Cases on Loans: his associate Nilo Velasco (Nilo) lives. When Nilo told him that Atty.
his associate Nilo Velasco (Nilo) lives. When Nilo told him that Atty. Salonga and L&J needed m
1. De la Paz v. L & J Dev. Co., G.R. No. 183360, September 8, 2014
[G.R. No. 183360. September 8, 2014.]
ROLANDO C. DE LA PAZ, * petitioner, vs. L & J DEVELOPMENT COMPANY, respondent.
DECISION
DEL CASTILLO, J p:
"No interest shall be due unless it has been expressly stipulated in writing." 1
This is a Petition for Review on Certiorari 2 assailing the February 27, 2008 Decision 3 of the Court of Appeals (CA) in CA-
G.R. SP No. 100094, which reversed and set aside the Decision 4 dated April 19, 2007 of the Regional Trial Court (RTC),
Branch 192, Marikina City in Civil Case No. 06-1145-MK. The said RTC Decision affirmed in all respects the Decision 5
dated June 30, 2006 of the Metropolitan Trial Court (MeTC), Branch 75, Marikina City in Civil Case No. 05-7755, which
ordered respondent L & J Development Company (L&J) to pay petitioner Architect Rolando C. De La Paz (Rolando) its
principal obligation of P350,000.00, plus 12% interest per annum reckoned from the filing of the Complaint until full payment
of the obligation.
Likewise assailed is the CA's June 6, 2008 Resolution 6 which denied Rolando's Motion for Reconsideration.
Factual Antecedents
On December 27, 2000, Rolando lent P350,000.00 without any security to L&J, a property developer with Atty. Esteban
Salonga (Atty. Salonga) as its President and General Manager. The loan, with no specified maturity date, carried a 6%
monthly interest, i.e., P21,000.00. From December 2000 to August 2003, L&J paid Rolando a total of P576,000.00 7
representing interest charges. AHDaET
As L&J failed to pay despite repeated demands, Rolando filed a Complaint 8 for Collection of Sum of Money with Damages
against L&J and Atty. Salonga in his personal capacity before the MeTC, docketed as Civil Case No. 05-7755. Rolando
alleged, among others, that L&J's debt as of January 2005, inclusive of the monthly interest, stood at P772,000.00; that
the 6% monthly interest was upon Atty. Salonga's suggestion; and, that the latter tricked him into parting with his money
without the loan transaction being reduced into writing.
In their Answer, 9 L&J and Atty. Salonga denied Rolando's allegations. While they acknowledged the loan as a corporate
debt, they claimed that the failure to pay the same was due to a fortuitous event, that is, the financial difficulties brought
about by the economic crisis. They further argued that Rolando cannot enforce the 6% monthly interest for being
unconscionable and shocking to the morals. Hence, the payments already made should be applied to the P350,000.00
principal loan.
During trial, Rolando testified that he had no communication with Atty. Salonga prior to the loan transaction but knew him
as a lawyer, a son of a former Senator, and the owner of L&J which developed Brentwood Subdivision in Antipolo where
he agreed to lend them money. He personally met with Atty. Salonga and their meeting was co
He narrated that when L&J was in the process of borrowing the P350,000.00 from him, it was
the secretary/treasurer of L&J, who negotiated the terms and conditions thereof. She said tha
L&J's housing project. Rolando claimed that it was not he who demanded for the 6% monthly in
Salonga, through Arlene, who insisted on paying the said interest as they asserted that the loan
ESCcaT
Ruling of the Metropolitan Trial Court
The MeTC, in its Decision 10 of June 30, 2006, upheld the 6% monthly interest. In so ruling, it
agreed thereto and voluntarily paid the interest at such rate from 2000 to 2003, it is already es
same. Nonetheless, for reasons of equity, the said court reduced the interest rate to 12% pe
principal obligation of P350,000.00. With regard to Rolando's prayer for moral damages, the M
found no malice or bad faith on the part of L&J in not paying the obligation. It likewise relieved A
as it found that he merely acted in his official capacity in obtaining the loan. The MeTC dispose
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff, Arch
against the defendant, L & J Development Co., Inc., as follows:
a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Three Hun
(P350,000.00) representing the principal obligation, plus interest at the legal rate of 12% per a
January 20, 2005, the date of the filing of the complaint, until the whole obligation is fully paid;
b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Five Thou
and for attorney's fees; and
c) to pay the costs of this suit.
SO ORDERED. 11
Ruling of the Regional Trial Court
L&J appealed to the RTC. It asserted in its appeal memorandum 12 that from December 2
monthly interest of P21,000.00 based on the agreed-upon interest rate of 6% monthly and from
interest payments in various amounts. 13 The total of interest payments made amounts to P
which is even more than the principal obligation of P350,000.00.
L&J insisted that the 6% monthly interest rate is unconscionable and immoral. Hence, the 12
should have been applied from the time of the constitution of the obligation. At 12% per annu
that the amount of interest it ought to pay from December 2000 to March 2003 and from April
amounts to P105,000.00. If this amount is deducted from the total interest payments already m
the amount of P471,000.00 appears to have been paid over and above what is due. Applying
the principal loan of P350,000.00 should be set-off against the P471,000.00, resulting in the
principal loan.
Unconvinced, the RTC, in its April 19, 2007 Decision, 14 affirmed the MeTC Decision, viz.: TEcAHI
WHEREFORE, premises considered, the Decision appealed from is hereby AFFIRMED in all respects, with costs against
the appellant.
SO ORDERED. 15
Ruling of the Court of Appeals
Undaunted, L&J went to the CA and echoed its arguments and proposed computation as proffered before the RTC.
In a Decision 16 dated February 27, 2008, the CA reversed and set aside the RTC Decision.
The CA stressed that the parties failed to stipulate in writing the imposition of interest on the loan. Hence, no interest shall
be due thereon pursuant to Article 1956 of the Civil Code.17 And even if payment of interest has been stipulated in writing,
the 6% monthly interest is still outrightly illegal and unconscionable because it is contrary to morals, if not against the law.
Being void, this cannot be ratified and may be set up by the debtor as defense. For these reasons, Rolando cannot collect
any interest even if L&J offered to pay interest. Consequently, he has to return all the interest payments of P576,000.00 to
L&J.
Considering further that Rolando and L&J thereby became creditor and debtor of each other, the CA applied the principle
of legal compensation under Article 1279 of the Civil Code. 18 Accordingly, it set off the principal loan of P350,000.00
against the P576,000.00 total interest payments made, leaving an excess of P226,000.00, which the CA ordered Rolando
to pay L&J plus interest. Thus:
WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET ASIDE.
CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is ordered to pay to the petitioner the amount of
P226,000.00, plus interest of 12% per annum from the finality of this decision.
Costs of suit to be paid by respondent Dela Paz.
SO ORDERED. 19
In his Motion for Reconsideration, 20 Rolando argued that the circumstances exempt both the application of Article 1956
and of jurisprudence holding that a 6% monthly interest is unconscionable, unreasonable, and exorbitant. He alleged that
Atty. Salonga, a lawyer, should have taken it upon himself to have the loan and the stipulated rate of interest documented
but, by way of legal maneuver, Atty. Salonga, whom he fully trusted and relied upon, tricked him into believing that the
undocumented and uncollateralized loan was within legal bounds. Had Atty. Salonga told him that the stipulated interest
should be in writing, he would have readily assented. ESIcaC
Furthermore, Rolando insisted that the 6% monthly interest rate could not be unconscionable as in the first place, the
interest was not imposed by the creditor but was in fact offered by the borrower, who also dictated all the terms of the loan.
He stressed that in cases where interest rates were declared unconscionable, those meant to be protected by such
declaration are helpless borrowers which is not the case here.
Still, the CA denied Rolando's motion in its Resolution 21 of June 6, 2008.
Hence, this Petition.
The Parties' Arguments
Rolando argues that the 6% monthly interest rate should not have been invalidated because At
of his legal knowledge to hoodwink him into believing that no document was necessary to reflect
the cases anent unconscionable interest rates that the CA relied upon involve lenders who im
which are totally different from the case at bench where it is the borrower who decided on the h
does not fall under a scenario that 'enslaves the borrower or that leads to the hemorrhaging o
seek to prevent.
L&J, in controverting Rolando's arguments, contends that the interest rate is subject of negotia
both parties, not by the borrower alone. Furthermore, jurisprudence has nullified interest rates
and higher as these rates are contrary to morals and public interest. And while Rolando raises
part, L&J avers that such issue is a question of fact, a matter that cannot be raised under Rule
Issue
The Court's determination of whether to uphold the judgment of the CA that the principal loan is
on the validity of the monthly interest rate imposed. And in determining such validity, the Court
matters regarding a) the form of the agreement of interest under the law and b) the alleged unco
rate.
Our Ruling
The Petition is devoid of merit. EcICSA
The lack of a written stipulation to pay
interest on the loaned amount disallows
a creditor from charging monetary
interest.
Under Article 1956 of the Civil Code,no interest shall be due unless it has been expre
Jurisprudence on the matter also holds that for interest to be due and payable, two condition
stipulation for the payment of interest; and b) the agreement to pay interest is reduced in writin
Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no int
of interest without any stipulation in writing is prohibited by law. 22
But Rolando asserts that his situation deserves an exception to the application of Article 1956
for the lack of a written document, claiming that said lawyer used his legal knowledge to dupe
bad faith on the part of L&J and Atty. Salonga. The Court, however, finds no deception on the pa
For one, despite the lack of a document stipulating the payment of interest, L&J nevertheless
the loan. It only stopped when it suffered from financial difficulties that prevented it from continuo
rate. For another, regardless of Atty. Salonga's profession, Rolando who is an architect and an e
have been a more reasonably prudent person under the circumstances. To top it all, he ad
communication with Atty. Salonga. Despite Atty. Salonga being a complete stranger, he imme
his company P350,000.00, a significant amount. Moreover, as the creditor, he could have requested or required that all the
terms and conditions of the loan agreement, which include the payment of interest, be put down in writing to ensure that
he and L&J are on the same page. Rolando had a choice of not acceding and to insist that their contract be put in written
form as this will favor and safeguard him as a lender. Unfortunately, he did not. It must be stressed that "[c]ourts cannot
follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from
one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who
are not legally incompetent." 23 AcDHCS
It may be raised that L&J is estopped from questioning the interest rate considering that it has been paying Rolando interest
at such rate for more than two and a half years. In fact, in its pleadings before the MeTC and the RTC, L&J merely prayed
for the reduction of interest from 6% monthly to 1% monthly or 12% per annum. However, in Ching v. Nicdao, 24 the daily
payments of the debtor to the lender were considered as payment of the principal amount of the loan because Article 1956
was not complied with. This was notwithstanding the debtor's admission that the payments made were for the interests
due. The Court categorically stated therein that "[e]stoppel cannot give validity to an act that is prohibited by law or one
that is against public policy."
Even if the payment of interest has been
reduced in writing, a 6% monthly
interest rate on a loan is unconscionable,
regardless of who between the parties
proposed the rate.
Indeed at present, usury has been legally non-existent in view of the suspension of the Usury Law 25 by Central Bank
Circular No. 905 s. 1982. 26 Even so, not all interest rates levied upon loans are permitted by the courts as they have the
power to equitably reduce unreasonable interest rates. In Trade & Investment Development Corporation of the Philippines
v. Roblett Industrial Construction Corporation, 27 we said:
While the Court recognizes the right of the parties to enter into contracts and who are expected to comply with their terms
and obligations, this rule is not absolute. Stipulated interest rates are illegal if they are unconscionable and the Court is
allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and unconscionable in
one case, may be just in another. . . . 28
Time and again, it has been ruled in a plethora of cases that stipulated interest rates of 3% per month and higher, are
excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against
the law. 29 The Court, however, stresses that these rates shall be invalidated and shall be reduced only in cases where
the terms of the loans are open-ended, and where the interest rates are applied for an indefinite period. Hence, the
imposition of a specific sum of P40,000.00 a month for six months on a P1,000,000.00 loan is not considered
unconscionable. 30 In the case at bench, there is no specified period as to the payment of the loan. Hence, levying 6%
monthly or 72% interest per annum is "definitely outrageous and inordinate." 31
The situation that it was the debtor who insisted on the interest rate will not exempt Rolando from a ruling that the rate is
void. As this Court cited in Asian Cathay Finance and Leasing Corporation v. Gravador, 32 "[t]he imposition of an
unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man." 33
Indeed, "voluntariness does not make the stipulation on [an unconscionable] interest valid." 34 ISCaDH
As exhaustibly discussed, no monetary interest is due Rolando pursuant to Article 1956. The
that the excess interest payments made by L&J should be applied to its principal loan. As com
is bound to return the excess payment of P226,000.00 to L&J following the principle of solutio
However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on July 1, 2013,
the CA must be accordingly modified. The P226,000.00 which Rolando is ordered to pay L&J
per annum from the finality of this Decision.
WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CA-G.R.
AFFIRMED with modification that petitioner Rolando C. De La Paz is ordered to pay res
Company the amount of P226,000.00, plus interest of 6% per annum from the finality of this D
SO ORDERED.
||| (De la Paz v. L & J Development Co., G.R. No. 183360, [September 8, 2014])
2. Sun Life of Canada (Phils.) Inc. v. Sandra Tan Kit, et al., G.R. No. 183272, October
[G.R. No. 183272. October 15, 2014.]
SUN LIFE OF CANADA (PHILIPPINES), INC., petitioner, vs. SANDRA TAN KIT and Th
NORBERTO TAN KIT, respondents.
DECISION
DEL CASTILLO, J p:
The Court of Appeals' (CA) imposition of 12% interest on the P13,080.93 premium refund is th
this case.
This Petition for Review on Certiorari 1 assails the October 17, 2007 Decision 2 of CA in CA-
among others, imposed a 12% per annum rate of interest reckoned from the time of death of th
the premium to be reimbursed by petitioner Sun Life of Canada (Philippines), Inc. (petitioner)
Kit (respondent Tan Kit) and the Estate of the Deceased Norberto Tan Kit (respondent estate
Petition is the CA's June 12, 2008 Resolution 3 denying petitioner's Motion for Reconsideration
Factual Antecedents
Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto),
insurance policy, 4 with face value of P300,000.00, was granted by petitioner on October 28, 19
or within the two-year contestability period, 5 Norberto died of disseminated gastric carcinoma. 6
Tan Kit filed a claim under the subject policy.
In a Letter 7 dated September 3, 2001, petitioner denied respondent Tan Kit's claim on account
and faithfully disclose in his insurance application certain material and relevant information ab
history. Specifically, Norberto answered "No" to the question inquiring whether he had smoked cigarettes or cigars within
the last 12 months prior to filling out said application. 8 However, the medical report of Dr. Anna Chua (Dr. Chua), one of
the several physicians that Norberto consulted for his illness, reveals that he was a smoker and had only stopped smoking
in August 1999. According to petitioner, its underwriters would not have approved Norberto's application for life insurance
had they been given the correct information. Believing that the policy is null and void, petitioner opined that its liability is
limited to the refund of all the premiums paid. Accordingly, it enclosed in the said letter a check for P13,080.93 representing
the premium refund.
In a letter 9 dated September 13, 2001, respondent Tan Kit refused to accept the check and insisted on the payment of the
insurance proceeds.
On October 4, 2002, petitioner filed a Complaint 10 for Rescission of Insurance Contract before the Regional Trial Court
(RTC) of Makati City.
Ruling of the Regional Trial Court
In its November 30, 2005 Decision, 11 the RTC noted that petitioner's physician, Dr. Charity Salvador (Dr. Salvador),
conducted medical examination on Norberto. Moreover, petitioner's agent, Irma Joy E. Javelosa (Javelosa), answered
"NO" to the question "Are you aware of anything about the life to be insured's lifestyle, hazardous sports, habits, medical
history, or any risk factor that would have an adverse effect on insurability?" in her Agent's Report. Javelosa also already
knew Norberto two years prior to the approval of the latter's application for insurance. The RTC concluded that petitioner,
through the above-mentioned circumstances, had already cleared Norberto of any misrepresentation that he may have
committed. The RTC also opined that the affidavit of Dr. Chua, presented as part of petitioner's evidence and which
confirmed the fact that the insured was a smoker and only stopped smoking a year ago [1999], is hearsay since Dr. Chua
did not testify in court. Further, since Norberto had a subsisting insurance policy with petitioner during his application for
insurance subject of this case, it was incumbent upon petitioner to ascertain the health condition of Norberto considering
the additional burden that it was assuming. Lastly, petitioner did not comply with the requirements for rescission of
insurance contract as held inPhilamcare Health Systems, Inc. v Court of Appeals. 12 Thus, the dispositive portion of the
RTC Decision: DCTHaS
WHEREFORE, in view of the foregoing considerations, this court hereby finds in favor of the [respondents and] against the
[petitioner], hence it hereby orders the [petitioner] to pay the [respondent], Sandra Tan Kit, the sum of Philippine Pesos:
THREE HUNDRED THOUSAND (P300,000.00), representing the face value of the insurance policy with interest at six
percent (6%) per annum from October 4, 2002 until fully paid.
Cost de oficio.
SO ORDERED. 13
Petitioner moved for reconsideration, 14 but was denied in an Order 15 dated February 15, 2006.
Hence, petitioner appealed to the CA.
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside the RTC's ruling in its Decision 16 dated October 17, 2007.
From the records, the CA found that prior to his death, Norberto had consulted two physician
2000, and Dr. John Ledesma (Dr. Ledesma) on December 28, 2000, to whom he confided th
only in 1999. At the time therefore that he applied for insurance policy on October 28, 1999, t
that he did not smoke cigarettes within 12 months prior to the said application. The CA thus he
concealment which misled petitioner in forming its estimates of the risks of the insurance poli
right to rescind the insurance contract which it properly exercised in this case.
In addition, the CA held that the content of Norberto's medical records are deemed admitted
failed to deny the same despite having received from petitioner a Request for Admission pursu
of Court. 17 And since an admission is in the nature of evidence the legal effects of which form
discredited the RTC's ruling that the subject medical records and the affidavits executed by Nor
to the truth of the same were hearsay.
The dispositive portion of the CA Decision reads:
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the appe
and SET ASIDE, and in lieu thereof, a judgment is hereby rendered GRANTING the complaint
Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of P13,080.93 represe
the insured with interest at the rate of 12% per annum from the time of the death of the insured
SO ORDERED. 18
The parties filed their separate motions for reconsideration. 19 While respondents questioned
of the CA Decision, petitioner, on the other hand, assailed the imposition of interest on the pr
respondents.
However, the appellate court denied the motions in its June 12, 2008 Resolution, 20 viz.:
WHEREFORE, the foregoing considered, the separate motions for reconsideration filed b
[respondents] are hereby DENIED.
SO ORDERED. 21
Only petitioner appealed to this Court through the present Petition for Review on Certiorari.
Issue
The sole issue in this case is whether petitioner is liable to pay interest on the premium to be re
The Parties' Arguments
Petitioner argues that no interest should have been imposed on the premium to be refunded
does not provide any legal or factual basis therefor; that petitioner directly and timely tendered
representing the premium refund but they rejected it since they opted to pursue their claim for th
policy; that respondents should bear the consequence of their unsound decision of rejecting th
and, that petitioner is not guilty of delay or of invalid or unjust rescission as to make it liable for interest. Hence, following
the ruling in Tio Khe Chio v. Court of Appeals, 22 no interest can be assessed against petitioner. cECaHA
Respondents, on the other hand, contend that the reimbursement of premium is clearly a money obligation or one that
arises from forbearance of money, hence, the imposition of 12% interest per annum is just, proper and supported by
jurisprudence. While they admit that they refused the tender of payment of the premium refund, they aver that they only
did so because they did not want to abandon their claim for the proceeds of the insurance policy. In any case, what petitioner
should have done under the circumstances was to consign the amount of payment in court during the pendency of the
case.
Our Ruling
Tio Khe Chio is not applicable in this
case.
Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is instructive on the issue of payment of interest.
There, the Court pointed to Sections 243 and 244 of the Insurance Code which explicitly provide for payment of interest
when there is unjustified refusal or withholding of payment of the claim by the insurer, 23 and to Article 2209 24 of the New
Civil Code which likewise provides for payment of interest when the debtor is in delay.
The Court finds, however, that Tio Khe Chio is not applicable here as it deals with payment of interest on the insurance
proceeds in which the claim therefor was either unreasonably denied or withheld or the insurer incurred delay in the
payment thereof. In this case, what is involved is an order for petitioner to refund to respondents the insurance premium
paid by Norberto as a consequence of the rescission of the insurance contract on account of the latter's concealment of
material information in his insurance application. Moreover, petitioner did not unreasonably deny or withhold the insurance
proceeds as it was satisfactorily established that Norberto was guilty of concealment.
Nature of interest imposed by the CA
There are two kinds of interest monetary and compensatory.
"Monetary interest refers to the compensation set by the parties for the use or forbearance of money." 25 No such interest
shall be due unless it has been expressly stipulated in writing. 26 "On the other hand, compensatory interest refers to the
penalty or indemnity for damages imposed by law or by the courts." 27 The interest mentioned in Articles 2209 and 2212
28 of the Civil Code applies to compensatory interest. 29
Clearly and contrary to respondents' assertion, the interest imposed by the CA is not monetary interest because aside from
the fact that there is no use or forbearance of money involved in this case, the subject interest was not one which was
agreed upon by the parties in writing. This being the case and judging from the tenor of the CA, to wit:
Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of P13,080.93 representing the [premium] paid by
the insured with interest at the rate of 12% per annum from time of death of the insured until fully paid. 30
there can be no other conclusion than that the interest imposed by the appellate court is in the nature of compensatory
interest.
The CA incorrectly imposed
compensatory interest on the premium
refund reckoned from the time of death
of the insured until fully paid
As a form of damages, compensatory interest is due only if the obligor is proven to have failed to
31
In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was
concealment, petitioner tendered the refund of premium by attaching to the said notice a chec
of refund. However, respondents refused to accept the same since they were seeking for the
the policy. Because of this discord, petitioner filed for judicial rescission of the contract. Petitione
judgment from the RTC, appealed to the CA. And as may be recalled, the appellate cou
concealment and thus upheld the rescission of the insurance contract and consequently decree
to return to respondents the premium paid by Norberto. Moreover, we find that petitioner did no
deny the claim.
Based on the foregoing, we find that petitioner properly complied with its obligation under the
should not be made liable to pay compensatory interest.
Considering the prevailing circumstances of the case, we hereby direct petitioner to reimburse
days from date of finality of this Decision. If petitioner fails to pay within the said period, then th
equivalent to a forbearance of credit. 32 In such a case, the rate of interest shall be 6% per an
WHEREFORE, the assailed October 17, 2007 Decision of the Court of Appeals in CA-G.R. CV
that petitioner Sun Life of Canada (Philippines), Inc. is ordered to reimburse to respondents Sa
of the Deceased Norberto Tan Kit the sum of P13,080.93 representing the premium paid by th
days from date of finality of this Decision. If the amount is not reimbursed within said period, t
of 6% per annum until fully paid.
SO ORDERED.
||| (Sun Life of Canada (Phils.), Inc. v. Tan Kit, G.R. No. 183272, [October 15, 2014])
3. Federal Builders, Inc. v. Foundation Specialists, Inc., G.R. No. 194507, September
[G.R. No. 194507. September 8, 2014.]
FEDERAL BUILDERS, INC., petitioner, vs. FOUNDATION SPECIALISTS, INC., respondent,
[G.R. No. 194621. September 8, 2014.]
FOUNDATION SPECIALISTS, INC., petitioner, vs. FEDERAL BUILDERS, INC., respondent.
DECISION
PERALTA, J p:
Before the Court are two consolidated cases, namely: (1) Petition for review on certiorari under Rule 45 of the Rules of
Court, docketed as G.R. No. 194507, filed by Federal Builders, Inc., assailing the Decision 1 and Resolution, 2 dated July
15, 2010 and November 23, 2010, respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 70849, which affirmed
with modification the Decision 3 dated May 3, 2001 of the Regional Trial Court (RTC) in Civil Case No. 92-075; and (2)
Petition for review on certiorari under Rule 45 of the Rules of Court, docketed as G.R. No. 194621, filed by Foundation
Specialists, Inc., assailing the same Decision 4 and Resolution, 5 dated July 15, 2010 and November 23, 2010,
respectively, of the CA in CA-G.R. CV No. 70849, which affirmed with modification the Decision 6 dated May 3, 2001 of
the RTC in Civil Case No. 92-075.
The antecedent facts are as follows:
On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement with Foundation Specialists, Inc. (FSI) whereby
the latter, as sub-contractor, undertook the construction of the diaphragm wall, capping beam, and guide walls of the
Trafalgar Plaza located at Salcedo Village, Makati City (the Project), for a total contract price of Seven Million Four Hundred
Thousand Pesos (P7,400,000.00). 7 Under the agreement, 8 FBI was to pay a downpayment equivalent to twenty percent
(20%) of the contract price and the balance, through a progress billing every fifteen (15) days, payable not later than one
(1) week from presentation of the billing.
On January 9, 1992, FSI filed a complaint for Sum of Money against FBI before the RTC of Makati City seeking to collect
the amount of One Million Six Hundred Thirty-Five Thousand Two Hundred Seventy-Eight Pesos and Ninety-One Centavos
(P1,635,278.91), representing Billings No. 3 and 4, with accrued interest from August 1, 1991 plus moral and exemplary
damages with attorney's fees. 9 In its complaint, FSI alleged that FBI refused to pay said amount despite demand and its
completion of ninety-seven percent (97%) of the contracted works.
In its Answer with Counterclaim, FBI claimed that FSI completed only eighty-five percent (85%) of the contracted works,
failing to finish the diaphragm wall and component works in accordance with the plans and specifications and abandoning
the jobsite. FBI maintains that because of FSI's inadequacy, its schedule in finishing the Project has been delayed resulting
in the Project owner's deferment of its own progress billings. 10 It further interposed counterclaims for amounts it spent for
the remedial works on the alleged defects in FSI's work. caCSDT
On May 3, 2001, after evaluating the evidence of both parties, the RTC ruled in favor of FSI, the dispositive portion of its
Decision reads:
WHEREFORE, on the basis of the foregoing, judgment is rendered ordering defendant to pay plaintiff the following:
1. The sum of P1,024,600.00 representing billings 3 and 4, less the amount of P33,354.40 plus 12% legal interest from
August 30, 1991;
2. The sum of P279,585.00 representing the cost of undelivered cement;
3. The sum of P200,000.00 as attorney's fees; and
4. The cost of suit.
Defendant's counterclaim is denied for lack of factual and legal basis.
SO ORDERED. 11
On appeal, the CA affirmed the Decision of the lower court, but deleted the sum of P279,585.
undelivered cement and reduced the award of attorney's fees to P50,000.00. In its Decision 1
CA explained that FSI failed to substantiate how and in what manner it incurred the cost of c
claim was not supported by actual receipts. Also, it found that while the trial court did not err i
the same should be reduced for being unconscionable and excessive.
On FBI's rejection of the 12% annual interest rate on the amount of Billings 3 and 4, the CA ru
not err in imposing the same in the following wise:
. . . The rule is well-settled that when an obligation is breached, and it consists in the payme
interest due shall itself earn legal interest from the time it is judicially demanded (BPI Family S
Metro Investment Corporation, 429 SCRA 30). When there is no rate of interest stipulated, su
the legal rate of interest shall be imposed, pursuant to Article 2209 of the New Civil Code. In
interest rate on a loan due, the legal rate of interest shall be 12% per annum. 13
Both parties filed separate Motions for Reconsideration assailing different portions of the CA D
Undaunted, they subsequently elevated their claims with this Court via petitions for review on c
On the one hand, FSI asserted that the CA should not have deleted the sum of P279,585.0
undelivered cement and reduced the award of attorney's fees to P50,000.00, since it was an un
to deliver the agreed quantity of cement. On the other hand, FBI faulted the CA for affirming the
insofar as the award of the sum representing Billings 3 and 4, the interest imposed thereo
counterclaim were concerned. In a Resolution 15 dated February 21, 2011, however, this Co
petition filed by FSI in G.R. No. 194621 for having been filed late.
Hence, the present petition filed by FBI in G.R. No. 194507 invoking the following arguments:
I.
THE COURT OF APPEALS COMMITTED A CLEAR, REVERSABLE ERROR WHEN IT AFFIR
JUDGMENT THAT FEDERAL BUILDERS, INC. WAS LIABLE TO PAY THE BALANCE OF
AMOUNT OF P33,354.40 NOTWITHSTANDING THAT THE DIAPHRAGM WALL CONSTR
SPECIALIST, INC. WAS CONCEDEDLY DEFECTIVE AND OUT-OF-SPECIFICATIONS AND
TO REDO IT AT ITS OWN EXPENSE. SHDAEC
II.
THE COURT OF APPEALS COMMITTED SERIOUS, REVERSABLE ERROR WHEN IT IM
INTEREST FROM AUGUST 30, 1991 ON THE DISPUTED CLAIM OF P1,024,000.00
P33,354.40 DESPITE THE FACT THAT THERE WAS NO STIPULATION 1N THE AGREEMEN
REGARD TO INTEREST AND DESPITE THE FACT THAT THEIR AGREEMENT W
FORBEARANCE OF MONEY."

III.
THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS REVERSABLE ERROR WHEN IT DISMISSED THE
COUNTERCLAIM OF PETITIONER NOTWITHSTANDING OVERWHELMING EVIDENCE SUPPORTING ITS CLAIM OF
P8,582,756.29 AS ACTUAL DAMAGES.
The petition is partly meritorious.
We agree with the courts below and reject FBI's first and third arguments. Well-entrenched in jurisprudence is the rule that
factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect
and considered conclusive between the parties, save for the following exceptional and meritorious circumstances: (1) when
the factual findings of the appellate court and the trial court are contradictory; (2) when the findings of the trial court are
grounded entirely on speculation, surmises or conjectures; (3) when the lower court's inference from its factual findings is
manifestly mistaken, absurd or impossible; (4) when there is grave abuse of discretion in the appreciation of facts; (5) when
the findings of the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if properly
considered, will justify a different conclusion; (6) when there is a misappreciation of facts; (7) when the findings of fact are
themselves conflicting; and (8) when the findings of fact are conclusions without mention of the specific evidence on which
they are based, are premised on the absence of evidence, or are contradicted by evidence on record. 16
None of the aforementioned exceptions are present herein. In the assailed Decision, the RTC meticulously discussed the
obligations of each party, the degree of their compliance therewith, as well as their respective shortcomings, all of which
were properly substantiated with the corresponding documentary and testimonial evidence.
Under the construction agreement, FBI's scope of work consisted in (1) the construction of the guide walls, diaphragm
walls, and capping beam; and (2) the installation of steel props. 17 As the lower courts aptly observed from the records at
hand, FSI had, indeed, completed ninety-seven percent (97%) of its contracted works and the non-completion of the
remaining three percent (3%), as well as the alleged defects in the said works, are actually attributable to FBI's own fault
such as, but not limited to, the failure to deliver the needed cement as agreed upon in the contract, to wit:
On March 8, 1991, plaintiff had finished the construction of the guide wall and diaphragm wall (Exh. "R") but had not yet
constructed the capping beam as of April 22, 1991 for defendant's failure to deliver the needed cement in accordance with
their agreement (Exhibit "I"). The diaphragm wall had likewise been concrete tested and was found to have conformed with
the required design strength (Exh. "R").
Subsequently, plaintiff was paid the aggregate amount of P5,814,000.00. But as of May 30, 1991, plaintiff's billings numbers
3 and 4 had remained unpaid (Exhs. "L", "M", and "M-1").
xxx xxx xxx
On the misaligned diaphragm wall from top to bottom and in-between panels, plaintiff explained that in the excavation of
the soil where the rebar cages are lowered and later poured with concrete cement, the characteristics of the soil is not the
same or homogenous all throughout. Because of this property of the soil, in the process of excavation, it may erode in
some places that may cause spaces that the cement may fill or occupy which would naturally cause bulges, protrusions
and misalignment in the concrete cast into the excavated ground (tsn., June 1, 2000, pp 14-18).
when the agreement was executed and included as provision 6.4 thereof. DISEaC
The construction of the diaphragm wall panel by panel caused misalignment and the chipping o
is considered a matter of course. Defendant, as the main contractor of the project, has the re
chipping off of bulges (tsn., ibid., pp. 20-21).
Wrong location of rebar dowels was anticipated by both contractor and subcontractor as the la
"Detail of Sheer Connectors" (Exh "T") which was approved. The plan provided two alternatives
of rebar dowels may be remedied. Hence, defendant, aware of the possibility of inaccurate loc
therefore ascribe the same to the plaintiff as defective work.
Construction of the capping beam required the use of cement. Records, however, show that fr
to May 30, 1991 (Exhs. "B" to "L"), plaintiff had repeatedly requested defendant to deliver ce
1991, plaintiff notified defendant of its inability to construct the capping beam for the latter's failu
provided in their agreement (Exh. "I"). Although records show that there was mention of revis
evidence presented to show such revision required less amount of cement than what was
defendant.
The seventh phase of the construction of the diaphragm wall is the construction of the steel pro
only after the soil has been excavated by the main contractor. When defendant directed plain
latter requested for a site inspection to determine if the excavation of the soil was finished up
Plaintiff, however, did not receive any response. It later learned that defendant had contracted
another sub-contractor (Exhs. "O" and "P"). Nevertheless, plaintiff informed defendant of its
portion of its work. 18
It is clear from the foregoing that contrary to the allegations of FBI, FSI had indeed completed it
the exception of certain assigned tasks, which was due to the failure of FBI to fulfil its end of th
It can similarly be deduced that the defects FBI complained of, such as the misaligned diaphra
location of the rebar dowels, were not only anticipated by the parties, having stipulated alter
same, but more importantly, are also attributable to the very actions of FBI. Accordingly, conside
in FBI's contracted works were not so much due to the fault or negligence of the FSI, but were
caused by FBI's own acts, FBI's claim of P8,582,756.29 representing the cost of the measure
alleged defects must necessarily fail. In fact, as the lower court noted, at the time when FBI ha
did not categorically pose any objection thereto, viz.:
Defendant admitted that it had paid P6 million based on its evaluation of plaintiff s accomplishm
p. 17) and its payment was made without objection on plaintiff's works, the majority of which we
in the construction of the diaphragm wall (tsn., ibid., p. 70).
xxx xxx xxx
While there is no evidence to show the scope of work for these billings, it is safe to assume th
the construction of the diaphragm wall considering that as of May 16, 1991, plaintiff had only
props and welding works to complete (Exh. "H"). If defendant was able to evaluate the work finished by plaintiff the majority
of which was the construction of the diaphragm wall and paid it about P6 million as accomplishment, there was no reason
why it could not evaluate plaintiff's works covered by billings 3 and 4. In other words, defendants did not have to excavate
in order to determine and evaluate plaintiff's works. Hence, defendant's refusal to pay was not justified and the alleged
defects of the diaphragm wall (tsn, Sept. 28, 2000, p. 17) which it claims to have discovered only after January 1992 were
mere afterthoughts. 19 SDIaCT
Thus, in the absence of any record to otherwise prove FSI's neglect in the fulfilment of its obligations under the contract,
this Court shall refrain from reversing the findings of the courts below, which are fully supported by and deducible from, the
evidence on record. Indeed, FBI failed to present any evidence to justify its refusal to pay FSI for the works it was contracted
to perform. As such, We do not see any reason to deviate from the assailed rulings.
Anent FBI's second assignment of error, however, We find merit in the argument that the 12% interest rate is inapplicable,
since this case does not involve a loan or forbearance of money. In the landmark case of Eastern Shipping Lines, Inc. v.
Court of Appeals, 20 We laid down the following guidelines in computing legal interest:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the 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. 21
In line, however, with the recent circular of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP-MB) No. 799, we
have modified the guidelines in Nacar v. Gallery Frames, 22 as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages. HSAcaE
II. With regard particularly to an award of interest in the concept of actual and compensatory da
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 loa
the interest due should be that which may have been stipulated in writing. Furthermore, the i
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of inte
to be computed from default, i.e., from judicial or extrajudicial demand under and subject to th
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
on unliquidated claims or damages, except when or until the demand can be established
Accordingly, where the demand is established with reasonable certainty, the interest shall beg
claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
established at the time the demand is made, the interest shall begin to run only from the date
made (at which time the quantification of damages may be deemed to have been reasonably as
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 ra
the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such fina
interim period being deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2
and shall continue to be implemented applying the rate of interest fixed therein. 23
It should be noted, however, that the new rate could only be applied prospectively and not retro
twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July
percent (6%) per annum shall be the prevailing rate of interest when applicable. Thus, the nee
obligation involved herein is a loan and forbearance of money nonetheless exists.
In S. C. Megaworld Construction and Development Corporation v. Engr. Parada, 24 We clarified
constituting loans or forbearance of money in the following wise:
As further clarified in the case of Sunga-Chan v. CA, a loan or forbearance of money, goods or cr
obligation whereby a lender or creditor has refrained during a given period from requiring the b
the loan or debt then due and payable. Thus:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Cen
416 shall be adjudged only in cases involving the loan or forbearance of money. And for transa
indemnities in the concept of damages arising from default in the performance of obligations i
judgment not involving a loan or forbearance of money, goods, or credit, the governing provis
Code prescribing a yearly 6% interest. Art. 2209 pertinently provides: EHCcIT
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per annum.
The term "forbearance," within the context of usury law, has been described as a contractual obligation of a lender or
creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due
and payable. 25
Forbearance of money, goods or credits, therefore, refers to arrangements other than loan agreements, where a person
acquiesces to the temporary use of his money, goods or credits pending the happening of certain events or fulfilment of
certain conditions. 26 Consequently, if those conditions are breached, said person is entitled not only to the return of the
principal amount paid, but also to compensation for the use of his money which would be the same rate of legal interest
applicable to a loan since the use or deprivation of funds therein is similar to a loan. 27
This case, however, does not involve an acquiescence to the temporary use of a party's money but a performance of a
particular service, specifically the construction of the diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza.
A review of similar jurisprudence would tell us that this Court had repeatedly recognized this distinction and awarded
interest at a rate of 6% on actual or compensatory damages arising from a breach not only of construction contracts, 28
such as the one subject of this case, but also of contracts wherein one of the parties reneged on its obligation to perform
messengerial services, 29 deliver certain quantities of molasses, 30 undertake the reforestation of a denuded forest land,
31 as well as breaches of contracts of carriage, 32 and trucking agreements. 33 We have explained therein that the reason
behind such is that said contracts do not partake of loans or forbearance of money but are more in the nature of contracts
of service.
Thus, in the absence of any stipulation as to interest in the agreement between the parties herein, the matter of interest
award arising from the dispute in this case would actually fall under the second paragraph of the above-quoted guidelines
in the landmark case of Eastern Shipping Lines, which necessitates the imposition of interest at the rate of 6%, instead of
the 12% imposed by the courts below.
The 6% interest rate shall further be imposed from the finality of the judgment herein until satisfaction thereof, in light of
our recent ruling in Nacar v. Gallery Frames. 34
Note, however, that contrary to FBI's assertion, We find no error in the RTC's ruling that the interest shall begin to run from
August 30, 1991 as this is the date when FSI extrajudicially made its claim against FBI through a letter demanding payment
for its services. 35
In view of the foregoing, therefore, We find no compelling reason to disturb the factual findings of the RTC and the CA,
which are fully supported by and deducible from, the evidence on record, insofar as the sum representing Billings 3 and 4
is concerned. As to the rate of interest due thereon, however, We note that the same should be reduced to 6% per annum
considering the fact that the obligation involved herein does not partake of a loan or forbearance of money.
WHEREFORE, premises considered, the instant petition is DENIED. The Decision and Resolution, dated July 15, 2010
and November 23, 2010, respectively, of the Court of Appeals in CA-G.R. CV No. 70849 are hereby AFFIRMED with
MODIFICATION. Federal Builders, Inc. is ORDERED to pay Foundation Specialists, Inc. the sum of P1,024,600.00
representing billings 3 and 4, less the amount of P33,354.40, plus interest at six percent (6%)
August 30, 1991 until full payment thereof. ECaTDc
SO ORDERED.
||| (Federal Builders, Inc. v. Foundation Specialists, Inc., G.R. No. 194507, G.R. No. 194621, [S
4. Estores v. Supangan, G.R. No. 175139, April 8, 2012, 670 SCRA 95
[G.R. No. 175139. April 18, 2012.]
HERMOJINA ESTORES, petitioner, vs. SPOUSES ARTURO and LAURA SUPANGAN, respo
DECISION
DEL CASTILLO, J p:
The only issue posed before us is the propriety of the imposition of interest and attorney's fees
Assailed in this Petition for Review 1 filed under Rule 45 of the Rules of Court is the May 12, 2
of Appeals (CA) in CA-G.R. CV No. 83123, the dispositive portion of which reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (
from September 27, 2000 until its full payment before finality of the judgment. If the adjudged p
any part thereof) remain unpaid thereafter, the interest rate shall be adjusted to twelve percent (
from the time the judgment becomes final and executory until it is fully satisfied. The award o
reduced to P100,000.00. Costs against the defendants-appellants.
SO ORDERED. 3
Also assailed is the August 31, 2006 Resolution 4 denying the motion for reconsideration.
Factual Antecedents
On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laur
Conditional Deed of Sale 5 whereby petitioner offered to sell, and respondent-spouses offer
covered by Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum
likewise stipulated, among others, to wit:
xxx xxx xxx
1. Vendor will secure approved clearance from DAR requirements of which are (sic):
a) Letter request
b) Title
c) Tax Declaration
d) Affidavit of Aggregate Landholding Vendor/Vendee
e) Certification from the Prov'l. Assessor's as to Landholdings of Vendor/Vendee
f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale
xxx xxx xxx
4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of the documents. aSAHCE
xxx xxx xxx
6. Regarding the house located within the perimeter of the subject [lot] owned by spouses [Magbago], said house shall be
moved outside the perimeter of this subject property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts the
responsibility of seeing to it that such agreement is carried out before full payment of the sale is made by vendee.
7. If and after the vendor has completed all necessary documents for registration of the title and the vendee fails to complete
payment as per agreement, a forfeiture fee of 25% or downpayment, shall be applied. However, if the vendor fails to
complete necessary documents within thirty days without any sufficient reason, or without informing the vendee of its status,
vendee has the right to demand return of full amount of down payment.
xxx xxx xxx
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall be informed immediately of
its approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of ownership.
xxx xxx xxx 6
After almost seven years from the time of the execution of the contract and notwithstanding payment of P3.5 million on the
part of respondent-spouses, petitioner still failed to comply with her obligation as expressly provided in paragraphs 4, 6, 7,
9 and 10 of the contract. Hence, in a letter 7 dated September 27, 2000, respondent-spouses demanded the return of the
amount of P3.5 million within 15 days from receipt of the letter. In reply, 8 petitioner acknowledged receipt of the P3.5
million and promised to return the same within 120 days. Respondent-spouses were amenable to the proposal provided
an interest of 12% compounded annually shall be imposed on the P3.5 million. 9 When petitioner still failed to return the
amount despite demand, respondent-spouses were constrained to file a Complaint 10 for sum of money before the
Regional Trial Court (RTC) of Malabon against herein petitioner as well as Roberto U. Arias (Arias) who allegedly acted as
petitioner's agent. The case was docketed as Civil Case No. 3201-MN and raffled off to Branch 170. In their complaint,
respondent-spouses prayed that petitioner and Arias be ordered to:
1. Pay the principal amount of P3,500,000.00 plus interest of 12% compounded annually star
estimated amount of P8,558,591.65;
2. Pay the following items of damages:
a) Moral damages in the amount of P100,000.00;
b) Actual damages in the amount of P100,000.00;
c) Exemplary damages in the amount of P100,000.00;
d) [Attorney's] fee in the amount of P50,000.00 plus 20% of recoverable amount from the [petit
e) [C]ost of suit. 11
In their Answer with Counterclaim, 12 petitioner and Arias averred that they are willing to ret
P3.5 million but without any interest as the same was not agreed upon. In their Pre-Trial Brief
only remaining issue between the parties is the imposition of interest. They argued that since th
provided only for the return of the downpayment in case of breach, they cannot be held liable t
14 TIcEDC
In its Pre-Trial Order 15 dated June 29, 2001, the RTC noted that "the parties agreed that the pr
pesos should be returned to the [respondent-spouses] by the [petitioner] and the issue r
[respondent-spouses] are entitled to legal interest thereon, damages and attorney's fees." 16
Trial ensued thereafter. After the presentation of the respondent-spouses' evidence, the trial c
Arias and petitioner's evidence on September 3, 2003. 17 However, despite several postpone
failed to appear hence they were deemed to have waived the presentation of their evidence. C
deemed submitted for decision. 18
Ruling of the Regional Trial Court
On May 7, 2004, the RTC rendered its Decision 19 finding respondent-spouses entitled to int
6% per annum and not 12% as prayed by them. 20 It also found respondent-spouses entitled
were compelled to litigate to protect their interest. 21
The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent
[petitioner and Roberto Arias] to jointly and severally:
1. Pay [respondent-spouses] the principal amount of Three Million Five Hundred Thousand pes
interest of 6% compounded annually starting October 1, 1993 and attorney's fee in the amou
(P50,000.00) plus 20% of the recoverable amount from the defendants and cost of the suit.
The Compulsory Counter Claim is hereby dismissed for lack of factual evidence.
SO ORDERED. 22
Ruling of the Court of Appeals
Aggrieved, petitioner and Arias filed their notice of appeal. 23 The CA noted that the only issue submitted for its resolution
is "whether it is proper to impose interest for an obligation that does not involve a loan or forbearance of money in the
absence of stipulation of the parties." 24
On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the RTC finding the imposition of 6%
interest proper. 25 However, the same shall start to run only from September 27, 2000 when respondent-spouses formally
demanded the return of their money and not from October 1993 when the contract was executed as held by the RTC. The
CA also modified the RTC's ruling as regards the liability of Arias. It held that Arias could not be held solidarily liable with
petitioner because he merely acted as agent of the latter. Moreover, there was no showing that he expressly bound himself
to be personally liable or that he exceeded the limits of his authority. More importantly, there was even no showing that
Arias was authorized to act as agent of petitioner. 26 Anent the award of attorney's fees, the CA found the award by the
trial court (P50,000.00 plus 20% of the recoverable amount) excessive 27 and thus reduced the same to P100,000.00. 28
AcSHCD
The dispositive portion of the CA Decision reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum, computed
from September 27, 2000 until its full payment before finality of the judgment. If the adjudged principal and the interest (or
any part thereof) remain[s] unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum,
computed from the time the judgment becomes final and executory until it is fully satisfied. The award of attorney's fees is
hereby reduced to P100,000.00. Costs against the [petitioner].
SO ORDERED. 29
Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of the CA.
Hence, this petition raising the sole issue of whether the imposition of interest and attorney's fees is proper.
Petitioner's Arguments
Petitioner insists that she is not bound to pay interest on the P3.5 million because the Conditional Deed of Sale only
provided for the return of the downpayment in case of failure to comply with her obligations. Petitioner also argues that the
award of attorney's fees in favor of the respondent-spouses is unwarranted because it cannot be said that the latter won
over the former since the CA even sustained her contention that the imposition of 12% interest compounded annually is
totally uncalled for.
Respondent-spouses' Arguments
Respondent-spouses aver that it is only fair that interest be imposed on the amount they paid considering that petitioner
failed to return the amount upon demand and had been using the P3.5 million for her benefit. Moreover, it is undisputed
that petitioner failed to perform her obligations to relocate the house outside the perimeter of the subject property and to
complete the necessary documents. As regards the attorney's fees, they claim that they are entitled to the same because
they were forced to litigate when petitioner unjustly withheld the amount. Besides, the amount
smaller compared to the filing fees they paid.
Our Ruling
The petition lacks merit.
Interest may be imposed even in
the absence of stipulation in the
contract.
We sustain the ruling of both the RTC and the CA that it is proper to impose interest notw
stipulation in the contract. Article 2210 of the Civil Code expressly provides that "[i]nterest m
court, be allowed upon damages awarded for breach of contract." In this case, there is no ques
obligated to return the P3.5 million because of her failure to fulfill the obligation under the Condi
demand. She has in fact admitted that the conditions were not fulfilled and that she was willing
P3.5 million but has not actually done so. Petitioner enjoyed the use of the money from the time
now. Thus, she is already in default of her obligation from the date of demand, i.e., on Septem
The interest at the rate of 12% is
applicable in the instant case.
Anent the interest rate, the general rule is that the applicable rate of interest "shall be compu
stipulation of the parties." 31 Absent any stipulation, the applicable rate of interest shall be
obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it sh
In this case, the parties did not stipulate as to the applicable rate of interest. The only ques
whether the 6% as provided under Article 2209 of the Civil Code, or 12% under Central Ban
cACDaH
The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. How
that the seller (petitioner) must return the payment made by the buyer (respondent-spouse
fulfilled. There is no question that they have in fact, not been fulfilled as the seller (pet
Notwithstanding demand by the buyer (respondent-spouses), the seller (petitioner) has faile
should be considered in default from the time that demand was made on September 27, 2000.
Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing t
considered as a forbearance of money which required payment of interest at the rate of 12%?
In Crismina Garments, Inc. v. Court of Appeals, 33 "forbearance" was defined as a "contrac
creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a
payable." This definition describes a loan where a debtor is given a period within which to pay a
"forbearance of money, goods or credits" will have no distinct definition from a loan. We believ
"forbearance of money, goods or credits" is meant to have a separate meaning from a loan, o
been no need to add that phrase as a loan is already sufficiently defined in the Civil Code.
goods or credits should therefore refer to arrangements other than loan agreements, where a
temporary use of his money, goods or credits pending happening of certain events or fulfillm
this case, the respondent-spouses parted with their money even before the conditions were fu
allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment o
deprived of the use of their money for the period pending fulfillment of the conditions and when those conditions were
breached, they are entitled not only to the return of the principal amount paid, but also to compensation for the use of their
money. And the compensation for the use of their money, absent any stipulation, should be the same rate of legal interest
applicable to a loan since the use or deprivation of funds is similar to a loan.
Petitioner's unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to forbearance
of money which can be considered as an involuntary loan. Thus, the applicable rate of interest is 12% per annum. In
Eastern Shipping Lines, Inc. v. Court of Appeals, 35 cited in Crismina Garments, Inc. v. Court of Appeals, 36 the Court
suggested the following guidelines:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on 'Damages' of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged. DSTCIa
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of credit. 37
Eastern Shipping Lines, Inc. v. Court of Appeals 38 and its predecessor case, Reformina v. Tongol 39 both involved torts
cases and hence, there was no forbearance of money, goods, or credits. Further, the amount claimed (i.e., damages) could
not be established with reasonable certainty at the time the claim was made. Hence, we arrived at a different ruling in those
cases.
Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then the interest rate of
12% should be reckoned from said date of demand until the principal amount and the interest thereon is fully satisfied.
The award of attorney's fees is
warranted.
Under Article 2208 of the Civil Code, attorney's fees may be recovered:
xxx xxx xxx
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third pers
protect his interest;
xxx xxx xxx
(11) In any other case where the court deems it just and equitable that attorney's fees and expe
recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
Considering the circumstances of the instant case, we find respondent-spouses entitled to rec
is no doubt that they were forced to litigate to protect their interest, i.e., to recover their mo
amount of P50,000.00 more appropriate in line with the policy enunciated in Article 2208 of th
of attorney's fees must always be reasonable.
WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court of
83123 is AFFIRMED with MODIFICATIONS that the rate of interest shall be twelve percent (1
from September 27, 2000 until fully satisfied. The award of attorney's fees is further reduced to
SO ORDERED. SCADIT
||| (Estores v. Spouses Supangan, G.R. No. 175139, [April 18, 2012], 686 PHIL 86-100)
5. Province of Cebu v. WT Construction Inc., G.R. No. 209245, September 16, 2015
[G.R. No. 208984. September 16, 2015.]
WT CONSTRUCTION, INC., petitioner, vs. THE PROVINCE OF CEBU, respondent.
[G.R. No. 209245. September 16, 2015.]
PROVINCE OF CEBU, petitioner, vs. WT CONSTRUCTION, INC., respondent.
DECISION
PERLAS-BERNABE, J p:
Before this Court are consolidated petitions for review on certiorari 1 assailing the Decision 2
and the Resolution 3 dated August 8, 2013 of the Court of Appeals (CA) in CA-G.R. CEB-CV
the Order 4 dated September 22, 2009 of the Regional Trial Court of Cebu City, Branch 6 (RT
34012 finding the Province of Cebu liable to pay WT Construction, Inc. (WTCI) the amount of P2
the legal interest rate imposable thereon from 12% to 6% per annum.
The Facts
Sometime in 2005, the Province of Cebu was chosen by former President Gloria Macapagal-Arroyo to host the 12th
Association of Southeast Asian Nations (ASEAN) Summit scheduled on December 10, 2006. To cater to the event, it
decided to construct the Cebu International Convention Center (CICC or the project) at the New Mandaue Reclamation
Area, Mandaue City, Cebu, which would serve as venue for the ASEAN Summit. 5
Accordingly, the Province of Cebu conducted a public bidding for the project and, on February 22, 2006, WTCI emerged
as the winning bidder for the construction of Phase I thereof which consists of the substructure of CICC. On July 26, 2006,
after completing Phase I and receiving payment therefor, WTCI again won the bidding for Phase II of the project involving
the adjacent works on CICC. 6
As Phase II neared completion, the Province of Cebu caused WTCI to perform additional works on the project which
included site development, and additional structural, architectural, electric, and plumbing works (additional works).
Cognizant of the need to complete the project in time for the ASEAN Summit, and with the repeated assurances that it
would be promptly paid, WTCI agreed to perform the additional works notwithstanding the lack of public bidding. 7
In November 2006, weeks before the scheduled ASEAN Summit, WTCI completed the project, including the additional
works and, accordingly, demanded payment therefor. 8 In a letter 9 dated February 8, 2007, WTCI billed the Province of
Cebu the amount of P175,951,478.69 corresponding to the added cost for the site development and extended structural
and architectural works. In a separate letter dated February 12, 2007, 10 WTCI billed the Province of Cebu the amount of
P85,266,407.97 representing the cost for the additional electrical and plumbing works. The Province of Cebu, however,
refused to pay, 11 thereby prompting WTCI to send a Final Billing 12 dated February 21, 2007 where it demanded payment
of the aggregate sum of P261,217,886.66.
In the letters dated March 20, 2007 13 and September 11, 2007, 14 WTCI again reiterated its demand for payment but the
Province of Cebu still refused to pay. Thus, on January 22, 2008, WTCI filed a complaint 15 for collection of sum of money
before the RTC which was docketed as Civil Case No. CEB-34012.
For its defense, the Province of Cebu admitted the existence of the additional works but maintained that there was no
contract between it and WTCI therefor. It also claimed that the additional works did not undergo public bidding as required
by Republic Act No. (RA) 9184, 16 otherwise known as the "Government Procurement Reform Act." 17 Upon joint
verification by the parties, the value of the additional works was pegged at P263,263,261.41. 18 HESIcT
The RTC Ruling
In a Judgment 19 dated May 20, 2009, the RTC ruled in favor of WTCI and ordered the Province of Cebu to pay the
following amounts: (a) P263,263,261.41 representing the cost of the additional works, with legal interest at the rate of 12%
per annum computed from the filing of the complaint on January 22, 2008 until fully paid; (b) P50,000.00 as attorney's fees;
and (c) costs of suit. 20 The RTC found that there was a perfected oral contract between the parties for the additional works
on CICC, and that WTCI must be duly compensated therefor under the doctrine of quantum meruit; otherwise, the Province
of Cebu would be unjustly enriched. 21
The Province of Cebu sought a reconsideration 22 of the foregoing and argued that its valuation of the additional works
was only P257,413,911.73. 23 Further, it maintained that it was not liable to pay interests as WTCI performed the additional
works at its own risk, given that there was no public bidding. 24
WTCI, on the other hand, neither filed an appeal nor a motion for reconsideration of the May 20, 2009 Judgment of the
RTC.
In an Order 25 dated September 22, 2009, the RTC granted in part the motion for reconsideration and reduced the amount
of actual damages from P263,263,261.41 to P257,413,911.73, in accordance with the cost standards for the year 2006
provided by the Commission on Audit (COA), the National Statistics Office (NSO), the Department of Trade and Industry
(DTI), and the Province of Cebu itself. On all other points, including the award of 12% legal interest from the filing of the
complaint, as well as the award of attorney's fees and costs of suit, the RTC sustained its earlier ruling. 26
Dissatisfied, the Province of Cebu appealed 27 to the CA.
The CA Ruling
In a Decision 28 dated December 19, 2012, the CA affirmed the RTC's Order dated Septembe
interest rate to 6% per annum. 29 It remarked that the issue of whether or not a contract exis
the additional works has been rendered immaterial in view of the admission by the Province o
the amount of P257,413,911.73, and that it had paid the same to WTCI; hence, only the award
and costs of suit are at issue. 30 In this regard, the CA pointed out that the reduction of the in
per annum is warranted given that the liability of the Province of Cebu did not arise from a loa
but from the non-payment of services rendered by WTCI. 31 Anent the award of attorney's fee
affirmed the same after finding that the Province of Cebu acted maliciously and in bad faith whe
of the additional works. 32
On January 24, 2013, the Province of Cebu moved for reconsideration 33 which was, howe
Resolution 34 dated August 8, 2013.
WTCI, on the other hand, did not seek for a reconsideration of the CA's December 19, 2012 Dec
13, 2013, a petition for review on certiorari 35 before this Court, docketed as G.R. No. 2089
maintained that the obligation is one for forbearance of money since its performance of the ad
financial accommodation to the Province of Cebu, thereby warranting the imposition of legal int
annum, as originally decreed by the RTC. 36 It further claimed that the interest should be
extrajudicial demand, i.e., from the date of receipt of the Province of Cebu of its February 8 and
caITAC
On November 13, 2013, the Province of Cebu filed its own petition for review on certiorari 38
as G.R. No. 209245. It contended that there was no perfected contract between the parties and
same is void for lack of public bidding as required under RA 9184. 39 While it admitted paying
the Province of Cebu averred that it did so only under the principle of quantum meruit, 40 add
held liable for interest, attorney's fees, and costs of suit because there was no valid contract a
it wanted to pay WTCI sooner, it could not do so owing to the lack of documentation. 41
In a Resolution 42 dated December 4, 2013, the Court consolidated the present petitions.
The Issues before the Court
The issues for the resolution of the Court are: (a) whether or not the liability of the Province o
loan or forbearance of money; and (b) whether or not the interest due should be computed from
complaint or from the time extrajudicial demand was made.
The Court's Ruling
At the outset, it must be pointed out that a determination of whether or not there was a perfecte
Province of Cebu and WTCI is a question of fact which is beyond the scope of the Court's powe
certiorari, subject to certain exceptions which do not obtain in this case. It is a settled rule th
brought before this Court on petition for review on certiorari under Rule 45 of the Rules of Cour
facts and factual findings of the RTC, when affirmed by the CA, as in this case, are entitled to g
this Court and are deemed final and conclusive when supported by the evidence on record.
affirms the liability of the Province of Cebu to WTCI in the amount of P257,413,911.73 which
the additional works.
The Court now proceeds to determine the nature of the liability of the Province of Cebu to WTC
There is no question that the present case does not involve an obligation arising from a loan;
the liability of the Province of Cebu involves a forbearance of money, based on WTCI's claim
cost of the additional works. In Sunga-Chan v. CA, 44 the Court characterized a transaction invo
as follows:
The term "forbearance," within the context of usury law, has been described as a contractual obligation of a lender or
creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due
and payable. 45
In Estores v. Supangan, 46 the Court explained that forbearance of money, goods, or credit refers to arrangements other
than loan agreements where a person acquiesces to the temporary use of his money, goods or credits pending the
happening of certain events or fulfilment of certain conditions such that if these conditions are breached, the said person
is entitled not only to the return of the principal amount given, but also to compensation for the use of his money equivalent
to the legal interest since the use or deprivation of funds is akin to a loan. 47
Applying the foregoing standards to the case at hand, the Court finds that the liability of the Province of Cebu to WTCI is
not in the nature of a forbearance of money as it does not involve an acquiescence to the temporary use of WTCI's money,
goods or credits. Rather, this case involves WTCI's performance of a particular service, i.e., the performance of additional
works on CICC, consisting of site development, additional structural, architectural, plumbing, and electrical works thereon.
Verily, the Court has repeatedly recognized that liabilities arising from construction contracts do not partake of loans or
forbearance of money but are in the nature of contracts of service. In Federal Builders, Inc. v. Foundation Specialists, Inc.,
48 the Court ruled that the liability arising from the non-payment for the construction works, specifically the construction of
a diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza in Makati City, do not partake of a loan or
forbearance of money but is more in the nature of a contract of service. 49 The Court, therefore, sustains the CA's ruling
that the rate of legal interest imposable on the liability of the Province of Cebu to WTCI is 6% per annum, in accordance
with the guidelines laid down in Eastern Shipping Lines, Inc. v. Court of Appeals 50 (Eastern Shipping Lines, Inc.), viz.:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of credit. 51 (Emphases supplied)
The foregoing guidelines have been updated in Nacar v. Gallery Frames 52 (Nacar), pursuant to Bangko Sentral ng
Pilipinas (BSP) Circular No. 799, series of 2013, which reduced the rate of legal interest for loans or transactions involving
forbearance of money, goods, or credit from 12% to 6% per annum. 53 Nevertheless, the rate of legal interest for obligations
not constituting loans or forbearance such as the one subject of this case remains unchanged at 6% per annum.
Coming now to the issue of whether the RTC and the CA erred in computing the interest due WTCI from the time of the
filing of the complaint, the Court finds merit in WTCI's argument that the same should be reckoned from the time WTCI
made the extrajudicial demand for the payment of the principal, i.e., upon receipt of the Province of Cebu of WTCI's
February 8, 2007 and February 12, 2007 letters demanding payment for the additional structural and architectural works,
and additional electrical and plumbing works, respectively. The Count observes, however, that W
nor sought a reconsideration of the May 20, 2009 Judgment of the RTC which awarded inter
time of the filing of the complaint on January 22, 2008. Accordingly, the RTC's determination
point had already become final as against WTCI since it was not one of the assigned errors
settled that a decision becomes final as against a party who does not appeal the same. 54
petition of WTCI questioning the RTC's determination on the reckoning point of the legal inter
be given due course. The Court is, therefore, constrained to uphold the rulings of the RTC and t
shall be computed from the time of the filing of the complaint. TCAScE
Lastly, the Court agrees with the CA that the legal interest rate of 6% shall be imposed fro
judgment until satisfaction thereof. This is in view of the principle that in the interim, the obligati
forbearance of credit which, pursuant to Eastern Shipping Lines, Inc. as modified by Nacar, is
the rate of 6% per annum.
WHEREFORE, the petitions are DENIED. The Decision dated December 19, 2012 and the R
2013 of the Court of Appeals in CA-G.R. CEB-CV No. 03791 are hereby AFFIRMED.
SO ORDERED.
||| (WT Construction, Inc. v. Province of Cebu, G.R. Nos. 208984 & 209245, [September 16, 20
6. Marilag v. Martinez, G.R. No. 201892, July 22, 2015
[G.R. No. 201892. July 22, 2015.]
NORLINDA S. MARILAG, petitioner, vs. MARCELINO B. MARTINEZ, respondent.
DECISION
PERLAS-BERNABE, J p:
Assailed in this petition for review on certiorari 1 are the Decision 2 dated November 4, 2011
May 14, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 81258 which recalled and s
November 3, 2003 4 and January 14, 2004 5 of the Regional Trial Court (RTC) of Las Pias Cit
in Civil Case No. 98-0156, and reinstated the Decision 6 dated August 28, 2003 directing pe
(petitioner) to return to respondent Marcelino B. Martinez (respondent) the latter's excess pay
pay attorney's fees and the costs of suit.
The Facts
On July 30, 1992, Rafael Martinez (Rafael), respondent's father, obtained from petitioner
P160,000.00, with a stipulated monthly interest of five percent (5%), payable within a period
was secured by a real estate mortgage over a parcel of land covered by Transfer Certificate o
Rafael failed to settle his obligation upon maturity and despite repeated demands, prompting p
for Judicial Foreclosure of Real Estate Mortgage before the RTC of Imus, Cavite, Branch 90 7
10, 1995, 8 docketed as Civil Case No. 1208-95 (judicial foreclosure case).
Rafael failed to file his answer and, upon petitioner's motion, was declared in default. After a
petitioner's evidence, the RTC-Imus issued a Decision 9 dated January 30, 1998, (January
foreclosure case, declaring the stipulated 5% monthly interest to be usurious and reducing th
(p.a.). Accordingly, it ordered Rafael to pay petitioner the amount of P229,200.00, consisting of t
and accrued interest of P59,200.00 from July 30, 1992 to September 30, 1995. 10 Records do
had already attained finality.
Meanwhile, prior to Rafael's notice of the above decision, respondent agreed to pay Rafael's obligation to petitioner which
was pegged at P689,000.00. After making a total payment of P400,000.00, 11 he executed a promissory note 12 dated
February 20, 1998 (subject PN), binding himself to pay on or before March 31, 1998 the amount of P289,000.00,
"representing the balance of the agreed financial obligation of [his] father to [petitioner]." 13 After learning of the January
30, 1998 Decision, respondent refused to pay the amount covered by the subject PN despite demands, prompting petitioner
to file a complaint 14 for sum of money and damages before the court a quo on July 2, 1998, docketed as Civil Case No.
98-0156 (collection case). CTIEac
Respondent filed his answer, 15 contending that petitioner has no cause of action against him. He averred that he has fully
settled Rafael's obligation and that he committed a mistake in paying more than the amount due under the loan, i.e., the
amount of P229,200.00 as adjudged by the RTC-Imus in the judicial foreclosure case which, thus, warranted the return of
the excess payment. He therefore prayed for the dismissal of the complaint, and interposed a compulsory counterclaim for
the release of the mortgage, the return of the excess payment, and the payment of moral and exemplary damages,
attorney's fees and litigation expenses. 16
The Court A Quo's Ruling
In a Decision 17 dated August 28, 2003 (August 28, 2003 Decision), the court a quo denied recovery on the subject PN. It
found that the consideration for its execution was Rafael's indebtedness to petitioner, the extinguishment of which
necessarily results in the consequent extinguishment of the cause therefor. Considering that the RTC-Imus had adjudged
Rafael liable to petitioner only for the amount of P229,200.00, for which a total of P400,000.00 had already been paid, the
court a quo found no valid or compelling reason to allow petitioner to recover further on the subject PN. There being an
excess payment of P171,000.00, it declared that a quasi-contract (in the concept of solutio indebiti) exists between the
parties and, accordingly, directed petitioner to return the said amount to respondent, plus 6% interest p.a. 18 reckoned
from the date of judicial demand 19 on August 6, 1998 until fully paid, and to pay attorney's fees and the costs of suit. 20
In an Order 21 dated November 3, 2003 (November 3, 2003 Order), however, the court a quo granted petitioner's motion
for reconsideration, and recalled and set aside its August 28, 2003 Decision. It declared that the causes of action in the
collection and foreclosure cases are distinct, and respondent's failure to comply with his obligation under the subject PN
justifies petitioner to seek judicial relief. It further opined that the stipulated 5% monthly interest is no longer usurious and
is binding on respondent considering the suspension of the Usury Law pursuant to Central Bank Circular 905, series of
1982. Accordingly, it directed respondent to pay the amount of P289,000.00 due under the subject PN, plus interest at the
legal rate reckoned from the last extra-judicial demand on May 15, 1998, until fully paid, as well as attorney's fees and the
costs of suit. 22
Aggrieved, respondent filed a motion for reconsideration 23 which was denied in an Order 24 dated January 14, 2004,
prompting him to elevate the matter to the CA. 25
The CA Ruling
In a Decision 26 dated November 4, 2011, the CA recalled and set aside the court a quo's November 3, 2003 and January
14, 2004 Orders, and reinstated the August 28, 2003 Decision. It held that the doctrine of res judicata finds application in
the instant case, 27 considering that both the judicial foreclosure and collection cases were filed as a consequence of the
non-payment of Rafael's loan, which was the principal obligation secured by the real estate mortgage and the primary
consideration for the execution of the subject PN. Since res judicata only requires substantial, not actual, identity of causes
of action and/or identity of issue, 28 it ruled that the judgment in the judicial foreclosure case relating to Rafael's obligation
to petitioner is final and conclusive on the collection case.
Petitioner's motion for reconsideration was denied in a Resolution 29 dated May 14, 2012; hence, this petition.
The Issue Before the Court
The essential issue for the Court's resolution is whether or not the CA committed reversible error in upholding the dismissal
of the collection case.
The Court's Ruling
The petition lacks merit.
A case is barred by prior judgment or res judicata when the following elements concur: (a) the
new action must be final; (b) the decision must have been rendered by a court having jurisdic
and the parties; (c) the disposition of the case must be a judgment on the merits; and (d) the
first and second action, identity of parties, subject matter, and causes of action. 30
After a punctilious review of the records, the Court finds the principle of res judicata to be inapp
This is because the records are bereft of any indication that the August 28, 2003 Decision in t
had already attained finality, evidenced, for instance, by a copy of the entry of judgment in the s
the very first element of res judicata missing, said principle cannot be made to obtain.
This notwithstanding, the Court holds that petitioner's prosecution of the collection case w
principle of litis pendentia in view of the substantial identity of parties and singularity of th
foreclosure and collection cases, such that the prior foreclosure case barred petitioner's re
collection case. SaCIDT
To lay down the basics, litis pendentia, as a ground for the dismissal of a civil action, refers to th
action is pending between the same parties for the same cause of action, such that th
unnecessary and vexatious. For the bar of litis pendentia to be invoked, the following requisites
parties, or at least such parties as represent the same interests in both actions; (b) identity o
prayed for, the relief being founded on the same facts; and (c) the identity of the two preceding
judgment rendered in the pending case, regardless of which party is successful would amount
31 The underlying principle of litis pendentia is the theory that a party is not allowed to ve
regarding the same subject matter and for the same cause of action. This theory is founded o
same subject matter should not be the subject of controversy in courts more than once, in or
judgments may be avoided for the sake of the stability of the rights and status of persons, and
expenses incident to numerous suits. 32 Consequently, a party will not be permitted to split up a
make it a basis for several suits as the whole cause must be determined in one action. 33 To b
action is a mode of forum shopping by filing multiple cases based on the same cause of action
where the ground of dismissal is litis pendentia (or res judicata, as the case may be). 34
In this relation, it must be noted that the question of whether a cause of action is single and enti
easy to determine and the same must often be resolved, not by the general rules, but by
circumstances of the particular case. The true rule, therefore, is whether the entire amount ari
act or contract which must, thus, be sued for in one action, or the several parts arise from d
contracts, for which a party may maintain separate suits. 35
In loan contracts secured by a real estate mortgage, the rule is that the creditor-mortgagee h
against the debtor-mortgagor, i.e., to recover the debt, through the filing of a personal action for
or the institution of a real action to foreclose on the mortgage security. The two remedies are al
or successive, 37 and each remedy is complete by itself. Thus, if the creditor-mortgagee opts
mortgage, he waives the action for the collection of the unpaid debt, 38 except only for the reco
may remain in the outstanding obligation of the debtor-mortgagor after deducting the bid price
the mortgaged properties. 39 Accordingly, a deficiency judgment shall only issue after it is esta
property was sold at public auction for an amount less than the outstanding obligation.
In the present case, records show that petitioner, as creditor-mortgagee, instituted an action for j
to the provisions of Rule 68 of the Rules of Court in order to recover on Rafael's debt. In light o
the availment of such remedy thus bars recourse to the subsequent filing of a personal action
debt, in this case, under the principle of litis pendentia, considering that the foreclosure case
was not shown to have attained finality.
While the ensuing collection case was anchored on the promissory note executed by respondent who was not the original
debtor, the same does not constitute a separate and distinct contract of loan which would have given rise to a separate
cause of action upon breach. Notably, records are bereft of any indication that respondent's agreement to pay Rafael's
loan obligation and the execution of the subject PN extinguished by novation 40 the contract of loan between Rafael and
petitioner, in the absence of express agreement or any act of equal import. Well-settled is the rule that novation is never
presumed, but must be clearly and unequivocally shown. Thus, in order for a new agreement to supersede the old one,
the parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one, 41 which
was not shown here.
On the contrary, it is significant to point out that: (a) the consideration for the subject PN was the same consideration that
supported the original loan obligation of Rafael; (b) respondent merely assumed to pay Rafael's remaining unpaid balance
in the latter's behalf, i.e., as Rafael's agent or representative; 42 and (c) the subject PN was executed after respondent had
assumed to pay Rafael's obligation and made several payments thereon. Case law states that the fact that the creditor
accepts payments from a third person, who has assumed the obligation, will result merely in the addition of debtors, not
novation, and the creditor may enforce the obligation against both debtors. 43 For ready reference, the subject PN reads
in full:
February 20, 1998
PROMISSORY NOTE
P289,000.00
=========
I, MARCELINO B. MARTINEZ, son of Mr. RAFAEL MARTINEZ, of legal age, Filipino, married and a resident of No. 091
Anabu I-A, Imus, Cavite, by these presents do hereby specifically and categorically PROMISE, UNDERTAKE and bind
myself in behalf of my father, to pay to Miss NORLINDA S. MARILAG, Mortgagee-Creditor of my said father, the sum of
TWO HUNDRED EIGHTY NINE THOUSAND PESOS (P289,000.00), Philippine Currency, on or before MARCH 31, 1998,
representing the balance of the agreed financial obligation of my said father to her. (Emphases supplied)
Executed at Pamplona I, Las Pias City, Metro Manila, this 20th day of February, 1998.
Sgd.
MARCELINO B. MARTINEZ
Promissor 44
Petitioner's contention that the judicial foreclosure and collection cases enforce independent rights 45 must, therefore, fail
because the Deed of Real Estate Mortgage 46 and the subject PN both refer to one and the same obligation, i.e., Rafael's
loan obligation. As such, there exists only one cause of action for a single breach of that obligation. Petitioner cannot split
her cause of action on Rafael's unpaid loan obligation by filing a petition for the judicial foreclosure of the real estate
mortgage covering the said loan, and, thereafter, a personal action for the collection of the unpaid balance of said obligation
not comprising a deficiency arising from foreclosure, without violating the proscription against splitting a single cause of
action, where the ground for dismissal is either res judicata or litis pendentia, as in this case. cHECAS
As elucidated by this Court in the landmark case of Bachrach Motor Co., Inc. v. Icarangal. 47
For non-payment of a note secured by mortgage, the creditor has a single cause of action against the debtor. This single
cause of action consists in the recovery of the credit with execution of the security. In other words, the creditor in his action
may make two demands, the payment of the debt and the foreclosure of his mortgage. But both demands arise from the
same cause, the non-payment of the debt, and, for that reason, they constitute a single cause of action. Though the debt
and the mortgage constitute separate agreements, the latter is subsidiary to the former, and both refer to one and the same
obligation. Consequently, there exists only one cause of action for a single breach of that obligation. Plaintiff, then, by
applying the rule above stated, cannot split up his single cause of action by filing a complaint for payment of the debt, and
thereafter another complaint for foreclosure of the mortgage. If he does so, the filing of the first complaint will bar the
subsequent complaint. By allowing the creditor to file two separate complaints simultaneously or successively, one to
recover his credit and another to foreclose his mortgage, we will, in effect, be authorizing him
breach of contract at so much cost to the courts and with so much vexation and oppression to
underscoring supplied)
Further on the point, the fact that no foreclosure sale appears to have been conducted is of no m
of foreclosure of mortgage is deemed chosen upon the filing of the complaint therefor. 48 In Su
Inc. v. CA, 49 it was explained:
. . . . In sustaining the rule that prohibits mortgage creditors from pursuing both the remedies o
or a real action to foreclose the mortgage, the Court held in the case of Bachrach Motor Co., I
al. that a rule which would authorize the plaintiff to bring a personal action against the de
successively another action against the mortgaged property, would result not only in multipli
justice and obnoxious to law and equity, but also in subjecting the defendant to the vexation o
his residence or of the residence of the plaintiff, and then again in the place where the proper
deemed chosen upon the filing of the suit for collection or upon the filing of the complaint in
mortgage, pursuant to the provisions of Rule 68 of the Rules of Court. As to extrajudicial fo
deemed elected by the mortgage creditor upon filing of the petition not with any court of justic
sheriff of the province where the sale is to be made, in accordance with the provisions of Act No
No. 4118. (Emphases supplied)
As petitioner had already instituted judicial foreclosure proceedings over the mortgaged prope
availing herself of an ordinary action for collection, regardless of whether or not the decision i
attained finality. In fine, the dismissal of the collection case is in order. Considering, however,
return of excess payment partakes of the nature of a compulsory counterclaim and, thus
petitioner's collection suit, the same should be resolved based on its own merits and evidentia
Records show that other than the matter of interest, the principal loan obligation and the payme
by the parties. Nonetheless, the Court finds the stipulated 5% monthly interest to be excessiv
plethora of cases, the Court has affirmed that stipulated interest rates of three percent (3%
excessive, iniquitous, unconscionable, and exorbitant, 51 hence, illegal 52 and void for bein
Agner v. BPI Family Savings Bank, Inc., 54 the Court had the occasion to rule:
Settled is the principle which this Court has affirmed in a number of cases that stipulated inte
(3%) per month and higher are excessive, iniquitous, unconscionable, and exorbitant. While Ce
82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for b
loans, regardless of maturity, nothing in the said circular could possibly be read as granting
lenders to raise interest rates to levels which would either enslave their borrowers or lead to a he
Since the stipulation on the interest rate is void for being contrary to morals, if not against the
express contract on said interest rate; thus, the interest rate may be reduced as reason and e
supplied) AHDacC
As such, the stipulated 5% monthly interest should be equitably reduced to 1% per month or 1
execution of the real estate mortgage on July 30, 1992. In order to determine whether there
claimed by respondent, we first compute the interest until January 30, 1998 55 when he made
P300,000.00 on Rafael's loan obligation. Accordingly, the amount due on the loan as of the latt
as follows:
Principal
P160,000.00
Add: Interest from 07/30/1992 to 01/30/1998
 (P160,000.00 x 12% x 5.5 yrs.)
105,600.00
__________
Amount due on the loan
P265,600.00
Less: Payment made on 01/30/98
(300,000.00)
__________
Overpayment as of 01/30/98
(P34,400.00) 56
Thus, as of January 30, 1998, only the amount of P265,600.00 was due under the loan contract, and the receipt of an
amount more than that renders petitioner liable for the return of the excess. Respondent, however, made further payment
in the amount of P100,000.00 57 on the belief that the subject loan obligation had not yet been satisfied. Such payments
were, therefore, clearly made by mistake, giving rise to the quasi-contractual obligation of solutio indebiti under Article 2154
58 in relation to Article 2163 59 of the Civil Code.Not being a loan or forbearance of money, an interest of 6% p.a. should
be imposed on the amount to be refunded and on the damages and attorney's fees awarded, if any, computed from the
time of demand 60 until its satisfaction. 61 Consequently, petitioner must return to respondent the excess payments in the
total amount of P134,400.00, with legal interest at the rate of 6% p.a. from the filing of the Answer on August 6, 1998 62
interposing a counterclaim for such overpayment, until fully settled.
However, inasmuch as the court a quo failed to state in the body of its decision the factual or legal basis for the award of
attorney's fees to the respondent, as required under Article 2208 63 of the New Civil Code, the Court resolves to delete the
same. The rule is well-settled that the trial court must clearly state the reasons for awarding attorney's fees in the body of
its decision, not merely in its dispositive portion, as the appellate courts are precluded from supplementing the bases for
such award. 64
Finally, in the absence of showing that the court a quo's award of the costs of suit in favor of respondent was patently
capricious, 65 the Court finds no reason to disturb the same.
WHEREFORE, the petition is DENIED. The Decision dated November 4, 2011 and the Resolution dated May 14, 2012 of
the Court of Appeals in CA-G.R. CV No. 81258 reinstating the court a quo's Decision dated August 28, 2003 in Civil Case
No. 98-0156 are hereby AFFIRMED with the MODIFICATIONS: (a) directing petitioner Norlinda S. Marilag to return to
respondent Marcelino B. Martinez the latter's excess payments in the total amount of P134,400.00, plus legal interest at
the rate of 6% p.a. from the filing of the Answer on August 6, 1998 until full satisfaction; and (b) deleting the award of
attorney's fees.
SO ORDERED.
||| (Marilag v. Martinez, G.R. No. 201892, [July 22, 2015])
7. Producers Bank v. CA, et al., G.R. No. 115324, February 19, 2003
[G.R. No. 115324. February 19, 2003.]
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON. COURT OF
APPEALS AND FRANKLIN VIVES, respondents.
Domingo & Dizon for petitioner.
Mauricio Law Office for private respondent.
SYNOPSIS
Upon request of a friend, Franklin Vives accommodated Arturo Doronilla by opening a sa
Marketing, in coordination with Producer's Bank assistant branch manager, Rufo Atien
incorporation, and the agreement was that the money would not be removed from Sterela's sa
to Vives after thirty (30) days. Later, however, part of the money had been withdrawn by Do
current account and authorized the bank to debit the savings account to cover overdrawing in
filed a case for recovery of sum of money and both the trial court and the appellate court rule
Producers Bank to Vives. Hence, this appeal. IDSEAH
The Court affirmed the appealed decision. Under Art. 2180 of the Civil Code, employers shall
caused by their employees acting within the scope of their assigned tasks. The Bank, through
partly responsible for the loss of Vives' money and is liable for its restitution. That despite limita
passbook issued to Mrs. Vives on behalf of Sterela, Doronilla was allowed to withdraw severa
of a passbook as required.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF THE TRIAL COURT ADOPTED BY
RESPECTED. At the outset, it must be emphasized that only questions of law may be raised
with this Court. The Court has repeatedly held that it is not its function to analyze and weigh
presented by the parties during trial. The Court's jurisdiction is in principle limited to reviewing e
been committed by the Court of Appeals. Moreover, factual findings of courts, when adopted
of Appeals, are final and conclusive on this Court unless these findings are not supported by the
is no showing of any misapprehension of facts on the part of the Court of Appeals in the case a
Court to review and overturn the factual findings of that court, especially since the conclusi
Appeals and the trial court are not only consistent but are also amply supported by the evidenc
2. CIVIL LAW; SPECIAL CONTRACTS; LOAN; MUTUUM AND COMMODATUM, DISTINGUIS
Civil Code distinguishes between the two kinds of loans in this wise: By the contract of loan, o
another, either something not consumable so that the latter may use the same for a certain
case the contract is called a commodatum; or money or other consumable thing, upon the cond
of the same kind and quality shall be paid, in which case the contract is simply called a loan o
essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest. In com
the ownership of the thing loaned, while in simple loan, ownership passes to the borrower. The
to imply that if the subject of the contract is a consumable thing, such as money, the contract wo
there are some instances where a commodatum may have for its object a consumable thing. A
provides: Consumable goods may be the subject of commodatum if the purpose of the contrac
the object, as when it is merely for exhibition. Thus, if consumable goods are loaned only fo
when the intention of the parties is to lend consumable goods and to have the very same good
period agreed upon, the loan is a commodatum and not a mutuum. The rule is that the intention
be accorded primordial consideration in determining the actual character of a contract. In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such determination.
3. ID.; ID.; ID.; ADDITIONAL AMOUNT PAID TO ORIGINAL AMOUNT LOANED AS INTEREST DID NOT CONVERT
AGREEMENT OF COMMODATUM TO MUTUUM. Doronilla's attempts to return to private respondent the amount of
P200,000.00 which the latter deposited in Sterela's account together with an additional P12,000.00, 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 latter's
money deposited with petitioner.
4. ID.; EXTRA-CONTRACTUAL OBLIGATIONS; QUASI-DELICTS; EMPLOYERS LIABLE FOR DAMAGES CAUSED BY
EMPLOYEES ACTING WITHIN THE SCOPE OF THEIR ASSIGNED TASKS. 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. 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 employee's 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 latter's instructions. ACTEHI
DECISION
CALLEJO, SR., J p:
This is a petition for review on certiorari of the Decision 1 of the Court of Appeals dated June 25, 1991 in CA-G.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 month's time. Private respondent asked Sanchez to bring Doronilla to their house so that they could
discuss Sanchez's request. 3
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronilla's private secretary, met
and discussed the matter. Thereafter, relying on the assurances and representations of Sanchez and Doronilla, private
respondent issued a check in the amount of Two Hundred Thousand Pesos (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 w
Angeles Sanchez. A passbook for Savings Account No. 10-1567 was thereafter issued to Mrs.
Subsequently, private respondent learned that Sterela was no longer holding office in the addre
Alarmed, he and his wife went to the Bank to verify if their money was still intact. The bank ma
Rufo Atienza, the assistant manager, who informed them that part of the money in Savings Acc
withdrawn by Doronilla, and that only P90,000.00 remained therein. He likewise told them
withdraw said remaining amount because it had to answer for some postdated checks issued
Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opene
0320 for Sterela and authorized the Bank to debit Savings; Account No. 10-1567 for the am
overdrawings in Current Account No. 10-0320. In opening said current account, Sterela, throug
of P175,000.00 from the Bank. To cover payment thereof, Doronilla issued three postdated
dishonored. Atienza also said that Doronilla could assign or withdraw the money in Savings Acc
he was the sole proprietor of Sterela. 5
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979
Doronilla, assuring him that his money was intact and would be returned to him. On August 1
postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private r
presentment thereof by private respondent to the drawee bank, the check was dishonored.
respondent to present the same check on September 15, 1979 but when the latter present
dishonored. 6
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla
money. Doronilla issued another check for P212,000.00 in private respondent's favor but the c
for insufficiency of funds. 7
Private respondent instituted an action for recovery of sum of money in the Regional Trial C
Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Ca
criminal actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passe
while the case was pending before the trial court. On October 3, 1995, the RTC of Pasig, B
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.
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 lega
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 attorney's fees; and
(d) the costs of the suit.

SO ORDERED. 8
Petitioner appealed the trial court's decision to the Court of Appeals. In its Decision dated June 25, 1991, the appellate
court affirmed in toto the decision of the RTC 9 It likewise denied with finality petitioner's motion for reconsideration in its
Resolution dated May 5, 1994. 10
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE
DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONER'S BANK MANAGER, MR. RUFO
ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE
RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE
OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL TRIAL
COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT
WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES VS.
MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN
EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT
HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE
AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEY'S FEES AND THE COSTS OF
SUIT. 11
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September 25, 1995.
The Court then required private respondent to submit a rejoinder to the reply. However, said rejoinder was filed only on
April 21, 1997, due to petitioner's delay in furnishing private respondent with copy of the 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 memorand
private respondent submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple
elements of a mutuum are present: first, what was delivered by private respondent to Doronilla
thing; and second, the transaction was onerous as Doronilla was obliged to pay interest, as evid
by Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent d
account. 15 Moreover, the fact that private respondent sued his good friend Sanchez for his f
from Doronilla shows that the transaction was not merely gratuitous but "had a business an
argues that it cannot be held liable for the return of private respondent's P200,000.00 bec
transaction between the latter and Doronilla. 16
It argues further that petitioner's Assistant Manager, Mr. Rufo Atienza, could not be faulted for all
from the savings account of Sterela since the latter was the sole proprietor of said compa
Doronilla's May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to
Sterela, did not contain any authorization for these two to withdraw from said account. Hence
therefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who
savings account. 17 Petitioner points out that no evidence other than the testimonies of private
was presented during trial to prove that private respondent deposited his P200,000.00 in Stere
its incorporation. 18 Hence, petitioner should not be held liable for allowing Doronilla to withd
account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial court's decision since
were not accord with the evidence presented by petitioner during trial to prove that the tr
respondent and Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla
savings account. 19
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not lia
suffered by private respondent, and neither may it be held liable for moral and exemplary dam
fees. 20
Private respondent, on the other hand, argues that the transaction between him and Doroni
accommodation, 21 since he did not actually part with the ownership of his P200,000.00 an
deposit said amount in the account of Sterela so that a certification can be issued to the effec
funds for purposes of its incorporation but at the same time, he retained some degree of cont
his wife who was made a signatory to the savings account and in whose possession the savi
given. 22
He likewise asserts that the trial court did not err in finding that petitioner, Atienza's employer,
money. He insists that Atienza, petitioner's assistant manager, connived with Doronilla in def
since it was Atienza who facilitated the opening of Sterela's current account three days afte
opened a savings account with petitioner for said company, as well as the approval of the
savings account to cover any overdrawings in its current account. 23
There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed with this Court.
The Court has repeatedly held that it is not its function to analyze and weigh all over again the evidence presented by the
parties during trial. 24 The Court's jurisdiction is in principle limited to reviewing errors of law that might have been
committed by the Court of Appeals. 25 Moreover, factual findings of courts, when adopted and confirmed by the Court of
Appeals, are final and conclusive on this Court unless these findings are not supported by the evidence on record. 26 There
is no showing of any misapprehension of facts on the part of the Court of Appeals in the case at bar that would require this
Court to review and overturn the factual findings of that court, especially since the conclusions of fact of the Court of
Appeals and the trial court are not only consistent but are also amply supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between private respondent and Doronilla
was a commodatum and not a mutuum. A circumspect examination of the records reveals that the transaction between
them was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use
the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable
thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is
simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the
borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money, the contract
would be a mutuum. However, there are some instances where a commodatum may have for its object a consumable
thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object,
as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend
consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is a
commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual
character of a contract. 27 In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered
in such determination. 28
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private respondent agreed
to deposit his money in the savings account of Sterela specifically for the purpose of making it appear "that said firm had
sufficient capitalization for incorporation, with the promise that the amount shall be returned
Private respondent merely "accommodated" Doronilla by lending his money without considera
friend Sanchez. It was however clear to the parties to the transaction that the money would not
savings account and would be returned to private respondent after thirty (30) days.
Doronilla's attempts to return to private respondent the amount of P200,000.00 which the la
account together with an additional P12,000.00, allegedly representing interest on the mu
transaction from a commodatum into a mutuum because such was not the intent of the parties
P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil
"[t]he bailee in commodatum acquires the use of the thing loaned but not its fruits." Hence, it w
to remit to private respondent the interest accruing to the latter's money deposited with petition
Neither does the Court agree with petitioner's contention that it is not solidarily liable for the re
money because it was not privy to the transaction between Doronilla and private respondent. Th
that is, whether it is a mutuum or a commodatum, has no bearing on the question of petitione
private respondent's money because the factual circumstances of the case clearly show
employee Mr. Atienza, was partly responsible for the loss of private respondent's money and is
Petitioner's rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of S
No. 10-1567 expressly states that
"2. Deposits and withdrawals must be made by the depositor personally or upon his written a
and neither a deposit nor a withdrawal will be permitted except upon the production of the dep
which will be entered by the Bank the amount deposited or withdrawn." 30
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assista
Buendia Branch of petitioner, to withdraw therefrom even without presenting the passbook (wh
was in the possession of Mrs. Vives), not just once, but several times. Both the Court of Appe
that Atienza allowed said withdrawals because he was party to Doronilla's "scheme" of defraud
xxx xxx xxx
But the scheme could not have been executed successfully without the knowledge, help and c
assistant manager and cashier of the Makati (Buendia) branch of the defendant bank. Indeed,
Atienza had not only facilitated the commission of the fraud but he likewise helped in devising
be done in such manner as to make it appear that the transaction was in accordance with bank
To begin with, the deposit was made in defendant's Buendia branch precisely because Atienz
The records show that plaintiff had suggested that the P200,000.00 be deposited in his
Corporation, but Doronilla and Dumagpi insisted that it must be in defendant's branch Makati f
to get a certification." In fact before he was introduced to plaintiff, Doronilla had already prepar
Buendia branch manager authorizing Angeles B. Sanchez and company to open a savings
amount of P200,000.00, as "per coordination with Mr. Rufo Atienza, Assistant Manager of the B
clear manifestation that the other defendants had been in consultation with Atienza from th
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 Atienza's active participation in
the perpetration of the fraud and deception that caused the loss. The records indicate that this account was opened three
days later after the 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 . . . . 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 h
entrusts a general duty to its employee is responsible to the injured party for damages flowing fro
act done in the course of his general authority, even though in doing such act, the employee m
the employer and disobeyed the latter's instructions. 33
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not d
within the scope of his authority as Assistant Branch Manager when he assisted Doronilla
Sterela's Savings Account No. 10-1567, in which account private respondent's money was de
the money withdrawn to Sterela's Current Account with petitioner. Atienza's acts of helping D
petitioner, were obviously done in furtherance of petitioner's interests 34 even though in the proc
of petitioner's rules such as those stipulated in its savings account passbook. 35 It was esta
funds from Sterela's savings account to its current account could not have been accomplish
invaluable assistance of Atienza, and that it was their connivance which was the cause of priva
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Ci
for private respondent's loss and is solidarily liable with Doronilla and Dumagpi for the return of
clear that petitioner failed to prove that it exercised due diligence to prevent the unauthorized
savings account, and that it was not negligent in the selection and supervision of Atienza.
committed by the appellate court in the award of actual, moral and exemplary damages, attor
to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of
AFFIRMED.
SO ORDERED.
||| (Producers Bank of the Philippines v. Court of Appeals, G.R. No. 115324, [February 19, 200
8. Kim v. People, G.R. No. 84719, January 25, 1991
[G.R. No. 84719. January 25, 1991.]
YONG CHAN KIM, petitioner, vs. PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTI
6th Judicial Region, Branch 28 Iloilo City and Court of Appeals (13th Division), respondents.
Remedios C . Balbin and Manuel C . Cases, Jr. for petitioner.
Hector P. Teodosio for private respondent.
SYLLABUS
1. CRIMINAL LAW; ESTAFA WITH UNFAITHFULNESS OR ABUSE OF CONFIDENCE; OBLI
SAME MONEY, GOODS OR PERSONAL PROPERTY, INDISPENSABLE. In order that
under the provision of Article 315, 1(b) of the Revised Penal Code it must be proven that he had the obligation to deliver
or return the same money, goods or personal property that he had received.
2. ID.; ID.; ID.; EMPLOYEE WITHOUT ANY OBLIGATION TO RETURN ANY CASH ADVANCE RECEIVED NOT GUILTY
THEREOF; CASE AT BAR. Liquidation simply means the settling of an indebtedness. An employee, such as herein
petitioner, who liquidates a cash advance is in fact paying back his debt in the form of a loan of money advanced to him by
his employer, as per diems and allowances. Similarly, as stated in the assailed decision of the lower court, "if the amount
of the cash advance he received is less than the amount he spent for actual travel . . . he has the right to demand
reimbursement from his employer the amount he spent coming from his personal funds." In other words, the money
advanced by either party is actually a loan to the other. Hence, petitioner was under no legal obligation to return the same
cash or money, i.e., the bills or coins, which he received from the private respondent.
DECISION
PADILLA, J p:
This petition seeks the review on certiorari of the following:
1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court (Guimbal-Igbaras-Tigbauan-Tubungan)
in Guimbal, Iloilo, in Criminal Case No. 628, 1 and the affirming decision of the Regional Trial Court, Branch XXVIII, Iloilo
City, in Criminal Case No. 20958, promulgated on 30 July 1987; 2
2. The decision of the Court of Appeals, dated 29 April 1988, 3 dismissing petitioner's appeal/petition for review for having
been filed out of time, and the resolution, dated 19 August 1988, denying petitioner's motion for reconsideration. 4
The antecedent facts are as follows:
Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department of the Southeast Asian Fisheries
Development Center (SEAFDEC) with head station at Tigbauan, Province of Iloilo. As Head of the Economics Unit of the
Research Division, he conducted prawn surveys which required him to travel to various selected provinces in the country
where there are potentials for prawn culture.
On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to different places in Luzon from
16 June to 21 July 1982, a period of thirty five (35) days. Under this travel order, he received P6,438.00 as cash advance
to defray his travel expenses.
Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him to travel from the Head Station
at Tigbauan, Iloilo to Roxas City from 30 June to 4 July 1982, a period of five (5) days. For this travel order, petitioner
received a cash advance of P495.00.
On 14 January 1983, petitioner presented both travel orders for liquidation, submitting Travel Expense Reports to the
Accounting Section. When the Travel Expense Reports were audited, it was discovered that there was an overlap of four
(4) days (30 June to 3 July 1982) in the two (2) travel orders for which petitioner collected per diems twice. In sum, the total
amount in the form of per diems and allowances charged and collected by petitioner under Travel Order No. 2222, when
he did not actually and physically travel as represented by his liquidation papers, was P1,230.00. llcd
Petitioner was required to comment on the internal auditor's report regarding the alleged anom
In his reply, petitioner denied the alleged anomaly, claiming that he made make-up trips to c
failed to undertake under T.O. 2222 because he was recalled to the head office and given ano
In September 1983, two (2) complaints for Estafa were filed against the petitioner before the M
at Guimbal, Iloilo, docketed as Criminal Case Nos. 628 and 631.
After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a decision, the dis
as follows:
"IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the accused, Yong
reasonable doubt for the crime of Estafa penalized under paragraph 1(b) of Article 315, Rev
disclose there is no aggravating circumstance proven by the prosecution. Neither there is a
proven by the accused. Considering the amount subject of the present complaint, the imposab
medium period of arresto mayor in its maximum period to prision correccional in its minimum
Article 315, No. 3, Revised Penal Code. Consonantly, the Court hereby sentences the accuse
ranging from four (4) months as the minimum to one (1) year and six (6) months as the maxim
Indeterminate Sentence Law and to reimburse the amount of P1,230.00 to SEAFDEC.
"The surety bond of the accused shall remain valid until final judgment in accordance herewith
"Costs against the accused." 5
Criminal Case No. 631 was subsequently dismissed for failure to prosecute.
Petitioner appealed from the decision of the Municipal Circuit Trial Court in Criminal Case No.
Regional Trial Court in Iloilo City in Criminal Case No. 20958 affirmed in toto the trial court's de
The decision of the Regional Trial Court was received by petitioner on 10 August 1987. On 11 A
counsel, filed a notice of appeal with the Regional Trial Court which ordered the elevation of th
then Intermediate Appellate Court on the following day, 12 August 1987. The records of the
Intermediate Appellate Court on 8 October 1987, and the appeal was docketed as CA-G.R. No
On 30 October 1987, petitioner filed with the appellate court a petition for review. As earlier s
Court of Appeals dismissed the petition for having been filed out of time. Petitioner's motion for
for lack of merit.
Hence, the present recourse.
On 19 October 1988, the Court resolved to require the respondents to comment on the petiti
General filed his Comment on 20 January 1989, after several grants of extensions of time to fil
In his Comment, the Solicitor General prayed for the dismissal of the instant petition on the g
under Section 22, Batas Pambansa 129, Section 22 of the Interim Rules and Guidelines, and
1985 Rules of Criminal Procedure, the petitioner should have filed a petition for review with the then Intermediate Appellate
Court instead of a notice of appeal with the Regional Trial Court, in perfecting his appeal from the RTC to the Intermediate
Appellate Court, since the RTC judge was rendered in the exercise of its appellate jurisdiction over municipal trial courts.
The failure of petitioner to file the proper petition rendered the decision of the Regional Trial Court final and executory,
according to the Solicitor General. LLphil
Petitioner's counsel submitted a Reply (erroneously termed Comment) 7 wherein she contended that the peculiar
circumstances of a case, such as this, should be considered in order that the principle barring a petitioner's right of review
can be made flexible in the interest of justice and equity.
In our Resolution of 29 May 1989, we resolved to deny the petition for failure of petitioner to sufficiently show that the Court
of Appeals had committed any reversible error in its questioned judgment which had dismissed petitioner's petition for
review for having been filed out of time. 8
Petitioner filed a motion for reconsideration maintaining that his petition for review did not limit itself to the issue upon which
the appellate court's decision of 29 April 1988 was based, but rather it delved into the substance and merits of the case. 9
On 10 August 1990, we resolved to set aside our resolution dismissing this case and gave due course to the petition. In
the said resolution, we stated:
"In several cases decided by this Court, it had set aside technicalities in the Rules in order to give way to justice and equity.
In the present case, we note that the petitioner, in filing his Notice of Appeal the very next day after receiving the decision
of the court a quo, lost no time in showing his intention to appeal, although the procedure taken was not correct. The Court
can overlook the wrong pleading filed, if strict compliance with the rules would mean sacrificing justice to technicality. The
imminence of a person being deprived unjustly of his liberty due to procedural lapse of counsel is a strong and compelling
reason to warrant suspension of the Rules. Hence, we shall consider the petition for review filed in the Court of Appeals as
a Supplement to the Notice of Appeal. As the Court declared in a recent decision, '. . . there is nothing sacred about the
procedure of pleadings. This Court may go beyond the pleadings when the interest of justice so warrants. It has the
prerogative to suspend its rules for the same purpose . . . Technicality, when it deserts its proper office as an aid to justice
and becomes its great hindrance and chief enemy, deserves scant consideration from courts. [Alonzo v. Villamor, et al.,
16 Phil. 315]'
Conscience cannot rest in allowing a man to go straight to jail, closing the door to his every entreaty for a full opportunity
to be heard, even as he has made a prima facie showing of a meritorious cause, simply because he had chosen an appeal
route, to be sure, recognized by law but made inapplicable to his case, under altered rules of procedure. While the Court
of Appeals can not be faulted and, in fact, it has to be lauded for correctly applying the rules of procedure in appeals to the
Court of Appeals from decisions of the RTC rendered in the exercise of its appellate jurisdiction, yet, this Court, as the
ultimate bulwark of human rights and individual liberty, will not allow substantial justice to be sacrificed at the altar of
procedural rigor." 10
In the same resolution, the parties were required to file their respective memoranda, and in compliance with said resolution,
petitioner filed his memorandum on 25 October 1989, while private respondent SEAFDEC filed its required memorandum
on 10 April 1990. On the other hand, the Solicitor General filed on 13 March 1990 a Recomme
of the required memorandum.
Two (2) issues are raised by petitioner, to wit:
I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL CIRCUIT TRIAL COURT (GU
REGIONAL TRIAL COURT, BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE FA
CONTRARY TO LAW AND THAT THE TWO COURTS A QUO HAVE ACTED WITH GRAVE
AMOUNTING TO LACK OF JURISDICTION OR HAVE ACTED WITHOUT OR IN EXCESS O
II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF APPEALS
ESTABLISHED JURISPRUDENCE, EQUITY AND DUE PROCESS. llcd
The second issue has been resolved in our Resolution dated 10 August 1990, when we granted
for reconsideration. We shall now proceed to the first issue.
We find merit in the petition.
It is undisputed that petitioner received a cash advance from private respondent SEAFDEC to
under T.O. 2222. It is likewise admitted that within the period covered by T.O. 2222, petitione
station in Iloilo and given another assignment which was covered by T.O. 2268. The dispute aro
failed to return P1,230.00 out of the cash advance which he received under T.O. 2222. For the
to return the amount of P1,230.00, he was charged with the crime of Estafa under Article 31
Penal Code, which reads as follows:
"Art. 315. Swindling (Estafa). Any person who shall defraud another by any of the means ment
punished by:
xxx xxx xxx
"1. With unfaithfulness or abuse of confidence, namely:
(a) . . .
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other
by the offender in trust or on commission, or for administration, or under any other obligation
delivery of; or to return, the same, even though such obligation be totally or partially guarantee
having received such money, goods, or other property."
In order that a person can be convicted under the abovequoted provision, it must be proven th
deliver or return the same money, goods or personal property that he had received. 11
Was petitioner under obligation to return the same money (cash advance) which he had
Executive Order No. 10, dated 12 February 1980 provides as follows:
"B. Cash Advance for Travel.
xxx xxx xxx
"4. All cash advances must be liquidated within 30 days after date of projected return of the person. Otherwise,
corresponding salary deduction shall be made immediately following the expiration day."
Liquidation simply means the settling of an indebtedness. An employee, such as herein petitioner, who liquidates a cash
advance is in fact paying back his debt in the form of a loan of money advanced to him by his employer, as per diems and
allowances. Similarly, as stated in the assailed decision of the lower court, "if the amount of the cash advance he received
is less than the amount he spent for actual travel . . . he has the right to demand reimbursement from his employer the
amount he spent coming from his personal funds." 12 In other words, the money advanced by either party is actually a loan
to the other. Hence, petitioner was under no legal obligation to return the same cash or money, i.e., the bills or coins, which
he received from the private respondent. 13
Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan. LexLib
"Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter
may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other
consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the
borrower."
"Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality."
The ruling of the trial judge that ownership of the cash advanced to the petitioner by private respondent was not transferred
to the latter is erroneous. Ownership of the money was transferred to the petitioner. Even the prosecution witness, Virgilio
Hierro, testified thus:
"Q When you gave cash advance to the accused in this Travel Order No. 2222 subject to liquidation, who owns the funds,
accused or SEAFDEC? How do you consider the funds in the possession of the accused at the time when there is an
actual transfer of cash? . . .
A The one drawing cash advance already owns the money but subject to liquidation. If he will not liquidate, he is obliged
to return the amount.
Q...
So why do you treat the itinerary of travel temporary when in fact as of that time the accuse
advance. You said the cash advance given to the accused is his own money. In other words, a
the money it belongs already to the accused?
A Yes, but subject for liquidation. He will be only entitled for that credence if he liquidates.
Q If other words, it is a transfer of ownership subject to a suspensive condition that he liqu
advance upon return to station and completion of the travel?
A Yes, sir.
(pp. 26-28, tsn, May 8, 1985)." 14
Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary relatio
this fiduciary relationship between petitioner and private respondent, which is an essential ele
by misappropriation or conversion, petitioner could not have committed estafa. 15
Additionally, it has been the policy of private respondent that all cash advances not liqui
correspondingly from the salary of the employee concerned. The evidence shows that the corr
was made in the case of petitioner vis-a-vis the cash advance in question.
WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court i
Case No. 628, finding petitioner guilty of estafa under Article 315, par. 1 (b) of the Revised Pe
decision of the Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No. 20958, pr
are both hereby SET ASIDE. Petitioner is ACQUITTED of the criminal charges filed against him
SO ORDERED.
||| (Yong Chan Kim v. People, G.R. No. 84719, [January 25, 1991], 271 PHIL 362-372)
9. PNB v. CA, et al., G.R. No. 109563, July 9, 1996
[G.R. No. 109563. July 9, 1996.]
PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS, MARIA AMOR BASCOS
respondents.
Marciano S. Bascos for private respondents.
SYLLABUS
1. CIVIL LAW; CONTRACTS; LOAN; RATE OF INTEREST; ESCALATION CLAUSE; THE CA'S
ESCALATION CLAUSE IN A PROMISSORY NOTE WHICH FAILED TO PROVIDE FOR A DE
CORRECT, BECAUSE SUCH FAILURE MADE THE ESCALATION CLAUSE SO ONE-
UNREASONABLE. PNB's argument rests on a misapprehension of the import of the appella
of Appeals nullified the interest rate increases not because the promissory note did not comply with P.D. No. 1684 by
providing for a de-escalation, but because the absence of such provision made the clause so one-sided as to make it
unreasonable. That ruling is correct. It is in line with our decision in Banco Filipino Savings & Mortgage Bank v. Navarro
that although P.D. 1684 is not to be retroactively applied to loans granted before its effectivity, there must nevertheless be
a de-escalation clause to mitigate the one-sidedness of the escalation clause. Indeed because of concern for the unequal
status of borrowers vis-a-vis the banks, our cases after Banco Filipino have fashioned the rule that any increase in the rate
of interest made pursuant to an escalation clause must be the result of agreement between the parties. Thus in Philippine
National Bank v. Court of Appeals, two promissory notes authorized PNB to increase the stipulated interest per annum
"within the limits allowed by law at any time depending on whatever policy [PNB] may adopt in the future; Provided, that
the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is
reduced by law or by the Monetary Board." This Court declared the increases unilaterally imposed by PNB to be in violation
of the principle of mutuality as embodied in Art. 1308 of the Civil Code, which provides that "[t]he contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them."
2. ID.; USURY LAW; C.B. CIRCULAR 905; SAID CIRCULAR DOES NOT GRANT A LENDING BANK UNRESTRICTED
AUTHORITY TO RAISE INTEREST LEVEL. Only recently we invalidated another round of interest increases decreed
by PNB pursuant to a similar agreement it had with other borrowers: "[W]hile the Usury Law ceiling on interest rates was
lifted by C.B. Circular 905, nothing in the said circular could possibly be read as granting respondent bank carte blanche
authority to raise interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their assets."
DECISION
MENDOZA, J p:
This is a petition seeking review of the decision dated August 10, 1992, 1 of the Eighth Division of the Court of Appeals
and its resolution dated March 25, 1993, 2 both rendered in CA-G.R. CV No. 27653, which affirmed the decision of the
Regional Trial Court (RTC) of San Jose City (Branch 38).
The facts are as follows:
On June 4, 1979, private respondent spouses Maria Amor and Marciano Bascos obtained a loan from the Philippine
National Bank in the amount of P15,000.00 evidenced by a promissory note and secured by a real estate mortgage.
The promissory note contained the following stipulation: 3
For value received, I/we, [private respondents] jointly and severally promise to pay to the ORDER of the PHILIPPINE
NATIONAL BANK, at its office in San Jose City, Philippines, the sum of FIFTEEN THOUSAND ONLY (P15,000.00),
Philippine Currency, together with interest thereon at the rate of 12 % per annum until paid, which interest rate the Bank
may at any time without notice, raise within the limits allowed by law, and I/we also agree to pay jointly and severally ____%
per annum penalty charge, by way of liquidated damages should this note be unpaid or is not renewed on due date.
Payment of this note shall be as follows:
*THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE
On the reverse side of the note the following condition was stamped: 4
All short-term loans to be granted starting January 1, 1978 shall be made subject to the co
extensions hereof that will leave any portion of the amount still unpaid after 730 days shal
outstanding balance into a medium or long-term obligation as the case may be and give the B
interest rates prescribed under its policies from the date the account was originally granted.
To secure payment of the loan the parties executed a real estate mortgage contract which prov
(k) INCREASE OF INTEREST RATE:
The rate of interest charged on the obligation secured by this mortgage as well as the interes
have been advanced by the MORTGAGEE, in accordance with the provision hereof, shall be s
contract to such an increase within the rate allowed by law, as the Board of Directors of the MO
for its debtors.
On December 12, 1980, PNB extended the period of payment of the loan to June 5, 1981, thus
short-term to a medium-term loan, i.e., a loan which matured over two to five years. 6 PNB
interest per annum, first to 14%, effective December 1, 1979; 7 then to 22% effective Febr
effective June 20, 1983; 9 to 23% from November 2, 1983; 10 to 25% effective March 2, 1984
April 10, 1984. 12
Because private respondents defaulted in paying their obligation, the Provincial Sheriff of N
extrajudicial foreclosure of the mortgage on June 15, 1984 to pay private respondents' indebt
PNB, had increased from P15,000.00 to P35,125.84, plus 28% annual interest. 13
Private respondents brought suit against PNB, its Branch Manager Jetro Godoy, and the Prov
Numeriano Y. Galang (1) for a declaration of nullity of C.B. Monetary Board Resolution No. 2126
(embodied in C.B. Circular No. 705 dated December 1, 1979), which increased the ceiling on
and unsecured loans to 16% per annum and 14% per annum, respectively, on the ground that
Law, good morals, public policy, customs and traditions, social justice, due process and the eq
Constitution; and (2) for a declaration that the interest rate increases on their loan were contr
Code which provides that interest due and unpaid shall not earn interest. Pending final determ
respondents asked that the auction sale be enjoined.
PNB filed an answer with compulsory counterclaim. It alleged that private respondents had no c
a of the Usury Law, as amended by P.D. No. 1684, did not limit the number of times the inter
that private respondents were estopped from questioning the increases because they failed t
asked that the complaint be dismissed and that private respondents be ordered to pay P35,125
10, 1984, until the obligation was fully paid, attorney's fees and moral damages in such amoun
the court.
On June 13, 1984 private respondents deposited with the clerk of court P8,000.00 14 and on Ja
15 in partial payment of their loan.
On June 15, 1990, the RTC rendered a decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1. There having [sic] no evidence against the defendants Jetro Godoy, and the Provincial Sheriff of Nueva Ecija, Numeriano
Galang, the case against them is dismissed;
2. The increase in interest rates based on the escalation clauses in the Promissory Note and the Real Estate Mortgage,
par. K, being contrary to Sec. 3, P.D. No. 116 are declared null and void, that henceforth, the defendant PNB is hereby
directed to desist from enforcing the increased rate of interest more than TWELVE (12%) per cent on plaintiffs' loan;
3. The compulsory counterclaim of the defendants is also dismissed;
4. On the other hand, the plaintiffs can settle their unpaid obligation with the defendant PNB at the interest rate of TWELVE
(12%) per cent per annum computed from the inception of the loan until the same is fully paid; advances made by the PNB
for insurance premiums and penalties added; and the P10,000.00 paid to and defendant bank to be credited as payment
by the plaintiffs;
5. Plaintiffs' claim for damages is, likewise, dismissed; and
6. The parties shall each bear out [sic] the expenses incurred by them.
SO ORDERED.
The RTC invalidated the stipulations in the promissory note and the real estate mortgage, which authorized PNB to increase
the interest rate, on the ground that there was no corresponding stipulation that the interest rate would be reduced in the
event the law reduced the applicable maximum rate as provided under P.D. No. 1684; that P.D. No. 116, which sets a
ceiling of 12% interest on secured loans, is a "law," which should prevail over Circular No. 705, used by PNB to increase
the interest; that collection of the increased interest sanctions unjust enrichment contrary to Art. 22 of the Civil Code; and
that the promissory note and real estate mortgage contracts of adhesion which should be interpreted in favor of private
respondents.
PNB appealed. However, the Court of Appeals affirmed the trial court's decision. The appellate court held that the escalation
clause in the promissory note could not be given effect because of the absence of a provision for a de-escalation in the
event a reduction of interest was ordered by law. In addition it held that pursuant to the escalation clause any increase in
interest must be within "the limits allowed by law" but C.B. circulars, on the basis of which PNB increased the interest, could
not be considered "laws."
PNB moved for a reconsideration. As its motion was denied, it filed this petition. PNB's argument is that the Court of
Appeals erred in applying 2 of P.D. No. 1684, which makes the validity of an escalation clause turn on the presence of a
de-escalation clause, to the promissory note and the real estate mortgage in this case. PNB contends that the two had
been executed on June 4, 1979, before the effectivity of P.D. No. 1684 on March 17, 1980.
To begin with, PNB's argument rests on a misapprehension of the import of the appellate c
Appeals nullified the interest rate increases not because the promissory note did not comply with
for a de-escalation, but because the absence of such provision made the clause so one-sided a
That ruling is correct. It is in line with our decision in Banco Filipino Savings & Mortgage Bank
P.D. 1684 is not to be retroactively applied to loans granted before its effectivity, there must neve
clause to mitigate the one-sideness of the escalation clause. Indeed because of concern for the
vis-a-vis the banks, our cases after Banco Filipino have fashioned the rule that any increase
pursuant to an escalation clause must be the result of agreement between the parties.
Thus in Philippine National Bank v. Court of Appeals, 17 two promissory notes authorized PN
interest per annum "within the limits allowed by law at any time depending on whatever poli
future; Provided, that the interest rate on this note shall be correspondingly decreased in th
maximum interest rate is reduced by law or by the Monetary Board." The real estate mortgage
The rate of interest charged on the obligation secured by this mortgage as well as the interes
have been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be s
contract to such an increase within the rate allowed by law, as the Board of Directors of the MO
for its debtors.
Pursuant to these clauses, PNB successively increased the interest from 18% to 32%, then to
Court declared the increases unilaterally imposed by PNB to be in violation of the principle of m
1308 of the Civil Code, which provides that "[t]he contract must bind both contracting parties
cannot be left to the will of one of them." As the Court explained: 18
In order that obligations arising from contracts may have the force of law between the partie
between the parties based on their essential equality. A contract containing a condition w
dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garc
SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB
gave the PNB a license (although in fact there was none) to increase the interest rate at will
that license would have been null and void for being violative of the principle of mutuality ess
have invested the loan agreement with the character of a contract of adhesion, where the part
footing, the weaker party's (the debtor) participation being reduced to the alternative "to take
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker part
must protect against abuse and imposition.
A similar ruling was made in Philippine National Bank v. Court of Appeals. 19 The credit agree
The BANK reserves the right to increase the interest rate within the limits allowed by law at any t
policy it may adopt in the future: Provided, that the interest rate on this accommodation shall be
in the event that the applicable maximum interest is reduced by law or by the Monetary Board
As in the first case, PNB successively increased the stipulated interest so that what was original
after only two years, 42%. In declaring the increases invalid, we held: 20
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to unilaterally
upwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the
right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts.
Only recently we invalidated another round of interest increases decreed by PNB pursuant to a similar agreement it had
with other borrowers: 21
[W]hile the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said circular could possibly be
read as granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its
borrowers or lead to a hemorrhaging of their assets.
In this case no attempt was made by PNB to secure the conformity of private respondents to the successive increases in
the interest rate. Private respondents' assent to the increases cannot be implied from their lack of response to the letters
sent by PNB, informing them of the increases. For as stated in one case, 22 no one receiving a proposal to change a
contract is obliged to answer the proposal.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
||| (Philippine National Bank v. Court of Appeals, G.R. No. 109563, [July 9, 1996], 328 PHIL 54-63)
10. Sps. Sitos v. PNB, G.R. No. 181045, July 2, 2014
[G.R. No. 181045. July 2, 2014.]
SPOUSES EDUARDO and LYDIA SILOS, petitioners, vs. PHILIPPINE NATIONAL BANK, respondent.
DECISION
DEL CASTILLO, J p:
In loan agreements, it cannot be denied that the rate of interest is a principal condition, if not the most important component.
Thus, any modification thereof must be mutually agreed upon; otherwise, it has no binding effect. Moreover, the Court
cannot consider a stipulation granting a party the option to prepay the loan if said party is not agreeable to the arbitrary
interest rates imposed. Premium may not be placed upon a stipulation in a contract which grants one party the right to
choose whether to continue with or withdraw from the agreement if it discovers that what the other party has been doing
all along is improper or illegal. ADEHTS
This Petition for Review on Certiorari 1 questions the May 8, 2007 Decision 2 of the Court of Appeals (CA) in CA-G.R. CV
No. 79650, which affirmed with modifications the February 28, 2003 Decision 3 and the June 4, 2003 Order 4 of the
Regional Trial Court (RTC), Branch 6 of Kalibo, Aklan in Civil Case No. 5975.
Factual Antecedents
Spouses Eduardo and Lydia Silos (petitioners) have been in business for about two decades
store and buying and selling of ready-to-wear apparel. Respondent Philippine National Bank (PN
organized and existing under Philippine laws.
To secure a one-year revolving credit line of P150,000.00 obtained from PNB, petitioners co
Real Estate Mortgage 5 over a 370-square meter lot in Kalibo, Aklan covered by Transfer Cer
14250. In July 1988, the credit line was increased to P1.8 million and the mortgage was corresp
million. 6 And in July 1989, a Supplement to the Existing Real Estate Mortgage 7 was execute
line, which was increased to P2.5 million, and additional security was given in the form of a 13
by TCT T-16208. In addition, petitioners issued eight Promissory Notes 8 and signed a Credit A
Credit Agreement contained a stipulation on interest which provides as follows: EHScCA
1.03.Interest (a) The Loan shall be subject to interest at the rate of 19.5% per annum. Interest s
every one hundred twenty days at the rate prevailing at the time of the renewal.
(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending o
may adopt in the future, including without limitation, the shifting from the floating interest rate
rate system, or vice versa. Where the Bank has imposed on the Loan interest at a rate per an
Bank's spread over the current floating interest rate, the Borrower hereby agrees that the Bank
to the Borrower, increase or decrease its spread over the floating interest rate at any time depe
may adopt in the future. 10 (Emphases supplied)
The eight Promissory Notes, on the other hand, contained a stipulation granting PNB the right to
rates "within the limits allowed by law or by the Monetary Board." 11 The Real Estate Mortga
same right to increase or reduce interest rates "at any time depending on whatever policy PN
12
Petitioners religiously paid interest on the notes at the following rates:
1. 1st Promissory Note dated July 24, 1989 19.5%;
2. 2nd Promissory Note dated November 22, 1989 23%;
3. 3rd Promissory Note dated March 21, 1990 22%;
4. 4th Promissory Note dated July 19, 1990 24%;
5. 5th Promissory Note dated December 17, 1990 28%;
6. 6th Promissory Note dated February 14, 1991 32%;
7. 7th Promissory Note dated March 1, 1991 30%; and
8. 8th Promissory Note dated July 11, 1991 24%. 13
In August 1991, an Amendment to Credit Agreement 14 was executed by the parties, with the following stipulation regarding
interest: The 9th up to the 17th promissory notes provide for the payment of interest at the "rate the Ba
notice, raise within the limits allowed by law . . . ." 17 On the other hand, the 18th up to the
1.03.Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of each Availment including PN 9707237, which is the 26th promissory note carried the following provision:
up to but not including the date of full payment thereof at the rate per annum which is determined by the Bank to be prime
rate plus applicable spread in effect as of the date of each Availment. 15 (Emphases supplied) SAHIaD . . . For this purpose, I/We agree that the rate of interest herein stipulated may be increased or de
Interest Periods, with prior notice to the Borrower in the event of changes in interest rate prescr
Under this Amendment to Credit Agreement, petitioners issued in favor of PNB the following 18 Promissory Notes, which Board of the Central Bank of the Philippines, or in the Bank's overall cost of funds. I/We hereby
petitioners settled except the last (the note covering the principal) at the following interest rates: are not agreeable to the interest rate fixed for any Interest Period, I/we shall have the option
facility without penalty within ten (10) calendar days from the Interest Setting Date. 18 (Empha
1. 9th Promissory Note dated November 8, 1991 26%;
Respondent regularly renewed the line from 1990 up to 1997, and petitioners made good
2. 10th Promissory Note dated March 19, 1992 25%; religiously paying the interests without objection or fail. But in 1997, petitioners faltered when th
to the Asian financial crisis. Petitioners' sole outstanding promissory note for P2.5 million PN
3. 11th Promissory Note dated July 11, 1992 23%; 1997 and due 120 days later or on October 28, 1997 became past due, and despite repe
failed to make good on the note.
4. 12th Promissory Note dated November 10, 1992 21%;
Incidentally, PN 9707237 provided for the penalty equivalent to 24% per annum in case of defa
5. 13th Promissory Note dated March 15, 1993 21%;
Without need for notice or demand, failure to pay this note or any installment thereon, when d
6. 14th Promissory Note dated July 12, 1993 17.5%; and in such cases or in case of garnishment, receivership or bankruptcy or suit of any kind filed
the outstanding principal of this note, at the option of the Bank and without prior notice of
7. 15th Promissory Note dated November 17, 1993 21%; become due and payable and shall be subject to a penalty charge of twenty four percent (24%
defaulted principal amount. . . . 19 (Emphasis supplied)
8. 16th Promissory Note dated March 28, 1994 21%;
PNB prepared a Statement of Account 20 as of October 12, 1998, detailing the amount d
9. 17th Promissory Note dated July 13, 1994 21%; petitioners in the total amount of P3,620,541.60, broken down as follows:

10. 18th Promissory Note dated November 16, 1994 16%; Principal
P2,500,000.00
11. 19th Promissory Note dated April 10, 1995 21%; Interest
538,874.94
12. 20th Promissory Note dated July 19, 1995 18.5%; Penalties
581,666.66
13. 21st Promissory Note dated December 18, 1995 18.75%;

14. 22nd Promissory Note dated April 22, 1996 18.5%; Total
P3,620,541.60
15. 23rd Promissory Note dated July 22, 1996 18.5%;
============
16. 24th Promissory Note dated November 25, 1996 18%;

17. 25th Promissory Note dated May 30, 1997 17.5%; and Despite demand, petitioners failed to pay the foregoing amount. Thus, PNB foreclosed on the
14, 1999, TCTs T-14250 and T-16208 were sold to it at auction for the amount of P4,324,172.96
18. 26th Promissory Note (PN 9707237) dated July 30, 1997 25%. 16 of sale was registered on March 11, 1999. SDIaCT

More than a year later, or on March 24, 2000, petitioners filed Civil Case No. 5975, seeking annulment of the foreclosure
sale and an accounting of the PNB credit. Petitioners theorized that after the first promissory note where they agreed to
pay 19.5% interest, the succeeding stipulations for the payment of interest in their loan agreements with PNB which
allegedly left to the latter the sole will to determine the interest rate became null and void. Petitioners added that because
the interest rates were fixed by respondent without their prior consent or agreement, these rates are void, and as a result,
petitioners should only be made liable for interest at the legal rate of 12%. They claimed further that they overpaid interests
on the credit, and concluded that due to this overpayment of steep interest charges, their debt should now be deemed paid,
and the foreclosure and sale of TCTs T-14250 and T-16208 became unnecessary and wrongful. As for the imposed penalty
of P581,666.66, petitioners alleged that since the Real Estate Mortgage and the Supplement thereto did not include
penalties as part of the secured amount, the same should be excluded from the foreclosure amount or bid price, even if
such penalties are provided for in the final Promissory Note, or PN 9707237. 22
In addition, petitioners sought to be reimbursed an alleged overpayment of P848,285.00 made during the period August
21, 1991 to March 5, 1998, resulting from respondent's imposition of the alleged illegal and steep interest rates. They also
prayed to be awarded P200,000.00 by way of attorney's fees. 23
In its Answer, 24 PNB denied that it unilaterally imposed or fixed interest rates; that petitioners agreed that without prior
notice, PNB may modify interest rates depending on future policy adopted by it; and that the imposition of penalties was
agreed upon in the Credit Agreement. It added that the imposition of penalties is supported by the all-inclusive clause in
the Real Estate Mortgage agreement which provides that the mortgage shall stand as security for any and all other
obligations of whatever kind and nature owing to respondent, which thus includes penalties imposed upon default or non-
payment of the principal and interest on due date.
On pre-trial, the parties mutually agreed to the following material facts, among others:
a) That since 1991 up to 1998, petitioners had paid PNB the total amount of P3,484,287.00; 25 and
b) That PNB sent, and petitioners received, a March 10, 2000 demand letter. 26
During trial, petitioner Lydia Silos (Lydia) testified that the Credit Agreement, the Amendment to Credit Agreement, Real
Estate Mortgage and the Supplement thereto were all prepared by respondent PNB and were presented to her and her
husband Eduardo only for signature; that she was told by PNB that the latter alone would determine the interest rate; that
as to the Amendment to Credit Agreement, she was told that PNB would fill up the interest rate portion thereof; that at the
time the parties executed the said Credit Agreement, she was not informed about the applicable spread that PNB would
impose on her account; that the interest rate portion of all Promissory Notes she and Eduardo issued were always left in
blank when they executed them, with respondent's mere assurance that it would be the one to enter or indicate thereon
the prevailing interest rate at the time of availment; and that they agreed to such arrangement. She further testified that the
two Real Estate Mortgage agreements she signed did not stipulate the payment of penalties; that she and Eduardo
consulted with a lawyer, and were told that PNB's actions were improper, and so on March 20, 2000, they wrote to the
latter seeking a recomputation of their outstanding obligation; and when PNB did not oblige, they instituted Civil Case No.
5975. 27
On cross-examination, Lydia testified that she has been in business for 20 years; that she also borrowed from other
individuals and another bank; that it was only with banks that she was asked to sign loan documents with no indicated
interest rate; that she did not bother to read the terms of the loan documents which she sig
several PNB statements of account detailing their outstanding obligations, but she did not co
instead that what was written therein is correct. 28
For his part, PNB Kalibo Branch Manager Diosdado Aspa, Jr. (Aspa), the sole witness for re
examination that as a practice, the determination of the prime rates of interest was the res
Treasury Department which is based in Manila; that these prime rates were simply communica
implementation; that there are a multitude of considerations which determine the interest rate,
foreign currency values, PNB's spread, bank administrative costs, profitability, and the practice
in every repricing of each loan availment, the borrower has the right to question the rates, but th
petitioners; and that anything that is not found in the Promissory Note may be supplemented b
Ruling of the Regional Trial Court
On February 28, 2003, the trial court rendered judgment dismissing Civil Case No. 5975. 30 It
1. While the Credit Agreement allows PNB to unilaterally increase its spread over the floatin
depending on whatever policy it may adopt in the future, it likewise allows for the decrease at a
such stipulation authorizing both the increase and decrease of interest rates as may be applica
in Consolidated Bank and Trust Corporation (SOLIDBANK) v. Court of Appeals; 32
2. Banks are allowed to stipulate that interest rates on loans need not be fixed and instead be ma
rates upon which to peg such variable interest rates; 33
3. The Promissory Note, as the principal contract evidencing petitioners' loan, prevails over the
Real Estate Mortgage. As such, the rate of interest, penalties and attorney's fees stipulated in t
over those mentioned in the Credit Agreement and the Real Estate Mortgage agreements; 34
4. Roughly, PNB's computation of the total amount of petitioners' obligation is correct; 35
5. Because the loan was admittedly due and demandable, the foreclosure was regularly made
6. By the admission of petitioners during pre-trial, all payments made to PNB were properly app
and penalties. 37
The dispositive portion of the trial court's Decision reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the respondent and
DISMISSING the latter's petition.
Costs against the petitioners.
SO ORDERED. 38
Petitioners moved for reconsideration. In an Order 39 dated June 4, 2003, the trial court granted only a modification in the
award of attorney's fees, reducing the same from 10% to 1%. Thus, PNB was ordered to refund to petitioner the excess in
attorney's fees in the amount of P356,589.90, viz.:
WHEREFORE, judgment is hereby rendered upholding the validity of the interest rate charged by the respondent as well
as the extra-judicial foreclosure proceedings and the Certificate of Sale. However, respondent is directed to refund to the
petitioner the amount of P356,589.90 representing the excess interest charged against the latter.
No pronouncement as to costs.
SO ORDERED. 40
Ruling of the Court of Appeals
Petitioners appealed to the CA, which issued the questioned Decision with the following decretal portion:
WHEREFORE, in view of the foregoing, the instant appeal is PARTLY GRANTED. The modified Decision of the Regional
Trial Court per Order dated June 4, 2003 is hereby AFFIRMED with MODIFICATIONS, to wit:
1. [T]hat the interest rate to be applied after the expiration of the first 30-day interest period for PN. No. 9707237 should be
12% per annum;
2. [T]hat the attorney's fees of 10% is valid and binding; and IDEHCa
3. [T]hat [PNB] is hereby ordered to reimburse [petitioners] the excess in the bid price of P377,505.99 which is the difference
between the total amount due [PNB] and the amount of its bid price.
SO ORDERED. 41
On the other hand, respondent did not appeal the June 4, 2003 Order of the trial court which reduced its award of attorney's
fees. It simply raised the issue in its appellee's brief in the CA, and included a prayer for the reversal of said Order.
In effect, the CA limited petitioners' appeal to the following issues:
1) Whether . . . the interest rates on petitioners' outstanding obligation were unilaterally and arbitrarily imposed by PNB;
2) Whether . . . the penalty charges were secured by the real estate mortgage; and
3) Whether . . . the extrajudicial foreclosure and sale are valid. 42
The CA noted that, based on receipts presented by petitioners during trial, the latter dutifully paid a total of P3,027,324.60
in interest for the period August 7, 1991 to August 6, 1997, over and above the P2.5 million principal obligation. And this is
exclusive of payments for insurance premiums, documentary stamp taxes, and penalty. All the while, petitioners did not
complain nor object to the imposition of interest; they in fact paid the same religiously and without fail for seven years. The
appellate court ruled that petitioners are thus estopped from questioning the same.
The CA nevertheless noted that for the period July 30, 1997 to August 14, 1997, PNB wrongly
25.72% instead of the agreed 25%; thus it overcharged petitioners, and the latter paid, an exce
On the issue of penalties, the CA ruled that the express tenor of the Real Estate Mortgage ag
inclusion of the PN 9707237-stipulated 24% penalty in the amount to be secured by the mortga
For and in consideration of certain loans, overdrafts and other credit accommodations obtain
and to secure the payment of the same and those others that the MORTGAGEE may ext
including interest and expenses, and other obligations owing by the MORTGAGOR to the MO
or indirect, principal or secondary, as appearing in the accounts, books and records o
MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE .
The CA believes that the 24% penalty is covered by the phrase "and other obligations owin
mortgagee" and should thus be added to the amount secured by the mortgages. 44
The CA then proceeded to declare valid the foreclosure and sale of properties covered by TC
which came as a necessary result of petitioners' failure to pay the outstanding obligation upon
to increase the trial court's award of 1% to 10%, finding the latter rate to be reasonable and citin
agreement which authorized the collection of the higher rate. 46 SaCIAE
Finally, the CA ruled that petitioners are entitled to P377,505.09 surplus, which is the differenc
of P4,324,172.96 and petitioners' total computed obligation as of January 14, 1999, or the dat
amount of P3,946,667.87. 47
Hence, the present Petition.
Issues
The following issues are raised in this Petition:
I
A. THE COURT OF APPEALS AS WELL AS THE LOWER COURT ERRED IN NOT NULLIFY
PROVISION IN THE CREDIT AGREEMENT DATED JULY 24, 1989 . . . AND IN THE A
AGREEMENT DATED AUGUST 21, 1991 . . . WHICH LEFT TO THE SOLE UNILATERAL D
RESPONDENT PNB THE ORIGINAL FIXING OF INTEREST RATE AND ITS INCREASE,
CONTRARY TO LAW, ART. 1308 OF THE [NEW CIVIL CODE], AS ENUNCIATED IN PONCI
OF APPEALS, G.R. [NO.] 113412, APRIL 17, 1996, AND CONTRARY TO PUBLIC POLICY
AND IN APPLYING THE PRINCIPLE OF ESTOPPEL ARISING FROM THE ALLEGED D
PETITIONER[S], AND [THEIR] PAYMENT OF THE INTEREST CHARGED.
B. CONSEQUENTLY, THE COURT OF APPEALS AND THE LOWER COURT ERRED IN NO
IS NOT AT ALL ENTITLED TO ANY INTEREST EXCEPT THE LEGAL RATE FROM DATE O
APPLYING THE EXCESS OVER THE LEGAL RATE OF THE ADMITTED PAYMENTS MADE
1991-1998 IN THE ADMITTED TOTAL AMOUNT OF P3,484,287.00, TO PAYMENT
P2,500,000.[00] LEAVING AN OVERPAYMENT OF P984,287.00 REFUNDABLE BY RESPON
WITH INTEREST OF 12% PER ANNUM.

II
THE COURT OF APPEALS AND THE LOWER COURT ERRED IN HOLDING THAT PENALTIES ARE INCLUDED IN
THE SECURED AMOUNT, SUBJECT TO FORECLOSURE, WHEN NO PENALTIES ARE MENTIONED [NOR]
PROVIDED FOR IN THE REAL ESTATE MORTGAGE AS A SECURED AMOUNT AND THEREFORE THE AMOUNT OF
PENALTIES SHOULD HAVE BEEN EXCLUDED FROM [THE] FORECLOSURE AMOUNT. IHEDAT
III
THE COURT OF APPEALS ERRED IN REVERSING THE RULING OF THE LOWER COURT, WHICH REDUCED THE
ATTORNEY'S FEES OF 10% OF THE TOTAL INDEBTEDNESS CHARGED IN THE . . . EXTRAJUDICIAL
FORECLOSURE TO ONLY 1%, AND [AWARDING] 10% ATTORNEY'S FEES. 48
Petitioners' Arguments
Petitioners insist that the interest rate provision in the Credit Agreement and the Amendment to Credit Agreement should
be declared null and void, for they relegated to PNB the sole power to fix interest rates based on arbitrary criteria or factors
such as bank policy, profitability, cost of money, foreign currency values, and bank administrative costs; spaces for interest
rates in the two Credit Agreements and the promissory notes were left blank for PNB to unilaterally fill, and their consent
or agreement to the interest rates imposed thereafter was not obtained; the interest rate, which consists of the prime rate
plus the bank spread, is determined not by agreement of the parties but by PNB's Treasury Department in Manila.
Petitioners conclude that by this method of fixing the interest rates, the principle of mutuality of contracts is violated, and
public policy as well as Circular 905 49 of the then Central Bank had been breached.
Petitioners question the CA's application of the principle of estoppel, saying that no estoppel can proceed from an illegal
act. Though they failed to timely question the imposition of the alleged illegal interest rates and continued to pay the loan
on the basis of these rates, they cannot be deemed to have acquiesced, and hence could recover what they erroneously
paid. 50
Petitioners argue that if the interest rates were nullified, then their obligation to PNB is deemed extinguished as of July
1997; moreover, it would appear that they even made an overpayment to the bank in the amount of P984,287.00.
Next, petitioners suggest that since the Real Estate Mortgage agreements did not include nor specify, as part of the secured
amount, the penalty of 24% authorized in PN 9707237, such amount of P581,666.66 could not be made answerable by or
collected from the mortgages covering TCTs T-14250 and T-16208. Claiming support from Philippine Bank of
Communications [PBCom] v. Court of Appeals, 51 petitioners insist that the phrase "and other obligations owing by the
mortgagor to the mortgagee" 52 in the mortgage agreements cannot embrace the P581,666.66 penalty, because, as held
in the PBCom case, "[a] penalty charge does not belong to the species of obligations enumerated in the mortgage, hence,
the said contract cannot be understood to secure the penalty"; 53 while the mortgages are the accessory contracts, what
items are secured may only be determined from the provisions of the mortgage contracts, and not from the Credit
Agreement or the promissory notes.
Finally, petitioners submit that the trial court's award of 1% attorney's fees should be maintained, given that in foreclosures,
a lawyer's work consists merely in the preparation and filing of the petition, and involves minimal study. 54 To allow the
imposition of a staggering P396,211.00 for such work would be contrary to equity. Petitioners state that the purpose of
attorney's fees in cases of this nature "is not to give respondent a larger compensation for th
allows, but to protect it against any future loss or damage by being compelled to retain coun
proceedings for the collection of its credit." 55 And because the instant case involves a simp
attorney's fees may be equitably tempered.
Respondent's Arguments
For its part, respondent disputes petitioners' claim that interest rates were unilaterally fixed b
pronouncement that petitioners are deemed estopped by their failure to question the impose
payment thereof without opposition. It adds that because the Credit Agreement and promisso
escalation clause and a de-escalation clause, it may not be said that the bank violated the prin
the increase or decrease in interest rates have been mutually agreed upon by the parties
continuous payment without protest. Respondent adds that the alleged unilateral imposition of i
subject for review by the Court because the issue was never raised in the lower court.
As for petitioners' claim that interest rates imposed by it are null and void for the reasons tha
and the promissory notes were signed in blank; 2) interest rates were at short periods; 3) no inte
where no agreement on interest rates was made in writing; 4) PNB fixed interest rates on the ba
standards left to its choosing; and 5) interest rates based on prime rate plus applicable spr
arbitrary PNB counters:
a. That Credit Agreements and promissory notes were signed by petitioner[s] in blank Respo
was never raised in the lower court. Besides, documentary evidence prevails over testimo
testimony in this regard is self-serving, unsupported and uncorroborated, and for being the lo
The fact remains that these documents are in proper form, presumed regular, and endure, agai
who is an experienced business person that she signed questionable loan documents w
rates were left blank, and yet she continued to pay the interests without protest for a number o
b. That interest rates were at short periods Respondent argues that the law which govern
interest rates made more than once every twelve months has been removed 57 with the issua
No. 858. 58
c. That no interest rates could be charged where no agreement on interest rates was made in
1956 of the Civil Code,which provides that no interest shall be due unless it has been expre
Respondent insists that the stipulated 25% per annum as embodied in PN 9707237 should be
or the period after the loan became due and while it remains unpaid, and not the legal inte
petitioners. 59
d. That PNB fixed interest rates on the basis of arbitrary policies and standards left to its
respondent, interest rates were fixed taking into consideration increases or decreases as
Monetary Board, the bank's overall costs of funds, and upon agreement of the parties. 60
e. That interest rates based on prime rate plus applicable spread are indeterminate and
respondent submits there are various factors that influence interest rates, from political events
etc.; the cost of money, profitability and foreign currency transactions may not be discounted. 6
On the issue of penalties, respondent reiterates the trial court's finding that during pre-trial, petitioners admitted that the
Statement of Account as of October 12, 1998 which detailed and included penalty charges as part of the total outstanding
obligation owing to the bank was correct. Respondent justifies the imposition and collection of a penalty as a normal
banking practice, and the standard rate per annum for all commercial banks, at the time, was 24%. Respondent adds that
the purpose of the penalty or a penal clause for that matter is to ensure the performance of the obligation and substitute
for damages and the payment of interest in the event of non-compliance. 62 And the promissory note being the principal
agreement as opposed to the mortgage, which is a mere accessory should prevail. This being the case, its inclusion as
part of the secured amount in the mortgage agreements is valid and necessary.
Regarding the foreclosure of the mortgages, respondent accuses petitioners of pre-empting consolidation of its ownership
over TCTs T-14250 and T-16208; that petitioners filed Civil Case No. 5975 ostensibly to question the foreclosure and sale
of properties covered by TCTs T-14250 and T-16208 in a desperate move to retain ownership over these properties,
because they failed to timely redeem them.
Respondent directs the attention of the Court to its petition in G.R. No. 181046, 63 where the propriety of the CA's ruling
on the following issues is squarely raised:
1. That the interest rate to be applied after the expiration of the first 30-day interest period for PN 9707237 should be 12%
per annum; and
2. That PNB should reimburse petitioners the excess in the bid price of P377,505.99 which is the difference between the
total amount due to PNB and the amount of its bid price.
Our Ruling
The Court grants the Petition.
Before anything else, it must be said that it is not the function of the Court to re-examine or re-evaluate evidence adduced
by the parties in the proceedings below. The rule admits of certain well-recognized exceptions, though, as when the lower
courts' findings are not supported by the evidence on record or are based on a misapprehension of facts, or when certain
relevant and undisputed facts were manifestly overlooked that, if properly considered, would justify a different conclusion.
This case falls within such exceptions.
The Court notes that on March 5, 2008, a Resolution was issued by the Court's First Division denying respondent's petition
in G.R. No. 181046, due to late filing, failure to attach the required affidavit of service of the petition on the trial court and
the petitioners, and submission of a defective verification and certification of non-forum shopping. On June 25, 2008, the
Court issued another Resolution denying with finality respondent's motion for reconsideration of the March 5, 2008
Resolution. And on August 15, 2008, entry of judgment was made. This thus settles the issues, as above-stated, covering
a) the interest rate or 12% per annum that applies upon expiration of the first 30 days interest period provided under
PN 9707237, and b) the CA's decree that PNB should reimburse petitioner the excess in the bid price of P377,505.09.
It appears that respondent's practice, more than once proscribed by the Court, has been carried over once more to the
petitioners. In a number of decided cases, the Court struck down provisions in credit documents issued by PNB to, or
required of, its borrowers which allow the bank to increase or decrease interest rates "within the limits allowed by law at
any time depending on whatever policy it may adopt in the future." Thus, in Philippine National Bank v. Court of Appeals,
64 such stipulation and similar ones were declared in violation of Article 1308 65 of the Civil Code.In a second case,
Philippine National Bank v. Court of Appeals, 66 the very same stipulations found in the
promissory notes prepared and issued by the respondent were again invalidated. The Court th
The Credit Agreement provided inter alia, that
(a) The BANK reserves the right to increase the interest rate within the limits allowed by law
whatever policy it may adopt in the future; Provided, that the interest rate on this accommodati
decreased in the event that the applicable maximum interest is reduced by law or by the Mon
the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the i
maximum interest rate.
The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time
stipulated rate of 12% but only "within the limits allowed by law."
The Real Estate Mortgage contract likewise provided that
(k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation secured b
the interest on the amount which may have been advanced by the MORTGAGEE, in accordanc
shall be subject during the life of this contract to such an increase within the rate allowed by law
of the MORTGAGEE may prescribe for its debtors.
xxx xxx xxx
In making the unilateral increases in interest rates, petitioner bank relied on the escalation clau
agreement which provides, as follows: TDaAHS
The Bank reserves the right to increase the interest rate within the limits allowed by law at any ti
policy it may adopt in the future and provided, that, the interest rate on this accommodatio
decreased in the event that the applicable maximum interest rate is reduced by law or by the
case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of
maximum interest rate.
This clause is authorized by Section 2 of Presidential Decree (P.D.) No. 1684 which further am
Usury Law"), as amended, thus:
Section 2. The same Act is hereby amended by adding a new section after Section 7, to read a
Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or cr
rate of interest agreed upon may be increased in the event that the applicable maximum rate
law or by the Monetary Board; Provided, That such stipulation shall be valid only if there
agreement that the rate of interest agreed upon shall be reduced in the event that the applicab
is reduced by law or by the Monetary Board; Provided further, That the adjustment in the rate o
take effect on or after the effectivity of the increase or decrease in the maximum rate of interes
Section 1 of P.D. No. 1684 also empowered the Central Bank's Monetary Board to prescribe the maximum rates of interest
for loans and certain forbearances. Pursuant to such authority, the Monetary Board issued Central Bank (C.B.) Circular
No. 905, series of 1982, Section 5 of which provides:
Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other Financial Intermediaries) is hereby amended to
read as follows:
Sec. 1303. Interest and Other Charges. The rate of interest, including commissions, premiums, fees and other charges,
on any loan, or forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured,
shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding any subsequent
adjustment in the interest rate that shall accrue on a loan or forbearance of money, goods or credits. In fine, they can agree
to adjust, upward or downward, the interest previously stipulated. However, contrary to the stubborn insistence of petitioner
bank, the said law and circular did not authorize either party to unilaterally raise the interest rate without the other's consent.
It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent
of the parties. If this assent is wanting on the part of the one who contracts, his act has no more efficacy than if it had been
done under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must
meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan
contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital
venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to unilaterally
upwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the
right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. In
Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held
. . . The unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the mutuality
of contracts ordained in Article 1308 of the Civil Code:
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality
between the parties based on their essential equality. A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the contracting parties, is void . . . . Hence, even assuming that
the . . . loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was
none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being
violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of
a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation
being reduced to the alternative "to take it or leave it" . . . . Such a contract is a veritable trap for the weaker party whom
the courts of justice must protect against abuse and imposition. 67 (Emphases supplied)
Then again, in a third case, Spouses Almeda v. Court of Appeals, 68 the Court invalidated the
respondent's prepared Credit Agreement, declaring thus:
The binding effect of any agreement between parties to a contract is premised on two sett
obligation arising from contract has the force of law between the parties; and (2) that there mu
parties based on their essential equality. Any contract which appears to be heavily weighed in
so as to lead to an unconscionable result is void. Any stipulation regarding the validity or comp
is left solely to the will of one of the parties, is likewise, invalid.
It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unil
its contract with petitioners by increasing the interest rates on the loan without the prior asse
manner of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article
be due unless it has been expressly stipulated in writing." What has been "stipulated in writing
rate provision of the credit agreement signed between the parties is that petitioners were bound
subject to a possible escalation or de-escalation, when 1) the circumstances warrant such esc
within the limits allowed by law; and 3) upon agreement.
Indeed, the interest rate which appears to have been agreed upon by the parties to the contra
rate stipulated in the interest provision. Any doubt about this is in fact readily resolved by a c
agreement because the same plainly uses the phrase "interest rate agreed upon," in reference
rate. . . .
xxx xxx xxx
Petitioners never agreed in writing to pay the increased interest rates demanded by responde
the tenor of their credit agreement. That an increase in interest rates from 18% to as much
unconscionable is indisputable. Between 1981 and 1984, petitioners had paid an amount equi
entire principal (P7,735,004.66) which was applied to interest alone. By the time the spous
P40,142,518.00 in settlement of their obligations; respondent bank was demanding P58,377,48
amounts already previously paid by the spouses.
Escalation clauses are not basically wrong or legally objectionable so long as they are not sole
reasonable and valid grounds. Here, as clearly demonstrated above, not only [are] the increa
the basis of the escalation clause patently unreasonable and unconscionable, but also there a
standards upon which the increases are anchored. TcDAHS
xxx xxx xxx
In the face of the unequivocal interest rate provisions in the credit agreement and in the law re
to changes in the interest rate in writing, we hold that the unilateral and progressive increases im
were null and void. Their effect was to increase the total obligation on an eighteen million peso
three times that which was originally granted to the borrowers. That these increases, occasion
in the interest rates is unconscionable and neutralizes the salutary policies of extending loans
disputed. 69 (Emphases supplied)
Still, in a fourth case, Philippine National Bank v. Court of Appeals, 70 the above doctrine was reiterated:
The promissory note contained the following stipulation:
For value received, I/we, [private respondents] jointly and severally promise to pay to the ORDER of the PHILIPPINE
NATIONAL BANK, at its office in San Jose City, Philippines, the sum of FIFTEEN THOUSAND ONLY (P15,000.00),
Philippine Currency, together with interest thereon at the rate of 12% per annum until paid, which interest rate the Bank
may at any time without notice, raise within the limits allowed by law, and I/we also agree to pay jointly and severally ___
% per annum penalty charge, by way of liquidated damages should this note be unpaid or is not renewed on due dated.
Payment of this note shall be as follows:
*THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE
On the reverse side of the note the following condition was stamped:
All short-term loans to be granted starting January 1, 1978 shall be made subject to the condition that any and/or all
extensions hereof that will leave any portion of the amount still unpaid after 730 days shall automatically convert the
outstanding balance into a medium or long-term obligation as the case may be and give the Bank the right to charge the
interest rates prescribed under its policies from the date the account was originally granted.
To secure payment of the loan the parties executed a real estate mortgage contract which provided:
(k) INCREASE OF INTEREST RATE:
The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may
have been advanced by the MORTGAGEE, in accordance with the provision hereof, shall be subject during the life of this
contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe
for its debtors.
xxx xxx xxx
To begin with, PNB's argument rests on a misapprehension of the import of the appellate court's ruling. The Court of
Appeals nullified the interest rate increases not because the promissory note did not comply with P.D. No. 1684 by providing
for a de-escalation, but because the absence of such provision made the clause so one-sided as to make it unreasonable.
That ruling is correct. It is in line with our decision in Banco Filipino Savings & Mortgage Bank v. Navarro that although P.D.
No. 1684 is not to be retroactively applied to loans granted before its effectivity, there must nevertheless be a de-escalation
clause to mitigate the one-sidedness of the escalation clause. Indeed because of concern for the unequal status of
borrowers vis-a-vis the banks, our cases after Banco Filipino have fashioned the rule that any increase in the rate of interest
made pursuant to an escalation clause must be the result of agreement between the parties.
Thus in Philippine National Bank v. Court of Appeals, two promissory notes authorized PNB to increase the stipulated
interest per annum "within the limits allowed by law at any time depending on whatever policy [PNB] may adopt in the
future; Provided, that the interest rate on this note shall be correspondingly decreased in th
maximum interest rate is reduced by law or by the Monetary Board." The real estate mortgage
The rate of interest charged on the obligation secured by this mortgage as well as the interes
have been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be s
contract to such an increase within the rate allowed by law, as the Board of Directors of the MO
for its debtors.
Pursuant to these clauses, PNB successively increased the interest from 18% to 32%, then to
Court declared the increases unilaterally imposed by [PNB] to be in violation of the principle o
Art. 1308 of the Civil Code,which provides that "[t]he contract must bind both contracting partie
cannot be left to the will of one of them." As the Court explained:
In order that obligations arising from contracts may have the force of law between the partie
between the parties based on their essential equality. A contract containing a condition w
dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garc
SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB
gave the PNB a license (although in fact there was none) to increase the interest rate at will
that license would have been null and void for being violative of the principle of mutuality ess
have invested the loan agreement with the character of a contract of adhesion, where the part
footing, the weaker party's (the debtor) participation being reduced to the alternative "to take
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker part
must protect against abuse and imposition. aEIADT
A similar ruling was made in Philippine National Bank v. Court of Appeals. The credit agreeme
The BANK reserves the right to increase the interest rate within the limits allowed by law at any t
policy it may adopt in the future: Provided, that the interest rate on this accommodation shall be
in the event that the applicable maximum interest is reduced by law or by the Monetary Board.
As in the first case, PNB successively increased the stipulated interest so that what was original
after only two years, 42%. In declaring the increases invalid, we held:
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it u
upwardly adjust the interest on private respondents' loan. That would completely take away fr
right to assent to an important modification in their agreement, and would negate the element o
Only recently we invalidated another round of interest increases decreed by PNB pursuant to
with other borrowers:
[W]hile the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the sa
read as granting respondent bank carte blanche authority to raise interest rates to levels whi
borrowers or lead to a hemorrhaging of their assets.
In this case no attempt was made by PNB to secure the conformity of private respondents to the successive increases in (b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending o
the interest rate. Private respondents' assent to the increases can not be implied from their lack of response to the letters may adopt in the future, including without limitation, the shifting from the floating interest rate
sent by PNB, informing them of the increases. For as stated in one case, no one receiving a proposal to change a contract rate system, or vice versa. Where the Bank has imposed on the Loan interest at a rate per a
is obliged to answer the proposal. 71 (Emphasis supplied) Bank's spread over the current floating interest rate, the Borrower hereby agrees that the Bank
to the Borrower, increase or decrease its spread over the floating interest rate at any time depe
We made the same pronouncement in a fifth case, New Sampaguita Builders Construction, Inc. v. Philippine National may adopt in the future. 76 (Emphases supplied)
Bank, 72 thus
while the eight promissory notes issued pursuant thereto granted PNB the right to increase or r
Courts have the authority to strike down or to modify provisions in promissory notes that grant the lenders unrestrained the limits allowed by law or the Monetary Board" 77 and the Real Estate Mortgage agreemen
power to increase interest rates, penalties and other charges at the latter's sole discretion and without giving prior notice increase or reduce interest rates "at any time depending on whatever policy PNB may adopt in
to and securing the consent of the borrowers. This unilateral authority is anathema to the mutuality of contracts and enable On the basis of the Credit Agreement, petitioners issued promissory notes which they signed in
lenders to take undue advantage of borrowers. Although the Usury Law has been effectively repealed, courts may still on entered their corresponding interest rates, as follows:
reduce iniquitous or unconscionable rates charged for the use of money. Furthermore, excessive interests, penalties and
other charges not revealed in disclosure statements issued by banks, even if stipulated in the promissory notes, cannot be 1st Promissory Note dated July 24, 1989 19.5%;
given effect under the Truth in Lending Act. 73 (Emphasis supplied) 2nd Promissory Note dated November 22, 1989 23%;
3rd Promissory Note dated March 21,1990 22%;
Yet again, in a sixth disposition, Philippine National Bank v. Spouses Rocamora, 74 the above pronouncements were 4th Promissory Note dated July 19, 1990 24%;
reiterated to debunk PNB's repeated reliance on its invalidated contract stipulations: 5th Promissory Note dated December 17, 1990 28%;
6th Promissory Note dated February 14, 1991 32%;
We repeated this rule in the 1994 case of PNB v. CA and Jayme-Fernandez and the 1996 case of PNB v. CA and Spouses 7th Promissory Note dated March 1, 1991 30%; and
Basco. Taking no heed of these rulings, the escalation clause PNB used in the present case to justify the increased interest 8th Promissory Note dated July 11, 1991 24%. 79
rates is no different from the escalation clause assailed in the 1996 PNB case; in both, the interest rates were increased On the other hand, the August 1991 Amendment to Credit Agreement contains the following st
from the agreed 12% per annum rate to 42%. . . .
1.03.Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment f
xxx xxx xxx up to but not including the date of full payment thereof at the rate per annum which is determin
rate plus applicable spread in effect as of the date of each Availment. 80 (Emphases supplied)
On the strength of this ruling, PNB's argument that the spouses Rocamora's failure to contest the increased interest
rates that were purportedly reflected in the statements of account and the demand letters sent by the bank amounted to and under this Amendment to Credit Agreement, petitioners again executed and signed the fo
their implied acceptance of the increase should likewise fail. blank, for the respondent to later on enter the corresponding interest rates, which it did, as follo
9th Promissory Note dated November 8, 1991 26%;
Evidently, PNB's failure to secure the spouses Rocamora's consent to the increased interest rates prompted the lower 10th Promissory Note dated March 19, 1992 25%;
courts to declare excessive and illegal the interest rates imposed. To go around this lower court finding, PNB alleges that 11th Promissory Note dated July 11, 1992 23%;
the P206,297.47 deficiency claim was computed using only the original 12% per annum interest rate. We find this unlikely. 12th Promissory Note dated November 10, 1992 21%;
Our examination of PNB's own ledgers, included in the records of the case, clearly indicates that PNB imposed interest 13th Promissory Note dated March 15, 1993 21%;
rates higher than the agreed 12% per annum rate. This confirmatory finding, albeit based solely on ledgers found in the 14th Promissory Note dated July 12, 1993 17.5%;
records, reinforces the application in this case of the rule that findings of the RTC, when affirmed by the CA, are binding 15th Promissory Note dated November 17, 1993 21%;
upon this Court. 75 (Emphases supplied) HSaIDc 16th Promissory Note dated March 28, 1994 21%;
17th Promissory Note dated July 13, 1994 21%;
Verily, all these cases, including the present one, involve identical or similar provisions found in respondent's credit 18th Promissory Note dated November 16, 1994 16%;
agreements and promissory notes. Thus, the July 1989 Credit Agreement executed by petitioners and respondent 19th Promissory Note dated April 10, 1995 21%;
contained the following stipulation on interest: 20th Promissory Note dated July 19, 1995 18.5%;
21st Promissory Note dated December 18, 1995 18.75%;
1.03.Interest. (a) The Loan shall be subject to interest at the rate of 19.5% [per annum]. Interest shall be payable in advance 22nd Promissory Note dated April 22, 1996 18.5%;
every one hundred twenty days at the rate prevailing at the time of the renewal. 23rd Promissory Note dated July 22, 1996 18.5%;
24th Promissory Note dated November 25, 1996 18%;
25th Promissory Note dated May 30, 1997 17.5%; and
26th Promissory Note (PN 9707237) dated July 30, 1997 25%. 81
The 9th up to the 17th promissory notes provide for the payment of interest at the "rate the Bank may at any time without
notice, raise within the limits allowed by law . . . ." 82 On the other hand, the 18th up to the 26th promissory notes which
includes PN 9707237 carried the following provision:
. . . For this purpose, I/We agree that the rate of interest herein stipulated may be increased or decreased for the subsequent
Interest Periods, with prior notice to the Borrower in the event of changes in interest rate prescribed by law or the Monetary
Board of the Central Bank of the Philippines, or in the Bank's overall cost of funds. I/We hereby agree that in the event I/we
are not agreeable to the interest rate fixed for any Interest Period, I/we shall have the option to prepay the loan or credit
facility without penalty within ten (10) calendar days from the Interest Setting Date. 83 (Emphasis supplied) CSHEAI
These stipulations must be once more invalidated, as was done in previous cases. The common denominator in these
cases is the lack of agreement of the parties to the imposed interest rates. For this case, this lack of consent by the
petitioners has been made obvious by the fact that they signed the promissory notes in blank for the respondent to fill. We
find credible the testimony of Lydia in this respect. Respondent failed to discredit her; in fact, its witness PNB Kalibo Branch
Manager Aspa admitted that interest rates were fixed solely by its Treasury Department in Manila, which were then simply
communicated to all PNB branches for implementation. If this were the case, then this would explain why petitioners had
to sign the promissory notes in blank, since the imposable interest rates have yet to be determined and fixed by
respondent's Treasury Department in Manila.
Moreover, in Aspa's enumeration of the factors that determine the interest rates PNB fixes such as cost of money,
foreign currency values, bank administrative costs, profitability, and considerations which affect the banking industry it
can be seen that considerations which affect PNB's borrowers are ignored. A borrower's current financial state, his
feedback or opinions, the nature and purpose of his borrowings, the effect of foreign currency values or fluctuations on his
business or borrowing, etc. these are not factors which influence the fixing of interest rates to be imposed on him.
Clearly, respondent's method of fixing interest rates based on one-sided, indeterminate, and subjective criteria such as
profitability, cost of money, bank costs, etc. is arbitrary for there is no fixed standard or margin above or below these
considerations.
The stipulation in the promissory notes subjecting the interest rate to review does not render the imposition by UCPB of
interest rates on the obligations of the spouses Beluso valid. According to said stipulation:
The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among others
the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or financial
institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the LENDER after due
consideration of all dealings with the BORROWER.
It should be pointed out that the authority to review the interest rate was given [to] UCPB alone as the lender. Moreover,
UCPB may apply the considerations enumerated in this provision as it wishes. As worded in the above provision, UCPB
may give as much weight as it desires to each of the following considerations: (1) the prevailing financial and monetary
condition; (2) the rate of interest and charges which other banks or financial institutions charge or offer to charge for similar
accommodations; and/or (3) the resulting profitability to the LENDER (UCPB) after due consideration of all dealings with
the BORROWER (the spouses Beluso). Again, as in the case of the interest rate provision, there is no fixed margin above
or below these considerations.
In view of the foregoing, the Separability Clause cannot save either of the two options of UC
imposed, as both options violate the principle of mutuality of contracts. 84 (Emphases supplied
To repeat what has been said in the above-cited cases, any modification in the contract, such
be made with the consent of the contracting parties. The minds of all the parties must meet as to
especially when it affects an important aspect of the agreement. In the case of loan agreeme
principal condition, if not the most important component. Thus, any modification thereof mus
otherwise, it has no binding effect.
What is even more glaring in the present case is that, the stipulations in question no longer p
agree upon the interest rate to be fixed; -instead, they are worded in such a way that the borro
interest rate respondent fixes. In credit agreements covered by the above-cited cases, it is pro
The Bank reserves the right to increase the interest rate within the limits allowed by law at any t
policy it may adopt in the future: Provided, that, the interest rate on this accommodation shall be
in the event that the applicable maximum interest rate is reduced by law or by the Monetary
adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increas
interest rate. 85 (Emphasis supplied)
Whereas, in the present credit agreements under scrutiny, it is stated that:
IN THE JULY 1989 CREDIT AGREEMENT
(b) The Borrower agrees that the Bank may modify the interest rate on the Loan depending o
may adopt in the future, including without limitation, the shifting from the floating interest rate
rate system, or vice versa. Where the Bank has imposed on the Loan interest at a rate per an
Bank's spread over the current floating interest rate, the Borrower hereby agrees that the Bank
to the Borrower, increase or decrease its spread over the floating interest rate at any time depe
may adopt in the future. 86 (Emphases supplied)
IN THE AUGUST 1991 AMENDMENT TO CREDIT AGREEMENT
1.03.Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment fr
up to but not including the date of full payment thereof at the rate per annum which is determin
rate plus applicable spread in effect as of the date of each Availment. 87 (Emphasis supplied)
Plainly, with the present credit agreement, the element of consent or agreement by the borrowe
which makes respondent's unlawful act all the more reprehensible.
Accordingly, petitioners are correct in arguing that estoppel should not apply to them, for "[e]st
on an illegal act. As between the parties to a contract, validity cannot be given to it by estoppe
is against public policy." 88 It appears that by its acts, respondent violated the Truth in Lendin
3765, which was enacted "to protect . . . citizens from a lack of awareness of the true cost of c
full disclosure of such cost with a view of preventing the uninformed use of credit to the detrimen
89 The law "gives a detailed enumeration of the specific information required to be disclosed, among which are the interest
and other charges incident to the extension of credit." 90 Section 4 thereof provides that a disclosure statement must be
furnished prior to the consummation of the transaction, thus:
SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction,
a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed
by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but
which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.
Under Section 4 (6), "finance charge" represents the amount to be paid by the debtor incident to the extension of credit
such as interest or discounts, collection fees, credit investigation fees, attorney's fees, and other service charges. The total
finance charge represents the difference between (1) the aggregate consideration (down payment plus installments) on
the part of the debtor, and (2) the sum of the cash price and non-finance charges. 91
By requiring the petitioners to sign the credit documents and the promissory notes in blank, and then unilaterally filling them
up later on, respondent violated the Truth in Lending Act, and was remiss in its disclosure obligations. In one case, which
the Court finds applicable here, it was held:
UCPB further argues that since the spouses Beluso were duly given copies of the subject promissory notes after their
execution, then they were duly notified of the terms thereof, in substantial compliance with the Truth in Lending Act.
Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be
furnished prior to the consummation of the transaction:
SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction,
a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed
by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connect
which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a
outstanding unpaid balance of the obligation.
The rationale of this provision is to protect users of credit from a lack of awareness of the tru
from the experience that banks are able to conceal such true cost by hidden charges, uncertainty
of interests from the loaned amount, and the like. The law thereby seeks to protect debtors
appreciate the true cost of their loan, to enable them to give full consent to the contract, an
options in arriving at business decisions. Upholding UCPB's claim of substantial compliance w
of the Truth in Lending Act. The belated discovery of the true cost of credit will too often not be a
of an already consummated business decision.
In addition, the promissory notes, the copies of which were presented to the spouses Belu
sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does
particularity the interest rate to be applied to the loan covered by said promissory notes. 92 (Em
However, the one-year period within which an action for violation of the Truth in Lending
prescribed long ago, or sometime in 2001, one year after petitioners received the March
contained the illegal charges. TDCaSE
The fact that petitioners later received several statements of account detailing its outstanding
respondent's breach. To repeat, the belated discovery of the true cost of credit does not reverse
consummated business decision. 93 Neither may the statements be considered proposals se
conformity; they were sent after the imposition and application of the interest rate, and not befo
presumed that these are proposals or offers, there was no acceptance by petitioners. "No o
modify a loan contract, especially regarding interest, is obliged to answer the proposal." 94
Loan and credit arrangements may be made enticing by, or "sweetened" with, offers of low initia
accompanied by provisions written in fine print that allow lenders to later on increase or decreas
without the consent of the borrower, and depending on complex and subjective factors. Becaus
these contracts by initially low interest rates, borrowers get caught and stuck in the web of s
penalties, surcharges and the like. Being ordinary individuals or entities, they naturally dread leg
afford court litigation; they succumb to whatever charges the lenders impose. At the very
charged rightly; but then again this is not possible in a one-sided credit system where the tem
and the willingness to rectify is made weak by the eternal desire for profit.

Given the above supposition, the Court cannot subscribe to respondent's argument that in every repricing of petitioners'
loan availment, they are given the right to question the interest rates imposed. The import of respondent's line of reasoning
cannot be other than that if one out of every hundred borrowers questions respondent's practice of unilaterally fixing interest
rates, then only the loan arrangement with that lone complaining borrower will enjoy the benefit of review or re-negotiation;
as to the 99 others, the questionable practice will continue unchecked, and respondent will continue to reap the profits from
such unscrupulous practice. The Court can no more condone a view so perverse. This is exactly what the Court meant in
the immediately preceding cited case when it said that "the belated discovery of the true cost of credit does not reverse the
ill effects of an already consummated business decision;" 95 as to the 99 borrowers who did not or could not complain, the
illegal act shall have become a fait accompli to their detriment, they have already suffered the oppressive rates.
Besides, that petitioners are given the right to question the interest rates imposed is, under the circumstances, irrelevant;
we have a situation where the petitioners do not stand on equal footing with the respondent. It is doubtful that any borrower
who finds himself in petitioners' position would dare question respondent's power to arbitrarily modify interest rates at any
time. In the second place, on what basis could any borrower question such power, when the criteria or standards which
are really one-sided, arbitrary and subjective for the exercise of such power are precisely lost on him?
For the same reasons, the Court cannot validly consider that, as stipulated in the 18th up to the 26th promissory notes,
petitioners are granted the option to prepay the loan or credit facility without penalty within 10 calendar days from the
Interest Setting Date if they are not agreeable to the interest rate fixed. It has been shown that the promissory notes are
executed and signed in blank, meaning that by the time petitioners learn of the interest rate, they are already bound to pay
it because they have already pre-signed the note where the rate is subsequently entered. Besides, premium may not be
placed upon a stipulation in a contract which grants one party the right to choose whether to continue with or withdraw from
the agreement if it discovers that what the other party has been doing all along is improper or illegal.
Thus said, respondent's arguments relative to the credit documents that documentary evidence prevails over testimonial
evidence; that the credit documents are in proper form, presumed regular, and endure, against arbitrary claims by
petitioners, experienced business persons that they are, they signed questionable loan documents whose provisions for
interest rates were left blank, and yet they continued to pay the interests without protest for a number of years deserve
no consideration.
With regard to interest, the Court finds that since the escalation clause is annulled, the principal amount of the loan is
subject to the original or stipulated rate of interest, and upon maturity, the amount due shall be subject to legal interest at
the rate of 12% per annum. This is the uniform ruling adopted in previous cases, including those cited here. 96 The interests
paid by petitioners should be applied first to the payment of the stipulated or legal and unpaid interest, as the case may be,
and later, to the capital or principal. 97 Respondent should then refund the excess amount of interest that it has illegally
imposed upon petitioners; "[t]he amount to be refunded refers to that paid by petitioners when they had no obligation to do
so." 98 Thus, the parties' original agreement stipulated the payment of 19.5% interest; however, this rate was intended to
apply only to the first promissory note which expired on November 21, 1989 and was paid by petitioners; it was not intended
to apply to the whole duration of the loan. Subsequent higher interest rates have been declared illegal; but because only
the rates are found to be improper, the obligation to pay interest subsists, the same to be fixed at the legal rate of 12% per
annum. However, the 12% interest shall apply only until June 30, 2013. Starting July 1, 2013, the prevailing rate of interest
shall be 6% per annum pursuant to our ruling in Nacar v. Gallery Frames 99 and Bangko Sentral ng Pilipinas-Monetary
Board Circular No. 799.
Now to the issue of penalty. PN 9707237 provides that failure to pay it or any installment thereon
default, and a penalty charge of 24% per annum based on the defaulted principal amount sh
claim that this penalty should be excluded from the foreclosure amount or bid price because the
the Supplement thereto did not specifically include it as part of the secured amount. Respond
the secured amount, saying that the purpose of the penalty or a penal clause is to ensure the pe
and substitute for damages and the payment of interest in the event of non-compliance. 100
imposition and collection of a penalty is a normal banking practice, and the standard rate pe
banks, at the time, was 24%. Its inclusion as part of the secured amount in the mortgage ag
necessary. TcCSIa
The Court sustains petitioners' view that the penalty may not be included as part of the secured
credit agreements and promissory notes to be tainted, we must accord the same treatment to t
mortgage and a note secured by it are deemed parts of one transaction and are construed toge
and having the attributes of a contract of adhesion as the principal credit documents, we m
contracts strictly, and against the party who drafted it. An examination of the mortgage agreem
is it stated that penalties are to be included in the secured amount. Construing this silence stric
the Court can only conclude that the parties did not intend to include the penalty allowed under
secured amount. Given its resources, respondent could have if it truly wanted to convenie
an amended mortgage agreement with the petitioners, thereby including penalties in the am
encumbered properties. Yet it did not.
With regard to attorney's fees, it was plain error for the CA to have passed upon the issue sin
petitioners in their appeal; it was the respondent that improperly brought it up in its appellee's
interposed an appeal, since the trial court's Decision on this issue is adverse to it. It is an elemen
of appeals that an appellee who does not himself appeal cannot obtain from the appellate cour
than those granted in the decision of the court below.
. . . [A]n appellee, who is at the same time not an appellant, may on appeal be permitted to ma
error in ordinary actions, when the purpose is merely to defend himself against an appeal in
have been committed by the trial court both in the appreciation of facts and in the interpreta
sustain the judgment in his favor but not when his purpose is to seek modification or reversa
case it is necessary for him to have excepted to and appealed from the judgment. 102
Since petitioners did not raise the issue of reduction of attorney's fees, the CA possessed no
the instance of respondent. The ruling of the trial court in this respect should remain undisturbe
For the fixing of the proper amounts due and owing to the parties to the respondent as cre
who are entitled to a refund as a consequence of overpayment considering that they paid more
than the 12% per annum 103 herein allowed the case should be remanded to the lower cour
computation, applying the following procedure:
1. The 1st Promissory Note with the 19.5% interest rate is deemed proper and paid;
2. All subsequent promissory notes (from the 2nd to the 26th promissory notes) shall carry an in
annum. 104 Thus, interest payment made in excess of 12% on the 2nd promissory note shal
the principal, and the principal shall be accordingly reduced. The reduced principal shall then be subjected to the 12% 105
interest on the 3rd promissory note, and the excess over 12% interest payment on the 3rd promissory note shall again be
applied to the principal, which shall again be reduced accordingly. The reduced principal shall then be subjected to the
12% interest on the 4th promissory note, and the excess over 12% interest payment on the 4th promissory note shall again
be applied to the principal, which shall again be reduced accordingly. And so on and so forth;
3. After the above procedure is carried out, the trial court shall be able to conclude if petitioners a) still have an
OUTSTANDING BALANCE/OBLIGATION or b) MADE PAYMENTS OVER AND ABOVE THEIR TOTAL OBLIGATION
(principal and interest);
4. Such outstanding balance/obligation, if there be any, shall then be subjected to a 12% per annum interest from October
28, 1997 until January 14, 1999, which is the date of the auction sale;
5. Such outstanding balance/obligation shall also be charged a 24% per annum penaltyfrom August 14, 1997 until January
14, 1999. But from this total penalty, the petitioners' previous payment of penalties in the amount of P202,000.00 made on
January 27, 1998 106 shall be DEDUCTED;
6. To this outstanding balance (3.), the interest (4.), penalties (5.), and the final and executory award of 1% attorney's fees
shall be ADDED;
7. The sum total of the outstanding balance (3.), interest (4.) and 1% attorney's fees (6.) shall be DEDUCTED from the bid
price of P4,324,172.96. The penalties (5.) are not included because they are not included in the secured amount;
8. The difference in (7.) [P4,324,172.96 LESS sum total of the outstanding balance (3.), interest (4.), and 1% attorney's
fees (6.)] shall be DELIVERED TO THE PETITIONERS;
9. Respondent may then proceed to consolidate its title to TCTs T-14250 and T-16208;
10. ON THE OTHER HAND, if after performing the procedure in (2.), it turns out that petitioners made an OVERPAYMENT,
the interest (4.), penalties (5.), and the award of 1% attorney's fees (6.) shall be DEDUCTED from the overpayment. There
is no outstanding balance/obligation precisely because petitioners have paid beyond the amount of the principal and
interest;
11. If the overpayment exceeds the sum total of the interest (4.), penalties (5.), and award of 1% attorney's fees (6.), the
excess shall be RETURNED to the petitioners, with legal interest, under the principle of solutio indebiti; 107
12. Likewise, if the overpayment exceeds the total amount of interest (4.) and award of 1% attorney's fees (6.), the trial
court shall INVALIDATE THE EXTRAJUDICIAL FORECLOSURE AND SALE; aSAHCE
13. HOWEVER, if the total amount of interest (4.) and award of 1% attorney's fees (6.) exceed petitioners' overpayment,
then the excess shall be DEDUCTED from the bid price of P4,324,172.96;
14. The difference in (13.) [P4,324,172.96 LESS sum total of the interest (4.) and 1% attorney's fees (6.)] shall be
DELIVERED TO THE PETITIONERS;
15. Respondent may then proceed to consolidate its title to TCTs T-14250 and T-16208. The o
shall be collected by other means.
From the above, it will be seen that if, after proper accounting, it turns out that the petitioners
what they actually owe by way of principal, interest, and attorney's fees, then the mortgaged p
for any outstanding secured amount, because there is not any; quite the contrary, respondent
petitioners. In such case, the extrajudicial foreclosure and sale of the properties shall be declar
lack of basis, the case being one of solutio indebiti instead. If, on the other hand, it turns out tha
in interests do not exceed their total obligation, then the respondent may consolidate its own
since the period for redemption has expired. Its only obligation will be to return the differe
(P4,324,172.96) and petitioners' total obligation outstanding except penalties after applyin
WHEREFORE, premises considered, the Petition is GRANTED. The May 8, 2007 Decision of
G.R. CV No. 79650 is ANNULLED and SET ASIDE. Judgment is hereby rendered as follows:
1. The interest rates imposed and indicated in the 2nd up to the 26th Promissory Notes are DEC
and such notes shall instead be subject to interest at the rate of twelve percent (12%) per annu
starting July 1, 2013, six percent (6%) per annum until full satisfaction;
2. The penalty charge imposed in Promissory Note No. 9707237 shall be EXCLUDED from th
real estate mortgages;
3. The trial court's award of one per cent (1%) attorney's fees is REINSTATED;
4. The case is ordered REMANDED to the Regional Trial Court, Branch 6 of Kalibo, Ak
overpayments made by petitioners spouses Eduardo and Lydia Silos to respondent Philippine
consideration the foregoing dispositions, and applying the procedure hereinabove set forth;
5. Thereafter, the trial court is ORDERED to make a determination as to the validity of the e
sale, declaring the same null and void in case of overpayment and ordering the release and re
of Title Nos. T-14250 and TCT T-16208 to petitioners, or ordering the delivery to the petitioner
the bid price and the total remaining obligation of petitioners, if any;
6. In the meantime, the respondent Philippine National Bank is ENJOINED from consolidating
of Title Nos. T-14250 and T-16208 until all the steps in the procedure above set forth have been t
7. The reimbursement of the excess in the bid price of P377,505.99, which respondent Philippin
to reimburse petitioners, should be HELD IN ABEYANCE until the true amount owing to or owe
each other is determined;
8. Considering that this case has been pending for such a long time and that further proceed
are required, the trial court is ORDERED to proceed with dispatch.
SO ORDERED.
||| (Spouses Silos v. Philippine National Bank, G.R. No. 181045, [July 2, 2014])
BACKWAGES
11. Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013

[G.R. No. 189871. August 13, 2013.]

Date Dismissed =
DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or FELIPE BORDEY, JR., respondents. January 24, 1997
Rate per day =
DECISION P196.00
Date of Decisions =
PERALTA, J p: Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
This is a petition for review on certiorari assailing the Decision 1 dated September 23, 2008 of the Court of Appeals (CA)
in CA-G.R. SP No. 98591, and the Resolution 2 dated October 9, 2009 denying petitioner's motion for reconsideration. P196.00/day x 12.36 mos. =
The factual antecedents are undisputed. P62,986.56
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National Labor b) 2/6/98 to 8/18/98 = 6.4 months
Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC
NCR Case No. 01-00519-97. Prevailing Rate per day =
On October 15, 1998, the Labor Arbiter rendered a Decision 3 in favor of petitioner and found that he was dismissed from P62,986.00
employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of P198.00 x 26 days x 6.4 mos. =
reinstatement in the amount of P158,919.92. The dispositive portion of the decision, reads: P32,947.20
With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant was
dismissed from employment for a just or valid cause. All the more, it is clear from the records that complainant was never
afforded due process before he was terminated. As such, we are perforce constrained to grant complainant's prayer for TOTAL =
the payments of separation pay in lieu of reinstatement to his former position, considering the strained relationship between P95,933.76
the parties, and his apparent reluctance to be reinstated, computed only up to promulgation of this decision as follows:
CcSTHI ========

SEPARATION PAY
xxx xxx xxx

Date Hired = WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty o
August 1990 are therefore, ordered:
Rate =
P198/day 1. To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred e
Date of Decision = (P62,986.56) Pesos representing his separation pay;
Aug. 18, 1998
Length of Service = 2. To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hund
8 yrs. & 1 month (P95,933.36) representing his backwages; and
P198.00 x 26 days x 8 months =
P41,184.00 3. All other claims are hereby dismissed for lack of merit.
SO ORDERED. 4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution 5 dated February 29, 2000.
Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but it
was denied. 6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA issued a
Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise denied in a
Resolution dated May 8, 2001. 7
Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error on
the part of the CA, this Court denied the petition in the Resolution dated April 17, 2002. 8
An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27, 2002. 9 The
case was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was consequently scheduled, but
respondents failed to appear. 10
On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed from
the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme Court on May 27, 2002.
11 Upon recomputation, the Computation and Examination Unit of the NLRC arrived at an updated amount in the sum of
P471,320.31. 12 DSCIEa
On December 2, 2002, a Writ of Execution 13 was issued by the Labor Arbiter ordering the Sheriff to collect from
respondents the total amount of P471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among
other things, that since the Labor Arbiter awarded separation pay of P62,986.56 and limited backwages of P95,933.36, no
more recomputation is required to be made of the said awards. They claimed that after the decision becomes final and
executory, the same cannot be altered or amended anymore. 14 On January 13, 2003, the Labor Arbiter issued an Order
15 denying the motion. Thus, an Alias Writ of Execution 16 was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution 17 granting the appeal in
favor of the respondents and ordered the recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and executory.
Consequently, another pre-execution conference was held, but respondents failed to appear on time. Meanwhile, petitioner
moved that an Alias Writ of Execution be issued to enforce the earlier recomputed judgment award in the sum of
P471,320.31. 18
The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the
judgment award of petitioner was reassessed to be in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as determined
by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his backwages and separation
pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgm
petitioner in the amount of P147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the mon
appropriate interests. 19
On May 10, 2005, the Labor Arbiter issued an Order 20 granting the motion, but only up to the
Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced conside
became final and executory. However, the Labor Arbiter reasoned that since the decision sta
and backwages are computed only up to the promulgation of the said decision, it is the amount
be executed. Thus, since petitioner already received P147,560.19, he is only entitled to the ba
Petitioner then appealed before the NLRC, 21 which appeal was denied by the NLRC in its Res
27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Reso
2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591
On September 23, 2008, the CA rendered a Decision 24 denying the petition. The CA opined th
appealed the October 15, 1998 Decision of the Labor Arbiter, which already became fina
correction thereof is no longer allowed. The CA stated that there is nothing left to be done
judgment. Consequently, it can no longer be modified in any respect, except to correct clerical
Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution 25 dated Octo
Hence, the petition assigning the lone error: ScaATD
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, CO
OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED
NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITE
DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER LU
AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION. 26
Petitioner argues that notwithstanding the fact that there was a computation of backwages in t
the same is not final until reinstatement is made or until finality of the decision, in case of a
Petitioner maintains that considering that the October 15, 1998 decision of the Labor Arbite
executory until the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was en
on May 27, 2002, the reckoning point for the computation of the backwages and separation pay
and not when the decision of the Labor Arbiter was rendered on October 15, 1998. Further, pet
entitled to the payment of interest from the finality of the decision until full payment by the resp
On their part, respondents assert that since only separation pay and limited backwages were a
October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made o
insist that since the decision clearly stated that the separation pay and backwages are "computed only up to [the]
promulgation of this decision," and considering that petitioner no longer appealed the decision, petitioner is only entitled to
the award as computed by the Labor Arbiter in the total amount of P158,919.92. Respondents added that it was only during
the execution proceedings that the petitioner questioned the award, long after the decision had become final and executory.
Respondents contend that to allow the further recomputation of the backwages to be awarded to petitioner at this point of
the proceedings would substantially vary the decision of the Labor Arbiter as it violates the rule on immutability of
judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division),
27 wherein the issue submitted to the Court for resolution was the propriety of the computation of the awards made, and
whether this violated the principle of immutability of judgment. Like in the present case, it was a distinct feature of the
judgment of the Labor Arbiter in the above-cited case that the decision already provided for the computation of the payable
separation pay and backwages due and did not further order the computation of the monetary awards up to the time of the
finality of the judgment. Also in Session Delights, the dismissed employee failed to appeal the decision of the labor arbiter.
The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's original
computation of the awards made, pegged as of the time the decision was rendered and confirmed with modification by a
final CA decision, is legally proper. The question is posed, given that the petitioner did not immediately pay the awards
stated in the original labor arbiter's decision; it delayed payment because it continued with the litigation until final judgment
at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds from the way the original labor arbiter
framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is the
finding of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement, backwages, attorney's
fees, and legal interests. TaISEH
The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows that it
was time-bound as can be seen from the figures used in the computation. This part, being merely a computation of what
the first part of the decision established and declared, can, by its nature, be re-computed. This is the part, too, that the
petitioner now posits should no longer be re-computed because the computation is already in the labor arbiter's decision
that the CA had affirmed. The public and private respondents, on the other hand, posit that a re-computation is necessary
because the relief in an illegal dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or up
to the finality of the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also made a
computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which
requires that a computation be made. This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall embody in
any such decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor arbi
above, this implication is apparent from the terms of the computation itself, and no question
parties terminated the case and implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts i.e., on the fi
on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC whic
arbiter's decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdiction
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds thro
petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming
pay and indemnity, lapsed to finality and was subsequently returned to the labor arbiter of orig
It was at this point that the present case arose. Focusing on the core illegal dismissal portion o
decision, the implementing labor arbiter ordered the award re-computed; he apparently read th
to be paid to be the computation due had the case been terminated and implemented at the lab
labor arbiter re-computed the award to include the separation pay and the backwages due
decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's approved
the finality of the CA decision (July 29, 2003) and included as well the payment for awards the fin
specifically, the proportionate 13th month pay and the indemnity awards. Hence, the C
questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it esse
arbiter's original decision in accordance with its basic component parts as we discussed abov
contains the finding of illegality and its monetary consequences; the second part is the com
monetary consequences of the illegal dismissal, computed as of the time of the labor arbiter's o
Consequently, from the above disquisitions, under the terms of the decision which is sou
petitioner, no essential change is made by a recomputation as this step is a necessary conse
nature of the illegality of dismissal declared by the Labor Arbiter in that decision. 29 A rec
computation, if no previous computation has been made) is a part of the law specifically, Ar
and the established jurisprudence on this provision that is read into the decision. By the na
case, the reliefs continue to add up until full satisfaction, as expressed under Article 279
recomputation of the consequences of illegal dismissal upon execution of the decision does no
amendment of the final decision being implemented. The illegal dismissal ruling stands; only th
consequences of this dismissal is affected, and this is not a violation of the principle of immuta
That the amount respondents shall now pay has greatly increased is a consequence that it c
that it ran when it continued to seek recourses against the Labor Arbiter's decision. Ar
consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in
separation pay in lieu of reinstatement is allowed. When that happens, the finality of the illegal d
the reckoning point instead of the reinstatement that the law decrees. In allowing separat
effectively declares that the employment relationship ended so that separation pay and backwa
to that point. 31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, 32
the Court laid down the guidelines regarding the manner of computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of credit. 33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16,
2013, approved the amendment of Section 2 34 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No.
799, 35 Series of 2013, effective July 1, 2013, the pertinent portion of which reads: AHcaDC
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of
interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments,
in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 36 of the Manual of Regulations for Banks and Sections 4305Q.1, 37
4305S.3 38 and 4303P.1 39 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended
accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties,
the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall
no longer be twelve percent (12%) per annum as reflected in the case of Eastern Shipping Lines 40 and Subsection
X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations
for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 but w
per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could on
and not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall app
Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of in
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v
Board, 41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue an
ruled that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans
forbearance of any money, goods or credits, including those for loans of low priority such as
such loans made by pawnshops, finance companies and similar credit institutions. It even
prescribe different maximum rate or rates for different types of borrowings, including deposits
loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to Ju
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed t
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shippin
modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or qu
contravenor can be held liable for damages. The provisions under Title XVIII on "Damages"
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory da
as well as the accrual thereof, is imposed, as follows: HcSaTI
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loa
the interest due should be that which may have been stipulated in writing. Furthermore, the i
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of inte
to be computed from default, i.e., from judicial or extrajudicial demand under and subject to th
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
on unliquidated claims or damages, except when or until the demand can be established
Accordingly, where the demand is established with reasonable certainty, the interest shall beg
claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
established at the time the demand is made, the interest shall begin to run only from the date
made (at which time the quantification of damages may be deemed to have been reasonably as
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 ra
the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such fina
interim period being deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed
and shall continue to be implemented applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP No.
98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are ORDERED to PAY
petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002, when
the Resolution of this Court in G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June 30,
2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and due to
petitioner in accordance with this Decision.
SO ORDERED. TSIaAc
||| (Nacar v. Gallery Frames, G.R. No. 189871, [August 13, 2013])
12. People v. Ong, G.R. No. 93849, December 10, 1991
[G.R. No. 93849. December 20, 1991.]
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO
VILLARAN AND LUCILA TALABIS, accused, DICK ONG y CHAN, accused-appellant.
The Solicitor General for plaintiff-appellee.
Leoncio T. Mercado for accused-appellant.
SYLLABUS
1. CRIMINAL LAW; ESTAFA; ELEMENTS IN GENERAL. The elements of estafa in general are: (1) that the accused
defrauded another (a) by abuse of confidence, or (b) by means of deceit; and (2) that damage or prejudice capable of
pecuniary estimation is caused to the offended party or third person.
2. ID.; ID.; ESTAFA BY POSTDATING OR ISSUING A BAD CHECK; ELEMENTS. The following are the elements of
Article 315, paragraph 2 (d) of the Revised Penal Code for this kind of estafa: (1) postdating or issuance of a check in
payment of an obligation contracted at the time the check was issued; (2) lack or insufficiency of funds to cover the check;
and (3) damage to the payee thereof (People v. Tugbang, et al;, G.R. No. 76212, April 26, 1991; and other cases).
3. ID.; ID.; ID.; INDORSER MUST HAVE THE KNOWLEDGE OF THE FACT THAT DRAW
FUNDS WHEN HE NEGOTIATED THE CHECK. In the case of People v. Isleta, et al., 61 P
reiterated in the case of Zagado v. Court of Appeals, G.R. No. 76612, September 29, 1989, 17
the accused-appellant, who only negotiated the check drawn by another, guilty of estafa. This
al. was relied upon by the trial court in its order dated April 3, 1990, which denied the accu
reconsideration based on the same defense. The trial court erred in doing so. It must have ove
of the aforementioned case. We held the accused-appellant therein guilty of estafa because h
the fact that (the drawer) had no funds in the bank when he negotiated the (subject) check" (at p
the prosecution failed to prove that the accused-appellant had such knowledge with respect to
indorsed. In applying Our decisions, it is not enough that courts take into account only the facts
thereof. It is imperative that the rationale of these decisions be read and comprehended thorou
4. ID.; ID.; ID.; IN PAYMENT OF AN OBLIGATION CONTRACTED AT THE TIME THE CHE
ELEMENT; NOT APPLICABLE IN CASE AT BAR. Regarding the second part of the fi
paragraph 2(d) of the Revised Penal Code, the accused-appellant alleges that when he depo
his savings account, it was clearly not in payment of an obligation to the Bank. The Office of th
this point of the accused-appellant. This single argument of the accused-appellant spells tilting
In several cases, We were categorical that bank deposits are in the nature of irregular depo
because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to
to be covered by the law on loans. Current and savings deposits are loans to a bank because it
v. Central Bank of the Philippines, et al., G.R. No. L-30511, February 14, 1980, 96 SCRA 96; a
5. ID.; ID.; ID.; DECEIT AS AN ELEMENT; NOT ESTABLISHED IN CASE AT BAR. Aside
have discussed earlier, in the crime of estafa by postdating or issuing a bad check, deceit
elements of the offense and have to be established with satisfactory proof to warrant convicti
383; and other cases). In this connection, the Office of the Solicitor General advances the
accused-appellant's antecedent acts of issuing and depositing checks, and withdrawing th
clearing by the drawee banks, which checks were later honored and paid by the drawee ban
trust and confidence of the Bank, such that the practice, albeit contrary to sound banking policy
After thus having gained the trust and confidence of the Bank, he issued and deposited the su
of which he later withdrew, fully aware that he had no sufficient funds to cover the amounts of
banks. This view is not supported by the facts of this case. Rather, the evidence for the prosec
on its own accorded him a drawn against uncollected deposit (DAUD) privilege without need of
Moreover, this privilege was not only for the subject checks, but for other past transactions. Fe
Hocson even testified that in some instances prior to July 1, 1980, especially where the depo
the Bank relaxed its rule and internal policy against uncleared checks and uncollected deposits,
to withdraw against his uncleared checks and uncollected deposits. Admittedly, the accused
important depositors of the Bank. Granting, in gratia argumenti, that he had in fact acted frau
done so without the active cooperation of the Bank's employees. Therefore, since Lucila Talabi
declared innocent of the crimes charged against them, the same should be said for the accuse
Jalandoni, G.R. No. 57555, May 30, 1983, 122 SCRA 588). True it is that the Bank suffered
P575,504.00 but the accused-appellant's liability thereon is only civil.
6. ID.; ID.; ID.; LIABILITY OF DRAWER WHO FAILED TO INFORM PAYEE OF THE INSUFFIC
BANK; ELIMINATED UNDER REPUBLIC ACT NO. 4885. The trial court said that "[t]he circ
of a check had insufficient or no funds in the drawee bank to cover the amount of his check at the time of its issuance and
he did not inform the payee or holder of such fact, are sufficient to make him liable for estafa". This statement is no longer
controlling. We have clarified in the case of People v. Sabio, Sr., etc., et al., supra, that Republic Act No. 4885 has
eliminated the requirement under the old provision for the drawer to inform the payee that he had no funds in the bank or
the funds deposited by him were not sufficient to cover the amount of the check.
DECISION
MEDIALDEA, J p:
The accused, Dick Ong y Chan, Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, were charged with the crime
of estafa in Criminal Case No. 44080 before the Regional Trial Court of Manila, Branch 35. The information filed in said
case reads, as follows (pp. 8-9, Rollo):
"That in (sic) or about and during the period comprised between December 6, 1978 and January 31, 1979, both dates
inclusive, in the City of Manila, Philippines, the said accused, conspiring and confederating together and helping one
another, did then and there wilfully, unlawfully and feloniously defraud the Home Savings Bank in the following manner, to
wit: the said accused Dick Ong y Chan, by means of false manifestations and fraudulent representations which he made
to the management of the Home Savings Bank, Aurea Annex Branch, located at 640 Rizal Avenue, Sta. Cruz, in said City,
to the effect that the following checks, to wit:
PAYABLE
NAME OF CHECK NUMBER TO DATE AMOUNT
Metropolitan 82508 Cash 1-30-79 P49,500.00
Bank & Trust Co.
Equitable Bank 27624961 do. do. 14,569.00
Phil. Bank of Comm. T1907249 do. do. 59,00.00
-do- T1907249 do. do. 67,400.00
China Banking Corp. QC 086174A do. 1-31-79 69,850.00
Pacific Banking Corp. PCB 238056 S do. 1-31-79 60,890.00
Producers Bank
of the Phil. C 987955 do. do. 49,090.00
Equitable 27624963 do. do. 14,965.00
Banking
Phil. Bank of the Phil. 1915852 do. do. 63,900.00
-do- 1915855 do. do. 59,800.00
-do- 1915856 do. do. 65,880.00
or all in the total amount of P575,504.00, are good and covered with sufficient funds in the banks, and by means of other
similar deceits, with the conspiracy of his co-accused Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, in their
capacities as officer-in-charge, branch accountant and bank branch cashier, respectively, of said bank (Home Savings
Bank), induced and succeeded in inducing the management of the said bank to accept said checks as deposits, all the
said accused well knowing that his (Dick Ong y Chan's) representations and manifestations are false and untrue and were
made solely for the purpose of defrauding the said bank, and, in accordance with their conspiracy, his co-accused Lino
Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, facilitated the opening of a savings account in the name of accused
Dick Ong y Chan and, thereafter, approved said deposits; that on the strength of such deposits made and the opening of
an account, the said accused were able to withdraw the total amount of P575,504.00, which on
intent to defraud, they thereafter wilfully, unlawfully and feloniously misappropriated, misapplied
personal use and benefit, to the damage and prejudice of said Home Savings Bank in the sa
Philippine Currency. cdphil
"Contrary to law."
On October 15, 1979, the prosecution moved for the dismissal of the case, insofar as accuse
concerned, on the ground that after a reinvestigation, it was found that the evidence against him
the allegations contained in the information (p. 54, Records). On October 31, 1979, the trial c
60, Records).
Upon being arraigned, the remaining three (3) accused entered the plea of not guilty to the crim
merits, the trial court rendered its decision on January 11, 1990, the dispositive portion of whi
Rollo):
"WHEREFORE, judgment is rendered: (1) pronouncing accused DICK ONG y CHAN guilty be
principal, of ESTAFA defined under No. 2 (d) of Article 315 of the Revised Penal Code, as ame
and penalized under the 1st paragraph of the same Code as amended by Presidential Decre
said accused to RECLUSION PERPETUA; (2) ACQUITTING accused Lucila Talabis and Ricar
the felony charged against them not having been established beyond reasonable doubt; (3) ord
pay the Home Savings Bank and Trust Company the sum of P559,381.34 as partial reparatio
said Bank; (4) ordering forfeited in favor of the Home Savings Bank and Trust Company the sum
balance remaining outstanding in Savings Account No. 6-1931 of accused Dick Ong with, and
Bank to complete the reparation of the damage caused by Dick Ong to the Bank; (5) ordering
one-third (1/3) of the costs; and (6) ordering two-thirds (2/3) of the costs charged de oficio.
"SO ORDERED."
On February 15, 1990, the accused-appellant filed a motion for reconsideration. On March 22, 19
memorandum in support of the motion for reconsideration. On April 3, 1990, said motion was
575-576, Records). Hence, the present appeal by Dick Ong y Chan.
The facts of this case were summarized by the trial court, as follows (pp. 18-20, Rollo):
"Accused Dick Ong was one of the depositors of the Home Savings Bank and Trust Company
at Rizal Avenue Sta. Cruz, Manila, hereafter, to be referred to as the Bank. He opened his sav
6, 1978, under the Bank's Savings Account No. 6-1981, with an initial deposit of P22.14 in c
check.
"On the same date, December 6, 1978, without his check undergoing the usual and reglemen
normally takes about five working days, Dick Ong was allowed to withdraw from his savings acc
of P5,000.00. The corresponding withdrawal slip was signed and approved by Lino Morfe, the
accused Lucila Talabis, the Branch Cashier. LibLex

"That initial transaction was followed by other similar transactions where Dick Ong, upon depositing checks in his savings
account with the Bank, was allowed to withdraw against those uncleared checks and uncollected deposits. The withdrawals
were authorized and approved by accused Ricardo Villaran and Lucila Talabis, sometimes jointly, sometimes by either
(sic) of them alone, and at other times by one of them together with another official of the Bank. But all of those uncleared
checks deposited by Dick Ong prior to January 30, 1979 and against which he was allowed to withdraw were subsequently
honored and paid by the drawee banks. (TSN, Mar. 9, 1981, pp. 101-104; TSN, Mar. 18, 1981, pp. 144-146.)
"On January 30, 1979, Dick Ong issued and deposited in his savings account with the Bank the following checks:
Drawee Bank Check No. Payee Amount
"Subsequently, but before said seven checks were cleared and the Bank had collected their a
then officer in charge of the Bank Grace Silao allowed and approved the withdrawals of Dick O
these seven checks. (TSN, Ibid., pp. 47-48.) LexLib
"However, when the Bank presented those eleven checks issued and deposited by Dick Ong
January 31, 1979 and against which he made withdrawals against (sic) their amounts, to their r
payment, they were all dishonored for lack or insufficiency of funds. (TSN, Jan. 7, 1981, pp. 9
pp. 74-75.)"
The accused-appellant neither took the witness stand to testify in his behalf, nor presented a
favor. Instead, he offered the following documents (p. 20, Rollo):

1. Metropolitan 82508 Cash P49,500.00 "1. Exhibit 1 Ong. The letter dated June 27, 1980 of the Central Bank Governor to all
Bank & Trust Co. demand deposits, enjoining strict compliance with Monetary Board Resolution No. 2202 d
2. Equitable Bank 27624961 Cash 14,569.00 prohibiting, as a matter of policy, drawing against uncollected deposits effective July 1, 1980.
3. Phil. Bank of Comm. T-1907265 Cash 59,600.00
4. Phil. Bank of Comm. T-1907249 Cash 67,400.00 "2. Exhibit 2 Ong. The Memorandum of the Central Bank Governor dated July 9, 1980, to
TOTAL P191,069.00 that Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a matte
uncollected deposits effective July 1, 1980, covers drawing against demand deposits as well a
"Afterwards but before these checks could be cleared and the Bank could collect their amounts from the drawee banks, deposits.
Lucila Talabis allowed and approved the withdrawal of Dick Ong against the amounts of said checks. (TSN, Mar. 18, 1981,
pp. 47-48.) "3. Exhibits 3 Ong. and 3-a. Clippings from the Bulletin Today issue on July 25, 1980 rega
(drawn against uncollected deposits) effective July 1, 1980, and the one-day loan which replac
"On the following day, January 31, 1979, Dick Ong also issued and deposited in his savings account with the Bank the
following checks: "4. Exhibit 4 Ong. The sworn statement of Lino Morfe before the METROCOM taken on F

Drawee Bank Check No. Payee Amount "5. Exhibit 5 Ong. The letter dated July 6, 1979, of Lino Morfe to the Assistant Fiscal
(Morfe's) affidavit.
1. China Banking QC 086174A Cash P69,850.00
Corporation "6. Exhibits 5-a Ong to 5-a-3 Ong. Affidavit of Lino Morfe sworn on June 28, 1979.
2. Pacific Banking PCB 238056 S Cash 60,890.00
Corporation "7. Exhibit 5-b Ong. The Bank's Memorandum dated January 31, 1979, to all Branch Mana
3. Producers Bank C 987955 Cash 49,090.00 (sic) requiring them to furnish the Head Office of the Bank every Monday and Thursday with a l
of the Phil. 'encashment' accommodations (sic) of P1,000.00 and above granted by the Branch during the
4. Equitable Banking 27624963 Cash 14,965.00
5. Phil. Bank of 1915852 Cash 63,900.00 "8. Exhibit 6 Ong. The sworn statement of accused Dick Ong.
Communications
6. Phil. Bank of 1915855 Cash 59,860.00 On the other hand, accused Lucila Talabis admitted that she approved the withdrawals of the
Communications his uncleared checks. However, she explained that her approval thereof was in accordance
7. Phil. Bank of 1915856 Cash 65,880.00 bank manager Lino Morfe; that this accommodation given or extended to the accused-appella
Communications before she started giving the same accommodation; that this was a common practice in the ban
TOTAL P384,435.00 withdrawals together with one other bank official, namely, either the bank manager, the bank
cashier, or the bank assistant cashier; and that they reported those withdrawals against, and
checks, always sending copies of their reports to the head office.
Accused Ricardo Villaran testified on his behalf that the accused-appellant was able to withdraw against his uncleared
checks because of the accommodations extended to him by bank officials Lino Morfe, co-accused Lucila Talabis, Grace
Silao, Precy Salamat, and Cora Gascon; that this practice of drawing against uncollected deposits was a common practice
in all branches of the Bank; that on December 14, 1978, the accused-appellant withdrew the sum of P75,000.00 against
his uncleared checks; that on December 21, 1978, the accused-appellant deposited several checks in the total amount of
P197,000.00 and withdrew on the same date the sum of P120,000.00; that on January 23, 1979, the accused-appellant
again deposited several checks in the aggregate sum of P260,000.00 and withdrew, also on the same date, the amount of
P28,000.00; and that he (Villaran) approved these three withdrawals of the accused-appellant against his uncollected
deposits.
In this appeal, the accused-appellant assigns the following errors committed by the trial court:
1) it concluded that the withdrawals against the amounts of the subject checks before clearance and collection of the
corresponding amounts thereof by the depository bank from the drawee banks is deceit or fraud constituting estafa under
Article 315, paragraph 2(d) of the Revised Penal Code, in the total absence of evidence showing criminal intent to defraud
the depository bank; and not a case which is civil in nature governed solely by the Negotiable Instruments Law;
2) it stated that he issued and deposited the subject checks when he is not the issuer, maker, nor drawer thereof but merely
an indorser; hence, his liability, if any, is that of a general indorser under the Negotiable Instruments Law;
3) it convicted him on mere presumption, without any evidence that he had prior knowledge of the lack or insufficiency of
funds in the drawee banks to cover the amounts of the subject checks; and
4) it failed to consider that a general indorser under the Negotiable Instruments Law warrants payment of the value of the
checks indorsed by him; no damage could have been suffered by the depository bank because he had offered payment
thereof. LLpr
To support the aforementioned assignment of errors, the accused-appellant alleges that based on the testimonies of co-
accused Lucila Talabis and Ricardo Villaran, he did not employ any deceit or fraud on the Bank because the practice of
deposit and withdrawal against uncleared checks and uncollected deposits was tolerated by it. As soon as he learned of
the dishonor of the subject checks, he offered to pay the amounts thereof (see pp. 48-49, tsn of Felix Hocson, May 8, 1981)
and put up as security his property. The subject checks were not in payment of an obligation but were deposited in his
savings account. He was merely a general indorser of the subject checks and this being the case, his obligations as such,
if any, should be governed by Section 66 of the Negotiable Instruments Law. * The subject checks were issued or drawn
by his customers and paid to him. He could not have had any knowledge as to the sufficiency of their funds in the drawee
banks.
The Office of the Solicitor General disputes the allegations of the accused-appellant. According to it, by reason of the
accused-appellant's antecedent acts of issuing and depositing checks, and withdrawing the amounts thereof before
clearing by the drawee banks, which checks were later honored and paid by the drawee banks, he was able to gain the
trust and confidence of the Bank, such that the practice, albeit contrary to sound banking policy, was tolerated by the Bank.
After thus having gained the trust and confidence of the Bank, the accused-appellant issued and deposited the subject
checks, the amounts of which he later withdrew, fully aware that he had no sufficient funds to cover the amounts of said
checks in the drawee banks. Contrary to the accused-appellant's allegation, the trial court
deposited the subject checks in his savings account. As drawer of the subject checks, the
obligation to maintain funds in his current account in the drawee banks sufficient to cover the a
of dishonor, to deposit within three (3) days from receipt of notice of dishonor, the amounts nec
The testimony of Felix Hocson, Senior Vice President and Treasurer of the Bank, apart from bei
that the accused-appellant made an offer to pay the amounts covered by the subject checks
that the accused-appellant made an offer to pay the amounts covered by the subject checks, s
rebut the prima facie evidence of deceit. There is no showing that the accused-appellant depos
to cover the subject checks within three (3) days from receipt of notice from the Bank and or th
checks have been dishonored. The damage suffered by the Bank consists in its inability to ma
it had delivered to the accused-appellant. LexLib
We are convinced that the accused-appellant is innocent of the crime charged against him.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885
"ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the mea
shall be punished by:
. . ., provided that in the four cases mentioned, the fraud be committed by any of the following
xxx xxx xxx.
2. By means of any of the following false pretenses or fraudulent acts executed prior to
commission of the fraud:
xxx xxx xxx.
(d) By post-dating a check, or issuing a check in payment of an obligation when the offender h
his funds deposited therein were not sufficient to cover the amount of the check. The failure o
deposit the amount necessary to cover his check within three (3) days from receipt of notice
payee or holder that said check has been dishonored for lack or insufficiency of funds shall
deceit constituting false pretense or fraudulent act."
The following are the elements of this kind of estafa: (1) postdating or issuance of a check i
contracted at the time the check was issued; (2) lack or insufficiency of funds to cover the ch
payee thereof (People v. Tugbang, et al., G.R. No. 76212, April 26, 1991; Sales v. Court of A
47817, August 29, 1988, 164 SCRA 717; People v. Sabio, Sr., etc., et al., G.R. No. L-45490, No
568). Based thereon, the trial court concluded that the guilt of the accused-appellant has "be
required quantum of evidence adduced by the People against (him)" (p. 22, Rollo). We shall c
on the first element because there is no argument that the second and third elements are p
orderly discussion of this element, We will divide it into two (2) parts: first, "postdating or issuan
"in payment of an obligation contracted at the time the check was issued."
Inasmuch as the first part of the first element of Article 315, paragraph 2(d) of the Revised Pe
the act of "postdating or issuance of a check," the accused-appellant raises the defense that he
drawer of the subject checks, but only an indorser thereof Thus, his liability, if any, should be governed by the provision of
the Negotiable Instruments Law, particularly Section 66 thereof, supra. Also, he could not have had any knowledge as to
the sufficiency of the drawers' funds in their respective banks. The Office of the Solicitor General contends that the trial
court found as a fact that the accused-appellant issued the subject checks.
The contention of the Office of the Solicitor General is accurate only in part. In the trial court's disquisition on the liability of
the accused-appellant, it said (p. 22, Rollo):
"There is no question that on January 30, 1979, accused Dick Ong issued or used and indorsed, and deposited in his
Savings Account No. 6-1981 with the Bank the four checks . . .
"There is likewise no dispute that on the following date, January 31, 1979, Dick Ong issued or used and indorsed, and
deposited in his savings account with the Bank seven checks . . ." (emphasis supplied).
On this subject matter, Fernando Esguerra, Internal Auditor of the Bank and a witness for the prosecution, testified that
(pp. 101-103, tsn, January 7, 1981): LLpr
"Court
Q: You mentioned these checks, Mr. Witness. Did you or anybody for that matter ever verify the actual depositors of these
checks whether it is Mr. Dick Ong himself?
A: Yes, Your Honor. Our Vice-President for Bank Operations verified said checks and found out that one of or rather, two
of those checks are in the account of Mr. Dick Ong but the other checks are not in his account.
Court
Q: In other words, there are checks where the depositor himself was also Mr. Dick Ong?
A: Could I go over the checks, Your Honor.
Q: Is it indicated there?
A: Yes, Your Honor, it is.
Q: All right, go over the checks.
A: There is one check, Your Honor. It is a China Banking Corporation check in the amount of P69,850.00 (witness referring
to Exhibit 'Z').
Q: Now, why do you say that the current checking account or current account was opened by Mr. Dick Ong himself?
A: Because he is the drawer of the check, Your Honor." (emphasis supplied).
Thus, the fact established by the prosecution and adopted by the trial court is that the subject checks were either issued
or indorsed by the accused-appellant.
In the case of People v. Isleta, et al., 61 Phil. 332, which was recently reiterated in the case of Z
G.R. No. 76612, September 29, 1989, 178 SCRA 146, We declared the accused-appellant, wh
drawn by another, guilty of estafa. This case of People v. Isleta, et al. was relied upon by the
April 3, 1990, which denied the accused-appellant's motion for reconsideration based on the sa
erred in doing so. It must have overlooked the ratio decidendi of the aforementioned case. We
therein guilty of estafa because he "had guilty knowledge of the fact that (the drawer) had no
negotiated the (subject) check" (at p. 334). In the present case, the prosecution failed to prove
had such knowledge with respect to the subject checks that he indorsed. In applying Our dec
courts take into account only the facts and the dispositive portions thereof. It is imperative
decisions be read and comprehended thoroughly.
It goes without saying that with respect to the subject checks wherein the accused-appellant
first part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code is applicab
will lose its significance in Our next discussion.
Regarding the second part of the first element of Article 315, paragraph 2(d) of the Revised
appellant alleges that when he deposited the subject checks in his savings account, it was c
obligation to the Bank. The Office of the Solicitor General misses this point of the accused-app
This single argument of the accused-appellant spells tilting the scale to his advantage. In
categorical that bank deposits are in the nature of irregular deposits. They are really loans bec
kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are t
loans. Current and savings deposits are loans to a bank because it can use the same (Serr
Philippines, et al., G.R. No. L-30511, February 14, 1980, 96 SCRA 96; Gullas v. Philippine N
Central Bank of the Philippines v. Morfe, etc., et al., G.R. No. L-38427, March 12, 1975, 63 S
al. v. The City Fiscal of Manila, et al., G.R. No. 60033, April 4, 1984, 128 SCRA 577).
The elements of estafa in general are: (1) that the accused defrauded another (a) by abuse of c
of deceit; and (2) that damage or prejudice capable of pecuniary estimation is caused to the offe
Aside from the elements that We have discussed earlier, in the crime of estafa by postdating or
and damage are essential elements of the offense and have to be established with satisfactory
(U.S. v. Rivera, 23 Phil. 383; People, et al. v. Grospe, etc., et al., G.R. No. 74053-54, January
Buaya v. Polo, etc., et al., G.R. No. 75079, January 26, 1989, 169 SCRA 471).
In this connection, the Office of the Solicitor General advances the view that by reason
antecedent acts of issuing and depositing checks, and withdrawing the amounts thereof bef
banks, which checks were later honored and paid by the drawee banks, he was able to gain
the Bank, such that the practice, albeit contrary to sound banking policy, was tolerated by t
gained the trust and confidence of the Bank, he issued and deposited the subject checks, the
withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks in the
This view is not supported by the facts of this case. Rather, the evidence for the prosecution
own accorded him a drawn against uncollected deposit (DAUD) privilege without need of any
7-8, supra). Moreover, this privilege was not only for the subject checks, but for other past transactions. Fernando Esguerra
and Felix Hocson even testified that in some instances prior to July 1, 1980, especially where the depositor is an important
client, the Bank relaxed its rule and internal policy against uncleared checks and uncollected deposits, and allowed such
depositor to withdraw against his uncleared checks and uncollected deposits. Admittedly, the accused-appellant was one
of the important depositors of the Bank (pp. 24-25, Rollo). Granting, in gratia argumenti, that he had in fact acted
fraudulently, he could not have done so without the active cooperation of the Bank's employees. Therefore, since Lucila
Talabis and Ricardo Villaran were declared innocent of the crimes charged against them, the same should be said for the
accused-appellant (see People v. Jalandoni, G.R. No. 57555, May 30, 1983, 122 SCRA 588). True it is that the Bank
suffered damage in the amount of P575,504.00 but the accused-appellant's liability thereon is only civil. LLpr
One additional statement made by the trial court in its decision requires correction. It said that "[t]he circumstances that the
drawer of a check had insufficient or no funds in the drawee bank to cover the amount of his check at the time of its issuance
and he did not inform the payee or holder of such fact, are sufficient to make him liable for estafa" (p. 23, Rollo). This
statement is no longer controlling. We have clarified in the case of People v. Sabio, Sr., etc., et al., supra, that Republic
Act No. 4885 has eliminated the requirement under the old provision for the drawer to inform the payee that he had no
funds in the bank or the funds deposited by him were not sufficient to cover the amount of the check.
We, therefore, find that the guilt of the accused-appellant for the crime of estafa under Article 315, paragraph 2(d) of the
Revised Penal Code has not been proven beyond reasonable doubt. However, We find him civilly liable to the Bank in the
amount of P575,504.00, less the balance remaining in his savings account with it (p. 26, Rollo), with legal interest from the
date of the filing of this case until full payment.
ACCORDINGLY, the decision and order appealed from are hereby SET ASIDE. The accused-appellant is ACQUITTED of
the crime charged against him but ordered to pay the aforementioned amount. No costs.
SO ORDERED.
||| (People v. Ong y Chan, G.R. No. 93849, [December 20, 1991])
13. Sps. Pascual v. Ramos, G.R. No. 144812, July 4, 2002
[G.R. No. 144712. July 4, 2002.]
SPOUSES SILVESTRE and CELIA PASCUAL, petitioners, vs. RODRIGO V. RAMOS, respondent.
DECISION
DAVIDE, JR., C.J p:
Before us is a petition for review on certiorari assailing the 5 November 1999 Decision 1 and the 18 August 2000 Resolution
2 of the Court of Appeals in CA-G.R. CV No. 52848. The former affirmed the 5 June 1995 and 7 September 1995 Orders
of the Regional Trial Court, Malolos, Bulacan, Branch 21, in Civil Case No. 526-M-93, and the latter denied petitioner's
motion for reconsideration.
The case at bar stemmed from the petition 3 for consolidation of title or ownership filed on 5 J
by herein respondent Rodrigo V. Ramos (hereafter RAMOS) against herein petitioners, Sp
Pascual (hereafter the PASCUALs). In his petition, RAMOS alleged that on 3 June 1987,
P150,000, the PASCUALs executed in his favor a Deed of Absolute Sale with Right to Repu
land and the improvements thereon located in Bambang, Bulacan, Bulacan, covered by Trans
No. 305626 of the Registry of Deeds of Bulacan. This document was annotated at the back of th
not exercise their right to repurchase the property within the stipulated one-year period; henc
title or ownership over the subject parcels of land and improvements thereon be consolidated i
In their Answer, 4 the PASCUALs admitted having signed the Deed of Absolute Sale with
consideration of P150,000 but averred that what the parties had actually agreed upon and en
mortgage. They further alleged that there was no agreement limiting the period within whi
repurchase and that they had even overpaid RAMOS. Furthermore, they interposed the follo
court had no jurisdiction over the subject or nature of the petition; (b) RAMOS had no legal ca
of action, if any, was barred by the statute of limitations; (d) the petition stated no cause of actio
set forth in RAMOS's pleading had been paid, waived, abandoned, or otherwise extinguishe
complied with the required confrontation and conciliation before the barangay.
By way of counterclaim, the PASCUALs prayed that RAMOS be ordered to execute a Deed
Discharge of the Deed of Absolute Sale with Right to Repurchase or a Deed of Real Estate Mo
owner's duplicate of TCT No. T-305626; return the amount they had overpaid; and pay each o
exemplary damages in the amounts of P200,000 and P50,000, respectively, plus attorney's fee
fee of P1,500 per hearing; litigation expenses; and costs of suit.
After the pre-trial, the trial court issued an order 5 wherein it identified the following issues: (1) wh
Sale with Right to Repurchase is an absolute sale or a mere mortgage; (2) whether the PASCU
the principal obligation; (3) whether the ownership over the parcel of land may be consolidated
whether damages may be awarded.
Among the documents offered in evidence by RAMOS during the trial on the merits was a
Sinumpaang Salaysay 6 signed by RAMOS and Silvestre Pascual, but not notarized. The cont
Ako, si SILVESTRE PASCUAL, Filipino, nasa hustong gulang, may asawa at kasalukuyang
Bulacan, Bulacan, ay nagsasabing buong katotohanan at sumusumpa sa aking mga salaysay
1. Na ngayong June 3, 1987 dahil sa aking matinding pangangailangan ng puhunan ay lumapit a
Ramos ng Taal, Pulilan, Bulacan na pautangin ako ng halagang P150,000.00.
2. Na aming napagkasunduan na ang nasabing utang ay babayaran ko ng tubo ng seven perce
buwan (7% per month).
3. Na bilang sangla (collateral security) sa aming utang, kami ay nagkasundo na mag-execute
to Repurchase para sa aking bahay at lupa (TCT No. 305626) sa Bo. Taliptip, Bambang, Bulac
3, 1987 at binigyan ako ni Mr. Ramos ng isang taon hanggang June 3, 1988 upang mabiling
kaniya sa kasunduang babayaran kong lahat ang capital na P150,000 00 pati na ang P10,500

4. Na bilang karagdagaag condition, si RODRIGO RAMOS ay pumayag sa aking kahilingan na kung sakali na hindi ko
mabayaran ng buo ang aking pagkakautang (Principal plus interest) sa loob ng isang taon mula ngayon, ang nakasanglang
bahay at lupa ay hindi muna niya iilitin (foreclose) o ipalilipat sa pangalan niya at hindi muna kami paaalisin sa tinitirahan
naming bahay hanggat ang tubo (interest) na P10,500.00 ay nababayaran ko buwan buwan.
5. Na ako ay sumasang-ayon sa kundisyon ni Rodrigo Ramos pagkatapos ng isang taon mula ngayon hanggang June 3,
1988 at puro interest lamang ang aking naibabayad buwan-buwan, kung sakaling hindi ako makabayad ng tubo for six (6)
consecutive months (1/2 year after June 9, 1988 (6 na buwang hindi bayad ng interest ang utang ko) si Rodrigo Ramos ay
binibigyan ko ng karapatan at kapangyarihan na magmay-ari ng aming bahay at lupa at kami ng aking pamilya ay kusang
loob na aalis sa nasabing bahay at lupa na lumalabas na ibinenta ko sa kaniya dahil hindi ako nakasunod sa aming mga
pinagkasunduang usapan.
6. At bilang finale ng aming kasunduan, ako ay nangangako na hindi maghahabol ng ano mang sukli sa pagkakailit ng
aming bahay at lupa kung sakali mang dumating sa ganuong pagkakataon o sitwasyon o di kaya'y magsasampa ng
reklamo kanino man.
Bilang pagsang-ayon sa mga nasabing kasunduan, kami ay lumagda sa ibaba nito kalakip ng aking mga pangalan ngayong
ika-3 ng Hunyo, 1987
(Sgd.) Rodrigo Ramos (Sgd.) Silvestre Pascual
Nagpautang Umutang
For their part, the PASCUALs presented documentary evidence consisting of acknowledgment receipts 7 to prove the
payments they had made.
The trial court found that the transaction between the parties was actually a loan in the amount of P150,000, the payment
of which was secured by a mortgage of the property covered by TCT No. 305626. It also found that the PASCUALs had
made payments in the total sum of P344,000, and that with interest at 7% per annum, the PASCUALs had overpaid the
loan by P141,500. Accordingly, in its Decision 8 of 15 March 1995 the trial court decreed as follows:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiff in the following manner:
1. Dismissing the plaintiff's petition;
2. Directing the Register of Deeds to cancel the annotation of the Deed of Sale with Right to Repurchase on the dorsal side
of TCT No. 305626;
3. Awarding the defendants the sum of P141,500.00 as overpayment on the loan and interests;
4. Granting the defendants attorney's fee in the sum of P15,000.00 and P3,000.00 for litigation expenses.
With costs against the plaintiff.
RAMOS moved for the reconsideration of the decision, alleging that the trial court erred in usin
annum in the computation of the total amount of obligation because what was expressly stip
Salaysay was 7% per month. The total interest due from 3 June 1987 to 3 April 1995 was P98
the interest payments made in the sum of P344,000, the amount of P643,000 was still due as i
the principal sum of P150,000, the total amount due from the PASCUALs as of 3 April 1995 wa
Finding merit in the motion for reconsideration, which was not opposed by the PASCUALs, the
1995 an Order 9 modifying its decision by deleting the award of P141,500 to the PASCUALs
and interest and ordering them to pay RAMOS P511,000 representing the principal loan p
acknowledged that it had inadvertently declared the interest rate to be 7% per annum whe
Salaysay stipulated 7% per month. It noted that during trial, the PASCUALs never disputed
However, the court declared that the 7% per month interest is too burdensome and onerous. Inv
of Article 24 of the Civil Code, which mandates the courts to be vigilant for the protection of a p
to his moral dependence, ignorance, indigence, mental weakness, tender age or other handica
reduced the interest rate from 7% per month to 5% per month. Thus, the interest due from 3 Jun
P705,000. Deducting therefrom the payments made by the PASCUALs in the amount of P34
was P361,000. Adding thereto the loan principal of P150,000, the total amount due from the P
Aggrieved by the modification of the decision, the PASCUALs filed a motion to reconsider the O
alleged that the motion for reconsideration filed by RAMOS was a mere scrap of paper becau
said motion only a day before the hearing, in violation of the 3-day-notice rule. Moreover, they ha
and had in fact overpaid the principal sum of P150,000. Besides, RAMOS, being an individual,
1% interest per month or 12% per annum; and, the interest of either 5% or 7% a month is e
unreasonable, usurious and inequitable.
RAMOS opposed the motion of the PASCUALs. He contended that the non-compliance with
cured when the trial court gave them an opportunity to file their opposition, but despite the laps
no opposition was filed. It is not correct to say that he was not allowed to collect more th
considering that with the moratorium on the Usury Law, the allowable interest is that agreed
absence of any evidence that there was fraud, force or undue influence exerted upon the PAS
into the transaction in question, their agreement embodied in the Sinumpaang Salaysay should
the trial court had already reduced the interest rate to 5% per month, a rate which is not e
unreasonable and inequitable.
Their motion for reconsideration having been denied in the Order 10 of 7 September 1995, t
appealed to the Court of Appeals. They pointed out that since the only prayer of RAMOS in h
title or ownership over the subject land and the improvements thereon consolidated in his fav
prayer for general relief, the trial court had no basis in ordering them to pay him the sum of P51
In its Decision 11 of 5 November 1999, the Court of Appeals affirmed in toto the trial court's O
September 1995. It ruled that while RAMOS's petition for consolidation of title or ownership did
payment of the balance of the petitioners' obligation and a prayer for general relief, the issue
balance from the amount loaned was deemed to have been raised in the pleadings by virtue o
Rules of Court, which provides that "[w]hen 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." In the course of the trial,
receipts were presented by the PASCUALs evidencing the payments they had made. Taken in conjunction with the
Sinumpaang Salaysay which specified the interest rate at 7% per month, a mathematical computation readily leads to the
conclusion that there is still a balance due from the PASCUALs, even at a reduced interest rate of 5% interest per month.
With the denial of their motion for reconsideration of the decision by the Court of Appeals, the PASCUALs filed before us
the instant petition raising the sole issue of whether they are liable for 5% interest per month from 3 June 1987 to 3 April
1995. Invoking this Court's ruling in Medel v. Court of Appeals, 12 they argue that the 5% per month interest is excessive,
iniquitous, unconscionable and exorbitant. Moreover, respondent should not be allowed to collect interest of more than 1%
per month because he tried to hide the real transaction between the parties by imposing upon them to sign a Deed of
Absolute Sale with Right to Repurchase.
For his part, RAMOS contends that the issue raised by petitioners cannot be entertained anymore because it was neither
raised in the complaint nor ventilated during the trial. In any case, there was nothing illegal on the rate of interest agreed
upon by the parties, since the ceilings on interest rates prescribed under the Usury Law had expressly been removed, and
hence parties are left freely at their discretion to agree on any rate of interest. Moreover, there was no scheme to hide a
usurious transaction. RAMOS then prays that the challenged decision and resolution be affirmed and that petitioners be
further ordered to pay legal interest on the interest due from the time it was demanded.
We see at once the proclivity of the PASCUALs to change theory almost every step of the case.
By invoking the decision in Medel v. Court of Appeals, the PASCUALs are actually raising as issue the validity of the
stipulated interest rate. It must be stressed that they never raised as a defense or as basis for their counterclaim the nullity
of the stipulated interest. While overpayment was alleged in the Answer, no ultimate facts which constituted the basis of
the overpayment was alleged. In their pre-trial brief, the PASCUALs made a long list of issues, but not one of them touched
on the validity of the stipulated interest rate. Their own evidence clearly shows that they have agreed on, and have in fact
said interest at, the rate of 7% per month. Exhibits "1" to "8" specifically mentioned that the payments made were for the
interest due on the P150,000 loan of the PASCUALs. In the course of the trial, the PASCUALs never put in issue the validity
of the stipulated interest rate.
After the trial court sustained petitioners' claim that their agreement with RAMOS was actually a loan with real estate
mortgage, the PASCUALs should not be allowed to turn their back on the stipulation in that agreement to pay interest at
the rate of 7% per month. The PASCUALs should accept not only the favorable aspect of the court's declaration that the
document is actually an equitable mortgage but also the necessary consequence of such declaration, that is, that interest
on the loan as stipulated by the parties in that same document should be paid. Besides, when RAMOS moved for a
reconsideration of the 15 March 1995 Decision of the trial court pointing out that the interest rate to be used should be 7%
per month, the PASCUALs never lifted a finger to oppose the claim. Admittedly, in their Motion for Reconsideration of the
Order of 5 June 1995, the PASCUALs argued that the interest rate, whether it be 5% or 7%, is exorbitant, unconscionable,
unreasonable, usurious and inequitable. However, in their Appellants' Brief, the only argument raised by the PASCUALs
was that RAMOS's petition did not contain a prayer for general relief and, hence, the trial court had no basis for ordering
them to pay RAMOS P511,000 representing the principal and unpaid interest. It was only in their motion for the
reconsideration of the decision of the Court of Appeals that the PASCUALs made an issue of the interest rate and prayed
for its reduction to 12% per annum.
In Manila Bay Club Corp. v. Court of Appeals, 13 this Court ruled that if an issue is rais
reconsideration of the decision of the Court of Appeals, the effect is that it is as if it was never
all.
Our ruling in Medel v. Court of Appeals 14 is not applicable to the present case. In that case
stipulated interest at the rate of 5.5% per month was put in issue by the defendants in the An
to the interest, the debtors were also required, as per stipulation in the promissory note, to pa
annum and a penalty charge of 1% per month plus attorney's fee of equivalent to 25% of the
bar, there is no other stipulation for the payment of an extra amount except interest on the pr
conjunction with the stipulated service charge and penalty, the interest rate of 5.5% in the M
excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby maki
void.
Considering the variance in the factual circumstances of the Medel case and the instant case, w
the former lest it be construed that we can strike down anytime interest rates agreed upon by p
It is a basic principle in civil law that parties are bound by the stipulations in the contracts volun
Parties are free to stipulate terms and conditions which they deem convenient provided they are
good customs, public order, or public policy. 15
The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the PASCUALs
records and, in fact, there is no allegation showing that petitioners were victims of fraud w
agreement with RAMOS. Neither is there a showing that in their contractual relations with RAM
at a disadvantage on account of their moral dependence, ignorance, mental weakness, ten
which would entitle them to the vigilant protection of the courts as mandated by Article 24 of the
ruling in Vales vs. Villa:
All men are presumed to be sane and normal and subject to be moved by substantially the s
and sane, they must take care of themselves. In their relations with others in the business of lif
training, ability and judgment meet and clash and contest, sometimes with gain and advantage
only, with loss and injury to others. In these contests men must depend upon themselves upo
training, sense, acumen, judgment. The fact that one may be worsted by another, of itself, furnis
One man cannot complain because another is more able, or better trained, or has better sens
and when the two meet on a fair field the inferior cannot murmur if the battle goes against
protection to the inferior simply because he is inferior, any more than it protects the strong bec
furnishes protection to both alike to one no more or less than to the other. It makes no distin
the foolish, the great and the small, the strong and the weak. The foolish may lose all they hav
not mean that the law will give it back to them again. Courts cannot follow one every step of his
bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or
acts. Courts cannot constitute themselves guardians of persons who are not legally incom
because one person has been defeated or overcome by another, but because he has been def
Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money
have in the world; but not for that alone can the law intervene and restore. There must be, in
the commission of what the law knows as an actionable wrong, before the courts are authorize
and remedy it. 16
With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be
imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consent exercised by RAMOS on the
PASCUALs, the interest agreed upon is binding upon them. This Court is not in a position to impose upon parties
contractual stipulations different from what they have agreed upon. As declared in the decision of Cuizon v. Court of
Appeals, 17
It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is
confined to the interpretation of the one which they have made for themselves without regard to its wisdom or folly as the
court cannot supply material stipulations or read into the contract words which it does not contain.
Thus, we cannot supplant the interest rate, which was reduced to 5% per month without opposition on the part of RAMOS.
We are not persuaded by the argument of the PASCUALs that since RAMOS tried to hide the real transaction by imposing
upon them the execution of a Deed of Absolute Sale with Right to Repurchase, he should not be allowed to collect more
than 1% per month interest. It is undisputed that simultaneous with the execution of the said deed was the execution of the
Sinumpaang Salaysay, which set forth the true agreement of the parties. The PASCUALs cannot then claim that they did
not know the real transaction.
RAMOS's claim that the interest due should earn legal interest cannot be acted upon favorably because he did not appeal
from the Order of the trial court of 5 June 1995, which simply ordered the payment by the PASCUALs of the amount of
P511,000 without interest thereon. No relief can be granted a party who does not appeal. 18 Therefore, the order of the
trial court should stand.
Incidentally, we noticed that in the Memorandum filed by RAMOS, the ruling in Vales v. Valle was reproduced by his counsel
without the proper citation. Such act constitutes plagiarism. Atty. Felimon B. Mangahas is hereby warned that a repetition
of such act shall be dealt with accordingly.
WHEREFORE, in view of all the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals in CA-
G.R. CV No. 52848 is AFFIRMED in toto.
Costs against petitioners.
SO ORDERED.
||| (Sps. Pascual v. Ramos, G.R. No. 144712, [July 4, 2002], 433 PHIL 449-463)
14. Country Bankers Ins. Corp. v. Lianga Bay & Com. Multi-Purpose Cooperative, Inc., G.R. No. 136914, January
25, 2002
[G.R. No. 136914. January 25, 2002.]
COUNTRY BANKERS INSURANCE CORPORATION, petitioner, vs. LIANGA BAY AND COMMUNITY MULTI-PURPOSE
COOPERATIVE, INC., respondent.
Velasquez Meru & Associates for petitioner.
Alvizo Alvvizo Ranoco & Alvizo Law Offices for private respondent.
SYNOPSIS
For the loss it sustained fire as a result of the fire, respondent filed an insurance claim with pet
denied the claim on the ground that based on the submitted documents, the building of respon
NPA rebels who wanted to obtain provisions. This was an excepted risk under the policy contra
The RTC decision, affirmed by the Court of Appeals, ordered petitioner to pay respondent P20
per annum from the date of the filing of the complaint until paid, as well as actual damages, ex
expenses, attorney's fees and the costs of suit. Indeed, petitioner failed to prove the facts up
was based. Petitioner relied on the sworn statements of two witnesses and the Spot Report
statements, however, were inadmissible for being hearsay inasmuch as the people who exec
witness stand and could not, therefore, be cross-examined. No investigation, independe
conducted. The testimony of Pfc. Juarbal relative to the sworn statements, on the other ha
independently relevant statements gathered in the course of investigation and may be admitted
to prove the truth thereof. Nevertheless, the 12% interest and other monetary awards were held
and valid basis. The interest rate should be and was set to 6% from the date of filing of the com
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF; A PARTY MUST PROVE
ALLEGATIONS. A party is bound by his own affirmative allegations. This is a well-known po
of Rule 131 of the Revised Rules of Court. Each party must prove his own affirmative allegations
required by law which in civil cases, as in this case, is preponderance of evidence, to obtain a
a risk is excepted by the terms of a policy which insures against other perils or hazards, loss fro
defense which the insurer may urge, since it has not assumed that risk, and from this it follow
defeat a claim because of an exception or limitation in the policy has the burden of proving tha
purview of the exception or limitation set up. If a proof is made of a loss apparently within a
burden is upon the insurer to prove that the loss arose from a cause of loss which is expected
or from a cause which limits its liability. Stated elsewise, since the petitioner in this case is defe
coverage and relying upon an exemption or exception clause in the fire insurance policy, it ha
facts upon which such excepted risk is based, by a preponderance of evidence. But petitioner
2. ID.; ID.; ADMISSIBILITY; HEARSAY RULE; ELUCIDATED. A witness can testify only to
of his personal knowledge, which means those facts which are derived from his perception. Co
not testify as to what he merely learned from others either because he was told or read or heard
is considered hearsay and may not be received as proof of the truth of what he has learned. Su
applies not only to oral testimony or statements but also to written evidence as well. The hearsay
concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such ev
oath or solemn affirmation and, more importantly, have not been subjected to cross-examinat
test the perception, memory, veracity and articulateness of the out-of-court declarant or acto
which the worth of the out-of-court statement depends. Thus, the Sworn Statements of J
Urbiztondo are inadmissible in evidence, for being hearsay, inasmuch as they did not take the w
therefore be cross-examined. There are exceptions to the hearsay rule, among which are entries in official records. To be
admissible in evidence, however, three (3) requisites must concur, to wit: (a) that the entry was made by a public officer,
or by another person specially enjoined by law to do so; (b) that it was made by the public officer in the performance of his
duties, or by such other person in the performance of a duty specially enjoined by law; and (c) that the public officer or
other person had sufficient knowledge of the facts by him stated, which must have been acquired by him personally or
through official information. The third requisite was not met in this case since no investigation, independent of the
statements gathered from Jose Lomocso, was conducted by Pfc. Arturo V. Juarbal.
3. ID.; ID.; ID.; REPORT RELATIVE TO THE STATEMENT OF ANOTHER MAY BE CONSIDERED AS INDEPENDENTLY
RELEVANT STATEMENT BUT NOT NECESSARILY TO PROVE THE TRUTH THEREOF. The Spot Report of Pfc.
Arturo Juarbal relative to the statement of Jose Lomocso to the effect that NPA rebels allegedly set fire to the respondent's
building is inadmissible in evidence, for the purpose of proving the truth of the statements contained in the said report, for
being hearsay. The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. Arturo V.
Juarbal since he himself took the witness stand and was available for cross-examination. The portions of his Spot Report
which were of his personal knowledge or which consisted of his perceptions and conclusions are not hearsay. The rest of
the said report relative to the statement of Jose Lomocso may be considered as independently relevant statements
gathered in the course of Juarbal's investigation and may be admitted as such but not necessarily to prove the truth thereof.
4. CIVIL LAW; DAMAGES; AWARD OF INTEREST; PROPER INTEREST RATE IN INSURANCE CLAIM IS 6%.
Concerning the application of the proper interest rates, the guidelines were set in Eastern Shipping Lines, Inc. v. Court of
Appeals and Mercantile Insurance Co., Inc. The Court observed that a "forbearance" in the context of the usury law is a
"contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor
to repay a loan or debt then due and payable." The insurance claim in this case is evidently not a forbearance of money,
goods or credit, and thus the interest rate should be as it is hereby fixed at six percent (6%) computed from the date of
filing of the complaint.
5. ID.; ID.; ACTUAL DAMAGES MUST BE PROVED. We find no justification for the award of actual damages of Fifty
Thousand Pesos (P50,000.00). Well-entrenched is the doctrine that actual, compensatory and consequential damages
must be proved, and cannot be presumed.
6. ID.; ID.; EXEMPLARY DAMAGES; WHEN PROPER. Concerning the award of exemplary damages for Fifty Thousand
Pesos (P50,000.00), we likewise find no legal and valid basis for granting the same. Article 2229 of the New Civil Code
provides that exemplary damages may be imposed by way of example or correction for the public good. Exemplary
damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative
incentive to curb socially deleterious actions. They are designed to permit the courts to mould behavior that has socially
deleterious consequences, and its imposition is required by public policy to suppress the wanton acts of an offender.
However, it cannot be recovered as a matter of right. It is based entirely on the discretion of the court. We find no cogent
and valid reason to award the same in the case at bar. IcHTED
7. ID.; ID.; LITIGATION EXPENSES AND ATTORNEY'S FEES; ELUCIDATED. With respect to the award of litigation
expenses and attorney's fees, Article 2208 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. 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. The award of
attorney's fees is the exception rather than the general rule. As such, it is necessary for the cou
and law that would bring the case within the exception and justify the grant of such award.
DECISION
DE LEON, JR., J p:
Before us is a petition for review on certiorari of the Decision 1 of the Court of Appeals 2 dated
G.R. CV Case No. 36902 affirming in toto the Decision 3 dated December 26, 1991 of the Reg
Surigao del Sur, Branch 28, in Civil Case No. L-518 which ordered petitioner Country Banker
fully pay the insurance claim of respondent Lianga Bay and Community Multi-Purpose Co
Insurance Policy No. F-1397, for loss sustained as a result of the fire that occurred on July 1,
Hundred Thousand Pesos (P200,000.00), with interest at twelve percent (12%) per annum fr
complaint until fully paid, as well as Fifty Thousand Pesos (P50,000.00) as actual damag
(P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expen
(P10,000.00) as attorney's fees, and the costs of suit.
The facts are undisputed:
The petitioner is a domestic corporation principally engaged in the insurance business w
consideration, to indemnify another against loss, damage or liability from an unknown or con
while the respondent is a duly registered cooperative judicially declared insolvent and represent
Cornelio Jamero.
It appears that sometime in 1989, the petitioner and the respondent entered into a contract o
Insurance Policy No. F-1397, the petitioner insured the respondent's stocks-in-trade against f
during the period starting from June 20, 1989 at 4:00 p.m. to June 20, 1990 at 4:00 p.m., fo
Thousand Pesos (P200,000.00).
On July 1, 1989, at or about 12:40 a.m., the respondent's building located at Barangay Diatag
was gutted by fire and reduced to ashes, resulting in the total loss of the respondent's stocks-
and fixtures, equipments and records.
Due to the loss, the respondent filed an insurance claim with the petitioner under its Fire Ins
submitting: (a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated July 1, 1989;
Jose Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo.
The petitioner, however, denied the insurance claim on the ground that, based on the submitt
was set on fire by two (2) NPA rebels who wanted to obtain canned goods, rice and medic
comrades in the forest, and that such loss was an excepted risk under paragraph No. 6 of t
Insurance Policy No. F-1397, which provides:
This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of
any of the following occurrences, namely:
xxx xxx xxx
(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power.
Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are
occasioned by or through or in consequence, directly or indirectly, of any of said occurrences shall be deemed to be loss
or damage which is not covered by this insurance, except to the extent that the Insured shall prove that such loss or damage
happened independently of the existence of such abnormal conditions.
Finding the denial of its claim unacceptable, the respondent then instituted in the trial court the complaint for recovery of
"loss, damage or liability" against petitioner. The petitioner answered the complaint and reiterated the ground it earlier cited
to deny the insurance claim, that is, that the loss was due to NPA rebels, an excepted risk under the fire insurance policy.
In due time, the trial court rendered its Decision dated December 26, 1991 in favor of the respondent, declaring that:
Based on its findings, it is therefore the considered opinion of this Court, as it so holds, that the defenses raised by
defendant Country Bankers has utterly crumbled on account of its inherent weakness, incredibility and unreliability, and
after applying those helpful tools like common sense, logic and the Court's honest appraisal of the real and actual situation
obtaining in this area, such defenses remains (sic) unimpressive and unconvincing, and therefore, the defendant Country
Bankers has to be irreversibly adjudged liable, as it should be, to plaintiff-Insolvent Cooperative, represented in this action
by its Assignee, Cornelio Jamero, and thus, ordering said defendant Country Bankers to pay the plaintiff-Insolvent
Cooperative, as follows:
1. To fully pay the insurance claim for the loss the insured-plaintiff sustained as a result of the fire under its Fire Insurance
Policy No. F-1397 in its full face value of P200,000.00 with interest of 12% per annum from date of filing of the complaint
until the same is fully paid;
2. To pay as and in the concept of actual or compensatory damages in the total sum of P50,000.00;
3. To pay as and in the concept of exemplary damages in the total sum of P50,000.00;
4. To pay in the concept of litigation expenses the sum of P5,000.00;
5. To pay by way of reimbursement the attorney's fees in the sum of P10,000.00; and
6. To pay the costs of the suit.
For being unsubstantiated with credible and positive evidence, the "counterclaim" is dismissed.
IT IS SO ORDERED.
Petitioner interposed an appeal to the Court of Appeals. On December 29, 1998, the appellate co
decision of the trial court in its entirety. Petitioner now comes before us via the instant peti
assigned errors, 4 to wit:
1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE CREDENC
OF PFC. ARTURO JUARBAL (EXH. 3) AND THE SWORN STATEMENT OF JOSE LOMO
RESPONDENT'S STOCK-IN-TRADE WAS BURNED BY THE NPA REBELS, HENCE AN EXC
FIRE INSURANCE POLICY.
2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE F
ANNUM ON THE FACE VALUE OF THE POLICY FROM THE FILING OF THE COMPLAINT U
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER LI
EXEMPLARY DAMAGES, LITIGATION EXPENSES, ATTORNEYS FEES AND COST OF SU
A party is bound by his own affirmative allegations. This is a well-known postulate echoed in S
Revised Rules of Court. Each party must prove his own affirmative allegations by the amount o
which in civil cases, as in this case, is preponderance of evidence, to obtain a favorable judgm
In the instant case, the petitioner does not dispute that the respondent's stocks-in-trade wer
damage or liability under Fire Insurance Policy No. F-1397 and that the respondent lost its s
occurred on July 1, 1989, within the duration of said fire insurance. The petitioner, however, po
of the loss was an excepted risk under the terms of the fire insurance policy.
Where a risk is excepted by the terms of a policy which insures against other perils or haz
constitutes a defense which the insurer may urge, since it has not assumed that risk, and from t
seeking to defeat a claim because of an exception or limitation in the policy has the burden of
within the purview of the exception or limitation set up. If a proof is made of a loss apparently wi
the burden is upon the insurer to prove that the loss arose from a cause of loss which is exc
liable, or from a cause which limits its liability. 6 Stated elsewise, since the petitioner in this case
of non-coverage and relying upon an exemption or exception clause in the fire insurance policy,
the facts upon which such excepted risk is based, by a preponderance of evidence. 7 But petit
The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as we
Pfc. Arturo V. Juarbal dated July 1, 1989, more particularly the following statement therein:
. . . investigation revealed by Jose Lomocso that those armed men wanted to get can goods an
in the forest PD investigation further disclosed that the perpetrator are member (sic) of the NPA
A witness can testify only to those facts which he knows of his personal knowledge, which m
derived from his perception. 8 Consequently, a witness may not testify as to what he merely
because he was told or read or heard the same. Such testimony is considered hearsay and m
of the truth of what he has learned. Such is the hearsay rule which applies not only to oral testim
to written evidence as well. 9
The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch
as such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-
examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant
or actor upon whose reliability on which the worth of the out-of-court statement depends. 10
Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay,
inasmuch as they did not take the witness stand and could not therefore be cross-examined.
There are exceptions to the hearsay rule, among which are entries in official records. 11 To be admissible in evidence,
however, three (3) requisites must concur, to wit:
(a) that the entry was made by a public officer, or by another person specially enjoined by law to do so;
(b) that it was made by the public officer in the performance of his duties, or by such other person in the performance of a
duty specially enjoined by law; and
(c) that the public officer or other person had sufficient knowledge of the facts by him stated, which must have been acquired
by him personally or through official information. 12
The third requisite was not met in this case since no investigation, independent of the statements gathered from Jose
Lomocso, was conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner itself pointed out, citing the testimony of Pfc.
Arturo Juarbal, 13 the latter's Spot Report "was based on the personal knowledge of the caretaker Jose Lomocso who
witnessed every single incident surrounding the facts and circumstances of the case." This argument undeniably weakens
the petitioner's defense, for the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose Lomocso to the effect
that NPA rebels allegedly set fire to the respondent's building is inadmissible in evidence, for the purpose of proving the
truth of the statements contained in the said report, for being hearsay.
The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. Arturo V. Juarbal since he
himself took the witness stand and was available for cross-examination. The portions of his Spot Report which were of his
personal knowledge or which consisted of his perceptions and conclusions are not hearsay. The rest of the said report
relative to the statement of Jose Lomocso may be considered as independently relevant statements gathered in the course
of Juarbal's investigation and may be admitted as such but not necessarily to prove the truth thereof. 14
The petitioner's evidence to prove its defense is sadly wanting and thus, gives rise to its liability to the respondent under
Fire Insurance Policy No. F-1397. Nonetheless, we do not sustain the trial court's imposition of twelve percent (12%)
interest on the insurance claim as well as the monetary award for actual and exemplary damages, litigation expenses and
attorney's fees for lack of legal and valid basis.
Concerning the application of the proper interest rates, the following guidelines were set in Eastern Shipping Lines, Inc. v.
Court of Appeals and Mercantile Insurance Co., Inc.: 15
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts, is breached,
the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern
in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory da
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 loa
the interest due should be that which may have been stipulated in writing. Furthermore, the i
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate o
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subjec
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
on unliquidated claims or damages except when or until the demand can be established
Accordingly, where the demand is established with reasonable certainty, the interest shall beg
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
established at the time the demand is made, the interest shall begin to run only from the date
made (at which time the quantification of damages may be deemed to have been reasonably as
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 ra
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
this interim period being deemed to be by then an equivalent to a forbearance of credit.
In the said case of Eastern Shipping, the Court further observed that a "forbearance" in the c
"contractual obligation of lender or creditor to refrain, during a given period of time, from requ
to repay a loan or debt then due and payable."
Considering the foregoing, the insurance claim in this case is evidently not a forbearance of m
thus the interest rate should be as it is hereby fixed at six percent (6%) computed from the dat
We find no justification for the award of actual damages of Fifty Thousand Pesos (P50,000.0
doctrine that actual, compensatory and consequential damages must be proved, and cannot be
the dispositive portion of the Decision of the trial court ordering the petitioner to pay actual d
Pesos (P50,000.00) has no basis at all. The justification, if any, for such an award of actual da
the body of the decision of the trial court. Neither is there any testimonial and documentary evid
damages of Fifty Thousand Pesos (P50,000.00) to warrant such an award. Thus, the same mu
Concerning the award of exemplary damages for Fifty Thousand Pesos (P50,000.00), we like
basis for granting the same. Article 2229 of the New Civil Code provides that exemplary damag
of example or correction for the public good. Exemplary damages are imposed not to enrich one
but to serve as a deterrent against or as a negative incentive to curb socially deleterious act
permit the courts to mould behavior that has socially deleterious consequences, and its impo
policy to suppress the wanton acts of an offender. However, it cannot be recovered as a matter
on the discretion of the court. We find no cogent and valid reason to award the same in the cas
With respect to the award of litigation expenses and attorney's fees, Article 2208 of the New Ci
instances where such may be awarded and, in all cases, it must be reasonable, just and equit
granted. 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. 18 The award of attorney's fees is the exception rather than the general rule. As such, it is necessary for
the court to make findings of facts and law that would bring the case within the exception and justify the grant of such
award. We find none in this case to warrant the award by the trial court of litigation expenses and attorney's fees in the
amounts of Five Thousand Pesos (P5,000.00) and Ten Thousand Pesos (P10,000.00), respectively, and therefore, the
same must also be deleted.
WHEREFORE, the appealed Decision is MODIFIED. The rate of interest on the adjudged principal amount of Two Hundred
Thousand Pesos (P200,000.00) shall be six percent (6%) per annum computed from the date of filing of the Complaint in
the trial court. The awards in the amounts of Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos
(P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, and Ten Thousand Pesos
(P10,000.00) as attorney's fees are hereby DELETED. Costs against the petitioner.
SO ORDERED.
||| (Country Bankers Insurance Corp. v. Lianga Bay & Community Multi-Purpose Cooperative, Inc., G.R. No. 136914,
[January 25, 2002], 425 PHIL 511-525)
15. Imperial v. Jaucian, G.R. No. 149004, April 14, 2004
[G.R. No. 149004. April 14, 2004.]
RESTITUTA M. IMPERIAL, petitioner, vs. ALEX A. JAUCIAN, respondent.
DECISION
PANGANIBAN, J p:
Iniquitous and unconscionable stipulations on interest rates, penalties and attorney's fees are contrary to morals.
Consequently, courts are granted authority to reduce them equitably. If reasonably exercised, such authority shall not be
disturbed by appellate courts.
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the July 19, 2000 Decision 2 and the
June 14, 2001 Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 43635. The decretal portion of the Decision is
as follows:
"WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court, 5th Judicial Region, Branch 21,
Naga City, dated August 31, 1993, in Civil Case No. 89-1911 for Sum of Money, is hereby AFFIRMED in toto." 4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The dispositive portion of the August 31, 1993 Decision, promulgated by the Regional Trial Court (RTC) of Naga City
(Branch 21) and affirmed by the CA, reads as follows:
"Wherefore, Judgment is hereby rendered declaring Section I, Central Bank Circular No. 905
force and legal effect, it having been promulgated by the Monetary Board of the Central Bank o
abuse of discretion amounting to excess of jurisdiction; declaring that the rate of interest, penalty
fees agreed upon between the parties are unconscionable, iniquitous, and in violation of Act
as the Usury Law, as amended; and ordering Defendant to pay Plaintiff the amount of FOUR HU
THOUSAND, ONE HUNDRED NINETY-FOUR and 54/100 (P478,194.54) PESOS, Philippine
compensatory interests thereon at the rate of twenty-eight (28%) per centum per annum, comp
until full payment of the said amount, and in addition, an amount equivalent to ten (10%) per
due and payable, for attorney's fees, without pronouncement as to costs." 5
The Facts
The CA summarized the facts of the case in this wise:
"The present controversy arose from a case for collection of money, filed by Alex A. Jaucian ag
October 26, 1989. The complaint alleges, inter alia, that defendant obtained from plaintiff six (
the former executed in favor of the latter six (6) separate promissory notes and issued sever
payment. When the said loans became overdue and unpaid, especially when the defendant'
plaintiff made repeated oral and written demands for payment. cSITDa
"Specifically, the six (6) separate loans obtained by defendant from plaintiff on various dates a
(a) November 13, 1987 P50,000.00
(b) December 28, 1987 40,000.00
(c) January 6, 1988 30,000.00
(d) January 11, 1988 50,000.00
(e) January 12, 1988 50,000.00
(f) January 13, 1988 100,000.00
Total P320,000.00
"The loans were covered by six (6) separate promissory notes executed by defendant. The fac
note is bigger [than] the amount released to defendant because said face value already include
note to date of maturity. Said promissory notes, which indicate the interest of 16% per month,
corresponding guarantee checks issued by defendant, penalties and attorney's fees, are the fo
1. Exhibit 'D' for loan of P40,000.00 on December 28, 1987, with face value of P65,000.00;
2. Exhibit 'E' for loan of P50,000.00 on January 11, 1988, with face value of P82,000.00;
3. Exhibit 'F' for loan of P50,000.00 on January 12, 1988, with face value of P82,000.00;
4. Exhibit 'G' for loan of P100,000.00 on January 13, 1988, with face value of P164,000.00;
5. Exhibit 'H' This particular promissory note covers the second renewal of the original loan of P50,000.00 on November
13, 1987, which was renewed for the first time on March 16, 1988 after certain payments, and which was renewed finally
for the second time on January 4, 1988 also after certain payments, with a face value of P56,240.00;
6. Exhibit 'I' This particular promissory note covers the second renewal of the original loan of P30,000.00 on January 6,
1988, which was renewed for the first time on June 4, 1988 after certain payments, and which was finally renewed for the
second time on August 6, 1988, also after certain payments, with [a] face value of P12,760.00;
"The particulars about the postdated checks, i.e., number, amount, date, etc., are indicated in each of the promissory notes.
Thus, for Exhibit 'D', four (4) PB checks were issued; for Exhibit 'E' four (4) checks; for Exhibit 'F' four (4) checks; for Exhibit
'G' four (4) checks; for Exhibit 'H' one (1) check; for Exhibit 'I' one (1) check;
"The arrangement between plaintiff and defendant regarding these guarantee checks was that each time a check matures
the defendant would exchange it with cash.
"Although, admittedly, defendant made several payments, the same were not enough and she always defaulted whenever
her loans mature[d]. As of August 16, 1991, the total unpaid amount, including accrued interest, penalties and attorney's
fees, [was] P2,807,784.20.
"On the other hand, defendant claims that she was extended loans by the plaintiff on several occasions, i.e., from November
13, 1987 to January 13, 1988, in the total sum of P320,000.00 at the rate of sixteen percent (16%) per month. The notes
mature[d] every four (4) months with unearned interest compounding every four (4) months if the loan [was] not fully paid.
The loan releases [were] as follows:
(a) November 13, 1987 P50,000.00
(b) December 28, 1987 40,000.00
(c) January 6, 1988 30,000.00
(d) January 11, 1988 50,000.00
(e) January 12, 1988 50,000.00
(f) January 13, 1988 100,000.00
Hence, this Petition. 7
Total P320,000.00
"The loan on November 13, 1987 and January 6, 1988 ha[d] been fully paid including the us
month, this is the reason why these were not included in the complaint.
"Defendant alleges that all the above amounts were released respectively by checks drawn b
must produce these checks as these were returned to him being the drawer if only to serve th
are the real amount released to the defendant but the plaintiff by masterful machinations m
amount released was P462,600.00. Because in his computation he made it appear that the true
the original amount, since it include[d] the unconscionable interest for four months. SaAcHE
"Further, defendant claims that as of January 25, 1989, the total payments made by defendant
a. Paid releases on November 13, 1987 of P50,000.00 and January 6, 1988 of P30,000.00
included in the complaint affirming the fact that these were paid P80,000.00
b. Exhibit '26' Receipt 231,000.00
c. Exhibit '8-25' Receipt 65,300.00
d. Exhibit '27' Receipt 65,000.00
Total P441,780.00
Less: 320,000.00
Excess Payment P121,780.00
"Defendant contends that from all perspectives the above excess payment of P121,780.00 is
could be legally charged, and in fact as of January 25, 1989, the total releases have been fully
"On 31 August 1993, the trial court rendered the assailed decision." 6
Ruling of the Court of Appeals
On appeal, the CA held that without judicial inquiry, it was improper for the RTC to rule on the
1, Central Bank Circular No. 905, Series of 1982. Nonetheless, the appellate court affirmed the
holding that the latter's clear and detailed computation of petitioner's outstanding obligation to
and satisfactory.
The Issues
Petitioner raises the following arguments for our consideration:
"1. That the petitioner has fully paid her obligations even before filing of this case.
"2. That the charging of interest of twenty-eight (28%) per centum per annum without any writing is illegal.
"3. That charging of excessive attorney's fees is hemorrhagic.
"4. Charging of excessive penalties per month is in the guise of hidden interest.
"5. The non-inclusion of the husband of the petitioner at the time the case was filed should have dismissed this case." 8
The Court's Ruling
The Petition has no merit.
First Issue:
Computation of Outstanding Obligation
Arguing that she had already fully paid the loan before the filing of the case, petitioner alleges that the two lower courts
misappreciated the facts when they ruled that she still had an outstanding balance of P208,430.
This issue involves a question of fact. Such question exists when a doubt or difference arises as to the truth or the falsehood
of alleged facts; and when there is need for a calibration of the evidence, considering mainly the credibility of witnesses
and the existence and the relevancy of specific surrounding circumstances, their relation to each other and to the whole,
and the probabilities of the situation. 9
It is a well-entrenched rule that pure questions of fact may not be the subject of an appeal by certiorari under Rule 45 of
the Rules of Court, as this remedy is generally confined to questions of law. 10 The jurisdiction of this Court over cases
brought to it is limited to the review and rectification of errors of law allegedly committed by the lower court. As a rule, the
latter's factual findings, when adopted and affirmed by the CA, are final and conclusive and may not be reviewed on appeal.
11
Generally, this Court is not required to analyze and weigh all over again the evidence already considered in the proceedings
below. 12 In the present case, we find no compelling reason to overturn the factual findings of the RTC that the total
amount of the loans extended to petitioner was P320,000, and that she paid a total of only P116,540 on twenty-nine dates.
These findings are supported by a preponderance of evidence. Moreover, the amount of the outstanding obligation has
been meticulously computed by the trial court and affirmed by the CA. Petitioner has not given us sufficient reason why
her cause falls under any of the exceptions to this rule on the finality of factual findings. AcIaST
Second Issue:
Rate of Interest
The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to 1.167 percent per month or 14 percent
per annum; and the stipulated penalty charge, from 5 percent to 1.167 percent per month or 14 percent per annum.
Petitioner alleges that absent any written stipulation between the parties, the lower courts shou
12 percent per annum only.
The records show that there was a written agreement between the parties for the payment of in
at the rate of 16 percent per month. As decreed by the lower courts, this rate must be equitably r
unconscionable and exorbitant. "While the Usury Law ceiling on interest rates was lifted by C.B
in the said circular grants lenders carte blanche authority to raise interest rates to levels wh
borrowers or lead to a hemorrhaging of their assets." 13
In Medel v. CA, 14 the Court found the stipulated interest rate of 5.5 percent per month,
unconscionable. In the present case, the rate is even more iniquitous and unconscionable, as
per annum. When the agreed rate is iniquitous or unconscionable, it is considered "contrary t
law. [Such] stipulation is void." 15
Since the stipulation on the interest rate is void, it is as if there were no express contract ther
reduce the interest rate as reason and equity demand. We find no justification to reverse or mo
two lower courts.
Third and Fourth Issue:
Penalties and Attorney's Fees
Article 1229 of the Civil Code states thus:
"The judge shall equitably reduce the penalty when the principal obligation has been partly or
the debtor. Even if there has been no performance, the penalty may also be reduced by the
unconscionable."
In exercising this power to determine what is iniquitous and unconscionable, courts must con
each case. 17 What may be iniquitous and unconscionable in one may be totally just and e
present case, iniquitous and unconscionable was the parties' stipulated penalty charge of 5 perc
per annum, in addition to regular interests and attorney's fees. Also, there was partial performa
remitted P116,540 as partial payment of her principal obligation of P320,000. Under the circum
justified in reducing the stipulated penalty charge to the more equitable rate of 14 percent per a
The Promissory Note carried a stipulation for attorney's fees of 25 percent of the principal am
Strictly speaking, this covenant on attorney's fees is different from that mentioned in and regu
18 "Rather, the attorney's fees here are in the nature of liquidated damages and the stipulatio
penal clause." 19 So long as the stipulation does not contravene the law, morals, public order
upon the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled to enforce
Nevertheless, it appears that petitioner's failure to comply fully with her obligation was not mo
The twenty-nine partial payments she made were a manifestation of her good faith. Again, Ar
specifically empowers the judge to reduce the civil penalty equitably, when the principal ob
irregularly complied with. Upon this premise, we hold that the RTC's reduction of attorney's fee
percent of the total amount due and payable is reasonable.
Fifth Issue:
Non-Inclusion of Petitioner's Husband
Petitioner contends that the case against her should have been dismissed, because her husband was not included in the
proceedings before the RTC.
We are not persuaded. The husband's non-joinder does not warrant dismissal, as it is merely a formal requirement that
may be cured by amendment. 20 Since petitioner alleges that her husband has already passed away, such an amendment
has thus become moot. cSITDa
WHEREFORE, the Petition is DENIED. Costs against petitioner.
SO ORDERED.
||| (Imperial v. Jaucian, G.R. No. 149004, [April 14, 2004], 471 PHIL 484-496)
16. Angel Jose Warehousing Co., Inc. v. Chelda Ent., G.R. No. L-25704, April 24, 1968
[G.R. No. L-25704. April 24, 1968.]
ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee, vs. CHELDA ENTERPRISES and DAVID SYJUECO,
defendants-appellants.
Burgos and Sarte for appellants.
Luis Ma. Guerrero for appellee.
SYLLABUS
1. CONTRACTS; LOANS; CONTRACT WITH USURIOUS INTEREST; LOAN IS VALID BUT USURIOUS INTEREST
VOID. A contract of loan with usurious interest is valid as to the loan but void as to the usurious interest (Lopez vs. El
Hogar Filipino, 47 Phil., 249).
2. ID.; ID.; ID.; DIVISIBLE CONTRACT;. VOID TERM. In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced. In simple loan with stipulation of usurious interest, the prestation of the
debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies
only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since
it is the only one that is illegal.
3. ID.; ID.; ID.; ID.; ARTICLE 1413 OF THE NEW CIVIL CODE CONSTRUED. Article 1413, in speaking of "interest paid
in excess of the interest allowed by the usury laws" means the whole usurious interest; that is, in a loan of P1,000 with
interest of 20% per annum or P200 for one year, if the borrower pays said P200, the whole P200 is the usurious interest,
not just that part thereof in excess of the interest allowed by law. It is in this case that the law does not allow division. The
whole stipulation as to interest is void, since payment of said interest is the cause or object and said interest is illegal. The
only change effected, therefore, by Article 1413, New Civil Code, is not to provide for the recovery of the interest paid in
excess of that allowed by law, which the Usury Law already provided for, but to add that the sa
interest thereon from the date of payment."
4. ID.; ID.; RECOVERY OF PRINCIPAL; REMEDY OF CREDITOR. The principal debt re
payment of interest can thus be recovered by judicial action. And in case of such demand, and
the debt earns interest from the date of the demand (in this case from the filing of the complain
to stipulation, for there was none, the same being void. Rather, it is due to the general provisi
to pay money, where the debtor incurs in delay, he has to pay interest by way of damages (Art.
a quo therefore, did not err in ordering defendants to pay the principal debt with interest thereo
date of filing of the complaint.
5. ATTORNEY'S FEES; WHEN AWARD RECOVERABLE. The rule as to attorney's fee
recoverable, in the absence of stipulation. Several exceptions to this rule are provided (Art.
shown to fall under an exception, the act of plaintiff in engaging counsel's services due to refu
demand, does not justify award of attorney's fees (Estate of Buan vs. Camaganacan, L-21569,
DECISION
BENGZON, J.P., J p:
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 agai
Enterprises and David Syjueco, its capitalist partner, for recovery of alleged unpaid loans in the
with legal interest from the filing of the complaint, plus attorney's fees of P5,000.00. Alleging tha
by defendants to pay said account were dishonored, that defendants' industrial partner, Chellar
country, and that defendants have removed or disposed of their property, or are about to do so
creditors, preliminary attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff in the total amou
P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff charged and deduc
interest thereon, at rates of 2% and 2.5% per month, and, consequently, plaintiff has no cause o
and should not be permitted to recover under the law. A counterclaim for P2,000.00 attorney's
Plaintiff filed on June 25, 1964 an answer to the counterclaim, specifically denying under oath
After trial, decision was rendered on November 10, 1965. The court found that there remaine
unpaid principal amount of P20,287.50; that plaintiff charged usurious interests, of which P1
deducted in advance by plaintiff from the loan; that said amount of P1,048.15 should therefore b
principal of P20,287.50, leaving a balance of P19,247.35 1 still payable to the plaintiff. Said cou
the usurious interest charged, plaintiff is not barred from collecting the principal of the loan or
Accordingly, it stated in the dispositive portion of the decision, thus:
"WHEREFORE, judgment is hereby rendered ordering the defendant partnership to pay to
P19,247.35, with legal interest thereon from May 29, 1964 until paid, plus an additional sum of
attorney's fee; and, in case the assets of defendant partnership be insufficient to satisfy this ju
defendant David Syjueco to pay to the plaintiff one-half (1/2) of the unsatisfied portion of this ju

With costs against the defendants."
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest, may the creditor recover
the principal of the loan? (2) Should attorney's fees be awarded in plaintiff's favor?
To refute the lower court's decision which is based on the doctrine laid down by this Court in Lopez v. El Hogar Filipino, 47
Phil. 249, holding that a contract of loan with usurious interest is valid as to the loan but void as to the usurious interest,
appellants argue that in light of the New Civil Code provisions said doctrine no longer applies. In support thereof, they cite
the case decided by the Court of Appeals in Sebastian v. Bautista, 58 O.G. No. 15, p. 3146.
The Sebastian case was an action for recovery of a parcel of land. The Court of First Instance therein decided in plaintiff's
favor, on the ground that the so-called sale with pacto de retro of said land was in fact only an equitable mortgage. In
affirming the trial court, the writer of the opinion of the Court of Appeals went further to state the view that the loan secured
by said mortgage was usurious in nature, and, thus, totally void. Such reasoning of the latter, however, was not concurred
in by the other members of the Court, who concurred in the result and voted for affirmance on the grounds stated by the
trial court. Furthermore, the affirmance of the existence of equitable mortgage necessarily implies the existence of a valid
contract of loan, because the former is an accessory contract to the latter.
Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:
"ART. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a
criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall
be applicable to the things or the price of the contract.
"This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and
shall not be bound to comply with his promise."
Since, according to the appellants, a usurious loan is void due to illegality of cause or object the rule of pari delicto
expressed in Article 1411, supra, applies, so that neither party can bring action against each other. Said rule, however,
appellants add, is modified as to the borrower, by express provision of the law (Art. 1413, New Civil Code), allowing the
borrower to recover interest paid in excess of the interest allowed by the usury law. As to the lender, no exception is made
to the rule; hence, he cannot recover on the contract. So they continue the New Civil Code provisions must be upheld
as against the Usury Law, under which a loan with usurious interest is not totally void, because of Article 1961 of the New
Civil Code, that: "Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not
inconsistent with this Code." (Emphasis supplied).
We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of the
Old Civil Code. Therefore, said provision is no warrant for departing from previous interpretation that, as provided in the
Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally void but void only as to the interest.
True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies where a contract's nullity proceeds
from illegality of the cause or object of said contract.
However, appellants fail to consider that a contract of loan with usurious interest consists
stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest the
And said two stipulations are divisible in the sense that the former can still stand without the latt
attests to this: "The renunciation of the principal debt shall extinguish the accessory obligations
shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to payment of interest likewis
terms as to payments of the principal debt. Article 1420 of the New Civil Code provides in this re
contract, if the illegal terms can be separated from the legal ones, the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the princip
of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the pres
interest; hence, being separable, the latter only should be deemed void, since it is the only one
Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in
a loan shall have paid a higher rate or greater sum or value than is allowed in said law, may
paid. The New Civil Code, in Article 1413 states: "Interest paid in excess of the interest allowe
recovered by the debtor, with interest thereon from the date of payment." Article 1413, in s
excess of the interest allowed by the usury laws" means the whole usurious interest; that is
interest of 20% per annum or P200 for one year, if the borrower pays said P200, the whole P2
not just that part thereof in excess of the interest allowed by law. It is in this case that the law d
whole stipulation as to interest is void, since payment of said interest is the cause or object and
only change effected, therefore, by Article 1413, New Civil Code, is not to provide for the reco
excess of that allowed by law, which the Usury law already provided for, but to add that the sa
interest thereon from the date of payment."
The foregoing interpretation is reached with the philosophy of usury legislation in mind; to
usurious interest, said stipulations are treated as wholly void, so that the loan becomes on
payment of interest. It should not, however, be interpreted to mean forfeiture even of the princ
enrich the borrower at the expense of the lender. Furthermore, penal sanctions are available ag
a further deterrence to usury.
The principal debt remaining without stipulation for payment of interest can thus be recovere
case of such demand, and the debtor incurs in delay, the debt earns interest from the date of th
the filing of the complaint). Such interest is not due to stipulation, for there was none, the same
to the general provision of law that in obligations to pay money, where the debtor incurs in dela
way of damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defe
debt with interest thereon at the legal rate, from the date of filing of the complaint.
As regards, however, the attorney's fees, the court a quo stated no basis for its award, beyon
defendants' refusal to pay the amount of P19,247.35 notwithstanding repeated demands, plain
services of counsel. The rule as to attorney's fees is that the same are not recoverable, in
Several exceptions to this rule are provided (Art. 2208, Civil Code). Unless shown to fall under an exception, the act of
plaintiff in engaging counsel's services due to refusal of defendants to pay his demand, does not justify award of attorney's
fees (Estate of Buan v. Camaganacan, L-21569, Feb. 28, 1966). Defendants, moreover, had reason to resist the claim,
since there was yet no definite ruling of this Court on the point of law involved herein in light of the New Civil Code. Said
award should therefore be deleted.
WHEREFORE, with the modification that the award of attorney's fees in plaintiff's favor is deleted therefrom, and the
correction of the clerical error as to the principal still recoverable from P19,247.35 to P19,239.35, the appealed judgment
is hereby affirmed. No costs.
SO ORDERED.
||| (Angel Jose Warehousing Co., Inc. v. Chelda Enterprises, G.R. No. L-25704, [April 24, 1968], 131 PHIL 645-651)
17. Manzano v. Lazaro, G.R. No. 173320, April 11, 2012
[G.R. No. 173320. April 11, 2012.]
EDUARDO B. MANZANO, petitioner, vs. ANTONIO B. LAZARO, respondent.
DECISION
PERALTA, J p:
Before us is a Petition for Review on Certiorari of the Decision 1 and Resolution 2 of the Court of Appeals in CA-G.R. CV
No. 82753, dated February 28, 2006 and June 21, 2006, respectively, affirming the Decision 3 of the Regional Trial Court
(RTC), Branch 97, Quezon City, in Civil Case No. Q-98-35924. EHTSCD
On February 16, 1998, petitioner Eduardo B. Manzano and respondent Antonio B. Lazaro entered into a Professional
Services Contract 4 pertaining to the former's candidacy for the Vice-Mayoralty post in Makati City. Petitioner as the first
party and respondent as the second party agreed that the contract shall take effect on February 16, 1998 until May 15,
1998. The contract provided among others:
II. Roles and Responsibilities of Contracting Parties
Responsibilities of the Second Party:
1. He shall head the organizational machinery of the First Party.
2. He shall be responsible in hiring and firing the required personnel to man the different positions of the organization.
3. He shall authorize the expenditures of the campaign.
4. He shall assist in the mobilization of resources for the campaign.
5. He shall set-up administrative mechanisms to safeguard the efficient and effective use of re
6. He shall take full responsibility for all the furniture and fixtures to be assigned to the designa
7. He shall develop programs and projects in aid of ensuring the winnability of the candidate.
Responsibilities of the First Party.
1. He shall ensure the provision of financial resources and other logistical requirements for the
2. He shall compensate the second party as stipulated in the Section III for Remuneration and
III. Remuneration and Manner of Payment:
A. The monthly rate due for the Second Party is SEVENTY THOUSAND PESOS (P70,000.00
equal tranches, on the 15th and 30th of each month, from February 16, 1998 up to May 15,
months.
B. A bonus pay amounting to TWO HUNDRED THOUSAND PESOS (P200,000.00) shall be g
the event that the First Party win the Vice-Mayoralty post. 5 HSaCcE
Subsequently, petitioner won as Vice-Mayor of Makati. Respondent, thereafter, learned in a tra
16, 1998 representing the last payroll of certain individuals, which included him, that he wo
P15,000.00 only and the balance of P20,000.00 shall be forwarded only upon his final invento
the campaign. Hence, respondent, in his letter 7 dated July 3, 1998 to petitioner, wrote that he
equipment used for the campaign. Respondent then demanded the payment of P20,000.00 as b
and the P200,000.00 bonus pay agreed upon.
Petitioner acknowledged respondent's demand letter and the delivery of the campaign equipme
8 dated July 17, 1998, but wrote that he needed to receive the liquidation of the expenses inc
which task was requested shortly after the May 11, 1998 elections.
In his letter 9 dated July 30, 1998, respondent wrote that the preparation of the audited finan
was not part of his responsibilities as he was not in charge of the management of campaign fu
assigned to Robert Gomez and Soliman Cruz (Cruz) who acted as petitioner's Director for Finan
Angie Manzano (Angie), as the auditor. He reiterated the payment of P220,000.00 due him.
On even date, Cruz wrote petitioner a letter 10 dated July 30, 1998, stating that he did not volun
the liquidation of expenses, as respondent had nothing to do with the campaign accounting re
request for liquidation of campaign expenses was another switch in petitioner's condition prior t
respondent.
As respondent's demand for petitioner to pay him remained unheeded, he filed with the RTC an
of money against petitioner.
In his defense, petitioner argued that he hired respondent's services because of the latter's representation of being a
seasoned and an experienced campaign manager. However, during the campaign period, he discovered that respondent
had no expertise or capacity for political organization and was often absent during campaign sorties and public meetings;
that he failed to provide petitioner with poll watchers to safeguard his chances of winning against electoral fraud. Petitioner
deemed it best to merely exclude him from the strategic planning sessions rather than confront him as he had already the
knowledge of the campaign activities and supporters. Petitioner opined that he won the elections due to his popularity and
the support of his family and friends; and that respondent was not entitled to a bonus pay, since respondent failed to show
any significant contribution or role in his electoral victory.
On June 7, 2004, the RTC rendered its Decision, the dispositive portion of which reads: SCHIcT
WHEREFORE, premises considered, Decision is hereby rendered directing the defendant Eduardo B. Manzano to pay to
the plaintiff the following:
1. Two Hundred Twenty Thousand Pesos (PHP220,000.00) representing the plaintiff's professional service fee covering
the May 1-15, 1998 period and bonus for the defendant's electoral victory as stipulated in the Professional Service Contract,
plus legal interests from 03 July 1998 until fully paid; and
2. Thirty Thousand Pesos (PHP30,000.00) as Attorney's Fees. 11
In so ruling, the RTC said that to allege that petitioner's consent was vitiated would not justify the refusal to pay the agreed
remuneration in the absence of a court ruling annulling the subject contract; and that unless said contract was annulled,
the terms therein remained enforceable. As to the alleged failure to comply with the responsibilities set forth in the contract,
the RTC said that the power to rescind obligation is implied in reciprocal ones, but in the absence of a stipulation to the
contrary, the power must be invoked judicially and cannot be exercised solely on a party's own judgment that the other has
committed a breach of obligation. It also found petitioner's allegation of breach of contract inconsistent with the statement
in the last payroll where petitioner acknowledged the balance due respondent, since if petitioner believed that respondent
failed to perform his responsibilities, he should not have stated in the last payroll that the balance due respondent would
be given upon submission of the inventory of the campaign materials. The RTC concluded that petitioner's contention was
merely used as an excuse to evade payment after respondent had complied with the conditions requiring the latter to
submit such inventory. The RTC awarded attorney's fees, because of petitioner's refusal to pay respondent's claim which
compelled him to litigate.
Dissatisfied, petitioner filed his appeal with the CA. Respondent filed his Comment and petitioner his Reply thereto.
Thereafter, the case was submitted for decision.
On February 28, 2006, the CA rendered its assailed Decision, which dismissed the appeal and affirmed the RTC decision.
Petitioner's motion for reconsideration was denied in a Resolution dated June 21, 2006.
Hence, the instant petition which raises the following errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN LIMITING THE DISCUSSION OF ITS QUES
TO THE SUBJECT OF THE PROFESSIONAL SERVICES CONTRACT BETWEEN PETITIO
BEING VOIDABLE AND ITS ALLEGED RATIFICATION BY PETITIONER. THE RULING OF T
DOES NOT, IN ANY WAY, TOUCH UPON THE ISSUE OF RESPONDENT'S MATERIAL BRE
AND WHETHER HE IS ENTITLED TO THE BONUS OF P200,000.00 AS A RESULT OF SUC
II
THE COURT OF APPEALS GRAVELY ERRED IN FAILING TO HOLD THAT RESPONDEN
BREACH BY FAILING TO PERFORM HIS DUTIES UNDER HIS PROFESSIONAL SER
PETITIONER AS HEAD OF THE LATTER'S CAMPAIGN AND ORGANIZATIONAL MACHINE
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT RESPONDENT CO
HIS PROFESSIONAL SERVICES CONTRACT WITH PETITIONER BY MISREPRESENT
EXPERT IN ESTABLISHING A POLITICAL CAMPAIGN MACHINERY. EaDATc
IV
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT RESPONDENT SH
BALANCE OF HIS REMUNERATION ON THE BASIS OF EQUITY AND SUBSTANTIAL JUS
WILL BE UNJUSTLY ENRICHED AS A RESULT OF SUCH PAYMENT. 12
Petitioner contends that the CA decision was limited to the issue that the contract was mere
ratification by petitioner but did not take into account respondent's breach of his obligations w
the issue of respondent's entitlement to the bonus; and that awarding him of bonus despite s
unjust enrichment. He argues that respondent was always absent or unavailable during the c
meetings which resulted in petitioner's having to continue his campaign with little or no assist
he failed to provide the required personnel to man the different positions of the organization si
by respondent were also working for another candidate in Mandaluyong City; that there was no
mobilization of resources for his campaign because of the less visibility of the personnel hire
party to the territories covered by petitioner's campaign which constrained petitioner to procee
and that during the canvassing of votes, respondent only made a brief appearance and wa
whereabouts unknown; and that he also failed to provide petitioner with poll watchers in the pre
votes cast for him were all accounted for.
Petitioner also argues that respondent misrepresented himself to be an expert in carrying out
his consent into entering the contract with respondent was vitiated by fraud and mistake as to th
credentials.
We find no merit in the petition.
The above-stated arguments by petitioner raise factual matters. As a rule, only questions of la
Court by a petition for review. The Court is not a trier of facts, its jurisdiction being limited to erro
findings of the trial court, particularly when affirmed by the Court of Appeals, are generally binding on this Court. 13 In
weighing the evidence of the parties, the RTC, as affirmed by the CA, found respondent's evidence to be sufficient in
proving his case. We found no reason to disturb such finding as it was borne by the evidence on record.
Under the Professional Services Contract executed between petitioner and respondent on February 16, 1998, particularly
under the subheading of remuneration and manner of payment, it was provided that:
A. The monthly rate due for the Second Party is SEVENTY THOUSAND PESOS (P70,000.00). This will be given in two
equal tranches, on the 15th and 30th of each month, from February 16, 1998 up to May 15, 1998, or a total of three (3)
months. DHEACI
B. A bonus pay amounting to TWO HUNDRED THOUSAND PESOS (P200,000.00) shall be given to the second party in
the event that the First Party wins the Vice-Mayoralty post.
It is basic that a contract is the law between the parties. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith. 14 Unless the stipulations in a contract are contrary to
law, morals, good customs, public order or public policy, the same are binding as between the parties. 15
In this case, the three-month period stated in the contract had already elapsed and petitioner won as Vice-Mayor of Makati
in the 1998 elections, thus, respondent is entitled not only to the full payment of his compensation but also to a bonus pay.
However, respondent's compensation for the period from May 1 to 15, 1998 was not yet paid in full as there was still a
balance of P20,000.00 as well as his bonus pay. Petitioner refuses to pay the said amounts on the allegation that
respondent failed to fulfill his obligations under the contract.
We are not persuaded.
Petitioner's claim of breach of obligation consisted only of his uncorroborated and self-serving statement which was
contradicted by the evidence on record.
In the June 1998 remittance of the last payroll, it was stated that respondent would be paid the amount of P15,000.00 and
the balance of P20,000.00 shall be forwarded upon his final inventory of equipment used during the campaign. Clearly, the
payment of the balance of P20,000.00 was conditioned upon respondent's final inventory of the equipment used in the
campaign. On July 3, 1998, respondent wrote petitioner a letter informing the latter that he had already turned over the
equipment by delivering the same to petitioner's doorstep on July 2, 1998; and that his final act of turning over his obligation
merited petitioner's reciprocal action. Consequently, respondent demanded the payment of P20,000.00 as well as the
P200,000.00 bonus pay as petitioner won the Vice-Mayoralty race.
Petitioner admitted having received the equipment in his letter reply dated July 17, 1998 to respondent as he wrote:
. . . I appreciate your delivering the inventory at my doorstep even though it was never requested. With regards to my
reciprocal action, I have yet to receive the liquidation of the expenses incurred during the campaign. Mrs. Rufino informed
me about two weeks back that when we requested said liquidation from Mr. S. Cruz he volunteered that you would be the
individual who will be preparing the report. We have yet to receive the breakdown from either you or Mr. Cruz considering
it was requested shortly after the May 11, 1998 elections. I, more than anyone else, would like to end this chapter of my
life. I hope to hear from either of you soonest. 16 cDCHaS
In respondent's letter reply dated July 30, 1998, he clearly indicated that the preparation of the
not part of his responsibilities as he was not in charge of the management of campaign fun
assigned to Cruz who would write a separate letter to support his statement.
In his letter to petitioner, Cruz clarified that there was never a request for liquidation of exp
requested from him was the preparation of the summary of transportation and other expenses w
petitioner's campaign expenses to be filed with the Comelec; that he did not volunteer respond
he had nothing to do with the campaign's accounting records; that he only instructed his secreta
information and asked her to seek respondent's help for expediency. He also wrote that t
liquidation of campaign expenses was another switch in petitioner's condition prior to settling his
As shown by the foregoing exchange of correspondences, the first condition imposed before
balance was the inventory of campaign equipment. After respondent complied with such cond
acknowledged, respondent asked for the payment of the balance as well as his bonus. Howev
was imposed on respondent before payment would be given, i.e., submission of report on t
incurred during the campaign, which respondent and Cruz wrote that respondent had nothing to
failed to show evidence to the contrary.
Surprisingly, respondent's alleged breach of obligation was never brought up by petitioner dur
was asking for the payment of the amounts owing to him which betrays the falsity of petitioner
mention is the fact that petitioner had even paid respondent his salary for the three-month pe
P20,000.00, conditioned upon respondent's delivery of the inventory of campaign equipment.
that indeed respondent had performed his responsibilities under the contract. We, therefo
conclusion that petitioner's claim of breach of contract was merely used as an excuse to evad
due respondent.
Petitioner's contention that respondent's misrepresentation that he had the expertise in establ
for his campaign, was not at all true thus his consent was vitiated, is not meritorious. Again, pe
supported by the evidence on record. We find apropos what the CA said on this issue, to wit:
It bears emphasis that vitiated consent does not make a contract unenforceable but merely
binding on all the contracting parties until annulled and set aside by a court of law. If indee
vitiated, his remedy would have been to annul the contract, considering that voidable contract
they are annulled. This is the clear import of Article 1390 (2) of the Civil Code,which provides:
Art. 1390. The following contracts are voidable or annullable, even though there may ha
contracting parties. aIAEcD
1. Those where one of the parties is incapable of giving consent to a contract.
2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fra
These contracts are binding, unless they are annulled by a proper action in court. They are sus
Pursuant to the above-quoted provision, the alleged fraud committed by appellee upon appellant made the contract for
professional services a voidable contract. Being a voidable contract, it is susceptible of either ratification or annulment. If
the contract is ratified, the action to annul it is extinguished and the contract is cleansed from all its defects. But if the
contract is annulled, the contracting parties are restored to their respective situations before the contract and mutual
restitution follows as a consequence.
As stated earlier, an annullable contract may be rendered perfectly valid by ratification, which can be express or implied.
Implied ratification may take the form of accepting and retaining the benefits of a contract. This is what happened in this
case. No action was taken by appellant to annul the professional service contract. Appellant also did not confront appellee
regarding the latter's poor campaign services. This silence, taken together with appellant's demand for appellee to make
an inventory of equipment and a liquidation of the funds used during the campaign, constitutes in itself an effective
ratification of the original agreement in accordance with Article 1393 of the Civil Code,which reads:
xxx xxx xxx
If appellant was, indeed, tricked into contracting with appellee and was unsatisfied with the latter's services, he should have
taken steps in order for the latter not to expect any bonus. After all, the bonus was dependent solely on the condition of
appellant's victory in the elections. Or he could have immediately instituted an action for annulment of their contract. But
none of these happened. As the records show, appellant even went further by giving appellant other election related tasks.
This bolsters the view that, indeed there was ratification. One cannot continue on demanding a certain task to be performed
but at the same time contend that the contract cannot be enforced because of poor performance and misrepresentation.
Notably, it was only when appellee already demanded the payment of the stipulated amount that appellant raised the
defense of vitiated consent. Clearly, appellant was agreeable to the contract except that appellee's expertise fell short of
appellant's expectations. 17
We also affirm the award of attorney's fees, as respondent was compelled to litigate and incur expenses to protect his
interest because of petitioner's unjust refusal to satisfy respondent's claim. 18 TIESCA
The RTC, as affirmed by the CA, ordered petitioner to pay respondent the amount of P220,000.00 plus legal interest,
however, the legal rate of interest was not specified. As to computation of legal interest, Eastern Shipping Lines, Inc. v.
Court of Appeals 19 laid down the following guidelines, thus:
xxx xxx xxx
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. . . .
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably as
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 ra
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
this interim period being deemed to be by then an equivalent to a forbearance of credit. 20
In this case, petitioner's obligation does not constitute a loan or forbearance of money, but
service of respondent as petitioner's campaign manager. Hence, the amount of P220,000.00
earn an interest of 6% per annum to be computed from the time the extrajudicial demand for p
3, 1998 until the finality of this decision. As ruled in Eastern Shipping, after a judgment has b
the rate of legal interest, whether the obligation was in the form of a loan or forbearance of m
12% per annum from such finality until its satisfaction. Thus, from the date the liability for t
become final and executory, an annual interest of 12% shall be imposed until its final satisfactio
deemed to be by then an equivalent to a forbearance of credit. 21
WHEREFORE, in view of all the foregoing, the instant petition is DENIED. The Decision dated
Resolution dated June 21, 2006 of the Court of Appeals in CA-G.R. CV No. 82753, which
ordering petitioner to pay respondent the amount of P220,000.00, plus P30,000.00 as attorney'
the MODIFICATION that the award of P220,000.00 shall earn interest at the rate of 6% per an
the finality of this decision. After this decision becomes final and executory, petitioner is ORDE
per annum on the principal obligation until full payment. ECaTAI
SO ORDERED.
||| (Manzano v. Lazaro, G.R. No. 173320, [April 11, 2012], 685 PHIL 445-460)
18. Techno Dev. Chemical Corp. v. Viking Metal Ind. Inc., G.R. No. 203179, July 4, 201
[G.R. No. 203179. July 4, 2016.]
TECHNO DEVELOPMENT & CHEMICAL CORPORATION, petitioner, vs. VIKING METAL IN
INCORPORATED, respondent.
DECISION
PERALTA, J p:
Before the Court is a petition for review on certiorari under Rule 45 of the R
reverse and set aside the Decision 1 dated March 16, 2012 and Resolution 2 dated Augus
of Appeals (CA) in CA-G.R. CV No. 84186, which modified the Decision 3 dated August 2
Trial Court (RTC), National Capital Judicial Region, Branch 145, Makati City.
The factual antecedents are as follows.
On September 23, 1993, respondent Viking Metal Industries, Incorpora
President and General Manager, Brilly Bernardez, presented to the PNOC Energy De
(PNOC-EDC) its bid proposal to supply and deliver, within one hundred and sixty (160) d
items, consisting of pipe shoes and structural supports, for the PNOC-EDC First 40 MW
Project (MG Project). In a Notice of Award dated January 17, 1994, the project was awarde
lowest bid of P6,794,172.30. 4 While said document provided for January 18, 1994 as th
and June 26, 1994 as completion date, the parties agreed to move the starting date to January 31, 1994 and July
9, 1994 as the completion date. 5 On March 10, 1994, PNOC-EDC likewise awarded to VMI the Bifurcator
Fabrication of the MG Project amounting to P200,000.00 to expire on July 18, 1994. Pending the execution of a
formal contract, VMI and PNOC-EDC agreed that the bid document and the Notice of Award shall constitute as the
binding contract between them. 6
In a meeting held on April 13, 1994 among the representatives of PNOC-EDC, VMI, and herein
petitioner Techno Development & Chemical Corporation, the parties agreed to paint the fabricated items with
Ultrazinc Primer, an anti-rust primer manufactured by petitioner Techno. 7 Consequently, VMI began purchasing
said primer from Techno, while Techno provided VMI with technical personnel to supervise the application of the
primer on the fabricated items.
Thereafter, VMI made several deliveries of the fabricated items to PNOC-EDC on May 27, 1994,
June 1, 1994, June 2, 1994, November 19, 1994, and finally on January 3, 1996. 8 On the third week of June 1994,
however, PNOC-EDC advised VMI of the rejection of 410 pieces of the fabricated items due to the premature rusting
of the coated surfaces thereof. In response, the President of VMI and the Vice-President for Technical Services of
Techno conducted a joint ocular inspection on June 24, 1994 at the PNOC-EDC Stockyard in Sta. Mesa, Manila.
As a result thereof, they noted that rust had manifested on the surface of the fabricated products despite being
coated with the Ultrazinc primer. They likewise noted that the primer was very soft and had started to pulverize. 9
CAIHTE
On July 13, 1994, the VMI and Techno representatives met again and agreed that corrective
measures on the defective painting would have to be done. Thus, in a follow-up letter dated July 15, 1994, VMI
reminded Techno of their agreement that the pull-out of the defective fabricated items, including trucking services,
electric and power supply, as well as administration costs, would be for Techno's account. 10 Thereafter, in another
meeting among PNOC-EDC, VMI, and Techno, PNOC-EDC reminded VMI of its contractual obligations to finish
the project as scheduled and that any delay by VMI's subcontractor, Techno, would be borne by it. In the same
meeting, Techno agreed to rectify the balance of the fabricated items with the defective primer applications stocked
at the PNOC-EDC Stockyard, while VMI agreed to the withdrawal and repair of the rejected structural supports/pipe
shoes. In a later meeting held on August 19, 1994, VMI and Techno agreed on the time-sharing use of VMI's shop
and that Techno would deliver the Ultracoat Paints to be used for the repairs.
While the corrosion problem on the fabricated items was being remedied, VMI incurred delays in the
submission of required fabrication drawings, encountered difficulties in sourcing construction materials, and
committed gross miscalculations of the tons requirements, ultimately resulting in the delay in the deliveries of the
structural supports, which should have been completed on July 8 and 18, 1994 but as of August 5, 1994, were only
about 60% finished. 11 In spite of said problems, however, PNOC-EDC still proceeded to formally execute the
Fabrication Contract with VMI on September 28, 1994, but retained July 9, 1994 as the completion date.
In the next several months, VMI and PNOC-EDC further encountered several delays and consequent
contract extensions due to deficiencies and non-conformance of the fabricated items with PNOC-EDC's
specifications. In the end, PNOC-EDC advised VMI that it only had until July 30, 1995 to complete the rectification
work on the rejected items and that any remaining undelivered items after said deadline would be inventoried and
deleted from the contract. 12 True enough, PNOC-EDC decreased the original fabrication contract price of
P6,794,172.30, which was adjusted to P6,871,605.64 in February 1996, to P6,578,034.99. 13
In a letter dated April 3, 1998, VMI appealed to PNOC-EDC to reconsider its demand of
P2,265,645.09 as the total collectible amount representing liquidated damages and deductions ratiocinating that
the delay was ultimately attributable to the poor and substandard primer paint of Techno. In reply, PNOC-EDC
affirmed its deduction and informed VMI that its approval of Techno as paint supplier would not relieve it of its
obligation under their contract. 14 Thus, on September 30, 1999, VMI filed before the RTC of Makati City a
Complaint for Sum of Money and Damages against PNOC-EDC due to its continued ref
remaining balance of the contract price allegedly amounting to P2,265,644.23 and a
reimbursement of P550,000.00 for the alleged repairs done on the defective coating of the
On the one hand, PNOC-EDC averred in its Answer with Counterclaim tha
recovery of any amount since the retained amount of P2,230,410.10 (not P2,265,644.23 as V
as follows: P1,374,321.13 as penalty for the delays; P293,570.65 as deletion of work
P490,959.72 as repairs and rectification costs of defective pipes. 16 On the other hand,
provided VMI with the manual for the proper application of its paint products and technical
witnessed and recorded the failure by VMI personnel to comply with the proper procedures
paint products and, thus, warned said VMI personnel that Techno would not give them an
fabricated items get rusty; the re-painting of the defective fabricated items were all underta
of Techno, without any cost to VMI; Techno is not a party to the Fabrication Contract be
EDC; and it is actually VMI that has an unpaid obligation in favor of Techno amounting to P1
17
During the pre-trial, the parties agreed on the following issues for resolution: (
rightfully withheld the amount of P2,265,644.23 as penalty; (2) whether VMI was in dela
obligation with PNOC-EDC; and (3) whether Techno could be held liable to VMI and, on t
VMI has an outstanding unpaid obligation in favor of Techno. 18
On August 27, 2003, the RTC rendered its Decision the pertinent portions o
An examination of the evidence on record shows that the del
plaintiff in the performance of its obligation cannot be solely attributed to
mainly caused by the paint failure on the fabricated materials. PNOC-E
cognizant of this fact as shown in its letter of July 13, 1994.
xxx xxx xxx
From this aforequoted letter, it is palpably clear that PN
acknowledged the fact that the delay was caused by defendant Techno.
cannot insist now that it was plaintiff alone who was responsible for it. . . .
xxx xxx xxx
It cannot be denied that plaintiff purchased from Techno the p
in the fabrication of the subject materials. This is in accordance with the dir
defendant PNOC-EDC since Techno was a duly accredited supplier of pa
(PNOC-EDC) was satisfied by the quality of the paint products of Techno af
was conducted on it. Hence, there being accreditation for the purchase an
Ultracoat 2130 from Techno, it has warranted the good quality of this paint
there was no directive from PNOC-EDC, Techno is still obligated to the
to deliver good Ultracoat 2130 paint as the contract of sale between it
plaintiff carries with it the implied warranty of Techno against hidden de
the products bought by the plaintiff.
xxx xxx xxx
The defense of Techno that plaintiff did not follow the manual of procedure given to it fo
of the subject paint is less convincing in the face of its failure to adduce evidence on th
manual of procedure. What it offered in evidence to prove the fault of the plaintiff are "d
and "diagrams of pipe support." . . . Again, these documentary evidence do not persuad
alleged instructors or representatives of defendant Techno who allegedly conducted the
prepared the reports were not presented as witnesses to testify on these matters. More
even bother to formally communicate to either the plaintiff or defendant PNOC-EDC of the alleged faulty
procedure applied by plaintiff as well the intention of Techno to withdraw the warranty of its products sold to the
plaintiff.
Finally, while it is true that defendant Techno is not privy to the Fabrication Contract, its assumption of the cost
of rectification is enough proof that it was aware of the fact that its product is defective. Had it been otherwise, it
should not have assumed the obligation.
PREMISES CONSIDERED, judgment is rendered in favor of the
plaintiff and against the defendants as follows:
1) Ordering defendant PNOC-EDC to pay the amount of
P2,265,644.23 representing the balance of the stipulated price under the Fabrication
Contract;
2) Ordering defendant Techno to pay the plaintiff the amount of
P550,000.00 representing the cost of the rectification on the subject materials;
[and]
3) Ordering both defendants to pay jointly and severally the sum
of P100,000.00 for as attorney's fees plus cost of suit.
SO ORDERED. 19
Aggrieved, petitioner Techno appealed the RTC's Decision to the CA contending, among other
assertions, that the trial court erred in finding that it was liable to pay the costs of the rectification in the amount of
P550,000.00 without any legal or factual basis on record, that it did not enter into any contract with VMI obliging it
to pay P550,000.00 as cost of rectification, and that VMI did not adduce any sufficient evidence to support its claim
thereto. In fact, when Techno saw the huge estimates made by VMI on the projected cost of rectification, it undertook
the repainting at its sole expense instead without any cost to VMI. Also, Techno faulted the trial court for failing to
consider its undisputed counterclaim against VMI for the unpaid purchases of paint products amounting to
P166,750.00. 20 DETACa
In its Decision dated March 16, 2012, the CA pertinently ruled as follows:
VMI's claim falls squarely within the realm of actual or compensatory damages. However, its failure to prove
actual expenditure consequently conducts to a failure of its claim. In determining actual damages, the Court
cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof
and on the best evidence obtainable regarding the actual amount of loss such as receipts or other documentary
proofs to support such claim.
To support its claim of Php550,000.00 against Techno, VMI presented a letter dated June 28, 1994 of VMI
Bernardez addressed to Danilo Tuazon, President of Techno, containing a price quotation for the scope of work
to be done on the fabricated items with defective coating in the amount of Php426,165.85. We note that said
letter did not bear the conformity of Techno and worse, it was a mere photocopy.
A price quotation is not a competent proof to show that VMI solely undertook the repainting of the defective
fabricated products. In a meeting held among the parties on August 19, 1994, VMI and Techno agreed on the
time-sharing use of VMI's shop and for Techno to deliver the Ultracoat paints to be used for the repairs of the
fabricated items. This only proves that Techno did its share. Failing to satisfy the Court that VMI certainly
suffered actual damages amounting to Php550,000.00, its claim must necessarily fail.
We do not find the award of attorney's fees justified in this case. The general rule is that no premium should be
placed on the right to litigate and attorney's fees as part of damages are not meant to enrich the winning party at
the expense of the losing litigant. We find no evidence of bad faith by PNOC-EDC and Techno which would
justify the award of attorney's fees.
WHEREFORE, PNOC-EDC's appeal is PARTIALLY GRANT
appealed Decision of the RTC, Makati City, Branch 145 is MODIFIED, as fo
1) The award of actual damages in the amount of Php55
in favor of VMI and against Techno is DELETED;
2) The award of unpaid balance of the Contract Price in the a
Php2,265,644.23 in favor of Viking Metal Industries, Inc. against PNOC
Development Corporation is reduced to Php2,230,410.10 and the penalty ch
the amount of Php180,663.21 is to be deducted therefrom, for a net a
Php2,049,746.89.
3) The award of Attorney's fees amounting to Php100,0
also DELETED.
SO ORDERED. 21
In a Motion for Partial Reconsideration dated April 12, 2012, petitioner Techn
appellate court correctly deleted the award of actual damages in the amount of P550,000.0
the amount of P100,000.00 against Techno and in favor of VMI, the appellate court neverth
its counterclaim against VMI for the unpaid purchases of paint products amounting to P166,
dated August 22, 2012, however, the CA denied petitioner Techno's Motion for Partial Rec
cogent and persuasive reason to deviate from its previous findings and conclusions conside
in their motions are a mere rehash and had already been passed upon. 22 Hence, this petitio
argument:
I.
THE COURT OF APPEALS GRAVELY ERRED IN OMITTING AND FAILING TO CONSID
COUNTERCLAIM OF PETITIONER TECHNO AGAINST RESPONDENT
DESPITE THE FACT THAT RESPONDENT HAD ADMITTED ITS OBLIGATI
PETITIONER HAD ESTABLISHED BY A PREPONDERANCE OF EVIDENC
RESPONDENT HAS FAILED TO PAY FOR PETITIONER'S PRODUCTS
TOTAL AMOUNT OF PHP166,750.00.
In the instant petition, Techno reiterates that while the appellate court corre
rectification in the amount of P550,000.00 and the P100,000.00 attorney's fees award
nonetheless erred when it omitted, without any legal basis, to render a ruling on its counterc
VMI for the unpaid products purchased by the latter. According to Techno, the CA overlook
issue of whether it is entitled to its counterclaim despite the fact that VMI had already adm
that it had sufficiently proven its claim. Techno points out that from the very beginning, it ha
its Answer with Compulsory Counterclaim dated October 19, 1999 that VMI is still indebte
of P166,750.00 plus interest equivalent to one percent (1%) per month beginning January
as stipulated in the purchase invoice, exclusive of additional charges and attorney's fees.
trial, the parties even agreed on said counterclaim as one of the issues which will be subm
while the appellate court's Decision mentioned such counterclaim in the narration of issues r
the same, offering no explanation and legal basis for such omission.
In support of its claim, Techno presented the following evidence: (1) Statem
January 31, 1995 containing a list of accounts receivable from VMI for its unpaid products p
(2) several Invoices and Delivery Receipts 24 signed by representatives of VMI evidencin
paint products and receipt thereof by VMI; (3) corroborating testimony of Techno's Chi
testimony of its President attesting to the fact that VMI still had an outstanding accou
aforestated amount. In addition, Techno asserts that VMI's witness, its President Brilly Be
 his knowledge of the existence of the unpaid obligation of VMI in favor of Techno as shown by the following excerpt
of his testimony during trial:
Q: Are you aware of the fact that you may still have some unpaid obligation due to Techno
Development?
(Brilly Bernardez)
A: Yes, there could be but subject to verification.
Q: And the amount due is in connection with this project?
A: That particular project, sir.
COURT
This project?
WITNESS (Brilly Bernardez)
A: Yes, Your Honor. 25
At the same trial, moreover, Techno recounts that while VMI attempted to present rebuttal evidence,
VMI ultimately withdrew said evidence thereby establishing Techno's assertion that VMI utterly failed to refute its
counterclaim. In the end, Techno avers that it would be rather unfair to deem the appellate court's judgment as final
for if its counterclaim will not be considered, VMI will be unjustly enriched at the expense of Techno in view of the
established fact that VMI actually received and used Techno's products without giving any corresponding
consideration therefor. 26
For its part, respondent VMI countered that when the trial court rendered its decision ruling that
Techno was guilty of breach in its respective obligation towards VMI, it was clearly implied that Techno's
counterclaim was without basis. 27 Thereafter, while the CA opted to cancel the trial court's award of damages in
favor of Techno for lack of sufficient evidence, it did not disturb the rest of the findings of the lower court including
the denial of the counterclaim. Thus, VMI claims that Techno can no longer assert its counterclaim and allege that
the same was never addressed. Besides, to do so would request the Court to reopen the factual issues and to
assume the role of a trial court. 28 aDSIHc
We rule in favor of petitioner.
At the outset, the Court notes that its jurisdiction in cases brought before it from the appellate court
is limited to reviewing errors of law, and findings of fact of the Court of Appeals are conclusive upon the Court since
it is not the Court's function to analyze and weigh the evidence all over again. 29 In several cases, however, it has
been repeatedly held that the rule that factual findings of the Court of Appeals are binding on the Court are subject
to the following exceptions: (1) when the findings are grounded entirely on speculations, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings
are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to that of
the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by
the evidence on record; or (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, would justify a different conclusion.
In the instant case, while the appellate court aptly ruled upon and rejected VMI's claim of
P550,000.00 subject of VMI's Complaint for Sum of Money against Techno, it clearly overlooked the factual issues
presented by Techno in its counterclaim against VMI. In its thirty-five (35)-page Decision, the CA seemed to have
preoccupied itself with the other issues presented by VMI as against PNOC-EDC and Techno, without addressing
the issue of whether VMI has an outstanding unpaid obligation in favor of Techno, nor providing any reason for
such failure. Had it exerted additional effort in taking Techno's claims into consideration, as
pieces of proof, it would have warranted their meritorious and evidentiary value.
A review of the records of the case would reveal that the evidence
preponderantly established its counterclaim. By preponderance of evidence is meant that th
one side is, as a whole, superior to that of the other side. 30 Essentially, preponderance o
comparative weight of the evidence presented by the opposing parties. 31 As such, it ha
weight, credit, and value of the aggregate evidence on either side," and is usually consid
with the term greater weight of the evidence or greater weight of the credible evidence. 32
convincing to the court as worthy of belief than that which is offered in opposition thereto. 3
Here, the Court finds that petitioner Techno duly proved its claims that VMI pu
therefrom, that the same were delivered to VMI, and that VMI failed to fully pay the price th
evidence on record, Techno not only submitted a Statement of Account containing a list of a
VMI for its unpaid products purchased from Techno, as well as the corresponding deliver
signed by VMI representatives evidencing delivery by Techno of paint products and receipt
presented corroborating testimony of Techno's Chief Accountant and also the testimony o
to the fact that VMI still had an outstanding account with Techno. It is evident, therefore
preponderantly established its counterclaim, especially in light of the fact that respondent V
same in spite of every opportunity to do so.
A cursory reading of the records shows that VMI never bothered to refute Te
contrary evidence or by any sort of denial in its pleadings filed before the RTC, the CA, o
petitioner Techno points out, while VMI attempted to present rebuttal evidence, VMI u
evidence. Note that from the very first instance when Techno raised the counterclaim in its A
Counterclaim dated October 19, 1999 up until the filing of its Comment before the Court on
had every opportunity to refute Techno's claims of non-payment. Regrettably for VMI, howe
existence of its outstanding account with Techno, not even on rebuttal. In fact, as asse
witness, President Brilly Bernardez, even acknowledged the possibility of the existence of
favor of Techno, albeit its susceptibility of being subject to verification. It is interesting to note
of rectifying its failure to refute Techno's claims before the courts below, all VMI had to s
before the Court was that it was clearly implied from the trial court's ruling that Techno's co
basis and that the same was effectively affirmed by the appellate court when it did not rule
Court, such reasoning barely repudiates the preponderance of Techno's evidence. Thus,
and utter failure to offer any sort of opposing evidence, documentary or testimonial, in conju
of evidence duly adduced by Techno, the Court deems it necessary to consider Techno's c
At this point, it is worthy to note that a careful look at the rulings of the trial c
would reveal that neither court exerted any effort in determining the veracity of petitioner's
courts acknowledged the counterclaim in their decisions, and even listed the same as part o
to be resolved, nowhere in their decisions did they even remotely pass upon said claim
therefore, that the courts below definitively denied Techno's claim to the payment of the
sheer absence of any showing that they took into consideration Techno's allegations much
of the evidence presented to support it. Even granting VMI's argument that the trial court im
counterclaim against it, and that the appellate court affirmed said denial, the Court finds th
implicit denials and grant Techno's counterclaim for as previously threshed out, not onl
present sufficient proof to substantiate its claim, VMI consistently and utterly failed to adduc
the same.
Ultimately, it must be noted that if Techno's claim was to be denied simply by
 courts to pass upon the same in their decisions, without any factual or legal explanation therefor, VMI would be
unjustly enriched at the expense of Techno for VMI's failure to pay for the paints it received. Such unjust enrichment
due to the failure to make remuneration of or for property or benefits received cannot be countenanced and must
be correspondingly corrected by the Court. 34 In view of the foregoing, the Court finds Techno to be entitled to the
payment of the unpaid paint products purchased by VMI therefrom.
On the matter of petitioner Techno's prayer for exemplary damages in the amount of P200,000.00,
however, the Court resolves to deny the same. Article 2234 35 of the Civil Code of the Philippines requires a party
to first prove that he is entitled to moral, temperate or compensatory damages before he can be awarded exemplary
damages. Moreover, Article 2220 36 of the same Code provides that in breaches of contract, moral damages may
be awarded when the party at fault acted fraudulently or in bad faith. Thus, to justify an award for exemplary
damages, the wrongful act must be accompanied by bad faith, and an award of damages would be allowed only if
the guilty party acted in a wanton, fraudulent, reckless or malevolent manner. 37 In the instant case, there is no
showing that VMI failed to pay for its purchased paint products fraudulently or in bad faith. The Court, therefore,
does not find Techno to be entitled to exemplary damages.
As to Techno's claim for the award of attorney's fees in the amount of P200,000.00, as well as an
honorarium of P5,000.00 per appearance, the Court finds said amounts to be inconsistent with the stipulation on
the Delivery Receipts and Invoices submitted by Techno which provides that "the buyer agrees to pay . . . in case
of an action is filed in Court, an additional Twenty-Five (25%) Per Cent of the total amount of the obligation due and
demandable, in the nature of attorney's fees." 38 Thus, instead of the P200,000.00 attorney's fees, as well as the
P5,000.00 honorarium per appearance, the award of attorney's fees must be computed on the basis of said
stipulation, which provides for a twenty-five percent (25%) charge on the total amount due to petitioner Techno.
ETHIDa
Finally, with respect to the matter of interest, the Court notes the stipulation on the Delivery Receipts
and Invoices submitted by Techno which provides that "one (1) Per Cent interest per month shall be charged on all
overdue accounts." 39 Accordingly, respondent VMI is liable to pay interest at the rate of one percent (1%) per
month or twelve percent (12%) per annum to be computed from default, i.e., judicial or extrajudicial demand
pursuant to the provisions of Article 1169 of the Civil Code.Furthermore, in accordance with the doctrine laid down
in Nacar v. Gallery Frames, 40 when the judgment of the court awarding the sum of money becomes final and
executory, the rate of legal interest shall be six percent (6%) per annum from such finality until its satisfaction, taking
the form of a judicial debt.
WHEREFORE, premises considered, the instant petition is GRANTED. The dispositive portion of the assailed Decision
dated March 16, 2012 of the Court of Appeals in CA-G.R. CV No. 84186 shall now read as follows:
1) The award of actual damages in the amount of P550,000.00 in favor of respondent Viking Metal
Industries, Incorporated and against petitioner Techno Development & Chemical Corporation is DELETED;
2) The award of unpaid balance of the Contract Price in the amount of P2,265,644.23 in favor of
Viking Metal Industries, Incorporated against PNOC-Energy Development Corporation is reduced to P2,230,410.10
and the penalty charges in the amount of P180,663.21 is to be deducted therefrom, for a net award of
P2,049,746.89;
3) The award of Attorney's fees amounting to P100,000.00 is also DELETED;
4) Respondent Viking Metal Industries, Incorporated is ORDERED to PAY petitioner Techno
Development & Chemical Corporation the following: (a) the unpaid purchased paint products in the amount of
P166,750.00; (b) attorney's fees at the rate of twenty-five percent (25%) of the total unpaid amount; (c) interest at
the rate of one percent (1%) per month or twelve percent (12%) per annum to be computed from January 31, 1995,
the date of default; and (d) from the date of promulgation of this Decision up to full payment, interest at the rate of
six percent (6%) per annum on the sum of money plus the interest computed under paragraph (c) above.
SO ORDERED.
||| (Techno Development & Chemical Corp. v. Viking Metal Industries, Inc., G.R. No.
19. Durban Apartments Corp v. Pioneer Ins. & Surety Corp.,
[G.R. No. 179419. January 12, 2011.]
DURBAN APARTMENTS CORPORATION, doing business under the name and style of City G
PIONEER INSURANCE AND SURETY CORPORATION, respondent.
DECISION
NACHURA, J p:
For review is the Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which af
Regional Trial Court (RTC), Branch 66, Makati City, in Civil Case No. 03-857, holding pet
Corporation solely liable to respondent Pioneer Insurance and Surety Corporation for the lo
vehicle.
The facts, as found by the CA, are simple.
On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation . . ., by right of subr
of Makati City] a Complaint for Recovery of Damages against [petitioner] Durban Apartments C
under the name and style of City Garden Hotel, and [defendant before the RTC] Vicente Just
averred] that: it is the insurer for loss and damage of Jeffrey S. See's [the insured's] 2001 Su
Plate No. XBH-510 under Policy No. MC-CV-HO-01-0003846-00-D in the amount of P1,175,000
arrived and checked in at the City Garden Hotel in Makati corner Kalayaan Avenues, Makati C
parking attendant, defendant . . . Justimbaste got the key to said Vitara from See to park it[. O]n
o'clock in the morning, See was awakened in his room by [a] telephone call from the Hotel
informed him that his Vitara was carnapped while it was parked unattended at the parking a
along Makati Avenue between the hours of 12:00 [a.m.] and 1:00 [a.m.]; See went to see the H
thereafter reported the incident to the Operations Division of the Makati City Police Anti-Carnap
was issued; the Makati City Police Anti-Carnapping Unit investigated Hotel Security Officer, E
and defendant . . . Justimbaste; See gave his Sinumpaang Salaysay to the police investigator,
with the PNP Traffic Management Group in Camp Crame, Quezon City; the Vitara has not yet
23, 2002 as evidenced by a Certification of Non-Recovery issued by the PNP TMG; it paid the P
of See and mortgagee ABN AMRO Savings Bank, Inc. as indemnity for the loss of the Vitara
the negligence of [petitioner] Durban Apartments and [defendant] Justimbaste because it
investigation that this was the second time that a similar incident of carnapping happened in
[petitioner] Durban Apartments and no necessary precautions were taken to prevent its rep
Apartments was wanting in due diligence in the selection and supervision of its employees
Justimbaste; and defendant . . . Justimbaste and [petitioner] Durban Apartments failed and re
and lawful claim despite written demands.
Upon service of Summons, [petitioner] Durban Apartments and [defendant] Justimbaste filed the
Counterclaim alleging that: See did not check in at its hotel, on the contrary, he was a guest of
.; defendant . . . Justimbaste did not get the ignition key of See's Vitara, on the contrary, it was S
attendant to park the Vitara at any available parking space, and it was parked at the Equitable Bank parking area, which
was within See's view, while he and Montero were waiting in front of the hotel; they made a written denial of the demand
of [respondent] Pioneer Insurance for want of legal basis; valet parking services are provided by the hotel for the
convenience of its customers looking for a parking space near the hotel premises; it is a special privilege that it gave to
Montero and See; it does not include responsibility for any losses or damages to motor vehicles and its accessories in the
parking area; and the same holds true even if it was See himself who parked his Vitara within the premises of the hotel as
evidenced by the valet parking customer's claim stub issued to him; the carnapper was able to open the Vitara without
using the key given earlier to the parking attendant and subsequently turned over to See after the Vitara was stolen;
defendant . . . Justimbaste saw the Vitara speeding away from the place where it was parked; he tried to run after it, and
blocked its possible path but to no avail; and See was duly and immediately informed of the carnapping of his Vitara; the
matter was reported to the nearest police precinct; and defendant . . . Justimbaste, and Horlador submitted themselves to
police investigation. SATDHE
During the pre-trial conference on November 28, 2003, counsel for [respondent] Pioneer Insurance was present. Atty.
Monina Lee . . ., counsel of record of [petitioner] Durban Apartments and Justimbaste was absent, instead, a certain Atty.
Nestor Mejia appeared for [petitioner] Durban Apartments and Justimbaste, but did not file their pre-trial brief.
On November 5, 2004, the lower court granted the motion of [respondent] Pioneer Insurance, despite the opposition of
[petitioner] Durban Apartments and Justimbaste, and allowed [respondent] Pioneer Insurance to present its evidence ex
parte before the Branch Clerk of Court.
See testified that: on April 30, 2002, at about 11:30 in the evening, he drove his Vitara and stopped in front of City Garden
Hotel in Makati Avenue, Makati City; a parking attendant, whom he had later known to be defendant . . . Justimbaste,
approached and asked for his ignition key, told him that the latter would park the Vitara for him in front of the hotel, and
issued him a valet parking customer's claim stub; he and Montero, thereafter, checked in at the said hotel; on May 1, 2002,
at around 1:00 in the morning, the Hotel Security Officer whom he later knew to be Horlador called his attention to the fact
that his Vitara was carnapped while it was parked at the parking lot of Equitable PCI Bank which is in front of the hotel; his
Vitara was insured with [respondent] Pioneer Insurance; he together with Horlador and defendant . . . Justimbaste went to
Precinct 19 of the Makati City Police to report the carnapping incident, and a police officer came accompanied them to the
Anti-Carnapping Unit of the said station for investigation, taking of their sworn statements, and flashing of a voice alarm;
he likewise reported the said incident in PNP TMG in Camp Crame where another alarm was issued; he filed his claim with
[respondent] Pioneer Insurance, and a representative of the latter, who is also an adjuster of Vesper Insurance Adjusters-
Appraisers [Vesper], investigated the incident; and [respondent] Pioneer Insurance required him to sign a Release of Claim
and Subrogation Receipt, and finally paid him the sum of P1,163,250.00 for his claim.
Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer Insurance tasked, among others, with the
receipt of claims and documents from the insured, investigation of the said claim, inspection of damages, taking of pictures
of insured unit, and monitoring of the processing of the claim until its payment; he monitored the processing of See's claim
when the latter reported the incident to [respondent] Pioneer Insurance; [respondent] Pioneer Insurance assigned the case
to Vesper who verified See's report, conducted an investigation, obtained the necessary documents for the processing of
the claim, and tendered a settlement check to See; they evaluated the case upon receipt of the subrogation documents
and the adjuster's report, and eventually recommended for its settlement for the sum of P1,163,250.00 which was accepted
by See; the matter was referred and forwarded to their counsel, R.B. Sarajan & Associates, who prepared and sent demand
letters to [petitioner] Durban Apartments and [defendant] Justimbaste, who did not pay [respondent] Pioneer Insurance
notwithstanding their receipt of the demand letters; and the services of R.B. Sarajan & Associates were engaged, for
P100,000.00 as attorney's fees plus P3,000.00 per court appearance, to prosecute the claim
Insurance against [petitioner] Durban Apartments and Justimbaste before the lower court.
Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer Insuranc
investigation of See's case, and he was the one actually assigned to investigate it; he conduc
matter by interviewing See, going to the City Garden Hotel, required subrogation documents
authenticity of the same; he learned that it is the standard procedure of the said hotel as rega
to assist their guests as soon as they get to the lobby entrance, park the cars for their guests,
in their safety key box; considering that the hotel has only twelve (12) available parking slots
Equitable PCI Bank permitting the hotel to use the parking space of the bank at night; he also lea
van was carnapped at the said place barely a month before the occurrence of this incident
assigned the said incident to Vespers, and Horlador and defendant . . . Justimbaste admitted
in their sworn statements before the Anti-Carnapping Unit of the Makati City Police; upon ver
[Unit] in Camp Crame, he learned that See's Vitara has not yet been recovered; upon evaluatio
[respondent] Pioneer Insurance to settle See's claim for P1,045,750.00; See contested the rec
reasoning out that the 10% depreciation should not be applied in this case considering the fact
barely eight (8) months prior to its loss; and [respondent] Pioneer Insurance acceded to See
sum of P1,163,250.00 as settlement, the former accepted it, and signed a release of claim and
The lower court denied the Motion to Admit Pre-Trial Brief and Motion for Reconsideration
Apartments and Justimbaste in its Orders dated May 4, 2005 and October 20, 2005, respective
3 HDTISa
Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner Durban Apartments Corpo
Pioneer Insurance and Surety Corporation] the sum of P1,163,250.00 with legal interest there
the obligation is fully paid and attorney's fees and litigation expenses amounting to P120,000.0
SO ORDERED. 4
On appeal, the appellate court affirmed the decision of the trial court, viz.:
WHEREFORE, premises considered, the Decision dated January 27, 2006 of the RTC, Bra
Case No. 03-857 is hereby AFFIRMED insofar as it holds [petitioner] Durban Apartments C
[respondent] Pioneer Insurance and Surety Corporation for the loss of Jeffrey See's Suzuki Gr
SO ORDERED. 5
Hence, this recourse by petitioner.
The issues for our resolution are:
1. Whether the lower courts erred in declaring petitioner as in default for failure to appear at the
file a pre-trial brief;
2. Corollary thereto, whether the trial court correctly allowed respondent to present evidence e
3. Whether petitioner is liable to respondent for attorney's fees in the amount of P120,000.00; a

4. Ultimately, whether petitioner is liable to respondent for the loss of See's vehicle.
The petition must fail.
We are in complete accord with the common ruling of the lower courts that petitioner was in default for failure to appear at
the pre-trial conference and to file a pre-trial brief, and thus, correctly allowed respondent to present evidence ex-parte.
Likewise, the lower courts did not err in holding petitioner liable for the loss of See's vehicle.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate
court, are accorded the highest degree of respect and are considered conclusive between the parties. 6 A review of such
findings by this Court is not warranted except upon a showing of highly meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on speculation, surmises, or conjectures; (2) when a lower court's inference
from its factual findings is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion in the
appreciation of facts; (4) when the findings of the appellate court go beyond the issues of the case, or fail to notice certain
relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a misappreciation of facts;
(6) when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised
on the absence of evidence, or are contradicted by evidence on record. 7 None of the foregoing exceptions permitting a
reversal of the assailed decision exists in this instance. IDASHa
Petitioner urges us, however, that "strong [and] compelling reason[s]" such as the prevention of miscarriage of justice
warrant a suspension of the rules and excuse its and its counsel's non-appearance during the pre-trial conference and their
failure to file a pre-trial brief.
We are not persuaded.
Rule 18 of the Rules of Court leaves no room for equivocation; appearance of parties and their counsel at the pre-trial
conference, along with the filing of a corresponding pre-trial brief, is mandatory, nay, their duty. Thus, Section 4 and Section
6 thereof provide:
SEC. 4. Appearance of parties. It shall be the duty of the parties and their counsel to appear at the pre-trial. The non-
appearance of a party may be excused only if a valid cause is shown therefor or if a representative shall appear in his
behalf fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution,
and to enter into stipulations or admissions of facts and documents.
SEC. 6. Pre-trial brief. The parties shall file with the court and serve on the adverse party, in such manner as shall
ensure their receipt thereof at least three (3) days before the date of the pre-trial, their respective pre-trial briefs which shall
contain, among others:
xxx xxx xxx
Failure to file the pre-trial brief shall have the same effect as failure to appear at the pre-trial.
Contrary to the foregoing rules, petitioner and its counsel of record were not present at the scheduled pre-trial conference.
Worse, they did not file a pre-trial brief. Their non-appearance cannot be excused as Section 4, in relation to Section 6,
allows only two exceptions: (1) a valid excuse; and (2) appearance of a representative on behalf of a party who is fully
authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter
into stipulations or admissions of facts and documents.
Petitioner is adamant and harps on the fact that November 28, 2003 was merely the first scheduled date for the pre-trial
conference, and a certain Atty. Mejia appeared on its behalf. However, its assertion is belied by its own admission that, on
said date, this Atty. Mejia "did not have in his possession the Special Power of Attorney issu
Directors."
As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial on Octob
days prior to the scheduled conference. In that span of time, Atty. Lee, who was charged with th
of the scheduled pre-trial conference, 8 petitioner, and Atty. Mejia should have discussed wh
the pre-trial conference with petitioner, armed with the appropriate authority therefor. Sadly, pet
not just one rule; it also did not proffer a reason why it likewise failed to file a pre-trial brief. In a
any persuasive reason why it should be exempt from abiding by the rules.
The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and with only
is counsel for petitioner, was correctly rejected by the trial court. Accordingly, the trial court, a
court, did not err in allowing respondent to present evidence ex-parte. SEDaAH
Former Chief Justice Andres R. Narvasa's words continue to resonate, thus:
Everyone knows that a pre-trial in civil actions is mandatory, and has been so since January
place in the scheme of things is not fully appreciated, and it receives but perfunctory treatment in
consider it a mere technicality, serving no useful purpose save perhaps, occasionally to furnish
plaintiff, or declaring a defendant in default, or, wistfully, to bring about a compromise. The pre
to full use. Hence, it has failed in the main to accomplish the chief objective for it: the simp
expedition of the trial, if not indeed its dispensation. This is a great pity, because the objective
much difficulty, if the device were more intelligently and extensively handled.
xxx xxx xxx
Consistently with the mandatory character of the pre-trial, the Rules oblige not only the lawye
appear for this purpose before the Court, and when a party "fails to appear at a pre-trial confere
or considered as in default." The obligation "to appear" denotes not simply the personal appea
presentation by a party of one's self, but connotes as importantly, preparedness to go into the
by law to a pre-trial. And in those instances where a party may not himself be present at the p
substitutes for him, or his lawyer undertakes to appear not only as an attorney but in substitutio
imperative for that representative of the lawyer to have "special authority" to make such subs
the client otherwise has capacity to make. That "special authority" should ordinarily be in wri
"duly established by evidence other than the self-serving assertion of counsel (or the proclaim
Without that special authority, the lawyer or representative cannot be deemed capacitated to a
hence, it will be considered that the latter has failed to put in an appearance at all, and he [mu
or considered as in default," notwithstanding his lawyer's or delegate's presence. 9
We are not unmindful that defendant's (petitioner's) preclusion from presenting evidence during
result in a judgment in favor of plaintiff (respondent). The plaintiff must still substantiate the alle
Otherwise, it would be inutile to continue with the plaintiff's presentation of evidence each time
in default.
In this case, respondent substantiated the allegations in its complaint, i.e., a contract of necessa
the insured See and petitioner. On this score, we find no error in the following disquisition of th
[The] records also reveal that upon arrival at the City Garden Hotel, See gave notice to the doo
of the said hotel, . . . Justimbaste, about his Vitara when he entrusted its ignition key to the lat
a valet parking customer claim stub to See, parked the Vitara at the Equitable PCI Bank pa
ignition key inside a safety key box while See proceeded to the hotel lobby to check in. The E
area became an annex of City Garden Hotel when the management of the said bank allowed the parking of the vehicles of
hotel guests thereat in the evening after banking hours. 11
Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by
persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of
safely keeping it and returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract,
there is no deposit but some other contract. aCSTDc
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of
hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees,
of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers
or their substitutes advised relative to the care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner,
through the latter's employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit
was perfected from See's delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received
with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of See's vehicle.
Lastly, petitioner assails the lower courts' award of attorney's fees to respondent in the amount of P120,000.00. Petitioner
claims that the award is not substantiated by the evidence on record.
We disagree.
While it is a sound policy not to set a premium on the right to litigate, 12 we find that respondent is entitled to reasonable
attorney's fees. Attorney's fees may be awarded when a party is compelled to litigate or incur expenses to protect its
interest, 13 or when the court deems it just and equitable. 14 In this case, petitioner refused to answer for the loss of See's
vehicle, which was deposited with it for safekeeping. This refusal constrained respondent, the insurer of See, and
subrogated to the latter's right, to litigate and incur expenses. However, we reduce the award of P120,000.00 to P60,000.00
in view of the simplicity of the issues involved in this case.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 86869 is AFFIRMED with
the MODIFICATION that the award of attorney's fees is reduced to P60,000.00. Costs against petitioner.
SO ORDERED.
||| (Durban Apartments Corp. v. Pioneer Insurance and Surety Corp., G.R. No. 179419, [January 12, 2011], 654 PHIL 413-
427)
20. CA Agro Ind. Dev. Corp. v. CA, et. al.
[G.R. No. 90027. March 3, 1993.]
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs. THE HONORABLE COURT OF APPEALS and
SECURITY BANK AND TRUST COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACTS; CONTRACT FOR RENT OF SAFETY DEPOSIT BOX; A SPECIA
STRICTLY GOVERNED BY CIVIL CODE PROVISIONS ON DEPOSIT. We agree with the
the contract for the rent of the safety deposit box is not an ordinary contract of lease as define
Code. However, We do not fully subscribe to its view that the same is a contract of deposit th
by the provisions in the Civil Code on deposit; the contract in the case at bar is a special ki
characterized as an ordinary contract of lease under Article 1643 because the full and absolut
the safety deposit box was not given to the joint renters the petitioner and the Pugaos. The gu
with the respondent Bank; without this key, neither of the renters could open the box. On the
Bank could not likewise open the box without the renter's key. In this case, the said key had a
so that both renters could have access to the box.
2. ID.; ID.; ID.; PREVAILING RULE IN AMERICAN JURISPRUDENCE ADOPTED IN TH
observe, however, that the deposit theory itself does not altogether find unanimous support even
We agree with the petitioner that under the latter, the prevailing rule is that the relation betwe
deposit boxes and its customer with respect to the contents of the box is that of a bailor and ba
hire and mutual benefit. This is just the prevailing view because: "There is, however, some s
relationship in question might be more properly characterized as that of landlord and tenant,
also been suggested that it should be characterized as that of licensor and licensee. The rela
deposit company, or storage company, and the renter of a safe-deposit box therein, is often
express or implied, oral or written, in whole or in part. But there is apparently no jurisdiction in
that applicable to bailments governs questions of the liability and rights of the parties in respe
safe-deposit boxes." In the context of our laws which authorize banking institutions to rent ou
clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section
Act pertinently provides: "SEC. 72. In addition to the operations specifically authorized else
institutions other than building and loan associations may perform the following services: (a)
documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such e
perform the services permitted under subsections (a), (b) and (c) of this section as depositor
that the primary function is still found within the parameters of a contract of deposit, i.e., the re
documents and other valuable objects for safekeeping. The renting out of the safety deposit box
but related to or in conjunction with, this principal function.
3. ID.; ID.; ID.; DEGREE OF DILIGENCE REQUIRED OF DEPOSITARY; FREEDOM TO STIP
contract of deposit may be entered into orally or in writing and, pursuant to Article 1306 of the Ci
may establish such stipulations, clauses, terms and conditions as they may deem conveni
contrary to law, morals, good customs, public order or public policy. The depositary's respons
the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accord
be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contra
agreement. In the absence of any stipulation prescribing the degree of diligence required, that
is to be observed. Hence, any stipulation exempting the depositary from any liability arising
deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy. . . . It has
been said: "With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties,
since the relation is a contractual one, may by special contract define their respective duties or provide for increasing or
limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly
appear that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law
from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful
meaning. The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own
fraud or negligence or that of its agents or servants, and if a provision of the contract may be construed as an attempt to
do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit
its liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limit
its liability to some extent by agreement or stipulation."
4. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. In the instant case, petitioner maintains that conditions 13 and 14 of the
questioned contract of lease of the safety deposit box, which read: "13. That bank is not a depositary of the contents of the
safe and it has neither the possession nor control of the same. 14. The bank has no interest whatsoever in said contents,
except herein expressly provided, and it assumes absolutely no liability in connection therewith." are void as they are
contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said provisions are
inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act.
Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to exercise
reasonable diligence only with respect to who shall be admitted to any rented safe, to wit: "8. The Bank shall use due
diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible
for the contents of any safe rented from it." Furthermore, condition 13 stands on a wrong premise and is contrary to the
actual practice of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents
of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover,
the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes
unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing
conditions in the contract in question are void and ineffective.
DECISION
DAVIDE, JR., J p:
Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with
respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee?
This is the crux of the present controversy. LLjur
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into
an agreement whereby the former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of
this amount, P75,725.00 was paid as downpayment while the balance was covered by three (3) postdated checks. Among
the terms and conditions of the agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land
were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the
owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be
deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures of a
representative of the petitioner and the Pugaos upon full payment of the purchase price .Petitioner, through Sergio Aguirre,
and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Ba
domestic banking corporation hereinafter referred to as the respondent Bank. For this purpose
lease (Exhibit "2") which contains, inter alia, the following conditions:
"13. The bank is not a depositary of the contents of the safe and it has neither the possession
14. The bank has no interest whatsoever in said contents, except herein expressly provided, an
liability in connection therewith." 1
After the execution of the contract, two (2) renter's keys were given to the renters one to Ag
the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The
(2) keyholes, one for the guard key and the other for the renter's key, and can be opened only
Petitioner claims that the certificates of title were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots
square meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 pe
P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed of sale wh
production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugao
respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of ti
in the presence of the Bank's representative, the box yielded no such certificates. Because of th
of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence ther
failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1 September 1980
against the respondent Bank with the Court of First Instance (now Regional Trial Court) of
docketed the same as Civil Case No. 38382. Cdpr
In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no ca
paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items
box could not give rise to an action against it. It then interposed a counterclaim for exemplary da
fees in the amount of P20,000.00. Petitioner subsequently filed an answer to the counterclaim.
In due course, the trial court. now designated as Branch 161 of the Regional Trial Court (RT
rendered a decision 5 adverse to the petitioner on 8 December 1986, the dispositive portion of
"WHEREFORE, premises considered, judgment is hereby rendered dismissing plaintiff's comp
On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defen
THOUSAND (P5,000.00) PESOS as attorney's fees.
With costs against plaintiff." 6
The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and
the Bank has no liability for the loss of the certificates of title. The court declared that the said p
parties.

Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to the respondent Court
of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the
challenged decision because the trial court erred in (a) absolving the respondent Bank from liability from the loss, (b) not
declaring as null and void, for being contrary to law, public order and public policy, the provisions in the contract for lease
of the safety deposit box absolving the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as well as
under American jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank and denying
the petitioner's prayer for nominal and exemplary damages and attorney's fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision principally on the theory
that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a contract of lease by
virtue of which the petitioner and its co-renter were given control over the safety deposit box and its contents while the
Bank retained no right to open the said box because it had neither the possession nor control over it and its contents. As
such, the contract is governed by Article 1643 of the Civil Code 10 which provides:
"ARTICLE 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing
for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years
shall be valid."
It invoked Tolentino vs. Gonzales 11 which held that the owner of the property loses his control over the property leased
during the period of the contract and Article 1975 of the Civil Code which provides:
"ARTICLE 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound
to collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may
preserve their value and the rights corresponding to them according to law.
The above provision shall not apply to contracts for the rent of safety deposit boxes."
and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents of the box. The
stipulation absolving the defendant-appellee from liability is in accordance with the nature of the contract of lease and
cannot be regarded as contrary to law, public order and public policy." 12 The appellate court was quick to add, however,
that under the contract of lease of the safety deposit box, respondent Bank is not completely free from liability as it may
still be made answerable in case unauthorized persons enter into the vault area or when the rented box is forced open.
Thus, as expressly provided for in stipulation number 8 of the contract in question:
"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this,
the Bank will not be responsible for the contents of any safe rented from it." 13
Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August 1989, 15 petitioner
took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the respondent Court's ruling.
Petitioner avers that both the respondent Court and the trial court (a) did not properly and legally apply the correct law in
this case, (b) acted with grave abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c) set a
precedent that is contrary to, or is a departure from precedents adhered to and affirmed by decisions of this Court and
precepts in American jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to
reconsider the trial court's decision, the brief submitted to the respondent Court and the motion to reconsider the latter's
decision. In a nutshell, petitioner maintains that regardless of nomenclature, the contract for the rent of the safety deposit
box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book IV of the Civil Code of the Philippines. 16
Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title
the said Code which provides: prLL
"ARTICLE 1972. The depositary is obliged to keep the thing safely and to return it, when requ
his heirs and successors, or to the person who may have been designated in the contract. Hi
to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of thi
If the deposit is gratuitous, this fact shall be taken into account in determining the degree of ca
observe."
Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expou
the United States, to wit:
"The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit
takes possession of the box or safe and places therein his securities or other valuables, the re
created between the parties to the transaction as to such securities or other valuables; the
company does not know, and that it is not expected that it shall know, the character or descrip
deposited in such safe-deposit box or safe does not change that relation. That access to the c
box can be had only by the use of a key retained by the lessee (whether it is the sole key or on
with one retained by the lessor) does not operate to alter the foregoing rule. The argument that
a delivery of exclusive possession and control to the deposit company, and that therefore the
from that of ordinary bailment, has been generally rejected by the courts, usually on the groun
be either in the depositor or in the company, it should reasonably be considered as in the latte
since the company is, by the nature of the contract, given absolute control of access to the p
cannot gain access thereto without the consent and active participation of the company. . . ." (c
and a segment from Words and Phrases 18 which states that a contract for the rental of a
consideration of a fixed amount at stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to
should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code whic
contract may establish such stipulations, clauses, terms and conditions as they may deem co
not contrary to law, morals, good customs, public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the petition a
simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety deposit box
of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to
contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit;
at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease u
the full and absolute possession and control of the safety deposit box was not given to the rente
Pugaos. The guard key of the box remained with the respondent Bank; without this key, neithe
the box. On the other hand, the respondent Bank could not likewise open the box without the re
said key had a duplicate which was made so that both renters could have access to the box.

Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article 1975, also relied
upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first paragraph of
such provision cannot apply to a depositary of certificates, bonds, securities or instruments which earn interest if such
documents are kept in a rented safety deposit box. It is clear that the depositary cannot open the box without the renter
being present. prcd
We observe, however, that the deposit theory itself does not altogether find unanimous support even in American
jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank
renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the
bailment being for hire and mutual benefit. 21 This is just the prevailing view because:
"There is, however, some support for the view that the relationship in question might be more properly characterized as
that of landlord and tenant, or lessor and lessee. It has also been suggest that should be characterized as that of licensor
and licensee. The relation between a bank, safe-deposit company, or storage company, and the renter of a safe-deposit
box therein, is often described as contractual, express or implied, oral or written, in whole or in part. But there is apparently
no jurisdiction in which any rule other than that applicable to bailments governs questions of the liability and rights of the
parties in respect of loss of the contents of safe-deposit boxes." 22 (citations omitted).
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this
jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act 23 pertinently
provides:
"SECTION 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than
building and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such
effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as
agents. . . . " 24 (emphasis supplied).
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of
funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent
from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in
writing 25 and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public
order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is
governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it
is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement. 2 6 In the absence of any
stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed. 27 Hence, any
stipulation exempting the depositary from any liability arising from the loss of the thing depo
negligence or delay would be void for being contrary to law and public policy. In the instant cas
conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which read:
"13. The bank is not a depositary of the contents of the safe and it has neither the possessio
LLphil
14. The bank has no interest whatsoever in said contents, except herein expressly provided, an
liability in connection therewith." 28
are void as they are contrary to law and public policy. We find Ourselves in agreement with this
provisions are inconsistent with the respondent Bank's responsibility as a depositary under S
Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 the
exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to
"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any re
the Bank will not be responsible for the contents of any safe rented from it." 2 9
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of
assert that the Bank has neither the possession nor control of the contents of the box since in
itself is located in its premises and is under its absolute control; moreover, the respondent Ba
the said box. As stated earlier, renters cannot open their respective boxes unless the Bank co
using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the c
and ineffective. It has been said:
"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit com
relation is a contractual one may by special contract define their respective duties or provide f
liability of the deposit company, provided such contract is not in violation of law or public policy
there actually was such a special contract, however, in order to vary the ordinary obligation
relationship of the parties; liability of the deposit company will not be enlarged or restricted by
The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the c
negligence or that of its agents or servants, and if a provision of the contract may be construe
will be held ineffective for the purpose. Although it has been held that the lessor of a safe-depos
for loss of the contents thereof through its own negligence, the view has been taken that such a
to some extent by agreement or stipulation." 30 (citations omitted).
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the pe
but on grounds quite different from those relied upon by the Court of Appeals. In the instant c
exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed fro
impugned contract as a contract of lease, but rather on the fact that no competent proof w
respondent Bank was aware of the agreement between the petitioner and the Pugaos to the e
title were withdrawable from the safety deposit box only upon both parties' joint signatures,
submitted to reveal that the loss of the certificates of title was due to the fraud or negligence of
in turn flows from this Court's determination that the contract involved was one of deposit. Since
Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them co
to the safety deposit box and, with the use of such key and the Bank's own guard key, could op
other renter being present.

Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been
established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this extent,
the Decision (dispositive portion) of public respondent Court of Appeals must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July 1989
Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement
We made above on the nature of the relationship between the parties in a contract of lease of safety deposit boxes, the
dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for
lack of merit. LLpr
No pronouncement as to costs.
SO ORDERED.
||| (CA Agro-Industrial Development Corp. v. Court of Appeals, G.R. No. 90027, [March 3, 1993])
21. Sia v. CA et. al
[G.R. No. 102970. May 13, 1993.]
LUZAN SIA, petitioner, vs. COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private respondent.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; CREDIBILITY; FINDINGS OF FACT OF THE COURT OF APPEALS, GENERALLY
UPHELD ON APPEAL; EXCEPTIONS. Findings of fact of the Court of Appeals, when supported by substantial evidence,
are not reviewable on appeal by certiorari. The foregoing rule is, of course, subject to certain exceptions such as when
there exists a disparity between the factual findings and conclusions of the Court of Appeals and the trial court. Such a
disparity obtains in the present case.
2. MERCANTILE LAW; GENERAL BANKING ACT (Republic Act No. 337, as amended); BAILMENT, RELATION
BETWEEN A BANK RENTING OUT SAFE DEPOSIT BOXES AND ITS CUSTOMERS WITH RESPECT TO CONTENTS
OF BOX. In the recent case of CA Agro-Industrial Development Corp. vs. Court of Appeals, this Court explicitly rejected
the contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of the
Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code
provision on deposit; it is, as We declared, a special kind of deposit. The prevailing rule in American jurisprudence that
the relation between a bank renting out safe deposit boxes and its customer with respect to the contents of the box is that
of a bailor and bailee, the bailment being for hire and mutual benefit has been adopted in this jurisdiction (Section 72 of
the General Banking Act [R.A. 337 as amended]).
3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; LIABILITY FOR DAMAGES FOR
PERFORMANCE OF OBLIGATION; CASE AT BAR. Public respondent failed to conside
correctly held by the trial court, SBTC was guilty of negligence. The facts constituting neglige
petition and have been summarized in this ponencia. SBTC's negligence aggravated the injury
which resulted from the loss or destruction of the stamp collection. SBTC was aware of the floo
knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was located. In
lost no time in notifying the petitioner in order that the box could have been opened to retriev
the same from further deterioration and loss. In this respect, it failed to exercise the reasonable c
of a good father or a family, thereby becoming a party to the aggravation of the injury
aforementioned fourth characteristic of a fortuitous event is absent and Article 1170 of the Civi
4. ID.; MORAL DAMAGES; AWARD THEREOF IN CASE OF BREACH OF CONTRACT;
ESSENTIAL; ABSENCE THEREOF IN CASE AT BAR. We cannot place Our imprimatur o
moral damages. Since the relationship between the petitioner and SBTC is based on a contr
held liable for moral damages for breach thereof only if said party had acted fraudulently or in
proof of fraud or bad faith on the part of SBTC.
DECISION
DAVIDE, JR., J p:
The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 2
and setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial C
Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is challeng
on certiorari under Rule 45 of the Rules of Court.
Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the sta
(petitioner herein) contained in Safety Deposit Box No. 54 which had been rented from the defen
denominated as a Lease Agreement. 3 Judgment therein was rendered in favor of the plainti
which reads:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff a
Security Bank & Trust Company, ordering the defendant bank to pay the plaintiff the sum of
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal expens
The counterclaim[s] set up by the defendant are hereby dismissed for lack of merit.
No costs.
SO ORDERED." 4

The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision as
follows:
"The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its Binondo Branch located
at the Fookien Times Building, Soler St., Binondo, Manila wherein he placed his collection of stamps. The said safety
deposit box leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the defendant bank
at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped into
the safety deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps collection. The
defendant bank rejected the plaintiff's claim for compensation for his damaged stamps collection, so, the plaintiff instituted
an action for damages against the defendant bank.
The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the 'Rules and
Regulations Governing the Lease of Safe Deposit Boxes' (Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which
reads (sic):
'9. The liability of the Bank, by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the
safe by any person other than the Renter, his authorized agent or legal representative;
xxx xxx xxx
13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the same.
The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in
connection therewith.'
The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease and
not of deposit and, therefore, governed by the lease agreement (Exhs. "A", "L") which should be the applicable law; that
the destruction of the plaintiff's stamps collection was due to a calamity beyond its control; and that there was no obligation
on its part to notify the plaintiff about the floodwaters that inundated its premises at Binondo branch which allegedly seeped
into the safety deposit box leased to the plaintiff. cdll
The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit box be conducted, which
was done on December 8, 1988 by its clerk of court in the presence of the parties and their counsels. A report thereon was
then submitted on December 12, 1988 (Records, p. 98-A) and confirmed in open court by both parties thru counsel during
the hearing on the same date (Ibid, p. 102) stating:
'That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the Acting Branch Manager Jimmy B.
Ynion in the presence of the undersigned, plaintiff's and defendant's counsel. Said Safety Box when opened contains two
albums of different sizes and thickness, length and width and a tin box with printed word 'Thai Ping Shiang Roast Pork in
pieces with Chinese designs and character.'
Condition of the above-stated Items
'Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The leave
to every page and cannot be lifted without destroying it, hence the stamps contained therein ar
2. The second album measures 12 1/2 inches in length, 9 3/4 in width and 1 inch thick. Some o
The stamps therein can still be distinguished but beyond restoration. Others have lost its origin
3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to
condition of the album is the same as described in the second above-mentioned album.'" 5
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the
public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737.
In urging the public respondent to reverse the decision of the trial court, SBTC contended that t
that the lease agreement is a contract of adhesion; (b) finding that the defendant had faile
diligence expected of a bank in maintaining the safety deposit box; (c) awarding to the plai
amount of P20,000.00, moral damages in the amount of P100,000.00 and attorney's fees and le
of P5,000.00; and (d) dismissing the counterclaim.
On 21 August 1991, the public respondent promulgated its decision the dispositive portion of w
"WHEREFORE, the decision appealed from is hereby REVERSED and instead the appe
DISMISSED. The appellant bank's counterclaim is likewise DISMISSED. No costs." 6
In reversing the trial court's decision and absolving SBTC from liability, the public respondent f
a) the fine print in the "Lease Agreement" (Exhibits "A" and "1") constitutes the terms and condit
which the appellee (now petitioner) had voluntarily and knowingly executed with SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a cont
bank became a depositary of the subject stamp collection; hence, as contended by SBTC, the
XII of the Civil Code on deposits do not apply;
c) The following provisions of the questioned lease agreement of the safety deposit box limiting
"9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to
Safe by any person other than the Renter, his authorized agent or legal representative;
xxx xxx xxx
13. The bank is not a depositary of the contents of the Safe and it has neither the possession nor the control of the same.
The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in
connection therewith,"
are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and.
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety
deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC, caused the
damage to the stamp collection; said floods were fortuitous events which SBTC should not be held liable for since it was
not shown to have participated in the aggravation of the damage to the stamp collection; on the contrary, it offered its
services to secure the assistance of an expert in order to save most of the stamps, but the appellee refused; appellee must
then bear the loss under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner filed the instant
petition wherein he contends that:
"I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT COURT WHEN IT
RULED THAT RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE
SAFETY DEPOSIT BOX OF THE PETITIONER CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING
THE CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE RESPONDENT FROM ANY LIABILITY
WHATSOEVER BY REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A"
AND "A-1").
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF THE TRIAL COURT FOR
ACTUAL AND MORAL DAMAGES, INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF THE
PETITIONER." 8
We subsequently gave due course to the petition and required both parties to submit their respective memoranda, which
they complied with. 9
Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence expected of a
bank maintaining such safety deposit box . . . in the light of the environmental circumstances of said safety deposit box
after the floods of 1985 and 1986." He argues that such a conclusion is supported by the evidence on record, to wit: SBTC
was fully cognizant of the exact location of the safety deposit box in question; it knew that the premises were inundated by
floodwaters in 1985 and 1986 and considering that the bank is guarded twenty-four (24) hours a day, it is safe to conclude
that it was also aware of the inundation of the premises where the safety deposit box was located; despite such knowledge,
however, it never bothered to inform the petitioner of the flooding or take any appropriate measures to insure the safety
and good maintenance of the safety deposit box in question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of fact of the Court of Appeals, when
supported by substantial evidence, are not reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when there exists a di
findings and conclusions of the Court of Appeals and the trial court. 11 Such a disparity obtain
As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease
Deposit Box No. 54 (Exhibits "A" and "1") is just that a contract of lease and not a co
paragraphs 9 and 13 thereof, which expressly limit the bank's liability as follows:
"9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to
Safe by any person other than the Renter, his authorized agent or legal representative;
xxx xxx xxx
13. The bank is not a depositary of the contents of the Safe and it has neither the possession n
The Bank has no interest whatsoever in said contents, except as herein provided, and it assum
connection therewith," 12
are valid and binding upon the parties. In the challenged decision, the public respondent furth
such a limitation of liability, SBTC should still be absolved from any responsibility for the damage
as it appears that such damage was occasioned by a fortuitous event and that the responde
participation in the aggravation of the injury.
We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to b
In the recent case of CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this C
contention that a contract for the use of a safety deposit box is a contract of lease governed
Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly
provision on deposit; 14 it is, as We declared, a special kind of deposit. The prevailing rule in
that the relation between a bank renting out safe deposit boxes and its customer with respect t
that of a bailor and bailee, the bailment being for hire and mutual benefit 15 has been adopt
"In the context of our laws which authorize banking institutions to rent out safety deposit bo
jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the Genera
amended] pertinently provides:
'SEC. 72. In addition to the operations specifically authorized elsewhere in this Act, banking ins
and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes f
effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this se
agents. . . . (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of
funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent
from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in
writing [Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in
the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing
its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement [Art. 1170, id.]. In
the absence of any stipulation prescribing the degree of diligence required, that of good father of a family is to be observed
[Art. 1173, id.]. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited
on account of fraud, negligence or delay would be void for being contrary to law and public policy. In the instant case,
petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which read:
'13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it assumes absolutely
no liability in connection therewith.'
are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said
provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General
Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to
exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:
'8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the
Bank will not be responsible for the contents of any safe rented from it.'
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to
assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box
itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to
said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using
this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and
ineffective. It has been said:
'With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the
relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the
liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that
there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning.
The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or
negligence or that of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it
will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability
for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limit its liability
to some extent by agreement or stipulation.' [10 AM JUR 2d., 446]." (citations omitted) 16
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposi
Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other h
CA Agro-Industrial Development Corp. and condition No. 9 in the present case in limit the sc
diligence by the banks involved to merely seeing to it that only the renter, his authorized agen
should open or have access to the safety deposit box. In short, in all other situations, it would se
to exercise diligence of any kind at all. Assayed in the light of Our aforementioned pronouncem
Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13
covering the safety deposit box in question (Exhibits "A" and "1") must be stricken down for bein
policy as they are meant to exempt SBTC from any liability for damage, loss or destruction o
deposit box which may arise from its own or its agents' fraud, negligence or delay. Accordingly
under the said conditions. cdphil
Public respondent further postulates that SBTC cannot be held responsible for the destruction or
because the flooding was a fortuitous event and there was no showing of SBTC's participatio
loss or injury. It states:
"Article 1174 of the Civil Code provides:
'Except in cases expressly specified by the law, or when it is otherwise declared by stipulation
obligation requires the assumption of risk, no person shall be responsible for those events whic
which, though foreseen, were inevitable.'
In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espaola 17 sa
consequently, also in relation to contracts, a 'caso fortuito' prevents (sic) 18 the following esse
cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply
independent of the human will; (2) it must be impossible to foresee the event which constitut
can be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render
to fulfill his obligation in a normal manner; and (4) the obligor must be free from any participati
injury resulting to the creditor.' (cited in Servando vs. Phil. Steam Navigation Co., supra). 19
Here, the unforeseen or unexpected inundating floods were independent of the will of the appel
not shown to have participated in aggravating damage (sic) to the stamps collection of the app
bank offered its services to secure the assistance of an expert to save most of the then goo
refused and let (sic) these recoverable stamps inside the safety deposit box until they were rui
Both the law and authority cited are clear enough and require no further elucidation. Unfortu
respondent failed to consider that the instant case, as correctly held by the trial court, SBTC w
facts constituting negligence are enumerated in the petition and have been summarized
negligence aggravatedthe injury or damage to the petitioner which resulted from the loss o
collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters
Safe Deposit Box No. 54 was located. In view hereof, it should have lost no time in notifying th
box could have been opened to retrieved the stamps, thus saving the same from further de
respect, it failed to exercise the reasonable care and prudence expected of a good father or a
party to the aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is
absent and Article 1170 of the Civil Code, which reads:
"Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages,"
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language of
the trial court, the "product of 27 years of patience and diligence" 21 caused the petitioner pecuniary loss; hence, he must
be compensated therefor.
We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the relationship between
the petitioner and SBTC is based on a contract, either of them may be held liable for moral damages for breach thereof
only if said party had acted fraudulently or in bad faith. 22 There is here no proof of fraud or bad faith on the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the public respondent
Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737, are hereby SET
ASIDE and the Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in Civil Case No. 87-42601
is hereby REINSTATED in full, except as to the award of moral damages which is hereby set aside.
Costs against the private respondent.
SO ORDERED.
||| (Sia v. Court of Appeals, G.R. No. 102970, [May 13, 1993])
22. YHT Realty Corp. v. CA
[G.R. No. 126780. February 17, 2005.]
YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners, vs. THE COURT OF APPEALS and
MAURICE McLOUGHLIN, respondents.
DECISION
TINGA, J p:
The primary question of interest before this Court is the only legal issue in the case: It is whether a hotel may evade liability
for the loss of items left with it for safekeeping by its guests, by having these guests execute written waivers holding the
establishment or its employees free from blame for such loss in light of Article 2003 of the Civil Code which voids such
waivers.
Before this Court is a Rule 45 petition for review of the Decision 1 dated 19 October 1995 of the Court of Appeals which
affirmed the Decision 2 dated 16 December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT
Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam) jointly and solidarily
liable for damages in an action filed by Maurice McLoughlin (McLoughlin) for the loss of his American and Australian dollars
deposited in the safety deposit box of Tropicana Copacabana Apartment Hotel, owned an
Corporation.
The factual backdrop of the case follow. IHcSCA
Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at She
to the Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin by showing him
important people, accompanying him in visiting impoverished street children and assisting him in
and in distributing the same to charitable institutions for poor children. Tan convinced McLoughl
Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as
Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan
booking at the Tropicana where he started staying during his trips to the Philippines from Dec
1987. 3
On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He ren
it was his practice to rent a safety deposit box every time he registered at Tropicana in p
McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit bo
could only be opened through the use of two keys, one of which is given to the registered gue
in the possession of the management of the hotel. When a registered guest wished to open
alone could personally request the management who then would assign one of its employees to
assist him in opening the safety deposit box with the two keys. 4
McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand US Do
he placed in two envelopes, one envelope containing Ten Thousand US Dollars (US$10,000.
Five Thousand US Dollars (US$5,000.00); Ten Thousand Australian Dollars (AUS$10,000.0
another envelope; two (2) other envelopes containing letters and credit cards; two (2) ban
arranged side by side inside the safety deposit box. 5
On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin opened his saf
and with the key of the management and took therefrom the envelope containing Five Thousand
the envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his passpor
McLoughlin left the other items in the box as he did not check out of his room at the Tropica
Hongkong. When he arrived in Hongkong, he opened the envelope which contained F
(US$5,000.00) and discovered upon counting that only Three Thousand US Dollars (US$3,000
7 Since he had no idea whether somebody else had tampered with his safety deposit box, h
result of bad accounting since he did not spend anything from that envelope. 8
After returning to Manila, he checked out of Tropicana on 18 December 1987 and left for Au
Australia, he discovered that the envelope with Ten Thousand US Dollars (US$10,000.00) was
Dollars (US$5,000). He also noticed that the jewelry which he bought in Hongkong and store
upon his return to Tropicana was likewise missing, except for a diamond bracelet. 9
When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if some mon
had lost were found and returned to her or to the management. However, Lainez told him tha
such things and none were turned over to the management. He again registered at Tropicana
box. He placed therein one (1) envelope containing Fifteen Thousand US Dollars (US$15,000.00), another envelope
containing Ten Thousand Australian Dollars (AUS$10,000.00) and other envelopes containing his traveling
papers/documents. On 16 April 1988, McLoughlin requested Lainez and Payam to open his safety deposit box. He noticed
that in the envelope containing Fifteen Thousand US Dollars (US$15,000.00), Two Thousand US Dollars (US$2,000.00)
were missing and in the envelope previously containing Ten Thousand Australian Dollars (AUS$10,000.00), Four
Thousand Five Hundred Australian Dollars (AUS$4,500.00) were missing. 10
When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who admitted that Tan opened the
safety deposit box with the key assigned to him. 11 McLoughlin went up to his room where Tan was staying and confronted
her. Tan admitted that she had stolen McLoughlin's key and was able to open the safety deposit box with the assistance
of Lopez, Payam and Lainez. 12 Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter
was asleep. 13
McLoughlin requested the management for an investigation of the incident. Lopez got in touch with Tan and arranged for
a meeting with the police and McLoughlin. When the police did not arrive, Lopez and Tan went to the room of McLoughlin
at Tropicana and thereat, Lopez wrote on a piece of paper a promissory note dated 21 April 1988. The promissory note
reads as follows:
I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its equivalent in Philippine
currency on or before May 5, 1988. 14
Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a witness. Despite the
execution of promissory note by Tan, McLoughlin insisted that it must be the hotel who must assume responsibility for the
loss he suffered. However, Lopez refused to accept the responsibility relying on the conditions for renting the safety deposit
box entitled "Undertaking For the Use Of Safety Deposit Box," 15 specifically paragraphs (2) and (4) thereof, to wit:
2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability arising from any loss in
the contents and/or use of the said deposit box for any cause whatsoever, including but not limited to the presentation or
use thereof by any other person should the key be lost;
xxx xxx xxx
4. To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL upon giving up the use of
the box. 16
On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the validity of the abovementioned
stipulations. They opined that the stipulations are void for being violative of universal hotel practices and customs. His
lawyers prepared a letter dated 30 May 1988 which was signed by McLoughlin and sent to President Corazon Aquino. 17
The Office of the President referred the letter to the Department of Justice (DOJ) which forwarded the same to the Western
Police District (WPD). 18
After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and registered again as a hotel
guest of Tropicana. McLoughlin went to Malacaang to follow up on his letter but he was instructed to go to the DOJ. The
DOJ directed him to proceed to the WPD for documentation. But McLoughlin went back to Australia as he had an urgent
business matter to attend to.
For several times, McLoughlin left for Australia to attend to his business and came back to the
his letter to the President but he failed to obtain any concrete assistance. 19
McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989 t
petitioners, the WPD conducted an investigation which resulted in the preparation of an affida
the Manila City Fiscal's Office. Said affidavit became the basis of preliminary investigation. How
for Australia without receiving the notice of the hearing on 24 November 1989. Thus, the cas
dismissed for failure to prosecute. McLoughlin requested the reinstatement of the criminal charg
McLoughlin and his lawyers wrote letters of demand to those having responsibility to pay the d
for Australia.
Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila. M
McLoughlin and his lawyer which resulted to the filing of a complaint for damages on 3 Decemb
Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss of McLoughlin's money w
April 1988. After filing the complaint, McLoughlin left again for Australia to attend to an urgen
Lopez, however, were not served with summons, and trial proceeded with only Lainez, Payam a
as defendants. jur2005cd
After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and
safety deposit box, McLoughlin filed an Amended/Supplemental Complaint 20 dated 10 June 1
incident of loss of money and jewelry in the safety deposit box rented by McLoughlin in the sa
prior to 16 April 1988. 21 The trial court admitted the Amended/Supplemental Complaint. IcDE
During the trial of the case, McLoughlin had been in and out of the country to attend to urgen
while staying in the Philippines to attend the hearing, he incurred expenses for hotel bills, airfa
expenses, long distance calls to Australia, Meralco power expenses, and expenses for food
others. 22
After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the dispositive portion
WHEREFORE, above premises considered, judgment is hereby rendered by this Court in favo
defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of US$11,400.00 or
Currency of P342,000.00, more or less, and the sum of AUS$4,500.00 or its equivalent
P99,000.00, or a total of P441,000.00, more or less, with 12% interest from April 16, 1988 until
to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum of P3,674,238.00 as actual a
arising from the loss of his Australian and American dollars and jewelries complained against a
and rights administratively and judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. "CC");
3. Ordering defendants, jointly and severally, to pay plaintiff the sum of P500,000.00 as moral damages (Item X, Exh.
"CC");
4. Ordering defendants, jointly and severally, to pay plaintiff the sum of P350,000.00 as exemplary damages (Item XI, Exh.
"CC");
5. And ordering defendants, jointly and severally, to pay litigation expenses in the sum of P200,000.00 (Item XII, Exh.
"CC");
6. Ordering defendants, jointly and severally, to pay plaintiff the sum of P200,000.00 as attorney's fees, and a fee of
P3,000.00 for every appearance; and
7. Plus costs of suit.
SO ORDERED. 23
The trial court found that McLoughlin's allegations as to the fact of loss and as to the amount of money he lost were
sufficiently shown by his direct and straightforward manner of testifying in court and found him to be credible and worthy of
belief as it was established that McLoughlin's money, kept in Tropicana's safety deposit box, was taken by Tan without
McLoughlin's consent. The taking was effected through the use of the master key which was in the possession of the
management. Payam and Lainez allowed Tan to use the master key without authority from McLoughlin. The trial court
added that if McLoughlin had not lost his dollars, he would not have gone through the trouble and personal inconvenience
of seeking aid and assistance from the Office of the President, DOJ, police authorities and the City Fiscal's Office in his
desire to recover his losses from the hotel management and Tan. 24
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth approximately One Thousand Two
Hundred US Dollars (US$1,200.00) which allegedly occurred during his stay at Tropicana previous to 4 April 1988, no claim
was made by McLoughlin for such losses in his complaint dated 21 November 1990 because he was not sure how they
were lost and who the responsible persons were. But considering the admission of the defendants in their pre-trial brief
that on three previous occasions they allowed Tan to open the box, the trial court opined that it was logical and reasonable
to presume that his personal assets consisting of Seven Thousand US Dollars (US$7,000.00) and jewelry were taken by
Tan from the safety deposit box without McLoughlin's consent through the cooperation of Payam and Lainez. 25
The trial court also found that defendants acted with gross negligence in the performance and exercise of their duties and
obligations as innkeepers and were therefore liable to answer for the losses incurred by McLoughlin. 26
Moreover, the trial court ruled that paragraphs (2) and (4) of the "Undertaking For The Use Of Safety Deposit Box" are not
valid for being contrary to the express mandate of Article 2003 of the New Civil Code and against public policy. 27 Thus,
there being fraud or wanton conduct on the part of defendants, they should be responsible for all damages which may be
attributed to the non-performance of their contractual obligations. 28
The Court of Appeals affirmed the disquisitions made by the lower court except as to the amount of damages awarded.
The decretal text of the appellate court's decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but modified as follows:
The appellants are directed jointly and severally to pay the plaintiff/appellee the following amou
1) P153,200.00 representing the peso equivalent of US$2,000.00 and AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from Sidney [sic] to Manila and ba
trips;
3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Apartment Hot
4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi . . . transportation from the residence to S
MIA to the hotel here in Manila, for the eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
7) One-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorney's fees.
With costs.
SO ORDERED. 29
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this appeal by c
Petitioners submit for resolution by this Court the following issues: (a) whether the appellate
alleged prior existence and subsequent loss of the subject money and jewelry is supported by
whether the finding of gross negligence on the part of petitioners in the performance of th
supported by the evidence on record; (c) whether the "Undertaking For The Use of Safety Depos
by private respondent is null and void; and (d) whether the damages awarded to private respond
thereof, are proper under the circumstances. 30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law and any
addressed to this Court is beyond the bounds of this mode of review.
Petitioners point out that the evidence on record is insufficient to prove the fact of prior exist
jewelry which had been lost while deposited in the safety deposit boxes of Tropicana, the bas
appellate court being the sole testimony of McLoughlin as to the contents thereof. Likewise, petitioners dispute the finding
of gross negligence on their part as not supported by the evidence on record.
We are not persuaded. We adhere to the findings of the trial court as affirmed by the appellate court that the fact of loss
was established by the credible testimony in open court by McLoughlin. Such findings are factual and therefore beyond the
ambit of the present petition.
The trial court had the occasion to observe the demeanor of McLoughlin while testifying which reflected the veracity of the
facts testified to by him. On this score, we give full credence to the appreciation of testimonial evidence by the trial court
especially if what is at issue is the credibility of the witness. The oft-repeated principle is that where the credibility of a
witness is an issue, the established rule is that great respect is accorded to the evaluation of the credibility of witnesses by
the trial court. 31 The trial court is in the best position to assess the credibility of witnesses and their testimonies because
of its unique opportunity to observe the witnesses firsthand and note their demeanor, conduct and attitude under grilling
examination. 32
We are also not impressed by petitioners' argument that the finding of gross negligence by the lower court as affirmed by
the appellate court is not supported by evidence. The evidence reveals that two keys are required to open the safety deposit
boxes of Tropicana. One key is assigned to the guest while the other remains in the possession of the management. If the
guest desires to open his safety deposit box, he must request the management for the other key to open the same. In other
words, the guest alone cannot open the safety deposit box without the assistance of the management or its employees.
With more reason that access to the safety deposit box should be denied if the one requesting for the opening of the safety
deposit box is a stranger. Thus, in case of loss of any item deposited in the safety deposit box, it is inevitable to conclude
that the management had at least a hand in the consummation of the taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of the master key of the
management when the loss took place. In fact, they even admitted that they assisted Tan on three separate occasions in
opening McLoughlin's safety deposit box. 33 This only proves that Tropicana had prior knowledge that a person aside from
the registered guest had access to the safety deposit box. Yet the management failed to notify McLoughlin of the incident
and waited for him to discover the taking before it disclosed the matter to him. Therefore, Tropicana should be held
responsible for the damage suffered by McLoughlin by reason of the negligence of its employees.
The management should have guarded against the occurrence of this incident considering that Payam admitted in open
court that she assisted Tan three times in opening the safety deposit box of McLoughlin at around 6:30 A.M. to 7:30 A.M.
while the latter was still asleep. 34 In light of the circumstances surrounding this case, it is undeniable that without the
acquiescence of the employees of Tropicana to the opening of the safety deposit box, the loss of McLoughlin's money
could and should have been avoided.
The management contends, however, that McLoughlin, by his act, made its employees believe that Tan was his spouse
for she was always with him most of the time. The evidence on record, however, is bereft of any showing that McLoughlin
introduced Tan to the management as his wife. Such an inference from the act of McLoughlin will not exculpate the
petitioners from liability in the absence of any showing that he made the management believe that Tan was his wife or was
duly authorized to have access to the safety deposit box. Mere close companionship and intimacy are not enough to
warrant such conclusion considering that what is involved in the instant case is the very safety of McLoughlin's deposit. If
only petitioners exercised due diligence in taking care of McLoughlin's safety deposit box, they s
as to his relationship with Tan considering that the latter had been observed opening McLoug
number of times at the early hours of the morning. Tan's acts should have prompted the man
relationship with McLoughlin. Then, petitioners would have exercised due diligence required
warrants the conclusion that the management had been remiss in complying with the obliga
keepers under the law. TEDHaA
Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, a
liable for damages. As to who shall bear the burden of paying damages, Article 2180, parag
provides that the owners and managers of an establishment or enterprise are likewise respons
their employees in the service of the branches in which the latter are employed or on the occas
this Court has ruled that if an employee is found negligent, it is presumed that the employer
and/or supervising him for it is hard for the victim to prove the negligence of such employer. 3
the loss of McLoughlin's money was consummated through the negligence of Tropicana's em
open the safety deposit box without the guest's consent, both the assisting employees and YH
as owner and operator of Tropicana, should be held solidarily liable pursuant to Article 2193. 3
The issue of whether the "Undertaking For The Use of Safety Deposit Box" executed by McLo
presents a legal question appropriate for resolution in this petition. Notably, both the trial co
found the same to be null and void. We find no reason to reverse their common conclusion. Artic
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the e
the articles brought by the guest. Any stipulation between the hotel-keeper and the guest wher
former as set forth in Articles 1998 to 2001 37 is suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely
as that presented in this case. The hotel business like the common carrier's business is imbued w
to the public, hotelkeepers are bound to provide not only lodging for hotel guests and sec
belongings. The twin duty constitutes the essence of the business. The law in turn does not a
to be negated or diluted by any contrary stipulation in so-called "undertakings" that ordinarily
imposed by hotel keepers on guests for their signature.
In an early case, 38 the Court of Appeals through its then Presiding Justice (later Associate J
Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the effects of their guests, it is
actually delivered to the innkeepers or their employees. It is enough that such effects are with
greater reason should the liability of the hotelkeeper be enforced when the missing items ar
knowledge and consent from a safety deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New
Tropicana to be released from liability arising from any loss in the contents and/or use of the
cause whatsoever. 40 Evidently, the undertaking was intended to bar any claim against Tro
contents of the safety deposit box whether or not negligence was incurred by Tropicana or its
Code is explicit that the responsibility of the hotel-keeper shall extend to loss of, or injury to, t
guests even if caused by servants or employees of the keepers of hotels or inns as well as by
proceed from any force majeure. 41 It is the loss through force majeure that may spare the h
the case at bar, there is no showing that the act of the thief or robber was done with the use of arms or through an irresistible awarded only to enable the injured party to obtain means, diversion or amusements that will
force to qualify the same as force majeure. 42 suffering he has undergone, by reason of defendants' culpable action. 55

Petitioners likewise anchor their defense on Article 2002 43 which exempts the hotel-keeper from liability if the loss is due
to the acts of his guest, his family, or visitors. Even a cursory reading of the provision would lead us to reject petitioners'
contention. The justification they raise would render nugatory the public interest sought to be protected by the provision. The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorney's fe
What if the negligence of the employer or its employees facilitated the consummation of a crime committed by the registered
guest's relatives or visitor? Should the law exculpate the hotel from liability since the loss was due to the act of the visitor WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated
of the registered guest of the hotel? Hence, this provision presupposes that the hotel-keeper is not guilty of concurrent AFFIRMED. Petitioners are directed, jointly and severally, to pay private respondent the follow
negligence or has not contributed in any degree to the occurrence of the loss. A depositary is not responsible for the loss
of goods by theft, unless his actionable negligence contributes to the loss. 44 (1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment;

In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also
by the management since two keys are necessary to open the safety deposit box. Without the assistance of hotel
employees, the loss would not have occurred. Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who
was not the registered guest, to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty
of negligence in allowing another person to use his key. To rule otherwise would result in undermining the safety of the
safety deposit boxes in hotels for the management will be given imprimatur to allow any person, under the pretense of
being a family member or a visitor of the guest, to have access to the safety deposit box without fear of any liability that will
attach thereafter in case such person turns out to be a complete stranger. This will allow the hotel to evade responsibility
for any liability incurred by its employees in conspiracy with the guest's relatives and visitors. DaECST
(2) P308,880.80, representing the peso value for the air fares from Sydney to Manila and ba
trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Copacabana
(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense from McLoug
Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;

Petitioners contend that McLoughlin's case was mounted on the theory of contract, but the trial court and the appellate (6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
court upheld the grant of the claims of the latter on the basis of tort. 45 There is nothing anomalous in how the lower courts
decided the controversy for this Court has pronounced a jurisprudential rule that tort liability can exist even if there are (7) One-half of P356,400.00 or P178,200.00 representing expenses for food and maintenance
already contractual relations. The act that breaks the contract may also be tort. 46
(8) P50,000.00 for moral damages;
As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the appellate court for the
same were based on facts and law. It is within the province of lower courts to settle factual issues such as the proper (9) P10,000.00 as exemplary damages; and
amount of damages awarded and such finding is binding upon this Court especially if sufficiently proven by evidence and
not unconscionable or excessive. Thus, the appellate court correctly awarded McLoughlin Two Thousand US Dollars (10) P200,000 representing attorney's fees.
(US$2,000.00) and Four Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the time of
payment, 47 being the amounts duly proven by evidence. 48 The alleged loss that took place prior to 16 April 1988 was With costs.
not considered since the amounts alleged to have been taken were not sufficiently established by evidence. The appellate
court also correctly awarded the sum of P308,880.80, representing the peso value for the air fares from Sydney to Manila SO ORDERED.
and back for a total of eleven (11) trips; 49 one-half of P336,207.05 or P168,103.52 representing payment to Tropicana;
50 one-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower; 51 one-half of P179,863.20 or ||| (YHT Realty Corp. v. Court of Appeals, G.R. No. 126780, [February 17, 2005], 492 PHIL 29
P89,931.60 for the taxi or transportation expenses from McLoughlin's residence to Sydney Airport and from MIA to the
hotel here in Manila, for the eleven (11) trips; 52 one-half of P7,801.94 or P3,900.97 representing Meralco power expenses; 23. Mamaril v. Boy Scouts of the Phil., et. al.
53 one-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance. 54
[G.R. No. 179382. January 14, 2013.]
The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given discretion to determine the
amount of moral damages, the appellate court may modify or change the amount awarded when it is palpably and SPOUSES BENJAMIN C. MAMARIL AND SONIA P. MAMARIL, petitioners, vs. THE BOY SCO
scandalously excessive. Moral damages are not intended to enrich a complainant at the expense of a defendant. They are AIB SECURITY AGENCY, INC., CESARIO PEA, n AND VICENTE GADDI, respondents.
DECISION
PERLAS-BERNABE, J p:
This is a Petition for Review on Certiorari assailing the May 31, 2007 Decision 1 and August 16, 2007 Resolution 2 of the
Court of Appeals (CA) in CA-G.R. CV No. 75978. The dispositive portion of the said Decision reads:
WHEREFORE, the Decision dated November 28, 2001 and the Order dated June 11, 2002 rendered by the Regional Trial
Court of Manila, Branch 39 is hereby MODIFIED to the effect that only defendants AIB Security Agency, Inc., Cesario Pea
and Vicente Gaddi are held jointly and severally liable to pay plaintiffs-appellees Spouses Benjamin C. Mamaril and Sonia
[P.] Mamaril the amount of Two Hundred Thousand Pesos (P200,000.00) representing the cost of the lost vehicle, and to
pay the cost of suit. The other monetary awards are DELETED for lack of merit and/or basis.
Defendant-Appellant Boy Scout of the Philippines is absolved from any liability.
SO ORDERED. 3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney operators since 1971. They would park
their six (6) passenger jeepneys every night at the Boy Scout of the Philippines' (BSP) compound located at 181
Concepcion Street, Malate, Manila for a fee of P300.00 per month for each unit. On May 26, 1995 at 8 o'clock in the
evening, all these vehicles were parked inside the BSP compound. The following morning, however, one of the vehicles
with Plate No. DCG 392 was missing and was never recovered. 4 According to the security guards Cesario Pea (Pea)
and Vicente Gaddi (Gaddi) of AIB Security Agency, Inc. (AIB) with whom BSP had contracted 5 for its security and
protection, a male person who looked familiar to them took the subject vehicle out of the compound. SICDAa
On November 20, 1996, Sps. Mamaril filed a complaint 6 for damages before the Regional Trial Court (RTC) of Manila,
Branch 39, against BSP, AIB, Pea and Gaddi. In support thereof, Sps. Mamaril averred that the loss of the subject vehicle
was due to the gross negligence of the above-named security guards on-duty who allowed the subject vehicle to be driven
out by a stranger despite their agreement that only authorized drivers duly endorsed by the owners could do so. Pea and
Gaddi even admitted their negligence during the ensuing investigation. Notwithstanding, BSP and AIB did not heed Sps.
Mamaril's demands for a conference to settle the matter. They therefore prayed that Pea and Gaddi, together with AIB
and BSP, be held liable for: (a) the value of the subject vehicle and its accessories in the aggregate amount of P300,000.00;
(b) P275.00 representing daily loss of income/boundary reckoned from the day the vehicle was lost; (c) exemplary
damages; (d) moral damages; (e) attorney's fees; and (f) cost of suit.
In its Answer, 7 BSP denied any liability contending that not only did Sps. Mamaril directly deal with AIB with respect to the
manner by which the parked vehicles would be handled, but the parking ticket 8 itself expressly stated that the
"Management shall not be responsible for loss of vehicle or any of its accessories or article left therein." It also claimed that
Sps. Mamaril erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its provisions cover
only the protection of BSP's properties, its officers, and employees.
In addition to the foregoing defenses, AIB alleged that it has observed due diligence in the selection, training and
supervision of its security guards while Pea and Gaddi claimed that the person who drove out the lost vehicle from the
BSP compound represented himself as the owners' authorized driver and had with him a key t
they contended that Sps. Mamaril have no cause of action against them.
The RTC Ruling
After due proceedings, the RTC rendered a Decision 9 dated November 28, 2001 in favor of Sp
portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendants Boy Scout of the Ph
Agency, with security guards Cesario Pena and Vicente Gaddi:
1. To pay the plaintiffs jointly and severally the cost of the vehicle which is P250,000.00 plus
aHATDI
2. To pay jointly and severally to the plaintiffs the daily [loss] of the income/boundary of the s
[from] its loss up to the final adjudication of the case, which is P275.00 a day;
3. To pay jointly and severally to the plaintiffs moral damages in the amount of P50,000.00;
4. To pay jointly and severally to the plaintiffs exemplary damages in the amount of P50,000.0
5. To pay jointly and severally the attorney's fees of P50,000.00 and appearances in court th
appearance; and
6. To pay cost.
SO ORDERED. 10
The RTC found that the act of Pea and Gaddi in allowing the entry of an unidentified person a
subject vehicle in violation of their internal agreement with Sps. Mamaril constituted gross neg
its security guards liable for the former's loss. BSP was also adjudged liable because the Guard
into with AIB offered protection to all properties inside the BSP premises, which necessari
vehicles. Moreover, the said contract stipulated AIB's obligation to indemnify BSP for all losse
caused by any act or negligence of its security guards. Accordingly, the BSP, AIB, and secur
were held jointly and severally liable for the loss suffered by Sps. Mamaril.
On June 11, 2002, the RTC modified its decision reducing the cost of the stolen vehicle from P2
11
Only BSP appealed the foregoing disquisition before the CA. aSTcCE
The CA Ruling
In its assailed Decision, 12 the CA affirmed the finding of negligence on the part of securit
However, it absolved BSP from any liability, holding that the Guard Service Contract is purely
that there was nothing therein that would indicate any obligation and/or liability on the part of BS
such as Sps. Mamaril. Nor was there evidence sufficient to establish that BSP was negligent.

It further ruled that the agreement between Sps. Mamaril and BSP was substantially a contract of lease whereby the former
paid parking fees to the latter for the lease of parking slots. As such, the lessor, BSP, was not an insurer nor bound to take
care and/or protect the lessees' vehicles. HEDSIc
On the matter of damages, the CA deleted the award of P50,000.00 representing the value of the accessories inside the
lost vehicle and the P275.00 a day for loss of income in the absence of proof to support them. It also deleted the award of
moral and exemplary damages and attorney's fees for lack of factual and legal bases.
Sps. Mamaril's motion for reconsideration thereof was denied in the August 16, 2007 Resolution. 13
Issues Before the Court
Hence, the instant petition based on the following assignment of errors, to wit:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ABSOLVING RESPONDENT BOY SCOUT OF THE
PHILIPPINES FROM ANY LIABILITY.
II.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS MISTAKE WHEN IT RULED THAT THE GUARD
SERVICE CONTRACT IS PURELY BETWEEN BOY SCOUT OF THE PHILIPPINES AND AIB SECURITY AGENCY, INC.,
AND IN HOLDING THAT THERE IS ABSOLUTELY NOTHING IN THE SAID CONTRACT THAT WOULD INDICATE ANY
OBLIGATION AND/OR LIABILITY ON THE PART OF THE PARTIES THEREIN IN FAVOR OF THIRD PERSONS, SUCH
AS PETITIONERS HEREIN. HSCcTD
III.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN THE INTERPRETATION OF LAW WHEN
IT CONSIDERED THE AGREEMENT BETWEEN BOY SCOUT OF THE PHILIPPINES AND PETITIONERS A
CONTRACT OF LEASE, WHEREBY THE BOY SCOUT IS NOT DUTY BOUND TO PROTECT OR TAKE CARE OF
[PETITIONERS'] VEHICLES.
IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT PETITIONERS ARE NOT
ENTITLED TO DAMAGES AND ATTORNEY'S FEES. 14
In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for the loss of their vehicle based on the Guard Service
Contract and the parking ticket it issued; and (2) the CA erred in deleting the RTC awards of damages and attorney's fees.
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person, who, contrary to law, willfully or neg
another, shall indemnify the latter for the same. Similarly, Article 2176 of the Civil Code states:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligen
damage done. Such fault or negligence, if there is no preexisting contractual relation between th
delict and is governed by the provisions of this Chapter.
In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril's vehicle was
guards Pea and Gaddi in allowing an unidentified person to drive out the subject vehicle.
defined as that cause, which, in natural and continuous sequence, unbroken by any efficient in
the injury or loss, and without which the result would not have occurred. 15 Moreover, Pea and
Mamaril's contention 16 that they readily admitted being at fault during the investigation that en
On the other hand, the records are bereft of any finding of negligence on the part of BSP. Hen
committed by the CA in absolving it from any liability for the loss of the subject vehicle based o
Neither will the vicarious liability of an employer under Article 2180 17 of the Civil Code apply in
that Pea and Gaddi were assigned as security guards by AIB to BSP pursuant to the Guard
therefore, no employer-employee relationship existed between BSP and the security guards
Consequently, the latter's negligence cannot be imputed against BSP but should be attributed
Pea and Gaddi. 18
In the case of Soliman, Jr. v. Tuazon, 19 the Court enunciated thus:
It is settled that where the security agency, as here, recruits, hires and assigns the work of its wa
the agency is the employer of such guards and watchmen. Liability for illegal or harmful acts
guards attaches to the employer agency, and not to the clients or customers of such agency. A
customer of a security agency has no hand in selecting who among the pool of security guards
the agency shall be assigned to it; the duty to observe the diligence of a good father of a fa
guards cannot, in the ordinary course of events, be demanded from the client whose premise
by the security guards. The fact that a client company may give instructions or directions to th
to it, does not, by itself, render the client responsible as an employer of the security guards co
wrongful acts or omissions. Those instructions or directions are ordinarily no more than reque
the contract for services entered into with the security agency. 20 aIcDCT
Nor can it be said that a principal-agent relationship existed between BSP and the security gu
make the former liable for the latter's complained act. Article 1868 of the Civil Code states that "
a person binds himself to render some service or to do something in representation or on behalf
or authority of the latter." The basis for agency therefore is representation, 21 which element is
Records show that BSP merely hired the services of AIB, which, in turn, assigned security guar
of its properties and premises. Nowhere can it be inferred in the Guard Service Contract tha
agent of BSP. Instead, what the parties intended was a pure principal-client relationship where
rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP should be held liable for their loss on the basis of the Guard Service
Contract that the latter entered into with AIB and their parking agreement with BSP.
Such contention cannot be sustained.
Article 1311 of the Civil Code states:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir
is not liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. CHDAaS
Thus, in order that a third person benefited by the second paragraph of Article 1311, referred to as a stipulation pour autrui,
may demand its fulfillment, the following requisites must concur: (1) There is a stipulation in favor of a third person; (2) The
stipulation is a part, not the whole, of the contract; (3) The contracting parties clearly and deliberately conferred a favor to
the third person the favor is not merely incidental; (4) The favor is unconditional and uncompensated; (5) The third
person communicated his or her acceptance of the favor before its revocation; and (6) The contracting parties do not
represent, or are not authorized, by the third party. 22 However, none of the foregoing elements obtains in this case.
It is undisputed that Sps. Mamaril are not parties to the Guard Service Contract. Neither did the subject agreement contain
any stipulation pour autrui. And even if there was, Sps. Mamaril did not convey any acceptance thereof. Thus, under the
principle of relativity of contracts, they cannot validly claim any rights or favor under the said agreement. 23 As correctly
found by the CA: cHEATI
First, the Guard Service Contract between defendant-appellant BSP and defendant AIB Security Agency is purely between
the parties therein. It may be observed that although the whereas clause of the said agreement provides that defendant-
appellant desires security and protection for its compound and all properties therein, as well as for its officers and
employees, while inside the premises, the same should be correlated with paragraph 3(a) thereof which provides that the
security agency shall indemnify defendant-appellant for all losses and damages suffered by it attributable to any act or
negligence of the former's guards.
Otherwise stated, defendant-appellant sought the services of defendant AIB Security Agency for the purpose of the security
and protection of its properties, as well as that of its officers and employees, so much so that in case of loss of [sic] damage
suffered by it as a result of any act or negligence of the guards, the security agency would then be held responsible therefor.
There is absolutely nothing in the said contract that would indicate any obligation and/or liability on the part of the parties
therein in favor of third persons such as herein plaintiffs-appellees. 24
Moreover, the Court concurs with the finding of the CA that the contract between the parties herein was one of lease 25 as
defined under Article 1643 26 of the Civil Code.It has been held that the act of parking a vehicle in a garage, upon payment
of a fixed amount, is a lease. 27 Even in a majority of American cases, it has been ruled that where a customer simply
pays a fee, parks his car in any available space in the lot, locks the car and takes the key with him, the possession and
control of the car, necessary elements in bailment, do not pass to the parking lot opera
relationship between the parties is one of lease. 28 cACHSE
In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP com
P300.00 for each unit and took the keys home with them. Hence, a lessor-lessee relationship i
them and BSP. On this score, Article 1654 of the Civil Code provides that "[t]he lessor (BSP)
thing which is the object of the contract in such a condition as to render it fit for the use intende
during the lease all the necessary repairs in order to keep it suitable for the use to which it has
is a stipulation to the contrary; and (3) to maintain the lessee in the peaceful and adequate en
entire duration of the contract." In relation thereto, Article 1664 of the same Code states that "[
answer for a mere act of trespass which a third person may cause on the use of the thing lease
a direct action against the intruder." Here, BSP was not remiss in its obligation to provide Sps.
space for their jeepneys as it even hired security guards to secure the premises; hence, it shou
loss suffered by Sps. Mamaril.
It bears to reiterate that the subject loss was caused by the negligence of the security guards in
out plaintiffs-appellants' vehicle despite the latter's instructions that only their authorized driver
agreement with respect to the ingress and egress of Sps. Mamaril's vehicles were coordinated o
guards, 29 without the knowledge and consent of BSP. Accordingly, the mishandling of the pa
in herein complained loss should be recovered only from the tort feasors (Pea and Gaddi) an
not against the lessor, BSP. 30
Anent Sps. Mamaril's claim that the exculpatory clause: "Management shall not be responsible
its accessories or article left therein" 31 contained in the BSP issued parking ticket was void for b
and against public policy, suffice it to state that contracts of adhesion are not void per se. It is bi
contract and a party who enters into it is free to reject the stipulations in its entirety. If the terms th
objection, as in this case, where plaintiffs-appellants have been leasing BSP's parking space fo
then the contract serves as the law between them. 33 Besides, the parking fee of P300.00 per
each unit is too minimal an amount to even create an inference that BSP undertook to be
plaintiffs-appellants' vehicles. EHCDSI
On the matter of damages, the Court noted that while Sonia P. Mamaril testified that the subje
worth around P50,000.00, she failed to present any receipt to substantiate her claim. 34 Neithe
or journal that would have established the purported P275.00 35 daily earnings of their jeepne
damages must be proved with reasonable degree of certainty and a party is entitled only to
pecuniary loss that was duly proven. Thus, absent any competent proof of the amount of d
properly deleted the said awards. 36
Similarly, the awards of moral and exemplary damages and attorney's fees were properly disa
factual and legal bases. While the RTC granted these awards in the dispositive portion of its No
it failed to provide sufficient justification therefor. 37
WHEREFORE, premises considered, the instant petition is DENIED. The May 31, 2007 Dec
Resolution of the Court of Appeals in CA-G.R. CV No. 75978 are AFFIRMED.
SO ORDERED.

||| (Spouses Mamaril v. Boy Scouts of the Phils., G.R. No. 179382, [January 14, 2013], 701 PHIL 400-415)