminate Sentence Law and to reimburse the amount
of P1,230.00 to SEAFDEC.
The surety bond of the accused shall remain valid until final judgment in
accordance herewith.
Costs against the accused.5
Criminal Case No. 631 was subsequently dismissed for failure to prosecute.
Petitioner appealed from the decision of the Municipal Circuit Trial Court in
Criminal Case No. 628. On 30 July 1987, the Regional Trial Court in Iloilo City
in Criminal Case No. 20958 affirmed in toto the trial court's decision.6
The decision of the Regional Trial Court was received by petitioner on 10
August 1987. On 11 August 1987, petitioner, thru counsel, filed a notice of
appeal with the Regional Trial Court which ordered the elevation of the records
of the case to the then Intermediate Appellate Court on the following day, 12
August 1987. The records of the case were received by the Intermediate
Appellate Court on 8 October 1987, and the appeal was docketed as CA-G.R.
No. 05035.
On 30 October 1987, petitioner filed with the appellate court a petition for
review. As earlier stated, on 29 April 1988, the Court of Appeals dismissed the
petition for having been filed out of time. Petitioner's motion for reconsideration
was denied for lack of merit.
Hence, the present recourse.
On 19 October 1988, the Court resolved to require the respondents to comment
on the petition for review. The Solicitor General filed his Comment on 20
January 1989, after several grants of extensions of time to file the same.
In his Comment, the Solicitor General prayed for the dismissal of the instant
petition on the ground that, as provided for under Section 22, Batas Pambansa
129, Section 22 of the Interim Rules and Guidelines, and Section 3, Rule 123
of the 1985 Rules of Criminal Procedure, the petitioner should have filed a
petition for review with the then Intermediate Appellate Court instead of a
notice of appeal with the Regional Trial Court, in perfecting his appeal from the
RTC to the Intermediate Appellate Court, since the RTC judge was rendered in
the exercise of its appellate jurisdiction over municipal trial courts. The failure
of petitioner to file the proper petition rendered the decision of the Regional
Trial Court final and executory, according to the Solicitor General.
Petitioner's counsel submitted a Reply (erroneously termed Comment)7 wherein
she contended that the peculiar circumstances of a case, such as this, should be
considered in order that the principle barring a petitioner's right of review can
be made flexible in the interest of justice and equity.
In our Resolution of 29 May 1989, we resolved to deny the petition for failure
of petitioner to sufficiently show that the Court of Appeals had committed any
reversible error in its questioned judgment which had dismissed petitioner's
petition for review for having been filed out of time.8
Petitioner filed a motion for reconsideration maintaining that his petition for
review did not limit itself to the issue upon which the appellate court's decision
of 29 April 1988 was based, but rather it delved into the substance and merits
of the case.9
On 10 August 1990, we resolved to set aside our resolution dismissing this case
and gave due course to the petition. In the said resolution, we stated:
In several cases decided by this Court, it had set aside technicalities in the Rules
in order to give way to justice and equity. In the present case, we note that the
petitioner, in filing his Notice of Appeal the very next day after receiving the
decision of the court a quo lost no time in showing his intention to appeal,
although the procedure taken was not correct. The Court can overlook the
wrong pleading filed, if strict compliance with the rules would mean sacrificing
justice to technicality. The imminence of a person being deprived unjustly of
his liberty due to procedural lapse of counsel is a strong and compelling reason
to warrant suspension of the Rules. Hence, we shall consider the petition for
review filed in the Court of Appeals as a Supplement to the Notice of Appeal.
As the Court declared in a recent decision, '. . . there is nothing sacred about the
procedure of pleadings. This Court may go beyond the pleadings when the
interest of justice so warrants. It has the prerogative to suspend its rules for the
same purpose. . . . Technicality, when it deserts its proper office as an aid to
justice and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. [Alonzo v. Villamor, et al., 16 Phil. 315]
Conscience cannot rest in allowing a man to go straight to jail, closing the door
to his every entreaty for a full opportunity to be heard, even as he has made
a prima facie showing of a meritorious cause, simply because he had chosen an
appeal route, to be sure, recognized by law but made inapplicable to his case,
under altered rules of procedure. While the Court of Appeals can not be faulted
and, in fact, it has to be lauded for correctly applying the rules of procedure in
appeals to the Court of Appeals from decisions of the RTC rendered in the
exercise of its appellate jurisdiction, yet, this Court, as the ultimate bulwark of
human rights and individual liberty, will not allow substantial justice to be
sacrified at the altar of procedural rigor.10
In the same resolution, the parties were required to file their respective
memoranda, and in compliance with said resolution, petitioner filed his
memorandum on 25 October 1989, while private respondent SEAFDEC filed
its required memorandum on 10 April 1990. On the other hand, the Solicitor
General filed on 13 March 1990 a Recommendation for Acquittal in lieu of the
required memorandum.
Two (2) issues are raised by petitioner to wit:
I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL
CIRCUIT TRIAL COURT (GUIMBAL, ILOILO) AND THE REGIONAL
TRIAL COURT, BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE
FACTS AND EVIDENCE OR CONTRARY TO LAW AND THAT THE
TWO COURTS A QUO HAVE ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION OR HAVE
ACTED WITHOUT OR IN EXCESS OF JURISDICTION.
II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT
OF APPEALS IS CONTRARY TO LAW, ESTABLISHED
JURISPRUDENCE, EQUITY AND DUE PROCESS.
The second issue has been resolved in our Resolution dated 10 August 1990,
when we granted petitioner's second motion for reconsideration. We shall now
proceed to the first issue.
We find merit in the petition.
It is undisputed that petitioner received a cash advance from private respondent
SEAFDEC to defray his travel expenses under T.O. 2222. It is likewise
admitted that within the period covered by T.O. 2222, petitioner was recalled
to the head station in Iloilo and given another assignment which was covered
by T.O. 2268. The dispute arose when petitioner allegedly failed to return
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 22
P1,230.00 out of the cash advance which he received under T.O. 2222. For the A Yes, sir.
alleged failure of petitioner to return the amount of P1,230.00, he was charged (pp. 26-28, tsn, May 8, 1985).14
with the crime of Estafa under Article 315, par. 1(b) of the Revised Penal Code,
Since ownership of the money (cash advance) was transferred to petitioner, no
which reads as follows: fiduciary relationship was created. Absent this fiduciary relationship between
Art. 315. Swindling (Estafa). Any person who shall defraud another by any of petitioner and private respondent, which is an essential element of the crime of
the means mentioned herein below shall be punished by: estafa by misappropriation or conversion, petitioner could not have committed
xxx xxx xxx estafa.15
1. With unfaithfulness or abuse of confidence, namely: Additionally, it has been the policy of private respondent that all cash advances
(a) x x x xxx xxx not liquidated are to be deducted correspondingly from the salary of the
employee concerned. The evidence shows that the corresponding salary
(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 deduction was made in the case of petitioner vis-a-vis the cash advance in
question.
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 WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal
fatally or partially guaranteed by a bond; or by denying having received such Circuit Trial Court in Guimbal, Iloilo in Criminal Case No. 628, finding
money, goods, or other property. petitioner guilty of estafa under Article 315, par. 1 (b) of the Revised Penal
In order that a person can be convicted under the abovequoted provision, it must 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
be proven that he had the obligation to deliver or return the same money, good
or personal property that he had received.11 hereby SET ASIDE. Petitioner is ACQUITTED of criminal charge filed against
him.
Was petitioner under obligation to return the same money (cash advance) which
he had received? We belive not. Executive Order No. 10, dated 12 February SO ORDERED.
1980 provides as follows:
B. Cash Advance for Travel
xxx xxx xxx
4. All cash advances must be liquidated within 30 days after date of projected
return of the person. Otherwise, corresponding salary deduction shall be made
immediately following the expiration day.
Liquidation simply means the settling of an indebtedness. An employee, such
as herein petitioner, who liquidates a cash advance is in fact paying back his
debt in the form of a loan of money advanced to him by his employer, as per
diems and allowances. Similarly, as stated in the assailed decision of the lower
court, "if the amount of the cash advance he received is less than the amount he
spent for actual travel . . . he has the right to demand reimbursement from his
employer the amount he spent coming from his personal funds. 12 In other
words, the money advanced by either party is actually a loan to the other. Hence,
petitioner was under no legal obligation to return the same cash or money, i.e.,
the bills or coins, which he received from the private respondent. 13
Article 1933 and Article 1953 of the Civil Code define the nature of a simple
loan.
Art. 1933. By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time
and return it, in which case the contract is called a commodatum; or money or
other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid, in which case the contract is simply called a loan
or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower.
Art. 1953.— A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.
The ruling of the trial judge that ownership of the cash advanced to the
petitioner by private respondent was not transferred to the latter is erroneous.
Ownership of the money was transferred to the petitioner. Even the prosecution
witness, Virgilio Hierro, testified thus:
Q When you gave cash advance to the accused in this Travel Order No. 2222
subject to liquidation, who owns the funds, accused or SEAFDEC? How do you
consider the funds in the possession of the accused at the time when there is an
actual transfer of cash? . . .
A The one drawing cash advance already owns the money but subject to
liquidation. If he will not liquidate, be is obliged to return the amount.
Qxxx xxx xxx
So why do you treat the itinerary of travel temporary when in fact as of that
time the accused owned already the cash advance. You said the cash advance
given to the accused is his own money. In other words, at the time you departed
with the money it belongs already to the accused?
A Yes, but subject for liquidation. He will be only entitled for that credence if
he liquidates.
Q If other words, it is a transfer of ownership subject to a suspensive condition
that he liquidates the amount of cash advance upon return to station and
completion of the travel?

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 23

 G.R. No. 133632 February 15, 2002
BPI INVESTMENT CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and ALS MANAGEMENT &
DEVELOPMENT CORPORATION, respondents.
DECISION
Short Summary
Facts:
Issue:
Ruling:
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28, 1997, of the
Court of Appeals and its resolution dated April 21, 1998, in CA-G.R. CV No.
38887. The appellate court affirmed the judgment of the Regional Trial Court
of Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of
mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against
private respondents ALS Management and Development Corporation and
Antonio K. Litonjua,1 consolidated with (b) Civil Case No. 52093, for damages
with prayer for the issuance of a writ of preliminary injunction by the private
respondents against said petitioner.
The trial court had held that private respondents were not in default in the
payment of their monthly amortization, hence, the extrajudicial foreclosure
conducted by BPIIC was premature and made in bad faith. It awarded private
respondents the amount of ₱300,000 for moral damages, ₱50,000 for exemplary
damages, and ₱50,000 for attorney’s fees and expenses for litigation. It likewise
dismissed the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of
petitioner BPIIC, for the construction of a house on his lot in New Alabang
Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure the
loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS
and Antonio Litonjua for ₱850,000. They paid ₱350,000 in cash and assumed
the ₱500,000 balance of Roa’s indebtedness with AIDC. The latter, however,
was not willing to extend the old interest rate to private respondents and
proposed to grant them a new loan of ₱500,000 to be applied to Roa’s debt and
secured by the same property, at an interest rate of 20% per annum and service
fee of 1% per annum on the outstanding principal balance payable within ten
years in equal monthly amortization of ₱9,996.58 and penalty interest at the rate
of 21% per annum per day from the date the amortization became due and
payable.
Consequently, in March 1981, private respondents executed a mortgage deed
containing the above stipulations with the provision that payment of the
monthly amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roa’s arrearages by paying
BPIIC the sum of ₱190,601.35. This reduced Roa’s principal balance to
₱457,204.90 which, in turn, was liquidated when BPIIC applied thereto the
proceeds of private respondents’ loan of ₱500,000.
On September 13, 1982, BPIIC released to private respondents ₱7,146.87,
purporting to be what was left of their loan after full payment of Roa’s loan.
In June 1984, BPIIC instituted foreclosure proceedings against private
respondents on the ground that they failed to pay the mortgage indebtedness
which from May 1, 1981 to June 30, 1984, amounted to Four Hundred Seventy
Five Thousand Five Hundred Eighty Five and 31/100 Pesos (₱475,585.31). A
notice of sheriff’s sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against
BPIIC. They alleged, among others, that they were not in arrears in their
payment, but in fact made an overpayment as of June 30, 1984. They
maintained that they should not be made to pay amortization before the actual
release of the ₱500,000 loan in August and September 1982. Further, out of the
₱500,000 loan, only the total amount of ₱464,351.77 was released to private
respondents. Hence, applying the effects of legal compensation, the balance of
₱35,648.23 should be applied to the initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos.
11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and
Development Corporation and Antonio K. Litonjua and against BPI Investment
Corporation, holding that the amount of loan granted by BPI to ALS and
Litonjua was only in the principal sum of P464,351.77, with interest at 20%
plus service charge of 1% per annum, payable on equal monthly and successive
amortizations at P9,283.83 for ten (10) years or one hundred twenty (120)
months. The amortization schedule attached as Annex "A" to the "Deed of
Mortgage" is correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages
when BPI caused their publication in a newspaper of general circulation as
defaulting debtors, and therefore orders BPI to pay ALS and Litonjua the
following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorney’s fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being
premature.
Costs against BPI.
SO ORDERED.2
Both parties appealed to the Court of Appeals. However, private respondents’
appeal was dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the
dispositive portion reads:
WHEREFORE, finding no error in the appealed decision the same is hereby
AFFIRMED in toto.
SO ORDERED.3
In its decision, the Court of Appeals reasoned that a simple loan is perfected
only upon the delivery of the object of the contract. The contract of loan
between BPIIC and ALS & Litonjua was perfected only on September 13, 1982,
the date when BPIIC released the purported balance of the ₱500,000 loan after
deducting therefrom the value of Roa’s indebtedness. Thus, payment of the
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 24
monthly amortization should commence only a month after the said date, as can
be inferred from the stipulations in the contract. This, despite the express
agreement of the parties that payment shall commence on May 1, 1981. From
October 1982 to June 1984, the total amortization due was only ₱194,960.43.
Evidence showed that private respondents had an overpayment, because as of
June 1984, they already paid a total amount of ₱201,791.96. Therefore, there
was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the
publication in newspapers concerning private respondents’ delinquency in the
payment of their loan. This fact constituted sufficient ground for moral damages
in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied,
hence this petition, where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL
CONTRACT IN THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE
VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL
AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES IN THE FACE
OF IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE
RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF
APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling
that because a simple loan is perfected upon the delivery of the object of the
contract, the loan contract in this case was perfected only on September 13,
1982. Petitioner claims that a contract of loan is a consensual contract, and a
loan contract is perfected at the time the contract of mortgage is executed
conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122.
In the present case, the loan contract was perfected on March 31, 1981, the date
when the mortgage deed was executed, hence, the amortization and interests on
the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was
released only on August 1982, the loan was actually released on March 31,
1981, when BPIIC issued a cancellation of mortgage of Frank Roa’s loan. This
finds support in the registration on March 31, 1981 of the Deed of Absolute
Sale executed by Roa in favor of ALS, transferring the title of the property to
ALS, and ALS executing the Mortgage Deed in favor of BPIIC. Moreover,
petitioner claims, the delay in the release of the loan should be attributed to
private respondents. As BPIIC only agreed to extend a ₱500,000 loan, private
respondents were required to reduce Frank Roa’s loan below said amount.
According to petitioner, private respondents were only able to do so in August
1982.
In their comment, private respondents assert that based on Article 1934 of the
Civil Code,4 a simple loan is perfected upon the delivery of the object of the
contract, hence a real contract. In this case, even though the loan contract was
signed on March 31, 1981, it was perfected only on September 13, 1982, when
the full loan was released to private respondents. They submit that petitioner
misread Bonnevie. To give meaning to Article 1934, according to private
respondents, Bonnevie must be construed to mean that the contract to extend
the loan was perfected on March 31, 1981 but the contract of loan itself was
only perfected upon the delivery of the full loan to private respondents on
September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan
contract was perfected on March 31, 1981, and their payment did not start a
month thereafter, still no default took place. According to private respondents,
a perfected loan agreement imposes reciprocal obligations, where the obligation
or promise of each party is the consideration of the other party. In this case, the
consideration for BPIIC in entering into the loan contract is the promise of
private respondents to pay the monthly amortization. For the latter, it is the
promise of BPIIC to deliver the money. In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. Therefore, private respondents
conclude, they did not incur in delay when they did not commence paying the
monthly amortization on May 1, 1981, as it was only on September 13, 1982
when petitioner fully complied with its obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract
but a real contract. It is perfected only upon the delivery of the object of the
contract.5 Petitioner misapplied Bonnevie. The contract in Bonnevie declared
by this Court as a perfected consensual contract falls under the first clause of
Article 1934, Civil Code. It is an accepted promise to deliver something by way
of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the
Philippines, 44 SCRA 445, petitioner applied for a loan of ₱500,000 with
respondent bank. The latter approved the application through a board
resolution. Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to petitioner, the loan was not
released. Later, petitioner instituted an action for damages. We recognized in
this case, a perfected consensual contract which under normal circumstances
could have made the bank liable for not releasing the loan. However, since the
fault was attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for
damages. However, said contract does not constitute the real contract of loan
which requires the delivery of the object of the contract for its perfection and
which gives rise to obligations only on the part of the borrower. 6
In the present case, the loan contract between BPI, on the one hand, and ALS
and Litonjua, on the other, was perfected only on September 13, 1982, the date
of the second release of the loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the Court of Appeals,
private respondents’ obligation to pay commenced only on October 13, 1982, a
month after the perfection of the contract.7
We also agree with private respondents that a contract of loan involves a
reciprocal obligation, wherein the obligation or promise of each party is the
consideration for that of the other.8 As averred by private respondents, the
promise of BPIIC to extend and deliver the loan is upon the consideration that
ALS and Litonjua shall pay the monthly amortization commencing on May 1,
1981, one month after the supposed release of the loan. It is a basic principle in
reciprocal obligations that neither party incurs in delay, if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him.9 Only when a party has performed his part of the contract can he
demand that the other party also fulfills his own obligation and if the latter fails,
default sets in. Consequently, petitioner could only demand for the payment of
the monthly amortization after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract. Therefore, in computing
the amount due as of the date when BPIIC extrajudicially caused the foreclosure
of the mortgage, the starting date is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the
date of actual release of the loan and whether private respondents were the cause
of the delay in the release of the loan, are factual. Since petitioner has not shown
that the instant case is one of the exceptions to the basic rule that only questions
of law can be raised in a petition for review under Rule 45 of the Rules of
Court,10 factual matters need not tarry us now. On these points we are bound by
the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral
and exemplary damages for it did not act maliciously when it initiated the
foreclosure proceedings. It merely exercised its right under the mortgage
contract because private respondents were irregular in their monthly
amortization.1âwphi1 It invoked our ruling in Social Security System vs. Court
of Appeals, 120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate damages. As concluded
by the Court of Appeals "the negligence of the appellant is not so gross as to
warrant moral and temperate damages," except that, said Court reduced those
damages by only P5,000.00 instead of eliminating them. Neither can we agree
with the findings of both the Trial Court and respondent Court that the SSS had
acted maliciously or in bad faith. The SSS was of the belief that it was acting in
the legitimate exercise of its right under the mortgage contract in the face of
irregular payments made by private respondents and placed reliance on the
automatic acceleration clause in the contract. The filing alone of the foreclosure
application should not be a ground for an award of moral damages in the same
way that a clearly unfounded civil action is not among the grounds for moral
damages.
Private respondents counter that BPIIC was guilty of bad faith and should be
liable for said damages because it insisted on the payment of amortization on
the loan even before it was released. Further, it did not make the corresponding
deduction in the monthly amortization to conform to the actual amount of loan
released, and it immediately initiated foreclosure proceedings when private
respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in their
payment of monthly amortization. Conformably with our ruling in SSS, we can
not properly declare BPIIC in bad faith. Consequently, we should rule out the
award of moral and exemplary damages.11
However, in our view, BPIIC was negligent in relying merely on the entries
found in the deed of mortgage, without checking and correspondingly adjusting
its records on the amount actually released to private respondents and the date
when it was released. Such negligence resulted in damage to private
respondents, for which an award of nominal damages should be given in
recognition of their rights which were violated by BPIIC.12 For this purpose, the
amount of ₱25,000 is sufficient.
Lastly, as in SSS where we awarded attorney’s fees because private respondents
were compelled to litigate, we sustain the award of ₱50,000 in favor of private
respondents as attorney’s fees.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 25
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals EN BANC
and its resolution dated April 21, 1998, are AFFIRMED WITH
MODIFICATION as to the award of damages. The award of moral and
exemplary damages in favor of private respondents is DELETED, but the award G.R. No. 97412 July 12, 1994
to them of attorney’s fees in the amount of ₱50,000 is UPHELD. Additionally, EASTERN SHIPPING LINES, INC., petitioner,
petitioner is ORDERED to pay private respondents ₱25,000 as nominal vs.
damages. Costs against petitioner. HON. COURT OF APPEALS AND MERCANTILE INSURANCE
SO ORDERED. COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.

Short Summary
Facts:

Issue:

Ruling:

VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for
damage sustained on a shipment of goods can be a solidary, or joint and several,
liability of the common carrier, the arrastre operator and the customs broker;
(b) whether the payment of legal interest on an award for loss or damage is to
be computed from the time the complaint is filed or from the date the decision
appealed from is rendered; and (c) whether the applicable rate of interest,
referred to above, is twelve percent (12%) or six percent (6%).

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 26

The findings of the court a quo, adopted by the Court of Appeals, on the
antecedent and undisputed facts that have led to the controversy are hereunder
reproduced:
This is an action against defendants shipping company, arrastre operator and
broker-forwarder for damages sustained by a shipment while in defendants'
custody, filed by the insurer-subrogee who paid the consignee the value of such
losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by
defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was
discharged unto the custody of defendant Metro Port Service, Inc. The latter
excepted to one drum, said to be in bad order, which damage was unknown to
plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the
shipment from defendant Metro Port Service, Inc., one drum opened and
without seal (per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made
deliveries of the shipment to the consignee's warehouse. The latter excepted to
one drum which contained spillages, while the rest of the contents was
adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence
of defendants. Claims were presented against defendants who failed and refused
to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the
consignee P19,032.95 under the aforestated marine insurance policy, so that it
became subrogated to all the rights of action of said consignee against
defendants (per "Form of Subrogation", "Release" and Philbanking check,
Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here,
the appellate court said:
Defendants filed their respective answers, traversing the material allegations of
the complaint contending that: As for defendant Eastern Shipping it alleged that
the shipment was discharged in good order from the vessel unto the custody of
Metro Port Service so that any damage/losses incurred after the shipment was
incurred after the shipment was turned over to the latter, is no longer its liability
(p. 17, Record); Metroport averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad order (p.
11, Record); Allied Brokerage alleged that plaintiff has no cause of action
against it, not having negligent or at fault for the shipment was already in
damage and bad order condition when received by it, but nonetheless, it still
exercised extra ordinary care and diligence in the handling/delivery of the cargo
to consignee in the same condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of
defendants (in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting
plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as
clearly shown by the Bill of Lading and Commercial Invoice which do not
indicate any damages drum that was shipped (Exhs. B and C). But when on
December 12, 1981 the shipment was delivered to defendant Metro Port
Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages were
sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh.
G), with its "Additional Survey Notes", are considered. In the latter notes, it is
stated that when the shipment was "landed on vessel" to dock of Pier # 15, South
Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum
(was) in damaged condition, covered by the vessel's Agent's Bad Order Tally
Sheet No. 86427." The report further states that when defendant Allied
Brokerage withdrew the shipment from defendant arrastre operator's custody
on January 7, 1982, one drum was found opened without seal, cello bag partly
torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee,
one drum was found with adulterated/faked contents. It is obvious, therefore,
that these losses/damages occurred before the shipment reached the consignee
while under the successive custodies of defendants. Under Art. 1737 of the New
Civil Code, the common carrier's duty to observe extraordinary diligence in the
vigilance of goods remains in full force and effect even if the goods are
temporarily unloaded and stored in transit in the warehouse of the carrier at the
place of destination, until the consignee has been advised and has had
reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC).
Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order
Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was
found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per
annum from October 1, 1982, the date of filing of this complaints, until fully
paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500
per case or the CIF value of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the extent of the actual invoice
value of each package, crate box or container in no case to exceed P5,000.00
each, pursuant to Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant
Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion
drawn therefrom is correct. As there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants, and
therefore they are liable to the appellee, as subrogee for the amount it paid to
the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes
error and grave abuse of discretion on the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE
WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE
CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE
QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF
PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF
THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE
DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX
PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner
carrier are not all that novel. Indeed, we do have a fairly good number of
previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of
goods lasts from the time the articles are surrendered to or unconditionally
placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance by, the
person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court
of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
When the goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and
there need not be an express finding of negligence to hold it liable (Art. 1735,
Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87;
Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course,
exceptional cases when such presumption of fault is not observed but these
cases, enumerated in Article 17341 of the Civil Code, are exclusive, not one of
which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the
obligation of properly delivering the goods to the consignee has, too, been
passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port
Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum, thus:
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 27
The legal relationship between the consignee and the arrastre operator is akin
to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19
SCRA 5 [1967]. The relationship between the consignee and the common
carrier is similar to that of the consignee and the arrastre operator (Northern
Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of
the ARRASTRE to take good care of the goods that are in its custody and to
deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good condition to
the consignee.
We do not, of course, imply by the above pronouncement that the arrastre
operator and the customs broker are themselves always and necessarily liable
solidarily with the carrier, or vice-versa, nor that attendant facts in a given case
may not vary the rule. The instant petition has been brought solely by Eastern
Shipping Lines, which, being the carrier and not having been able to rebut the
presumption of fault, is, in any event, to be held liable in this particular case. A
factual finding of both the court a quo and the appellate court, we take note, is
that "there is sufficient evidence that the shipment sustained damage while in
the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole
petitioner in this case, is inevitable regardless of whether there are others
solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves
more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money
arising out of short deliveries and pilferage of goods. In this case, appellee
Malayan Insurance (the plaintiff in the lower court) averred in its complaint that
the total amount of its claim for the value of the undelivered goods amounted
to P3,947.20. This demand, however, was neither established in its totality nor
definitely ascertained. In the stipulation of facts later entered into by the parties,
in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court
rendered judgment ordering the appellants (defendants) Manila Port Service
and Manila Railroad Company to pay appellee Malayan Insurance the sum of
P1,447.51 with legal interest thereon from the date the complaint was filed on
28 December 1962 until full payment thereof. The appellants then
assailed, inter alia, the award of legal interest. In sustaining the appellants, this
Court ruled:
Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the date
of demand, judicial or extrajudicial. The trial court opted for judicial demand
as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot
be recovered upon unliquidated claims or damages, except when the demand
can be established with reasonable certainty." And as was held by this Court
in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were for
damages, "unliquidated and not known until definitely ascertained, assessed
and determined by the courts after proof (Montilla c. Corporacion de
P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision."
(Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for
"Recovery of Damages for Injury to Person and Loss of Property." After trial,
the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third
party defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated
to pay jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III together with its
accessories, fishing gear and equipment minus P80,000.00 which is the value
of the insurance recovered and the amount of P10,000.00 a month as the
estimated monthly loss suffered by them as a result of the fire of May 6, 1969
up to the time they are actually paid or already the total sum of P370,000.00 as
of June 4, 1972 with legal interest from the filing of the complaint until paid and
to pay attorney's fees of P5,000.00 with costs against defendants and third party
plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages
awarded but sustained the trial court in adjudging legal interest from the filing
of the complaint until fully paid. When the appellate court's decision became
final, the case was remanded to the lower court for execution, and this was when
the trial court issued its assailed resolution which applied the 6% interest per
annum prescribed in Article 2209 of the Civil Code. In their petition for review
on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed
that the rate of interest for the loan, or forbearance of any money, goods, or
credits and the rate allowed in judgments, in the absence of express contract as
to such rate of interest, shall be twelve (12%) percent per annum. This Circular
shall take effect immediately. (Emphasis found in the text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in litigations involving
loans or forbearance of any money, goods or credits. Any other kind of
monetary judgment which has nothing to do with, nor involving loans or
forbearance of any money, goods or credits does not fall within the coverage of
the said law for it is not within the ambit of the authority granted to the Central
Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of property
and does not involve any loan, much less forbearances of any money, goods or
credits. As correctly argued by the private respondents, the law applicable to
the said case is Article 2209 of the New Civil Code which reads —
Art. 2209. — If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no stipulation
to the contrary, shall be the payment of interest agreed upon, and in the absence
of stipulation, the legal interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc.,
v. Cruz,7 promulgated on 28 July 1986. The case was for damages occasioned
by an injury to person and loss of property. The trial court awarded private
respondent Pedro Manabat actual and compensatory damages in the amount of
P72,500.00 with legal interest thereon from the filing of the complaint until
fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the
interest award from 12% to 6% interest per annum but sustained the time
computation thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the
recovery of damages arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal
rate from November 29, 1968, the date of the filing of the complaint until full
payment . . . ." Save from the modification of the amount granted by the lower
court, the Court of Appeals sustained the trial court's decision. When taken to
this Court for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case, we deem
it reasonable to render a decision imposing, as We do hereby impose, upon the
defendant and the third-party defendants (with the exception of Roman Ozaeta)
a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception to attorney's
fees) occasioned by the loss of the building (including interest charges and lost
rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos
as and for attorney's fees, the total sum being payable upon the finality of this
decision. Upon failure to pay on such finality, twelve (12%) per cent interest
per annum shall be imposed upon aforementioned amounts from finality until
paid. Solidary costs against the defendant and third-party defendants (Except
Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that
"the interest of twelve (12%) per cent per annum imposed on the total amount
of the monetary award was in contravention of law." The Court 10 ruled out the
applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its
resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to
Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans;
(2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments
involving loans or forbearance of any money, goods or credits. (Philippine
Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol,
Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a
loan or a forbearance, but then no interest is actually imposed provided the
sums referred to in the judgment are paid upon the finality of the judgment. It
is delay in the payment of such final judgment, that will cause the imposition of
the interest.
It will be noted that in the cases already adverted to, the rate of interest is
imposed on the total sum, from the filing of the complaint until paid; in other
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 28
words, as part of the judgment for damages. Clearly, they are not applicable to
the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate
Appellate Court11 was a petition for review on certiorari from the decision,
dated 27 February 1985, of the then Intermediate Appellate Court reducing the
amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April
1985, restoring the amount of damages awarded by the trial court, i.e.,
P2,000,000.00 as moral damages and P400,000.00 as exemplary damages
with interest thereon at 12% per annum from notice of judgment, plus costs of
suit. In a decision of 09 November 1988, this Court, while recognizing the right
of the private respondent to recover damages, held the award, however, for
moral damages by the trial court, later sustained by the IAC, to be inconceivably
large. The Court12 thus set aside the decision of the appellate court and rendered
a new one, "ordering the petitioner to pay private respondent the sum of One
Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision
until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo
v. Ruiz13 which arose from a breach of employment contract. For having been
illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon.
When the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of
Negros Oriental dated October 31, 1972 is affirmed in all respects, with the
modification that defendants-appellants, except defendant-appellant Merton
Munn, are ordered to pay, jointly and severally, the amounts stated in the
dispositive portion of the decision, including the sum of P1,400.00 in concept
of compensatory damages, with interest at the legal rate from the date of the
filing of the complaint until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of
execution issued by the trial court directed that only compensatory damages
should earn interest at 6% per annum from the date of the filing of the
complaint. Ascribing grave abuse of discretion on the part of the trial judge, a
petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest
"at the legal rate" from the time of the filing of the complaint. . . Said circular
[Central Bank Circular No. 416] does not apply to actions based on a breach of
employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be
computed from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National
Power Corporation vs. Angas,14decided on 08 May 1992, involved the
expropriation of certain parcels of land. After conducting a hearing on the
complaints for eminent domain, the trial court ordered the petitioner to pay the
private respondents certain sums of money as just compensation for their lands
so expropriated "with legal interest thereon . . . until fully paid." Again, in
applying the 6% legal interest per annum under the Civil Code, the
Court15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money,
goods or credits but expropriation of certain parcels of land for a public purpose,
the payment of which is without stipulation regarding interest, and the interest
adjudged by the trial court is in the nature of indemnity for damages. The legal
interest required to be paid on the amount of just compensation for the
properties expropriated is manifestly in the form of indemnity for damages for
the delay in the payment thereof. Therefore, since the kind of interest involved
in the joint judgment of the lower court sought to be enforced in this case is
interest by way of damages, and not by way of earnings from loans, etc. Art.
2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The
cases can perhaps be classified into two groups according to the similarity of
the issues involved and the corresponding rulings rendered by the court. The
"first group" would consist of the cases of Reformina v. Tomol (1985),
Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would
be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and
Sons v. Court of Appeals (1988), and American Express International
v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6%
(under the Civil Code) or 12% (under the Central Bank Circular) interest per
annum. It is easily discernible in these cases that there has been a consistent
holding that the Central Bank Circular imposing the 12% interest per
annum applies only to loans or forbearance16 of money, goods or credits, as well
as to judgments involving such loan or forbearance of money, goods or credits,
and that the 6% interest under the Civil Code governs when the transaction
involves the payment of indemnities in the concept of damage arising from the
breach or a delay in the performance of obligations in general. Observe, too,
that in these cases, a common time frame in the computation of the 6%
interest per annum has been applied, i.e., from the time the complaint is filed
until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the
6% or 12% interest per annum,17depending on whether or not the amount
involved is a loan or forbearance, on the one hand, or one of indemnity for
damage, on the other hand. Unlike, however, the "first group" which remained
consistent in holding that the running of the legal interest should be from the
time of the filing of the complaint until fully paid, the "second group" varied on
the commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date
of the decision of the court a quo,explaining that "if the suit were for damages,
'unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof,' then, interest 'should be from the date of
the decision.'" American Express International v. IAC, introduced a different
time frame for reckoning the 6% interest by ordering it to be "computed from
the finality of (the) decision until paid." The Nakpil and Sons case ruled that
12% interest per annum should be imposed from the finality of the decision
until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may
have called for different applications, guided by the rule that the courts are
vested with discretion, depending on the equities of each case, on the award of
interest. Nonetheless, it may not be unwise, by way of clarification and
reconciliation, to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts18 is breached, the contravenor can be held
liable for damages.19 The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.20
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing.21 Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded.22 In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 116923 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court24 at the rate of 6% per annum.25 No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.26 Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is
AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX
PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest,
in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality
of this decision until the payment thereof.
SO ORDERED.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 29
 G.R. No. 128721 March 9, 1999
CRISMINA GARMENTS, INC., petitioner,
vs.
COURT OF APPEALS and NORMA SIAPNO, respondent.
Short Summary
Facts:
Issue:
Ruling:
PANGANIBAN, J.:
Interest shall be computed in accordance with the stipulation of the parties. In
the absence of such agreement, the rate shall be twelve percent (12%) per
annum when the obligation arises out of a loan or a forbearance of money,
goods or credits. In other cases, it shall be six percent (6%).
The Case
On May 5, 1997, Crismina Garments, Inc. filed a Petition for Review
on Certiorari 1 assailing the December 28, 1995 Decision 2 and March 17, 1997
Resolution 3 of the Court of Appeals in CA-GR CV No. 28973. On September
24, 1997, this Court issued a minute Resolution 4 denying the petition "for its
failure to show any reversible error on the part of the Court of Appeals."
Petitioner then filed a Motion for Reconsideration, 5 arguing that the interest
rate should be computed at 6 percent per annum as provided under Article 2209
of the Civil Code, not 12 percent per annum as prescribed under Circular No.
416 of the Central Bank of the Philippines. Acting on the Motion, the Court
reinstated6 the Petition, but only with respect to the issue of which interest rate
should be applied.7
The Facts
As the facts of the case are no longer disputed, we are reproducing hereunder
the findings of the appellate court:
During the period from February 1979 to April 1979, the [herein petitioner],
which was engaged in the export of girls' denim pants, contracted the services
of the [respondent], the sole proprietress of the D'Wilmar Garments, for the
sewing of 20,762 pieces of assorted girls['] denims supplied by the [petitioner]
under Purchase Orders Nos. 1404, dated February 15, 1979, 0430 dated
February 1, 1979, 1453 dated April 30, 1979. The [petitioner] was obliged to
pay the [respondent], for her services, in the total amount of P76,410.00. The
[respondent] sew[ed] the materials and delivered the same to the [petitioner]
which acknowledged the same per Delivery Receipt Nos. 0030 dated February
9, 1979; 0032, dated February 15, 1979; 0033 dated February 21, 1979; 0034,
dated February 24, 1979; 0036, dated February 20, 1979; 0038, dated March
11, 1979[;] 0039, dated March 24, 1979; 0040 dated March 27, 1979; 0041,
dated March 29, 1979; 0044, dated Marc[h] 25, 1979; 0101 dated May 18,
1979[;] 0037, dated March 10, 1979 and 0042 dated March 10, 1979, in good
order condition. At first, the [respondent] was told that the sewing of some of
the pants w[as] defective. She offered to take delivery of the defective pants.
However, she was later told by [petitioner]'s representative that the goods were
already good. She was told to just return for her check of P76,410.00. However,
the [petitioner] failed to pay her the aforesaid amount. This prompted her to hire
the services of counsel who, on November 12, 1979, wrote a letter to the
[petitioner] demanding payment of the aforesaid amount within ten (10) days
from receipt thereof. On February 7, 1990, the [petitioner]'s [v]ice-[p]resident-
[c]omptroller, wrote a letter to [respondent]'s counsel, averring, inter alia, that
the pairs of jeans sewn by her, numbering 6,164 pairs, were defective and that
she was liable to the [petitioner] for the amount of P49,925.51 which was the
value of the damaged pairs of denim pants and demanded refund of the
aforesaid amount.
On January 8, 1981, the [respondent] filed her complaint against the [petitioner]
with the [trial court] for the collection of the principal amount of P76,410.00. .
..
xxx xxx xxx
After due proceedings, the [trial court] rendered judgment, on February 28,
1989, in favor of the [respondent] against the [petitioner], the dispositive
portion of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant ordering the latter to pay the former:
(1) The sum of P76,140.00 with interest thereon at 12% per annum, to be
counted from the filing of this complaint on January 8, 1981, until fully paid;
(2) The sum of P5,000 as attorney[']s fees; and
(3) The costs of this suit;
(4) Defendant's counterclaim is hereby dismissed.8
The Court of Appeals (CA) affirmed the trial court's ruling, except for the award
of attorney's fees which was deleted. 9 Subsequently, the CA denied the Motion
for Reconsideration.10
Hence, this recourse to this Court11
Sole Issue
In light of the Court's Resolution dated April 27, 1998, petitioner submits for
our consideration this sole issue:
Whether or not it is proper to impose interest at the rate of twelve percent (12%)
per annum for an obligation that does not involve a loan or forbearance of
money in the absence of stipulation of the parties. 12
This Court's Ruling
We sustain petitioner's contention that the interest rate should be computed at
six percent (6%) per annum.
Sole Issue: Interest Rate
The controversy revolves around petitioner's payment of the price beyond the
period prescribed in a contract for a piece of work. Article 1589 on the Civil
Code provides that "[t]he vendee [herein petitioner] 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 extrajudicial demand for the
payment of the price." The only issue now is the applicable rate of interest for
the late payment.
Because the case before us is "an action for the enforcement of an obligation
for payment of money arising from a contract for a piece of work," 13 petitioner
submits that the interest rate should be six percent (6%), pursuant to Article
2209 of the Civil Code, which states:
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 30
If the obligation consists in the payment of money and the debtor incurs in standard, the obligation in this case was obviously not a forbearance of money,
delay, the indemnity for damages, there being no stipulation to the contrary, goods or credit.
shall be the payment of the interest agreed upon, and in the absence of WHEREFORE, the appealed Decision is MODIFIED. The rate of interest shall
stipulation, the legal interest, which is six per cent per annum." (Emphasis be six percent (6%) per annum, computed from the time of the filing of the
supplied.) Complaint in the trial court until the finality of the judgment. If the adjudged
On the other hand, private respondent maintains that the interest rate should be principal and the interest (or any part thereof) remain unpaid thereafter, the
twelve percent (12 %) per annum, in accordance with Central Bank (CB) interest rate shall be twelve percent (12%) per annum computed from the time
Circular No. 416, which reads: the judgment becomes final and executory until it is fully satisfied. No
By virtue of the authority granted to it under Section 1 of Act No. 2655, as pronouncement as to costs.
amended, otherwise known as the "Usury Law", the Monetary Board, in its SO ORDERED.
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 per cent (12%) per annum." (Emphasis supplied.)
She argues that the circular applies, since "the money sought to be recovered
by her is in the form of forbearance." 14
We agree with the petitioner. In Reformina v. Tomol Jr., 15 this Court stressed
that the interest rate under CB Circular No. 416 applies to (1) loans; (2)
forbearance of money, goods or credits; or (3) a judgment involving a loan or
forbearance of money, goods or credits. Cases beyond the scope of the said
circular are governed by Article 2209 of the Civil Code, 16 which considers
interest a form of indemnity for the delay in the performance of an obligation.17
In Eastern Shipping Lines, Inc. v. Court of Appeals,18 the Court gave the
following guidelines for the application of the proper interest rates:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held liable
for damages. The provisions under Title XVIII on "Damages" of the Civil Code
govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be . . . the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to
forbearance of credit.19
In Keng Hua Paper Products Co., Inc. v. CA, 20 we also ruled that the monetary
award shall earn interest at twelve percent (12%) per annum from the date of
finality of the judgment until its satisfaction, regardless of whether or not the
case involves a loan of forbearance of money. The interim period is deemed to
be equivalent to a forbearance of a credit. 21
Because the amount due in this case arose from a contract for a piece of work,
not from a loan or forbearance of money, the legal interest of six percent (6%)
per annum should be applied. Furthermore, since the amount of the demand
could be established with certainty when the Complaint was filed, the six
percent (6%) interest should be computed from the filing of the said Complaint.
But after the judgment becomes final and exuecutory until the obligation is
satisfied, the interest should be reckoned at twelve percent (%12) per year.
Private respondent maintains that the twelve percent (12%) interest should be
imposed, because the obligation arose from a forbearance of
money. 22 This is erroneous. In Eastern Shipping, 23 the Court observed that a
"forbearance" in the context of the usury law is a "contractual obligation of
lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and payable." Using this
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 31
 G.R. No. 123643 October 30, 1996
PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS and DR. ERLINDA G. IBARROLA, respondents.
RESOLUTION
Short Summary
Facts:
Issue:
Ruling:
FRANCISCO, J.:p
As payments for the purchase of medicines, the Province of Isabela issued
several checks drawn against its account with petitioner Philippine National
Bank (PNB) in favor of the seller, Lyndon Pharmaceuticals Laboratories, a
business operated by private respondent Ibarrola. The checks were delivered to
the seller's agents 1 who turned them over to Ibarrola, except 23 checks
amounting to P98,691.90, which the agents appropriated after negotiating them
with PNB. For her failure to receive the full payment for the medicines, Ibarrola
filed on November 6, 1974 before the Regional Trial Court (RTC) an "action
for a sum of money and damages," docketed as Civil Case 4226-p, 2 against the
Province of Isabela, its Treasurer, the two agents and PNB.
In its decision dated September 29, 1987, the trial court ordered all the
defendants in said civil case, except the treasurer who died in the meantime, to
"jointly and solidarily" pay Ibarrola several amounts, among which is:
(1) P98,691.90 with interest thereon at the legal rate from the date of the filing
of the complaint until the entire amount is fully paid; 3 (Emphasis supplied.)
PNB's appeal to the Court of Appeals (CA) 4 and later to the Supreme
Court 5 were denied and dismissed, respectively. All the three courts, however,
did not specify whether the legal rate of interest referred to in the judgment is
6% or 12%. The judgment in Civil Case 4226-P became final and executory on
November 26, 1993. At the execution stage, the sheriff computed the interest
mentioned in the judgment at the rate of 12% which PNB opposed insisting that
the rate should only be 6%. Ibarrola sought clarification from the same RTC
which promulgated the decision. On August 4, 1994 said court issued an order
clarifying that the rate is 12%. PNB's direct appeal to this court from that order
was referred to the CA which affirmed the RTC order. Hence, this petition for
review under Rule 45 where two legal issues are raised: (1) whether in an action
for damages, the legal rate of interest is 6% as provided by Article 2209 6 of the
New Civil Code or 12% as provided by CB Circular 416 series of 1974, 7 and
(2) whether such rate shall be computed from the filing of the complaint until
fully paid?
The issues are not new. In the case of Estern Shipping Lines, Inc. v.
CA, 8 this Court had provided a rule "of thumb for future guidance," 9 to wit:
When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged. 10 (Emphasis ours.)
The case at bench does not involve a loan, forbearance of money or judgment
involving a loan or forbearance of money as it arose from a contract of sale
whereby Ibarrola did not receive full payment for her merchandise. When an
obligation arises "from a contract of purchase and sale and not from a contract
of loan or mutuum," the applicable rate is "6% per annum as provided in Article
2209 of the NCC and not the rate of 12% per annum as provided in (CB) Cir.
No. 416." 11 Indeed, PNB's liability is based only on the RTC's judgment where
it was held solidarily liable with the other defendants due to its negligence when
it "failed to assure itself" if the Provincial Treasurer was "properly authorized"
by Ibarrola to "make endorsements" of said checks. 12
The rate of 12% interest referred to in Cir. 416 applies only to:
[L]oan or forbearance of money, or to cases where money is transferred from
one person to another and the obligation to return the same or a portion thereof
is adjudged. Any other monetary judgment which does not involve or which has
nothing to do with loans or forbearance of any money, goods or credit does not
fall within its coverage for such imposition is not within the ambit of the
authority granted to the Central Bank. When an obligation not constituting a
loan or forbearance of money is breached then an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of
6% per annum in accordance with Art. 2209 of the Civil Code. Indeed, the
monetary judgment in favor of private respondent does not involve a loan or
forbearance of money, hence the proper imposable rate of interest is six (6%)
per cent. 13 (Emphasis ours.)
Applying the aforequoted rule, therefore, the proper rate of interest referred to
in the judgment under execution is only 6%. This interest according to Eastern
Shipping shall be computed from the time of the filing of the complaint
considering that the amount adjudged (P98,691.90) can be established with
reasonable certainty. Said amount being merely the uncollected balance of the
purchase price covered by the 23 checks encashed and appropriated by
Ibarrola's agents. However, once the judgment becomes final and executory,
the "interim period from the finality of judgment awarding a monetary claim
and until payment thereof, is deemed to be equivalent to a forbearance of
credit." 14 Thus, in accordance with the pronouncement in Eastern Shipping the
rate of 12% p.a. should be imposed, and to be computed from the time the
judgment became final and executory until fully satisfied. The actual base for
the computation of this 12% interest after the judgment in this damage suit
became final shall be the amount adjudged (P98,691.90).
ACCORDINGLY, the appealed decision is REVERSED. The rate of interest
shall be 6% p.a. computed from the time of the filing of the complaint until its
full payment before finality of judgment. Thereafter, if the amount adjudged
remains unpaid, the interest rate shall be 12% p.a. computed from the time the
judgment became final and executory on November 26, 1993 until fully
satisfied.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 32
SO ORDERED.

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 33

 G.R. No. 175139 April 18, 2012 Also assailed is the August 31, 2006 Resolution 4 denying the motion for
HERMOJINA ESTORES, Petitioner, reconsideration.
vs. Factual Antecedents
SPOUSES ARTURO and LAURA SUPANGAN, Respondents. On October 3, 1993, petitioner Hermojina Estores and respondent-spouses
DECISION Arturo and Laura Supangan entered into a Conditional Deed of Sale5 whereby
petitioner offered to sell, and respondent-spouses offered to buy, a parcel of
land covered by Transfer Certificate of Title No. TCT No. 98720 located at
Short Summary Naic, Cavite for the sum of ₱4.7 million. The parties likewise stipulated, among
Facts: others, to wit:
xxxx
1. Vendor will secure approved clearance from DAR requirements of which are
(sic):
a) Letter request
b) Title
c) Tax Declaration
d) Affidavit of Aggregate Landholding – Vendor/Vendee
e) Certification from the Prov’l. Assessor’s as to Landholdings of
Vendor/Vendee
f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale
xxxx
4. Vendee shall be informed as to the status of DAR clearance within 10 days
upon signing of the documents.
Issue:
xxxx
6. Regarding the house located within the perimeter of the subject [lot] owned
by spouses [Magbago], said house shall be moved outside the perimeter of this
subject property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts
Ruling: the responsibility of seeing to it that such agreement is carried out before full
payment of the sale is made by vendee.
7. If and after the vendor has completed all necessary documents for registration
of the title and the vendee fails to complete payment as per agreement, a
forfeiture fee of 25% or downpayment, shall be applied. However, if the vendor
fails to complete necessary documents within thirty days without any sufficient
reason, or without informing the vendee of its status, vendee has the right to
demand return of full amount of down payment.
xxxx
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.)
Vendee shall be informed immediately of its approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of ownership.
xxxx6
After almost seven years from the time of the execution of the contract and
notwithstanding payment of ₱3.5 million on the part of respondent-spouses,
petitioner still failed to comply with her obligation as expressly provided in
paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter7 dated September
27, 2000, respondent-spouses demanded the return of the amount of ₱3.5
million within 15 days from receipt of the letter. In reply, 8 petitioner
acknowledged receipt of the ₱3.5 million and promised to return the same
within 120 days. Respondent-spouses were amenable to the proposal provided
an interest of 12% compounded annually shall be imposed on the ₱3.5
million.9 When petitioner still failed to return the amount despite demand,
respondent-spouses were constrained to file a Complaint10 for sum of money
before the Regional Trial Court (RTC) of Malabon against herein petitioner as
well as Roberto U. Arias (Arias) who allegedly acted as petitioner’s agent. The
case was docketed as Civil Case No. 3201-MN and raffled off to Branch 170.
In their complaint, respondent-spouses prayed that petitioner and Arias be
DEL CASTILLO, J.: ordered to:
The only issue posed before us is the propriety of the imposition of interest and 1. Pay the principal amount of ₱3,500,000.00 plus interest of 12% compounded
attorney’s fees. annually starting October 1, 1993 or an estimated amount of ₱8,558,591.65;
Assailed in this Petition for Review1 filed under Rule 45 of the Rules of Court 2. Pay the following items of damages:
is the May 12, 2006 Decision2 of the Court of Appeals (CA) in CA-G.R. CV a) Moral damages in the amount of ₱100,000.00;
No. 83123, the dispositive portion of which reads: b) Actual damages in the amount of ₱100,000.00;
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall c) Exemplary damages in the amount of ₱100,000.00;
be six percent (6%) per annum, computed from September 27, 2000 until its
d) [Attorney’s] fee in the amount of ₱50,000.00 plus 20% of recoverable
full payment before finality of the judgment. If the adjudged principal and the
amount from the [petitioner].
interest (or any part thereof) remain unpaid thereafter, the interest rate shall be
adjusted to twelve percent (12%) per annum, computed from the time the e) [C]ost of suit.11
judgment becomes final and executory until it is fully satisfied. The award of In their Answer with Counterclaim,12 petitioner and Arias averred that they are
attorney’s fees is hereby reduced to ₱100,000.00. Costs against the defendants- willing to return the principal amount of ₱3.5 million but without any interest
appellants. as the same was not agreed upon. In their Pre-Trial Brief,13 they reiterated that
SO ORDERED.3 the only remaining issue between the parties is the imposition of interest. They
argued that since the Conditional Deed of Sale provided only for the return of

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 34

the downpayment in case of breach, they cannot be held liable to pay legal
interest as well.14
In its Pre-Trial Order15 dated June 29, 2001, the RTC noted that "the parties
agreed that the principal amount of 3.5 million pesos should be returned to the
[respondent-spouses] by the [petitioner] and the issue remaining [is] whether x
x x [respondent-spouses] are entitled to legal interest thereon, damages and
attorney’s fees."16
Trial ensued thereafter. After the presentation of the respondent-spouses’
evidence, the trial court set the presentation of Arias and petitioner’s evidence
on September 3, 2003.17 However, despite several postponements, petitioner
and Arias failed to appear hence they were deemed to have waived the
presentation of their evidence. Consequently, the case was deemed submitted
for decision.18
Ruling of the Regional Trial Court
On May 7, 2004, the RTC rendered its Decision 19 finding respondent-spouses
entitled to interest but only at the rate of 6% per annum and not 12% as prayed
by them.20 It also found respondent-spouses entitled to attorney’s fees as they
were compelled to litigate to protect their interest.21
The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the [respondent-spouses] and ordering the [petitioner and Roberto Arias] to
jointly and severally:
1. Pay [respondent-spouses] the principal amount of Three Million Five
Hundred Thousand pesos (₱3,500,000.00) with an interest of 6% compounded
annually starting October 1, 1993 and attorney’s fee in the amount of Fifty
Thousand pesos (₱50,000.00) plus 20% of the recoverable amount from the
defendants and cost of the suit.
The Compulsory Counter Claim is hereby dismissed for lack of factual
evidence.
SO ORDERED.22
Ruling of the Court of Appeals
Aggrieved, petitioner and Arias filed their notice of appeal.23 The CA noted that
the only issue submitted for its resolution is "whether it is proper to impose
interest for an obligation that does not involve a loan or forbearance of money
in the absence of stipulation of the parties."24
On May 12, 2006, the CA rendered the assailed Decision affirming the ruling
of the RTC finding the imposition of 6% interest proper.25 However, the same
shall start to run only from September 27, 2000 when respondent-spouses
formally demanded the return of their money and not from October 1993 when
the contract was executed as held by the RTC. The CA also modified the RTC’s
ruling as regards the liability of Arias. It held that Arias could not be held
solidarily liable with petitioner because he merely acted as agent of the latter.
Moreover, there was no showing that he expressly bound himself to be
personally liable or that he exceeded the limits of his authority. More
importantly, there was even no showing that Arias was authorized to act as
agent of petitioner.26 Anent the award of attorney’s fees, the CA found the
award by the trial court (₱50,000.00 plus 20% of the recoverable amount)
excessive27 and thus reduced the same to ₱100,000.00.28
The dispositive portion of the CA Decision reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall
be six percent (6%) per annum, computed from September 27, 2000 until its
full payment before finality of the judgment. If the adjudged principal and the
interest (or any part thereof) remain[s] unpaid thereafter, the interest rate shall
be adjusted to twelve percent (12%) per annum, computed from the time the
judgment becomes final and executory until it is fully satisfied. The award of
attorney’s fees is hereby reduced to ₱100,000.00. Costs against the [petitioner].
SO ORDERED.29
Petitioner moved for reconsideration which was denied in the August 31, 2006
Resolution of the CA.
Hence, this petition raising the sole issue of whether the imposition of interest
and attorney’s fees is proper.
Petitioner’s Arguments
Petitioner insists that she is not bound to pay interest on the ₱3.5 million
because the Conditional Deed of Sale only provided for the return of the
downpayment in case of failure to comply with her obligations. Petitioner also
argues that the award of attorney’s fees in favor of the respondent-spouses is
unwarranted because it cannot be said that the latter won over the former since
the CA even sustained her contention that the imposition of 12% interest
compounded annually is totally uncalled for.
Respondent-spouses’ Arguments
Respondent-spouses aver that it is only fair that interest be imposed on the
amount they paid considering that petitioner failed to return the amount upon
demand and had been using the ₱3.5 million for her benefit. Moreover, it is
undisputed that petitioner failed to perform her obligations to relocate the house
outside the perimeter of the subject property and to complete the necessary
documents. As regards the attorney’s fees, they claim that they are entitled to
the same because they were forced to litigate when petitioner unjustly withheld
the amount. Besides, the amount awarded by the CA is even smaller compared
to the filing fees they paid.
Our Ruling
The petition lacks merit.
Interest may be imposed even in the absence of stipulation in the contract.
We sustain the ruling of both the RTC and the CA that it is proper to impose
interest notwithstanding the absence of stipulation in the contract. Article 2210
of the Civil Code expressly provides that "[i]nterest may, in the discretion of
the court, be allowed upon damages awarded for breach of contract." In this
case, there is no question that petitioner is legally obligated to return the ₱3.5
million because of her failure to fulfill the obligation under the Conditional
Deed of Sale, despite demand. She has in fact admitted that the conditions were
not fulfilled and that she was willing to return the full amount of ₱3.5 million
but has not actually done so. Petitioner enjoyed the use of the money from the
time it was given to her30 until now. Thus, she is already in default of her
obligation from the date of demand, i.e., on September 27, 2000.
The interest at the rate of 12% is applicable in the instant case.
Anent the interest rate, the general rule is that the applicable rate of interest
"shall be computed in accordance with the stipulation of the parties."31 Absent
any stipulation, the applicable rate of interest shall be 12% per annum "when
the obligation arises out of a loan or a forbearance of money, goods or credits.
In other cases, it shall be six percent (6%)."32 In this case, the parties did not
stipulate as to the applicable rate of interest. The only question remaining
therefore is whether the 6% as provided under Article 2209 of the Civil Code,
or 12% under Central Bank Circular No. 416, is due.
The contract involved in this case is admittedly not a loan but a Conditional
Deed of Sale. However, the contract provides that the seller (petitioner) must
return the payment made by the buyer (respondent-spouses) if the conditions
are not fulfilled. There is no question that they have in fact, not been fulfilled
as the seller (petitioner) has admitted this. Notwithstanding demand by the
buyer (respondent-spouses), the seller (petitioner) has failed to return the
money and
should be considered in default from the time that demand was made on
September 27, 2000.
Even if the transaction involved a Conditional Deed of Sale, can the stipulation
governing the return of the money be considered as a forbearance of money
which required payment of interest at the rate of 12%? We believe so.
In Crismina Garments, Inc. v. Court of Appeals,33 "forbearance" was defined as
a "contractual obligation of lender or creditor to refrain during a given period
of time, from requiring the borrower or debtor to repay a loan or debt then due
and payable." This definition describes a loan where a debtor is given a period
within which to pay a loan or debt. In such case, "forbearance of money, goods
or credits" will have no distinct definition from a loan. We believe however,
that the phrase "forbearance of money, goods or credits" is meant to have a
separate meaning from a loan, otherwise there would have been no need to add
that phrase as a loan is already sufficiently defined in the Civil
Code.34 Forbearance of money, goods or credits should therefore refer to
arrangements other than loan agreements, where a person acquiesces to the
temporary use of his money, goods or credits pending happening of certain
events or fulfillment of certain conditions. In this case, the respondent-spouses
parted with their money even before the conditions were fulfilled. They have
therefore allowed or granted forbearance to the seller (petitioner) to use their
money pending fulfillment of the conditions. They were deprived of the use of
their money for the period pending fulfillment of the conditions and when those
conditions were breached, they are entitled not only to the return of the principal
amount paid, but also to compensation for the use of their money. And the
compensation for the use of their money, absent any stipulation, should be the
same rate of legal interest applicable to a loan since the use or deprivation of
funds is similar to a loan.
Petitioner’s unwarranted withholding of the money which rightfully pertains to
respondent-spouses amounts to forbearance of money which can be considered
as an involuntary loan. Thus, the applicable rate of interest is 12% per annum.
In Eastern Shipping Lines, Inc. v. Court of Appeals, 35 cited in Crismina
Garments, Inc. v. Court of Appeals,36 the Court suggested the following
guidelines:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held liable
for damages. The provisions under Title XVIII on ‘Damages’ of the Civil Code
govern in determining the measure of recoverable damages.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 35
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall
be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.37
Eastern Shipping Lines, Inc. v. Court of Appeals38 and its predecessor case,
Reformina v. Tongol39 both involved torts cases and hence, there was no
forbearance of money, goods, or credits. Further, the amount claimed (i.e.,
damages) could not be established with reasonable certainty at the time the
claim was made. Hence, we arrived at a different ruling in those cases.
Since the date of demand which is September 27, 2000 was satisfactorily
established during trial, then the interest rate of 12% should be reckoned from
said date of demand until the principal amount and the interest thereon is fully
satisfied.1âwphi1
The award of attorney’s fees is warranted.
Under Article 2208 of the Civil Code, attorney’s fees may be recovered:
xxxx
(2) When the defendant’s act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest;
xxxx
(11) In any other case where the court deems it just and equitable that attorney’s
fees and expenses of litigation should be recovered.
In all cases, the attorney’s fees and expenses of litigation must be reasonable.
Considering the circumstances of the instant case, we find respondent-spouses
entitled to recover attorney’s fees. There is no doubt that they were forced to
litigate to protect their interest, i.e., to recover their money. However, we find
the amount of ₱50,000.00 more appropriate in line with the policy enunciated
in Article 2208 of the Civil Code that the award of attorney’s fees must always
be reasonable.
WHEREFORE, the Petition for Review is DENIED. The May 12, 2006
Decision of the Court of Appeals in CA-G.R. CV No. 83123 is AFFIRMED
with MODIFICATIONS that the rate of interest shall be twelve percent (12%)
per annum, computed from September 27, 2000 until fully satisfied. The award
of attorney’s fees is further reduced to ₱50,000.00.
SO ORDERED.

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 36

 G.R. No. 97873 August 12, 1993
PILIPINAS BANK, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, and LILIA R.
ECHAUS, respondents.
Gella, Reyes, Danguilan and Associates for the petitioner.
Manuel L. Melotindos for the respondents.
Short Summary
Facts:
Issue:
Ruling:
QUIASON, J.:
This is a petition for certiorari under Rule 45 of the Revised Rules of Court to
review the Resolution of the Court of Appeals in CA-G.R. CV No. 06017
promulgated on March 14, 1991. The Resolution was rendered in response to
private respondent's motion for clarification of the decision of the Court of
Appeals in CA-G.R. No. 06017. The matters sought to be clarified arose in the
course of the execution of the decision of the Regional Trial Court, Branch 71,
Antipolo, Rizal in Civil Case No. 239-A, as modified by the decision of the
Court of Appeals in CA-G.R. CV No. 06017.
In Civil Case No. 239-A, private respondent filed a complaint against petitioner
and its president, Constantino Bautista, for collection of a sum of money. The
complaint alleged: (1) that petitioner and Greatland Realty Corporation
(Greatland) executed a "Dacion en Pago," wherein Greatland conveyed to
petitioner several parcels of land in consideration of the sum of P7,776,335.69;
(2) that Greatland assigned P2,300,000.00 out of the total consideration of
the Dacion en Pago, in favor of private respondent; and (3) that notwithstanding
her demand for payment, petitioner in bad faith, refused and failed to pay the
said amount assigned to her.
Petitioner, while admitting the execution of the Dacion en Pago, claimed: (1)
that its former president had no authority to enter into such agreement; (2) that
it never ratified the same; and (3) that assuming arguendo that the agreement
was binding, the conditions stipulated therein were never fulfilled.
Dismissing petitioner's defense as unmeritorious, the trial court ruled in favor
of private respondent. The trial court ordered petitioner and its co-defendant,
jointly and severally, to pay private respondent as follows:
1) P2,300,000.00 the total amount assigned by Greatland in her favor out of the
P2,300,000.00 liability of defendant Pilipinas to Greatland plus legal interest
from the dates of assignments until fully paid;
2) P3,217,707.00 representing the total actual damages suffered by the plaintiff
plus legal interest until fully paid;
3) P1,000,000.00 in moral damages to partially assuage the extreme moral
sufferings of plaintiff inflicted upon her person considering the bad faith on the
part of the defendants and their failure to act with justice, and to give what is
lawfully due her and observe honesty and good faith;
4) P100,000.00 exemplary and nominal damages to vindicate plaintiff's violated
rights;
5) Attorney's fees equivalent to 15% of the total award in favor of the plaintiff;
6) Costs of suit (Rollo, p. 78).
On March 22, 1985, petitioner appealed the decision of the trial court to the
Court of Appeals, which docketed the appeal as CA-G.R. No. 06017. On the
same day, private respondent filed a motion for Immediate Execution Pending
Appeal. The trial court granted the motion for execution pending appeal in an
Order dated April 3, 1985. Petitioner challenged the Order dated April 3, 1985
before the Court of Appeals in CA-G.R. No. SP No. 05909.
On October 30, 1986, the Court of Appeals modified the Order dated April 3,
1985, by limiting the execution pending appeal against petitioner to
P5,517.707.00 and deferring the execution of the award for moral, exemplary
and nominal damages to await the final judgment of the main case in CA-G.R.
No. 06017. On June 17, 1987, the Supreme Court in G.R. No. L-76506 affirmed
the Order dated October 30, 1986 of the Court of Appeals.
On July 1, 1988, the trial court granted the new motion for execution pending
appeal filed by private respondent pursuant to the Resolution of the Supreme
Court dated June 17, 1987, upon the filing of the required bond. Petitioner
complied with the writ of execution pending appeal by issuing two manager's
checks in the total amount of P5,517,707.00 (one for P4,965,936.30 payable to
private respondent and another for P551,770.70 payable to the Clerk of Court,
RTC, Antipolo, Rizal).
The check payable to private respondent was encashed on July 15, 1988.
On June 28, 1990, the Court of Appeals rendered a decision in CA-G.R. No.
CV-06017, which modified the judgment of the trial court as follows:
1. The defendant-appellant Pilipinas Bank, formerly known as Filipinas
Manufacturers Bank is ordered to pay the plaintiff-appellee the following:
(a) The sum of Two Million Three Hundred Thousand (2,300,000,00) Pesos,
representing the total amount assigned by Greatland to her, with interest at the
legal rate starting July 24, 1981, date when demand was first made (Exh. "F"
and "G");
(b) The sum of One Hundred Thousand (P100,000.00) Pesos in moral damages,
to assuage moral sufferings and embarrassment of plaintiff-appellee as a
consequence of appellant-bank's unwarranted acts;
(c) The sum of Twenty Five Thousand (P25,000.00) Pesos, as exemplary
damages to serve as an example or correction for the public good;
(d) The sum equivalent to ten (10) percent of the principal claim awarded,
representing attorney's fees; and
2. Constantino Bautista is absolved of personal liability (Rollo, pp. 31-32).
Petitioner filed a motion for extension of time to file a Petition for Review
on Certiorari with the Supreme Court, which however was withdrawn on July
23,1990. Private respondent, on her part, filed a motion for reconsideration of
the decision of the Court of Appeals in CA-G.R. No. 06017, which likewise
was withdrawn on August 13, 1990.
Hence, the decision of the Court of Appeals rendered in CA-G.R. No. 06017
became final and executory.
On September 4, 1990, petitioner filed a motion in the trial court praying that
private respondent and Standard Insurance Co. (which furnished the bond
required in the advance execution of the decision of the trial court) to refund to
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 37
her the excess payment of P1,898,623.67 with interests at 6% (Rollo, pp. 83-
84).
It must be recalled that while private respondent was able to collect
P5,517,707.00 from petitioner pursuant to the writ of advance execution
allowed in CA-G.R. No. SP No. 05909, the final judgment in the main case
(CA-G.R. No. 06017) awarded to private respondent damages in the total
amount of only P2,655,000.00 (P2,300,000.00 representing the amount
assigned by Greatland to private respondent, P100,000.00 as moral damages;
P25,000.00 as exemplary damages and attorney's fees equivalent to 10% of the
P2,300,000.00), together "with interest on the amount of P2,300,000.00 at the
legal rate starting July 24, 1981, date when demand was first made (Exh. "F"
and "G")."
Private respondent opposed the motion of petitioner with respect to the rate of
interest to be charged on the amount of P2,300,000.00. According to private
respondent, the legal interest on the principal amount of P2,300,000.00 due her
should be 12% per annum pursuant to CB Circular No. 416 and not 6% per
annum as computed by petitioner.
On October 12, 1990, the trial court, while ordering the refund to petitioner of
the excess payment, fixed the interest rate due on the amount of P2,300.000.00
at 12% per annum as proposed by private respondent, instead of 6% per
annum as proposed by petitioner.
On October 16, 1990, petitioner moved to reconsider the Order dated October
12, 1990 of the trail court, which however could not be acted upon because on
October 23, 1990, private respondent filed a Motion for Clarification with the
Court of Appeals in CA-G.R. CV No. 06017, regarding the following matters:
a) The "legal rate" of interest on the principal award of P2,300,000.00 from July
24, 1981 (as per decision) up to July 14, 1988 (date of actual payment made by
defendant-appellant to plaintiff-appellee per execution pending appeal);
b) The imposition of such "legal rate" of interest on the accrued interest' from
July 24, 1981 up to July 14, 1988;
c) The amount of the costs of suit will include premium on surety bond;
d) The discharged of the surety bond whether total or partial, depending on the
computation of the interest;
e) The award of attorney's fees equivalent to 10% of the principal award,
whether this should totally go to plaintiff-appellee's former counsel or to be
shared on the basis of quantum meruit with the undersigned counsel; and
f) Aside from this final award of 10% attorney's fees chargeable against
defendant-appellant, whether or not former counsel of plaintiff-appellee can
still collect from her the balance of 15% out of the 25% attorney's fees under
Exh. "N" (Rollo, p.32).
In its Resolution promulgated on March 14, 1991, the Court of Appeals clarified
that:
a) The legal rate of interest on the principal award of P2,300,000.00 should be
12% per annum in accordance with Circular No. 416 dated July 29, 1974 of the
Central Bank.
b) The computation of compounding interest annually has no basis, therefore,
not allowed in the instant case;
c) The payment of premium on the bond in the sum of P259,813.50 as cost,
being without legal and factual basis, is denied;
d) The surety bond posted by plaintiff-appellee may be released after
satisfaction of the decision; and
e) Payment/distribution of attorney's fees may/shall be litigated in a separate
proceeding if the parties cannot settle their differences amicably.
SO ORDERED (Rollo, p. 35-36).
In this appeal, petitioner claims that the Court of Appeals erred:
(1) In ruling that the legal rate of interest on the amount of P2,300,000.00
adjudged to be paid by petitioner to private respondent is 12% per annum.
(2) In not holding that the refund to which petitioner is entitled should earn
interest at the rate of 12% per annum.
(3) In not holding that the surety bond should only be released after actual
refund (Rollo, p. 18).
The Court of Appeals was of the theory that the action in Civil Case No. 239-
A filed by private respondent against petitioner "involves forbearance of
money, as the principal award to plaintiff-appellee (private respondent) in the
amount of P2,300.000.00 was the overdue debt of defendant-appellant to her
since July 1981. The case is, in effect, a simple collection of the money due to
plaintiff-appellee, as the unpaid creditor from the defendant bank, the debtor"
(Resolution, p.3; Rollo, p. 33). Applying Central Bank Circular No. 416, the
Court of Appeals held that the applicable rate of interest is 12% per annum.
Petitioner argues that the applicable law is Article 2209 of the Civil Code, not
the Central Bank Circular No. 416. Said Article 2209 provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per annum.
Presidential Decree No. 116 authorized the Monetary Board to prescribe the
maximum rate or rates of interest for the loan or renewal thereof or the
forbearance of any money, goods or credits and amended the Usury Law (Act
No. 2655) for that purpose.
As amended, the Usury Law now provides:
Sec. 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 six per centum per annum or such rate as may
be prescribed by the Monetary Board of the Central Bank of the Philippines for
that purpose in accordance with the authority hereby granted.
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum
rate or rates of interest for the loan or renewal thereof or the forbearance of any
money, goods or credits, and to charge such rate or rates whenever warranted
by prevailing economic and social conditions: Provided, That such changes
shall not be made oftener that once every twelve months.
In the exercise of the authority herein granted, the Monetary Board may
prescribe higher maximum rates for consumer loans or renewals thereof as well
as such loans made by pawnshops, finance companies and other similar credit
institutions although the rates prescribed for these institutions need not
necessarily be uniform.
Acting on the authority vested on it by the Usury Law, as amended by P.D. No.
116, the Monetary Board of Central Bank issued Central Bank Circular No.
416, which provides:
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. (italics
supplied)
Note that Circular No. 416, fixing the rate of interest at 12% per annum, deals
with (1) loans; (2) forbearance of any money, goods or credit; and
(3) judgments.
In Reformina v. Tomol, Jr., 139 SCRA 260 [1985], the Court held that the
judgments spoken of and referred to in Circular No. 416 are "judgments in
litigation involving loans or forbearance of any money, goods or credits. Any
other kind of monetary judgment which has nothing to do with nor involving
loans or forbearance of any money, goods or credits does not fall within the
coverage of the said law for it is not, within the ambit of the authority granted
to the Central Bank."
Reformina was affirmed in Philippines Virginia Tobacco Administration
v. Tensuan, 188 SCRA 628 [1990], which emphasized that the "judgments"
contemplated in Circular No. 417 "are judgments involving said loans or
forbearance only and not in judgments in litigation that have nothing to do with
loans . . . ."
We held that Circular No. 416 does not apply to judgments involving damages
(Reformina v. Tomol, Jr., supra; Philippine Virginia Tobacco
Administration v. Tensuan, supra) and compensation in expropriation
proceedings (National Power Corporation v. Angas, 208 SCRA 542 [1992]).
We also held that payment of unliquidated cash advances to an employee by his
employer (Villarica v. Court of Appeals, 123 SCRA 259 [1983]) and the return
of money paid by a buyer of a leasehold right but which contract was voided
due to the fault of the seller (Buisier v. Court of Appeals, 154 SCRA 438
[1987]).
What then is the nature of the judgment ordering petitioner to pay private
respondent the amount of P2,300,000.00?
The said amount was a portion of the P7,776,335.69 which petitioner was
obligated to pay Greatland as consideration for the sale of several parcels of
land by Greatland to petitioner. The amount of P2,300,000.00 was assigned by
Greatland in favor of private respondent. The said obligation therefore arose
from a contract of purchase and sale and not from a contract of loan or mutuum.
Hence, what is applicable is the rate of 6% per annum as provided in Article
2209 of the Civil Code of the Philippines and not the rate of 12% per annum as
provided in Circular No. 416.
Petitioner next contends that, consistent with its thesis that Circular No. 416
applies only to judgments involving the payment of loans or forbearance of
money, goods and credit, the Court of Appeals should have ordered private
respondent to pay interest at the rate of 12% on the overpayment collected by
her pursuant to the advance execution of the judgment.
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Again, we sustain petitioner's contention as correct. EN BANC
Private respondent was paid in advance the amount of P5,517,707.00 by G.R. No. 192986 January 15, 2013
petitioner to the order for the execution pending appeal of the judgment of the ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B.
trial court. On appeal, the Court of Appeals reduced the total damages to OLAGUER, Petitioners,
P3,619,083.33, leaving a balance of P1,898,623.67 to be refunded by private vs.
respondent to petitioner. In an execution pending appeal, funds are advanced BANGKO SENTRAL MONETARY BOARD, represented by its
by the losing party to the prevailing party with the implied obligation of the Chairman, GOVERNOR ARMANDO M. TETANGCO, JR., and its
latter to repay former, in case the appellate court cancels or reduces the incumbent members: JUANITA D. AMATONG, ALFREDO C.
monetary award. ANTONIO, PETER FA VILA, NELLY F. VILLAFUERTE, IGNACIO
Under Section 5 of Rule 39 of the Revised Rules of Court where "the judgment R. BUNYE and CESAR V. PURISIMA, Respondents.
executed is reversed totally or partially on appeal, the trial court, on motion, DECISION
after the case is remanded to it, may issue such orders of restitution, as equity
and justice may warrant under the circumstances." It was to guarantee the
restitution contemplated by Section 5 of Rule 39 of the Revised Rules of Court Short Summary
that private respondent was required by the trial court to post a bond before the Facts:
writ of advance execution was issued.
In the case before us, the excess amount ordered to refunded by private
respondent falls within the ruling in Viloria and Buiser that Circular No. 416
applies to cases where money is transferred from one person to another and the
obligation to return the same or a portion thereof is subsequently adjudged.
Finally, petitioner questions as vague the ruling of the Court of Appeals that the
surety bond given to secure the advance execution may be discharged "upon the
finality and satisfaction of the decision." We believe that this ruling of the Court
of Appeals is clear enough in ordering that the surety bond shall be released
only after private respondent has fully refunded the overpayment to petitioner.
WHEREFORE, the petition is GRANTED. The Resolution of the Court of
Appeals appealed from is MODIFIED in that (1) the amount of P2,300,000.00
adjudged to be paid by petitioner to private respondent shall earn interest of
6% per annum and (2) the amount of P1,898,623.67 to be refunded by private
respondent to petitioner shall earn interest of 12% per annum. Costs against
private respondent.
Issue:
SO ORDERED.

Ruling:

REYES, J.:
Petitioners, claiming that they are raising issues of transcendental importance
to the public, filed directly with this Court this Petition for Certiorari under Rule
65 of the 1997 Rules of Court, seeking to declare that the Bangko Sentral ng
Pilipinas Monetary Board (BSP-MB), replacing the Central Bank Monetary
Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, has no authority to
continue enforcing Central Bank Circular No. 905,1 issued by the CB-MB in
1982, which "suspended" Act No. 2655, or the Usury Law of 1916.
Factual Antecedents
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Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-
stock corporation organized to engage in pro bono concerns and activities
relating to money lending issues. It was incorporated on July 9, 2010, 2 and a
month later, it filed this petition, joined by its founder and president, Eduardo
B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June
15, 1948, empowered the CB-MB to, among others, set the maximum interest
rates which banks may charge for all types of loans and other credit operations,
within limits prescribed by the Usury Law. Section 109 of R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges. — The Monetary Board
may fix the maximum rates of interest which banks may pay on deposits and on
other obligations.
The Monetary Board may, within the limits prescribed in the Usury Law fix the
maximum rates of interest which banks may charge for different types of loans
and for any other credit operations, or may fix the maximum differences which
may exist between the interest or rediscount rates of the Central Bank and the
rates which the banks may charge their customers if the respective credit
documents are not to lose their eligibility for rediscount or advances in the
Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing
or lending operations of the banks shall apply only to future operations and not
to those made prior to the date on which the modification becomes effective.
In order to avoid possible evasion of maximum interest rates set by the
Monetary Board, the Board may also fix the maximum rates that banks may
pay to or collect from their customers in the form of commissions, discounts,
charges, fees or payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.)
No. 1684, giving the CB-MB authority to prescribe different maximum rates of
interest which may be imposed for a loan or renewal thereof or the forbearance
of any money, goods or credits, provided that the changes are effected gradually
and announced in advance. Thus, Section 1-a of Act No. 2655 now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum
rate or rates of interest for the loan or renewal thereof or the forbearance of any
money, goods or credits, and to change such rate or rates whenever warranted
by prevailing economic and social conditions: Provided, That changes in such
rate or rates may be effected gradually on scheduled dates announced in
advance.
In the exercise of the authority herein granted the Monetary Board may
prescribe higher maximum rates for loans of low priority, such as consumer
loans or renewals thereof as well as such loans made by pawnshops, finance
companies and other similar credit institutions although the rates prescribed for
these institutions need not necessarily be uniform. The Monetary Board is also
authorized to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries. (Underlining and emphasis ours)
In its Resolution No. 2224 dated December 3, 1982,3 the CB-MB issued CB
Circular No. 905, Series of 1982, effective on January 1, 1983. Section 1 of the
Circular, under its General Provisions, removed the ceilings on interest rates on
loans or forbearance of any money, goods or credits, to wit:
Sec. 1. The rate of interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods, or credits, regardless of
maturity and whether secured or unsecured, that may be charged or collected
by any person, whether natural or juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended. (Underscoring and
emphasis ours)
The Circular then went on to amend Books I to IV of the CB’s "Manual of
Regulations for Banks and Other Financial Intermediaries" (Manual of
Regulations) by removing the applicable ceilings on specific interest rates.
Thus, Sections 5, 9 and 10 of CB Circular No. 905 amended Book I,
Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing the
ceilings for interest and other charges, commissions, premiums, and fees
applicable to commercial banks; Sections 12 and 17 removed the interest
ceilings for thrift banks (Book II, Subsections 2303, 2349); Sections 19 and 21
removed the ceilings applicable to rural banks (Book III, Subsection 3152.3-c);
and, Sections 26, 28, 30 and 32 removed the ceilings for non-bank financial
intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1, 4303P).4
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653
establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB. The
repealing clause thereof, Section 135, reads:
Sec. 135. Repealing Clause. — Except as may be provided for in Sections 46
and 132 of this Act, Republic Act No. 265, as amended, the provisions of any
other law, special charters, rule or regulation issued pursuant to said Republic
Act No. 265, as amended, or parts thereof, which may be inconsistent with the
provisions of this Act are hereby repealed. Presidential Decree No. 1792 is
likewise repealed.
Petition for Certiorari
To justify their skipping the hierarchy of courts and going directly to this Court
to secure a writ of certiorari, petitioners contend that the transcendental
importance of their Petition can readily be seen in the issues raised therein, to
wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the
statutory or constitutional authority to prescribe the maximum rates of interest
for all kinds of credit transactions and forbearance of money, goods or credit
beyond the limits prescribed in the Usury Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB Circular
No. 905, which removed all interest ceilings and thus suspended Act No. 2655
as regards usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce
CB Circular No. 905.5
Petitioners attached to their petition copies of several Senate Bills and
Resolutions of the 10th Congress, which held its sessions from 1995 to 1998,
calling for investigations by the Senate Committee on Banks and Financial
Institutions into alleged unconscionable commercial rates of interest imposed
by these entities. Senate Bill (SB) Nos. 376 and 1860,7 filed by Senator Vicente
C. Sotto III and the late Senator Blas F. Ople, respectively, sought to amend
Act No. 2655 by fixing the rates of interest on loans and forbearance of credit;
Philippine Senate Resolution (SR) No. 1053,8 10739 and 1102,10 filed by
Senators Ramon B. Magsaysay, Jr., Gregorio B. Honasan and Franklin M.
Drilon, respectively, urged the aforesaid Senate Committee to investigate ways
to curb the high commercial interest rates then obtaining in the country; Senator
Ernesto Maceda filed SB No. 1151 to prohibit the collection of more than two
months of advance interest on any loan of money; and Senator Raul Roco filed
SR No. 114411seeking an investigation into an alleged cartel of commercial
banks, called "Club 1821", reportedly behind the regime of high interest rates.
The petitioners also attached news clippings12 showing that in February 1998
the banks’ prime lending rates, or interests on loans to their best borrowers,
ranged from 26% to 31%.
Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D.
No. 1684, the CB-MB was authorized only to prescribe or set the maximum
rates of interest for a loan or renewal thereof or for the forbearance of any
money, goods or credits, and to change such rates whenever warranted by
prevailing economic and social conditions, the changes to be effected gradually
and on scheduled dates; that nothing in P.D. No. 1684 authorized the CB-MB
to lift or suspend the limits of interest on all credit transactions, when it issued
CB Circular No. 905. They further insist that under Section 109 of R.A. No.
265, the authority of the CB-MB was clearly only to fix the banks’ maximum
rates of interest, but always within the limits prescribed by the Usury Law.
Thus, according to petitioners, CB Circular No. 905, which was promulgated
without the benefit of any prior public hearing, is void because it violated
Article 5 of the New Civil Code, which provides that "Acts executed against
the provisions of mandatory or prohibitory laws shall be void, except when the
law itself authorizes their validity."
They further claim that just weeks after the issuance of CB Circular No. 905,
the benchmark 91-day Treasury bills (T-bills),13 then known as "Jobo"
bills14 shot up to 40% per annum, as a result. The banks immediately followed
suit and re-priced their loans to rates which were even higher than those of the
"Jobo" bills. Petitioners thus assert that CB Circular No. 905 is also
unconstitutional in light of Section 1 of the Bill of Rights, which commands
that "no person shall be deprived of life, liberty or property without due process
of law, nor shall any person be denied the equal protection of the laws."
Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision
similar to Section 109 of R.A. No. 265, and therefore, in view of the repealing
clause in Section 135 of R.A. No. 7653, the BSP-MB has been stripped of the
power either to prescribe the maximum rates of interest which banks may
charge for different kinds of loans and credit transactions, or to suspend Act
No. 2655 and continue enforcing CB Circular No. 905.
Ruling
The petition must fail.
A. The Petition is procedurally infirm.
The decision on whether or not to accept a petition for certiorari, as well as to
grant due course thereto, is addressed to the sound discretion of the court. 15 A
petition for certiorari being an extraordinary remedy, the party seeking to avail
of the same must strictly observe the procedural rules laid down by law, and
non-observance thereof may not be brushed aside as mere technicality.16
As provided in Section 1 of Rule 65, a writ of certiorari is directed against a
tribunal exercising judicial or quasi-judicial functions.17 Judicial functions are
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exercised by a body or officer clothed with authority to determine what the law
is and what the legal rights of the parties are with respect to the matter in
controversy. Quasi-judicial function is a term that applies to the action or
discretion of public administrative officers or bodies given the authority to
investigate facts or ascertain the existence of facts, hold hearings, and draw
conclusions from them as a basis for their official action using discretion of a
judicial nature.18
The CB-MB (now BSP-MB) was created to perform executive functions with
respect to the establishment, operation or liquidation of banking and credit
institutions, and branches and agencies thereof.19 It does not perform judicial or
quasi-judicial functions. Certainly, the issuance of CB Circular No. 905 was
done in the exercise of an executive function. Certiorari will not lie in the instant
case.20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a given
question." In private suits, Section 2, Rule 3 of the 1997 Rules of Civil
Procedure provides that "every action must be prosecuted or defended in the
name of the real party in interest," who is "the party who stands to be benefited
or injured by the judgment in the suit or the party entitled to the avails of the
suit." Succinctly put, a party’s standing is based on his own right to the relief
sought.21
Even in public interest cases such as this petition, the Court has generally
adopted the "direct injury" test that the person who impugns the validity of a
statute must have "a personal and substantial interest in the case such that he
has sustained, or will sustain direct injury as a result."22 Thus, while petitioners
assert a public right to assail CB Circular No. 905 as an illegal executive action,
it is nonetheless required of them to make out a sufficient interest in the
vindication of the public order and the securing of relief. It is significant that in
this petition, the petitioners do not allege that they sustained any personal injury
from the issuance of CB Circular No. 905.
Petitioners also do not claim that public funds were being misused in the
enforcement of CB Circular No. 905. In Kilosbayan, Inc. v. Morato,23 involving
the on-line lottery contract of the PCSO, there was no allegation that public
funds were being misspent, which according to the Court would have made the
action a public one, "and justify relaxation of the requirement that an action
must be prosecuted in the name of the real party-in-interest." The Court held,
moreover, that the status of Kilosbayan as a people’s organization did not give
it the requisite personality to question the validity of the contract. Thus:
Petitioners do not in fact show what particularized interest they have for
bringing this suit. It does not detract from the high regard for petitioners as civic
leaders to say that their interest falls short of that required to maintain an action
under the Rule 3, Sec. 2.24
C. The Petition raises no issues of transcendental importance.
In the 1993 case of Joya v. Presidential Commission on Good Government,25 it
was held that no question involving the constitutionality or validity of a law or
governmental act may be heard and decided by the court unless there is
compliance with the legal requisites for judicial inquiry, namely: (a) that the
question must be raised by the proper party; (b) that there must be an actual case
or controversy; (c) that the question must be raised at the earliest possible
opportunity; and (d) that the decision on the constitutional or legal question
must be necessary to the determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the
requirements before taxpayers, voters, concerned citizens, and legislators can
be accorded a standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds
or that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the
election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of
infringes upon their prerogatives as legislators.
While the Court may have shown in recent decisions a certain toughening in its
attitude concerning the question of legal standing, it has nonetheless always
made an exception where the transcendental importance of the issues has been
established, notwithstanding the petitioners’ failure to show a direct injury.27 In
CREBA v. ERC,28 the Court set out the following instructive guides as
determinants on whether a matter is of transcendental importance, namely: (1)
the character of the funds or other assets involved in the case; (2) the presence
of a clear case of disregard of a constitutional or statutory prohibition by the
public respondent agency or instrumentality of the government; and (3) the lack
of any other party with a more direct and specific interest in the questions being
raised. Further, the Court stated in Anak Mindanao Party-List Group v. The
Executive Secretary29 that the rule on standing will not be waived where these
determinants are not established.
In the instant case, there is no allegation of misuse of public funds in the
implementation of CB Circular No. 905. Neither were borrowers who were
actually affected by the suspension of the Usury Law joined in this petition.
Absent any showing of transcendental importance, the petition must fail.
More importantly, the Court notes that the instant petition adverted to the
regime of high interest rates which obtained at least 15 years ago, when the
banks’ prime lending rates ranged from 26% to 31%, 30 or even 29 years ago,
when the 91-day Jobo bills reached 40% per annum. In contrast, according to
the BSP, in the first two (2) months of 2012 the bank lending rates averaged
5.91%, which implies that the banks’ prime lending rates were lower; moreover,
deposit interests on savings and long-term deposits have also gone very low,
averaging 1.75% and 1.62%, respectively.31
Judging from the most recent auctions of T-bills, the savings rates must be
approaching 0%.1âwphi1 In the auctions held on November 12, 2012, the rates
of 3-month, 6-month and 1-year T-bills have dropped to 0.150%, 0.450% and
0.680%, respectively.32 According to Manila Bulletin, this very low interest
regime has been attributed to "high liquidity and strong investor demand amid
positive economic indicators of the country."33
While the Court acknowledges that cases of transcendental importance demand
that they be settled promptly and definitely, brushing aside, if we must,
technicalities of procedure,34 the delay of at least 15 years in the filing of the
instant petition has actually rendered moot and academic the issues it now
raises.
For its part, BSP-MB maintains that the petitioners’ allegations of constitutional
and statutory violations of CB Circular No. 905 are really mere challenges made
by petitioners concerning the wisdom of the Circular. It explains that it was in
view of the global economic downturn in the early 1980’s that the executive
department through the CB-MB had to formulate policies to achieve economic
recovery, and among these policies was the establishment of a market-oriented
interest rate structure which would require the removal of the government-
imposed interest rate ceilings.35
D. The CB-MB merely suspended the effectivity of the Usury Law when it
issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D.
No. 1684 has long been recognized and upheld in many cases. As the Court
explained in the landmark case of Medel v. CA,36 citing several cases, CB
Circular No. 905 "did not repeal nor in anyway amend the Usury Law but
simply suspended the latter’s effectivity;"37that "a CB Circular cannot repeal a
law, [for] only a law can repeal another law;"38 that "by virtue of CB Circular
No. 905, the Usury Law has been rendered ineffective;"39 and "Usury has been
legally non-existent in our jurisdiction. Interest can now be charged as lender
and borrower may agree upon."40
In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc.41 cited
in DBP v. Perez,42 we also belied the contention that the CB was engaged in
self-legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury
Law but simply suspended the latter’s effectivity. The illegality of usury is
wholly the creature of legislation. A Central Bank Circular cannot repeal a law.
Only a law can repeal another law. x x x.43
In PNB v. Court of Appeals,44 an escalation clause in a loan agreement
authorized the PNB to unilaterally increase the rate of interest to 25% per
annum, plus a penalty of 6% per annum on past dues, then to 30% on October
15, 1984, and to 42% on October 25, 1984. The Supreme Court invalidated the
rate increases made by the PNB and upheld the 12% interest imposed by the
CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties
to stipulate freely regarding any subsequent adjustment in the interest rate that
shall accrue on a loan or forbearance of money, goods or credits. In fine, they
can agree to adjust, upward or downward, the interest previously stipulated. x
x x.45
Thus, according to the Court, by lifting the interest ceiling, CB Circular No.
905 merely upheld the parties’ freedom of contract to agree freely on the rate
of interest. It cited Article 1306 of the New Civil Code, under which the
contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
E. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that "The rate of interest, including
commissions, premiums, fees and other charges, on a loan or forbearance of
any money, goods, or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 41
juridical, shall not be subject to any ceiling prescribed under or pursuant to the judgment of the court is made (at which time the quantification of damages may
Usury Law, as amended." It does not purport to suspend the Usury Law only as be deemed to have been reasonably ascertained). The actual base for the
it applies to banks, but to all lenders. computation of legal interest shall, in any case, be on the amount finally
Petitioners contend that, granting that the CB had power to "suspend" the Usury adjudged.
Law, the new BSP-MB did not retain this power of its predecessor, in view of 3. When the judgment of the court awarding a sum of money becomes final and
Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The executory, the rate of legal interest, whether the case falls under paragraph 1 or
petitioners point out that R.A. No. 7653 did not reenact a provision similar to paragraph 2, above, shall be 12% per annum from such finality until its
Section 109 of R.A. No. 265. satisfaction, this interim period being deemed to be by then an equivalent to a
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans forbearance of credit.55 (Citations omitted)
extended by banks, whereas under Section 1-a of the Usury Law, as amended, The foregoing rules were further clarified in Sunga-Chan v. Court of
the BSP-MB may prescribe the maximum rate or rates of interest for all loans Appeals, 56 as follows:
or renewals thereof or the forbearance of any money, goods or credits, including Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest,
those for loans of low priority such as consumer loans, as well as such loans if proper, and the applicable rate, as follows: The 12% per annum rate under
made by pawnshops, finance companies and similar credit institutions. It even CB Circular No. 416 shall apply only to loans or forbearance of money, goods,
authorizes the BSP-MB to prescribe different maximum rate or rates for or credits, as well as to judgments involving such loan or forbearance of money,
different types of borrowings, including deposits and deposit substitutes, or goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code
loans of financial intermediaries. applies "when the transaction involves the payment of indemnities in the
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, concept of damage arising from the breach or a delay in the performance of
now R.A. No. 7653, merely supplemented it as it concerns loans by banks and obligations in general," with the application of both rates reckoned "from the
other financial institutions. Had R.A. No. 7653 been intended to repeal Section time the complaint was filed until the [adjudged] amount is fully paid." In either
1-a of Act No. 2655, it would have so stated in unequivocal terms. instance, the reckoning period for the commencement of the running of the legal
Moreover, the rule is settled that repeals by implication are not favored, because interest shall be subject to the condition "that the courts are vested with
laws are presumed to be passed with deliberation and full knowledge of all laws discretion, depending on the equities of each case, on the award of
existing pertaining to the subject.46 An implied repeal is predicated upon the interest."57 (Citations omitted)
condition that a substantial conflict or repugnancy is found between the new WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.
and prior laws. Thus, in the absence of an express repeal, a subsequent law SO ORDERED.
cannot be construed as repealing a prior law unless an irreconcilable
inconsistency and repugnancy exists in the terms of the new and old laws.47 We
find no such conflict between the provisions of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not authorize stipulations
charging excessive, unconscionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche
authority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets.48 As held in Castro v. Tan:49
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.50
Stipulations authorizing iniquitous or unconscionable interests have been
invariably struck down for being contrary to morals, if not against the
law.51 Indeed, under Article 1409 of the Civil Code, these contracts are deemed
inexistent and void ab initio, and therefore cannot be ratified, nor may the right
to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect
the lender’s right to recover the principal of a loan, nor affect the other terms
thereof.52 Thus, in a usurious loan with mortgage, the right to foreclose the
mortgage subsists, and this right can be exercised by the creditor upon failure
by the debtor to pay the debt due. The debt due is considered as without the
stipulated excessive interest, and a legal interest of 12% per annum will be
added in place of the excessive interest formerly imposed,53following the
guidelines laid down in the landmark case of Eastern Shipping Lines, Inc. v.
Court of Appeals,54 regarding the manner of computing legal interest:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall
be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 42

G.R. No. 131622 November 27, 1998
LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO
FRANCO, petitioners,
vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and
DANILO G. GONZALES, JR. doing lending business under the trade
name and style "GONZALES CREDIT ENTERPRISES", respondents.
Short Summary
Facts:
Issue:
Ruling:
PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule 45
of the Revised Rules of Court, seeking to set aside the decision of the Court of
Appeals,1 and its resolution denying reconsideration, 2 the dispositive portion
of which decision reads as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby-ordered to pay the plaintiff: the sum of P500,000.00, plus
5.5% per month interest and 2% service charge per annum effective July 23,
1986, plus 1% per month of the total amount due and demandable as penalty
charges effective August 23, 1986, until the entire amount is fully paid.
The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so
is the imposition of costs against the defendants.
SO ORDERED. 3
The Court required the respondents to comment on the petition, 4 which was
filed on April 3, 1998,5 and the petitioners to reply thereto, which was filed on
May 29, 1998.6 We now resolve to give due course to the petition and decide
the case.
The facts of the case, as found by the Court of Appeals in its decision, which
are considered binding and conclusive on the parties herein, as the appeal is
limited to questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando
and Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica),
who was engaged in the money lending business under the name "Gonzales
Credit Enterprises", in the amount of P50,000.00, payable in two months.
Veronica gave only the amount of P47,000.00, to the borrowers, as she retained
P3,000.00, as advance interest for one month at 6% per month. Servando and
Leticia executed a promissory note for P50,000.00, to evidence the loan,
payable on January 7, 1986.
On November 19, 1985, Servando and Liticia obtained from Veronica another
loan in the amount of P90,000.00, payable in two months, at 6% interest per
month. They executed a promissory note to evidence the loan, maturing on
Janaury 19, 1986. They received only P84,000.00, out of the proceeds of the
loan.
On maturity of the two promissory notes, the borrowers failed to pay the
indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another
loan in the amout of P300,000.00, maturing in one month, secured by a real
estate mortgage over a property belonging to Leticia Makalintal Yaptinchay,
who issued a special power of attorney in favor of Leticia Medel, authorizing
her to execute the mortgage. Servando and Leticia executed a promissory note
in favor of Veronica to pay the sum of P300,000.00, after a month, or on July
11, 1986. However, only the sum of P275.000.00, was given to them out of the
proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on
maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael
Medel, consolidated all their previous unpaid loans totaling P440,000.00, and
sought from Veronica another loan in the amount of P60,000.00, bringing their
indebtedness to a total of P500,000.00, payable on August 23, 1986. They
executed a promissory note, reading as follows:
Baliwag, Bulacan July 23, 1986
Maturity Date Augsut 23, 1986
P500,000.00
FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the
order of VERONICA R. GONZALES doing business in the business style of
GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to
Danilo G. Gonzales, Jr., of Baliwag, Bulacan, the sum of PESOS . . . FIVE
HUNDRED THOUSAND . . . (P500,000.00) Philippine Currency with interest
thereon at the rate of 5.5 PER CENT per month plus 2% service charge per
annum from date hereof until fully paid according to the amortization schedule
contained herein. (Emphasis supplied)
Payment will be made in full at the maturity date.
Should I/WE fail to pay any amortization or portion hereof when due, all the
other installments together with all interest accrued shall immediately be due
and payable and I/WE hereby agree to pay an additional amount equivalent to
one per cent (1%) per month of the amount due and demandable as penalty
charges in the form of liquidated damages until fully paid; and the further sum
of TWENTY FIVE PER CENT (25%) thereof in full, without deductions as
Attorney's Fee whether actually incurred or not, of the total amount due and
demandable, exclusive of costs and judicial or extra judicial expenses.
(Emphasis supplied).
I, WE further agree that in the event the present rate of interest on loan is
increased by law or the Central Bank of the Philippines, the holder shall have
the option to apply and collect the increased interest charges without notice
although the original interest have already been collected wholly or partially
unless the contrary is required by law.
It is also a special condition of this contract that the parties herein agree that the
amount of peso-obligation under this agreement is based on the present value
of the peso, and if there be any change in the value thereof, due to extraordinary
inflation or deflation, or any other cause or reason, then the peso-obligation
herein contracted shall be adjusted in accordance with the value of the peso then
prevailing at the time of the complete fulfillment of the obligation.
Demand and notice of dishonor waived. Holder may accept partial payments
and grant renewals of this note or extension of payments, reserving rights
against each and all indorsers and all parties to this note.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 43
IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the
debtors waive all his/their rights under the provisions of Section 12, Rule 39, of
the Revised Rules of Court.
On maturity of the loan, the borrowers failed to pay the indebtedness of
P500,000.00, plus interests and penalties, evidenced by the above-quoted
promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G.
Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at
Malolos, Bulacan, a complaint for collection of the full amount of the loan
including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990,
defendant Servando alleged that he did not obtain any loan from the plaintiffs;
that it was defendants Leticia and Dr. Rafael Medel who borrowed from the
plaintiffs the sum of P500,000.00, and actually received the amount and
benefited therefrom; that the loan was secured by a real estate mortgage
executed in favor of the plaintiffs, and that he (Servando Franco) signed the
promissory note only as a witness.
In their separate answer filed on April 10, 1990, defendants Leticia and Rafael
Medel alleged that the loan was the transaction of Leticia Yaptinchay, who
executed a mortgage in favor of the plaintiffs over a parcel of real estate situated
in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with
additional service charge of 2% per annum, and penalty charge of 1% per
month; that the stipulation for attorney's fees of 25% of the amount due is
unconscionable, illegal and excessive, and that substantial payments made were
applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness
of the four promissory notes had been duly proved, and ruled that although the
Usury Law had been repealed, the interest charged by the plaintiffs on the loans
was unconscionable and "revolting to the conscience". Hence, the trial court
applied "the provision of the New [Civil] Code" that the "legal rate of interest
for loan or forbearance of money, goods or credit is 12% per annum."7
Accordingly, on December 9, 1991, the trial court rendered judgment, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. Ordering the defendants Servando Franco and Leticia Medel, jointly and
severally, to pay plaintiffs the amount of P47,000.00 plus 12% interest per
annum from November 7, 1985 and 1% per month as penalty, until the entire
amount is paid in full.
2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs,
jointly and severally the amount of P84,000.00 with 12% interest per annum
and 1% per cent per month as penalty from November 19, 1985 until the whole
amount is fully paid;
3. Ordering the defendants to pay the plaintiffs, jointly and severally, the
amount of P285,000.00 plus 12% interest per annum and 1% per month as
penalty from July 11, 1986, until the whole amount is fully paid;
4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount
of P50,000.00 as attorney's fees;
5. All counterclaims are hereby dismissed.
With costs against the defendants.8
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which
consolidated all the unpaid loans of the defendants, is the law that governs the
parties. They further argued that Circular No. 416 of the Central Bank
prescribing the rate of interest for loans or forbearance of money, goods or
credit at 12% per annum, applies only in the absence of a stipulation on interest
rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled
that "the Usury Law having become 'legally inexistent' with the promulgation
by the Central Bank in 1982 of Circular No. 905, the lender and borrower could
agree on any interest that may be charged on the loan". 9 The Court of Appeals
further held that "the imposition of 'an additional amount equivalent to 1% per
month of the amount due and demandable as penalty charges in the form of
liquidated damages until fully paid' was allowed
law". 10
Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision
reversing that of the Regional Trial Court, disposing as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00, plus
5.5% per month interest and 2% service charge per annum effective July 23,
1986, plus 1% per month of the total amount due and demandable as penalty
charges effective August 24, 1986, until the entire amount is fully paid.
The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so
is the imposition of costs against the defendants.
SO ORDERED. 11
On April 15, 1997, defendants-appellants filed a motion for reconsideration of
the said decision. By resolution dated November 25, 1997, the Court of Appeals
denied the motion. 12
Hence, defendants interposed the present recourse via petition for review
on certiorari. 13
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated upon.
Thus, the question presented is whether or not the stipulated rate of interest at
5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended
to the defendants is usurious. In other words, is the Usury Law still effective,
or has it been repealed by Central Bank Circular No. 905, adopted on December
22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No.
1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month
on the P500,000.00 loan is excessive, iniquitous, unconscionable and
exorbitant. 13 However, we can not consider the rate "usurious" because this
Court has consistently held that Circular No. 905 of the Central Bank, adopted
on December 22, 1982, has expressly removed the interest ceilings prescribed
by the Usury Law 14 and that the Usury Law is now "legally inexistent". 15
In Security Bank and Trust Company vs. Regional Trial Court of Makati,
Branch 61 16 the Court held that CB Circular No. 905 "did not repeal nor in
anyway amend the Usury Law but simply suspended the latter's effectivity."
Indeed, we have held that "a Central Bank Circular can not repeal a law. Only
a law can repeal another law." 17 In the recent case of Florendo vs. Court of
Appeals 18, the Court reiterated the ruling that "by virtue of CB Circular 905,
the Usury Law has been rendered ineffective". "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as lender and borrower
may agree upon." 19
Nevertheless, we find the interest at 5.5% per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not
against the law. 20 The stipulation is void. 21 The courts shall reduce equitably
liquidated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable. 22
Consequently, the Court of Appeals erred in upholding the stipulation of the
parties. Rather, we agree with the trial court that, under the circumstances,
interest at 12% per annum, and an additional 1% a month penalty charge as
liquidated damages may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision
of the Court of Appeals promulgated on March 21, 1997, and its resolution
dated November 25, 1997. Instead, we render judgment REVIVING and
AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court
of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90,
involving the same parties.
No pronouncement as to costs in this instance.
SO ORDERED.
by
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 44
 In February and March 1999, petitioners Salvador and Violeta Chua granted
respondents Rodrigo, Ma. Lynn and Lydia Timan the following loans:
a) P100,000; b) P200,000; c) P150,000; d) P107,000; e) P200,000; and
G.R. No. 170452 August 13, 2008 f) P107,000. These loans were evidenced by promissory notes with interest of
SALVADOR CHUA and VIOLETA CHUA, petitioners, 7% per month, which was later reduced to 5% per month. Rodrigo and Ma.
vs. Lynn issued five (5) postdated checks to secure the loans, except for
RODRIGO TIMAN, MA. LYNN TIMAN and LYDIA the P150,000 loan which was secured by a postdated check issued by Lydia.
TIMAN, respondents. Respondents paid the loans initially at 7% interest rate per month until
DECISION September 1999 and then at 5% interest rate per month from October to
December 1999. Sometime in March 2000, respondents offered to pay the
principal amount of the loans through a Philippine National Bank manager’s
Short Summary
check worth P764,000, but petitioners refused to accept the same insisting that
Facts: the principal amount of the loans totalled P864,000.
On May 3, 2000, respondents deposited P864,000 with the Clerk of Court of
the RTC of Quezon City. Later, they filed a case for consignation and damages.
Petitioners moved to dismiss the case, but the RTC denied the motion, as well
as the subsequent motion for reconsideration.
By virtue of an order of Partial Judgment4 dated October 16, 2002, the Clerk of
Court of the RTC of Quezon City released the amount of P864,000 to
petitioners.
Trial on the validity of the stipulated interests on the subject loans, as well as
on the issue of damages, then proceeded.
On May 14, 2004, the RTC rendered a decision in favor of respondents. It ruled
that the original stipulated interest rates of 7% and 5% per month were
excessive. It further ordered petitioners to refund to respondents all interest
payments in excess of the legal rate of 1% per month or 12% per annum.
However, the RTC denied petitioners’ claim for damages.
On appeal, the Court of Appeals affirmed the trial court’s decision. The Court
Issue: of Appeals declared illegal the stipulated interest rates of 7% and 5% per month
for being excessive, iniquitous, unconscionable and exorbitant. Accordingly,
the Court of Appeals reduced the stipulated interest rates of 7% and 5% per
month (equivalent to 84% and 60% per annum, respectively) to a fair and
reasonable rate of 1% per month or 12% per annum. The Court of Appeals also
Ruling: ordered petitioners to refund to respondents all interest payments in excess of
12% per annum. Petitioners sought reconsideration, but it was denied.
Hence, this petition raising the lone issue of:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED A REVERSIBLE ERROR – OR ACTED NOT IN ACCORD
WITH THE LAW AND JURISPRUDENCE – WHEN IT AFFIRMED THE
JUDGMENT OF THE REGIONAL TRIAL COURT ORDERING THE
RETURN OF THE EXCESS INTEREST TO RESPONDENTS.5
Essentially, the main issue is: (1) Did the Court of Appeals err in ruling that the
original stipulated interest rates of 7% and 5%, equivalent to 84% and 60% per
annum, are unconscionable, and in ordering petitioners to refund to respondents
all payments of interest in excess of 12% per annum?
Petitioners aver that the stipulated interest of 5% monthly and higher cannot be
considered unconscionable because these rates are not usurious by virtue of
Central Bank (C.B.) Circular No. 905-826 which had expressly removed the
interest ceilings prescribed by the Usury Law. Petitioners add that respondents
were in pari delicto since they agreed on the stipulated interest rates of 7% and
5% per month. They further aver they honestly believed that the interest rates
they imposed on respondents’ loans were not usurious.
Respondents, invoking Medel v. Court of Appeals,7 counter that the stipulated
interest rates of 7% and 5% per month are iniquitous, unconscionable and
exorbitant, thus, they are entitled to the return of the excessive interest paid.
They also contend that petitioners cannot raise the defense of in pari delicto for
the first time on appeal. They further contend that the defense of good faith is a
factual issue which cannot be raised by petitioners in a petition for review under
Rule 45 of the Rules of Civil Procedure.
The petition is patently devoid of merit.
The stipulated interest rates of 7% and 5% per month imposed on respondents’
loans must be equitably reduced to 1% per month or 12% per annum.8 We need
QUISUMBING, J.: not unsettle the principle we had affirmed in a plethora of cases that stipulated
Before us is a petition for review on certiorari assailing the Decision1 and interest rates of 3%9 per month and higher10 are excessive, iniquitous,
Resolution2 dated March 9, 2005 and November 24, 2005, respectively, of the unconscionable and exorbitant. Such stipulations are void for being contrary to
Court of Appeals in CA-G.R. CV No. 82865, which had affirmed the morals, if not against the law.11 While C.B. Circular No. 905-82, which took
Decision3 dated May 14, 2004 of the Regional Trial Court (RTC) of Quezon effect on January 1, 1983, effectively removed the ceiling on interest rates for
City, Branch 86, in Civil Case No. Q-00-41276. The Court of Appeals reduced both secured and unsecured loans, regardless of maturity,12 nothing in the said
the stipulated original interest rates of 7% and 5% per month to only 1% per circular could possibly be read as granting carte blanche authority to lenders to
month or 12% per annum and ordered petitioners to refund the excess interest raise interest rates to levels which would either enslave their borrowers or lead
payments by respondents. to a hemorrhaging of their assets.13
The pertinent facts are as follows: Petitioners cannot also raise the defenses of in pari delicto and good faith. The
defense of in pari delicto was not raised in the RTC, hence, such an issue cannot
be raised for the first time on appeal. Petitioners must have seasonably raised it
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 45
in the proceedings before the lower court, because questions raised on appeal FIRST DIVISION
are confined only within the issues framed by the parties.14 The defense of good G.R. No. 172139 December 8, 2010
faith must also fail because such an issue is a question of fact 15 which may not
be properly raised in a petition for review under Rule 45 of the Rules of Civil JOCELYN M. TOLEDO, Petitioner,
Procedure which allows only questions of law.16 vs.
MARILOU M. HYDEN, Respondent.
As well set forth in Medel:17
DECISION
We agree … that the stipulated rate of interest at 5.5% per month on
the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. Short Summary
However, we can not consider the rate "usurious" because this Court has Facts:
consistently held that Circular No. 905 of the Central Bank, adopted on
December 22, 1982, has expressly removed the interest ceilings prescribed by
the Usury Law and that the Usury Law is now "legally inexistent."
In Security Bank and Trust Company vs. Regional Trial Court of Makati,
Branch 61, the Court held that CB Circular No. 905 "did not repeal nor in any
way amend the Usury Law but simply suspended the latter’s effectivity."
Indeed, we have held that "a Central Bank Circular can not repeal a law. Only
a law can repeal another law." In the recent case of Florendo vs. Court of
Appeals, the Court reiterated the ruling that "by virtue of CB Circular 905, the
Usury Law has been rendered ineffective." "Usury has been legally non-existent
in our jurisdiction. Interest can now be charged as lender and borrower may
agree upon."
Nevertheless, we find the interest at 5.5% per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not
against the law. The stipulation is void.
Issue:
WHEREFORE, the petition is DENIED for lack of merit. The assailed
Decision and Resolution dated March 9, 2005 and November 24, 2005,
respectively, of the Court of Appeals in CA-G.R. CV No. 82865 are
hereby AFFIRMED. Costs against petitioners.
SO ORDERED. Ruling:

DEL CASTILLO, J.:

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 Certiorari1 assails the Decision2 dated August 24,
2005 of the Court of Appeals (CA) in CA-G.R. CV No. 79805, which affirmed
the Decision dated March 10, 20033 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:
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 46
 1) August ……… ₱
15, 1993 30,000.00
2) April
……… 100,000.00 with 6%
21, 1994
monthly
3) October
……… 30,000.00 interest
2, 1995
4) October
……… 30,000.00
9, 1995
with 7%
5) May 22,
……… 100,000.00 monthly
1997
interest
TOTAL
₱
AMOUNT ……… 4
290,000.00
OF LOAN
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 ₱290,000.00 remained unpaid. Thus, in April 1998, Marilou visited
Jocelyn in her office 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 Debt"5 for the amount of ₱290,000.00
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 five checks to Marilou representing renewal payment of her five previous
loans, viz:
Check No. 0010761 dated September 2, 1998
Check No. 0010762 dated September 9, 1998
Check No. 0010763 dated September 15, 1998
Check No. 0010764 dated September 22, 1998
Check No. 0010765 dated September 25, 1998
In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761 in the
amount of ₱30,000.00 and replaced the same with six checks, in staggered
amounts, namely:
Check No. 0010494 dated July 2, 1998
Check No. 0010495 dated August 2, 1998
Check No. 0010496 dated September 2, 1998
Check No. 0010497 dated October 2, 1998
Check No. 0010498 dated November 2, 1998
Check No. 0010499 dated December 2, 1998
After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered
the stop payment on the remaining checks and on October 27, 1998, filed with
the RTC of Cebu City a complaint6 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 ₱528,550.00
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 filed an Answer7 with Special Affirmative
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 find 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 (₱290,000.00) PESOS since December 25, 1998 less the amount
of EIGHTEEN THOUSAND NINE HUNDRED (₱18,900.00) PESOS,
equivalent to the three checks made good (₱6,625.00 dated 07-02-1998;
₱6,300.00 dated 08-02-1998; and ₱5,975.00 dated 09-02-1998).
Consequently, PLAINTIFF is hereby ordered to pay DEFENDANT the amount
of TWO HUNDRED SEVENTY ONE THOUSAND ONE HUNDRED
(₱271,100.00) 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.
SO ORDERED.8
On March 26, 2003, Jocelyn filed an Earnest Motion for
Reconsideration,9 which was denied by the trial court in its Order10 dated April
29, 2003 stating that it finds 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
₱778,000.00 for a principal amount of loan of only ₱290,000.00. 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.11
. . . . . .The ₱ 30,000.00
. . . Motion for Reconsideration12 filed by Jocelyn was denied by the CA
through its Resolution13 dated March 8, 2006.
......... 30,000.00
Issues
......... 30,000.00
Hence, this petition raising the following issues:
. . . . . .I.. . . 100,000.00
. . . . . .Whether
... 100,000.00
the CA gravely erred when it held that the imposition of interest at the
TOTAL rate of six₱percent (6%) to seven percent (7%) is not contrary to law, morals,
290,000.00
good customs, public order or public policy.
II.
Whether the CA gravely erred when it failed to declare that the
. . . . . . ."Acknowledgment
.. ₱ 6,625.00of Debt" is an inexistent contract that is void from the very
beginning pursuant to Article 1409 of the New Civil Code.
......... 6,300.00
Petitioner’s Arguments
. . . . . . .Jocelyn
.. 5,975.00
posits that the CA erred when it held that the imposition of interest at
. . . . . . .the
. . rates of
6,500.00
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
5,325.00
the "Acknowledgment of Debt" is valid and binding. According to Jocelyn,
. . . . . . .even
. . assuming
5,000.00that the execution of said document was not attended with force,
TOTALthreat and₱ intimidation,
35,725.00 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 ₱778,000.00 was applied to interest
payment alone. This only proves that the transaction was iniquitous, excessive,
oppressive and unconscionable.
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 office 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 affixing 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.14 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.15 In fact, in Medel v. Court of Appeals,16 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
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 47
₱500,000.00 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-à-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 filed 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 five 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 sufficiently funded when she ordered the stop
payment and then filed 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 benefiting 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 signifies 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." 17
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
filing 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 testified by Serapio Romarate,18an employee of
the Bank of Commerce where Jocelyn is one of their clients, there was an
available balance of ₱276,203.03 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 filed 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 nullification 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 ₱290,000.00 as she had already paid a total amount
of ₱778,000.00. She claims that said document is an inexistent contract that is
void from the very beginning as clearly provided for by Article 1409 19 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.
xxxx
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 office 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 first three checks before filing the complaint with the RTC.
If indeed she was forced she would never have made good on the first three
checks.
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 influence, the
other party; and, (3) knowledge, actual or constructive, of the real facts."20
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 five checks in favor of Marilou representing renewal
payment of her loans amounting to ₱290,000.00. In June 1998, she asked to
recall Check No. 0010761 in the amount of ₱30,000.00 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.1avvphi1
More significantly, Jocelyn already availed herself of the benefits 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 benefits without outrage to one’s sense of
justice and fairness."21 "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."22
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 affirming 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.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 48
 complaint to full payment. The assailed CA Resolution denied the petitioners’
Motion for Reconsideration.
G.R. No. 160545 March 9, 2010
FACTUAL BACKGROUND
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and
ROGELIO S. PANTALEON, Petitioners, The facts of the case, gathered from the records, are briefly summarized below.
vs.
ARTHUR F. MENCHAVEZ, Respondent. On December 8, 1993, Pantaleon, the President and Chairman of the Board of
PRISMA, obtained a ₱1,000,000.004loan from the respondent, with a monthly
DECISION interest of ₱40,000.00 payable for six months, or a total obligation of
₱1,240,000.00 to be paid within six (6) months,5 under the following schedule
Short Summary of payments:
Facts:
January 8, 1994 …………………. ₱40,000.00

February 8, 1994 ………………... ₱40,000.00

March 8, 1994 …………………... ₱40,000.00

April 8, 1994 ……………………. ₱40,000.00

May 8, 1994 …………………….. ₱40,000.00

June 8, 1994 ………………… ₱1,040,000.006

Issue:
Total ₱1,240,000.00

To secure the payment of the loan, Pantaleon issued a promissory note7 that
Ruling: states:

I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION

TWO HUNDRED FORTY THOUSAND PESOS (P1,240,000), Philippine
Currency, from Mr. Arthur F. Menchavez, representing a six-month loan
payable according to the following schedule:

January 8, 1994 …………………. ₱40,000.00

February 8, 1994 ………………... ₱40,000.00

March 8, 1994 …………………... ₱40,000.00

April 8, 1994 ……………………. ₱40,000.00

May 8, 1994 …………………….. ₱40,000.00

June 8, 1994 ………………… ₱1,040,000.00

The checks corresponding to the above amounts are hereby acknowledged. 8

and six (6) postdated checks corresponding to the schedule of payments.

BRION, J.: Pantaleon signed the promissory note in his personal capacity, 9 and as duly
authorized by the Board of Directors of PRISMA.10 The petitioners failed to
We resolve in this Decision the petition for review on certiorari1 filed by completely pay the loan within the stipulated six (6)-month period.
petitioners Prisma Construction & Development Corporation (PRISMA) and
Rogelio S. Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse From September 8, 1994 to January 4, 1997, the petitioners paid the following
and set aside the Decision2 dated May 5, 2003 and the Resolution 3 dated amounts to the respondent:
October 22, 2003 of the Former Ninth Division of the Court of Appeals (CA)
in CA-G.R. CV No. 69627. The assailed CA Decision affirmed the Decision of September 8, 1994 ……………… ₱320,000.00
the Regional Trial Court (RTC), Branch 73, Antipolo City in Civil Case No.
97-4552 that held the petitioners liable for payment of ₱3,526,117.00 to
respondent Arthur F. Menchavez (respondent), but modified the interest rate October 8, 1995…………………. ₱600,000.00
from 4% per month to 12% per annum, computed from the filing of the

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 49


November 8, 1995…………….
January 4, 1997 ………………….
part of, the promissory note based on which the petitioners obtained the loan.
₱158,772.00
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
₱30,000.0011 the principal amount under the promissory note and the board resolution.

As of January 4, 1997, the petitioners had already paid a total of ₱1,108,772.00.
However, the respondent found that the petitioners still had an outstanding
balance of ₱1,364,151.00 as of January 4, 1997, to which it applied a 4%
monthly interest.12 Thus, on August 28, 1997, the respondent filed a complaint
for sum of money with the RTC to enforce the unpaid balance, plus 4% monthly
interest, ₱30,000.00 in attorney’s fees, ₱1,000.00 per court appearance and
costs of suit.13
In their Answer dated October 6, 1998, the petitioners admitted the loan of
₱1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing
that the interest was not provided in the promissory note. Pantaleon also denied
that he made himself personally liable and that he made representations that the
loan would be repaid within six (6) months.14
THE RTC RULING
The RTC rendered a Decision on October 27, 2000 finding that the respondent
issued a check for ₱1,000,000.00 in favor of the petitioners for a loan that would
earn an interest of 4% or ₱40,000.00 per month, or a total of ₱240,000.00 for a
6-month period. It noted that the petitioners made several payments amounting
to ₱1,228,772.00, but they were still indebted to the respondent for
₱3,526,117.00 as of February 11,15 1999 after considering the 4% monthly
interest. The RTC observed that PRISMA was a one-man corporation of
Pantaleon and used this circumstance to justify the piercing of the veil of
corporate fiction. Thus, the RTC ordered the petitioners to jointly and severally
pay the respondent the amount of ₱3,526,117.00 plus 4% per month interest
from February 11, 1999 until fully paid.16
The petitioners elevated the case to the CA via an ordinary appeal under Rule
41 of the Rules of Court, insisting that there was no express stipulation on the
4% monthly interest.
THE CA RULING
The CA decided the appeal on May 5, 2003. The CA found that the parties
agreed to a 4% monthly interest principally based on the board resolution that
authorized Pantaleon to transact a loan with an approved interest of not more
than 4% per month. The appellate court, however, noted that the interest of 4%
per month, or 48% per annum, was unreasonable and should be reduced to 12%
per annum. The CA affirmed the RTC’s finding that PRISMA was a mere
instrumentality of Pantaleon that justified the piercing of the veil of corporate
fiction. Thus, the CA modified the RTC Decision by imposing a 12% per annum
interest, computed from the filing of the complaint until finality of judgment,
and thereafter, 12% from finality until fully paid.17
After the CA's denial18 of their motion for reconsideration,19 the petitioners
filed the present petition for review on certiorari under Rule 45 of the Rules of
Court.
THE ISSUE
The core issue boils down to whether the parties agreed to the 4% monthly
interest on the loan. If so, does the rate of interest apply to the 6-month payment
period only or until full payment of the loan?
OUR RULING
We find the petition meritorious.
Interest due should be stipulated in writing; otherwise, 12% per annum
Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.20 When the terms of a
contract are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations governs.21 In such cases, courts
have no authority to alter the contract by construction or to make a new contract
for the parties; a court's duty is confined to the interpretation of the contract the
parties made for themselves without regard to its wisdom or folly, as the court
cannot supply material stipulations or read into the contract words the contract
does not contain.22 It is only when the contract is vague and ambiguous that
courts are permitted to resort to the interpretation of its terms to determine the
parties’ intent.
In the present case, the respondent issued a check for ₱1,000,000.00.23 In turn,
Pantaleon, in his personal capacity and as authorized by the Board, executed
the promissory note quoted above. Thus, the ₱1,000,000.00 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 ₱40,000.00 per month, for
a total obligation of ₱1,240,000.00 for the six-month period. We note that this
agreed sum can be computed at 4% interest per month, but no such rate
of interest was stipulated in the promissory note; rather a fixed sum
equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that "no interest shall be
due unless it has been expressly stipulated in writing." Under this provision, the
payment of interest in loans or forbearance of money is allowed only if: (1)
there was an express stipulation for the payment of interest; and (2) the
agreement for the payment of interest was reduced in writing. The concurrence
of the two conditions is required for the payment of interest at a stipulated rate.
Thus, we held in Tan v. Valdehueza24 and Ching v. Nicdao25 that collection of
interest without any stipulation in writing is prohibited by law.1avvphi1
Applying this provision, we find that the interest of ₱40,000.00 per month
corresponds only to the six (6)-month period of the loan, or from January 8,
1994 to June 8, 1994, as agreed upon by the parties in the promissory note.
Thereafter, the interest on the loan should be at the legal interest rate of
12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals:26

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 ₱3,526,117.00 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
When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code." (Emphasis supplied)
We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br.
61,27 Sulit v. Court of Appeals,28Crismina Garments, Inc. v. Court of
Appeals, 29 Eastern Assurance and Surety Corporation v. Court of
Appeals, 30Sps. Catungal v. Hao, 31 Yong v. Tiu,32 and Sps. Barrera v. Sps.
Lorenzo.33 Thus, the RTC and the CA misappreciated the facts of the case; they
erred in finding that the parties agreed to a 4% interest, compounded by the
application of this interest beyond the promissory note’s six (6)-month period.
The facts show that the parties agreed to the payment of a specific sum of
money of ₱40,000.00 per month for six months, not to a 4% rate of interest
payable within a six (6)-month period.
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Medel v. Court of Appeals not applicable Piercing the corporate veil unfounded

The CA misapplied Medel v. Court of Appeals34 in finding that a 4% interest We find it unfounded and unwarranted for the lower courts to pierce the
per month was unconscionable. corporate veil of PRISMA.

In Medel, the debtors in a ₱500,000.00 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. Salazar35 of 6% per month or 72% per annum interest on a
₱60,000.00 loan; in Ruiz v. Court of Appeals,36 of 3% per month or 36% per
annum interest on a ₱3,000,000.00 loan; in Imperial v. Jaucian, 37 of 16% per
month or 192% per annum interest on a ₱320,000.00 loan; in Arrofo v.
Quiño,38 of 7% interest per month or 84% per annum interest on a ₱15,000.00
loan; in Bulos, Jr. v. Yasuma,39 of 4% per month or 48% per annum interest on
a ₱2,500,000.00 loan; and in Chua v. Timan,40 of 7% and 5% per month for
loans totalling ₱964,000.00. We note that in all these cases, the terms of the
loans were open-ended; the stipulated interest rates were applied for an
indefinite period.
Medel finds no application in the present case where no other stipulation exists
for the payment of any extra amount except a specific sum of ₱40,000.00 per
month on the principal of a loan payable within six months. Additionally, no
issue on the excessiveness of the stipulated amount of ₱40,000.00 per month
was ever put in issue by the petitioners;41 they only assailed the application of
a 4% interest rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that the parties are bound
by the stipulations, clauses, terms and conditions they have agreed to, which is
the law between them, the only limitation being that these stipulations, clauses,
terms and conditions are not contrary to law, morals, public order or public
policy.42 The payment of the specific sum of money of ₱40,000.00 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.
The doctrine of piercing the corporate veil applies only in three (3) basic
instances, namely: a) when the separate and distinct corporate personality
defeats public convenience, as when the corporate fiction is used as a vehicle
for the evasion of an existing obligation; b) in fraud cases, or when the corporate
entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used
in alter ego cases, i.e., where a corporation is essentially a farce, since it is a
mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.46 In the
absence of malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally liable for
corporate liabilities.47
In the present case, we see no competent and convincing evidence of any
wrongful, fraudulent or unlawful act on the part of PRISMA to justify piercing
its corporate veil. While Pantaleon denied personal liability in his Answer, he
made himself accountable in the promissory note "in his personal capacity and
as authorized by the Board Resolution" of PRISMA.48 With this statement of
personal liability and in the absence of any representation on the part of
PRISMA that the obligation is all its own because of its separate corporate
identity, we see no occasion to consider piercing the corporate veil as material
to the case.
WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET
ASIDE the Decision dated May 5, 2003 of the Court of Appeals in CA-G.R.
CV No. 69627. The petitioners’ loan of ₱1,000,000.00 shall bear interest of
₱40,000.00 per month for six (6) months from December 8, 1993 as indicated
in the promissory note. Any portion of this loan, unpaid as of the end of the six-
month payment period, shall thereafter bear interest at 12% per annum. The
total amount due and unpaid, including accrued interests, shall bear interest at
12% per annum from the finality of this Decision. Let this case
be REMANDED to the Regional Trial Court, Branch 73, Antipolo City for the
proper computation of the amount due as herein directed, with due regard to the
payments the petitioners have already remitted. Costs against the respondent.
SO ORDERED.

Therefore, as agreed by the parties, the loan of ₱1,000,000.00 shall earn

₱40,000.00 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 ₱1,240,000.00.
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
₱1,228,772.00 as of February 12, 1999,43 should be deducted from the total
amount due, computed as indicated above. We remand the case to the trial court
for the actual computation of the total amount due.

Doctrine of Estoppel not applicable

The respondent submits that the petitioners are estopped from disputing the 4%
monthly interest beyond the six-month stipulated period, since they agreed to
pay this interest on the principal amount under the promissory note and the
board resolution.

We disagree with the 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,44 what the petitioners agreed to was the payment of a specific
sum of ₱40,000.00 per month for six months – not a 4% rate of interest per
month for six (6) months – on a loan whose principal is ₱1,000,000.00, for
the total amount of ₱1,240,000.00. Thus, no reason exists to place the
petitioners in estoppel, barring them from raising their present defenses against
a 4% per month interest after the six-month period of the agreement. The board
resolution,45 on the other hand, simply authorizes Pantaleon to contract for a
loan with a monthly interest of not more than 4%. This resolution merely
embodies the extent of 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.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 51
 obligation of ₱350,000.00, plus 12% interest per annumreckoned from the
filing of the Complaint until full payment of the obligation.
G.R. No. 183360 September 8, 2014
Likewise assailed is the CA’s June 6, 2008 Resolution6 which denied Rolando’s
ROLANDO C. DE LA PAZ,* Petitioner, Motion for Reconsideration.
vs.
L & J DEVELOPMENT COMPANY, Respondent. Factual Antecedents

DECISION On December 27, 2000, Rolando lent ₱350,000.00 without any security to L&J,
a property developer with Atty. Esteban Salonga (Atty. Salonga) as its President
Short Summary and General Manager. The loan, with no specified maturity date, carried a 6%
Facts: monthly interest, i.e., ₱21,000.00. From December 2000 to August 2003, L&J
paid Rolando a total of ₱576,000.007 representing interest charges.

As L&J failed to pay despite repeated demands, Rolando filed a Complaint 8 for
Collection of Sum of Money with Damages against L&J and Atty. Salonga in
his personal capacity before the MeTC, docketed as Civil Case No. 05-7755.
Rolando alleged, amongothers, that L&J’s debtas of January 2005, inclusive of
the monthly interest, stood at ₱772,000.00; that the 6% monthly interest was
upon Atty. Salonga’s suggestion; and, that the latter tricked him into parting
with his money without the loan transaction being reduced into writing.

In their Answer,9 L&J and Atty. Salonga denied Rolando’s allegations. While
they acknowledged the loan as a corporate debt, they claimed that the failure to
pay the same was due to a fortuitous event, that is, the financial difficulties
brought about by the economic crisis. They further argued that Rolando cannot
enforce the 6% monthly interest for being unconscionable and shocking to the
morals. Hence, the payments already made should be applied to the
Issue:
₱350,000.00 principal loan.

During trial, Rolando testified that he had no communication with Atty.

Salonga prior to the loan transaction but knew him as a lawyer, a son of a former
Ruling: Senator, and the owner of L&J which developed Brentwood Subdivision in
Antipolo where his associate Nilo Velasco (Nilo) lives. When Nilo told him
that Atty. Salonga and L&J needed money to finish their projects, heagreed to
lend them money. He personally met withAtty. Salonga and their meeting was
cordial.

He narrated that when L&J was in the process of borrowing the ₱350,000.00
from him, it was Arlene San Juan (Arlene), the secretary/treasurer of L&J, who
negotiated the terms and conditions thereof.She said that the money was to
finance L&J’s housing project. Rolando claimed that it was not he who
demanded for the 6% monthly interest. It was L&J and Atty. Salonga, through
Arlene, who insisted on paying the said interest as they asserted that the loan
was only a short-term one.

Ruling of the Metropolitan Trial Court

The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly interest.
In so ruling, it ratiocinated that since L&J agreed thereto and voluntarily paid
the interest at suchrate from 2000 to 2003, it isalready estopped from impugning
the same. Nonetheless, for reasons of equity, the saidcourt reduced the interest
rate to 12% per annumon the remaining principal obligation of ₱350,000.00.
With regard to Rolando’s prayer for moral damages, the MeTC denied the same
as it found no malice or bad faith on the part ofL&J in not paying the obligation.
It likewise relieved Atty. Salonga of any liability as it found that he merely
acted in his official capacity in obtaining the loan. The MeTC disposed of the
case as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of

DEL CASTILLO, J.:
"No interest shall be due unless it has been expressly stipulated in writing."1
2 amount of Three Hundred Fifty Thousand Pesos (₱350,000.00) representing the
This is a Petition for Review on Certiorari assailing the February 27, 2008
Decision3 of the Court of Appeals (CA) in CA-G.R. SP No. 100094, which
reversed and set aside the Decision4 dated April 19, 2007 of the Regional Trial
Court (RTC), Branch 192, Marikina City in Civil Case No. 06-1145-MK. The
said RTC Decision affirmed in all respects the Decision 5 dated June 30, 2006
of the Metropolitan Trial Court (MeTC), Branch 75, Marikina City in Civil
Case No. 05-7755, which ordered respondent L & J Development Company
(L&J) to pay petitioner Architect Rolando C. De La Paz (Rolando) its principal
the plaintiff, Arch. Rolando C. Dela Paz, and against the defendant, L & J
Development Co., Inc., as follows:
a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the
principal obligation, plus interest at the legal rate of 12% per annum to be
computed from January 20, 2005, the date of the filing of the complaint, until
the whole obligation is fully paid;
b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the
amount of Five Thousand Pesos (₱5,000.00) as and for attorney’s fees; and
c) to pay the costs of this suit.

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 52

SO ORDERED.11
Ruling of the Regional Trial Court
L&J appealed to the RTC. It asserted in its appeal memorandum 12 that from
December 2000 to March 2003, it paid monthly interest of ₱21,000.00 based
on the agreed-upon interest rate of 6%monthly and from April 2003 to August
2003, interest paymentsin various amounts.13 The total of interest payments
made amounts to ₱576,000.00 – an amount which is even more than the
principal obligation of ₱350,000.00
L&J insisted that the 6% monthly interest rate is unconscionable and immoral.
Hence, the 12% per annumlegal interest should have been applied from the time
of the constitution of the obligation. At 12% per annum interest rate, it asserted
that the amount of interestit ought to pay from December 2000 to March 2003
and from April 2003 to August 2003, only amounts to ₱105,000.00. If this
amount is deducted from the total interest paymentsalready made, which is
₱576,000.00, the amount of ₱471,000.00 appears to have beenpaid over and
above what is due. Applying the rule on compensation, the principal loan of
₱350,000.00 should be set-off against the ₱471,000.00, resulting in the
complete payment of the principal loan.
Unconvinced, the RTC, inits April 19, 2007 Decision, 14 affirmed the MeTC
Decision, viz: WHEREFORE, premises considered, the Decision appealed
from is hereby AFFIRMED in all respects, with costs against the appellant.
SO ORDERED.15
Ruling of the Court of Appeals
Undaunted, L&J went to the CA and echoed its arguments and proposed
computation as proffered before the RTC.
In a Decision16 dated February 27, 2008, the CAreversed and set aside the RTC
Decision. The CA stressed that the parties failedto stipulate in writing the
imposition of interest on the loan. Hence, no interest shall be due thereon
pursuant to Article 1956 of the Civil Code. 17 And even if payment of interest
has been stipulated in writing, the 6% monthly interest is still outrightly illegal
and unconscionable because it is contrary to morals, if not against the law.
Being void, this cannot be ratified and may be set up by the debtor as defense.
For these reasons, Rolando cannot collect any interest even if L&J offered to
pay interest. Consequently, he has to return all the interest payments of
₱576,000.00 to L&J.
Considering further that Rolando and L&J thereby became creditor and debtor
of each other, the CA applied the principle of legal compensation under Article
1279 of the Civil Code.18 Accordingly, it set off the principal loan of
₱350,000.00 against the ₱576,000.00 total interest payments made, leaving an
excess of ₱226,000.00, which the CA ordered Rolando to pay L&J plus interest.
Thus:
WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and
SET ASIDE.
CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is
ordered to pay to the petitioner the amount of ₱226,000.00,plus interest of 12%
per annumfrom the finality of this decision.
Costs of suit to be paid by respondent Dela Paz.
SO ORDERED.19
In his Motion for Reconsideration,20 Rolando argued thatthe circumstances
exempt both the application of Article 1956 and of jurisprudence holding that a
6% monthly interest is unconscionable, unreasonable, and exorbitant. He
alleged that Atty. Salonga, a lawyer, should have taken it upon himself to have
the loan and the stipulated rate of interest documented but, by way of legal
maneuver, Atty. Salonga, whom he fully trusted and relied upon, tricked him
into believing that the undocumented and uncollateralized loan was withinlegal
bounds. Had Atty. Salonga told him that the stipulated interest should be in
writing, he would have readily assented. Furthermore, Rolando insisted that the
6% monthly interest ratecould not be unconscionable as in the first place, the
interest was not imposed by the creditor but was in fact offered by the borrower,
who also dictated all the terms of the loan. He stressed that in cases where
interest rates were declared unconscionable, those meant to be protected by
such declaration are helpless borrowers which is not the case here.
Still, the CA denied Rolando’s motion in its Resolution21 of June 6, 2008.
Hence, this Petition.
The Parties’ Arguments
Rolando argues that the 6%monthly interest rateshould not have been
invalidated because Atty. Salonga took advantage of his legal knowledge to
hoodwink him into believing that no document was necessaryto reflect the
interest rate. Moreover, the cases anent unconscionable interest rates that the
CA relied upon involve lenders who imposed the excessive rates,which are
totally different from the case at bench where it is the borrower who decided on
the high interest rate. This case does not fall under a scenariothat ‘enslaves the
borrower or that leads to the hemorrhaging of his assets’ that the courts seek to
prevent.
L&J, in controverting Rolando’s arguments, contends that the interest rate is
subject of negotiation and is agreedupon by both parties, not by the borrower
alone. Furthermore, jurisprudence has nullified interestrates on loans of 3% per
month and higher as these rates are contrary to moralsand public interest. And
while Rolando raises bad faithon Atty. Salonga’s part, L&J avers thatsuch issue
is a question of fact, a matter that cannot be raised under Rule 45.
Issue
The Court’s determination of whether to uphold the judgment of the CA that
the principal loan is deemed paid isdependent on the validity of the monthly
interest rate imposed. And in determining such validity, the Court must
necessarily delve into matters regarding a) the form of the agreement of interest
under the law and b) the alleged unconscionability of the interest rate. Our
Ruling
The Petition is devoid of merit.
The lack of a written stipulation to pay interest on the loaned amount disallows
a creditor from charging monetary interest.
Under Article 1956 of the Civil Code, no interest shall bedue unless it has been
expressly stipulated in writing. Jurisprudence on the matter also holds that for
interest to be due and payable, two conditions must concur: a) express
stipulation for the payment of interest; and b) the agreement to pay interest is
reduced in writing.
Here, it is undisputed that the parties did not put down in writing their
agreement. Thus, no interest is due. The collection of interest without any
stipulation in writing is prohibited by law.22
But Rolando asserts that his situation deserves an exception to the application
of Article 1956. He blames Atty. Salonga for the lack of a written document,
claiming that said lawyer used his legal knowledge to dupe him. Rolando thus
imputes bad faith on the part of L&J and Atty. Salonga. The Court, however,
finds no deception on the partof L&J and Atty. Salonga. For one, despite the
lack of a document stipulating the payment of interest, L&J nevertheless
devotedly paid interests on the loan. It only stopped when it suffered from
financial difficulties that prevented it from continuously paying the 6% monthly
rate. For another,regardless of Atty. Salonga’s profession, Rolando who is an
architect and an educated man himself could have been a more reasonably
prudent person under the circumstances. To top it all, he admitted that he had
no prior communication with Atty. Salonga. Despite Atty. Salonga being a
complete stranger, he immediately trusted him and lent his company
₱350,000.00, a significant amount. Moreover, as the creditor,he could have
requested or required that all the terms and conditions of the loan agreement,
which include the payment of interest, be put down in writing to ensure that he
and L&J are on the same page. Rolando had a choice of not acceding and to
insist that their contract be put in written form as this will favor and safeguard
him as a lender. Unfortunately, he did not. It must be stressed that "[c]ourts
cannot follow one every step of his life and extricate him from bad bargains,
protect him from unwise investments, relieve him from one-sided contracts,or
annul the effects of foolish acts. Courts cannotconstitute themselves guardians
of persons who are not legally incompetent."23
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 53
It may be raised that L&J is estopped from questioning the interest rate TERESITA DIO, Petitioners,
considering that it has been paying Rolando interest at such ratefor more than vs.
two and a half years. In fact, in its pleadings before the MeTCand the RTC, SPOUSES VIRGILIO and LUZ ROCES JAPOR and
L&J merely prayed for the reduction of interest from 6% monthly to 1% MARTA1 JAPOR, Respondents.
monthly or 12% per annum. However, in Ching v. Nicdao,24 the daily payments DECISION
of the debtor to the lender were considered as payment of the principal amount
of the loan because Article 1956 was not complied with. This was Short Summary
notwithstanding the debtor’s admission that the payments made were for the
Facts:
interests due. The Court categorically stated therein that "[e]stoppel cannot give
validity to an act that is prohibited by law or one thatis against public policy."

Even if the payment of interest has been reduced in writing, a 6% monthly

interest rate on a loan is unconscionable, regardless of who between the parties
proposed the rate.

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

While the Court recognizes the right of the parties to enter into contracts and
who are expectedto comply with their terms and obligations, this rule is not
absolute. Stipulated interest rates are illegal if they are unconscionable and the Issue:
Court is allowed to temper interest rates when necessary. In exercising this
vested power to determine what is iniquitous and unconscionable, the Court
must consider the circumstances of each case. What may be iniquitous and
unconscionable in onecase, may be just in another. x x x28
Ruling:
Time and again, it has been ruled in a plethora of cases that stipulated interest
rates of 3% per month and higher, are excessive, iniquitous, unconscionable
and exorbitant. Such stipulations are void for being contrary to morals, if not
against the law.29 The Court, however, stresses that these rates shall be
invalidated and shall be reduced only in cases where the terms of the loans are
open-ended, and where the interest rates are applied for an indefinite period.
Hence, the imposition of a specific sum of ₱40,000.00 a month for six months
on a ₱1,000,000.00 loan is not considered unconscionable. 30

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

As exhaustibly discussed,no monetary interest isdue Rolando pursuant to

Article 1956.1âwphi1 The CA thus correctly adjudged that the excess interest
payments made by L&J should be applied to its principal loan. As computed by
the CA, Rolando is bound to return the excess payment of ₱226,000.00 to L&J
following the principle of solutio indebiti.35

However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect
on July 1, 2013,36 the interest imposed by the CA must be accordingly modified.
The ₱226,000.00 which Rolando is ordered to pay L&J shall earn an interest of
6% per annumfrom the finality of this Decision.
WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals
in CA-G.R. SP No. 100094 is hereby AFFIRMED with modification that
petitioner Rolando C. De La Paz is ordered to pay respondent L&J
Development Company the amount of ,₱226,000.00, plus interest of 6o/o per
annum from the finality of this Decision until fully paid.
SO ORDERED.
G.R. No. 154129. July 8, 2005
QUISUMBING, J.:
For review on certiorari is the Decision,2 dated February 22, 2002, of the Court
of Appeals, in the consolidated cases CA-G.R. CV No. 51521 and CA-G.R. SP
No. 40457. The decretal portion read:
WHEREFORE, premises considered, in CA-G.R. CV No. 51521, the decision
of the trial court is AFFIRMED with MODIFICATION. Judgment is rendered
as follows:
1. Declaring the Real Estate Mortgage to be valid;
2. Fixing the interest at 12% per annum and an additional 1% penalty charge
per month such that plaintiffs-appellants’ contractual obligation under the deed
of real estate mortgage would amount to ₱1,252,674.00;
3. Directing defendant-appellee Dio to give the surplus of ₱2,247,326.00 to
plaintiffs-appellants; and
4. Affirming the dissolution of the writ of preliminary injunction previously
issued by the trial court.
No pronouncement as to costs.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 54
The Petition in CA-G.R. SP No. 40457 is DENIED for being moot and
academic.
SO ORDERED.3
Equally assailed in this petition is the Resolution,4 dated July 2, 2002, of the
appellate court, denying Teresita Dio’s Motion for Partial Reconsideration of
March 19, 2002 and the Spouses Japor and Marta Japor’s Motion for
Reconsideration dated March 20, 2002.
The antecedent facts are as follows:
Herein respondents Spouses Virgilio Japor and Luz Roces Japor were the
owners of an 845.5 square-meter residential lot including its improvements,
situated in Barangay Ibabang Mayao, Lucena City, as shown by Transfer
Certificate of Title (TCT) No. T-39514. Adjacent to the Japor’s lot is another
lot owned by respondent Marta Japor, which consisted of 325.5 square meters
and titled under TCT No. T-15018.
On August 23, 1982, the respondents obtained a loan of ₱90,000 from the
Quezon Development Bank (QDB), and as security therefor, they mortgaged
the lots covered by TCT Nos. T-39514 and T-15018 to QDB, as evidenced by
a Deed of Real Estate Mortgage duly executed by and between the respondents
and QDB.
On December 6, 1983, respondents and QDB amended the Deed of Real Estate
Mortgage increasing respondents’ loan to ₱128,000.
The respondents failed to pay their aforesaid loans. However, before the bank
could foreclose on the mortgage, respondents, thru their broker, one Lucia G.
Orian, offered to mortgage their properties to petitioner Teresita Dio. Petitioner
prepared a Deed of Real Estate Mortgage, whereby respondents mortgaged
anew the two properties already mortgaged with QDB to secure the timely
payment of a ₱350,000 loan that respondents had from petitioner Dio. The Deed
of Real Estate Mortgage, though dated January 1989, was actually executed on
February 13, 1989 and notarized on February 17, 1989.
Under the terms of the deed, respondents agreed to pay the petitioner interest at
the rate of five percent (5%) a month, within a period of two months or until
April 14, 1989. In the event of default, an additional interest equivalent to five
percent (5%) of the amount then due, for every month of delay, would be
charged on them.
The respondents failed to settle their obligation to petitioner on April 14, 1989,
the agreed deadline for settlement.
On August 27, 1991, petitioner made written demands upon the respondents to
pay their debt.
Despite repeated demands, respondents did not pay, hence petitioner applied
for extrajudicial foreclosure of the mortgage. The auction of the unredeemed
properties was set for February 26, 1992.
Meanwhile, on February 24, 1992, respondents filed an action for Fixing of
Contractual Obligation with Prayer for Preliminary Mandatory
Injunction/Restraining Order, docketed as Civil Case No. 92-26, with the
Regional Trial Court (RTC) of Lucena City. Respondents prayed that
"judgment be rendered fixing the contractual obligations of plaintiffs with the
defendant Dio plus legal or allowable interests thereon."5
The trial court issued an Order enjoining the auction sale of the aforementioned
mortgaged properties.
On June 15, 1992, the Japors filed a Motion to Admit Amended
Complaint with an attached copy of their Amended Complaint praying that
the Deed of Real Estate Mortgage dated February 13, 1989 be declared null and
void, but reiterating the plea that the trial court fix the contractual obligations
of the Japors with Dio. The trial court denied the motion.
On September 27, 1994, respondents filed with the appellate court, a petition
for certiorari, docketed as CA-G.R. SP No. 35315, praying that the Court of
Appeals direct the trial court to admit their Amended Complaint. The appellate
court denied said petition.6
On December 11, 1995, the trial court handed down the following judgment:
WHEREFORE, in view of the foregoing considerations, judgment is rendered:
1. Dismissing the complaint for failure of the plaintiffs to substantiate their
affirmative allegations;
2. Declaring the Real Estate Mortgage (Exhs. "A" to "A-13"/Exhs. "3" to "3-
D") to be valid and binding as between the parties, more particularly the
plaintiffs Virgilio Japor, Luz Japor and Marta Japor or the latter’s substituted
heir or heirs, as the case may be;
3. Dissolving the writ of preliminary injunction previously issued by this Court;
and
4. To pay the cost of this suit.
SO ORDERED.7
On January 17, 1996, respondents filed their notice of appeal. On April 26,
1996, they also filed a Petition for Temporary Restraining Order And/Or
Mandatory Injunction in Aid of Appellate Jurisdiction with the Court of
Appeals.
On May 8, 1996, petitioner Dio as the sole bidder in an auction purchased the
properties for ₱3,500,000.
On May 9, 1996, the Court of Appeals denied respondents’ application for a
temporary restraining order.8
On October 9, 1996, the appellate court consolidated CA-G.R. CV No. 51521
and CA-G.R. SP No. 40457.
As stated at the outset, the appellate court affirmed the decision of the trial court
with respect to the validity of the Deed of Real Estate Mortgage, but modified
the interest and penalty rates for being unconscionable and exorbitant.
Before us, petitioner assigns the following errors allegedly committed by the
appellate court:
I
THE ALLEGED INIQUITY OF THE STIPULATED INTEREST AND
PENALTY WAS NOT RAISED BEFORE THE TRIAL COURT NOR
ASSIGNED AS AN ERROR IN RESPONDENTS’ APPEAL.
II
THE STIPULATED INTEREST AND PENALTY ARE NOT "EXCESSIVE,
INIQUITOUS, UNCONSCIONABLE, EXORBITANT AND CONTRARY
TO MORAL[S]".
III
PAYMENT OF THE "SURPLUS" OF ₱2,247,326.00 TO RESPONDENTS
WOULD RESULT IN THEIR UNJUST ENRICHMENT.
IV
RESPONDENTS’ APPEAL SHOULD HAVE BEEN DISMISSED DUE TO
FORUM SHOPPING.9
Simply stated, the issue is: Did the Court of Appeals err when it held that the
stipulations on interest and penalty in the Deed of Real Estate Mortgage is
contrary to morals, if not illegal? Corollarily, were respondents entitled to any
"surplus" on the auction sale price?
On the main issue, petitioner contends that The Usury Law10 has been rendered
ineffective by Central Bank Circular No. 905, series of 1982 and accordingly,
usury has become legally non-existent in this jurisdiction, thus, interest rates
may accordingly be pegged at such levels or rates as the lender and the borrower
may agree upon. Petitioner avers she has not violated any law considering she
is not engaged in the business of money-lending. Moreover, she claims she has
suffered inconveniences and incurred expenses for some 13 years now as a
result of respondents’ failure to pay her. Petitioner further points out that the
5% interest rate was proposed by the respondents and have only themselves to
blame if the interests and penalties ballooned to its present amount due to their
willful delay and default in payment. The appellate court thus erred, petitioner
now insists, in applying Sps. Almeda v. Court of Appeals11 and Medel v. Court
of Appeals12 to reduce the interest rate to 12% per annum and the penalty to 1%
per month.
Respondents admit they owe petitioner ₱350,000 and do not question any
lawful interest on their loan but they maintain that the Deed of Real Estate
Mortgage is null and void since it did not state the true intent of the parties,
which limited the 5% interest rate to only two (2) months from the date of the
loan and which did not provide for penalties and other charges in the event of
default or delay. Respondents vehemently contend that they never consented to
the said stipulations and hence, should not be bound by them.
On the first issue, we are constrained to rule against the petitioner’s contentions.
Central Bank Circular No. 905, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and unsecured
loans, regardless of maturity. However, nothing in said Circular grants
lenders carte blanche authority to impose interest rates which would result in
the enslavement of their borrowers or to the hemorrhaging of their
assets.13 While a stipulated rate of interest may not technically and necessarily
be usurious under Circular No. 905, usury now being legally non-existent in our
jurisdiction,14 nonetheless, said rate may be equitably reduced should the same
be found to be iniquitous, unconscionable, and exorbitant, and hence, contrary
to morals (contra bonos mores), if not against the law.15 What is iniquitous,
unconscionable, and exorbitant shall depend upon the factual circumstances of
each case.
In the instant case, the Court of Appeals found that the 5% interest rate per
month and 5% penalty rate per month for every month of default or delay is in
reality interest rate at 120% per annum. This Court has held that a stipulated
interest rate of 5.5% per month or 66% per annum is void for being iniquitous
or unconscionable.16 We have likewise ruled that an interest rate of 6% per
month or 72% per annum is outrageous and inordinate.17 Conformably to these
precedent cases, a combined interest and penalty rate at 10% per month or
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120% per annum, should be deemed iniquitous, unconscionable, and
inordinate. Hence, we sustain the appellate court when it found the interest and
penalty rates in the Deed of Real Estate Mortgage in the present case excessive,
hence legally impermissible. Reduction is legally called for now in rates of
interest and penalty stated in the mortgage contract.
What then should the interest and penalty rates be?
The evidence shows that it was indeed the respondents who proposed the 5%
interest rate per month for two (2) months. Having agreed to said rate, the
parties are now estopped from claiming otherwise. For the succeeding period
after the two months, however, the Court of Appeals correctly reduced the
interest rate to 12% per annum and the penalty rate to 1% per month, in
accordance with Article 222718 of the Civil Code.
But were respondents entitled to the "surplus" of ₱2,247,32619 as a result of the
"overpricing" in the auction?
We note that the "surplus" was the result of the computation by the Court of
Appeals of respondents’ outstanding liability based on a reduced interest rate
of 12% per annum and the reduced penalty rate of 1% per month. The court a
quo then proceeded to apply our ruling in Sulit v. Court of Appeals,20 to the
effect that in case of surplus in the purchase price, the mortgagee is liable for
such surplus as actually comes into his hands, but where he sells on credit
instead of cash, he must still account for the proceeds as if the price were paid
in cash, for such surplus stands in the place of the land itself with respect to
liens thereon or vested rights therein particularly those of the mortgagor or his
assigns.
In the instant case, however, there is no "surplus" to speak of. In adjusting the
interest and penalty rates to equitable and conscionable levels, what the Court
did was merely to reflect the true price of the land in the foreclosure sale. The
amount of the petitioner’s bid merely represented the true amount of the
mortgage debt. No surplus in the purchase price was thus created to which the
respondents as the mortgagors have a vested right.
WHEREFORE, the Decision dated February 22, 2002, of the Court of Appeals
in the consolidated cases CA-G.R. CV No. 51521 and CA-G.R. SP No. 40457
is hereby AFFIRMED with MODIFICATION. The interest rate for the subject
loan owing to QDB, or whoever is now the party mortgagee, is hereby fixed at
five percent (5%) for the first two (2) months following the date of execution
of the Deed of Real Estate Mortgage, and twelve percent (12%) for the
succeeding period. The penalty rate thereafter shall be fixed at one percent (1%)
per month. Petitioner Teresita Dio is declared free of any obligation to return to
the respondents, the Spouses Virgilio Japor and Luz Roces Japor and Marta
Japor, any surplus in the foreclosure sale price. There being no surplus, after
the court below had applied our ruling in Sulit,21 respondents could not legally
claim any overprice from the petitioner, much less the amount of
₱2,247,326.00.
SO ORDERED.

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