Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. Nos. 173654-765 August 28, 2008

PEOPLE OF THE PHILIPPINES, petitioner,

vs.

TERESITA PUIG and ROMEO PORRAS, respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the
Philippines, represented by the Office of the Solicitor General, praying for the reversal of the Orders
dated 30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC) of the 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 by respondents and hence, are the real parties-in-interest; and

(2) the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between
the respondents and the offended party that would have created a high degree of confidence between
them which the respondents could have abused."

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through
would be violative of the right of the respondents under Section 14(2), Article III of the 1987 Constitution
which states that in all criminal prosecutions, the accused shall enjoy the right to be informed of the
nature and cause of the accusation against him. Following Section 6, Rule 112 of the Revised Rules of
Criminal Procedure, the RTC dismissed the cases on 30 January 2006 and refused to issue a warrant of
arrest against Puig and Porras.
A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.

On 9 June 2006, an Order3 denying 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 warrant of arrest presupposes evaluation of facts and circumstances, which is
not proper under said Rule.

Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the
principal party to file a Petition for Review on Certiorari, considering that the incident was indorsed by
the DOJ.

We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and,
therefore, because of this defect, there is no basis for the existence of probable cause which will justify
the issuance of the warrant of arrest. Petitioner assails the dismissal contending that the Informations
for Qualified Theft sufficiently state facts which constitute (a) the qualifying circumstance of grave abuse
of confidence; and (b) the element of taking, with intent to gain and without the consent of the owner,
which is the Bank.

In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the
allegations in the Information inadequate. He ruled that the Information failed to state facts constituting
the qualifying circumstance of grave abuse of confidence and the element of taking without the consent
of the owner, since the owner of the money is not the Bank, but the depositors therein. He also cites
People v. Koc Song,4 in which this Court held:

There must be allegation in the information and proof of a relation, by reason of dependence,
guardianship or vigilance, between the respondents and the offended party that has created a high
degree of confidence between them, which the respondents abused.

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable
cause simply on the insufficiency of the allegations in the Informations concerning the facts constitutive
of the elements of the offense charged. This, therefore, makes the issue of sufficiency of the allegations
in the Informations the focal point of discussion.
Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as
follows, viz:

ART. 310. Qualified Theft. – The crime of theft shall be punished by the penalties next higher by two
degrees than those respectively specified in the next preceding article, if committed by a domestic
servant, or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or
large cattle or consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or
fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any
other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of 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 requires, inter alia, that
the information must state the acts or omissions complained of as constitutive of the offense.

On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is
enlightening:

Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and
the qualifying and aggravating circumstances must be stated in ordinary and concise language and not
necessarily in the language used in the statute but in terms sufficient to enable a person of common
understanding to know what offense is being charged as well as its qualifying and aggravating
circumstances and for the court to pronounce judgment.

It is evident that the Information need not use the exact language of the statute in alleging the acts or
omissions complained of as constituting the offense. The test is whether it enables a person of common
understanding to know the charge against him, and the court to render judgment properly.5

The portion of the Information relevant to this discussion reads:

A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of
confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without
the knowledge and/or consent of the management of the Bank x x x.
It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into
possession of the monies deposited therein enjoy the confidence reposed in them by their employer.
Banks, on the other hand, where monies are deposited, are considered the owners thereof. This is very
clear not only from the express provisions of the law, but from established jurisprudence. The
relationship between banks and depositors has been held to be that of creditor and debtor. Articles 1953
and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows:

Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning loan.

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession
by the Bank of the money deposits therein, and the duties being performed by its employees who have
custody of the money or have come into possession of it. The Court has consistently considered the
allegations in the Information that such employees acted with grave abuse of confidence, to the damage
and prejudice of the Bank, without particularly referring to it as owner of the money deposits, as
sufficient to make out a case of Qualified Theft. For a graphic illustration, we cite Roque v. People,6
where the accused teller was convicted for Qualified Theft based on this Information:

That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of
Pampanga, Philippines and within the jurisdiction of his Honorable Court, the above-named accused
ASUNCION GALANG ROQUE, being then employed as teller of the Basa Air Base Savings and Loan
Association Inc. (BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga, and as such was
authorized and reposed with the responsibility to receive and collect capital contributions from its
member/contributors of said corporation, and having collected and received in her capacity as teller of
the BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with grave
abuse of confidence and without the knowledge and consent of said corporation, did then and there
willfully, unlawfully and feloniously take, steal and carry away the amount of P10,000.00, Philippine
currency, by making it appear that a certain depositor by the name of Antonio Salazar withdrew from his
Savings Account No. 1359, when in truth and in fact said Antonio Salazar did not withdr[a]w the said
amount of P10,000.00 to the damage and prejudice of BABSLA in the total amount of P10,000.00,
Philippine currency.
In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of confidence, and the bank places money in the 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,8 the Branch Operations Officer was convicted of the crime of Qualified Theft
based on the Information as herein cited:

That in or about and during the period compressed between January 24, 1992 and February 13, 1992,
both dates inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully,
unlawfully and feloniously, with intent of gain and without the knowledge and consent of the owner
thereof, take, steal and carry away the following, to wit:

Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE

COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its
Branch Manager, HELEN U. FARGAS, to the damage and prejudice of the said owner in the aforesaid
amount of P6,000,000.00, Philippine Currency.

That in the commission of the said offense, herein accused acted with grave abuse of confidence and
unfaithfulness, he being the Branch Operation Officer of the said complainant and as such he had free
access to the place where the said amount of money was kept.

The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and Industrial Bank
(PCIB), is Qualified Theft. Appellant could not have committed the crime had he not been holding the
position of Luneta Branch Operation Officer which gave him not only sole access to the bank vault xxx.
The management of the PCIB reposed its trust and confidence in the appellant as its Luneta Branch
Operation Officer, and it was this trust and confidence which he exploited to enrich himself to the
damage and prejudice of PCIB x x x.9
From another end, People v. Locson,10 in addition to People v. Sison, described the nature of possession
by the Bank. The money in this case was in the possession of the defendant as receiving teller of the
bank, and the possession of the defendant was the possession of the Bank. The Court held therein that
when the defendant, with grave abuse of confidence, removed the money and appropriated it to his
own use without the consent of the Bank, there was taking as contemplated in the crime of Qualified
Theft.11

Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the
respondents; that the crime was committed with grave abuse of confidence, with intent to gain and
without the knowledge and consent of the Bank, without necessarily stating the phrase being
assiduously insisted upon by respondents, "of a relation by reason of dependence, guardianship or
vigilance, between the respondents and the offended party that has created a high degree of confidence
between them, which respondents abused,"12 and without employing the word "owner" in lieu of the
"Bank" were considered to have satisfied the test of sufficiency of allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case,
there is even no reason to quibble on the allegation in the Informations that they acted with grave abuse
of confidence. In fact, the Information which alleged grave abuse of confidence by accused herein is
even more precise, as this is exactly the requirement of the law in qualifying the crime of Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of
the Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed in
them, occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential
elements constituting the crime of Qualified Theft.

On the theory of the defense that the DOJ is the principal party who may file the instant petition, the
ruling in Mobilia Products, Inc. v. Hajime Umezawa13 is instructive. The Court thus enunciated:

In a criminal case in which the offended party is the State, the interest of the private complainant or the
offended party is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by
the trial court or if there is an acquittal, a reconsideration of the order of dismissal or acquittal may be
undertaken, whenever legally feasible, insofar as the criminal aspect thereof is concerned and may be
made only by the public prosecutor; or in the case of an appeal, by the State only, through the OSG. x x
x.

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in
appeals by certiorari under Rule 45 of the Rules of Court, only errors of law may be raised,14 and herein
petitioner certainly raised a question of law.

As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the
records of the preliminary investigation conducted will show that, indeed, probable cause exists for the
indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the judge shall
issue a warrant of arrest only upon a finding of probable cause after personally evaluating the resolution
of the prosecutor and its supporting evidence. Soliven v. Makasiar,15 as reiterated in Allado v. Driokno,16
explained that probable cause for the issuance of a warrant of arrest is the existence of such facts and
circumstances that would lead a reasonably discreet and prudent person to believe that an offense has
been committed by the person sought to be arrested.17 The records reasonably indicate that the
respondents may have, indeed, committed the offense charged.

Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case
may be, to relieve the respondents from the pain of going through a trial once it is ascertained that no
probable cause exists to form a sufficient belief as to the guilt of the respondents, conversely, it is also
equally imperative upon the judge to proceed with the case upon a showing that there is a prima facie
case against the respondents.

WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders
dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 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.

SO ORDERED.

Republic of the Philippines

 SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 123498 November 23, 2007

BPI FAMILY BANK, Petitioner,

vs.

AMADO FRANCO and COURT OF APPEALS, Respondents.

DECISION

NACHURA, J.:

Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity.
We reiterate this exhortation in the case at bench.

Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA)
Decision1 in CA-G.R. CV No. 43424 which affirmed with modification the judgment2 of the Regional Trial
Court, Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.

This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB)
allegedly by respondent Amado Franco (Franco) in conspiracy with other individuals,3 some of whom
opened and maintained separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a
series of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current
account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment Corporation (FMIC)
also opened a time deposit account with the same branch of BPI-FB with a deposit of ₱100,000,000.00,
to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,4 savings,5 and time
deposit,6 with BPI-FB. The current and savings accounts were respectively funded with an initial deposit
of ₱500,000.00 each, while the time deposit account had ₱1,000,000.00 with a maturity date of August
31, 1990. The total amount of ₱2,000,000.00 used to open these accounts is traceable to a check issued
by Tevesteco allegedly in consideration of Franco’s introduction of Eladio Teves,7 who was looking for a
conduit bank to facilitate Tevesteco’s business transactions, to Jaime Sebastian, who was then BPI-FB
SFDM’s Branch Manager. In turn, the funding for the ₱2,000,000.00 check was part of the
₱80,000,000.00 debited by BPI-FB from FMIC’s time deposit account and credited to Tevesteco’s current
account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.

It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged.8 On
September 4, 1989, Antonio Ong,9 upon being shown the Authority to Debit, personally declared his
signature therein to be a forgery. Unfortunately, Tevesteco had already effected several withdrawals from
its current account (to which had been credited the ₱80,000,000.00 covered by the forged Authority to
Debit) amounting to ₱37,455,410.54, including the ₱2,000,000.00 paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMIC’s forgery claim, BPI-
FB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin10 to debit Franco’s
savings and current accounts for the amounts remaining therein.11 However, Franco’s time deposit
account could not be debited due to the capacity limitations of BPI-FB’s computer.12

In the meantime, two checks13 drawn by Franco against his BPI-FB current account were dishonored
upon presentment for payment, and stamped with a notation "account under garnishment." Apparently,
Franco’s current account was garnished by virtue of an Order of Attachment issued by the Regional Trial
Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-FB
against Franco et al.,14 to recover the ₱37,455,410.54 representing Tevesteco’s total withdrawals from
its account.

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to
Franco’s receipt of notice that his accounts were under garnishment.15 In fact, at the time the Notice of
Garnishment dated September 27, 1989 was served on BPI-FB, Franco had yet to be impleaded in the
Makati case where the writ of attachment was issued.
It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil
Case No. 89-4996, that Franco was impleaded in the Makati case.16 Immediately, upon receipt of such
copy, Franco filed a Motion to Discharge Attachment which the Makati RTC granted on May 16, 1990.
The Order Lifting the Order of Attachment was served on BPI-FB on even date, with Franco demanding
the release to him of the funds in his savings and current accounts. Jesus Arangorin, BPI-FB’s new
manager, could not forthwith comply with the demand as the funds, as previously stated, had already
been debited because of FMIC’s forgery claim. As such, BPI-FB’s computer at the SFDM Branch indicated
that the current account record was "not on file."

With respect to Franco’s savings account, it appears that Franco agreed to an arrangement, as a favor to
Sebastian, whereby ₱400,000.00 from his savings account was temporarily transferred to Domingo
Quiaoit’s savings account, subject to its immediate return upon issuance of a certificate of deposit which
Quiaoit needed in connection with his visa application at the Taiwan Embassy. As part of the
arrangement, Sebastian retained custody of Quiaoit’s savings account passbook to ensure that no
withdrawal would be effected therefrom, and to preserve Franco’s deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of
₱63,189.00 from the remaining balance of the time deposit account representing advance interest paid
to him.

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

FMIC filed a complaint against BPI-FB for the recovery of the amount of ₱80,000,000.00 debited from its
account.17 The case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro
Investment Corporation,18 we upheld the finding of the courts below that BPI-FB failed to exercise the
degree of diligence required by the nature of its obligation to treat the accounts of its depositors with
meticulous care. Thus, BPI-FB was found liable to FMIC for the debited amount in its time deposit. It was
ordered to pay ₱65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully restored.
In turn, the 17% shall itself earn interest at 12% from October 4, 1989 until fully paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),19
recipients of a ₱500,000.00 check proceeding from the ₱80,000,000.00 mistakenly credited to Tevesteco,
likewise filed suit. Buenaventura et al., as in the case of Franco, were also prevented from effecting
withdrawals20 from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch.
Likewise, when the case was elevated to this Court docketed as BPI Family Bank v. Buenaventura,21 we
ruled that BPI-FB had no right to freeze Buenaventura, et al.’s accounts and adjudged BPI-FB liable
therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of
the multi-million peso scam.22 In the criminal case, Franco, along with the other accused, except for
Manuel Bienvenida who was still at large, were acquitted of the crime of Estafa as defined and penalized
under Article 351, par. 2(a) of the Revised Penal Code.23 However, the civil case24 remains under
litigation and the respective rights and liabilities of the parties have yet to be adjudicated.

Consequently, in light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and release
his deposits therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his
complaint, Franco prayed for the following reliefs: (1) the interest on the remaining balance25 of his
current account which was eventually released to him on October 31, 1991; (2) the balance26 on his
savings account, plus interest thereon; (3) the advance interest27 paid to him which had been deducted
when he pre-terminated his time deposit account; and (4) the payment of actual, moral and exemplary
damages, as well as attorney’s fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and
refusing to release his deposits, claiming that it had a better right to the amounts which consisted of part
of the money allegedly fraudulently withdrawn from it by Tevesteco and ending up in Franco’s accounts.
BPI-FB asseverated that the claimed consideration of ₱2,000,000.00 for the introduction facilitated by
Franco between George Daantos and Eladio Teves, on the one hand, and Jaime Sebastian, on the other,
spoke volumes of Franco’s participation in the fraudulent transaction.

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

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and against
[BPI-FB], ordering the latter to pay to the former the following sums:

1. ₱76,500.00 representing the legal rate of interest on the amount of ₱450,000.00 from May 18, 1990
to October 31, 1991;
2. ₱498,973.23 representing the balance on [Franco’s] savings account as of May 18, 1990, together with
the interest thereon in accordance with the bank’s guidelines on the payment therefor;

3. ₱30,000.00 by way of attorney’s fees; and

4. ₱10,000.00 as nominal damages.

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

Costs against [BPI-FB].

SO ORDERED.28

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

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification
ordering [BPI-FB] to pay [Franco] ₱63,189.00 representing the interest deducted from the time deposit
of plaintiff-appellant. ₱200,000.00 as moral damages and ₱100,000.00 as exemplary damages, deleting
the award of nominal damages (in view of the award of moral and exemplary damages) and increasing
the award of attorney’s fees from ₱30,000.00 to ₱75,000.00.

Cost against [BPI-FB].

SO ORDERED.29
In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the
deposits in the subject accounts which are part of the proceeds of a forged Authority to Debit; (2) Franco
is entitled to interest on his current account; (3) Franco can recover the ₱400,000.00 deposit in Quiaoit’s
savings account; (4) the dishonor of Franco’s checks was not legally in order; (5) BPI-FB is liable for
interest on Franco’s time deposit, and for moral and exemplary damages; and (6) BPI-FB’s counter-claim
has no factual and legal anchor.

The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze
Franco’s accounts and preclude him from withdrawing his deposits. However, contrary to the appellate
court’s ruling, we hold that Franco is not entitled to unearned interest on the time deposit as well as to
moral and exemplary damages.

First. On the issue of who has a better right to the deposits in Franco’s accounts, BPI-FB urges us that the
legal consequence of FMIC’s forgery claim is that the money transferred by BPI-FB to Tevesteco is its
own, and considering that it was able to recover possession of the same when the money was
redeposited by Franco, it had the right to set up its ownership thereon and freeze Franco’s accounts.

BPI-FB contends that its position is not unlike that of an owner of personal property who regains
possession after it is stolen, and to illustrate this point, BPI-FB gives the following example: where X’s
television set is stolen by Y who thereafter sells it to Z, and where Z unwittingly entrusts possession of
the TV set to X, the latter would have the right to keep possession of the property and preclude Z from
recovering possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code, which
provides:

Article 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it
from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in
good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid
therefor.
BPI-FB’s argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil
Code pertains to a specific or determinate thing.30 A determinate or specific thing is one that is
individualized and can be identified or distinguished from others of the same kind.31

In this case, the deposit in Franco’s accounts consists of money which, albeit characterized as a movable,
is generic and fungible.32 The quality of being fungible depends upon the possibility of the property,
because of its nature or the will of the parties, being substituted by others of the same kind, not having a
distinct individuality.33

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a
movable to recover the exact same thing from the current possessor, BPI-FB simply claims ownership of
the equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from FMIC’s
account and credited to Tevesteco’s, and subsequently traced to Franco’s account. In fact, this is what
BPI-FB did in filing the Makati Case against Franco, et al. It staked its claim on the money itself which
passed from one account to another, commencing with the forged Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership,34 and this characteristic is all
the more manifest in the instant case which involves money in a banking transaction gone awry. Its
primary function is to pass from hand to hand as a medium of exchange, without other evidence of its
title.35 Money, which had passed through various transactions in the general course of banking
business, even if of traceable origin, is no exception.

Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FB’s illustrative
example, ostensibly based on Article 559, is inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal
consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB conveniently
forgets that the deposit of money in banks is governed by the Civil Code provisions on simple loan or
mutuum.36 As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately
acquired ownership of Franco’s deposits, but such ownership is coupled with a corresponding obligation
to pay him an equal amount on demand.37 Although BPI-FB owns the deposits in Franco’s accounts, it
cannot prevent him from demanding payment of BPI-FB’s obligation by drawing checks against his
current account, or asking for the release of the funds in his savings account. Thus, when Franco issued
checks drawn against his current account, he had every right as creditor to expect that those checks
would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its
mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it
pleases on deposits which it supposes are derived from shady transactions, would open the floodgates
of public distrust in the banking industry.

Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals38 continues to resonate,
thus:

The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving
of money or as active instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life’s savings to
the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for
him. The ordinary person, with equal faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of ordinary expenses. x x x.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever directs. A blunder on the part of the bank,
such as the dishonor of the check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions,
the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of
its customers. Having failed to detect the forgery in the Authority to Debit and in the process
inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco
and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable final judgment.

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in
the Authority to Debit, effected the transfer of ₱80,000,000.00 from FMIC’s to Tevesteco’s account,
when FMIC’s account was a time deposit and it had already paid advance interest to FMIC. Considering
that there is as yet no indubitable evidence establishing Franco’s participation in the forgery, he remains
an innocent party. As between him and BPI-FB, the latter, which made possible the present predicament,
must bear the resulting loss or inconvenience.

Second. With respect to its liability for interest on Franco’s current account, BPI-FB argues that its non-
compliance with the Makati RTC’s Order Lifting the Order of Attachment and the legal consequences
thereof, is a matter that ought to be taken up in that court.

The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The
Manila RTC’s order to pay interests on Franco’s current account arose from BPI-FB’s unjustified refusal to
comply with its obligation to pay Franco pursuant to their contract of mutuum. In other words, from the
time BPI-FB refused Franco’s demand for the release of the deposits in his current account, specifically,
from May 17, 1990, interest at the rate of 12% began to accrue thereon.39

Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FB’s
non-compliance with the Order Lifting the Order of Attachment. However, such authority does not
preclude the Manila RTC from ruling on BPI-FB’s liability to Franco for payment of interest based on its
continued and unjustified refusal to perform a contractual obligation upon demand. After all, this was
the core issue raised by Franco in his complaint before the Manila RTC.

Third. As to the award to Franco of the deposits in Quiaoit’s account, we find no reason to depart from
the factual findings of both the Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned
by Franco who simply accommodated Jaime Sebastian’s request to temporarily transfer ₱400,000.00
from Franco’s savings account to Quiaoit’s account.40 His testimony cannot be characterized as hearsay
as the records reveal that he had personal knowledge of the arrangement made between Franco,
Sebastian and himself.41

BPI-FB makes capital of Franco’s belated allegation relative to this particular arrangement. It insists that
the transaction with Quiaoit was not specifically alleged in Franco’s complaint before the Manila RTC.
However, it appears that BPI-FB had impliedly consented to the trial of this issue given its extensive
cross-examination of Quiaoit.

Section 5, Rule 10 of the Rules of Court provides:

Section 5. Amendment to conform to or authorize presentation of evidence.— When issues not raised by
the pleadings are tried with the express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but failure to amend does not affect the result of
the trial of these issues. If evidence is objected to at the trial on the ground that it is now within the
issues made by the pleadings, the court may allow the pleadings to be amended and shall do so with
liberality if the presentation of the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the amendment to be made. (Emphasis
supplied)

In all, BPI-FB’s argument that this case is not the right forum for Franco to recover the ₱400,000.00 begs
the issue. To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the
funds in his account, and pointed to Franco as the actual owner thereof. Clearly, Franco’s action for the
recovery of his deposits appropriately covers the deposits in Quiaoit’s account.

Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Franco’s checks
respectively dated September 11 and 18, 1989 was legally in order in view of the Makati RTC’s
supplemental writ of attachment issued on September 14, 1989. It posits that as the party that applied
for the writ of attachment before the Makati RTC, it need not be served with the Notice of Garnishment
before it could place Franco’s accounts under garnishment.
The argument is specious. In this argument, we perceive BPI-FB’s clever but transparent ploy to
circumvent Section 4,42 Rule 13 of the Rules of Court. It should be noted that the strict requirement on
service of court papers upon the parties affected is designed to comply with the elementary requisites of
due process. Franco was entitled, as a matter of right, to notice, if the requirements of due process are
to be observed. Yet, he received a copy of the Notice of Garnishment only on September 27, 1989,
several days after the two checks he issued were dishonored by BPI-FB on September 20 and 21, 1989.
Verily, it was premature for BPI-FB to freeze Franco’s accounts without even awaiting service of the
Makati RTC’s Notice of Garnishment on Franco.

Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made
without including in the main suit the owner of the property attached by virtue thereof. Section 5, Rule
13 of the Rules of Court specifically provides that "no levy or attachment pursuant to the writ issued x x x
shall be enforced unless it is preceded, or contemporaneously accompanied, by service of summons,
together with a copy of the complaint, the application for attachment, on the defendant within the
Philippines."

Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire
jurisdiction over the person of Franco when BPI-FB garnished his accounts.43 Effectively, therefore, the
Makati RTC had no authority yet to bind the deposits of Franco through the writ of attachment, and
consequently, there was no legal basis for BPI-FB to dishonor the checks issued by Franco.

Fifth. Anent the CA’s finding that BPI-FB was in bad faith and as such liable for the advance interest it
deducted from Franco’s time deposit account, and for moral as well as exemplary damages, we find it
proper to reinstate the ruling of the trial court, and allow only the recovery of nominal damages in the
amount of ₱10,000.00. However, we retain the CA’s award of ₱75,000.00 as attorney’s fees.

In granting Franco’s prayer for interest on his time deposit account and for moral and exemplary
damages, the CA attributed bad faith to BPI-FB because it (1) completely disregarded its obligation to
Franco; (2) misleadingly claimed that Franco’s deposits were under garnishment; (3) misrepresented that
Franco’s current account was not on file; and (4) refused to return the ₱400,000.00 despite the fact that
the ostensible owner, Quiaoit, wanted the amount returned to Franco.

In this regard, we are guided by Article 2201 of the Civil Code which provides:
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith
is liable shall be those that are the natural and probable consequences of the breach of the obligation,
and which the parties have foreseen or could have reasonable foreseen at the time the obligation was
constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages
which may be reasonably attributed to the non-performance of the obligation. (Emphasis supplied.)

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of
malevolence or ill will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and
should not be held liable for all damages now being imputed to it for its breach of obligation. For the
same reason, it is not liable for the unearned interest on the time deposit.

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it partakes of the nature of fraud.44 We have held that it
is a breach of a known duty through some motive of interest or ill will.45 In the instant case, we cannot
attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court found, there was no
denial whatsoever by BPI-FB of the existence of the accounts. The computer-generated document which
indicated that the current account was "not on file" resulted from the prior debit by BPI-FB of the
deposits. The remedy of freezing the account, or the garnishment, or even the outright refusal to honor
any transaction thereon was resorted to solely for the purpose of holding on to the funds as a security
for its intended court action,46 and with no other goal but to ensure the integrity of the accounts.

We have had occasion to hold that in the absence of fraud or bad faith,47 moral damages cannot be
awarded; and that the adverse result of an action does not per se make the action wrongful, or the party
liable for it. One may err, but error alone is not a ground for granting such damages.48

An award of moral damages contemplates the existence of the following requisites: (1) there must be an
injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a
culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated on
any of the cases stated in Article 2219 of the Civil Code.49
Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code,50
upon which to base his claim for moral damages.1âwphi1

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of
the Civil Code for breach of contract.51

We also deny the claim for exemplary damages. Franco should show that he is entitled to moral,
temperate, or compensatory damages before the court may even consider the question of whether
exemplary damages should be awarded to him.52 As there is no basis for the award of moral damages,
neither can exemplary damages be granted.

While it is a sound policy not to set a premium on the right to litigate,53 we, however, find that Franco is
entitled to reasonable attorney’s fees for having been compelled to go to court in order to assert his
right. Thus, we affirm the CA’s grant of ₱75,000.00 as attorney’s fees.

Attorney’s fees may be awarded when a party is compelled to litigate or incur expenses to protect his
interest,54 or when the court deems it just and equitable.55 In the case at bench, BPI-FB refused to
unfreeze the deposits of Franco despite the Makati RTC’s Order Lifting the Order of Attachment and
Quiaoit’s unwavering assertion that the ₱400,000.00 was part of Franco’s savings account. This refusal
constrained Franco to incur expenses and litigate for almost two (2) decades in order to protect his
interests and recover his deposits. Therefore, this Court deems it just and equitable to grant Franco
₱75,000.00 as attorney’s fees. The award is reasonable in view of the complexity of the issues and the
time it has taken for this case to be resolved.56

Sixth. As for the dismissal of BPI-FB’s counter-claim, we uphold the Manila RTC’s ruling, as affirmed by
the CA, that BPI-FB is not entitled to recover ₱3,800,000.00 as actual damages. BPI-FB’s alleged loss of
profit as a result of Franco’s suit is, as already pointed out, of its own making. Accordingly, the denial of
its counter-claim is in order.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November 29,
1995 is AFFIRMED with the MODIFICATION that the award of unearned interest on the time deposit and
of moral and exemplary damages is DELETED.
No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,

vs.

HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

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 under Bill of Lading

No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh.
D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to
the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of
the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against
defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of
said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs.
M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good
order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after
the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p.
17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion
of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause
of action against it, not having negligent or at fault for the shipment was already in damage and bad
order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence
in the handling/delivery of the cargo to consignee in the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of defendants (in
whose respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-
Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums
were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad
order.

Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the
respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator
(Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report
(Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the
shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it
was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad
Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found
opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was

15 kgs. The report went on to state that when the drums reached the consignee, one drum was found
with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the
shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of
the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of
goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in
the warehouse of the carrier at the place of destination, until the consignee has been advised and has
had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern
Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on
December 12, 1981 one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1,
1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc.
shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package,
crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management
Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage

Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is
correct. As there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it
paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court
a quo.

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

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR
AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF
SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that
novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by, the
carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance
by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161
SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or
arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code;
Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals,
131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed
but these cases, enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be
applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the
consignee and the common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to
take good care of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of
fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo
and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained
damage while in the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a
passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port

Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries
and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred
in its complaint that the total amount of its claim for the value of the undelivered goods amounted to
P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the
stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed
upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and
Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest
thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The
appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court
ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate.
Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court
opted for judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." And as was held by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were
for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the
courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,

38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for
Injury to Person and Loss of Property." After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
against the defendants and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and
severally the following persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value
of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00
which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated
monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid
or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third
party plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained
the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the
appellate court's decision became final, the case was remanded to the lower court for execution, and
this was when the trial court issued its assailed resolution which applied the 6% interest per annum
prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners
contended that Central Bank Circular

No. 416, providing thus —

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall
take effect immediately. (Emphasis found in the text) —

should have, instead, been applied. This Court6 ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of
any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor
involving loans or forbearance of any money, goods or credits does not fall within the coverage of the
said law for it is not within the ambit of the authority granted to the Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for
Damages for injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private respondents, the law
applicable to the said case is Article 2209 of the New Civil Code which reads —
Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest
agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986.
The case was for damages occasioned by an injury to person and loss of property. The trial court
awarded private respondent Pedro Manabat actual and compensatory damages in the amount of
P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the
Reformina v. Tomol case, this Court8 modified the interest award from 12% to 6% interest per annum
but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising
from the collapse of a building, ordered,

inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)

. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29,
1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the
amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When
taken to this Court for review, the case, on 03 October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We
do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman
Ozaeta) a solidary (Art. 1723, Civil Code, Supra.

p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to
cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including
interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as
and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay
on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned
amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except
Roman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve
(12%) per cent per annum imposed on the total amount of the monetary award was in contravention of
law." The 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
. . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and

(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of
any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986];
Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or
a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment
are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will
cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum,
from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly,
they are not applicable to the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a
petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate
Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount
of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as
exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit.
In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to
recover damages, held the award, however, for moral damages by the trial court, later sustained by the
IAC, to be inconceivably large. The Court12 thus set aside the decision of the appellate court and
rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred
Thousand (P100,000.00) Pesos as moral damages, with

six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a
breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the
trial court moral and exemplary damages without, however, providing any legal interest thereon. When
the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October
31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-
appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive
portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with
interest at the legal rate from the date of the filing of the complaint until fully paid (Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial
court, and an entry of judgment was made. The writ of execution issued by the trial court directed that
only compensatory damages should earn interest at 6% per annum from the date of the filing of the
complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari
assailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from
the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to
actions based on a breach of employment contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from the time
the complaint was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs.
Angas,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 . . . until fully paid." Again, in applying the 6% legal interest per annum under
the Civil Code, the Court15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation
regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages.
The legal interest required to be paid on the amount of just compensation for the properties
expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof.
Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be
enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209
of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding rulings
rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985),
Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)

and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance
Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American
Express International v. Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or
12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there
has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum
applies only to loans or forbearance16 of money, goods or credits, as well as to judgments involving such
loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs
when the transaction involves the payment of indemnities in the concept of damage arising from the
breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a
common time frame in the computation of the 6% interest per annum has been applied, i.e., from the
time the complaint is filed until the adjudged amount is fully paid.

The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per
annum,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.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts18 is breached, the contravenor can be held liable for damages.19 The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.20

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.21
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.22 In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 116923 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on

the amount of damages awarded may be imposed at the discretion of the court24 at the rate of 6% per
annum.25 No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty.26 Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from
the decision, dated

03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%),
shall be imposed on such amount upon finality of this decision until the payment thereof.

SO ORDERED.

Today is Sunday, November 25, 2018 home

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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 189871 August 13, 2013

DARIO NACAR, PETITIONER,

vs.

GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.

DECISION

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 Decision3 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 ₱158,919.92. 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 = ₱198/day

Date of Decision = Aug. 18, 1998

Length of Service = 8 yrs. & 1 month

₱198.00 x 26 days x 8 months = ₱41,184.00

BACKWAGES

Date Dismissed = January 24, 1997

Rate per day = ₱196.00

Date of Decisions = Aug. 18, 1998

a) 1/24/97 to 2/5/98 = 12.36 mos.

₱196.00/day x 12.36 mos. = ₱62,986.56

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day = ₱62,986.00

₱198.00 x 26 days x 6.4 mos. = ₱32,947.20

TOTAL = ₱95.933.76

xxxx

WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of

constructive dismissal and are therefore, ordered:

To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six
pesos and 56/100 (₱62,986.56) Pesos representing his separation pay;

To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-
three and 36/100 (₱95,933.36) representing his backwages; and
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, 2002.11 Upon recomputation, the Computation and Examination Unit of the
NLRC arrived at an updated amount in the sum of ₱471,320.31.12

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 ₱471,320.31. Respondents filed a Motion to Quash Writ of
Execution, arguing, among other things, that since the Labor Arbiter awarded separation pay of
₱62,986.56 and limited backwages of ₱95,933.36, no more recomputation is required to be made of the
said awards. They claimed that after the decision becomes final and executory, the same cannot be
altered or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an Order15 denying the
motion. Thus, an Alias Writ of Execution16 was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution17 granting
the appeal in favor of the respondents and ordered the recomputation of the judgment award.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final
and executory. Consequently, another pre-execution conference was held, but respondents failed to
appear on time. Meanwhile, petitioner moved that an Alias Writ of Execution be issued to enforce the
earlier recomputed judgment award in the sum of ₱471,320.31.18

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 ₱147,560.19.

Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original
amount as determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final
computation of his backwages and separation pay.

On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award
that was due to petitioner in the amount of ₱147,560.19, which petitioner eventually received.

Petitioner then filed a Manifestation and Motion praying for the re-computation 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
₱11,459.73. 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 ₱158,919.92 that should be executed. Thus, since
petitioner already received ₱147,560.19, he is only entitled to the balance of ₱11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22
dated September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in
the Resolution23 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 Decision24 denying 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 Resolution25 dated October 9,
2009.

Hence, the petition assigning the lone error:

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 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.26

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, 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 ₱158,919.92. Respondents added that it was only during the
execution proceedings that the petitioner questioned the award, long after the decision had become
final and executory. Respondents contend that to allow the further recomputation of the backwages to
be awarded to petitioner at this point of the proceedings would substantially vary the decision of the
Labor Arbiter as it violates the rule on immutability of judgments.

The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals
(Sixth Division),27 wherein the issue submitted to the Court for resolution was the propriety of the
computation of the awards made, and whether this violated the principle of immutability of judgment.
Like in the present case, it was a distinct feature of the judgment of the Labor Arbiter in the above-cited
case that the decision already provided for the computation of the payable separation pay and
backwages due and did not further order the computation of the monetary awards up to the time of the
finality of the judgment. Also in Session Delights, the dismissed employee failed to appeal the decision of
the labor arbiter. The Court clarified, thus:

In concrete terms, the question is whether a re-computation in the course of execution of the labor
arbiter's original computation of the awards made, pegged as of the time the decision was rendered and
confirmed with modification by a final CA decision, is legally proper. The question is posed, given that the
petitioner did not immediately pay the awards stated in the original labor arbiter's decision; it delayed
payment because it continued with the litigation until final judgment at the CA level.

A source of misunderstanding in implementing the final decision in this case proceeds from the way the
original labor arbiter framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed with
finality. This is the finding of the illegality of the dismissal and the awards of separation pay in lieu of
reinstatement, backwages, attorney's fees, and legal interests.

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 - 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 re-computation 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 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 X305.136 of the Manual of Regulations for Banks and
Sections 4305Q.1,37 4305S.338 and 4303P.139 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 Lines40 and Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions,
before its amendment by BSP-MB Circular No. 799 - but 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 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 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.1awp++i1

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.1âwphi1

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:

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.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the
demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from
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 No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE.
Respondents are Ordered to Pay petitioner:

(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May
27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and executory;

(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per
year of service; and

(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27,
2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits
awarded and due to petitioner in accordance with this Decision.

SO ORDERED.
PHILIPPINE NATIONAL BANK, Petitioner, v. HEIRS OF BENEDICTO AND AZUCENA ALONDAY, Respondent.

DECISION

BERSAMIN, J.:

The issue is whether the all-embracing or dragnet clause contained in the first mortgage contract
executed between the parties for the security of the first loan could authorize the foreclosure of the
property under the mortgage to secure a second loan despite the full payment of the second loan.

Antecedents

On September 26, 1974, the Spouses Benedicto and Azucena Alonday (Spouses Alonday) obtained an
agricultural loan of P28,000.00 from the petitioner at its Digos, Davao del Sur Branch, and secured the
obligation by constituting a real estate mortgage on their parcel of land situated in Sta. Cruz, Davao del
Sur registered under Original Certificate of Title (OCT) No. P-3599 of the Registry of Deeds of Davao del
Sur.1chanrobleslaw

On June 11, 1980, the Spouses Alonday obtained a commercial loan for P16,700.00 from the petitioner's
Davao City Branch, and constituted a real estate mortgage over their 598 square meter residential lot
situated in Ulas, Davao City registered under Transfer Certificate of Title (TCT) No. T-66139 of the Registry
of Deeds of Davao City.

It is noted that the mortgage contracts contained the following identical provision, to
wit:ChanRoblesVirtualawlibrary

That for and in consideration of certain loans, overdrafts, and other credit accommodations, obtained
from the Mortgagee, which is hereby fixed at _________, Philippine Currency, and to secure the
payment of the same and those others that the Mortgagee may extend to the Mortgagor, including
interests and expenses, and other obligations owing by the Mortgagor to the Mortgagee, whether direct
or indirect, principal or secondary, as appearing in the accounts, books and records of the Mortgagee,
the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors
or assigns, the parcel of land which is/are described in the list inserted at the back of this document xxx.
In case the Mortgagor executes subsequent promissory note or notes either as renewal of the former
note, as an extension thereof, or as a new loan, or is given any other kind of accommodation, xxx, this
mortgage shall also stand as security for the payment of the said promissory note or notes and/or
accommodations without the necessity of executing a new contract and this mortgage shall have the
same force and effect as if the said promissory note or notes and/or accommodations were existing on
the date thereof, notwithstanding full payments of any or all obligations of the Mortgagors. This
mortgage shall also stand as security for said obligations and any and all other obligations of the
Mortgagor to the Mortgagee of whatever kind and nature, whether such obligations have been
contracted before, during or after the constitution of this mortgage. However, if the Mortgagor shall pay
the Mortgagee, its successors or assigns, the obligations secured by this mortgage, together with
interests, costs and other expenses, on or before the date they are due, and shall keep and perform all
the covenants and agreements herein contained for the Mortgagor to keep and perform, then this
mortgage shall be null and void, otherwise, it shall remain in full force and
effect.2chanroblesvirtuallawlibrary

The Spouses Alonday made partial payments on the commercial loan, which they renewed on December
23, 1983 for the balance of P15,950.00. The renewed commercial loan, although due on December 25,
1984, was fully paid on July 5, 1984.3chanrobleslaw

On August 6, 1984, respondents Mercy and Alberto Alonday, the children of the Spouses Alonday,
demanded the release of the mortgage over the property covered by TCT No. T-66139. The petitioner
informed them, however, that the mortgage could not be released because the agricultural loan had not
yet been fully paid, and that as the consequence of the failure to pay, it had foreclosed the mortgage
over the property covered by OCT No. P-3599 on August 17, 1984.

It appeared that notwithstanding such foreclosure, a deficiency balance of P91,525.22 remained.4

Hence, the petitioner applied for the extrajudicial foreclosure of the mortgage on the property covered
by TCT No. T-66139. A notice of extra-judicial sale was issued on August 20, 1984, and the property
covered by TCT No. T-66139 was sold on September 28, 1984 to the petitioner in the amount of
P29,900.00. Since the Alondays were unable to redeem the property, the petitioner consolidated its
ownership. Later on, the property was sold for P48,000.00 to one Felix Malmis on November 10,
1989.5chanrobleslaw

According to the petitioner, the deed of mortgage relating to the property covered by TCT No. T-66139
included an "all-embracing clause" whereby the mortgage secured not only the commercial loan
contracted with its Davao City Branch but also the earlier agricultural loan contracted with its Digos
Branch.

Judgment of the RTC

On July 8, 1994, therefore, the respondents instituted a complaint against the petitioner in the Regional
Trial Court (RTC) in Davao City to recover damages and attorney's fees (Civil Case No. 23,021-94),
averring that the foreclosure and sale of the property covered by TCT No. T-66139 was illegal.

On November 28, 1997, the RTC rendered judgment finding in favor of the respondents,6 and disposed
as follows:ChanRoblesVirtualawlibrary

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against defendant bank, ordering
said defendant bank:ChanRoblesVirtualawlibrary

To pay plaintiffs the sum of One Million Seven Hundred Thousand (P1,700,000.00) Pesos, representing
the value of the land covered by TCT No. T-66139;

To pay plaintiffs the sum of P20,000.00 as attorney's fees; and cralawlawlibrary

To pay the costs of this suit.

SO ORDERED.7chanroblesvirtuallawlibrary

The RTC observed that if the petitioner had intended to have the second mortgage secure the pre-
existing agricultural loan, it should have made an express reservation to that effect; that based on the all-
embracing clause, the mortgage was a contract of adhesion, and the ambiguities therein should be
construed strictly against the petitioner; that the last sentence of the all-embracing clause provided that
the mortgage would be null and void upon the payment of the obligations secured by the mortgage; and
that the petitioner was guilty of bad faith in refusing to nullify the mortgage despite full payment of the
commercial loan prior to its maturity.

The RTC also ruled that because the property had already been sold to Malmis, a third party not brought
within the trial court's jurisdiction, it could not order the return of the property; and that it was ordering
the petitioner instead to pay the respondents the value of the property under its present market
valuation.

Decision of the CA

Dissatisfied, the petitioner appealed to the Court of Appeals (CA). The appeal was docketed as C.A.-G.R.
CV No. 60625.

On August 31, 2005, the CA affirmed the RTC,8 observing that the mortgage, being a contract of
adhesion, should be construed strictly against the petitioner as the patty who had drafted the same; and
that although the petitioner had argued, citing Mojica v. Court of Appeals,9 that all-embracing clauses
were valid to secure past, present and future loans, Mojica v. Court of Appeals was not in point inasmuch
as the facts therein were different from the facts herein.

The petitioner filed a motion for reconsideration, but the CA denied the motion on February 27,
2006.10chanrobleslaw

Hence, this appeal by petition for review on certiorari.

Issues

The petitioner assigns the following errors to the CA, to wit:ChanRoblesVirtualawlibrary

The Court of Appeals grievously erred in restricting and delimiting the scope and validity of the standard
"all-embracing clause" in real estate mortgage contracts solely to future indebtedness and not to prior
ones, contrary to leading Supreme Court decisions on the matter.

Even assuming arguendo that the xxx decisions are inapplicable to the case at bar, the Court of Appeals
grievously erred in awarding the unsubstantiated amount of P1.7 million in damages and P20,000.00 as
attorney's fees against PNB without factual and legal basis.11
The petitioner submits that Mojica v. Court of Appeals validates the use of an all-embracing clause in a
mortgage agreement to secure not only the amount indicated on the mortgage instrument, but also the
mortgagor's future and past obligations; that by denying the applicability to the case of Mojica v. Court
of Appeals and other similar rulings, the CA disregarded the principle of stare decisis; and that the CA in
effect thereby regarded allembracing clauses invalid as to prior obligations.

Ruling of the Court

The appeal lacks merit.

The CA opined as follows:ChanRoblesVirtualawlibrary

The real estate mortgage on the property covered by TCT No. T-66139 was specifically constituted to
secure the payment of the commercial loan of the Spouses ALONDAY. In the same manner, the real
estate mortgage on the property covered by OCT No. P-3599 was constituted to secure the payment of
their agricultural loan with the PNB. With the execution of separate mortgage contracts for the two (2)
loans, it is clear that the intention of the parties was to limit the mortgage to the loan for which it was
constituted.

xxxx

The [Mojica] case is not in point since the facts therein are different from the case at bench. In Mojica vs.
Court of Appeals, the mortgaged real estate property was made to answer for future advancement or
renewal of the loan, whereas in the instant case, the foreclosure sale included a property which was
used as a security for a commercial loan which was obtained after the agricultural loan.

The mortgage provision relied upon by appellant is known in American jurisprudence as a "dragnet"
clause, which is specifically phrased to subsume all debts of past or future origin. Such clauses pursuant
to the pronouncement of the Supreme Court in DBP vs. Mirang must be "carefully scrutinized and strictly
construed."12chanrobleslaw

The petitioner wrongly insists that the CA, thr ough the foregoing ratiocination, held that the all-
embracing or dragnet clauses were altogether invalid as to prior obligations. What the CA, although
reiterating that the Court upheld the validity of using real estate mortgages to secure future
advancements, only thereby pointed out that it could not find similar rulings as to mortgages executed
to secure prior loans.

There is no question, indeed, that all-embracing or dragnet clauses have been recognized as valid means
to secure debts of both future and past origins.13 Even so, we have likewise emphasized that such
clauses were an exceptional mode of securing obligations, and have held that obligations could only be
deemed secured by the mortgage if they came fairly within the terms of the mortgage contract.14 For
the all-embracing or dragnet clauses to secure future loans, therefore, such loans must be sufficiently
described in the mortgage contract.15 If the requirement could be imposed on a future loan that was
uncertain to materialize, there is a greater reason that it should be applicable to a past loan, which is
already subsisting and known to the parties.

Nonetheless, it was undeniable that the petitioner had the opportunity to include some form of
acknowledgement of the previously subsisting agricultural loan in the terms of the second mortgage
contract The mere fact that the mortgage constituted on the property covered by TCT No. T-66139 made
no mention of the pre-existing loan could only strongly indicate that each of the loans of the Spouses
Alonday had been treated separately by the parties themselves, and this sufficiently explained why the
loans had been secured by different mortgages.

Another indication that the second mortgage did not extend to the agricultural loan was the fact that the
second mortgage was entered into in connection only with the commercial loan. Our ruling in Prudential
Bank v. Alviar16 is then relevant, to wit:ChanRoblesVirtualawlibrary

xxx The parties having conformed to the "blanket mortgage clause" or "dragnet clause," it is reasonable
to conclude that they also agreed to an implied understanding that subsequent loans need not be
secured by other securities, as the subsequent loans will be secured by the first mortgage. In other
words, the sufficiency of the first security is a corollary component of the "dragnet clause." But of
course, there is no prohibition, as in the mortgage contract in issue, against contractually requiring other
securities for the subsequent loans. Thus, when the mortgagor takes another loan for which another
security was given it could not be inferred that such loan was made in reliance solely on the original
security with the "dragnet clause," but rather, on the new security given. This is the "reliance on the
security test."

xxx Accordingly, finding a different security was taken for the second loan no intent that the parties
relied on the security of the first loan could be inferred, so it was held. The rationale involved, the court
said, was that the "dragnet clause" in the first security instrument constituted a continuing offer by the
borrower to secure further loans under the security of the first security instrument, and that when the
lender accepted a different security he did not accept the offer.17chanroblesvirtuallawlibrary

Although the facts in Prudential Bank were not entirely on all fours with those of this case because the
prior mortgage in Prudential Bank was sought to be enforced against a subsequent loan already secured
by other securities, the logic in Prudential Bank is applicable here. The execution of the subsequent
mortgage by the parties herein to secure the subsequenlloan was an indication that they had intended
to treat each loan as distinct from the other, and that they had intended to secure each of the loans
individually and separately.

We further concur with the CA and the RTC in their holding that the mortgage contracts executed by the
Spouses Alonday were contracts of adhesion exclusively prep red by the petitioner. Under Article 1306 of
the Civil Code, the contracting parties "may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs, public order or
public policy." This is an express recognition by the law of the right of the people to enter into all manner
of lawful conventions as part of their safeguarded liberties. The objection against a contract of adhesion
lies most often in its negation of the autonomy of the will of the parties in contracts. A contract of
adhesion, albeit valid, becomes objectionable only when it takes undue advantage of one of the parties
the weaker party- by having such party just adhere to the terms of the contract. In such situation, the
courts go to the succor of the weaker party by construing any obscurity in the contract against the party
who prepared the contract, the latter being presumed as the stronger party to the agreement, and as
the party who caused the obscurity.18chanrobleslaw

To reiterate, in order for the all-embracing or dragnet clauses to secure future and other loans, the loans
thereby secured must be sufficiently described in the mortgage contract. Considering that the
agricultural loan had been pre-existing when the mortgage was constituted on the property covered by
TCT No. T-66139, it would have been easy for the petitioner to have expressly incorporated the reference
to such agricultural loan in the mortgage contract covering the commercial loan. But the petitioner did
not. Being the party that had prepared the contract of mortgage, its failure to do so should be construed
that it did not at all contemplate the earlier loan when it entered into the subsequent mortgage.

Anent the value of the property covered by TCT No. T-66139, the findings of the RTC on the valuation
were as follows:ChanRoblesVirtualawlibrary

Considering that the property is located at the junction of the roads leading to Toril and Calinan districts
with big establishments all around, plaintiffs claim that at the time of the filing of this case which was in
1994, the reasonable market value of the land was P1,200.00 per square meter. To date, the value could
reasonably be P3,000.00 per square meter.19chanroblesvirtuallawlibrary
Opining that the respondents should be indemnified the value of the loss suffered from the illegal
foreclosure of the property covered by TCT No. T-66139, theCA adopted the valuation by the RTC on the
established fair market value of the property being P3,000.00/square meter, for a total of P1,700,000.00
as damages to be awarded.20chanrobleslaw

The petitioner challenges the valuation as devoid of basis. It points out that the complaint of the Spouses
Alonday had placed the value of the property at P1,200.00/square meter; and that respondent Alberto
Alonday had testified during the trial that the value of the property had been only P1,200.00/square
meter.

We uphold the challenge by the petitioner.

We are at a loss at how the RTC had computed and determined the valuation at P3,000.00/square meter.
Such determination was easily the product of guesswork on the part of the trial court, for the language
employed in its judgment in reference to such value was "could reasonably be."21 On its part, the CA
adverted to the valuation as "approximately P3,000.00,"22 indicating that its own determination of the
fair market value was of similar tenor as that by the RTC. Accordingly, the valuation by both lower courts
cannot be upheld, for it is basic enough that in their determination of actual damages, the comis should
eschew mere assertions, speculations, conjectures or guesswork;23 otherwise, they would be guilty of
arbitrariness and whimsicality.

Moreover, the courts cannot grant reliefs not prayed for in the pleadings or in excess of what is being
sought by the party.24chanrobleslaw

To accord with what is fair, based on the records, we reduce the basis of the actual damages to
P1,200.00/square meter. Such valuation is insulated from arbitrariness because it was made by the
Spouses Alonday themselves in their complaint, rendering a total of P717,600.00 as actual damages.

The lower courts did not impose interest on the judgment obligation to be paid by the petitioner. Such
interest is in the nature of compensatory interest, as distinguished from monetary interest. It is relevant
to elucidate on the distinctions between these kinds of interest. In this regard, the Court has expounded
in Siga-an v. Villanueva:25cralawredcralawred
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. 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.

Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest
shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing
provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the
payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The
concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held
that collection of interest without any stipulation therefor in writing is prohibited by law.

xxxx

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.26 xxx

The petitioner should be held liable for interest on the actual damages of P717,600.00 representing the
value of the propetiy with an area 598 square meters that was lost to them through the unwarranted
foreclosure, the same to be reckoned from the date of judicial demand (i.e., the filing of the action by
the Spouses Alonday). At the time thereof, the rate was 12% per annum, and such rate shall run until
June 30, 2013. Thereafter, or starting on July 1, 2013, the rate of interest shall be 6% per annum until full
payment of the obligation, pursuant to the ruling in Nacar v. Gallery Frames,27 which took into
consideration the lowering of interest rates by the Monetary Board.
In addition, Article 221228 of the Civil Code requires that interest due shall earn legal interest from the
time it is judicially demanded, although the obligation may be silent upon this point. Accordingly, the
interest due shall itself earn legal interest of 6% per annum from the date of finality of the judgment
until its full satisfaction, the interim period being deemed to be an equivalent to a forbearance of
credit.29chanrobleslaw

WHEREFORE, the Court AFFIRMS the decision promulgated in C.A.-G.R. CV No. 60625 on August 31, 2005
in all respects subject to the following MODIFICATIONS, namely: (1) the award of P1,700,000.00
representing the value of the land covered by Transfer Certificate of Title No. T-66139 of the Registry of
Deeds of Davao City is REDUCED to P717,600.00, the same to be paid by petitioner Philippine National
Bank; (2) the principal amount of P717,600.00 shall earn interest of 12% per annum from the filing of the
complaint until June 30, 2013, and interest of 6% per annum from July 1, 2013 until full payment; and (3)
the interests thus earned shall also earn interest of 6% per annum from the finality of this decision until
full payment.

SO ORDERED.

Today is Sunday, November 25, 2018 home

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FIRST DIVISION

January 11, 2016

G.R. No. 160408

SPOUSES ROBERTO and ADELAIDA PEN, Petitioners,

vs.

SPOUSES SANTOS and LINDA JULIAN, Respondents.

DECISION

BERSAMIN, J.:

The petitioners who were the buyers of the mortgaged property of the respondents seek the reversal of
the decision promulgated on October 20, 2003,1 whereby the Court of Appeals (CA) affirmed with
modification the adverse judgment rendered on August 30, 1999 by the Regional Trial Court (RTC),
Branch 77, in Quezon City.2 In their respective rulings, the CA and the RTC both declared the deed of sale
respecting the respondents' property as void and inexistent, albeit premised upon different reasons.

Antecedents

The CA summarized the antecedent facts and procedural matters in its assailed decision as follows:

On April 9, 1986, the appellees (the Julians) obtained a P60,000.00 loan from appellant Adelaida Pen. On
May 23, 1986 and on the (sic) May 27, 1986, they were again extended loans in the amounts of
P50,000.00 and P10,000.00, respectively by appellant Adelaida. The initial interests were deducted by
appellant Adelaida, (1) P3,600.00 from the P60,000.00 loan; (2) P2,400.00 from the P50,000.00 loan; and
(3) P600.00 from the P10,000.00 loan. Two (2) promissory notes were executed by the appellees in favor
of appellant Adelaida to evidence the foregoing loans, one dated April 9, 1986 and payable on June 15,
1986 for the P60,000.00 loan and another dated May 22, 1986 payable on July 22, 1986 for the
P50,000.00 loan. Both Joans were charged interest at 6% per month. As security, on May 23, 1986, the
appellees executed a Real Estate Mortgage over their property covered by TCT No. 327733 registered
under the name of appellee Santos Julian, Jr. The owner's duplicate of TCT No. 327733 was delivered to
the appellants.
Appellant's version of the subsequent events run as follows: When the loans became due and
demandable, appellees failed to pay despite several demands. As such, appellant Adelaida decided to
institute foreclosure proceedings. However, she was prevailed upon by appellee Linda not to foreclose
the property because of the cost of litigation and since it would cause her embarrassment as the
proceedings will be announced in public places at the City Hall, where she has many friends. Instead,
appellee Linda offered their mortgaged property as payment in kind. After the ocular inspection, the
parties agreed to have the property valued at P70,000.00. Thereafter, on October 22, 1986 appellee
executed a two (2) page Deed of Sale duly signed by her on the left margin and over her printed name.
After the execution of the Deed of Sale, appellant Pen paid the capital gains tax and the required real
property tax. Title to the property was transferred to the appellants by the issuance of TCT No. 364880
on July 17, 1987. A reconstituted title was also issued to the appellants on July 09, 1994 when the
Quezon City Register of Deeds was burned (sic).

On July 1989, appellants allege that appellee Linda offered to repurchase the property to which the
former agreed at the repurchase price of P436,l 15.00 payable in cash on July 31, 1989. The appellees
failed to repurchase on the agreed date. On February 1990, appellees again offered to repurchase the
property for the same amount, but they still failed to repurchase. On June 28, 1990, another offer was
made to repurchase the property for the same amount. Appellee Linda offered to pay P100,000.00 in
cash as sign of good faith. The offer was rejected by appellant Adelaida. The latter held the money only
for safekeeping upon the pleading of appellee Linda. Upon the agreement of the parties, the amount of
P100,000.00 was deducted from the balance of the appellees' indebtedness, so that as of October 15,
1997, their unpaid balance amounted to P319,065.00. Appellants allege that instead of paying lthe] said
balance, the appellees instituted on September 8, 1994 the civil complaint and filed an adverse claim
and lis pendens which were annotated at the back of the title to the property.

On the other hand, the appellees aver the following: At the time the mortgage was executed, they were
likewise required by the appellant Adelaida to sign a one (1) page document purportedly an "Absolute
Deed of Sale". Said document did not contain any consideration, and was "undated, unfilled and
unnotarized". They allege that their total payments amounted to P115,400.00 and that their last
payment was on June 28, 1990 in the amount of P100,000.00.

In December 1992, appellee Linda Julian offered to pay appellant Adelaida the amount of P150,000.00.
The latter refused to accept the offer and demanded that she be paid the amount of P250,000.00.
Unable to meet the demand, appellee Linda desisted from the offer and requested that she be shown
the land title which she conveyed to the appellee Adelaida, but the latter refused. Upon verification with
the Registry of Deeds of Quezon City, she was informed that the title to the mortgaged property had
already been registered in the name of appellee Adelaida under TCT No. 364880, and that the transfer
was entered on July 17, 1987. A reconstituted title, TCT No. RT-45272 (364880), also appeared on file in
the Registry of Deeds replacing TCT No. 364880.

By reason of the foregoing discoveries, appellee filed an Affidavit of Adverse Claim on January
1993.1avvphi1 Counsel for the appellees, on August 12, 1994, formally demanded the reconveyance of
the title and/or the property to them, but the appellants refused. In the process of obtaining other
documents; the appellees also discovered that the appellants have obtained several Declarations of Real
Property, and a Deed of Sale consisting of two (2) pages which was notarized by one Atty. Cesar Ching.
Said document indicates a consideration of P70,000.00 for the lot, and was made to appear as having
been executed on October 22, 1986. On September 8, 1994, appellees filed a suit for the Cancellation of
Sale, Cancellation of Title issued to the appellants; Recovery of Possession; Damages with Prayer for
Preliminary Injunction. The complaint alleged that appellant Adelaida, through obvious bad faith,
maliciously typed, unilaterally filled up, and caused to be notarized the Deed of Sale earlier signed by
appellee Julian, and used this spurious deed of sale as the vehicle for her fraudulent transfer unto herself
the parcel of land covered by TCT No. 327733.3

Judgment of the RTC

In its judgment rendered on August 30, 1999,4 the RTC ruled in favor of the respondents. According
greater credence to the version of the respondents on the true nature of their transaction, the trial court
concluded that they had not agreed on the consideration for the sale at the time they signed the deed of
sale; that in the absence of the consideration, the sale lacked one of the essential requisites of a valid
contract; that the defense of prescription was rejected because the action to impugn the void contract
was imprescriptible; and that the promissory notes and the real estate mortgage in favor of the
petitioners were nonetheless valid, rendering the respondents liable to still pay their outstanding
obligation with interest.

The RTC disposed thusly:

WHEREFORE, judgment is hereby rendered:

1. Declaring the Deed of Sale, dated October 22, 1986, void or inexistent;
2. Cancelling TCT No. RT-45272 (364480) and declaring it to be of no further legal force and effect;

3. Ordering the defendants to reconvey the subject property to the plaintiffs and to deliver to them the
possession thereof; and

4. Ordering the plaintiffs to pay to the defendants the unpaid balance of their indebtedness plus accrued
interest totaling P,319,065.00 as of October 15, 1997, plus interests at the legal rate counted from the
date of filing of the complaint and until the full payment thereof, without prejudice to the right of the
defendants to foreclose the mortgage in the event that plaintiffs will fail to pay their obligation.

No pronouncement as to cost.

SO ORDERED.5

Decision of the CA

On appeal by the petitioners, the CA affirmed the RTC with modification under its assailed decision of
October 20, 2003,6 decreeing:

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Quezon City is AFFIRMED
WITH modification. Judgement is hereby rendered:

1. Declaring the Deed of Sale, dated October 22, 1986, void or inexistent;

2. Cancelling TCT No. RT-45272 (364880) and declaring it to be of no further legal force and effect;

3. Ordering the appellants-defendants to reconvey the subject property to the plaintiffs-appellees and to
deliver to them the possession thereof; and
4. Ordering the plaintiffs-appellces to pay to the defendants the unpaid balance of their indebtedness,
P43,492.15 as of June 28, 1990, plus interests at the legal rate of 12% per annum from said date and
until the full payment thereof, without prejudice to the right of the defendants to foreclose the
mortgage in the event that plaintiffs-appellees will fail to pay their obligation.

SO ORDERED.7

The CA pronounced the deed of sale as void but not because of the supposed lack of consideration as
the R TC had indicated, but because of the deed of sale having been executed at the same time as the
real estate mortgage, which rendered the sale as a prohibited pactum commissorium in light of the fact
that the deed of sale was blank as to the consideration and the date, which details would be filled out
upon the default by the respondents; that the promissory notes contained no stipulation on the
payment of interest on the obligation, for which reason no monetary interest could be imposed for the
use of money; and that compensatory interest should instead be imposed as a form of damages arising
from Linda's failure to pay the outstanding obligation.

Issues

In this appeal, the petitioners posit the following issues, namely: (1) whether or not the CA erred in
ruling against the validity of the deed of sale; and (2) whether or not the CA erred in ruling that no
monetary interest was due for Linda's use of Adelaida's money.

Ruling of the Court

The appeal is partly meritorious.

That the petitioners are raising factual issues about the true nature of their transaction with the
respondent is already of itself, sufficient reason to forthwith deny due course to the petition for review
on certiorari. They cannot ignore that any appeal to the Court is limited to questions of law because the
Court is not a trier of facts. As such, the factual findings of the CA should be respected and accorded
great weight, and even finality when supported by the substantial evidence on record.8 Moreover, in
view of the unanimity between the RTC and the CA on the deed of sale being void, varying only in their
justifications, the Court affirms the CA, and adopts its conclusions on the invalidity of the deed of sale.

Nonetheless, We will take the occasion to explain why we concur with the CA's justification in
discrediting the deed of sale between the parties as pactum commissorium.

Article 2088 of the Civil Code prohibits the creditor from appropriating the things given by way of pledge
or mortgage, or from disposing of them; any stipulation to the contrary is null and void. The elements for
pactum commissorium to exist are as follows, to wit: (a) that there should be a pledge or mortgage
wherein property is pledged or mortgaged by way of security for the payment of the principal obligation;
and (b) that there should be a stipulation for an automatic appropriation by the creditor of the thing
pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated
period.9 The first element was present considering that the property of the respondents was mortgaged
by Linda in favor of Adelaida as security for the farmer's indebtedness. As to the second, the
authorization for Adelaida to appropriate the property subject of the mortgage upon Linda's default was
implied from Linda's having signed the blank deed of sale simultaneously with her signing of the real
estate mortgage. The haste with which the transfer of property was made upon the default by Linda on
her obligation, and the eventual transfer of the property in a manner not in the form of a valid dacion en
pago ultimately confirmed the nature of the transaction as a pactum commissorium.

It is notable that in reaching its conclusion that Linda's deed of sale had been executed simultaneously
with the real estate mortgage, the CA first compared the unfilled deed of sale presented by Linda with
the notarized deed of sale adduced by Adelaida. The CA justly deduced that the completion and
execution of the deed of sale had been conditioned on the non-payment of the debt by Linda, and
reasonably pronounced that such circumstances rendered the transaction pactum commissorium. The
Court should not disturb or undo the CA's conclusion in the absence of the clear showing of abuse,
arbitrariness or capriciousness on the part of the CA.10

The petitioners have theorized that their transaction with the respondents was a valid dacion en pago by
highlighting that it was Linda who had offered to sell her property upon her default. Their theory cannot
stand scrutiny. Dacion en pago is in the nature of a sale because property is alienated in favor of the
creditor in satisfaction of a debt in money.11 For a valid dacion en pago to transpire, however, the
attendance of the following elements must be established, namely: (a) the existence of a money
obligation; (b) the alienation to the creditor of a property by the debtor with the consent of the former;
and (c) the satisfaction of the money obligation of the debtor.12 To have a valid dacion en pago,
therefore, the alienation of the property must fully extinguish the debt. Yet, the debt of the respondents
subsisted despite the transfer of the property in favor of Adelaida.

The petitioners insist that the parties agreed that the deed of sale would not yet contain the date and
the consideration because they had still to agree on the price.13 Their insistence is not supported by the
established circumstances. It appears that two days after the loan fell due on October 15, 1986,14 Linda
offered to sell the mortgaged property;15 hence, the parties made the ocular inspection of the premises
on October 18, 1986. By that time, Adelaida had already become aware that the appraiser had valued
the property at P70,000.00. If that was so, there was no plausible reason for still leaving the
consideration on the deed of sale blank if the deed was drafted by Adelaida on October 20, 1986,
especially considering that they could have conveniently communicated with each other in the
meanwhile on this significant aspect of their transaction. It was also improbable for Adelaida to still hand
the unfilled deed of sale to Linda as her copy if, after all, the deed of sale would be eventually notarized
on October 22, 1986.

According to Article 1318 of the Civil Code, the requisites for any contract to be valid are, namely: (a) the
consent of the contracting parties; (b) the object; and (c) the consideration. There is a perfection of a
contract when there is a meeting of the minds of the parties on each of these requisites.16 The following
passage has fittingly discussed the process of perfection in Moreno, Jr. v. Private Management Office:17

To reach that moment of perfection, the parties must agree on the same thing in the same sense, so that
their minds meet as to all the terms. They must have a distinct intention common to both and without
doubt or difference; until all understand alike, there can be no assent, and therefore no contract. The
minds of parties must meet at every point; nothing can be left open for further arrangement. So long as
there is any uncertainty or indefiniteness, or future negotiations or considerations to be had between
the parties, there is not a completed contract, and in fact, there is no contract at all.18

In a sale, the contract is perfected at the moment when the seller obligates herself to deliver and to
transfer ownership of a thing or right to the buyer for a price certain, as to which the latter agrees.19 The
absence of the consideration from Linda's copy of the deed of sale was credible proof of the lack of an
essential requisite for the sale. In other words, the meeting of the minds of the parties so vital in the
perfection of the contract of sale did not transpire. And, even assuming that Linda's leaving the
consideration blank implied the authority of Adelaida to fill in that essential detail in the deed of sale
upon Linda's default on the loan, the conclusion of the CA that the deed of sale was a pactum
commisorium still holds, for, as earlier mentioned, all the elements of pactum commisorium were
present.
Anent interest, the CA deleted the imposition of monetary interest but decreed compensatory interest of
12% per annum.

Interest that is the compensation fixed by the parties for the use or forbearance of money is referred to
as monetary interest.1âwphi1 On the other hand, interest that may be imposed by law or by the courts
as penalty or indemnity for damages is called compensatory interest. In other words, the right to recover
interest arises only either by vi11ue of a contract or as damages for delay or failure to pay the principal
loan on which the interest is demanded.20

The CA correctly deleted the monetary interest from the judgment. Pursuant to Article 1956 of the Civil
Code, no interest shall be due unless it has been expressly stipulated in writing. In order for monetary
interest to be imposed, therefore, two requirements must be present, specifically: (a) that there has
been an express stipulation for the payment of interest; and (b) that the agreement for the payment of
interest has been reduced in writing.21 Considering that the promissory notes contained no stipulation
on the payment of monetary interest, monetary interest cannot be validly imposed.

The CA properly imposed compensatory interest to offset the delay in the respondents' performance of
their obligation. Nonetheless, the imposition of the legal rate of interest should be modified to conform
to the prevailing jurisprudence. The rate of 12% per annum imposed by the CA was the rate set in
accordance with Eastern Shipping Lines, Inc., v. Court of Appeals.22 In the meanwhile, Bangko Sentral ng
Pilipinas Monetary Board Resolution No. 796 dated May 16, 2013, amending Section 2 of Circular No.
905, Series of 1982, and Circular No. 799, Series of 2013, has lowered to 6% per annum the legal rate of
interest for a loan or forbearance of money, goods or credit starting July 1, 2013. This revision is
expressly recognized in Nacar v. Gallery Frames.23 It should be noted, however, that imposition of the
legal rate of interest at 6% per annum is prospective in application.

Accordingly, the legal rate of interest on the outstanding obligation of P43,492.15 as of June 28, 1990, as
the CA found, should be as follows: (a) from the time of demand on October 13, 1994 until June 30,
2013, the legal rate of interest was 12% per annum conformably with Eastern Shipping lines; and (b)
following Nacar, from July 1, 2013 until full payment, the legal interest is 6% per annum.

WHEREFORE, the Court AFFIRMS the decision promulgated on October 20, 2003 subject to the
MODIFICATION that the amount of P43,492.l5 due from the respondents shall earn legal interest of 12%
per annum reckoned from October 13, 1994 until June 30, 2013, and 6% per annum from July 1, 2013
until full payment.

Without pronouncement on costs of suit.

SO ORDERED.

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DIVISION

[ GR No. 202514, Jul 25, 2016 ]

ANNA MARIE L. GUMABON v. PHILIPPINE NATIONAL BANK +

RESOLUTION

BRION, J.:

Before us is a petition for review on certiorari[1] under Rule 45 of the Rules of Court filed by Anna Marie
Gumabon (Anna Marie) assailing the December 16, 2011 decision[2] and June 26, 2012 resolution[3] of
the Court of Appeals (CA) in CA-G.R. CV. No. 96289. The CA reversed the Regional Trial Court (RTC)'s
ruling[4] in Civil Case No. Q-04-53432 favoring Anna Marie.
The Facts

On August 12, 2004, Anna Marie filed a complaint for recovery of sum of money and damages before the
RTC against the Philippine National Bank (PNB) and the PNB Delta branch manager Silverio Fernandez
(Fernandez). The case stemmed from the PNB's refusal to release Anna Marie's money in a consolidated
savings account and in two foreign exchange time deposits, evidenced by Foreign Exchange Certificates
of Time Deposit (FXCTD).

In 2001, Anna Marie, together with her mother Angeles and her siblings Anna Elena and Santiago, (the
Gumabons) deposited with the PNB Delta Branch $10,945.28 and $16,830.91, for which they were
issued FXCTD Nos. A-993902[5] and A-993992,[6] respectively.

The Gumabons also maintained eight (8) savings accounts[7] in the same bank. Anna Marie decided to
consolidate the eight (8) savings accounts and to withdraw P-2,727,235.85 from the consolidated savings
account to help her sister's financial needs.

Anna Marie called the PNB employee handling her accounts, Reino Antonio Salvoro (Salvoro), to
facilitate the consolidation of the savings accounts and the withdrawal. When she went to the bank on
April 14, 2003, she was informed that she could not withdraw from the savings accounts since her bank
records were missing and Salvoro could not be contacted.

On April 15, 2003, Anna Marie presented her two FXCTDs, but was also unable to withdraw against
them. Fernandez informed her that the bank would still verify and investigate before allowing the
withdrawal since Salvoro had not reported for work.

Thus, Anna Marie sent two demand letters[8] dated April 23 and April 25, 2003 to the PNB.

After a month, the PNB finally consolidated the savings accounts and issued a passbook for Savings
Account (SA) No. 6121200.[9] The PNB also confirmed that the total deposits amounted to P-
2,734,207.36. Anna Marie, her mother, and the PNB executed a Deed of Waiver and Quitclaim dated
May 23, 2003[10] to settle all questions regarding the consolidation of the savings accounts. After
withdrawals, the balance of her consolidated savings account was P250,741.82.

On July 30, 2003, the PNB sent letters to Anna Marie to inform her that the PNB refused to honor its
obligation under FXCTD Nos. 993902 and 993992,[11] and that the PNB withheld the release of the
balance of P-250,741.82 in the consolidated savings account.[12] According to the PNB, Anna Marie pre-
terminated, withdrew and/or debited sums against her deposits.

Thus, Anna Marie filed before the RTC a complaint for sum of money and damages against the PNB and
Fernandez.[13]

As to the two FXCTDs, Anna Marie contended that the PNB's refusal to pay her time deposits is contrary
to law. The PNB cannot claim that the bank deposits have been paid since the certificates of the time
deposits are still with Anna Marie.[14]

As to the consolidated savings account, Anna Marie stated that the PNB had already acknowledged the
account's balance in the Deed of Waiver and Quitclaim amounting to P2,734,207.36. As of January 26,
2004, the remaining balance was P250,741.82. PNB presented no concrete proof that this amount had
been withdrawn.

Anna Marie prayed that the PNB and Fernandez be held solidarily liable for actual, moral, and exemplary
damages, as well as attorney's fees, costs of suit, and legal interests because of the PNB's refusal to
honor its obligations.

In its answer,[15] the PNB argued that: (1) Anna Marie is not entitled to the balance of the consolidated
savings account based on solutio indebiti; (2) the PNB already paid the $10,058.01 covered by FXCTD No.
993902; (3) the PNB is liable to pay only $10,718.87 of FXCTD No. 993992, instead of the full amount of
$17,235.41; and (4) Anna Marie is guilty of contributory negligence. The PNB's arguments are discussed
below.

First, Anna Marie is not entitled to the alleged balance of P250,741.82. The PNB's investigation showed
that Anna Marie withdrew a total of P251,246.81[16] from two of the eight savings accounts and she
used this amount to purchase manager's check no. 0000760633.[17] Hence, P251,246.81 should be
deducted from the sum agreed upon in the Deed of Waiver and Quitclaim. The PNB offered photocopies
of the PNB's miscellaneous ticket[18] and the manager's check as evidence to prove the withdrawals.
The PNB argued that unjust enrichment would result if Anna Marie would be allowed to collect P-
250,741.82 from the consolidated savings account without deducting her previous withdrawal of
P251,246.81.

Second, Anna Marie is not entitled to receive $10,058.01 covered by FXCTD No. 993902. Based on the
PNB's records, Anna Marie pre-terminated FXCTD No. 993902 on March 11, 2002, and used the deposit,
together with another deposit covered by FXCTD No. 993914 (for $8,111.35), to purchase a foreign
demand draft (FX Demand Draft No. 4699831) payable to Anna Rose/Angeles Gumabon. The PNB
presented a facsimile copy of Anna Rose's Statement of Account (SOA)[19] from the PNB Bank to prove
that the amount covered by FXCTD No. 993902 was already paid.

Third, Anna Marie is only entitled to receive $10,718.87 instead of the full amount of $17,235.41
covered by FXCTD No. 993992 because: (a) the amount of $1,950.00 was part of the money used by
Anna Marie to purchase the manager's check; (2) the amount of $2,566.54 was credited to Current
Account No. 227-810961-8 owned by Anna Marie's aunt, Lolita Lim; and (3) the amount of $2,000.00
was credited to Current Account No. 2108107498 of Anna Marie and Savings Account No. 212-5057333
of Anna Marie/or Angeles or Santiago/or Elena (all surnamed Gumabon). Hence, these amounts should
be deducted from the amount payable to Anna Marie.

Finally, the PNB alleged that Anna Marie was guilty of contributory negligence in her bank dealings.

In her reply,[20] Anna Marie argued that the best evidence of her withdrawals is the withdrawal slips
duly signed by her and the passbooks pertaining to the accounts. PNB, however, failed to show any of
the withdrawal slips and/or passbooks, and also failed to present sufficient evidence that she used her
accounts' funds.

The RTC Ruling

The RTC ruled in Anna Marie's favour.[21]

The RTC held that the PNB had not yet paid the remaining balance of $10,058.01 under FXCTD No.
993902. Anna Marie's SOA,[22] which the PNB relied upon, is a mere photocopy and does not satisfy the
best evidence rule. Moreover, there is no indication on the stated amounts in the SOA that the funds
have come from FXCTD No. 993902.[23] The PNB failed to obtain the deposition of a PNC Bank officer or
present any other evidence to show that the amounts stated in the SOA came from FXCTD No. 993902.
The RTC also held that the alleged pre-termination of FXCTD No. 993902 on March 11, 2002, is hard to
believe since the certificate shows that the last entry was made on March 24, 2003, with a reflected
balance of $10,058.01.

On FXCTD No. 993992, the RTC held that the PNB failed to prove Anna Marie's alleged withdrawals.
These alleged withdrawals are not reflected at the back of the certificate. Anna Marie's ledger was also
not presented as evidence to show that several withdrawals had been made against FXCTD No. 993992.

On the consolidated savings account, the RTC held that the PNB failed to prove that Anna Marie
withdrew the balance of P250,741.82. The RTC excluded PNB's evidence, i.e., photocopies of the
miscellaneous ticket and manager's check, to prove the alleged withdrawals, since these documents
were just photocopies and thus failed to satisfy the best evidence rule.

The RTC awarded damages to Anna Marie due to the PNB's mishandling of her account through its
employee, Salvoro. The RTC also held that the PNB failed to establish Anna Marie's contributory
negligence.

In conclusion, the RTC ordered the PNB to pay Anna Marie these amounts:

(1) Actual damages of:

(a) $10,058.01, as the outstanding balance of FXCTD No. 993902;

(b) $20,244.42, as the outstanding balance of FXCTD No. 993992;and

(c) P-250,741.82, as the outstanding balance of SA No. 6121200;

(2) P-100,000.00 as moral damages;

(3) P-50,000.00 as exemplary damages;

(4) P150,000.00 as attorney's fees; and

(5) Costs of suit.

From this ruling, the PNB appealed before the CA.

The CA Ruling

The CA reversed the RTC's ruling.[24]

The CA held that the PNB had paid the actual amounts claimed by Anna Marie in her complaint. The CA
noted Anna Marie's suspicious and exclusive dealings with Salvoro and the Gumabons' instruction to
Salvoro to make unauthorized and unrecorded withdrawals. Hence, there are no entries of withdrawals
reflected in Anna Marie's passbook.

The CA also considered Anna Rose's SOA as proof that the PNB had paid the remaining balance of
$10,058.01 on FXCTD No. 993902. The CA held that the PNB verified the SOA and it was corroborated by
the affidavit[25] of the PNB Branch Operations Officer in New York. The CA stated that the RTC should
have allowed the taking of the deposition of the PNB bank officer.

The CA also relied on the PNB's investigation and concluded that the PNB had already paid the amounts
claimed by Anna Marie under FXCTD Nos. 993902 and 993992.

As to Anna Marie's consolidated savings account, the CA gave credence to the miscellaneous ticket and
the manager's check presented by the PNB to prove that it had already paid the balance.

Anna Marie moved but failed to obtain reconsideration of the CA's decision; hence, the present petition.
[26]

The Petition
Anna Marie filed the present petition for review to question the CA's decision and resolution which
reversed the RTC's ruling.

Anna Marie argues that: first, the CA should not have disregarded the RTC's conclusive findings; second,
the CA erred in considering the PNB New York bank officer's affidavit because it was not formally offered
as evidence; third, the CA erroneously relied on a foreign demand draft[27] to prove the PNB's payment
of the amount due under FXCTD No. 993902; fourth, the CA erroneously considered the miscellaneous
ticket and the manager's check because these documents are mere photocopies and inadmissible under
the best evidence rule; and fifth, the CA's conclusion about a purported "connivance" between Anna
Marie and Salvoro has no evidentiary basis.

In its comment, the PNB counters that: first, the CA can rectify the RTC's factual findings since the RTC
committed errors in its appreciation of the evidence; second, the RTC completely ignored the PNB's
several evidence proving its payment of Anna Marie's FXCTDs; third, Anna Marie did not refute the PNB's
allegations of payment; fourth, the CA has the right to review even those exhibits which were excluded
by the RTC; and fifth, the CA correctly ruled that the PNB should not be faulted about the unrecorded
transactions, and that the PNB had done its duty to its depositors when it conducted investigations and
an internal audit of Anna Marie's accounts.

The Issues

The issue before this Court is whether Anna Marie is entitled to the payment of the following amounts:

(a) $10,058.01 or the outstanding balance under FXCTD No. 993902;

(b) $20,244.42 for FXCTD No. 993992;

(c) P250.741.82 for SA No. 6121200; and (3) Damages.

Our Ruling

We grant the petition and reverse the CA 's ruling.

The core issue raised in the present petition is a question of fact. As a general rule, a petition for review
under Rule 45 of the Rules of Court covers only questions of law. Questions of fact are not reviewable
and cannot be passed upon by the Court in the exercise of its power to review under Rule 45.[28]

There are, however, exceptions to the general rule. Questions of fact may be raised before this Court in
any of these instances: (1) when the findings are grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there
is a grave abuse of discretion; (4) when the judgment is based on misappreciation of facts; (5) when the
findings of fact are conflicting; (6) when in making its findings, the same are contrary to the admissions
of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when
the findings are conclusions without citation of specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the
respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record.[29]

The present case falls under two of the exceptions, particularly that the CA's findings are contrary to the
RTC's findings, and that the CA's findings of fact are premised on absent evidence and contradicted by
the evidence on record.

We note that the CA considered pieces of evidence which are inadmissible under the Rules of Court,
particularly the manager's check and the corresponding miscellaneous ticket, Anna Rose's SO A, and the
affidavit of the PNB New York's bank officer. The inadmissibility of these documents is explained more
fully in the following discussion.

PNB failed to establish the fact of

payment to Anna Marie in FXCTD

Nos. 993902 and 993992, and SA

No. 6121200.

It is a settled rule in evidence that the one who alleges payment has the burden of proving it.[30] The
burden of proving that the debt had been discharged by payment rests upon the debtor once the debt's
existence has been fully established by the evidence on record. When the debtor introduces some
evidence of payment, the burden of going forward with the evidence - as distinct from the burden of
proof - shifts to the creditor. Consequently, the creditor has a duty to produce evidence to show non-
payment.[31]

In the present case, both the CA and the RTC declared that the PNB has the burden of proving payment.
The lower courts, however, differed in resolving the question of whether the PNB presented sufficient
evidence of payment to shift the burden of evidence to Anna Marie. The RTC ruled that the PNB failed to
do so, after excluding PNB's evidence, i.e., miscellaneous ticket, manager's check, and the affidavit of the
PNB New York's bank officer, based on the rules of evidence. The CA, on the other hand, considered the
excluded evidence and found that the PNB presented sufficient proof of payment.

i. The PNB's alleged payment of the

amount covered by SA No. 6121200

The PNB alleged that it had already paid the balance of the consolidated savings account (SA No.
6121200) amounting to P-250,741.82. It presented the manager's check to prove that Anna Marie
purchased the check using the amounts covered by the Gumabon's two savings accounts which were
later part of Anna Marie's consolidated savings account. The PNB also presented the miscellaneous ticket
to prove Anna Marie's withdrawal from the savings accounts.

The RTC denied the admission of the manager's check and the miscellaneous ticket since the original
copies were never presented.[32] The PNB moved to tender the excluded evidence and argued that even
without the presentation of the original copies, the photocopies are admissible because they have been
identified by Fernandez.[33]

Evidence, to be admissible, must comply with two qualifications: (a) relevance and (b) competence.
Evidence is relevant if it has a relation to the fact in issue as to induce a belief in its existence or
nonexistence.[34] On the other hand, evidence is competent if it is not excluded by the law or by the
Rules of Court.[35]

One of the grounds under the Rules of Court that determines the competence of evidence is the best
evidence rule. Section 3, Rule 130 of the Rules of Court provides that the original copy of the document
must be presented whenever the content of the document is under inquiry.[36]
However, there are instances when the Court may allow the presentation of secondary evidence in the
absence of the original document. Section 3, Rule 130 of the Rules of Court enumerates these
exceptions:

(a) when the original has been lost, or destroyed, or cannot be produced in court, without bad faith on
the part of the offeror;

(b) when the original is in the custody or under the control of the party against whom the evidence is
offered, and the latter fails to produce it after reasonable notice;

(c) when the original consists of numerous accounts or other documents which cannot be examined in
court without great loss of time and the fact sought to be established from them is only the general
result of the whole; and

(d) when the original is a public record in the custody of a public officer or is recorded in a public office.

While the RTC cannot consider the excluded evidence to resolve the issues, such evidence may still be
admitted on appeal provided there has been tender of the excluded evidence under Section 40 of Rule
132 of the Rules of Court.[37]

The PNB cannot simply substitute the mere photocopies of the subject documents for the original copies
without showing the court that any of the exceptions under Section 3 of Rule 130 of the Rules of Court
applies. The PNB's failure to give a justifiable reason for the absence of the original documents and to
maintain a record of Anna Marie's transactions only shows the PNB's dismal failure to fulfill its fiduciary
duty to Anna Marie.[38] The Court expects the PNB to "treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship."[39] The Court
explained in Philippine Banking Corporation v. CA,[40] the fiduciary nature of the bank's relationship
with its depositors, to wit:

The business of banking is imbued with public interest. The stability of banks largely depends on the
confidence of the people in the honesty and efficiency of banks. In Simex International (Manila) Inc. v.
Court of Appeals we pointed out the depositor's reasonable expectations from a bank and the bank's
corresponding duty to its depositor, as follows:
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he directs, (emphasis and underscoring
supplied)

Consequently, the CA should not have admitted the subject documents even if the PNB tendered the
excluded evidence.

Notably, the PNB clearly admitted in the executed Deed of Waiver and Quitclaim that it owed Anna
Marie P2,734,207.36 under the consolidated savings account. After a number of uncontested
transactions, the remaining balance of Anna Marie's deposit became P250,741.82. The inevitable
conclusion is that PNB's obligation to pay P250,741.82 under SA No. 6121200 subsists.

ii. The PNB's alleged payment of the

amount covered by FXCTD No. 993902

The PNB claimed that it had already paid the amount of $10,058.01 covered by FXCTD No. 993902. It
presented the foreign demand draft dated March 11, 2002 which Anna Marie allegedly purchased with
the funds of FXCTD No. 993902. In addition, the PNB also presented Anna Rose's SOA to show that there
was a fund transfer involving the contested amount. To further support its claim, the PNB annexed the
affidavit of the PNB New York's branch officer about the fund transfer. The PNB, however, failed to
formally offer the affidavit as evidence.

Anna Marie moved for the exclusion of the photocopy of Anna Rose's SOA for failing to conform to the
best evidence rule. The RTC granted her motion and denied its admission. When the case reached the
CA, the CA stated that the RTC should have considered the evidence in the light of the PNB's
identification of the SOA as an exact copy of the original and the claim that it is corroborated by the
affidavit of the PNB New York's bank officer.
The PNB explained that its failure to present the original copy of Anna Rose's SOA was because the
original was not in the PNB's possession.

We rule that the SOA is inadmissible because it fails to qualify as relevant evidence. As the RTC correctly
stated, the SOA "does not show which of the amount stated therein came from the funds of Certificate
of Time Deposit No. A-993902."[41]

The affidavit of the PNB New York's bank officer is also inadmissible in the light of the following self-
explanatory provision of the Rules of Court:

"Sec. 34. Offer of evidence. - The court shall consider no evidence which has not been formally offered, x
x x."[42]

Formal offer means that the offeror shall inform the court of the purpose of introducing its exhibits into
evidence. Without a formal offer of evidence, courts cannot take notice of this evidence even if this has
been previously marked and identified.[43]

In Heirs of Pedro Pasag v. Parocha,[44] we reiterated the importance of a formal offer of evidence. Courts
are mandated to rest their factual findings and their judgment only and strictly upon the evidence
offered by the parties at the trial. The formal offer enables the judge to know the purpose or purposes
for which the proponent is presenting the evidence. It also affords the opposing parties the chance to
examine the evidence and to object to its admissibility. Moreover, it facilitates review as the appellate
court will not be required to review documents not previously scrutinized by the trial court.

In People v. Napat-a[45] People v. Mate[46] and Heirs of Romana Saves, et al. v. Escolastico Saves, et al.
[47] we recognized the exceptions from the requirement of a formal offer of evidence, namely: (a) the
evidence must have been duly identified by testimony duly recorded; and (b) the evidence must have
been incorporated in the records of the case.

It is unmistakable that the PNB did not include the affidavit of the PNB New York's bank officer in its
formal offer of evidence to corroborate Anna Rose's SOA. Although the affidavit was included in the
records and identified by Fernandez, it remains inadmissible for being hearsay. Jurisprudence dictates
that an affidavit is merely hearsay evidence when its affiant or maker did not take the witness stand.[48]
In the present case, Fernandez is not the proper party to identify the affidavit executed by the PNB New
York's bank officer since he is not the affiant. Therefore the affidavit is inadmissible.

Thus, the PNB failed to present sufficient and admissible evidence to prove payment of the
$10,058.01.This failure leads us to conclude that the PNB is still liable to pay the amount covered by
FXCTD No. 993902.

iii. The PNB's alleged payment of

the amount covered by FXCTD

No. 993992

The PNB alleged that Anna Marie's claim over FXCTD No. 993992 should only be limited to $5,857.79. It
presented the manager's check, which admissibility we have heretofore discussed and settled, and the
miscellaneous tickets.

We cannot absolve the PNB from liability based on these miscellaneous tickets alone. As the RTC
correctly stated, the transactions allegedly evidenced by these tickets were neither posted at the back of
Anna Marie's certificate, nor recorded on her ledger to show that several withdrawals had been made on
the account.

At this point, we remind the PNB of the negotiability of a certificate of deposit as it is a written
acknowledgment by the bank of the receipt of a sum of money on deposit which the bank promises to
pay to the depositor, to the latter's order, or to some other person or the latter's order.[49] To discharge
a debt, the bank must pay to someone authorized to receive the payment.[50] A bank acts at its peril
when it pays deposits evidenced by a certificate of deposit, without its production and surrender after
proper indorsement.[51]

Again, as the RTC had correctly stated, the PNB should not have allowed the withdrawals, if there were
indeed any, without the presentation of the covering foreign certificates of time deposit. There are no
irregularities on Anna Marie's certificates to justify the PNB's refusal to pay the stated amounts in the
certificates when it was presented for payment.
Therefore, the PNB is liable for Anna Marie's claims since it failed to prove that it had already been
discharged from its obligation.

PNB is liable to Anna Marie

for actual, Moral, and exemplary

damages as well as attorney's fees

for its negligent acts as a

banking institution.

Since the PNB is clearly liable to Anna Marie for her deposits, the Court now determines PNB's liability
for damages under existing laws and jurisprudence.

Section 2 of Republic Act No. 8791,[52] declares the State's recognition of the "fiduciary nature of
banking that requires high standards of integrity and performance." It cannot be overemphasized that
the banking business is impressed with public interest. The trust and confidence of the public to the
industry is given utmost importance.[53] Thus, the bank is under obligation to treat its depositor's
accounts with meticulous care, having in mind the nature of their relationship.[54] The bank is required
to assume a degree of diligence higher than that of a good father of a family.[55]

As earlier settled, the PNB was negligent for its failure to update and properly handle Anna Marie's
accounts. This is patent from the PNB's letter to Anna Marie, admitting the error and unauthorized
withdrawals from her account. Moreover, Anna Marie was led to believe that the amounts she has in her
accounts would remain because of the Deed of Waiver and Quitclaim executed by her, her mother, and
PNB. Assuming arguendo that Anna Marie made the contested withdrawals, due diligence requires the
PNB to record the transactions in her passbooks.

The Court has established in a number of cases the standard of care required from banks, and the bank's
liability for the damages sustained by the depositor. The bank is not absolved from liability by the fact
that it was the bank's employee who committed the wrong and caused damage to the depositor.[56]
Article 2180 of the New Civil Code provides that the owners and managers of an establishment are
responsible for damages caused by their employees while performing their functions.[57]
In addition, we held in PNB v. Pike,[58] that although the bank's employees are the ones negligent, a
bank is primarily liable for the employees' acts because banks are expected to exercise the highest
degree of diligence in the selection and supervision of their employees.

Indeed, a great possibility exists that Salvoro was involved in the unauthorized withdrawals. Anna Marie
entrusted her accounts to and made her banking transactions only through him. Salvaro's unexplained
disappearance further confirms this Court's suspicions. The Court is alarmed that he was able to
repeatedly do these unrecorded transactions without the bank noticing it. This only shows that the PNB
has been negligent in the supervision of its employees.

As to contributory negligence, the Court agrees with the RTC that the PNB failed to substantiate its
allegation that Anna Marie was guilty of contributory negligence.

Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the
harm he has suffered, which falls below the standard to which he is required to conform for his own
protection.[59] Whether contributory negligence transpired is a factual matter that must be proven.

In the present case, Anna Marie cannot be held responsible for entrusting her account with Salvoro. As
shown in the records, Salvoro was the bank's time deposit specialist. Anna Marie cannot thus be faulted
if she engaged the bank's services through Salvoro for transactions related to her time deposits.

The Court also cannot accept the CA's conclusion that there was connivance between Anna Marie and
Salvoro. This conclusion is simply not supported by the records and is therefore baseless.

In these lights, we hold that Anna Marie is entitled to moral damages of P-l 00,000.00. In cases of breach
of contract, moral damages are recoverable only if the defendant acted fraudulently or in bad faith, or is
guilty of gross negligence amounting to bad faith, or in clear disregard of his contractual obligations.[60]
Anna Marie was able to establish the mental anguish and serious anxiety that she suffered because of
the PNB's refusal to honor its obligations.
Anna Marie is likewise entitled to exemplary damages of P-50,000.00. Article 2229 of the New Civil Code
imposes exemplary damages by way of example or correction for the public good. To repeat, banks must
treat the accounts of its depositors with meticulous care and always have in mind the fiduciary nature of
its relationship with them.[61] Having failed to observe these, the award of exemplary damages is
justified.

As exemplary damages are awarded herein[62] and as Anna Marie was compelled to litigate to protect
her interests,[63] the award of attorney's fees and expenses of litigation of P150,000.00 is proper.

Finally, we impose legal interest pursuant to the guidelines in Nacar v. Gallery Frames,[64] We held in
that case that for interest awarded on actual and compensatory damages, the interest rate 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 [changed to 6% per annum
starting July 1, 2013] to be computed from default, i.e., from extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.

xxxx

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest x x x shall be 6% per annum frorn such finality until its satisfaction, x x x

We note that pursuant to the Bangko Sentral ng Pilipinas-Monetary Board Circular No. 799, the legal
interest rate is 6% per annum effective July 1, 2013. The new rate is applicable prospectively; thus, the
12% per annum shall still apply until June 30, 2013.

In the present case, Anna Marie filed her complaint on August 12, 2004. PNB is therefore liable for legal
interest of 12% per annum from August 12, 2004 until June 30, 2013, and 6% per annum from July 1,
2013, until its full satisfaction.
WHEREFORE, the petition is GRANTED. The assailed December 16, 2011 decision and June 26, 2012
resolution of the Court of Appeals is hereby reversed. The October 26, 2010 decision of the Regional Trial
Court is REINSTATED with MODIFICATIONS. Thus, the Philippine National Bank is ORDERED to pay Anna
Marie Gumabon the following:

(1) Actual damages of:

(a) $10,058.01, as the outstanding balance of FXCTD No. 993902;

(b) $ 20,244.42, as the outstanding balance of FXCTD No. 993992; and

(c) P250/741.82, as the outstanding balance of SA No. 6121200;

(2) Legal interest of twelve percent (12%) per annum of the total actual damages from August 12, 2004
to June 30, 2013, and six percent (6%) per annum from July 1, 2013 until full satisfaction;

(3) P100,000.00 as moral damages;

(4) P50,000.00 as exemplary damages;

(5) P150,000.00 as attorney's fees; and (7) Costs of suit.

Let a copy of this Decision be furnished the Financial Consumers Protection Department of the Bangko
Sentral ng Pilipinas, for information and possible action in accordance with the Bangko Sentral ng
Pilipinas' mandate to protect the banking public.

SO ORDERED.