CREDTRANS 2
G.R. No. 123031. October 12, 1999.* and instead instructed private respondent to wait for its ongoing bank
CEBU INTERNATIONAL FINANCE CORPORATION, petitioner, vs. COURT OF
APPEALS, VICENTE ALEGRE, respondents.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Villanueva, Pacis, Mondragon & Cana Law Offices for petitioner.
QUISUMBING, J.:
This petition for review on certiorari assails respondent appellate court’s
Decision,1 dated December 8, 1995, in CA G.R. CV No. 44085, which affirmed the
ruling of the Regional Trial Court of Makati, Branch 132. The dispositive portion
of the trial court’s decision reads:
“WHEREFORE, judgment is hereby rendered ordering defendant [herein
petitioner] to pay plaintiff [herein private respondent]:
1. “(1)the principal sum of P514,390.94 with legal interest thereon computed
from August 6, 1991 until fully paid; and
2. “(2)the costs of suit.
SO ORDERED.”2
Based on the records, the following are the pertinent facts of the case:
Cebu International Finance Corporation (CIFC), a quasibanking institution, is
engaged in money market operations.
On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, five
hundred thousand (P500,000.00) pesos, in cash. Petitioner issued a promissory
note to mature on May 27, 1991. The note for five hundred sixteen thousand, two
hundred thirty-eight pesos and sixty-seven centavos (P516,238.67) covered private
respondent’s placement plus interest at twenty and a half (20.5%) percent for
thirty-two (32) days.
On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK)
for five hundred fourteen thousand, three hundred ninety pesos and ninety-four
centavos (P514,390.94) in favor of the private respondent as proceeds of his
matured investment plus interest. The CHECK was
drawn from petitioner’s current account number 0011-0803-59, maintained with
the Bank of the Philippine Islands (BPI), main branch at Makati City.
On June 17, 1991, private respondent’s wife deposited the CHECK with Rizal
Page1
Commercial Banking Corp. (RCBC), in Puerto Princesa, Palawan. BPI dishonored
the CHECK with the annotation, that the “Check (is) Subject of an Investigation.”
BPI took custody of the CHECK pending an investigation of several counterfeit
checks drawn against CIFC’s afore-stated checking account. BPI used the check to
trace the perpetrators of the forgery.
Immediately, private respondent notified CIFC of the dishonored CHECK and
demanded, on several occasions, that he be paid in cash. CIFC refused the request,
reconciliation with BPI. Thereafter, private respondent, through counsel, made a
formal demand for the payment of his money market placement. In turn, CIFC
promised to replace the CHECK but required an impossible condition that the
original must first be surrendered.
On February 25, 1992, private respondent Alegre filed a complaint3 for
recovery of a sum of money against the petitioner with the Regional Trial Court of
Makati (RTC-Makati), Branch 132.
On July 13, 1992, CIFC sought to recover its lost funds and formally filed
against BPI, a separate civil action4 for collection of a sum of money with the RTC-
Makati, Branch 147. The collection suit alleged that BPI unlawfully deducted from
CIFC’s checking account, counterfeit checks amounting to one million, seven
hundred twenty-four thousand, three hundred sixty-four pesos and fifty-eight
centavos (P1,724,364.58). The
action included the prayer to collect the amount of the CHECK paid to Vicente
Alegre but dishonored by BPI.
Meanwhile, in response to Alegre’s complaint with RTC-Makati, Branch 132,
CIFC filed a motion for leave of court to file a third-party complaint against BPI.
BPI was impleaded by CIFC to enforce a right, for contribution and indemnity,
with respect to Alegre’s claim. CIFC asserted that the CHECK it issued in favor of
Alegre was genuine, valid and sufficiently funded.
On July 23, 1992, the trial court granted CIFC’s motion. However, BPI moved
to dismiss the third-party complaint on the ground of pendency of another action
with RTC-Makati, Branch 147. Acting on the motion, the trial court dismissed the
third-party complaint on November 4, 1992, after finding that the third party
complaint filed by CIFC against BPI is similar to its ancillary claim against the
bank, filed with RTC-Makati Branch 147.
Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27,
and June 22, 1993, Vito Arieta, Bank Manager of BPI, testified that the bank,
indeed, dishonored the CHECK, retained the original copy and forwarded only a
certified true copy to RCBC. When Arieta was recalled on July 20, 1993, he testified
that on July 16, 1993, BPI encashed and deducted the said amount from the
account of CIFC, but the proceeds, as well as the CHECK remained in BPI’s
custody. The bank’s move was in accordance with the Compromise Agreement5 it
entered with CIFC to end the litigation in RTC-Makati, Branch 147. The
compromise agreement, which was submitted for the approval of the said court,
provided that:
1. “1.Defendant [BPI] shall pay to the plaintiff [CIFC] the amount of
P1,724,364.58 plus P20,000 litigation expenses as full and final
settlement of all of plaintiff’s claims as contained in the Amended
Complaint dated September 10, 1992. The aforementioned amount shall
be credited to plaintiff’s current account No. 0011-
1. 0803-59 maintained at defendant’s Main Branch upon execution of this
Compromise Agreement.

2. “2.Thereupon, defendant shall debit the sum of P514,390.94 from the
aforesaid current account representing payment/discharge of BPI Check
No. 513397 payable to Vicente Alegre.
3. “3.In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No.
92-515 arising from the alleged dishonor of BPI Check No. 513397,
plaintiff cannot go after the defendant: otherwise stated, the defendant
shall not be liable to the plaintiff. Plaintiff [CIFC] may however set-up
the defense of payment/discharge stipulated in par. 2 above.”6
On July 27, 1993, BPI filed a separate collection suit7 against Vicente Alegre with
the RTC-Makati, Branch 62. The complaint alleged that Vicente Alegre connived
with certain Lina A. Pena and Lita A. Anda and forged several checks of BPI’s
client, CIFC. The total amount of counterfeit checks was P1,724,364.58. BPI
prevented the encashment of some checks amounting to two hundred ninety-five
thousand, seven hundred seventy-five pesos and seven centavos (P295,775.07).
BPI admitted that the CHECK, payable to Vicente Alegre for P514,390.94, was
deducted from BPI’s claim, hence, the balance of the loss incurred by BPI was nine
hundred fourteen thousand, one hundred ninety-eight pesos and fifty-seven
centavos (P914,198.57), plus costs of suit for twenty thousand (P20,000.00) pesos.
The records are silent on the outcome of this case.
On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor
of Vicente Alegre.
CIFC appealed from the adverse decision of the trial court. The respondent
court affirmed the decision of the trial court.
Hence this appeal,8 in which petitioner interposes the following assignments
of errors:
1. 1.The Honorable Court of Appeals erred in affirming the finding of the
Honorable Trial Court holding that petitioner was not discharged from
the liability of paying the value of the subject check to private
respondent after BPI has debited the value thereof against petitioner’s
current account.
2. 2.The Honorable Court of Appeals erred in applying the provisions of
paragraph 2 of Article 1249 of the Civil Code in the instant case. The
applicable law being the Negotiable Instruments Law.
3. 3.The Honorable Court of Appeals erred in affirming the Honorable Trial
Court’s findings that the petitioner was guilty of negligence and delay in
the performance of its obligation to the private respondent.
4. 4.The Honorable Court of Appeals erred in affirming the Honorable Trial
Court’s decision ordering petitioner to pay legal interest and the cost of
suit.
Page2
5. 5.The Honorable Court of Appeals erred in affirming the Honorable Trial
Court’s dismissal of petitioner’s third-party complaint against BPI.
These issues may be synthesized into three:
CREDTRANS 2
1. 1.WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL CODE
APPLIES IN THE PRESENT CASE;
2. 2.WHETHER OR NOT “BPI CHECK NO. 513397” WAS VALIDLY
DISCHARGED; and
3. 3.WHETHER OR NOT THE DISMISSAL OF THE THIRD PARTY
COMPLAINT OF PETITIONER AGAINST BPI BY REASON OF LIS
PENDENS WAS PROPER?
On the first issue, petitioner contends that the provisions of the Negotiable
Instruments Law (NIL) are the pertinent laws to govern its money market
transaction with private respondent, and not paragraph 2 of Article 1249 of the
Civil Code. Petitioner stresses that it had already been discharged from the
liability of paying the value of the CHECK due to the following circumstances:
1. “1)There was “ACCEPTANCE” of the subject check by BPI, the drawee
bank, as defined under the Negotiable Instruments Law,
1. and therefore, BPI, the drawee bank, became primarily liable for the
payment of the check, and consequently, the drawer, herein petitioner,
was discharged from its liability thereon;
2. 2)Moreover, BPI, the drawee bank, has not validly DISHONORED the
subject check; and,
3. 3)The act of BPI, the drawee bank of debiting/deducting the value of the
check from petitioner’s account amounted to and/or constituted a
discharge of the drawer’s (petitioner’s) liability under the
instrument/subject check.”9
Petitioner cites Section 137 of the Negotiable Instruments Law, which states:
“Liability of drawee retaining or destroying bill—Where a drawee to whom a bill
is delivered for acceptance destroys the same, or refuses within twenty-four hours
after such delivery or such other period as the holder may allow, to return the bill
accepted or nonaccepted to the Holder, he will be deemed to have accepted the
same.”
Petitioner asserts that since BPI accepted the instrument, the bank became
primarily liable for the payment of the CHECK. Consequently, when BPI offset the
value of CHECK against the losses from the forged checks allegedly committed by
the private respondent, the check was deemed paid.
Article 1249 of the New Civil Code deals with a mode of extinction of an
obligation and expressly provides for the medium in the “payment of debts.” It
provides that:
“The payment of debts in money shall be made in the currency stipulated, and if it
is not possible to deliver such currency, then in the currency, which is legal tender
in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.
 CREDTRANS 2
In the meantime, the action derived from the original obligation shall be held in plaintiff cannot go after the defendant; otherwise stated, the defendant
abeyance.” shall not be liable to the plaintiff. Plaintiff however (sic) set-up the
defense of payment/discharge stipulated in par. 2 above.”16
Considering the nature of a money market transaction, the above-quoted provision
should be applied in the present controversy. As held in Perez vs. Court of
A compromise is a contract whereby the parties, by making reciprocal concessions,
Appeals,10 a “money market is a market dealing in standardized short-term
avoid a litigation or put an end to one already commenced. 17 It is an agreement
credit instruments (involving large amounts) where lenders and borrowers do not
between two or more
deal directly with each other but through a middle man or dealer in open market.
persons who, for preventing or putting an end to a lawsuit, adjust their difficulties
In a money market transaction, the investor is a lender who loans his money to a
by mutual consent in the manner which they agree on, and which everyone of them
borrower through a middleman or dealer.11
prefers in the hope of gaining, balanced by the danger of losing.18 The compromise
In the case at bar, the money market transaction between the petitioner and
agreement could not bind a party who did not sign the compromise agreement nor
the private respondent is in the nature of a loan. The private respondent accepted
avail of its benefits.19 Thus, the stipulations in the compromise agreement is
the CHECK, instead of requiring payment in money. Yet, when he presented it to
unenforceable against Vicente Alegre, not a party thereto. His money could not be
RCBC for encashment, as early as June 17, 1991, the same was dishonored by non-
the subject of an agreement between CIFC and BPI. Although Alegre’s money was
acceptance, with BPI’s annotation: “Check (is) subject of an investigation.” These
in custody of the bank, the bank’s possession of it was not in the concept of an
facts were testified to by BPI’s manager. Under these circumstances, and after the
owner. BPI cannot validly appropriate the money as its own. The codal admonition
notice of dishonor,12 the holder has an immediate right of recourse against the
on this issue is clear:
drawer,13 and consequently could immediately file an action for the recovery of the
“Art. 1317—
value of the check.
“No one may contract in the name of another without being authorized by the
In a loan transaction, the obligation to pay a sum certain in money may be paid
latter, or unless he has by law a right to represent him.
in money, which is the legal tender or, by the use of a check. A check is not a legal
“A Contract entered into in the name of another by one who has no authority
tender, and therefore cannot constitute valid tender of payment. In the case
or legal representation, or who has acted beyond his powers, shall be
of Phil-ippine Airlines, Inc. vs. Court of Appeals,14 this Court held:
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose
“Since a negotiable instrument is only a substitute for money and not money, the
behalf it has been executed, before it is revoked by the other contracting party.”20
delivery of such an instrument does not, by itself, operate as payment (citation
omitted). A check, whether a BPI’s confiscation of Alegre’s money constitutes garnishment without the parties
manager’s check or ordinary check, is not legal tender, and an offer of a check in going through a valid proceeding in court. Garnishment is an attachment by means
payment of a debt is not a valid tender of payment and may be refused receipt by of which the plaintiff seeks to subject to his claim the property of the defendant in
the obligee or creditor. Mere delivery of checks does not discharge the obligation the hands of a third person or money owed to such third person or a garnishee to
under a judgment. The obligation is not extinguished and remains suspended until the defendant.21 The garnishment procedure must be upon proper order of RTC-
the payment by commercial document is actually realized (Art. 1249, Civil Code, Makati,
par. 3.)”15 Branch 62, the court who had jurisdiction over the collection suit filed by BPI
against Alegre. In effect, CIFC has not yet tendered a valid payment of its
Turning now to the second issue, when the bank deducted the amount of the
obligation to the private respondent. Tender of payment involves a positive and
CHECK from CIFC’s current account, this did not ipso facto operate as
unconditional act by the obligor of offering legal tender currency as payment to the
a discharge or payment of the instrument. Although the value of the CHECK was
obligee for the former’s obligation and demanding that the latter accept the
deducted from the funds of CIFC, it was not delivered to the payee, Vicente Alegre.
same.22Tender of payment cannot be presumed by a mere inference from
Instead, BPI offset the amount against the losses it incurred from forgeries of CIFC
surrounding circumstances.
checks, allegedly committed by Alegre. The confiscation of the value of the check
With regard to the third issue, for litis pendentia to be a ground for the
was agreed upon by CIFC and BPI. The parties intended to amicably settle the
dismissal of an action, the following requisites must concur: (a) identity of parties
collection suit filed by CIFC with the RTC-Makati, Branch 147, by entering into a
or at least such as to represent the same interest in both actions; (b) identity of
compromise agreement, which reads:
Page3

xxx
1. “2.Thereupon, defendant shall debit the sum of P514,390.94 from the
aforesaid current account representing payment/discharge of BPI Check
No. 513397 payable to Vicente Alegre.
2. “3.In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No.
92-515 arising from the alleged dishonor of BPI Check No. 513397,
rights asserted and relief prayed for, the relief being founded on the same acts; and
(c) the identity in the two cases should be such that the judgment which may be
rendered in one would, regardless of which party is successful, amount to res
judicata in the other.23
The trial court’s ruling as adopted by the respondent court states, thus:
“A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu International
Finance Corporation vs. Bank of the Philippine Islands now pending before Branch
147 of this Court and the Third Party Complaint in the instant case would readily
 CREDTRANS 2
show that the parties are not only identical but also the cause of action being
asserted, which is the recovery of the value of BPI Check No. 513397 is the same.
In Civil Case No. 92-1940 and in the Third Party Complaint the rights asserted
and relief prayed for, the reliefs being founded on the facts, are identical.
xxx

WHEREFORE, the motion to dismiss is granted and consequently, the Third Party
Complaint is hereby ordered dismissed on ground of lis pendens.”24

We agree with the observation of the respondent court that, as between the third
party claim filed by the petitioner against BPI in Civil Case No. 92-515 and
petitioner’s ancillary claim against the bank in Civil Case No. 92-1940, there is
identity of parties as well as identity of rights asserted, and that any judgment
that may be rendered in one case will amount to res judicata in another.
The compromise agreement between CIFC and BPI, categorically provided
that “In case plaintiff is adjudged liable to Vicente Alegre in Civil Case No. 92-515
arising from the alleged dishonor of BPI Check No. 513397, plaintiff (CIFC) cannot
go after the defendant (BPI); otherwise stated, the defendant shall not be liable to
the plaintiff.”25 Clearly, this stipulation expressed that CIFC had already
abandoned any further claim against BPI with respect to the value of BPI Check
No. 513397. To ask this Court to allow BPI to be a party in the case at bar, would
amount to res judicata and would violate terms of the compromise agreement
between CIFC and BPI. The general rule is that a compromise has upon the parties
the effect and authority of res judicata, with respect to the matter definitely stated
therein, or which by implication from its terms should be deemed to have been
included therein.26 This holds true even if the agreement has not been judicially
approved.27

WHEREFORE, the instant petition is hereby DENIED. The Decision of the Court
of Appeals in CA-G.R. CV No. 44085 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Mendoza and Buena, JJ., concur.
Bellosillo (Chairman), J., On official leave.

Petition denied; Reviewed decision affirmed.

Page4

G.R. No. 118375. October 3, 2003.*
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA
QUEAÑO, respondents.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Ocampo, Dizon & Domingo for petitioner.
D.G. Macalino & Associates for respondent A. Queaño.
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the
decision of the Sixteenth Division of the respondent Court of Appeals promulgated
on 21 December 1994,1 which affirmed in toto the decision handed down by the
Regional Trial Court (RTC) of Pasay City.2
The case arose when on 11 August 1981, private respondent Aurora Queaño
(Queaño) filed a complaint before the Pasay City RTC for cancellation of a Real
Estate Mortgage she had entered into with petitioner Celestina Naguiat (Naguiat).
The RTC rendered a decision, declaring the questioned Real Estate Mortgage void,
which Naguiat appealed to the Court of Appeals. After the Court of Appeals upheld
the RTC decision, Naguiat instituted the present petition.
The operative facts follow:
Queaño applied with Naguiat for a loan in the amount of Two Hundred
Thousand Pesos (P200,000.00), which Naguiat granted. On 11 August 1980,
Naguiat indorsed to Queaño Associated Bank Check No. 090990 (dated 11 August
1980) for the amount of Ninety Five Thousand Pesos (P95,000.00), which was
earlier issued to Naguiat by the Corporate Resources Financing Corporation. She
also issued her own Filmanbank Check No. 065314, to the order of Queaño, also
dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos
(P95,000.00). The proceeds of these checks were to constitute the loan granted by
Naguiat to Queaño.3
To secure the loan, Queaño executed a Deed of Real Estate Mortgage dated 11
August 1980 in favor of Naguiat, and surrendered to the latter the owner’s
duplicates of the titles covering the mort-
gaged properties.4 On the same day, the mortgage deed was notarized, and Queaño
issued to Naguiat a promissory note for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00), with interest at 12% per annum, payable on
11 September 1980.5Queaño also issued a Security Bank and Trust Company
check, postdated 11 September 1980, for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat.
Page5
Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. On the following day, 12 September 1980,
Queaño requested Security Bank to stop payment of her postdated check, but the
bank rejected the request pursuant to its policy not to honor such requests if the
check is drawn against insufficient funds.6
On 16 October 1980, Queaño received a letter from Naguiat’s lawyer,
demanding settlement of the loan. Shortly thereafter, Queaño and one Ruby
CREDTRANS 2
Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queaño told Naguiat
that she did not receive the proceeds of the loan, adding that the checks were
retained by Ruebenfeldt, who purportedly was Naguiat’s agent.7
Naguiat applied for the extrajudicial foreclosure of the mortgage with the
Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14 August
1981. Three days before the scheduled sale, Queaño filed the case before the Pasay
City RTC,8seeking the
annulment of the mortgage deed. The trial court eventually stopped the auction
sale.9
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real
Estate Mortgage null and void, and ordering Naguiat to return to Queaño the
owner’s duplicates of her titles to the mortgaged lots. 10Naguiat appealed the
decision before the Court of Appeals, making no less than eleven assignments of
error. The Court of Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals,
especially on the issue of whether Queaño had actually received the loan proceeds
which were supposed to be covered by the two checks Naguiat had issued or
indorsed. Naguiat claims that being a notarial instrument or public document, the
mortgage deed enjoys the presumption that the recitals therein are true. Naguiat
also questions the admissibility of various representations and pronouncements of
Ruebenfeldt, invoking the rule on the nonbinding effect of the admissions of third
persons.11
The resolution of the issues presented before this Court by Naguiat involves
the determination of facts, a function which this Court does not exercise in an
appeal by certiorari. Under Rule 45 which governs appeal by certiorari, only
questions of law may be raised12 as the Supreme Court is not a trier of facts.13The
resolution of factual issues is the function of lower courts, whose findings on these
matters are received with respect and are in fact generally
binding on the Supreme Court.14 A question of law which the Court may pass upon
must not involve an examination of the probative value of the evidence presented
by the litigants.15There is a question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of facts; there is a question
of fact when the doubt or difference arises as to the truth or the falsehood of alleged
facts.16
Surely, there are established exceptions to the rule on the conclusiveness of the
findings of facts of the lower courts.17 But Naguiat’s case does not fall under any of
the exceptions. In any event, both the decisions of the appellate and trial courts
are supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists
that Queaño received the loan proceeds. Capitalizing on the status of the mortgage
deed as a public document, she cites the rule that a public document enjoys the
presumption of validity and truthfulness of its contents. The Court of Appeals,
however, is correct in ruling that the presumption of truthfulness of the recit-
als in a public document was defeated by the clear and convincing evidence in this
case that pointed to the absence of consideration.18This Court has held that the
presumption of truthfulness engendered by notarized documents is rebuttable,
yielding as it does to clear and convincing evidence to the contrary, as in this case. 19
 CREDTRANS 2
On the other hand, absolutely no evidence was submitted by Naguiat that the All told, we find no compelling reason to disturb the finding of the courts a
checks she issued or endorsed were actually encashed or deposited. The mere quo that the lender did not remit and the borrower did not receive the proceeds of
issuance of the checks did not result in the perfection of the contract of loan. For the loan. That being the case, it follows that the mortgage which is supposed to
the Civil Code provides that the delivery of bills of exchange and mercantile secure the loan is null and void. The consideration of the mortgage contract is the
documents such as checks shall produce the effect of payment only when they have same as that of the principal contract from which it receives life, and without which
been cashed.20 It is only after the checks have produced the effect of payment that it cannot exist as an independent contract.28 A mortgage contract being a mere
the contract of loan may be deemed perfected. Art. 1934 of the Civil Code provides: accessory contract, its validity would depend on the validity of the loan secured by
“An accepted promise to deliver something by way of commodatum or simple loan it.29
is binding upon the parties, but the commodatum or simple loan itself shall not be WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs
perfected until the delivery of the object of the contract.” against petitioner.
A loan contract is a real contract, not consensual, and, as such, is perfected only SO ORDERED.
upon the delivery of the object of the contract.21 In this case, the objects of the Bellosillo(Chairman), Quisumbing, Austria-Martinez and Callejo, Sr.,
contract are the loan proceeds which Queaño would enjoy only upon the JJ., concur.
encashment of the checks signed or indorsed by Naguiat. If indeed the checks were Petition denied, judgment affirmed.
encashed or deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and
the pertinent bank records. Since Naguiat presented no such proof, it follows that
the checks were not encashed or credited to Queaño’s account.
Naguiat questions the admissibility of the various written representations
made by Ruebenfeldt on the ground that they could not bind her following the res
inter alios acta alteri nocere non debet rule. The Court of Appeals rejected the
argument, holding that since Ruebenfeldt was an authorized representative or
agent of Naguiat the situation falls under a recognized exception to the rule.22 Still,
Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between
Naguiat and Ruebenfeldt is supported by ample evidence. As correctly pointed out
by the Court of Appeals, Ruebenfeldt was not a stranger or an unauthorized
person. Naguiat instructed Ruebenfeldt to withhold from Queaño the checks she
issued or indorsed to Queaño, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan application of
Queaño’s friend, Marilou Farralese, and it was in connection with that transaction
that Queaño came to know Naguiat.23 It was also Ruebenfeldt who accompanied
Queaño in her meeting with Naguiat and on that occasion, on her own and without
Queaño asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00
payable to Naguiat, to cover for Queaño’s alleged liability to Naguiat under the
loan agreement.24
The Court of Appeals recognized the existence of an “agency by estoppel”25citing
Article 1873 of the Civil Code.26 Apparently, it considered that at the very least, as
a consequence of the interaction between Naguiat and Ruebenfeldt, Queaño got
the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing
to correct Queaño’s impression. In that situation, the rule is clear. One who clothes
Page6

another with apparent authority as his agent, and holds him out to the public as
such, cannot be permitted to deny the authority of such person to act as his agent,
to the prejudice of innocent third parties dealing with such person in good faith,
and in the honest belief that he is what he appears to be.27The Court of Appeals is
correct in invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat and
Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed
to Queaño were never encashed or deposited to her account of Naguiat.

G.R. Nos. 173654-765. August 28, 2008.*
PEOPLE OF THE PHILIPPINES, petitioner, vs. TERESITA PUIG and ROMEO
PORRAS, respondents.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.566
The Law Firm of Lauron, Delos Reyes & Partners and Jose Gelacio Lira for
respondents.
CHICO-NAZARIO, J.:
This is a Petition for Review under Rule 45 of the Revised Rules of Court with
petitioner People of the Philippines, represented by the Office of the Solicitor
General, praying for the reversal of the Orders dated 30 January 2006 and 9 June
2006 of the Regional Trial Court (RTC) of the 6th Judicial Region, Branch 68,
Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against
respondents Teresita Puig and Romeo Porras, and denying petitioner’s Motion for
Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.
The following are the factual antecedents:
On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed before
Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of Qualified Theft against
respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier
and Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc.
The cases were docketed as Criminal Cases No. 05-3054 to 05-3165.
The allegations in the Informations1 filed before the RTC were uniform and pro
forma, except for the amounts, date and time of commission, to wit:
INFORMATION
“That on or about the 1st day of August, 2002, in the Municipality of Pototan,
Province of Iloilo, Philippines, and within the jurisdiction of this Honorable Court,
above-named [respondents], conspiring, confederating, and helping one
another, with grave abuse of confidence, being
the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo,
without the knowledge and/or consent of the management of the Bank and with
intent of gain, did then and there willfully, unlawfully and feloniously take,
steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00),
Philippine Currency, to the damage and prejudice of the said bank in the aforesaid
amount.”
After perusing the Informations in these cases, the trial court did not find the
existence of probable cause that would have necessitated the issuance of a warrant
of arrest based on the following grounds:
(1) the element of ‘taking without the consent of the owners’ was
missing on the ground that it is the depositors-clients, and not the Bank, which
filed the complaint in these cases, who are the owners of the money allegedly taken
Page7
by respondents and hence, are the real parties-in-interest; and
(2) the Informations are bereft of the phrase alleging “dependence,
guardianship or vigilance between the respondents and the offended
party that would have created a high degree of confidence between them
which the respondents could have abused.”
It added that allowing the 112 cases for Qualified Theft filed against the
respondents to push through would be violative of the right of the respondents
under Section 14(2), Article III of the 1987 Constitution which states that in all
CREDTRANS 2
criminal prosecutions, the accused shall enjoy the right to be informed of the
nature and cause of the accusation against him. Following Section 6, Rule 112 of
the Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30
January 2006 and refused to issue a warrant of arrest against Puig and Porras.
A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.
On 9 June 2006, an Order3 denying petitioner’s Motion for Reconsideration was
issued by the RTC, finding as follows:
“Accordingly, the prosecution’s Motion for Reconsideration should be, as it
hereby, DENIED. The Order dated January 30, 2006 STANDS in all respects.”
Petitioner went directly to this Court via Petition for Review
on Certiorari under Rule 45, raising the sole legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT
SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE
CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF
GRAVE ABUSE OF CONFIDENCE.
Petitioner prays that judgment be rendered annulling and setting aside the
Orders dated 30 January 2006 and 9 June 2006 issued by the trial court, and that
it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.
Petitioner explains that under Article 1980 of the New Civil Code, “fixed,
savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loans.” Corollary thereto, Article
1953 of the same Code provides that “a person who receives a loan of money or any
other fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality.” Thus, it posits that the
depositors who place their money with the bank are considered creditors of the
bank. The bank acquires ownership of the money deposited by its clients, making
the money taken by respondents as belonging to the bank.
Petitioner also insists that the Informations sufficiently allege all the elements
of the crime of qualified theft, citing that a perusal of the Informations will show
that they specifically allege that the respondents were the Cashier and Bookkeeper
of the Rural Bank of Pototan, Inc., respectively, and that they took various
amounts of money with grave abuse of confidence, and without the knowledge and
consent of the bank, to the damage and prejudice of the bank.
Parenthetically, respondents raise procedural issues. They challenge the petition
on the ground that a Petition for Review on Certiorari via Rule 45 is the wrong
mode of appeal because a finding of probable cause for the issuance of a war-569
rant of arrest presupposes evaluation of facts and circumstances, which is not
proper under said Rule.
Respondents further claim that the Department of Justice (DOJ), through the
Secretary of Justice, is the principal party to file a Petition for Review
on Certiorari, considering that the incident was indorsed by the DOJ.
We find merit in the petition.
The dismissal by the RTC of the criminal cases was allegedly due to
insufficiency of the Informations and, therefore, because of this defect, there is no
basis for the existence of probable cause which will justify the issuance of the
warrant of arrest. Petitioner assails the dismissal contending that the
Informations for Qualified Theft sufficiently state facts which constitute (a) the
qualifying circumstance of grave abuse of confidence; and (b) the element of taking,
with intent to gain and without the consent of the owner,which is the Bank.

In determining the existence of probable cause to issue a warrant of arrest, the
RTC judge found the allegations in the Information inadequate. He ruled that the
Information failed to state facts constituting the qualifying circumstance of grave
abuse of confidence and the element of taking without the consent of the
owner, since the owner of the money is not the Bank, but the depositors therein.
He also cites People v. Koc Song,4 in which this Court held:
“There must be allegation in the information and proof of a relation, by reason of
dependence, guardianship or vigilance, between the respondents and the offended
party that has created a high degree of confidence between them, which the
respondents abused.”
At this point, it needs stressing that the RTC Judge based his conclusion that there
was no probable cause simply on the insufficiency of the allegations in the
Informations concerning the facts constitutive of the elements of the offense charged.
This, therefore, makes the issue of sufficiency of the allegations in the Informations
the focal point of discussion.
Qualified Theft, as defined and punished under Article 310 of the Revised
Penal Code, is committed as follows, viz.:
“ART. 310. Qualified Theft.—The crime of theft shall be punished by the
penalties next higher by two degrees than those respectively specified in the next
preceding article, if committed by a domestic servant, or with grave abuse of
confidence, or if the property stolen is motor vehicle, mail matter or large cattle
or consists of coconuts taken from the premises of a plantation, fish taken from a
fishpond or fishery or if property is taken on the occasion of fire, earthquake,
typhoon, volcanic eruption, or any other calamity, vehicular accident or civil
disturbance.” (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal Code, requires the physical
taking of another’s property without violence or intimidation against persons or
force upon things. The elements of the crime under this Article are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon things.
To fall under the crime of Qualified Theft, the following elements must concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owner’s consent;
5. That it be accomplished without the use of violence or intimidation against
persons, nor of force upon things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court
Page8
requires, inter alia, that the information
must state the acts or omissions complained of as constitutive of the offense.
On the manner of how the Information should be worded, Section 9, Rule 110
of the Rules of Court, is enlightening:
“Section 9. Cause of the accusation.—The acts or omissions complained of as
constituting the offense and the qualifying and aggravating circumstances must
be stated in ordinary and concise language and not necessarily in the language
used in the statute but in terms sufficient to enable a person of common
CREDTRANS 2
understanding to know what offense is being charged as well as its qualifying and
aggravating circumstances and for the court to pronounce judgment.”
It is evident that the Information need not use the exact language of the statute
in alleging the acts or omissions complained of as constituting the offense. The test
is whether it enables a person of common understanding to know the charge
against him, and the court to render judgment properly.5
The portion of the Information relevant to this discussion reads:
“[A]bove-named [respondents], conspiring, confederating, and helping one
another, with grave abuse of confidence, being the Cashier and
Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the
knowledge and/or consent of the management of the Bank x x x.”
It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of
a Bank who come into possession of the monies deposited therein enjoy the
confidence reposed in them by their employer. Banks, on the other hand, where
monies are deposited, are considered the owners thereof. This is very clear not only
from the express provisions of the law,
but from established jurisprudence. The relationship between banks and
depositors has been held to be that of creditor and debtor. Articles 1953 and 1980
of the New Civil Code, as appropriately pointed out by petitioner, provide as
follows:
“Article 1953. A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning loan.”
In a long line of cases involving Qualified Theft, this Court has firmly
established the nature of possession by the Bank of the money deposits therein,
and the duties being performed by its employees who have custody of the money or
have come into possession of it. The Court has consistently considered the
allegations in the Information that such employees acted with grave abuse of
confidence, to the damage and prejudice of the Bank, without particularly referring
to it as owner of the money deposits, as sufficient to make out a case of Qualified
Theft. For a graphic illustration, we cite Roque v. People,6 where the accused teller
was convicted for Qualified Theft based on this Information:
“That on or about the 16th day of November, 1989, in the municipality of
Floridablanca, province of Pampanga, Philippines and within the jurisdiction of
his Honorable Court, the above-named accused ASUNCION GALANG ROQUE,
being then employed as tellerof the Basa Air Base Savings and Loan Association
Inc. (BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga,
and as such was authorized and reposed with the responsibility to receive and
collect capital contributions from its member/contributors of said corporation, and
having collected and received in her capacity as teller of the BABSLA the sum of
TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with
grave abuse of confidence and without the knowledge
and consent of said corporation, did then and there willfully, unlawfully and
feloniously take, steal and carry away the amount of P10,000.00, Philippine
currency, by making it appear that a certain depositor by the name of Antonio
Salazar withdrew from his Savings Account No. 1359, when in truth and in fact
said Antonio Salazar did not withdr[a]w the said amount of P10,000.00 to the

damage and prejudice of BABSLA in the total amount of P10,000.00, Philippine
currency.”
In convicting the therein appellant, the Court held that:
“[S]ince the teller occupies a position of confidence, and the bank places money in
the teller’s possession due to the confidence reposed on the teller, the felony of
qualified theft would be committed.”7
Also in People v. Sison,8the Branch Operations Officer was convicted of the
crime of Qualified Theft based on the Information as herein cited:
“That in or about and during the period compressed between January 24, 1992
and February 13, 1992, both dates inclusive, in the City of Manila, Philippines, the
said accused did then and there wilfully, unlawfully and feloniously, with intent of
gain and without the knowledge and consent of the owner thereof, take, steal and
carry away the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations belonging
to the PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank for
brevity), Luneta Branch, Manila represented by its Branch Manager, HELEN U.
FARGAS, to the damage and prejudice of the said owner in the aforesaid amount
of P6,000,000.00, Philippine Currency.
That in the commission of the said offense, herein accused acted with grave
abuse of confidence and unfaithfulness, he being the Branch Operation
Officer of the said complainant and as such he had free access to the place where
the said amount of money was kept.”
The judgment of conviction elaborated thus:
“The crime perpetuated by appellant against his employer, the Philippine
Commercial and Industrial Bank (PCIB), is Qualified Theft. Appellant could not
have committed the crime had he not been holding the position of Luneta Branch
Operation Officer which gave him not only sole access to the bank vault x x x. The
management of the PCIB reposed its trust and confidence in the appellant as its
Luneta Branch Operation Officer, and it was this trust and confidence which he
exploited to enrich himself to the damage and prejudice of PCIB x x x.”9
From another end, People v. Locson,10 in addition to People v. Sison, described
the nature of possession by the Bank. The money in this case was in the possession
of the defendant as receiving teller of the bank, and the possession of the defendant
was the possession of the Bank. The Court held therein that when the defendant,
with grave abuse of confidence, removed the money and appropriated it to his own
use without the consent of the Bank, there was taking as contemplated in the crime
of Qualified Theft.11
Conspicuously, in all of the foregoing cases, where the Informations merely
alleged the positions of the respondents; that the crime was committed with grave
abuse of confidence, with intent to gain and without the knowledge and consent of
the Bank, without necessarily stating the phrase being assiduously insisted upon
Page9
by respondents, “of a relation by reason of dependence, guardianship or
vigilance, between the respondents and the offended party that has created
a high degree of confidence between them, which respondents
abused,”12 and without employing the word “owner” in lieu of the “Bank” were
considered to have satisfied the test of sufficiency of allegations.
As regards the respondents who were employed as Cashier and Bookkeeper of
the Bank in this case, there is even no reason to quibble on the allegation in the
Informations that they acted with grave abuse of confidence. In fact, the
CREDTRANS 2
Information which alleged grave abuse of confidence by accused herein is even
more precise, as this is exactly the requirement of the law in qualifying the crime
of Theft.
In summary, the Bank acquires ownership of the money deposited by its
clients; and the employees of the Bank, who are entrusted with the possession of
money of the Bank due to the confidence reposed in them, occupy positions of
confidence. The Informations, therefore, sufficiently allege all the essential
elements constituting the crime of Qualified Theft.
On the theory of the defense that the DOJ is the principal party who may file
the instant petition, the ruling in Mobilia Products, Inc. v. Hajime Umezawa13 is
instructive. The Court thus enunciated:
“In a criminal case in which the offended party is the State, the interest of the
private complainant or the offended party is limited to the civil liability arising
therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an
acquittal, a reconsideration of the order of dismissal or acquittal may be
undertaken, whenever legally feasible, insofar as the criminal aspect thereof is
concerned and may be made only by the public prosecutor; or in the case of an
appeal, by the State only, through the OSG. x x x.”
On the alleged wrong mode of appeal by petitioner, suffice it to state that the
rule is well-settled that in appeals by certiorari under Rule 45 of the Rules of
Court, only errors of law may be raised,14 and herein petitioner certainly raised a
question of law.
As an aside, even if we go beyond the allegations of the Informations in these
cases, a closer look at the records of the preliminary investigation conducted will
show that, indeed, probable cause exists for the indictment of herein respondents.
Pursuant to Section 6, Rule 112 of the Rules of Court, the judge shall issue a
warrant of arrest only upon a finding of probable cause after personally evaluating
the resolution of the prosecutor and its supporting evidence. Soliven v.
Makasiar,15 as reiterated in Allado v. Diokno,16 explained that probable cause for
the issuance of a warrant of arrest is the existence of such facts and circumstances
that would lead a reasonably discreet and prudent person to believe that an offense
has been committed by the person sought to be arrested.17 The records reasonably
indicate that the respondents may have, indeed, committed the offense charged.
Before closing, let it be stated that while it is truly imperative upon the fiscal
or the judge, as the case may be, to relieve the respondents from the pain of going
through a trial once it is ascertained that no probable cause exists to form a
sufficient belief as to the guilt of the respondents, conversely, it is also equally
imperative upon the judge to proceed with the case upon a showing that there is
a prima facie case against the respondents.
WHEREFORE, premises considered, the Petition for Review on Certiorari is
hereby GRANTED. The Orders dated 30 January 2006 and 9 June 2006 of the RTC
dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET
ASIDE. Let the corresponding Warrants of Arrest issue against herein
respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch
68, in Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No.
05-3054 to 05-3165, inclusive, with reasonable dispatch. No pronouncement as to
costs.

G.R. No. 171545. December 19, 2007.*
EQUITABLE PCI BANK,**AIMEE YU and BEJAN LIONEL APAS,
petitioners, vs. NG SHEUNG NGOR***doing business under the name and style
“KEN MARKETING,” KEN APPLIANCE DIVISION, INC. and BENJAMIN E.
GO, respondents.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Angara, Abello, Concepcion, Regala & Cruzfor petitioners.
Hilario P. Davide IIIfor respondents.
CORONA, J.:
This petition for review on certiorari1 seeks to set aside the decision2 of the Court
of Appeals (CA) in CA-G.R. SP No. 83112 and its resolution3denying
reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor,4 Ken Appliance Division, Inc.
and Benjamin E. Go filed an action for annulment and/or reformation of documents
and contracts5 against petitioner Equitable PCI Bank (Equitable) and its
employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC),
Branch 16 of Cebu City.6They claimed that Equitable induced them to avail of its
peso and dollar credit facilities by offering low interest rates7 so they accepted
Equitable’s proposal and signed the bank’s preprinted promissory notes on various
dates beginning 1996. They, however, were unaware that the documents contained
identical escalation clauses granting Equitable authority to increase interest rates
without their consent.8
Equitable, in its answer, asserted that respondents knowingly accepted all the
terms and conditions contained in the promissory notes.9 In fact, they continuously
availed of and benefited from Equitable’s credit facilities for five years. 10
After trial, the RTC upheld the validity of the promissory notes. It found that,
in 2001 alone, Equitable restructured respondents’ loans amounting to
US$228,200 and P 1,000,000.11
The trial court, however, invalidated the escalation clause contained therein
because it violated the principle of mutuality of contracts.12 Nevertheless, it took
judicial notice of the steep depreciation of the peso during the intervening
period13 and declared the existence of extraordinary deflation.14 Consequently, the
RTC ordered the use of the 1996 dollar exchange rate in computing respondents’
dollar-denominated loans.15 Lastly, because the business reputation of
respondents was (allegedly) severely damaged when Equitable froze their
accounts,16 the trial court awarded moral and exemplary damages to them.17
The dispositive portion of the February 5, 2004 RTC decision18 provided:
Page10
“WHEREFORE, premises considered, judgment is hereby rendered:
1. A)Ordering [Equitable] to reinstate and return the amount of
[respondents’] deposit placed on hold status;
2. B)Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion
[p]esos as moral damages;
CREDTRANS 2
3. C)Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion
[p]esos as exemplary damages;
4. D)Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay
[respondents], jointly and severally, the sum of [t]wo [m]illion [p]esos as
moral and exemplary damages;
5. E)Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and
severally, to pay [respondents’] attorney’s fees in the sum of P300,000;
litigation expenses in the sum of P50,000 and the cost of suit;
6. F)Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay
[Equitable] the unpaid principal obligation for the peso loan as well as
the unpaid obligation for the dollar denominated loan;
7. G)Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay
[Equitable] interest as follows:
1)12% per annum for the peso loans;
1. 2)8% per annum for the dollar loans. The basis for the payment of the
dollar obligation is the conversion rate of P26.50 per dollar availed of at
the time of incurring of the obligation in accordance with Article 1250 of
the Civil Code of the Philippines;
1. H)Dismissing [Equitable’s] counterclaim except the payment of the
aforestated unpaid principal loan obligations and interest.
SO ORDERED.”19
Equitable and respondents filed their respective notices of appeal.20
In the March 1, 2004 order of the RTC, both notices were denied due course
because Equitable and respondents “failed to submit proof that they paid their
respective appeal fees.”21
“WHEREFORE, premises considered, the appeal interposed by defendants from
the Decision in the above-entitled case is DENIED due course. As of February
27, 2004, the Decision dated February 5, 2004, is considered final and
executory in so far as [Equitable, Aimee Yu and Bejan Lionel Apas] are
concerned.”22 (emphasis supplied)
Equitable moved for the reconsideration of the March 1, 2004 order of the RTC23 on
the ground that it did in fact pay the appeal fees. Respondents, on the other hand,
prayed for the issuance of a writ of execution.24
On March 24, 2004, the RTC issued an omnibus order denying Equitable’s motion
for reconsideration for lack of merit25 and ordered the issuance of a writ of
execution in favor of respondents.26 According to the RTC, because respondents did
not move for the reconsideration of the previous order (denying due course to the
parties’ notices of appeal),27 the February 5, 2004 decision became final and
executory as to both parties and a writ of execution against Equitable was in
order.28
A writ of execution was thereafter issued29 and three real properties of
Equitable were levied upon.30

On March 26, 2004, Equitable filed a petition for relief in the RTC from the
March 1, 2004 order.31 It, however, withdrew that petition on March 30, 200432and
instead filed a petition for certiorari with an application for an injunction in the
CA to enjoin the implementation and execution of the March 24, 2004 omnibus
order.33
On June 16, 2004, the CA granted Equitable’s application for injunction. A writ of
preliminary injunction was correspondingly issued.34
Notwithstanding the writ of injunction, the properties of Equitable previously
levied upon were sold in a public auction on July 1, 2004. Respondents were the
highest bidders and certificates of sale were issued to them.35
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale
and to cite the sheriffs who conducted the sale in contempt for proceeding with the
auction despite the injunction order of the CA.36
On October 28, 2005, the CA dismissed the petition for certiorari.37 It found
Equitable guilty of forum shopping because the bank filed its petition for certiorari
in the CA several hours before withdrawing its petition for relief in the
RTC.38 Moreover, Equitable failed to disclose, both in the statement of material
dates and certificate of non-forum shopping (attached to its petition for certiorari
in the CA), that it had a pending petition for relief in the RTC.39
Equitable moved for reconsideration40 but it was denied.41 Thus, this petition.
Equitable asserts that it was not guilty of forum shopping because the petition for
relief was withdrawn on the same day the petition for certiorari was filed.42 It
likewise avers that its petition for certiorari was meritorious because the RTC
committed grave abuse of discretion in issuing the March 24, 2004 omnibus order
which was based on an erroneous assumption. The March 1, 2004 order denying
its notice of appeal for non payment of appeal fees was erroneous because it had in
fact paid the required fees.43Thus, the RTC, by issuing its March 24, 2004 omnibus
order, effectively prevented Equitable from appealing the patently wrong February
5, 2004 decision.44
This petition is meritorious.
Equitable Was Not Guilty
of Forum Shopping
Forum shopping exists when two or more actions involving the same transactions,
essential facts and circumstances are filed and those actions raise identical issues,
subject matter and causes of action.45 The test is whether, in two or more pending
cases, there is identity of parties, rights or causes of actions and reliefs. 46
Equitable’s petition for relief in the RTC and its petition for certiorari in the
CA did not have identical causes of action. The petition for relief from the denial of
its notice of appeal was based on the RTC’s judgment or final order preventing it
Page11
from taking an appeal by “fraud, accident, mistake or excusable negligence.”47 On
the other hand, its petition for certiorari in the CA, a special civil action, sought to
correct the grave abuse of discretion amounting to lack of jurisdiction committed
by the RTC.48
In a petition for relief, the judgment or final order is rendered by a court with
competent jurisdiction. In a petition for certiorari, the order is rendered by a court
without or in excess of its jurisdiction.
CREDTRANS 2
Moreover, Equitable substantially complied with the rule on non-forum
shopping when it moved to withdraw its petition for relief in the RTC on the same
day (in fact just four hours and forty minutes after) it filed the petition for certiorari
in the CA. Even if Equitable failed to disclose that it had a pending petition for
relief in the RTC, it rectified what was doubtlessly a careless oversight by
withdrawing the petition for relief just a few hours after it filed its petition for
certiorari in the CA–a clear indication that it had no intention of maintaining the
two actions at the same time.
The Trial Court Committed Grave Abuse
of Discretion in Issuing its March 1, 2004
and March 24, 2004 Orders
Section 1, Rule 65 of the Rules of Court provides:
“Section 1. Petition for Certiorari.—When any tribunal, board or officer
exercising judicial or quasi-judicial function has acted without or in
excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal, nor
any plain, speedy or adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court, alleging
the facts with certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or
officer, and granting such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment,
order or resolution subject thereof, copies of all pleadings and documents relevant
and pertinent thereto, and a sworn certificate of non-forum shopping as provided
in the third paragraph of Section 3, Rule 46.”
There are two substantial requirements in a petition for certiorari. These are:
1. 1.that the tribunal, board or officer exercising judicial or quasi-judicial
functions acted without or in excess of his or its jurisdiction or with grave
abuse of discretion amounting to lack or excess of jurisdiction; and
2. 2.that there is no appeal or any plain, speedy and adequate remedy in the
ordinary course of law.
For a petition for certiorari premised on grave abuse of discretion to prosper,
petitioner must show that the public respondent patently and grossly abused his
discretion and that abuse amounted to an evasion of positive duty or a virtual
refusal to perform a duty enjoined by law or to act at all in contemplation of law,
as where the power was exercised in an arbitrary and despotic manner by reason
of passion or hostility.49
The March 1, 2004 order denied due course to the notices of appeal of both
Equitable and respondents. However, it declared that the February 5, 2004
decision was final and executory only with respect to Equitable.50 As
expected, the March 24, 2004 omnibus order denied Equitable’s motion
for reconsideration and granted respondents’ motion for the issuance of a writ of
execution.51
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously
intended to prevent Equitable, et al. from appealing the February 5, 2004 decision.

Not only that. The execution of the decision was undertaken with indecent haste,
effectively obviating or defeating Equitable’s right to avail of possible legal
remedies. No matter how we look at it, the RTC committed grave abuse of
discretion in rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate remedy in
the ordinary course of law, we hold that there was none. The RTC denied due
course to its notice of appeal in the March 1, 2004 order. It affirmed that denial in
the March 24, 2004 omnibus order. Hence, there was no way Equitable could have
possibly appealed the February 5, 2004 decision.52
Although Equitable filed a petition for relief from the March 24, 2004 order, that
petition was not a plain, speedy and adequate remedy in the ordinary course of
law.53 A petition for relief under Rule 38 is an equitable remedy allowed only in
exceptional circumstances or where there is no other available or adequate
remedy.54
Thus, we grant Equitable’s petition for certiorari and consequently give due
course to its appeal.
Equitable Raised Pure Questions
of Law in its Petition For Review
The jurisdiction of this Court in Rule 45 petitions is limited to questions of
law.55There is a question of law “when the doubt or controversy concerns the
correct application of law or jurisprudence to a certain set of facts; or when the
issue does not call for the probative value of the evidence presented, the truth or
falsehood of facts being admitted.”56
Equitable does not assail the factual findings of the trial court. Its arguments
essentially focus on the nullity of the RTC’s February 5, 2004 decision. Equitable
points out that that decision was patently erroneous, specially the exorbitant
award of damages, as it was inconsistent with existing law and jurisprudence.57
The Promissory Notes Were Valid
The RTC upheld the validity of the promissory notes despite respondents’ assertion
that those documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are
drafted by one party.58 The participation of the other party is limited to affixing
his signature or his “adhesion” to the contract.59For this reason, contracts of
adhesion are strictly construed against the party who drafted it.60
It is erroneous, however, to conclude that contracts of adhesion are invalid per
se.They are, on the contrary, as binding as ordinary contracts. A party is in reality
free to accept or reject it. A contract of adhesion becomes void only when the
dominant party takes advantage of the weakness of the other party, completely
depriving the latter of the opportunity to bargain on equal footing.61
That was not the case here. As the trial court noted, if the terms and conditions
Page12
offered by Equitable had been truly prejudicial to respondents, they would have
walked out and negotiated with another bank at the first available instance. But
they did not. Instead, they continuously availed of Equitable’s credit facilities for
five long years.
While the RTC categorically found that respondents had outstanding dollar- and
peso-denominated loans with Equitable, it, however, failed to ascertain the total
amount due (principal, interest and penalties, if any) as of July 9, 2001. The trial
court did not explain how it arrived at the amounts of US$228,200 and P
CREDTRANS 2
1,000,000.62 In Metro Manila Transit Corporation v. D.M. Consortium,63 we
reiterated that this Court is not a trier of facts and it shall pass upon them only
for compelling reasons which unfortunately are not present in this case. 64 Hence,
we ordered the partial remand of the case for the sole purpose of determining the
amount of actual damages.65
Escalation Clause Violated the Prin
ciple of Mutuality of Contracts
Escalation clauses are not void per se. However, one “which grants the creditor an
unbridled right to adjust the interest independently and upwardly, completely
depriving the debtor of the right to assent to an important modification in the
agreement” is void. Clauses of that nature violate the principle of mutuality of
contracts.66Article 130867 of the Civil Code holds that a contract must bind both
contracting parties; its
validity or compliance cannot be left to the will of one of them.68
For this reason, we have consistently held that a valid escalation clause
provides:
1. 1.that the rate of interest will only be increased if the applicable
maximum rate of interest is increased by law or by the Monetary Board;
and
2. 2.that the stipulated rate of interest will be reduced if the applicable
maximum rate of interest is reduced by law or by the Monetary Board
(de-escalation clause).69
The RTC found that Equitable’s promissory notes uniformly stated:
If subject promissory note is extended, the interest for subsequent extensions shall
be at such rate as shall be determined by the bank.70
Equitable dictated the interest rates if the term (or period for repayment) of the
loan was extended. Respondents had no choice but to accept them. This was a
violation of Article 1308 of the Civil Code. Furthermore, the assailed escalation
clause did not contain the necessary provisions for validity, that is, it neither
provided that the rate of interest would be increased only if allowed by law or the
Monetary Board, nor allowed deescalation. For these reasons, the escalation clause
was void.
With regard to the proper rate of interest, in New Sampaguita Builders v.
Philippine National Bank71we held that, because the escalation clause was
annulled, the principal amount of the loan was subject to the original or stipulated
rate of interest. Upon maturity, the amount due was subject to legal interest at the
rate of 12% per annum.72
Consequently, respondents should pay Equitable the interest rates of 12.66%
p.a. for their dollar-denominated loans and 20% p.a. for their peso-denominated
loans from January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to
legal interest of 12% p.a. on all amounts due.
There Was No Extraordinary Deflation
Extraordinary inflation exists when there is an unusual decrease in the purchasing
power of currency (that is, beyond the common fluctuation in the value of currency)
and such decrease could not be reasonably foreseen or was manifestly beyond the

contemplation of the parties at the time of the obligation. Extraordinary deflation,
on the other hand, involves an inverse situation.73
Article 1250 of the Civil Code provides:
“Article 1250. In case an extraordinary inflation or deflation of the currency
stipulated should intervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary.”
For extraordinary inflation (or deflation) to affect an obligation, the following
requisites must be proven:
1. 1.that there was an official declaration of extraordinary inflation or
deflation from the Bangko Sentral ng Pilipinas (BSP);74
1. 2.that the obligation was contractual in nature;75 and
2. 3.that the parties expressly agreed to consider the effects of the
extraordinary inflation or deflation.76
Despite the devaluation of the peso, the BSP never declared a situation of
extraordinary inflation. Moreover, although the obligation in this instance arose
out of a contract, the parties did not agree to recognize the effects of extraordinary
inflation (or deflation).77 The RTC never mentioned that there was a such
stipulation either in the promissory note or loan agreement. Therefore,
respondents should pay thei dollar-denominated loans at the exchange rate fixed
by the BSP on the date of maturity.78
The Award of Moral and Exemplary
Damages Lacked Basis
Moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered, not to impose a penalty to the wrongdoer. 79To
be entitled to moral damages, a claimant must prove:
1. 1.That he or she suffered besmirched reputation, or physical, mental or
psychological suffering sustained by the claimant;
2. 2.That the defendant committed a wrongful act or omission;
3. 3.That the wrongful act or omission was the proximate cause of the
damages the claimant sustained;
1. 4.The case is predicated on any of the instances expressed or envisioned
by Article 221980 and 222081. 82
Page13
In culpa contractual or breach of contract, moral damages are recoverable only if
the defendant acted fraudulently or in bad faith or in wanton disregard of his
contractual obligations.83 The breach must be wanton, reckless, malicious or in bad
faith, and oppressive or abusive.84
The RTC found that respondents did not pay Equitable the interest due on
February 9, 2001 (or any month thereafter prior to the maturity of the loan) 85 or
CREDTRANS 2
the amount due (principal plus interest) due on July 9, 2001. 86 Consequently,
Equitable applied respondents’ deposits to their loans upon maturity.
The relationship between a bank and its depositor is that of creditor and
debtor.87For this reason, a bank has the right to set-off the deposits in its hands
for the payment of a depositor’s indebtedness.88
Respondents indeed defaulted on their obligation. For this reason, Equitable
had the option to exercise its legal right to set-off or compensation. However, the
RTC mistakenly (or, as it now appears, deliberately) concluded that Equitable
acted “fraudulently or in bad faith or in wanton disregard” of its contractual
obligations despite the absence of proof. The undeniable fact was that, whatever
damage respondents sustained was purely the consequence of their failure to
pay their loans. There was therefore absolutely no basis for the award of moral
damages to them.
Neither was there reason to award exemplary damages. Since respondents
were not entitled to moral damages, neither should they be awarded exemplary
damages.89 And if respondents were not entitled to moral and exemplary dam-
ages, neither could they be awarded attorney’s fees and litigation expenses.90
ACCORDINGLY, the petition is hereby GRANTED.
The October 28, 2005 decision and February 3, 2006 resolution of the Court of
Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET ASIDE.
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16,
Cebu City in Civil Case No. CEB-26983 is hereby ANNULLED for being rendered
with grave abuse of discretion amounting to lack or excess of jurisdiction. All
proceedings undertaken pursuant thereto are likewise declared null and void.
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City
in Civil Case No. CEB-26983 is hereby SET ASIDE. The appeal of petitioners
Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is therefore given due
course.
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu
City in Civil Case No. CEB-26983 is accordingly SET ASIDE. New judgment is
hereby entered:
1. 1.ordering respondents Ng Sheung Ngor, doing business under the name
and style of “Ken Marketing,” Ken Appliance Division, Inc. and
Benjamin E. Go to pay petitioner Equitable PCI Bank the principal
amount of their dollar-and peso-denominated loans;
2. 2.ordering respondents Ng Sheung Ngor, doing business under the name
and style of “Ken Marketing,” Ken Appliance Division, Inc. and
Benjamin E. Go to pay petitioner Equitable PCI Bank interest at:
1. a)12.66% p.a. with respect to their dollar-denominated loans from
January 10, 2001 to July 9, 2001;
1. b)20% p.a. with respect to their pesodenominated loans from January 10,
2001 to July 9, 2001;91
2. c)pursuant to our ruling in Eastern Shipping Lines v. Court of
Appeals,92the total amount due on July 9, 2001 shall earn legal interest
 CREDTRANS 2
at 12% p.a. from the time petitioner Equitable PCI Bank demanded
payment, whether judicially or extra-judicially; and
3. d)after this Decision becomes final and executory, the applicable rate shall
be 12% p.a. until full satisfaction;

1. 3.all other claims and counterclaims are dismissed.

As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute
the exact amounts due on the respective dollar-denominated and peso-
denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor, doing
business under the name and style of “Ken Marketing,” Ken Appliance Division
and Benjamin E. Go.
SO ORDERED.
Puno (C.J., Chairperson), Sandoval-Gutierrez, Azcuna and Leonardo-De
Castro, JJ., concur.
Page14

SEBASTIAN SIGA-AN, petitioner, vs. ALICIA VILLANUEVA, respondent.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Voltaire Francisco B. Banzon for petitioner.
Jorge Roito N. Hirang, Jr. for respondent.
CHICO-NAZARIO, J.:
Before Us is a Petition1for Review on Certiorariunder Rule 45 of The Rules of
Court seeking to set aside the Decision,2dated 16 December 2005, and
Resolution,3 dated 19 June 2006 of the Court of Appeals in CA-G.R. CV No. 71814,
which affirmed in toto the Decision,4 dated 26 January 2001, of the Las Piñas City
Regional Trial Court, Branch 255, in Civil Case No. LP-98-0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a complaint5 for sum of
money against petitioner Sebastian Siga-an before the Las Piñas City Regional
Trial Court (RTC), Branch 255, docketed as Civil Case No. LP-98-0068.
Respondent alleged that she was a businesswoman engaged in supplying office
materials and equipments to the Philippine Navy Office (PNO) located at Fort
Bonifacio, Taguig City, while petitioner was a military officer and comptroller of
the PNO from 1991 to 1996.
Respondent claimed that sometime in 1992, petitioner approached her inside
the PNO and offered to loan her the amount of P540,000.00. Since she needed
capital for her business transactions with the PNO, she accepted petitioner’s
proposal. The loan agreement was not reduced in writing. Also, there was no
stipulation as to the payment of interest for the loan.6
On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as
partial payment of the loan. On 31 October 1993, she issued another check in the
amount of P200,000.00 to petitioner as payment of the remaining balance of the
loan. Petitioner told her that since she paid a total amount of P700,000.00 for the
P540,000.00 worth of loan, the excess amount of P160,000.00 would be applied as
interest for the loan. Not satisfied with the amount applied as interest, petitioner
pestered her to pay additional interest. Petitioner
threatened to block or disapprove her transactions with the PNO if she would not
comply with his demand. As all her transactions with the PNO were subject to the
approval of petitioner as comptroller of the PNO, and fearing that petitioner might
block or unduly influence the payment of her vouchers in the PNO, she conceded.
Thus, she paid additional amounts in cash and checks as interests for the loan. She
asked petitioner for receipt for the payments but petitioner told her that it was not
necessary as there was mutual trust and confidence between them. According to
her computation, the total amount she paid to petitioner for the loan and interest
accumulated to P1,200,000.00.7
Page15
Thereafter, respondent consulted a lawyer regarding the propriety of paying
interest on the loan despite absence of agreement to that effect. Her lawyer told
her that petitioner could not validly collect interest on the loan because there was
no agreement between her and petitioner regarding payment of interest. Since she
paid petitioner a total amount of P1,200,000.00 for the P540,000.00 worth of loan,
and upon being advised by her lawyer that she made overpayment to petitioner,
she sent a demand letter to petitioner asking for the return of the excess amount
CREDTRANS 2
of P660,000.00. Petitioner, despite receipt of the demand letter, ignored her claim
for reimbursement.8
Respondent prayed that the RTC render judgment ordering petitioner to pay
respondent (1) P660,000.00 plus legal interest from the time of demand; (2)
P300,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4) an
amount equivalent to 25% of P660,000.00 as attorney’s fees. 9
In his answer10 to the complaint, petitioner denied that he offered a loan to
respondent. He averred that in 1992, respondent approached and asked him if he
could grant her a loan, as she needed money to finance her business venture with
the PNO. At first, he was reluctant to deal with respondent, because the latter had
a spotty record as a
supplier of the PNO. However, since respondent was an acquaintance of his
officemate, he agreed to grant her a loan. Respondent paid the loan in full. 11
Subsequently, respondent again asked him to give her a loan. As respondent
had been able to pay the previous loan in full, he agreed to grant her another loan.
Later, respondent requested him to restructure the payment of the loan because
she could not give full payment on the due date. He acceded to her request.
Thereafter, respondent pleaded for another restructuring of the payment of the
loan. This time he rejected her plea. Thus, respondent proposed to execute a
promissory note wherein she would acknowledge her obligation to him, inclusive
of interest, and that she would issue several postdated checks to guarantee the
payment of her obligation. Upon his approval of respondent’s request for
restructuring of the loan, respondent executed a promissory note dated 12
September 1994 wherein she admitted having borrowed an amount of
P1,240,000.00, inclusive of interest, from petitioner and that she would pay said
amount in March 1995. Respondent also issued to him six postdated checks
amounting to P1,240,000.00 as guarantee of compliance with her obligation.
Subsequently, he presented the six checks for encashment but only one check was
honored. He demanded that respondent settle her obligation, but the latter failed
to do so. Hence, he filed criminal cases for Violation of the Bouncing Checks Law
(Batas Pambansa Blg. 22) against respondent. The cases were assigned to the
Metropolitan Trial Court of Makati City, Branch 65 (MeTC).12
Petitioner insisted that there was no overpayment because respondent admitted
in the latter’s promissory note that her monetary obligation as of 12 September
1994 amounted to P1,240,000.00 inclusive of interests. He argued that respondent
was already estopped from complaining that she should not have paid any interest,
because she was given several times to settle her obligation but failed to do so. He
maintained that to rule in favor of respondent is tantamount to concluding that
the loan was given interest-free. Based on the foregoing averments, he asked the
RTC to dismiss respondent’s complaint.
After trial, the RTC rendered a Decision on 26 January 2001 holding that
respondent made an overpayment of her loan obligation to petitioner and that the
latter should refund the excess amount to the former. It ratiocinated that
respondent’s obligation was only to pay the loaned amount of P540,000.00, and
that the alleged interests due should not be included in the computation of
respondent’s total monetary debt because there was no agreement between them
regarding payment of interest. It concluded that since respondent made an excess
payment to petitioner in the amount of P660,000.00 through mistake, petitioner

should return the said amount to respondent pursuant to the principle of solutio
indebiti.13
The RTC also ruled that petitioner should pay moral damages for the sleepless
nights and wounded feelings experienced by respondent. Further, petitioner
should pay exemplary damages by way of example or correction for the public good,
plus attorney’s fees and costs of suit.
The dispositive portion of the RTC Decision reads:
“WHEREFORE, in view of the foregoing evidence and in the light of the
provisions of law and jurisprudence on the matter, judgment is hereby rendered in
favor of the plaintiff and against the defendant as follows:
(1) Ordering defendant to pay plaintiff the amount of P660,000.00 plus legal
interest of 12% per annum computed from 3 March 1998 until the amount is paid
in full;
(2) Ordering defendant to pay plaintiff the amount of P300,000.00 as moral
damages;
(3) Ordering defendant to pay plaintiff the amount of P50,000.00 as
exemplary damages;
(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of
P660,000.00 as attorney’s fees; and
(5) Ordering defendant to pay the costs of suit.”14
Petitioner appealed to the Court of Appeals. On 16 December 2005, the
appellate court promulgated its Decision affirming in totothe RTC Decision, thus:
“WHEREFORE, the foregoing considered, the instant appeal is hereby
DENIED and the assailed decision [is] AFFIRMED in toto.”15
Petitioner filed a motion for reconsideration of the appellate court’s decision
but this was denied.16 Hence, petitioner lodged the instant petition before us
assigning the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO
INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE
PRINCIPLE OF SOLUTIO INDEBITI.17
Interest is a compensation fixed by the parties for the use or forbearance of
money. This is referred to as monetary interest. Interest may also be imposed by
law or by courts as penalty or indemnity for damages. This is called compensatory
interest.18 The right to interest arises only by virtue of a contract or by virtue of
damages for delay or failure to pay the principal loan on which interest is
demanded.19
Article 1956 of the Civil Code, which refers to monetary interest, 20specifically
mandates that no interest shall be due unless it has been expressly stipulated in
Page16
writing. As can be gleaned from the foregoing provision, payment of monetary
interest is allowed only if: (1) there was an express stipulation for the payment of
interest; and (2) the
agreement for the payment of interest was reduced in writing. The concurrence of
the two conditions is required for the payment of monetary interest. Thus, we have
held that collection of interest without any stipulation therefor in writing is
prohibited by law.21
CREDTRANS 2
It appears that petitioner and respondent did not agree on the payment of
interest for the loan. Neither was there convincing proof of written agreement
between the two regarding the payment of interest. Respondent testified that
although she accepted petitioner’s offer of loan amounting to P540,000.00, there
was, nonetheless, no verbal or written agreement for her to pay interest on the
loan.22
Petitioner presented a handwritten promissory note dated 12 September
199423wherein respondent purportedly admitted owing petitioner “capital and
interest.” Respondent, however, explained that it was petitioner who made a
promissory note and she was told to copy it in her own handwriting; that all her
transactions with the PNO were subject to the approval of petitioner as comptroller
of the PNO; that petitioner threatened to disapprove her transactions with the
PNO if she would not pay interest; that being unaware of the law on interest and
fearing that petitioner would make good of his threats if she would not obey his
instruction to copy the promissory note, she copied the promissory note in her own
handwriting; and that such was the same promissory note presented by petitioner
as alleged proof of their written agreement on interest. 24 Petitioner did not rebut
the foregoing testimony. It is evident that respondent did not really consent to the
payment of interest for the loan and that she was merely tricked and coerced by
petitioner to pay interest. Hence, it cannot be gainfully said that such promissory
note pertains to an express stipulation of interest or written agreement of interest
on the loan between petitioner and respondent.
Petitioner, nevertheless, claims that both the RTC and the Court of Appeals
found that he and respondent agreed on the payment of 7% rate of interest on the
loan; that the agreed 7% rate of interest was duly admitted by respondent in her
testimony in the Batas Pambansa Blg. 22 cases he filed against respondent; that
despite such judicial admission by respondent, the RTC and the Court of Appeals,
citing Article 1956 of the Civil Code, still held that no interest was due him since
the agreement on interest was not reduced in writing; that the application of
Article 1956 of the Civil Code should not be absolute, and an exception to the
application of such provision should be made when the borrower admits that a
specific rate of interest was agreed upon as in the present case; and that it would
be unfair to allow respondent to pay only the loan when the latter very well knew
and even admitted in the Batas Pambansa Blg. 22 cases that there was an agreed
7% rate of interest on the loan.25
We have carefully examined the RTC Decision and found that the RTC did not
make a ruling therein that petitioner and respondent agreed on the payment of
interest at the rate of 7% for the loan. The RTC clearly stated that although
petitioner and respondent entered into a valid oral contract of loan amounting to
P540,000.00, they, nonetheless, never intended the payment of interest
thereon.26 While the Court of Appeals mentioned in its Decision that it concurred
in the RTC’s ruling that petitioner and respondent agreed on a certain rate of
interest as regards the loan, we consider this as merely an inadvertence because,
as earlier elucidated, both the RTC and the Court of Appeals ruled that petitioner
is not entitled to the payment of interest on the loan. The rule is that factual
findings of the trial court deserve great weight and respect especially when
affirmed by the appellate court.27 We found no compelling reason to disturb the
ruling of both courts.

Petitioner’s reliance on respondent’s alleged admission in the Batas Pambansa
Blg. 22 cases that they had agreed on the payment of
interest at the rate of 7% deserves scant consideration. In the said case, respondent
merely testified that after paying the total amount of loan, petitioner ordered her
to pay interest.28Respondent did not categorically declare in the same case that she
and respondent made an expressstipulation in writing as regards payment of
interest at the rate of 7%. As earlier discussed, monetary interest is due only if
there was an express stipulation in writing for the payment of interest.
There are instances in which an interest may be imposed even in the absence
of express stipulation, verbal or written, regarding payment of interest. Article
2209 of the Civil Code states that if the obligation consists in the payment of a sum
of money, and the debtor incurs delay, a legal interest of 12% per annum may be
imposed as indemnity for damages if no stipulation on the payment of interest was
agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due
shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent on this point.
All the same, the interest under these two instances may be imposed only as a
penalty or damages for breach of contractual obligations. It cannot be charged as
a compensation for the use or forbearance of money. In other words, the two
instances apply only to compensatory interest and not to monetary interest.29The
case at bar involves petitioner’s claim for monetary interest.
Further, said compensatory interest is not chargeable in the instant case
because it was not duly proven that respondent defaulted in paying the loan. Also,
as earlier found, no interest was due on the loan because there was no written
agreement as regards payment of interest.
Apropos the second assigned error, petitioner argues that the principle
of solutio indebiti does not apply to the instant case. Thus, he cannot be compelled
to return the alleged excess amount paid by respondent as interest.30
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when
there has been no stipulation therefor, the provisions of the Civil Code
concerning solutio indebiti shall be applied. Article 2154 of the Civil Code explains
the principle of solutio indebiti. Said provision provides that if something is
received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises. In such a case, a creditor-debtor
relationship is created under a quasi-contract whereby the payor becomes the
creditor who then has the right to demand the return of payment made by mistake,
and the person who has no right to receive such payment becomes obligated to
return the same. The quasi-contract of solutio indebiti harks back to the ancient
principle that no one shall enrich himself unjustly at the expense of another. 31The
principle of solutio indebiti applies where (1) a payment is made when there exists
no binding relation between the payor, who has no duty to pay, and the person who
Page17
received the payment; and (2) the payment is made through mistake, and not
through liberality or some other cause.32 We have held that the principle of solutio
indebiti applies in case of erroneous payment of undue interest.33
It was duly established that respondent paid interest to petitioner. Respondent
was under no duty to make such payment because there was no express stipulation
in writing to that effect. There was no binding relation between petitioner and
respondent as regards the payment of interest. The payment was clearly a mistake.
CREDTRANS 2
Since petitioner received something when there was no right to demand it, he has
an obligation to return it.
We shall now determine the propriety of the monetary award and damages
imposed by the RTC and the Court of Appeals.
Records show that respondent received a loan amounting to P540,000.00 from
petitioner.34Respondent issued two checks with a total worth of P700,000.00 in
favor of petitioner as payment of the loan.35 These checks were subsequently
encashed by petitioner.36Obviously, there was an excess of P160,000.00 in the
payment for the loan. Petitioner claims that the excess of P160,000.00 serves as
interest on the loan to which he was entitled. Aside from issuing the said two
checks, respondent also paid cash in the total amount of P175,000.00 to petitioner
as interest.37 Although no receipts reflecting the same were presented because
petitioner refused to issue such to respondent, petitioner, nonetheless, admitted in
his Reply-Affidavit38 in the Batas Pambansa Blg. 22 cases that respondent paid
him a total amount of P175,000.00 cash in addition to the two checks. Section 26
Rule 130 of the Rules of Evidence provides that the declaration of a party as to a
relevant fact may be given in evidence against him. Aside from the amounts of
P160,000.00 and P175,000.00 paid as interest, no other proof of additional
payment as interest was presented by respondent. Since we have previously found
that petitioner is not entitled to payment of interest and that the principle
of solutio indebitiapplies to the instant case, petitioner should return to respondent
the excess amount of P160,000.00 and P175,000.00 or the total amount of
P335,000.00. Accordingly, the reimbursable amount to respondent fixed by the
RTC and the Court of Appeals should be reduced from P660,000.00 to P335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for violation of Batas
Pambansa Blg. 22 against respondent. In the said cases, the MeTC found
respondent guilty of violating Batas Pambansa Blg. 22 for issuing five dishonored
checks to petitioner. Nonetheless, respondent’s conviction therein does not affect
our ruling in the instant case. The two checks, subject matter of this case, totaling
P700,000.00 which respondent claimed as payment of the P540,000.00 worth of
loan, were not among the five checks found to be dishonored or bounced in the five
criminal cases. Further, the MeTC found that
respondent made an overpayment of the loan by reason of the interest which the
latter paid to petitioner.39
Article 2217 of the Civil Code provides that moral damages may be recovered
if the party underwent physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation and
similar injury. Respondent testified that she experienced sleepless nights and
wounded feelings when petitioner refused to return the amount paid as interest
despite her repeated demands. Hence, the award of moral damages is justified.
However, its corresponding amount of P300,000.00, as fixed by the RTC and the
Court of Appeals, is exorbitant and should be equitably reduced. Article 2216 of
the Civil Code instructs that assessment of damages is left to the discretion of the
court according to the circumstances of each case. This discretion is limited by the
principle that the amount awarded should not be palpably excessive as to indicate
that it was the result of prejudice or corruption on the part of the trial court. 40 To
our mind, the amount of P150,000.00 as moral damages is fair, reasonable, and
proportionate to the injury suffered by respondent.
 CREDTRANS 2
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio
indebiti, exemplary damages may be imposed if the defendant acted in an
oppressive manner. Petitioner acted oppressively when he pestered respondent to
pay interest and threatened to block her transactions with the PNO if she would
not pay interest. This forced respondent to pay interest despite lack of agreement
thereto. Thus, the award of exemplary damages is appropriate. The amount of
P50,000.00 imposed as exemplary damages by the RTC and the Court is fitting so
as to deter petitioner and other lenders from committing similar and other serious
wrongdoings.41
Jurisprudence instructs that in awarding attorney’s fees, the trial court must state
the factual, legal or equitable justification for award-
ing the same.42 In the case under consideration, the RTC stated in its Decision that
the award of attorney’s fees equivalent to 25% of the amount paid as interest by
respondent to petitioner is reasonable and moderate considering the extent of work
rendered by respondent’s lawyer in the instant case and the fact that it dragged on
for several years.43 Further, respondent testified that she agreed to compensate
her lawyer handling the instant case such amount.44 The award, therefore, of
attorney’s fees and its amount equivalent to 25% of the amount paid as interest by
respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest
on the amount refundable to respondent computed from 3 March 1998 until its full
payment. This is erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of Appeals,45 that when an
obligation, not constituting a loan or forbearance of money is breached, an interest
on the amount of damages awarded may be imposed at the rate of 6% per
annum.We further declared that when the judgment of the court awarding a sum
of money becomes final and executory, the rate of legal interest, whether it is a
loan/for-bearance of money or not, shall be 12% per annum from such finality until
its satisfaction, this interim period being deemed equivalent to a forbearance of
credit.
In the present case, petitioner’s obligation arose from a quasi-contract of solutio
indebiti and not from a loan or forbearance of money. Thus, an interest of 6% per
annum should be imposed on the amount to be refunded as well as on the damages
awarded and on the attorney’s fees, to be computed from the time of the
extrajudicial demand on 3 March 1998,46 up to the finality of this Decision. In addi-
712tion, the interest shall become 12% per annum from the finality of this Decision
up to its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814,
dated 16 December 2005, is hereby AFFIRMED with the following
MODIFICATIONS: (1) the amount of P660,000.00 as refundable amount of
interest is reduced to THREE HUNDRED THIRTY FIVE THOUSAND PESOS
Page18

(P335,000.00); (2) the amount of P300,000.00 imposed as moral damages is reduced

to ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00); (3) an interest of
6% per annum is imposed on the P335,000.00, on the damages awarded and on the
attorney’s fees to be computed from the time of the extrajudicial demand on 3
March 1998 up to the finality of this Decision; and (4) an interest of 12% per
annum is also imposed from the finality of this Decision up to its satisfaction. Costs
against petitioner.
SO ORDERED.

G.R. No. 155223. April 3,2007.*
BOBIE ROSE V. FRIAS, represented by her Attorney-in- fact, MARIE F. FUJITA,
petitioner, vs. FLORA SAN DIEGOSISON, respondent.
The facts are stated in the opinion of the Court.
Ernesto L. Pineda for petitioner.
J.V. Natividad and Associates for respondent.
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias
represented by her Attorney-in-fact, Marie Regine F. Fujita (petitioner) seeking to
annul the Decision1 dated June 18, 2002 and the Resolution2 dated September 11,
2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.
Petitioner is the owner of a house and lot located at No. 589 Batangas East,
Ayala Alabang, Muntinlupa, Metro Manila, which she acquired from Island
Masters Realty and Development Corporation (IMRDC) by virtue of a Deed of Sale
dated Nov. 16, 1990.3The property is covered by TCT No. 168173 of the Register of
Deeds of Makati in the name of IMRDC.4
On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-
Sison (respondent), as the SECOND PARTY, entered into a Memorandum of
Agreement5 over the property with the following terms:
“NOW, THEREFORE, for and in consideration of the sum of THREE MILLION
PESOS (P3,000,000.00) receipt of which is hereby acknowledged by the FIRST
PARTY from the SECOND PARTY, the parties have agreed as follows:
1. 1.That the SECOND PARTY has a period of Six (6) months from the date
of the execution of this contract within which to notify the FIRST PARTY
of her intention to purchase the aforementioned parcel of land together
within (sic) the improvements thereon at the price of SIX MILLION
FOUR HUNDRED THOUSAND PESOS (P6,400,000.00). Upon notice to
the FIRST PARTY of the SECOND PARTY’s intention to purchase the
same, the latter has a period of another six months within which to pay
the remaining balance of P3.4 million.
2. 2.That prior to the six months period given to the SECOND PARTY within
which to decide whether or not to purchase the above-mentioned
property, the FIRST PARTY may still offer the said property to other
persons who may be interested to buy the same provided that the
amount of P3,000,000.00 given to the FIRST PARTY BY THE SECOND
PARTY shall be paid to the latter including interest based on prevailing
compounded bank interest plus the amount of the sale in excess of
Page19
P7,000,000.00 should the property be sold at a price more than P7
million.
3. 3.That in case the FIRST PARTY has no other buyer within the first six
months from the execution of this contract, no interest shall be charged
by the SECOND PARTY on the P3 million however, in the event that on
the sixth month the SECOND PARTY would decide not to purchase the
aforementioned property, the FIRST PARTY has a period of another six
months within which to pay the sum of P3 million pesos provided that
CREDTRANS 2
the said amount shall earn compounded bank interest for the last six
months only. Under this circumstance, the amount of P3 million given
by the SECOND PARTY shall be treated as [a] loan and the property
shall be considered as the security for the mortgage which can be
enforced in accordance with law.
x x x x.”6
Petitioner received from respondent two million pesos in cash and one million
pesos in a post-dated check dated February 28, 1990, instead of 1991, which
rendered said check stale.7 Petitioner then gave respondent TCT No. 168173 in the
name of IMRDC and the Deed of Absolute Sale over the property between
petitioner and IMRDC.
Respondent decided not to purchase the property and notified petitioner
through a letter8 dated March 20, 1991, which petitioner received only on June 11,
1991,9reminding petitioner of their agreement that the amount of two million pesos
which petitioner received from respondent should be considered as a loan payable
within six months. Petitioner subsequently failed to pay respondent the amount of
two million pesos.
On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of
Manila, a complaint10 for sum of money with preliminary attachment against
petitioner. The case was docketed as Civil Case No. 93-65367 and raffled to Branch
30. Respondent alleged the foregoing facts and in addition thereto averred that
petitioner tried to deprive her of the security for the loan by making a false
report11 of the loss of her owner’s copy of TCT No. 168173 to the Tagig Police
Station on June 3,
1991, executing an affidavit of loss and by filing a petition 12 for the issuance of a
new owner’s duplicate copy of said title with the RTC of Makati, Branch 142; that
the petition was granted in an Order13 dated August 31, 1991; that said Order was
subsequently set aside in an Order dated April 10, 1992 14where the RTC Makati
granted respondent’s petition for relief from judgment due to the fact that
respondent is in possession of the owner’s duplicate copy of TCT No. 168173, and
ordered the provincial public prosecutor to conduct an investigation of petitioner
for perjury and false testimony. Respondent prayed for the ex parteissuance of a
writ of preliminary attachment and payment of two million pesos with interest at
36% per annum from December 7, 1991, P100,000.00 moral, corrective and
exemplary damages and P200,000.00 for attorney’s fees.
In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila
issued a writ of preliminary attachment upon the filing of a bond in the amount of
two million pesos.15
Petitioner filed an Amended Answer16 alleging that the Memorandum of
Agreement was conceived and arranged by her lawyer, Atty. Carmelita Lozada,
who is also respondent’s lawyer; that she was asked to sign the agreement without
being given the chance to read the same; that the title to the property and the Deed
of Sale between her and the IMRDC were entrusted to Atty. Lozada for safekeeping
and were never turned over to respondent as there was no consummated sale yet;
that out of the two million pesos cash paid, Atty. Lozada took the one million pesos
which has not been

returned, thus petitioner had filed a civil case against her; that she was never
informed of respondent’s decision not to purchase the property within the six
month period fixed in the agreement; that when she demanded the return of TCT
No. 168173 and the Deed of Sale between her and the IMRDC from Atty. Lozada,
the latter gave her these documents in a brown envelope on May 5, 1991 which her
secretary placed in her attache case; that the envelope together with her other
personal things were lost when her car was forcibly opened the following day; that
she sought the help of Atty. Lozada who advised her to secure a police report, to
execute an affidavit of loss and to get the services of another lawyer to file a petition
for the issuance of an owner’s duplicate copy; that the petition for the issuance of
a new owner’s duplicate copy was filed on her behalf without her knowledge and
neither did she sign the petition nor testify in court as falsely claimed for she was
abroad; that she was a victim of the manipulations of Atty. Lozada and respondent
as shown by the filing of criminal charges for perjury and false testimony against
her; that no interest could be due as there was no valid mortgage over the property
as the principal obligation is vitiated with fraud and deception. She prayed for the
dismissal of the complaint, counter-claim for damages and attorney’s fees.
Trial on the merits ensued. On January 31, 1996, the RTC issued a
decision,17 the dispositive portion of which reads:
“WHEREFORE, judgment is hereby RENDERED:
1. 1)Ordering defendant to pay plaintiff the sum of P2 Million plus interest
thereon at the rate of thirty two (32%) per cent per annumbeginning
December 7, 1991 until fully paid.
2. 2)Ordering defendant to pay plaintiff the sum of P70,000.00 representing
premiums paid by plaintiff on the attachment bond with legal interest
thereon counted from the date of this decision until fully paid.
1. 3)Ordering defendant to pay plaintiff the sum of P100,000.00 by way of
moral, corrective and exemplary damages.
2. 4)Ordering defendant to pay plaintiff attorney’s fees of P100,000.00 plus
cost of litigation.”18
The RTC found that petitioner was under obligation to pay respondent the amount
of two million pesos with compounded interest pursuant to their Memorandum of
Agreement; that the fraudulent scheme employed by petitioner to deprive
respondent of her only security to her loaned money when petitioner executed an
affidavit of loss and instituted a petition for the issuance of an owner’s duplicate
title knowing the same was in respondent’s possession, entitled respondent to
moral damages; and that petitioner’s bare denial cannot be accorded credence
Page20
because her testimony and that of her witness did not appear to be credible.
The RTC further found that petitioner admitted that she received from
respondent the two million pesos in cash but the fact that petitioner gave the one
million pesos to Atty. Lozada was without respondent’s knowledge thus it is not
binding on respondent; that respondent had also proven that in 1993, she initially
paid the sum of P30,000.00 as premium for the issuance of the attachment bond,
P20,000.00 for its renewal in 1994, and P20,000.00 for the renewal in 1995, thus
plaintiff should be reimbursed considering that she was compelled to go to court
CREDTRANS 2
and ask for a writ of preliminary attachment to protect her rights under the
agreement.
Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the
CA affirmed the RTC decision with modification, the dispositive portion of which
reads:
“WHEREFORE, premises considered, the decision appealed from is MODIFIED
in the sense that the rate of interest is reduced from 32% to 25% per annum,
effective June 7, 1991 until fully paid.”19
The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as
her commission and partly as a loan; respondent did not replace the mistakenly
dated check of one million pesos because she had decided not to buy the property
and petitioner knew of her decision as early as April 1991; the award of moral
damages was warranted since even granting petitioner had no hand in the filing
of the petition for the issuance of an owner’s copy, she executed an affidavit of loss
of TCT No. 168173 when she knew all along that said title was in respondent’s
possession; petitioner’s claim that she thought the title was lost when the brown
envelope given to her by Atty. Lozada was stolen from her car was hollow; that
such deceitful conduct caused respondent serious anxiety and emotional distress.
The CA concluded that there was no basis for petitioner to say that the interest
should be charged for six months only and no more; that a loan always bears
interest otherwise it is not a loan; that interest should commence on June 7,
199120 with compounded bank interest prevailing at the time the two million was
considered as a loan which was in June 1991; that the bank interest rate for loans
secured by a real estate mortgage in 1991 ranged from 25% to 32% per annumas
certified to by Prudential Bank,21 that in fairness to petitioner, the rate to be
charged should be 25% only.
Petitioner’s motion for reconsideration was denied by the CA in a Resolution
dated September 11, 2002.
Hence the instant Petition for Review on Certiorari filed by petitioner raising the
following issues:
1. (A)WHETHER OR NOT THE COMPOUNDED BANK INTEREST
SHOULD BE LIMITED TO SIX (6) MONTHS AS CONTAINED IN THE
MEMORANDUM OF AGREEMENT.
2. (B)WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL
DAMAGES.
3. (C)WHETHER OR NOT THE GRANT OF CORRECTIVE AND
EXEMPLARY DAMAGES AND ATTORNEY’S FEES IS PROPER
EVEN IF NOT MENTIONED IN THE TEXT OF THE DECISION.22
Petitioner contends that the interest, whether at 32% per annum awarded by the
trial court or at 25% per annumas modified by the CA which should run from June
7, 1991 until fully paid, is contrary to the parties’ Memorandum of Agreement; that
the agreement provides that if respondent would decide not to purchase the
property, petitioner has the period of another six months to pay the loan with
compounded bank interest for the last six months only; that the CA’s ruling that a
loan always bears interest otherwise it is not a loan is contrary to Art. 1956 of the

New Civil Code which provides that no interest shall be due unless it has been
expressly stipulated in writing.
We are not persuaded.
While the CA’s conclusion, that a loan always bears interest otherwise it is not
a loan, is flawed since a simple loan may be gratuitous or with a stipulation to pay
interest,23we find no error committed by the CA in awarding a 25% interest per
annum on the two-million peso loan even beyond the second six months stipulated
period.
The Memorandum of Agreement executed between the petitioner and respondent
on December 7, 1990 is the law between the parties. In resolving an issue based
upon a contract, we must first examine the contract itself, especially the provisions
thereof which are relevant to the controversy.24The general rule is that if the terms
of an agreement are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations shall prevail. 25 It is further required
that the various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken jointly.26
In this case, the phrase “for the last six months only” should be taken in the
context of the entire agreement. We agree with and adopt the CA’s interpretation
of the phrase in this wise:
“Their agreement speaks of two (2) periods of six months each. The first six-month
period was given to plaintiff-appellee (respondent) to make up her mind whether
or not to purchase defendant-appellant’s (petitioner’s) property. The second six-
month period was given to defendant-appellant to pay the P2 million loan in the
event that plaintiff-appellee decided not to buy the subject property in which case
interest will be charged “for the last six months only,” referring to the second six-
month period. This means that no interest will be charged for the first six-month
period while appellee was making up her mind whether to buy the property, but
only for the second period of six months after appellee had decided not to buy the
property. This is the meaning of the phrase “for the last six months only.”
Certainly, there is nothing in their agreement that suggests that interest will be
charged for six months only even if it takes defendant-appellant an eternity to pay
the loan.”27
The agreement that the amount given shall bear compounded bank interest for the
last six months only, i.e., referring to the second six-month period, does not mean
that interest will no longer be charged after the second six-month period since such
stipulation was made on the logical and reasonable expectation that such amount
would be paid within the date stipulated. Considering that petitioner failed to pay
the amount given which under the Memorandum of Agreement shall be considered
as a loan, the monetary interest for the last six months continued to accrue until
actual payment of the loaned amount.
The payment of regular interest constitutes the price or cost of the use of money
Page21
and thus, until the principal sum due is returned to the creditor, regular interest
continues to accrue since the debtor continues to use such principal amount.28 It
has been held that for a debtor to continue in possession of the principal of the loan
and to continue to use the same after maturity of the loan without payment of the
monetary interest, would constitute unjust enrichment on the part of the debtor at
the expense of the creditor.29
Petitioner and respondent stipulated that the loaned amount shall earn
compounded bank interests, and per the certification issued by Prudential Bank,
CREDTRANS 2
the interest rate for loans in 1991 ranged from 25% to 32% per annum. The CA
reduced the interest rate to 25% instead of the 32% awarded by the trial court
which petitioner no longer assailed.
In Bautista v. Pilar Development Corp.,30 we upheld the validity of a 21% per
annum interest on a P142,326.43 loan. In
Garcia v. Court of Appeals,31we sustained the agreement of the parties to a 24% per
annum interest on an P8,649,250.00 loan. Thus, the interest rate of 25% per
annum awarded by the CA to a P2 million loan is fair and reasonable.
Petitioner next claims that moral damages were awarded on the erroneous
finding that she used a fraudulent scheme to deprive respondent of her security
for the loan; that such finding is baseless since petitioner was acquitted in the case
for perjury and false testimony filed by respondent against her.
We are not persuaded.
Article 31 of the Civil Code provides that when the civil action is based on an
obligation not arising from the act or omission complained of as a felony, such civil
action may proceed independently of the criminal proceedings and regardless of
the result of the latter.32
While petitioner was acquitted in the false testimony and perjury cases filed
by respondent against her, those actions are entirely distinct from the collection of
sum of money with damages filed by respondent against petitioner.
We agree with the findings of the trial court and the CA that petitioner’s act of
trying to deprive respondent of the security of her loan by executing an affidavit of
loss of the title and instituting a petition for the issuance of a new owner’s duplicate
copy of TCT No. 168173 entitles respondent to moral damages. Moral damages
may be awarded in culpa contractual or breach of contract cases when the
defendant acted fraudulently or in bad faith. Bad faith does not simply connote bad
judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong. It partakes of the
nature of fraud.33
The Memorandum of Agreement provides that in the event that respondent
opts not to buy the property, the money given by respondent to petitioner shall be
treated as a loan and the property shall be considered as the security for the
mortgage. It was testified to by respondent that after they executed the agreement
on December 7, 1990, petitioner gave her the owner’s copy of the title to the
property, the Deed of Sale between petitioner and IMRDC, the certificate of
occupancy, and the certificate of the Secretary of the IMRDC who signed the Deed
of Sale.34 However, notwithstanding that all those documents were in respondent’s
possession, petitioner executed an affidavit of loss that the owner’s copy of the title
and the Deed of Sale were lost.
Although petitioner testified that her execution of the affidavit of loss was due
to the fact that she was of the belief that since she had demanded from Atty.
Lozada the return of the title, she thought that the brown envelope with markings
which Atty. Lozada gave her on May 5, 1991 already contained the title and the
Deed of Sale as those documents were in the same brown envelope which she gave
to Atty. Lozada prior to the transaction with respondent.35 Such statement
remained a bare statement. It was not proven at all since Atty. Lozada had not
taken the stand to corroborate her claim. In fact, even petitioner’s own witness,
Benilda Ynfante (Ynfante), was not able to establish petitioner’s claim that the
 CREDTRANS 2
title was returned by Atty. Lozada in view of Ynfante’s testimony that after the
brown envelope was given to petitioner,
the latter passed it on to her and she placed it in petitioner’s attaché case 36and did
not bother to look at the envelope.37
It is clear therefrom that petitioner’s execution of the affidavit of loss became
the basis of the filing of the petition with the RTC for the issuance of new owner’s
duplicate copy of TCT No. 168173. Petitioner’s actuation would have deprived
respondent of the security for her loan were it not for respondent’s timely filing of
a petition for relief whereby the RTC set aside its previous order granting the
issuance of new title. Thus, the award of moral damages is in order.
The entitlement to moral damages having been established, the award of
exemplary damages is proper.38 Exemplary damages may be imposed upon
petitioner by way of example or correction for the public good.39 The RTC awarded
the amount of P100,000.00 as moral and exemplary damages. While the award of
moral and exemplary damages in an aggregate amount may not be the usual way
of awarding said damages,40 no error has been committed by CA. There is no
question that respondent is entitled to moral and exemplary damages.
Petitioner argues that the CA erred in awarding attorney’s fees because the
trial court’s decision did not explain the findings of facts and law to justify the
award of attorney’s fees as the same was mentioned only in the dispositive portion
of the RTC decision.
We agree.
Article 220841 of the New Civil Code enumerates the instances where such may be
awarded and, in all cases, it must be reasonable, just and equitable if the same
were to be granted.42 Attorney’s fees as part of damages are not meant to enrich
the winning party at the expense of the losing litigant. They are not awarded every
time a party prevails in a suit because of the policy that no premium should be
placed on the right to litigate.43 The award of attorney’s fees is the exception rather
than the general rule. As such, it is necessary for the trial court to make findings
of facts and law that would bring the case within the exception and justify the
grant of such award. The matter of attorney’s fees cannot be mentioned only in the
dispositive portion of the decision.44 They must be clearly explained and justified
by the trial court in the body of its decision. On appeal, the CA is precluded from
supplementing the bases for awarding attorney’s fees when the trial court failed to
discuss in its Decision the reasons for awarding the same. Consequently, the award
of attorney’s fees should be deleted.
WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002
and the Resolution dated September 11, 2002 of the Court of Appeals in CA-G.R.
CV No. 52839 are AFFIRMED with MODIFICATION that the award of attorney’s
fees is DELETED.
No pronouncement as to costs.
Page22

SO ORDERED.

G.R. No. 60705. June 28, 1989.*
INTEGRATED REALTY CORPORATION and RAUL L. SANTOS,
petitioners, vs.PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA
and THE HON. COURT OF APPEALS, respondents.
G.R. No. 60907. June 28, 1989.*
OVERSEAS BANK OF MANILA, petitioner, vs.COURT OF APPEALS,
INTEGRATED REALTY CORPORATION, and RAUL L. SANTOS, respondents.
PETITIONS for certiorari to review the decision of the Court ofAppeals.
The facts are stated in the opinion of the Court.
REGALADO, J.:
In these petitions for review on certiorari, Integrated Realty Corporation and Raul
Santos (G.R. No. 60705), and Overseas Bank of Manila (G.R. No. 60907) appeal
from the decision of the Court of Appeals,1 the decretal portion of which states:
“WHEREFORE, with the modification that appellee Overseas Bank of Manila is
ordered to pay to the appellant Raul Santos the sum of P700,000.00 due under the
time deposit certificates Nos. 2308 and 2367 with 6 1/2 (sic) interest per annum
from date of issue until fully paid, the appealed decision is affirmed in all other
respects.”
In G.R. No. 60705, petitioners Integrated Realty Corporation (hereafter, IRC) and
Raul L. Santos (hereafter, Santos) seek the dismissal of the complaint filed by the
Philippine National Bank (hereafter, PNB), or in the event that they be held liable
thereunder, to revive and affirm that portion of the decision of the trial court
ordering Overseas Bank of Manila (hereafter, OBM) to pay IRC and Santos
whatever amounts the latter will pay to PNB, with interest from the date of
payment.2
On the other hand, in G.R. No. 60907, petitioner OBM challenges the decision
of respondent court insofar as it holds OBM liable for interest on the time deposit
with it of Santos corresponding to the period of its closure by order of the Central
Bank.3
In its assailed decision, the respondent Court of Appeals, quoting from the
decision of the lower court,4narrated the ante-
cedents of this case in this wise:
“The facts of this case are not seriously disputed by any of the parties. They are set
forth in the decision of the trial court as follows:
Under date 11 January 1967 defendant Raul L. Santos made a time deposit with
defendant OBM in the amount of P500,000.00. (Exhibit-10 OBM) and was issued
Page23
a Certificate of Time Deposit No. 2308 (Exhibit 1-Santos, Exhibit D). Under date 6
February 1967 defendant Raul L. Santos also made a time deposit with defendant
OBM in the amount of P200,000.00 (Exhibit 11-OBM) and was issued certificate of
Time Deposit No. 2367 (Exhibit 2-Santos, Exhibit E).
Under date 9 February 1967 defendant IRC, thru its President—defendant
Raul L. Santos, applied for a loan and/or credit line (Exhibit A) in the amount of
P700,000.00 with plaintiff bank. To secure the said loan, defendant Raul L. Santos
CREDTRANS 2
executed on August 11, 1967 a Deed of Assignment (Exhibit C) of the two time
deposits (Exhibits 1-Santos and 2-Santos, also Exhibits D and E) in favor of
plaintiff. Defendant OBM gave its conformity to the assignment thru letter dated
11 August 1967 (Exhibit F). On the same date, defendant IRC, thru its President
Raul L. Santos, also executed a Deed of Conformity to Loan Conditions (Exhibit
G).
The defendant OBM, after the due dates of the time deposit certificates, did
not pay plaintiff PNB. Plaintiff demanded payment from defendants IRC and Raul
L. Santos (Exhibit K) and from defendant OBM (Exhibit L). Defendants IRC and
Raul L. Santos replied that the obligation (loan) of defendant IRC was deemed paid
with the irrevocable assignment of the time deposit certificates (Exhibits 5-Santos,
6-Santos and 7-Santos).
“On April 6, 1969 (sic),** PNB filed a complaint to collect from IRC and Santos
the loan of P700,000.00 with interest as well as attorney’s fees. It impleaded OBM
as a defendant to compel it to redeem and pay to it Santos’ time deposit certificates
with interest, plus exemplary and corrective damages, attorney’s fees, and costs.
“In their answer to the complaint, IRC and Santos alleged that PNB has no
cause of action against them because their obligation to PNB was fully paid or
extinguished upon the ‘irrevocable’ assignment
of the time deposit certificates, and that they are not answerable for the insolvency
of OBM. They filed a counterclaim for damages against PNB and a cross-claim
against OBM, alleging that OBM acted fraudulently in refusing to pay the time
deposit certificates to PNB resulting in the filing of the suit against them by PNB,
and that, therefore, OBM should pay them whatever amount they may be ordered
by the court to pay PNB with interest. They also asked that OBM be ordered to
pay them compensatory, moral, exemplary and corrective damages.
“In its answer to the complaint, OBM denied knowledge of the time deposit
certificates because the alleged time deposit of Santos ‘does not appear’ in its books
of account.
“Whereupon, IRC and Santos, with leave of court, filed a third-party complaint
against Emerito B. Ramos, Jr., president of OBM, and Rodolfo R. Sunico, treasurer
of said bank, who allegedly received the time deposits of Santos and issued the
certificates therefor.
“Answering the third-party complaint, Ramos and Sunico alleged that IRC and
Santos have no cause of action against them because they received and signed the
time deposit certificates as officers of OBM, that the time deposits are recorded in
the subsidiary ledgers of the bank and are ‘civil liabilities of the defendant OBM.’
“On November 18, 1970, OBM filed an amended or supplemental answer to the
complaint, acknowledging the certificates of time deposit that it issued to Santos,
and admitting its failure to pay the same due to its distressed financial situation.
As affirmative defenses, it alleged that by reason of its state of insolvency its
operations have been suspended by the Central Bank since August 1, 1968; that
the time deposits ceased to earn interest from that date; that it may not give
preference to any depositor or creditor; and that payment of the plaintiffs claim is
prohibited.
“On January 30, 1976, the lower court rendered judgment for the plaintiff, the
dispositive portion of which reads as follows:
“WHEREFORE, judgment is hereby rendered, ordering:

1. 1.The defendant Integrated Realty Corporation and Raul L. Santos to pay
the plaintiff, jointly and solidarily, the total amount of P700,000.00 plus
interest at the rate of 9% per annum from maturity dates of the two
promissory notes on January 11 and February 6, 1968, respectively
(Exhibits M and I), plus 1-1/ 2% additional interest effective February
28, 1968 and additional penalty interest of 1% per annum of the said
amount of P700,000.00 from the time of maturity of said loan up to the
time the said amount of P700,000.00 is actually paid to the plaintiff; The
defendants to pay 10% of the amount of P700,000.00
1. as and for attorney’s fees;
2. 3.The defendant Overseas Bank of Manila to pay cross-plaintiffs
Integrated Realty Corporation and Raul L. Santos whatever amounts
the latter will pay to the plaintiff with interest from date of payment;
3. 4.The defendant Overseas Bank of Manila to pay cross-plaintiffs
Integrated Realty Corporation and Raul L. Santos the amount of
P10,000.00 as and for attorney’s fees;
4. 5.The third-party complaint and cross-claim dismissed;
5. 6.The defendant Overseas Bank of Manila to pay the costs.
SO ORDERED.’ ”5
IRC, Santos and OBM all appealed to the respondent Court of Appeals. As
stated in limine, on March 16, 1982 respondent court promulgated its appealed
decision, with a modification and the deletion of that portion of the judgment of the
trial court ordering OBM to pay IRC and Santos whatever amounts they will pay
to PNB with interest from the date of payment.
Therein defendants-appellants, through separate petitions, have brought the
said decision to this Court for review.
1. The first issue posed before Us for resolution is whether the liability of IRC
and Santos with PNB should be deemed to have been paid by virtue of the deed of
assignment made by the former in favor of PNB, which reads:
“KNOW ALL MEN BY THESE PRESENTS;
I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address
at 661 Richmond St., Mandaluyong, Rizal for and in consideration of certain loans,
overdrafts and other credit accommodations granted or those that may hereafter
be granted to me/us by the PHILIPPINE NATIONAL BANK, have assigned,
transferred and conveyed and by these presents, do hereby assign, transfer and
convey by way of security unto said PHILIPPINE NATIONAL BANK its successors
and assigns the following Certificates of Time Deposit issued by the OVERSEAS
BANK OF MANILA, its CONFORMITY issued on August 11, 1967, hereto
Page24
enclosed as Annex ‘A,’ in favor of RAUL L. SANTOS and/or NORA S. SANTOS, in
the aggregate sum of
SEVEN HUNDRED THOUSAND PESOS ONLY (P700,000.00), Philippine
Currency, xxx.
x x x
“It is also understood that the herein Assignor/s shall remain liable for any
outstanding balance of his/their obligation if the Bank is unable to actually receive
CREDTRANS 2
or collect the above assigned sums, monies or properties resulting from any
agreements, orders or decisions of the court or for any other cause whatsoever.”6
Respondent Court of Appeals did not consider the aforesaid assignment as
payment, thus:
“The contention of IRC and Santos that the irrevocable assignment of the time
deposit certificates to PNB constituted ‘payment’ of their obligation to the latter is
not well taken.
‘Where a certificate of deposit in a bank, payable at a future day, was handed over
by a debtor to his creditor, it was not payment, unless there was an express
agreement on the part of the creditor to receive it as such, and the question
whether there was or was not such an agreement, was one of facts to be decided by
the jury.’ (Downey vs. Hicks, 55 U.S. [14 How.] 240 L. Ed. 404; See also Michie, Vol.
5B Banks and Banking, p. 200).”7
We uphold respondent court on this score.
In Lopez vs. Court of Appeals, et al.,8 petitioner Benito Lopez obtained a loan
for P20,000.00 from the Prudential Bank and Trust Company. On the same day,
he executed a promissory note in favor of the bank and, in addition, he executed a
surety bond in which he, as principal, and Philippine American General Insurance
Co., Inc. (Philamgen), as surety, bound themselves jointly and severally in favor of
the bank for the payment of the loan. On the same occasion, Lopez also executed
in favor of Philamgen an indemnity agreement whereby he agreed to indemnify
the company against any damages which the latter
may sustain in consequence of having become a surety upon the bond. At the same
time, Lopez executed a deed of assignment of his shares of stock in the Baguio
Military Institute, Inc. in favor of Philamgen. When Lopez’ obligation matured
without being settled, Philamgen caused the transfer of the shares of stocks to its
name in order that it may sell the same and apply the proceeds thereof in payment
of the loan to the bank. However, when no payment was still made by the principal
debtor or surety, the bank filed a complaint which compelled Philamgen to pay the
bank. Thereafter, Philamgen filed an action to recover the amount of the loan
against Lopez. The trial court therein held that the obligation of Lopez was deemed
paid when his shares of stocks were transferred in the name of Philamgen. On
appeal, the Court of Appeals ruled that Lopez was still liable to Philamgen
because, pending payment, Philamgen was merely holding the stock as security
for the payment of Lopez’ obligation.
In upholding the finding therein of the Court of Appeals, We held that:
“Notwithstanding the express terms of the ‘Stock Assignment Separate from
Certificate’, however, We hold and rule that the transaction should not be regarded
as an absolute conveyance in view of the circumstances obtaining at the time of
the execution thereof.
“It should be remembered that on June 2, 1959, the day Lopez obtained a loan
of P20,000.00 from Prudential Bank, Lopez executed a promissory note for
P20,000.00, plus interest at the rate often (10%) per cent per annum, in favor of
said Bank. He likewise posted a surety bond to secure his full and faithful
performance of his obligation under the promissory note with Philamgen as his
surety. In return for the undertaking of Philamgen under the surety bond, Lopez
executed on the same day not only an indemnity agreement but also a stock
assignment.

“The indemnity agreement and stock assignment must be considered together
as related transactions because in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally
considered. (Article 1371, New Civil Code). Thus, considering that the indemnity
agreement connotes a continuing obligation of Lopez towards Philamgen while the
stock assignment indicates a complete discharge of the same obligation, the
existence of the indemnity agreement whereby Lopez had to pay a
premium of P1,000.00 for a period of one year and agreed at all times to indemnify
Philamgen of any and all kinds of losses which the latter might sustain by reason
of it becoming a surety, is inconsistent with the theory of an absolute sale for and
in consideration of the same undertaking of Philamgen. There would have been no
necessity for the execution of the indemnity agreement if the stock assignment was
really intended as an absolute conveyance, xxx”
Along the same vein, in the case at bar it would not have been necessary on the
part of IRC and Santos to execute promissory notes in favor of PNB if the
assignment of the time deposits of Santos was really intended as an absolute
conveyance.
There are cogent reasons to conclude that the parties intended said deed of
assignment to complement the promissory notes. In declaring that the deed of
assignment did not operate as payment of the loan so as to extinguish the
obligations of IRC and Santos with PNB, the trial court advanced several valid
bases, to wit:
1. “a.It is clear from the Deed of Assignment that it was only by way of
security;
xxx
2. “b.The promissory notes (Exhibits H and I) were executed on August 16,
1967. If defendants IRC and Raul L. Santos, upon executing the Deed of
Assignment on August 11, 1967 had already paid their loan of
P700,000.00 or otherwise extinguished the same, why were the
promissory notes made on August 16, 1967 still executed by IRC and
signed by Raul L. Santos as President?
3. “c.In the application for a credit line (Exhibit A), the time deposits were
offered as collateral.”9
For all intents and purposes, the deed of assignment in this case is actually a
pledge. Adverting again to the Court’s pronouncements in Lopez, supra, we quote
therefrom:
“The character of the transaction between the parties is to be determined by their
intention, regardless of what language was used or what the form of the transfer
Page25
was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there was some other
intention, it is not a pledge. However, even though a transfer, if regarded by itself,
appears to have been absolute, its object and character might still be qualified and
explained by a contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of property by the
debtor to a creditor, even if sufficient on its face to make an absolute conveyance,
should be treated as a pledge if the debt continues in existence and is not
CREDTRANS 2
discharged by the transfer, and that accordingly, the use of the terms ordinarily
importing conveyance, of absolute ownership will not be given that effect in such a
transaction if they are also commonly used in pledges and mortgages and therefore
do not unqualifiedly indicate a transfer of absolute ownership, in the absence of
clear and unambiguous language or other circumstances excluding an intent to
pledge.”10
The facts and circumstances leading to the execution of the deed of assignment, as
found by the court a quo and the respondent court, yield said conclusion that it is
in fact a pledge. The deed of assignment has satisfied the requirements of a
contract of pledge (1) that it be constituted to secure the fulfillment of a principal
obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that
the persons constituting the pledge have the free disposal of their property, and in
the absence thereof, that they be legally authorized for the purpose.11The further
requirement that the thing pledged be placed in the possession of the creditor, or
of a third person by common agreement12 was complied with by the execution of
the deed of assignment in favor of PNB.
It must also be emphasized that Santos, as assignor, made an express
undertaking that he would remain liable for any outstanding balance of his
obligation should PNB be unable to actually receive or collect the assigned sums
resulting from any agreements, orders or decisions of the court or for any other
cause whatsoever. The term “for any cause whatsoever” is
broad enough to include the situation involved in the present case.
Under the foregoing circumstances and considerations, the unavoidable
conclusion is that IRC and Santos should be held liable to PNB for the amount of
the loan with the corresponding interest thereon.
2. We find nothing illegal in the interest of one and one-half percent (1-1/2%)
imposed by PNB pursuant to the resolution of its Board which presumably was
done in accordance with ordinary banking procedures. Not only did IRC and Santos
fail to overcome the presumption of regularity of business transactions, but they
are likewise estopped from questioning the validity thereof for the first time in this
petition. There is nothing in the records to show that they raised this issue during
the trial by presenting countervailing evidence. What was merely touched upon
during the proceedings in the court below was the alleged lack of notice to them of
the board resolution, but not the veracity or validity thereof.
3. On the issue of whether OBM should be held liable for interests on the time
deposits of IRC and Santos from the time it ceased operations until it resumed its
business, the answer is in the negative.
We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony
D. Tapia,13 that:
“It is a matter of common knowledge, which We take judicial notice of, that what
enables a bank to pay stipulated interest on money deposited with it is that thru
the other aspects of its operation it is able to generate funds to cover the payment
of such interest. Unless a bank can lend money, engage in international
transactions, acquire foreclosed mortgaged properties or their proceeds and
generally engage in other banking and financing activities from which it can derive
income, it is inconceivable how it can carry on as a depository obligated to pay
stipulated interest. Conventional wisdom dictates this inexorable fair and just
conclusion. And it can be said that all who deposit money in banks are aware of
such a simple economic proposi-tion. Consequently, it should be deemed read into

every contract of deposit with a bank that the obligation to pay interest on the
deposit ceases the moment the operation of the bank is completely suspended by
the duly constituted authority, the Central Bank.
“We consider it of trivial consequence that the stoppage of the bank’s operation
by the Central Bank has been subsequently declared illegal by the Supreme Court,
for before the Court’s order, the bank had no alternative under the law than to
obey the orders of the Central Bank. Whatever be the juridical significance of the
subsequent action of the Supreme Court, the stubborn fact remained that the
petitioner was totally crippled from then on from earning the income needed to
meet its obligations to its depositors. If such a situation cannot, strictly speaking,
be legally denominated as ‘force majeure,’ as maintained by private respondent,
We hold it is a matter of simple equity that it be treated as such.”
The Court further adjured that:
“Parenthetically, We may add for the guidance of those who might be concerned,
and so that unnecessary litigations be avoided from further clogging the dockets of
the courts, that in the light of the considerations expounded in the above opinion,
the same formula that exempts petitioner from the payment of interest to its
depositors during the whole period of factual stoppage of its operations by orders
of the Central Bank, modified in effect by the decision as well as the approval of a
formula of rehabilitation by this Court, should be, as a matter of consistency,
applicable or followed in respect to all other obligations of petitioner which could
not be paid during the period of its actual complete closure.”
We cannot accept the holding of the respondent Court of Appeals that the above-
cited decisions apply only where the bank is in a state of liquidation. In the very
case aforecited, this issue was likewise raised and We resolved:
“Thus, Our task is narrowed down to the resolution of the legal problem of whether
or not, for purposes of the payment of the interest here in question, stoppage of the
operations of a bank by a legal order of liquidation may be equated with actual
cessation of the bank’s operation, not different, factually speaking, in its effects,
from legal liquidation the factual cessation having been ordered by the Central
Bank.
“In the case of Chinese Grocer’s Association, et al. vs. American Apothecaries, 65
Phil. 395, this Court held:
“As to the second assignment of error, this Court, in G.R. No. 43682, In re
Liquidation of the Mercantile Bank of China, Tan Tiong Tick, claimant and
appellant, vs. American Apothecaries, C, et al., claimants and appellees, through
Justice Imperial, held the following:
‘4. The court held that the appellant is not entitled to charge interest on the
amounts of his claims, and this is the object of the second assignment of error.
Upon this point a distinction must be made between the interest which the deposits
should earn from their existence until the bank ceased to operate, and that which
Page26
they may earn from the time the bank’s operations were stopped until the date of
payment of the deposits. As to the first-class, we hold that it should be paid because
such interest has been earned in the ordinary course of the bank’s business 1 and
before the latter has been declared in a state of liquidation. Moreover, the bank
being authorized by law to make use of the deposits with the limitation stated, to
invest the same in its business and other operations, it may be presumed that it
bound itself to pay interest to the depositors as in fact it paid interest prior to the
dates of the said claims. As to the interest which may be charged from the date the
CREDTRANS 2
bank ceased to do business because it was declared in a state of liquidation, we
hold that the said interest should not be paid.’
“The Court of Appeals considered this ruling inapplicable to the instant case,
precisely because, as contended by private respondent, the said Apothecaries case
had in fact in contemplation a valid order of liquidation of the bank concerned,
whereas here, the order of the Central Bank of August 13, 1968 completely
forbidding herein petitioner to do business preparatory to its liquidation was first
restrained and then nullified by this Supreme Court. In other words, as far as
private respondent is concerned, it is the legal reason for cessation of operations,
not the actual cessation thereof, that matters and is decisive insofar as his right to
the continued payment of the interest on his deposit during the period of cessation
is concerned.
“In the light of the peculiar circumstances of this particular case, We disagree.
It is Our considered view, after mature deliberation, that it is utterly unfair to
award private respondent his prayer for payment of interest on his deposit during
the period that petitioner bank was not allowed by the Central Bank to operate.”
4. Lastly, IRC and Santos claim that OBM should reimburse them for whatever
amounts they may be adjudged to pay PNB by way of compensation for damages
incurred, pursuant to Articles 1170 and 2201 of the Civil Code.
It appears that as early as April, 1967, the financial situation of OBM had
already caused mounting concern in the Central Bank. 14 On December 5, 1967,
new directors and officers drafted from the Central Bank (CB) itself, the Philippine
National Bank (PNB) and the Development Bank of the Philippines (DBP) were
elected and installed and they took over the management and control of the
Overseas Bank.15However, it was only on July 31, 1968 when OBM was excluded
from clearing with the CB under Monetary Board Resolution No. 1263.
Subsequently, on August 2, 1968, pursuant to Resolution No. 1290 of the CB,
OBM’s operations were suspended.16These CB resolutions were eventually
annulled and set aside by this Court on October 4, 1971 in the decision rendered
in the herein cited case of Ramos.
Thus, when PNB demanded from OBM payment of the amounts due on the two
time deposits which matured on January 11, 1968 and February 6, 1968,
respectively, there was as yet no obstacle to the faithful compliance by OBM of its
liabilities thereunder. Consequently, for having incurred in delay in the
performance of its obligation, OBM should be held liable for damages. 17 When
respondent Santos invested his money in time deposits with OBM, they entered
into a contract of simple loan or mutuum,18 not a contract of deposit.
While it is true that under Article 1956 of the Civil Code no interest shall be
due unless it has been expressly stipulated in writing, this applies only to interest
for the use of money. It does not comprehend interest paid as damages.19OBM con-
tends that it had agreed to pay interest only up to the dates of maturity of the
certificates of time deposit and that respondent Santos is not entitled to interest
after the maturity dates had expired, unless the contracts are renewed. This is true
with respect to the stipulated interest, but the obligations consisting as they did in
the payment of money, under Article 1108 of the Civil Code he has the right to
recover damages resulting from the default of OBM, and the measure of such
damages is interest at the legal rate of six percent (6%) per annum on the amounts
due and unpaid at the expiration of the periods respectively provided in the
contracts. In fine, OBM is being required to pay such interest, not as interest
 CREDTRANS 2
income stipulated in the certificates of time deposit, but as damages for failure and the same are fully paid, except that no interest shall be paid during the
delay in the payment of its obligations which thereby compelled IRC and Santos to entire period of actual cessation of operations by Overseas Bank of
resort to the courts. Manila;
The applicable rule is that legal interest, in the nature of damages for non-
compliance with an obligation to pay a sum of money, is recoverable from the date 1. 4.Overseas Bank of Manila to pay Integrated Realty Corporation and Raul
judicial or extrajudicial demand is made,20 which latter mode of demand was made L. Santos six and one-half per cent (6-1/2%) interest in the concept of
by PNB, after the maturity of the certificates of time deposit, on March 1, damages on the principal amounts of said certificates of time deposit
1968.21 The measure of such damages, there being no stipulation to the contrary, from the date of extrajudicial demand by PNB on March 1, 1968, plus
shall be the payment of the interest agreed upon in the certificates of legal interest of six percent (6%) on said interest from April 6, 1968, until
deposit22 which is six and one-half percent (6-1/2%). Such interest due or accrued full payment thereof, except during the entire period of actual cessation
shall further earn legal interest from the time of judicial demand.23 of operations of said bank.
We reject the proposition of IRC and Santos that OBM should reimburse them 2. 5.Overseas Bank of Manila to pay Integrated Realty Corporation and Raul
the entire amount they may be adjudged to pay PNB. It must be noted that their L. Santos ten thousand pesos (P10,000.00) as and for attorney’s fees.
liability to pay the various interests of nine percent (9%) on the principal
obligation, one and one-half percent (1-1/2%) additional interest and one percent
(1%) penalty interest is an offshoot of their failure to pay under the terms of the SO ORDERED.
two promissory notes executed in favor V, 695.
of PNB. OBM was never a party to said promissory notes. There is, therefore, no
privity of contract between OBM and PNB which will justify the imposition of the
aforesaid interests upon OBM whose liability should be strictly confined to and
within the provisions of the certificates of time deposit involved in this case. In
fact, as noted by respondent court, when OBM assigned as error that portion of the
judgment of the court a quorequiring OBM to make the disputed reimbursement,
IRC and Santos did not dispute that objection of OBM. Besides, IRC and Santos
are not without fault. They likewise acted in bad faith when they refused to comply
with their obligations under the promissory notes, thus incurring liability for all
damages reasonably attributable to the non-payment of said obligations.24
WHEREFORE, judgment is hereby rendered, ordering:

1. 1.Integrated Realty Corporation and Raul L. Santos to pay Philippine

National Bank, jointly and severally, the total amount of seven hundred
thousand pesos (P700,000.00), with interest thereon at the rate of nine
percent (9%) per annum from the maturity dates of the two promissory
notes on January 11 and February 6, 1968, respectively, plus one and
one-half percent (1-1/2%) additional interest per annum effective
February 28, 1968 and additional penalty interest of one percent (1%)
per annum of the said amount of seven hundred thousand pesos
(P700,000.00) from the time of maturity of said loan up to the time the
said amount of seven hundred thousand pesos (P700,000.00) is fully paid
to Philippine National Bank.
2. 2.Integrated Realty Corporation and Raul L. Santos to pay solidarily
Page27

Philippine National Bank ten percent (10%) of the amount of seven

hundred thousand pesos (P700,000.00) as and for attorney’s fees.
3. 3.Overseas Bank of Manila to pay Integrated Realty Corporation and Raul
L. Santos the sum of seven hundred thousand pesos (P700,000.00) due
under Time Deposit Certificates Nos. 2308 and 2367, with interest
thereon of six and one-half percent (6-1/2%) per annum from their dates
of issue on January 11, 1967 and February 6, 1967, respectively, until
 CREDTRANS 2
G.R. No. 138677. February 12, 2002.* 1. “1.The sum of P114,416.00 with interest thereon at the rate of 15.189%
TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. per annum, 2% service charge and 5% per month penalty charge,
COURT OF APPEALS & SECURITY BANK & TRUST COMPANY, respondents. commencing on 20 May 1982 until fully paid;
2. “2.To pay the further sum equivalent to 10% of the total amount of
indebtedness for and as attorney’s fees; and
3. “3.To pay the costs of the suit.”2
PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court. Petitioners interposed an appeal with the Court of Appeals, questioning the
Florimond C. Rous for petitioners. rejection by the trial court of their motion to pres-ent evidence and assailing the
Castro, Biñas, Samillano & Mangrobangfor Security Bank & Trust Co. imposition of the 2% service charge, the 5% per month penalty charge and 10%
attorney’s fees. In its decision3 of 7 March 1996, the appellate court affirmed the
VITUG, J.: judgment of the trial court except on the matter of the 2% service charge which
was deleted pursuant to Central Bank Circular No. 783. Not fully satisfied with
the decision of the appellate court, both parties filed their respective motions for
Before the Court is a petition for review on certiorariunder Rule 45 of the Rules of
reconsideration.4 Petitioners prayed for the reduction of the 5% stipulated penalty
Court, assailing the decision and resolutions of the Court of Appeals in CA-G.R.
for being unconscionable. The bank, on the other hand, asked that the payment of
CV No. 34594, entitled “Security Bank and Trust Co. vs. Tolomeo Ligutan, et al.”
interest and penalty be commenced not from the date of filing of complaint but
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981
from the time of default as so stipulated in the contract of the parties.
a loan in the amount of P120,000.00 from respondent Security Bank and Trust
On 28 October 1998, the Court of Appeals resolved the two motions thusly:
Company. Petitioners executed a promissory note binding themselves, jointly and
“We find merit in plaintiff-appellee’s claim that the principal sum of P114,416.00
severally, to pay the sum borrowed with an interest of 15.189% per annum upon
with interest thereon must commence not on the date of filing of the complaint as
maturity and to pay a penalty of 5% every month on the outstanding principal and
we have previously held in our decision but on the date when the obligation became
interest in case of default. In addition, petitioners agreed to pay 10% of the total
due.
amount due by way of attorney’s fees if the matter were indorsed to a lawyer for
“Default generally begins from the moment the creditor demands the
collection or if a suit were instituted to enforce payment. The obligation matured
performance of the obligation. However, demand is not necessary to render the
on 8 September 1981; the bank, however, granted an extension but only up until
obligor in default when the obligation or the law so provides.
29 December 1981.
“In the case at bar, defendants-appellants executed a promissory note where
Despite several demands from the bank, petitioners failed to settle the debt which,
they undertook to pay the obligation on its maturity date ‘without necessity of
as of 20 May 1982, amounted to P114,416.10. On 30 September 1982, the bank
demand.’ They also agreed to pay the interest in case of non-payment from the date
sent a final demand letter to petitioners informing them that they had five days
of default.
within which to make full payment. Since petitioners still defaulted on their
“x x x xxx xxx
obligation, the bank filed on 3 November 1982, with the Regional Trial Court of
“While we maintain that defendants-appellants must be bound by the contract
Makati, Branch 143, a complaint for recovery of the due amount.
which they acknowledged and signed, we take cognizance of their plea for the
After petitioners had filed a joint answer to the complaint, the bank presented
application of the provisions of Article 1229 x x x.
its evidence and, on 27 March 1985, rested its case. Petitioners, instead of
“Considering that defendants-appellants partially complied with their
introducing their own evidence, had the hearing of the case reset on two
obligation under the promissory note by the reduction of the original amount of
consecutive occasions. In view of the absence of petitioners and their counsel on 28
P120,000.00 to P114,416.00 and in order that they will finally settle their
August 1985, the third hearing date, the bank moved, and the trial court resolved,
obligation, it is our view and we so hold that in the interest of justice and public
to consider the case submitted for decision.
policy, a penalty of 3% per month or 36% per annum would suffice.
Two years later, or on 23 October 1987, petitioners filed a motion for
“x x x xxx xxx
reconsideration of the order of the trial court declaring them as having waived
“WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED.
Page28

their right to present evidence and prayed that they be allowed to prove their case.
The defendants-appellants Tolomeo Ligutan and Leonidas dela Llana are hereby
The court a quo denied the motion in an order, dated 5 September 1988, and on 20
ordered to pay the plaintiff-appellee Security Bank and Trust Company the
October 1989, it rendered its decision,1 the dispositive portion of which read:
following:
“WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the defendants, ordering the latter to pay, jointly and severally, to the plaintiff, as
follows: 1. “1.The sum of P114,416.00 with interest thereon at the rate of 15.189%
per annum and 3% per month penalty charge commencing May 20, 1982
until fully paid;

2. “2.The sum equivalent to 10% of the total amount of the indebtedness as
and for attorney’s fees.”5
On 16 November 1998, petitioners filed an omnibus motion for reconsideration and
to admit newly-discovered evidence,6alleging that while the case was pending
before the trial court, petitioner Tolomeo Ligutan and his wife Bienvenida Ligutan
executed a real estate mortgage on 18 January 1984 to secure the existing
indebtedness of petitioners Ligutan and dela Llana with the bank. Petitioners
contended that the execution of the real estate mortgage had the effect of novating
the contract between them and the bank. Petitioners further averred that the
mortgage was extrajudicially foreclosed on 26 August 1986, that they were not
informed about it, and the bank did not credit them with the proceeds of the sale.
The appellate court denied the omnibus motion for reconsideration and to admit
newly-discovered evidence, ratiocinating that such a second motion for
reconsideration cannot be entertained under Section 2, Rule 52, of the 1997 Rules
of Civil Procedure. Furthermore, the appellate court said, the newly-discovered
evidence being invoked by petitioners had actually been known to them when the
case was brought on appeal and when the first motion for reconsideration was
filed.7
Aggrieved by the decision and resolutions of the Court of Appeals, petitioners
elevated their case to this Court on 9 July 1999 via a petition for review
on certiorari under Rule 45 of the Rules of Court, submitting thusly—
1. “I.The respondent Court of Appeals seriously erred in not holding that
the 15.189% interest and the penalty of three (3%) percent per month or
thirty-six (36%) percent per annum imposed by private respondent bank
on petitioners’ loan obligation are still manifestly exhorbitant,
iniquitous and unconscionable.
2. “II.The respondent Court of Appeals gravely erred in not reducing to a
reasonable level the ten (10%) percent award of attorney’s fees which is
highly and grossly excessive, unreasonable and unconscionable.
3. “III.The respondent Court of Appeals gravely erred in not admitting
petitioners’ newly discovered evidence which could not have been timely
produced during the trial of this case.
4. “IV.The respondent Court of Appeals seriously erred in not holding that
there was a novation of the cause of action of private respondent’s
complaint in the instant case due to the subsequent execution of the real
estate mortgage during the pendency of this case and the subsequent
foreclosure of the mortgage.”8
Page29
Respondent bank, which did not take an appeal, would, however, have it that the
penalty sought to be deleted by petitioners was even insufficient to fully cover and
compensate for the cost of money brought about by the radical devaluation and
decrease in the purchasing power of the peso, particularly vis-a-vis the U.S. dollar,
taking into account the time frame of its occurrence. The Bank would stress that
only the amount of P5,584.00 had been remitted out of the entire loan of
P120,000.00.9
CREDTRANS 2
A penalty clause, expressly recognized by law,10 is an accessory undertaking to
assume greater liability on the part of an obligor in case of breach of an obligation.
It functions to strengthen the coer-
cive force of the obligation11and to provide, in effect, for what could be the
liquidated damages resulting from such a breach. The obligor would then be bound
to pay the stipulated indemnity without the necessity of proof on the existence and
on the measure of damages caused by the breach.12Although a court may not at
liberty ignore the freedom of the parties to agree on such terms and conditions as
they see fit that contravene neither law nor morals, good customs, public order or
public policy, a stipulated penalty, nevertheless, may be equitably reduced by the
courts if it is iniquitous or unconscionable or if the principal obligation has been
partly or irregularly complied with.13
The question of whether a penalty is reasonable or iniquitous can be partly
subjective and partly objective. Its resolution would depend on such factors as, but
not necessarily confined to, the type, extent and purpose of the penalty, the nature
of the obligation, the mode of breach and its consequences, the supervening
realities, the standing and relationship of the parties, and the like, the application
of which, by and large, is addressed to the sound discretion of the court. In Rizal
Commercial Banking Corp. vs. Court of Appeals,14just an example, the Court has
tempered the penalty charges after taking into account the debtor’s pitiful
situation and its offer to settle the entire obligation with the creditor bank. The
stipulated penalty might likewise be reduced when a partial or irregular
performance is made by the debtor.15 The stipulated penalty might even be deleted
such as when there has been substantial performance in good faith by the
obligor,16when the penalty clause itself suffers from fatal infirmity, or when
exceptional circumstances so exist as to warrant it.17
The Court of Appeals, exercising its good judgment in the instant case, has
reduced the penalty interest from 5% a month to 3% a month which petitioner still
disputes. Given the circumstances, not to mention the repeated acts of breach by
petitioners of their contractual obligation, the Court sees no cogent ground to
modify the ruling of the appellate court.
Anent the stipulated interest of 15.189% per annum, petitioners, for the first
time, question its reasonableness and prays that the Court reduce the amount.
This contention is a fresh issue that has not been raised and ventilated before the
courts below. In any event, the interest stipulation, on its face, does not appear as
being that excessive. The essence or rationale for the payment of interest, quite
often referred to as cost of money, is not exactly the same as that of a surcharge or
a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is
an agreement to that effect, the two being distinct concepts which may separately
be demanded.18 What may justify a court in not allowing the creditor to impose full
surcharges and penalties, despite an express stipulation therefor in a valid
agreement, may not equally justify the non-payment or reduction of interest.
Indeed, the interest prescribed in loan financing arrangements is a fundamental
part of the banking business and the core of a bank’s existence.19
Petitioners next assail the award of 10% of the total amount of indebtedness by
way of attorney’s fees for being grossly excessive, exorbitant and
unconscionable vis-a-vis the time spent and the extent of services rendered by
counsel for the bank and the nature of the case. Bearing in mind that the rate of
attorney’s fees has been agreed to by the parties and intended to answer not only
 CREDTRANS 2
for litigation expenses but also for collection efforts as well, the Court, like the certain terms and conditions may be carried, expressly or by implication, over to
appellate court, deems the award of 10% attorney’s fees to be reasonable. the new obligation.
Neither can the appellate court be held to have erred in rejecting petitioners’ WHEREFORE, the petition is DENIED.
call for a new trial or to admit newly-discovered evidence. As the appellate court SO ORDERED.
so held in its resolution of 14 May 1999—
“Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion
for reconsideration of a judgment or final resolution by the same party shall be
entertained. Considering that the instant motion is already a second motion for
reconsideration, the same must therefore be denied.
“Furthermore, it would appear from the records available to this court that the
newly-discovered evidence being invoked by defendants-appellants have actually
been existent when the case was brought on appeal to this court as well as when
the first motion for reconsideration was filed. Hence, it is quite surprising why
defendants-appellants raised the alleged newly-discovered evidence only at this
stage when they could have done so in the earlier pleadings filed before this court.
“The propriety or acceptability of such a second motion for reconsideration is
not contingent upon the averment of ‘new’ grounds to assail the
judgment, i.e.,grounds other than those theretofore presented and rejected.
Otherwise, attainment of finality of a judgment might be stayed off indefinitely,
depending on the party’s ingenuousness or cleverness in conceiving and
formulating ‘additional flaws’ or ‘newly discovered errors’ therein, or thinking up
some injury or prejudice to the rights of the movant for reconsideration.”20
At any rate, the subsequent execution of the real estate mortgage as security for
the existing loan would not have resulted in the
extinguishment of the original contract of loan because of novation. Petitioners
acknowledge that the real estate mortgage contract does not contain any express
stipulation by the parties intending it to supersede the existing loan agreement
between the petitioners and the bank.21Respondent bank has correctly postulated
that the mortgage is but an accessory contract to secure the loan in the promissory
note.
Extinctive novation requires, first, a previous valid obligation; second, the
agreement of all the parties to the new contract; third,the extinguishment of the
obligation; and fourth, the validity of the new one.22 In order that an obligation
may be extinguished by another which substitutes the same, it is imperative that
it be so declared in unequivocal terms, or that the old and the new obligation be on
every point incompatible with each other.23 An obligation to pay a sum of money is
not extinctively novated by a new instrument which merely changes the terms of
payment or adding compatible covenants or where the old contract is merely
supplemented by the new one.24 When not expressed, incompatibility is required
so as to ensure that the parties have indeed intended such novation despite their
failure to express it in categorical terms. The incompatibility, to be sure, should
Page30

take place in any of the essential elements of the obligation, i.e., (1) the juridical
relation or tie, such as from a mere commodatum to lease of things, or
from negotiorum gestio to agency, or from a mortgage to antichresis,25 or from a
sale to one of loan;26(2) the object or principal conditions, such as a change of the
nature of the prestation; or (3) the subjects, such as
the substitution of a debtor27or the subrogation of the creditor. Extinctive novation
does not necessarily imply that the new agreement should be complete by itself;

G.R. No. 116285. October 19, 2001.*
ANTONIO TAN, petitioner, vs. COURT OF APPEALS and the CULTURAL
CENTER OF THE PHILIPPINES, respondents.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Arturo S. Santos for petitioner.
Government Corporate Counsel for private respondent.
DE LEON, JR., J.:
Before us is a petition for review of the Decision1 dated August 31, 1993 and
Resolution2 dated July 13, 1994 of the Court of Appeals affirming the
Decision3 dated May 8, 1991 of the Regional Trial Court (RTC) of Manila, Branch
27.
The facts are as follows:
On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2)
loans each in the principal amount of Two Million Pesos (P2,000,000.00) or in the
total principal amount of Four Million Pesos (P4,000,000.00), from respondent
Cultural Center of the Philippines (CCP, for brevity) evidenced by two (2)
promissory notes with maturity dates on May 14, 1979 and July 6, 1979,
respectively. Petitioner defaulted but after a few partial payments he had the loans
restructured by respondent CCP, and petitioner accordingly executed a promissory
note (Exhibit “A”) on August 31, 1979 in the amount of Three Million Four
Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two
Centavos (P3,411,421.32) payable in five (5) installments. Petitioner Tan failed to
pay any installment on the said restructured loan of Three Million Four Hundred
Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32), the last installment falling due on December 31, 1980. In a letter
dated January 26, 1982, petitioner requested and proposed to respondent CCP a
mode of paying the restructured loan, i.e., (a) twenty percent (20%) of the principal
amount of the loan upon the respondent giving its conformity to his proposal; and
(b) the balance on the principal obligation payable in thirty-six (36) equal monthly
installments until fully paid. On October 20, 1983, petitioner again sent a letter to
respondent CCP requesting for a moratorium on his loan obligation until the
following year allegedly due to a substantial deduction in the volume of his
business and on account of the peso devaluation. No favorable response was made
to said letters. Instead, respondent CCP, through counsel, wrote a letter dated May
30, 1984 to the petitioner demanding full payment, within ten (10) days from
Page31
receipt of said letter, of the petitioner’s restructured loan which as of April 30, 1984
amounted to Six Million Eighty-Eight Thousand Seven Hundred Thirty-Five Pesos
and Three Centavos (P6,088,735.03).
On August 29, 1984, respondent CCP filed in the RTC of Manila a complaint
for collection of a sum of money, docketed as Civil Case No. 84-26363, against the
petitioner after the latter failed to settle his said restructured loan obligation. The
petitioner interposed the defense that he merely accommodated a friend, Wilson
Lucmen, who allegedly asked for his help to obtain a loan from respondent CCP.
CREDTRANS 2
Petitioner claimed that he has not been able to locate Wilson Lucmen. While the
case was pending in the trial court, the petitioner filed a Manifestation wherein he
proposed to settle his indebtedness to respondent CCP by proposing to make a
down payment of One Hundred Forty Thousand Pesos (P140,000.00) and to issue
twelve (12) checks every beginning of the year to cover installment payments for
one year, and every year thereafter until the balance is fully paid. However,
respondent CCP did not agree to the petitioner’s proposals and so the trial of the
case ensued.
On May 8, 1991, the trial court rendered a decision, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendant, ordering defendant to pay plaintiff, the amount of P7,996,314.67,
representing defendant’s outstanding account as of August 28, 1986, with the
corresponding stipulated interest and charges thereof,
until fully paid, plus attorney’s fees in an amount equivalent to 25% of said
outstanding account, plus P50,000.00, as exemplary damages, plus costs.
Defendant’s counterclaims are ordered dismissed, for lack of merit.
SO ORDERED.4
The trial court gave five (5) reasons in ruling in favor of respondent CCP. First, it
gave little weight to the petitioner’s contention that the loan was merely for the
accommodation of Wilson Lucmen for the reason that the defense propounded was
not credible in itself. Second, assuming, arguendo, that the petitioner did not
personally benefit from the said loan, he should have filed a third party complaint
against Wilson Lucmen, the alleged accommodated party but he did not. Third, for
three (3) times the petitioner offered to settle his loan obligation with respondent
CCP. Fourth, petitioner may not avoid his liability to pay his obligation under the
promissory note (Exh. “A”) which he must comply with in good faith pursuant to
Article 1159 of the New Civil Code. Fifth, petitioner is estopped from denying his
liability or loan obligation to the private respondent.
The petitioner appealed the decision of the trial court to the Court of Appeals
insofar as it charged interest, surcharges, attorney’s fees and exemplary damages
against the petitioner. In his appeal, the petitioner asked for the reduction of the
penalties and charges on his loan obligation. He abandoned his alleged defense in
the trial court that he merely accommodated his friend, Wilson Lucmen, in
obtaining the loan, and instead admitted the validity of the same. On August 31,
1993, the appellate court rendered a decision, the dispositive portion of which
reads:
WHEREFORE, with the foregoing modification, the judgment appealed from is
hereby AFFIRMED.
SO ORDERED.5
In affirming the decision of the trial court imposing surcharges and interest, the
appellate court held that:
We are unable to accept appellant’s (petitioner’s) claim for modification on the
basis of alleged partial or irregular performance, there being none. Appellant’s
offer or tender of payment cannot be deemed as a partial or irregular performance
of the contract, not a single centavo appears to have been paid by the defendant.
However, the appellate court modified the decision of the trial court by deleting
the award for exemplary damages and reducing the amount of awarded attorney’s
fees to five percent (5%), by ratiocinating as follows:

Given the circumstances of the case, plus the fact that plaintiff was represented by
a government lawyer, We believe the award of 25% as attorney’s fees and
P500,000.00 as exemplary damages is out of proportion to the actual damage
caused by the non-performance of the contract and is excessive, unconscionable
and iniquitous.
In a Resolution dated July 13, 1994, the appellate court denied the petitioner’s
motion for reconsideration of the said decision.
Hence, this petition anchored on the following assigned errors:
I CENTER OF THE PHILIPPINES at its office in Manila, the sum of THREE
THE HONORABLE COURT OF APPEALS COMMITTED A MISTAKE IN
GIVING ITS IMPRIMATUR TO THE DECISION OF THE TRIAL COURT
WHICH COMPOUNDED INTEREST ON SURCHARGES.
II
THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING
IMPOSITION OF INTEREST FOR THE PERIOD OF TIME THAT PRIVATE
RESPONDENT HAS FAILED TO ASSIST PETITIONER IN APPLYING FOR
RELIEF OF LIABILITY THROUGH THE COMMISSION ON AUDIT AND THE
OFFICE OF THE PRESIDENT.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT DELETING
AWARD OF ATTORNEY’S FEES AND IN REDUCING PENALTIES.
Significantly, the petitioner does not question his liability for his restructured loan
under the promissory note marked Exhibit “A”. The first question to be resolved in
the case at bar is whether there are contractual and legal bases for the imposition
of the penalty, interest on the penalty and attorney’s fees.
The petitioner imputes error on the part of the appellate court in not totally
eliminating the award of attorney’s fees and in not reducing the penalties
considering that the petitioner, contrary to the appellate court’s findings, has
allegedly made partial payments on the loan. And if penalty is to be awarded, the
petitioner is asking for the non-imposition of interest on the surcharges inasmuch
as the compounding of interest on surcharges is not provided in the promissory
note marked Exhibit “A”. The petitioner takes exception to the computation of the
private respondent whereby the interest, surcharge and the principal were added
Page32
together and that on the total sum interest was imposed. Petitioner also claims
that there is no basis in law for the charging of interest on the surcharges for the
reason that the New Civil Code is devoid of any provision allowing the imposition
of interest on surcharges.
We find no merit in the petitioner’s contention. Article 1226 of the New Civil
Code provides that:
In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no
CREDTRANS 2
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor
refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with
the provisions of this Code.
In the case at bar, the promissory note (Exhibit “A”) expressly provides for the
imposition of both interest and penalties in case of default on the part of the
petitioner in the payment of the subject restructured loan. The pertinent6 portion
of the promissory note (Exhibit “A”) imposing interest and penalties provides that:
For value received, I/We jointly and severally promise to pay to the CULTURAL
MILLION FOUR HUNDRED ELEVEN THOUSAND FOUR HUNDRED
+ PESOS (P3,411,421.32) Philippine Currency, x x x.
xxx xxx xxx
With interest at the rate of FOURTEEN per cent (14%) per annum from the
date hereof until paid PLUS THREE PERCENT (3%) SERVICE CHARGE.
In case of non-payment of this note at maturity/on demand or upon default of
payment of any portion of it when due, I/We jointly and severally agree to
pay additional penalty charges at the rate of TWO per cent (2%) per month on the
total amount due until paid, payable and computed monthly. Default of payment
of this note or any portion thereof when due shall render all other installments and
all existing promissory notes made by us in favor of the CULTURAL CENTER OF
THE PHILIPPINES immediately due and demandable. (Italics supplied)
xxx xxx xxx
The stipulated fourteen percent (14%) per annum interest charge until full
payment of the loan constitutes the monetary interest on the note and is allowed
under Article 1956 of the New Civil Code.7 On the other hand, the stipulated two
percent (2%) per month penalty is in the form of penalty charge which is separate
and distinct from the monetary interest on the principal of the loan.
Penalty on delinquent loans may take different forms. In Government Service
Insurance System v. Court of Appeals,8 this Court has ruled that the New Civil
Code permits an agreement upon a penalty apart from the monetary interest. If
the parties stipulate this kind of agreement, the penalty does not include the
monetary interest, and as such the two are different and distinct from each other
and may be demanded separately. Quoting Equitable Banking Corp. v.
Liwanag,9 the GSIS case went on to state that such a stipulation about payment
of an additional interest rate partakes
of the nature of a penalty clause which is sanctioned by law, more particularly
under Article 2209 of the New Civil Code which provides that:
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 m the absence of stipulation,
the legal interest, which is six per cent per annum.
The penalty charge of two percent (2%) per month in the case at bar began to accrue
from the time of default by the petitioner. There is no doubt that the petitioner is
liable for both the stipulated monetary interest and the stipulated penalty charge.
The penalty charge is also called penalty or compensatory interest. Having
clarified the same, the next issue to be resolved is whether interest may accrue on
the penalty or compensatory interest without violating the provisions of Article
1959 of the New Civil Code, which provides that:

Without prejudice to the provisions of Article 2212, interest due and unpaid shall
not earn interest. However, the contracting parties may by stipulation capitalize
the interest due and unpaid, which as added principal, shall earn new interest.
According to the petitioner, there is no legal basis for the imposition of interest on
the penalty charge for the reason that the law only allows imposition of interest on
monetary interest but not the charging of interest on penalty. He claims that since
there is no law that allows imposition of interest on penalties, the penalties should
not earn interest. But as we have already explained, penalty clauses can be in the
form of penalty or compensatory interest. Thus, the compounding of the penalty or
compensatory interest is sanctioned by and allowed pursuant to the above-quoted
provision of Article 1959 of the New Civil Code considering that:
First, there is an express stipulation in the promissory note (Exhibit “A”)
permitting the compounding of interest. The fifth paragraph of the said promissory
note provides that: “Any interest which may be due if not paid shall be added to
the total amount when due and shall become part thereof, the whole amount to
bear
interest at the maximum rate allowed by law.”10Therefore, any penalty interest
not paid, when due, shall earn the legal interest of twelve percent (12%) per
annum,11 in the absence of express stipulation on the specific rate of interest, as in
the case at bar.
Second, Article 2212 of the New Civil Code provides that “Interest due shall
earn legal interest from the time it is judicially demanded, although the obligation
may be silent upon this point.” In the instant case, interest likewise began to run
on the penalty interest upon the filing of the complaint in court by respondent CCP
on August 29, 1984. Hence, the courts a quo did not err in ruling that the petitioner
is bound to pay the interest on the total amount of the principal, the monetary
interest and the penalty interest.
The petitioner seeks the elimination of the compounded interest imposed on
the total amount based allegedly on the case of National Power Corporation v.
National Merchandising Corporation,12 wherein we ruled that the imposition of
interest on the damages from the filing of the complaint is unjust where the
litigation was prolonged for twenty-five (25) years through no fault of the
defendant. However, the ruling in the said National Power Corporation (NPC) case
is not applicable to the case at bar inasmuch as our ruling on the issue of interest
in that NPC case was based on equitable considerations and on the fact that the
said case lasted for twenty-five (25) years “through no fault of the defendant.” In
the case at bar, however, equity cannot be considered inasmuch as there is a
contractual stipulation in the promissory note whereby the petitioner expressly
agreed to the compounding of interest in
case of failure on his part to pay the loan at maturity. Inasmuch as the said
stipulation on the compounding of interest has the force of law between the parties
Page33
and does not appear to be inequitable or unjust, the said written stipulation should
be respected.
The private respondent’s Statement of Account (marked Exhibits “C” to “C-
2”)13 shows the following breakdown of the petitioner’s indebtedness as of August
28, 1986:
Principal P2,838,454.68
Interest P 576,167.89
CREDTRANS 2
Surcharge P4,581,692.10
P7,996,314.67
The said statement of account also shows that the above amounts stated therein
are net of the partial payments amounting to a total of Four Hundred Fifty-Two
Thousand Five Hundred Sixty-One Pesos and Forty-Three Centavos (P452,561.43)
which were made during the period from May 13, 1983 to September 30,
1983.14 The petitioner now seeks the reduction of the penalty due to the said partial
payments. The principal amount of the promissory note (Exhibit “A”) was Three
Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and
Thirty-Two Centavos (P3,411,421.32) when the loan was restructured on August
31, 1979. As of August 28, 1986, the principal amount of the said restructured loan
has been reduced to Two Million Eight Hundred Thirty-Eight Thousand Four
Hundred Fifty-Four Pesos and Sixty-Eight Centavos (P2,838,454.68). Thus,
petitioner contends that reduction of the penalty is justifiable pursuant to Article
1229 of the New Civil Code which provides that: “The judge shall equitably reduce
the penalty when the principal obligation has been partly or irregularly complied
with by the debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.” Petitioner insists that
the penalty should be reduced to ten percent (10%) of the unpaid debt in accordance
with Bachrach Motor Company v. Espiritu.15
There appears to be a justification for a reduction of the penalty charge but not
necessarily to ten percent (10%) of the unpaid balance of the loan as suggested by
petitioner. Inasmuch as petitioner has made partial payments which showed his
good faith, a reduction of the penalty charge from two percent (2%) per month on
the total amount due, compounded monthly, until paid can indeed be justified
under the said provision of Article 1229 of the New Civil Code.
In other words, we find the continued monthly accrual of the two percent (2%)
penalty charge on the total amount due to be unconscionable inasmuch as the same
appeared to have been compounded monthly.
Considering petitioner’s several partial payments and the fact he is liable
under the note for the two percent (2%) penalty charge per month on the total
amount due, compounded monthly, for twenty-one (21) years since his default in
1980, we find it fair and equitable to reduce the penalty charge to a straight twelve
percent (12%) per annum on the total amount due starting August 28, 1986, the
date of the last Statement of Account (Exhibits “C” to ‘‘C-2’’). We also took into
consideration the offers of the petitioner to enter into a compromise for the
settlement of his debt by presenting proposed payment schemes to respondent
CCP. The said offers at compromise also showed his good faith despite difficulty in
complying with his loan obligation due to his financial problems. However, we are
not unmindful of the respondent’s long overdue deprivation of the use of its money
collectible from the petitioner.
The petitioner also imputes error on the part of the appellate court for not
declaring the suspension of the running of the interest during that period when
the respondent allegedly failed to assist the petitioner in applying for relief from
liability. In this connection, the petitioner referred to the private respondent’s
letter16dated September 28, 1988 addressed to petitioner which partially reads:
Dear Mr. Tan:
 CREDTRANS 2
xxx xxx xxx
With reference to your appeal for condonation of interest and surcharge, we
wish to inform you that the center will assist you in applying for relief of liability
through the Commission on Audit and Office of the President x x x.
While your application is being processed and awaiting approval, the center
will be accepting your proposed payment scheme with the downpayment of
P160,000.00 and monthly remittances of P60,000.00 x x x.
xxx xxx xxx
The petitioner alleges that his obligation to pay the interest and surcharge should
have been suspended because the obligation to pay such interest and surcharge
has become conditional, that is, dependent on a future and uncertain event which
consists of whether the petitioner’s request for condonation of interest and
surcharge would be recommended by the Commission on Audit and the Office of
the President to the House of Representatives for approval as required under
Section 36 of Presidential Decree No. 1445. Since the condition has not happened
allegedly due to the private respondent’s reneging on its promise, his liability to
pay the interest and surcharge on the loan has not arisen. This is the petitioner’s
contention.
It is our view, however, that the running of the interest and surcharge was not
suspended by the private respondent’s promise to assist the petitioners in applying
for relief therefrom through the Commission on Audit and the Office of the
President.
First, the letter dated September 28, 1988 alleged to have been sent by the
respondent CCP to the petitioner is not part of the formally offered documentary
evidence of either party in the trial court. That letter cannot be considered evidence
pursuant to Rule 132, Section 34 of the Rules of Court which provides that: “The
court shall consider no evidence which has not been formally offered x x x.” Besides,
the said letter does not contain any categorical agreement on the part of
respondent CCP that the payment of the interest and surcharge on the loan is
deemed suspended while his appeal for condonation of the interest and surcharge
was being processed.
Second, the private respondent correctly asserted that it was the primary
responsibility of petitioner to inform the Commission on Audit and the Office of
the President of his application for condonation of interest and surcharge. It was
incumbent upon the petitioner to bring his administrative appeal for condonation
of interest and penalty charges to the attention of the said government offices.
On the issue of attorney’s fees, the appellate court ruled correctly and justly in
reducing the trial court’s award of twenty-five percent (25%) attorney’s fees to five
percent (5%) of the total amount due.
WHEREFORE, the assailed Decision of the Court of Appeals is hereby
AFFIRMED with MODIFICATION in that the penalty charge of two percent (2%)
Page34

per month on the total amount due, compounded monthly, is hereby reduced to a
straight twelve percent (12%) per annum starting from August 28, 1986. With costs
against the petitioner.
SO ORDERED.

G.R. No. 146555. July 3, 2007.*
JOSE C. CORDOVA, petitioner, vs. REYES DAWAY LIM BERNARDO LINDO
ROSALES LAW OFFICES, ATTY. WENDELL CORONEL and the SECURITIES
AND EXCHANGE COMMISSION,**respondents.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Cordova Law Office for petitioner.
CORONA, J.:
This is a petition for review on certiorari1 of a decision2and resolution3 of the Court
of Appeals (CA) dated July 31, 2000 and December 27, 2000, respectively, in CA-
G.R. SP No. 55311.
Sometime in 1977 and 1978, petitioner Jose C. Cordova bought from Philippine
Underwriters Finance Corporation (Philfinance) certificates of stock of Celebrity
Sports Plaza Incorporated (CSPI) and shares of stock of various other corporations.
He was issued a confirmation of sale.4 The CSPI shares were physically delivered
by Philfinance to the former Filmanbank5 and Philtrust Bank, as custodian banks,
to hold these shares in behalf of and for the benefit of petitioner. 6
On June 18, 1981, Philfinance was placed under receivership by public
respondent Securities and Exchange Commission (SEC). Thereafter, private
respondents Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty.
Wendell Coronel (private respondents) were appointed as liquidators.7 Sometime
in 1991, without the knowledge and consent of petitioner and without authority
from the SEC, private respondents withdrew the CSPI shares from the custodian
banks.8On May 27, 1996, they sold the shares to Northeast Corporation and
included the proceeds thereof in the funds of Philfinance. Petitioner learned about
the unauthorized sale of
his shares only on September 10, 1996.9 He lodged a complaint with private
respondents but the latter ignored it10 prompting him to file, on May 6, 1997,11a
formal complaint against private respondents in the receivership proceedings with
the SEC, for the return of the shares.
Meanwhile, on April 18, 1997, the SEC approved a 15% rate of recovery for
Philfinance’s creditors and investors.12 On May 13, 1997, the liquidators began the
process of settling the claims against Philfinance, from its assets. 13
On April 14, 1998, the SEC rendered judgment dismissing the petition.
However, it reconsidered this decision in a resolution dated September 24, 1999
Page35
and granted the claims of petitioner. It held that petitioner was the owner of the
CSPI shares by virtue of a confirmation of sale (which was considered as a deed of
assignment) issued to him by Philfinance. But since the shares had already been
sold and the proceeds commingled with the other assets of Philfinance, petitioner’s
status was converted into that of an ordinary creditor for the value of such shares.
Thus, it ordered private respondents to pay petitioner the amount of P5,062,500
representing 15% of the monetary value of his CSPI shares plus interest at the
legal rate from the time of their unauthorized sale.
CREDTRANS 2
On October 27, 1999, the SEC issued an order clarifying its September 24, 1999
resolution. While it reiterated its earlier order to pay petitioner the amount of
P5,062,500, it deleted the award of legal interest. It clarified that it never meant
to award interest since this would be unfair to the other claimants.
On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed the
owner of the CSPI shares but the recovery of such shares had become impossible.
It also declared that the clarificatory order merely harmonized the dispositive
portion with the body of the resolution. Petitioner’s motion for reconsideration was
denied.
Hence this petition raising the following issues:
1)whether petitioner should be considered as a preferred (and secured) creditor of
Philfinance;
2)whether petitioner can recover the full value of his CSPI shares or merely 15%
thereof like all other ordinary creditors of Philfinance and
3)whether petitioner is entitled to legal interest.14
To resolve these issues, we first have to determine if petitioner was indeed a
creditor of Philfinance.
There is no dispute that petitioner was the owner of the CSPI shares. However,
private respondents, as liquidators of Philfinance, illegally withdrew said
certificates of stock without the knowledge and consent of petitioner and authority
of the SEC.15 After selling the CSPI shares, private respondents added the
proceeds of the sale to the assets of Philfinance. 16Under these circumstances, did
the petitioner become a creditor of Philfinance? We rule in the affirmative.
The SEC, after holding that petitioner was the owner of the shares, stated:
“Petitioner is seeking the return of his CSPI shares which, for the present, is no
longer possible, considering that the same had already been sold by the
respondents, the proceeds of which are ADMITTEDLY commingled with the assets
of PHILFINANCE.
This being the case, [petitioner] is now but a claimant for the value of those
shares. As a claimant, he shall be treated as an ordinary creditor in so far as the
value of those certificates is concerned.”17
The CA agreed with this and elaborated:
“Much as we find both detestable and reprehensible the grossly abusive and illicit
contrivance employed by private respondents against petitioner, we, nevertheless,
concur with public respondent that the return of petitioner’s CSPI shares is well-
nigh impossible, if not already an utter impossibility, inasmuch as the certificates
of stocks have already been alienated or transferred in favor of Northeast
Corporation, as early as May 27, 1996, in consequence whereof the proceeds of the
sale have been transmuted into corporate assets of Philfinance, under custodia
legis, ready for distribution to its creditors and/or investors. Case law holds that
the assets of an institution under receivership or liquidation shall be deemed
in custodia legis in the hands of the receiver or liquidator, and shall from the

moment of such receivership or liquidation, be exempt from any order,
garnishment, levy, attachment, or execution.
Concomitantly, petitioner’s filing of his claim over the subject CSPI shares
before the SEC in the liquidation proceedings bound
him to the terms and conditions thereof. He cannot demand any special treatment
[from] the liquidator, for this flies in the face of, and will contravene, the Supreme
Court dictum that when a corporation threatened by bankruptcy is taken over by
a receiver, all the creditors shall stand on equal footing. Not one of them should be
given preference by paying one or some [of] them ahead of the others. This is
precisely the philosophy underlying the suspension of all pending claims against
the corporation under receivership. The rule of thumb is equality in equity.”18
We agree with both the SEC and the CA that petitioner had become an ordinary
creditor of Philfinance.
Certainly, petitioner had the right to demand the return of his CSPI
shares.19He in fact filed a complaint in the liquidation proceedings in the SEC to
get them back but was confronted by an impossible situation as they had already
been sold. Consequently, he sought instead to recover their monetary value.
Petitioner’s CSPI shares were specific or determinate movable
properties.20 But after they were sold, the money raised from the sale became
generic21 and were commingled with the cash and other assets of Philfinance.
Unlike shares of stock, money is a generic thing. It is designated merely by its class
or genus without any particular designation or physical seg-
regation from all others of the same class.22 This means that once a certain amount
is added to the cash balance, one can no longer pinpoint the specific amount
included which then becomes part of a whole mass of money.
It thus became impossible to identify the exact proceeds of the sale of the CSPI
shares since they could no longer be particularly designated nor distinctly
segregated from the assets of Philfinance. Petitioner’s only remedy was to file a
claim on the whole mass of these assets, to which unfortunately all of the other
creditors and investors of Philfinance also had a claim.
Petitioner’s right of action against Philfinance was a “claim” properly to be
litigated in the liquidation proceed-ings.23 In Finasia Investments and Finance
Corporation v. CA, 24 we discussed the definition of “claims” in the context of
liquidation proceedings:
“We agree with the public respondent that the word ‘claim’ as used in Sec. 6(c) of
P.D. 902-A,25 as amended, refers to debts or demands of a pecuniary nature. It
means “the assertion of a right to have money paid. It is used in special proceedings
like those before [the administrative court] on insolvency.”
The word “claim” is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,
Page36
equitable, secured, or unsecured; or right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, unsecured.”26
Undoubtedly, petitioner had a right to the payment of the value of his shares. His
demand was of a pecuniary nature since he was claiming the monetary value of his
shares. It was in this sense (i.e. as a claimant) that he was a creditor of Philfinance.
CREDTRANS 2
The Civil Code provisions on concurrence and preference of credits are
applicable to the liquidation proceedings.27 The next question is, was petitioner a
preferred or ordinary creditor under these provisions?
Petitioner argues that he was a preferred creditor because private respondents
illegally withdrew his CSPI shares from the custodian banks and sold them
without his knowledge
and consent and without authority from the SEC. He quotes Article 2241 (2) of the
Civil Code:
“With reference to specific movable property of the debtor, the following claims or
liens shall be preferred:
xxx xxx xxx
(2) Claims arising from misappropriation, breach of trust, or malfeasance by
public officials committed in the performance of their duties, on the movables,
money or securities obtained by them;
xxx xxx xxx
(Emphasis supplied)
He asserts that, as a preferred creditor, he was entitled to the entire monetary
value of his shares.
Petitioner’s argument is incorrect. Article 2241 refers only to specific movable
property. His claim was for the payment of money, which, as already discussed, is
generic property and not specific or determinate.
Considering that petitioner did not fall under any of the provisions applicable
to preferred creditors, he was deemed an ordinary creditor under Article 2245:
Credits of any other kind or class, or by any other right or title not comprised in
the four preceding articles, shall enjoy no preference.
This being so, Article 2251 (2) states that:
Common credits referred to in Article 2245 shall be paid pro rata regardless of
dates.
Like all the other ordinary creditors or claimants against Philfinance, he was
entitled to a rate of recovery of only 15% of his money claim.
One final issue: was petitioner entitled to interest?
The SEC argues that awarding interest to petitioner would have given petitioner
an unfair advantage or preference over the other creditors. 28Petitioner counters
that he was entitled to 12% legal interest per annum under Article 2209 of the Civil
Code from the time he was deprived of the shares until fully paid.
The guidelines for awarding interest were laid down in Eastern Shipping
Lines, Inc. v. CA:29
1. “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.
2. 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:
 CREDTRANS 2
1. 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. 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 of 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 of finally adjudged.

1. 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.”30 (Emphasis supplied)

Under this ruling, petitioner was not entitled to legal interest of 12% per
annum(from demand) because the amount owing to him was not a loan 31 or
forbearance of money.32
Neither was he entitled to legal interest of 6% per annum under Article 2209
of the Civil Code33 since this provision
applies only when there is a delay in the payment of a sum of money. 34 This was
not the case here. In fact, petitioner himself manifested before the CA that the SEC
(as liquidator) had already paid him P5,062,500 representing 15% of
P33,750,000.35
Accordingly, petitioner was not entitled to interest under the law and current
jurisprudence.
Page37

Considering that petitioner had already received the amount of P5,062,500, the
obligation of the SEC as liquidator of Philfinance was totally extinguished.36
We note that there is an undisputed finding by the SEC and CA that private
respondents sold the subject shares without authority from the SEC. Petitioner
evidently has a cause of action against private respondents for their bad faith and
unauthorized acts, and the resulting damage caused to him.37
WHEREFORE, the petition is hereby DENIED.
SO ORDERED.

G.R. No. 97412. July 12, 1994.*
EASTERN SHIPPING LINES, INC., petitioner, vs.HON. COURT OF APPEALS
AND MERCANTILE INSURANCE COMPANY, INC., respondents.
PETITION for review of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Alojado & Garcia and Jimenea, Dala & Zaragozafor petitioner.
Zapa Law Office for private respondent.
VITUG,J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage
sustained on a shipment of goods can be a solidary, or joint and several, liability of
the common carrier, the arrastre operator and the customs broker; (b) whether the
payment of legal interest on an award for loss or damage is to be computed from
the time the complaint is filed or from the date the decision appealed from is
rendered; and (c) whether the applicable rate of interest, referred to above, is
twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the
antecedent and undisputed facts that have led to the controversy are hereunder
reproduced:
“This is an action against defendants shipping company, arrastre operator and
broker-forwarder for damages sustained by a shipment while in defendants’
custody, filed by the insurer-subrogee who paid the consignee the value of such
losses/damages.
“On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel ‘SS EASTERN COMET’ owned by defendant
Eastern Shipping Lines, Inc. under Bill of Lading No. YMA-8 (Exh. B). The
shipment was insured under plaintiff’s Marine Insurance Policy No. 81/01177 for
P36,382,466.38.
“Upon arrival of the shipment in Manila on December 12, 1981, it was
discharged unto the custody of defendant Metro Port Service, Inc. The latter
excepted to one drum, said to be in bad order, which damage was unknown to
plaintiff.
“On January 7, 1982 defendant Allied Brokerage Corporation received the
shipment from defendant Metro Port Service, Inc., one drum opened and without
seal (per ‘Request for Bad Order Survey.’ (Exh. D).
“On January 8 and 14, 1982, defendant Allied Brokerage Corporation made
deliveries of the shipment to the consignee’s warehouse. The latter excepted to one
Page38
drum which contained spillages, while the rest of the contents was
adulterated/fake (per ‘Bad Order Waybill’ No. 10649, Exh. E).
“Plaintiff contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence of
defendants. Claims were presented against defendants who failed and refused to
pay the same (Exhs. H, I, J, K, L).
“As a consequence of the losses sustained, plaintiff was compelled to pay the
consignee P19,032.95 under the aforestated marine insurance policy, so that it
CREDTRANS 2
became subrogated to all the rights of action of said consignee against defendants
(per ‘Form of Subrogation,’ ‘Release’ and Philbanking check, Exhs. M, N, and O).”
(pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the
appellate court said:
“Defendants filed their respective answers, traversing the material allegations of
the complaint contending that: As for defendant Eastern Shipping it alleged that
the shipment was discharged in good order from the vessel unto the custody of
Metro Port Service so that any damage/losses incurred after the shipment was
incurred after the shipment was turned over to the latter, is no longer its liability
(p. 17, Record); Metroport averred that although subject shipment was discharged
unto its custody, portion of the same was already in bad order (p. 11, Record); Allied
Brokerage alleged that plaintiff has no cause of action against it, not having
negligent or at fault for the shipment was already in damage and bad order
condition when received by it, but nonetheless, it still exercised extra ordinary care
and diligence in the handling/delivery of the cargo to consignee in the same
condition shipment was received by it.
“From the evidence the court found the following:
“‘The issues are:
1.Whether or not the shipment sustained losses/damages;
2.Whether or not these losses/damages were sustained while in the custody of
defendants (in whose respective custody, if determinable);
3.Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff’s pre-Trial Brief, Records, p. 34; Allied’s pre-Trial Brief, adopting
plaintiff’s Records, p. 38).’
‘As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two, drums were shipped in good order and condition, as
clearly shown by the Bill of Lading and Commercial Invoice which do not indicate
any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted
to one drum in bad order.
‘Correspondingly, as to the second issue, it follows that the losses/damages
were sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G),
with its ‘Additional Survey Notes,’ are considered. In the latter notes, it is stated
that when the shipment was ‘landed on vessel’ to dock of Pier # 15, South Harbor,
Manila on December 12, 1981,’ it was observed that ‘one (1) fiber drum (was) in
damaged condition, covered by the vessel’s Agent’s Bad Order Tally Sheet No.
86427.’ The report further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator’s custody on January 7, 1982, one
drum was found opened without seal, cello bag partly torn but contents intact. Net

unrecovered spillage was 15 kgs. The report went on to state that when the drums
reached the consignee, one drum was found with adul-terated/faked contents. It is
obvious, therefore, that these losses/ damages occurred before the shipment
reached the consignee while under the successive custodies of defendants. Under
Art. 1737 of the New Civil Code, the common carrier’s duty to observe
extraordinary diligence in the vigilance of goods remains in full force and effect
even if the goods are temporarily unloaded and stored in transit in the warehouse
of the carrier at the place of destination, until the consignee has been advised and
has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC).
Defendant Eastern Shipping’s own exhibit, the ‘Turn-Over Survey of Bad Order
Cargoes’ (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found
‘open.’
“and thus held:
‘WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A.Ordering defendants to pay plaintiff, jointly and severally:
1. 1.The amount of P19,032.95, with the present legal interest of 12% per
annum from October 1, 1982, the date of filing of this complaints, until
fully paid (the liability of defendant Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF value of the loss, whichever is lesser,
while the liability of defendant Metro Port Service, Inc. shall be to the
extent of the actual invoice value of each package, crate box or container
in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the
Management Contract);
2. 2.P3,000.00 as attorney’s fees, and
3. 3.Costs.
B.Dismissing the counterclaims and crossclaim of defendant/cross-claimant
Allied Brokerage Corporation.
SO ORDERED.’ (p. 207, Record).
“Dissatisfied, defendant’s recourse to US.
“The appeal is devoid of merit.
“After a careful scrutiny of the evidence on record. We find that the conclusion
drawn therefrom is correct. As there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants, and therefore
they are liable to the appellee, as subrogee for the amount it paid to the consignee.”
(pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes
error and grave abuse of discretion on the part of the appellate court when—
Page39
1. I.IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY
LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS
BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS
GRANTED IN THE QUESTIONED DECISION;
2. II.IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF
PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE
OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
CREDTRANS 2
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE
DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX
PERCENT PER ANNUM, PRIVATE RESPONDENT’S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by
petitioner carrier are not all that novel. Indeed, we do have a fairly good number
of previous decisions this Court can merely tack to.
The common carrier’s duty to observe the requisite diligence in the shipment
of goods lasts from the time the articles are surrendered to or unconditionally
placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance by, the
person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of
Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When
the goods shipped either are lost or arrive in damaged condition, a presumption
arises against the carrier of its failure to observe that diligence, and there need not
be an express finding of negligence to hold it liable (Art. 1735, Civil
Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port
Service, Inc. vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional
cases when such presumption of fault is not observed but these cases, enumerated
in Article 17341of the Civil Code, are exclusive, not one of which can be applied to
this case.
The question of charging both the carrier and the arrastre operator with the
obligation of properly delivering the goods to
the consignee has, too, been passed upon by the Court. In Fireman’s Fund
Insurance, Co. vs. Metro Port Service, Inc. (182 SCRA 455), we have explained, in
holding the carrier and the arrastre operator liable in solidum, thus:
“The legal relationship between the consignee and the arrastre operator is akin to
that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA
5 [1967]. The relationship between the consignee and the common carrier is similar
to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince
Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take
good care of the goods that are in its custody and to deliver them in good condition
to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver
the goods in good condition to the consignee.”
We do not, of course, imply by the above pronouncement that the arrastre operator
and the customs broker are themselves always and necessarily liable solidarily
with the carrier, or vice-versa, nor that attendant facts in a given case may not
vary the rule. The instant petition has been brought solely by Eastern Shipping
Lines which, being the carrier and not having been able to rebut the presumption
of fault, is, in any event, to be held liable in this particular case. A factual finding
of both the court a quo and the appellate court, we take note, is that “there is
sufficient evidence that the shipment sustained damage while in the successive
possession of appellants” (the herein petitioner among them). Accordingly, the
liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case,
is inevitable regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that
deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2decided3 on 15 May 1969, involved a suit for
recovery of money arising out of short deliveries and pilferage of goods. In this case,
appellee Malayan Insurance (the plaintiff in the lower court) averred in its
complaint that the total amount of its claim for the value of the undelivered goods
amounted to P3,947.20. This demand, however, was neither established in its
totality nor definitely ascertained. In the stipulation of facts later entered into by
the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial
court rendered judgment ordering the appellants (defendants) Manila Port Service
and Manila Railroad Company to pay appellee Malayan Insurance the sum of
P1,447.51 with legal interest thereon from the date the complaint was filed on 28
December 1962 until full payment thereof. The appellants then assailed, inter
alia, the award of legal interest. In sustaining the appellants, this Court ruled:
“Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the date of
demand, judicial or extrajudicial. The trial court opted for judicial demand as the
starting point.
“But then upon the provisions of Article 2213 of the Civil Code, interest ‘cannot
be recovered upon unliquidated claims or damages, except when the demand can
be established with reasonable certainty.’ And as was held by this Court in Rivera
vs. Perez,4 L-6998, February 29, 1956,if the suit were for damages, ‘unliquidated
and not known until definitely ascertained, assessed and determined by the courts
after proof (Montilla c. Corporacion de P. P. Agustinos, 25 Phil. 447; Lichauco v.
Guzman, 38 Phil. 302),’ then, interest ‘should be from the date of the
decision.’”(Italics supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for “Recovery
of Damages for Injury to Person and Loss of Property.” After trial, the lower court
decreed: Enrique Fernando, Francisco Capistrano, Claudio Teehankee and
Antonio Barredo. Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro
were on official leave.
“WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third
party defendants and against the defendants and third party plaintiffs as follows:
“Ordering defendants and third party plaintiffs Shell and Michael,
Incorporated to pay jointly and severally the following persons:
“(a).....
“x x x xxx
“(g)Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III together with its
Page40
accessories, fishing gear and equipment minus P80,000.00 which is the value of
the insurance recovered and the amount of P10,000.00 a month as the estimated
monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time
they are actually paid or alreadythe total sum of P370,000.00 as of June 4, 1972
with legal interest from the filing of the complaint until paid and to pay attorney’s
fees of P5,000.00 with costs against defendants and third party plaintiffs.” (Italics
supplied.)
CREDTRANS 2
On appeal to the Court of Appeals, the latter modified the amount of damages
awarded but sustained the trial court in adjudging legal interest from the filing of
the complaint until fully paid. When the appellate court’s decision became final,
the case was remanded to the lower court for execution, and this was when the
trial court issued its assailed resolution which applied the 6% interest per annum
prescribed in Article 2209 of the Civil Code. In their petition for review
on certiorari, the petitioners contended that Central Bank Circular No. 416,
providing thus—
“By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed
that the rate of interest for the loan, or forbearance of any money, goods, or credits
and the rate allowed in judgments, in the absence of express contract as to such
rate of interest, shall be twelve (12%) percent per annum. This Circular shall take
effect immediately.” (Italics found in the text)—
should have, instead, been applied. This Court6 ruled:
“The judgments spoken of and referred to are judgments in litigations involving
loans or forbearance of any money, goods or credits. Any other kind of monetary
judgment which has nothing to do with, nor involving loans or forbearance of any
money, goods or credits does not fall within the coverage of the said law for it is
not within the ambit of the authority granted to the Central Bank.
“x x x xxx xxx
“Coming to the case at bar, the decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of property and
does not involve any loan, much less forbear-ances of any money, goods or credits.
As correctly argued by the private respondents, the law applicable to the said case
is Article 2209 of the New Civil Code which reads—
‘Art.2209.—If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.’”
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v.
Cruz,7 promulgated on 28 July 1986. The case was for damages occasioned by an
injury to person and loss of property. The trial court awarded private respondent
Pedro Manabat actual and compensatory damages in the amount of P72,500.00
withlegal interest thereon from the filing of the complaint until fully paid. Relying
on the Reformina v. Tomol case, this Court8modified the interest award from 12%
to 6% interest per annum but sustained the time computation thereof, i.e., from the
filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the
recovery of damages arising from the collapse of a building, ordered, inter alia, the
“defendant United Construction Co., Inc. (one of the petitioners) x x x to pay the
plaintiff, x x x, the sum of P989,335.68 with interest at the legal rate from November
29, 1968, the date of the filing of the complaint until full payment x x x.” Save from
the modification of the amount granted by the lower court, the Court of Appeals
sustained the trial court’s decision. When taken to this Court for review, the case,
on 03 October 1986, was decided, thus:
“WHEREFORE, the decision appealed from is hereby MODIFIED and considering
the special and environmental circumstances of this case, we deem it reasonable
to render a decision imposing, as We do hereby impose, upon the defendant and

the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art.
1723, Civil Code, Supra, p. 10) indemnity in favor of the Philippine Bar Association
of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception
of attorney’s fees) occasioned by the loss of the building (including interest charges
and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00)
Pesos as and for attorney’s fees, the total sum being payable upon the finality of
this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per
annum shall be imposed upon aforementioned amounts from finality until paid.
Solidary costs against the defendant and third-party defen-dants (except Roman
Ozaeta).” (Italics supplied)
A motion for reconsideration was filed by United Construction, contending that
“the interest of twelve (12%) percent per annum imposed on the total amount of
the monetary award was in contravention of law.” The Court10 ruled out the
applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its
resolution of 15 April 1988, it explained:
“There should be no dispute that the imposition of 12% interest pursuant to
Central Bank Circular No. 416 x x x is applicable only in
the following: (1) loans; (2) forbearance of any money, goods or credit; and (3) rate
allowed in judgments (judgments spoken of refer to judgments involving loans or
forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v.
Cruz, 143 SCRA 160-161[1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It
is true that in the instant case, there is neither a loan or a forbearance, but then no
interest is actually imposed provided the sums referred to in the judgment are paid
upon the finality of the judgment. It is delay in the payment of such final judgment,
that will cause the imposition of the interest. “It will be noted that in the cases
already adverted to, the rate of interest is imposed on the total sum, from the filing
of the complaint until paid; in other words, as part of the judgment for damages.
Clearly, they are not applicable to the instant case.” (Italics supplied)
The subsequent case of American Express International, Inc., vs. Intermediate
Appellate Court11 was a petition for review on certiorari from the decision, dated
27 February 1985, of the then Intermediate Appellate Court reducing the amount
of moral and exemplary damages awarded by the trial court, to P240,000.00 and
P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the
amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral
damages and P400,000.00 as exemplary damages with interest thereon at 12% per
annum from notice of judgment, plus costs of suit. In a decision of 09 November
1988, this Court, while recognizing the right of the private respondent to recover
damages, held the award, however, for moral damages by the trial court, later
sustained by the IAC, to be inconceivably large. The Court12 thus set aside the
decision of the appellate court and rendered a new one, “ordering the petitioner to
pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as
Page41
moral damages, with six (6%) percent interest thereon computed from the finality of
this decision until paid.” (Italics supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo
v.Ruiz13 which arose from a breach of employment contract. For having been
illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon. When
the decision was appealed to the Court of Appeals, the latter held:
CREDTRANS 2
“WHEREFORE, except as modified hereinabove the decision of the CFI of Negros
Oriental dated October 31, 1972 is affirmed in all respects, with the modification
that defendants-appellants, except defendant-appellant Merton Munn, are ordered
to pay, jointly and severally, the amounts stated in the dispositive portion of the
decision, including the sum of P1,400.00 in concept of compensatory damages, with
interest at the legal rate from the date of the filing of the complaint until fully paid.”
(Italics supplied)
The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of
execution issued by the trial court directed that only compensatory damages
should earn interest at 6% per annum from the date of the filing of the complaint.
Ascribing grave abuse of discretion on the part of the trial judge, a petition
forcertiorari assailed the said order. This Court said:
“x x x, it is to be noted that the Court of Appeals ordered the payment of interest
‘at the legal rate’ from the time of the filing of the complaint. x x x. Said circular
[Central Bank Circular No. 416] does not apply to actions based on a breach of
employment contract like the case at bar.” (Italics supplied)
The Court reiterated that the 6% interest per annum on the damages should be
computed from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter.National
Power Corporation vs. Angas,14 decided on 08 May 1992, involved the expropriation
of certain parcels of land. After conducting a hearing on the complaints for eminent
domain,
the trial court ordered the petitioner to pay the private respondents certain sums
of money as just compensation for their lands so expropriated “with legal interest
thereon x x x until fully paid.” Again, in applying the 6% legal interest per annum
under the Civil Code, the Court15declared:
“x x x, (T)he transaction involved is clearly not a loan or forbearance of money,
goods or credits but expropriation of certain parcels of land for a public purpose,
the payment of which is without stipulation regarding interest, and the interest
adjudged by the trial court is in the nature of indemnity for damages. The legal
interest required to be paid on the amount of just compensation for the properties
expropriated is manifestly in the form of indemnity for damages for the delay in
the payment thereof. Therefore, since the kind of interest involved in the joint
judgment of the lower court sought to be enforced in this case is interest by way of
damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code
shall apply.”
Concededly, there have been seeming variances in the above holdings. The cases
can perhaps be classified into two groups according to the similarity of the issues
involved and the corresponding rulings rendered by the court. The “first
group” would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit
Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power Corporation
v. Angas (1992). In the “second group” would be Malayan Insurance Company v.
Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and
American Express International v. Intermediate Appellate Court (1988).
In the “first group,” the basic issue focuses on the application of either the 6%
(under the Civil Code) or 12% (under the Central Bank Circular) interest per
annum. It is easily discernible in these cases that there has been a consistent

holding that the Central Bank Circular imposing the 12% interest per annum
applies only to loans or forbearance16 of money, goods or credits,
as well as to judgments involving such loan or forbearance of money, goods or
credits, and that the 6% interest under the Civil Code governs when the
transaction involves the payment of indemnities in the concept of damage arising
from the breach or a delay in the performance of obligations in general. Observe,
too, that in these cases, a common time frame in the computation of the 6% interest
per annum has been applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.
The“second group,” did not alter the pronounced rule on the application of the
6% or 12% interest per annum,17 depending on whether or not the amount involved
is a loan or forbearance, on the one hand, or one of indemnity for damage, on the
other hand. Unlike, however, the “first group” which remained consistent in
holding that the running of the legal interest should be from the time of the filing
of the complaint until fully paid, the “second group” varied on the commencement
of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date
of the decision of the court a quo, explaining that “if the suit were for damages,
‘unliquidated and not known until definitely ascertained, assessed and determined
by the courts after proof,’ then, interest ‘should be from the date of the decision.’”
American Express International v. IAC, introduced a different time frame for
reckoning the 6% interest by ordering it to be “computed from the finality of (the)
decision until paid.” The Nakpil and Sons case ruled that 12% interest per annum
should be imposed from the finality of the decision until the judgment amount is
paid.
The ostensible discord is not difficult to explain. The factual circumstances may
have called for different applications, guided by the rule that the courts are vested
with discretion, depending
on the equities of each case, on the award of interest. Nonetheless, it may not be
unwise, by way of clarification and reconciliation, to suggest the following rules of
thumb for future guidance.
CREDTRANS 2
.When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion
of the court24 at the rate of 6% per annum.25 No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can
be established with reasonable certainty.26Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
_ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3.When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is
AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX
PERCENT (6%) on the amount due computed from the decision, dated 03 February
1988, of the courta quo. A TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon finality of this decision
until the payment thereof.
SO ORDERED.

1. I.When an obligation, regardless of its source, i.e., law, contracts, quasi-

contracts, delicts or quasi-delicts18 is breached, the contravenor can be
held liable for damages.19 The provisions under Title XVIII on
“Damages” of the Civil Code govern in determining the measure of
recoverable damages.20
2. 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:
Page42

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.21Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded.22 In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 116923 of the Civil Code.

G.R. No. 128721. March 9, 1999.*
CRISMINA GARMENTS, INC., petitioner, vs. COURT OF APPEALS and
NORMA SIAPNO, respondents.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
H.D. Tumaneng & Associates for petitioner.
Punzalan and Associates Law Office for private respondent.
PANGANIBAN, J.:
Interest shall be computed in accordance with the stipulation of the parties. In the
absence of such agreement, the rate shall be twelve percent (12%) per annum when
the obligation arises out of a loan or a forbearance of money, goods or credits. In
other cases, it shall be six percent (6%).
The Case
On May 5, 1997, Crismina Garments, Inc. filed a Petition for Review on
Certiorari1 assailing the December 28, 1995 Decision2and March 17, 1997
Resolution3 of the Court of Appeals in CA-GR CV No. 28973. On September 24,
1997, this Court issued a minute Resolution4 denying the petition “for its failure
to show any reversible error on the part of the Court of Appeals.”
Petitioner then filed a Motion for Reconsideration, 5arguing that the interest
rate should be computed at 6 percent per annum as provided under Article 2209 of
the Civil Code, not 12 percent per annum as prescribed under Circular No. 416 of
the Central Bank of the Philippines. Acting on the Motion, the Court
reinstated6 the Petition, but only with respect to the issue of which interest rate
should be applied.7
The Facts
As the facts of the case are no longer disputed, we are reproducing hereunder the
findings of the appellate court:
“During the period from February 1979 to April 1979, the [herein petitioner], which
was engaged in the export of girls’ denim pants, contracted the services of the
[respondent], the sole proprietress of the D’Wilmar Garments, for the sewing of
20,762 pieces of assorted girls[’] denims supplied by the [petitioner] under
Purchase Orders Nos. 1404, dated February 15, 1979, 0430 dated February 1,
1979, 1453 dated April 30, 1979. The [petitioner] was obliged to pay the
[respondent], for her services, in the total amount of P76,410.00. The [respondent]
Page43
sew[ed] the materials and delivered the same to the [petitioner] which
acknowledged the same per Delivery Receipt Nos. 0030, dated February 9, 1979;
0032, dated February 15, 1979; 0033, dated February 21, 1979; 0034, dated
February 24, 1979; 0036, dated February 20, 1979; 0038, dated March 11, 1979[;]
0039, dated March 24, 1979; 0040, dated March 27, 1979; 0041, dated March 29,
1979; 0044, dated Marc[h] 25, 1979; 0101, dated May 18, 1979[;] 0037, dated March
10, 1979 and 0042, dated March 10, 1979, in good order condition. At first, the
[respondent] was told that the sewing of some of the pants w[as] defective. She
CREDTRANS 2
offered to take delivery of the defective pants. However, she was later told by
[petitioner]’s representative that the goods were already good. She was told to just
return for her check of P76,410.00. However, the [petitioner] failed to pay her the
aforesaid amount. This prompted her to hire the services of counsel who, on
November 12, 1979, wrote a letter to the [petitioner] demanding payment of the
aforesaid amount within ten (10) days from receipt thereof. On February 7, 1990,
the [petitioner]’s [v]ice-[p]resident-[c]omptroller, wrote a letter to [respondent]’s
counsel, averring, inter alia, that the pairs of jeans sewn by her, numbering 6,164
pairs, were defective and that she was liable to the [petitioner] for the amount of
P49,925.51 which was the value of the damaged pairs of denim pants and
demanded refund of the aforesaid amount.
“On January 8, 1981, the [respondent] filed her complaint against the
[petitioner] with the [trial court] for the collection of the principal amount of
P76,410.00.
xxx
xxx xxx xxx
360
“After due proceedings, the [trial court] rendered judgment, on February 28, 1989,
in favor of the [respondent] against the [petitioner], the dispositive portion of which
reads as follows:
‘WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant ordering the latter to pay the former:
1. (1)The sum of P76,140.00 with interest thereon at 12% per annum, to be
counted from the filing of this complaint on January 8, 1981, until fully
paid;
2. (2)The sum of P5,000 as attorney[’]s fees; and
3. (3)The costs of this suit;
4. (4)Defendant’s counterclaim is hereby dismissed.’ ”8
The Court of Appeals (CA) affirmed the trial court’s ruling, except for the award of
attorney’s fees which was deleted.9 Subsequently, the CA denied the Motion for
Reconsideration.10
Hence, this recourse to this Court.11
Sole Issue
In light of the Court’s Resolution dated April 27, 1998, petitioner submits for our
consideration this sole issue:
“Whether or not it is proper to impose interest at the rate of twelve percent (12%)
per annum for an obligation that does not involve a loan or forbearance of money
in the absence of stipulation of the parties.”12
This Court’s Ruling
We sustain petitioner’s contention that the interest rate should be computed at six
percent (6%) per annum.
Sole Issue: Interest Rate
The controversy revolves around petitioner’s payment of the price beyond the
period prescribed in a contract for a piece of work. Article 1589 of the Civil Code

provides that “[t]he vendee [herein petitioner] shall owe interest for the period
between the delivery of the thing and the payment of the price x x x should he be
in default, from the time of judicial or extrajudicial demand for the payment of the
price.” The only issue now is the applicable rate of interest for the late payment.
Because the case before us is “an action for the enforcement of an obligation for
payment of money arising from a contract for a piece of work,”13 petitioner submits
that the interest rate should be six percent (6%), pursuant to Article 2209 of the
Civil Code, which states:
“If the obligation consists in the payment 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 percent per annum.” (Emphasis supplied.)
On the other hand, private respondent maintains that the interest rate should be
twelve percent (12%) per annum, in accordance with Central Bank (CB) Circular
No. 416, which reads:
“By virtue of the authority granted to it under Section 1 of Act No. 2655, as
amended, otherwise known as the ‘Usury Law,’ the Monetary Board, in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest
for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve per cent (12%) per
annum.” (Emphasis supplied.)
She argues that the circular applies, since “the money sought to be recovered by
her is in the form of forbearance.”14
We agree with the petitioner. In Reformina v. Tomol, Jr.,15 this Court stressed
that the interest rate under CB Circular No. 416 applies to (1) loans; (2)
forbearance of money, goods or credits; or (3) a judgment involving a loan or
forbearance of money, goods or credits. Cases beyond the scope of the said circular
are governed by Article 2209 of the Civil Code,16 which considers interest a form of
indemnity for the delay in the performance of an obligation.17
In Eastern Shipping Lines, Inc. v. Court of Appeals,18 the Court gave the
following guidelines for the application of the proper interest rates:
“I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title
XVIII on ‘Damages’ of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
Page44
1. 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
CREDTRANS 2
extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. “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 x x x the amount finally adjudged.
3. “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.”19
In Keng Hua Paper Products Co., Inc. v. CA,20 we also ruled that the monetary
award shall earn interest at twelve percent (12%) per annum from the date of the
finality of the judgment until its satisfaction, regardless of whether or not the case
involves a loan or forbearance of money. The interim period is deemed to be
equivalent to a forbearance of credit.21
Because the amount due in this case arose from a contract for a piece of work,
not from a loan or forbearance of money, the legal interest of six percent (6%) per
annum should be applied. Furthermore, since the amount of the demand could be
established with certainty when the Complaint was filed, the six percent (6%)
interest should be computed from the filing of the said Complaint. But after the
judgment becomes final and executory until the obligation is satisfied, the interest
should be reckoned at twelve percent (12%) per year.
Private respondent maintains that the twelve percent (12%) interest should be
imposed, because the obligation arose from a forbearance of money. 22 This is
erroneous. In Eastern Shipping,23 the Court observed that a “forbearance” in the
context of the usury law is a “contractual obligation of lender or creditor to refrain,
during a given period of time, from requiring the borrower or debtor to repay a loan
or debt then due and payable.” Using this standard, the obligation in this case was
obviously not a forbearance of money, goods or credit.
WHEREFORE, the appealed Decision is MODIFIED. The rate of interest shall
be six percent (6%) per annum, computed from the time of the filing of the
Complaint in the trial court until the finality of the judgment. If the adjudged
principal and the interest (or any part thereof) remain unpaid thereafter, the
interest rate shall be twelve percent (12%) per annum computed from the time the
judgment becomes final and executory until it is fully satisfied. No pronouncement
as to costs. SO ORDERED.

G.R. No. 189871. August 13, 2013.*
DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or FELIPE BORDEY,
JR., respondents.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Carlo A. Domingo for petitioner.
Cabio Law Office and Associates for respondent.
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision1 dated
September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 98591, and the
Resolution2 dated October 9, 2009 denying petitioner’s motion for reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive dismissal before the
Arbitration Branch of the National Labor Relations Commission (NLRC) against
respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC
NCR Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision 3 in favor of
petitioner and found that he was dismissed from employment without a valid or
just cause. Thus, petitioner was awarded backwages and separation pay in lieu of
reinstatement in the amount of P158,919.92. The dispositive portion of the
decision, reads:
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 the payments of separation pay in lieu of reinstatement to his
former position, considering the strained relationship between the parties,
and his apparent reluctance to be reinstated, computed only up to
promulgation of this decision as follows:
SEPARATION PAY
Date Hired = August 1990
Rate = P198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
P198.00 x 26 days x 8 months = P41,184.00
Page45
CREDTRANS 2
P198.00 x 26 days x 6.4 mos. = P32,947.20
TOTAL = P95.933.76
xxxx
WHEREFORE, premises considered, judgment is hereby rendered
finding respondents guilty of constructive dismissal and are therefore,
ordered:
1. To pay jointly and severally the complainant the amount of sixty-two
thousand nine hundred eighty-six pesos and 56/100 (P62,986.56)
Pesos representing his separation pay;
2. To pay jointly and severally the complainant the amount of nine
(sic) five thousand nine hundred thirty-three and 36/100
(P95,933.36) representing his backwages; and
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 Resolution5 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,
2002.11Upon recomputation, the Computation and Examination Unit of the NLRC
arrived at an updated amount in the sum of P471,320.31.12
On December 2, 2002, a Writ of Execution13 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,

BACKWAGES the same cannot be altered or amended anymore.14 On January 13, 2003, the Labor
Date Dismissed = January 24, 1997 Arbiter issued an Order15denying the motion. Thus, an Alias Writ of
Rate per day = P196.00 Execution16was issued on January 14, 2003.
Date of Decisions = Aug. 18, 1998 Respondents again appealed before the NLRC, which on June 30, 2003 issued
a) 1/24/97 to 2/5/98 = 12.36 mos. a Resolution17granting the appeal in favor of the respondents and ordered the
P196.00/day x 12.36 mos. = P62,986.56 recomputation of the judgment award.
b) 2/6/98 to 8/18/98 = 6.4 months On August 20, 2003, an Entry of Judgment was issued declaring the Resolution
Prevailing Rate per day = P62,986.00 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 de-
termined 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 judgment award that was due to petitioner in the amount of
P147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the recomputation
of the monetary award to include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but
only up to the amount of P11,459.73. The Labor Arbiter reasoned that it is the
October 15, 1998 Decision that should be enforced considering that it was the one
that became final and executory. However, the Labor Arbiter reasoned that since
the decision states that the separation pay and backwages are computed only up
to the promulgation of the said decision, it is the amount of P158,919.92 that
should be executed. Thus, since petitioner already received P147,560.19, he is only
entitled to the balance of P11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the
NLRC in its Resolution22dated September 27, 2006. Petitioner filed a Motion for
Reconsideration, but it was likewise denied in the Resolution 23 dated January 31,
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 Decision24denying the petition. The
CA opined that since petitioner no longer appealed the October 15, 1998 Decision
of the Labor Arbiter, which already became final and executory, a belated
correction thereof is no longer allowed. The CA stated that there is nothing left to
be done except to enforce the said judgment. Consequently, it can no longer be
modified in any respect, except to correct clerical errors or mistakes. Petitioner
filed a Motion for Reconsideration, but it was denied in the Resolution25dated
October 9, 2009.
Hence, the petition assigning the lone error:
I A source of misunderstanding in implementing the final decision in this
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED
GRAVE ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE
QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005
Page46
ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15,
1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN
THE BODY OF THE SAME DECISION.
Petitioner argues that notwithstanding the fact that there was a computation
of backwages in the Labor Arbiter’s decision, the same is not final until
reinstatement is made or until finality of the decision, in case of an award of
separation pay. Petitioner maintains that considering that the October 15, 1998
decision of the Labor Arbiter did not become final and executory until the April 17,
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2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book
of Entries on May 27, 2002, the reckoning point for the computation of the
backwages and separation pay should be on May 27, 2002 and not when the
decision of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner
posits that he is also entitled to the payment of interest from the finality of the
decision until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited
backwages were awarded to petitioner by the October 15, 1998 decision of the
Labor Arbiter, no more recomputation is required to be made of said awards.
Respondents 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.
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.
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 arbiter’s decision. As we noted above, this implication
is apparent from the terms of the computation itself, and no question would
have arisen had the 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 finding of illegality as well as on all the consequent
awards made. Hence, the petitioner appealed the case to the NLRC which,
in turn, affirmed the labor arbiter’s decision. By law, the NLRC decision is
final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on
jurisdictional grounds through a timely filed Rule 65 petition for certiorari.
The CA decision, finding that NLRC exceeded its authority in affirming the
payment of 13th month pay and indemnity, lapsed to finality and was
subsequently returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core
illegal dismissal portion of the original labor arbiter’s decision, the
implementing labor arbiter ordered the award re-computed; he apparently
read the figures originally ordered to be paid to be the computation due had
the case been terminated and implemented at the labor arbiter’s level.
Thus, the labor arbiter re-computed the award to include the separation
pay and the backwages due up to the finality of the CA decision that fully
terminated the case on the merits. Unfortunately, the labor arbiter’s
approved computation went beyond the finality of the CA decision (July 29,
2003) and
included as well the payment for awards the final CA decision had deleted
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— specifically, the proportionate 13th month pay and the indemnity
awards. Hence, the CA issued the decision now questioned in the present
petition.
We see no error in the CA decision confirming that a recomputation is
necessary as it essentially considered the labor arbiter’s original decision in
accordance with its basic component parts as we discussed above. To
reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or monetary
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consequences of the illegal dismissal, computed as of the time of the labor
arbiter’s original decision.28
Consequently, from the above disquisitions, under the terms of the decision
which is sought to be executed by the petitioner, no essential change is made by a
recomputation as this step is a necessary consequence that flows from the nature
of the illegality of dismissal declared by the Labor Arbiter in that decision. 29 A
recomputation (or an original computation, if no previous computation has been
made) is a part of the law — specifically, Article 279 of the Labor Code and the
established jurisprudence on this provision — that is read into the decision. By the
nature of an illegal dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the Labor Code. The recomputation
of the consequences of illegal dismissal upon execution of the decision does not
constitute an alteration or amendment of the final decision being implemented.
The illegal dismissal ruling stands; only the computation of monetary
consequences of this dismissal is affected, and this is not a violation of the principle
of immutability of final judgments.30
That the amount respondents shall now pay has greatly increased is a
consequence that it cannot avoid as it is the risk that it ran when it continued to
seek recourses against the Labor Arbiter’s decision. Article 279 provides for the
consequences of illegal dismissal in no uncertain terms, qualified only by
jurisprudence in its interpretation of when separation pay in lieu of reinstatement
is allowed. When that happens, the finality of the illegal dismissal decision
becomes the reckoning point instead of the reinstatement that the law decrees. In
allowing separation pay, the final decision effectively declares that the
employment relationship ended so that separation pay and backwages are to be
computed up 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 234 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:
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 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 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 Lines40and 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 will now be six percent (6%) per annum effective July 1, 2013. It should be
noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest
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shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent
(6%) per annum shall be the prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and
Eduardo B. Olaguer v. Bangko Sentral Monetary Board,41 this Court affirmed the
authority of the BSP-MB to set interest rates and to issue and enforce Circulars
when it ruled that “the BSP-MB may prescribe the maximum rate or rates of
interest for all loans or renewals thereof or the forbearance of any money, goods or
credits, including those for loans of low priority such as consumer loans, as well as
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such loans made by pawnshops, finance companies and similar credit institutions.
It even authorizes the BSP-MB to prescribe different maximum rate or rates for
different types of borrowings, including deposits and deposit substitutes, or loans
of financial intermediaries.”
Nonetheless, with regard to those judgments that have become final and
executory prior to July 1, 2013, said judgments shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed therein.
To recapitulate and for future guidance, the guidelines laid down in
the case of Eastern Shipping Lines42 are accordingly 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 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 6% 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 6% per annumfrom such
finality until its satisfaction, this 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
 CREDTRANS 2
No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET
ASIDE. Respondents are ORDERED to PAYpetitioner:
(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 annumfrom
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.
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 CREDTRANS 2
Tenth Congress

Republic Act No. 8183 June 11, 1996

Repealing RA 529

AN ACT REPEALING REPUBLIC ACT NUMBERED FIVE HUNDRED

TWENTY-NINE AS AMENDED, ENTITLED "AN ACT TO ASSURE THE
UNIFORM VALUE OF PHILIPPINE COIN AND CURRENCY."

Be it enacted by the Senate and House of Representatives of the Philippines in

Congress assembled:

Section 1. All monetary obligations shall be settled in the Philippine currency

which is legal tender in the Philippines. However, the parties may agree that the
obligation or transaction shall be settled in any other currency at the time of
payment.

Sec. 2. Republic Act Numbered Five Hundred Twenty-Nine (R.A. No. 529), as
amended entitled "An Act to Assume the Uniform Value of Philippine Coin and
Currency," is hereby repealed.

Sec. 3. This Act shall take effect fifteen (15) days after its publication in the
Official Gazette or in two (2) national newspapers of general circulation. The
Bangko Sentral ng Pilipinas and the Department of Finance shall conduct an
intensive information campaign on the effect of this Act.

Approved: June 11, 1996

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