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(1) If he devotes the thing to any purpose different from that for which it has

CREDIT TRANSACTIONS been loaned;


Full Text Cases (2) If he keeps it longer than the period stipulated, or after the accomplishment
of the use for which the commodatum has been constituted;

(3) If the thing loaned has been delivered with appraisal of its value, unless
CONCEPT OF CREDIT TRANSACTIONS
there is a stipulation exempting the bailee from responsibility in case of a
LOAN fortuitous event;

(4) If he lends or leases the thing to a third person, who is not a member of his
TITLE XI
household;
LOAN
(5) If, being able to save either the thing borrowed or his own thing, he chose
General Provisions to save the latter. (1744a and 1745)
Article 1933. By the contract of loan, one of the parties delivers to another, Article 1943. The bailee does not answer for the deterioration of the thing
either something not consumable so that the latter may use the same for a certain loaned due only to the use thereof and without his fault. (1746)
time and return it, in which case the contract is called a commodatum; or money
or other consumable thing, upon the condition that the same amount of the same Article 1944. The bailee cannot retain the thing loaned on the ground that the
kind and quality shall be paid, in which case the contract is simply called a loan bailor owes him something, even though it may be by reason of expenses.
or mutuum. However, the bailee has a right of retention for damages mentioned in article
1951. (1747a)
Commodatum is essentially gratuitous.
Article 1945. When there are two or more bailees to whom a thing is loaned in
Simple loan may be gratuitous or with a stipulation to pay interest. the same contract, they are liable solidarily. (1748a)
In commodatum the bailor retains the ownership of the thing loaned, while in SECTION 3
simple loan, ownership passes to the borrower. (1740a) Obligations of the Bailor
Article 1934. An accepted promise to deliver something by way of ARTICLE 1946. The bailor cannot demand the return of the thing loaned till
commodatum or simple loan is binding upon parties, but the commodatum or after the expiration of the period stipulated, or after the accomplishment of the
simple loan itself shall not be perfected until the delivery of the object of the use for which the commodatum has been constituted. However, if in the
contract. (n) meantime, he should have urgent need of the thing, he may demand its return
or temporary use.
CHAPTER 1
Commodatum In case of temporary use by the bailor, the contract of commodatum is
suspended while the thing is in the possession of the bailor. (1749a)
SECTION 1
Nature of Commodatum Article 1947. The bailor may demand the thing at will, and the contractual
relation is called a precarium, in the following cases:
Article 1935. The bailee in commodatum acquires the use of the thing loaned
but not its fruits; if any compensation is to be paid by him who acquires the use, (1) If neither the duration of the contract nor the use to which the thing loaned
the contract ceases to be a commodatum. (1941a) should be devoted, has been stipulated; or
Article 1936. Consumable goods may be the subject of commodatum if the (2) If the use of the thing is merely tolerated by the owner. (1750a)
purpose of the contract is not the consumption of the object, as when it is merely
for exhibition. (n) Article 1948. The bailor may demand the immediate return of the thing if the
bailee commits any act of ingratitude specified in article 765. (n)
Article 1937. Movable or immovable property may be the object of
commodatum. (n) Article 1949. The bailor shall refund the extraordinary expenses during the
contract for the preservation of the thing loaned, provided the bailee brings the
Article 1938. The bailor in commodatum need not be the owner of the thing same to the knowledge of the bailor before incurring them, except when they
loaned. (n) are so urgent that the reply to the notification cannot be awaited without danger.
Article 1939. Commodatum is purely personal in character. Consequently: If the extraordinary expenses arise on the occasion of the actual use of the thing
by the bailee, even though he acted without fault, they shall be borne equally
(1) The death of either the bailor or the bailee extinguishes the contract;
by both the bailor and the bailee, unless there is a stipulation to the contrary.
(2) The bailee can neither lend nor lease the object of the contract to a third (1751a)
person. However, the members of the bailee's household may make use of the
Article 1950. If, for the purpose of making use of the thing, the bailee incurs
thing loaned, unless there is a stipulation to the contrary, or unless the nature of
expenses other than those referred to in articles 1941 and 1949, he is not entitled
the thing forbids such use. (n)
to reimbursement. (n)
Article 1940. A stipulation that the bailee may make use of the fruits of the
Article 1951. The bailor who, knowing the flaws of the thing loaned, does not
thing loaned is valid. (n)
advise the bailee of the same, shall be liable to the latter for the damages which
SECTION 2 he may suffer by reason thereof. (1752)
Obligations of the Bailee
Article 1952. The bailor cannot exempt himself from the payment of expenses
Article 1941. The bailee is obliged to pay for the ordinary expenses for the use or damages by abandoning the thing to the bailee. (n)
and preservation of the thing loaned. (1743a)

Article 1942. The bailee is liable for the loss of the thing, even if it should be
through a fortuitous event:
CHAPTER 2
Simple Loan or Mutuum
G.R. No. 146364 June 3, 2004
Article 1953. A person who receives a loan of money or any other fungible COLITO T. PAJUYO, petitioner,
thing acquires the ownership thereof, and is bound to pay to the creditor an vs.
equal amount of the same kind and quality. (1753a) COURT OF APPEALS and EDDIE GUEVARRA, respondents.

Article 1954. A contract whereby one person transfers the ownership of non- DECISION
fungible things to another with the obligation on the part of the latter to give
Short Summary
things of the same kind, quantity, and quality shall be considered a barter. (n)
Facts:
Article 1955. The obligation of a person who borrows money shall be governed
by the provisions of articles 1249 and 1250 of this Code.

If what was loaned is a fungible thing other than money, the debtor owes
another thing of the same kind, quantity and quality, even if it should change in
value. In case it is impossible to deliver the same kind, its value at the time of
the perfection of the loan shall be paid. (1754a)

Article 1956. No interest shall be due unless it has been expressly stipulated in
writing. (1755a)

Article 1957. Contracts and stipulations, under any cloak or device whatever,
intended to circumvent the laws against usury shall be void. The borrower may
recover in accordance with the laws on usury. (n)

Article 1958. In the determination of the interest, if it is payable in kind, its


value shall be appraised at the current price of the products or goods at the time
and place of payment. (n)

Article 1959. Without prejudice to the provisions of article 2212, interest due
and unpaid shall not earn interest. However, the contracting parties may by Issue:
stipulation capitalize the interest due and unpaid, which as added principal, shall
earn new interest. (n)

Article 1960. If the borrower pays interest when there has been no stipulation
therefor, the provisions of this Code concerning solutio indebiti, or natural
obligations, shall be applied, as the case may be. (n) Ruling:

Article 1961. Usurious contracts shall be governed by the Usury Law and other
special laws, so far as they are not inconsistent with this Code. (n)

CARPIO, J.:
The Case

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Before us is a petition for review1 of the 21 June 2000 Decision2 and 14 On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a
December 2000 Resolution of the Court of Appeals in CA-G.R. SP No. 43129. Resolution10 granting the motion for extension conditioned on the timeliness of
The Court of Appeals set aside the 11 November 1996 decision3 of the Regional the filing of the motion.
Trial Court of Quezon City, Branch 81,4 affirming the 15 December 1995
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on
decision5 of the Metropolitan Trial Court of Quezon City, Branch 31.6
Guevara’s petition for review. On 11 April 1997, Pajuyo filed his Comment.
The Antecedents
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid ₱400 to a certain decision. The dispositive portion of the decision reads:
Pedro Perez for the rights over a 250-square meter lot in Barrio Payatas, Quezon
WHEREFORE, premises considered, the assailed Decision of the court a quo
City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo
in Civil Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is
and his family lived in the house from 1979 to 7 December 1985.
hereby declared that the ejectment case filed against defendant-appellant is
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra without factual and legal basis.
("Guevarra") executed a Kasunduan or agreement. Pajuyo, as owner of the
SO ORDERED.11
house, allowed Guevarra to live in the house for free provided Guevarra would
maintain the cleanliness and orderliness of the house. Guevarra promised that Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out
he would voluntarily vacate the premises on Pajuyo’s demand. that the Court of Appeals should have dismissed outright Guevarra’s petition
for review because it was filed out of time. Moreover, it was Guevarra’s counsel
In September 1994, Pajuyo informed Guevarra of his need of the house and
and not Guevarra who signed the certification against forum-shopping.
demanded that Guevarra vacate the house. Guevarra refused.
On 14 December 2000, the Court of Appeals issued a resolution denying
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial
Pajuyo’s motion for reconsideration. The dispositive portion of the resolution
Court of Quezon City, Branch 31 ("MTC").
reads:
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of
WHEREFORE, for lack of merit, the motion for reconsideration is
possession over the lot where the house stands because the lot is within the 150
hereby DENIED. No costs.
hectares set aside by Proclamation No. 137 for socialized housing. Guevarra
pointed out that from December 1985 to September 1994, Pajuyo did not show SO ORDERED.12
up or communicate with him. Guevarra insisted that neither he nor Pajuyo has
The Ruling of the MTC
valid title to the lot.
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The
is the house and not the lot. Pajuyo is the owner of the house, and he allowed
dispositive portion of the MTC decision reads:
Guevarra to use the house only by tolerance. Thus, Guevarra’s refusal to vacate
WHEREFORE, premises considered, judgment is hereby rendered for the the house on Pajuyo’s demand made Guevarra’s continued possession of the
plaintiff and against defendant, ordering the latter to: house illegal.
A) vacate the house and lot occupied by the defendant or any other person or The Ruling of the RTC
persons claiming any right under him;
The RTC upheld the Kasunduan, which established the landlord and tenant
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (₱300.00) relationship between Pajuyo and Guevarra. The terms of the Kasunduan bound
monthly as reasonable compensation for the use of the premises starting from Guevarra to return possession of the house on demand.
the last demand;
The RTC rejected Guevarra’s claim of a better right under Proclamation No.
C) pay plaintiff the sum of ₱3,000.00 as and by way of attorney’s fees; and 137, the Revised National Government Center Housing Project Code of
Policies and other pertinent laws. In an ejectment suit, the RTC has no power
D) pay the cost of suit.
to decide Guevarra’s rights under these laws. The RTC declared that in an
SO ORDERED.7 ejectment case, the only issue for resolution is material or physical possession,
not ownership.
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City,
Branch 81 ("RTC"). The Ruling of the Court of Appeals
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo
portion of the RTC decision reads: and Guevarra illegally occupied the contested lot which the government owned.
WHEREFORE, premises considered, the Court finds no reversible error in the Perez, the person from whom Pajuyo acquired his rights, was also a squatter.
decision appealed from, being in accord with the law and evidence presented, Perez had no right or title over the lot because it is public land. The assignment
and the same is hereby affirmed en toto. of rights between Perez and Pajuyo, and the Kasunduan between Pajuyo and
Guevarra, did not have any legal effect. Pajuyo and Guevarra are in pari
SO ORDERED.8
delicto or in equal fault. The court will leave them where they are.
Guevarra received the RTC decision on 29 November 1996. Guevarra had only
The Court of Appeals reversed the MTC and RTC rulings, which held that
until 14 December 1996 to file his appeal with the Court of Appeals. Instead of
the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of
filing his appeal with the Court of Appeals, Guevarra filed with the Supreme
a landlord and tenant relationship. The Court of Appeals ruled that
Court a "Motion for Extension of Time to File Appeal by Certiorari Based on
the Kasunduan is not a lease contract but a commodatum because the
Rule 42" ("motion for extension"). Guevarra theorized that his appeal raised
agreement is not for a price certain.
pure questions of law. The Receiving Clerk of the Supreme Court received the
motion for extension on 13 December 1996 or one day before the right to appeal Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the
expired. appellate court held that Guevarra has a better right over the property under
Proclamation No. 137. President Corazon C. Aquino ("President Aquino")
On 3 January 1997, Guevarra filed his petition for review with the Supreme
issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra was
Court.
in physical possession of the property. Under Article VI of the Code of Policies
On 8 January 1997, the First Division of the Supreme Court issued a Beneficiary Selection and Disposition of Homelots and Structures in the
Resolution9 referring the motion for extension to the Court of Appeals which National Housing Project ("the Code"), the actual occupant or caretaker of the
has concurrent jurisdiction over the case. The case presented no special and lot shall have first priority as beneficiary of the project. The Court of Appeals
important matter for the Supreme Court to take cognizance of at the first concluded that Guevarra is first in the hierarchy of priority.
instance.

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In denying Pajuyo’s motion for reconsideration, the appellate court debunked cases involving questions of fact or mixed questions of fact and
Pajuyo’s claim that Guevarra filed his motion for extension beyond the period law.14 Decisions of the regional trial courts involving pure questions of law are
to appeal. appealable directly to this Court by petition for review.15These modes of appeal
are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
The Court of Appeals pointed out that Guevarra’s motion for extension filed
before the Supreme Court was stamped "13 December 1996 at 4:09 PM" by the Guevarra believed that his appeal of the RTC decision involved only questions
Supreme Court’s Receiving Clerk. The Court of Appeals concluded that the of law. Guevarra thus filed his motion for extension to file petition for review
motion for extension bore a date, contrary to Pajuyo’s claim that the motion for before this Court on 14 December 1996. On 3 January 1997, Guevarra then
extension was undated. Guevarra filed the motion for extension on time on 13 filed his petition for review with this Court. A perusal of Guevarra’s petition
December 1996 since he filed the motion one day before the expiration of the for review gives the impression that the issues he raised were pure questions of
reglementary period on 14 December 1996. Thus, the motion for extension law. There is a question of law when the doubt or difference is on what the law
properly complied with the condition imposed by the Court of Appeals in its 28 is on a certain state of facts.16 There is a question of fact when the doubt or
January 1997 Resolution. The Court of Appeals explained that the thirty-day difference is on the truth or falsity of the facts alleged.17
extension to file the petition for review was deemed granted because of such
In his petition for review before this Court, Guevarra no longer disputed the
compliance.
facts. Guevarra’s petition for review raised these questions: (1) Do ejectment
The Court of Appeals rejected Pajuyo’s argument that the appellate court should cases pertain only to possession of a structure, and not the lot on which the
have dismissed the petition for review because it was Guevarra’s counsel and structure stands? (2) Does a suit by a squatter against a fellow squatter constitute
not Guevarra who signed the certification against forum-shopping. The Court a valid case for ejectment? (3) Should a Presidential Proclamation governing
of Appeals pointed out that Pajuyo did not raise this issue in his Comment. The the lot on which a squatter’s structure stands be considered in an ejectment suit
Court of Appeals held that Pajuyo could not now seek the dismissal of the case filed by the owner of the structure?
after he had extensively argued on the merits of the case. This technicality, the
These questions call for the evaluation of the rights of the parties under the law
appellate court opined, was clearly an afterthought.
on ejectment and the Presidential Proclamation. At first glance, the questions
The Issues Guevarra raised appeared purely legal. However, some factual questions still
have to be resolved because they have a bearing on the legal questions raised in
Pajuyo raises the following issues for resolution:
the petition for review. These factual matters refer to the metes and bounds of
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS the disputed property and the application of Guevarra as beneficiary of
AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF Proclamation No. 137.
JURISDICTION:
The Court of Appeals has the power to grant an extension of time to file a
1) in GRANTING, instead of denying, Private Respondent’s Motion for an petition for review. In Lacsamana v. Second Special Cases Division of the
Extension of thirty days to file petition for review at the time when there was Intermediate Appellate Court,18 we declared that the Court of Appeals could
no more period to extend as the decision of the Regional Trial Court had already grant extension of time in appeals by petition for review. In Liboro v. Court of
become final and executory. Appeals,19 we clarified that the prohibition against granting an extension of time
applies only in a case where ordinary appeal is perfected by a mere notice of
2) in giving due course, instead of dismissing, private respondent’s Petition for
appeal. The prohibition does not apply in a petition for review where the
Review even though the certification against forum-shopping was signed only
pleading needs verification. A petition for review, unlike an ordinary appeal,
by counsel instead of by petitioner himself.
requires preparation and research to present a persuasive position.20The drafting
3) in ruling that the Kasunduan voluntarily entered into by the parties was in of the petition for review entails more time and effort than filing a notice of
fact a commodatum, instead of a Contract of Lease as found by the Metropolitan appeal.21 Hence, the Court of Appeals may allow an extension of time to file a
Trial Court and in holding that "the ejectment case filed against defendant- petition for review.
appellant is without legal and factual basis".
In the more recent case of Commissioner of Internal Revenue v. Court of
4) in reversing and setting aside the Decision of the Regional Trial Court in Appeals,22 we held that Liboro’sclarification of Lacsamana is consistent with
Civil Case No. Q-96-26943 and in holding that the parties are in pari the Revised Internal Rules of the Court of Appeals and Supreme Court Circular
delicto being both squatters, therefore, illegal occupants of the contested parcel No. 1-91. They all allow an extension of time for filing petitions for review with
of land. the Court of Appeals. The extension, however, should be limited to only fifteen
days save in exceptionally meritorious cases where the Court of Appeals may
5) in deciding the unlawful detainer case based on the so-called Code of Policies
grant a longer period.
of the National Government Center Housing Project instead of deciding the
same under the Kasunduan voluntarily executed by the parties, the terms and A judgment becomes "final and executory" by operation of law. Finality of
conditions of which are the laws between themselves.13 judgment becomes a fact on the lapse of the reglementary period to appeal if no
appeal is perfected.23 The RTC decision could not have gained finality because
The Ruling of the Court
the Court of Appeals granted the 30-day extension to Guevarra.
The procedural issues Pajuyo is raising are baseless. However, we find merit in
The Court of Appeals did not commit grave abuse of discretion when it
the substantive issues Pajuyo is submitting for resolution.
approved Guevarra’s motion for extension. The Court of Appeals gave due
Procedural Issues course to the motion for extension because it complied with the condition set
Pajuyo insists that the Court of Appeals should have dismissed outright by the appellate court in its resolution dated 28 January 1997. The resolution
Guevarra’s petition for review because the RTC decision had already become stated that the Court of Appeals would only give due course to the motion for
final and executory when the appellate court acted on Guevarra’s motion for extension if filed on time. The motion for extension met this condition.
extension to file the petition. Pajuyo points out that Guevarra had only one day The material dates to consider in determining the timeliness of the filing of the
before the expiry of his period to appeal the RTC decision. Instead of filing the motion for extension are (1) the date of receipt of the judgment or final order or
petition for review with the Court of Appeals, Guevarra filed with this Court an resolution subject of the petition, and (2) the date of filing of the motion for
undated motion for extension of 30 days to file a petition for review. This Court extension.24 It is the date of the filing of the motion or pleading, and not the date
merely referred the motion to the Court of Appeals. Pajuyo believes that the of execution, that determines the timeliness of the filing of that motion or
filing of the motion for extension with this Court did not toll the running of the pleading. Thus, even if the motion for extension bears no date, the date of filing
period to perfect the appeal. Hence, when the Court of Appeals received the stamped on it is the reckoning point for determining the timeliness of its filing.
motion, the period to appeal had already expired.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision.
We are not persuaded. Guevarra filed his motion for extension before this Court on 13 December 1996,
Decisions of the regional trial courts in the exercise of their appellate the date stamped by this Court’s Receiving Clerk on the motion for extension.
jurisdiction are appealable to the Court of Appeals by petition for review in Clearly, Guevarra filed the motion for extension exactly one day before the
lapse of the reglementary period to appeal.
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Assuming that the Court of Appeals should have dismissed Guevarra’s appeal Thus, a party who can prove prior possession can recover such possession even
on technical grounds, Pajuyo did not ask the appellate court to deny the motion against the owner himself.41Whatever may be the character of his possession, if
for extension and dismiss the petition for review at the earliest opportunity. he has in his favor prior possession in time, he has the security that entitles him
Instead, Pajuyo vigorously discussed the merits of the case. It was only when to remain on the property until a person with a better right lawfully ejects
the Court of Appeals ruled in Guevarra’s favor that Pajuyo raised the procedural him.42 To repeat, the only issue that the court has to settle in an ejectment suit
issues against Guevarra’s petition for review. is the right to physical possession.
A party who, after voluntarily submitting a dispute for resolution, receives an In Pitargue v. Sorilla,43 the government owned the land in dispute. The
adverse decision on the merits, is estopped from attacking the jurisdiction of the government did not authorize either the plaintiff or the defendant in the case of
court.25 Estoppel sets in not because the judgment of the court is a valid and forcible entry case to occupy the land. The plaintiff had prior possession and
conclusive adjudication, but because the practice of attacking the court’s had already introduced improvements on the public land. The plaintiff had a
jurisdiction after voluntarily submitting to it is against public policy. 26 pending application for the land with the Bureau of Lands when the defendant
ousted him from possession. The plaintiff filed the action of forcible entry
In his Comment before the Court of Appeals, Pajuyo also failed to discuss
against the defendant. The government was not a party in the case of forcible
Guevarra’s failure to sign the certification against forum shopping. Instead,
entry.
Pajuyo harped on Guevarra’s counsel signing the verification, claiming that the
counsel’s verification is insufficient since it is based only on "mere The defendant questioned the jurisdiction of the courts to settle the issue of
information." possession because while the application of the plaintiff was still pending, title
remained with the government, and the Bureau of Public Lands had jurisdiction
A party’s failure to sign the certification against forum shopping is different
over the case. We disagreed with the defendant. We ruled that courts have
from the party’s failure to sign personally the verification. The certificate of
jurisdiction to entertain ejectment suits even before the resolution of the
non-forum shopping must be signed by the party, and not by counsel. 27 The
application. The plaintiff, by priority of his application and of his entry,
certification of counsel renders the petition defective.28
acquired prior physical possession over the public land applied for as against
On the other hand, the requirement on verification of a pleading is a formal and other private claimants. That prior physical possession enjoys legal protection
not a jurisdictional requisite.29 It is intended simply to secure an assurance that against other private claimants because only a court can take away such
what are alleged in the pleading are true and correct and not the product of the physical possession in an ejectment case.
imagination or a matter of speculation, and that the pleading is filed in good
While the Court did not brand the plaintiff and the defendant in Pitargue44 as
faith.30 The party need not sign the verification. A party’s representative, lawyer
squatters, strictly speaking, their entry into the disputed land was illegal. Both
or any person who personally knows the truth of the facts alleged in the pleading
the plaintiff and defendant entered the public land without the owner’s
may sign the verification.31
permission. Title to the land remained with the government because it had not
We agree with the Court of Appeals that the issue on the certificate against awarded to anyone ownership of the contested public land. Both the plaintiff
forum shopping was merely an afterthought. Pajuyo did not call the Court of and the defendant were in effect squatting on government property. Yet, we
Appeals’ attention to this defect at the early stage of the proceedings. Pajuyo upheld the courts’ jurisdiction to resolve the issue of possession even if the
raised this procedural issue too late in the proceedings. plaintiff and the defendant in the ejectment case did not have any title over the
contested land.
Absence of Title over the Disputed Property will not Divest the Courts of
Jurisdiction to Resolve the Issue of Possession Courts must not abdicate their jurisdiction to resolve the issue of physical
possession because of the public need to preserve the basic policy behind the
Settled is the rule that the defendant’s claim of ownership of the disputed
summary actions of forcible entry and unlawful detainer. The underlying
property will not divest the inferior court of its jurisdiction over the ejectment
philosophy behind ejectment suits is to prevent breach of the peace and criminal
case.32 Even if the pleadings raise the issue of ownership, the court may pass on
disorder and to compel the party out of possession to respect and resort to the
such issue to determine only the question of possession, especially if the
law alone to obtain what he claims is his. 45 The party deprived of possession
ownership is inseparably linked with the possession.33 The adjudication on the
must not take the law into his own hands.46 Ejectment proceedings are summary
issue of ownership is only provisional and will not bar an action between the
in nature so the authorities can settle speedily actions to recover possession
same parties involving title to the land.34 This doctrine is a necessary
because of the overriding need to quell social disturbances.47
consequence of the nature of the two summary actions of ejectment, forcible
entry and unlawful detainer, where the only issue for adjudication is the We further explained in Pitargue the greater interest that is at stake in actions
physical or material possession over the real property.35 for recovery of possession. We made the following pronouncements
in Pitargue:
In this case, what Guevarra raised before the courts was that he and Pajuyo are
not the owners of the contested property and that they are mere squatters. Will The question that is before this Court is: Are courts without jurisdiction to take
the defense that the parties to the ejectment case are not the owners of the cognizance of possessory actions involving these public lands before final
disputed lot allow the courts to renounce their jurisdiction over the case? The award is made by the Lands Department, and before title is given any of the
Court of Appeals believed so and held that it would just leave the parties where conflicting claimants? It is one of utmost importance, as there are public lands
they are since they are in pari delicto. everywhere and there are thousands of settlers, especially in newly opened
regions. It also involves a matter of policy, as it requires the determination of
We do not agree with the Court of Appeals.
the respective authorities and functions of two coordinate branches of the
Ownership or the right to possess arising from ownership is not at issue in an Government in connection with public land conflicts.
action for recovery of possession. The parties cannot present evidence to prove
Our problem is made simple by the fact that under the Civil Code, either in the
ownership or right to legal possession except to prove the nature of the
old, which was in force in this country before the American occupation, or in
possession when necessary to resolve the issue of physical possession. 36 The
the new, we have a possessory action, the aim and purpose of which is the
same is true when the defendant asserts the absence of title over the property.
recovery of the physical possession of real property, irrespective of the question
The absence of title over the contested lot is not a ground for the courts to
as to who has the title thereto. Under the Spanish Civil Code we had the accion
withhold relief from the parties in an ejectment case.
interdictal, a summary proceeding which could be brought within one year from
The only question that the courts must resolve in ejectment proceedings is - who dispossession (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286,
is entitled to the physical possession of the premises, that is, to the possession de 291); and as early as October 1, 1901, upon the enactment of the Code of Civil
facto and not to the possession de jure.37 It does not even matter if a party’s title Procedure (Act No. 190 of the Philippine Commission) we implanted the
to the property is questionable,38 or when both parties intruded into public land common law action of forcible entry (section 80 of Act No. 190), the object of
and their applications to own the land have yet to be approved by the proper which has been stated by this Court to be "to prevent breaches of the peace
government agency.39 Regardless of the actual condition of the title to the and criminal disorder which would ensue from the withdrawal of the remedy,
property, the party in peaceable quiet possession shall not be thrown out by a and the reasonable hope such withdrawal would create that some advantage
strong hand, violence or terror.40 Neither is the unlawful withholding of must accrue to those persons who, believing themselves entitled to the
property allowed. Courts will always uphold respect for prior possession. possession of property, resort to force to gain possession rather than to some
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appropriate action in the court to assert their claims." (Supia and Batioco vs. a final manner by the courts, said question need no longer waste the time of the
Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first land officers making the adjudication or award. (Emphasis ours)
Public Land Act (Act No. 926) the action of forcible entry was already available
The Principle of Pari Delicto is not Applicable to Ejectment Cases
in the courts of the country. So the question to be resolved is, Did the
Legislature intend, when it vested the power and authority to alienate and The Court of Appeals erroneously applied the principle of pari delicto to this
dispose of the public lands in the Lands Department, to exclude the courts from case.
entertaining the possessory action of forcible entry between rival claimants or
Articles 1411 and 1412 of the Civil Code48 embody the principle of pari delicto.
occupants of any land before award thereof to any of the parties? Did Congress
We explained the principle of pari delicto in these words:
intend that the lands applied for, or all public lands for that matter, be removed
from the jurisdiction of the judicial Branch of the Government, so that any The rule of pari delicto is expressed in the maxims ‘ex dolo malo non eritur
troubles arising therefrom, or any breaches of the peace or disorders caused by actio’ and ‘in pari delicto potior est conditio defedentis.’ The law will not aid
rival claimants, could be inquired into only by the Lands Department to the either party to an illegal agreement. It leaves the parties where it finds them.49
exclusion of the courts? The answer to this question seems to us evident. The
The application of the pari delicto principle is not absolute, as there are
Lands Department does not have the means to police public lands; neither does
exceptions to its application. One of these exceptions is where the application
it have the means to prevent disorders arising therefrom, or contain breaches of
of the pari delicto rule would violate well-established public policy.50
the peace among settlers; or to pass promptly upon conflicts of
possession. Then its power is clearly limited to disposition and alienation, and In Drilon v. Gaurana,51 we reiterated the basic policy behind the summary
while it may decide conflicts of possession in order to make proper award, the actions of forcible entry and unlawful detainer. We held that:
settlement of conflicts of possession which is recognized in the court herein It must be stated that the purpose of an action of forcible entry and detainer is
has another ultimate purpose, i.e., the protection of actual possessors and that, regardless of the actual condition of the title to the property, the party in
occupants with a view to the prevention of breaches of the peace. The power peaceable quiet possession shall not be turned out by strong hand, violence or
to dispose and alienate could not have been intended to include the power to terror. In affording this remedy of restitution the object of the statute is to
prevent or settle disorders or breaches of the peace among rival settlers or prevent breaches of the peace and criminal disorder which would ensue from
claimants prior to the final award. As to this, therefore, the corresponding the withdrawal of the remedy, and the reasonable hope such withdrawal would
branches of the Government must continue to exercise power and jurisdiction create that some advantage must accrue to those persons who, believing
within the limits of their respective functions. The vesting of the Lands themselves entitled to the possession of property, resort to force to gain
Department with authority to administer, dispose, and alienate public lands, possession rather than to some appropriate action in the courts to assert their
therefore, must not be understood as depriving the other branches of the claims. This is the philosophy at the foundation of all these actions of forcible
Government of the exercise of the respective functions or powers thereon, entry and detainer which are designed to compel the party out of possession to
such as the authority to stop disorders and quell breaches of the peace by the respect and resort to the law alone to obtain what he claims is his. 52
police, the authority on the part of the courts to take jurisdiction over
possessory actions arising therefrom not involving, directly or indirectly, Clearly, the application of the principle of pari delicto to a case of ejectment
alienation and disposition. between squatters is fraught with danger. To shut out relief to squatters on the
ground of pari delicto would openly invite mayhem and lawlessness. A squatter
Our attention has been called to a principle enunciated in American courts to would oust another squatter from possession of the lot that the latter had
the effect that courts have no jurisdiction to determine the rights of claimants to illegally occupied, emboldened by the knowledge that the courts would leave
public lands, and that until the disposition of the land has passed from the them where they are. Nothing would then stand in the way of the ousted squatter
control of the Federal Government, the courts will not interfere with the from re-claiming his prior possession at all cost.
administration of matters concerning the same. (50 C. J. 1093-1094.) We have
no quarrel with this principle. The determination of the respective rights of rival Petty warfare over possession of properties is precisely what ejectment cases or
claimants to public lands is different from the determination of who has the actions for recovery of possession seek to prevent.53 Even the owner who has
actual physical possession or occupation with a view to protecting the same and title over the disputed property cannot take the law into his own hands to regain
preventing disorder and breaches of the peace. A judgment of the court ordering possession of his property. The owner must go to court.
restitution of the possession of a parcel of land to the actual occupant, who has Courts must resolve the issue of possession even if the parties to the ejectment
been deprived thereof by another through the use of force or in any other illegal suit are squatters. The determination of priority and superiority of possession is
manner, can never be "prejudicial interference" with the disposition or a serious and urgent matter that cannot be left to the squatters to decide. To do
alienation of public lands. On the other hand, if courts were deprived of so would make squatters receive better treatment under the law. The law
jurisdiction of cases involving conflicts of possession, that threat of judicial restrains property owners from taking the law into their own hands. However,
action against breaches of the peace committed on public lands would be the principle of pari delicto as applied by the Court of Appeals would give
eliminated, and a state of lawlessness would probably be produced between squatters free rein to dispossess fellow squatters or violently retake possession
applicants, occupants or squatters, where force or might, not right or justice, of properties usurped from them. Courts should not leave squatters to their own
would rule. devices in cases involving recovery of possession.
It must be borne in mind that the action that would be used to solve conflicts of Possession is the only Issue for Resolution in an Ejectment Case
possession between rivals or conflicting applicants or claimants would be no
other than that of forcible entry. This action, both in England and the United The case for review before the Court of Appeals was a simple case of ejectment.
States and in our jurisdiction, is a summary and expeditious remedy whereby The Court of Appeals refused to rule on the issue of physical possession.
one in peaceful and quiet possession may recover the possession of which he Nevertheless, the appellate court held that the pivotal issue in this case is who
has been deprived by a stronger hand, by violence or terror; its ultimate object between Pajuyo and Guevarra has the "priority right as beneficiary of the
being to prevent breach of the peace and criminal disorder. (Supia and Batioco contested land under Proclamation No. 137."54 According to the Court of
vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere Appeals, Guevarra enjoys preferential right under Proclamation No. 137
possession as a fact, of physical possession, not a legal possession. (Mediran because Article VI of the Code declares that the actual occupant or caretaker is
vs. Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in the one qualified to apply for socialized housing.
an action of forcible entry; as a matter of fact, evidence thereof is expressly The ruling of the Court of Appeals has no factual and legal basis.
banned, except to prove the nature of the possession. (Second 4, Rule 72, Rules
of Court.) With this nature of the action in mind, by no stretch of the First. Guevarra did not present evidence to show that the contested lot is part
imagination can conclusion be arrived at that the use of the remedy in the courts of a relocation site under Proclamation No. 137. Proclamation No. 137 laid
of justice would constitute an interference with the alienation, disposition, and down the metes and bounds of the land that it declared open for disposition to
control of public lands. To limit ourselves to the case at bar can it be pretended bona fide residents.
at all that its result would in any way interfere with the manner of the alienation The records do not show that the contested lot is within the land specified by
or disposition of the land contested? On the contrary, it would facilitate Proclamation No. 137. Guevarra had the burden to prove that the disputed lot
adjudication, for the question of priority of possession having been decided in is within the coverage of Proclamation No. 137. He failed to do so.
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Second. The Court of Appeals should not have given credence to Guevarra’s We do not subscribe to the Court of Appeals’ theory that the Kasunduan is one
unsubstantiated claim that he is the beneficiary of Proclamation No. 137. of commodatum.
Guevarra merely alleged that in the survey the project administrator conducted,
In a contract of commodatum, one of the parties delivers to another something
he and not Pajuyo appeared as the actual occupant of the lot.
not consumable so that the latter may use the same for a certain time and return
There is no proof that Guevarra actually availed of the benefits of Proclamation it.63 An essential feature of commodatum is that it is gratuitous. Another feature
No. 137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. of commodatum is that the use of the thing belonging to another is for a certain
President Aquino signed Proclamation No. 137 into law on 11 March 1986. period.64 Thus, the bailor cannot demand the return of the thing loaned until
Pajuyo made his earliest demand for Guevarra to vacate the property in after expiration of the period stipulated, or after accomplishment of the use for
September 1994. which the commodatum is constituted.65 If the bailor should have urgent need
of the thing, he may demand its return for temporary use. 66 If the use of the
During the time that Guevarra temporarily held the property up to the time that
thing is merely tolerated by the bailor, he can demand the return of the thing at
Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never
will, in which case the contractual relation is called a precarium. 67 Under the
applied as beneficiary of Proclamation No. 137. Even when Guevarra already
Civil Code, precarium is a kind of commodatum.68
knew that Pajuyo was reclaiming possession of the property, Guevarra did not
take any step to comply with the requirements of Proclamation No. 137. The Kasunduan reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the Kasunduan did not require
Third. Even assuming that the disputed lot is within the coverage of
Guevarra to pay rent, it obligated him to maintain the property in good
Proclamation No. 137 and Guevarra has a pending application over the lot,
condition. The imposition of this obligation makes the Kasunduan a contract
courts should still assume jurisdiction and resolve the issue of possession.
different from a commodatum. The effects of the Kasunduan are also different
However, the jurisdiction of the courts would be limited to the issue of physical
from that of a commodatum. Case law on ejectment has treated relationship
possession only.
based on tolerance as one that is akin to a landlord-tenant relationship where
In Pitargue,55 we ruled that courts have jurisdiction over possessory actions the withdrawal of permission would result in the termination of the lease.69 The
involving public land to determine the issue of physical possession. The tenant’s withholding of the property would then be unlawful. This is settled
determination of the respective rights of rival claimants to public land is, jurisprudence.
however, distinct from the determination of who has the actual physical
Even assuming that the relationship between Pajuyo and Guevarra is one
possession or who has a better right of physical possession.56 The administrative
of commodatum, Guevarra as bailee would still have the duty to turn over
disposition and alienation of public lands should be threshed out in the proper
possession of the property to Pajuyo, the bailor. The obligation to deliver or to
government agency.57
return the thing received attaches to contracts for safekeeping, or contracts of
The Court of Appeals’ determination of Pajuyo and Guevarra’s rights under commission, administration and commodatum.70 These contracts certainly
Proclamation No. 137 was premature. Pajuyo and Guevarra were at most involve the obligation to deliver or return the thing received.71
merely potential beneficiaries of the law. Courts should not preempt the
Guevarra turned his back on the Kasunduan on the sole ground that like him,
decision of the administrative agency mandated by law to determine the
Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a
qualifications of applicants for the acquisition of public lands. Instead, courts
contract involving the land they illegally occupy. Guevarra insists that the
should expeditiously resolve the issue of physical possession in ejectment cases
contract is void.
to prevent disorder and breaches of peace.58
Guevarra should know that there must be honor even between squatters.
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn
Guevarra does not dispute Pajuyo’s prior possession of the lot and ownership the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.
of the house built on it. Guevarra expressly admitted the existence and due
The Kasunduan is not void for purposes of determining who between Pajuyo
execution of the Kasunduan. The Kasunduan reads:
and Guevarra has a right to physical possession of the contested property.
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon The Kasunduan is the undeniable evidence of Guevarra’s recognition of
City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang Pajuyo’s better right of physical possession. Guevarra is clearly a possessor in
manirahan sa nasabing bahay at lote ng "walang bayad." Kaugnay nito, bad faith. The absence of a contract would not yield a different result, as there
kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote. would still be an implied promise to vacate.
Sa sandaling kailangan na namin ang bahay at lote, sila’y kusang aalis ng Guevarra contends that there is "a pernicious evil that is sought to be avoided,
walang reklamo. and that is allowing an absentee squatter who (sic) makes (sic) a profit out of
his illegal act."72 Guevarra bases his argument on the preferential right given to
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and
the actual occupant or caretaker under Proclamation No. 137 on socialized
lot free of rent, but Guevarra was under obligation to maintain the premises in
housing.
good condition. Guevarra promised to vacate the premises on Pajuyo’s demand
but Guevarra broke his promise and refused to heed Pajuyo’s demand to vacate. We are not convinced.
These facts make out a case for unlawful detainer. Unlawful detainer involves Pajuyo did not profit from his arrangement with Guevarra because Guevarra
the withholding by a person from another of the possession of real property to stayed in the property without paying any rent. There is also no proof that
which the latter is entitled after the expiration or termination of the former’s Pajuyo is a professional squatter who rents out usurped properties to other
right to hold possession under a contract, express or implied.59 squatters. Moreover, it is for the proper government agency to decide who
between Pajuyo and Guevarra qualifies for socialized housing. The only issue
Where the plaintiff allows the defendant to use his property by tolerance
that we are addressing is physical possession.
without any contract, the defendant is necessarily bound by an implied promise
that he will vacate on demand, failing which, an action for unlawful detainer Prior possession is not always a condition sine qua non in ejectment.73 This is
will lie.60 The defendant’s refusal to comply with the demand makes his one of the distinctions between forcible entry and unlawful detainer.74 In
continued possession of the property unlawful.61 The status of the defendant in forcible entry, the plaintiff is deprived of physical possession of his land or
such a case is similar to that of a lessee or tenant whose term of lease has expired building by means of force, intimidation, threat, strategy or stealth. Thus, he
but whose occupancy continues by tolerance of the owner. 62 must allege and prove prior possession.75 But in unlawful detainer, the
defendant unlawfully withholds possession after the expiration or termination
This principle should apply with greater force in cases where a contract
of his right to possess under any contract, express or implied. In such a case,
embodies the permission or tolerance to use the property.
prior physical possession is not required.76
The Kasunduan expressly articulated Pajuyo’s forbearance. Pajuyo did not
require Guevarra to pay any rent but only to maintain the house and lot in good Pajuyo’s withdrawal of his permission to Guevarra terminated the Kasunduan.
condition. Guevarra expressly vowed in the Kasunduan that he would vacate Guevarra’s transient right to possess the property ended as well. Moreover, it
the property on demand. Guevarra’s refusal to comply with Pajuyo’s demand was Pajuyo who was in actual possession of the property because Guevarra had
to vacate made Guevarra’s continued possession of the property unlawful. to seek Pajuyo’s permission to temporarily hold the property and Guevarra had
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to follow the conditions set by Pajuyo in the Kasunduan. Control over the G.R. No. 115324 February 19, 2003
property still rested with Pajuyo and this is evidence of actual possession.
PRODUCERS BANK OF THE PHILIPPINES (now FIRST
Pajuyo’s absence did not affect his actual possession of the disputed property. INTERNATIONAL BANK), petitioner,
Possession in the eyes of the law does not mean that a man has to have his feet vs.
on every square meter of the ground before he is deemed in possession. 77 One HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.
may acquire possession not only by physical occupation, but also by the fact
that a thing is subject to the action of one’s will.78 Actual or physical occupation DECISION
is not always necessary.79 Short Summary
Ruling on Possession Does not Bind Title to the Land in Dispute Facts:
We are aware of our pronouncement in cases where we declared that "squatters
and intruders who clandestinely enter into titled government property cannot,
by such act, acquire any legal right to said property."80 We made this declaration
because the person who had title or who had the right to legal possession over
the disputed property was a party in the ejectment suit and that party instituted
the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to
the ejectment case. This case is between squatters. Had the government
participated in this case, the courts could have evicted the contending squatters,
Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded
in this case, we cannot evict on our own the parties. Such a ruling would
discourage squatters from seeking the aid of the courts in settling the issue of
physical possession. Stripping both the plaintiff and the defendant of possession
just because they are squatters would have the same dangerous implications as
the application of the principle of pari delicto. Squatters would then rather settle
the issue of physical possession among themselves than seek relief from the
courts if the plaintiff and defendant in the ejectment case would both stand to
lose possession of the disputed property. This would subvert the policy Issue:
underlying actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is
entitled to remain on the property until a person who has title or a better right
lawfully ejects him. Guevarra is certainly not that person. The ruling in this
case, however, does not preclude Pajuyo and Guevarra from introducing Ruling:
evidence and presenting arguments before the proper administrative agency to
establish any right to which they may be entitled under the law. 81
In no way should our ruling in this case be interpreted to condone squatting.
The ruling on the issue of physical possession does not affect title to the
property nor constitute a binding and conclusive adjudication on the merits on
the issue of ownership.82 The owner can still go to court to recover lawfully the
property from the person who holds the property without legal title. Our ruling
here does not diminish the power of government agencies, including local
governments, to condemn, abate, remove or demolish illegal or unauthorized
structures in accordance with existing laws.
Attorney’s Fees and Rentals
The MTC and RTC failed to justify the award of ₱3,000 attorney’s fees to
Pajuyo. Attorney’s fees as part of damages are awarded only in the instances
enumerated in Article 2208 of the Civil Code.83 Thus, the award of attorney’s
fees is the exception rather than the rule.84 Attorney’s fees are not awarded
every time a party prevails in a suit because of the policy that no premium
should be placed on the right to litigate.85 We therefore delete the attorney’s
fees awarded to Pajuyo.
We sustain the ₱300 monthly rentals the MTC and RTC assessed against
Guevarra. Guevarra did not dispute this factual finding of the two courts. We
find the amount reasonable compensation to Pajuyo. The ₱300 monthly rental
is counted from the last demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000
and Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R.
SP No. 43129 are SET ASIDE. The Decision dated 11 November 1996 of the
Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943,
affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court
of Quezon City, Branch 31 in Civil Case No. 12432,
is REINSTATEDwith MODIFICATION. The award of attorney’s fees is
deleted. No costs.
SO ORDERED. CALLEJO, SR., J.:

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This is a petition for review on certiorari of the Decision1 of the Court of (a) the amount of ₱200,000.00, representing the money deposited, with interest
Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and of its at the legal rate from the filing of the complaint until the same is fully paid;
Resolution2 dated May 5, 1994, denying the motion for reconsideration of said
(b) the sum of ₱50,000.00 for moral damages and a similar amount for
decision filed by petitioner Producers Bank of the Philippines.
exemplary damages;
Sometime in 1979, private respondent Franklin Vives was asked by his
(c) the amount of ₱40,000.00 for attorney’s fees; and
neighbor and friend Angeles Sanchez to help her friend and townmate, Col.
Arturo Doronilla, in incorporating his business, the Sterela Marketing and (d) the costs of the suit.
Services ("Sterela" for brevity). Specifically, Sanchez asked private respondent
SO ORDERED.8
to deposit in a bank a certain amount of money in the bank account of Sterela
for purposes of its incorporation. She assured private respondent that he could Petitioner appealed the trial court’s decision to the Court of Appeals. In its
withdraw his money from said account within a month’s time. Private Decision dated June 25, 1991, the appellate court affirmed in toto the decision
respondent asked Sanchez to bring Doronilla to their house so that they could of the RTC.9 It likewise denied with finality petitioner’s motion for
discuss Sanchez’s request.3 reconsideration in its Resolution dated May 5, 1994.10
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella On June 30, 1994, petitioner filed the present petition, arguing that –
Dumagpi, Doronilla’s private secretary, met and discussed the matter.
I.
Thereafter, relying on the assurances and representations of Sanchez and
Doronilla, private respondent issued a check in the amount of Two Hundred THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT
Thousand Pesos (₱200,000.00) in favor of Sterela. Private respondent THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND
instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
in opening a savings account in the name of Sterela in the Buendia, Makati ACCOMMODATION;
branch of Producers Bank of the Philippines. However, only Sanchez, Mrs. II.
Vives and Dumagpi went to the bank to deposit the check. They had with them
an authorization letter from Doronilla authorizing Sanchez and her companions, THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT
"in coordination with Mr. Rufo Atienza," to open an account for Sterela PETITIONER’S BANK MANAGER, MR. RUFO ATIENZA, CONNIVED
Marketing Services in the amount of ₱200,000.00. In opening the account, the WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic.
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE
passbook for Savings Account No. 10-1567 was thereafter issued to Mrs. PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF
Vives.4 NATURAL JUSTICE;
Subsequently, private respondent learned that Sterela was no longer holding III.
office in the address previously given to him. Alarmed, he and his wife went to THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE
the Bank to verify if their money was still intact. The bank manager referred ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND
them to Mr. Rufo Atienza, the assistant manager, who informed them that part AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS
of the money in Savings Account No. 10-1567 had been withdrawn by OF THE REGIONAL TRIAL COURT WERE BASED ON A
Doronilla, and that only ₱90,000.00 remained therein. He likewise told them MISAPPREHENSION OF FACTS;
that Mrs. Vives could not withdraw said remaining amount because it had to
answer for some postdated checks issued by Doronilla. According to Atienza, IV.
after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT
opened Current Account No. 10-0320 for Sterela and authorized the Bank to THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745,
debit Savings Account No. 10-1567 for the amounts necessary to cover UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS
overdrawings in Current Account No. 10-0320. In opening said current account, COMMITTED BY AN EMPLOYEE IS APPLICABLE;
Sterela, through Doronilla, obtained a loan of ₱175,000.00 from the Bank. To
cover payment thereof, Doronilla issued three postdated checks, all of which V.
were dishonored. Atienza also said that Doronilla could assign or withdraw the THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE
money in Savings Account No. 10-1567 because he was the sole proprietor of DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK
Sterela.5 IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER
Private respondent tried to get in touch with Doronilla through Sanchez. On DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING
June 29, 1979, he received a letter from Doronilla, assuring him that his money THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
was intact and would be returned to him. On August 13, 1979, Doronilla issued DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR
a postdated check for Two Hundred Twelve Thousand Pesos (₱212,000.00) in ATTORNEY’S FEES AND THE COSTS OF SUIT.11
favor of private respondent. However, upon presentment thereof by private Private respondent filed his Comment on September 23, 1994. Petitioner filed
respondent to the drawee bank, the check was dishonored. Doronilla requested its Reply thereto on September 25, 1995. The Court then required private
private respondent to present the same check on September 15, 1979 but when respondent to submit a rejoinder to the reply. However, said rejoinder was filed
the latter presented the check, it was again dishonored. 6 only on April 21, 1997, due to petitioner’s delay in furnishing private
Private respondent referred the matter to a lawyer, who made a written demand respondent with copy of the reply12 and several substitutions of counsel on the
upon Doronilla for the return of his client’s money. Doronilla issued another part of private respondent.13 On January 17, 2001, the Court resolved to give
check for ₱212,000.00 in private respondent’s favor but the check was again due course to the petition and required the parties to submit their respective
dishonored for insufficiency of funds.7 memoranda.14 Petitioner filed its memorandum on April 16, 2001 while private
respondent submitted his memorandum on March 22, 2001.
Private respondent instituted an action for recovery of sum of money in the
Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Petitioner contends that the transaction between private respondent and
Dumagpi and petitioner. The case was docketed as Civil Case No. 44485. He Doronilla is a simple loan (mutuum) since all the elements of a mutuum are
also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC. present: first, what was delivered by private respondent to Doronilla was
However, Sanchez passed away on March 16, 1985 while the case was pending money, a consumable thing; and second, the transaction was onerous as
before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, Doronilla was obliged to pay interest, as evidenced by the check issued by
promulgated its Decision in Civil Case No. 44485, the dispositive portion of Doronilla in the amount of ₱212,000.00, or ₱12,000 more than what private
which reads: respondent deposited in Sterela’s bank account.15 Moreover, the fact that private
respondent sued his good friend Sanchez for his failure to recover his money
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing from Doronilla shows that the transaction was not merely gratuitous but "had a
defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the business angle" to it. Hence, petitioner argues that it cannot be held liable for
Philippines to pay plaintiff Franklin Vives jointly and severally –
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 9
the return of private respondent’s ₱200,000.00 because it is not privy to the In commodatum, the bailor retains the ownership of the thing loaned, while in
transaction between the latter and Doronilla.16 simple loan, ownership passes to the borrower.
It argues further that petitioner’s Assistant Manager, Mr. Rufo Atienza, could The foregoing provision seems to imply that if the subject of the contract is a
not be faulted for allowing Doronilla to withdraw from the savings account of consumable thing, such as money, the contract would be a mutuum. However,
Sterela since the latter was the sole proprietor of said company. Petitioner there are some instances where a commodatum may have for its object a
asserts that Doronilla’s May 8, 1979 letter addressed to the bank, authorizing consumable thing. Article 1936 of the Civil Code provides:
Mrs. Vives and Sanchez to open a savings account for Sterela, did not contain
Consumable goods may be the subject of commodatum if the purpose of the
any authorization for these two to withdraw from said account. Hence, the
contract is not the consumption of the object, as when it is merely for exhibition.
authority to withdraw therefrom remained exclusively with Doronilla, who was
the sole proprietor of Sterela, and who alone had legal title to the savings Thus, if consumable goods are loaned only for purposes of exhibition, or when
account.17 Petitioner points out that no evidence other than the testimonies of the intention of the parties is to lend consumable goods and to have the very
private respondent and Mrs. Vives was presented during trial to prove that same goods returned at the end of the period agreed upon, the loan is a
private respondent deposited his ₱200,000.00 in Sterela’s account for purposes commodatum and not a mutuum.
of its incorporation.18 Hence, petitioner should not be held liable for allowing
The rule is that the intention of the parties thereto shall be accorded primordial
Doronilla to withdraw from Sterela’s savings account.1a\^/phi1.net
consideration in determining the actual character of a contract. 27 In case of
Petitioner also asserts that the Court of Appeals erred in affirming the trial doubt, the contemporaneous and subsequent acts of the parties shall be
court’s decision since the findings of fact therein were not accord with the considered in such determination.28
evidence presented by petitioner during trial to prove that the transaction
As correctly pointed out by both the Court of Appeals and the trial court, the
between private respondent and Doronilla was a mutuum, and that it committed
evidence shows that private respondent agreed to deposit his money in the
no wrong in allowing Doronilla to withdraw from Sterela’s savings account.19
savings account of Sterela specifically for the purpose of making it appear "that
Finally, petitioner claims that since there is no wrongful act or omission on its said firm had sufficient capitalization for incorporation, with the promise that
part, it is not liable for the actual damages suffered by private respondent, and the amount shall be returned within thirty (30) days."29 Private respondent
neither may it be held liable for moral and exemplary damages as well as merely "accommodated" Doronilla by lending his money without
attorney’s fees.20 consideration, as a favor to his good friend Sanchez. It was however clear to the
parties to the transaction that the money would not be removed from Sterela’s
Private respondent, on the other hand, argues that the transaction between him
savings account and would be returned to private respondent after thirty (30)
and Doronilla is not a mutuum but an accommodation,21 since he did not
days.
actually part with the ownership of his ₱200,000.00 and in fact asked his wife
to deposit said amount in the account of Sterela so that a certification can be Doronilla’s attempts to return to private respondent the amount of ₱200,000.00
issued to the effect that Sterela had sufficient funds for purposes of its which the latter deposited in Sterela’s account together with an additional
incorporation but at the same time, he retained some degree of control over his ₱12,000.00, allegedly representing interest on the mutuum, did not convert the
money through his wife who was made a signatory to the savings account and transaction from a commodatum into a mutuum because such was not the intent
in whose possession the savings account passbook was given.22 of the parties and because the additional ₱12,000.00 corresponds to the fruits of
the lending of the ₱200,000.00. Article 1935 of the Civil Code expressly states
He likewise asserts that the trial court did not err in finding that petitioner,
that "[t]he bailee in commodatum acquires the use of the thing loaned but not
Atienza’s employer, is liable for the return of his money. He insists that Atienza,
its fruits." Hence, it was only proper for Doronilla to remit to private respondent
petitioner’s assistant manager, connived with Doronilla in defrauding private
the interest accruing to the latter’s money deposited with petitioner.
respondent since it was Atienza who facilitated the opening of Sterela’s current
account three days after Mrs. Vives and Sanchez opened a savings account with Neither does the Court agree with petitioner’s contention that it is not solidarily
petitioner for said company, as well as the approval of the authority to debit liable for the return of private respondent’s money because it was not privy to
Sterela’s savings account to cover any overdrawings in its current account.23 the transaction between Doronilla and private respondent. The nature of said
transaction, that is, whether it is a mutuum or a commodatum, has no bearing
There is no merit in the petition.
on the question of petitioner’s liability for the return of private respondent’s
At the outset, it must be emphasized that only questions of law may be raised money because the factual circumstances of the case clearly show that
in a petition for review filed with this Court. The Court has repeatedly held that petitioner, through its employee Mr. Atienza, was partly responsible for the loss
it is not its function to analyze and weigh all over again the evidence presented of private respondent’s money and is liable for its restitution.
by the parties during trial.24 The Court’s jurisdiction is in principle limited to
Petitioner’s rules for savings deposits written on the passbook it issued Mrs.
reviewing errors of law that might have been committed by the Court of
Vives on behalf of Sterela for Savings Account No. 10-1567 expressly states
Appeals.25 Moreover, factual findings of courts, when adopted and confirmed
that—
by the Court of Appeals, are final and conclusive on this Court unless these
findings are not supported by the evidence on record. 26 There is no showing of "2. Deposits and withdrawals must be made by the depositor personally or upon
any misapprehension of facts on the part of the Court of Appeals in the case at his written authority duly authenticated, and neither a deposit nor a withdrawal
bar that would require this Court to review and overturn the factual findings of will be permitted except upon the production of the depositor savings bank book
that court, especially since the conclusions of fact of the Court of Appeals and in which will be entered by the Bank the amount deposited or withdrawn." 30
the trial court are not only consistent but are also amply supported by the
Said rule notwithstanding, Doronilla was permitted by petitioner, through
evidence on record.
Atienza, the Assistant Branch Manager for the Buendia Branch of petitioner, to
No error was committed by the Court of Appeals when it ruled that the withdraw therefrom even without presenting the passbook (which Atienza very
transaction between private respondent and Doronilla was a commodatum and well knew was in the possession of Mrs. Vives), not just once, but several times.
not a mutuum. A circumspect examination of the records reveals that the Both the Court of Appeals and the trial court found that Atienza allowed said
transaction between them was a commodatum. Article 1933 of the Civil Code withdrawals because he was party to Doronilla’s "scheme" of defrauding
distinguishes between the two kinds of loans in this wise: private respondent:
By the contract of loan, one of the parties delivers to another, either something XXX
not consumable so that the latter may use the same for a certain time and return
But the scheme could not have been executed successfully without the
it, in which case the contract is called a commodatum; or money or other
knowledge, help and cooperation of Rufo Atienza, assistant manager and
consumable thing, upon the condition that the same amount of the same kind
cashier of the Makati (Buendia) branch of the defendant bank. Indeed, the
and quality shall be paid, in which case the contract is simply called a loan or
evidence indicates that Atienza had not only facilitated the commission of the
mutuum.
fraud but he likewise helped in devising the means by which it can be done in
Commodatum is essentially gratuitous. such manner as to make it appear that the transaction was in accordance with
banking procedure.
Simple loan may be gratuitous or with a stipulation to pay interest.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 10
To begin with, the deposit was made in defendant’s Buendia branch precisely of their assigned tasks. To hold the employer liable under this provision, it must
because Atienza was a key officer therein. The records show that plaintiff had be shown that an employer-employee relationship exists, and that the employee
suggested that the ₱200,000.00 be deposited in his bank, the Manila Banking was acting within the scope of his assigned task when the act complained of
Corporation, but Doronilla and Dumagpi insisted that it must be in defendant’s was committed.32 Case law in the United States of America has it that a
branch in Makati for "it will be easier for them to get a certification". In fact corporation that entrusts a general duty to its employee is responsible to the
before he was introduced to plaintiff, Doronilla had already prepared a letter injured party for damages flowing from the employee’s wrongful act done in
addressed to the Buendia branch manager authorizing Angeles B. Sanchez and the course of his general authority, even though in doing such act, the employee
company to open a savings account for Sterela in the amount of ₱200,000.00, may have failed in its duty to the employer and disobeyed the latter’s
as "per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x instructions.33
x x" (Exh. 1). This is a clear manifestation that the other defendants had been
There is no dispute that Atienza was an employee of petitioner. Furthermore,
in consultation with Atienza from the inception of the scheme. Significantly,
petitioner did not deny that Atienza was acting within the scope of his authority
there were testimonies and admission that Atienza is the brother-in-law of a
as Assistant Branch Manager when he assisted Doronilla in withdrawing funds
certain Romeo Mirasol, a friend and business associate of
from Sterela’s Savings Account No. 10-1567, in which account private
Doronilla.1awphi1.nét
respondent’s money was deposited, and in transferring the money withdrawn to
Then there is the matter of the ownership of the fund. Because of the Sterela’s Current Account with petitioner. Atienza’s acts of helping Doronilla,
"coordination" between Doronilla and Atienza, the latter knew before hand that a customer of the petitioner, were obviously done in furtherance of petitioner’s
the money deposited did not belong to Doronilla nor to Sterela. Aside from such interests34 even though in the process, Atienza violated some of petitioner’s
foreknowledge, he was explicitly told by Inocencia Vives that the money rules such as those stipulated in its savings account passbook.35 It was
belonged to her and her husband and the deposit was merely to accommodate established that the transfer of funds from Sterela’s savings account to its
Doronilla. Atienza even declared that the money came from Mrs. Vives. current account could not have been accomplished by Doronilla without the
invaluable assistance of Atienza, and that it was their connivance which was the
Although the savings account was in the name of Sterela, the bank records
cause of private respondent’s loss.
disclose that the only ones empowered to withdraw the same were Inocencia
Vives and Angeles B. Sanchez. In the signature card pertaining to this account The foregoing shows that the Court of Appeals correctly held that under Article
(Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B. 2180 of the Civil Code, petitioner is liable for private respondent’s loss and is
Sanchez. Atienza stated that it is the usual banking procedure that withdrawals solidarily liable with Doronilla and Dumagpi for the return of the ₱200,000.00
of savings deposits could only be made by persons whose authorized signatures since it is clear that petitioner failed to prove that it exercised due diligence to
are in the signature cards on file with the bank. He, however, said that this prevent the unauthorized withdrawals from Sterela’s savings account, and that
procedure was not followed here because Sterela was owned by Doronilla. He it was not negligent in the selection and supervision of Atienza. Accordingly,
explained that Doronilla had the full authority to withdraw by virtue of such no error was committed by the appellate court in the award of actual, moral and
ownership. The Court is not inclined to agree with Atienza. In the first place, exemplary damages, attorney’s fees and costs of suit to private respondent.
he was all the time aware that the money came from Vives and did not belong
WHEREFORE, the petition is hereby DENIED. The assailed Decision and
to Sterela. He was also told by Mrs. Vives that they were only accommodating
Resolution of the Court of Appeals are AFFIRMED.
Doronilla so that a certification can be issued to the effect that Sterela had a
deposit of so much amount to be sued in the incorporation of the firm. In the SO ORDERED.
second place, the signature of Doronilla was not authorized in so far as that
account is concerned inasmuch as he had not signed the signature card provided
by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives
nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been
presented. It is an accepted practice that whenever a withdrawal is made in a
savings deposit, the bank requires the presentation of the passbook. In this case,
such recognized practice was dispensed with. The transfer from the savings
account to the current account was without the submission of the passbook
which Atienza had given to Mrs. Vives. Instead, it was made to appear in a
certification signed by Estrella Dumagpi that a duplicate passbook was issued
to Sterela because the original passbook had been surrendered to the Makati
branch in view of a loan accommodation assigning the savings account (Exh.
C). Atienza, who undoubtedly had a hand in the execution of this certification,
was aware that the contents of the same are not true. He knew that the passbook
was in the hands of Mrs. Vives for he was the one who gave it to her. Besides,
as assistant manager of the branch and the bank official servicing the savings
and current accounts in question, he also was aware that the original passbook
was never surrendered. He was also cognizant that Estrella Dumagpi was not
among those authorized to withdraw so her certification had no effect
whatsoever.
The circumstance surrounding the opening of the current account also
demonstrate that Atienza’s active participation in the perpetration of the fraud
and deception that caused the loss. The records indicate that this account was
opened three days later after the ₱200,000.00 was deposited. In spite of his
disclaimer, the Court believes that Atienza was mindful and posted regarding
the opening of the current account considering that Doronilla was all the while
in "coordination" with him. That it was he who facilitated the approval of the
authority to debit the savings account to cover any overdrawings in the current
account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss
subject of this case. x x x.31
Under Article 2180 of the Civil Code, employers shall be held primarily and
solidarily liable for damages caused by their employees acting within the scope

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Republic of the Philippines
SUPREME COURT
Manila ARELLANO, C.J.:
EN BANC Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla
acquired during his lifetime, on March 12, 1874, a lot in the center of the town
G.R. No. L-8321 October 14, 1913 of Laoag, the capital of the Province of Ilocos Norte, the property having been
ALEJANDRA MINA, ET AL., plaintiffs-appellants, awarded to him through its purchase at a public auction held by the alcalde
vs. mayor of that province. The lot has a frontage of 120 meters and a depth of 15.
RUPERTA PASCUAL, ET AL., defendants-appellees. Andres Fontanilla, with the consent of his brother Francisco, erected a
N. Segundo for appellants. warehouse on a part of the said lot, embracing 14 meters of its frontage by 11
Iñigo Bitanga for appellees. meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the herein
Short Summary plaintiffs, Alejandro Mina, et al., were recognized without discussion as his
heirs.
Facts:
Andres Fontanilla, the former owner of the warehouse, also having died, the
children of Ruperta Pascual were recognized likes without discussion, though
it is not said how, and consequently are entitled to the said building, or rather,
as Ruperta Pascual herself stated, to only six-sevenths of one-half of it, the other
half belonging, as it appears, to the plaintiffs themselves, and the remaining
one-seventh of the first one-half to the children of one of the plaintiffs, Elena
de Villanueva. The fact is that the plaintiffs and the defendants are virtually, to
all appearance, the owners of the warehouse; while the plaintiffs are
undoubtedly, the owners of the part of the lot occupied by that building, as well
as of the remainder thereof.
This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the
guardian of her minor children, the herein defendants, petitioned the Curt of
First Instance of Ilocos Norte for authorization to sell "the six-sevenths of
the one-half of the warehouse, of 14 by 11 meters, together with its lot." The
plaintiffs — that is Alejandra Mina, et al. — opposed the petition of Ruperta
Pascual for the reason that the latter had included therein the lot occupied by
the warehouse, which they claimed was their exclusive property. All this action
was taken in a special proceeding in reguardianship.
The plaintiffs did more than oppose Pascual's petition; they requested the court,
through motion, to decide the question of the ownership of the lot before it pass
Issue: upon the petition for the sale of the warehouse. But the court before determining
the matter of the ownership of the lot occupied by the warehouse, ordered the
sale of this building, saying:
While the trial continues with respect to the ownership of the lot, the court
orders the sale at public auction of the said warehouse and of the lot on which
Ruling: it is built, with the present boundaries of the land and condition of the building,
at a price of not less than P2,890 Philippine currency . . . .
So, the warehouse, together with the lot on which it stands, was sold to Cu Joco,
the other defendant in this case, for the price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership of the
lot, and the court decided it by holding that this land belonged to the owner of
the warehouse which had been built thereon thirty years before.
The plaintiffs appealed and this court reversed the judgment of the lower court
and held that the appellants were the owners of the lot in question. 1
When the judgment became final and executory, a writ of execution issued and
the plaintiffs were given possession of the lot; but soon thereafter the trial court
annulled this possession for the reason that it affected Cu Joco, who had not
been a party to the suit in which that writ was served.
It was then that the plaintiffs commenced the present action for the purpose of
having the sale of the said lot declared null and void and of no force and effect.
An agreement was had ad to the facts, the ninth paragraph of which is as
follows:
9. That the herein plaintiffs excepted to the judgment and appealed therefrom
to the Supreme Court which found for them by holding that they are the owners
of the lot in question, although there existed and still exists a commodatum by
virtue of which the guardianship (meaning the defendants) had and has the use,
and the plaintiffs the ownership, of the property, with no finding concerning the
decree of the lower court that ordered the sale.
The obvious purport of the cause "although there existed and still exists a
commodatum," etc., appears to be that it is a part of the decision of the Supreme
Court and that, while finding the plaintiffs to be the owners of the lot, we
recognized in principle the existence of a commodatum under which the
defendants held the lot. Nothing could be more inexact. Possibly, also, the

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 12


meaning of that clause is that, notwithstanding the finding made by the Supreme be one for the recovery of possession of a lot and for the annulment of its sale.
Court that the plaintiffs were the owners, these former and the defendants agree The plaintiff's petition was opposed by the defendant's attorney, but was
that there existed, and still exists, a commodatum, etc. But such an agreement allowed by the court; therefore the complaint seeks, after the judicial annulment
would not affect the truth of the contents of the decision of this court, and the of the sale of the lot, to have the defendants sentenced immediately to deliver
opinions held by the litigants in regard to this point could have no bearing the same to the plaintiffs.
whatever on the present decision.
Such a finding appears to be in harmony with the decision rendered by the
Nor did the decree of the lower court that ordered the sale have the least Supreme Court in previous suit, wherein it was held that the ownership of the
influence in our previous decision to require our making any finding in regard lot lay in the plaintiffs, and for this reason steps were taken to give possession
thereto, for, with or without that decree, the Supreme Court had to decide the thereof to the defendants; but, as the purchaser Cu Joco was not a party to that
ownership of the lot consistently with its titles and not in accordance with the suit, the present action is strictly one for recover against Cu Joco to compel him,
judicial acts or proceedings had prior to the setting up of the issue in respect to once the sale has been annulled, to deliver the lot to its lawful owners, the
the ownership of the property that was the subject of the judicial decree. plaintiffs.
What is essentially pertinent to the case is the fact that the defendant agree that As respects this action for recovery, this Supreme Court finds:
the plaintiffs have the ownership, and they themselves only the use, of the said
1. That it is a fact admitted by the litigating parties, both in this and in the
lot.
previous suit, that Andres Fontanilla, the defendants' predecessor in interest,
On this premise, the nullity of the sale of the lot is in all respects quite evident, erected the warehouse on the lot, some thirty years ago, with the explicit consent
whatsoever be the manner in which the sale was effected, whether judicially or of his brother Francisco Fontanilla, the plaintiff's predecessor in interest.
extrajudicially.
2. That it also appears to be an admitted fact that the plaintiffs and the
He who has only the use of a thing cannot validly sell the thing itself. The effect defendants are the coowners of the warehouse.
of the sale being a transfer of the ownership of the thing, it is evident that he
3. That it is a fact explicitly admitted in the agreement, that neither Andres
who has only the mere use of the thing cannot transfer its ownership. The sale
Fontanilla nor his successors paid any consideration or price whatever for the
of a thing effected by one who is not its owner is null and void. The defendants
use of the lot occupied by the said building; whence it is, perhaps, that both
never were the owners of the lot sold. The sale of it by them is necessarily null
parties have denominated that use a commodatum.
and void. On cannot convey to another what he has never had himself.
Upon the premise of these facts, or even merely upon that of the first of them,
The returns of the auction contain the following statements:
the sentencing of the defendants to deliver the lot to the plaintiffs does not
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the follow as a necessary corollary of the judicial declaration of ownership made in
authorization conferred upon me on the 31st of July, 1909, by the Court of First the previous suit, nor of that of the nullity of the sale of the lot, made in the
Instance of Ilocos Norte, proceeded with the sale at public auction of the six- present case.
sevenths part of the one-half of the warehouse constructed of rubble stone, etc.
The defendants do not hold lawful possession of the lot in question.1awphil.net
Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public
But, although both litigating parties may have agreed in their idea of the
auction all the land and all the rights title, interest, and ownership in the said
commodatum, on account of its not being, as indeed it is not, a question of fact
property to Cu Joco, who was the highest bidder, etc.
but of law, yet that denomination given by them to the use of the lot granted by
Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable.
heirs and assigns, all the interest, ownership and inheritance rights and others Contracts are not to be interpreted in conformity with the name that the parties
that, as the guardian of the said minors, I have and may have in the said thereto agree to give them, but must be construed, duly considering their
property, etc. constitutive elements, as they are defined and denominated by law.
The purchaser could not acquire anything more than the interest that might be By the contract of loan, one of the parties delivers to the other, either anything
held by a person to whom realty in possession of the vendor might be sold, for not perishable, in order that the latter may use it during the certain period and
at a judicial auction nothing else is disposed of. What the minor children of return it to the former, in which case it is called commodatum . . . (art. 1740,
Ruperta Pascual had in their possession was the ownership of the six-sevenths Civil Code).
part of one-half of the warehouse and the use of the lot occupied by his building.
It is, therefore, an essential feature of the commodatum that the use of the thing
This, and nothing more, could the Chinaman Cu Joco acquire at that sale: not
belonging to another shall for a certain period. Francisco Fontanilla did not fix
the ownership of the lot; neither the other half, nor the remaining one-seventh
any definite period or time during which Andres Fontanilla could have the use
of the said first half, of the warehouse. Consequently, the sale made to him of
of the lot whereon the latter was to erect a stone warehouse of considerable
this one-seventh of one-half and the entire other half of the building was null
value, and so it is that for the past thirty years of the lot has been used by both
and void, and likewise with still more reason the sale of the lot the building
Andres and his successors in interest. The present contention of the plaintiffs
occupies.
that Cu Joco, now in possession of the lot, should pay rent for it at the rate of
The purchaser could and should have known what it was that was offered for P5 a month, would destroy the theory of the commodatum sustained by them,
sale and what it was that he purchased. There is nothing that can justify the since, according to the second paragraph of the aforecited article 1740,
acquisition by the purchaser of the warehouse of the ownership of the lot that "commodatum is essentially gratuitous," and, if what the plaintiffs themselves
this building occupies, since the minors represented by Ruperta Pascual never aver on page 7 of their brief is to be believed, it never entered Francisco's mind
were the owners of the said lot, nor were they ever considered to be such. to limit the period during which his brother Andres was to have the use of the
lot, because he expected that the warehouse would eventually fall into the hands
The trial court, in the judgment rendered, held that there were no grounds for
of his son, Fructuoso Fontanilla, called the adopted son of Andres, which did
the requested annulment of the sale, and that the plaintiffs were entitled to the
not come to pass for the reason that Fructuoso died before his uncle Andres.
P600 deposited with the clerk of the court as the value of the lot in question.
With that expectation in view, it appears more likely that Francisco intended to
The defendants, Ruperta Pascual and the Chinaman Cu Joco, were absolved
allow his brother Andres a surface right; but this right supposes the payment of
from the complaint, without express finding as to costs.
an annual rent, and Andres had the gratuitous use of the lot.
The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be
Hence, as the facts aforestated only show that a building was erected on
compelled to accept the price set on the lot by expert appraisers, not even though
another's ground, the question should be decided in accordance with the statutes
the plaintiffs be considered as coowner of the warehouse. It would be much
that, thirty years ago, governed accessions to real estate, and which were Laws
indeed that, on the ground of coownership, they should have to abide by and
41 and 42, title 28, of the third Partida, nearly identical with the provisions of
tolerate the sale of the said building, which point this court does not decide as
articles 361 and 362 of the Civil Code. So, then, pursuant to article 361, the
it is not a question submitted to us for decision, but, as regards the sale of the
owner of the land on which a building is erected in good faith has a right to
lot, it is in all respects impossible to hold that the plaintiffs must abide by it and
appropriate such edifice to himself, after payment of the indemnity prescribed
tolerate, it, and this conclusion is based on the fact that they did not give their
in articles 453 and 454, or to oblige the builder to pay him the value of the land.
consent (art. 1261, Civil Code), and only the contracting parties who have given
Such, and no other, is the right to which the plaintiff are entitled.
it are obliged to comply (art. 1091, idem).
For the foregoing reasons, it is only necessary to annul the sale of the said lot
The sole purpose of the action in the beginning was to obtain an annulment of
which was made by Ruperta Pascual, in representation of her minor children,
the sale of the lot; but subsequently the plaintiffs, through motion, asked for an
to Cu Joco, and to maintain the latter in the use of the lot until the plaintiffs
amendment by their complaint in the sense that the action should be deemed to
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shall choose one or the other of the two rights granted them by article 361 of
the Civil Code.1awphil.net
The judgment appealed from is reversed and the sale of the lot in question is
held to be null and void and of no force or effect. No special finding is made as
to the costs of both instances.
Torres, Johnson, Carson, Moreland and Trent, JJ., concur.

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EN BANC to employ them. Four died of rinderpest, and it is for this reason that the
judgment appealed from only deals with six surviving carabaos.
G.R. No. L-4150 February 10, 1910
The alleged purchase of three carabaos by Jimenea from his son-in-law Santos
FELIX DE LOS SANTOS, plaintiff-appelle, is not evidenced by any trustworthy documents such as those of transfer, nor
vs. were the declarations of the witnesses presented by the defendant affirming it
AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea, satisfactory; for said reason it can not be considered that Jimenea only received
deceased, defendant-appellant. three carabaos on loan from his son-in-law, and that he afterwards kept them
Matias Hilado, for appellant. definitely by virtue of the purchase.
Jose Felix Martinez, for appellee. By the laws in force the transfer of large cattle was and is still made by means
TORRES, J.: of official documents issued by the local authorities; these documents constitute
the title of ownership of the carabao or horse so acquired. Furthermore, not only
On the 1st of September, 1906, Felix de los Santos brought suit against Agustina should the purchaser be provided with a new certificate or credential, a
Jarra, the administratrix of the estate of Magdaleno Jimenea, alleging that in the document which has not been produced in evidence by the defendant, nor has
latter part of 1901 Jimenea borrowed and obtained from the plaintiff ten first- the loss of the same been shown in the case, but the old documents ought to be
class carabaos, to be used at the animal-power mill of his hacienda during the on file in the municipality, or they should have been delivered to the new
season of 1901-2, without recompense or remuneration whatever for the use purchaser, and in the case at bar neither did the defendant present the old
thereof, under the sole condition that they should be returned to the owner as credential on which should be stated the name of the previous owner of each of
soon as the work at the mill was terminated; that Magdaleno Jimenea, however, the three carabaos said to have been sold by the plaintiff.
did not return the carabaos, notwithstanding the fact that the plaintiff claimed
their return after the work at the mill was finished; that Magdaleno Jimenea died From the foregoing it may be logically inferred that the carabaos loaned or
on the 28th of October, 1904, and the defendant herein was appointed by the given on commodatum to the now deceased Magdaleno Jimenea were ten in
Court of First Instance of Occidental Negros administratrix of his estate and she number; that they, or at any rate the six surviving ones, have not been returned
took over the administration of the same and is still performing her duties as to the owner thereof, Felix de los Santos, and that it is not true that the latter
such administratrix; that the plaintiff presented his claim to the commissioners sold to the former three carabaos that the purchaser was already using;
of the estate of Jimenea, within the legal term, for the return of the said ten therefore, as the said six carabaos were not the property of the deceased nor of
carabaos, but the said commissioners rejected his claim as appears in their any of his descendants, it is the duty of the administratrix of the estate to return
report; therefore, the plaintiff prayed that judgment be entered against the them or indemnify the owner for their value.
defendant as administratrix of the estate of the deceased, ordering her to return The Civil Code, in dealing with loans in general, from which generic
the ten first-class carabaos loaned to the late Jimenea, or their present value, denomination the specific one of commodatum is derived, establishes
and to pay the costs. prescriptions in relation to the last-mentioned contract by the following articles:
The defendant was duly summoned, and on the 25th of September, 1906, she ART. 1740. By the contract of loan, one of the parties delivers to the other,
demurred in writing to the complaint on the ground that it was vague; but on either anything not perishable, in order that the latter may use it during a certain
the 2d of October of the same year, in answer to the complaint, she said that it period and return it to the former, in which case it is called commodatum, or
was true that the late Magdaleno Jimenea asked the plaintiff to loan him ten money or any other perishable thing, under the condition to return an equal
carabaos, but that he only obtained three second-class animals, which were amount of the same kind and quality, in which case it is merely called a loan.
afterwards transferred by sale by the plaintiff to the said Jimenea; that she
denied the allegations contained in paragraph 3 of the complaint; for all of Commodatum is essentially gratuitous.
which she asked the court to absolve her of the complaint with the cost against A simple loan may be gratuitous, or made under a stipulation to pay interest.
the plaintiff.
ART. 1741. The bailee acquires retains the ownership of the thing loaned. The
By a writing dated the 11th of December, 1906, Attorney Jose Felix Martinez bailee acquires the use thereof, but not its fruits; if any compensation is
notified the defendant and her counsel, Matias Hilado, that he had made an involved, to be paid by the person requiring the use, the agreement ceases to be
agreement with the plaintiff to the effect that the latter would not compromise a commodatum.
the controversy without his consent, and that as fees for his professional
services he was to receive one half of the amount allowed in the judgment if the ART. 1742. The obligations and rights which arise from the commodatum pass
same were entered in favor of the plaintiff. to the heirs of both contracting parties, unless the loan has been in consideration
for the person of the bailee, in which case his heirs shall not have the right to
The case came up for trial, evidence was adduced by both parties, and either continue using the thing loaned.
exhibits were made of record. On the 10th of January, 1907, the court below
entered judgment sentencing Agustina Jarra, as administratrix of the estate of The carabaos delivered to be used not being returned by the defendant upon
Magdaleno Jimenea, to return to the plaintiff, Felix de los Santos, the remaining demand, there is no doubt that she is under obligation to indemnify the owner
six second and third class carabaos, or the value thereof at the rate of P120 each, thereof by paying him their value.
or a total of P720 with the costs. Article 1101 of said code reads:
Counsel for the defendant excepted to the foregoing judgment, and, by a writing Those who in fulfilling their obligations are guilty of fraud, negligence, or
dated January 19, moved for anew trial on the ground that the findings of fact delay, and those who in any manner whatsoever act in contravention of the
were openly and manifestly contrary to the weight of the evidence. The motion stipulations of the same, shall be subjected to indemnify for the losses and
was overruled, the defendant duly excepted, and in due course submitted the damages caused thereby.
corresponding bill of exceptions, which was approved and submitted to this
court. The obligation of the bailee or of his successors to return either the thing loaned
or its value, is sustained by the supreme tribunal of Sapin. In its decision of
The defendant has admitted that Magdaleno Jimenea asked the plaintiff for the March 21, 1895, it sets out with precision the legal doctrine touching
loan of ten carabaos which are now claimed by the latter, as shown by two commodatum as follows:
letters addressed by the said Jimenea to Felix de los Santos; but in her answer
the said defendant alleged that the late Jimenea only obtained three second-class Although it is true that in a contract of commodatum the bailor retains the
carabaos, which were subsequently sold to him by the owner, Santos; therefore, ownership of the thing loaned, and at the expiration of the period, or after the
in order to decide this litigation it is indispensable that proof be forthcoming use for which it was loaned has been accomplished, it is the imperative duty of
that Jimenea only received three carabaos from his son-in-law Santos, and that the bailee to return the thing itself to its owner, or to pay him damages if through
they were sold by the latter to him. the fault of the bailee the thing should have been lost or injured, it is clear that
where public securities are involved, the trial court, in deferring to the claim of
The record discloses that it has been fully proven from the testimony of a the bailor that the amount loaned be returned him by the bailee in bonds of the
sufficient number of witnesses that the plaintiff, Santos, sent in charge of same class as those which constituted the contract, thereby properly applies law
various persons the ten carabaos requested by his father-in-law, Magdaleno 9 of title 11 of partida 5.
Jimenea, in the two letters produced at the trial by the plaintiff, and that Jimenea
received them in the presence of some of said persons, one being a brother of With regard to the third assignment of error, based on the fact that the plaintiff
said Jimenea, who saw the animals arrive at the hacienda where it was proposed Santos had not appealed from the decision of the commissioners rejecting his
claim for the recovery of his carabaos, it is sufficient to estate that we are not
dealing with a claim for the payment of a certain sum, the collection of a debt
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 15
from the estate, or payment for losses and damages (sec. 119, Code of Civil EN BANC
Procedure), but with the exclusion from the inventory of the property of the late
Jimenea, or from his capital, of six carabaos which did not belong to him, and G.R. No. L-17474 October 25, 1962
which formed no part of the inheritance. REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
The demand for the exclusion of the said carabaos belonging to a third party vs.
and which did not form part of the property of the deceased, must be the subject JOSE V. BAGTAS, defendant,
of a direct decision of the court in an ordinary action, wherein the right of the FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by
third party to the property which he seeks to have excluded from the inheritance the late Jose V. Bagtas, petitioner-appellant.
and the right of the deceased has been discussed, and rendered in view of the D. T. Reyes, Liaison and Associates for petitioner-appellant.
result of the evidence adduced by the administrator of the estate and of the Office of the Solicitor General for plaintiff-appellee.
claimant, since it is so provided by the second part of section 699 and by section
703 of the Code of Civil Procedure; the refusal of the commissioners before PADILLA, J.:
whom the plaintiff unnecessarily appeared can not affect nor reduce the
unquestionable right of ownership of the latter, inasmuch as there is no law nor
principle of justice authorizing the successors of the late Jimenea to enrich Short Summary
themselves at the cost and to the prejudice of Felix de los Santos. Facts:
For the reasons above set forth, by which the errors assigned to the judgment
appealed from have been refuted, and considering that the same is in accordance
with the law and the merits of the case, it is our opinion that it should be
affirmed and we do hereby affirm it with the costs against the appellant. So
ordered.

Issue:

Ruling:

The Court of Appeals certified this case to this Court because only questions of
law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines
through the Bureau of Animal Industry three bulls: a Red Sindhi with a book
value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for
a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes
subject to a government charge of breeding fee of 10% of the book value of the
bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked
for a renewal for another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal thereof of only one bull
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 16
for another year from 8 May 1949 to 7 May 1950 and requested the return of (3) If the thing loaned has been delivered with appraisal of its value, unless
the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of there is a stipulation exempting the bailee from responsibility in case of a
Animal Industry that he would pay the value of the three bulls. On 17 October fortuitous event;
1950 he reiterated his desire to buy them at a value with a deduction of yearly
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan
depreciation to be approved by the Auditor General. On 19 October 1950 the
of one bull was renewed for another period of one year to end on 8 May 1950.
Director of Animal Industry advised him that the book value of the three bulls
But the appellant kept and used the bull until November 1953 when during a
could not be reduced and that they either be returned or their book value paid
Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to
not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of
the deceased husband of the appellant the bulls had each an appraised book
the three bulls or to return them. So, on 20 December 1950 in the Court of First
value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the
Instance of Manila the Republic of the Philippines commenced an action against
Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to
him praying that he be ordered to return the three bulls loaned to him or to pay
fortuitous event the late husband of the appellant would be exempt from
their book value in the total sum of P3,241.45 and the unpaid breeding fee in
liability.
the sum of P199.62, both with interests, and costs; and that other just and
equitable relief be granted in (civil No. 12818). The appellant's contention that the demand or prayer by the appellee for the
return of the bull or the payment of its value being a money claim should be
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
presented or filed in the intestate proceedings of the defendant who died on 23
answered that because of the bad peace and order situation in Cagayan Valley,
October 1951, is not altogether without merit. However, the claim that his civil
particularly in the barrio of Baggao, and of the pending appeal he had taken to
personality having ceased to exist the trial court lost jurisdiction over the case
the Secretary of Agriculture and Natural Resources and the President of the
against him, is untenable, because section 17 of Rule 3 of the Rules of Court
Philippines from the refusal by the Director of Animal Industry to deduct from
provides that —
the book value of the bulls corresponding yearly depreciation of 8% from the
date of acquisition, to which depreciation the Auditor General did not object, After a party dies and the claim is not thereby extinguished, the court shall
he could not return the animals nor pay their value and prayed for the dismissal order, upon proper notice, the legal representative of the deceased to appear and
of the complaint. to be substituted for the deceased, within a period of thirty (30) days, or within
such time as may be granted. . . .
After hearing, on 30 July 1956 the trial court render judgment —
and after the defendant's death on 23 October 1951 his counsel failed to comply
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value
with section 16 of Rule 3 which provides that —
of the three bulls plus the breeding fees in the amount of P626.17 with interest
on both sums of (at) the legal rate from the filing of this complaint and costs. Whenever a party to a pending case dies . . . it shall be the duty of his attorney
to inform the court promptly of such death . . . and to give the name and
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which
residence of the executory administrator, guardian, or other legal representative
the court granted on 18 October and issued on 11 November 1958. On 2
of the deceased . . . .
December 1958 granted an ex-parte motion filed by the plaintiff on November
1958 for the appointment of a special sheriff to serve the writ outside Manila. The notice by the probate court and its publication in the Voz de Manila that
Of this order appointing a special sheriff, on 6 December 1958, Felicidad M. Felicidad M. Bagtas had been issue letters of administration of the estate of the
Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 late Jose Bagtas and that "all persons having claims for monopoly against the
October 1951 and as administratrix of his estate, was notified. On 7 January deceased Jose V. Bagtas, arising from contract express or implied, whether the
1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and same be due, not due, or contingent, for funeral expenses and expenses of the
Bhagnari were returned to the Bureau Animal of Industry and that sometime in last sickness of the said decedent, and judgment for monopoly against him, to
November 1958 the third bull, the Sahiniwal, died from gunshot wound file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54,
inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the Quezon City, within six (6) months from the date of the first publication of this
writ of execution be quashed and that a writ of preliminary injunction be issued. order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the
On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959 appointed administratrix of the estate of the said deceased," is not a notice to
she filed a reply thereto. On the same day, 6 February, the Court denied her the court and the appellee who were to be notified of the defendant's death in
motion. Hence, this appeal certified by the Court of Appeals to this Court as accordance with the above-quoted rule, and there was no reason for such failure
stated at the beginning of this opinion. to notify, because the attorney who appeared for the defendant was the same
who represented the administratrix in the special proceedings instituted for the
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the
administration and settlement of his estate. The appellee or its attorney or
late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin,
representative could not be expected to know of the death of the defendant or
Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong,
of the administration proceedings of his estate instituted in another court that if
Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter
the attorney for the deceased defendant did not notify the plaintiff or its attorney
(Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's
of such death as required by the rule.
motion to quash the writ of execution the appellee prays "that another writ of
execution in the sum of P859.53 be issued against the estate of defendant As the appellant already had returned the two bulls to the appellee, the estate of
deceased Jose V. Bagtas." She cannot be held liable for the two bulls which the late defendant is only liable for the sum of P859.63, the value of the bull
already had been returned to and received by the appellee. which has not been returned to the appellee, because it was killed while in the
custody of the administratrix of his estate. This is the amount prayed for by the
The appellant contends that the Sahiniwal bull was accidentally killed during a
appellee in its objection on 31 January 1959 to the motion filed on 7 January
raid by the Huk in November 1953 upon the surrounding barrios of Hacienda
1959 by the appellant for the quashing of the writ of execution.
Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such
death was due to force majeure she is relieved from the duty of returning the Special proceedings for the administration and settlement of the estate of the
bull or paying its value to the appellee. The contention is without merit. The deceased Jose V. Bagtas having been instituted in the Court of First Instance of
loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be
breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, enforced by means of a writ of execution but must be presented to the probate
later on renewed for another year as regards one bull, was subject to the court for payment by the appellant, the administratrix appointed by the court.
payment by the borrower of breeding fee of 10% of the book value of the bulls.
The appellant contends that the contract was commodatum and that, for that ACCORDINGLY, the writ of execution appealed from is set aside, without
reason, as the appellee retained ownership or title to the bull it should suffer its pronouncement as to costs.
loss due to force majeure. A contract of commodatum is essentially Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes,
gratuitous.1 If the breeding fee be considered a compensation, then the contract Dizon, Regala and Makalintal, JJ., concur.
would be a lease of the bull. Under article 1671 of the Civil Code the lessee Barrera, J., concurs in the result.
would be subject to the responsibilities of a possessor in bad faith, because she
had continued possession of the bull after the expiry of the contract. And even
if the contract be commodatum, still the appellant is liable, because article 1942
of the Civil Code provides that a bailee in a contract of commodatum —
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 17


G.R. No. 80294-95 September 21, 1988 WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN Vicar Apostolic of the Mountain Province to return and surrender Lot 2 of Plan
PROVINCE, petitioner, Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan
vs. to the other set of plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez,
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND et al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is
JUAN VALDEZ, respondents. hereby denied. Said defendant is ordered to pay costs. (p. 36, Rollo)
Valdez, Ereso, Polido & Associates for petitioner. Respondent Court of Appeals, in affirming the trial court's decision, sustained
the trial court's conclusions that the Decision of the Court of Appeals, dated
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner. May 4,1977 in CA-G.R. No. 38830-R, in the two cases affirmed by the Supreme
Jaime G. de Leon for the Heirs of Egmidio Octaviano. Court, touched on the ownership of lots 2 and 3 in question; that the two lots
Cotabato Law Office for the Heirs of Juan Valdez. were possessed by the predecessors-in-interest of private respondents under
claim of ownership in good faith from 1906 to 1951; that petitioner had been in
possession of the same lots as bailee in commodatum up to 1951, when
Short Summary petitioner repudiated the trust and when it applied for registration in 1962; that
Facts: petitioner had just been in possession as owner for eleven years, hence there is
no possibility of acquisitive prescription which requires 10 years possession
with just title and 30 years of possession without; that the principle of res
judicata on these findings by the Court of Appeals will bar a reopening of these
questions of facts; and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate court's
Decision in the two aforementioned cases (CA G.R. No. CV-05418 and 05419)
was denied.
The facts and background of these cases as narrated by the trail court are as
follows —
... The documents and records presented reveal that the whole controversy
started when the defendant Catholic Vicar Apostolic of the Mountain Province
(VICAR for brevity) filed with the Court of First Instance of Baguio Benguet
on September 5, 1962 an application for registration of title over Lots 1, 2, 3,
and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet,
docketed as LRC N-91, said Lots being the sites of the Catholic Church
Issue: building, convents, high school building, school gymnasium, school
dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan
Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on
Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial
on the merits, the land registration court promulgated its Decision, dated
Ruling: November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3,
and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the
Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607)
appealed the decision of the land registration court to the then Court of Appeals,
docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered its decision,
dated May 9, 1977, reversing the decision of the land registration court and
dismissing the VICAR's application as to Lots 2 and 3, the lots claimed by the
two sets of oppositors in the land registration case (and two sets of plaintiffs in
the two cases now at bar), the first lot being presently occupied by the convent
and the second by the women's dormitory and the sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration
praying the Court of Appeals to order the registration of Lot 3 in the names of
the Heirs of Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan Valdez
and Pacita Valdez filed their motion for reconsideration praying that both Lots
2 and 3 be ordered registered in the names of the Heirs of Juan Valdez and
Pacita Valdez. On August 12,1977, the Court of Appeals denied the motion for
reconsideration filed by the Heirs of Juan Valdez on the ground that there was
"no sufficient merit to justify reconsideration one way or the other ...," and
likewise denied that of the Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing his (its) application
for registration of Lots 2 and 3, docketed as G.R. No. L-46832, entitled
'Catholic Vicar Apostolic of the Mountain Province vs. Court of Appeals and
Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration the
Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the
Supreme Court a petition for review, docketed as G.R. No. L-46872,
GANCAYCO, J.:
entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar,
The principal issue in this case is whether or not a decision of the Court of Heirs of Egmidio Octaviano and Annable O. Valdez.
Appeals promulgated a long time ago can properly be considered res
On January 13, 1978, the Supreme Court denied in a minute resolution both
judicata by respondent Court of Appeals in the present two cases between
petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita
petitioner and two private respondents.
Valdez on the other) for lack of merit. Upon the finality of both Supreme Court
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano
of the Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 filed with the then Court of First Instance of Baguio, Branch II, a Motion For
[Civil Case No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 Execution of Judgment praying that the Heirs of Octaviano be placed in
(429)], both for Recovery of Possession, which affirmed the Decision of the possession of Lot 3. The Court, presided over by Hon. Salvador J. Valdez, on
Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio December 7, 1978, denied the motion on the ground that the Court of Appeals
and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with decision in CA-G.R. No. 38870 did not grant the Heirs of Octaviano any
the dispositive portion as follows: affirmative relief.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 18
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a 10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND
petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R, BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION AND
entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. REIMBURSEMENT AND IS BARRED BY THE FINALITY AND
In its decision dated May 16, 1979, the Court of Appeals dismissed the petition. CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
It was at that stage that the instant cases were filed. The Heirs of Egmidio The petition is bereft of merit.
Octaviano filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos.
possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No. 3655 05148 and 05149, when it clearly held that it was in agreement with the findings
(429) on September 24, 1979, likewise for recovery of possession of Lot 2 of the trial court that the Decision of the Court of Appeals dated May 4,1977 in
(Decision, pp. 199-201, Orig. Rec.). CA-G.R. No. 38830-R, on the question of ownership of Lots 2 and 3, declared
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not
Octaviano presented one (1) witness, Fructuoso Valdez, who testified on the positively declare private respondents as owners of the land, neither was it
alleged ownership of the land in question (Lot 3) by their predecessor-in- declared that they were not owners of the land, but it held that the predecessors
interest, Egmidio Octaviano (Exh. C ); his written demand (Exh. B—B-4 ) to of private respondents were possessors of Lots 2 and 3, with claim of ownership
defendant Vicar for the return of the land to them; and the reasonable rentals in good faith from 1906 to 1951. Petitioner was in possession as borrower in
for the use of the land at P10,000.00 per month. On the other hand, defendant commodatum up to 1951, when it repudiated the trust by declaring the
Vicar presented the Register of Deeds for the Province of Benguet, Atty. properties in its name for taxation purposes. When petitioner applied for
Nicanor Sison, who testified that the land in question is not covered by any title registration of Lots 2 and 3 in 1962, it had been in possession in concept of
in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The owner only for eleven years. Ordinary acquisitive prescription requires
defendant dispensed with the testimony of Mons.William Brasseur when the possession for ten years, but always with just title. Extraordinary acquisitive
plaintiffs admitted that the witness if called to the witness stand, would testify prescription requires 30 years. 4
that defendant Vicar has been in possession of Lot 3, for seventy-five (75) years On the above findings of facts supported by evidence and evaluated by the
continuously and peacefully and has constructed permanent structures thereon. Court of Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no
In Civil Case No. 3655, the parties admitting that the material facts are not in error in respondent appellate court's ruling that said findings are res
dispute, submitted the case on the sole issue of whether or not the decisions of judicatabetween the parties. They can no longer be altered by presentation of
the Court of Appeals and the Supreme Court touching on the ownership of Lot evidence because those issues were resolved with finality a long time ago. To
2, which in effect declared the plaintiffs the owners of the land constitute res ignore the principle of res judicata would be to open the door to endless
judicata. litigations by continuous determination of issues without end.
In these two cases , the plaintiffs arque that the defendant Vicar is barred from An examination of the Court of Appeals Decision dated May 4, 1977, First
setting up the defense of ownership and/or long and continuous possession of Division 5 in CA-G.R. No. 38830-R, shows that it reversed the trial court's
the two lots in question since this is barred by prior judgment of the Court of Decision 6 finding petitioner to be entitled to register the lands in question under
Appeals in CA-G.R. No. 038830-R under the principle of res judicata. its ownership, on its evaluation of evidence and conclusion of facts.
Plaintiffs contend that the question of possession and ownership have already The Court of Appeals found that petitioner did not meet the requirement of 30
been determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No. years possession for acquisitive prescription over Lots 2 and 3. Neither did it
038830-R) and affirmed by the Supreme Court (Exh. 1, Minute Resolution of satisfy the requirement of 10 years possession for ordinary acquisitive
the Supreme Court). On his part, defendant Vicar maintains that the principle prescription because of the absence of just title. The appellate court did not
of res judicata would not prevent them from litigating the issues of long believe the findings of the trial court that Lot 2 was acquired from Juan Valdez
possession and ownership because the dispositive portion of the prior judgment by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano
in CA-G.R. No. 038830-R merely dismissed their application for registration by petitioner Vicar because there was absolutely no documentary evidence to
and titling of lots 2 and 3. Defendant Vicar contends that only the dispositive support the same and the alleged purchases were never mentioned in the
portion of the decision, and not its body, is the controlling pronouncement of application for registration.
the Court of Appeals. 2
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez
The alleged errors committed by respondent Court of Appeals according to and Octaviano. Both Valdez and Octaviano had Free Patent Application for
petitioner are as follows: those lots since 1906. The predecessors of private respondents, not petitioner
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA; Vicar, were in possession of the questioned lots since 1906.
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in
2 AND 3 WERE ACQUIRED BY PURCHASE BUT WITHOUT question, but not Lots 2 and 3, because the buildings standing thereon were only
DOCUMENTARY EVIDENCE PRESENTED; constructed after liberation in 1945. Petitioner Vicar only declared Lots 2 and
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED 3 for taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were paid
LOTS 2 AND 3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED for by the Bishop but said Bishop was appointed only in 1947, the church was
ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND constructed only in 1951 and the new convent only 2 years before the trial in
OCTAVIANO; 1963.
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE When petitioner Vicar was notified of the oppositor's claims, the parish priest
RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT offered to buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by
LEAST FROM 1906, AND NOT PETITIONER; request of petitioner Vicar only in 1962.
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE Private respondents were able to prove that their predecessors' house was
PATENT APPLICATIONS AND THE PREDECESSORS OF PRIVATE borrowed by petitioner Vicar after the church and the convent were destroyed.
RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE They never asked for the return of the house, but when they allowed its free use,
1906; they became bailors in commodatum and the petitioner the bailee. The bailees'
failure to return the subject matter of commodatum to the bailor did not mean
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3
ONLY IN 1951 AND JUST TITLE IS A PRIME NECESSITY UNDER adverse possession on the part of the borrower. The bailee held in trust the
ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR property subject matter of commodatum. The adverse claim of petitioner came
only in 1951 when it declared the lots for taxation purposes. The action of
ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
petitioner Vicar by such adverse claim could not ripen into title by way of
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF ordinary acquisitive prescription because of the absence of just title.
APPEALS IN CA G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME
COURT; The Court of Appeals found that the predecessors-in-interest and private
respondents were possessors under claim of ownership in good faith from 1906;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 that petitioner Vicar was only a bailee in commodatum; and that the adverse
TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE claim and repudiation of trust came only in 1951.
RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION
OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH We find no reason to disregard or reverse the ruling of the Court of Appeals in
FROM 1906 TO 1951; CA-G.R. No. 38830-R. Its findings of fact have become incontestible. This
Court declined to review said decision, thereby in effect, affirming it. It has
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION become final and executory a long time ago.
OF LOTS 2 AND 3 MERELY AS BAILEE BOR ROWER) IN
COMMODATUM, A GRATUITOUS LOAN FOR USE; Respondent appellate court did not commit any reversible error, much less
grave abuse of discretion, when it held that the Decision of the Court of Appeals
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 19
in CA-G.R. No. 38830-R is governing, under the principle of res judicata, hence
the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The EN BANC
facts as supported by evidence established in that decision may no longer be
altered. G.R. No. L-46240 November 3, 1939
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-
DENIED for lack of merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. appellants,
05148 and 05149, by respondent Court of Appeals is AFFIRMED, with costs vs.
against petitioner. BECK, defendant-appellee.
SO ORDERED. Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.

Short Summary
Facts:

Issue:

Ruling:

IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain
furniture which she lent him for his use. She appealed from the judgment of the
Court of First Instance of Manila which ordered that the defendant return to her
the three has heaters and the four electric lamps found in the possession of the
Sheriff of said city, that she call for the other furniture from the said sheriff of
Manila at her own expense, and that the fees which the Sheriff may charge for
the deposit of the furniture be paid pro rata by both parties, without
pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's
house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the
novation of the contract of lease between the plaintiff and the defendant, the
former gratuitously granted to the latter the use of the furniture described in the

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 20


third paragraph of the stipulation of facts, subject to the condition that the
defendant would return them to the plaintiff upon the latter's demand. The III – MUTUUM & USURY LAW
plaintiff sold the property to Maria Lopez and Rosario Lopez and on September
14, 1936, these three notified the defendant of the conveyance, giving him sixty
days to vacate the premises under one of the clauses of the contract of lease. G.R. No. 84719 January 25, 1991
There after the plaintiff required the defendant to return all the furniture YONG CHAN KIM, petitioner,
transferred to him for them in the house where they were found. vs.
On November 5, 1936, the defendant, through another person, wrote to PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO,
the plaintiff reiterating that she may call for the furniture in the ground floor of Presiding Judge, RTC, 6th Judicial Region, Branch 28 Iloilo City and
the house. On the 7th of the same month, the defendant wrote another letter to Court of Appeals (13th Division) respondents.
the plaintiff informing her that he could not give up the three gas heaters and Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.
the four electric lamps because he would use them until the 15th of the same Hector P. Teodosio for private respondent.
month when the lease in due to expire. The plaintiff refused to get the furniture
in view of the fact that the defendant had declined to make delivery of all of
them. On November 15th, before vacating the house, the defendant Short Summary
deposited with the Sheriff all the furniture belonging to the plaintiff and they Facts:
are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the
custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court
incorrectly applied the law: in holding that they violated the contract by not
calling for all the furniture on November 5, 1936, when the defendant placed
them at their disposal; in not ordering the defendant to pay them the value of
the furniture in case they are not delivered; in holding that they should get all
the furniture from the Sheriff at their expenses; in ordering them to pay-half of
the expenses claimed by the Sheriff for the deposit of the furniture; in ruling
that both parties should pay their respective legal expenses or the costs; and in
denying pay their respective legal expenses or the costs; and in denying the
motions for reconsideration and new trial. To dispose of the case, it is only
necessary to decide whether the defendant complied with his obligation to
return the furniture upon the plaintiff's demand; whether the latter is bound to
bear the deposit fees thereof, and whether she is entitled to the costs of
litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because Issue:
under it the plaintiff gratuitously granted the use of the furniture to the
defendant, reserving for herself the ownership thereof; by this contract the
defendant bound himself to return the furniture to the plaintiff, upon the latters
demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and
Ruling:
1741 of the Civil Code). The obligation voluntarily assumed by the defendant
to return the furniture upon the plaintiff's demand, means that he should return
all of them to the plaintiff at the latter's residence or house. The defendant did
not comply with this obligation when he merely placed them at the disposal of
the plaintiff, retaining for his benefit the three gas heaters and the four eletric
lamps. The provisions of article 1169 of the Civil Code cited by counsel for the
parties are not squarely applicable. The trial court, therefore, erred when it came
to the legal conclusion that the plaintiff failed to comply with her obligation to
get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the
plaintiff, upon the latter's demand, the Court could not legally compel her to
bear the expenses occasioned by the deposit of the furniture at the defendant's
behest. The latter, as bailee, was not entitled to place the furniture on deposit;
nor was the plaintiff under a duty to accept the offer to return the furniture,
because the defendant wanted to retain the three gas heaters and the four electric
lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to
the payment thereof by the defendant in case of his inability to return some of
the furniture because under paragraph 6 of the stipulation of facts, the defendant
has neither agreed to nor admitted the correctness of the said value. Should the
defendant fail to deliver some of the furniture, the value thereof should be latter
determined by the trial Court through evidence which the parties may desire to
present.
The costs in both instances should be borne by the defendant because the
plaintiff is the prevailing party (section 487 of the Code of Civil Procedure).
The defendant was the one who breached the contract of commodatum, and
without any reason he refused to return and deliver all the furniture upon the
plaintiff's demand. In these circumstances, it is just and equitable that he pay
the legal expenses and other judicial costs which the plaintiff would not have PADILLA, J.:
otherwise defrayed. This petition seeks the review on certiorari of the following:
The appealed judgment is modified and the defendant is ordered to return and 1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial
deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in Court (Guimbal-Igbaras-Tigbauan-Tubungan) in Guimbal, Iloilo, in Criminal
the residence or house of the latter, all the furniture described in paragraph 3 of Case No. 628,1 and the affirming decision of the Regional Trial Court, Branch
the stipulation of facts Exhibit A. The expenses which may be occasioned by XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated on 30 July
the delivery to and deposit of the furniture with the Sheriff shall be for the 1987;2
account of the defendant. the defendant shall pay the costs in both instances. So
2. The decision of the Court of Appeals, dated 29 April 1988,3
ordered.
Avanceña, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 21


dismissing petitioner's appeal/petition for review for having been filed out of 129, Section 22 of the Interim Rules and Guidelines, and Section 3, Rule 123
time, and the resolution, dated 19 August 1988, denying petitioner's motion for of the 1985 Rules of Criminal Procedure, the petitioner should have filed a
reconsideration.4 petition for review with the then Intermediate Appellate Court instead of a
The antecedent facts are as follows: notice of appeal with the Regional Trial Court, in perfecting his appeal from the
Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture RTC to the Intermediate Appellate Court, since the RTC judge was rendered in
the exercise of its appellate jurisdiction over municipal trial courts. The failure
Department of the Southeast Asian Fisheries Development Center (SEAFDEC)
with head station at Tigbauan, Province of Iloilo. As Head of the Economics of petitioner to file the proper petition rendered the decision of the Regional
Unit of the Research Division, he conducted prawn surveys which required him Trial Court final and executory, according to the Solicitor General.
to travel to various selected provinces in the country where there are potentials Petitioner's counsel submitted a Reply (erroneously termed Comment)7 wherein
for prawn culture. she contended that the peculiar circumstances of a case, such as this, should be
considered in order that the principle barring a petitioner's right of review can
On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered
his travels to different places in Luzon from 16 June to 21 July 1982, a period be made flexible in the interest of justice and equity.
of thirty five (35) days. Under this travel order, he received P6,438.00 as cash In our Resolution of 29 May 1989, we resolved to deny the petition for failure
advance to defray his travel expenses. of petitioner to sufficiently show that the Court of Appeals had committed any
Within the same period, petitioner was issued another travel order, T.O. 2268, reversible error in its questioned judgment which had dismissed petitioner's
petition for review for having been filed out of time.8
requiring him to travel from the Head Station at Tigbauan, Iloilo to Roxas City
from 30 June to 4 July 1982, a period of five (5) days. For this travel order, Petitioner filed a motion for reconsideration maintaining that his petition for
petitioner received a cash advance of P495.00. review did not limit itself to the issue upon which the appellate court's decision
of 29 April 1988 was based, but rather it delved into the substance and merits
On 14 January 1983, petitioner presented both travel orders for liquidation,
submitting Travel Expense Reports to the Accounting Section. When the Travel of the case.9
Expense Reports were audited, it was discovered that there was an overlap of On 10 August 1990, we resolved to set aside our resolution dismissing this case
four (4) days (30 June to 3 July 1982) in the two (2) travel orders for which and gave due course to the petition. In the said resolution, we stated:
petitioner collected per diemstwice. In sum, the total amount in the form of per In several cases decided by this Court, it had set aside technicalities in the Rules
diems and allowances charged and collected by petitioner under Travel Order in order to give way to justice and equity. In the present case, we note that the
No. 2222, when he did not actually and physically travel as represented by his petitioner, in filing his Notice of Appeal the very next day after receiving the
liquidation papers, was P1,230.00. decision of the court a quo lost no time in showing his intention to appeal,
Petitioner was required to comment on the internal auditor's report regarding although the procedure taken was not correct. The Court can overlook the
the alleged anomalous claim for per diems. In his reply, petitioner denied the wrong pleading filed, if strict compliance with the rules would mean sacrificing
alleged anomaly, claiming that he made make-up trips to compensate for the justice to technicality. The imminence of a person being deprived unjustly of
trips he failed to undertake under T.O. 2222 because he was recalled to the head his liberty due to procedural lapse of counsel is a strong and compelling reason
office and given another assignment. to warrant suspension of the Rules. Hence, we shall consider the petition for
In September 1983, two (2) complaints for Estafa were filed against the review filed in the Court of Appeals as a Supplement to the Notice of Appeal.
As the Court declared in a recent decision, '. . . there is nothing sacred about the
petitioner before the Municipal Circuit Trial Court at Guimbal, Iloilo, docketed
as Criminal Case Nos. 628 and 631. procedure of pleadings. This Court may go beyond the pleadings when the
interest of justice so warrants. It has the prerogative to suspend its rules for the
After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered same purpose. . . . Technicality, when it deserts its proper office as an aid to
a decision, the dispositive part of which reads as follows: justice and becomes its great hindrance and chief enemy, deserves scant
IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the consideration from courts. [Alonzo v. Villamor, et al., 16 Phil. 315]
accused, Yong Chan Kim, guilty beyond reasonable doubt for the crime of Conscience cannot rest in allowing a man to go straight to jail, closing the door
Estafa penalized under paragraph l(b) of Article 315, Revised Penal Code. to his every entreaty for a full opportunity to be heard, even as he has made
Records disclose there is no aggravating circumstance proven by the a prima facie showing of a meritorious cause, simply because he had chosen an
prosecution. Neither there is any mitigating circumstance proven by the appeal route, to be sure, recognized by law but made inapplicable to his case,
accused. Considering the amount subject of the present complaint, the under altered rules of procedure. While the Court of Appeals can not be faulted
imposable penalty should be in the medium period of arresto mayor in its and, in fact, it has to be lauded for correctly applying the rules of procedure in
maximum period to prision correccional in its minimum period in accordance appeals to the Court of Appeals from decisions of the RTC rendered in the
with Article 315, No. 3, Revised Penal Code. Consonantly, the Court hereby exercise of its appellate jurisdiction, yet, this Court, as the ultimate bulwark of
sentences the accused to suffer an imprisonment ranging from four (4) months human rights and individual liberty, will not allow substantial justice to be
as the minimum to one (1) year and six (6) months as the maximum in sacrified at the altar of procedural rigor.10
accordance with the Indeterminate Sentence Law and to reimburse the amount
of P1,230.00 to SEAFDEC. In the same resolution, the parties were required to file their respective
memoranda, and in compliance with said resolution, petitioner filed his
The surety bond of the accused shall remain valid until final judgment in memorandum on 25 October 1989, while private respondent SEAFDEC filed
accordance herewith. its required memorandum on 10 April 1990. On the other hand, the Solicitor
Costs against the accused.5 General filed on 13 March 1990 a Recommendation for Acquittal in lieu of the
Criminal Case No. 631 was subsequently dismissed for failure to prosecute. required memorandum.
Petitioner appealed from the decision of the Municipal Circuit Trial Court in Two (2) issues are raised by petitioner to wit:
Criminal Case No. 628. On 30 July 1987, the Regional Trial Court in Iloilo City I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL
in Criminal Case No. 20958 affirmed in toto the trial court's decision.6 CIRCUIT TRIAL COURT (GUIMBAL, ILOILO) AND THE REGIONAL
The decision of the Regional Trial Court was received by petitioner on 10 TRIAL COURT, BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE
August 1987. On 11 August 1987, petitioner, thru counsel, filed a notice of FACTS AND EVIDENCE OR CONTRARY TO LAW AND THAT THE
appeal with the Regional Trial Court which ordered the elevation of the records TWO COURTS A QUO HAVE ACTED WITH GRAVE ABUSE OF
of the case to the then Intermediate Appellate Court on the following day, 12 DISCRETION AMOUNTING TO LACK OF JURISDICTION OR HAVE
August 1987. The records of the case were received by the Intermediate ACTED WITHOUT OR IN EXCESS OF JURISDICTION.
Appellate Court on 8 October 1987, and the appeal was docketed as CA-G.R. II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT
No. 05035. OF APPEALS IS CONTRARY TO LAW, ESTABLISHED
On 30 October 1987, petitioner filed with the appellate court a petition for JURISPRUDENCE, EQUITY AND DUE PROCESS.
review. As earlier stated, on 29 April 1988, the Court of Appeals dismissed the The second issue has been resolved in our Resolution dated 10 August 1990,
petition for having been filed out of time. Petitioner's motion for reconsideration when we granted petitioner's second motion for reconsideration. We shall now
was denied for lack of merit. proceed to the first issue.
Hence, the present recourse. We find merit in the petition.
On 19 October 1988, the Court resolved to require the respondents to comment It is undisputed that petitioner received a cash advance from private respondent
on the petition for review. The Solicitor General filed his Comment on 20 SEAFDEC to defray his travel expenses under T.O. 2222. It is likewise
January 1989, after several grants of extensions of time to file the same. admitted that within the period covered by T.O. 2222, petitioner was recalled
In his Comment, the Solicitor General prayed for the dismissal of the instant to the head station in Iloilo and given another assignment which was covered
petition on the ground that, as provided for under Section 22, Batas Pambansa by T.O. 2268. The dispute arose when petitioner allegedly failed to return
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 22
P1,230.00 out of the cash advance which he received under T.O. 2222. For the A Yes, sir.
alleged failure of petitioner to return the amount of P1,230.00, he was charged (pp. 26-28, tsn, May 8, 1985).14
with the crime of Estafa under Article 315, par. 1(b) of the Revised Penal Code,
Since ownership of the money (cash advance) was transferred to petitioner, no
which reads as follows: fiduciary relationship was created. Absent this fiduciary relationship between
Art. 315. Swindling (Estafa). Any person who shall defraud another by any of petitioner and private respondent, which is an essential element of the crime of
the means mentioned herein below shall be punished by: estafa by misappropriation or conversion, petitioner could not have committed
xxx xxx xxx estafa.15
1. With unfaithfulness or abuse of confidence, namely: Additionally, it has been the policy of private respondent that all cash advances
(a) x x x xxx xxx not liquidated are to be deducted correspondingly from the salary of the
employee concerned. The evidence shows that the corresponding salary
(b) By misappropriating or converting, to the prejudice of another, money,
goods, or any other personal property received by the offender in trust or on deduction was made in the case of petitioner vis-a-vis the cash advance in
question.
commission, or for administration, or under any other obligation involving the
duty to make delivery of; or to return, the same, even though such obligation be WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal
fatally or partially guaranteed by a bond; or by denying having received such Circuit Trial Court in Guimbal, Iloilo in Criminal Case No. 628, finding
money, goods, or other property. petitioner guilty of estafa under Article 315, par. 1 (b) of the Revised Penal
In order that a person can be convicted under the abovequoted provision, it must Code and the affirming decision of the Regional Trial Court, Branch XXVIII,
Iloilo City, in Criminal Case No. 20958, promulgated on 30 July 1987 are both
be proven that he had the obligation to deliver or return the same money, good
or personal property that he had received.11 hereby SET ASIDE. Petitioner is ACQUITTED of criminal charge filed against
him.
Was petitioner under obligation to return the same money (cash advance) which
he had received? We belive not. Executive Order No. 10, dated 12 February SO ORDERED.
1980 provides as follows:
B. Cash Advance for Travel
xxx xxx xxx
4. All cash advances must be liquidated within 30 days after date of projected
return of the person. Otherwise, corresponding salary deduction shall be made
immediately following the expiration day.
Liquidation simply means the settling of an indebtedness. An employee, such
as herein petitioner, who liquidates a cash advance is in fact paying back his
debt in the form of a loan of money advanced to him by his employer, as per
diems and allowances. Similarly, as stated in the assailed decision of the lower
court, "if the amount of the cash advance he received is less than the amount he
spent for actual travel . . . he has the right to demand reimbursement from his
employer the amount he spent coming from his personal funds. 12 In other
words, the money advanced by either party is actually a loan to the other. Hence,
petitioner was under no legal obligation to return the same cash or money, i.e.,
the bills or coins, which he received from the private respondent. 13
Article 1933 and Article 1953 of the Civil Code define the nature of a simple
loan.
Art. 1933. By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time
and return it, in which case the contract is called a commodatum; or money or
other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid, in which case the contract is simply called a loan
or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower.
Art. 1953.— A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.
The ruling of the trial judge that ownership of the cash advanced to the
petitioner by private respondent was not transferred to the latter is erroneous.
Ownership of the money was transferred to the petitioner. Even the prosecution
witness, Virgilio Hierro, testified thus:
Q When you gave cash advance to the accused in this Travel Order No. 2222
subject to liquidation, who owns the funds, accused or SEAFDEC? How do you
consider the funds in the possession of the accused at the time when there is an
actual transfer of cash? . . .
A The one drawing cash advance already owns the money but subject to
liquidation. If he will not liquidate, be is obliged to return the amount.
Qxxx xxx xxx
So why do you treat the itinerary of travel temporary when in fact as of that
time the accused owned already the cash advance. You said the cash advance
given to the accused is his own money. In other words, at the time you departed
with the money it belongs already to the accused?
A Yes, but subject for liquidation. He will be only entitled for that credence if
he liquidates.
Q If other words, it is a transfer of ownership subject to a suspensive condition
that he liquidates the amount of cash advance upon return to station and
completion of the travel?

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 23


G.R. No. 133632 February 15, 2002 damages, and ₱50,000 for attorney’s fees and expenses for litigation. It likewise
BPI INVESTMENT CORPORATION, petitioner, dismissed the foreclosure suit for being premature.
vs. The facts are as follows:
HON. COURT OF APPEALS and ALS MANAGEMENT & Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
DEVELOPMENT CORPORATION, respondents. Investment and Development Corporation (AIDC), the predecessor of
DECISION petitioner BPIIC, for the construction of a house on his lot in New Alabang
Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure the
loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS
Short Summary and Antonio Litonjua for ₱850,000. They paid ₱350,000 in cash and assumed
Facts: the ₱500,000 balance of Roa’s indebtedness with AIDC. The latter, however,
was not willing to extend the old interest rate to private respondents and
proposed to grant them a new loan of ₱500,000 to be applied to Roa’s debt and
secured by the same property, at an interest rate of 20% per annum and service
fee of 1% per annum on the outstanding principal balance payable within ten
years in equal monthly amortization of ₱9,996.58 and penalty interest at the rate
of 21% per annum per day from the date the amortization became due and
payable.
Consequently, in March 1981, private respondents executed a mortgage deed
containing the above stipulations with the provision that payment of the
monthly amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roa’s arrearages by paying
BPIIC the sum of ₱190,601.35. This reduced Roa’s principal balance to
₱457,204.90 which, in turn, was liquidated when BPIIC applied thereto the
proceeds of private respondents’ loan of ₱500,000.
On September 13, 1982, BPIIC released to private respondents ₱7,146.87,
purporting to be what was left of their loan after full payment of Roa’s loan.
Issue:
In June 1984, BPIIC instituted foreclosure proceedings against private
respondents on the ground that they failed to pay the mortgage indebtedness
which from May 1, 1981 to June 30, 1984, amounted to Four Hundred Seventy
Five Thousand Five Hundred Eighty Five and 31/100 Pesos (₱475,585.31). A
Ruling: notice of sheriff’s sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against
BPIIC. They alleged, among others, that they were not in arrears in their
payment, but in fact made an overpayment as of June 30, 1984. They
maintained that they should not be made to pay amortization before the actual
release of the ₱500,000 loan in August and September 1982. Further, out of the
₱500,000 loan, only the total amount of ₱464,351.77 was released to private
respondents. Hence, applying the effects of legal compensation, the balance of
₱35,648.23 should be applied to the initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos.
11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and
Development Corporation and Antonio K. Litonjua and against BPI Investment
Corporation, holding that the amount of loan granted by BPI to ALS and
Litonjua was only in the principal sum of P464,351.77, with interest at 20%
plus service charge of 1% per annum, payable on equal monthly and successive
amortizations at P9,283.83 for ten (10) years or one hundred twenty (120)
months. The amortization schedule attached as Annex "A" to the "Deed of
Mortgage" is correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages
when BPI caused their publication in a newspaper of general circulation as
defaulting debtors, and therefore orders BPI to pay ALS and Litonjua the
following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorney’s fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being
premature.
Costs against BPI.
QUISUMBING, J.:
SO ORDERED.2
This petition for certiorari assails the decision dated February 28, 1997, of the
Both parties appealed to the Court of Appeals. However, private respondents’
Court of Appeals and its resolution dated April 21, 1998, in CA-G.R. CV No.
appeal was dismissed for non-payment of docket fees.
38887. The appellate court affirmed the judgment of the Regional Trial Court
of Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of On February 28, 1997, the Court of Appeals promulgated its decision, the
mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against dispositive portion reads:
private respondents ALS Management and Development Corporation and WHEREFORE, finding no error in the appealed decision the same is hereby
Antonio K. Litonjua,1 consolidated with (b) Civil Case No. 52093, for damages AFFIRMED in toto.
with prayer for the issuance of a writ of preliminary injunction by the private SO ORDERED.3
respondents against said petitioner. In its decision, the Court of Appeals reasoned that a simple loan is perfected
The trial court had held that private respondents were not in default in the only upon the delivery of the object of the contract. The contract of loan
payment of their monthly amortization, hence, the extrajudicial foreclosure between BPIIC and ALS & Litonjua was perfected only on September 13, 1982,
conducted by BPIIC was premature and made in bad faith. It awarded private the date when BPIIC released the purported balance of the ₱500,000 loan after
respondents the amount of ₱300,000 for moral damages, ₱50,000 for exemplary deducting therefrom the value of Roa’s indebtedness. Thus, payment of the
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 24
monthly amortization should commence only a month after the said date, as can this case, a perfected consensual contract which under normal circumstances
be inferred from the stipulations in the contract. This, despite the express could have made the bank liable for not releasing the loan. However, since the
agreement of the parties that payment shall commence on May 1, 1981. From fault was attributable to petitioner therein, the court did not award it damages.
October 1982 to June 1984, the total amortization due was only ₱194,960.43. A perfected consensual contract, as shown above, can give rise to an action for
Evidence showed that private respondents had an overpayment, because as of damages. However, said contract does not constitute the real contract of loan
June 1984, they already paid a total amount of ₱201,791.96. Therefore, there which requires the delivery of the object of the contract for its perfection and
was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the which gives rise to obligations only on the part of the borrower. 6
publication in newspapers concerning private respondents’ delinquency in the In the present case, the loan contract between BPI, on the one hand, and ALS
payment of their loan. This fact constituted sufficient ground for moral damages
and Litonjua, on the other, was perfected only on September 13, 1982, the date
in favor of private respondents. of the second release of the loan. Following the intentions of the parties on the
The motion for reconsideration filed by petitioner BPIIC was likewise denied, commencement of the monthly amortization, as found by the Court of Appeals,
hence this petition, where BPIIC submits for resolution the following issues: private respondents’ obligation to pay commenced only on October 13, 1982, a
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL month after the perfection of the contract.7
CONTRACT IN THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE We also agree with private respondents that a contract of loan involves a
VS. COURT OF APPEALS, 125 SCRA 122. reciprocal obligation, wherein the obligation or promise of each party is the
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL consideration for that of the other.8 As averred by private respondents, the
AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES IN THE FACE promise of BPIIC to extend and deliver the loan is upon the consideration that
OF IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE ALS and Litonjua shall pay the monthly amortization commencing on May 1,
RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF 1981, one month after the supposed release of the loan. It is a basic principle in
APPEALS, 120 SCRA 707. reciprocal obligations that neither party incurs in delay, if the other does not
On the first issue, petitioner contends that the Court of Appeals erred in ruling comply or is not ready to comply in a proper manner with what is incumbent
that because a simple loan is perfected upon the delivery of the object of the upon him.9 Only when a party has performed his part of the contract can he
contract, the loan contract in this case was perfected only on September 13, demand that the other party also fulfills his own obligation and if the latter fails,
1982. Petitioner claims that a contract of loan is a consensual contract, and a default sets in. Consequently, petitioner could only demand for the payment of
loan contract is perfected at the time the contract of mortgage is executed the monthly amortization after September 13, 1982 for it was only then when it
conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. complied with its obligation under the loan contract. Therefore, in computing
In the present case, the loan contract was perfected on March 31, 1981, the date the amount due as of the date when BPIIC extrajudicially caused the foreclosure
when the mortgage deed was executed, hence, the amortization and interests on of the mortgage, the starting date is October 13, 1982 and not May 1, 1981.
the loan should be computed from said date. Other points raised by petitioner in connection with the first issue, such as the
Petitioner also argues that while the documents showed that the loan was date of actual release of the loan and whether private respondents were the cause
released only on August 1982, the loan was actually released on March 31, of the delay in the release of the loan, are factual. Since petitioner has not shown
1981, when BPIIC issued a cancellation of mortgage of Frank Roa’s loan. This that the instant case is one of the exceptions to the basic rule that only questions
finds support in the registration on March 31, 1981 of the Deed of Absolute of law can be raised in a petition for review under Rule 45 of the Rules of
Sale executed by Roa in favor of ALS, transferring the title of the property to Court,10 factual matters need not tarry us now. On these points we are bound by
ALS, and ALS executing the Mortgage Deed in favor of BPIIC. Moreover, the findings of the appellate and trial courts.
petitioner claims, the delay in the release of the loan should be attributed to On the second issue, petitioner claims that it should not be held liable for moral
private respondents. As BPIIC only agreed to extend a ₱500,000 loan, private and exemplary damages for it did not act maliciously when it initiated the
respondents were required to reduce Frank Roa’s loan below said amount. foreclosure proceedings. It merely exercised its right under the mortgage
According to petitioner, private respondents were only able to do so in August contract because private respondents were irregular in their monthly
1982. amortization.1âwphi1 It invoked our ruling in Social Security System vs. Court
In their comment, private respondents assert that based on Article 1934 of the of Appeals, 120 SCRA 707, where we said:
Civil Code,4 a simple loan is perfected upon the delivery of the object of the Nor can the SSS be held liable for moral and temperate damages. As concluded
contract, hence a real contract. In this case, even though the loan contract was by the Court of Appeals "the negligence of the appellant is not so gross as to
signed on March 31, 1981, it was perfected only on September 13, 1982, when warrant moral and temperate damages," except that, said Court reduced those
the full loan was released to private respondents. They submit that petitioner damages by only P5,000.00 instead of eliminating them. Neither can we agree
misread Bonnevie. To give meaning to Article 1934, according to private with the findings of both the Trial Court and respondent Court that the SSS had
respondents, Bonnevie must be construed to mean that the contract to extend acted maliciously or in bad faith. The SSS was of the belief that it was acting in
the loan was perfected on March 31, 1981 but the contract of loan itself was the legitimate exercise of its right under the mortgage contract in the face of
only perfected upon the delivery of the full loan to private respondents on irregular payments made by private respondents and placed reliance on the
September 13, 1982. automatic acceleration clause in the contract. The filing alone of the foreclosure
Private respondents further maintain that even granting, arguendo, that the loan application should not be a ground for an award of moral damages in the same
contract was perfected on March 31, 1981, and their payment did not start a way that a clearly unfounded civil action is not among the grounds for moral
month thereafter, still no default took place. According to private respondents, damages.
a perfected loan agreement imposes reciprocal obligations, where the obligation Private respondents counter that BPIIC was guilty of bad faith and should be
or promise of each party is the consideration of the other party. In this case, the liable for said damages because it insisted on the payment of amortization on
consideration for BPIIC in entering into the loan contract is the promise of the loan even before it was released. Further, it did not make the corresponding
private respondents to pay the monthly amortization. For the latter, it is the deduction in the monthly amortization to conform to the actual amount of loan
promise of BPIIC to deliver the money. In reciprocal obligations, neither party released, and it immediately initiated foreclosure proceedings when private
incurs in delay if the other does not comply or is not ready to comply in a proper respondents failed to make timely payment.
manner with what is incumbent upon him. Therefore, private respondents But as admitted by private respondents themselves, they were irregular in their
conclude, they did not incur in delay when they did not commence paying the payment of monthly amortization. Conformably with our ruling in SSS, we can
monthly amortization on May 1, 1981, as it was only on September 13, 1982 not properly declare BPIIC in bad faith. Consequently, we should rule out the
when petitioner fully complied with its obligation under the loan contract. award of moral and exemplary damages.11
We agree with private respondents. A loan contract is not a consensual contract However, in our view, BPIIC was negligent in relying merely on the entries
but a real contract. It is perfected only upon the delivery of the object of the found in the deed of mortgage, without checking and correspondingly adjusting
contract.5 Petitioner misapplied Bonnevie. The contract in Bonnevie declared its records on the amount actually released to private respondents and the date
by this Court as a perfected consensual contract falls under the first clause of when it was released. Such negligence resulted in damage to private
Article 1934, Civil Code. It is an accepted promise to deliver something by way respondents, for which an award of nominal damages should be given in
of simple loan. recognition of their rights which were violated by BPIIC.12 For this purpose, the
In Saura Import and Export Co. Inc. vs. Development Bank of the amount of ₱25,000 is sufficient.
Philippines, 44 SCRA 445, petitioner applied for a loan of ₱500,000 with Lastly, as in SSS where we awarded attorney’s fees because private respondents
respondent bank. The latter approved the application through a board were compelled to litigate, we sustain the award of ₱50,000 in favor of private
resolution. Thereafter, the corresponding mortgage was executed and respondents as attorney’s fees.
registered. However, because of acts attributable to petitioner, the loan was not
released. Later, petitioner instituted an action for damages. We recognized in
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 25
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals EN BANC
and its resolution dated April 21, 1998, are AFFIRMED WITH
MODIFICATION as to the award of damages. The award of moral and
exemplary damages in favor of private respondents is DELETED, but the award G.R. No. 97412 July 12, 1994
to them of attorney’s fees in the amount of ₱50,000 is UPHELD. Additionally, EASTERN SHIPPING LINES, INC., petitioner,
petitioner is ORDERED to pay private respondents ₱25,000 as nominal vs.
damages. Costs against petitioner. HON. COURT OF APPEALS AND MERCANTILE INSURANCE
SO ORDERED. COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.

Short Summary
Facts:

Issue:

Ruling:

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%).

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 26


The findings of the court a quo, adopted by the Court of Appeals, on the one drum was found with adulterated/faked contents. It is obvious, therefore,
antecedent and undisputed facts that have led to the controversy are hereunder that these losses/damages occurred before the shipment reached the consignee
reproduced: while under the successive custodies of defendants. Under Art. 1737 of the New
This is an action against defendants shipping company, arrastre operator and Civil Code, the common carrier's duty to observe extraordinary diligence in the
broker-forwarder for damages sustained by a shipment while in defendants' vigilance of goods remains in full force and effect even if the goods are
custody, filed by the insurer-subrogee who paid the consignee the value of such temporarily unloaded and stored in transit in the warehouse of the carrier at the
losses/damages. place of destination, until the consignee has been advised and has had
On December 4, 1981, two fiber drums of riboflavin were shipped from 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
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by
defendant Eastern Shipping Lines under Bill of Lading Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine found "open".
Insurance Policy No. 81/01177 for P36,382,466.38. and thus held:
Upon arrival of the shipment in Manila on December 12, 1981, it was WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
discharged unto the custody of defendant Metro Port Service, Inc. The latter A. Ordering defendants to pay plaintiff, jointly and severally:
excepted to one drum, said to be in bad order, which damage was unknown to 1. The amount of P19,032.95, with the present legal interest of 12% per
plaintiff. annum from October 1, 1982, the date of filing of this complaints, until fully
On January 7, 1982 defendant Allied Brokerage Corporation received the paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500
shipment from defendant Metro Port Service, Inc., one drum opened and per case or the CIF value of the loss, whichever is lesser, while the liability of
without seal (per "Request for Bad Order Survey." Exh. D). defendant Metro Port Service, Inc. shall be to the extent of the actual invoice
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made value of each package, crate box or container in no case to exceed P5,000.00
deliveries of the shipment to the consignee's warehouse. The latter excepted to each, pursuant to Section 6.01 of the Management Contract);
one drum which contained spillages, while the rest of the contents was 2. P3,000.00 as attorney's fees, and
adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E). 3. Costs.
Plaintiff contended that due to the losses/damage sustained by said drum, the B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant
consignee suffered losses totaling P19,032.95, due to the fault and negligence Allied Brokerage Corporation.
of defendants. Claims were presented against defendants who failed and refused SO ORDERED. (p. 207, Record).
to pay the same (Exhs. H, I, J, K, L).
Dissatisfied, defendant's recourse to US.
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 The appeal is devoid of merit.
became subrogated to all the rights of action of said consignee against After a careful scrutiny of the evidence on record. We find that the conclusion
defendants (per "Form of Subrogation", "Release" and Philbanking check, drawn therefrom is correct. As there is sufficient evidence that the shipment
Exhs. M, N, and O). (pp. 85-86, Rollo.) sustained damage while in the successive possession of appellants, and
There were, to be sure, other factual issues that confronted both courts. Here, therefore they are liable to the appellee, as subrogee for the amount it paid to
the appellate court said: the consignee. (pp. 87-89, Rollo.)
Defendants filed their respective answers, traversing the material allegations of The Court of Appeals thus affirmed in toto the judgment of the court
the complaint contending that: As for defendant Eastern Shipping it alleged that a quo.
the shipment was discharged in good order from the vessel unto the custody of In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes
Metro Port Service so that any damage/losses incurred after the shipment was error and grave abuse of discretion on the part of the appellate court when —
incurred after the shipment was turned over to the latter, is no longer its liability I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE
(p. 17, Record); Metroport averred that although subject shipment was WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE
discharged unto its custody, portion of the same was already in bad order (p. CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE
11, Record); Allied Brokerage alleged that plaintiff has no cause of action QUESTIONED DECISION;
against it, not having negligent or at fault for the shipment was already in II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF
damage and bad order condition when received by it, but nonetheless, it still PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF
exercised extra ordinary care and diligence in the handling/delivery of the cargo THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
to consignee in the same condition shipment was received by it. PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE
From the evidence the court found the following: DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX
The issues are: PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
1. Whether or not the shipment sustained losses/damages; INDISPUTABLY UNLIQUIDATED.
2. Whether or not these losses/damages were sustained while in the custody of The petition is, in part, granted.
defendants (in whose respective custody, if determinable); In this decision, we have begun by saying that the questions raised by petitioner
3. Whether or not defendant(s) should be held liable for the losses/damages (see carrier are not all that novel. Indeed, we do have a fairly good number of
plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting previous decisions this Court can merely tack to.
plaintiff's Records, p. 38). The common carrier's duty to observe the requisite diligence in the shipment of
As to the first issue, there can be no doubt that the shipment sustained goods lasts from the time the articles are surrendered to or unconditionally
losses/damages. The two drums were shipped in good order and condition, as placed in the possession of, and received by, the carrier for transportation until
clearly shown by the Bill of Lading and Commercial Invoice which do not delivered to, or until the lapse of a reasonable time for their acceptance by, the
indicate any damages drum that was shipped (Exhs. B and C). But when on person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court
December 12, 1981 the shipment was delivered to defendant Metro Port of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
Service, Inc., it excepted to one drum in bad order. 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
Correspondingly, as to the second issue, it follows that the losses/damages were there need not be an express finding of negligence to hold it liable (Art. 1735,
sustained while in the respective and/or successive custody and possession of Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87;
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course,
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh.
exceptional cases when such presumption of fault is not observed but these
G), with its "Additional Survey Notes", are considered. In the latter notes, it is cases, enumerated in Article 17341 of the Civil Code, are exclusive, not one of
stated that when the shipment was "landed on vessel" to dock of Pier # 15, South which can be applied to this case.
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 The question of charging both the carrier and the arrastre operator with the
Sheet No. 86427." The report further states that when defendant Allied obligation of properly delivering the goods to the consignee has, too, been
Brokerage withdrew the shipment from defendant arrastre operator's custody passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port
on January 7, 1982, one drum was found opened without seal, cello bag partly Services (182 SCRA 455), we have explained, in holding the carrier and the
torn but contents intact. Net unrecovered spillages was arrastre operator liable in solidum, thus:
15 kgs. The report went on to state that when the drums reached the consignee,

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 27


The legal relationship between the consignee and the arrastre operator is akin annum prescribed in Article 2209 of the Civil Code. In their petition for review
to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 on certiorari, the petitioners contended that Central Bank Circular
SCRA 5 [1967]. The relationship between the consignee and the common No. 416, providing thus —
carrier is similar to that of the consignee and the arrastre operator (Northern By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed
the ARRASTRE to take good care of the goods that are in its custody and to that the rate of interest for the loan, or forbearance of any money, goods, or
deliver them in good condition to the consignee, such responsibility also credits and the rate allowed in judgments, in the absence of express contract as
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are to such rate of interest, shall be twelve (12%) percent per annum. This Circular
therefore charged with the obligation to deliver the goods in good condition to shall take effect immediately. (Emphasis found in the text) —
the consignee.
should have, instead, been applied. This Court6 ruled:
We do not, of course, imply by the above pronouncement that the arrastre The judgments spoken of and referred to are judgments in litigations involving
operator and the customs broker are themselves always and necessarily liable loans or forbearance of any money, goods or credits. Any other kind of
solidarily with the carrier, or vice-versa, nor that attendant facts in a given case monetary judgment which has nothing to do with, nor involving loans or
may not vary the rule. The instant petition has been brought solely by Eastern
forbearance of any money, goods or credits does not fall within the coverage of
Shipping Lines, which, being the carrier and not having been able to rebut the the said law for it is not within the ambit of the authority granted to the Central
presumption of fault, is, in any event, to be held liable in this particular case. A Bank.
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 xxx xxx xxx
the successive possession of appellants" (the herein petitioner among them). Coming to the case at bar, the decision herein sought to be executed is one
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole rendered in an Action for Damages for injury to persons and loss of property
petitioner in this case, is inevitable regardless of whether there are others and does not involve any loan, much less forbearances of any money, goods or
solidarily liable with it. credits. As correctly argued by the private respondents, the law applicable to
It is over the issue of legal interest adjudged by the appellate court that deserves the said case is Article 2209 of the New Civil Code which reads —
more than just a passing remark. Art. 2209. — If the obligation consists in the payment of a sum of money, and
Let us first see a chronological recitation of the major rulings of this Court: 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
The early case of Malayan Insurance Co., Inc., vs. Manila Port of stipulation, the legal interest which is six percent per annum.
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 The above rule was reiterated in Philippine Rabbit Bus Lines, Inc.,
Malayan Insurance (the plaintiff in the lower court) averred in its complaint that v. Cruz,7 promulgated on 28 July 1986. The case was for damages occasioned
the total amount of its claim for the value of the undelivered goods amounted by an injury to person and loss of property. The trial court awarded private
to P3,947.20. This demand, however, was neither established in its totality nor respondent Pedro Manabat actual and compensatory damages in the amount of
definitely ascertained. In the stipulation of facts later entered into by the parties, P72,500.00 with legal interest thereon from the filing of the complaint until
in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the
rendered judgment ordering the appellants (defendants) Manila Port Service interest award from 12% to 6% interest per annum but sustained the time
and Manila Railroad Company to pay appellee Malayan Insurance the sum of computation thereof, i.e., from the filing of the complaint until fully paid.
P1,447.51 with legal interest thereon from the date the complaint was filed on In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the
28 December 1962 until full payment thereof. The appellants then recovery of damages arising from the collapse of a building, ordered,
assailed, inter alia, the award of legal interest. In sustaining the appellants, this inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
Court ruled: . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal
Interest upon an obligation which calls for the payment of money, absent a rate from November 29, 1968, the date of the filing of the complaint until full
stipulation, is the legal rate. Such interest normally is allowable from the date payment . . . ." Save from the modification of the amount granted by the lower
of demand, judicial or extrajudicial. The trial court opted for judicial demand court, the Court of Appeals sustained the trial court's decision. When taken to
as the starting point. this Court for review, the case, on 03 October 1986, was decided, thus:
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot WHEREFORE, the decision appealed from is hereby MODIFIED and
be recovered upon unliquidated claims or damages, except when the demand considering the special and environmental circumstances of this case, we deem
can be established with reasonable certainty." And as was held by this Court it reasonable to render a decision imposing, as We do hereby impose, upon the
in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were for defendant and the third-party defendants (with the exception of Roman Ozaeta)
damages, "unliquidated and not known until definitely ascertained, assessed a solidary (Art. 1723, Civil Code, Supra.
and determined by the courts after proof (Montilla c. Corporacion de p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman, (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's
38 Phil. 302)," then, interest "should be from the date of the decision." fees) occasioned by the loss of the building (including interest charges and lost
(Emphasis supplied) 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
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for decision. Upon failure to pay on such finality, twelve (12%) per cent interest
"Recovery of Damages for Injury to Person and Loss of Property." After trial, per annum shall be imposed upon aforementioned amounts from finality until
the lower court decreed:
paid. Solidary costs against the defendant and third-party defendants (Except
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third Roman Ozaeta). (Emphasis supplied)
party defendants and against the defendants and third party plaintiffs as follows:
A motion for reconsideration was filed by United Construction, contending that
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated "the interest of twelve (12%) per cent per annum imposed on the total amount
to pay jointly and severally the following persons: of the monetary award was in contravention of law." The Court 10 ruled out the
xxx xxx xxx applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of resolution of 15 April 1988, it explained:
P131,084.00 which is the value of the boat F B Pacita III together with its There should be no dispute that the imposition of 12% interest pursuant to
accessories, fishing gear and equipment minus P80,000.00 which is the value Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans;
of the insurance recovered and the amount of P10,000.00 a month as the (2) forbearance of any money, goods or credit; and
estimated monthly loss suffered by them as a result of the fire of May 6, 1969 (3) rate allowed in judgments (judgments spoken of refer to judgments
up to the time they are actually paid or already the total sum of P370,000.00 as involving loans or forbearance of any money, goods or credits. (Philippine
of June 4, 1972 with legal interest from the filing of the complaint until paid and Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol,
to pay attorney's fees of P5,000.00 with costs against defendants and third party Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a
plaintiffs. (Emphasis supplied.) loan or a forbearance, but then no interest is actually imposed provided the
On appeal to the Court of Appeals, the latter modified the amount of damages sums referred to in the judgment are paid upon the finality of the judgment. It
awarded but sustained the trial court in adjudging legal interest from the filing is delay in the payment of such final judgment, that will cause the imposition of
of the complaint until fully paid. When the appellate court's decision became the interest.
final, the case was remanded to the lower court for execution, and this was when It will be noted that in the cases already adverted to, the rate of interest is
the trial court issued its assailed resolution which applied the 6% interest per imposed on the total sum, from the filing of the complaint until paid; in other
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 28
words, as part of the judgment for damages. Clearly, they are not applicable to as to judgments involving such loan or forbearance of money, goods or credits,
the instant case. (Emphasis supplied.) and that the 6% interest under the Civil Code governs when the transaction
The subsequent case of American Express International, Inc., vs. Intermediate involves the payment of indemnities in the concept of damage arising from the
Appellate Court11 was a petition for review on certiorari from the decision, breach or a delay in the performance of obligations in general. Observe, too,
dated 27 February 1985, of the then Intermediate Appellate Court reducing the that in these cases, a common time frame in the computation of the 6%
amount of moral and exemplary damages awarded by the trial court, to interest per annum has been applied, i.e., from the time the complaint is filed
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April until the adjudged amount is fully paid.
1985, restoring the amount of damages awarded by the trial court, i.e., The "second group", did not alter the pronounced rule on the application of the
P2,000,000.00 as moral damages and P400,000.00 as exemplary damages 6% or 12% interest per annum,17depending on whether or not the amount
with interest thereon at 12% per annum from notice of judgment, plus costs of involved is a loan or forbearance, on the one hand, or one of indemnity for
suit. In a decision of 09 November 1988, this Court, while recognizing the right damage, on the other hand. Unlike, however, the "first group" which remained
of the private respondent to recover damages, held the award, however, for consistent in holding that the running of the legal interest should be from the
moral damages by the trial court, later sustained by the IAC, to be inconceivably time of the filing of the complaint until fully paid, the "second group" varied on
large. The Court12 thus set aside the decision of the appellate court and rendered the commencement of the running of the legal interest.
a new one, "ordering the petitioner to pay private respondent the sum of One Malayan held that the amount awarded should bear legal interest from the date
Hundred Thousand (P100,000.00) Pesos as moral damages, with of the decision of the court a quo,explaining that "if the suit were for damages,
six (6%) percent interest thereon computed from the finality of this decision 'unliquidated and not known until definitely ascertained, assessed and
until paid. (Emphasis supplied) determined by the courts after proof,' then, interest 'should be from the date of
Reformina came into fore again in the 21 February 1989 case of Florendo the decision.'" American Express International v. IAC, introduced a different
v. Ruiz13 which arose from a breach of employment contract. For having been time frame for reckoning the 6% interest by ordering it to be "computed from
illegally dismissed, the petitioner was awarded by the trial court moral and the finality of (the) decision until paid." The Nakpil and Sons case ruled that
exemplary damages without, however, providing any legal interest thereon. 12% interest per annum should be imposed from the finality of the decision
When the decision was appealed to the Court of Appeals, the latter held: until the judgment amount is paid.
WHEREFORE, except as modified hereinabove the decision of the CFI of The ostensible discord is not difficult to explain. The factual circumstances may
Negros Oriental dated October 31, 1972 is affirmed in all respects, with the have called for different applications, guided by the rule that the courts are
modification that defendants-appellants, except defendant-appellant Merton vested with discretion, depending on the equities of each case, on the award of
Munn, are ordered to pay, jointly and severally, the amounts stated in the interest. Nonetheless, it may not be unwise, by way of clarification and
dispositive portion of the decision, including the sum of P1,400.00 in concept reconciliation, to suggest the following rules of thumb for future guidance.
of compensatory damages, with interest at the legal rate from the date of the I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
filing of the complaint until fully paid(Emphasis supplied.) contracts, delicts or quasi-delicts18 is breached, the contravenor can be held
The petition for review to this Court was denied. The records were thereupon liable for damages.19 The provisions under Title XVIII on "Damages" of the
transmitted to the trial court, and an entry of judgment was made. The writ of Civil Code govern in determining the measure of recoverable damages.20
execution issued by the trial court directed that only compensatory damages II. With regard particularly to an award of interest in the concept of actual and
should earn interest at 6% per annum from the date of the filing of the compensatory damages, the rate of interest, as well as the accrual thereof, is
complaint. Ascribing grave abuse of discretion on the part of the trial judge, a imposed, as follows:
petition for certiorari assailed the said order. This Court said: 1. When the obligation is breached, and it consists in the payment of a sum of
. . . , it is to be noted that the Court of Appeals ordered the payment of interest money, i.e., a loan or forbearance of money, the interest due should be that
"at the legal rate" from the time of the filing of the complaint. . . Said circular which may have been stipulated in writing.21 Furthermore, the interest due shall
[Central Bank Circular No. 416] does not apply to actions based on a breach of itself earn legal interest from the time it is judicially demanded.22 In the absence
employment contract like the case at bar. (Emphasis supplied) of stipulation, the rate of interest shall be 12% per annum to be computed from
The Court reiterated that the 6% interest per annum on the damages should be default, i.e., from judicial or extrajudicial demand under and subject to the
computed from the time the complaint was filed until the amount is fully paid. provisions of Article 116923 of the Civil Code.
Quite recently, the Court had another occasion to rule on the matter. National 2. When an obligation, not constituting a loan or forbearance of money, is
Power Corporation vs. Angas,14decided on 08 May 1992, involved the breached, an interest on the amount of damages awarded may be imposed at
expropriation of certain parcels of land. After conducting a hearing on the the discretion of the court24 at the rate of 6% per annum.25 No interest, however,
complaints for eminent domain, the trial court ordered the petitioner to pay the shall be adjudged on unliquidated claims or damages except when or until the
private respondents certain sums of money as just compensation for their lands demand can be established with reasonable certainty.26 Accordingly, where the
so expropriated "with legal interest thereon . . . until fully paid." Again, in demand is established with reasonable certainty, the interest shall begin to run
applying the 6% legal interest per annum under the Civil Code, the from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Court15 declared: Code) but when such certainty cannot be so reasonably established at the time
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, the demand is made, the interest shall begin to run only from the date the
goods or credits but expropriation of certain parcels of land for a public purpose, judgment of the court is made (at which time the quantification of damages may
the payment of which is without stipulation regarding interest, and the interest be deemed to have been reasonably ascertained). The actual base for the
adjudged by the trial court is in the nature of indemnity for damages. The legal computation of legal interest shall, in any case, be on the amount finally
interest required to be paid on the amount of just compensation for the adjudged.
properties expropriated is manifestly in the form of indemnity for damages for 3. When the judgment of the court awarding a sum of money becomes final and
the delay in the payment thereof. Therefore, since the kind of interest involved executory, the rate of legal interest, whether the case falls under paragraph 1 or
in the joint judgment of the lower court sought to be enforced in this case is paragraph 2, above, shall be 12% per annum from such finality until its
interest by way of damages, and not by way of earnings from loans, etc. Art. satisfaction, this interim period being deemed to be by then an equivalent to a
2209 of the Civil Code shall apply. forbearance of credit.
Concededly, there have been seeming variances in the above holdings. The WHEREFORE, the petition is partly GRANTED. The appealed decision is
cases can perhaps be classified into two groups according to the similarity of AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX
the issues involved and the corresponding rulings rendered by the court. The PERCENT (6%) on the amount due computed from the decision, dated
"first group" would consist of the cases of Reformina v. Tomol (1985), 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest,
Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989) in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality
and National Power Corporation v. Angas (1992). In the "second group" would of this decision until the payment thereof.
be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and SO ORDERED.
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

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 29


G.R. No. 128721 March 9, 1999 reinstated6 the Petition, but only with respect to the issue of which interest rate
CRISMINA GARMENTS, INC., petitioner, should be applied.7
vs. The Facts
COURT OF APPEALS and NORMA SIAPNO, respondent. As the facts of the case are no longer disputed, we are reproducing hereunder
the findings of the appellate court:
Short Summary During the period from February 1979 to April 1979, the [herein petitioner],
which was engaged in the export of girls' denim pants, contracted the services
Facts: of the [respondent], the sole proprietress of the D'Wilmar Garments, for the
sewing of 20,762 pieces of assorted girls['] denims supplied by the [petitioner]
under Purchase Orders Nos. 1404, dated February 15, 1979, 0430 dated
February 1, 1979, 1453 dated April 30, 1979. The [petitioner] was obliged to
pay the [respondent], for her services, in the total amount of P76,410.00. The
[respondent] sew[ed] the materials and delivered the same to the [petitioner]
which acknowledged the same per Delivery Receipt Nos. 0030 dated February
9, 1979; 0032, dated February 15, 1979; 0033 dated February 21, 1979; 0034,
dated February 24, 1979; 0036, dated February 20, 1979; 0038, dated March
11, 1979[;] 0039, dated March 24, 1979; 0040 dated March 27, 1979; 0041,
dated March 29, 1979; 0044, dated Marc[h] 25, 1979; 0101 dated May 18,
1979[;] 0037, dated March 10, 1979 and 0042 dated March 10, 1979, in good
order condition. At first, the [respondent] was told that the sewing of some of
the pants w[as] defective. She offered to take delivery of the defective pants.
However, she was later told by [petitioner]'s representative that the goods were
already good. She was told to just return for her check of P76,410.00. However,
the [petitioner] failed to pay her the aforesaid amount. This prompted her to hire
Issue: the services of counsel who, on November 12, 1979, wrote a letter to the
[petitioner] demanding payment of the aforesaid amount within ten (10) days
from receipt thereof. On February 7, 1990, the [petitioner]'s [v]ice-[p]resident-
[c]omptroller, wrote a letter to [respondent]'s counsel, averring, inter alia, that
the pairs of jeans sewn by her, numbering 6,164 pairs, were defective and that
Ruling: she was liable to the [petitioner] for the amount of P49,925.51 which was the
value of the damaged pairs of denim pants and demanded refund of the
aforesaid amount.
On January 8, 1981, the [respondent] filed her complaint against the [petitioner]
with the [trial court] for the collection of the principal amount of P76,410.00. .
..
xxx xxx xxx
After due proceedings, the [trial court] rendered judgment, on February 28,
1989, in favor of the [respondent] against the [petitioner], the dispositive
portion of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant ordering the latter to pay the former:
(1) The sum of P76,140.00 with interest thereon at 12% per annum, to be
counted from the filing of this complaint on January 8, 1981, until fully paid;
(2) The sum of P5,000 as attorney[']s fees; and
(3) The costs of this suit;
(4) Defendant's counterclaim is hereby dismissed.8
The Court of Appeals (CA) affirmed the trial court's ruling, except for the award
of attorney's fees which was deleted. 9 Subsequently, the CA denied the Motion
for Reconsideration.10
Hence, this recourse to this Court11
Sole Issue
In light of the Court's Resolution dated April 27, 1998, petitioner submits for
our consideration this sole issue:
Whether or not it is proper to impose interest at the rate of twelve percent (12%)
per annum for an obligation that does not involve a loan or forbearance of
money in the absence of stipulation of the parties. 12
PANGANIBAN, J.: This Court's Ruling
Interest shall be computed in accordance with the stipulation of the parties. In We sustain petitioner's contention that the interest rate should be computed at
the absence of such agreement, the rate shall be twelve percent (12%) per six percent (6%) per annum.
annum when the obligation arises out of a loan or a forbearance of money, Sole Issue: Interest Rate
goods or credits. In other cases, it shall be six percent (6%). The controversy revolves around petitioner's payment of the price beyond the
The Case period prescribed in a contract for a piece of work. Article 1589 on the Civil
On May 5, 1997, Crismina Garments, Inc. filed a Petition for Review Code provides that "[t]he vendee [herein petitioner] shall owe interest for the
on Certiorari 1 assailing the December 28, 1995 Decision 2 and March 17, 1997 period between the delivery of the thing and the payment of the price . . . should
Resolution 3 of the Court of Appeals in CA-GR CV No. 28973. On September he be in default from the time of judicial or extrajudicial demand for the
24, 1997, this Court issued a minute Resolution 4 denying the petition "for its payment of the price." The only issue now is the applicable rate of interest for
failure to show any reversible error on the part of the Court of Appeals." the late payment.
Petitioner then filed a Motion for Reconsideration, 5 arguing that the interest Because the case before us is "an action for the enforcement of an obligation
rate should be computed at 6 percent per annum as provided under Article 2209 for payment of money arising from a contract for a piece of work," 13 petitioner
of the Civil Code, not 12 percent per annum as prescribed under Circular No. submits that the interest rate should be six percent (6%), pursuant to Article
416 of the Central Bank of the Philippines. Acting on the Motion, the Court 2209 of the Civil Code, which states:

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 30


If the obligation consists in the payment of money and the debtor incurs in standard, the obligation in this case was obviously not a forbearance of money,
delay, the indemnity for damages, there being no stipulation to the contrary, goods or credit.
shall be the payment of the interest agreed upon, and in the absence of WHEREFORE, the appealed Decision is MODIFIED. The rate of interest shall
stipulation, the legal interest, which is six per cent per annum." (Emphasis be six percent (6%) per annum, computed from the time of the filing of the
supplied.) Complaint in the trial court until the finality of the judgment. If the adjudged
On the other hand, private respondent maintains that the interest rate should be principal and the interest (or any part thereof) remain unpaid thereafter, the
twelve percent (12 %) per annum, in accordance with Central Bank (CB) interest rate shall be twelve percent (12%) per annum computed from the time
Circular No. 416, which reads: the judgment becomes final and executory until it is fully satisfied. No
By virtue of the authority granted to it under Section 1 of Act No. 2655, as pronouncement as to costs.
amended, otherwise known as the "Usury Law", the Monetary Board, in its SO ORDERED.
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest
for the loan or forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of express contract as to such rate of interest, shall
be twelve per cent (12%) per annum." (Emphasis supplied.)
She argues that the circular applies, since "the money sought to be recovered
by her is in the form of forbearance." 14
We agree with the petitioner. In Reformina v. Tomol Jr., 15 this Court stressed
that the interest rate under CB Circular No. 416 applies to (1) loans; (2)
forbearance of money, goods or credits; or (3) a judgment involving a loan or
forbearance of money, goods or credits. Cases beyond the scope of the said
circular are governed by Article 2209 of the Civil Code, 16 which considers
interest a form of indemnity for the delay in the performance of an obligation.17
In Eastern Shipping Lines, Inc. v. Court of Appeals,18 the Court gave the
following guidelines for the application of the proper interest rates:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held liable
for damages. The provisions under Title XVIII on "Damages" of the Civil Code
govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
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 . . . 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
forbearance of credit.19
In Keng Hua Paper Products Co., Inc. v. CA, 20 we also ruled that the monetary
award shall earn interest at twelve percent (12%) per annum from the date of
finality of the judgment until its satisfaction, regardless of whether or not the
case involves a loan of forbearance of money. The interim period is deemed to
be equivalent to a forbearance of a credit. 21
Because the amount due in this case arose from a contract for a piece of work,
not from a loan or forbearance of money, the legal interest of six percent (6%)
per annum should be applied. Furthermore, since the amount of the demand
could be established with certainty when the Complaint was filed, the six
percent (6%) interest should be computed from the filing of the said Complaint.
But after the judgment becomes final and exuecutory until the obligation is
satisfied, the interest should be reckoned at twelve percent (%12) per year.
Private respondent maintains that the twelve percent (12%) interest should be
imposed, because the obligation arose from a forbearance of
money. 22 This is erroneous. In Eastern Shipping, 23 the Court observed that a
"forbearance" in the context of the usury law is a "contractual obligation of
lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and payable." Using this
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 31
G.R. No. 123643 October 30, 1996 (1) P98,691.90 with interest thereon at the legal rate from the date of the filing
PHILIPPINE NATIONAL BANK, petitioner, of the complaint until the entire amount is fully paid; 3 (Emphasis supplied.)
vs. PNB's appeal to the Court of Appeals (CA) 4 and later to the Supreme
COURT OF APPEALS and DR. ERLINDA G. IBARROLA, respondents. Court 5 were denied and dismissed, respectively. All the three courts, however,
RESOLUTION did not specify whether the legal rate of interest referred to in the judgment is
6% or 12%. The judgment in Civil Case 4226-P became final and executory on
November 26, 1993. At the execution stage, the sheriff computed the interest
Short Summary mentioned in the judgment at the rate of 12% which PNB opposed insisting that
Facts: the rate should only be 6%. Ibarrola sought clarification from the same RTC
which promulgated the decision. On August 4, 1994 said court issued an order
clarifying that the rate is 12%. PNB's direct appeal to this court from that order
was referred to the CA which affirmed the RTC order. Hence, this petition for
review under Rule 45 where two legal issues are raised: (1) whether in an action
for damages, the legal rate of interest is 6% as provided by Article 2209 6 of the
New Civil Code or 12% as provided by CB Circular 416 series of 1974, 7 and
(2) whether such rate shall be computed from the filing of the complaint until
fully paid?
The issues are not new. In the case of Estern Shipping Lines, Inc. v.
CA, 8 this Court had provided a rule "of thumb for future guidance," 9 to wit:
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
Issue: 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
Ruling: computation of legal interest shall, in any case, be on the amount finally
adjudged. 10 (Emphasis ours.)
The case at bench does not involve a loan, forbearance of money or judgment
involving a loan or forbearance of money as it arose from a contract of sale
whereby Ibarrola did not receive full payment for her merchandise. When an
obligation arises "from a contract of purchase and sale and not from a contract
of loan or mutuum," the applicable rate is "6% per annum as provided in Article
2209 of the NCC and not the rate of 12% per annum as provided in (CB) Cir.
No. 416." 11 Indeed, PNB's liability is based only on the RTC's judgment where
it was held solidarily liable with the other defendants due to its negligence when
it "failed to assure itself" if the Provincial Treasurer was "properly authorized"
by Ibarrola to "make endorsements" of said checks. 12
The rate of 12% interest referred to in Cir. 416 applies only to:
[L]oan or forbearance of money, or to cases where money is transferred from
one person to another and the obligation to return the same or a portion thereof
is adjudged. Any other monetary judgment which does not involve or which has
nothing to do with loans or forbearance of any money, goods or credit does not
fall within its coverage for such imposition is not within the ambit of the
authority granted to the Central Bank. When an obligation not constituting a
loan or forbearance of money is breached then an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of
6% per annum in accordance with Art. 2209 of the Civil Code. Indeed, the
monetary judgment in favor of private respondent does not involve a loan or
forbearance of money, hence the proper imposable rate of interest is six (6%)
per cent. 13 (Emphasis ours.)
Applying the aforequoted rule, therefore, the proper rate of interest referred to
in the judgment under execution is only 6%. This interest according to Eastern
Shipping shall be computed from the time of the filing of the complaint
considering that the amount adjudged (P98,691.90) can be established with
reasonable certainty. Said amount being merely the uncollected balance of the
FRANCISCO, J.:p
purchase price covered by the 23 checks encashed and appropriated by
As payments for the purchase of medicines, the Province of Isabela issued Ibarrola's agents. However, once the judgment becomes final and executory,
several checks drawn against its account with petitioner Philippine National the "interim period from the finality of judgment awarding a monetary claim
Bank (PNB) in favor of the seller, Lyndon Pharmaceuticals Laboratories, a and until payment thereof, is deemed to be equivalent to a forbearance of
business operated by private respondent Ibarrola. The checks were delivered to credit." 14 Thus, in accordance with the pronouncement in Eastern Shipping the
the seller's agents 1 who turned them over to Ibarrola, except 23 checks rate of 12% p.a. should be imposed, and to be computed from the time the
amounting to P98,691.90, which the agents appropriated after negotiating them judgment became final and executory until fully satisfied. The actual base for
with PNB. For her failure to receive the full payment for the medicines, Ibarrola the computation of this 12% interest after the judgment in this damage suit
filed on November 6, 1974 before the Regional Trial Court (RTC) an "action became final shall be the amount adjudged (P98,691.90).
for a sum of money and damages," docketed as Civil Case 4226-p, 2 against the
ACCORDINGLY, the appealed decision is REVERSED. The rate of interest
Province of Isabela, its Treasurer, the two agents and PNB.
shall be 6% p.a. computed from the time of the filing of the complaint until its
In its decision dated September 29, 1987, the trial court ordered all the full payment before finality of judgment. Thereafter, if the amount adjudged
defendants in said civil case, except the treasurer who died in the meantime, to remains unpaid, the interest rate shall be 12% p.a. computed from the time the
"jointly and solidarily" pay Ibarrola several amounts, among which is: judgment became final and executory on November 26, 1993 until fully
satisfied.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 32
SO ORDERED.

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 33


G.R. No. 175139 April 18, 2012 Also assailed is the August 31, 2006 Resolution 4 denying the motion for
HERMOJINA ESTORES, Petitioner, reconsideration.
vs. Factual Antecedents
SPOUSES ARTURO and LAURA SUPANGAN, Respondents. On October 3, 1993, petitioner Hermojina Estores and respondent-spouses
DECISION Arturo and Laura Supangan entered into a Conditional Deed of Sale5 whereby
petitioner offered to sell, and respondent-spouses offered to buy, a parcel of
land covered by Transfer Certificate of Title No. TCT No. 98720 located at
Short Summary Naic, Cavite for the sum of ₱4.7 million. The parties likewise stipulated, among
Facts: others, to wit:
xxxx
1. Vendor will secure approved clearance from DAR requirements of which are
(sic):
a) Letter request
b) Title
c) Tax Declaration
d) Affidavit of Aggregate Landholding – Vendor/Vendee
e) Certification from the Prov’l. Assessor’s as to Landholdings of
Vendor/Vendee
f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale
xxxx
4. Vendee shall be informed as to the status of DAR clearance within 10 days
upon signing of the documents.
Issue:
xxxx
6. Regarding the house located within the perimeter of the subject [lot] owned
by spouses [Magbago], said house shall be moved outside the perimeter of this
subject property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts
Ruling: the responsibility of seeing to it that such agreement is carried out before full
payment of the sale is made by vendee.
7. If and after the vendor has completed all necessary documents for registration
of the title and the vendee fails to complete payment as per agreement, a
forfeiture fee of 25% or downpayment, shall be applied. However, if the vendor
fails to complete necessary documents within thirty days without any sufficient
reason, or without informing the vendee of its status, vendee has the right to
demand return of full amount of down payment.
xxxx
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.)
Vendee shall be informed immediately of its approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of ownership.
xxxx6
After almost seven years from the time of the execution of the contract and
notwithstanding payment of ₱3.5 million on the part of respondent-spouses,
petitioner still failed to comply with her obligation as expressly provided in
paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter7 dated September
27, 2000, respondent-spouses demanded the return of the amount of ₱3.5
million within 15 days from receipt of the letter. In reply, 8 petitioner
acknowledged receipt of the ₱3.5 million and promised to return the same
within 120 days. Respondent-spouses were amenable to the proposal provided
an interest of 12% compounded annually shall be imposed on the ₱3.5
million.9 When petitioner still failed to return the amount despite demand,
respondent-spouses were constrained to file a Complaint10 for sum of money
before the Regional Trial Court (RTC) of Malabon against herein petitioner as
well as Roberto U. Arias (Arias) who allegedly acted as petitioner’s agent. The
case was docketed as Civil Case No. 3201-MN and raffled off to Branch 170.
In their complaint, respondent-spouses prayed that petitioner and Arias be
DEL CASTILLO, J.: ordered to:
The only issue posed before us is the propriety of the imposition of interest and 1. Pay the principal amount of ₱3,500,000.00 plus interest of 12% compounded
attorney’s fees. annually starting October 1, 1993 or an estimated amount of ₱8,558,591.65;
Assailed in this Petition for Review1 filed under Rule 45 of the Rules of Court 2. Pay the following items of damages:
is the May 12, 2006 Decision2 of the Court of Appeals (CA) in CA-G.R. CV a) Moral damages in the amount of ₱100,000.00;
No. 83123, the dispositive portion of which reads: b) Actual damages in the amount of ₱100,000.00;
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall c) Exemplary damages in the amount of ₱100,000.00;
be six percent (6%) per annum, computed from September 27, 2000 until its
d) [Attorney’s] fee in the amount of ₱50,000.00 plus 20% of recoverable
full payment before finality of the judgment. If the adjudged principal and the
amount from the [petitioner].
interest (or any part thereof) remain unpaid thereafter, the interest rate shall be
adjusted to twelve percent (12%) per annum, computed from the time the e) [C]ost of suit.11
judgment becomes final and executory until it is fully satisfied. The award of In their Answer with Counterclaim,12 petitioner and Arias averred that they are
attorney’s fees is hereby reduced to ₱100,000.00. Costs against the defendants- willing to return the principal amount of ₱3.5 million but without any interest
appellants. as the same was not agreed upon. In their Pre-Trial Brief,13 they reiterated that
SO ORDERED.3 the only remaining issue between the parties is the imposition of interest. They
argued that since the Conditional Deed of Sale provided only for the return of

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the downpayment in case of breach, they cannot be held liable to pay legal demand and had been using the ₱3.5 million for her benefit. Moreover, it is
interest as well.14 undisputed that petitioner failed to perform her obligations to relocate the house
In its Pre-Trial Order15 dated June 29, 2001, the RTC noted that "the parties outside the perimeter of the subject property and to complete the necessary
agreed that the principal amount of 3.5 million pesos should be returned to the documents. As regards the attorney’s fees, they claim that they are entitled to
[respondent-spouses] by the [petitioner] and the issue remaining [is] whether x the same because they were forced to litigate when petitioner unjustly withheld
x x [respondent-spouses] are entitled to legal interest thereon, damages and the amount. Besides, the amount awarded by the CA is even smaller compared
attorney’s fees."16 to the filing fees they paid.
Trial ensued thereafter. After the presentation of the respondent-spouses’ Our Ruling
evidence, the trial court set the presentation of Arias and petitioner’s evidence The petition lacks merit.
on September 3, 2003.17 However, despite several postponements, petitioner Interest may be imposed even in the absence of stipulation in the contract.
and Arias failed to appear hence they were deemed to have waived the
We sustain the ruling of both the RTC and the CA that it is proper to impose
presentation of their evidence. Consequently, the case was deemed submitted interest notwithstanding the absence of stipulation in the contract. Article 2210
for decision.18
of the Civil Code expressly provides that "[i]nterest may, in the discretion of
Ruling of the Regional Trial Court the court, be allowed upon damages awarded for breach of contract." In this
On May 7, 2004, the RTC rendered its Decision 19 finding respondent-spouses case, there is no question that petitioner is legally obligated to return the ₱3.5
entitled to interest but only at the rate of 6% per annum and not 12% as prayed million because of her failure to fulfill the obligation under the Conditional
by them.20 It also found respondent-spouses entitled to attorney’s fees as they Deed of Sale, despite demand. She has in fact admitted that the conditions were
were compelled to litigate to protect their interest.21 not fulfilled and that she was willing to return the full amount of ₱3.5 million
The dispositive portion of the RTC Decision reads: but has not actually done so. Petitioner enjoyed the use of the money from the
time it was given to her30 until now. Thus, she is already in default of her
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the [respondent-spouses] and ordering the [petitioner and Roberto Arias] to obligation from the date of demand, i.e., on September 27, 2000.
jointly and severally: The interest at the rate of 12% is applicable in the instant case.
1. Pay [respondent-spouses] the principal amount of Three Million Five Anent the interest rate, the general rule is that the applicable rate of interest
Hundred Thousand pesos (₱3,500,000.00) with an interest of 6% compounded "shall be computed in accordance with the stipulation of the parties."31 Absent
annually starting October 1, 1993 and attorney’s fee in the amount of Fifty any stipulation, the applicable rate of interest shall be 12% per annum "when
Thousand pesos (₱50,000.00) plus 20% of the recoverable amount from the the obligation arises out of a loan or a forbearance of money, goods or credits.
defendants and cost of the suit. In other cases, it shall be six percent (6%)."32 In this case, the parties did not
The Compulsory Counter Claim is hereby dismissed for lack of factual stipulate as to the applicable rate of interest. The only question remaining
therefore is whether the 6% as provided under Article 2209 of the Civil Code,
evidence.
or 12% under Central Bank Circular No. 416, is due.
SO ORDERED.22
The contract involved in this case is admittedly not a loan but a Conditional
Ruling of the Court of Appeals Deed of Sale. However, the contract provides that the seller (petitioner) must
Aggrieved, petitioner and Arias filed their notice of appeal.23 The CA noted that return the payment made by the buyer (respondent-spouses) if the conditions
the only issue submitted for its resolution is "whether it is proper to impose are not fulfilled. There is no question that they have in fact, not been fulfilled
interest for an obligation that does not involve a loan or forbearance of money as the seller (petitioner) has admitted this. Notwithstanding demand by the
in the absence of stipulation of the parties."24 buyer (respondent-spouses), the seller (petitioner) has failed to return the
On May 12, 2006, the CA rendered the assailed Decision affirming the ruling money and
of the RTC finding the imposition of 6% interest proper.25 However, the same should be considered in default from the time that demand was made on
shall start to run only from September 27, 2000 when respondent-spouses September 27, 2000.
formally demanded the return of their money and not from October 1993 when Even if the transaction involved a Conditional Deed of Sale, can the stipulation
the contract was executed as held by the RTC. The CA also modified the RTC’s governing the return of the money be considered as a forbearance of money
ruling as regards the liability of Arias. It held that Arias could not be held which required payment of interest at the rate of 12%? We believe so.
solidarily liable with petitioner because he merely acted as agent of the latter.
Moreover, there was no showing that he expressly bound himself to be In Crismina Garments, Inc. v. Court of Appeals,33 "forbearance" was defined as
personally liable or that he exceeded the limits of his authority. More a "contractual obligation of lender or creditor to refrain during a given period
importantly, there was even no showing that Arias was authorized to act as of time, from requiring the borrower or debtor to repay a loan or debt then due
and payable." This definition describes a loan where a debtor is given a period
agent of petitioner.26 Anent the award of attorney’s fees, the CA found the
award by the trial court (₱50,000.00 plus 20% of the recoverable amount) within which to pay a loan or debt. In such case, "forbearance of money, goods
excessive27 and thus reduced the same to ₱100,000.00.28 or credits" will have no distinct definition from a loan. We believe however,
that the phrase "forbearance of money, goods or credits" is meant to have a
The dispositive portion of the CA Decision reads: separate meaning from a loan, otherwise there would have been no need to add
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall that phrase as a loan is already sufficiently defined in the Civil
be six percent (6%) per annum, computed from September 27, 2000 until its Code.34 Forbearance of money, goods or credits should therefore refer to
full payment before finality of the judgment. If the adjudged principal and the arrangements other than loan agreements, where a person acquiesces to the
interest (or any part thereof) remain[s] unpaid thereafter, the interest rate shall temporary use of his money, goods or credits pending happening of certain
be adjusted to twelve percent (12%) per annum, computed from the time the events or fulfillment of certain conditions. In this case, the respondent-spouses
judgment becomes final and executory until it is fully satisfied. The award of parted with their money even before the conditions were fulfilled. They have
attorney’s fees is hereby reduced to ₱100,000.00. Costs against the [petitioner]. therefore allowed or granted forbearance to the seller (petitioner) to use their
SO ORDERED.29 money pending fulfillment of the conditions. They were deprived of the use of
Petitioner moved for reconsideration which was denied in the August 31, 2006 their money for the period pending fulfillment of the conditions and when those
Resolution of the CA. conditions were breached, they are entitled not only to the return of the principal
amount paid, but also to compensation for the use of their money. And the
Hence, this petition raising the sole issue of whether the imposition of interest
compensation for the use of their money, absent any stipulation, should be the
and attorney’s fees is proper.
same rate of legal interest applicable to a loan since the use or deprivation of
Petitioner’s Arguments funds is similar to a loan.
Petitioner insists that she is not bound to pay interest on the ₱3.5 million Petitioner’s unwarranted withholding of the money which rightfully pertains to
because the Conditional Deed of Sale only provided for the return of the respondent-spouses amounts to forbearance of money which can be considered
downpayment in case of failure to comply with her obligations. Petitioner also as an involuntary loan. Thus, the applicable rate of interest is 12% per annum.
argues that the award of attorney’s fees in favor of the respondent-spouses is In Eastern Shipping Lines, Inc. v. Court of Appeals, 35 cited in Crismina
unwarranted because it cannot be said that the latter won over the former since Garments, Inc. v. Court of Appeals,36 the Court suggested the following
the CA even sustained her contention that the imposition of 12% interest guidelines:
compounded annually is totally uncalled for.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
Respondent-spouses’ Arguments contracts, delicts or quasi-delicts is breached, the contravenor can be held liable
Respondent-spouses aver that it is only fair that interest be imposed on the for damages. The provisions under Title XVIII on ‘Damages’ of the Civil Code
amount they paid considering that petitioner failed to return the amount upon govern in determining the measure of recoverable damages.
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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.37
Eastern Shipping Lines, Inc. v. Court of Appeals38 and its predecessor case,
Reformina v. Tongol39 both involved torts cases and hence, there was no
forbearance of money, goods, or credits. Further, the amount claimed (i.e.,
damages) could not be established with reasonable certainty at the time the
claim was made. Hence, we arrived at a different ruling in those cases.
Since the date of demand which is September 27, 2000 was satisfactorily
established during trial, then the interest rate of 12% should be reckoned from
said date of demand until the principal amount and the interest thereon is fully
satisfied.1âwphi1
The award of attorney’s fees is warranted.
Under Article 2208 of the Civil Code, attorney’s fees may be recovered:
xxxx
(2) When the defendant’s act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest;
xxxx
(11) In any other case where the court deems it just and equitable that attorney’s
fees and expenses of litigation should be recovered.
In all cases, the attorney’s fees and expenses of litigation must be reasonable.
Considering the circumstances of the instant case, we find respondent-spouses
entitled to recover attorney’s fees. There is no doubt that they were forced to
litigate to protect their interest, i.e., to recover their money. However, we find
the amount of ₱50,000.00 more appropriate in line with the policy enunciated
in Article 2208 of the Civil Code that the award of attorney’s fees must always
be reasonable.
WHEREFORE, the Petition for Review is DENIED. The May 12, 2006
Decision of the Court of Appeals in CA-G.R. CV No. 83123 is AFFIRMED
with MODIFICATIONS that the rate of interest shall be twelve percent (12%)
per annum, computed from September 27, 2000 until fully satisfied. The award
of attorney’s fees is further reduced to ₱50,000.00.
SO ORDERED.

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G.R. No. 97873 August 12, 1993 petitioner several parcels of land in consideration of the sum of P7,776,335.69;
PILIPINAS BANK, petitioner, (2) that Greatland assigned P2,300,000.00 out of the total consideration of
vs. the Dacion en Pago, in favor of private respondent; and (3) that notwithstanding
THE HONORABLE COURT OF APPEALS, and LILIA R. her demand for payment, petitioner in bad faith, refused and failed to pay the
ECHAUS, respondents. said amount assigned to her.
Gella, Reyes, Danguilan and Associates for the petitioner. Petitioner, while admitting the execution of the Dacion en Pago, claimed: (1)
that its former president had no authority to enter into such agreement; (2) that
Manuel L. Melotindos for the respondents. it never ratified the same; and (3) that assuming arguendo that the agreement
was binding, the conditions stipulated therein were never fulfilled.
Short Summary Dismissing petitioner's defense as unmeritorious, the trial court ruled in favor
Facts: of private respondent. The trial court ordered petitioner and its co-defendant,
jointly and severally, to pay private respondent as follows:
1) P2,300,000.00 the total amount assigned by Greatland in her favor out of the
P2,300,000.00 liability of defendant Pilipinas to Greatland plus legal interest
from the dates of assignments until fully paid;
2) P3,217,707.00 representing the total actual damages suffered by the plaintiff
plus legal interest until fully paid;
3) P1,000,000.00 in moral damages to partially assuage the extreme moral
sufferings of plaintiff inflicted upon her person considering the bad faith on the
part of the defendants and their failure to act with justice, and to give what is
lawfully due her and observe honesty and good faith;
4) P100,000.00 exemplary and nominal damages to vindicate plaintiff's violated
rights;
5) Attorney's fees equivalent to 15% of the total award in favor of the plaintiff;
6) Costs of suit (Rollo, p. 78).
On March 22, 1985, petitioner appealed the decision of the trial court to the
Issue: Court of Appeals, which docketed the appeal as CA-G.R. No. 06017. On the
same day, private respondent filed a motion for Immediate Execution Pending
Appeal. The trial court granted the motion for execution pending appeal in an
Order dated April 3, 1985. Petitioner challenged the Order dated April 3, 1985
before the Court of Appeals in CA-G.R. No. SP No. 05909.
Ruling:
On October 30, 1986, the Court of Appeals modified the Order dated April 3,
1985, by limiting the execution pending appeal against petitioner to
P5,517.707.00 and deferring the execution of the award for moral, exemplary
and nominal damages to await the final judgment of the main case in CA-G.R.
No. 06017. On June 17, 1987, the Supreme Court in G.R. No. L-76506 affirmed
the Order dated October 30, 1986 of the Court of Appeals.
On July 1, 1988, the trial court granted the new motion for execution pending
appeal filed by private respondent pursuant to the Resolution of the Supreme
Court dated June 17, 1987, upon the filing of the required bond. Petitioner
complied with the writ of execution pending appeal by issuing two manager's
checks in the total amount of P5,517,707.00 (one for P4,965,936.30 payable to
private respondent and another for P551,770.70 payable to the Clerk of Court,
RTC, Antipolo, Rizal).
The check payable to private respondent was encashed on July 15, 1988.
On June 28, 1990, the Court of Appeals rendered a decision in CA-G.R. No.
CV-06017, which modified the judgment of the trial court as follows:
1. The defendant-appellant Pilipinas Bank, formerly known as Filipinas
Manufacturers Bank is ordered to pay the plaintiff-appellee the following:
(a) The sum of Two Million Three Hundred Thousand (2,300,000,00) Pesos,
representing the total amount assigned by Greatland to her, with interest at the
legal rate starting July 24, 1981, date when demand was first made (Exh. "F"
and "G");
(b) The sum of One Hundred Thousand (P100,000.00) Pesos in moral damages,
to assuage moral sufferings and embarrassment of plaintiff-appellee as a
consequence of appellant-bank's unwarranted acts;
(c) The sum of Twenty Five Thousand (P25,000.00) Pesos, as exemplary
damages to serve as an example or correction for the public good;
(d) The sum equivalent to ten (10) percent of the principal claim awarded,
QUIASON, J.: representing attorney's fees; and
This is a petition for certiorari under Rule 45 of the Revised Rules of Court to 2. Constantino Bautista is absolved of personal liability (Rollo, pp. 31-32).
review the Resolution of the Court of Appeals in CA-G.R. CV No. 06017 Petitioner filed a motion for extension of time to file a Petition for Review
promulgated on March 14, 1991. The Resolution was rendered in response to on Certiorari with the Supreme Court, which however was withdrawn on July
private respondent's motion for clarification of the decision of the Court of 23,1990. Private respondent, on her part, filed a motion for reconsideration of
Appeals in CA-G.R. No. 06017. The matters sought to be clarified arose in the the decision of the Court of Appeals in CA-G.R. No. 06017, which likewise
course of the execution of the decision of the Regional Trial Court, Branch 71, was withdrawn on August 13, 1990.
Antipolo, Rizal in Civil Case No. 239-A, as modified by the decision of the Hence, the decision of the Court of Appeals rendered in CA-G.R. No. 06017
Court of Appeals in CA-G.R. CV No. 06017. became final and executory.
In Civil Case No. 239-A, private respondent filed a complaint against petitioner On September 4, 1990, petitioner filed a motion in the trial court praying that
and its president, Constantino Bautista, for collection of a sum of money. The private respondent and Standard Insurance Co. (which furnished the bond
complaint alleged: (1) that petitioner and Greatland Realty Corporation required in the advance execution of the decision of the trial court) to refund to
(Greatland) executed a "Dacion en Pago," wherein Greatland conveyed to
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 37
her the excess payment of P1,898,623.67 with interests at 6% (Rollo, pp. 83- Art. 2209. If the obligation consists in the payment of a sum of money, and the
84). debtor incurs in delay, the indemnity for damages, there being no stipulation to
It must be recalled that while private respondent was able to collect the contrary, shall be the payment of the interest agreed upon, and in the absence
P5,517,707.00 from petitioner pursuant to the writ of advance execution of stipulation, the legal interest, which is six per cent per annum.
allowed in CA-G.R. No. SP No. 05909, the final judgment in the main case Presidential Decree No. 116 authorized the Monetary Board to prescribe the
(CA-G.R. No. 06017) awarded to private respondent damages in the total maximum rate or rates of interest for the loan or renewal thereof or the
amount of only P2,655,000.00 (P2,300,000.00 representing the amount forbearance of any money, goods or credits and amended the Usury Law (Act
assigned by Greatland to private respondent, P100,000.00 as moral damages; No. 2655) for that purpose.
P25,000.00 as exemplary damages and attorney's fees equivalent to 10% of the As amended, the Usury Law now provides:
P2,300,000.00), together "with interest on the amount of P2,300,000.00 at the Sec. The rate of interest for the loan or forbearance of any money, goods, or
legal rate starting July 24, 1981, date when demand was first made (Exh. "F"
credits and the rate allowed in judgments, in the absence of express contract as
and "G")." to such rate of interest, shall be six per centum per annum or such rate as may
Private respondent opposed the motion of petitioner with respect to the rate of be prescribed by the Monetary Board of the Central Bank of the Philippines for
interest to be charged on the amount of P2,300,000.00. According to private that purpose in accordance with the authority hereby granted.
respondent, the legal interest on the principal amount of P2,300,000.00 due her Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum
should be 12% per annum pursuant to CB Circular No. 416 and not 6% per
rate or rates of interest for the loan or renewal thereof or the forbearance of any
annum as computed by petitioner. money, goods or credits, and to charge such rate or rates whenever warranted
On October 12, 1990, the trial court, while ordering the refund to petitioner of by prevailing economic and social conditions: Provided, That such changes
the excess payment, fixed the interest rate due on the amount of P2,300.000.00 shall not be made oftener that once every twelve months.
at 12% per annum as proposed by private respondent, instead of 6% per In the exercise of the authority herein granted, the Monetary Board may
annum as proposed by petitioner.
prescribe higher maximum rates for consumer loans or renewals thereof as well
On October 16, 1990, petitioner moved to reconsider the Order dated October as such loans made by pawnshops, finance companies and other similar credit
12, 1990 of the trail court, which however could not be acted upon because on institutions although the rates prescribed for these institutions need not
October 23, 1990, private respondent filed a Motion for Clarification with the necessarily be uniform.
Court of Appeals in CA-G.R. CV No. 06017, regarding the following matters: Acting on the authority vested on it by the Usury Law, as amended by P.D. No.
a) The "legal rate" of interest on the principal award of P2,300,000.00 from July 116, the Monetary Board of Central Bank issued Central Bank Circular No.
24, 1981 (as per decision) up to July 14, 1988 (date of actual payment made by 416, which provides:
defendant-appellant to plaintiff-appellee per execution pending appeal);
By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
b) The imposition of such "legal rate" of interest on the accrued interest' from otherwise known as the "Usury Law" the Monetary Board in its Resolution No.
July 24, 1981 up to July 14, 1988; 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
c) The amount of the costs of suit will include premium on surety bond; forbearance of any money, goods, or credits and the rate allowed in judgments,
d) The discharged of the surety bond whether total or partial, depending on the in the absence of express contract as to such rate of interest, shall be twelve
computation of the interest; (12%) per cent per annum. This Circular shall take effect immediately. (italics
supplied)
e) The award of attorney's fees equivalent to 10% of the principal award,
whether this should totally go to plaintiff-appellee's former counsel or to be Note that Circular No. 416, fixing the rate of interest at 12% per annum, deals
shared on the basis of quantum meruit with the undersigned counsel; and with (1) loans; (2) forbearance of any money, goods or credit; and
(3) judgments.
f) Aside from this final award of 10% attorney's fees chargeable against
defendant-appellant, whether or not former counsel of plaintiff-appellee can In Reformina v. Tomol, Jr., 139 SCRA 260 [1985], the Court held that the
still collect from her the balance of 15% out of the 25% attorney's fees under judgments spoken of and referred to in Circular No. 416 are "judgments in
Exh. "N" (Rollo, p.32). litigation involving loans or forbearance of any money, goods or credits. Any
other kind of monetary judgment which has nothing to do with nor involving
In its Resolution promulgated on March 14, 1991, the Court of Appeals clarified
that: 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
a) The legal rate of interest on the principal award of P2,300,000.00 should be to the Central Bank."
12% per annum in accordance with Circular No. 416 dated July 29, 1974 of the
Central Bank. Reformina was affirmed in Philippines Virginia Tobacco Administration
v. Tensuan, 188 SCRA 628 [1990], which emphasized that the "judgments"
b) The computation of compounding interest annually has no basis, therefore, contemplated in Circular No. 417 "are judgments involving said loans or
not allowed in the instant case; forbearance only and not in judgments in litigation that have nothing to do with
c) The payment of premium on the bond in the sum of P259,813.50 as cost, loans . . . ."
being without legal and factual basis, is denied; We held that Circular No. 416 does not apply to judgments involving damages
d) The surety bond posted by plaintiff-appellee may be released after (Reformina v. Tomol, Jr., supra; Philippine Virginia Tobacco
satisfaction of the decision; and Administration v. Tensuan, supra) and compensation in expropriation
e) Payment/distribution of attorney's fees may/shall be litigated in a separate proceedings (National Power Corporation v. Angas, 208 SCRA 542 [1992]).
proceeding if the parties cannot settle their differences amicably. We also held that payment of unliquidated cash advances to an employee by his
SO ORDERED (Rollo, p. 35-36). employer (Villarica v. Court of Appeals, 123 SCRA 259 [1983]) and the return
of money paid by a buyer of a leasehold right but which contract was voided
In this appeal, petitioner claims that the Court of Appeals erred:
due to the fault of the seller (Buisier v. Court of Appeals, 154 SCRA 438
(1) In ruling that the legal rate of interest on the amount of P2,300,000.00 [1987]).
adjudged to be paid by petitioner to private respondent is 12% per annum.
What then is the nature of the judgment ordering petitioner to pay private
(2) In not holding that the refund to which petitioner is entitled should earn respondent the amount of P2,300,000.00?
interest at the rate of 12% per annum.
The said amount was a portion of the P7,776,335.69 which petitioner was
(3) In not holding that the surety bond should only be released after actual obligated to pay Greatland as consideration for the sale of several parcels of
refund (Rollo, p. 18). land by Greatland to petitioner. The amount of P2,300,000.00 was assigned by
The Court of Appeals was of the theory that the action in Civil Case No. 239- Greatland in favor of private respondent. The said obligation therefore arose
A filed by private respondent against petitioner "involves forbearance of from a contract of purchase and sale and not from a contract of loan or mutuum.
money, as the principal award to plaintiff-appellee (private respondent) in the Hence, what is applicable is the rate of 6% per annum as provided in Article
amount of P2,300.000.00 was the overdue debt of defendant-appellant to her 2209 of the Civil Code of the Philippines and not the rate of 12% per annum as
since July 1981. The case is, in effect, a simple collection of the money due to provided in Circular No. 416.
plaintiff-appellee, as the unpaid creditor from the defendant bank, the debtor" Petitioner next contends that, consistent with its thesis that Circular No. 416
(Resolution, p.3; Rollo, p. 33). Applying Central Bank Circular No. 416, the applies only to judgments involving the payment of loans or forbearance of
Court of Appeals held that the applicable rate of interest is 12% per annum. money, goods and credit, the Court of Appeals should have ordered private
Petitioner argues that the applicable law is Article 2209 of the Civil Code, not respondent to pay interest at the rate of 12% on the overpayment collected by
the Central Bank Circular No. 416. Said Article 2209 provides: her pursuant to the advance execution of the judgment.

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Again, we sustain petitioner's contention as correct. EN BANC
Private respondent was paid in advance the amount of P5,517,707.00 by G.R. No. 192986 January 15, 2013
petitioner to the order for the execution pending appeal of the judgment of the ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B.
trial court. On appeal, the Court of Appeals reduced the total damages to OLAGUER, Petitioners,
P3,619,083.33, leaving a balance of P1,898,623.67 to be refunded by private vs.
respondent to petitioner. In an execution pending appeal, funds are advanced BANGKO SENTRAL MONETARY BOARD, represented by its
by the losing party to the prevailing party with the implied obligation of the Chairman, GOVERNOR ARMANDO M. TETANGCO, JR., and its
latter to repay former, in case the appellate court cancels or reduces the incumbent members: JUANITA D. AMATONG, ALFREDO C.
monetary award. ANTONIO, PETER FA VILA, NELLY F. VILLAFUERTE, IGNACIO
Under Section 5 of Rule 39 of the Revised Rules of Court where "the judgment R. BUNYE and CESAR V. PURISIMA, Respondents.
executed is reversed totally or partially on appeal, the trial court, on motion, DECISION
after the case is remanded to it, may issue such orders of restitution, as equity
and justice may warrant under the circumstances." It was to guarantee the
restitution contemplated by Section 5 of Rule 39 of the Revised Rules of Court Short Summary
that private respondent was required by the trial court to post a bond before the Facts:
writ of advance execution was issued.
In the case before us, the excess amount ordered to refunded by private
respondent falls within the ruling in Viloria and Buiser that Circular No. 416
applies to cases where money is transferred from one person to another and the
obligation to return the same or a portion thereof is subsequently adjudged.
Finally, petitioner questions as vague the ruling of the Court of Appeals that the
surety bond given to secure the advance execution may be discharged "upon the
finality and satisfaction of the decision." We believe that this ruling of the Court
of Appeals is clear enough in ordering that the surety bond shall be released
only after private respondent has fully refunded the overpayment to petitioner.
WHEREFORE, the petition is GRANTED. The Resolution of the Court of
Appeals appealed from is MODIFIED in that (1) the amount of P2,300,000.00
adjudged to be paid by petitioner to private respondent shall earn interest of
6% per annum and (2) the amount of P1,898,623.67 to be refunded by private
respondent to petitioner shall earn interest of 12% per annum. Costs against
private respondent.
Issue:
SO ORDERED.

Ruling:

REYES, J.:
Petitioners, claiming that they are raising issues of transcendental importance
to the public, filed directly with this Court this Petition for Certiorari under Rule
65 of the 1997 Rules of Court, seeking to declare that the Bangko Sentral ng
Pilipinas Monetary Board (BSP-MB), replacing the Central Bank Monetary
Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653, has no authority to
continue enforcing Central Bank Circular No. 905,1 issued by the CB-MB in
1982, which "suspended" Act No. 2655, or the Usury Law of 1916.
Factual Antecedents
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Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non- provisions of this Act are hereby repealed. Presidential Decree No. 1792 is
stock corporation organized to engage in pro bono concerns and activities likewise repealed.
relating to money lending issues. It was incorporated on July 9, 2010, 2 and a Petition for Certiorari
month later, it filed this petition, joined by its founder and president, Eduardo
To justify their skipping the hierarchy of courts and going directly to this Court
B. Olaguer, suing as a taxpayer and a citizen. to secure a writ of certiorari, petitioners contend that the transcendental
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June importance of their Petition can readily be seen in the issues raised therein, to
15, 1948, empowered the CB-MB to, among others, set the maximum interest wit:
rates which banks may charge for all types of loans and other credit operations,
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the
within limits prescribed by the Usury Law. Section 109 of R.A. No. 265 reads: statutory or constitutional authority to prescribe the maximum rates of interest
Sec. 109. Interest Rates, Commissions and Charges. — The Monetary Board for all kinds of credit transactions and forbearance of money, goods or credit
may fix the maximum rates of interest which banks may pay on deposits and on beyond the limits prescribed in the Usury Law;
other obligations. b) If so, whether the CB-MB exceeded its authority when it issued CB Circular
The Monetary Board may, within the limits prescribed in the Usury Law fix the No. 905, which removed all interest ceilings and thus suspended Act No. 2655
maximum rates of interest which banks may charge for different types of loans as regards usurious interest rates;
and for any other credit operations, or may fix the maximum differences which
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce
may exist between the interest or rediscount rates of the Central Bank and the CB Circular No. 905.5
rates which the banks may charge their customers if the respective credit
documents are not to lose their eligibility for rediscount or advances in the Petitioners attached to their petition copies of several Senate Bills and
Central Bank. Resolutions of the 10th Congress, which held its sessions from 1995 to 1998,
calling for investigations by the Senate Committee on Banks and Financial
Any modifications in the maximum interest rates permitted for the borrowing Institutions into alleged unconscionable commercial rates of interest imposed
or lending operations of the banks shall apply only to future operations and not by these entities. Senate Bill (SB) Nos. 376 and 1860,7 filed by Senator Vicente
to those made prior to the date on which the modification becomes effective. C. Sotto III and the late Senator Blas F. Ople, respectively, sought to amend
In order to avoid possible evasion of maximum interest rates set by the Act No. 2655 by fixing the rates of interest on loans and forbearance of credit;
Monetary Board, the Board may also fix the maximum rates that banks may Philippine Senate Resolution (SR) No. 1053,8 10739 and 1102,10 filed by
pay to or collect from their customers in the form of commissions, discounts, Senators Ramon B. Magsaysay, Jr., Gregorio B. Honasan and Franklin M.
charges, fees or payments of any sort. (Underlining ours) Drilon, respectively, urged the aforesaid Senate Committee to investigate ways
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) to curb the high commercial interest rates then obtaining in the country; Senator
No. 1684, giving the CB-MB authority to prescribe different maximum rates of Ernesto Maceda filed SB No. 1151 to prohibit the collection of more than two
interest which may be imposed for a loan or renewal thereof or the forbearance months of advance interest on any loan of money; and Senator Raul Roco filed
of any money, goods or credits, provided that the changes are effected gradually SR No. 114411seeking an investigation into an alleged cartel of commercial
and announced in advance. Thus, Section 1-a of Act No. 2655 now reads: banks, called "Club 1821", reportedly behind the regime of high interest rates.
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum The petitioners also attached news clippings12 showing that in February 1998
rate or rates of interest for the loan or renewal thereof or the forbearance of any the banks’ prime lending rates, or interests on loans to their best borrowers,
money, goods or credits, and to change such rate or rates whenever warranted ranged from 26% to 31%.
by prevailing economic and social conditions: Provided, That changes in such Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D.
rate or rates may be effected gradually on scheduled dates announced in No. 1684, the CB-MB was authorized only to prescribe or set the maximum
advance. rates of interest for a loan or renewal thereof or for the forbearance of any
In the exercise of the authority herein granted the Monetary Board may money, goods or credits, and to change such rates whenever warranted by
prescribe higher maximum rates for loans of low priority, such as consumer prevailing economic and social conditions, the changes to be effected gradually
loans or renewals thereof as well as such loans made by pawnshops, finance and on scheduled dates; that nothing in P.D. No. 1684 authorized the CB-MB
companies and other similar credit institutions although the rates prescribed for to lift or suspend the limits of interest on all credit transactions, when it issued
these institutions need not necessarily be uniform. The Monetary Board is also CB Circular No. 905. They further insist that under Section 109 of R.A. No.
authorized to prescribe different maximum rate or rates for different types of 265, the authority of the CB-MB was clearly only to fix the banks’ maximum
borrowings, including deposits and deposit substitutes, or loans of financial rates of interest, but always within the limits prescribed by the Usury Law.
intermediaries. (Underlining and emphasis ours) Thus, according to petitioners, CB Circular No. 905, which was promulgated
In its Resolution No. 2224 dated December 3, 1982,3 the CB-MB issued CB without the benefit of any prior public hearing, is void because it violated
Circular No. 905, Series of 1982, effective on January 1, 1983. Section 1 of the Article 5 of the New Civil Code, which provides that "Acts executed against
Circular, under its General Provisions, removed the ceilings on interest rates on the provisions of mandatory or prohibitory laws shall be void, except when the
loans or forbearance of any money, goods or credits, to wit: law itself authorizes their validity."
Sec. 1. The rate of interest, including commissions, premiums, fees and other They further claim that just weeks after the issuance of CB Circular No. 905,
charges, on a loan or forbearance of any money, goods, or credits, regardless of the benchmark 91-day Treasury bills (T-bills),13 then known as "Jobo"
maturity and whether secured or unsecured, that may be charged or collected bills14 shot up to 40% per annum, as a result. The banks immediately followed
by any person, whether natural or juridical, shall not be subject to any ceiling suit and re-priced their loans to rates which were even higher than those of the
prescribed under or pursuant to the Usury Law, as amended. (Underscoring and "Jobo" bills. Petitioners thus assert that CB Circular No. 905 is also
emphasis ours) unconstitutional in light of Section 1 of the Bill of Rights, which commands
that "no person shall be deprived of life, liberty or property without due process
The Circular then went on to amend Books I to IV of the CB’s "Manual of
Regulations for Banks and Other Financial Intermediaries" (Manual of of law, nor shall any person be denied the equal protection of the laws."
Regulations) by removing the applicable ceilings on specific interest rates. Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision
Thus, Sections 5, 9 and 10 of CB Circular No. 905 amended Book I, similar to Section 109 of R.A. No. 265, and therefore, in view of the repealing
Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing the clause in Section 135 of R.A. No. 7653, the BSP-MB has been stripped of the
ceilings for interest and other charges, commissions, premiums, and fees power either to prescribe the maximum rates of interest which banks may
applicable to commercial banks; Sections 12 and 17 removed the interest charge for different kinds of loans and credit transactions, or to suspend Act
ceilings for thrift banks (Book II, Subsections 2303, 2349); Sections 19 and 21 No. 2655 and continue enforcing CB Circular No. 905.
removed the ceilings applicable to rural banks (Book III, Subsection 3152.3-c); Ruling
and, Sections 26, 28, 30 and 32 removed the ceilings for non-bank financial The petition must fail.
intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1, 4303P).4
A. The Petition is procedurally infirm.
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 The decision on whether or not to accept a petition for certiorari, as well as to
establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB. The
grant due course thereto, is addressed to the sound discretion of the court. 15 A
repealing clause thereof, Section 135, reads: petition for certiorari being an extraordinary remedy, the party seeking to avail
Sec. 135. Repealing Clause. — Except as may be provided for in Sections 46 of the same must strictly observe the procedural rules laid down by law, and
and 132 of this Act, Republic Act No. 265, as amended, the provisions of any non-observance thereof may not be brushed aside as mere technicality.16
other law, special charters, rule or regulation issued pursuant to said Republic As provided in Section 1 of Rule 65, a writ of certiorari is directed against a
Act No. 265, as amended, or parts thereof, which may be inconsistent with the
tribunal exercising judicial or quasi-judicial functions.17 Judicial functions are

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exercised by a body or officer clothed with authority to determine what the law raised. Further, the Court stated in Anak Mindanao Party-List Group v. The
is and what the legal rights of the parties are with respect to the matter in Executive Secretary29 that the rule on standing will not be waived where these
controversy. Quasi-judicial function is a term that applies to the action or determinants are not established.
discretion of public administrative officers or bodies given the authority to In the instant case, there is no allegation of misuse of public funds in the
investigate facts or ascertain the existence of facts, hold hearings, and draw implementation of CB Circular No. 905. Neither were borrowers who were
conclusions from them as a basis for their official action using discretion of a actually affected by the suspension of the Usury Law joined in this petition.
judicial nature.18 Absent any showing of transcendental importance, the petition must fail.
The CB-MB (now BSP-MB) was created to perform executive functions with More importantly, the Court notes that the instant petition adverted to the
respect to the establishment, operation or liquidation of banking and credit regime of high interest rates which obtained at least 15 years ago, when the
institutions, and branches and agencies thereof.19 It does not perform judicial or banks’ prime lending rates ranged from 26% to 31%, 30 or even 29 years ago,
quasi-judicial functions. Certainly, the issuance of CB Circular No. 905 was when the 91-day Jobo bills reached 40% per annum. In contrast, according to
done in the exercise of an executive function. Certiorari will not lie in the instant the BSP, in the first two (2) months of 2012 the bank lending rates averaged
case.20 5.91%, which implies that the banks’ prime lending rates were lower; moreover,
B. Petitioners have no locus standi to file the Petition deposit interests on savings and long-term deposits have also gone very low,
Locus standi is defined as "a right of appearance in a court of justice on a given averaging 1.75% and 1.62%, respectively.31
question." In private suits, Section 2, Rule 3 of the 1997 Rules of Civil Judging from the most recent auctions of T-bills, the savings rates must be
Procedure provides that "every action must be prosecuted or defended in the approaching 0%.1âwphi1 In the auctions held on November 12, 2012, the rates
name of the real party in interest," who is "the party who stands to be benefited of 3-month, 6-month and 1-year T-bills have dropped to 0.150%, 0.450% and
or injured by the judgment in the suit or the party entitled to the avails of the 0.680%, respectively.32 According to Manila Bulletin, this very low interest
suit." Succinctly put, a party’s standing is based on his own right to the relief regime has been attributed to "high liquidity and strong investor demand amid
sought.21 positive economic indicators of the country."33
Even in public interest cases such as this petition, the Court has generally While the Court acknowledges that cases of transcendental importance demand
adopted the "direct injury" test that the person who impugns the validity of a that they be settled promptly and definitely, brushing aside, if we must,
statute must have "a personal and substantial interest in the case such that he technicalities of procedure,34 the delay of at least 15 years in the filing of the
has sustained, or will sustain direct injury as a result."22 Thus, while petitioners instant petition has actually rendered moot and academic the issues it now
assert a public right to assail CB Circular No. 905 as an illegal executive action, raises.
it is nonetheless required of them to make out a sufficient interest in the For its part, BSP-MB maintains that the petitioners’ allegations of constitutional
vindication of the public order and the securing of relief. It is significant that in and statutory violations of CB Circular No. 905 are really mere challenges made
this petition, the petitioners do not allege that they sustained any personal injury by petitioners concerning the wisdom of the Circular. It explains that it was in
from the issuance of CB Circular No. 905. view of the global economic downturn in the early 1980’s that the executive
Petitioners also do not claim that public funds were being misused in the department through the CB-MB had to formulate policies to achieve economic
enforcement of CB Circular No. 905. In Kilosbayan, Inc. v. Morato,23 involving recovery, and among these policies was the establishment of a market-oriented
the on-line lottery contract of the PCSO, there was no allegation that public interest rate structure which would require the removal of the government-
funds were being misspent, which according to the Court would have made the imposed interest rate ceilings.35
action a public one, "and justify relaxation of the requirement that an action D. The CB-MB merely suspended the effectivity of the Usury Law when it
must be prosecuted in the name of the real party-in-interest." The Court held, issued CB Circular No. 905.
moreover, that the status of Kilosbayan as a people’s organization did not give
The power of the CB to effectively suspend the Usury Law pursuant to P.D.
it the requisite personality to question the validity of the contract. Thus: No. 1684 has long been recognized and upheld in many cases. As the Court
Petitioners do not in fact show what particularized interest they have for explained in the landmark case of Medel v. CA,36 citing several cases, CB
bringing this suit. It does not detract from the high regard for petitioners as civic Circular No. 905 "did not repeal nor in anyway amend the Usury Law but
leaders to say that their interest falls short of that required to maintain an action simply suspended the latter’s effectivity;"37that "a CB Circular cannot repeal a
under the Rule 3, Sec. 2.24 law, [for] only a law can repeal another law;"38 that "by virtue of CB Circular
C. The Petition raises no issues of transcendental importance. No. 905, the Usury Law has been rendered ineffective;"39 and "Usury has been
In the 1993 case of Joya v. Presidential Commission on Good Government,25 it legally non-existent in our jurisdiction. Interest can now be charged as lender
was held that no question involving the constitutionality or validity of a law or and borrower may agree upon."40
governmental act may be heard and decided by the court unless there is In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc.41 cited
compliance with the legal requisites for judicial inquiry, namely: (a) that the in DBP v. Perez,42 we also belied the contention that the CB was engaged in
question must be raised by the proper party; (b) that there must be an actual case self-legislation. Thus:
or controversy; (c) that the question must be raised at the earliest possible Central Bank Circular No. 905 did not repeal nor in any way amend the Usury
opportunity; and (d) that the decision on the constitutional or legal question Law but simply suspended the latter’s effectivity. The illegality of usury is
must be necessary to the determination of the case itself. wholly the creature of legislation. A Central Bank Circular cannot repeal a law.
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the Only a law can repeal another law. x x x.43
requirements before taxpayers, voters, concerned citizens, and legislators can In PNB v. Court of Appeals,44 an escalation clause in a loan agreement
be accorded a standing to sue, viz: authorized the PNB to unilaterally increase the rate of interest to 25% per
(1) the cases involve constitutional issues; annum, plus a penalty of 6% per annum on past dues, then to 30% on October
(2) for taxpayers, there must be a claim of illegal disbursement of public funds 15, 1984, and to 42% on October 25, 1984. The Supreme Court invalidated the
or that the tax measure is unconstitutional; rate increases made by the PNB and upheld the 12% interest imposed by the
CA, in this wise:
(3) for voters, there must be a showing of obvious interest in the validity of the
election law in question; P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties
to stipulate freely regarding any subsequent adjustment in the interest rate that
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and shall accrue on a loan or forbearance of money, goods or credits. In fine, they
can agree to adjust, upward or downward, the interest previously stipulated. x
(5) for legislators, there must be a claim that the official action complained of x x.45
infringes upon their prerogatives as legislators.
Thus, according to the Court, by lifting the interest ceiling, CB Circular No.
While the Court may have shown in recent decisions a certain toughening in its 905 merely upheld the parties’ freedom of contract to agree freely on the rate
attitude concerning the question of legal standing, it has nonetheless always of interest. It cited Article 1306 of the New Civil Code, under which the
made an exception where the transcendental importance of the issues has been contracting parties may establish such stipulations, clauses, terms and
established, notwithstanding the petitioners’ failure to show a direct injury.27 In conditions as they may deem convenient, provided they are not contrary to law,
CREBA v. ERC,28 the Court set out the following instructive guides as morals, good customs, public order, or public policy.
determinants on whether a matter is of transcendental importance, namely: (1)
the character of the funds or other assets involved in the case; (2) the presence E. The BSP-MB has authority to enforce CB Circular No. 905.
of a clear case of disregard of a constitutional or statutory prohibition by the Section 1 of CB Circular No. 905 provides that "The rate of interest, including
public respondent agency or instrumentality of the government; and (3) the lack commissions, premiums, fees and other charges, on a loan or forbearance of
of any other party with a more direct and specific interest in the questions being any money, goods, or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or
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juridical, shall not be subject to any ceiling prescribed under or pursuant to the judgment of the court is made (at which time the quantification of damages may
Usury Law, as amended." It does not purport to suspend the Usury Law only as be deemed to have been reasonably ascertained). The actual base for the
it applies to banks, but to all lenders. computation of legal interest shall, in any case, be on the amount finally
Petitioners contend that, granting that the CB had power to "suspend" the Usury adjudged.
Law, the new BSP-MB did not retain this power of its predecessor, in view of 3. When the judgment of the court awarding a sum of money becomes final and
Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The executory, the rate of legal interest, whether the case falls under paragraph 1 or
petitioners point out that R.A. No. 7653 did not reenact a provision similar to paragraph 2, above, shall be 12% per annum from such finality until its
Section 109 of R.A. No. 265. satisfaction, this interim period being deemed to be by then an equivalent to a
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans forbearance of credit.55 (Citations omitted)
extended by banks, whereas under Section 1-a of the Usury Law, as amended, The foregoing rules were further clarified in Sunga-Chan v. Court of
the BSP-MB may prescribe the maximum rate or rates of interest for all loans Appeals, 56 as follows:
or renewals thereof or the forbearance of any money, goods or credits, including Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest,
those for loans of low priority such as consumer loans, as well as such loans if proper, and the applicable rate, as follows: The 12% per annum rate under
made by pawnshops, finance companies and similar credit institutions. It even CB Circular No. 416 shall apply only to loans or forbearance of money, goods,
authorizes the BSP-MB to prescribe different maximum rate or rates for or credits, as well as to judgments involving such loan or forbearance of money,
different types of borrowings, including deposits and deposit substitutes, or goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code
loans of financial intermediaries. applies "when the transaction involves the payment of indemnities in the
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, concept of damage arising from the breach or a delay in the performance of
now R.A. No. 7653, merely supplemented it as it concerns loans by banks and obligations in general," with the application of both rates reckoned "from the
other financial institutions. Had R.A. No. 7653 been intended to repeal Section time the complaint was filed until the [adjudged] amount is fully paid." In either
1-a of Act No. 2655, it would have so stated in unequivocal terms. instance, the reckoning period for the commencement of the running of the legal
Moreover, the rule is settled that repeals by implication are not favored, because interest shall be subject to the condition "that the courts are vested with
laws are presumed to be passed with deliberation and full knowledge of all laws discretion, depending on the equities of each case, on the award of
existing pertaining to the subject.46 An implied repeal is predicated upon the interest."57 (Citations omitted)
condition that a substantial conflict or repugnancy is found between the new WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.
and prior laws. Thus, in the absence of an express repeal, a subsequent law SO ORDERED.
cannot be construed as repealing a prior law unless an irreconcilable
inconsistency and repugnancy exists in the terms of the new and old laws.47 We
find no such conflict between the provisions of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not authorize stipulations
charging excessive, unconscionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche
authority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets.48 As held in Castro v. Tan:49
The imposition of an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to
a repugnant spoliation and an iniquitous deprivation of property, repulsive to
the common sense of man. It has no support in law, in principles of justice, or
in the human conscience nor is there any reason whatsoever which may justify
such imposition as righteous and as one that may be sustained within the sphere
of public or private morals.50
Stipulations authorizing iniquitous or unconscionable interests have been
invariably struck down for being contrary to morals, if not against the
law.51 Indeed, under Article 1409 of the Civil Code, these contracts are deemed
inexistent and void ab initio, and therefore cannot be ratified, nor may the right
to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect
the lender’s right to recover the principal of a loan, nor affect the other terms
thereof.52 Thus, in a usurious loan with mortgage, the right to foreclose the
mortgage subsists, and this right can be exercised by the creditor upon failure
by the debtor to pay the debt due. The debt due is considered as without the
stipulated excessive interest, and a legal interest of 12% per annum will be
added in place of the excessive interest formerly imposed,53following the
guidelines laid down in the landmark case of Eastern Shipping Lines, Inc. v.
Court of Appeals,54 regarding the manner of computing legal interest:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall
be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
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The Court required the respondents to comment on the petition, 4 which was
filed on April 3, 1998,5 and the petitioners to reply thereto, which was filed on
May 29, 1998.6 We now resolve to give due course to the petition and decide
G.R. No. 131622 November 27, 1998 the case.
LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO The facts of the case, as found by the Court of Appeals in its decision, which
FRANCO, petitioners, are considered binding and conclusive on the parties herein, as the appeal is
vs. limited to questions of law, are as follows:
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and
DANILO G. GONZALES, JR. doing lending business under the trade On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando
name and style "GONZALES CREDIT ENTERPRISES", respondents. and Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica),
who was engaged in the money lending business under the name "Gonzales
Credit Enterprises", in the amount of P50,000.00, payable in two months.
Short Summary Veronica gave only the amount of P47,000.00, to the borrowers, as she retained
Facts: P3,000.00, as advance interest for one month at 6% per month. Servando and
Leticia executed a promissory note for P50,000.00, to evidence the loan,
payable on January 7, 1986.
On November 19, 1985, Servando and Liticia obtained from Veronica another
loan in the amount of P90,000.00, payable in two months, at 6% interest per
month. They executed a promissory note to evidence the loan, maturing on
Janaury 19, 1986. They received only P84,000.00, out of the proceeds of the
loan.
On maturity of the two promissory notes, the borrowers failed to pay the
indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another
loan in the amout of P300,000.00, maturing in one month, secured by a real
estate mortgage over a property belonging to Leticia Makalintal Yaptinchay,
who issued a special power of attorney in favor of Leticia Medel, authorizing
her to execute the mortgage. Servando and Leticia executed a promissory note
in favor of Veronica to pay the sum of P300,000.00, after a month, or on July
11, 1986. However, only the sum of P275.000.00, was given to them out of the
Issue: proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on
maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael
Ruling: Medel, consolidated all their previous unpaid loans totaling P440,000.00, and
sought from Veronica another loan in the amount of P60,000.00, bringing their
indebtedness to a total of P500,000.00, payable on August 23, 1986. They
executed a promissory note, reading as follows:
Baliwag, Bulacan July 23, 1986
Maturity Date Augsut 23, 1986
P500,000.00
FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the
order of VERONICA R. GONZALES doing business in the business style of
GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to
Danilo G. Gonzales, Jr., of Baliwag, Bulacan, the sum of PESOS . . . FIVE
HUNDRED THOUSAND . . . (P500,000.00) Philippine Currency with interest
thereon at the rate of 5.5 PER CENT per month plus 2% service charge per
annum from date hereof until fully paid according to the amortization schedule
contained herein. (Emphasis supplied)
Payment will be made in full at the maturity date.
Should I/WE fail to pay any amortization or portion hereof when due, all the
other installments together with all interest accrued shall immediately be due
and payable and I/WE hereby agree to pay an additional amount equivalent to
one per cent (1%) per month of the amount due and demandable as penalty
charges in the form of liquidated damages until fully paid; and the further sum
of TWENTY FIVE PER CENT (25%) thereof in full, without deductions as
Attorney's Fee whether actually incurred or not, of the total amount due and
demandable, exclusive of costs and judicial or extra judicial expenses.
(Emphasis supplied).
I, WE further agree that in the event the present rate of interest on loan is
increased by law or the Central Bank of the Philippines, the holder shall have
PARDO, J.: the option to apply and collect the increased interest charges without notice
The case before the Court is a petition for review on certiorari, under Rule 45 although the original interest have already been collected wholly or partially
of the Revised Rules of Court, seeking to set aside the decision of the Court of unless the contrary is required by law.
Appeals,1 and its resolution denying reconsideration, 2 the dispositive portion It is also a special condition of this contract that the parties herein agree that the
of which decision reads as follows: amount of peso-obligation under this agreement is based on the present value
WHEREFORE, the appealed judgment is hereby MODIFIED such that of the peso, and if there be any change in the value thereof, due to extraordinary
defendants are hereby-ordered to pay the plaintiff: the sum of P500,000.00, plus inflation or deflation, or any other cause or reason, then the peso-obligation
5.5% per month interest and 2% service charge per annum effective July 23, herein contracted shall be adjusted in accordance with the value of the peso then
1986, plus 1% per month of the total amount due and demandable as penalty prevailing at the time of the complete fulfillment of the obligation.
charges effective August 23, 1986, until the entire amount is fully paid. Demand and notice of dishonor waived. Holder may accept partial payments
The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so and grant renewals of this note or extension of payments, reserving rights
is the imposition of costs against the defendants. against each and all indorsers and all parties to this note.
SO ORDERED. 3
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 43
IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so
debtors waive all his/their rights under the provisions of Section 12, Rule 39, of is the imposition of costs against the defendants.
the Revised Rules of Court. SO ORDERED. 11
On maturity of the loan, the borrowers failed to pay the indebtedness of On April 15, 1997, defendants-appellants filed a motion for reconsideration of
P500,000.00, plus interests and penalties, evidenced by the above-quoted the said decision. By resolution dated November 25, 1997, the Court of Appeals
promissory note. denied the motion. 12
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Hence, defendants interposed the present recourse via petition for review
Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at on certiorari. 13
Malolos, Bulacan, a complaint for collection of the full amount of the loan We find the petition meritorious.
including interests and other charges.
Basically, the issue revolves on the validity of the interest rate stipulated upon.
In his answer to the complaint filed with the trial court on April 5, 1990, Thus, the question presented is whether or not the stipulated rate of interest at
defendant Servando alleged that he did not obtain any loan from the plaintiffs;
5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended
that it was defendants Leticia and Dr. Rafael Medel who borrowed from the to the defendants is usurious. In other words, is the Usury Law still effective,
plaintiffs the sum of P500,000.00, and actually received the amount and or has it been repealed by Central Bank Circular No. 905, adopted on December
benefited therefrom; that the loan was secured by a real estate mortgage
22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No.
executed in favor of the plaintiffs, and that he (Servando Franco) signed the 1684?
promissory note only as a witness.
We agree with petitioners that the stipulated rate of interest at 5.5% per month
In their separate answer filed on April 10, 1990, defendants Leticia and Rafael on the P500,000.00 loan is excessive, iniquitous, unconscionable and
Medel alleged that the loan was the transaction of Leticia Yaptinchay, who exorbitant. 13 However, we can not consider the rate "usurious" because this
executed a mortgage in favor of the plaintiffs over a parcel of real estate situated
Court has consistently held that Circular No. 905 of the Central Bank, adopted
in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with on December 22, 1982, has expressly removed the interest ceilings prescribed
additional service charge of 2% per annum, and penalty charge of 1% per by the Usury Law 14 and that the Usury Law is now "legally inexistent". 15
month; that the stipulation for attorney's fees of 25% of the amount due is
unconscionable, illegal and excessive, and that substantial payments made were In Security Bank and Trust Company vs. Regional Trial Court of Makati,
applied to interest, penalties and other charges. Branch 61 16 the Court held that CB Circular No. 905 "did not repeal nor in
anyway amend the Usury Law but simply suspended the latter's effectivity."
After due trial, the lower court declared that the due execution and genuineness Indeed, we have held that "a Central Bank Circular can not repeal a law. Only
of the four promissory notes had been duly proved, and ruled that although the
a law can repeal another law." 17 In the recent case of Florendo vs. Court of
Usury Law had been repealed, the interest charged by the plaintiffs on the loans Appeals 18, the Court reiterated the ruling that "by virtue of CB Circular 905,
was unconscionable and "revolting to the conscience". Hence, the trial court the Usury Law has been rendered ineffective". "Usury has been legally non-
applied "the provision of the New [Civil] Code" that the "legal rate of interest
existent in our jurisdiction. Interest can now be charged as lender and borrower
for loan or forbearance of money, goods or credit is 12% per annum."7 may agree upon." 19
Accordingly, on December 9, 1991, the trial court rendered judgment, the Nevertheless, we find the interest at 5.5% per month, or 66% per annum,
dispositive portion of which reads as follows: stipulated upon by the parties in the promissory note iniquitous or
WHEREFORE, premises considered, judgment is hereby rendered, as follows: unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not
1. Ordering the defendants Servando Franco and Leticia Medel, jointly and against the law. 20 The stipulation is void. 21 The courts shall reduce equitably
severally, to pay plaintiffs the amount of P47,000.00 plus 12% interest per liquidated damages, whether intended as an indemnity or a penalty if they are
annum from November 7, 1985 and 1% per month as penalty, until the entire iniquitous or unconscionable. 22
amount is paid in full. Consequently, the Court of Appeals erred in upholding the stipulation of the
2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, parties. Rather, we agree with the trial court that, under the circumstances,
jointly and severally the amount of P84,000.00 with 12% interest per annum interest at 12% per annum, and an additional 1% a month penalty charge as
and 1% per cent per month as penalty from November 19, 1985 until the whole liquidated damages may be more reasonable.
amount is fully paid; WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision
3. Ordering the defendants to pay the plaintiffs, jointly and severally, the of the Court of Appeals promulgated on March 21, 1997, and its resolution
amount of P285,000.00 plus 12% interest per annum and 1% per month as dated November 25, 1997. Instead, we render judgment REVIVING and
penalty from July 11, 1986, until the whole amount is fully paid; AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court
4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90,
of P50,000.00 as attorney's fees; involving the same parties.
5. All counterclaims are hereby dismissed. No pronouncement as to costs in this instance.
With costs against the defendants.8 SO ORDERED.
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which
consolidated all the unpaid loans of the defendants, is the law that governs the
parties. They further argued that Circular No. 416 of the Central Bank
prescribing the rate of interest for loans or forbearance of money, goods or
credit at 12% per annum, applies only in the absence of a stipulation on interest
rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled
that "the Usury Law having become 'legally inexistent' with the promulgation
by the Central Bank in 1982 of Circular No. 905, the lender and borrower could
agree on any interest that may be charged on the loan". 9 The Court of Appeals
further held that "the imposition of 'an additional amount equivalent to 1% per
month of the amount due and demandable as penalty charges in the form of
liquidated damages until fully paid' was allowed by
law". 10
Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision
reversing that of the Regional Trial Court, disposing as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00, plus
5.5% per month interest and 2% service charge per annum effective July 23,
1986, plus 1% per month of the total amount due and demandable as penalty
charges effective August 24, 1986, until the entire amount is fully paid.

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 44


In February and March 1999, petitioners Salvador and Violeta Chua granted
respondents Rodrigo, Ma. Lynn and Lydia Timan the following loans:
a) P100,000; b) P200,000; c) P150,000; d) P107,000; e) P200,000; and
G.R. No. 170452 August 13, 2008 f) P107,000. These loans were evidenced by promissory notes with interest of
SALVADOR CHUA and VIOLETA CHUA, petitioners, 7% per month, which was later reduced to 5% per month. Rodrigo and Ma.
vs. Lynn issued five (5) postdated checks to secure the loans, except for
RODRIGO TIMAN, MA. LYNN TIMAN and LYDIA the P150,000 loan which was secured by a postdated check issued by Lydia.
TIMAN, respondents. Respondents paid the loans initially at 7% interest rate per month until
DECISION September 1999 and then at 5% interest rate per month from October to
December 1999. Sometime in March 2000, respondents offered to pay the
principal amount of the loans through a Philippine National Bank manager’s
Short Summary
check worth P764,000, but petitioners refused to accept the same insisting that
Facts: the principal amount of the loans totalled P864,000.
On May 3, 2000, respondents deposited P864,000 with the Clerk of Court of
the RTC of Quezon City. Later, they filed a case for consignation and damages.
Petitioners moved to dismiss the case, but the RTC denied the motion, as well
as the subsequent motion for reconsideration.
By virtue of an order of Partial Judgment4 dated October 16, 2002, the Clerk of
Court of the RTC of Quezon City released the amount of P864,000 to
petitioners.
Trial on the validity of the stipulated interests on the subject loans, as well as
on the issue of damages, then proceeded.
On May 14, 2004, the RTC rendered a decision in favor of respondents. It ruled
that the original stipulated interest rates of 7% and 5% per month were
excessive. It further ordered petitioners to refund to respondents all interest
payments in excess of the legal rate of 1% per month or 12% per annum.
However, the RTC denied petitioners’ claim for damages.
On appeal, the Court of Appeals affirmed the trial court’s decision. The Court
Issue: of Appeals declared illegal the stipulated interest rates of 7% and 5% per month
for being excessive, iniquitous, unconscionable and exorbitant. Accordingly,
the Court of Appeals reduced the stipulated interest rates of 7% and 5% per
month (equivalent to 84% and 60% per annum, respectively) to a fair and
reasonable rate of 1% per month or 12% per annum. The Court of Appeals also
Ruling: ordered petitioners to refund to respondents all interest payments in excess of
12% per annum. Petitioners sought reconsideration, but it was denied.
Hence, this petition raising the lone issue of:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED A REVERSIBLE ERROR – OR ACTED NOT IN ACCORD
WITH THE LAW AND JURISPRUDENCE – WHEN IT AFFIRMED THE
JUDGMENT OF THE REGIONAL TRIAL COURT ORDERING THE
RETURN OF THE EXCESS INTEREST TO RESPONDENTS.5
Essentially, the main issue is: (1) Did the Court of Appeals err in ruling that the
original stipulated interest rates of 7% and 5%, equivalent to 84% and 60% per
annum, are unconscionable, and in ordering petitioners to refund to respondents
all payments of interest in excess of 12% per annum?
Petitioners aver that the stipulated interest of 5% monthly and higher cannot be
considered unconscionable because these rates are not usurious by virtue of
Central Bank (C.B.) Circular No. 905-826 which had expressly removed the
interest ceilings prescribed by the Usury Law. Petitioners add that respondents
were in pari delicto since they agreed on the stipulated interest rates of 7% and
5% per month. They further aver they honestly believed that the interest rates
they imposed on respondents’ loans were not usurious.
Respondents, invoking Medel v. Court of Appeals,7 counter that the stipulated
interest rates of 7% and 5% per month are iniquitous, unconscionable and
exorbitant, thus, they are entitled to the return of the excessive interest paid.
They also contend that petitioners cannot raise the defense of in pari delicto for
the first time on appeal. They further contend that the defense of good faith is a
factual issue which cannot be raised by petitioners in a petition for review under
Rule 45 of the Rules of Civil Procedure.
The petition is patently devoid of merit.
The stipulated interest rates of 7% and 5% per month imposed on respondents’
loans must be equitably reduced to 1% per month or 12% per annum.8 We need
QUISUMBING, J.: not unsettle the principle we had affirmed in a plethora of cases that stipulated
Before us is a petition for review on certiorari assailing the Decision1 and interest rates of 3%9 per month and higher10 are excessive, iniquitous,
Resolution2 dated March 9, 2005 and November 24, 2005, respectively, of the unconscionable and exorbitant. Such stipulations are void for being contrary to
Court of Appeals in CA-G.R. CV No. 82865, which had affirmed the morals, if not against the law.11 While C.B. Circular No. 905-82, which took
Decision3 dated May 14, 2004 of the Regional Trial Court (RTC) of Quezon effect on January 1, 1983, effectively removed the ceiling on interest rates for
City, Branch 86, in Civil Case No. Q-00-41276. The Court of Appeals reduced both secured and unsecured loans, regardless of maturity,12 nothing in the said
the stipulated original interest rates of 7% and 5% per month to only 1% per circular could possibly be read as granting carte blanche authority to lenders to
month or 12% per annum and ordered petitioners to refund the excess interest raise interest rates to levels which would either enslave their borrowers or lead
payments by respondents. to a hemorrhaging of their assets.13
The pertinent facts are as follows: Petitioners cannot also raise the defenses of in pari delicto and good faith. The
defense of in pari delicto was not raised in the RTC, hence, such an issue cannot
be raised for the first time on appeal. Petitioners must have seasonably raised it
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 45
in the proceedings before the lower court, because questions raised on appeal FIRST DIVISION
are confined only within the issues framed by the parties.14 The defense of good G.R. No. 172139 December 8, 2010
faith must also fail because such an issue is a question of fact 15 which may not
be properly raised in a petition for review under Rule 45 of the Rules of Civil JOCELYN M. TOLEDO, Petitioner,
Procedure which allows only questions of law.16 vs.
MARILOU M. HYDEN, Respondent.
As well set forth in Medel:17
DECISION
We agree … that the stipulated rate of interest at 5.5% per month on
the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. Short Summary
However, we can not consider the rate "usurious" because this Court has Facts:
consistently held that Circular No. 905 of the Central Bank, adopted on
December 22, 1982, has expressly removed the interest ceilings prescribed by
the Usury Law and that the Usury Law is now "legally inexistent."
In Security Bank and Trust Company vs. Regional Trial Court of Makati,
Branch 61, the Court held that CB Circular No. 905 "did not repeal nor in any
way amend the Usury Law but simply suspended the latter’s effectivity."
Indeed, we have held that "a Central Bank Circular can not repeal a law. Only
a law can repeal another law." In the recent case of Florendo vs. Court of
Appeals, the Court reiterated the ruling that "by virtue of CB Circular 905, the
Usury Law has been rendered ineffective." "Usury has been legally non-existent
in our jurisdiction. Interest can now be charged as lender and borrower may
agree upon."
Nevertheless, we find the interest at 5.5% per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not
against the law. The stipulation is void.
Issue:
WHEREFORE, the petition is DENIED for lack of merit. The assailed
Decision and Resolution dated March 9, 2005 and November 24, 2005,
respectively, of the Court of Appeals in CA-G.R. CV No. 82865 are
hereby AFFIRMED. Costs against petitioners.
SO ORDERED. Ruling:

DEL CASTILLO, J.:


It is true that the imposition of an unconscionable rate of interest on a money
debt is immoral and unjust and the court may come to the aid of the aggrieved
party to that contract. However, before doing so, courts have to consider the
settled principle that the law will not relieve a party from the effects of an
unwise, foolish or disastrous contract if such party had full awareness of what
she was doing.
This Petition for Review on Certiorari1 assails the Decision2 dated August 24,
2005 of the Court of Appeals (CA) in CA-G.R. CV No. 79805, which affirmed
the Decision dated March 10, 20033 of the Regional Trial Court (RTC), Branch
22, Cebu City in Civil Case No. CEB-22867. Also assailed is the
Resolution dated March 8, 2006 denying the motion for reconsideration.
Factual Antecedents
Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the
College Assurance Plan (CAP) Phils., Inc., obtained several loans from
respondent Marilou M. Hyden (Marilou). The transactions are briefly
summarized below:
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 46
1) August ……… ₱ THOUSAND (₱290,000.00) PESOS since December 25, 1998 less the amount
15, 1993 30,000.00 of EIGHTEEN THOUSAND NINE HUNDRED (₱18,900.00) PESOS,
equivalent to the three checks made good (₱6,625.00 dated 07-02-1998;
2) April ₱6,300.00 dated 08-02-1998; and ₱5,975.00 dated 09-02-1998).
……… 100,000.00 with 6%
21, 1994
monthly Consequently, PLAINTIFF is hereby ordered to pay DEFENDANT the amount
3) October of TWO HUNDRED SEVENTY ONE THOUSAND ONE HUNDRED
……… 30,000.00 interest
2, 1995 (₱271,100.00) PESOS due on December 25, 1998 with a 12% interest per
annum or 1% interest per month until such time that the said amount shall have
4) October
……… 30,000.00 been fully paid.
9, 1995
No pronouncement as to costs.
with 7% SO ORDERED.8
5) May 22,
……… 100,000.00 monthly
1997 On March 26, 2003, Jocelyn filed an Earnest Motion for
interest
Reconsideration,9 which was denied by the trial court in its Order10 dated April
TOTAL 29, 2003 stating that it finds no sufficient reason to disturb its March 10, 2003

AMOUNT ……… 4
Decision.
290,000.00
OF LOAN
Ruling of the Court of Appeals
From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously On appeal, Jocelyn asserts that she had made payments in the total amount of
paying Marilou the stipulated monthly interest by issuing checks and depositing ₱778,000.00 for a principal amount of loan of only ₱290,000.00. What is
sums of money in the bank account of the latter. However, the total principal appalling, according to Jocelyn, was that such payments covered only the
amount of ₱290,000.00 remained unpaid. Thus, in April 1998, Marilou visited interest because of the excessive, iniquitous, unconscionable and exorbitant
Jocelyn in her office at CAP in Cebu City and asked Jocelyn and the other imposition of the 6% to 7% monthly interest.
employees who were likewise indebted to her to acknowledge their debts. A
document entitled "Acknowledgment of Debt"5 for the amount of ₱290,000.00 On August 24, 2005, the CA issued its Decision which provides:
was signed by Jocelyn with two of her subordinates as witnesses. The said WHEREFORE, premises considered, the Decision dated March 10, 2003 and
amount represents the principal consolidated amount of the aforementioned the Order dated April 29, 2003, of the Regional Trial Court, 7th Judicial Region,
previous debts due on December 25, 1998. Also on said occasion, Jocelyn Branch 22, Cebu City, in Civil Case No. CEB-22867 are hereby AFFIRMED.
issued five checks to Marilou representing renewal payment of her five previous No pronouncement as to costs.
loans, viz: SO ORDERED.11
Check No. 0010761 dated September 2, 1998 . . . . . .The ₱ 30,000.00
. . . Motion for Reconsideration12 filed by Jocelyn was denied by the CA
through its Resolution13 dated March 8, 2006.
Check No. 0010762 dated September 9, 1998 ......... 30,000.00
Issues
Check No. 0010763 dated September 15, 1998 ......... 30,000.00
Hence, this petition raising the following issues:
Check No. 0010764 dated September 22, 1998 . . . . . .I.. . . 100,000.00
Check No. 0010765 dated September 25, 1998 . . . . . .Whether
... 100,000.00
the CA gravely erred when it held that the imposition of interest at the
TOTAL rate of six₱percent (6%) to seven percent (7%) is not contrary to law, morals,
290,000.00
In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761 in the good customs, public order or public policy.
amount of ₱30,000.00 and replaced the same with six checks, in staggered II.
amounts, namely: Whether the CA gravely erred when it failed to declare that the
Check No. 0010494 dated July 2, 1998 . . . . . . ."Acknowledgment
.. ₱ 6,625.00of Debt" is an inexistent contract that is void from the very
beginning pursuant to Article 1409 of the New Civil Code.
Check No. 0010495 dated August 2, 1998 ......... 6,300.00
Petitioner’s Arguments
Check No. 0010496 dated September 2, 1998 . . . . . . .Jocelyn
.. 5,975.00
posits that the CA erred when it held that the imposition of interest at
Check No. 0010497 dated October 2, 1998 . . . . . . .the
. . rates of
6,500.00
6% to 7% per month is not contrary to law, not unconscionable and
Check No. 0010498 dated November 2, 1998 . . . . . . .not
. . contrary to morals. She likewise contends that the CA erred in ruling that
5,325.00
the "Acknowledgment of Debt" is valid and binding. According to Jocelyn,
Check No. 0010499 dated December 2, 1998 . . . . . . .even
. . assuming
5,000.00that the execution of said document was not attended with force,
TOTALthreat and₱ intimidation,
35,725.00 the same must nevertheless be declared null and void
After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered for being contrary to law and public policy. This is borne out by the fact that
the stop payment on the remaining checks and on October 27, 1998, filed with the payments in the total amount of ₱778,000.00 was applied to interest
the RTC of Cebu City a complaint6 against Marilou for Declaration of Nullity payment alone. This only proves that the transaction was iniquitous, excessive,
and Payment, Annulment, Sum of Money, Injunction and Damages. oppressive and unconscionable.
Jocelyn averred that Marilou forced, threatened and intimidated her into signing Respondent’s Arguments
the "Acknowledgment of Debt" and at the same time forced her to issue the On the other hand, Marilou would like this Court to consider the fact that the
seven postdated checks. She claimed that Marilou even threatened to sue her document referred to as "Acknowledgment of Debt" was executed in the safe
for violation of Batas Pambansa (BP) Blg. 22 or the Bouncing Checks Law if surroundings of the office of Jocelyn and it was witnessed by two of her staff.
she will not sign the said document and draw the above-mentioned checks. If at all there had been coercion, then Jocelyn could have easily prevented her
Jocelyn further claimed that the application of her total payment of ₱528,550.00 staff from affixing their signatures to said document. In fact, petitioner had
to interest alone is illegal, unfounded, unjust, oppressive and contrary to law admitted that she was the one who went to the tables of her staff to let them sign
because there was no written agreement to pay interest. the said document.
On November 23, 1998, Marilou filed an Answer7 with Special Affirmative Our Ruling
Defenses and Counterclaim alleging that Jocelyn voluntarily obtained the said The petition is without merit.
loans knowing fully well that the interest rate was at 6% to 7% per month. In The 6% to 7% interest per month paid by Jocelyn is not excessive under the
fact, a 6% to 7% advance interest was already deducted from the loan amount circumstances of this case.
given to Jocelyn.
In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury
Ruling of the Regional Trial Court Law ceiling on interest effective January 1, 1983, parties to a loan agreement
The court a quo did not find any showing that Jocelyn was forced, threatened, have wide latitude to stipulate interest rates. Nevertheless, such stipulated
or intimidated in signing the document referred to as "Acknowledgment of interest rates may be declared as illegal if the same is unconscionable.14 There
Debt" and in issuing the postdated checks. Thus, in its March 10, 2003 Decision is certainly nothing in said circular which grants lenders carte blanche authority
the trial court ruled in favor of Marilou, viz: to raise interest rates to levels which will either enslave their borrowers or lead
WHEREFORE, premised on the foregoing, the Court hereby declares the to a hemorrhaging of their assets.15 In fact, in Medel v. Court of Appeals,16 we
document "Acknowledgment of Debt" valid and binding. PLAINTIFF is annulled a stipulated 5.5% per month or 66% per annum interest with additional
indebted to DEFENDANT [for] the amount of TWO HUNDRED NINETY service charge of 2% per annum and penalty charge of 1% per month on a

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 47


₱500,000.00 loan for being excessive, iniquitous, unconscionable and Jocelyn, a high ranking executive of CAP, and it was Jocelyn herself who went
exorbitant. to the table of her two subordinates to procure their signatures as witnesses to
In this case, however, we cannot consider the disputed 6% to 7% monthly the execution of said document. If indeed, she was forced to sign said document,
interest rate to be iniquitous or unconscionable vis-à-vis the principle laid down then Jocelyn should have immediately taken the proper legal remedy. But she
in Medel. Noteworthy is the fact that in Medel, the defendant-spouses were did not. Furthermore, it must be noted that after the execution of said document,
never able to pay their indebtedness from the very beginning and when their Jocelyn honored the first three checks before filing the complaint with the RTC.
obligations ballooned into a staggering sum, the creditors filed a collection case If indeed she was forced she would never have made good on the first three
against them. In this case, there was no urgency of the need for money on the checks.
part of Jocelyn, the debtor, which compelled her to enter into said loan It is provided, as one of the conclusive presumptions under Rule 131, Section
transactions. She used the money from the loans to make advance payments for 2(a), of the Rules of Court that, "Whenever a party has, by his own declaration,
prospective clients of educational plans offered by her employer. In this way, act or omission, intentionally and deliberately led another to believe a particular
her sales production would increase, thereby entitling her to 50% rebate on her thing to be true, and to act upon such belief, he cannot, in any litigation arising
sales. This is the reason why she did not mind the 6% to 7% monthly interest. out of such declaration, act or omission, be permitted to falsify it." This is
Notably too, a business transaction of this nature between Jocelyn and Marilou known as the principle of estoppel.
continued for more than five years. Jocelyn religiously paid the agreed amount "The essential elements of estoppel are: (1) conduct amounting to false
of interest until she ordered for stop payment on some of the checks issued to representation or concealment of material facts or at least calculated to convey
Marilou. The checks were in fact sufficiently funded when she ordered the stop the impression that the facts are otherwise than, and inconsistent with, those
payment and then filed a case questioning the imposition of a 6% to 7% interest which the party subsequently attempts to assert; (2) intent, or at least
rate for being allegedly iniquitous or unconscionable and, hence, contrary to expectation, that this conduct shall be acted upon by, or at least influence, the
morals. other party; and, (3) knowledge, actual or constructive, of the real facts."20
It was clearly shown that before Jocelyn availed of said loans, she knew fully Here, it is uncontested that Jocelyn had in fact signed the "Acknowledgment of
well that the same carried with it an interest rate of 6% to 7% per month, yet Debt" in April 1998 and two of her subordinates served as witnesses to its
she did not complain. In fact, when she availed of said loans, an advance interest execution, knowing fully well the nature of the contract she was entering into.
of 6% to 7% was already deducted from the loan amount, yet she never uttered Next, Jocelyn issued five checks in favor of Marilou representing renewal
a word of protest. payment of her loans amounting to ₱290,000.00. In June 1998, she asked to
After years of benefiting from the proceeds of the loans bearing an interest rate recall Check No. 0010761 in the amount of ₱30,000.00 and replaced the same
of 6% to 7% per month and paying for the same, Jocelyn cannot now go to court with six checks, in staggered amounts. All these are indicia that Jocelyn treated
to have the said interest rate annulled on the ground that it is excessive, the "Acknowledgment of Debt" as a valid and binding contract.1avvphi1
iniquitous, unconscionable, exorbitant, and absolutely revolting to the More significantly, Jocelyn already availed herself of the benefits of the
conscience of man. "This is so because among the maxims of equity are (1) he "Acknowledgment of Debt," the validity of which she now impugns. As aptly
who seeks equity must do equity, and (2) he who comes into equity must come found by the RTC and the CA, Jocelyn was making a business out of the loaned
with clean hands. The latter is a frequently stated maxim which is also amounts. She was actually using the money to make advance payments for her
expressed in the principle that he who has done inequity shall not have equity. prospective clients so that her sales production would increase. Accordingly,
It signifies that a litigant may be denied relief by a court of equity on the ground she did not mind the 6% to 7% interest per month as she was getting a 50%
that his conduct has been inequitable, unfair and dishonest, or fraudulent, or rebate on her sales.
deceitful as to the controversy in issue." 17
Clearly, by her own acts, Jocelyn is estopped from impugning the validity of
We are convinced that Jocelyn did not come to court for equitable relief with the "Acknowledgment of Debt." "[A] party to a contract cannot deny the
equity or with clean hands. It is patently clear from the above summary of the validity thereof after enjoying its benefits without outrage to one’s sense of
facts that the conduct of Jocelyn can by no means be characterized as nobly fair, justice and fairness."21 "It is a long established doctrine that the law does not
just, and reasonable. This Court likewise notes certain acts of Jocelyn before relieve a party from the effects of an unwise, foolish or disastrous contract,
filing the case with the RTC. In September 1998, she requested Marilou not to entered into with all the required formalities and with full awareness of what
deposit her checks as she can cover the checks only the following month. On she was doing. Courts have no power to relieve parties from obligations
the next month, Jocelyn again requested for another extension of one month. It voluntarily assumed, simply because their contracts turned out to be disastrous
turned out that she was only sweet-talking Marilou into believing that she had or unwise investments."22
no money at that time. But as testified by Serapio Romarate,18an employee of WHEREFORE, the instant petition for review on certiorari is DENIED. The
the Bank of Commerce where Jocelyn is one of their clients, there was an
Decision of the Court of Appeals in CA-G.R. CV No. 79805 dated August 24,
available balance of ₱276,203.03 in the latter’s account and yet she ordered for 2005 affirming the Decision dated March 10, 2003 of the Regional Trial Court,
the stop payments of the seven checks which can actually be covered by the Branch 22, Cebu City, in Civil Case No. CEB-22867 is AFFIRMED.
available funds in said account. She then caught Marilou by surprise when she
surreptitiously filed a case for declaration of nullity of the document and for SO ORDERED.
damages.
The document "Acknowledgment of Debt" is valid and binding.
Jocelyn seeks for the nullification of the document entitled "Acknowledgment
of Debt" and wants this Court to declare that she is no longer indebted to
Marilou in the amount of ₱290,000.00 as she had already paid a total amount
of ₱778,000.00. She claims that said document is an inexistent contract that is
void from the very beginning as clearly provided for by Article 1409 19 of the
New Civil Code.
Jocelyn further claims that she signed the said document and issued the seven
postdated checks because Marilou threatened to sue her for violation of BP Blg.
22.
Jocelyn is misguided. Even if there was indeed such threat made by Marilou,
the same is not considered as threat that would vitiate consent. Article 1335 of
the New Civil Code is very specific on this matter. It provides:
Art. 1335. There is violence when in order to wrest consent, serious or
irresistible force is employed.
xxxx
A threat to enforce one’s claim through competent authority, if the claim
is just or legal, does not vitiate consent. (Emphasis supplied.)
Clearly, we cannot grant Jocelyn the relief she seeks.
As can be seen from the records of the case, Jocelyn has failed to prove her
claim that she was made to sign the document "Acknowledgment of Debt" and
draw the seven Bank of Commerce checks through force, threat and
intimidation. As earlier stressed, said document was signed in the office of
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 48
complaint to full payment. The assailed CA Resolution denied the petitioners’
Motion for Reconsideration.
G.R. No. 160545 March 9, 2010
FACTUAL BACKGROUND
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and
ROGELIO S. PANTALEON, Petitioners, The facts of the case, gathered from the records, are briefly summarized below.
vs.
ARTHUR F. MENCHAVEZ, Respondent. On December 8, 1993, Pantaleon, the President and Chairman of the Board of
PRISMA, obtained a ₱1,000,000.004loan from the respondent, with a monthly
DECISION interest of ₱40,000.00 payable for six months, or a total obligation of
₱1,240,000.00 to be paid within six (6) months,5 under the following schedule
Short Summary of payments:
Facts:
January 8, 1994 …………………. ₱40,000.00

February 8, 1994 ………………... ₱40,000.00

March 8, 1994 …………………... ₱40,000.00

April 8, 1994 ……………………. ₱40,000.00

May 8, 1994 …………………….. ₱40,000.00

June 8, 1994 ………………… ₱1,040,000.006


Issue:
Total ₱1,240,000.00

To secure the payment of the loan, Pantaleon issued a promissory note7 that
Ruling: states:

I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION


TWO HUNDRED FORTY THOUSAND PESOS (P1,240,000), Philippine
Currency, from Mr. Arthur F. Menchavez, representing a six-month loan
payable according to the following schedule:

January 8, 1994 …………………. ₱40,000.00

February 8, 1994 ………………... ₱40,000.00

March 8, 1994 …………………... ₱40,000.00

April 8, 1994 ……………………. ₱40,000.00

May 8, 1994 …………………….. ₱40,000.00

June 8, 1994 ………………… ₱1,040,000.00

The checks corresponding to the above amounts are hereby acknowledged. 8

and six (6) postdated checks corresponding to the schedule of payments.


BRION, J.: Pantaleon signed the promissory note in his personal capacity, 9 and as duly
authorized by the Board of Directors of PRISMA.10 The petitioners failed to
We resolve in this Decision the petition for review on certiorari1 filed by completely pay the loan within the stipulated six (6)-month period.
petitioners Prisma Construction & Development Corporation (PRISMA) and
Rogelio S. Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse From September 8, 1994 to January 4, 1997, the petitioners paid the following
and set aside the Decision2 dated May 5, 2003 and the Resolution 3 dated amounts to the respondent:
October 22, 2003 of the Former Ninth Division of the Court of Appeals (CA)
in CA-G.R. CV No. 69627. The assailed CA Decision affirmed the Decision of September 8, 1994 ……………… ₱320,000.00
the Regional Trial Court (RTC), Branch 73, Antipolo City in Civil Case No.
97-4552 that held the petitioners liable for payment of ₱3,526,117.00 to
respondent Arthur F. Menchavez (respondent), but modified the interest rate October 8, 1995…………………. ₱600,000.00
from 4% per month to 12% per annum, computed from the filing of the

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 49


part of, the promissory note based on which the petitioners obtained the loan.
November 8, 1995……………. ₱158,772.00
The respondent further contends that the petitioners are estopped from assailing
the 4% monthly interest, since they agreed to pay the 4% monthly interest on
January 4, 1997 …………………. ₱30,000.0011 the principal amount under the promissory note and the board resolution.

THE ISSUE
As of January 4, 1997, the petitioners had already paid a total of ₱1,108,772.00.
However, the respondent found that the petitioners still had an outstanding The core issue boils down to whether the parties agreed to the 4% monthly
balance of ₱1,364,151.00 as of January 4, 1997, to which it applied a 4% interest on the loan. If so, does the rate of interest apply to the 6-month payment
monthly interest.12 Thus, on August 28, 1997, the respondent filed a complaint period only or until full payment of the loan?
for sum of money with the RTC to enforce the unpaid balance, plus 4% monthly
interest, ₱30,000.00 in attorney’s fees, ₱1,000.00 per court appearance and OUR RULING
costs of suit.13
We find the petition meritorious.
In their Answer dated October 6, 1998, the petitioners admitted the loan of
₱1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing Interest due should be stipulated in writing; otherwise, 12% per annum
that the interest was not provided in the promissory note. Pantaleon also denied
Obligations arising from contracts have the force of law between the contracting
that he made himself personally liable and that he made representations that the
parties and should be complied with in good faith.20 When the terms of a
loan would be repaid within six (6) months.14
contract are clear and leave no doubt as to the intention of the contracting
THE RTC RULING parties, the literal meaning of its stipulations governs.21 In such cases, courts
have no authority to alter the contract by construction or to make a new contract
The RTC rendered a Decision on October 27, 2000 finding that the respondent for the parties; a court's duty is confined to the interpretation of the contract the
issued a check for ₱1,000,000.00 in favor of the petitioners for a loan that would parties made for themselves without regard to its wisdom or folly, as the court
earn an interest of 4% or ₱40,000.00 per month, or a total of ₱240,000.00 for a cannot supply material stipulations or read into the contract words the contract
6-month period. It noted that the petitioners made several payments amounting does not contain.22 It is only when the contract is vague and ambiguous that
to ₱1,228,772.00, but they were still indebted to the respondent for courts are permitted to resort to the interpretation of its terms to determine the
₱3,526,117.00 as of February 11,15 1999 after considering the 4% monthly parties’ intent.
interest. The RTC observed that PRISMA was a one-man corporation of
Pantaleon and used this circumstance to justify the piercing of the veil of In the present case, the respondent issued a check for ₱1,000,000.00.23 In turn,
corporate fiction. Thus, the RTC ordered the petitioners to jointly and severally Pantaleon, in his personal capacity and as authorized by the Board, executed
pay the respondent the amount of ₱3,526,117.00 plus 4% per month interest the promissory note quoted above. Thus, the ₱1,000,000.00 loan shall be
from February 11, 1999 until fully paid.16 payable within six (6) months, or from January 8, 1994 up to June 8, 1994.
During this period, the loan shall earn an interest of ₱40,000.00 per month, for
The petitioners elevated the case to the CA via an ordinary appeal under Rule a total obligation of ₱1,240,000.00 for the six-month period. We note that this
41 of the Rules of Court, insisting that there was no express stipulation on the agreed sum can be computed at 4% interest per month, but no such rate
4% monthly interest. of interest was stipulated in the promissory note; rather a fixed sum
equivalent to this rate was agreed upon.
THE CA RULING
Article 1956 of the Civil Code specifically mandates that "no interest shall be
The CA decided the appeal on May 5, 2003. The CA found that the parties due unless it has been expressly stipulated in writing." Under this provision, the
agreed to a 4% monthly interest principally based on the board resolution that payment of interest in loans or forbearance of money is allowed only if: (1)
authorized Pantaleon to transact a loan with an approved interest of not more there was an express stipulation for the payment of interest; and (2) the
than 4% per month. The appellate court, however, noted that the interest of 4% agreement for the payment of interest was reduced in writing. The concurrence
per month, or 48% per annum, was unreasonable and should be reduced to 12% of the two conditions is required for the payment of interest at a stipulated rate.
per annum. The CA affirmed the RTC’s finding that PRISMA was a mere Thus, we held in Tan v. Valdehueza24 and Ching v. Nicdao25 that collection of
instrumentality of Pantaleon that justified the piercing of the veil of corporate interest without any stipulation in writing is prohibited by law.1avvphi1
fiction. Thus, the CA modified the RTC Decision by imposing a 12% per annum
interest, computed from the filing of the complaint until finality of judgment, Applying this provision, we find that the interest of ₱40,000.00 per month
and thereafter, 12% from finality until fully paid.17 corresponds only to the six (6)-month period of the loan, or from January 8,
1994 to June 8, 1994, as agreed upon by the parties in the promissory note.
After the CA's denial18 of their motion for reconsideration,19 the petitioners Thereafter, the interest on the loan should be at the legal interest rate of
filed the present petition for review on certiorari under Rule 45 of the Rules of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v.
Court. Court of Appeals:26

THE PETITION 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
The petitioners submit that the CA mistakenly relied on their board resolution which may have been stipulated in writing. Furthermore, the interest due shall
to conclude that the parties agreed to a 4% monthly interest because the board itself earn legal interest from the time it is judicially demanded. In the absence
resolution was not an evidence of a loan or forbearance of money, but merely of stipulation, the rate of interest shall be 12% per annum to be computed
an authorization for Pantaleon to perform certain acts, including the power to from default, i.e., from judicial or extrajudicial demand under and subject to
enter into a contract of loan. The expressed mandate of Article 1956 of the Civil the provisions of Article 1169 of the Civil Code." (Emphasis supplied)
Code is that interest due should be stipulated in writing, and no such stipulation
exists. Even assuming that the loan is subject to 4% monthly interest, the We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br.
interest covers the six (6)-month period only and cannot be interpreted to apply 61,27 Sulit v. Court of Appeals,28Crismina Garments, Inc. v. Court of
beyond it. The petitioners also point out the glaring inconsistency in the CA Appeals, 29 Eastern Assurance and Surety Corporation v. Court of
Decision, which reduced the interest from 4% per month or 48% per annum to Appeals, 30Sps. Catungal v. Hao, 31 Yong v. Tiu,32 and Sps. Barrera v. Sps.
12% per annum, but failed to consider that the amount of ₱3,526,117.00 that Lorenzo.33 Thus, the RTC and the CA misappreciated the facts of the case; they
the RTC ordered them to pay includes the compounded 4% monthly interest. erred in finding that the parties agreed to a 4% interest, compounded by the
application of this interest beyond the promissory note’s six (6)-month period.
THE CASE FOR THE RESPONDENT The facts show that the parties agreed to the payment of a specific sum of
money of ₱40,000.00 per month for six months, not to a 4% rate of interest
The respondent counters that the CA correctly ruled that the loan is subject to a
payable within a six (6)-month period.
4% monthly interest because the board resolution is attached to, and an integral
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 50
Medel v. Court of Appeals not applicable Piercing the corporate veil unfounded

The CA misapplied Medel v. Court of Appeals34 in finding that a 4% interest We find it unfounded and unwarranted for the lower courts to pierce the
per month was unconscionable. corporate veil of PRISMA.

In Medel, the debtors in a ₱500,000.00 loan were required to pay an interest of The doctrine of piercing the corporate veil applies only in three (3) basic
5.5% per month, a service charge of 2% per annum, and a penalty charge of 1% instances, namely: a) when the separate and distinct corporate personality
per month, plus attorney’s fee equivalent to 25% of the amount due, until the defeats public convenience, as when the corporate fiction is used as a vehicle
loan is fully paid. Taken in conjunction with the stipulated service charge and for the evasion of an existing obligation; b) in fraud cases, or when the corporate
penalty, we found the interest rate of 5.5% to be excessive, iniquitous, entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used
unconscionable, exorbitant and hence, contrary to morals, thereby rendering the in alter ego cases, i.e., where a corporation is essentially a farce, since it is a
stipulation null and void. mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs so conducted as to make it merely an
Applying Medel, we invalidated and reduced the stipulated interest in Spouses instrumentality, agency, conduit or adjunct of another corporation.46 In the
Solangon v. Salazar35 of 6% per month or 72% per annum interest on a absence of malice, bad faith, or a specific provision of law making a corporate
₱60,000.00 loan; in Ruiz v. Court of Appeals,36 of 3% per month or 36% per officer liable, such corporate officer cannot be made personally liable for
annum interest on a ₱3,000,000.00 loan; in Imperial v. Jaucian, 37 of 16% per corporate liabilities.47
month or 192% per annum interest on a ₱320,000.00 loan; in Arrofo v.
Quiño,38 of 7% interest per month or 84% per annum interest on a ₱15,000.00 In the present case, we see no competent and convincing evidence of any
loan; in Bulos, Jr. v. Yasuma,39 of 4% per month or 48% per annum interest on wrongful, fraudulent or unlawful act on the part of PRISMA to justify piercing
a ₱2,500,000.00 loan; and in Chua v. Timan,40 of 7% and 5% per month for its corporate veil. While Pantaleon denied personal liability in his Answer, he
loans totalling ₱964,000.00. We note that in all these cases, the terms of the made himself accountable in the promissory note "in his personal capacity and
loans were open-ended; the stipulated interest rates were applied for an as authorized by the Board Resolution" of PRISMA.48 With this statement of
indefinite period. personal liability and in the absence of any representation on the part of
PRISMA that the obligation is all its own because of its separate corporate
Medel finds no application in the present case where no other stipulation exists identity, we see no occasion to consider piercing the corporate veil as material
for the payment of any extra amount except a specific sum of ₱40,000.00 per to the case.
month on the principal of a loan payable within six months. Additionally, no
issue on the excessiveness of the stipulated amount of ₱40,000.00 per month WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET
was ever put in issue by the petitioners;41 they only assailed the application of ASIDE the Decision dated May 5, 2003 of the Court of Appeals in CA-G.R.
a 4% interest rate, since it was not agreed upon. CV No. 69627. The petitioners’ loan of ₱1,000,000.00 shall bear interest of
₱40,000.00 per month for six (6) months from December 8, 1993 as indicated
It is a familiar doctrine in obligations and contracts that the parties are bound in the promissory note. Any portion of this loan, unpaid as of the end of the six-
by the stipulations, clauses, terms and conditions they have agreed to, which is month payment period, shall thereafter bear interest at 12% per annum. The
the law between them, the only limitation being that these stipulations, clauses, total amount due and unpaid, including accrued interests, shall bear interest at
terms and conditions are not contrary to law, morals, public order or public 12% per annum from the finality of this Decision. Let this case
policy.42 The payment of the specific sum of money of ₱40,000.00 per month be REMANDED to the Regional Trial Court, Branch 73, Antipolo City for the
was voluntarily agreed upon by the petitioners and the respondent. There is proper computation of the amount due as herein directed, with due regard to the
nothing from the records and, in fact, there is no allegation showing that payments the petitioners have already remitted. Costs against the respondent.
petitioners were victims of fraud when they entered into the agreement with the
respondent. SO ORDERED.

Therefore, as agreed by the parties, the loan of ₱1,000,000.00 shall earn


₱40,000.00 per month for a period of six (6) months, or from December 8, 1993
to June 8, 1994, for a total principal and interest amount of ₱1,240,000.00.
Thereafter, interest at the rate of 12% per annum shall apply. The amounts
already paid by the petitioners during the pendency of the suit, amounting to
₱1,228,772.00 as of February 12, 1999,43 should be deducted from the total
amount due, computed as indicated above. We remand the case to the trial court
for the actual computation of the total amount due.

Doctrine of Estoppel not applicable

The respondent submits that the petitioners are estopped from disputing the 4%
monthly interest beyond the six-month stipulated period, since they agreed to
pay this interest on the principal amount under the promissory note and the
board resolution.

We disagree with the respondent’s contention.

We cannot apply the doctrine of estoppel in the present case since the facts and
circumstances, as established by the record, negate its application. Under the
promissory note,44 what the petitioners agreed to was the payment of a specific
sum of ₱40,000.00 per month for six months – not a 4% rate of interest per
month for six (6) months – on a loan whose principal is ₱1,000,000.00, for
the total amount of ₱1,240,000.00. Thus, no reason exists to place the
petitioners in estoppel, barring them from raising their present defenses against
a 4% per month interest after the six-month period of the agreement. The board
resolution,45 on the other hand, simply authorizes Pantaleon to contract for a
loan with a monthly interest of not more than 4%. This resolution merely
embodies the extent of Pantaleon’s authority to contract and does not create any
right or obligation except as between Pantaleon and the board. Again, no cause
exists to place the petitioners in estoppel.
NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 51
obligation of ₱350,000.00, plus 12% interest per annumreckoned from the
filing of the Complaint until full payment of the obligation.
G.R. No. 183360 September 8, 2014
Likewise assailed is the CA’s June 6, 2008 Resolution6 which denied Rolando’s
ROLANDO C. DE LA PAZ,* Petitioner, Motion for Reconsideration.
vs.
L & J DEVELOPMENT COMPANY, Respondent. Factual Antecedents

DECISION On December 27, 2000, Rolando lent ₱350,000.00 without any security to L&J,
a property developer with Atty. Esteban Salonga (Atty. Salonga) as its President
Short Summary and General Manager. The loan, with no specified maturity date, carried a 6%
Facts: monthly interest, i.e., ₱21,000.00. From December 2000 to August 2003, L&J
paid Rolando a total of ₱576,000.007 representing interest charges.

As L&J failed to pay despite repeated demands, Rolando filed a Complaint 8 for
Collection of Sum of Money with Damages against L&J and Atty. Salonga in
his personal capacity before the MeTC, docketed as Civil Case No. 05-7755.
Rolando alleged, amongothers, that L&J’s debtas of January 2005, inclusive of
the monthly interest, stood at ₱772,000.00; that the 6% monthly interest was
upon Atty. Salonga’s suggestion; and, that the latter tricked him into parting
with his money without the loan transaction being reduced into writing.

In their Answer,9 L&J and Atty. Salonga denied Rolando’s allegations. While
they acknowledged the loan as a corporate debt, they claimed that the failure to
pay the same was due to a fortuitous event, that is, the financial difficulties
brought about by the economic crisis. They further argued that Rolando cannot
enforce the 6% monthly interest for being unconscionable and shocking to the
morals. Hence, the payments already made should be applied to the
Issue:
₱350,000.00 principal loan.

During trial, Rolando testified that he had no communication with Atty.


Salonga prior to the loan transaction but knew him as a lawyer, a son of a former
Ruling: Senator, and the owner of L&J which developed Brentwood Subdivision in
Antipolo where his associate Nilo Velasco (Nilo) lives. When Nilo told him
that Atty. Salonga and L&J needed money to finish their projects, heagreed to
lend them money. He personally met withAtty. Salonga and their meeting was
cordial.

He narrated that when L&J was in the process of borrowing the ₱350,000.00
from him, it was Arlene San Juan (Arlene), the secretary/treasurer of L&J, who
negotiated the terms and conditions thereof.She said that the money was to
finance L&J’s housing project. Rolando claimed that it was not he who
demanded for the 6% monthly interest. It was L&J and Atty. Salonga, through
Arlene, who insisted on paying the said interest as they asserted that the loan
was only a short-term one.

Ruling of the Metropolitan Trial Court

The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly interest.
In so ruling, it ratiocinated that since L&J agreed thereto and voluntarily paid
the interest at suchrate from 2000 to 2003, it isalready estopped from impugning
the same. Nonetheless, for reasons of equity, the saidcourt reduced the interest
rate to 12% per annumon the remaining principal obligation of ₱350,000.00.
With regard to Rolando’s prayer for moral damages, the MeTC denied the same
as it found no malice or bad faith on the part ofL&J in not paying the obligation.
It likewise relieved Atty. Salonga of any liability as it found that he merely
acted in his official capacity in obtaining the loan. The MeTC disposed of the
case as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of


the plaintiff, Arch. Rolando C. Dela Paz, and against the defendant, L & J
DEL CASTILLO, J.: Development Co., Inc., as follows:
"No interest shall be due unless it has been expressly stipulated in writing."1 a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the
2 amount of Three Hundred Fifty Thousand Pesos (₱350,000.00) representing the
This is a Petition for Review on Certiorari assailing the February 27, 2008
principal obligation, plus interest at the legal rate of 12% per annum to be
Decision3 of the Court of Appeals (CA) in CA-G.R. SP No. 100094, which
computed from January 20, 2005, the date of the filing of the complaint, until
reversed and set aside the Decision4 dated April 19, 2007 of the Regional Trial
the whole obligation is fully paid;
Court (RTC), Branch 192, Marikina City in Civil Case No. 06-1145-MK. The
said RTC Decision affirmed in all respects the Decision 5 dated June 30, 2006 b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the
of the Metropolitan Trial Court (MeTC), Branch 75, Marikina City in Civil amount of Five Thousand Pesos (₱5,000.00) as and for attorney’s fees; and
Case No. 05-7755, which ordered respondent L & J Development Company
(L&J) to pay petitioner Architect Rolando C. De La Paz (Rolando) its principal c) to pay the costs of this suit.

NEGOTIABLE INSTRUMENTS FULL TEXT | COMPILED BY: PALMA GIL | 52


SO ORDERED.11 interest rates were declared unconscionable, those meant to be protected by
such declaration are helpless borrowers which is not the case here.
Ruling of the Regional Trial Court
Still, the CA denied Rolando’s motion in its Resolution21 of June 6, 2008.
L&J appealed to the RTC. It asserted in its appeal memorandum 12 that from
December 2000 to March 2003, it paid monthly interest of ₱21,000.00 based Hence, this Petition.
on the agreed-upon interest rate of 6%monthly and from April 2003 to August
2003, interest paymentsin various amounts.13 The total of interest payments The Parties’ Arguments
made amounts to ₱576,000.00 – an amount which is even more than the
principal obligation of ₱350,000.00 Rolando argues that the 6%monthly interest rateshould not have been
invalidated because Atty. Salonga took advantage of his legal knowledge to
L&J insisted that the 6% monthly interest rate is unconscionable and immoral. hoodwink him into believing that no document was necessaryto reflect the
Hence, the 12% per annumlegal interest should have been applied from the time interest rate. Moreover, the cases anent unconscionable interest rates that the
of the constitution of the obligation. At 12% per annum interest rate, it asserted CA relied upon involve lenders who imposed the excessive rates,which are
that the amount of interestit ought to pay from December 2000 to March 2003 totally different from the case at bench where it is the borrower who decided on
and from April 2003 to August 2003, only amounts to ₱105,000.00. If this the high interest rate. This case does not fall under a scenariothat ‘enslaves the
amount is deducted from the total interest paymentsalready made, which is borrower or that leads to the hemorrhaging of his assets’ that the courts seek to
₱576,000.00, the amount of ₱471,000.00 appears to have beenpaid over and prevent.
above what is due. Applying the rule on compensation, the principal loan of
₱350,000.00 should be set-off against the ₱471,000.00, resulting in the L&J, in controverting Rolando’s arguments, contends that the interest rate is
complete payment of the principal loan. subject of negotiation and is agreedupon by both parties, not by the borrower
alone. Furthermore, jurisprudence has nullified interestrates on loans of 3% per
Unconvinced, the RTC, inits April 19, 2007 Decision, 14 affirmed the MeTC month and higher as these rates are contrary to moralsand public interest. And
Decision, viz: WHEREFORE, premises considered, the Decision appealed while Rolando raises bad faithon Atty. Salonga’s part, L&J avers thatsuch issue
from is hereby AFFIRMED in all respects, with costs against the appellant. is a question of fact, a matter that cannot be raised under Rule 45.

SO ORDERED.15 Issue

Ruling of the Court of Appeals The Court’s determination of whether to uphold the judgment of the CA that
the principal loan is deemed paid isdependent on the validity of the monthly
Undaunted, L&J went to the CA and echoed its arguments and proposed interest rate imposed. And in determining such validity, the Court must
computation as proffered before the RTC. necessarily delve into matters regarding a) the form of the agreement of interest
under the law and b) the alleged unconscionability of the interest rate. Our
In a Decision16 dated February 27, 2008, the CAreversed and set aside the RTC Ruling
Decision. The CA stressed that the parties failedto stipulate in writing the
imposition of interest on the loan. Hence, no interest shall be due thereon The Petition is devoid of merit.
pursuant to Article 1956 of the Civil Code. 17 And even if payment of interest
has been stipulated in writing, the 6% monthly interest is still outrightly illegal The lack of a written stipulation to pay interest on the loaned amount disallows
and unconscionable because it is contrary to morals, if not against the law. a creditor from charging monetary interest.
Being void, this cannot be ratified and may be set up by the debtor as defense.
For these reasons, Rolando cannot collect any interest even if L&J offered to Under Article 1956 of the Civil Code, no interest shall bedue unless it has been
pay interest. Consequently, he has to return all the interest payments of expressly stipulated in writing. Jurisprudence on the matter also holds that for
₱576,000.00 to L&J. interest to be due and payable, two conditions must concur: a) express
stipulation for the payment of interest; and b) the agreement to pay interest is
Considering further that Rolando and L&J thereby became creditor and debtor reduced in writing.
of each other, the CA applied the principle of legal compensation under Article
1279 of the Civil Code.18 Accordingly, it set off the principal loan of Here, it is undisputed that the parties did not put down in writing their
₱350,000.00 against the ₱576,000.00 total interest payments made, leaving an agreement. Thus, no interest is due. The collection of interest without any
excess of ₱226,000.00, which the CA ordered Rolando to pay L&J plus interest. stipulation in writing is prohibited by law.22
Thus:
But Rolando asserts that his situation deserves an exception to the application
WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and of Article 1956. He blames Atty. Salonga for the lack of a written document,
SET ASIDE. claiming that said lawyer used his legal knowledge to dupe him. Rolando thus
imputes bad faith on the part of L&J and Atty. Salonga. The Court, however,
CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is finds no deception on the partof L&J and Atty. Salonga. For one, despite the
ordered to pay to the petitioner the amount of ₱226,000.00,plus interest of 12% lack of a document stipulating the payment of interest, L&J nevertheless
per annumfrom the finality of this decision. devotedly paid interests on the loan. It only stopped when it suffered from
financial difficulties that prevented it from continuously paying the 6% monthly
Costs of suit to be paid by respondent Dela Paz. rate. For another,regardless of Atty. Salonga’s profession, Rolando who is an
architect and an educated man himself could have been a more reasonably
SO ORDERED.19 prudent person under the circumstances. To top it all, he admitted that he had
no prior communication with Atty. Salonga. Despite Atty. Salonga being a
In his Motion for Reconsideration,20 Rolando argued thatthe circumstances complete stranger, he immediately trusted him and lent his company
exempt both the application of Article 1956 and of jurisprudence holding that a ₱350,000.00, a significant amount. Moreover, as the creditor,he could have
6% monthly interest is unconscionable, unreasonable, and exorbitant. He requested or required that all the terms and conditions of the loan agreement,
alleged that Atty. Salonga, a lawyer, should have taken it upon himself to have which include the payment of interest, be put down in writing to ensure that he
the loan and the stipulated rate of interest documented but, by way of legal and L&J are on the same page. Rolando had a choice of not acceding and to
maneuver, Atty. Salonga, whom he fully trusted and relied upon, tricked him insist that their contract be put in written form as this will favor and safeguard
into believing that the undocumented and uncollateralized loan was withinlegal him as a lender. Unfortunately, he did not. It must be stressed that "[c]ourts
bounds. Had Atty. Salonga told him that the stipulated interest should be in cannot follow one every step of his life and extricate him from bad bargains,
writing, he would have readily assented. Furthermore, Rolando insisted that the protect him from unwise investments, relieve him from one-sided contracts,or
6% monthly interest ratecould not be unconscionable as in the first place, the annul the effects of foolish acts. Courts cannotconstitute themselves guardians
interest was not imposed by the creditor but was in fact offered by the borrower, of persons who are not legally incompetent."23
who also dictated all the terms of the loan. He stressed that in cases where
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It may be raised that L&J is estopped from questioning the interest rate TERESITA DIO, Petitioners,
considering that it has been paying Rolando interest at such ratefor more than vs.
two and a half years. In fact, in its pleadings before the MeTCand the RTC, SPOUSES VIRGILIO and LUZ ROCES JAPOR and
L&J merely prayed for the reduction of interest from 6% monthly to 1% MARTA1 JAPOR, Respondents.
monthly or 12% per annum. However, in Ching v. Nicdao,24 the daily payments DECISION
of the debtor to the lender were considered as payment of the principal amount
of the loan because Article 1956 was not complied with. This was Short Summary
notwithstanding the debtor’s admission that the payments made were for the
Facts:
interests due. The Court categorically stated therein that "[e]stoppel cannot give
validity to an act that is prohibited by law or one thatis against public policy."

Even if the payment of interest has been reduced in writing, a 6% monthly


interest rate on a loan is unconscionable, regardless of who between the parties
proposed the rate.

Indeed at present, usury has been legally non-existent in view of the suspension
of the Usury Law25 by Central Bank Circular No. 905 s. 1982.26 Even so, not all
interest rates levied upon loans are permitted by the courts as they have the
power to equitably reduce unreasonable interest rates. In Trade & Investment
Development Corporation of the Philippines v. Roblett Industrial Construction
Corporation,27 we said:

While the Court recognizes the right of the parties to enter into contracts and
who are expectedto comply with their terms and obligations, this rule is not
absolute. Stipulated interest rates are illegal if they are unconscionable and the Issue:
Court is allowed to temper interest rates when necessary. In exercising this
vested power to determine what is iniquitous and unconscionable, the Court
must consider the circumstances of each case. What may be iniquitous and
unconscionable in onecase, may be just in another. x x x28
Ruling:
Time and again, it has been ruled in a plethora of cases that stipulated interest
rates of 3% per month and higher, are excessive, iniquitous, unconscionable
and exorbitant. Such stipulations are void for being contrary to morals, if not
against the law.29 The Court, however, stresses that these rates shall be
invalidated and shall be reduced only in cases where the terms of the loans are
open-ended, and where the interest rates are applied for an indefinite period.
Hence, the imposition of a specific sum of ₱40,000.00 a month for six months
on a ₱1,000,000.00 loan is not considered unconscionable. 30

In the case at bench, there is no specified period as to the payment of the loan.
Hence, levying 6% monthly or 72% interest per annumis "definitely outrageous
and inordinate."31 The situation that it was the debtor who insisted on the
interest rate will not exempt Rolando from a ruling that the rate is void. As this
Court cited in Asian Cathay Finance and Leasing Corporation v.
Gravador,32 "[t]he imposition of an unconscionable rate of interest on a money
debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of property,
repulsive to the common sense of man."33 Indeed, "voluntariness does notmake
the stipulation on [an unconscionable] interest valid."34

As exhaustibly discussed,no monetary interest isdue Rolando pursuant to


Article 1956.1âwphi1 The CA thus correctly adjudged that the excess interest
payments made by L&J should be applied to its principal loan. As computed by
the CA, Rolando is bound to return the excess payment of ₱226,000.00 to L&J
following the principle of solutio indebiti.35

However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect
QUISUMBING, J.:
on July 1, 2013,36 the interest imposed by the CA must be accordingly modified.
For review on certiorari is the Decision,2 dated February 22, 2002, of the Court
The ₱226,000.00 which Rolando is ordered to pay L&J shall earn an interest of
of Appeals, in the consolidated cases CA-G.R. CV No. 51521 and CA-G.R. SP
6% per annumfrom the finality of this Decision. No. 40457. The decretal portion read:
WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals WHEREFORE, premises considered, in CA-G.R. CV No. 51521, the decision
in CA-G.R. SP No. 100094 is hereby AFFIRMED with modification that of the trial court is AFFIRMED with MODIFICATION. Judgment is rendered
as follows:
petitioner Rolando C. De La Paz is ordered to pay respondent L&J
Development Company the amount of ,₱226,000.00, plus interest of 6o/o per 1. Declaring the Real Estate Mortgage to be valid;
annum from the finality of this Decision until fully paid. 2. Fixing the interest at 12% per annum and an additional 1% penalty charge
per month such that plaintiffs-appellants’ contractual obligation under the deed
SO ORDERED. of real estate mortgage would amount to ₱1,252,674.00;
3. Directing defendant-appellee Dio to give the surplus of ₱2,247,326.00 to
plaintiffs-appellants; and
4. Affirming the dissolution of the writ of preliminary injunction previously
G.R. No. 154129. July 8, 2005 issued by the trial court.
No pronouncement as to costs.
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The Petition in CA-G.R. SP No. 40457 is DENIED for being moot and Mandatory Injunction in Aid of Appellate Jurisdiction with the Court of
academic. Appeals.
SO ORDERED.3 On May 8, 1996, petitioner Dio as the sole bidder in an auction purchased the
Equally assailed in this petition is the Resolution,4 dated July 2, 2002, of the properties for ₱3,500,000.
appellate court, denying Teresita Dio’s Motion for Partial Reconsideration of On May 9, 1996, the Court of Appeals denied respondents’ application for a
March 19, 2002 and the Spouses Japor and Marta Japor’s Motion for temporary restraining order.8
Reconsideration dated March 20, 2002. On October 9, 1996, the appellate court consolidated CA-G.R. CV No. 51521
The antecedent facts are as follows: and CA-G.R. SP No. 40457.
Herein respondents Spouses Virgilio Japor and Luz Roces Japor were the As stated at the outset, the appellate court affirmed the decision of the trial court
owners of an 845.5 square-meter residential lot including its improvements, with respect to the validity of the Deed of Real Estate Mortgage, but modified
situated in Barangay Ibabang Mayao, Lucena City, as shown by Transfer the interest and penalty rates for being unconscionable and exorbitant.
Certificate of Title (TCT) No. T-39514. Adjacent to the Japor’s lot is another Before us, petitioner assigns the following errors allegedly committed by the
lot owned by respondent Marta Japor, which consisted of 325.5 square meters appellate court:
and titled under TCT No. T-15018.
I
On August 23, 1982, the respondents obtained a loan of ₱90,000 from the THE ALLEGED INIQUITY OF THE STIPULATED INTEREST AND
Quezon Development Bank (QDB), and as security therefor, they mortgaged
PENALTY WAS NOT RAISED BEFORE THE TRIAL COURT NOR
the lots covered by TCT Nos. T-39514 and T-15018 to QDB, as evidenced by ASSIGNED AS AN ERROR IN RESPONDENTS’ APPEAL.
a Deed of Real Estate Mortgage duly executed by and between the respondents
and QDB. II
On December 6, 1983, respondents and QDB amended the Deed of Real Estate THE STIPULATED INTEREST AND PENALTY ARE NOT "EXCESSIVE,
Mortgage increasing respondents’ loan to ₱128,000. INIQUITOUS, UNCONSCIONABLE, EXORBITANT AND CONTRARY
TO MORAL[S]".
The respondents failed to pay their aforesaid loans. However, before the bank
could foreclose on the mortgage, respondents, thru their broker, one Lucia G. III
Orian, offered to mortgage their properties to petitioner Teresita Dio. Petitioner PAYMENT OF THE "SURPLUS" OF ₱2,247,326.00 TO RESPONDENTS
prepared a Deed of Real Estate Mortgage, whereby respondents mortgaged WOULD RESULT IN THEIR UNJUST ENRICHMENT.
anew the two properties already mortgaged with QDB to secure the timely IV
payment of a ₱350,000 loan that respondents had from petitioner Dio. The Deed RESPONDENTS’ APPEAL SHOULD HAVE BEEN DISMISSED DUE TO
of Real Estate Mortgage, though dated January 1989, was actually executed on FORUM SHOPPING.9
February 13, 1989 and notarized on February 17, 1989.
Simply stated, the issue is: Did the Court of Appeals err when it held that the
Under the terms of the deed, respondents agreed to pay the petitioner interest at stipulations on interest and penalty in the Deed of Real Estate Mortgage is
the rate of five percent (5%) a month, within a period of two months or until contrary to morals, if not illegal? Corollarily, were respondents entitled to any
April 14, 1989. In the event of default, an additional interest equivalent to five "surplus" on the auction sale price?
percent (5%) of the amount then due, for every month of delay, would be
On the main issue, petitioner contends that The Usury Law10 has been rendered
charged on them.
ineffective by Central Bank Circular No. 905, series of 1982 and accordingly,
The respondents failed to settle their obligation to petitioner on April 14, 1989, usury has become legally non-existent in this jurisdiction, thus, interest rates
the agreed deadline for settlement. may accordingly be pegged at such levels or rates as the lender and the borrower
On August 27, 1991, petitioner made written demands upon the respondents to may agree upon. Petitioner avers she has not violated any law considering she
pay their debt. is not engaged in the business of money-lending. Moreover, she claims she has
Despite repeated demands, respondents did not pay, hence petitioner applied suffered inconveniences and incurred expenses for some 13 years now as a
for extrajudicial foreclosure of the mortgage. The auction of the unredeemed result of respondents’ failure to pay her. Petitioner further points out that the
properties was set for February 26, 1992. 5% interest rate was proposed by the respondents and have only themselves to
Meanwhile, on February 24, 1992, respondents filed an action for Fixing of blame if the interests and penalties ballooned to its present amount due to their
Contractual Obligation with Prayer for Preliminary Mandatory willful delay and default in payment. The appellate court thus erred, petitioner
Injunction/Restraining Order, docketed as Civil Case No. 92-26, with the now insists, in applying Sps. Almeda v. Court of Appeals11 and Medel v. Court
Regional Trial Court (RTC) of Lucena City. Respondents prayed that of Appeals12 to reduce the interest rate to 12% per annum and the penalty to 1%
"judgment be rendered fixing the contractual obligations of plaintiffs with the per month.
defendant Dio plus legal or allowable interests thereon."5 Respondents admit they owe petitioner ₱350,000 and do not question any
The trial court issued an Order enjoining the auction sale of the aforementioned lawful interest on their loan but they maintain that the Deed of Real Estate
mortgaged properties. Mortgage is null and void since it did not state the true intent of the parties,
which limited the 5% interest rate to only two (2) months from the date of the
On June 15, 1992, the Japors filed a Motion to Admit Amended loan and which did not provide for penalties and other charges in the event of
Complaint with an attached copy of their Amended Complaint praying that
default or delay. Respondents vehemently contend that they never consented to
the Deed of Real Estate Mortgage dated February 13, 1989 be declared null and the said stipulations and hence, should not be bound by them.
void, but reiterating the plea that the trial court fix the contractual obligations
of the Japors with Dio. The trial court denied the motion. On the first issue, we are constrained to rule against the petitioner’s contentions.
On September 27, 1994, respondents filed with the appellate court, a petition Central Bank Circular No. 905, which took effect on January 1, 1983,
for certiorari, docketed as CA-G.R. SP No. 35315, praying that the Court of effectively removed the ceiling on interest rates for both secured and unsecured
Appeals direct the trial court to admit their Amended Complaint. The appellate loans, regardless of maturity. However, nothing in said Circular grants
court denied said petition.6 lenders carte blanche authority to impose interest rates which would result in
the enslavement of their borrowers or to the hemorrhaging of their
On December 11, 1995, the trial court handed down the following judgment: assets.13 While a stipulated rate of interest may not technically and necessarily
WHEREFORE, in view of the foregoing considerations, judgment is rendered: be usurious under Circular No. 905, usury now being legally non-existent in our
1. Dismissing the complaint for failure of the plaintiffs to substantiate their jurisdiction,14 nonetheless, said rate may be equitably reduced should the same
affirmative allegations; be found to be iniquitous, unconscionable, and exorbitant, and hence, contrary
2. Declaring the Real Estate Mortgage (Exhs. "A" to "A-13"/Exhs. "3" to "3- to morals (contra bonos mores), if not against the law.15 What is iniquitous,
D") to be valid and binding as between the parties, more particularly the unconscionable, and exorbitant shall depend upon the factual circumstances of
plaintiffs Virgilio Japor, Luz Japor and Marta Japor or the latter’s substituted each case.
heir or heirs, as the case may be; In the instant case, the Court of Appeals found that the 5% interest rate per
3. Dissolving the writ of preliminary injunction previously issued by this Court; month and 5% penalty rate per month for every month of default or delay is in
and reality interest rate at 120% per annum. This Court has held that a stipulated
4. To pay the cost of this suit. interest rate of 5.5% per month or 66% per annum is void for being iniquitous
or unconscionable.16 We have likewise ruled that an interest rate of 6% per
SO ORDERED.7 month or 72% per annum is outrageous and inordinate.17 Conformably to these
On January 17, 1996, respondents filed their notice of appeal. On April 26, precedent cases, a combined interest and penalty rate at 10% per month or
1996, they also filed a Petition for Temporary Restraining Order And/Or
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120% per annum, should be deemed iniquitous, unconscionable, and
inordinate. Hence, we sustain the appellate court when it found the interest and
penalty rates in the Deed of Real Estate Mortgage in the present case excessive,
hence legally impermissible. Reduction is legally called for now in rates of
interest and penalty stated in the mortgage contract.
What then should the interest and penalty rates be?
The evidence shows that it was indeed the respondents who proposed the 5%
interest rate per month for two (2) months. Having agreed to said rate, the
parties are now estopped from claiming otherwise. For the succeeding period
after the two months, however, the Court of Appeals correctly reduced the
interest rate to 12% per annum and the penalty rate to 1% per month, in
accordance with Article 222718 of the Civil Code.
But were respondents entitled to the "surplus" of ₱2,247,32619 as a result of the
"overpricing" in the auction?
We note that the "surplus" was the result of the computation by the Court of
Appeals of respondents’ outstanding liability based on a reduced interest rate
of 12% per annum and the reduced penalty rate of 1% per month. The court a
quo then proceeded to apply our ruling in Sulit v. Court of Appeals,20 to the
effect that in case of surplus in the purchase price, the mortgagee is liable for
such surplus as actually comes into his hands, but where he sells on credit
instead of cash, he must still account for the proceeds as if the price were paid
in cash, for such surplus stands in the place of the land itself with respect to
liens thereon or vested rights therein particularly those of the mortgagor or his
assigns.
In the instant case, however, there is no "surplus" to speak of. In adjusting the
interest and penalty rates to equitable and conscionable levels, what the Court
did was merely to reflect the true price of the land in the foreclosure sale. The
amount of the petitioner’s bid merely represented the true amount of the
mortgage debt. No surplus in the purchase price was thus created to which the
respondents as the mortgagors have a vested right.
WHEREFORE, the Decision dated February 22, 2002, of the Court of Appeals
in the consolidated cases CA-G.R. CV No. 51521 and CA-G.R. SP No. 40457
is hereby AFFIRMED with MODIFICATION. The interest rate for the subject
loan owing to QDB, or whoever is now the party mortgagee, is hereby fixed at
five percent (5%) for the first two (2) months following the date of execution
of the Deed of Real Estate Mortgage, and twelve percent (12%) for the
succeeding period. The penalty rate thereafter shall be fixed at one percent (1%)
per month. Petitioner Teresita Dio is declared free of any obligation to return to
the respondents, the Spouses Virgilio Japor and Luz Roces Japor and Marta
Japor, any surplus in the foreclosure sale price. There being no surplus, after
the court below had applied our ruling in Sulit,21 respondents could not legally
claim any overprice from the petitioner, much less the amount of
₱2,247,326.00.
SO ORDERED.

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