Republic of the Philippines

Supreme Court
Manila
FIRST DIVISION
G.R. No. 154878

March 16, 2007

CAROLYN M. GARCIA, petitioner,

vs.
RICA MARIE S. THIO, respondent.

DECISION
CORONA, J.:

Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and
August 20, 2002 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which
set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City,
Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner
Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of
US$100,000 payable to the order of a certain Marilou Santiago.5Thereafter, petitioner
received from respondent every month (specifically, on March 24, April 26, June 26 and
July 26, all in 1995) the amount of US$3,0006 and P76,5007 on July 26,8 August 26,
September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed check9 dated June 29,
1995 in the amount ofP500,000, also payable to the order of Marilou
Santiago.10 Consequently, petitioner received from respondent the amount of P20,000
every month on August 5, September 5, October 5 and November 5, 1995.11
According to petitioner, respondent failed to pay the principal amounts of the loans
(US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner
filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58
against respondent, seeking to collect the sums of US$100,000, with interest thereon at
3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month
from November 5, 1995, plus attorneys fees and actual damages.12
Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount
of US$100,000 with interest thereon at the rate of 3% per month, which loan would
mature on October 26, 1995.13 The amount of this loan was covered by the first check. On
June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly
interest of 4%, the maturity date of which was on November 5, 1995.14 The amount of this

loan was covered by the second check. For both loans, no promissory note was executed
since petitioner and respondent were close friends at the time.15 Respondent paid the
stipulated monthly interest for both loans but on their maturity dates, she failed to pay
the principal amounts despite repeated demands.161awphi1.nt
Respondent denied that she contracted the two loans with petitioner and countered that
it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely
asked by petitioner to give the crossed checks to Santiago.17 She issued the checks
for P76,000 and P20,000 not as payment of interest but to accommodate petitioners
request that respondent use her own checks instead of Santiagos.18
In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.19 It found that
respondent borrowed from petitioner the amounts of US$100,000 with monthly interest
of 3% and P500,000 at a monthly interest of 4%:20
WHEREFORE, finding preponderance of evidence to sustain the instant
complaint, judgment is hereby rendered in favor of [petitioner], sentencing
[respondent] to pay the former the amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per
month from October 26, 1995 until fully paid;
2. P500,000.00 with interest thereon at 4% per month from November 5,
1995 until fully paid.
3. P100,000.00 as and for attorneys fees; and
4. P50,000.00 as and for actual damages.
For lack of merit, [respondents] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.21

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract
of loan between the parties:
A perusal of the record of the case shows that [petitioner] failed to substantiate her
claim that [respondent] indeed borrowed money from her. There is nothing in
the record that shows that [respondent] received money from
[petitioner]. What is evident is the fact that [respondent] received a MetroBank
[crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to
the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995
in the amount of P500,000.00, again payable to the order of Marilou Santiago,
both of which were issued by [petitioner]. The checks received by
[respondent], being crossed, may not be encashed but only deposited
in the bank by the payee thereof, that is, by Marilou Santiago herself.

It must be noted that crossing a check has the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only onceto
one who has an account with the bank; (c) and the act of crossing the check serves as

warning to the holder that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder
in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and
delivery to the payee in contemplation of law since the latter is not the person who could
take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title
thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the
checks because she was merely facilitating the transactions between the former and
[petitioner].
With the foregoing circumstances, it may be fairly inferred that there were really no
contracts of loan that existed between the parties. x x x (emphasis supplied)22
Hence this petition.23
As a rule, only questions of law may be raised in a petition for review on certiorari under
Rule 45 of the Rules of Court. However, this case falls under one of the exceptions, i.e.,
when the factual findings of the CA (which held thatthere were no contracts of loan
between petitioner and respondent) and the RTC (which held that there werecontracts of
loan) are contradictory.24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the delivery
of the object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or simple loan
is binding upon the parties, but the commodatum or simple loan itself shall not
be perfected until the delivery of the object of the contract. (Emphasis
supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the
debtor when the checks were encashed) the debtor acquires ownership of such money or
loan proceeds and is bound to pay the creditor an equal amount.26
It is undisputed that the checks were delivered to respondent. However, these checks were
crossed and payable not to the order of respondent but to the order of a certain Marilou
Santiago. Thus the main question to be answered is: who borrowed money from petitioner
respondent or Santiago?
Petitioner insists that it was upon respondents instruction that both checks were made
payable to Santiago.27 She maintains that it was also upon respondents instruction that
both checks were delivered to her (respondent) so that she could, in turn, deliver the same
to Santiago.28 Furthermore, she argues that once respondent received the checks, the
latter had possession and control of them such that she had the choice to either forward

them to Santiago (who was already her debtor), to retain them or to return them to
petitioner.29
We agree with petitioner. Delivery is the act by which the res or substance thereof is
placed within the actual or constructive possession or control of another.30 Although
respondent did not physically receive the proceeds of the checks, these instruments were
placed in her control and possession under an arrangement whereby she actually re-lent
the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago. 31 It was
highly improbable that petitioner would grant two loans to a complete stranger without
requiring as much as promissory notes or any written acknowledgment of the debt
considering that the amounts involved were quite big. Respondent, on the other hand,
already had transactions with Santiago at that time.32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name
appeared in both parties list of witnesses) testified that respondents plan was for
petitioner to lend her money at a monthly interest rate of 3%, after which respondent
would lend the same amount to Santiago at a higher rate of 5% and realize a profit of
2%.33 This explained why respondent instructed petitioner to make the checks payable to
Santiago. Respondent has not shown any reason why Ruiz testimony should not be
believed.

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the
amount of P76,000 each (peso equivalent of US$3,000) for eight months to cover the
monthly interest. For the P500,000 loan, she also issued her own checks in the amount
of P20,000 each for four months.34 According to respondent, she merely accommodated
petitioners request for her to issue her own checks to cover the interest payments since
petitioner was not personally acquainted with Santiago.35 She claimed, however, that
Santiago would replace the checks with cash.36Her explanation is simply incredible. It is
difficult to believe that respondent would put herself in a position where she would be
compelled to pay interest, from her own funds, for loans she allegedly did not contract.
We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is guided by the rule
that for evidence to be believed, it must not only proceed from the mouth of a
credible witness, but must be credible in itself such as the common experience of
mankind can approve as probable under the circumstances. We have no test of the
truth of human testimony except its conformity to our knowledge, observation, and
experience. Whatever is repugnant to these belongs to the miraculous, and is
outside of juridical cognizance.37

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent,
not petitioner, who was listed as one of her (Santiagos) creditors.38

Last, respondent inexplicably never presented Santiago as a witness to corroborate her

story.39 The presumption is that "evidence willfully suppressed would be adverse if
produced."40 Respondent was not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not
borrow the amounts of US$100,000 and P500,000 from petitioner. We instead agree
with the ruling of the RTC making respondent liable for the principal amounts of the
loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest
for the US$100,000 andP500,000 loans respectively. There was no written proof of the
interest payable except for the verbal agreement that the loans would earn 3% and 4%
interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be due
unless it has been expressly stipulated in writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest
pursuant to Article 2209 of the Civil Code. It is well-settled that:
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.41

Hence, respondent is liable for the payment of legal interest per annum to be computed
from November 21, 1995, the date when she received petitioners demand letter. 42 From
the finality of the decision until it is fully paid, the amount due shall earn interest at
12% per annum, the interim period being deemed equivalent to a forbearance of credit.43
The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is
deleted since the RTC decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and
August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577
are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial
Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that
respondent is directed to pay petitioner the amounts of US$100,000 and P500,000 at
12% per annum interest from November 21, 1995 until the finality of the decision. The
total amount due as of the date of finality will earn interest of 12% perannum until fully
paid. The award of actual damages and attorneys fees is deleted.
SO ORDERED.

Footnotes
Under Rule 45 of the Rules of Court.
by former Associate Justice Eubulo G. Verzola (deceased) and concurred in by Associate Justices
Bernardo P. Abesamis (retired) and Josefina Guevara-Salonga of the Third Division of the Court of
Appeals;rollo, pp. 98-102.
3 Id., pp. 104-105.
4 This was Metrobank check no. 26910; id., pp. 70, 224 and 368.
5 Id., pp. 60, 100-101, 224.
6 Id., pp. 60-61. According to respondent, she originally issued four postdated checks each in the amount
ofP76,000 on the same dates mentioned but these were not encashed and instead each check was replaced
by Santiago with US$3,000 in cash given by respondent to petitioner; id., p. 224.
7 This was the peso equivalent of US$3,000 computed at the exchange rate of P25.50 to $1.00; id., pp. 17
and 88. These postdated checks were deposited on their respective due dates and honored by the drawee
bank; id., p. 225.
8 According to respondent, this check was replaced by Santiago with cash in the amount of US$3,000.
9 This was City Trust check no. 467257; rollo, pp. 90 and 327.
10 Id., pp. 60, 101 and 225.
11 Id., p. 109.
12 Docketed as Civil Case No. 96-266; rollo, pp. 15, 60 and 364.
13 Id., p. 109.
14 Id., p. 110.
15 Id., p. 16.
16 Id., p. 110.
17 Id., p. 224.
18 Id.
19 Id., pp. 60-95.
20 Id., pp. 79 and 89.
21 Id., pp. 94-95.
22 Id., pp. 100-101, citation omitted.
23 The issues submitted for resolution are the following:
(A) Is actual and physical delivery of the money loaned directly from the lender to the borrower the only
way to perfect a contract of loan?
(B) Does the respondents admission that she paid interests to the petitioner on the amounts represented
by the two checks given to her by said petitioner render said respondent in estoppel to question that there
was no loan transaction between her and the petitioner?
(C) Is respondents written manifestation in the trial court, through counsel, that she interposes no
objection to the admission of petitioners documentary exhibits for the multiple purposes specified in the
latters Formal Offer of Documentary Exhibits a judicial admission governed by Rule 129, Section 4, Rules
of Court?
(D) Is this Honorable Court bound by the conclusions of fact relied upon by the [CA] in issuing its disputed
Decision?
(E) Have the [RTCs] findings of fact on the lone issue on which respondent litigated in the
[RTC], viz.existence of privity of contract between petitioner and respondent, been overturned or set
aside by the [CA]?
(F) May the respondent validly change the theory of her case from one of privity of contract between her
and the petitioner in the [RTC], to one of not being a holder in due course of the crossed checks payable
to a third party in the [CA] and before this Honorable Court?
(G) Is the petitioners entitlement to interest, despite absence of a written stipulation on the payment
thereof, justified?
(H) Is the deletion by the [CA] of the [RTCs] award of attorneys fees and actual damages in favor pf the
petitioner justified? Id., pp. 401-402.
24 Philippine National Bank v. Andrada Electric & Engineering Co., G.R. No. 142936, 17 April 2002, 381
SCRA 244, 253, citing Fuentes v. CA, 335 Phil. 1163, 1167-1169 (1997).
25 Naguiat v. Court of Appeals, G.R. No. 118375, 3 October 2003, 412 SCRA 591, 597.
26 Article 1953 of the Civil Code states:
1

2 Penned

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.
27 Rollo, p. 39.
28 Id.
29 Id., pp. 39-40.
30 Buenaflor v. Court of Appeals, G.R. No. 142021, 29 November 2000, 346 SCRA 563, 569, citing Black's
Law Dictionary, 5th ed.
31 Rollo, p. 64.
32 Id., p. 70.
33 Id., pp. 76 and 85.
34 Id., pp. 16-17, 224-225, 411.
35 Id., p. 224.
36 Id., p. 70.
37 People v. Mala, G.R. No. 152351, 18 September 2003, 411 SCRA 327, 337, citing People v. Dayag, 155
Phil. 421, 431 (1974).
38 Rollo, pp. 88 and 94.
39 Id., p. 93.
40 Sec. 3 (e), Rule 131, Rules of Court.
41 Eusebio-Calderon v. People, G.R. No. 158495, 21 October 2004, 441 SCRA 137, 148-149, citing Eastern
Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78, 95; Cabrera v.
People, G.R. No. 150618, 24 July 2003, 407 SCRA 247, 261.
42 Rollo, p. 65.
43 Cabrera v. People, supra.