Republic of the Philippines Management Services Corporation and its officers.

Petitioner alleged that on

Supreme Court
Manila January 11, 1991, respondent obtained from the former a loan in the amount
of P9,000,000.00, with interest, but for purposes of expediency, said
THIRD DIVISION transaction was denominated as a sale whereby petitioner bought from
respondent various Land Bank bonds originally valued at P11,557,972.60 at
discounted price, as shown in a Confirmation of Agreement; that the bonds
MULTI-VENTURES CAPITAL G.R. No. 157439
and MANAGEMENT serve as a partial collateral for the payment of the loan; that respondent and
CORPORATION, Present: some of its officers, however, have plans of defrauding their creditors by
Petitioner.
YNARES-SANTIAGO, J., absconding and disposing of its properties, thus constraining petitioner to file
- versus - Chairperson, the complaint for reformation in order to express the true intent of the
AUSTRIA-MARTINEZ,
STALWART MANAGEMENT CHICO-NAZARIO, and parties, i.e., that the ostensible sale of the bonds is actually a loan
SERVICES CORPORATION, NACHURA, JJ. agreement.[1]
MARIAN G. TAJO, CESAR
TAJO and ARIANA GALANG, Promulgated:
Respondents. July 4, 2007 Respondent, together with its co-defendants, filed an Answer denying
x------------------------------------------------x petitioner's allegations and claiming, among others, that both petitioner and
respondent are companies engaged in dealing and trading government
DECISION securities. According to respondent, the transaction entered into on January
11, 1991 is really a purchase of Land Bank bonds, and there is no mistake,
AUSTRIA-MARTINEZ, J.: fraud, inequitable conduct or accident in the preparation of the true
agreement of the parties such that reformation is called for.[2]

The sole issue in this case is whether the contract entered into by Multi-
After trial on the merits, the RTC rendered a Decision dated May 11, 1995,
Ventures Capital and Management Corporation (petitioner) and Stalwart
in favor of petitioner. The dispositive portion of the RTC Decision reads:
Management Services Corporation (respondent) is one of loan or sale.
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant:
The facts are as follows:
1. These instruments subject matter of this
On July 10, 1991, Multi-Ventures Capital and Management Corporation filed case are hereby ordered REFORMED as
Contract of Loan and not a Contract of
with the Regional Trial Court (RTC) of Makati, Branch 134, a Complaint for Sale.
Reformation of Instrument with application for attachment against Stalwart

2. To order the defendants, jointly and
severally, to pay the plaintiff the sum
of P11,557,972.60 PESOS from June
11, 1992 as the date of maturity plus
legal interest until fully paid;
3. To order defendants, jointly and severally,
to pay the plaintiff the sum
of P100,000.00 PESOS by way of
attorneys fees;
4. Ordering the dismissal of defendants
counter-claim for being devoid of legal
merit; and
5. To order defendants' jointly and severally,
to pay the costs of suit.
SO ORDERED.[3]
Dissatisfied, respondent and its officers appealed to the Court of Appeals
[4]
(CA). In a Decision dated February 24, 2003, the CA sustained respondents
position that the transaction was, in fact, a sale; reversed the RTC Decision;
and dismissed petitioners complaint and respondents counterclaim.
Hence, the present Petition for Review on Certiorari predicated on the
following grounds:
A. THAT DUE TO MISAPPRECIATION OF FACTS AND
EVIDENCE, THE COURT OF APPEALS ERRED IN
REVERSING THE COURT A QUO'S DECISION
AND IN NOT DECLARING THAT THE INTENDED
AND TRUE TRANSACTION AGREED UPON AND
ENTERED INTO BETWEEN MULTI-VENTURES
AND STALWART WAS THAT OF LOAN, NOT
SALE OF LAND BANK BONDS.
B. THAT THE COURT OF APPEALS ERRED IN NOT
ORDERING THE REFORMATION OF THE
INSTRUMENT OSTENSIBLY APPEARING AS A
PURCHASE AND SALE WITH THE RIGHT TO
REPURCHASE LAND BANK BONDS SO AS TO
REFLECT THE TRUE INTENTION AND
AGREEMENT OF PARTIES THAT THE
TRANSACTION WAS THAT OF LOAN OF P9
MILLION PAYABLE FOR A PERIOD OF ONE (1)
YEAR, JANUARY 11, 1992 IN THE AMOUNT
OF P11,537,972.60 INCLUSIVE OF INTEREST.[5]
Ordinarily, the Court will not dwell on the issues raised in this
petition as it pertains to questions of fact, and under Rule 45 of the Rules of
Court, only questions of law may be raised, the reason being that this Court
is not a trier of facts, and it is not for this Court to re-examine and re-evaluate
the evidence on record.[6] Considering, however, that the CA and the RTC
came up with divergent findings regarding the real nature of the transaction
in question, the Court is now constrained to review the evidence on record so
as to resolve the conflict.[7]
After a careful examination of the evidence on record, the Court sustains the
CAs ruling that the transaction between the parties was one of sale and not of
loan.
An action for reformation of an instrument finds ground in Article 1359 of
the Civil Code, which provides:
ARTICLE 1359. When, there having been a meeting of the
minds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct
or accident, one of the parties may ask for the reformation of
the instrument to the end that such true intention may be
expressed.
xxxx

Reformation is a remedy in equity, whereby a written instrument is made or
construed so as to express or conform to the real intention of the parties,
where some error or mistake has been committed. In granting reformation,
the remedy in equity is not making a new contract for the parties, but
establishing and perpetuating the real contract between the parties which,
under the technical rules of law, could not be enforced but for such
reformation.[8]
In order that an action for reformation of instrument may prosper, the
following requisites must concur: (1) there must have been a meeting of the
minds of the parties to the contract; (2) the instrument does not express the
true intention of the parties; and (3) the failure of the instrument to express
the true intention of the parties is due to mistake, fraud, inequitable conduct
or accident.[9]
In the present case, there is no question that there was a meeting of the minds
between the parties. What remains to be resolved is whether the contract
expressed their true intention; and, if not, whether it was due to mistake,
fraud, inequitable conduct or accident.
While intentions involve a state of mind which may sometimes be
difficult to decipher, subsequent and contemporaneous acts of the parties as
well as the evidentiary facts as proved and admitted can be reflective of ones
intention.[10]
The onus probandi is upon the party who insists that the contract
should be reformed.[11] Moreover, the presumption is that an instrument sets
out the true agreement of the parties thereto and that it was executed for
valuable consideration.[12] Unfortunately, petitioner was not able to overturn
the presumption of validity of the contract and it also failed to discharge the
burden of proving that the true intention of the parties has not been
expressed.
In support of its contention that the transaction is one of loan, petitioner
relies principally on the letter dated January 11, 1991, wherein respondent
offered to purchase on January 10, 1992 the Land Bank bonds from
petitioner for the total amount of P11,557,972.60.[13] According to petitioner,
the amount borrowed by respondent was P9,000,000.00, with interest, or a
total of P11,557,972.60, payable within one year.[14] Petitioner insists that the
buy-back letter proves that the transaction was indeed a loan, for if it was a
sale, why would respondent buy back the bonds in the same amount that was
payable under their alleged loan agreement?[15]
There is nothing on record, as well as in the buy-back letter, that clearly and
convincingly proves or substantiates petitioners contention that the real intent
of the parties was to enter into a loan agreement for the amount
of P11,557,972.60, inclusive of interest. In fact, respondents buy-back letter
supports the finding that the agreement entered into by the parties was a sale
transaction. For if the bonds were only to serve as a collateral for the loan,
why would respondent offer to buy them back from petitioner if they were
not sold in the first place? Obviously, ownership of the bonds had been
transferred from respondent to petitioner on January 11, 1991; for if it were
not so and the bonds were merely being held by petitioner as a security for
the payment of the alleged loan, then ownership would have remained with
respondent and there would have been no need to buy it back.
The Court agrees with and adopts the findings of the CA, thus:
The lower court, and the appellee, advance that it
was highly improbable that plaintiff would really purchase
the Land Bank bonds for 9 million pesos, when it would
 have called for only 6.5 million pesos if sold in the
market. Aside from such self-serving statements, however,
there is no direct or substantial proof that the bonds would Finally, petitioner failed to show that mistake, fraud, inequitable conduct or
have demanded a lower actual price when it was sold. In any accident attended the execution of the agreement such that their true intention
case, poor business decisions are not adequate grounds to
nullify the effects of a contract entered into in the course of was not reflected. As admitted by petitioner, the parties agreed to execute a
business operations. x x x purchase and sale agreement for purposes of expediency and
convenience.[18] Expediency and convenience, however, are not grounds for
Furthermore, the fact that the Confirmation of Agreement
(Exhibit 1) and offer to purchase by defendants (Exhibit B) the reformation of an instrument. As such, absent any proof of mistake,
were executed simultaneously and delivered to fraud, inequitable conduct or accident, the Confirmation of Agreement
the plaintiff, is not inconsistent with the conclusion that the
contract between the parties was truly a Sale. In order to dated January 11, 1991 remains the best evidence to ascertain the real intent
hold that the parties' agreement was really a loan, more of the parties.
concrete and convincing evidence must be produced. x x x[16]
The transaction of sale entered into by the parties on January 11,
1991 is accurately expressed in the Confirmation of Agreement. Petitioner,
In addition, and more significantly, what militates against petitioners
therefore, has no cause of action for its reformation.
argument that their agreement was a loan is the fact that subsequent thereto,
petitioner endorsed and transferred the bonds to the AFP Mutual Benefits
WHEREFORE, the petition is DENIED for lack of merit.
Association, Inc., as collateral for an investment. Petitioner did not rebut or
at the very least, offer a plausible explanation for said transfer which is
Costs against petitioner.
unmistakably an act of ownership. It sufficiently established the CA finding
that the transaction is one of sale, thus:
SO ORDERED.
Aside from Exhibit 1, evidence on record, particularly
Exhibits 8 to 9 show that the bonds were indeed delivered to
the plaintiff pursuant to the Contract of Sale. Furthermore,
MA. ALICIA AUSTRIA-MARTINEZ
almost immediately after taking possession of the subject
Associate Justice
bonds, plaintiff corporation through its Vice-President
and incorporator, Natividad Aureola, endorsed and
transferred the same to the AFP Mutual Benefits
WE CONCUR:
Association, Inc., as collateral for an investment made by
the latter. Such endorsement and transfer, to our mind,
amount to an act of ownership, which can only be made
by one who owns a certain property, and not by one who
CONSUELO YNARES-SANTIAGO
holds a property only as security for loan. Defendants'
Associate Justice
position that it had sold the bonds to the plaintiff pursuant to
Chairperson
Exhibit 1 is thus fortified. [17]
 Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairpersons Attestation, it is hereby certified that the conclusions
in the above Decision had been reached in consultation before the case was
MINITA V. CHICO-NAZARIO assigned to the writer of the opinion of the Courts Division.
ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice

REYNATO S. PUNO

Chief Justice

SECOND DIVISION

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

ATTESTATION

I attest that the conclusions in the above Decision had been reached in BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT
consultation before the case was assigned to the writer of the opinion of the OF APPEALS and ALS MANAGEMENT & DEVELOPMENT
Courts Division. CORPORATION, respondents.

DECISION
CONSUELO YNARES-SANTIAGO
Associate Justice QUISUMBING, J.:
Chairperson, Third Division
This petition for certiorari assails the decision dated February 28,
1997, of the Court of Appeals and its resolution dated April 21, 1998,
in CA-G.R. CV No. 38887. The appellate court affirmed the judgment
of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case
No. 11831, for foreclosure of mortgage by petitioner BPI Investment
Corporation (BPIIC for brevity) against private respondents ALS
Management and Development Corporation and Antonio K.
Litonjua,[1] consolidated with (b) Civil Case No. 52093, for damages
CERTIFICATION with prayer for the issuance of a writ of preliminary injunction by the
private respondents against said petitioner.
The trial court had held that private respondents were not in
default in the payment of their monthly amortization, hence, the
extrajudicial foreclosure conducted by BPIIC was premature and
made in bad faith. It awarded private respondents the amount
of P300,000 for moral damages, P50,000 for exemplary damages,
and P50,000 for attorneys fees and expenses for litigation. It likewise
dismissed the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per
annum from Ayala Investment and Development Corporation (AIDC),
the predecessor of petitioner BPIIC, for the construction of a house on
his lot in New Alabang Village, Muntinlupa. Said house and lot were
mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold
the house and lot to private respondents ALS and Antonio Litonjua
for P850,000. They paid P350,000 in cash and assumed
the P500,000 balance of Roas indebtedness with AIDC. The latter,
however, was not willing to extend the old interest rate to private
respondents and proposed to grant them a new loan of P500,000 to
be applied to Roas debt and secured by the same property, at an
interest rate of 20% per annum and service fee of 1% per annum on
the outstanding principal balance payable within ten years in equal
monthly amortization of P9,996.58 and penalty interest at the rate of
21% per annum per day from the date the amortization became due
and payable.
Consequently, in March 1981, private respondents executed a
mortgage deed containing the above stipulations with the provision
that payment of the monthly amortization shall commence on May 1,
1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages
by paying BPIIC the sum of P190,601.35. This reduced Roas principal
balance to P457,204.90 which, in turn, was liquidated when BPIIC
applied thereto the proceeds of private respondents loan of P500,000.
On September 13, 1982, BPIIC released to private
respondents P7,146.87, purporting to be what was left of their loan
after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against
private respondents on the ground that they failed to pay the
mortgage indebtedness which from May 1, 1981 to June 30, 1984,
amounted to Four Hundred Seventy Five Thousand Five Hundred
Eighty Five and 31/100 Pesos (P475,585.31). A notice of sheriffs sale
was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No.
52093 against BPIIC. They alleged, among others, that they were not
in arrears in their payment, but in fact made an overpayment as
of June 30, 1984. They maintained that they should not be made to
pay amortization before the actual release of the P500,000 loan in
August and September 1982. Further, out of the P500,000 loan, only
the total amount of P464,351.77 was released to private respondents.
Hence, applying the effects of legal compensation, the balance
of P35,648.23 should be applied to the initial monthly amortization for
the loan.
On August 31, 1988, the trial court rendered its judgment in Civil
Case Nos. 11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management
and Development Corporation and Antonio K. Litonjua and against BPI
Investment Corporation, holding that the amount of loan granted by BPI to
ALS and Litonjua was only in the principal sum of P464,351.77, with
interest at 20% plus service charge of 1% per annum, payable on equal
monthly and successive amortizations at P9,283.83 for ten (10) years or one
hundred twenty (120) months. The amortization schedule attached as Annex
A to the Deed of Mortgage is correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable
damages when BPI caused their publication in a newspaper of general
circulation as defaulting debtors, and therefore orders BPI to pay ALS and
Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being
premature.
Costs against BPI.
SO ORDERED.[2]
 Both parties appealed to the Court of Appeals. However, private
respondents appeal was dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its
decision, the dispositive portion reads:
WHEREFORE, finding no error in the appealed decision the same is hereby
AFFIRMED in toto.
SO ORDERED.[3]
In its decision, the Court of Appeals reasoned that a simple loan
is perfected only upon the delivery of the object of the contract. The
contract of loan between BPIIC and ALS & Litonjua was perfected
only on September 13, 1982, the date when BPIIC released the
purported balance of the P500,000 loan after deducting therefrom the
value of Roas indebtedness. Thus, payment of the monthly
amortization should commence only a month after the said date, as
can be inferred from the stipulations in the contract. This, despite the
express agreement of the parties that payment shall commence
on May 1, 1981. From October 1982 to June 1984, the total
amortization due was only P194,960.43. Evidence showed that
private respondents had an overpayment, because as of June 1984,
they already paid a total amount of P201,791.96. Therefore, there was
no basis for BPIIC to extrajudicially foreclose the mortgage and cause
the publication in newspapers concerning private respondents
delinquency in the payment of their loan. This fact constituted
sufficient ground for moral damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was
likewise denied, hence this petition, where BPIIC submits for
resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A
CONSENSUAL CONTRACT IN THE LIGHT OF THE
RULE LAID DOWN IN BONNEVIE VS. COURT OF
APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE
FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEYS FEES IN THE FACE OF IRREGULAR
PAYMENTS MADE BY ALS AND OPPOSED TO THE
RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS.
COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals
erred in ruling that because a simple loan is perfected upon the
delivery of the object of the contract, the loan contract in this case was
perfected only on September 13, 1982. Petitioner claims that a
contract of loan is a consensual contract, and a loan contract is
perfected at the time the contract of mortgage is executed
conformably with our ruling in Bonnevie v. Court of Appeals, 125
SCRA 122. In the present case, the loan contract was perfected
on March 31, 1981, the date when the mortgage deed was executed,
hence, the amortization and interests on the loan should be computed
from said date.
Petitioner also argues that while the documents showed that the
loan was released only on August 1982, the loan was actually
released on March 31, 1981, when BPIIC issued a cancellation of
mortgage of Frank Roas loan. This finds support in the registration
on March 31, 1981 of the Deed of Absolute Sale executed by Roa in
favor of ALS, transferring the title of the property to ALS, and ALS
executing the Mortgage Deed in favor of BPIIC. Moreover, petitioner
claims, the delay in the release of the loan should be attributed to
private respondents. As BPIIC only agreed to extend a P500,000
loan, private respondents were required to reduce Frank Roas loan
below said amount. According to petitioner, private respondents were
only able to do so in August 1982.
In their comment, private respondents assert that based on
Article 1934 of the Civil Code,[4] a simple loan is perfected upon the
delivery of the object of the contract, hence a real contract. In this
case, even though the loan contract was signed on March 31, 1981, it
was perfected only on September 13, 1982, when the full loan was
released to private respondents.They submit that petitioner
misread Bonnevie. To give meaning to Article 1934, according to
private respondents, Bonnevie must be construed to mean that the
contract to extend the loan was perfected on March 31, 1981 but the
contract of loan itself was only perfected upon the delivery of the full
loan to private respondents on September 13, 1982.
Private respondents further maintain that even
granting, arguendo, that the loan contract was perfected on March 31,
1981, and their payment did not start a month thereafter, still no
default took place. According to private respondents, a perfected loan
agreement imposes reciprocal obligations, where the obligation or
promise of each party is the consideration of the other party. In this
case, the consideration for BPIIC in entering into the loan contract is
the promise of private respondents to pay the monthly amortization.
For the latter, it is the promise of BPIIC to deliver the money. In
reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him.Therefore, private respondents conclude, they
did not incur in delay when they did not commence paying the
monthly amortization on May 1, 1981, as it was only on September
13, 1982when petitioner fully complied with its obligation under the
loan contract.
We agree with private respondents. A loan contract is not a
consensual contract but a real contract. It is perfected only upon the
delivery of the object of the contract.[5] Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by this Court
as a perfected consensual contract falls under the first clause of
Article 1934, Civil Code. It is an accepted promise to deliver
something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the
Philippines, 44 SCRA 445, petitioner applied for a loan of P500,000
with respondent bank. The latter approved the application through a
board resolution. Thereafter, the corresponding mortgage was
executed and registered. However, because of acts attributable to
petitioner, the loan was not released. Later, petitioner instituted an
action for damages. We recognized in this case, a perfected
consensual contract which under normal circumstances could have
made the bank liable for not releasing the loan. However, since the
fault was attributable to petitioner therein, the court did not award it
damages.
A perfected consensual contract, as shown above, can give rise
to an action for damages. However, said contract does not constitute
the real contract of loan which requires the delivery of the object of the
contract for its perfection and which gives rise to obligations only on
the part of the borrower.[6]
In the present case, the loan contract between BPI, on the one
hand, and ALS and Litonjua, on the other, was perfected only
on September 13, 1982, the date of the second release of the
loan. Following the intentions of the parties on the commencement of
the monthly amortization, as found by the Court of Appeals, private
respondents obligation to pay commenced only on October 13, 1982,
a month after the perfection of the contract.[7]
We also agree with private respondents that a contract of loan
involves a reciprocal obligation, wherein the obligation or promise of
each party is the consideration for that of the other.[8]As averred by
private respondents, the promise of BPIIC to extend and deliver the
loan is upon the consideration that ALS and Litonjua shall pay the
monthly amortization commencing on May 1, 1981, one month after
the supposed release of the loan. It is a basic principle in reciprocal
obligations that neither party incurs in delay, if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him.[9] Only when a party has performed his part of
the contract can he demand that the other party also fulfills his own
obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly
amortization after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract. Therefore, in
computing the amount due as of the date when BPIIC extrajudicially
caused the foreclosure of the mortgage, the starting date is October
13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue,
such as the date of actual release of the loan and whether private
respondents were the cause of the delay in the release of the loan,
are factual. Since petitioner has not shown that the instant case is one
of the exceptions to the basic rule that only questions of law can be
raised in a petition for review under Rule 45 of the Rules of
Court,[10] factual matters need not tarry us now. On these points we
are bound by the findings of the appellate and trial courts.
On the second issue, petitioner claims that it should not be held
liable for moral and exemplary damages for it did not act maliciously
when it initiated the foreclosure proceedings. It merely exercised its
right under the mortgage contract because private respondents were
irregular in their monthly amortization. It invoked our ruling in Social
Security System vs. Court of Appeals, 120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate damages. As
concluded by the Court of Appeals the negligence of the appellant is not so
gross as to warrant moral and temperate damages, except that, said Court
reduced those damages by only P5,000.00 instead of eliminating them.
Neither can we agree with the findings of both the Trial Court and
respondent Court that the SSS had acted maliciously or in bad faith. The SSS
was of the belief that it was acting in the legitimate exercise of its right under
the mortgage contract in the face of irregular payments made by private
respondents and placed reliance on the automatic acceleration clause in the
contract. The filing alone of the foreclosure application should not be a Republic of the Philippines
ground for an award of moral damages in the same way that a clearly Supreme Court
unfounded civil action is not among the grounds for moral damages. Baguio City

Private respondents counter that BPIIC was guilty of bad faith FIRST DIVISION
and should be liable for said damages because it insisted on the
payment of amortization on the loan even before it was HERMOJINA ESTORES, G.R. No. 175139
released. Further, it did not make the corresponding deduction in the Petitioner,
monthly amortization to conform to the actual amount of loan Present:
released, and it immediately initiated foreclosure proceedings when
private respondents failed to make timely payment.
CORONA, C.J., Chairperson,
But as admitted by private respondents themselves, they were
irregular in their payment of monthly amortization. Conformably with - versus - LEONARDO-DE CASTRO,
our ruling in SSS, we can not properly declare BPIIC in bad faith. BERSAMIN,
Consequently, we should rule out the award of moral and exemplary DEL CASTILLO, and
damages.[11]
VILLARAMA, JR., JJ.
However, in our view, BPIIC was negligent in relying merely on SPOUSES ARTURO and
the entries found in the deed of mortgage, without checking and
LAURA SUPANGAN, Promulgated:
correspondingly adjusting its records on the amount actually released
to private respondents and the date when it was released. Such Respondents. April 18, 2012
negligence resulted in damage to private respondents, for which an x------------------------------------------------------------
award of nominal damages should be given in recognition of their -------x
rights which were violated by BPIIC.[12] For this purpose, the amount
of P25,000 is sufficient. DECISION
Lastly, as in SSS where we awarded attorneys fees because
private respondents were compelled to litigate, we sustain the award DEL CASTILLO, J.:
of P50,000 in favor of private respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the The only issue posed before us is the propriety of the imposition of interest
Court of Appeals and its resolution dated April 21, 1998, are and attorneys fees.
AFFIRMED WITH MODIFICATION as to the award of damages. The
award of moral and exemplary damages in favor of private
respondents is DELETED, but the award to them of attorneys fees in Assailed in this Petition for Review[1] filed under Rule 45 of the Rules of Court is the
the amount of P50,000 is UPHELD. Additionally, petitioner is May 12, 2006 Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 83123,
ORDERED to pay private respondents P25,000 as nominal damages.
Costs against petitioner. the dispositive portion of which reads:
SO ORDERED.
WHEREFORE, the appealed decision is MODIFIED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., The rate of interest shall be six percent (6%) per annum, computed
JJ., concur. 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 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 attorneys fees is hereby 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 Laura Supangan entered into a Conditional Deed of Sale[5] whereby petitioner
offered to sell, and respondent-spouses offered to buy, a parcel of land covered by
Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum
of P4.7 million. The parties likewise stipulated, among others, to wit:
xxxx
1. Vendor will secure approved clearance from DAR requirements
of which are (sic):
a) Letter request
b) Title
c) Tax Declaration
d) Affidavit of Aggregate Landholding Vendor/Vendee
e) Certification from the Provl. Assessors as to Landholdings
of Vendor/Vendee
f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale
xxxx
4. Vendee shall be informed as to the status of DAR clearance
within 10 days upon signing of the documents.
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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.
xxxx
9. As to the boundaries and partition of the lots (15,018 sq. m. and
300 sq. m.) Vendee shall be informed immediately of its
approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of
ownership.
x x x x [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
petitioners 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 starting
October 1, 1993 or an estimated amount
of P8,558,591.65;
2. Pay the following items of damages:
In its Pre-Trial Order[15] dated June 29, 2001, the RTC noted that the parties
agreed that the principal amount of 3.5 million pesos should be returned to the
[respondent-spouses] by the [petitioner] and the issue remaining [is] whether x x x
[respondent-spouses] are entitled to legal interest thereon, damages and attorneys
fees.[16]
Trial ensued thereafter. After the presentation of the respondent-spouses
evidence, the trial court set the presentation of Arias and petitioners evidence on
September 3, 2003.[17]However, despite several postponements, petitioner and Arias
failed to appear hence they were deemed to have waived the presentation of their
evidence. Consequently, the case was deemed submitted for decision.[18]

a) Moral damages in the amount

Ruling of the Regional Trial Court
of P100,000.00;
b) Actual damages in the amount
of P100,000.00; On May 7, 2004, the RTC rendered its Decision[19] finding respondent-spouses
c) Exemplary damages in the amount entitled to interest but only at the rate of 6% per annum and not 12% as prayed by
of P100,000.00; them.[20] It also found respondent-spouses entitled to attorneys fees as they were
d) [Attorneys] fee in the amount of P50,000.00 compelled to litigate to protect their interest.[21]
plus 20% of recoverable amount from the
[petitioner].
e) [C]ost of suit.[11] The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, judgment is hereby

In their Answer with Counterclaim,[12] petitioner and Arias averred that they
are willing to return the principal amount of P3.5 million but without any interest as
the same was not agreed upon. In their Pre-Trial Brief,[13] they reiterated that the only
remaining issue between the parties is the imposition of interest. They argued that
since the Conditional Deed of Sale provided only for the return of the downpayment
in case of breach, they cannot be held liable to pay legal interest as well.[14]
rendered in favor of the [respondent-spouses] and ordering the
[petitioner and Roberto Arias] to jointly and severally:
1. Pay [respondent-spouses] the principal amount
of Three Million Five Hundred Thousand pesos (P3,500,000.00)
with an interest of 6% compounded annually starting October 1,
1993 and attorneys fee in the amount of Fifty Thousand pesos
(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 RTCs 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 attorneys 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]
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 attorneys 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
attorneys fees is proper.
Petitioners 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
attorneys 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
attorneys fees, they claim that they are entitled to the same because they were forced
to litigate when petitioner unjustly withheld the amount. Besides, the amount
awarded by the CA is even smaller compared to the filing fees they paid.
 obligation arises out of a loan or a forbearance of money, goods or credits. In other
Our Ruling cases, it shall be six percent (6%).[32] In this case, the parties did not stipulate as to the
applicable rate of interest. The only question remaining therefore is whether the 6%
The petition lacks merit. as provided under Article 2209 of the Civil Code, or 12% under Central Bank
Circular No. 416, is due.
Interest may be
imposed even in the
absence of The contract involved in this case is admittedly not a loan but a Conditional
stipulation in the Deed of Sale. However, the contract provides that the seller (petitioner) must return
contract.
the payment made by the buyer (respondent-spouses) if the conditions are not
fulfilled. There is no question that they have in fact, not been fulfilled as the seller
We sustain the ruling of both the RTC and the CA that it is proper to (petitioner) has admitted this. Notwithstanding demand by the buyer (respondent-
impose interest notwithstanding the absence of stipulation in the contract. Article spouses), the seller (petitioner) has failed to return the money and
2210 of the Civil Code expressly provides that [i]nterest may, in the discretion of the
court, be allowed upon damages awarded for breach of contract. In this case, there is should be considered in default from the time that demand was made on September
no question that petitioner is legally obligated to return the P3.5 million because of 27, 2000.
her failure to fulfill the obligation under the Conditional Deed of Sale, despite
demand. She has in fact admitted that the conditions were not fulfilled and that she Even if the transaction involved a Conditional Deed of Sale, can the
was willing to return the full amount of P3.5 million but has not actually done stipulation governing the return of the money be considered as a forbearance of
so. Petitioner enjoyed the use of the money from the time it was given to her[30] until money which required payment of interest at the rate of 12%? We believe so.
now. Thus, she is already in default of her obligation from the date of demand, i.e.,
on September 27, 2000. In Crismina Garments, Inc. v. Court of Appeals,[33] forbearance was defined
as a contractual obligation of lender or creditor to refrain during a given period of
The interest at the time, from requiring the borrower or debtor to repay a loan or debt then due and
rate of 12% is
payable. This definition describes a loan where a debtor is given a period within
applicable in the
instant case. which to pay a loan or debt. In such case, forbearance of money, goods or credits
will have no distinct definition from a loan. We believe however, that the phrase
forbearance of money, goods or credits is meant to have a separate meaning from a
Anent the interest rate, the general rule is that the applicable rate of interest
loan, otherwise there would have been no need to add that phrase as a loan is already
shall be computed in accordance with the stipulation of the parties.[31] Absent any
sufficiently defined in the Civil Code.[34] Forbearance of money, goods or credits
stipulation, the applicable rate of interest shall be 12% per annum when the
should therefore refer to arrangements other than loan agreements, where a person
acquiesces to the temporary use of his money, goods or credits pending happening of
certain events or fulfillment of certain conditions. In this case, the respondent-
spouses parted with their money even before the conditions were fulfilled. They have
therefore allowed or granted forbearance to the seller (petitioner) to use their money
pending fulfillment of the conditions. They were deprived of the use of their money
for the period pending fulfillment of the conditions and when those conditions were
2.
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.
Petitioners 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.
3.
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.
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.
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 amount of P50,000.00 more appropriate in line with the policy enunciated in Article
case, Reformina v. Tongol[39] both involved torts cases and hence, there was no 2208 of the Civil Code that the award of attorneys fees must always be reasonable.
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
WHEREFORE, the Petition for Review is DENIED. The May 12, 2006
made. Hence, we arrived at a different ruling in those cases.
Decision of the Court of Appeals in CA-G.R. CV No. 83123
is AFFIRMED with MODIFICATIONS that the rate of interest shall be twelve
Since the date of demand which is September 27, 2000 was satisfactorily
percent (12%) per annum, computed from September 27, 2000 until fully
established during trial, then the interest rate of 12% should be reckoned from said
satisfied. The award of attorneys fees is further reduced to P50,000.00.
date of demand until the principal amount and the interest thereon is fully satisfied.
SO ORDERED.
The award of
attorneys fees is
warranted.
MARIANO C. DEL CASTILLO
Associate Justice
Under Article 2208 of the Civil Code, attorneys fees may be recovered:

WE CONCUR:
xxxx

(2) When the defendants act or omission has compelled the

plaintiff to litigate with third persons or to incur expenses to
RENATO C. CORONA
protect his interest;
Chief Justice
Chairperson
xxxx

(11) In any other case where the court deems it just and
equitable that attorneys fees and expenses of litigation should
be recovered.
TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN
Associate Justice Associate Justice
In all cases, the attorneys fees and expenses of litigation must be
reasonable.
Considering the circumstances of the instant case, we find respondent-
spouses entitled to recover attorneys fees. There is no doubt that they were forced to
litigate to protect their interest, i.e., to recover their money. However, we find the
 MARTIN S. VILLARAMA, JR.
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice