(1) CAROLYN M.

GARCIA,

G.R. No. 154878

Petitioner,
Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
GARCIA, JJ.

-versus-

RICA MARIE S. THIO,

Respondent.

Promulgated:
March 16, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CORONA, J.:
Assailed in this petition for review on certiorari [1] are the June 19, 2002 decision[2] and August 20,
2002 resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28,
1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a
crossed check[4] dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou
Santiago.[5] Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June
26 and July 26, all in 1995) the amount of US$3,000 [6] and P76,500[7] on July 26,[8]August 26, September 26
and October 26, 1995.
In June 1995, respondent received from petitioner another crossed check [9] dated June 29, 1995 in the
amount of P500,000, also payable to the order of Marilou Santiago. [10] Consequently, petitioner received from
respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.[11]
According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000
and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money and
damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000, with
interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month from
November 5, 1995, plus attorneys fees and actual damages.[12]
Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000
with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.[13] The amount of
this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000 at an
agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.[14] The amount of this loan
was covered by the second check. For both loans, no promissory note was executed since petitioner and respondent
were close friends at the time.[15] Respondent paid the stipulated monthly interest for both loans but on their
maturity dates, she failed to pay the principal amounts despite repeated demands.[16]
Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou
Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed

checks to Santiago.[17] She issued the checks for P76,000 andP20,000 not as payment of interest but to
accommodate petitioners request that respondent use her own checks instead of Santiagos. [18]
In a decision dated February 28, 1997, the RTC ruled in favor of petitioner. [19] It found that respondent
borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a monthly
interest of 4%:[20]
WHEREFORE, finding preponderance of evidence to sustain the instant complaint,
judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the
amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month
from October 26, 1995 until fully paid;
2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until
fully paid.
3. P100,000.00 as and for attorneys fees; and
4. P50,000.00 as and for actual damages.
For lack of merit, [respondents] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.[21]
On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between
the parties:
A perusal of the record of the case shows that [petitioner] failed to substantiate her claim
that [respondent] indeed borrowed money from her. There is nothing in the record that shows
that [respondent] received money from [petitioner]. What is evident is the fact that
[respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of
US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated
June 29, 1995 in the amount of P500,000.00, again payable to the order of Marilou Santiago, both
of which were issued by [petitioner]. The checks received by [respondent], being crossed, may
not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou
Santiago herself.
It must be noted that crossing a check has the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only onceto one who
has an account with the bank; (c) and the act of crossing the check serves as warning to the holder
that the check has been issued for a definite purpose so that he must inquire if he has received the
check pursuant to that purpose, otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and
delivery to the payee in contemplation of law since the latter is not the person who could take the
checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither
could she be deemed as an agent of Marilou Santiago with respect to the checks because she was
merely facilitating the transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there were really no
contracts of loan that existed between the parties. x x x (emphasis supplied) [22]
Hence this petition.[23]

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the CA
(which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held
that there were contracts of loan) are contradictory.[24]
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the
contract.[25] This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or simple loan is
binding upon the parties, but the commodatum or simple loan itself shall not be perfected until
the delivery of the object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks
were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an
equal amount.[26]
It is undisputed that the checks were delivered to respondent. However, these checks were crossed and
payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question to be
answered is: who borrowed money from petitioner respondent or Santiago?
Petitioner insists that it was upon respondents instruction that both checks were made payable to Santiago.
She maintains that it was also upon respondents instruction that both checks were delivered to her (respondent)
so that she could, in turn, deliver the same to Santiago.[28] Furthermore, she argues that once respondent received the
checks, the latter had possession and control of them such that she had the choice to either forward them to Santiago
(who was already her debtor), to retain them or to return them to petitioner.[29]
[27]

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the
actual or constructive possession or control of another.[30] Although respondent did not physically receive the
proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby
she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago.[31] It was highly improbable
that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any
written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on the other
hand, already had transactions with Santiago at that time.[32]
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties
list of witnesses) testified that respondents plan was for petitioner to lend her money at a monthly interest rate of
3%, after which respondent would lend the same amount toSantiago at a higher rate of 5% and realize a profit of
2%.[33] This explained why respondent instructed petitioner to make the checks payable toSantiago. Respondent has
not shown any reason why Ruiz testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000
each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also
issued her own checks in the amount of P20,000 each for four months.[34] According to respondent, she merely
accommodated petitioners request for her to issue her own checks to cover the interest payments since petitioner
was not personally acquainted with Santiago. [35] She claimed, however, that Santiago would replace the checks with
cash.[36] Her explanation is simply incredible. It is difficult to believe that respondent would put herself in a position
where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract. We
declared in one case that:
In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence
to be believed, it must not only proceed from the mouth of a credible witness, but must be credible
in itself such as the common experience of mankind can approve as probable under the

circumstances. We have no test of the truth of human testimony except its conformity to our
knowledge, observation, and experience. Whatever is repugnant to these belongs to the
miraculous, and is outside of juridical cognizance.[37]
Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who
was listed as one of her (Santiagos) creditors.[38]
Last, respondent inexplicably never presented Santiago as a witness to corroborate her story. [39] The
presumption is that evidence willfully suppressed would be adverse if produced. [40] Respondent was not able to
overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts
of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent liable
for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000
and P500,000 loans respectively. There was no written proof of the interest payable except for the verbal agreement
that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code provides that [n]o interest
shall be due unless it has been expressly stipulated in writing.
Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article
2209 of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.[41]
Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21,
1995, the date when she received petitioners demand letter. [42] From the finality of the decision until it is fully paid,
the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of
credit.[43]
The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted since the
RTC decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002
resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February 28,
1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that
respondent is directed to pay petitioner the amounts of US$100,000 and P500,000 at 12% perannum interest
from November 21, 1995 until the finality of the decision. The total amount due as of the date of finality will earn
interest of 12%per annum until fully paid. The award of actual damages and attorneys fees is deleted.
SO ORDERED.

(2) SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs. DEVELOPMENT BANK OF THE
PHILIPPINES, defendant-appellant.
[G.R. No. L-24968 April 27, 1972]

MAKALINTAL, J.:
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965
sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to
plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date
the complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation
(RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for
the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the
purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the
strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953;
and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said
bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured
by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment
to be installed. Among the other terms spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China
Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of
funds, and as the construction of the factory buildings progresses, to be certified to by an appraiser of this
Corporation;"

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having
otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms
laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to
the extent of its stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura,
Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would
be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its
Board of Governors, for certain reasons stated in the resolution, "to reexamine all the aspects of this approved
loan ... with special reference as to the advisability of financing this particular project based on present conditions
obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the
loan, and asked that the necessary documents be prepared in accordance with the terms and conditions specified in
Resolution No. 145. In connection with the reexamination of the project to be financed with the loan applied for, as
stated in Resolution No. 736, the parties named their respective committees of engineers and technical men to meet
with each other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the
observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions
to, the agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in
Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China
Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the
following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in
Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon
Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00.
Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145,
C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the
various aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of
financing the manufacture of jute sacks in Davao, with special reference as to the advisability of financing this
particular project based on present conditions obtaining in the operation of jute mills, and after having heard Ramon
E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman,
RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and
that releases up to P100,000 may be authorized as may be necessary from time to time to place the factory in actual
operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall
remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers
Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the
same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of
the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was
denied by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of

P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the
loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers,
Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00
originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00,
"it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrowercorporation," but with the following proviso:
That in view of observations made of the shortage and high cost of imported raw materials, the
Department of Agriculture and Natural Resources shall certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out its operation are
available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately for the
requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was
explained that the certification by the Department of Agriculture and Natural Resources was required "as the
intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally
available raw materials." This point is important, and sheds light on the subsequent actuations of the parties. Saura,
Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw
materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between the
Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate
aKenaf mill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local
raw materials, principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the
first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is presently grown
commercially in theIsland of Mindanao where the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to
require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to
the availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself
confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special
study made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably even
next year;" (2) requesting "assurances (from RFC) that my company and associates will be able to bring in sufficient
jute materials as may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be
made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)

b) For the purchase of materials and equipment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the opening of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the release of
your loan under consideration of P500,000. As stated in our letter of December
22, 1954, the releases of the loan, if revived, are proposed to be made from time
to time, subject to availability of funds towards the end that the sack factory
shall be placed in actual operating status. We shall be able to act on your request
for revised purpose and manner of releases upon re-appraisal of the securities
offered for the loan.
With respect to our requirement that the Department of Agriculture and Natural
Resources certify that the raw materials needed are available in the immediate
vicinity and that there is prospect of increased production thereof to provide
adequately the requirements of the factory, we wish to reiterate that the basis of
the original approval is to develop the manufacture of sacks on the basis of the
locally available raw materials. Your statement that you will have to rely on the
importation of jute and your request that we give you assurance that your
company will be able to bring in sufficient jute materials as may be necessary
for the operation of your factory, would not be in line with our principle in
approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead,
it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of
cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on
August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura,
Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore
mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura,
Inc. on May 15, 1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc.,
the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to
comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the
plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill
project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and
that the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that
the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no
perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code,
which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is
binding upon the parties, but the commodatum or simple loan itself shall not be perferted until the
delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00
was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this
fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is
therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be
constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It
was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored
the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed
by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is
prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition
of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its
implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No.
145, passed on January 7, 1954, namely "that the proceeds of the loan shall be utilizedexclusively for the
following purposes: for construction of factory building P250,000.00; for payment of the balance of purchase
price of machinery and equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized
that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local
jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed
upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid
down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the
proceeds of the loan to purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for
the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with
RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked
that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the
nature cf mutual desistance what Manresa terms "mutuo disenso" 1 which is a mode of extinguishing
obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment. 2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of
contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the
mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's noncompliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application
was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that
Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the said
agreement had been extinguished by mutual desistance and that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the
respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the
plaintiff-appellee.

(3) BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS
MANAGEMENT & DEVELOPMENT CORPORATION, respondents.

[G.R. No. 133632. February 15, 2002]

DECISION

QUISUMBING, J.:

This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed the judgment of the
Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of mortgage by
petitioner BPI Investment Corporation (BPIIC for brevity) against private respondents ALS Management and
Development Corporation and Antonio K. Litonjua, [1] consolidated with (b) Civil Case No. 52093, for damages with
prayer for the issuance of a writ of preliminary injunction by the private respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of their monthly
amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature and made in bad faith. It
awarded private respondents the amount of P300,000 for moral damages, P50,000 for exemplary damages,
and P50,000 for attorneys fees and expenses for litigation. It likewise dismissed the foreclosure suit for being
premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development
Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on his lot
in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure the loan. Sometime in
1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua for P850,000. They
paid P350,000 in cash and assumed the P500,000 balance of Roas indebtedness with AIDC. The latter, however,
was not willing to extend the old interest rate to private respondents and proposed to grant them a new loan
of P500,000 to be applied to Roas debt and secured by the same property, at an interest rate of 20% per annum and
service fee of 1% per annum on the outstanding principal balance payable within ten years in equal monthly
amortization of P9,996.58 and penalty interest at the rate of 21% per annum per day from the date the amortization
became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing the above stipulations
with the provision that payment of the monthly amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum of P190,601.35.
This reduced Roas principal balance toP457,204.90 which, in turn, was liquidated when BPIIC applied thereto the
proceeds of private respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what was left of
their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they
failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to Four Hundred
Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (P475,585.31). A notice of sheriffs sale was
published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among
others, that they were not in arrears in their payment, but in fact made an overpayment as of June 30, 1984. They
maintained that they should not be made to pay amortization before the actual release of the P500,000 loan in
August and September 1982. Further, out of the P500,000 loan, only the total amount of P464,351.77 was released
to private respondents. Hence, applying the effects of legal compensation, the balance of P35,648.23 should be
applied to the initial monthly amortization for the loan.

On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation and
Antonio K. Litonjua and against BPI Investment Corporation, holding that the amount of loan granted by BPI to
ALS and Litonjua was only in the principal sum of P464,351.77, with interest at 20% plus service charge of 1% per
annum, payable on equal monthly and successive amortizations at P9,283.83 for ten (10) years or one hundred
twenty (120) months. The amortization schedule attached as Annex A to the Deed of Mortgage is
correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their publication in
a newspaper of general circulation as defaulting debtors, and therefore orders BPI to pay ALS and Litonjua the
following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.
Costs against BPI.
SO ORDERED.[2]
Both parties appealed to the Court of Appeals. However, private respondents appeal was dismissed for nonpayment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads:
WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.
SO ORDERED.[3]
In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of the
object of the contract. The contract of loan between BPIIC and ALS & Litonjua was perfected only on September
13, 1982, the date when BPIIC released the purported balance of the P500,000 loan after deducting therefrom the
value of Roas indebtedness. Thus, payment of the monthly amortization should commence only a month after the
said date, as can be inferred from the stipulations in the contract. This, despite the express agreement of the parties
that payment shall commence on May 1, 1981. From October 1982 to June 1984, the total amortization due was
only P194,960.43. Evidence showed that private respondents had an overpayment, because as of June 1984, they
already paid a total amount of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the
mortgage and cause the publication in newspapers concerning private respondents delinquency in the payment of
their loan. This fact constituted sufficient ground for moral damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition, where BPIIC
submits for resolution the following issues:

I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE LIGHT

OF THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY
ALS AND OPPOSED TO THE RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT
OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a simple loan is
perfected upon the delivery of the object of the contract, the loan contract in this case was perfected only
on September 13, 1982. Petitioner claims that a contract of loan is a consensual contract, and a loan contract is
perfected at the time the contract of mortgage is executed conformably with our ruling in Bonnevie v. Court of
Appeals, 125 SCRA 122. In the present case, the loan contract was perfected on March 31, 1981, the date when the
mortgage deed was executed, hence, the amortization and interests on the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was released only on August 1982, the
loan was actually released on March 31, 1981, when BPIIC issued a cancellation of mortgage of Frank Roas
loan. This finds support in the registration on March 31, 1981 of the Deed of Absolute Sale executed by Roa in
favor of ALS, transferring the title of the property to ALS, and ALS executing the Mortgage Deed in favor of
BPIIC. Moreover, petitioner claims, the delay in the release of the loan should be attributed to private
respondents. As BPIIC only agreed to extend a P500,000 loan, private respondents were required to reduce Frank
Roas loan below said amount. According to petitioner, private respondents were only able to do so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code, [4] a simple loan is
perfected upon the delivery of the object of the contract, hence a real contract. In this case, even though the loan
contract was signed on March 31, 1981, it was perfected only on September 13, 1982, when the full loan was
released to private respondents. They submit that petitioner misread Bonnevie. To give meaning to Article 1934,
according to private respondents, Bonnevie must be construed to mean that the contract to extend the loan was
perfected on March 31, 1981 but the contract of loan itself was only perfected upon the delivery of the full loan to
private respondents on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was perfected
on March 31, 1981, and their payment did not start a month thereafter, still no default took place. According to
private respondents, a perfected loan agreement imposes reciprocal obligations, where the obligation or promise of
each party is the consideration of the other party. In this case, the consideration for BPIIC in entering into the loan
contract is the promise of private respondents to pay the monthly amortization. For the latter, it is the promise of
BPIIC to deliver the money. In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. Therefore, private respondents conclude,
they did not incur in delay when they did not commence paying the monthly amortization on May 1, 1981, as it was
only onSeptember 13, 1982 when petitioner fully complied with its obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but a real contract. It is
perfected only upon the delivery of the object of the contract. [5] Petitioner misapplied Bonnevie. The contract
in Bonnevie declared by this Court as a perfected consensual contract falls under the first clause of Article 1934,
Civil Code. It is an accepted promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner
applied for a loan of P500,000 with respondent bank. The latter approved the application through a board resolution.

Thereafter, the corresponding mortgage was executed and registered. However, because of acts attributable to
petitioner, the loan was not released. Later, petitioner instituted an action for damages. We recognized in this case, a
perfected consensual contract which under normal circumstances could have made the bank liable for not releasing
the loan. However, since the fault was attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages. However, said
contract does not constitute the real contract of loan which requires the delivery of the object of the contract for its
perfection and which gives rise to obligations only on the part of the borrower.[6]
In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was
perfected only on September 13, 1982, the date of the second release of the loan. Following the intentions of the
parties on the commencement of the monthly amortization, as found by the Court of Appeals, private respondents
obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract. [7]
We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein the
obligation or promise of each party is the consideration for that of the other. [8] As averred by private respondents, the
promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the
monthly amortization commencing on May 1, 1981, one month after the supposed release of the loan. It is a basic
principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. [9] Only when a party has performed his part of the
contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in.
Consequently, petitioner could only demand for the payment of the monthly amortization after September 13,
1982 for it was only then when it complied with its obligation under the loan contract. Therefore, in computing the
amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date
is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual release of the loan
and whether private respondents were the cause of the delay in the release of the loan, are factual. Since petitioner
has not shown that the instant case is one of the exceptions to the basic rule that only questions of law can be raised
in a petition for review under Rule 45 of the Rules of Court, [10] factual matters need not tarry us now. On these
points we are bound by the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and exemplary damages for it
did not act maliciously when it initiated the foreclosure proceedings. It merely exercised its right under the
mortgage contract because private respondents were irregular in their monthly amortization. It invoked our ruling
in Social Security System vs. Court of Appeals, 120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of Appeals the
negligence of the appellant is not so gross as to warrant moral and temperate damages, except that, said Court
reduced those damages by only P5,000.00 instead of eliminating them. Neither can we agree with the findings of
both the Trial Court and respondent Court that the SSS had acted maliciously or in bad faith. The SSS was of the
belief that it was acting in the legitimate exercise of its right under the mortgage contract in the face of irregular
payments made by private respondents and placed reliance on the automatic acceleration clause in the contract. The
filing alone of the foreclosure application should not be a ground for an award of moral damages in the same way
that a clearly unfounded civil action is not among the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages because it
insisted on the payment of amortization on the loan even before it was released. Further, it did not make the

corresponding deduction in the monthly amortization to conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when private respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in their payment of monthly
amortization. Conformably with our ruling in SSS,we can not properly declare BPIIC in bad faith. Consequently, we
should rule out the award of moral and exemplary damages.[11]
However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of mortgage,
without checking and correspondingly adjusting its records on the amount actually released to private respondents
and the date when it was released. Such negligence resulted in damage to private respondents, for which an award
of nominal damages should be given in recognition of their rights which were violated by BPIIC. [12] For this
purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private respondents were compelled to litigate, we
sustain the award of P50,000 in favor of private respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution dated April
21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. The award of moral and exemplary
damages in favor of private respondents is DELETED, but the award to them of attorneys fees in the amount
of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private respondents P25,000 as nominal
damages. Costs against petitioner.
SO ORDERED.

(4) POLO S. PANTALEON,

Petitioner,

G.R. No. 174269

Present:

- versus -

AMERICAN EXPRESS
INTERNATIONAL, INC.,
Respondent.

CARPIO MORALES, J.,*

Acting Chairperson,
TINGA,
VELASCO,
LEONARDO-DE CASTRO,** and
BRION, JJ.
Promulgated:
May 8, 2009

x---------------------------------------------------------------------------x
DECISION

TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian Roberto,
joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in October of 1991. The
tour group arrived in Amsterdam in the afternoon of 25 October 1991, the second to the last day of the tour. As the
group had arrived late in the city, they failed to engage in any sight-seeing. Instead, it was agreed upon that they
would start early the next day to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster Diamond House
in Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster should end by 9:30
a.m. to allow enough time to take in a guided city tour of Amsterdam. The group was ushered into Coster shortly
before 9:00 a.m., and listened to a lecture on the art of diamond polishing that lasted for around ten minutes.
[1]
Afterwards, the group was led to the stores showroom to allow them to select items for purchase. Mrs. Pantaleon
had already planned to purchase even before the tour began a 2.5 karat diamond brilliant cut, and she found a
diamond close enough in approximation that she decided to buy.[2] Mrs. Pantaleon also selected for purchase a
pendant and a chain,[3] all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card together with his
passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour group was slated
to depart from the store. The sales clerk took the cards imprint, and asked Pantaleon to sign the charge slip. The
charge purchase was then referred electronically to respondents Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved. His
son, who had already boarded the tour bus, soon returned to Coster and informed the other members of the
Pantaleon family that the entire tour group was waiting for them. As it was already 9:40 a.m., and he was already
worried about further inconveniencing the tour group, Pantaleon asked the store clerk to cancel the sale. The store
manager though asked plaintiff to wait a few more minutes. After 15 minutes, the store manager informed Pantaleon
that respondent had demanded bank references. Pantaleon supplied the names of his depositary banks, then
instructed his daughter to return to the bus and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30 minutes
after the tour group was supposed to have left the store, Coster decided to release the items even without
respondents approval of the purchase. The spouses Pantaleon returned to the bus. It is alleged that their offers of
apology were met by their tourmates with stony silence. [4] The tour groups visible irritation was aggravated when
the tour guide announced that the city tour of Amsterdam was to be canceled due to lack of remaining time, as they
had to catch a3:00 p.m. ferry at Calais, Belgium to London.[5] Mrs. Pantaleon ended up weeping, while her husband
had to take a tranquilizer to calm his nerves.
It later emerged that Pantaleons purchase was first transmitted for approval to respondents Amsterdam
office at 9:20 a.m., Amsterdam time, then referred to respondents Manila office at 9:33 a.m, then finally approved at
10:19 a.m., Amsterdam time.[6] The Approval Code was transmitted to respondents Amsterdam office at 10:38 a.m.,
several minutes after petitioner had already left Coster, and 78 minutes from the time the purchases were
electronically transmitted by the jewelry store to respondents Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before returning
to Manila on 12 November 1992. While in the United States, Pantaleon continued to use his AmEx card, several
times without hassle or delay, but with two other incidents similar to the Amsterdam brouhaha. On 30 October 1991,
Pantaleon purchased golf equipment amounting to US $1,475.00 using his AmEx card, but he cancelled his credit
card purchase and borrowed money instead from a friend, after more than 30 minutes had transpired without the
purchase having been approved. On 3 November 1991, Pantaleon used the card to purchase childrens shoes worth
$87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter[7] through counsel to the respondent,
demanding an apology for the inconvenience, humiliation and embarrassment he and his family thereby suffered
for respondents refusal to provide credit authorization for the aforementioned purchases. [8] In response, respondent
sent a letter dated 24 March 1992,[9] stating among others that the delay in authorizing the purchase from Coster was
attributable to the circumstance that the charged purchase of US $13,826.00 was out of the usual charge purchase

pattern established.[10] Since respondent refused to accede to Pantaleons demand for an apology, the aggrieved
cardholder instituted an action for damages with the Regional Trial Court (RTC) of Makati City, Branch 145.
[11]
Pantaleon prayed that he be awarded P2,000,000.00, as moral damages; P500,000.00, as exemplary
damages; P100,000.00, as attorneys fees; and P50,000.00 as litigation expenses.[12]
On 5 August 1996, the Makati City RTC rendered a decision [13] in favor of Pantaleon, awarding
him P500,000.00 as moral damages,P300,000.00 as exemplary damages, P100,000.00 as attorneys fees,
and P85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal, while Pantaleon moved for partial
reconsideration, praying that the trial court award the increased amount of moral and exemplary damages he had
prayed for.[14] The RTC denied Pantaleons motion for partial reconsideration, and thereafter gave due course to
respondents Notice of Appeal.[15]
On 18 August 2006, the Court of Appeals rendered a decision [16] reversing the award of damages in favor of
Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence, this petition.
The key question is whether respondent, in connection with the aforementioned transactions, had committed a
breach of its obligations to Pantaleon. In addition, Pantaleon submits that even assuming that respondent had not
been in breach of its obligations, it still remained liable for damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and respondents credit
authorizer, Edgardo Jaurigue, that the normal approval time for purchases was a matter of seconds. Based on that
standard, respondent had been in clear delay with respect to the three subject transactions. As it appears, the Court of
Appeals conceded that there had been delay on the part of respondent in approving the purchases. However, it made
two critical conclusions in favor of respondent. First, the appellate court ruled that the delay was not attended by bad
faith, malice, or gross negligence. Second, it ruled that respondent had exercised diligent efforts to effect the
approval of the purchases, which were not in accordance with the charge pattern petitioner had established for
himself, as exemplified by the fact that at Coster, he was making his very first single charge purchase of
US$13,826, and the record of [petitioner]s past spending with [respondent] at the time does not favorably support
his ability to pay for such purchase.[17]
On the premise that there was an obligation on the part of respondent to approve or disapprove with dispatch
the charge purchase, petitioner argues that the failure to timely approve or disapprove the purchase
constituted mora solvendi on the part of respondent in the performance of its obligation. For its part, respondent
characterizes the depiction by petitioner of its obligation to him as to approve purchases instantaneously or in a
matter of seconds.
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that the
obligation is demandable and liquidated; the debtor delays performance; and the creditor judicially or extrajudicially
requires the debtors performance.[18] Petitioner asserts that the Court of Appeals had wrongly applied the principle
of mora accipiendi, which relates to delay on the part of the obligee in accepting the performance of the obligation
by the obligor. The requisites of mora accipiendi are: an offer of performance by the debtor who has the required
capacity; the offer must be to comply with the prestation as it should be performed; and the creditor refuses the
performance without just cause.[19]The error of the appellate court, argues petitioner, is in relying on the invocation
by respondent of just cause for the delay, since while just cause is determinative of mora accipiendi, it is not so
with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora to appreciate. Generally, the
relationship between a credit card provider and its card holders is that of creditor-debtor, [20] with the card company
as the creditor extending loans and credit to the card holder, who as debtor is obliged to repay the creditor. This
relationship already takes exception to the general rule that as between a bank and its depositors, the bank is deemed
as the debtor while the depositor is considered as the creditor. [21] Petitioner is asking us, not baselessly, to again shift
perspectives and again see the credit card company as the debtor/obligor, insofar as it has the obligation to the
customer as creditor/obligee to act promptly on its purchases on credit.
Ultimately, petitioners perspective appears more sensible than if we were to still regard respondent as the
creditor in the context of this cause of action. If there was delay on the part of respondent in its normal role as
creditor to the cardholder, such delay would not have been in the acceptance of the performance of the debtors

obligation (i.e., the repayment of the debt), but it would be delay in the extension of the credit in the first place. Such
delay would not fall under mora accipiendi, which contemplates that the obligation of the debtor, such as the actual
purchases on credit, has already been constituted. Herein, the establishment of the debt itself (purchases on credit of
the jewelry) had not yet been perfected, as it remained pending the approval or consent of the respondent credit card
company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first recognize that
there was indeed an obligation on the part of respondent to act on petitioners purchases with timely dispatch, or
for the purposes of this case, within a period significantly less than the one hour it apparently took before the
purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the tardiness on the part of respondent in
acting on petitioners purchase at Coster did constitute culpable delay on its part in complying with its obligation to
act promptly on its customers purchase request, whether such action be favorable or unfavorable. We quote the trial
court, thus:
As to the first issue, both parties have testified that normal approval time for purchases
was a matter of seconds.
Plaintiff testified that his personal experience with the use of the card was that except for
the three charge purchases subject of this case, approvals of his charge purchases were always
obtained in a matter of seconds.
Defendants credit authorizer Edgardo Jaurique likewise testified:
Q. You also testified that on normal occasions, the normal approval
time for charges would be 3 to 4 seconds?
A. Yes, Maam.
Both parties likewise presented evidence that the processing and approval of plaintiffs
charge purchase at the Coster Diamond House was way beyond the normal approval time of a
matter of seconds.
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15
a.m. and by the time he had to leave the store at 10:05 a.m., no approval had yet been received. In
fact, the Credit Authorization System (CAS) record of defendant at Phoenix Amex shows that
defendants Amsterdam office received the request to approve plaintiffs charge purchase at 9:20
a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to
Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and
[18] minutes. And even then, the approval was conditional as it directed in computerese
[sic] Positive Identification of Card holder necessary further charges require bank information
due to high exposure. By Jack Manila.
The delay in the processing is apparent to be undue as shown from the frantic successive
queries of Amexco Amsterdam which reads: US$13,826. Cardmember buying jewels. ID seen.
Advise how long will this take? They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08,
all times Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge
purchase referred to it, yet it sat on its hand, unconcerned.
x x x
To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction
shows how Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed
in Phoenix time from 01:20 when the charge purchased was referred for authorization, defendants
own record shows:
01:22 the authorization is referred to Manila Amexco

01:32 Netherlands gives information that the identification of the

cardmember has been presented and he is buying jewelries
worth US $13,826.
01:33 Netherlands asks How long will this take?
02:08 Netherlands is still asking How long will this take?
The Court is convinced that defendants delay constitute[s] breach of its contractual
obligation to act on his use of the card abroad with special handling.[22] (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved within seconds, there really is
no strict, legally determinative point of demarcation on how long must it take for a credit card company to approve
or disapprove a customers purchase, much less one specifically contracted upon by the parties. Yet this is one of
those instances when youd know it when youd see it, and one hour appears to be an awfully long, patently
unreasonable length of time to approve or disapprove a credit card purchase. It is long enough time for the customer
to walk to a bank a kilometer away, withdraw money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as to approve or disapprove the purchase in
timely dispatch, and not to approve the purchase instantaneously or within seconds. Certainly, had respondent
disapproved petitioners purchase within seconds or within a timely manner, this particular action would have
never seen the light of day. Petitioner and his family would have returned to the bus without delay internally
humiliated perhaps over the rejection of his card yet spared the shame of being held accountable by newly-made
friends for making them miss the chance to tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the credit it
is extending upon on a particular purchase was indeed contracted by the cardholder, and that the cardholder is within
his means to make such transaction. The culpable failure of respondent herein is not the failure to timely approve
petitioners purchase, but the more elemental failure to timely act on the same, whether favorably or unfavorably.
Even assuming that respondents credit authorizers did not have sufficient basis on hand to make a judgment, we see
no reason why respondent could not have promptly informed petitioner the reason for the delay, and duly advised
him that resolving the same could take some time. In that way, petitioner would have had informed basis on whether
or not to pursue the transaction at Coster, given the attending circumstances. Instead, petitioner was left
uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced to confront the wrath of
foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad faith,
and the court should find that under the circumstances, such damages are due. The findings of the trial court are
ample in establishing the bad faith and unjustified neglect of respondent, attributable in particular to the dillydallying of respondents Manila credit authorizer, Edgardo Jaurique.[23] Wrote the trial court:
While it is true that the Cardmembership Agreement, which defendant prepared, is silent
as to the amount of time it should take defendant to grant authorization for a charge purchase,
defendant acknowledged that the normal time for approval should only be three to four seconds.
Specially so with cards used abroad which requires special handling, meaning with priority.
Otherwise, the object of credit or charge cards would be lost; it would be so inconvenient to use
that buyers and consumers would be better off carrying bundles of currency or travellers checks,
which can be delivered and accepted quickly. Such right was not accorded to plaintiff in the
instances complained off for reasons known only to defendant at that time. This, to the Courts
mind, amounts to a wanton and deliberate refusal to comply with its contractual obligations, or at
least abuse of its rights, under the contract.[24]
x x x
The delay committed by defendant was clearly attended by unjustified neglect and bad
faith, since it alleges to have consumed more than one hour to simply go over plaintiffs past credit
history with defendant, his payment record and his credit and bank references, when all such data
are already stored and readily available from its computer. This Court also takes note of the fact

that there is nothing in plaintiffs billing history that would warrant the imprudent suspension of
action by defendant in processing the purchase. Defendants witness Jaurique admits:
Q. But did you discover that he did not have any outstanding account?
A. Nothing in arrears at that time.
Q. You were well aware of this fact on this very date?
A. Yes, sir.
Mr. Jaurique further testified that there were no delinquencies in plaintiffs account.[25]
It should be emphasized that the reason why petitioner is entitled to damages is not simply because
respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to the particular
injuries under Article 2217 of the Civil Code for which moral damages are remunerative. [26] Moral damages do not
avail to soothe the plaints of the simply impatient, so this decision should not be cause for relief for those who time
the length of their credit card transactions with a stopwatch. The somewhat unusual attending circumstances to the
purchase at Coster that there was a deadline for the completion of that purchase by petitioner before any delay
would redound to the injury of his several traveling companions gave rise to the moral shock, mental anguish,
serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as concluded by the RTC.
[27]
Those circumstances are fairly unusual, and should not give rise to a general entitlement for damages under a
more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-fast rule
in determining what would be a fair and reasonable amount of moral damages, since each case must be governed by
its own peculiar facts, however, it must be commensurate to the loss or injury suffered. [28] Petitioners original prayer
for P5,000,000.00 for moral damages is excessive under the circumstances, and the amount awarded by the trial
court of P500,000.00 in moral damages more seemly.
Likewise, we deem exemplary damages available under the circumstances, and the amount of P300,000.00
appropriate. There is similarly no cause though to disturb the determined award of P100,000.00 as attorneys fees,
and P85,233.01 as expenses of litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals
is REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in Civil Case
No. 92-1665 is hereby REINSTATED. Costs against respondent.
SO ORDERED.
(5) PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner,
vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

[G.R. No. 115324. February 19, 2003]

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated June 25, 1991 in CAG.R. CV No. 11791 and of its Resolution [2]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 months time. Private respondent asked Sanchez to
bring Doronilla to their house so that they could discuss Sanchezs request.[3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronillas 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 ( P200,000.00) 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 P200,000.00. 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 P90,000.00 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. 101567, 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 P175,000.00 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 (P212,000.00) 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 clients money. Doronilla issued another check for P212,000.00 in private respondents 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 P200,000.00, 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 P50,000.00 for moral damages and a similar amount for exemplary damages;

(c)

the amount of P40,000.00 for attorneys fees; and

(d)

the costs of the suit.

SO ORDERED.[8]
Petitioner appealed the trial courts 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 petitioners 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 PETITIONERS 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 ATTORNEYS 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 petitioners delay in furnishing private respondent with copy of the
reply[12] 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 P212,000.00, or P12,000 more than what private
respondent deposited in Sterelas 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 the return of private
respondents P200,000.00 because it is not privy to the transaction between the latter and Doronilla.[16]
It argues further that petitioners 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 Doronillas 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 P200,000.00 in Sterelas account for purposes of its incorporation.[18] Hence, petitioner
should not be held liable for allowing Doronilla to withdraw from Sterelas savings account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts 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 Sterelas 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 attorneys 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 P200,000.00 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, Atienzas employer, is liable for the
return of his money. He insists that Atienza, petitioners assistant manager, connived with Doronilla in defrauding
private respondent since it was Atienza who facilitated the opening of Sterelas 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 Sterelas 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 Courts 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 Sterelas savings account and would be returned to private respondent
after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in
Sterelas account together with an additionalP12,000.00, 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 P12,000.00 corresponds to the fruits of the lending of the P200,000.00. 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 latters
money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private
respondents 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
petitioners liability for the return of private respondents 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
respondents money and is liable for its restitution.
Petitioners 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
Doronillas scheme of defrauding private respondent:
X

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.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key officer
therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in his bank, the Manila
Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendants branch in Makati for it will
be easier for them to get a certification. In fact before he was introduced to plaintiff, Doronilla had already
prepared a letter addressed to the Buendia branch manager authorizing Angeles B. Sanchez and company to open a
savings account for Sterela in the amount of P200,000.00, as per coordination with Mr. Rufo Atienza, Assistant
Manager of the Bank x x x (Exh. 1). This is a clear manifestation that the other defendants had been in
consultation with Atienza from the inception of the scheme. Significantly, there were testimonies and admission that
Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and business associate of Doronilla.
Then there is the matter of the ownership of the fund. Because of the coordination between Doronilla and
Atienza, the latter knew before hand that the money deposited did not belong to Doronilla nor to Sterela. Aside
from such foreknowledge, he was explicitly told by Inocencia Vives that the money belonged to her and her husband
and the deposit was merely to accommodate Doronilla. Atienza even declared that the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records 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
(Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the
usual banking procedure that withdrawals of savings deposits could only be made by persons whose authorized
signatures are in the signature cards on file with the bank. He, however, said that this procedure was not followed
here because Sterela was owned by Doronilla. He explained that Doronilla had the full authority to withdraw by
virtue of such ownership. The Court is not inclined to agree with Atienza. In the first place, he was all the time
aware that the money came from Vives and did not belong to Sterela. He was also told by Mrs. Vives that they were
only accommodating 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 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 Atienzas 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 P200,000.00 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 of their assigned tasks. To hold the employer liable under this
provision, it must be shown that an employer-employee relationship exists, and that the employee was acting within
the scope of his assigned task when the act complained of was committed. [32] Case law in the United States of
America has it that a corporation that entrusts a general duty to its employee is responsible to the injured party for
damages flowing from the employees wrongful act done in the course of his general authority, even though in doing
such act, the employee may have failed in its duty to the employer and disobeyed the latters instructions. [33]
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that
Atienza was acting within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in
withdrawing funds from Sterelas Savings Account No. 10-1567, in which account private respondents money was
deposited, and in transferring the money withdrawn to Sterelas Current Account with petitioner. Atienzas acts of
helping Doronilla, a customer of the petitioner, were obviously done in furtherance of petitioners interests [34] even
though in the process, Atienza violated some of petitioners rules such as those stipulated in its savings account
passbook.[35] It was established that the transfer of funds from Sterelas savings account to its current account could
not have been accomplished by Doronilla without the invaluable assistance of Atienza, and that it was their
connivance which was the cause of private respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code,
petitioner is liable for private respondents loss and is solidarily liable with Doronilla and Dumagpi for the return of
the P200,000.00 since it is clear that petitioner failed to prove that it exercised due diligence to prevent the
unauthorized withdrawals from Sterelas savings account, and that it was not negligent in the selection and
supervision of Atienza. Accordingly, no error was committed by the appellate court in the award of actual, moral and
exemplary damages, attorneys fees and costs of suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.
SO ORDERED.

(6) COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.

[G.R. No. 146364. June 3, 2004]

DECISION
CARPIO, J.:

The Case
Before us is a petition for review [1] of the 21 June 2000 Decision[2] 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 decision [3] of the
Regional Trial Court of Quezon City, Branch 81,[4] affirming the 15 December 1995 decision[5] of the Metropolitan
Trial Court of Quezon City, Branch 31.[6]

The Antecedents
In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 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 Pajuyos 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 (P300.00) monthly as reasonable
compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys 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 Resolution [9] 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 Resolution [10] 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 Guevaras 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 Guevarras petition for review because it was filed out of time. Moreover, it was Guevarras
counsel and not Guevarra who signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos 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, Guevarras
refusal to vacate the house on Pajuyos demand made Guevarras 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 Kasunduanbound Guevarra to return possession of the house on demand.
The RTC rejected Guevarras 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 Guevarras 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.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that Guevarra
filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court was
stamped 13 December 1996 at 4:09 PM by the Supreme Courts Receiving Clerk. The Court of Appeals
concluded that the motion for extension bore a date, contrary to Pajuyos 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 Pajuyos argument that the appellate court should have dismissed the petition for
review because it was Guevarras counsel and not Guevarra who signed the certification against forumshopping. 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 Respondents 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 respondents 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. Q96-26943 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 Guevarras petition for review because
the RTC decision had already become final and executory when the appellate court acted on Guevarras 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.[15] These 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 Guevarras 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. Guevarras 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 squatters 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.
[20]
The 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 Liboros
clarification 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 Guevarras 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 Courts 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.
Assuming that the Court of Appeals should have dismissed Guevarras 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 Guevarras favor that Pajuyo raised the procedural issues against Guevarras 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 courts jurisdiction after voluntarily
submitting to it is against public policy.[26]
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the
certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the verification,
claiming that the counsels verification is insufficient since it is based only on mere information.
A partys failure to sign the certification against forum shopping is different from the partys 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.
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 partys representative, lawyer or any person who personally knows the truth of the facts
alleged in the pleading may sign the verification.[31]
[29]

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 defendants 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 partys 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.
Whatever 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.
[41]

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 Pitargue[44] as squatters, strictly speaking, their
entry into the disputed land was illegal. Both the plaintiff and defendant entered the public land without the owners
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 inPitargue:
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 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 Code [48] 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.
Second. The Court of Appeals should not have given credence to Guevarras 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 Guevarras 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 Pajuyos 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, silay 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
Pajuyos demand but Guevarra broke his promise and refused to heed Pajuyos 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
formers 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 defendants 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 Kasunduanexpressly articulated Pajuyos 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. Guevarras refusal to comply with Pajuyos demand to
vacate made Guevarras 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 tenants 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 Guevarras recognition
of Pajuyos 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]
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras 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 Pajuyos permission to temporarily hold the property and Guevarra had to follow the
conditions set by Pajuyo in the Kasunduan. Control over the property still rested with Pajuyo and this is evidence of
actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the law
does not mean that a man has to have his feet on every square meter of the ground before he is deemed in
possession.[77] One may acquire possession not only by physical occupation, but also by the fact that a thing is
subject to the action of ones will.[78] Actual or physical occupation is not always necessary.[79]

Ruling on Possession Does not Bind Title to the Land in Dispute

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 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 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.

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of
damages are awarded only in the instances enumerated in Article 2208 of the Civil Code. [83] Thus, the award of
attorneys fees is the exception rather than the rule. [84] Attorneys 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
attorneys fees awarded to Pajuyo.
We sustain the P300 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 P300 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 REINSTATED with MODIFICATION. The award of attorneys fees is deleted. No costs.
SO ORDERED.

(7) REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE V. BAGTAS, defendant,

FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitionerappellant.
[G.R. No. L-17474 October 25, 1962]
PADILLA, J.:
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 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 ofcommodatum 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.

(8) PEOPLE OF THE PHILIPPINES, petitioner, vs. TERESITA PUIG and ROMEO PORRAS, respondents.
[G.R. Nos. 173654-765 August 28, 2008]
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the Philippines,
represented by the Office of the Solicitor General, praying for the reversal of the Orders dated 30 January 2006 and
9 June 2006 of the Regional Trial Court (RTC) of the 6 th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing
the 112 cases of Qualified Theft filed against respondents Teresita Puig and Romeo Porras, and denying petitioners
Motion for Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.
The following are the factual antecedents:
On 7 November 2005, the Iloilo Provincial Prosecutors Office filed before Branch 68 of the RTC in Dumangas,
Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were
the Cashier and Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. The cases were
docketed as Criminal Cases No. 05-3054 to 05-3165.
The allegations in the Informations1 filed before the RTC were uniform and pro-forma, except for the amounts, date
and time of commission, to wit:
INFORMATION
That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo, Philippines,
and within the jurisdiction of this Honorable Court, above-named [respondents], conspiring, confederating,
and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural
Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the
Bank and with intent of gain, did then and there willfully, unlawfully and feloniously take, steal and carry
away the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency, to the damage and
prejudice of the said bank in the aforesaid amount.

After perusing the Informations in these cases, the trial court did not find the existence of probable cause that would
have necessitated the issuance of a warrant of arrest based on the following grounds:
(1) the element of taking without the consent of the owners was missing on the ground that it is the
depositors-clients, and not the Bank, which filed the complaint in these cases, who are the owners of the
money allegedly taken by respondents and hence, are the real parties-in-interest; and
(2) the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between
the respondents and the offended party that would have created a high degree of confidence between
them which the respondents could have abused."
It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would be
violative of the right of the respondents under Section 14(2), Article III of the 1987 Constitution which states that in
all criminal prosecutions, the accused shall enjoy the right to be informed of the nature and cause of the accusation
against him. Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure, the RTC dismissed the
cases on 30 January 2006 and refused to issue a warrant of arrest against Puig and Porras.
A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.
On 9 June 2006, an Order3 denying petitioners Motion for Reconsideration was issued by the RTC, finding as
follows:
Accordingly, the prosecutions Motion for Reconsideration should be, as it hereby, DENIED. The Order
dated January 30, 2006 STANDS in all respects.
Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole legal issue
of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE
THE ELEMENT OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING
CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE.
Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006 and 9 June
2006 issued by the trial court, and that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.
Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the provisions concerning simple loans." Corollary thereto,
Article 1953 of the same Code provides that "a person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality."
Thus, it posits that the depositors who place their money with the bank are considered creditors of the bank. The
bank acquires ownership of the money deposited by its clients, making the money taken by respondents as
belonging to the bank.
Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft, citing
that a perusal of the Informations will show that they specifically allege that the respondents were the Cashier and
Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and that they took various amounts of money with
grave abuse of confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the
bank.

Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a Petition for
Review on Certiorari via Rule 45 is the wrong mode of appeal because a finding of probable cause for the issuance
of a warrant of arrest presupposes evaluation of facts and circumstances, which is not proper under said Rule.
Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the principal
party to file a Petition for Review on Certiorari, considering that the incident was indorsed by the DOJ.
We find merit in the petition.
The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and,
therefore, because of this defect, there is no basis for the existence of probable cause which will justify the issuance
of the warrant of arrest. Petitioner assails the dismissal contending that the Informations for Qualified Theft
sufficiently state facts which constitute (a) the qualifying circumstance of grave abuse of confidence; and (b) the
element of taking, with intent to gain and without the consent of the owner, which is the Bank.
In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the allegations in
the Information inadequate. He ruled that the Information failed to state facts constituting the qualifying
circumstance of grave abuse of confidence and the element of taking without the consent of the owner, since the
owner of the money is not the Bank, but the depositors therein. He also cites People v. Koc Song,4 in which this
Court held:
There must be allegation in the information and proof of a relation, by reason of dependence, guardianship
or vigilance, between the respondents and the offended party that has created a high degree of confidence
between them, which the respondents abused.
At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause simply on
the insufficiency of the allegations in the Informations concerning the facts constitutive of the elements of the offense
charged. This, therefore, makes the issue of sufficiency of the allegations in the Informations the focal point of
discussion.
Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as follows, viz:
ART. 310. Qualified Theft. The crime of theft shall be punished by the penalties next higher by two
degrees than those respectively specified in the next preceding article, if committed by a domestic servant,
or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or large cattle or
consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or fishery or if
property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity,
vehicular accident or civil disturbance. (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of anothers property
without violence or intimidation against persons or force upon things. The elements of the crime under this Article
are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;

4. Absence of violence or intimidation against persons or force upon things.

To fall under the crime of Qualified Theft, the following elements must concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owners consent;
5. That it be accomplished without the use of violence or intimidation against persons, nor of force upon
things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the
information must state the acts or omissions complained of as constitutive of the offense.
On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is enlightening:
Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the
qualifying and aggravating circumstances must be stated in ordinary and concise language and not
necessarily in the language used in the statute but in terms sufficient to enable a person of common
understanding to know what offense is being charged as well as its qualifying and aggravating
circumstances and for the court to pronounce judgment.
It is evident that the Information need not use the exact language of the statute in alleging the acts or omissions
complained of as constituting the offense. The test is whether it enables a person of common understanding to know
the charge against him, and the court to render judgment properly.5
The portion of the Information relevant to this discussion reads:
A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan,
Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank x x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of
the monies deposited therein enjoy the confidence reposed in them by their employer. Banks, on the other hand,
where monies are deposited, are considered the owners thereof. This is very clear not only from the express
provisions of the law, but from established jurisprudence. The relationship between banks and depositors has been
held to be that of creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by
petitioner, provide as follows:
Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning loan.
In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the
Bank of the money deposits therein, and the duties being performed by its employees who have custody of the
money or have come into possession of it. The Court has consistently considered the allegations in the Information
that such employees acted with grave abuse of confidence, to the damage and prejudice of the Bank, without
particularly referring to it as owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a
graphic illustration, we cite Roque v. People,6 where the accused teller was convicted for Qualified Theft based on
this Information:
That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of
Pampanga, Philippines and within the jurisdiction of his Honorable Court, the above-named accused
ASUNCION GALANG ROQUE, being then employed as teller of the Basa Air Base Savings and Loan
Association Inc. (BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga, and as such
was authorized and reposed with the responsibility to receive and collect capital contributions from its
member/contributors of said corporation, and having collected and received in her capacity as teller of the
BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with
grave abuse of confidence and without the knowledge and consent of said corporation, did then and there
willfully, unlawfully and feloniously take, steal and carry away the amount of P10,000.00, Philippine
currency, by making it appear that a certain depositor by the name of Antonio Salazar withdrew from his
Savings Account No. 1359, when in truth and in fact said Antonio Salazar did not withdr[a]w the said
amount of P10,000.00 to the damage and prejudice of BABSLA in the total amount of P10,000.00,
Philippine currency.
In convicting the therein appellant, the Court held that:
[S]ince the teller occupies a position of confidence, and the bank places money in the tellers possession
due to the confidence reposed on the teller, the felony of qualified theft would be committed. 7
Also in People v. Sison,8 the Branch Operations Officer was convicted of the crime of Qualified Theft based on the
Information as herein cited:
That in or about and during the period compressed between January 24, 1992 and February 13, 1992, both
dates inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully
and feloniously, with intent of gain and without the knowledge and consent of the owner thereof, take, steal
and carry away the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE
COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by
its Branch Manager, HELEN U. FARGAS, to the damage and prejudice of the said owner in the aforesaid
amount of P6,000,000.00, Philippine Currency.
That in the commission of the said offense, herein accused acted with grave abuse of confidence and
unfaithfulness, he being the Branch Operation Officer of the said complainant and as such he had free
access to the place where the said amount of money was kept.
The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and Industrial Bank
(PCIB), is Qualified Theft. Appellant could not have committed the crime had he not been holding the
position of Luneta Branch Operation Officer which gave him not only sole access to the bank vault xxx.
The management of the PCIB reposed its trust and confidence in the appellant as its Luneta Branch
Operation Officer, and it was this trust and confidence which he exploited to enrich himself to the damage
and prejudice of PCIB x x x.9
From another end, People v. Locson,10 in addition to People v. Sison, described the nature of possession by the
Bank. The money in this case was in the possession of the defendant as receiving teller of the bank, and the
possession of the defendant was the possession of the Bank. The Court held therein that when the defendant, with
grave abuse of confidence, removed the money and appropriated it to his own use without the consent of the Bank,
there was taking as contemplated in the crime of Qualified Theft.11
Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the respondents;
that the crime was committed with grave abuse of confidence, with intent to gain and without the knowledge and
consent of the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, "of a
relation by reason of dependence, guardianship or vigilance, between the respondents and the offended party that
has created a high degree of confidence between them, which respondents abused,"12 and without employing the
word "owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency of allegations.
As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is even no
reason to quibble on the allegation in the Informations that they acted with grave abuse of confidence. In fact, the
Information which alleged grave abuse of confidence by accused herein is even more precise, as this is exactly the
requirement of the law in qualifying the crime of Theft.
In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the Bank,
who are entrusted with the possession of money of the Bank due to the confidence reposed in them, occupy
positions of confidence. The Informations, therefore, sufficiently allege all the essential elements constituting the
crime of Qualified Theft.
On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling
in Mobilia Products, Inc. v. Hajime Umezawa13 is instructive. The Court thus enunciated:
In a criminal case in which the offended party is the State, the interest of the private complainant or the
offended party is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the
trial court or if there is an acquittal, a reconsideration of the order of dismissal or acquittal may be
undertaken, whenever legally feasible, insofar as the criminal aspect thereof is concerned and may be made
only by the public prosecutor; or in the case of an appeal, by the State only, through the OSG. x x x.
On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in appeals by
certiorari under Rule 45 of the Rules of Court, only errors of law may be raised, 14 and herein petitioner certainly
raised a question of law.
As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the records of
the preliminary investigation conducted will show that, indeed, probable cause exists for the indictment of herein
respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the judge shall issue a warrant of arrest only
upon a finding of probable cause after personally evaluating the resolution of the prosecutor and its supporting
evidence. Soliven v. Makasiar,15 as reiterated inAllado v. Driokno,16 explained that probable cause for the issuance

of a warrant of arrest is the existence of such facts and circumstances that would lead a reasonably discreet and
prudent person to believe that an offense has been committed by the person sought to be arrested. 17 The records
reasonably indicate that the respondents may have, indeed, committed the offense charged.
Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case may be, to
relieve the respondents from the pain of going through a trial once it is ascertained that no probable cause exists to
form a sufficient belief as to the guilt of the respondents, conversely, it is also equally imperative upon the judge to
proceed with the case upon a showing that there is a prima facie case against the respondents.
WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders
dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 053165 are REVERSED and SET ASIDE. Let the corresponding Warrants of Arrest issue against herein respondents
TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to proceed
with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive, with reasonable dispatch. No pronouncement as
to costs.
SO ORDERED.

(9)
BPI FAMILY BANK,

G.R. No. 123498

Petitioner,
Present:

- versus -

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

AMADO FRANCO and COURT OF APPEALS,

Respondents.

Promulgated:
November 23, 2007

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity. We
reiterate this exhortation in the case at bench.
Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA)
Decision[1] in CA-G.R. CV No. 43424 which affirmed with modification the judgment [2] of the Regional Trial Court,
Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.
This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB)
allegedly by respondent Amado Franco (Franco) in conspiracy with other individuals, [3] some of whom opened and
maintained separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a series of transactions.
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current
account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment Corporation (FMIC) also
opened a time deposit account with the same branch of BPI-FB with a deposit of P100,000,000.00, to mature one
year thence.
Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current, [4] savings,[5] and time
deposit,[6] with BPI-FB. The current and savings accounts were respectively funded with an initial deposit
of P500,000.00 each, while the time deposit account hadP1,000,000.00 with a maturity date of August 31, 1990. The
total amount of P2,000,000.00 used to open these accounts is traceable to a check issued by Tevesteco allegedly in
consideration of Francos introduction of Eladio Teves, [7] who was looking for a conduit bank to facilitate
Tevestecos business transactions, to Jaime Sebastian, who was then BPI-FB SFDMs Branch Manager. In turn, the
funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from FMICs time deposit
account and credited to Tevestecos current account pursuant to an Authority to Debit purportedly signed by FMICs
officers.
It appears, however, that the signatures of FMICs officers on the Authority to Debit were forged.
On September 4, 1989, Antonio Ong,[9] upon being shown the Authority to Debit, personally declared his
signature therein to be a forgery. Unfortunately, Tevesteco had already effected several withdrawals from its current
account (to which had been credited the P80,000,000.00 covered by the forged Authority to Debit) amounting
to P37,455,410.54, including the P2,000,000.00 paid to Franco.
[8]

On September 8, 1989, impelled by the need to protect its interests in light of FMICs forgery claim, BPIFB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin [10] to debit Francos savings and
current accounts for the amounts remaining therein. [11]However, Francos time deposit account could not be debited
due to the capacity limitations of BPI-FBs computer.[12]
In the meantime, two checks[13] drawn by Franco against his BPI-FB current account were dishonored upon
presentment for payment, and stamped with a notation account under garnishment. Apparently, Francos current
account was garnished by virtue of an Order of Attachment issued by the Regional Trial Court of Makati (Makati
RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-FB against Franco et al.,[14] to recover
the P37,455,410.54 representing Tevestecos total withdrawals from its account.

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to
Francos receipt of notice that his accounts were under garnishment. [15] In fact, at the time the Notice of Garnishment
dated September 27, 1989 was served on BPI-FB, Franco had yet to be impleaded in the Makati case where the writ
of attachment was issued.

It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil Case
No. 89-4996, that Franco was impleaded in the Makati case.[16] Immediately, upon receipt of such copy, Franco filed
a Motion to Discharge Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the Order of
Attachment was served on BPI-FB on even date, with Franco demanding the release to him of the funds in his
savings and current accounts. Jesus Arangorin, BPI-FBs new manager, could not forthwith comply with the demand
as the funds, as previously stated, had already been debited because of FMICs forgery claim. As such, BPI-FBs
computer at the SFDM Branch indicated that the current account record was not on file.

With respect to Francos savings account, it appears that Franco agreed to an arrangement, as a favor to
Sebastian, whereby P400,000.00 from his savings account was temporarily transferred to Domingo Quiaoits
savings account, subject to its immediate return upon issuance of a certificate of deposit which Quiaoit needed in
connection with his visa application at the Taiwan Embassy. As part of the arrangement, Sebastian retained custody
of Quiaoits savings account passbook to ensure that no withdrawal would be effected therefrom, and to preserve
Francos deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount
of P63,189.00 from the remaining balance of the time deposit account representing advance interest paid to him.

These transactions spawned a number of cases, some of which we had already resolved.

FMIC filed a complaint against BPI-FB for the recovery of the amount of P80,000,000.00 debited from its
account.[17] The case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment
Corporation,[18] we upheld the finding of the courts below that BPI-FB failed to exercise the degree of diligence
required by the nature of its obligation to treat the accounts of its depositors with meticulous care. Thus, BPI-FB
was found liable to FMIC for the debited amount in its time deposit. It was ordered to pay P65,332,321.99 plus
interest at 17% per annum from August 29, 1989 until fully restored. In turn, the 17% shall itself earn interest at
12% from October 4, 1989 until fully paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),
recipients of a P500,000.00 check proceeding from the P80,000,000.00 mistakenly credited to Tevesteco,
likewise filed suit. Buenaventura et al., as in the case of Franco, were also prevented from effecting
withdrawals[20] from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise,
when the case was elevated to this Court docketed as BPI Family Bank v. Buenaventura,[21] we ruled that BPI-FB
had no right to freeze Buenaventura,et al.s accounts and adjudged BPI-FB liable therefor, in addition to damages.
[19]

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the
multi-million peso scam.[22]In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida
who was still at large, were acquitted of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of
the Revised Penal Code.[23] However, the civil case[24] remains under litigation and the respective rights and liabilities
of the parties have yet to be adjudicated.
Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his accounts and release his
deposits therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco
prayed for the following reliefs: (1) the interest on the remaining balance [25] of his current account which was
eventually released to him on October 31, 1991; (2) the balance [26] on his savings account, plus interest thereon; (3)
the advance interest[27] paid to him which had been deducted when he pre-terminated his time deposit account; and
(4) the payment of actual, moral and exemplary damages, as well as attorneys fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing
to release his deposits, claiming that it had a better right to the amounts which consisted of part of the money
allegedly fraudulently withdrawn from it by Tevesteco and ending up in Francos accounts. BPI-FB asseverated that
the claimed consideration of P2,000,000.00 for the introduction facilitated by Franco between George Daantos and
Eladio Teves, on the one hand, and Jaime Sebastian, on the other, spoke volumes of Francos participation in the
fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of

[Franco] and against [BPI-FB], ordering the latter to pay to the former the following sums:

1.
P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from May
18, 1990 to October 31, 1991;

2.
P498,973.23 representing the balance on [Francos] savings account as of May 18, 1990,
together with the interest thereon in accordance with the banks guidelines on the payment
therefor;

3.

P30,000.00 by way of attorneys fees; and

4.

P10,000.00 as nominal damages.

The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.

Costs against [BPI-FB].

SO ORDERED.[28]

Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his
appeal to the Manila RTCs denial of his claim for moral and exemplary damages, and the diminutive award of
attorneys fees. In affirming with modification the lower courts decision, the appellate court decreed, to wit:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with

modification ordering [BPI-FB] to pay [Franco] P63,189.00 representing the interest deducted
from the time deposit of plaintiff-appellant. P200,000.00 as moral damages and P100,000.00 as
exemplary damages, deleting the award of nominal damages (in view of the award of moral and
exemplary damages) and increasing the award of attorneys fees from P30,000.00 to P75,000.00.

Cost against [BPI-FB].

SO ORDERED.[29]

In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the
deposits in the subject accounts which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled
to interest on his current account; (3) Franco can recover theP400,000.00 deposit in Quiaoits savings account; (4)
the dishonor of Francos checks was not legally in order; (5) BPI-FB is liable for interest on Francos time deposit,
and for moral and exemplary damages; and (6) BPI-FBs counter-claim has no factual and legal anchor.

The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze
Francos accounts and preclude him from withdrawing his deposits. However, contrary to the appellate courts
ruling, we hold that Franco is not entitled to unearned interest on the time deposit as well as to moral and exemplary
damages.
First. On the issue of who has a better right to the deposits in Francos accounts, BPI-FB urges us that the
legal consequence of FMICs forgery claim is that the money transferred by BPI-FB to Tevesteco is its own, and
considering that it was able to recover possession of the same when the money was redeposited by Franco, it had the
right to set up its ownership thereon and freeze Francos accounts.
BPI-FB contends that its position is not unlike that of an owner of personal property who regains possession
after it is stolen, and to illustrate this point, BPI-FB gives the following example: where Xs television set is stolen
by Y who thereafter sells it to Z, and where Z unwittingly entrusts possession of the TV set to X, the latter would
have the right to keep possession of the property and preclude Z from recovering possession thereof. To bolster its
position, BPI-FB cites Article 559 of the Civil Code, which provides:
Article 559. The possession of movable property acquired in good faith is equivalent to a
title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may
recover it from the person in possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing
the price paid therefor.
BPI-FBs argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil
Code pertains to a specific or determinate thing. [30] A determinate or specific thing is one that is individualized and
can be identified or distinguished from others of the same kind.[31]
In this case, the deposit in Francos accounts consists of money which, albeit characterized as a movable, is
generic and fungible.[32] The quality of being fungible depends upon the possibility of the property, because of its
nature or the will of the parties, being substituted by others of the same kind, not having a distinct individuality.[33]
Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a
movable to recover the exact same thing from the current possessor, BPI-FB simply claims ownership of the
equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from FMICs account and
credited to Tevestecos, and subsequently traced to Francos account. In fact, this is what BPI-FB did in filing the
Makati Case against Franco, et al. It staked its claim on the money itself which passed from one account to another,
commencing with the forged Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership, [34] and this characteristic is all
the more manifest in the instant case which involves money in a banking transaction gone awry. Its primary function
is to pass from hand to hand as a medium of exchange, without other evidence of its title. [35] Money, which had
passed through various transactions in the general course of banking business, even if of traceable origin, is no
exception.
Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FBs illustrative
example, ostensibly based on Article 559, is inapplicable to the instant case.
There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal
consequence of its unauthorized transfer of FMICs deposits to Tevestecos account. BPI-FB conveniently forgets
that the deposit of money in banks is governed by the Civil Code provisions on simple loan or mutuum. [36] As there
is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately acquired ownership of Francos
deposits, but such ownership is coupled with a corresponding obligation to pay him an equal amount on demand.
[37]
Although BPI-FB owns the deposits in Francos accounts, it cannot prevent him from demanding payment of BPIFBs obligation by drawing checks against his current account, or asking for the release of the funds in his savings
account. Thus, when Franco issued checks drawn against his current account, he had every right as creditor to
expect that those checks would be honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its
mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved
in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it pleases on deposits which it
supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry.
Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals[38] continues to resonate, thus:
The banking system is an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized nation. Whether as mere passive entities for the
safekeeping and saving of money or as active instruments of business and commerce, banks have
become an ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated
to entrust his lifes savings to the bank of his choice, knowing that they will be safe in its custody
and will even earn some interest for him. The ordinary person, with equal faith, usually maintains
a modest checking account for security and convenience in the settling of his monthly bills and the
payment of ordinary expenses. x x x.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must record
every single transaction accurately, down to the last centavo, and as promptly as possible. This has
to be done if the account is to reflect at any given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will deliver it as and to whomever directs. A
blunder on the part of the bank, such as the dishonor of the check without good reason, can cause
the depositor not a little embarrassment if not also financial loss and perhaps even civil and
criminal litigation.
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its
customers. Having failed to detect the forgery in the Authority to Debit and in the process inadvertently facilitate the
FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees of checks issued
by Tevesteco, or prevent withdrawals from their respective accounts without the appropriate court writ or a
favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the
Authority to Debit, effected the transfer of P80,000,000.00 from FMICs to Tevestecos account, when FMICs

account was a time deposit and it had already paid advance interest to FMIC. Considering that there is as yet no
indubitable evidence establishing Francos participation in the forgery, he remains an innocent party. As between
him and BPI-FB, the latter, which made possible the present predicament, must bear the resulting loss or
inconvenience.
Second. With respect to its liability for interest on Francos current account, BPI-FB argues that its noncompliance with the Makati RTCs Order Lifting the Order of Attachment and the legal consequences thereof, is a
matter that ought to be taken up in that court.
The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The
Manila RTCs order to pay interests on Francos current account arose from BPI-FBs unjustified refusal to comply
with its obligation to pay Franco pursuant to their contract of mutuum. In other words, from the time BPI-FB refused
Francos demand for the release of the deposits in his current account, specifically, fromMay 17, 1990, interest at the
rate of 12% began to accrue thereon.[39]
Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FBs
non-compliance with the Order Lifting the Order of Attachment. However, such authority does not preclude the
Manila RTC from ruling on BPI-FBs liability to Franco for payment of interest based on its continued and
unjustified refusal to perform a contractual obligation upon demand. After all, this was the core issue raised by
Franco in his complaint before the Manila RTC.
Third. As to the award to Franco of the deposits in Quiaoits account, we find no reason to depart from the
factual findings of both the Manila RTC and the CA.
Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned by
Franco who simply accommodated Jaime Sebastians request to temporarily transfer P400,000.00 from Francos
savings account to Quiaoits account. [40] His testimony cannot be characterized as hearsay as the records reveal that
he had personal knowledge of the arrangement made between Franco, Sebastian and himself.[41]
BPI-FB makes capital of Francos belated allegation relative to this particular arrangement. It insists that
the transaction with Quiaoit was not specifically alleged in Francos complaint before the Manila RTC. However, it
appears that BPI-FB had impliedly consented to the trial of this issue given its extensive cross-examination of
Quiaoit.
Section 5, Rule 10 of the Rules of Court provides:
Section 5.
Amendment to conform to or authorize presentation of evidence. When
issues not raised by the pleadings are tried with the express or implied consent of the parties,
they shall be treated in all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the evidence
and to raise these issues may be made upon motion of any party at any time, even after
judgment; but failure to amend does not affect the result of the trial of these issues. If
evidence is objected to at the trial on the ground that it is now within the issues made by the
pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the
presentation of the merits of the action and the ends of substantial justice will be subserved
thereby. The court may grant a continuance to enable the amendment to be made. (Emphasis
supplied)
In all, BPI-FBs argument that this case is not the right forum for Franco to recover the P400,000.00 begs the
issue. To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the funds in his
account, and pointed to Franco as the actual owner thereof. Clearly, Francos action for the recovery of his deposits
appropriately covers the deposits in Quiaoits account.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Francos checks
respectively dated September 11 and 18, 1989 was legally in order in view of the Makati RTCs supplemental writ of
attachment issued on September 14, 1989. It posits that as the party that applied for the writ of attachment before the

Makati RTC, it need not be served with the Notice of Garnishment before it could place Francos accounts under
garnishment.
The argument is specious. In this argument, we perceive BPI-FBs clever but transparent ploy to circumvent
Section 4,[42] Rule 13 of the Rules of Court. It should be noted that the strict requirement on service of court papers
upon the parties affected is designed to comply with the elementary requisites of due process. Franco was entitled,
as a matter of right, to notice, if the requirements of due process are to be observed. Yet, he received a copy of the
Notice of Garnishment only on September 27, 1989, several days after the two checks he issued were dishonored by
BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze Francos accounts without
even awaiting service of the Makati RTCs Notice of Garnishment on Franco.
Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made without
including in the main suit the owner of the property attached by virtue thereof. Section 5, Rule 13 of the Rules of
Court specifically provides that no levy or attachment pursuant to the writ issued x x x shall be enforced unless it is
preceded, or contemporaneously accompanied, by service of summons, together with a copy of the complaint, the
application for attachment, on the defendant within the Philippines.
Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire
jurisdiction over the person of Franco when BPI-FB garnished his accounts. [43] Effectively, therefore, the Makati
RTC had no authority yet to bind the deposits of Franco through the writ of attachment, and consequently, there was
no legal basis for BPI-FB to dishonor the checks issued by Franco.
Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the advance interest it
deducted from Francos time deposit account, and for moral as well as exemplary damages, we find it proper to
reinstate the ruling of the trial court, and allow only the recovery of nominal damages in the amount of P10,000.00.
However, we retain the CAs award of P75,000.00 as attorneys fees.
In granting Francos prayer for interest on his time deposit account and for moral and exemplary damages, the
CA attributed bad faith to BPI-FB because it (1) completely disregarded its obligation to Franco; (2) misleadingly
claimed that Francos deposits were under garnishment; (3) misrepresented that Francos current account was not on
file; and (4) refused to return the P400,000.00 despite the fact that the ostensible owner, Quiaoit, wanted the amount
returned to Franco.
In this regard, we are guided by Article 2201 of the Civil Code which provides:
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable consequences of the
breach of the obligation, and which the parties have foreseen or could have reasonable foreseen at
the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible
for all damages which may be reasonably attributed to the non-performance of the
obligation. (Emphasis supplied.)
We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of
malevolence or ill will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and should not be
held liable for all damages now being imputed to it for its breach of obligation. For the same reason, it is not liable
for the unearned interest on the time deposit.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it partakes of the nature of fraud. [44] We have held that it is a breach of a
known duty through some motive of interest or ill will. [45] In the instant case, we cannot attribute to BPI-FB fraud or
even a motive of self-enrichment. As the trial court found, there was no denial whatsoever by BPI-FB of the
existence of the accounts. The computer-generated document which indicated that the current account was not on
file resulted from the prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the
garnishment, or even the outright refusal to honor any transaction thereon was resorted to solely for the purpose of

holding on to the funds as a security for its intended court action, [46] and with no other goal but to ensure the integrity
of the accounts.
We have had occasion to hold that in the absence of fraud or bad faith, [47] moral damages cannot be awarded;
and that the adverse result of an action does not per se make the action wrongful, or the party liable for it. One may
err, but error alone is not a ground for granting such damages.[48]
An award of moral damages contemplates the existence of the following requisites: (1) there must be an injury
clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or
omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury
sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of
the Civil Code.[49]
Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code, [50] upon
which to base his claim for moral damages.
Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of the
Civil Code for breach of contract.[51]
We also deny the claim for exemplary damages. Franco should show that he is entitled to moral, temperate, or
compensatory damages before the court may even consider the question of whether exemplary damages should be
awarded to him.[52] As there is no basis for the award of moral damages, neither can exemplary damages be granted.
While it is a sound policy not to set a premium on the right to litigate, [53] we, however, find that Franco is
entitled to reasonable attorneys fees for having been compelled to go to court in order to assert his right. Thus, we
affirm the CAs grant of P75,000.00 as attorneys fees.
Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest,
or when the court deems it just and equitable. [55] In the case at bench, BPI-FB refused to unfreeze the deposits of
Franco despite the Makati RTCs Order Lifting the Order of Attachment and Quiaoits unwavering assertion that
the P400,000.00 was part of Francos savings account. This refusal constrained Franco to incur expenses and litigate
for almost two (2) decades in order to protect his interests and recover his deposits. Therefore, this Court deems it
just and equitable to grant Franco P75,000.00 as attorneys fees. The award is reasonable in view of the complexity
of the issues and the time it has taken for this case to be resolved. [56]
[54]

Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs ruling, as affirmed by the
CA, that BPI-FB is not entitled to recover P3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a
result of Francos suit is, as already pointed out, of its own making. Accordingly, the denial of its counter-claim is in
order.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November
29, 1995 is AFFIRMED with the MODIFICATION that the award of unearned interest on the time deposit and of
moral and exemplary damages is DELETED.
No pronouncement as to costs.
SO ORDERED.

(10)
BOBIE ROSE V. FRIAS,
represented by her Attorney-infact, MARIE F. FUJITA,
Petitioner,

- versus -

G.R. No. 155223

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.

FLORA SAN DIEGO-SISON,

Promulgated:
Respondent.
April 4, 2007
x------------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias represented by her Attorneyin-fact, Marie Regine F. Fujita (petitioner) seeking to annul the Decision [1] dated June 18, 2002 and the
Resolution[2] dated September 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.
Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang, Muntinlupa,
Metro Manila, which she acquired from Island Masters Realty and Development Corporation (IMRDC) by virtue
of a Deed of Sale dated Nov. 16, 1990.[3] The property is covered by TCT No. 168173 of the Register of Deeds
of Makati in the name of IMRDC.[4]
On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison (respondent), as the
SECOND PARTY, entered into a Memorandum of Agreement[5] over the property with the following terms:
NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS
(P3,000,000.00) receipt of which is hereby acknowledged by the FIRST PARTY from the
SECOND PARTY, the parties have agreed as follows:
1.
That the SECOND PARTY has a period of Six (6) months from the date of the
execution of this contract within which to notify the FIRST PARTY of her intention to purchase
the aforementioned parcel of land together within (sic) the improvements thereon at the price of
SIX MILLION FOUR HUNDRED THOUSAND PESOS (P6,400,000.00). Upon notice to the

FIRST PARTY of the SECOND PARTYs intention to purchase the same, the latter has a period of
another six months within which to pay the remaining balance of P3.4 million.
2.
That prior to the six months period given to the SECOND PARTY within which to
decide whether or not to purchase the above-mentioned property, the FIRST PARTY may still
offer the said property to other persons who may be interested to buy the same provided that the
amount ofP3,000,000.00 given to the FIRST PARTY BY THE SECOND PARTY shall be paid to
the latter including interest based on prevailing compounded bank interest plus the amount of the
sale in excess of P7,000,000.00 should the property be sold at a price more than P7 million.
3.
That in case the FIRST PARTY has no other buyer within the first six months from
the execution of this contract, no interest shall be charged by the SECOND PARTY on the P3
million however, in the event that on the sixth month the SECOND PARTY would decide not to
purchase the aforementioned property, the FIRST PARTY has a period of another six months
within which to pay the sum of P3 million pesos provided that the said amount shall earn
compounded bank interest for the last six months only. Under this circumstance, the amount of P3
million given by the SECOND PARTY shall be treated as [a] loan and the property shall be
considered as the security for the mortgage which can be enforced in accordance with law.
x x x x.[6]
Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated check
dated February 28, 1990, instead of 1991, which rendered said check stale. [7] Petitioner then gave respondent TCT
No. 168173 in the name of IMRDC and the Deed of Absolute Sale over the property between petitioner and
IMRDC.
Respondent decided not to purchase the property and notified petitioner through a letter [8] dated March 20,
1991, which petitioner received only on June 11, 1991,[9] reminding petitioner of their agreement that the amount of
two million pesos which petitioner received from respondent should be considered as a loan payable within six
months. Petitioner subsequently failed to pay respondent the amount of two million pesos.
On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a complaint[10] for sum of
money with preliminary attachment against petitioner. The case was docketed as Civil Case No. 93-65367 and
raffled to Branch 30. Respondent alleged the foregoing facts and in addition thereto averred that petitioner tried to
deprive her of the security for the loan by making a false report [11] of the loss of her owners copy of TCT No.
168173 to the Tagig Police Station on June 3, 1991, executing an affidavit of loss and by filing a petition [12] for the
issuance of a new owners duplicate copy of said title with the RTC of Makati, Branch 142; that the petition was
granted in an Order[13] dated August 31, 1991; that said Order was subsequently set aside in an Order dated April 10,
1992[14] where the RTC Makati granted respondents petition for relief from judgment due to the fact that respondent
is in possession of the owners duplicate copy of TCT No. 168173, and ordered the provincial public prosecutor to
conduct an investigation of petitioner for perjury and false testimony. Respondent prayed for the ex-parteissuance
of a writ of preliminary attachment and payment of two million pesos with interest at 36% per annum
from December 7, 1991,P100,000.00 moral, corrective and exemplary damages and P200,000.00 for attorneys
fees.
In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a writ of preliminary
attachment upon the filing of a bond in the amount of two million pesos. [15]
Petitioner filed an Amended Answer [16] alleging that the Memorandum of Agreement was conceived and
arranged by her lawyer, Atty. Carmelita Lozada, who is also respondents lawyer; that she was asked to sign the
agreement without being given the chance to read the same; that the title to the property and the Deed of Sale
between her and the IMRDC were entrusted to Atty. Lozada for safekeeping and were never turned over to
respondent as there was no consummated sale yet; that out of the two million pesos cash paid, Atty. Lozada took the
one million pesos which has not been returned, thus petitioner had filed a civil case against her; that she was never
informed of respondents decision not to purchase the property within the six month period fixed in the agreement;
that when she demanded the return of TCT No. 168173 and the Deed of Sale between her and the IMRDC from

Atty. Lozada, the latter gave her these documents in a brown envelope on May 5, 1991 which her secretary placed in
her attache case; that the envelope together with her other personal things were lost when her car was forcibly
opened the following day; that she sought the help of Atty. Lozada who advised her to secure a police report, to
execute an affidavit of loss and to get the services of another lawyer to file a petition for the issuance of an owners
duplicate copy; that the petition for the issuance of a new owners duplicate copy was filed on her behalf without her
knowledge and neither did she sign the petition nor testify in court as falsely claimed for she was abroad; that she
was a victim of the manipulations of Atty. Lozada and respondent as shown by the filing of criminal charges for
perjury and false testimony against her; that no interest could be due as there was no valid mortgage over the
property as the principal obligation is vitiated with fraud and deception. She prayed for the dismissal of the
complaint, counter-claim for damages and attorneys fees.
Trial on the merits ensued. On January 31, 1996, the RTC issued a decision, [17] the dispositive portion of
which reads:
WHEREFORE, judgment is hereby RENDERED:
1)
Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at
the rate of thirty two (32%) per cent per annum beginningDecember 7, 1991 until fully paid.
2)
Ordering defendant to pay plaintiff the sum of P70,000.00 representing premiums
paid by plaintiff on the attachment bond with legal interest thereon counted from the date of this
decision until fully paid.
3)
Ordering defendant to pay plaintiff the sum of P100,000.00 by way of moral,
corrective and exemplary damages.
4)
litigation.[18]

Ordering defendant to pay plaintiff attorneys fees of P100,000.00 plus cost of

The RTC found that petitioner was under obligation to pay respondent the amount of two million pesos
with compounded interest pursuant to their Memorandum of Agreement; that the fraudulent scheme employed by
petitioner to deprive respondent of her only security to her loaned money when petitioner executed an affidavit of
loss and instituted a petition for the issuance of an owners duplicate title knowing the same was in respondents
possession, entitled respondent to moral damages; and that petitioners bare denial cannot be accorded credence
because her testimony and that of her witness did not appear to be credible.
The RTC further found that petitioner admitted that she received from respondent the two million pesos in
cash but the fact that petitioner gave the one million pesos to Atty. Lozada was without respondents knowledge thus
it is not binding on respondent; that respondent had also proven that in 1993, she initially paid the sum
of P30,000.00 as premium for the issuance of the attachment bond, P20,000.00 for its renewal in 1994,
and P20,000.00 for the renewal in 1995, thus plaintiff should be reimbursed considering that she was compelled to
go to court and ask for a writ of preliminary attachment to protect her rights under the agreement.
Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the RTC
decision with modification, thedispositive portion of which reads:
WHEREFORE, premises considered, the decision appealed from is MODIFIED in the
sense that the rate of interest is reduced from 32% to 25% per annum, effective June 7, 1991 until
fully paid.[19]
The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her commission and partly
as a loan; respondent did not replace the mistakenly dated check of one million pesos because she had decided not to
buy the property and petitioner knew of her decision as early as April 1991; the award of moral damages was
warranted since even granting petitioner had no hand in the filing of the petition for the issuance of an owners copy,
she executed an affidavit of loss of TCT No. 168173 when she knew all along that said title was in respondents
possession; petitioners claim that she thought the title was lost when the brown envelope given to her by

Atty. Lozada was stolen from her car was hollow; that such deceitful conduct caused respondent serious anxiety and
emotional distress.
The CA concluded that there was no basis for petitioner to say that the interest should be charged for six
months only and no more; that a loan always bears interest otherwise it is not a loan; that interest should commence
on June 7, 1991[20] with compounded bank interest prevailing at the time the two million was considered as a loan
which was in June 1991; that the bank interest rate for loans secured by a real estate mortgage in 1991 ranged from
25% to 32% per annum as certified to by Prudential Bank,[21] that in fairness to petitioner, the rate to be charged
should be 25% only.
Petitioners motion for reconsideration was denied by the CA in a Resolution dated September 11, 2002.
Hence the instant Petition for Review on Certiorari filed by petitioner raising the following issues:
(A)

(B)
(C)

WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE

LIMITED TO SIX (6) MONTHS AS CONTAINED IN THE MEMORANDUM OF
AGREEMENT.
WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.
WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IS PROPER EVEN IF NOT MENTIONED IN
THE TEXT OF THE DECISION.[22]

Petitioner contends that the interest, whether at 32% per annum awarded by the trial court or at 25% per
annum as modified by the CA which should run from June 7, 1991 until fully paid, is contrary to the parties
Memorandum of Agreement; that the agreement provides that if respondent would decide not to purchase the
property, petitioner has the period of another six months to pay the loan with compounded bank interest for the last
six months only; that the CAs ruling that a loan always bears interest otherwise it is not a loan is contrary to Art.
1956 of the New Civil Code which provides that no interest shall be due unless it has been expressly stipulated in
writing.
We are not persuaded.
While the CAs conclusion, that a loan always bears interest otherwise it is not a loan, is flawed since a
simple loan may be gratuitous or with a stipulation to pay interest, [23] we find no error committed by the CA in
awarding a 25% interest per annum on the two-million peso loan even beyond the second six months stipulated
period.
The Memorandum of Agreement executed between the petitioner and respondent on December 7, 1990 is
the law between the parties. In resolving an issue based upon a contract, we must first examine the contract itself,
especially the provisions thereof which are relevant to the controversy. [24] The general rule is that if the terms of an
agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its
stipulations shall prevail.[25] It is further required that the various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken jointly.[26]
In this case, the phrase for the last six months only should be taken in the context of the entire
agreement. We agree with and adopt the CAs interpretation of the phrase in this wise:
Their agreement speaks of two (2) periods of six months each. The first sixmonth period was given to plaintiff-appellee (respondent) to make up her mind whether
or not to purchase defendant-appellants (petitioner's) property. The second six-month
period was given to defendant-appellant to pay the P2 million loan in the event that
plaintiff-appellee decided not to buy the subject property in which case interest will be
charged for the last six months only, referring to the second six-month period. This
means that no interest will be charged for the first six-month period while appellee was

making up her mind whether to buy the property, but only for the second period of six
months after appellee had decided not to buy the property. This is the meaning of the
phrase for the last six months only. Certainly, there is nothing in their agreement that
suggests that interest will be charged for six months only even if it takes defendantappellant an eternity to pay the loan.[27]
The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e.,
referring to the second six-month period, does not mean that interest will no longer be charged after the second sixmonth period since such stipulation was made on the logical and reasonable expectation that such amount would be
paid within the date stipulated. Considering that petitioner failed to pay the amount given which under the
Memorandum of Agreement shall be considered as a loan, the monetary interest for the last six months continued to
accrue until actual payment of the loaned amount.
The payment of regular interest constitutes the price or cost of the use of money and thus, until the
principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use
such principal amount.[28] It has been held that for a debtor to continue in possession of the principal of the loan and
to continue to use the same after maturity of the loan without payment of the monetary interest, would constitute
unjust enrichment on the part of the debtor at the expense of the creditor.[29]
Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and per
the certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32% per
annum. The CA reduced the interest rate to 25% instead of the 32% awarded by the trial court which petitioner no
longer assailed.
In Bautista v. Pilar Development Corp.,[30] we upheld the validity of a 21% per annum interest on
a P142,326.43 loan. In Garcia v. Court of Appeals,[31] we sustained the agreement of the parties to a 24% per annum
interest on an P8,649,250.00 loan. Thus, the interest rate of 25% per annum awarded by the CA to a P2 million loan
is fair and reasonable.
Petitioner next claims that moral damages were awarded on the erroneous finding that she used a fraudulent
scheme to deprive respondent of her security for the loan; that such finding is baseless since petitioner was acquitted
in the case for perjury and false testimony filed by respondent against her.
We are not persuaded.
Article 31 of the Civil Code provides that when the civil action is based on an obligation not arising from
the act or omission complained of as a felony, such civil action may proceed independently of the criminal
proceedings and regardless of the result of the latter.[32]
While petitioner was acquitted in the false testimony and perjury cases filed by respondent against her,
those actions are entirely distinct from the collection of sum of money with damages filed by respondent against
petitioner.
We agree with the findings of the trial court and the CA that petitioners act of trying to deprive respondent
of the security of her loan by executing an affidavit of loss of the title and instituting a petition for the issuance of a
new owners duplicate copy of TCT No. 168173 entitles respondent to moral damages. Moral damages may be
awarded in culpa contractual or breach of contract cases when the defendant acted fraudulently or in bad faith. Bad
faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious doing of wrong. It partakes of the nature of fraud.[33]
The Memorandum of Agreement provides that in the event that respondent opts not to buy the property, the
money given by respondent to petitioner shall be treated as a loan and the property shall be considered as the
security for the mortgage. It was testified to by respondent that after they executed the agreement on December 7,
1990, petitioner gave her the owners copy of the title to the property, the Deed of Sale between petitioner and
IMRDC, the certificate of occupancy, and the certificate of the Secretary of the IMRDC who signed the Deed of
Sale.[34] However, notwithstanding that all those documents were in respondents possession, petitioner executed an
affidavit of loss that the owners copy of the title and the Deed of Sale were lost.

Although petitioner testified that her execution of the affidavit of loss was due to the fact that she was of
the belief that since she had demanded from Atty. Lozada the return of the title, she thought that the brown envelope
with markings which Atty. Lozada gave her on May 5, 1991 already contained the title and the Deed of Sale as those
documents were in the same brown envelope which she gave to Atty. Lozada prior to the transaction with
respondent.[35] Such statement remained a bare statement. It was not proven at all since Atty. Lozada had not taken
the stand to corroborate her claim. In fact, even petitioners own witness, Benilda Ynfante (Ynfante), was not able
to establish petitioner's claim that the title was returned by Atty. Lozada in view of Ynfante's testimony that after the
brown envelope was given to petitioner, the latter passed it on to her and she placed it in petitioners attach
case[36] and did not bother to look at the envelope.[37]
It is clear therefrom that petitioners execution of the affidavit of loss became the basis of the filing of the
petition with the RTC for the issuance of new owners duplicate copy of TCT No. 168173. Petitioners actuation
would have deprived respondent of the security for her loan were it not for respondents timely filing of a petition
for relief whereby the RTC set aside its previous order granting the issuance of new title. Thus, the award of moral
damages is in order.
The entitlement to moral damages having been established, the award of exemplary damages is proper.
Exemplary damages may be imposed upon petitioner by way of example or correction for the public good.
[39]
The RTC awarded the amount of P100,000.00 as moral and exemplary damages. While the award of moral and
exemplary damages in an aggregate amount may not be the usual way of awarding said damages, [40] no error has
been committed by CA. There is no question that respondent is entitled to moral and exemplary damages.
[38]

Petitioner argues that the CA erred in awarding attorneys fees because the trial courts decision did not
explain the findings of facts and law to justify the award of attorneys fees as the same was mentioned only in
the dispositive portion of the RTC decision.
We agree.
Article 2208[41] of the New Civil Code enumerates the instances where such may be awarded and, in all
cases, it must be reasonable, just and equitable if the same were to be granted. [42] Attorney's fees as part of damages
are not meant to enrich the winning party at the expense of the losing litigant. They 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. [43] The award
of attorney's fees is the exception rather than the general rule. As such, it is necessary for the trial court to make
findings of facts and law that would bring the case within the exception and justify the grant of such award. The
matter of attorney's fees cannot be mentioned only in the dispositive portion of the decision.[44] They must be clearly
explained and justified by the trial court in the body of its decision. On appeal, the CA is precluded from
supplementing the bases for awarding attorneys fees when the trial court failed to discuss in its Decision the reasons
for awarding the same. Consequently, the award of attorney's fees should be deleted.
WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution
dated September 11, 2002 of the Court of Appeals in CA-G.R. CV No. 52839 are AFFIRMED with
MODIFICATION that the award of attorneys fees is DELETED.
No pronouncement as to costs.
SO ORDERED.

(11) SPOUSES ANTONIO E.A. CONCEPCION and MANUELA S. CONCEPCION, petitioners, vs. HON.
COURT OF APPEALS, HOME SAVINGS BANK AND TRUST COMPANY, and as nominal partydefendants, THE SHERIFF ASSIGNED TO SAN JUAN, METRO MANILA, and who conducted the auction
sale and the REGISTER OF DEEDS or his representative of San Juan, Metro Manila, and ASAJE REALTY
CORPORATION, respondents.

[G.R. No. 122079. June 27, 1997]

DECISION

VITUG, J.:
The spouses Antonio E.A. Concepcion and Manuela S. Concepcion assail, via the instant petition for review
on certiorari, the decision,[1] dated 15 September 1995, of the Court of Appeals, affirming with modification the
judgment of the Regional Trial Court ("RTC"), [2] Branch 157, of Pasig City,[3] that dismissed the complaint of herein
petitioners against private respondents.
The facts, hereunder narrated, are culled from the findings of the appellate court.
On 17 January 1979, the Home Savings Bank and Trust Company (now Insular Life Savings and Trust
Company) granted to the Concepcions a loan amounting to P1,400,000.00. The Concepcions, in turn, executed in
favor of the bank a promissory note and a real estate mortgage over their property located at 11 Albany St.,
Greenhills, San Juan, Metro Manila. The loan was payable in equal quarterly amortizations for a period of fifteen
(15) years and carried an interest rate of sixteen percent (16%) per annum. The promissory note provided that the
Concepcions had authorized "x x x the Bank to correspondingly increase the interest rate presently stipulated in this transaction without advance
notice to me/us in the event the Central Bank of the Philippines raises its rediscount rate to member banks, and/or
the interest rate on savings and time deposit, and/or the interest rate on such loans and/or advances." [4]
In accordance with the above provision, the bank unilaterally increased the interest rate from 16% to 21% effective
17 February 1980; from 21% to 30% effective 17 October 1984; and from 30% to 38% effective 17 November 1984,
increasing the quarterly amortizations from P67,830.00 to, respectively,P77,619.72, P104,661.10, and P123,797.05
for the periods aforestated. The Concepcions paid, under protest, the increased amortizations of P77,619.72
and P104,661.10 until January 1985 but thereafter failed to pay the quarterly amortization of P123,797.05 (starting
due date of 17 April 1985).

In a letter, dated 15 July 1985, the bank's President made a demand on the Concepcions for the payment of the
arrearages. The Concepcions failed to pay, constraining the bank's counsel to send a final demand letter, dated 26
August 1985, for the payment of P393,878.81, covering the spouses' due account for three quarterly payments plus
interest, penalty, and service charges. Still, no payment was received.
On 14 April 1986, the bank finally filed with the Office of the Provincial Sheriff of Pasig City a petition for
extrajudicial foreclosure of the real estate mortgage executed by the Concepcions. A notice of sale was issued on 15
May 1986, setting the public auction sale on 11 June 1986. The notice was published in the newspaper
"Mabuhay." A copy of the notice was sent to the Concepcions at 59 Whitefield St., White Plains Subdivision,
Quezon City and/or at 11 Albany St., Greenhills Subdivision, San Juan, Metro Manila. The public auction sale went
on as scheduled with the bank emerging as the highest bidder. A Certificate of Sale was issued in favor of the bank.
The Concepcions were unable to exercise their right of redemption within the one-year period provided under
Act No. 3135. The bank thus consolidated its title over the property and, after the cancellation of the title in the
name of the Concepcions, a new transfer certificate of title (No. 090-R) was issued in the name of Home Savings
Bank and Trust Company.
On 31 July 1987, the bank executed a Deed of Absolute Sale in favor of Asaje Realty Corporation and a new
certificate of title was issued in the latter's name.
Meanwhile, on 29 July 1987, the Concepcions filed an action against Home Savings Bank and Trust Company,
the Sheriff of San Juan, Metro Manila, and the Register of Deeds of San Juan, Metro Manila, for the cancellation of
the foreclosure sale, the declaration of nullity of the consolidation of title in favor of the bank, and the declaration of
nullity of the unilateral increases of the interest rates on their loan. The spouses likewise claimed damages against
the defendants. The Concepcions, having learned of the sale of the property to Asaje Realty Corporation, filed an
amended complaint impleading the realty corporation and so praying as well for the cancellation of the sale executed
between said corporation and the bank and the cancellation of the certificate of title issued in the name of Asaje.
On 31 August 1992, the trial court found for the defendants and ruled:
"In view of all the foregoing premises, this Court finally concludes that the plaintiffs have no cause of action either
against defendant Home Savings Bank & Trust Company or defendant Asaje Realty Corporation; and under the
circumstances of this case, it deems it just and equitable that attorney's fees and expenses of litigation should be
recovered by said defendants.
"WHEREFORE, judgment is hereby rendered dismissing the amended complaint of plaintiffs Spouses Antonio E.A.
Concepcion and Manuela S. Concepcion against the defendants for lack of merit, and ordering the said plaintiffs to
pay attorney's fees and expenses of litigation in the sum of P30,000.00 to defendant Home Savings Bank & Trust
Company and in the amount of P25,000.00 to defendant Asaje Realty Corporation, in addition to their respective
costs of suit.
"SO ORDERED."[5]
The Concepcions went to the Court of Appeals.
On 15 September 1995, the appellate court affirmed the trial court's decision, with modification, as follows:

"Under the facts and circumstances of the case at bench, the award of attorney's fees, expenses of litigation and costs
of suit in favor of defendant-appellee should be deleted. It is not a sound policy to place a penalty on the right to
litigate, nor should counsel's fees be awarded everytime a party wins a suit (Arenas vs. Court of Appeals, 169 SCRA
558).
"WHEREFORE, the appealed judgment is AFFIRMED with the modification that the award of attorneys fees,
litigation expenses and costs of suit in favor of defendant-appellees are deleted from the dispositive portion.
"SO ORDERED."[6]
The Concepcions forthwith filed with this Court a petition for review on certiorari, contending that they have
been denied their contractually stipulated right to be personally notified of the foreclosure proceedings on the
mortgaged property.
There is some merit in the petition.
The three common types of forced sales arising from a failure to pay a mortgage debt include (a) an
extrajudicial foreclosure sale, governed by Act No. 3135; (b) a judicial foreclosure sale, regulated by Rule 68 of the
Rules of Court; and (c) an ordinary execution sale, covered by Rule 39 of the Rules of Court. [7] Each mode,
peculiarly, has its own requirements.
In an extrajudicial foreclosure, such as here, Section 3 of Act No. 3135 [8] is the law applicable;[9] the provision
reads:
"Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public
places of the municipality or city where the property is situated, and if such property is worth more than four
hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper
of general circulation in the municipality or city."
The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication of the same in a
newspaper of general circulation.[10]Personal notice to the mortgagor is not necessary.[11] Nevertheless, the parties to
the mortgage contract are not precluded from exacting additional requirements.
In the case at bar, the mortgage contract stipulated that "All correspondence relative to this Mortgage, including demand letters, summons, subpoenas, or notifications of
any judicial or extrajudicial actions shall be sent to the Mortgagor at the address given above or at the address that
may hereafter be given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any
correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the
Mortgagor for all legal purposes, and fact that any communication is not actually received by the Mortgagor, or that
it has been returned unclaimed to the Mortgagee, or that no person was found at the address given, or that the
address is fictitious or cannot be located, shall not excuse or relieve Mortgagor from the effects of such notice." [12]
The stipulation, not being contrary to law, morals, good customs, public order or public policy, is the law between
the contracting parties and should be faithfully complied with.[13]
Private respondent bank maintains that the stipulation that "all correspondence relative to (the) Mortgage x x x
shall be sent to the Mortgagor at the address given above or at the address that may hereafter be given in writing by

the Mortgagor to the Mortgagee"[14] gives the mortgagee an alternative to send its correspondence either at the old or
the new address given.[15] This stand is illogical. It could not have been the intendment of the parties to defeat the
very purpose of the provision referred to which is obviously to apprise the mortgagors of the bank's action that
might affect the property and to accord to them an opportunity to safeguard their rights. The Court finds the bank's
failure to comply with its agreement with petitioners an inexcusable breach of the mortgagee's covenant. Neither
petitioners' subsequent opportunity to redeem the property nor their failed negotiations with the bank for a new
schedule of payments,[16] can be a valid justification for the breach.
The foregoing notwithstanding, petitioners may no longer seek the reconveyance of the property from private
respondent Asaje Realty Corporation, the latter having been, evidently, an innocent purchaser in good faith. [17] The
realty corporation purchased the property when the title was already in the name of the bank. It was under no
obligation to investigate the title of the bank or to look beyond what clearly appeared to be on the face of the
certificate.[18]
Private respondent bank, however, can still be held to account for the bid price of Asaje Realty Corporation
over and above, if any, the amount due the bank on the basis of the original interest rate, the unilateral increases
made by the bank having been correctly invalidated by the Court of Appeals.
The validity of "escalation" or "escalator" clauses in contracts, in general, was upheld by the Supreme Court in
Banco Filipino Savings and Mortgage Bank vs. Hon. Navarro and Del Valle. [19] Hence:
"Some contracts contain what is known as an `escalator clause,' which is defined as one in which the contract fixes a
base price but contains a provision that in the event of specified cost increases, the seller or contractor may raise the
price up to a fixed percentage of the base. Attacks on such a clause have usually been based on the claim that,
because of the open price-provision, the contract was too indefinite to be enforceable and did not evidence an actual
meeting of the minds of the parties, or that the arrangement left the price to be determined arbitrarily by one party so
that the contract lacked mutuality. In most instances, however, these attacks have been unsuccessful.
"The Court further finds as a matter of law that the cost of living index adjustment, or escalator clause, is not
substantively unconscionable.
"Cost of living index adjustment clauses are widely used in commercial contracts in an effort to maintain fiscal
stability and to retain `real dollar' value to the price terms of long term contracts. The provision is a common one,
and has been universally upheld and enforced. Indeed, the Federal government has recognized the efficacy of
escalator clauses in tying Social Security benefits to the cost of living index, 42 U.S.C.s 415(i). Pension benefits
and labor contracts negotiated by most of the major labor unions are other examples. That inflation, expected or
otherwise, will cause a particular bargain to be more costly in terms of total dollars than originally contemplated can
be of little solace to the plaintiffs."[20]
In Philippine National Bank vs. Court of Appeals,[21] the Court further elucidated, as follows:
"It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual
assent of the parties. If this assent is wanting on the part of one who contracts, his act has no more efficacy than if it
had been done under duress or by a person of unsound mind.
"Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties
must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the
case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or

break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding
effect.
"We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right
to unilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from
private respondents the right to assent to an important modification in their agreement, and would negate the
element of mutuality in contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545
(1991) we held "`x x x (T)he unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the
mutuality of contracts ordained in Article 1308 of the Civil Code:
"`ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them.'
"In order that obligations arising from contracts may have the force or law between the parties, there must
be mutuality between the parties based on their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void x x x. Hence,
even assuming that the x x x loan agreement between the PNB and the private respondent gave the PNB a license
(although in fact there was none) to increase the interest rate at will during the term of the loan, that license would
have been null and void for being violative of the principle of mutuality essential in contracts. It would have
invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal
footing, the weaker party's (the debtor) participation being reduced to the alternative `to take it or leave it' x x
x. Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and
imposition. (Citations omitted.)"[22]
Even if we were to consider that petitioners were bound by their agreement allowing an increase in the interest
rate despite the lack of advance notice to them, the escalation should still be subject, as so contractually stipulated,
to a corresponding increase by the Central Bank of its rediscount rate to member banks, or of the interest rate on
savings and time deposit, or of the interest rate on such loans and advances. The notices sent to petitioners merely
read:
Letter of 19 July 1984:
"Please be informed that the Bank has increased the interest rate of your existing loan from 21 to 30% per annum
beginning October 17, 1984. This increase of interest rate is in accordance with the provision of Section 2 of
Presidential Decree No. 1684[23] amending Act No. 2655. This provision of the decree is reiterated under paragraph
1 of your Promissory Note. Your quarterly amortization has been increased to P104,661.10.
"We trust that you will be guided accordingly."[24]
Letter of 14 November 1984:
"On account of the prevailing business and economic condition, we are compelled to increase the interest rate of
your existing loan from 30% to 38% per annum effective November 17, 1984. This increase is in accordance with
your agreement (escalation clause) in your promissory note/s.

"In view of this increase in the interest rate of your loan, your Quarterly amortization correspondingly increased
to P123,797.05 commencing on April 17, 1985.
"We trust that you will understand our position and please be guided accordingly."[25]
Given the circumstances, the Court sees no cogent reasons to fault the appellate court in its finding that there are no
sufficient valid justifications aptly shown for the unilateral increases by private respondent bank of the interest rates
on the loan.
WHEREFORE, the decision of the appellate court is AFFIRMED subject to the MODIFICATION that private
respondent Home Savings Bank and Trust Company shall pay to petitioners the excess, if any, of the bid price it
received from Asaje Realty Corporation for the foreclosed property in question over and above the unpaid balance of
the loan computed at the original interest rate. This case is REMANDED to the trial court for the above
determination. No costs.
SO ORDERED.

(12) EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE
INSURANCE COMPANY, INC., respondents.
[G.R. No. 97412 July 12, 1994]
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods
can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker;
(b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the
complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of
interest, referred to above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have
led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who
paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for
delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill
of
Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No.
81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody
of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order,
which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from
defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad
Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the
shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages,
while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered
losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented
against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of
action of said consignee against defendants (per "Form of Subrogation", "Release" and
Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in
good order from the vessel unto the custody of Metro Port Service so that any damage/losses
incurred after the shipment was incurred after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied
Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault
for the shipment was already in damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the
cargo to consignee in the same condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of
defendants (in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting
plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as
clearly shown by the Bill of Lading and Commercial Invoice which do not
indicate any damages drum that was shipped (Exhs. B and C). But when on
December 12, 1981 the shipment was delivered to defendant Metro Port Service,
Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages were
sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh.
G), with its "Additional Survey Notes", are considered. In the latter notes, it is
stated that when the shipment was "landed on vessel" to dock of Pier # 15, South
Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum
(was) in damaged condition, covered by the vessel's Agent's Bad Order Tally
Sheet No. 86427." The report further states that when defendant Allied
Brokerage withdrew the shipment from defendant arrastre operator's custody on
January 7, 1982, one drum was found opened without seal, cello bag partly torn
but
contents
intact.
Net
unrecovered
spillages
was
15 kgs. The report went on to state that when the drums reached the consignee,
one drum was found with adulterated/faked contents. It is obvious, therefore,
that these losses/damages occurred before the shipment reached the consignee
while under the successive custodies of defendants. Under Art. 1737 of the New
Civil Code, the common carrier's duty to observe extraordinary diligence in the

vigilance of goods remains in full force and effect even if the goods are
temporarily unloaded and stored in transit in the warehouse of the carrier at the
place of destination, until the consignee has been advised and has had
reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC).
Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order
Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was
found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per
annum from October 1, 1982, the date of filing of this complaints, until fully
paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500
per case or the CIF value of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the extent of the actual invoice
value of each package, crate box or container in no case to exceed P5,000.00
each, pursuant to Section 6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim
defendant/cross-claimant Allied Brokerage Corporation.

of

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
a quo.

Court

of

Appeals

thus

affirmed in

toto the

judgment

of

the

court

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on
the part of the appellate court when

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE

ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE
RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE
RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE
COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM
THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX
PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY
UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed,
we do have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles
are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts.
1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil.
863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier
of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art.
1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court
of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed
but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to this
case.
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the
goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port
Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum,thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship
between the consignee and the common carrier is similar to that of the consignee and the arrastre
operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of
the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in
good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are
themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given
case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the
carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular
case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient
evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner
among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The
early
case
of Malayan
Insurance
Co.,
Inc.,
vs. Manila
Port
2
3
Service, decided on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and
pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint
that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand,
however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into
by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment
ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan
Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December
1962 until full payment thereof. The appellants then assailed,inter alia, the award of legal interest. In sustaining the
appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal
rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The
trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." And as was held by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the
suit were for damages, "unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447;
Lichauco
v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to
Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants
and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and
severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the
value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus
P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month
as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time
they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal
interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with
costs against defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the
trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate

court's decision became final, the case was remanded to the lower court for execution, and this was when
the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article
2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central
Bank
Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board
in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan,
or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence
of express contract as to such rate of interest, shall be twelve (12%) percent per annum. This
Circular shall take effect immediately. (Emphasis found in the text)
should have, instead, been applied. This Court 6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or
forbearance of any money, goods or credits. Any other kind of monetary judgment which has
nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall
within the coverage of the said law for it is not within the ambit of the authority granted to the
Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action
for Damages for injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private respondents, the
law applicable to the said case is Article 2209 of the New Civil Code which reads
Art. 2209. If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no stipulation
to the contrary, shall be the payment of interest agreed upon, and in the absence
of stipulation, the legal interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case
was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent
Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the
filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court 8 modified the interest
award from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the
complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the
collapse
of
a
building,
ordered,
inter
alia,
the
"defendant
United
Construction
Co.,
Inc.
(one
of
the
petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date
of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower
court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03
October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as
We do hereby impose, upon the defendant and the third-party defendants (with the exception of
Roman
Ozaeta)
a
solidary
(Art.
1723,
Civil
Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00)
Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of the
building (including interest charges and lost rentals) and an additional ONE HUNDRED
THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per
annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs
against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve
(12%) per cent per annum imposed on the total amount of the monetary award was in contravention of
law." The Court 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 words, as part of the judgment for
damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for
review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing
the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00,
respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e.,
P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum
from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the
right of the private respondent to recover damages, held the award, however, for moral damages by the trial court,
later sustained by the IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate court
and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand
(P100,000.00)
Pesos
as
moral
damages,
with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach of
employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the
Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated
October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants,
except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts
stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of
compensatory damages, with interest at the legal rate from the date of the filing of the complaint
until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the trial court,
and an entry of judgment was made. The writ of execution issued by the trial court directed that only
compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint.
Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said
order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal
rate"from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416]
does not apply to actions based on a breach of employment contract like the case at bar. (Emphasis
supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from the time the
complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas, 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 Court 15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without
stipulation regarding interest, and the interest adjudged by the trial court is in the nature of
indemnity for damages. The legal interest required to be paid on the amount of just compensation
for the properties expropriated is manifestly in the form of indemnity for damages for the delay in
the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the
lower court sought to be enforced in this case is interest by way of damages, and not by way of
earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two
groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The
"first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986),
Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company
v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International
v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under
the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent
holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or
forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money,

goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general.
Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per
annum, 17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of
indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding
that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the
"second group" varied on the commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a
quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed
and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express
International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed
from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be
imposed from the finality of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on
the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the
following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is
breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages. 20
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 23 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court 24 at the rate of 6% per annum. 25 No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION
that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall
be imposed on such amount upon finality of this decision until the payment thereof.
SO ORDERED.

(13)
SEBASTIAN SIGA-AN,
Petitioner,

G.R. No. 173227

Present:
-versus

YNARES-SANTIAGO,
Chairperson,

ALICIA VILLANUEVA,
Respondent.

AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
LEONARDO-DE CASTRO,* JJ.
Promulgated:

January 20, 2009

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

DECISION

CHICO-NAZARIO, J.:
Before Us is a Petition[1] for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside
the Decision,[2] dated 16 December 2005, and Resolution,[3] dated 19 June 2006 of the Court of Appeals in CA-G.R.
CV No. 71814, which affirmed in toto the Decision,[4] dated 26 January 2001, of the Las Pinas City Regional Trial
Court, Branch 255, in Civil Case No. LP-98-0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a complaint [5] for sum of money against petitioner
Sebastian Siga-an before the Las Pinas City Regional Trial Court (RTC), Branch 255, docketed as Civil Case No.
LP-98-0068. Respondent alleged that she was a businesswoman engaged in supplying office materials and
equipments to the Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner was a
military officer and comptroller of the PNO from 1991 to 1996.

Respondent claimed that sometime in 1992, petitioner approached her inside the PNO and offered to loan
her the amount of P540,000.00. Since she needed capital for her business transactions with the PNO, she accepted
petitioners proposal. The loan agreement was not reduced in writing. Also, there was no stipulation as to the
payment of interest for the loan.[6]

On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as partial payment of the
loan. On 31 October 1993, she issued another check in the amount of P200,000.00 to petitioner as payment of the
remaining balance of the loan. Petitioner told her that since she paid a total amount of P700,000.00 for
the P540,000.00 worth of loan, the excess amount of P160,000.00 would be applied as interest for the loan. Not
satisfied with the amount applied as interest, petitioner pestered her to pay additional interest. Petitioner threatened
to block or disapprove her transactions with the PNO if she would not comply with his demand. As all her
transactions with the PNO were subject to the approval of petitioner as comptroller of the PNO, and fearing that
petitioner might block or unduly influence the payment of her vouchers in the PNO, she conceded. Thus, she paid
additional amounts in cash and checks as interests for the loan. She asked petitioner for receipt for the payments but
petitioner told her that it was not necessary as there was mutual trust and confidence between them. According to her
computation, the total amount she paid to petitioner for the loan and interest accumulated to P1,200,000.00.[7]

Thereafter, respondent consulted a lawyer regarding the propriety of paying interest on the loan despite
absence of agreement to that effect. Her lawyer told her that petitioner could not validly collect interest on the loan
because there was no agreement between her and petitioner regarding payment of interest. Since she paid petitioner
a total amount of P1,200,000.00 for the P540,000.00 worth of loan, and upon being advised by her lawyer that she
made overpayment to petitioner, she sent a demand letter to petitioner asking for the return of the excess amount
ofP660,000.00. Petitioner, despite receipt of the demand letter, ignored her claim for reimbursement. [8]

Respondent prayed that the RTC render judgment ordering petitioner to pay respondent (1) P660,000.00
plus legal interest from the time of demand; (2) P300,000.00 as moral damages; (3) P50,000.00 as exemplary
damages; and (4) an amount equivalent to 25% of P660,000.00 as attorneys fees.[9]

In his answer[10] to the complaint, petitioner denied that he offered a loan to respondent. He averred that in
1992, respondent approached and asked him if he could grant her a loan, as she needed money to finance her
business venture with the PNO. At first, he was reluctant to deal with respondent, because the latter had a spotty
record as a supplier of the PNO. However, since respondent was an acquaintance of his officemate, he agreed to
grant her a loan. Respondent paid the loan in full.[11]

Subsequently, respondent again asked him to give her a loan. As respondent had been able to pay the
previous loan in full, he agreed to grant her another loan. Later, respondent requested him to restructure the
payment of the loan because she could not give full payment on the due date. He acceded to her
request. Thereafter, respondent pleaded for another restructuring of the payment of the loan. This time he rejected
her plea. Thus, respondent proposed to execute a promissory note wherein she would acknowledge her obligation to
him, inclusive of interest, and that she would issue several postdated checks to guarantee the payment of her
obligation. Upon his approval of respondents request for restructuring of the loan, respondent executed a
promissory note dated 12 September 1994 wherein she admitted having borrowed an amount of P1,240,000.00,
inclusive of interest, from petitioner and that she would pay said amount in March 1995. Respondent also issued to
him six postdated checks amounting to P1,240,000.00 as guarantee of compliance with her obligation. Subsequently,
he presented the six checks for encashment but only one check was honored. He demanded that respondent settle

her obligation, but the latter failed to do so. Hence, he filed criminal cases for Violation of the Bouncing Checks
Law (Batas Pambansa Blg. 22) against respondent. The cases were assigned to the Metropolitan Trial Court of
Makati City, Branch 65 (MeTC).[12]

Petitioner insisted that there was no overpayment because respondent admitted in the latters promissory
note that her monetary obligation as of 12 September 1994 amounted to P1,240,000.00 inclusive of interests. He
argued that respondent was already estopped from complaining that she should not have paid any interest, because
she was given several times to settle her obligation but failed to do so. He maintained that to rule in favor of
respondent is tantamount to concluding that the loan was given interest-free. Based on the foregoing averments, he
asked the RTC to dismiss respondents complaint.

After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent made an overpayment
of her loan obligation to petitioner and that the latter should refund the excess amount to the former. It ratiocinated
that respondents obligation was only to pay the loaned amount of P540,000.00, and that the alleged interests due
should not be included in the computation of respondents total monetary debt because there was no agreement
between them regarding payment of interest. It concluded that since respondent made an excess payment to
petitioner in the amount of P660,000.00 through mistake, petitioner should return the said amount to respondent
pursuant to the principle of solutio indebiti.[13]

The RTC also ruled that petitioner should pay moral damages for the sleepless nights and wounded feelings
experienced by respondent. Further, petitioner should pay exemplary damages by way of example or correction for
the public good, plus attorneys fees and costs of suit.

The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing evidence and in the light of the provisions of
law and jurisprudence on the matter, judgment is hereby rendered in favor of the plaintiff and
against the defendant as follows:

(1)
Ordering defendant to pay plaintiff the amount of P660,000.00 plus legal
interest of 12% per annum computed from 3 March 1998 until the amount is paid in full;

(2) Ordering defendant to pay plaintiff the amount of P300,000.00 as moral damages;

(3) Ordering defendant to pay plaintiff the amount of P50,000.00 as exemplary damages;

(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of P660,000.00 as
attorneys fees; and

(5) Ordering defendant to pay the costs of suit.[14]

Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate court promulgated its
Decision affirming in toto the RTC Decision, thus:

WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED and the
assailed decision [is] AFFIRMED in toto.[15]

Petitioner filed a motion for reconsideration of the appellate courts decision but this was denied. [16] Hence,
petitioner lodged the instant petition before us assigning the following errors:

I.

THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS
DUE TO PETITIONER;

II.

THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE
OF SOLUTIO INDEBITI.[17]

Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as
monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is
called compensatory interest.[18] The right to interest arises only by virtue of a contract or by virtue of damages for
delay or failure to pay the principal loan on which interest is demanded. [19]

Article 1956 of the Civil Code, which refers to monetary interest, [20] specifically mandates that no interest
shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision,
payment of monetary interest 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 monetary interest. Thus, we have held that collection of interest without any stipulation
therefor in writing is prohibited by law.[21]

It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither was
there convincing proof of written agreement between the two regarding the payment of interest. Respondent
testified that although she accepted petitioners offer of loan amounting to P540,000.00, there was, nonetheless, no
verbal or written agreement for her to pay interest on the loan.[22]

Petitioner presented a handwritten promissory note dated 12 September 1994 [23] wherein respondent
purportedly admitted owing petitioner capital and interest. Respondent, however, explained that it was petitioner
who made a promissory note and she was told to copy it in her own handwriting; that all her transactions with the
PNO were subject to the approval of petitioner as comptroller of the PNO; that petitioner threatened to disapprove
her transactions with the PNO if she would not pay interest; that being unaware of the law on interest and fearing
that petitioner would make good of his threats if she would not obey his instruction to copy the promissory note, she
copied the promissory note in her own handwriting; and that such was the same promissory note presented by
petitioner as alleged proof of their written agreement on interest. [24] Petitioner did not rebut the foregoing
testimony. It is evident that respondent did not really consent to the payment of interest for the loan and that she was
merely tricked and coerced by petitioner to pay interest. Hence, it cannot be gainfully said that such promissory
note pertains to an express stipulation of interest or written agreement of interest on the loan between petitioner and
respondent.

Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found that he and respondent
agreed on the payment of 7% rate of interest on the loan; that the agreed 7% rate of interest was duly admitted by
respondent in her testimony in the Batas Pambansa Blg. 22 cases he filed against respondent; that despite such
judicial admission by respondent, the RTC and the Court of Appeals, citing Article 1956 of the Civil Code, still held
that no interest was due him since the agreement on interest was not reduced in writing; that the application of
Article 1956 of the Civil Code should not be absolute, and an exception to the application of such provision should
be made when the borrower admits that a specific rate of interest was agreed upon as in the present case; and that it
would be unfair to allow respondent to pay only the loan when the latter very well knew and even admitted in the
Batas Pambansa Blg. 22 cases that there was an agreed 7% rate of interest on the loan.[25]

We have carefully examined the RTC Decision and found that the RTC did not make a ruling therein that
petitioner and respondent agreed on the payment of interest at the rate of 7% for the loan. The RTC clearly stated
that although petitioner and respondent entered into a valid oral contract of loan amounting to P540,000.00, they,
nonetheless, never intended the payment of interest thereon. [26] While the Court of Appeals mentioned in its
Decision that it concurred in the RTCs ruling that petitioner and respondent agreed on a certain rate of interest as
regards the loan, we consider this as merely an inadvertence because, as earlier elucidated, both the RTC and the
Court of Appeals ruled that petitioner is not entitled to the payment of interest on the loan. The rule is that factual
findings of the trial court deserve great weight and respect especially when affirmed by the appellate court. [27] We
found no compelling reason to disturb the ruling of both courts.

Petitioners reliance on respondents alleged admission in the Batas Pambansa Blg. 22 cases that they had
agreed on the payment of interest at the rate of 7% deserves scant consideration. In the said case, respondent merely
testified that after paying the total amount of loan, petitioner ordered her to pay interest. [28] Respondent did not
categorically declare in the same case that she and respondent made an express stipulation in writing as regards
payment of interest at the rate of 7%. As earlier discussed, monetary interest is due only if there was
an express stipulation in writing for the payment of interest.

There are instances in which an interest may be imposed even in the absence of express stipulation, verbal
or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the
payment of a sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as
indemnity for damages if no stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the
Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent on this point.

All the same, the interest under these two instances may be imposed only as a penalty or damages for
breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of money. In
other words, the two instances apply only to compensatory interest and not to monetary interest. [29] The case at bar
involves petitioners claim for monetary interest.

Further, said compensatory interest is not chargeable in the instant case because it was not duly proven that
respondent defaulted in paying the loan. Also, as earlier found, no interest was due on the loan because there was no
written agreement as regards payment of interest.

Apropos the second assigned error, petitioner argues that the principle of solutio indebiti does not apply to
the instant case. Thus, he cannot be compelled to return the alleged excess amount paid by respondent as interest. [30]

Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no
stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the
Civil Code explains the principle of solutio indebiti. Said provision provides that if something is received when
there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In such
a case, a creditor-debtor relationship is created under a quasi-contract whereby the payor becomes the creditor who
then has the right to demand the return of payment made by mistake, and the person who has no right to receive such
payment becomes obligated to return the same. The quasi-contract of solutio indebiti harks back to the ancient
principle that no one shall enrich himself unjustly at the expense of another.[31] The principle of solutio
indebiti applies where (1) a payment is made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not
through liberality or some other cause.[32] We have held that the principle of solutio indebiti applies in case of
erroneous payment of undue interest.[33]

It was duly established that respondent paid interest to petitioner. Respondent was under no duty to make
such payment because there was no express stipulation in writing to that effect. There was no binding relation
between petitioner and respondent as regards the payment of interest. The payment was clearly a mistake. Since
petitioner received something when there was no right to demand it, he has an obligation to return it.

We shall now determine the propriety of the monetary award and damages imposed by the RTC and the
Court of Appeals.

Records show that respondent received a loan amounting to P540,000.00 from petitioner.[34] Respondent
issued two checks with a total worth of P700,000.00 in favor of petitioner as payment of the loan. [35] These checks
were subsequently encashed by petitioner.[36] Obviously, there was an excess of P160,000.00 in the payment for the
loan. Petitioner claims that the excess of P160,000.00 serves as interest on the loan to which he was entitled. Aside
from issuing the said two checks, respondent also paid cash in the total amount of P175,000.00 to petitioner as
interest.[37] Although no receipts reflecting the same were presented because petitioner refused to issue such to
respondent, petitioner, nonetheless, admitted in his Reply-Affidavit [38] in the Batas Pambansa Blg. 22 cases that
respondent paid him a total amount of P175,000.00 cash in addition to the two checks. Section 26 Rule 130 of the
Rules of Evidence provides that the declaration of a party as to a relevant fact may be given in evidence against
him. Aside from the amounts of P160,000.00 and P175,000.00 paid as interest, no other proof of additional

payment as interest was presented by respondent. Since we have previously found that petitioner is not entitled to
payment of interest and that the principle ofsolutio indebiti applies to the instant case, petitioner should return to
respondent the excess amount of P160,000.00 and P175,000.00 or the total amount of P335,000.00. Accordingly, the
reimbursable amount to respondent fixed by the RTC and the Court of Appeals should be reduced fromP660,000.00
to P335,000.00.

As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa Blg. 22 against
respondent. In the said cases, the MeTC found respondent guilty of violating Batas Pambansa Blg. 22 for issuing
five dishonored checks to petitioner. Nonetheless, respondents conviction therein does not affect our ruling in the
instant case. The two checks, subject matter of this case, totaling P700,000.00 which respondent claimed as
payment of the P540,000.00 worth of loan, were not among the five checks found to be dishonored or bounced in
the five criminal cases. Further, the MeTC found that respondent made an overpayment of the loan by reason of the
interest which the latter paid to petitioner.[39]

Article 2217 of the Civil Code provides that moral damages may be recovered if the party underwent
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injury. Respondent testified that she experienced sleepless nights and wounded
feelings when petitioner refused to return the amount paid as interest despite her repeated demands. Hence, the
award of moral damages is justified. However, its corresponding amount of P300,000.00, as fixed by the RTC and
the Court of Appeals, is exorbitant and should be equitably reduced. Article 2216 of the Civil Code instructs that
assessment of damages is left to the discretion of the court according to the circumstances of each case. This
discretion is limited by the principle that the amount awarded should not be palpably excessive as to indicate that it
was the result of prejudice or corruption on the part of the trial court. [40] To our mind, the amount of P150,000.00 as
moral damages is fair, reasonable, and proportionate to the injury suffered by respondent.

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages
may be imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he pestered
respondent to pay interest and threatened to block her transactions with the PNO if she would not pay interest. This
forced respondent to pay interest despite lack of agreement thereto. Thus, the award of exemplary damages is
appropriate. The amount of P50,000.00 imposed as exemplary damages by the RTC and the Court is fitting so as to
deter petitioner and other lenders from committing similar and other serious wrongdoings. [41]

Jurisprudence instructs that in awarding attorneys fees, the trial court must state the factual, legal or
equitable justification for awarding the same. [42] In the case under consideration, the RTC stated in its Decision that
the award of attorneys fees equivalent to 25% of the amount paid as interest by respondent to petitioner is
reasonable and moderate considering the extent of work rendered by respondents lawyer in the instant case and the
fact that it dragged on for several years. [43] Further, respondent testified that she agreed to compensate her lawyer
handling the instant case such amount.[44] The award, therefore, of attorneys fees and its amount equivalent to 25%
of the amount paid as interest by respondent to petitioner is proper.

Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the amount refundable to
respondent computed from 3 March 1998 until its full payment. This is erroneous.

We held in Eastern Shipping Lines, Inc. v. Court of Appeals, [45] that when an obligation, not constituting a
loan or forbearance of money is breached, an interest on the amount of damages awarded may be imposed at the rate
of 6% per annum. We further declared that when the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether it is a loan/forbearance of money or not, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed equivalent to a forbearance of credit.

In the present case, petitioners obligation arose from a quasi-contract of solutio indebiti and not from a
loan or forbearance of money. Thus, an interest of 6% per annum should be imposed on the amount to be refunded
as well as on the damages awarded and on the attorneys fees, to be computed from the time of the extra-judicial
demand on 3 March 1998,[46] up to the finality of this Decision. In addition, the interest shall become 12% per
annum from the finality of this Decision up to its satisfaction.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated 16 December
2005, is hereby AFFIRMED with the following MODIFICATIONS: (1) the amount of P660,000.00 as refundable
amount of interest is reduced to THREE HUNDRED THIRTY FIVE THOUSAND PESOS (P335,000.00); (2) the
amount of P300,000.00 imposed as moral damages is reduced to ONE HUNDRED FIFTY THOUSAND PESOS
(P150,000.00); (3) an interest of 6% per annum is imposed on the P335,000.00, on the damages awarded and on the
attorneys fees to be computed from the time of the extra-judicial demand on 3 March 1998 up to the finality of this
Decision; and (4) an interest of 12% per annum is also imposed from the finality of this Decision up to its
satisfaction. Costs against petitioner.

SO ORDERED.