Republic of the Philippines SUPREME COURT Baguio City FIRST DIVISION G.R. No.

114286 April 19, 2001

THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner vs. THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE,respondents. YNARES-SANTIAGO, J.: The instant petition for review seeks to partially set aside the July 26, 1993 Decision 1 of respondent Court of Appeals in CA-GR. CV No. 29950, insofar as it orders petitioner to reimburse respondent Continental Cement Corporation the amount of P490, 228.90 with interest thereon at the legal rate from July 26, 1988 until fully paid. The petition also seeks to set aside the March 8, 1994 Resolution2 of respondent Court of Appeals denying its Motion for Reconsideration. The facts are as follows: On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of P 1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of P320,445.00 to petitioner. The letter of credit was used to purchase around five hundred thousand liters of bunker fuel oil from Petrophil Corporation, which the latter delivered directly to respondent Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the amount of P 1,001,520.93 was executed by respondent Corporation, with respondent Lim as signatory. Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds thereof, petitioner filed a complaint for sum of money with application for preliminary attachment 3 before the Regional Trial Court of Manila. In answer to the complaint, respondents averred that the transaction between them was a simple loan and not a trust receipt transaction, and that the amount claimed by petitioner did not take into account payments already made by them. Respondent Lim also denied any personal liability in the subject transactions. In a Supplemental Answer, respondents prayed for reimbursement of alleged overpayment to petitioner of the amount of P490,228.90. At the pre-trial conference, the parties agreed on the following issues: 1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction; 2) Whether or not the interest rates charged against the defendants by the plaintiff are proper under the letter of credit, trust receipt and under existing rules or regulations of the Central Bank; 3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the defendant corporation on July 13, 1982 as payment for the latters account; and 4) Whether or not the defendants are personally liable under the transaction sued for in this case. 4 On September 17, 1990, the trial court rendered its Decision, 5 dismissing the Complaint and ordering petitioner to pay respondents the following amounts under their counterclaim: P490,228.90 representing overpayment of respondent Corporation, with interest thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as attorney's fees; and costs. Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the award of attorney's fees in favor of respondents and, instead, ordering respondent Corporation to pay petitioner P37,469.22 as and for attorney's fees and litigation expenses. Hence, the instant petition raising the following issues: 1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS APPLICATION OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL CODE. 2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH BANKING PRACTICE.

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE RULES AND REGULATIONS OF THECENTRAL BANK. 4. WHETHER OR NO THE RESPONDENT APPELLATE COUR GRIEVOUSLY ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR. 5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST RECEIPT TRANSACTION.6 The petition must be denied. On the first issue respecting the fact of overpayment found by both the lower court and respondent Court of Appeals, we stress the time-honored rule that findings of fact by the Court of Appeals especially if they affirm factual findings of the trial court will not be disturbed by this Court, unless these findings are not supported by evidence.7 Petitioner decries the lack of computation by the lower court as basis for its ruling that there was an overpayment made. While such a computation may not have appeared in the Decision itself, we note that the trial court's finding of overpayment is supported by evidence presented before it. At any rate, we painstakingly reviewed and computed the payments together with the interest and penalty charges due thereon and found that the amount of overpayment made by respondent Bank to petitioner, i.e., P263,070.13, was more than what was ordered reimbursed by the lower court. However, since respondents did not file an appeal in this case, the amount ordered reimbursed by the lower court should stand. Moreover, petitioner's contention that the marginal deposit made by respondent Corporation should not be deducted outright from the amount of the letter of credit is untenable. Petitioner argues that the marginal deposit should be considered only after computing the principal plus accrued interest and other charges. However, to sustain petitioner on this score would be to countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in favour of the debtor-depositor, the bank is not only able to use the same for its own purposes, interestfree, but is also able to earn interest on the money loaned to respondent Corporation. Indeed, it would be onerous to compute interest and other charges on the face value of the letter of credit which the petitioner issued, without first crediting or setting off the marginal deposit which the respondent Corporation paid to it. Compensation is proper and should take effect by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount.8 Hence, the interests and other charges on the subject letter of credit should be computed only on the balance of P681,075.93, which was the portion actually loaned by the bank to respondent Corporation. Neither do we find error when the lower court and the Court of Appeals set aside as invalid the floating rate of interest exhorted by petitioner to be applicable. The pertinent provision in the trust receipt agreement of the parties fixing the interest rate states: I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the penalty of 1% per month until the amount/s or instalments/s due and unpaid under the trust receipt on the reverse side hereof is/are fully paid.9 We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being no reference rate set either by it or by the Central Bank, leaving the determination thereof at the sole will and control of petitioner. 1wphi1.nt While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions, there should always be a reference rate upon which to peg such variable interest rates. An example of such a valid variable interest rate was found in Polotan, Sr. v. Court of Appeals. 10 In that case, the contractual provision stating that "if there occurs any change in the prevailing market rates, the new interest rate shall be the guiding rate in computing the interest due on the outstanding obligation without need of serving notice to the Cardholder other than the required posting on the monthly statement served to the Cardholder" 11 was considered valid. The aforequoted provision was upheld notwithstanding that it may partake of the nature of an escalation clause, because at the same time it provides for the decrease in the interest rate in case the prevailing market rates dictate its reduction. In other words, unlike the stipulation subject of the instant case, the interest rate involved in the Polotan case is designed to be based on the prevailing market rate. On the other hand, a stipulation ostensibly signifying an agreement to "any increase or decrease in the interest rate," without more, cannot be accepted by this Court as valid for it leaves solely to the creditor the determination of what interest rate to charge against an outstanding loan. Petitioner has also failed to convince us that its transaction with respondent Corporation is really a trust receipt transaction instead of merely a simple loan, as found by the lower court and the Court of Appeals.

The recent case of Colinares v. Court of Appeals 12 appears to be foursquare with the facts obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself was entered into, the transaction in question was a simple loan and not a trust receipt agreement. Prior to the date of execution of the trust receipt, ownership over the goods was already transferred to the debtor. This situation is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only released to the importer in trust after the loan is granted. In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the trust receipt occurred long before the trust receipt itself was executed. More specifically, delivery of the bunker fuel oil to respondent Corporation's Bulacan plant commenced on July 7, 1982 and was completed by July 19, 1982. 13Further, the oil was used up by respondent Corporation in its normal operations by August, 1982. 14 On the other hand, the subject trust receipt was only executed nearly two months after full delivery of the oil was made to respondent Corporation, or on September 2, 1982. The danger in characterizing a simple loan as a trust receipt transaction was explained in Colinares, to wit: The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. Here, it is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts issued by PBC acknowledging payment of the loan. The Information charges Petitioners with intent to defraud and misappropriating the money for their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved to be present in Petitioners' situation. Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation. Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the express provision embodied in the trust receipt. They are contractors who obtained the fungible goods for their construction project. At no time did title over the construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre. This impresses upon the trust receipt in question vagueness and ambiguity, which should not be the basis for criminal prosecution in the event of violation of its provisions. The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable if not reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this case. Eventually, PBC showed its true colors and admitted that it was only after collection of the money, as manifested by its Affidavit of Desistance. Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with petitioner. Neither has it been shown that it has evaded payment of its obligations. Indeed, it continually endeavored to meet the same, as shown by the various receipts issued by petitioner acknowledging payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal amount of only P681,075.93 negates any badge of dishonesty , abuse of confidence or mishandling of funds on the part of respondent Corporation, which are the gravamen of a trust receipt violation. Furthermore, Respondent Corporation is not an importer, which acquired the bunker fuel oil for re-sale; it needed the oil for its own operations. More importantly, at no time did title over the oil pass to petitioner, but directly to respondent Corporation to which the oil was directly delivered long before the trust receipt was executed. The fact that ownership of the oil belonged to respondent Corporation, through its President, Gregory Lim, was acknowledged by petitioner's own account officer on the witness stand, to wit: Q -After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the defendants thereby paying the value of the bunker fuel oil what transpired next after that? A -Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the bunker fuel oil were transferred to them. Q -You mentioned them to whom are you referring to? A -To the Continental Cement Corp. upon the execution of the trust receipt acknowledging the ownership of the bunker fuel oil this should be acceptable for whatever disposition he may make. Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom? A - By the Continental Cement Corp. Q So by your statement who really owns the bunker fuel oil?

A TTY. RACHON: Objection already answered, COURT: Give time to the other counsel to object. A TTY. RACHON : He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that question has already been answered. A TTY. BANAGA: That is why I made a follow up question asking ownership of the bunker fuel oil. COURT: Proceed. A TTY .BANAGA: Q - Who owns the bunker fuel oil after purchase from Petrophil Corp. ? A - Gregory Lim.15 By all indications, then, it is apparent that there was really no trust receipt transaction that took place. Evidently, respondent Corporation was required to sign the trust receipt simply to facilitate collection by petitioner of the loan it had extended to the former. Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be personally liable under the subject trust receipt. Petitioner's argument that respondent Corporation and respondent Lim and his spouse are one and the same cannot be sustained. The transactions sued upon were clearly entered into by respondent Lim in his capacity as Executive Vice President of respondent Corporation. We stress the hornbook law that corporate personality is a shield against personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and his spouse cannot be made personally liable since respondent Lim entered into and signed the contract clearly in his official capacity as Executive Vice President. The personality of the corporation is separate and distinct from the persons composing it.16 WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CY No.29950 is AFFIRMED. SO ORDERED. Davide Jr., Puno, Pardo, Pardo, JJ., concur.

Footnotes
1

penned by Associate Justice Cezar D. Francisco and concurred in by Associate Justices Gloria C. Paras and Buenaventura J. Guerrero; Petition for Review, Annex "B"; Rollo, pp. 76-93.
2

Petition for Review, Annex "C"; Rollo, p. 95. Docketed as Civil Case No. 86-38396; Record, pp. 1-11. Pre-trial Order, p. 3; Record, p. 236.

Penned by then Presiding Judge Bernardo P. Pardo, now Associate Justice of this Court; Record, pp. 435438.
6

Petition for Review, pp. 10-11; Rollo, pp. 17-18.

Baas, jr. v. Court of Appeals, G.R. No. 102967, 10 February 2000, citing Guerrero v. Court of Appeals, 285 SCRA 670 [1998] and Sta. Maria v. Court of Appeals, 285 SCRA 351 [1998].
8

Civil Code, Art. 1290; Abad v. Court of Appeals, 181 SCRA 191 [1990].

Exhibit "A.". 296 SCRA 247 [1998]. Emphasis ours. G.R. No. 90828, 5 September 2000. TSN, 19 April 1989, p. 9; Exhibits "9" and "10"; record, pp. 301-302. Ibid., p. 12. TSN, 12 April 1989, pp. 4-5.

10

11

12

13

14

15

16

Penned Construction Group, Inc. v. Court of Appeals, 324 SCRA 270 [2000], citing Rustan Pulp and Paper Mills, Inc. vs. Intermediate Appellate Court, 214 SCRA 665, 672 [1992].

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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-20240 December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE GRIJALDO, defendant-appellant. Office of the Solicitor General for plaintiff-appellee. Isabelo P. Samson for defendant-appellant. ZALDIVAR, J.: In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These loans are evidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on August 13, 1943, P200.00, all notes without due dates, but because the loans were due one year after they were incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros Occidental. By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the United States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets, including the loans in question, were subsequently transferred to the Republic of the Philippines by the Government of the United States under Transfer Agreement dated July 20, 1954. These assets were among the properties that were placed under the administration of the Board of Liquidators created under Executive Order No. 372, dated November 24, 1950, and in accordance with Republic Acts Nos. 8 and 477 and other pertinent laws. On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the Board of Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in question. The record shows that the appellant had actually received the written demand for payment, but he failed to pay. The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale of values as of the time that the loans were incurred in 1943, was P889.64; and the interest due thereon at the rate of 6% per annum compounded quarterly, computed as of December 31, 1959 was P2,377.23. On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace Of Hinigaran, after hearing, dismissed the case on the ground that the action had prescribed. The appellee appealed to the Court of First Instance of Negros Occidental and on March 26, 1962 the court a quo rendered a decision ordering the appellant to pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly from the date of the filing of the complaint until full payment was made. The appellant was also ordered to pay the sum equivalent to 10% of the amount due as attorney's fees and costs. The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a resolution of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to appear and be substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court. In the present appeal the appellant contends: (1) that the appellee has no cause of action against the appellant; (2) that if the appellee has a cause of action at all, that action had prescribed; and (3) that the lower court erred in ordering the appellant to pay the amount of P2,377.23. In discussing the first point of contention, the appellant maintains that the appellee has no privity of contract with the appellant. It is claimed that the transaction between the Taiwan Bank, Ltd. and the appellant, so that the appellee, Republic of the Philippines, could not legally bring action against the appellant for the enforcement of the obligation involved in said transaction. This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original creditor and the transaction between the appellant and the Bank of Taiwan was a private contract of loan. However, pursuant to the Trading with the Enemy Act, as amended, and Executive Order No. 9095 of the United States; and under Vesting Order No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., an entity which was declared to be under the jurisdiction of the enemy country (Japan), were vested in the United States Government and the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the Republic of the Philippines. The successive transfer of the rights over the loans in question from the Bank of Taiwan, Ltd. to the United States Government, and from the United States Government to the government of the Republic of the Philippines, made the Republic of the Philippines the successor of the rights, title and interest in said loans, thereby creating a privity of contract between the appellee and the appellant. In defining the word "privy" this Court, in a case, said:

The word "privy" denotes the idea of succession ... hence an assignee of a credit, and one subrogated to it, etc. will be privies; in short, he who by succession is placed in the position of one of those who contracted the judicial relation and executed the private document and appears to be substituting him in the personal rights and obligation is a privy (Alpurto vs. Perez, 38 Phil. 785, 790). The United States of America acting as a belligerent sovereign power seized the assets of the Bank of Taiwan, Ltd. which belonged to an enemy country. The confiscation of the assets of the Bank of Taiwan, Ltd. being an involuntary act of war, and sanctioned by international law, the United States succeeded to the rights and interests of said Bank of Taiwan, Ltd. over the assets of said bank. As successor in interest in, and transferee of, the property rights of the United States of America over the loans in question, the Republic of the Philippines had thereby become a privy to the original contracts of loan between the Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the Philippines has a legal right to bring the present action against the appellant Jose Grijaldo. The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that because the loans were secured by a chattel mortgage on the standing crops on a land owned by him and these crops were lost or destroyed through enemy action his obligation to pay the loans was thereby extinguished. This argument is untenable. The terms of the promissory notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the appellant under the five promissory notes was not to deliver a determinate thing namely, the crops to be harvested from his land, or the value of the crops that would be harvested from his land. Rather, his obligation was to pay a generic thing the amount of money representing the total sum of the five loans, with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to another ... money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five promissory notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of money a clear case of an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides: In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish his obligation to pay, because the account could still be paid from other sources aside from the mortgaged crops. In his second point of contention, the appellant maintains that the action of the appellee had prescribed. The appellant points out that the loans became due on June 1, 1944; and when the complaint was filed on January 17,1961 a period of more than 16 years had already elapsed far beyond the period of ten years when an action based on a written contract should be brought to court. This contention of the appellant has no merit. Firstly, it should be considered that the complaint in the present case was brought by the Republic of the Philippines not as a nominal party but in the exercise of its sovereign functions, to protect the interests of the State over a public property. Under paragraph 4 of Article 1108 of the Civil Code prescription, both acquisitive and extinctive, does not run against the State. This Court has held that the statute of limitations does not run against the right of action of the Government of the Philippines (Government of the Philippine Islands vs. Monte de Piedad, etc., 35 Phil. 738-751).Secondly, the running of the period of prescription of the action to collect the loan from the appellant was interrupted by the moratorium laws (Executive Orders No. 25, dated November 18, 1944; Executive Order No. 32. dated March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The loan in question, as evidenced by the five promissory notes, were incurred in the year 1943, or during the period of Japanese occupation of the Philippines. This case is squarely covered by Executive Order No. 25, which became effective on November 18, 1944, providing for the suspension of payments of debts incurred after December 31, 1941. The period of prescription was, therefore, suspended beginning November 18, 1944. This Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953, 93 Phil. 68), declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and Executive Orders Nos. 25 and 32, are unconstitutional; but in that case this Court ruled that the moratorium laws had suspended the prescriptive period until May 18, 1953. This ruling was categorically reiterated in the decision in the case of Manila Motors vs. Flores, L-9396, August 16, 1956. It follows, therefore, that the prescriptive period in the case now before US was suspended from November 18,1944, when Executive Orders Nos. 25 and 32 were declared unconstitutional by this Court. Computed accordingly, the prescriptive period was suspended for 8 years and 6 months. By the appellant's own admission, the cause of action on the five promissory notes in question arose on June 1, 1944. The complaint in the present case was filed on January 17, 1961, or after a period of 16 years, 6 months and 16 days when the cause of action arose. If the prescriptive period was not interrupted by the moratorium laws, the action would have prescribed already; but, as We have stated, the prescriptive period was suspended by the moratorium laws for a period of 8 years and 6 months. If we deduct the period of suspension (8 years and 6 months) from the period that elapsed from the time the cause of action arose to the time when the complaint was filed (16 years, 6 months and 16 days) there remains a period of 8 years and 16 days. In other words, the prescriptive period ran for only 8 years and 16 days. There still remained a period of one year, 11 months and 14 days of the prescriptive period when the complaint was filed. In his third point of contention the appellant maintains that the lower court erred in ordering him to pay the amount of P2,377.23. It is claimed by the appellant that it was error on the part of the lower court to apply the Ballantyne Scale of values in evaluating the Japanese war notes as of June 1943 when the loans were incurred, because what should be done is to evaluate the loans on the basis of the Ballantyne Scale as of the time the loans became due, and that was in June 1944. This contention of the appellant is also without merit.

The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of December 31, 1959, plus interest rate of 6% per annum compounded quarterly from the date of the filing of the complaint. The sum total of the five loans obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed under the Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in Japanese war notes in June 1943 is equivalent to P889.64 in genuine Philippine currency which was considered the aggregate amount due as principal of the five loans, and the amount of P2,377.23 as of December 31, 1959 was arrived at after computing the interest on the principal sum of P889.64 compounded quarterly from the time the obligations were incurred in 1943. It is the stand of the appellee that the Ballantyne scale of values should be applied as of the time the obligation was incurred, and that was in June 1943. This stand of the appellee was upheld by the lower court; and the decision of the lower court is supported by the ruling of this Court in the case of Hilado vs. De la Costa (G.R. No. L-150, April 30, 1949; 46 O.G. 5472), which states: ... Contracts stipulating for payments presumably in Japanese war notes may be enforced in our Courts after the liberation to the extent of the just obligation of the contracting parties and, as said notes have become worthless, in order that justice may be done and the party entitled to be paid can recover their actual value in Philippine Currency, what the debtor or defendant bank should return or pay is the value of the Japanese military notes in relation to the peso in Philippine Currency obtaining on the date when and at the place where the obligation was incurred unless the parties had agreed otherwise . ... . (italics supplied) IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against the appellant. Inasmuch as the appellant Jose Grijaldo died during the pendency of this appeal, his estate must answer in the execution of the judgment in the present case. Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo, Reyes, J.B.L., Makalintal and Bengzon, J.P., JJ.,concur.

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Philippine National Bank vs. Court of Appeals, G.R. No. 88880, 196 SCRA 536 , April 30, 1991 Philippine National Bank vs. Court of Appeals, G.R. No. 88880, 196 SCRA 536 , April 30, 1991 PETITION for certiorari to review the decision of the Court of Appeals. The facts are stated in the opinion of the Court. The Chief Legal Counsel for petitioner. Ambrosio Padilla, Mempin & Reyes Law Offices for private respondent. GRIO-AQUINO, J.: The Philippine National Bank (PNB) has appealed by certiorari from the decision promulgated on June 27, 1989 by the Court of Appeals in CA-G.R. CV No. 09791 entitled, AMBROSIO PADILLA, plaintiff-appellant versus PHILIPPINE NATIONAL BANK, defendant-appellee, reversing the decision of the trial court which had dismissed the private respondents complaint to annul interest increases. (p. 32, Rollo.) The Court of Appeals rendered judgment: x x x declaring the questioned increases of interest as unreasonable, excessive and arbitrary and ordering the defendant-appellee [PNB] to refund to the plaintiff-appellant the amount of interest collected from July, 1984 in excess of twenty-four percent (24%) per annum. Costs against the defendant-appellee. (pp. 14-15, Rollo.) In July 1982, the private respondent applied for, and was granted by petitioner PNB, a credit line of P1.8 million, secured by a real estate mortgage, for a term of two (2) years, with 18% interest per annum. Private respondent executed in favor of the PNB a Credit Agreement, two (2) promissory notes in the amount of P900,000.00 each, and a Real Estate Mortgage Contract. The Credit Agreement provided that 9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules and regulations of the Central Bank and the current and general policies of the Bank and those which the Bank may adopt in the future, which may have relation to or in any way affect the Line, which rules, regulations and policies are incorporated herein by reference as if set forth herein in full. Promptly upon receipt of a written request from the Bank, the Borrowers shall execute and deliver such documents and instruments, in form and substance satisfactory to the Bank, in order to effectuate or otherwise comply with such rules, regulations and policies. (p. 85, Rollo.) The Promissory Notes, in turn, uniformly authorized the PNB to increase the stipulated 18% interest per annum within the limits allowed by law at any time depending on whatever policy it [PNB] may adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. (pp. 85 -86, Rollo; italics ours.) The Real Estate Mortgage Contract likewise provided that: (k) INCREASE OF INTEREST RATE The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may have been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be subject during the life of this contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors. (p. 86, Rollo; emphasis supplied.) Four (4) months advance interest and incidental expenses/ charges were deducted from the loan, the net proceeds of which were released to the private respondent by crediting or transferring the amount to his current account with the bank. On June 20, 1984, PNB informed the private respondent that (1) his credit line of P1.8 million will expire on July 4, 1984, (2) [i]f renewal of the line for another year is intended, please submit soonest possible your request, and (3) the present policy of the Bank requires at least 30% reduction of principal before your line can be renewed. (pp. 86-87, Rollo.) Complying, private respondent on June 25, 1984, paid PNB P540,000.00 (30% of P1.8 million) and requested that the balance of P1,260,000.00 be renewed for another period of two (2) years under the same arrangement and that the increase of the interest rate of my mortgage loan be from 18% to 21% (p. 87, Rollo.) On July 4, 1984, private respondent paid PNB P360,000.00.

On July 18, 1984, private respondent reiterated in writing his request that the increase in the rate of interest from 18% be fixed at 21% of 24%. (p. 87, Rollo.) On July 26, 1984, private respondent made an additional payment of P100,000. On August 10, 1984, PNB informed private respondent that we can not give due course to your request for preferential interest rate in view of the following reasons: Existing Loan Policies of the bank requires 32% for loan of more than one year; Our present cost of funds has substantially increased. (pp. 87 -88, Rollo.) On August 17, 1984, private respondent further paid PNB P150,000.00. In a letter dated August 24, 1984 to PNB, private respondent announced that he would continue ma king further payments, and instead of a loan of more than one year, I shall pay the said loan before the lapse of one year or before July 4, 1985. x x x I reiterate my request that the increase of my rate of interest from 18% be fixed at 21% or 24%. (p. 88, Rollo.) On September 12, 1984, private respondent paid PNB P160,000.00.

In letters dated September 12, 1984 and September 13, 1984, PNB informed private respondent that the interest rate on your outstanding line/loan is hereby adjusted from 32% p.a. to 41% p.a. (35% prime rate + 6%) effective September 6, 1984; and further explained why we can not grant your request for a lower rate of 21% or 24%. (pp. 88-89, Rollo.) In a letter dated September 24, 1984 to PNB, private respondent registered his protest against the increase of interest rate from 18% to 32% on July 4, 1984 and from 32% to 41% on September 6, 1984. On October 15, 1984, private respondent reiterated his request that the interest rate should not be increased from 18% to 32% and from 32% to 41%. He also attached (as payment) a check for P140,000.00. Like rubbing salt on the private respondents wound, the petitioner informed private respondent on October 29, 1984, that the interest rate on your outstanding line/loan is hereby adjusted from 41% p.a. to 48% p.a. (42% prime rate plus 6% spread) effective 25 October 1984. (p. 89, Rollo.) In November 1984, private respondent paid PNB P50,000.00 thus reducing his principal loan obligation to P300,000.00. On December 18, 1984, private respondent filed in the Regional Trial Court of Manila a complaint against PNB entitled, AMBROSIO PADILLA vs. PHILIPPINE NATIONAL BANK (Civil Case No. 84 -28391), praying that judgment be rendered: a. Declaring that the unilateral increase of interest rates from 18% to 32%, then to 41% and again to 48% are illegal, not valid nor binding on plaintiff, and that an adjustment of his interest rate from 18% to 24% is reasonable, fair and just; b. The interest rate on the P900,000.00 released on September 27, 1982 be counted from said date and not from July 4, 1984; c. The excess of interest payment collected by defendant bank by debiting plaintiffs current account be refunded to plaintiff or credited to his current account; d. Pending the determination of the merits of this case, a restraining order and/or a writ of preliminary injunction be issued (1) to restrain and/or enjoin defendant bank for [sic] collecting from plaintiff and/or debiting his current account with illegal and excessive increases of interest rates; and (2) to prevent defendant bank from declaring plaintiff in default for non-payment and from instituting any foreclosure proceeding, extrajudicial or judicial, of the valuable commercial property of plaintiff. (pp. 89 -90, Rollo.) In its answer to the complaint, PNB denied that the increases in interest rates were illegal, unilateral excessive and arbitrary and recited the reasons justifying said increases. On March 31, 1985, the private respondent paid the P300,000-balance of his obligation to PNBN (Exh. 5). The trial court rendered judgment on April 14, 1986, dismissing the complaint because the increases of interest were properly made. The private respondent appealed to the Court of Appeals. On June 27, 1989, the Court of Appeals reversed the trial court, hence, PNBs recourse to this Court by a petition for review under Rule 45 of the Rules of Court. The assignments of error raised in PNBs petition for review can be resolved into a single legal issue of whether the bank, within the term of the loan which it granted to the private respondent, may unilaterally change or increase the interest rate stipulated therein at will and as often as it pleased. The answer to that question is no. In the first place, although Section 2, P.D. No. 116 of January 29, 1973, authorizes the Monetary Board to prescribe the maximum rate or rates of interest for loans or renewal thereof and to change such rate or rates whenever warranted by prevailing economic and social conditions, it expressly provides t hat such changes shall not be made oftener than once every twelve months. In this case, PNB, over the objection of the private respondent, and without authority from the Monetary Board, within a period of only four (4) months, increased the 18% interest rate on the private respondents loan obligation three (3) times: (a) to 32% in July 1984; (b) to 41% in October 1984; and (c) to 48% in November 1984. Those increases were null and void, for if the Monetary Board itself was not authorized to make such changes oftener than once a year, even less so may a bank which is subordinate to the Board. Secondly, as pointed out by the Court of Appeals, while the private respondent-debtor did agree in the Deed of Real Estate Mortgage (Exh. 5) that the interest rate ma y be increased during the life of the contract to such increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe (Exh. 5 -e-1) or within the limits allowed by law (Promissory Notes, Exhs. 2, 3, and 4), no law was ever passed in July to November 1984 increasing the interest rates on loans or renewals thereof to 32%, 41% and 48% (per annum), and no documents were executed and delivered by the debtor to effectuate the increases. The Court of Appeals observed. x x x We focus Our attention first of all on the agreement between the parties as embodied in the following instruments, to wit: (1) Exhibit 1Credit Agreement dated July 1, 1982; (2) Exhibit 2Promissory Note dated July 5, 1982; (3) Exhibit 3Promissory Note dated January 3, 1983; (4) Exhibit 4Promissory Note, dated December 13, 1983; and (5) Exhibit 5Real Estate Mortgage contract dated July 1, 1982. Exhibit 1 states in its portion marked Exhibit 1 -g-1:

9.06 Other Conditions. The Borrowers hereb y agree to be bound by the rules and regulations of the Central Bank and the current and general policies of the Bank and those which the Bank may adopt in the future, which may have relation to or in any way affect the Line, which rules, regulations and policies are incorporated herein by reference as if set forth herein in full. Promptly upon receipt of a written request from the Bank, the Borrowers shall execute and deliver such documents and instruments, in form and substance satisfactory to the Bank, in order to effectuate or otherwise comply with such rules, regulations and policies. Exhibits 2, 3, and 4 in their portions respectively marked Exhibits 2 -B, 3-B, and 4-B uniformly authorize the defendant bank to increase the stipualted interest rte of 18% per annum within the limits allowed by law at any time depending on whatever policy it may adopt in the future: Provided, that, the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. Exhibit 5 in its portion marked Exhibit 5 -e-1 stipulates:

(k) INCREASE OF INTEREST RATE The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amo unt which may have been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be subject during the life of this contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors. Clearly, then, the agreement between the parties authorized the defendant bank to increase the interest rate beyond the original rate of 18% per annum but within the limits allowed by law or within the rate allowed by law, it being declared the obligation of the plaintiff as borrower to execute and deliver the corresponding documents and instruments to effectuate the increase. (pp. 11-12, Rollo.) In Banco Filipino Savings and Mortgage Bank vs. Navarro, 15 SCRA 346 (1987), this Court disauthorized the bank from raising the interest rate on the borrowers loan from 12% to 17% despite an escalation clause in the loan agreement signed by the debtors authorizing Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event a law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan. (italics supplied.) In the Banco Filipino case, the bank relied on Section 3 of CB Circular No. 494 dated July 1, 1976 (72 O.G. No. 3, p. 676-J) which provided that the maximum rate of interest, including commissions premiums, fees and other charges on loans with a maturity of more than 730 days by banking institution x x x shall be 19%. This Court disallowed the increase for the simple reason that said Circular No. 494, although it has the effect of law is not a law. Speaking through Mme. Justice Ameurfina M. Herrera, this Court held: It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated i nterest in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board. (p. 111, Rollo.) In the present case, the PNB relied on its own Board Resolution No. 681 (Exh. 10), PNB Circular No. 40-79-84 (Exh. 13), and PNB Circular No. 40-129-84 (Exh. 15), but those resolution and circulars are neither laws nor resolutions of the Monetary Board. CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates

x x x increases in interest rates are not subject to any ceiling prescribed by the Usury Law. but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively increase the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of P.D. 116 which limits such changes to once every twelve months. Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the private respondents loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code: ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker par tys (the debtor) participation being reduced to the alternative to take it or leave it (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition.

PNBs successive increases of the interest rate on the private respondents loan, over the latters protest, were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms may be amended only by an instrument in writing signed by the party to be bound as burdened by such amendment. The increases imposed by PNB also contravene Art. 1956 of the Civil Code which provides that no interest shall be due unless it has been expressly stipulated in writing. The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24% per annum, hence, he is not bound to pay a higher rate than that. That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive, as found by the Court of Appeals, is indisputable. WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. CV No. 09791, the Court resolved to deny the petition for review for lack of merit, with costs against the petitioner. SO ORDERED. Narvasa (Chairman), Cruz, Gancayco and Medialdea, JJ., concur. Petition denied. Note.Both Article 2212 of the Civil Code and Sec. 5 of the Usury Law refer to stipulated or conventional interest and does not apply where no interest was stipulated by the parties (Philippine American Accident Insurance Company, Inc. vs. Flores, 97 SCRA 811.) [Philippine National Bank vs. Court of Appeals, 196 SCRA 536(1991)]

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 97412 July 12, 1994 EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner. Zapa Law Office for private respondent.

VITUG, J.: The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%). The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced: This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages. On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D). On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E). Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L). As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.) There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said: Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault

for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it. From the evidence the court found the following: The issues are: 1. Whether or not the shipment sustained losses/damages; 2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable); 3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38). As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order. Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that " one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open". and thus held: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: A. Ordering defendants to pay plaintiff, jointly and severally: 1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract); 2. P3,000.00 as attorney's fees, and 3. Costs. B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation. SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US. The appeal is devoid of merit. After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.) The Court of Appeals thus affirmed in toto the judgment of the court a quo. In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION; II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED. The petition is, in part, granted. In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to. The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to this case. The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum,thus: The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it. It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark. Let us first see a chronological recitation of the major rulings of this Court: The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint

that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled: Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point. But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." And as was held by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof (Montilla c.Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman, 38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied) The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for " Recovery of Damages for Injury to Person and Loss of Property." After trial, the lower court decreed: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows: Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons: xxx xxx xxx (g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis supplied.) On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid . When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text) should have, instead, been applied. This Court 6 ruled: The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. xxx xxx xxx Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court 8modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i .e., from the filing of the complaint until fully paid. In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co., Inc. (one of the petitioners) . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus: WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid . Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied) A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per annum imposed on the total amount of the monetary award was in contravention of law." The Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained: There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment . It is delay in the payment of such final judgment, that will cause the imposition of the interest . It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.) The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (6%) percent interest thereon computed from the finality of this decision until paid . (Emphasis supplied) Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held: WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.) The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint.

Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said: . . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment contract like the case at bar. (Emphasis supplied) The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid. Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for their lands so expropriated " with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared: . . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply. Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate Appellate Court (1988). In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid. The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest. Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be " computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid. The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance. I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20 II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of

interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 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 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof. SO ORDERED. Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur. Mendoza, J., took no part.

#Footnotes

1 Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character of the goods or defects in the packing or in the containers; (5) Order or act of competent public authority. 2 28 SCRA 65. 3 Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio Dizon, Querube Makalintal, Calixto Zaldivar, Enrique Fernando, Francisco Capistrano, Claudio Teehankee and Antonio Barredo, Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on official leave. 4 The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-6998, 29 February 1956," 98 Phil. 516. 5 139 SCRA 260, 265. 6 Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes Concepcion, Jr., Vicente Abad Santos, Ameurfina Melencio-Herrera, Venicio Escolin, Lorenzo Relova, Hugo Gutierrez, Jr., Buenaventura de la Fuente, Nestor Alampay and Lino Patajo. Justice Ramon Aquino concurred in the result. Justice Efren Plana filed a concurring and dissenting opinion, concurred in by Justice Claudio Teehankee while Chief Justice Felix Makasiar concurred with the separate opinion of Justice Plana. 7 143 SCRA 158. 8 Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by Justices Pedro Yap, Ameurfina Melencio-Herrera, Isagani A. Cruz and Edgardo Paras.

9 160 SCRA 334. 10 Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo Fernan, Teodoro Padilla, Abdulwahid Bidin, and Irene Cortes. Justice Hugo Gutierrez, Jr., took no part because he was the ponente in the Court of Appeals. 11 167 SCRA 209. 12 Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan, Justices Andres Narvasa, Isagani A. Cruz, Emilio Gancayco, Teodoro Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene Cortes, Carolina Grio-Aquino, Leo Medialdea and Florenz Regalado. Justices Ameurfina Melencio-Herrera and Hugo Gutierrez, Jr., took no part because they did not participate in the deliberations. Justices Edgardo Paras and Florentino Feliciano also took no part. 13 170 SCRA 461. 14 208 SCRA 542. 15 Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina MelencioHerrera, Teodoro Padilla, Florenz Regalado and Rodolfo Nocon. 16 Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth, 22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable. 17 In the case of Malayan Insurance, the application of the 6% and 12% interest per annum has no bearing considering that this case was decided upon before the issuance of Circular No. 416 by the Central Bank. 18 Art. 1157. Obligations arise from. (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Qausi-delicts." 19 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. 20 Art. 2195. The provisions of this Title (on Damages) shall be respectively applicable to all obligations mentioned in article 1157. 21 Art. 1956. No interest shall be due unless it has been expressly stipulated in writing. 22 Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. 23 Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. "However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

"In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins." 24 Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the discretion of the court. 25 Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. 26 Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty.

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