G.R. No.

172227 June 29, 2011 respondent Sheriff Mayo dela Cruz (sheriff) before the Regional Trial
Court (RTC) of Santiago City, Branch 35.12 Petitioners alleged that the
SPOUSES WILFREDO PALADA and BRIGIDA PALADA,* Petitioners, bank, without their knowledge and consent, included their properties
vs. covered by Transfer Certificate of Title (TCT) Nos. T-225131 and T-
SOLIDBANK CORPORATION and SHERIFF MAYO DELA CRUZ, 225132,13 among the list of properties mortgaged; that it was only
Respondents. when they received the notice of sale from the sheriff in August 1998
that they found out about the inclusion of the said properties; that
DECISION despite their objection, the sheriff proceeded with the auction sale; and
that the auction sale was done in Santiago City in violation of the
DEL CASTILLO, J.: stipulation on venue in the real estate mortgage.14

Allegations of bad faith and fraud must be proved by clear and The bank, in its Answer,15 denied the material allegations of the
convincing evidence.1 Complaint and averred that since petitioners were collaterally deficient,
they offered TCT Nos. T-237695, T-237696, T-225131 and T-225132 as
This Petition for Review on Certiorari2 under Rule 45 of the Rules of additional collateral;16 that although the said properties were at that
Court assails the January 11, 2006 Decision3 of the Court of Appeals time mortgaged to the Philippine National Bank (PNB), the bank
(CA) in CA-G.R. CV No. 84236 which dismissed the complaint filed by the accepted the offer and caused the annotation of the mortgage in the
petitioners against the respondents and declared as valid the real estate original copies with the Register of Deeds with the knowledge and
mortgage and certificate of sale. Also assailed is the April 12, 2006 consent of petitioners;17 and that when petitioners’ obligation to PNB
Resolution4 which denied the motion for reconsideration thereto. was extinguished, they delivered the titles of the four properties to the
bank.18
Factual Antecedents
Ruling of the Regional Trial Court
In February or March 1997, petitioners, spouses Wilfredo and Brigida
Palada, applied for a ₱3 million loan broken down as follows: ₱1 million On October 21, 2004, the RTC rendered a Decision19 declaring the real
as additional working capital under the bills discounting line; estate mortgage void for lack of sufficient consideration. According to
₱500,000.00 under the bills purchase line; and ₱1.5 million under the the RTC, the real estate mortgage lacks consideration because the loan
time loan from respondent Solidbank Corporation (bank).5 contract was not perfected due to the failure of the bank to deliver the
full ₱3 million to petitioners.20 The RTC also found the bank guilty of
On March 17, 1997, petitioners received from the bank the amount of fraud and bad faith, thereby ordering it to pay petitioners moral and
₱1 million as additional working capital evidenced by a promissory exemplary damages, and attorney’s fees. The RTC ruled:
note6 and secured by a real estate mortgage7 in favor of the bank
covering several real properties situated in Santiago City.8 Furthermore, it appears that the defendant unilaterally changed the
term and condition of their loan contract by releasing only P1M of the
Due to the failure of petitioners to pay the obligation, the bank P3M approved loan. The defendant, in so doing, violated their principal
foreclosed the mortgage and sold the properties at public auction.9 contract of loan in bad faith, and should be held liable therefor.

On August 19, 1999, petitioners filed a Complaint10 for nullity of real Likewise, the defendant bank acted in bad faith when it made it appear
estate mortgage and sheriff’s certificate of sale11 with prayer for that the mortgage was executed by the plaintiffs on June 16, 1997,
damages, docketed as Civil Case No. 35-2779, against the bank and when the document was acknowledged before Atty. German Balot,
more so, when it made it appear that the mortgage was registered with
the Register of Deeds allegedly on the same date, when in truth and in 2. Likewise DECLARING as null and void the Sheriff’s Foreclosure and the
fact, the plaintiffs executed said mortgage sometime [in] March, 1997, Certificate of Sale, dated October 7, 1998 (Exhibit "F" to "F-3");
obviously much earlier than June 16, 1997; for, if indeed the mortgage
was executed on said date, June 16, 1997, it should have been written 3. ORDERING the defendant to pay the plaintiffs the following damages:
on the mortgage contract itself. On the contrary, the date and place of
execution [were left blank]. Amazingly, defendant claims that it was the a) Php 1,000,000.00, moral damages;
plaintiffs who [had the] mortgage notarized by Atty. Balot; such claim b) Php 500,000.00, exemplary damages; and
however is contrary or against its own interest, because, the defendant c) Php 50,000.00, Attorney’s fee; and
should be the most interested party in the genuineness and due
execution of material important papers and documents such as the 4. ORDERING the defendant to pay the cost of litigation, including
mortgage executed in its favor to ensure the protection of its interest plaintiffs’ counsel’s court appearance at Php1,500.00 each.
embodied in said documents, and the act of leaving the notarization of
such a very important document as a mortgage executed in its favor is SO ORDERED.21
contrary to human nature and experience, more so against its interest;
hence, the claim is untrue. Ruling of the Court of Appeals

Moreover, the defendant also appears to have been motivated by bad On appeal, the CA reversed the ruling of the RTC. The CA said that based
faith amounting to fraud when it was able to register the mortgage with on the promissory note and the real estate mortgage contract, the
the Register of Deeds at the time when the collateral certificates of properties covered by TCT Nos. T-225131 and T-225132 were
titles were still in the custody and possession of another mortgagee mortgaged to secure the loan in the amount of ₱1 million, and not the
bank (PNB) due also to an existing/subsisting mortgage covering the ₱3 million loan applied by petitioners.22 As to the venue of the auction
same. Definitely, the defendant resorted to some machinations or sale, the CA declared that since the properties subject of the case are in
fraudulent means in registering the contract of mortgage with the Santiago City, the holding of the auction sale in Santiago City was
Register of Deeds. This should not be countenanced. proper23 pursuant to Sections 124 and 225 of Act No. 3135.26 The CA
likewise found no fraud or bad faith on the part of the bank to warrant
Thus, on account of defendant’s bad faith, plaintiffs suffered mental the award of damages by the RTC, thus:
anguish, serious anxiety, besmirched reputation, wounded feelings,
moral shock and social humiliation, which entitle them to the award of The List of Properties Mortgaged printed at the dorsal side of the real
moral damages, more so, that it was shown that defendants’ bad faith estate mortgage contract particularly includes the subject parcels of
was the proximate cause of these damages plaintiffs suffered. land covered by TCT No. T-225132 and TCT No. T-225131. Below the
enumeration, the signatures of [petitioners] clearly appear. The
xxxx document was notarized before Notary Public German M. Balot. We
WHEREFORE, with all the foregoing considerations, judgment is hereby therefore find no cogent reason why the validity of the real estate
rendered in favor of the plaintiffs and against the defendant as follows: mortgage covering the two subject properties should not be sustained.

1. DECLARING as null and void the undated real estate mortgage Settled is the rule in our jurisdiction that a notarized document has in its
between the plaintiffs and the defendant, appearing as Doc. No. 553; favor the presumption of regularity, and to overcome the same, there
Page No. 29; Book No. 28; Series of 1997; (Exhibits "B" for the plaintiffs, must be evidence that is clear, convincing and more than merely
Exhibit "1" for the defendant); preponderant; otherwise the document should be upheld. Clearly, the
positive presumption of the due execution of the subject real estate TRIAL COURT OF SANTIAGO CITY THEREBY IN EFFECT DISMISSING THE
mortgage outweighs [petitioners’] bare and unsubstantiated denial that COMPLAINT FILED BY THE PETITIONERS AGAINST RESPONDENTS
the parcels of land covered by TCT Nos. T-225132 and T-225131 were SOLIDBANK CORPORATION AND SHERIFF MAYO DELA CRUZ.
among those intended to secure the loan of One Million Pesos. Their
imputation of fraud among the officials of [the bank] is weak and (B)
unpersuasive. x x x THE COURT OF APPEALS ERRED IN DECLARING VALID THE REAL ESTATE
MORTGAGE EXECUTED BETWEEN THE PETITIONERS AND RESPONDENT
xxxx SOLIDBANK CORPORATION AND IN SUSTAINING THE VALIDITY OF THE
We also note why despite the alleged non-approval of [petitioners’] CERTIFICATE OF SALE ISSUED BY RESPONDENT SHERIFF MAYO DELA
application for additional loan, the owner’s copy of TCT Nos. T-225131 CRUZ.
and T-225132 remained in the possession of [the bank]. [Petitioners’]
claim that they were still hoping to obtain an additional loan in the (C)
future appears to this court as a weak explanation. The continued THE COURT OF APPEALS ERRED IN MISAPPRECIATING THE
possession by the bank of the certificates of title merely supports the
bank’s position that the parcels of land covered by these titles were FINDINGS OF FACTS OF BRANCH 35, REGIONAL TRIAL COURT OF
actually mortgaged to secure the payment of the One Million Peso loan. SANTIAGO CITY.29

xxxx Simply put, the core issue in this case is the validity of the real estate
WHEREFORE, in view of the foregoing, the assailed decision of the mortgage and the auction sale.
Regional Trial Court, Branch 35 of Santiago City in Civil Case No. 35-2779
is hereby ANNULLED and SET ASIDE and a new one entered: Petitioners’ Arguments

(1) DISMISSING the complaint filed by the plaintiffs-appellees against Petitioners echo the ruling of the RTC that the real estate mortgage and
the defendants-appellants; and certificate of sale are void because the bank failed to deliver the full
amount of the loan. They likewise impute bad faith and fraud on the
(2) Declaring VALID the questioned real estate mortgage and certificate part of the bank in including TCT Nos. T-225131 and T-225132 in the list
of sale. of properties mortgaged. They insist that they did not sign the dorsal
portion of the real estate mortgage contract, which contains the list of
SO ORDERED.27 properties mortgaged, because at that time the dorsal portion was still
blank;30 and that TCT Nos. T-225131 and T-225132 were not intended
On February 1, 2006, petitioners moved for reconsideration but the CA to be included in the list of mortgaged properties because these titles
denied the same in its Resolution dated April 12, 2006.28 were still mortgaged with the PNB at the time the real estate mortgage
subject of this case was executed.31 Moreover, they claim that they
Issues delivered the titles of these properties to the bank as additional
collateral for their additional loans, and not for the ₱1 million loan.32
Hence, the present recourse, where petitioners allege that:
(A) Respondent bank’s Arguments

THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION The bank denies petitioners’ allegations of fraud and bad faith and
IN ANNULLING OR REVERSING THE FINDINGS OF BRANCH 35, REGIONAL argues that the real estate mortgage which was properly notarized
enjoys the presumption of regularity.33 It maintains that TCT Nos. T- mortgaged are the signatures of petitioners.39 Except for the bare
225131 and T-225132 were mortgaged as additional collateral for the denials of petitioner, no other evidence was presented to show that the
₱1 million loan.34 signatures appearing on the dorsal portion of the real estate mortgage
contract are forgeries.
Our Ruling
Likewise flawed is petitioners’ reasoning that TCT Nos. T-225131 and T-
The petition is bereft of merit. 225132 could not have been included in the list of properties mortgaged
as these were still mortgaged with the PNB at that time. Under our laws,
The loan contract was perfected. a mortgagor is allowed to take a second or subsequent mortgage on a
property already mortgaged, subject to the prior rights of the previous
Under Article 193435 of the Civil Code, a loan contract is perfected only mortgages.401avvphi1
upon the delivery of the object of the contract.
As to the RTC’s finding that "the x x x bank acted in bad faith when it
In this case, although petitioners applied for a ₱3 million loan, only the made it appear that the mortgage was executed by the [petitioners] on
amount of ₱1 million was approved by the bank because petitioners June 16, 1997, when the document was acknowledged before Atty.
became collaterally deficient when they failed to purchase TCT No. T- German, x x x when in truth and in fact, the [petitioners] executed said
227331 which had an appraised value of ₱1,944,000.00.36 Hence, on mortgage sometime in March, 1997 x x x," we find the same without
March 17, 1997, only the amount of ₱1 million was released by the bank basis. A careful perusal of the real estate mortgage contract would show
to petitioners.37 that the bank did not make it appear that the real estate mortgage was
executed on June 16, 1997, the same day that it was notarized, as the
Upon receipt of the approved loan on March 17, 1997, petitioners date of execution of the real estate mortgage contract was left blank.41
executed a promissory note for the amount of ₱1 million.38 As security And the mere fact that the date of execution was left blank does not
for the ₱1 million loan, petitioners on the same day executed in favor of prove bad faith. Besides, any irregularity in the notarization or even the
the bank a real estate mortgage over the properties covered by TCT lack of notarization does not affect the validity of the document. Absent
Nos. T-237695, T-237696, T-237698, T-143683, T-143729, T-225131 and any clear and convincing proof to the contrary, a notarized document
T-225132. Clearly, contrary to the findings of the RTC, the loan contract enjoys the presumption of regularity and is conclusive as to the
was perfected on March 17, 1997 when petitioners received the ₱1 truthfulness of its contents.42
million loan, which was the object of both the promissory note and the
real estate mortgage executed by petitioners in favor of the bank. All told, we find no error on the part of the CA in sustaining the validity
of the real estate mortgage as well as the certificate of sale.
Claims of fraud and bad faith are unsubstantiated.
WHEREFORE, the petition is hereby DENIED. The assailed January 11,
Petitioners claim that there was fraud and bad faith on the part of the 2006 Decision of the Court of Appeals and its April 12, 2006 Resolution
bank in the execution and notarization of the real estate mortgage in CA-G.R. CV No. 84236 are hereby AFFIRMED.
contract.
SO ORDERED.
We do not agree.

There is nothing on the face of the real estate mortgage contract to

arouse any suspicion of insertion or forgery. Below the list of properties
G.R. No. 208638 With regard to the ₱5,000,000.00 credit line, only ₱3,000,000.00 was
released. BSA promised to release the remaining ₱2,000,000.00
SPOUSES FRANCISCO ONG and BETTY LIM ONG, and SPOUSES JOSEPH conditioned upon the payment of the ₱3,000,000.00 initially released to
ONG CHUAN and ESPERANZA ONG CHUAN, Petitioners petitioners.
vs.
BPI FAMILY SAVINGS BANK, INC.,, Respondent Petitioners acceded to the condition and paid the ₱3,000,000.00 in full.
However, BSA still refused to release the ₱2,000,000.00. Petitioners
DECISION then refused to pay the amortizations due on their term loan.

REYES, JR., J.: Later on, BPI Family Savings Bank (BPI) merged with BSA, thus, acquired
all the latter's rights and assumed its obligations. BPI filed a petition for
This is a Petition for Review under Rule 45 of the Rules of Court, as extrajudicial foreclosure of the REM for petitioners' default in the
amended, seeking to reverse and set aside the Decision 1 dated January payment of their term loan.
3 1, 2013 and Resolution2 dated August 16, 2013 of the Court of
Appeals (CA) in CA-G.R. CV No. 92348 In order to enjoin the foreclosure, petitioners instituted an action for
damages with Temporary Restraining Order and Preliminary Injunction
The Facts against BPI praying for ₱23,570,881.32 as actual damages;
₱1,000,000.00 as moral damages; ₱500,000.00 as attorney's fees,
Spouses Francisco Ong and Betty Lim Ong and Spouses Joseph Ong litigation expenses and costs of suit.
Chuan and Esperanza Ong Chuan (collectively referred to as the
petitioners) are engaged in the business of printing under the name and On November 10, 2008, the trial court rendered its Decision,4 disposing,
style "MELBROS PRINTING CENTER".3 thus:

Sometime in December 1996, Bank of Southeast Asia's (BSA) managers, WHEREFORE, in view of all the foregoing, the Court hereby resolves in
Ronnie Denila and Rommel Nayve, visited petitioners' office and favor of the plaintiffs and against the defendant bank for the latter to
discussed the various loan and credit facilities offered by their bank. In pay the former the above-cited sum of Php20,469,498.00 by way of
view of petitioners' business expansion plans and the assurances made actual damages and Php500,000.00 by way of attorney's fees.
by BSA's managers, they applied for the credit facilities offered by the
latter. No pronouncement as to costs.

Sometime in April 1997, they executed a real estate mortgage (REM) SO ORDERED.5
over their property situated in Paco, Manila, covered by Transfer
Certificate of Title No. 143457, in favor of BSA as security for a BPI thereafter appealed to the CA averring that the court a quo erred
₱15,000,000.00 term loan and ₱5,000,000.00 credit line or a total of when it ruled that petitioners were entitled to damages. BPI posited
₱20,000,000.00. that petitioners are liable to them on the principal balance of the
mortgage loan agreement.
With regard to the term loan, only ₱10,444,271.49 was released by BSA
(the amount needed by the petitioners to pay out their loan with Ayala The CA reversed the decision of the lower court and ruled in favor of
life assurance, the balance was credited to their account with BSA). BPI, the dispositive portion of which states:
 be 8:ttributed to BPI, the successor-in-interest of BSA. Petitioners
WHEREFORE, in the light of the foregoing, the assailed Decision dated likewise pointed out that it was error for the CA to delve into the matter
10 November 2008 of the Regional Trial Court, Branch 49, Manila, in regarding existence or perfection of a contract, especially when such
Civil Case No. 02-105189 is hereby REVERSED and SET ASIDE. The issue was never raised by BPI in any of its pleadings or proceedings in
Complaint for Damages below is DISMISSED for lack of merit. the lower court.

SO ORDERED. As a rule, a contract is perfected upon the meeting of the minds of the
two parties. It is perfected by mere consent, that is, from the moment
Petitioners filed a Motion for Reconsideration but the same was denied that there is a meeting of the offer and acceptance upon the thing and
by the CA in a Resolution dated August 16, 2013, viz.: the cause that constitute the contract.8

Finding no new matter of substance which would warrant the In the case of Spouses Palada v. Solidbank Corporation, et al.,9 this
modification much less the reversal of the assailed decision, plaintiffs- Court held that under Article 1934 of the Civil Code, a loan contract is
appellees' motion for reconsideration is hereby DENIED for lack of perfected only upon the delivery of the object of the contract. In that
merit. case, although therein petitioners applied for a ₱3,000,000.00 loan, only
the amount of ₱1,000,000.00 was approved by therein respondent bank
SO ORDERED.6 because petitioners became collaterally deficient. Nonetheless, the loan
contract was deemed perfected on March 17, 1997, the date when
Aggrieved, petitioners filed the present petition. petitioners received the ₱1,000,000.00 loan, which was the object of
the contract and the date when the REM was constituted over the
The Issues property. 10

I. WHETHER OR NOT THERE WAS ALREADY AN EXISTING AND BINDING Applying this to the case at bench, there is no iota of doubt that when
CONTRACT BETWEEN PETITIONERS AND BSA WITH REGARD TO THE BSA approved and released the ₱3,000,000.00 out of the original
OMNIBUS CREDIT LINE; ₱5,000,000.00 credit facility, the contract was perfected.

II. WHETHER OR NOT BSA INCURRED DELAY IN THE PERFORMANCE OF The conclusion reached by the appellate court that only the term loan of
ITS OBLIGATIONS; Ill. WHETHER OR NOT PETITIONERS ARE ENTITLED TO ₱15,000,000.00 was proved to have materialized into an actual contract
DAMAGES; and while the ₱5,000,000.00 omnibus line credit remained non-existent is
ludicrous. A careful perusal of the records reveal that the credit facility
IV. WHETHER OR NOT BPI CAN FORECLOSE THE MORTGAGE ON THE that BSA extended to petitioners was a credit line of ₱20,000,000.00
LAND OF HEREIN PETITIONERS.7 consisting of a term loan in the sum of ₱15,000,000.00 and a revolving
omnibus line of ₱3,000,000.00 to be used in the petitioner's printing
Ruling of the Court business. In separate Letters both dated January 31, 1997, BSA
approved the term loan and the credit line. Such approval and
The Court finds merit in the petition. subsequent release of the amounts, albeit delayed, perfected the
contract between the parties.
In fine, petitioners contend that the CA in its assailed decision erred in
ruling that that there was no perfected contract between the pai1ies Loan is a reciprocal obligation, as it arises from the same cause where
with respect to the omnibus credit line and that being so, no delay could one party is the creditor and the other the debtor. 11 The obligation of
one party in a reciprocal obligation is dependent upon the obligation of
the other, and the performance should ideally be simultaneous. This Assuming for the sake of discussion that the funds at the time were
means that in a loan, the creditor should release the full loan amount insufficient to cover the entire ₱5,000,000.00, BSA should have at least
and the debtor repays it when it becomes due and demandable. 12 informed petitioners in advance so that the latter could have resorted to
other means to secure the amount needed for their printing business.
In this case, BSA did not only incur delay in releasing the pre-agreed The omnibus line was approved and became effective on January 1997
credit line of ₱5,000,000.00 but likewise violated the terms of its yet BSA did not allow petitioners to draw from the line until November
agreement with petitioners when it deliberately failed to release the 1997. Moreover, BSA downgraded petitioners' drawdown to only
amount of ₱2,000,000.00 after petitioners complied with their terms ₱3,000,000.00 despite the clear wordings of their credit agreement
and paid the first ₱3,000,000.00 in full. The default attributed to whereby petitioners were allowed to draw any portion or all of the
petitioners when they stopped paying their amortizations on the term omnibus line not to exceed ₱5,000,000.00. The almost 10 months delay
loan cannot be sustained by this Court because long before they sent a in releasing the amount applied for by petitioners negates good faith on
Letter to BSA informing the latter of their refusal to continue paying the part of BSA.
amortizations, BSA had already reneged on its obligation to release the
amount previously agreed upon, i.e., the ₱5,000,000.00 covered by the BPI insists that it acted in good faith when it sought extrajudicial
credit line. foreclosure of the mortgage and that it was not responsible for acts
committed by its predecessor, BSA. Good faith, however, is not an
Article 1170 of the Civil Code enumerates the instances when parties to excuse to exempt BPI from the effects of a merger or consolidation, viz.:
a contract may be held liable for damages, viz.:
Section 80. Effects of merger or consolidation. - The merger or
Article 1170. Those who in the performance of their obligations are consolidation shall have the following effects:
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages. 1. The constituent corporations shall become a single corporation
which, in case of merger, shall be the surviving corporation designated
It bears stressing that petitioners entered into a credit agreement with in the plan of merge; and, in case of consolidation, shall be the
BSA to enable them to buy machineries and equipment for their printing consolidated corporation designated in the plan of consolidation;
business. On its face, it can be gleaned that the purpose of the credit
agreement with BSA was indeed to assist and finance petitioner's xxxx
business by way of providing additional funds as working capital or
revolving fund. 13 4. The surviving or the consolidated corporation shall thereupon and
thereafter possess all the right, privileges, immunities and franchises of
The direct consequences therefore of the acts of BSA are: the machinery each of the constituent corporations; and all property, real or personal,
and equipment that were essential to petitioners' business and requisite and all receivable due on whatever account, including subscriptions to
for its operations had to be procured so late in time and had crippled shares and other choses in action, and all and every other interest of, or
the printing of school supplies, hence, petitioners were constrained to belonging to, or due to each constituent corporation, shall be deemed
cancel purchase orders of their clients to petitioners' damage. 14 transferred to and vested in such surviving or consolidated corporation
without further act or deed; and
BSA claims that the release of the amount covered by the credit line was
subject to the "availability of funds" thus only a part of the proceeds of 5. The surviving or consolidated corporation shall be responsible and
the entire omnibus line was released. liable for all the liabilities and obligations of each of the constituent
corporations in the same manner as if such surviving or consolidated be able to secure their machineries and meet the orders of their clients.
corporation had itself incurred such liabilities or obligations; and any 16
pending claim, action, or proceeding brought by or against any of such
constituent corporations may be prosecuted by or against the surviving The subsequent refusal of BSA in releasing the maximum amount
or consolidated corporation. The rights of creditors or liens upon the agreed upon, transgressed the very purpose of petitioners in availing
property of any of such constituent corporations shall not be impaired the credit facility. Clearly, given the nature of petitioners' business, time
by such merger or consolidation. is of the essence as they needed to have the orders ready before
opening of classes.
Applying the pertinent provisions of the Corporation Code, BPI did not
only acquire all the rights, privileges and assets of BSA but likewise To emphasize the injury caused to the petitioners due to the bank's
acquired the liabilities and obligations of the latter as if BPI itself delay and subsequent refusal to release the omnibus loan, the
incurred it. petitioners testified as follows:

Moreover, Section 1(e) of the Articles of Merger dated November 21, Q The fact that the bank did not allow you to avail of the omnibus line,
2001 provides that all liabilities and obligations of BSA shall be what is the effect to your business?
transferred to and become the liabilities and obligations of BPI in the
same manner as if it had itself incurred such liabilities or obligations. 15 A Because I have already manufactured the notebooks/or St. Michael
and I already sent them to supermarkets and family stores like SM and
Pursuant to such merger and consolidation, BPI's right to foreclose the Gaisano and they have PO coming, I cannot deliver the goods because
mortgage on petitioner's property depends on the status of the contract of lack of funds. They kept calling and confirming about their PO.
and the corresponding obligations of the parties originally involved, that Because of this my reputation is going down.
is, the agreement between its predecessor BSA and petitioner.
(TSN dated November 28, 2002 pp. 28-29)
Since BSA incurred delay in the performance of its obligations and
subsequently cancelled the omnibus line without petitioners' consent, Witness: And the 4.2 was released ... When we originally received the
its successor BPI cannot be permitted to foreclose the loan for the Php 4.2 Million, we could not push through with our plan in our
reason that its successor BSA violated the terms of the contract even business, sir.
prior to petitioners' justified refusal to continue paying the
amortizations. Court: Why?

The trial court pointed out that based on the evidence presented by Witness: Because it was not sufficient and money came to us very late
petitioners, the latter conformed to the acquisition of the loan precisely with the lines of our plans, because we are supposed to manufacture
because BSA promised them working capital for the expansion of their notebooks, school items in time for the school opening in June, and it
business, viz.: was delayed, your Honor. We continued paying our amortization for
two years. We paid almost 7 million.
Clear from the plaintiffs' evidence actually presented and marked is the
fact that plaintiffs conformed to the acquisition of the loan principally (TSN dated September 24, 2007 pp. 13 and 14)
upon the promise by BSA that the working capital would be made
available to plaintiffs on time for the opening of classes, for plaintiffs to Q How important is your working capital to your business?
A: The omnibus line is the most important in the business. It is true that loans are often secured by a mortgage constituted on real
or personal property to protect the creditor's interest in case of the
Court: The question is, why is it important? default of the debtor.1âwphi1 By its nature, however, a mortgage
remains an accessory contract dependent on the principal obligation,
A: Because I need capital for my business to replenish my supply and to such that enforcement of the mortgage contract will depend on
pay the labor and materials whether or not there has been a violation of the principal obligation.
While a creditor and a debtor could regulate the order in which they
Atty. Cinco: and when you said the proceeds of the omnibus line was should comply with their reciprocal obligations, it is presupposed that in
released only on November 10, 1997, how did this affect your business? a loan the lender should perform its obligation - the release of the full
loan amount - before it could demand that the borrower repay the
A: My business suffered badly because I already got the orders from the loaned amount. In other words, Guariña Corporation would not incur in
department stores and book stores. delay before DBP fully performed its reciprocal obligation. 19

(TSN dated September 17, 2004 pp. 43-44) 17 Since the credit facility that BSA extended to petitioners was a credit
line total of ₱20,000,000.00, its refusal to release the balance on the
The CA, on the other hand, is of the opinion that the delay and damages omnibus line prevented full performance of its obligation to petitioners.
claimed by the petitioners are mere cloaks to hide their obligations in There being no release of the full loan amount, no default could be
the mortgage loan agreement. attributed to petitioners. In other words, foreclosure was premature.

The Court disagrees. In Metropolitan Bank v. Wong,20 the Court declared:

No evidence was ever presented in the lower courts showing that the While the law recognizes the right of a bank to foreclose a mortgage
petitioners defaulted in paying their amortizations on the term loan upon the mortgagor's failure to pay his obligation, it is imperative that
prior to their refusal which was mainly grounded on BSA's failure to such right be exercised according to its clear mandate. Each and every
release the amount covered by the omnibus line. Petitioners' requirement of the law must be complied with, lest, the valid exercise of
continuous payment of amortizations even during the period between the right would end. It must be remembered that the exercise of a right
January 1997 and November 1997 (when BSA incurred delay in releasing ends when the right disappears, and it disappears when it is abused
the omnibus line credit) is inconsistent with the appellate court's finding especially to the prejudice of others.21
that petitioners intended to hide their obligations in the mortgage loan
agreement. Petitioners' refusal to continue paying was only prompted BPI was remiss in its duty of looking into the transaction involving the
by BSA's refusal to abide by the terms of the contract. Thus, it would be mortgage it sought to foreclose. As BSA's successor-in-interest, it cannot
the height of injustice to allow BPI to foreclose on the mortgage despite feign ignorance of transactions entered into by the former especially
violation of its predecessor BSA of its principal obligation. when it seeks to benefit from the same by foreclosing the mortgage
thereon.
In the case of Development Bank of the Philippines v. Guariña
Agricultural and Realty Development Corp., 18 the Court ruled that a Anent the propriety of awarding damages, the Court upholds the ruling
debtor cannot incur delay unless the creditor has fully performed its of the trial court that actual damages in the amount of ₱2,772,000.00 is
reciprocal obligation, viz.: proper. Said amount is the computed total difference in interest paid to
other sources and that which should have only been paid to BSA had the
latter complied with the terms of the agreement. However, with regard
to the claim of damages representing petitioners' unrealized profits of
₱23,570,881.32, the Court agrees with the CA that petitioners failed to
prove with a reasonable degree of certainty, premised upon competent
proof and on the best evidence obtainable, the actual amount of loss.
Although petitioners were able to present in evidence purchase orders,
company records and checks, the Court agrees with the appellate court
that these are insufficient as they are self-serving. Although petitioners
claimed that these orders were cancelled, no other evidence was
adduced to prove such fact of cancellation.

The law allows the grant of exemplary damages to set an example for
the public good. The banking system has become an indispensable
institution in the modem world and plays a vital role in the economic life
of every civilized society. Whether as mere passive entities for .the safe-
keeping and saving of money or as active instruments of business and
commerce, banks have attained an ubiquitous presence among the
people, who have come to regard them with respect and even gratitude
and most of all, confidence. For this reason, banks should guard against
injury attributable to negligence or bad faith on its part.22 Thus, the
Court finds it proper to likewise award exemplary damages in the
amount of ₱100,000.00.

Finally, as to the matter concerning attorney's fees, the Court finds the
₱500,000.00 awarded by the trial court to be excessive and should
accordingly be reduced to ₱300,000.00.

WHEREFORE, in light of the foregoing, the petition is hereby GRANTED.

The Decision dated January 31, 2013 of the Court of Appeals in CA-G.R.
CV No. 92348 is hereby REVERSED and SET ASIDE. The questioned
extrajudicial foreclosure of real estate mortgage is likewise declared
VOID. Respondent BPI Family Savings Bank, Inc. is hereby ORDERED to
pay petitioners Spouses Francisco Ong and Betty Lim Ong and spouses
Joseph Ong Chuan and Esperanza Ong Chuan the amount of
₱2,772,000.00 as actual or compensatory damages; ₱100,000.00 as
exemplary damages; ₱300,000.00 as attorney's fees; and interest of six
percent (6%) per annum on all the amounts of damages reckoned from
the finality of this decision.

SO ORDERED.
 and for the amount of Ninety Five Thousand Pesos (₱95,000.00). The
proceeds of these checks were to constitute the loan granted by
Naguiat to Queaño.3

To secure the loan, Queaño executed a Deed of Real Estate Mortgage

dated 11 August 1980 in favor of Naguiat, and surrendered to the latter
the owner’s duplicates of the titles covering the mortgaged properties.4
G.R. No. 118375 October 3, 2003 On the same day, the mortgage deed was notarized, and Queaño issued
to Naguiat a promissory note for the amount of TWO HUNDRED
CELESTINA T. NAGUIAT, petitioner, THOUSAND PESOS (₱200,000.00), with interest at 12% per annum,
vs. payable on 11 September 1980.5 Queaño also issued a Security Bank
COURT OF APPEALS and AURORA QUEAÑO, respondents. and Trust Company check, postdated 11 September 1980, for the
amount of TWO HUNDRED THOUSAND PESOS (₱200,000.00) and
DECISION payable to the order of Naguiat.

TINGA, J.: Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. On the following day, 12
Before us is a Petition for Review on Certiorari under Rule 45, assailing September 1980, Queaño requested Security Bank to stop payment of
the decision of the Sixteenth Division of the respondent Court of her postdated check, but the bank rejected the request pursuant to its
Appeals promulgated on 21 December 19941 , which affirmed in toto policy not to honor such requests if the check is drawn against
the decision handed down by the Regional Trial Court (RTC) of Pasay insufficient funds.6
City.2
On 16 October 1980, Queaño received a letter from Naguiat’s lawyer,
The case arose when on 11 August 1981, private respondent Aurora demanding settlement of the loan. Shortly thereafter, Queaño and one
Queaño (Queaño) filed a complaint before the Pasay City RTC for Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting,
cancellation of a Real Estate Mortgage she had entered into with Queaño told Naguiat that she did not receive the proceeds of the loan,
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, adding that the checks were retained by Ruebenfeldt, who purportedly
declaring the questioned Real Estate Mortgage void, which Naguiat was Naguiat’s agent.7
appealed to the Court of Appeals. After the Court of Appeals upheld the
RTC decision, Naguiat instituted the present petition.1ªvvphi1.nét Naguiat applied for the extrajudicial foreclosure of the mortgage with
the Sheriff of Rizal Province, who then scheduled the foreclosure sale on
The operative facts follow: 14 August 1981. Three days before the scheduled sale, Queaño filed the
case before the Pasay City RTC,8 seeking the annulment of the
Queaño applied with Naguiat for a loan in the amount of Two Hundred mortgage deed. The trial court eventually stopped the auction sale.9
Thousand Pesos (₱200,000.00), which Naguiat granted. On 11 August
1980, Naguiat indorsed to Queaño Associated Bank Check No. 090990 On 8 March 1991, the RTC rendered judgment, declaring the Deed of
(dated 11 August 1980) for the amount of Ninety Five Thousand Pesos Real Estate Mortgage null and void, and ordering Naguiat to return to
(₱95,000.00), which was earlier issued to Naguiat by the Corporate Queaño the owner’s duplicates of her titles to the mortgaged lots.10
Resources Financing Corporation. She also issued her own Filmanbank Naguiat appealed the decision before the Court of Appeals, making no
Check No. 065314, to the order of Queaño, also dated 11 August 1980 less than eleven assignments of error. The Court of Appeals
promulgated the decision now assailed before us that affirmed in toto case that pointed to the absence of consideration.18 This Court has held
the RTC decision. Hence, the present petition. that the presumption of truthfulness engendered by notarized
documents is rebuttable, yielding as it does to clear and convincing
Naguiat questions the findings of facts made by the Court of Appeals, evidence to the contrary, as in this case.19
especially on the issue of whether Queaño had actually received the
loan proceeds which were supposed to be covered by the two checks On the other hand, absolutely no evidence was submitted by Naguiat
Naguiat had issued or indorsed. Naguiat claims that being a notarial that the checks she issued or endorsed were actually encashed or
instrument or public document, the mortgage deed enjoys the deposited. The mere issuance of the checks did not result in the
presumption that the recitals therein are true. Naguiat also questions perfection of the contract of loan. For the Civil Code provides that the
the admissibility of various representations and pronouncements of delivery of bills of exchange and mercantile documents such as checks
Ruebenfeldt, invoking the rule on the non-binding effect of the shall produce the effect of payment only when they have been
admissions of third persons.11 cashed.20 It is only after the checks have produced the effect of
payment that the contract of loan may be deemed perfected. Art. 1934
The resolution of the issues presented before this Court by Naguiat of the Civil Code provides:
involves the determination of facts, a function which this Court does not
exercise in an appeal by certiorari. Under Rule 45 which governs appeal "An accepted promise to deliver something by way of commodatum or
by certiorari, only questions of law may be raised12 as the Supreme simple loan is binding upon the parties, but the commodatum or simple
Court is not a trier of facts.13 The resolution of factual issues is the loan itself shall not be perfected until the delivery of the object of the
function of lower courts, whose findings on these matters are received contract."
with respect and are in fact generally binding on the Supreme Court.14
A question of law which the Court may pass upon must not involve an A loan contract is a real contract, not consensual, and, as such, is
examination of the probative value of the evidence presented by the perfected only upon the delivery of the object of the contract.21 In this
litigants.15 There is a question of law in a given case when the doubt or case, the objects of the contract are the loan proceeds which Queaño
difference arises as to what the law is on a certain state of facts; there is would enjoy only upon the encashment of the checks signed or indorsed
a question of fact when the doubt or difference arises as to the truth or by Naguiat. If indeed the checks were encashed or deposited, Naguiat
the falsehood of alleged facts.16 would have certainly presented the corresponding documentary
evidence, such as the returned checks and the pertinent bank records.
Surely, there are established exceptions to the rule on the Since Naguiat presented no such proof, it follows that the checks were
conclusiveness of the findings of facts of the lower courts.17 But not encashed or credited to Queaño’s account.1awphi1.nét
Naguiat’s case does not fall under any of the exceptions. In any event,
both the decisions of the appellate and trial courts are supported by the Naguiat questions the admissibility of the various written
evidence on record and the applicable laws. representations made by Ruebenfeldt on the ground that they could not
bind her following the res inter alia acta alteri nocere non debet rule.
Against the common finding of the courts below, Naguiat vigorously The Court of Appeals rejected the argument, holding that since
insists that Queaño received the loan proceeds. Capitalizing on the Ruebenfeldt was an authorized representative or agent of Naguiat the
status of the mortgage deed as a public document, she cites the rule situation falls under a recognized exception to the rule.22 Still, Naguiat
that a public document enjoys the presumption of validity and insists that Ruebenfeldt was not her agent.
truthfulness of its contents. The Court of Appeals, however, is correct in
ruling that the presumption of truthfulness of the recitals in a public Suffice to say, however, the existence of an agency relationship
document was defeated by the clear and convincing evidence in this between Naguiat and Ruebenfeldt is supported by ample evidence. As
correctly pointed out by the Court of Appeals, Ruebenfeldt was not a WHEREFORE, the petition is denied and the assailed decision is affirmed.
stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to Costs against petitioner.
withhold from Queaño the checks she issued or indorsed to Queaño,
pending delivery by the latter of additional collateral. Ruebenfeldt SO ORDERED.
served as agent of Naguiat on the loan application of Queaño’s friend,
Marilou Farralese, and it was in connection with that transaction that
Queaño came to know Naguiat.23 It was also Ruebenfeldt who
accompanied Queaño in her meeting with Naguiat and on that occasion,
on her own and without Queaño asking for it, Reubenfeldt actually drew
a check for the sum of ₱220,000.00 payable to Naguiat, to cover for
Queaño’s alleged liability to Naguiat under the loan agreement.24

The Court of Appeals recognized the existence of an "agency by

estoppel25 citing Article 1873 of the Civil Code.26 Apparently, it
considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queaño got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaño’s impression. In that situation, the rule is clear. One
who clothes another with apparent authority as his agent, and holds
him out to the public as such, cannot be permitted to deny the authority
of such person to act as his agent, to the prejudice of innocent third
parties dealing with such person in good faith, and in the honest belief
that he is what he appears to be.27 The Court of Appeals is correct in
invoking the said rule on agency by estoppel.1awphi1.nét

More fundamentally, whatever was the true relationship between

Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the
checks issued or indorsed to Queaño were never encashed or deposited
to her account of Naguiat.

All told, we find no compelling reason to disturb the finding of the

courts a quo that the lender did not remit and the borrower did not
receive the proceeds of the loan. That being the case, it follows that the
mortgage which is supposed to secure the loan is null and void. The
consideration of the mortgage contract is the same as that of the
principal contract from which it receives life, and without which it
cannot exist as an independent contract.28 A mortgage contract being a
mere accessory contract, its validity would depend on the validity of the
loan secured by it.29
 According to petitioner, respondent failed to pay the principal amounts
of the loans (US$100,000 and ₱500,000) 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 ₱500,000, with interest thereon at
4% a month from November 5, 1995, plus attorney’s 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
G.R. No. 154878 March 16, 2007 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,
CAROLYN M. GARCIA, Petitioner, respondent again borrowed the amount of ₱500,000 at an agreed
vs. monthly interest of 4%, the maturity date of which was on November 5,
RICA MARIE S. THIO, Respondent. 1995.14 The amount of this loan was covered by the second check. For
both loans, no promissory note was executed since petitioner and
DECISION respondent were close friends at the time.15 Respondent paid the
CORONA, J.: stipulated monthly interest for both loans but on their maturity dates,
she failed to pay the principal amounts despite repeated demands.
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) Respondent denied that she contracted the two loans with petitioner
in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision and countered that it was Marilou Santiago to whom petitioner lent the
of the Regional Trial Court (RTC) of Makati City, Branch 58. money. She claimed she was merely asked by petitioner to give the
crossed checks to Santiago.17 She issued the checks for ₱76,000 and
Sometime in February 1995, respondent Rica Marie S. Thio received ₱20,000 not as payment of interest but to accommodate petitioner’s
from petitioner Carolyn M. Garcia a crossed check4 dated February 24, request that respondent use her own checks instead of Santiago’s.18
1995 in the amount of US$100,000 payable to the order of a certain
Marilou Santiago.5 Thereafter, petitioner received from respondent In a decision dated February 28, 1997, the RTC ruled in favor of
every month (specifically, on March 24, April 26, June 26 and July 26, all petitioner.19 It found that respondent borrowed from petitioner the
in 1995) the amount of US$3,0006 and ₱76,5007 on July 26,8 August 26, amounts of US$100,000 with monthly interest of 3% and ₱500,000 at a
September 26 and October 26, 1995. monthly interest of 4%:20

In June 1995, respondent received from petitioner another crossed WHEREFORE, finding preponderance of evidence to sustain the instant
check9 dated June 29, 1995 in the amount of ₱500,000, also payable to complaint, judgment is hereby rendered in favor of [petitioner],
the order of Marilou Santiago.10 Consequently, petitioner received sentencing [respondent] to pay the former the amount of:
from respondent the amount of ₱20,000 every month on August 5,
September 5, October 5 and November 5, 1995.11 1. [US$100,000.00] or its peso equivalent with interest thereon at 3%
per month from October 26, 1995 until fully paid;
2. ₱500,000.00 with interest thereon at 4% per month from November the checks because she was merely facilitating the transactions between
5, 1995 until fully paid. the former and [petitioner].
3. ₱100,000.00 as and for attorney’s fees; and
4. ₱50,000.00 as and for actual damages. 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
For lack of merit, [respondent’s] counterclaim is perforce dismissed. (emphasis supplied)22

With costs against [respondent]. Hence this petition.23

IT IS SO ORDERED.21 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
On appeal, the CA reversed the decision of the RTC and ruled that there under one of the exceptions, i.e., when the factual findings of the CA
was no contract of loan between the parties: (which held that there were no contracts of loan between petitioner
and respondent) and the RTC (which held that there were contracts of
A perusal of the record of the case shows that [petitioner] failed to loan) are contradictory.24
substantiate her claim that [respondent] indeed borrowed money from
her. There is nothing in the record that shows that [respondent] The petition is impressed with merit.
received money from [petitioner]. What is evident is the fact that
[respondent] received a MetroBank [crossed] check dated February 24, A loan is a real contract, not consensual, and as such is perfected only
1995 in the sum of US$100,000.00, payable to the order of Marilou upon the delivery of the object of the contract.25 This is evident in Art.
Santiago and a CityTrust [crossed] check dated June 29, 1995 in the 1934 of the Civil Code which provides:
amount of ₱500,000.00, again payable to the order of Marilou Santiago,
both of which were issued by [petitioner]. The checks received by An accepted promise to deliver something by way of commodatum or
[respondent], being crossed, may not be encashed but only deposited in simple loan is binding upon the parties, but the commodatum or simple
the bank by the payee thereof, that is, by Marilou Santiago herself. loan itself shall not be perfected until the delivery of the object of the
contract. (Emphasis supplied)
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 Upon delivery of the object of the contract of loan (in this case the
check may be negotiated only once—to one who has an account with money received by the debtor when the checks were encashed) the
the bank; (c) and the act of crossing the check serves as warning to the debtor acquires ownership of such money or loan proceeds and is
holder that the check has been issued for a definite purpose so that he bound to pay the creditor an equal amount.26
must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course. It is undisputed that the checks were delivered to respondent. However,
these checks were crossed and payable not to the order of respondent
Consequently, the receipt of the [crossed] check by [respondent] is not but to the order of a certain Marilou Santiago. Thus the main question
the issuance and delivery to the payee in contemplation of law since the to be answered is: who borrowed money from petitioner — respondent
latter is not the person who could take the checks as a holder, i.e., as a or Santiago?
payee or indorsee thereof, with intent to transfer title thereto. Neither
could she be deemed as an agent of Marilou Santiago with respect to Petitioner insists that it was upon respondent’s instruction that both
checks were made payable to Santiago.27 She maintains that it was also
upon respondent’s instruction that both checks were delivered to her checks with cash.36 Her explanation is simply incredible. It is difficult to
(respondent) so that she could, in turn, deliver the same to Santiago.28 believe that respondent would put herself in a position where she
Furthermore, she argues that once respondent received the checks, the would be compelled to pay interest, from her own funds, for loans she
latter had possession and control of them such that she had the choice allegedly did not contract. We declared in one case that:
to either forward them to Santiago (who was already her debtor), to
retain them or to return them to petitioner.29 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
We agree with petitioner. Delivery is the act by which the res or from the mouth of a credible witness, but must be credible in itself such
substance thereof is placed within the actual or constructive possession as the common experience of mankind can approve as probable under
or control of another.30 Although respondent did not physically receive the circumstances. We have no test of the truth of human testimony
the proceeds of the checks, these instruments were placed in her except its conformity to our knowledge, observation, and experience.
control and possession under an arrangement whereby she actually re- Whatever is repugnant to these belongs to the miraculous, and is
lent the amounts to Santiago. outside of juridical cognizance.37

Several factors support this conclusion. Fourth, in the petition for insolvency sworn to and filed by Santiago, it
was respondent, not petitioner, who was listed as one of her
First, respondent admitted that petitioner did not personally know (Santiago’s) creditors.38
Santiago.31 It was highly improbable that petitioner would grant two
loans to a complete stranger without requiring as much as promissory Last, respondent inexplicably never presented Santiago as a witness to
notes or any written acknowledgment of the debt considering that the corroborate her story.39 The presumption is that "evidence willfully
amounts involved were quite big. Respondent, on the other hand, suppressed would be adverse if produced."40 Respondent was not able
already had transactions with Santiago at that time.32 to overturn this presumption.

Second, Leticia Ruiz, a friend of both petitioner and respondent (and We hold that the CA committed reversible error when it ruled that
whose name appeared in both parties’ list of witnesses) testified that respondent did not borrow the amounts of US$100,000 and ₱500,000
respondent’s plan was for petitioner to lend her money at a monthly from petitioner. We instead agree with the ruling of the RTC making
interest rate of 3%, after which respondent would lend the same respondent liable for the principal amounts of the loans.
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 We do not, however, agree that respondent is liable for the 3% and 4%
payable to Santiago. Respondent has not shown any reason why Ruiz’ monthly interest for the US$100,000 and ₱500,000 loans respectively.
testimony should not be believed. 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.
Third, for the US$100,000 loan, respondent admitted issuing her own Article 1956 of the Civil Code provides that "[n]o interest shall be due
checks in the amount of ₱76,000 each (peso equivalent of US$3,000) for unless it has been expressly stipulated in writing."
eight months to cover the monthly interest. For the ₱500,000 loan, she
also issued her own checks in the amount of ₱20,000 each for four Be that as it may, while there can be no stipulated interest, there can be
months.34 According to respondent, she merely accommodated legal interest pursuant to Article 2209 of the Civil Code. It is well-settled
petitioner’s request for her to issue her own checks to cover the interest that:
payments since petitioner was not personally acquainted with
Santiago.35 She claimed, however, that Santiago would replace the
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
petitioner’s 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 ₱50,000 and ₱100,000

attorney’s 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 ₱500,000 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% per
annum until fully paid. The award of actual damages and attorney’s fees
is deleted.

SO ORDERED.
 materials on the lot. Pajuyo and his family lived in the house from 1979
to 7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra

("Guevarra") executed a Kasunduan or agreement. Pajuyo, as owner of
the house, allowed Guevarra to live in the house for free provided
Guevarra would maintain the cleanliness and orderliness of the house.
Guevarra promised that he would voluntarily vacate the premises on
Pajuyo’s demand.

In September 1994, Pajuyo informed Guevarra of his need of the house

and demanded that Guevarra vacate the house. Guevarra refused.

Pajuyo filed an ejectment case against Guevarra with the Metropolitan

Trial Court of Quezon City, Branch 31 ("MTC").
G.R. No. 146364 June 3, 2004
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of
COLITO T. PAJUYO, petitioner, possession over the lot where the house stands because the lot is within
vs. the 150 hectares set aside by Proclamation No. 137 for socialized
COURT OF APPEALS and EDDIE GUEVARRA, respondents. housing. Guevarra pointed out that from December 1985 to September
1994, Pajuyo did not show up or communicate with him. Guevarra
DECISION insisted that neither he nor Pajuyo has valid title to the lot.

CARPIO, J.: On 15 December 1995, the MTC rendered its decision in favor of Pajuyo.
The dispositive portion of the MTC decision reads:
The Case
WHEREFORE, premises considered, judgment is hereby rendered for the
Before us is a petition for review1 of the 21 June 2000 Decision2 and 14 plaintiff and against defendant, ordering the latter to:
December 2000 Resolution of the Court of Appeals in CA-G.R. SP No.
43129. The Court of Appeals set aside the 11 November 1996 decision3 A) vacate the house and lot occupied by the defendant or any other
of the Regional Trial Court of Quezon City, Branch 81,4 affirming the 15 person or persons claiming any right under him;
December 1995 decision5 of the Metropolitan Trial Court of Quezon
City, Branch 31.6 B) pay unto plaintiff the sum of THREE HUNDRED PESOS (₱300.00)
monthly as reasonable compensation for the use of the premises
The Antecedents starting from the last demand;

In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid ₱400 to a C) pay plaintiff the sum of ₱3,000.00 as and by way of attorney’s fees;
certain Pedro Perez for the rights over a 250-square meter lot in Barrio and
Payatas, Quezon City. Pajuyo then constructed a house made of light
D) pay the cost of suit.
SO ORDERED.7 On 21 June 2000, the Court of Appeals issued its decision reversing the
RTC decision. The dispositive portion of the decision reads:
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon
City, Branch 81 ("RTC"). WHEREFORE, premises considered, the assailed Decision of the court a
quo in Civil Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is
On 11 November 1996, the RTC affirmed the MTC decision. The hereby declared that the ejectment case filed against defendant-
dispositive portion of the RTC decision reads: appellant is without factual and legal basis.

WHEREFORE, premises considered, the Court finds no reversible error in SO ORDERED.11

the decision appealed from, being in accord with the law and evidence
presented, and the same is hereby affirmed en toto. Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed
out that the Court of Appeals should have dismissed outright Guevarra’s
SO ORDERED.8 petition for review because it was filed out of time. Moreover, it was
Guevarra’s counsel and not Guevarra who signed the certification
Guevarra received the RTC decision on 29 November 1996. Guevarra against forum-shopping.
had only until 14 December 1996 to file his appeal with the Court of
Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra On 14 December 2000, the Court of Appeals issued a resolution denying
filed with the Supreme Court a "Motion for Extension of Time to File Pajuyo’s motion for reconsideration. The dispositive portion of the
Appeal by Certiorari Based on Rule 42" ("motion for extension"). resolution reads:
Guevarra theorized that his appeal raised pure questions of law. The
Receiving Clerk of the Supreme Court received the motion for extension WHEREFORE, for lack of merit, the motion for reconsideration is hereby
on 13 December 1996 or one day before the right to appeal expired. DENIED. No costs.

On 3 January 1997, Guevarra filed his petition for review with the SO ORDERED.12
Supreme Court.
The Ruling of the MTC
On 8 January 1997, the First Division of the Supreme Court issued a
Resolution9 referring the motion for extension to the Court of Appeals The MTC ruled that the subject of the agreement between Pajuyo and
which has concurrent jurisdiction over the case. The case presented no Guevarra is the house and not the lot. Pajuyo is the owner of the house,
special and important matter for the Supreme Court to take cognizance and he allowed Guevarra to use the house only by tolerance. Thus,
of at the first instance. Guevarra’s refusal to vacate the house on Pajuyo’s demand made
Guevarra’s continued possession of the house illegal.
On 28 January 1997, the Thirteenth Division of the Court of Appeals
issued a Resolution10 granting the motion for extension conditioned on The Ruling of the RTC
the timeliness of the filing of the motion.
The RTC upheld the Kasunduan, which established the landlord and
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment tenant relationship between Pajuyo and Guevarra. The terms of the
on Guevara’s petition for review. On 11 April 1997, Pajuyo filed his Kasunduan bound Guevarra to return possession of the house on
Comment. demand.
 In denying Pajuyo’s motion for reconsideration, the appellate court
The RTC rejected Guevarra’s claim of a better right under Proclamation debunked Pajuyo’s claim that Guevarra filed his motion for extension
No. 137, the Revised National Government Center Housing Project Code beyond the period to appeal.
of Policies and other pertinent laws. In an ejectment suit, the RTC has
no power to decide Guevarra’s rights under these laws. The RTC The Court of Appeals pointed out that Guevarra’s motion for extension
declared that in an ejectment case, the only issue for resolution is filed before the Supreme Court was stamped "13 December 1996 at
material or physical possession, not ownership. 4:09 PM" by the Supreme Court’s Receiving Clerk. The Court of Appeals
concluded that the motion for extension bore a date, contrary to
The Ruling of the Court of Appeals Pajuyo’s claim that the motion for extension was undated. Guevarra
filed the motion for extension on time on 13 December 1996 since he
The Court of Appeals declared that Pajuyo and Guevarra are squatters. filed the motion one day before the expiration of the reglementary
Pajuyo and Guevarra illegally occupied the contested lot which the period on 14 December 1996. Thus, the motion for extension properly
government owned. complied with the condition imposed by the Court of Appeals in its 28
January 1997 Resolution. The Court of Appeals explained that the thirty-
Perez, the person from whom Pajuyo acquired his rights, was also a day extension to file the petition for review was deemed granted
squatter. Perez had no right or title over the lot because it is public land. because of such compliance.
The assignment of rights between Perez and Pajuyo, and the Kasunduan
between Pajuyo and Guevarra, did not have any legal effect. Pajuyo and The Court of Appeals rejected Pajuyo’s argument that the appellate
Guevarra are in pari delicto or in equal fault. The court will leave them court should have dismissed the petition for review because it was
where they are. Guevarra’s counsel and not Guevarra who signed the certification
against forum-shopping. The Court of Appeals pointed out that Pajuyo
The Court of Appeals reversed the MTC and RTC rulings, which held that did not raise this issue in his Comment. The Court of Appeals held that
the Kasunduan between Pajuyo and Guevarra created a legal tie akin to Pajuyo could not now seek the dismissal of the case after he had
that of a landlord and tenant relationship. The Court of Appeals ruled extensively argued on the merits of the case. This technicality, the
that the Kasunduan is not a lease contract but a commodatum because appellate court opined, was clearly an afterthought.
the agreement is not for a price certain.
The Issues
Since Pajuyo admitted that he resurfaced only in 1994 to claim the
property, the appellate court held that Guevarra has a better right over Pajuyo raises the following issues for resolution:
the property under Proclamation No. 137. President Corazon C. Aquino
("President Aquino") issued Proclamation No. 137 on 7 September 1987. WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY
At that time, Guevarra was in physical possession of the property. Under AND DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:
Article VI of the Code of Policies Beneficiary Selection and Disposition of
Homelots and Structures in the National Housing Project ("the Code"), 1) in GRANTING, instead of denying, Private Respondent’s Motion for an
the actual occupant or caretaker of the lot shall have first priority as Extension of thirty days to file petition for review at the time when
beneficiary of the project. The Court of Appeals concluded that there was no more period to extend as the decision of the Regional Trial
Guevarra is first in the hierarchy of priority. Court had already become final and executory.
2) in giving due course, instead of dismissing, private respondent’s We are not persuaded.
Petition for Review even though the certification against forum-
shopping was signed only by counsel instead of by petitioner himself. Decisions of the regional trial courts in the exercise of their appellate
jurisdiction are appealable to the Court of Appeals by petition for review
3) in ruling that the Kasunduan voluntarily entered into by the parties in cases involving questions of fact or mixed questions of fact and
was in fact a commodatum, instead of a Contract of Lease as found by law.14 Decisions of the regional trial courts involving pure questions of
the Metropolitan Trial Court and in holding that "the ejectment case law are appealable directly to this Court by petition for review.15 These
filed against defendant-appellant is without legal and factual basis". modes of appeal are now embodied in Section 2, Rule 41 of the 1997
Rules of Civil Procedure.
4) in reversing and setting aside the Decision of the Regional Trial Court
in Civil Case No. Q-96-26943 and in holding that the parties are in pari Guevarra believed that his appeal of the RTC decision involved only
delicto being both squatters, therefore, illegal occupants of the questions of law. Guevarra thus filed his motion for extension to file
contested parcel of land. petition for review before this Court on 14 December 1996. On 3
January 1997, Guevarra then filed his petition for review with this Court.
5) in deciding the unlawful detainer case based on the so-called Code of A perusal of Guevarra’s petition for review gives the impression that the
Policies of the National Government Center Housing Project instead of issues he raised were pure questions of law. There is a question of law
deciding the same under the Kasunduan voluntarily executed by the when the doubt or difference is on what the law is on a certain state of
parties, the terms and conditions of which are the laws between facts.16 There is a question of fact when the doubt or difference is on
themselves.13 the truth or falsity of the facts alleged.17

The Ruling of the Court In his petition for review before this Court, Guevarra no longer disputed
the facts. Guevarra’s petition for review raised these questions: (1) Do
The procedural issues Pajuyo is raising are baseless. However, we find ejectment cases pertain only to possession of a structure, and not the
merit in the substantive issues Pajuyo is submitting for resolution. lot on which the structure stands? (2) Does a suit by a squatter against a
fellow squatter constitute a valid case for ejectment? (3) Should a
Procedural Issues Presidential Proclamation governing the lot on which a squatter’s
structure stands be considered in an ejectment suit filed by the owner
Pajuyo insists that the Court of Appeals should have dismissed outright of the structure?
Guevarra’s petition for review because the RTC decision had already
become final and executory when the appellate court acted on These questions call for the evaluation of the rights of the parties under
Guevarra’s motion for extension to file the petition. Pajuyo points out the law on ejectment and the Presidential Proclamation. At first glance,
that Guevarra had only one day before the expiry of his period to appeal the questions Guevarra raised appeared purely legal. However, some
the RTC decision. Instead of filing the petition for review with the Court factual questions still have to be resolved because they have a bearing
of Appeals, Guevarra filed with this Court an undated motion for on the legal questions raised in the petition for review. These factual
extension of 30 days to file a petition for review. This Court merely matters refer to the metes and bounds of the disputed property and the
referred the motion to the Court of Appeals. Pajuyo believes that the application of Guevarra as beneficiary of Proclamation No. 137.
filing of the motion for extension with this Court did not toll the running
of the period to perfect the appeal. Hence, when the Court of Appeals The Court of Appeals has the power to grant an extension of time to file
received the motion, the period to appeal had already expired. a petition for review. In Lacsamana v. Second Special Cases Division of
the Intermediate Appellate Court,18 we declared that the Court of
Appeals could grant extension of time in appeals by petition for review. motion for extension bears no date, the date of filing stamped on it is
In Liboro v. Court of Appeals,19 we clarified that the prohibition against the reckoning point for determining the timeliness of its filing.
granting an extension of time applies only in a case where ordinary
appeal is perfected by a mere notice of appeal. The prohibition does not Guevarra had until 14 December 1996 to file an appeal from the RTC
apply in a petition for review where the pleading needs verification. A decision. Guevarra filed his motion for extension before this Court on 13
petition for review, unlike an ordinary appeal, requires preparation and December 1996, the date stamped by this Court’s Receiving Clerk on the
research to present a persuasive position.20 The drafting of the petition motion for extension. Clearly, Guevarra filed the motion for extension
for review entails more time and effort than filing a notice of appeal.21 exactly one day before the lapse of the reglementary period to appeal.
Hence, the Court of Appeals may allow an extension of time to file a
petition for review. Assuming that the Court of Appeals should have dismissed Guevarra’s
appeal on technical grounds, Pajuyo did not ask the appellate court to
In the more recent case of Commissioner of Internal Revenue v. Court of deny the motion for extension and dismiss the petition for review at the
Appeals,22 we held that Liboro’s clarification of Lacsamana is consistent earliest opportunity. Instead, Pajuyo vigorously discussed the merits of
with the Revised Internal Rules of the Court of Appeals and Supreme the case. It was only when the Court of Appeals ruled in Guevarra’s
Court Circular No. 1-91. They all allow an extension of time for filing favor that Pajuyo raised the procedural issues against Guevarra’s
petitions for review with the Court of Appeals. The extension, however, petition for review.
should be limited to only fifteen days save in exceptionally meritorious
cases where the Court of Appeals may grant a longer period. A party who, after voluntarily submitting a dispute for resolution,
receives an adverse decision on the merits, is estopped from attacking
A judgment becomes "final and executory" by operation of law. Finality the jurisdiction of the court.25 Estoppel sets in not because the
of judgment becomes a fact on the lapse of the reglementary period to judgment of the court is a valid and conclusive adjudication, but
appeal if no appeal is perfected.23 The RTC decision could not have because the practice of attacking the court’s jurisdiction after voluntarily
gained finality because the Court of Appeals granted the 30-day submitting to it is against public policy.26
extension to Guevarra.
In his Comment before the Court of Appeals, Pajuyo also failed to
The Court of Appeals did not commit grave abuse of discretion when it discuss Guevarra’s failure to sign the certification against forum
approved Guevarra’s motion for extension. The Court of Appeals gave shopping. Instead, Pajuyo harped on Guevarra’s counsel signing the
due course to the motion for extension because it complied with the verification, claiming that the counsel’s verification is insufficient since it
condition set by the appellate court in its resolution dated 28 January is based only on "mere information."
1997. The resolution stated that the Court of Appeals would only give
due course to the motion for extension if filed on time. The motion for A party’s failure to sign the certification against forum shopping is
extension met this condition. different from the party’s failure to sign personally the verification. The
certificate of non-forum shopping must be signed by the party, and not
The material dates to consider in determining the timeliness of the filing by counsel.27 The certification of counsel renders the petition
of the motion for extension are (1) the date of receipt of the judgment defective.28
or final order or resolution subject of the petition, and (2) the date of
filing of the motion for extension.24 It is the date of the filing of the On the other hand, the requirement on verification of a pleading is a
motion or pleading, and not the date of execution, that determines the formal and not a jurisdictional requisite.29 It is intended simply to
timeliness of the filing of that motion or pleading. Thus, even if the secure an assurance that what are alleged in the pleading are true and
correct and not the product of the imagination or a matter of
speculation, and that the pleading is filed in good faith.30 The party of physical possession.36 The same is true when the defendant asserts
need not sign the verification. A party’s representative, lawyer or any the absence of title over the property. The absence of title over the
person who personally knows the truth of the facts alleged in the contested lot is not a ground for the courts to withhold relief from the
pleading may sign the verification.31 parties in an ejectment case.

We agree with the Court of Appeals that the issue on the certificate The only question that the courts must resolve in ejectment
against forum shopping was merely an afterthought. Pajuyo did not call proceedings is - who is entitled to the physical possession of the
the Court of Appeals’ attention to this defect at the early stage of the premises, that is, to the possession de facto and not to the possession
proceedings. Pajuyo raised this procedural issue too late in the de jure.37 It does not even matter if a party’s title to the property is
proceedings. questionable,38 or when both parties intruded into public land and their
applications to own the land have yet to be approved by the proper
Absence of Title over the Disputed Property will not Divest the Courts of government agency.39 Regardless of the actual condition of the title to
Jurisdiction to Resolve the Issue of Possession the property, the party in peaceable quiet possession shall not be
thrown out by a strong hand, violence or terror.40 Neither is the
Settled is the rule that the defendant’s claim of ownership of the unlawful withholding of property allowed. Courts will always uphold
disputed property will not divest the inferior court of its jurisdiction respect for prior possession.
over the ejectment case.32 Even if the pleadings raise the issue of
ownership, the court may pass on such issue to determine only the Thus, a party who can prove prior possession can recover such
question of possession, especially if the ownership is inseparably linked possession even against the owner himself.41 Whatever may be the
with the possession.33 The adjudication on the issue of ownership is character of his possession, if he has in his favor prior possession in
only provisional and will not bar an action between the same parties time, he has the security that entitles him to remain on the property
involving title to the land.34 This doctrine is a necessary consequence of until a person with a better right lawfully ejects him.42 To repeat, the
the nature of the two summary actions of ejectment, forcible entry and only issue that the court has to settle in an ejectment suit is the right to
unlawful detainer, where the only issue for adjudication is the physical physical possession.
or material possession over the real property.35
In Pitargue v. Sorilla,43 the government owned the land in dispute. The
In this case, what Guevarra raised before the courts was that he and government did not authorize either the plaintiff or the defendant in the
Pajuyo are not the owners of the contested property and that they are case of forcible entry case to occupy the land. The plaintiff had prior
mere squatters. Will the defense that the parties to the ejectment case possession and had already introduced improvements on the public
are not the owners of the disputed lot allow the courts to renounce land. The plaintiff had a pending application for the land with the
their jurisdiction over the case? The Court of Appeals believed so and Bureau of Lands when the defendant ousted him from possession. The
held that it would just leave the parties where they are since they are in plaintiff filed the action of forcible entry against the defendant. The
pari delicto. government was not a party in the case of forcible entry.

We do not agree with the Court of Appeals. The defendant questioned the jurisdiction of the courts to settle the
issue of possession because while the application of the plaintiff was still
Ownership or the right to possess arising from ownership is not at issue pending, title remained with the government, and the Bureau of Public
in an action for recovery of possession. The parties cannot present Lands had jurisdiction over the case. We disagreed with the defendant.
evidence to prove ownership or right to legal possession except to We ruled that courts have jurisdiction to entertain ejectment suits even
prove the nature of the possession when necessary to resolve the issue before the resolution of the application. The plaintiff, by priority of his
application and of his entry, acquired prior physical possession over the of two coordinate branches of the Government in connection with
public land applied for as against other private claimants. That prior public land conflicts.
physical possession enjoys legal protection against other private
claimants because only a court can take away such physical possession Our problem is made simple by the fact that under the Civil Code, either
in an ejectment case. in the old, which was in force in this country before the American
occupation, or in the new, we have a possessory action, the aim and
While the Court did not brand the plaintiff and the defendant in purpose of which is the recovery of the physical possession of real
Pitargue44 as squatters, strictly speaking, their entry into the disputed property, irrespective of the question as to who has the title thereto.
land was illegal. Both the plaintiff and defendant entered the public land Under the Spanish Civil Code we had the accion interdictal, a summary
without the owner’s permission. Title to the land remained with the proceeding which could be brought within one year from dispossession
government because it had not awarded to anyone ownership of the (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as
contested public land. Both the plaintiff and the defendant were in early as October 1, 1901, upon the enactment of the Code of Civil
effect squatting on government property. Yet, we upheld the courts’ Procedure (Act No. 190 of the Philippine Commission) we implanted the
jurisdiction to resolve the issue of possession even if the plaintiff and common law action of forcible entry (section 80 of Act No. 190), the
the defendant in the ejectment case did not have any title over the object of which has been stated by this Court to be "to prevent
contested land. breaches of the peace and criminal disorder which would ensue from
the withdrawal of the remedy, and the reasonable hope such
Courts must not abdicate their jurisdiction to resolve the issue of withdrawal would create that some advantage must accrue to those
physical possession because of the public need to preserve the basic persons who, believing themselves entitled to the possession of
policy behind the summary actions of forcible entry and unlawful property, resort to force to gain possession rather than to some
detainer. The underlying philosophy behind ejectment suits is to appropriate action in the court to assert their claims." (Supia and
prevent breach of the peace and criminal disorder and to compel the Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the
party out of possession to respect and resort to the law alone to obtain enactment of the first Public Land Act (Act No. 926) the action of
what he claims is his.45 The party deprived of possession must not take forcible entry was already available in the courts of the country. So the
the law into his own hands.46 Ejectment proceedings are summary in question to be resolved is, Did the Legislature intend, when it vested the
nature so the authorities can settle speedily actions to recover power and authority to alienate and dispose of the public lands in the
possession because of the overriding need to quell social Lands Department, to exclude the courts from entertaining the
disturbances.47 possessory action of forcible entry between rival claimants or occupants
of any land before award thereof to any of the parties? Did Congress
We further explained in Pitargue the greater interest that is at stake in intend that the lands applied for, or all public lands for that matter, be
actions for recovery of possession. We made the following removed from the jurisdiction of the judicial Branch of the Government,
pronouncements in Pitargue: so that any troubles arising therefrom, or any breaches of the peace or
disorders caused by rival claimants, could be inquired into only by the
The question that is before this Court is: Are courts without jurisdiction Lands Department to the exclusion of the courts? The answer to this
to take cognizance of possessory actions involving these public lands question seems to us evident. The Lands Department does not have the
before final award is made by the Lands Department, and before title is means to police public lands; neither does it have the means to prevent
given any of the conflicting claimants? It is one of utmost importance, as disorders arising therefrom, or contain breaches of the peace among
there are public lands everywhere and there are thousands of settlers, settlers; or to pass promptly upon conflicts of possession. Then its
especially in newly opened regions. It also involves a matter of policy, as power is clearly limited to disposition and alienation, and while it may
it requires the determination of the respective authorities and functions decide conflicts of possession in order to make proper award, the
settlement of conflicts of possession which is recognized in the court claimants would be no other than that of forcible entry. This action,
herein has another ultimate purpose, i.e., the protection of actual both in England and the United States and in our jurisdiction, is a
possessors and occupants with a view to the prevention of breaches of summary and expeditious remedy whereby one in peaceful and quiet
the peace. The power to dispose and alienate could not have been possession may recover the possession of which he has been deprived
intended to include the power to prevent or settle disorders or breaches by a stronger hand, by violence or terror; its ultimate object being to
of the peace among rival settlers or claimants prior to the final award. prevent breach of the peace and criminal disorder. (Supia and Batioco
As to this, therefore, the corresponding branches of the Government vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is
must continue to exercise power and jurisdiction within the limits of mere possession as a fact, of physical possession, not a legal possession.
their respective functions. The vesting of the Lands Department with (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to possession is
authority to administer, dispose, and alienate public lands, therefore, never in issue in an action of forcible entry; as a matter of fact, evidence
must not be understood as depriving the other branches of the thereof is expressly banned, except to prove the nature of the
Government of the exercise of the respective functions or powers possession. (Second 4, Rule 72, Rules of Court.) With this nature of the
thereon, such as the authority to stop disorders and quell breaches of action in mind, by no stretch of the imagination can conclusion be
the peace by the police, the authority on the part of the courts to take arrived at that the use of the remedy in the courts of justice would
jurisdiction over possessory actions arising therefrom not involving, constitute an interference with the alienation, disposition, and control
directly or indirectly, alienation and disposition. of public lands. To limit ourselves to the case at bar can it be pretended
at all that its result would in any way interfere with the manner of the
Our attention has been called to a principle enunciated in American alienation or disposition of the land contested? On the contrary, it
courts to the effect that courts have no jurisdiction to determine the would facilitate adjudication, for the question of priority of possession
rights of claimants to public lands, and that until the disposition of the having been decided in a final manner by the courts, said question need
land has passed from the control of the Federal Government, the courts no longer waste the time of the land officers making the adjudication or
will not interfere with the administration of matters concerning the award. (Emphasis ours)
same. (50 C. J. 1093-1094.) We have no quarrel with this principle. The
determination of the respective rights of rival claimants to public lands The Principle of Pari Delicto is not Applicable to Ejectment Cases
is different from the determination of who has the actual physical
possession or occupation with a view to protecting the same and The Court of Appeals erroneously applied the principle of pari delicto to
preventing disorder and breaches of the peace. A judgment of the court this case.
ordering restitution of the possession of a parcel of land to the actual
occupant, who has been deprived thereof by another through the use of Articles 1411 and 1412 of the Civil Code48 embody the principle of pari
force or in any other illegal manner, can never be "prejudicial delicto. We explained the principle of pari delicto in these words:
interference" with the disposition or alienation of public lands. On the
other hand, if courts were deprived of jurisdiction of cases involving The rule of pari delicto is expressed in the maxims ‘ex dolo malo non
conflicts of possession, that threat of judicial action against breaches of eritur actio’ and ‘in pari delicto potior est conditio defedentis.’ The law
the peace committed on public lands would be eliminated, and a state will not aid either party to an illegal agreement. It leaves the parties
of lawlessness would probably be produced between applicants, where it finds them.49
occupants or squatters, where force or might, not right or justice, would
rule. The application of the pari delicto principle is not absolute, as there are
exceptions to its application. One of these exceptions is where the
It must be borne in mind that the action that would be used to solve application of the pari delicto rule would violate well-established public
conflicts of possession between rivals or conflicting applicants or policy.50
 delicto as applied by the Court of Appeals would give squatters free rein
In Drilon v. Gaurana,51 we reiterated the basic policy behind the to dispossess fellow squatters or violently retake possession of
summary actions of forcible entry and unlawful detainer. We held that: properties usurped from them. Courts should not leave squatters to
their own devices in cases involving recovery of possession.
It must be stated that the purpose of an action of forcible entry and
detainer is that, regardless of the actual condition of the title to the Possession is the only Issue for Resolution in an Ejectment Case
property, the party in peaceable quiet possession shall not be turned
out by strong hand, violence or terror. In affording this remedy of The case for review before the Court of Appeals was a simple case of
restitution the object of the statute is to prevent breaches of the peace ejectment. The Court of Appeals refused to rule on the issue of physical
and criminal disorder which would ensue from the withdrawal of the possession. Nevertheless, the appellate court held that the pivotal issue
remedy, and the reasonable hope such withdrawal would create that in this case is who between Pajuyo and Guevarra has the "priority right
some advantage must accrue to those persons who, believing as beneficiary of the contested land under Proclamation No. 137."54
themselves entitled to the possession of property, resort to force to According to the Court of Appeals, Guevarra enjoys preferential right
gain possession rather than to some appropriate action in the courts to under Proclamation No. 137 because Article VI of the Code declares that
assert their claims. This is the philosophy at the foundation of all these the actual occupant or caretaker is the one qualified to apply for
actions of forcible entry and detainer which are designed to compel the socialized housing.
party out of possession to respect and resort to the law alone to obtain
what he claims is his.52 The ruling of the Court of Appeals has no factual and legal basis.

Clearly, the application of the principle of pari delicto to a case of First. Guevarra did not present evidence to show that the contested lot
ejectment between squatters is fraught with danger. To shut out relief is part of a relocation site under Proclamation No. 137. Proclamation
to squatters on the ground of pari delicto would openly invite mayhem No. 137 laid down the metes and bounds of the land that it declared
and lawlessness. A squatter would oust another squatter from open for disposition to bona fide residents.
possession of the lot that the latter had illegally occupied, emboldened
by the knowledge that the courts would leave them where they are. The records do not show that the contested lot is within the land
Nothing would then stand in the way of the ousted squatter from re- specified by Proclamation No. 137. Guevarra had the burden to prove
claiming his prior possession at all cost. that the disputed lot is within the coverage of Proclamation No. 137. He
failed to do so.
Petty warfare over possession of properties is precisely what ejectment
cases or actions for recovery of possession seek to prevent.53 Even the Second. The Court of Appeals should not have given credence to
owner who has title over the disputed property cannot take the law into Guevarra’s unsubstantiated claim that he is the beneficiary of
his own hands to regain possession of his property. The owner must go Proclamation No. 137. Guevarra merely alleged that in the survey the
to court. project administrator conducted, he and not Pajuyo appeared as the
actual occupant of the lot.
Courts must resolve the issue of possession even if the parties to the
ejectment suit are squatters. The determination of priority and There is no proof that Guevarra actually availed of the benefits of
superiority of possession is a serious and urgent matter that cannot be Proclamation No. 137. Pajuyo allowed Guevarra to occupy the disputed
left to the squatters to decide. To do so would make squatters receive property in 1985. President Aquino signed Proclamation No. 137 into
better treatment under the law. The law restrains property owners from law on 11 March 1986. Pajuyo made his earliest demand for Guevarra to
taking the law into their own hands. However, the principle of pari vacate the property in September 1994.
 bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan at
During the time that Guevarra temporarily held the property up to the kaayusan ng bahay at lote.
time that Proclamation No. 137 allegedly segregated the disputed lot,
Guevarra never applied as beneficiary of Proclamation No. 137. Even Sa sandaling kailangan na namin ang bahay at lote, sila’y kusang aalis ng
when Guevarra already knew that Pajuyo was reclaiming possession of walang reklamo.
the property, Guevarra did not take any step to comply with the
requirements of Proclamation No. 137. Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the
house and lot free of rent, but Guevarra was under obligation to
Third. Even assuming that the disputed lot is within the coverage of maintain the premises in good condition. Guevarra promised to vacate
Proclamation No. 137 and Guevarra has a pending application over the the premises on Pajuyo’s demand but Guevarra broke his promise and
lot, courts should still assume jurisdiction and resolve the issue of refused to heed Pajuyo’s demand to vacate.
possession. However, the jurisdiction of the courts would be limited to
the issue of physical possession only. These facts make out a case for unlawful detainer. Unlawful detainer
involves the withholding by a person from another of the possession of
In Pitargue,55 we ruled that courts have jurisdiction over possessory real property to which the latter is entitled after the expiration or
actions involving public land to determine the issue of physical termination of the former’s right to hold possession under a contract,
possession. The determination of the respective rights of rival claimants express or implied.59
to public land is, however, distinct from the determination of who has
the actual physical possession or who has a better right of physical Where the plaintiff allows the defendant to use his property by
possession.56 The administrative disposition and alienation of public tolerance without any contract, the defendant is necessarily bound by
lands should be threshed out in the proper government agency.57 an implied promise that he will vacate on demand, failing which, an
action for unlawful detainer will lie.60 The defendant’s refusal to
The Court of Appeals’ determination of Pajuyo and Guevarra’s rights comply with the demand makes his continued possession of the
under Proclamation No. 137 was premature. Pajuyo and Guevarra were property unlawful.61 The status of the defendant in such a case is
at most merely potential beneficiaries of the law. Courts should not similar to that of a lessee or tenant whose term of lease has expired but
preempt the decision of the administrative agency mandated by law to whose occupancy continues by tolerance of the owner.62
determine the qualifications of applicants for the acquisition of public
lands. Instead, courts should expeditiously resolve the issue of physical This principle should apply with greater force in cases where a contract
possession in ejectment cases to prevent disorder and breaches of embodies the permission or tolerance to use the property. The
peace.58 Kasunduan expressly articulated Pajuyo’s forbearance. Pajuyo did not
require Guevarra to pay any rent but only to maintain the house and lot
Pajuyo is Entitled to Physical Possession of the Disputed Property in good condition. Guevarra expressly vowed in the Kasunduan that he
would vacate the property on demand. Guevarra’s refusal to comply
Guevarra does not dispute Pajuyo’s prior possession of the lot and with Pajuyo’s demand to vacate made Guevarra’s continued possession
ownership of the house built on it. Guevarra expressly admitted the of the property unlawful.
existence and due execution of the Kasunduan. The Kasunduan reads:
We do not subscribe to the Court of Appeals’ theory that the Kasunduan
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, is one of commodatum.
Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na
pansamantalang manirahan sa nasabing bahay at lote ng "walang
In a contract of commodatum, one of the parties delivers to another Guevarra should know that there must be honor even between
something not consumable so that the latter may use the same for a squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot
certain time and return it.63 An essential feature of commodatum is now impugn the Kasunduan after he had benefited from it. The
that it is gratuitous. Another feature of commodatum is that the use of Kasunduan binds Guevarra.
the thing belonging to another is for a certain period.64 Thus, the bailor
cannot demand the return of the thing loaned until after expiration of The Kasunduan is not void for purposes of determining who between
the period stipulated, or after accomplishment of the use for which the Pajuyo and Guevarra has a right to physical possession of the contested
commodatum is constituted.65 If the bailor should have urgent need of property. The Kasunduan is the undeniable evidence of Guevarra’s
the thing, he may demand its return for temporary use.66 If the use of recognition of Pajuyo’s better right of physical possession. Guevarra is
the thing is merely tolerated by the bailor, he can demand the return of clearly a possessor in bad faith. The absence of a contract would not
the thing at will, in which case the contractual relation is called a yield a different result, as there would still be an implied promise to
precarium.67 Under the Civil Code, precarium is a kind of vacate.
commodatum.68
Guevarra contends that there is "a pernicious evil that is sought to be
The Kasunduan reveals that the accommodation accorded by Pajuyo to avoided, and that is allowing an absentee squatter who (sic) makes (sic)
Guevarra was not essentially gratuitous. While the Kasunduan did not a profit out of his illegal act."72 Guevarra bases his argument on the
require Guevarra to pay rent, it obligated him to maintain the property preferential right given to the actual occupant or caretaker under
in good condition. The imposition of this obligation makes the Proclamation No. 137 on socialized housing.
Kasunduan a contract different from a commodatum. The effects of the
Kasunduan are also different from that of a commodatum. Case law on We are not convinced.
ejectment has treated relationship based on tolerance as one that is
akin to a landlord-tenant relationship where the withdrawal of Pajuyo did not profit from his arrangement with Guevarra because
permission would result in the termination of the lease.69 The tenant’s Guevarra stayed in the property without paying any rent. There is also
withholding of the property would then be unlawful. This is settled no proof that Pajuyo is a professional squatter who rents out usurped
jurisprudence. properties to other squatters. Moreover, it is for the proper government
agency to decide who between Pajuyo and Guevarra qualifies for
Even assuming that the relationship between Pajuyo and Guevarra is socialized housing. The only issue that we are addressing is physical
one of commodatum, Guevarra as bailee would still have the duty to possession.
turn over possession of the property to Pajuyo, the bailor. The
obligation to deliver or to return the thing received attaches to Prior possession is not always a condition sine qua non in ejectment.73
contracts for safekeeping, or contracts of commission, administration This is one of the distinctions between forcible entry and unlawful
and commodatum.70 These contracts certainly involve the obligation to detainer.74 In forcible entry, the plaintiff is deprived of physical
deliver or return the thing received.71 possession of his land or building by means of force, intimidation,
threat, strategy or stealth. Thus, he must allege and prove prior
Guevarra turned his back on the Kasunduan on the sole ground that like possession.75 But in unlawful detainer, the defendant unlawfully
him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot withholds possession after the expiration or termination of his right to
enter into a contract involving the land they illegally occupy. Guevarra possess under any contract, express or implied. In such a case, prior
insists that the contract is void. physical possession is not required.76
Pajuyo’s withdrawal of his permission to Guevarra terminated the possession of the disputed property. This would subvert the policy
Kasunduan. Guevarra’s transient right to possess the property ended as underlying actions for recovery of possession.
well. Moreover, it was Pajuyo who was in actual possession of the
property because Guevarra had to seek Pajuyo’s permission to Since Pajuyo has in his favor priority in time in holding the property, he
temporarily hold the property and Guevarra had to follow the is entitled to remain on the property until a person who has title or a
conditions set by Pajuyo in the Kasunduan. Control over the property better right lawfully ejects him. Guevarra is certainly not that person.
still rested with Pajuyo and this is evidence of actual possession. The ruling in this case, however, does not preclude Pajuyo and Guevarra
from introducing evidence and presenting arguments before the proper
Pajuyo’s absence did not affect his actual possession of the disputed administrative agency to establish any right to which they may be
property. Possession in the eyes of the law does not mean that a man entitled under the law.81
has to have his feet on every square meter of the ground before he is
deemed in possession.77 One may acquire possession not only by In no way should our ruling in this case be interpreted to condone
physical occupation, but also by the fact that a thing is subject to the squatting. The ruling on the issue of physical possession does not affect
action of one’s will.78 Actual or physical occupation is not always title to the property nor constitute a binding and conclusive adjudication
necessary.79 on the merits on the issue of ownership.82 The owner can still go to
court to recover lawfully the property from the person who holds the
Ruling on Possession Does not Bind Title to the Land in Dispute property without legal title. Our ruling here does not diminish the
power of government agencies, including local governments, to
We are aware of our pronouncement in cases where we declared that condemn, abate, remove or demolish illegal or unauthorized structures
"squatters and intruders who clandestinely enter into titled government in accordance with existing laws.
property cannot, by such act, acquire any legal right to said property."80
We made this declaration because the person who had title or who had Attorney’s Fees and Rentals
the right to legal possession over the disputed property was a party in
the ejectment suit and that party instituted the case against squatters or The MTC and RTC failed to justify the award of ₱3,000 attorney’s fees to
usurpers. Pajuyo. Attorney’s fees as part of damages are awarded only in the
instances enumerated in Article 2208 of the Civil Code.83 Thus, the
In this case, the owner of the land, which is the government, is not a award of attorney’s fees is the exception rather than the rule.84
party to the ejectment case. This case is between squatters. Had the Attorney’s fees are not awarded every time a party prevails in a suit
government participated in this case, the courts could have evicted the because of the policy that no premium should be placed on the right to
contending squatters, Pajuyo and Guevarra. litigate.85 We therefore delete the attorney’s fees awarded to Pajuyo.

Since the party that has title or a better right over the property is not We sustain the ₱300 monthly rentals the MTC and RTC assessed against
impleaded in this case, we cannot evict on our own the parties. Such a Guevarra. Guevarra did not dispute this factual finding of the two
ruling would discourage squatters from seeking the aid of the courts in courts. We find the amount reasonable compensation to Pajuyo. The
settling the issue of physical possession. Stripping both the plaintiff and ₱300 monthly rental is counted from the last demand to vacate, which
the defendant of possession just because they are squatters would have was on 16 February 1995.
the same dangerous implications as the application of the principle of
pari delicto. Squatters would then rather settle the issue of physical WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000
possession among themselves than seek relief from the courts if the and Resolution dated 14 December 2000 of the Court of Appeals in CA-
plaintiff and defendant in the ejectment case would both stand to lose G.R. SP No. 43129 are SET ASIDE. The Decision dated 11 November 1996
of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q- Resolution2 dated May 5, 1994, denying the motion for reconsideration
96-26943, affirming the Decision dated 15 December 1995 of the of said decision filed by petitioner Producers Bank of the Philippines.
Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case No.
12432, is REINSTATED with MODIFICATION. The award of attorney’s fees Sometime in 1979, private respondent Franklin Vives was asked by his
is deleted. No costs. neighbor and friend Angeles Sanchez to help her friend and townmate,
Col. Arturo Doronilla, in incorporating his business, the Sterela
SO ORDERED. Marketing and Services ("Sterela" for brevity). Specifically, Sanchez
asked private respondent to deposit in a bank a certain amount of
money in the bank account of Sterela for purposes of its incorporation.
She assured private respondent that he could withdraw his money from
said account within a month’s time. Private respondent asked Sanchez
to bring Doronilla to their house so that they could discuss Sanchez’s
request.3

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain

Estrella Dumagpi, Doronilla’s private secretary, met and discussed the
matter. Thereafter, relying on the assurances and representations of
Sanchez and Doronilla, private respondent issued a check in the amount
of Two Hundred Thousand Pesos (₱200,000.00) in favor of Sterela.
Private respondent instructed his wife, Mrs. Inocencia Vives, to
accompany Doronilla and Sanchez in opening a savings account in the
name of Sterela in the Buendia, Makati branch of Producers Bank of the
Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to
the bank to deposit the check. They had with them an authorization
letter from Doronilla authorizing Sanchez and her companions, "in
coordination with Mr. Rufo Atienza," to open an account for Sterela
G.R. No. 115324 February 19, 2003 Marketing Services in the amount of ₱200,000.00. In opening the
account, the authorized signatories were Inocencia Vives and/or
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL Angeles Sanchez. A passbook for Savings Account No. 10-1567 was
BANK), petitioner, thereafter issued to Mrs. Vives.4
vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents. Subsequently, private respondent learned that Sterela was no longer
holding office in the address previously given to him. Alarmed, he and
DECISION his wife went to the Bank to verify if their money was still intact. The
bank manager referred them to Mr. Rufo Atienza, the assistant
CALLEJO, SR., J.: manager, who informed them that part of the money in Savings Account
No. 10-1567 had been withdrawn by Doronilla, and that only
This is a petition for review on certiorari of the Decision1 of the Court of ₱90,000.00 remained therein. He likewise told them that Mrs. Vives
Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and of its could not withdraw said remaining amount because it had to answer for
some postdated checks issued by Doronilla. According to Atienza, after
Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla (a) the amount of ₱200,000.00, representing the money deposited, with
opened Current Account No. 10-0320 for Sterela and authorized the interest at the legal rate from the filing of the complaint until the same
Bank to debit Savings Account No. 10-1567 for the amounts necessary is fully paid;
to cover overdrawings in Current Account No. 10-0320. In opening said
current account, Sterela, through Doronilla, obtained a loan of (b) the sum of ₱50,000.00 for moral damages and a similar amount for
₱175,000.00 from the Bank. To cover payment thereof, Doronilla issued exemplary damages;
three postdated checks, all of which were dishonored. Atienza also said
that Doronilla could assign or withdraw the money in Savings Account (c) the amount of ₱40,000.00 for attorney’s fees; and
No. 10-1567 because he was the sole proprietor of Sterela.5
(d) the costs of the suit.
Private respondent tried to get in touch with Doronilla through Sanchez.
On June 29, 1979, he received a letter from Doronilla, assuring him that SO ORDERED.8
his money was intact and would be returned to him. On August 13,
1979, Doronilla issued a postdated check for Two Hundred Twelve Petitioner appealed the trial court’s decision to the Court of Appeals. In
Thousand Pesos (₱212,000.00) in favor of private respondent. However, its Decision dated June 25, 1991, the appellate court affirmed in toto
upon presentment thereof by private respondent to the drawee bank, the decision of the RTC.9 It likewise denied with finality petitioner’s
the check was dishonored. Doronilla requested private respondent to motion for reconsideration in its Resolution dated May 5, 1994.10
present the same check on September 15, 1979 but when the latter
presented the check, it was again dishonored.6 On June 30, 1994, petitioner filed the present petition, arguing that –

Private respondent referred the matter to a lawyer, who made a written I.

demand upon Doronilla for the return of his client’s money. Doronilla
issued another check for ₱212,000.00 in private respondent’s favor but THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE
the check was again dishonored for insufficiency of funds.7 TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND
RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
Private respondent instituted an action for recovery of sum of money in ACCOMMODATION;
the Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla,
Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case II.
No. 44485. He also filed criminal actions against Doronilla, Sanchez and
Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT
while the case was pending before the trial court. On October 3, 1995, PETITIONER’S BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH
the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case No. THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be
44485, the dispositive portion of which reads: PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER
SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing
defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of III.
the Philippines to pay plaintiff Franklin Vives jointly and severally –
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE
RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE
JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL friend Sanchez for his failure to recover his money from Doronilla shows
TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS; that the transaction was not merely gratuitous but "had a business
angle" to it. Hence, petitioner argues that it cannot be held liable for the
IV. return of private respondent’s ₱200,000.00 because it is not privy to the
transaction between the latter and Doronilla.16
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE
CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, It argues further that petitioner’s Assistant Manager, Mr. Rufo Atienza,
UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY could not be faulted for allowing Doronilla to withdraw from the savings
AN EMPLOYEE IS APPLICABLE; account of Sterela since the latter was the sole proprietor of said
company. Petitioner asserts that Doronilla’s May 8, 1979 letter
V. addressed to the bank, authorizing Mrs. Vives and Sanchez to open a
savings account for Sterela, did not contain any authorization for these
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE two to withdraw from said account. Hence, the authority to withdraw
DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS therefrom remained exclusively with Doronilla, who was the sole
JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR proprietor of Sterela, and who alone had legal title to the savings
THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT account.17 Petitioner points out that no evidence other than the
DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR testimonies of private respondent and Mrs. Vives was presented during
EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEY’S FEES AND THE trial to prove that private respondent deposited his ₱200,000.00 in
COSTS OF SUIT.11 Sterela’s account for purposes of its incorporation.18 Hence, petitioner
should not be held liable for allowing Doronilla to withdraw from
Private respondent filed his Comment on September 23, 1994. Sterela’s savings account.1a\^/phi1.net
Petitioner filed its Reply thereto on September 25, 1995. The Court then
required private respondent to submit a rejoinder to the reply. Petitioner also asserts that the Court of Appeals erred in affirming the
However, said rejoinder was filed only on April 21, 1997, due to trial court’s decision since the findings of fact therein were not accord
petitioner’s delay in furnishing private respondent with copy of the with the evidence presented by petitioner during trial to prove that the
reply12 and several substitutions of counsel on the part of private transaction between private respondent and Doronilla was a mutuum,
respondent.13 On January 17, 2001, the Court resolved to give due and that it committed no wrong in allowing Doronilla to withdraw from
course to the petition and required the parties to submit their Sterela’s savings account.19
respective memoranda.14 Petitioner filed its memorandum on April 16,
2001 while private respondent submitted his memorandum on March Finally, petitioner claims that since there is no wrongful act or omission
22, 2001. on its part, it is not liable for the actual damages suffered by private
respondent, and neither may it be held liable for moral and exemplary
Petitioner contends that the transaction between private respondent damages as well as attorney’s fees.20
and Doronilla is a simple loan (mutuum) since all the elements of a
mutuum are present: first, what was delivered by private respondent to Private respondent, on the other hand, argues that the transaction
Doronilla was money, a consumable thing; and second, the transaction between him and Doronilla is not a mutuum but an accommodation,21
was onerous as Doronilla was obliged to pay interest, as evidenced by since he did not actually part with the ownership of his ₱200,000.00 and
the check issued by Doronilla in the amount of ₱212,000.00, or ₱12,000 in fact asked his wife to deposit said amount in the account of Sterela so
more than what private respondent deposited in Sterela’s bank that a certification can be issued to the effect that Sterela had sufficient
account.15 Moreover, the fact that private respondent sued his good funds for purposes of its incorporation but at the same time, he
retained some degree of control over his money through his wife who commodatum; or money or other consumable thing, upon the condition
was made a signatory to the savings account and in whose possession that the same amount of the same kind and quality shall be paid, in
the savings account passbook was given.22 which case the contract is simply called a loan or mutuum.

He likewise asserts that the trial court did not err in finding that Commodatum is essentially gratuitous.
petitioner, Atienza’s employer, is liable for the return of his money. He
insists that Atienza, petitioner’s assistant manager, connived with Simple loan may be gratuitous or with a stipulation to pay interest.
Doronilla in defrauding private respondent since it was Atienza who
facilitated the opening of Sterela’s current account three days after Mrs. In commodatum, the bailor retains the ownership of the thing loaned,
Vives and Sanchez opened a savings account with petitioner for said while in simple loan, ownership passes to the borrower.
company, as well as the approval of the authority to debit Sterela’s
savings account to cover any overdrawings in its current account.23 The foregoing provision seems to imply that if the subject of the
contract is a consumable thing, such as money, the contract would be a
There is no merit in the petition. mutuum. However, there are some instances where a commodatum
may have for its object a consumable thing. Article 1936 of the Civil
At the outset, it must be emphasized that only questions of law may be Code provides:
raised in a petition for review filed with this Court. The Court has
repeatedly held that it is not its function to analyze and weigh all over Consumable goods may be the subject of commodatum if the purpose
again the evidence presented by the parties during trial.24 The Court’s of the contract is not the consumption of the object, as when it is
jurisdiction is in principle limited to reviewing errors of law that might merely for exhibition.
have been committed by the Court of Appeals.25 Moreover, factual
findings of courts, when adopted and confirmed by the Court of Thus, if consumable goods are loaned only for purposes of exhibition, or
Appeals, are final and conclusive on this Court unless these findings are when the intention of the parties is to lend consumable goods and to
not supported by the evidence on record.26 There is no showing of any have the very same goods returned at the end of the period agreed
misapprehension of facts on the part of the Court of Appeals in the case upon, the loan is a commodatum and not a mutuum.
at bar that would require this Court to review and overturn the factual
findings of that court, especially since the conclusions of fact of the The rule is that the intention of the parties thereto shall be accorded
Court of Appeals and the trial court are not only consistent but are also primordial consideration in determining the actual character of a
amply supported by the evidence on record. contract.27 In case of doubt, the contemporaneous and subsequent
acts of the parties shall be considered in such determination.28
No error was committed by the Court of Appeals when it ruled that the
transaction between private respondent and Doronilla was a As correctly pointed out by both the Court of Appeals and the trial
commodatum and not a mutuum. A circumspect examination of the court, the evidence shows that private respondent agreed to deposit his
records reveals that the transaction between them was a commodatum. money in the savings account of Sterela specifically for the purpose of
Article 1933 of the Civil Code distinguishes between the two kinds of making it appear "that said firm had sufficient capitalization for
loans in this wise: incorporation, with the promise that the amount shall be returned
within thirty (30) days."29 Private respondent merely "accommodated"
By the contract of loan, one of the parties delivers to another, either Doronilla by lending his money without consideration, as a favor to his
something not consumable so that the latter may use the same for a good friend Sanchez. It was however clear to the parties to the
certain time and return it, in which case the contract is called a transaction that the money would not be removed from Sterela’s
savings account and would be returned to private respondent after the trial court found that Atienza allowed said withdrawals because he
thirty (30) days. was party to Doronilla’s "scheme" of defrauding private respondent:

Doronilla’s attempts to return to private respondent the amount of XXX

₱200,000.00 which the latter deposited in Sterela’s account together
with an additional ₱12,000.00, allegedly representing interest on the But the scheme could not have been executed successfully without the
mutuum, did not convert the transaction from a commodatum into a knowledge, help and cooperation of Rufo Atienza, assistant manager
mutuum because such was not the intent of the parties and because the and cashier of the Makati (Buendia) branch of the defendant bank.
additional ₱12,000.00 corresponds to the fruits of the lending of the Indeed, the evidence indicates that Atienza had not only facilitated the
₱200,000.00. Article 1935 of the Civil Code expressly states that "[t]he commission of the fraud but he likewise helped in devising the means
bailee in commodatum acquires the use of the thing loaned but not its by which it can be done in such manner as to make it appear that the
fruits." Hence, it was only proper for Doronilla to remit to private transaction was in accordance with banking procedure.
respondent the interest accruing to the latter’s money deposited with
petitioner. To begin with, the deposit was made in defendant’s Buendia branch
precisely because Atienza was a key officer therein. The records show
Neither does the Court agree with petitioner’s contention that it is not that plaintiff had suggested that the ₱200,000.00 be deposited in his
solidarily liable for the return of private respondent’s money because it bank, the Manila Banking Corporation, but Doronilla and Dumagpi
was not privy to the transaction between Doronilla and private insisted that it must be in defendant’s branch in Makati for "it will be
respondent. The nature of said transaction, that is, whether it is a easier for them to get a certification". In fact before he was introduced
mutuum or a commodatum, has no bearing on the question of to plaintiff, Doronilla had already prepared a letter addressed to the
petitioner’s liability for the return of private respondent’s money Buendia branch manager authorizing Angeles B. Sanchez and company
because the factual circumstances of the case clearly show that to open a savings account for Sterela in the amount of ₱200,000.00, as
petitioner, through its employee Mr. Atienza, was partly responsible for "per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank
the loss of private respondent’s money and is liable for its restitution. x x x" (Exh. 1). This is a clear manifestation that the other defendants
had been in consultation with Atienza from the inception of the scheme.
Petitioner’s rules for savings deposits written on the passbook it issued Significantly, there were testimonies and admission that Atienza is the
Mrs. Vives on behalf of Sterela for Savings Account No. 10-1567 brother-in-law of a certain Romeo Mirasol, a friend and business
expressly states that— associate of Doronilla.1awphi1.nét

"2. Deposits and withdrawals must be made by the depositor personally Then there is the matter of the ownership of the fund. Because of the
or upon his written authority duly authenticated, and neither a deposit "coordination" between Doronilla and Atienza, the latter knew before
nor a withdrawal will be permitted except upon the production of the hand that the money deposited did not belong to Doronilla nor to
depositor savings bank book in which will be entered by the Bank the Sterela. Aside from such foreknowledge, he was explicitly told by
amount deposited or withdrawn."30 Inocencia Vives that the money belonged to her and her husband and
the deposit was merely to accommodate Doronilla. Atienza even
Said rule notwithstanding, Doronilla was permitted by petitioner, declared that the money came from Mrs. Vives.
through Atienza, the Assistant Branch Manager for the Buendia Branch
of petitioner, to withdraw therefrom even without presenting the Although the savings account was in the name of Sterela, the bank
passbook (which Atienza very well knew was in the possession of Mrs. records disclose that the only ones empowered to withdraw the same
Vives), not just once, but several times. Both the Court of Appeals and were Inocencia Vives and Angeles B. Sanchez. In the signature card
pertaining to this account (Exh. J), the authorized signatories were this account was opened three days later after the ₱200,000.00 was
Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the deposited. In spite of his disclaimer, the Court believes that Atienza was
usual banking procedure that withdrawals of savings deposits could only mindful and posted regarding the opening of the current account
be made by persons whose authorized signatures are in the signature considering that Doronilla was all the while in "coordination" with him.
cards on file with the bank. He, however, said that this procedure was That it was he who facilitated the approval of the authority to debit the
not followed here because Sterela was owned by Doronilla. He savings account to cover any overdrawings in the current account (Exh.
explained that Doronilla had the full authority to withdraw by virtue of 2) is not hard to comprehend.
such ownership. The Court is not inclined to agree with Atienza. In the
first place, he was all the time aware that the money came from Vives Clearly Atienza had committed wrongful acts that had resulted to the
and did not belong to Sterela. He was also told by Mrs. Vives that they loss subject of this case. x x x.31
were only accommodating Doronilla so that a certification can be issued
to the effect that Sterela had a deposit of so much amount to be sued in Under Article 2180 of the Civil Code, employers shall be held primarily
the incorporation of the firm. In the second place, the signature of and solidarily liable for damages caused by their employees acting
Doronilla was not authorized in so far as that account is concerned within the scope of their assigned tasks. To hold the employer liable
inasmuch as he had not signed the signature card provided by the bank under this provision, it must be shown that an employer-employee
whenever a deposit is opened. In the third place, neither Mrs. Vives nor relationship exists, and that the employee was acting within the scope
Sanchez had given Doronilla the authority to withdraw. of his assigned task when the act complained of was committed.32 Case
law in the United States of America has it that a corporation that
Moreover, the transfer of fund was done without the passbook having entrusts a general duty to its employee is responsible to the injured
been presented. It is an accepted practice that whenever a withdrawal party for damages flowing from the employee’s wrongful act done in
is made in a savings deposit, the bank requires the presentation of the the course of his general authority, even though in doing such act, the
passbook. In this case, such recognized practice was dispensed with. The employee may have failed in its duty to the employer and disobeyed the
transfer from the savings account to the current account was without latter’s instructions.33
the submission of the passbook which Atienza had given to Mrs. Vives.
Instead, it was made to appear in a certification signed by Estrella There is no dispute that Atienza was an employee of petitioner.
Dumagpi that a duplicate passbook was issued to Sterela because the Furthermore, petitioner did not deny that Atienza was acting within the
original passbook had been surrendered to the Makati branch in view of scope of his authority as Assistant Branch Manager when he assisted
a loan accommodation assigning the savings account (Exh. C). Atienza, Doronilla in withdrawing funds from Sterela’s Savings Account No. 10-
who undoubtedly had a hand in the execution of this certification, was 1567, in which account private respondent’s money was deposited, and
aware that the contents of the same are not true. He knew that the in transferring the money withdrawn to Sterela’s Current Account with
passbook was in the hands of Mrs. Vives for he was the one who gave it petitioner. Atienza’s acts of helping Doronilla, a customer of the
to her. Besides, as assistant manager of the branch and the bank official petitioner, were obviously done in furtherance of petitioner’s
servicing the savings and current accounts in question, he also was interests34 even though in the process, Atienza violated some of
aware that the original passbook was never surrendered. He was also petitioner’s rules such as those stipulated in its savings account
cognizant that Estrella Dumagpi was not among those authorized to passbook.35 It was established that the transfer of funds from Sterela’s
withdraw so her certification had no effect whatsoever. savings account to its current account could not have been
accomplished by Doronilla without the invaluable assistance of Atienza,
The circumstance surrounding the opening of the current account also and that it was their connivance which was the cause of private
demonstrate that Atienza’s active participation in the perpetration of respondent’s loss.
the fraud and deception that caused the loss. The records indicate that
The foregoing shows that the Court of Appeals correctly held that under DECISION
Article 2180 of the Civil Code, petitioner is liable for private
respondent’s loss and is solidarily liable with Doronilla and Dumagpi for LEONEN, J.:
the return of the ₱200,000.00 since it is clear that petitioner failed to
prove that it exercised due diligence to prevent the unauthorized This resolves a Petition for Review on Certiorari under Rule 45 of the
withdrawals from Sterela’s savings account, and that it was not Rules of Court praying that judgment be rendered reversing and setting
negligent in the selection and supervision of Atienza. Accordingly, no aside the September 30, 2010 Decision1 and the January 4, 2011
error was committed by the appellate court in the award of actual, Resolution2 of the Court of Appeals Nineteenth Division in CA-G.R. CV
moral and exemplary damages, attorney’s fees and costs of suit to No. 01388. The Petition also prays that respondents Spouses Romeo
private respondent. and Annie Abella be ordered to pay petitioners Spouses Salvador and
Alma Abella 2.5% monthly interest plus the remaining balance of the
WHEREFORE, the petition is hereby DENIED. The assailed Decision and amount loaned.
Resolution of the Court of Appeals are AFFIRMED.
The assailed September 30, 2010 Decision of the Court of Appeals
SO ORDERED. reversed and set aside the December 28, 2005 Decision3 of the Regional
Trial Court, Branch 8, Kalibo, Aklan in Civil Case No. 6627. It directed
petitioners to pay respondents P148,500.00 (plus interest), which was
the amount respondents supposedly overpaid. The assailed January 4,
2011 Resolution of the Court of Appeals denied petitioners’ Motion for
Reconsideration.

The Regional Trial Court’s December 28, 2005 Decision ordered

respondents to pay petitioners the supposedly unpaid loan balance of
P300,000.00 plus the allegedly stipulated interest rate of 30% per
annum, as well as litigation expenses and attorney’s fees.4

On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a
Complaint5 for sum of money and damages with prayer for preliminary
attachment against respondents Spouses Romeo and Annie Abella
before the Regional Trial Court, Branch 8, Kalibo, Aklan. The case was
docketed as Civil Case No. 6627.6

In their Complaint, petitioners alleged that respondents obtained a loan

from them in the amount of P500,000.00. The loan was evidenced by an
G.R. No. 195166 acknowledgment receipt dated March 22, 1999 and was payable within
one (1) year. Petitioners added that respondents were able to pay a
SPOUSES SALVADOR ABELLA AND ALMA ABELLA, Petitioners, total of P200,000.00— P100,000.00 paid on two separate occasions—
vs. leaving an unpaid balance of P300,000.00.7
SPOUSES ROMEO ABELLA AND ANNIE ABELLA, Respondents.
In their Answer8 (with counterclaim and motion to dismiss), 2. Ordering the defendants to pay the plaintiffs the sum of P2,227.50 as
respondents alleged that the amount involved did not pertain to a loan reimbursement for litigation expenses, and another sum of P5,000.00 as
they obtained from petitioners but was part of the capital for a joint attorney’s fees.
venture involving the lending of money.9
For lack of legal basis, plaintiffs’ claim for moral and exemplary damages
Specifically, respondents claimed that they were approached by has to be denied, and for lack of merit the counter-claim is ordered
petitioners, who proposed that if respondents were to "undertake the dismissed.14
management of whatever money [petitioners] would give them,
[petitioners] would get 2.5% a month with a 2.5% service fee to In the Order dated March 13, 2006,15 the Regional Trial Court denied
[respondents]."10 The 2.5% that each party would be receiving respondents’ Motion for Reconsideration.
represented their sharing of the 5% interest that the joint venture was
supposedly going to charge against its debtors. Respondents further On respondents’ appeal, the Court of Appeals ruled that while
alleged that the one year averred by petitioners was not a deadline for respondents had indeed entered into a simple loan with petitioners,
payment but the term within which they were to return the money respondents were no longer liable to pay the outstanding amount of
placed by petitioners should the joint venture prove to be not lucrative. P300,000.00.16
Moreover, they claimed that the entire amount of P500,000.00 was
disposed of in accordance with their agreed terms and conditions and The Court of Appeals reasoned that the loan could not have earned
that petitioners terminated the joint venture, prompting them to collect interest, whether as contractually stipulated interest or as interest in
from the joint venture’s borrowers. They were, however, able to collect the concept of actual or compensatory damages. As to the loan’s not
only to the extent of P200,000.00; hence, the P300,000.00 balance having earned stipulated interest, the Court of Appeals anchored its
remained unpaid.11 ruling on Article 1956 of the Civil Code, which requires interest to be
stipulated in writing for it to be due.17 The Court of Appeals noted that
In the Decision12 dated December 28, 2005, the Regional Trial Court while the acknowledgement receipt showed that interest was to be
ruled in favor of petitioners. It noted that the terms of the charged, no particular interest rate was specified.18 Thus, at the time
acknowledgment receipt executed by respondents clearly showed that: respondents were making interest payments of 2.5% per month, these
(a) respondents were indebted to the extent of P500,000.00; (b) this interest payments were invalid for not being properly stipulated by the
indebtedness was to be paid within one (1) year; and (c) the parties. As to the loan’s not having earned interest in the concept of
indebtedness was subject to interest. Thus, the trial court concluded actual or compensatory damages, the Court of Appeals, citing Eusebio-
that respondents obtained a simple loan, although they later invested Calderon v. People,19 noted that interest in the concept of actual or
its proceeds in a lending enterprise.13 The Regional Trial Court compensatory damages accrues only from the time that demand
adjudged respondents solidarily liable to petitioners. The dispositive (whether judicial or extrajudicial) is made. It reasoned that since
portion of its Decision reads: respondents received petitioners’ demand letter only on July 12, 2002,
any interest in the concept of actual or compensatory damages due
WHEREFORE, premises considered, judgment is hereby rendered: should be reckoned only from then. Thus, the payments for the 2.5%
monthly interest made after the perfection of the loan in 1999 but
1. Ordering the defendants jointly and severally to pay the plaintiffs the before the demand was made in 2002 were invalid.20
sum of P300,000.00 with interest at the rate of 30% per annum from the
time the complaint was filed on July 31, 2002 until fully paid; Since petitioners’ charging of interest was invalid, the Court of Appeals
reasoned that all payments respondents made by way of interest should
be deemed payments for the principal amount of P500,000.00.21
The Court of Appeals further noted that respondents made a total In their Reply,30 petitioners argue that even though no interest rate was
payment of P648,500.00, which, as against the principal amount of stipulated in the acknowledgment receipt, the case fell under the
P500,000.00, entailed an overpayment of P148,500.00. Applying the exception to the Parol Evidence Rule. They also argue that there exists
principle of solutio indebiti, the Court of Appeals concluded that convincing and sufficiently credible evidence to supplement the
petitioners were liable to reimburse respondents for the overpaid imperfection of the acknowledgment receipt.31
amount of P148,500.00.22 The dispositive portion of the assailed Court
of Appeals Decision reads: For resolution are the following issues:

WHEREFORE, the Decision of the Regional Trial Court is hereby First, whether interest accrued on respondents’ loan from petitioners. If
REVERSED and SET ASIDE, and a new one issued, finding that the so, at what rate?
Spouses Salvador and Alma Abella are DIRECTED to jointly and severally
pay Spouses Romeo and Annie Abella the amount of P148,500.00, with Second, whether petitioners are liable to reimburse respondents for the
interest of 6% interest (sic) per annum to be computed upon receipt of latter’s supposed excess payments and for interest.
this decision, until full satisfaction thereof. Upon finality of this
judgment, an interest as the rate of 12% per annum, instead of 6%, shall I
be imposed on the amount due, until full payment thereof.23
As noted by the Court of Appeals and the Regional Trial Court,
In the Resolution24 dated January 4, 2011, the Court of Appeals denied respondents entered into a simple loan or mutuum, rather than a joint
petitioners’ Motion for Reconsideration. venture, with petitioners.

Aggrieved, petitioners filed the present appeal25 where they claim that Respondents’ claims, as articulated in their testimonies before the trial
the Court of Appeals erred in completely striking off interest despite the court, cannot prevail over the clear terms of the document attesting to
parties’ written agreement stipulating it, as well as in ordering them to the relation of the parties. "If the terms of a contract are clear and leave
reimburse and pay interest to respondents. no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control."32
In support of their contentions, petitioners cite Article 1371 of the Civil
Code,26 which calls for the consideration of the contracting parties’ Articles 1933 and 1953 of the Civil Code provide the guideposts that
contemporaneous and subsequent acts in determining their true determine if a contractual relation is one of simple loan or mutuum:
intention. Petitioners insist that respondents’ consistent payment of
interest in the year following the perfection of the loan showed that Art. 1933. By the contract of loan, one of the parties delivers to another,
interest at 2.5% per month was properly agreed upon despite its not either something not consumable so that the latter may use the same
having been expressly stated in the acknowledgment receipt. They add for a certain time and return it, in which case the contract is called a
that during the proceedings before the Regional Trial Court, commodatum; or money or other consumable thing, upon the condition
respondents admitted that interest was due on the loan.27 that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
In their Comment,28 respondents reiterate the Court of Appeals’
findings that no interest rate was ever stipulated by the parties and that Commodatum is essentially gratuitous.
interest was not due and demandable at the time they were making
interest payments.29 Simple loan may be gratuitous or with a stipulation to pay interest.
 Article 1956 of the Civil Code spells out the basic rule that "[n]o interest
In commodatum the bailor retains the ownership of the thing loaned, shall be due unless it has been expressly stipulated in writing."
while in simple loan, ownership passes to the borrower.
On the matter of interest, the text of the acknowledgment receipt is
.... simple, plain, and unequivocal. It attests to the contracting parties’
intent to subject to interest the loan extended by petitioners to
Art. 1953. A person who receives a loan of money or any other fungible respondents. The controversy, however, stems from the
thing acquires the ownership thereof, and is bound to pay to the acknowledgment receipt’s failure to state the exact rate of interest.
creditor an equal amount of the same kind and quality. (Emphasis
supplied) Jurisprudence is clear about the applicable interest rate if a written
instrument fails to specify a rate. In Spouses Toring v. Spouses Olan,35
On March 22, 1999, respondents executed an acknowledgment receipt this court clarified the effect of Article 1956 of the Civil Code and noted
to petitioners, which states: that the legal rate of interest (then at 12%) is to apply: "In a loan or
forbearance of money, according to the Civil Code, the interest due
Batan, Aklan should be that stipulated in writing, and in the absence thereof, the rate
shall be 12% per annum."36
March 22, 1999
Spouses Toring cites and restates (practically verbatim) what this court
This is to acknowledge receipt of the Amount of Five Hundred Thousand settled in Security Bank and Trust Company v. Regional Trial Court of
(P500,000.00) Pesos from Mrs. Alma R. Abella, payable within one (1) Makati, Branch 61: "In a loan or forbearance of money, the interest due
year from date hereof with interest. should be that stipulated in writing, and in the absence thereof, the rate
shall be 12% per annum."37
Annie C. Abella (sgd.) Romeo M. Abella (sgd.)33 (Emphasis supplied)
Security Bank also refers to Eastern Shipping Lines, Inc. v. Court of
The text of the acknowledgment receipt is uncomplicated and Appeals, which, in turn, stated:38
straightforward. It attests to: first, respondents’ receipt of the sum of
P500,000.00 from petitioner Alma Abella; second, respondents’ duty to 1. When the obligation is breached, and it consists in the payment of a
pay back this amount within one (1) year from March 22, 1999; and sum of money, i.e., a loan or forbearance of money, the interest due
third, respondents’ duty to pay interest. Consistent with what typifies a should be that which may have been stipulated in writing. Furthermore,
simple loan, petitioners delivered to respondents with the the interest due shall itself earn legal interest from the time it is
corresponding condition that respondents shall pay the same amount to judicially demanded. In the absence of stipulation, the rate of interest
petitioners within one (1) year. 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
II 1169 of the Civil Code.39 (Emphasis supplied)

Although we have settled the nature of the contractual relation The rule is not only definite; it is cast in mandatory language. From
between petitioners and respondents, controversy persists over Eastern Shipping to Security Bank to Spouses Toring, jurisprudence has
respondents’ duty to pay conventional interest, i.e., interest as the cost repeatedly used the word "shall," a term that has long been settled to
of borrowing money.34 denote something imperative or operating to impose a duty.40 Thus,
the rule leaves no room for alternatives or otherwise does not allow for applied prospectively and not retroactively. Consequently, the twelve
discretion. It requires the application of the legal rate of interest. percent (12%) per annum legal interest shall apply only until June 30,
2013. Come July 1, 2013 the new rate of six percent (6%) per annum
Our intervening Decision in Nacar v. Gallery Frames41 recognized that shall be the prevailing rate of interest when applicable.42 (Emphasis
the legal rate of interest has been reduced to 6% per annum: supplied, citations omitted)

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series
(BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved the of 2013 and Nacar retain the definite and mandatory framing of the rule
amendment of Section 2 of Circular No. 905, Series of 1982 and, articulated in Eastern Shipping, Security Bank, and Spouses Toring.
accordingly, issued Circular No. 799, Series of 2013, effective July 1, Nacar even restates Eastern Shipping:
2013, the pertinent portion of which reads:
To recapitulate and for future guidance, the guidelines laid down in the
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, case of Eastern Shipping Lines are accordingly modified to embody BSP-
approved the following revisions governing the rate of interest in the MB Circular No. 799, as follows:
absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982: ....

Section 1. The rate of interest for the loan or forbearance of any money, 1. When the obligation is breached, and it consists in the payment of a
goods or credits and the rate allowed in judgments, in the absence of an sum of money, i.e., a loan or forbearance of money, the interest due
express contract as to such rate of interest, shall be six percent (6%) per should be that which may have been stipulated in writing. Furthermore,
annum. the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest
Section 2. In view of the above, Subsection X305.1 of the Manual of shall be 6% per annum to be computed from default, i.e., from judicial
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the or extrajudicial demand under and subject to the provisions of Article
Manual of Regulations for 1169 of the Civil Code.43 (Emphasis supplied, citations omitted)

Non-Bank Financial Institutions are hereby amended accordingly. Thus, it remains that where interest was stipulated in writing by the
debtor and creditor in a simple loan or mutuum, but no exact interest
This Circular shall take effect on 1 July 2013. rate was mentioned, the legal rate of interest shall apply. At present,
this is 6% per annum, subject to Nacar’s qualification on prospective
Thus, from the foregoing, in the absence of an express stipulation as to application.
the rate of interest that would govern the parties, the rate of legal
interest for loans or forbearance of any money, goods or credits and the Applying this, the loan obtained by respondents from petitioners is
rate allowed in judgments shall no longer be twelve percent (12%) per deemed subjected to conventional interest at the rate of 12% per
annum — as reflected in the case of Eastern Shipping Lines and annum, the legal rate of interest at the time the parties executed their
Subsection X305.1 of the Manual of Regulations for Banks and Sections agreement. Moreover, should conventional interest still be due as of
4305Q.1,= 4305S.3 and 4303P.1 of the Manual of Regulations for Non- July 1, 2013, the rate of 12% per annum shall persist as the rate of
Bank Financial Institutions, before its amendment by BSP-MB Circular conventional interest.
No. 799 — but will now be six percent (6%) per annum effective July 1,
2013. It should be noted, nonetheless, that the new rate could only be
This is so because interest in this respect is used as a surrogate for the In sum, two (2) things must be established for parol evidence to be
parties’ intent, as expressed as of the time of the execution of their admitted: first, that the existence of any of the four (4) exceptions has
contract. In this sense, the legal rate of interest is an affirmation of the been put in issue in a party’s pleading or has not been objected to by
contracting parties’ intent; that is, by their contract’s silence on a the adverse party; and second, that the parol evidence sought to be
specific rate, the then prevailing legal rate of interest shall be the cost of presented serves to form the basis of the conclusion proposed by the
borrowing money. This rate, which by their contract the parties have presenting party.48
settled on, is deemed to persist regardless of shifts in the legal rate of
interest. Stated otherwise, the legal rate of interest, when applied as The issue of admitting parol evidence is a matter that is proper to the
conventional interest, shall always be the legal rate at the time the trial, not the appellate, stage of a case. Petitioners raised the issue of
agreement was executed and shall not be susceptible to shifts in rate. applying the exceptions to the Parol Evidence Rule only in the Reply
they filed before this court. This is the last pleading that either of the
Petitioners, however, insist on conventional interest at the rate of 2.5% parties has filed in the entire string of proceedings culminating in this
per month or 30% per annum. They argue that the acknowledgment Decision. It is, therefore, too late for petitioners to harp on this rule. In
receipt fails to show the complete and accurate intention of the any case, what is at issue is not admission of evidence per se, but the
contracting parties. They rely on Article 1371 of the Civil Code, which appreciation given to the evidence adduced by the parties. In the
provides that the contemporaneous and subsequent acts of the Petition they filed before this court, petitioners themselves
contracting parties shall be considered should there be a need to acknowledged that checks supposedly attesting to payment of monthly
ascertain their intent.44 In addition, they claim that this case falls under interest at the rate of 2.5% were admitted by the trial court (and
the exceptions to the Parol Evidence Rule, as spelled out in Rule 130, marked as Exhibits "2," "3," "4," "5," "6," "7," and "8").49 What
Section 9 of the Revised Rules on Evidence.45 petitioners have an issue with is not the admission of these pieces of
evidence but how these have not been appreciated in a manner
It is a basic precept in legal interpretation and construction that a rule consistent with the conclusions they advance.
or provision that treats a subject with specificity prevails over a rule or
provision that treats a subject in general terms.46 Even if it can be shown that the parties have agreed to monthly interest
at the rate of 2.5%, this is unconscionable. As emphasized in Castro v.
The rule spelled out in Security Bank and Spouses Toring is anchored on Tan,50 the willingness of the parties to enter into a relation involving an
Article 1956 of the Civil Code and specifically governs simple loans or unconscionable interest rate is inconsequential to the validity of the
mutuum. Mutuum is a type of nominate contract that is specifically stipulated rate:
recognized by the Civil Code and for which the Civil Code provides a
specific set of governing rules: Articles 1953 to 1961. In contrast, Article The imposition of an unconscionable rate of interest on a money debt,
1371 is among the Civil Code provisions generally dealing with even if knowingly and voluntarily assumed, is immoral and unjust. It is
contracts. As this case particularly involves a simple loan, the specific tantamount to a repugnant spoliation and an iniquitous deprivation of
rule spelled out in Security Bank and Spouses Toring finds preferential property, repulsive to the common sense of man. It has no support in
application as against Article 1371. law, in principles of justice, or in the human conscience nor is there any
reason whatsoever which may justify such imposition as righteous and
Contrary to petitioners’ assertions, there is no room for entertaining as one that may be sustained within the sphere of public or private
extraneous (or parol) evidence. In Spouses Bonifacio and Lucia Paras v. morals.51
Kimwa Construction and Development Corporation,47 we spelled out
the requisites for the admission of parol evidence: The imposition of an unconscionable interest rate is void ab initio for
being "contrary to morals, and the law."52
 petitioners adverted to is unconscionable. The conventional interest due
In determining whether the rate of interest is unconscionable, the on the principal amount loaned by respondents from petitioners is held
mechanical application of pre-established floors would be wanting. The to be 12% per annum.
lowest rates that have previously been considered unconscionable need
not be an impenetrable minimum. What is more crucial is a III
consideration of the parties’ contexts. Moreover, interest rates must be
appreciated in light of the fundamental nature of interest as Apart from respondents’ liability for conventional interest at the rate of
compensation to the creditor for money lent to another, which he or 12% per annum, outstanding conventional interest—if any is due from
she could otherwise have used for his or her own purposes at the time it respondents—shall itself earn legal interest from the time judicial
was lent. It is not the default vehicle for predatory gain. As such, demand was made by petitioners, i.e., on July 31, 2002, when they filed
interest need only be reasonable. It ought not be a supine mechanism their Complaint. This is consistent with Article 2212 of the Civil Code,
for the creditor’s unjust enrichment at the expense of another. which provides:

Petitioners here insist upon the imposition of 2.5% monthly or 30% Art. 2212. Interest due shall earn legal interest from the time it is
annual interest. Compounded at this rate, respondents’ obligation judicially demanded, although the obligation may be silent upon this
would have more than doubled—increased to 219.7% of the principal— point.
by the end of the third year after which the loan was contracted if the
entire principal remained unpaid. By the end of the ninth year, it would So, too, Nacar states that "the interest due shall itself earn legal interest
have multiplied more than tenfold (or increased to 1,060.45%). In 2015, from the time it is judicially demanded."53
this would have multiplied by more than 66 times (or increased to
6,654.17%). Thus, from an initial loan of only P500,000.00, respondents Consistent with Nacar, as well as with our ruling in Rivera v. Spouses
would be obliged to pay more than P33 million. This is grossly unfair, Chua,54 the interest due on conventional interest shall be at the rate of
especially since up to the fourth year from when the loan was obtained, 12% per annum from July 31, 2002 to June 30, 2013. Thereafter, or
respondents had been assiduously delivering payment. This reduces starting July 1, 2013, this shall be at the rate of 6% per annum.
their best efforts to satisfy their obligation into a protracted servicing of
a rapacious loan. IV

The legal rate of interest is the presumptive reasonable compensation Proceeding from these premises, we find that respondents made an
for borrowed money. While parties are free to deviate from this, any overpayment in the amount of P3,379.17.
deviation must be reasonable and fair. Any deviation that is far-
removed is suspect. Thus, in cases where stipulated interest is more As acknowledged by petitioner Salvador Abella, respondents paid a total
than twice the prevailing legal rate of interest, it is for the creditor to of P200,000.00, which was charged against the principal amount of
prove that this rate is required by prevailing market conditions. Here, P500,000.00. The first payment of P100,000.00 was made on June 30,
petitioners have articulated no such justification. 2001,55 while the second payment of P100,000.00 was made on
December 30, 2001.56
In sum, Article 1956 of the Civil Code, read in light of established
jurisprudence, prevents the application of any interest rate other than The Court of Appeals’ September 30, 2010 Decision stated that
that specifically provided for by the parties in their loan document or, in respondents paid P6,000.00 in March 1999.57
lieu of it, the legal rate. Here, as the contracting parties failed to make a
specific stipulation, the legal rate must apply. Moreover, the rate that
The Pre-Trial Order dated December 2, 2002,58 stated that the parties
admitted that "from the time the principal sum of P500,000.00 was Application of payments must be in accordance with Article 1253 of the
borrowed from [petitioners], [respondents] ha[d] been religiously Civil Code, which reads:
paying"59 what was supposedly interest "at the rate of 2.5% per
month."60 Art. 1253. If the debt produces interest, payment of the principal shall
not be deemed to have been made until the interests have been
From March 22, 1999 (after the loan was perfected) to June 22, 2001 covered.
(before respondents’ payment of P100,000.00 on June 30, 2001, which
was deducted from the principal amount of P500,000.00), the 2.5% Thus, the payments respondents made must first be reckoned as
monthly "interest" was pegged to the principal amount of P500,000.00. interest payments. Thereafter, any excess payments shall be charged
These monthly interests, thus, amounted to P12,500.00 per month. against the principal. As respondents paid a total of P156,000.00 within
Considering that the period from March 1999 to June 2001 spanned the first year, the conventional interest of P60,000.00 must be deemed
twenty seven (27) months, respondents paid a total of P337,500.00.61 fully paid and the remaining amount that respondents paid (i.e.,
P96,000.00) is to be charged against the principal. This yields a balance
From June 22, 2001 up to December 22, 2001 (before respondents’ of P404,000.00. By the end of the second year following the perfection
payment of another P100,000.00 on December 30, 2001, which was of the loan, or as of March 21, 2001, P452,480.00 was due from
deducted from the remaining principal amount of P400,000.00), the respondents. This consisted of the outstanding principal of P404,000.00
2.5% monthly "interest" was pegged to the remaining principal amount and conventional interest of P48,480.00.
of P400,000.00. These monthly interests, thus, amounted to P10,000.00
per month. Considering that this period spanned six (6) months, Within this second year, respondents completed another round of
respondents paid a total of P60,000.00.62 twelve (12) monthly payments totaling P150,000.00.

From after December 22, 2001 up to June 2002 (when petitioners filed Consistent with Article 1253 of the Civil Code, as respondents paid a
their Complaint), the 2.5% monthly "interest" was pegged to the total of P156,000.00 within the second year, the conventional interest
remaining principal amount of P300,000.00. These monthly interests, of P48,480.00 must be deemed fully paid and the remaining amount
thus, amounted to P7,500.00 per month. Considering that this period that respondents paid (i.e., P101,520.00) is to be charged against the
spanned six (6) months, respondents paid a total of P45,000.00.63 principal. This yields a balance of P302,480.00.

Applying these facts and the properly applicable interest rate (for By the end of the third year following the perfection of the loan, or as of
conventional interest, 12% per annum; for interest on conventional March 21, 2002, P338,777.60 was due from respondents. This consists
interest, 12% per annum from July 31, 2002 up to June 30, 2013 and 6% of the outstanding principal of P302,480.00 and conventional interest of
per annum henceforth), the following conclusions may be drawn: P36,297.60.

By the end of the first year following the perfection of the loan, or as of Within this third year, respondents paid a total of P320,000.00, as
March 21, 2000, P560,000.00 was due from respondents. This consisted follows:
of the principal of P500,000.00 and conventional interest of P60,000.00.
(a) Between March 22, 2001 and June 30, 2001, respondents completed
Within this first year, respondents made twelve (12) monthly payments three (3) monthly payments of P12,500.00 each, totaling P37,500.00.
totalling P150,000.00 (P12,500.00 each from April 1999 to March 2000).
This was in addition to their initial payment of P6,000.00 in March 1999.
(b) On June 30, 2001, respondents paid P100,000.00, which was charged From the end of March 2002 to June 2002, respondents delivered three
as principal payment. (3) more monthly payments of P7,500.00 each. Thus, during this period,
they delivered three (3) monthly payments totalling P22,500.00.
(c) Between June 30, 2001 and December 30, 2001, respondents
delivered monthly payments of P10,000.00 each. At this point, the At this rate, however, payment would have been completed by
monthly payments no longer amounted to P12,500.00 each because the respondents even before the end of the fourth year. Thus, for precision,
supposed monthly interest payments were pegged to the supposedly it is more appropriate to reckon the amounts due as against payments
remaining principal of P400,000.00. Thus, during this period, they paid a made on a monthly, rather than an annual, basis.
total of six (6) monthly payments totaling P60,000.00.
By April 21, 2002, _18,965.38 (i.e., remaining principal of P18,777.60
(d) On December 30, 2001, respondents paid P100,000.00, which, like plus pro-rated monthly conventional interest at 1%, amounting to
the June 30, 2001 payment, was charged against the principal. P187.78) would have been due from respondents. Deducting the
monthly payment of P7,500.00 for the preceding month in a manner
(e) From the end of December 2002 to the end of February 2002, consistent with Article 1253 of the Civil Code would yield a balance of
respondents delivered monthly payments of P7,500.00 each. At this P11,465.38.
point, the supposed monthly interest payments were now pegged to
the supposedly remaining principal of P300,000.00. Thus, during this By May 21, 2002, _11,580.03 (i.e., remaining principal of P11,465.38
period, they delivered three (3) monthly payments totaling P22,500.00. plus pro-rated monthly conventional interest at 1%, amounting to
P114.65) would have been due from respondents. Deducting the
Consistent with Article 1253 of the Civil Code, as respondents paid a monthly payment of P7,500.00 for the preceding month in a manner
total of P320,000.00 within the third year, the conventional interest of consistent with Article 1253 of the Civil Code would yield a balance of
P36,927.50 must be deemed fully paid and the remaining amount that P4,080.03.
respondents paid (i.e., P283,702.40) is to be charged against the
principal. This yields a balance of P18,777.60. By June 21, 2002, P4,120.83 (i.e., remaining principal of P4,080.03 plus
pro-rated monthly conventional interest at 1%, amounting to P40.80)
By the end of the fourth year following the perfection of the loan, or as would have been due from respondents. Deducting the monthly
of March 21, 2003, P21,203.51 would have been due from respondents. payment of P7,500.00 for the preceding month in a manner consistent
This consists of: (a) the outstanding principal of P18,777.60, (b) with Article 1253 of the Civil Code would yield a negative balance of
conventional interest of P2,253.31, and (c) interest due on conventional P3,379.17.
interest starting from July 31, 2002, the date of judicial demand, in the
amount of P172.60. The last (i.e., interest on interest) must be pro- Thus, by June 21, 2002, respondents had not only fully paid the principal
rated. There were only 233 days from July 31, 2002 (the date of judicial and all the conventional interest that had accrued on their loan. By this
demand) to March 21, 2003 (the end of the fourth year); this left date, they also overpaid P3,379.17. Moreover, while hypothetically,
63.83% of the fourth year, within which interest on interest might have interest on conventional interest would not have run from July 31, 2002,
accrued. Thus, the full annual interest on interest of 12% per annum no such interest accrued since there was no longer any conventional
could not have been completed, and only the proportional amount of interest due from respondents by then.
7.66% per annum may be properly imposed for the remainder of the
fourth year. V
As respondents made an overpayment, the principle of solutio indebiti He shall furthermore be answerable for any loss or impairment of the
as provided by Article 2154 of the Civil Code64 applies. Article 2154 thing from any cause, and for damages to the person who delivered the
reads: thing, until it is recovered.

Article 2154. If something is received when there is no right to demand Consistent however, with our finding that the excess payment made by
it, and it was unduly delivered through mistake, the obligation to return respondents were borne out of a mere mistake that it was due, we find
it arises. it in the better interest of equity to no longer hold petitioners liable for
interest arising from their quasi-contractual obligation.
In Moreno-Lentfer v. Wolff,65 this court explained the application of
solutio indebiti: Nevertheless, Nacar also provides:

The quasi-contract of solutio indebiti harks back to the ancient principle 3. When the judgment of the court awarding a sum of money becomes
that no one shall enrich himself unjustly at the expense of another. It final and executory, the rate of legal interest, whether the case falls
applies where (1) a payment is made when there exists no binding under paragraph 1 or paragraph 2, above, shall be 6% per annum from
relation between the payor, who has no duty to pay, and the person such finality until its satisfaction, this interim period being deemed to be
who received the payment, and (2) the payment is made through by then an equivalent to a forbearance of credit.68
mistake, and not through liberality or some other cause.66
Thus, interest at the rate of 6% per annum may be properly imposed on
As respondents had already fully paid the principal and all conventional the total judgment award. This shall be reckoned from the finality of this
interest that had accrued, they were no longer obliged to make further Decision until its full satisfaction.
payments.1awp++i1 Any further payment they made was only because
of a mistaken impression that they were still due. Accordingly, WHEREFORE, the assailed September 30, 2010 Decision and the January
petitioners are now bound by a quasi-contractual obligation to return 4, 2011 Resolution of the Court of Appeals Nineteenth Division in CA-
any and all excess payments delivered by respondents. G.R. CV No. 01388 are SET ASIDE. Petitioners Spouses Salvador and Alma
Abella are DIRECTED to jointly and severally reimburse respondents
Nacar provides that "[w]hen an obligation, not constituting a loan or Spouses Romeo and Annie Abella the amount of P3,379.17, which
forbearance of money, is breached, an interest on the amount of respondents have overpaid.
damages awarded may be imposed at the discretion of the court at the
rate of 6% per annum."67 This applies to obligations arising from quasi- A legal interest of 6% per annum shall likewise be imposed on the total
contracts such as solutio indebiti. judgment award from the finality of this Decision until its full
satisfaction.
Further, Article 2159 of the Civil Code provides:
SO ORDERED.
Art. 2159. Whoever in bad faith accepts an undue payment, shall pay
legal interest if a sum of money is involved, or shall be liable for fruits
received or which should have been received if the thing produces
fruits.
G.R. No. 225433

LARA'S GIFTS & DECORS, INC., Petitioner

vs.
MIDTOWN INDUSTRIAL SALES, INC., Respondent

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the 21 April 2016 Decision2 and the 29
June 2016 Resolution3 of the Court of Appeals in CA-G.R. CV No.
102465. The Court of Appeals affirmed the 27 January 2014 Decision4 of
the Regional Trial Court, Branch 128, Caloocan City in Civil Case No. C-
22007.

The Facts

Petitioner Lara's Gifts & Decors, Inc. (petitioner) is engaged in the

business of manufacturing, selling, and exporting handicraft products.
On the other hand, respondent Midtown Industrial Sales, Inc.
(respondent) is engaged in the business of selling industrial and
construction materials, and petitioner is one of respondent's customers.
Respondent alleged that from January 2007 up to December 2007,
petitioner purchased from respondent various industrial and WHEREFORE, premises considered, judgment is hereby rendered in
construction materials in the total amount of ₱1,263,104.22. The favor of the plaintiff MIDTOWN INDUSTRIAL SALES, INC. and against the
purchases were on a sixty (60)-day credit term, with the condition that defendant LARA'S GIFTS [&] DECORS, INC. ordering the latter to pay the
24% interest per annum would be charged on all accounts overdue, as former the following amount:
stated in the sales invoices. Petitioner paid for its purchases by issuing
several Chinabank postdated checks in favor of respondent. However, 1. ONE MILLION TWO HUNDRED SIXTY THREE THOUSAND ONE
when respondent deposited the Chinabank checks on their maturity HUNDRED FOUR PESOS and 22/100 (Phpl,263,104.22) plus interest fixed
dates, the checks bounced. After repeated demands from respondent, at 24% per annum to be computed from February 5, 2008, the date of
petitioner replaced the bounced checks with new postdated Export and judicial demand, until the judgment obligation is fully paid. 2. The sum
Industry Bank checks. However, when respondent deposited the of FIFTY THOUSAND PESOS (Php50,000.00) as and by way of attorney's
replacement checks on their maturity dates, the checks were likewise fees.
dishonored for being "Drawn Against Insufficient Funds," and
subsequently, for "Account Closed." Respondent sent a demand letter5 Finally, defendant is ordered to pay the cost of suit.
dated 21 January 2008, which was received by petitioner on 22 January
2008, informing petitioner of the bounced checks and demanding that SO ORDERED.8
petitioner settle its accounts. Still petitioner failed to pay, prompting
respondent to file on 5 February 2008 a Complaint6 for Sum of Money The trial court held that petitioner failed to prove that the deliveries
with Prayer for Attachment against petitioner. made by respondent did not comply with the required specifications.
Other than the self-serving denials of its witnesses, no other evidence
In its Answer,7 petitioner admitted that from January 2007 to December was offered by petitioner to prove that the materials delivered were
2007, petitioner purchased from respondent, on a 60-day credit term, substandard. On the other hand, the amount of ₱1,263,104.22 claimed
various industrial and construction materials in the total amount of by respondent against petitioner was supported by the sales invoices
₱1,263,104.22. However, petitioner claimed that most of the deliveries and postdated checks. The trial court also held that the stipulated 24%
made were substandard and of poor quality. Petitioner alleged that the interest per annum on overdue accounts is not unconscionable.
checks it issued for payment were not for value because not all of the
materials delivered by respondent were received in good order and The Ruling of the Court of Appeals
condition. Thus, when petitioner used the raw materials, the finished
product allegedly did not pass the standards required by petitioner's The Court of Appeals denied petitioner's appeal, and affirmed the 27
buyers from the United States (US) who rejected the products. January 2014 Decision of the trial court.
Furthermore, due to the economic recession in the US, subsequent
orders made by petitioner's US buyers were canceled. Petitioner The Court of Appeals sustained the finding of the trial court that
claimed that on 19 February 2008, a fire razed its factory and office, petitioner admitted issuing postdated checks as payment for the
destroying its equipment, machineries, and inventories, including those materials purchased from respondent from January 2007 to December
rejected by the US buyers. 2007. The Court of Appeals ruled that petitioner failed to prove that the
materials delivered were substandard and of poor quality to justify its
The Ruling of the Trial Court claim that the checks were issued without valuable consideration.

On 27 January 2014, the trial court rendered a Decision, the dispositive On the 24% interest per annum imposed, the Court of Appeals found
portion of which reads: implausible petitioner's claim that it was placed in a disadvantageous
position. Petitioner could not have been cheated or misled into agreeing paragraph 2 of its Answer, 10 it only admitted the existence of the sales
to the 24% interest rate per annum that was stated in the sales invoices. invoices but not their due execution.
Petitioner, an established company with numerous transactions with
respondent prior to the purchases made in 2007, could have negotiated It should be stressed that petitioner admitted in its Answer that from
with respondent for more favorable terms. Since the 24% interest rate January 2007 to December 2007, it purchased from respondent various
per annum was stipulated in writing, the Court of Appeals held that such industrial and construction materials in the total amount of
rate should be applied considering that petitioner has not shown that it ₱1,263,104.22. Petitioner likewise admitted the existence of the sales
was placed at a disadvantage in its contractual relation with respondent. invoices covering the said purchases, which were attached as annexes to
the Complaint. Although petitioner stated that it is not admitting the
The Issues due execution of the sales invoices, petitioner's Answer failed to
specifically deny or contest under oath the genuineness or due
Petitioner raises the following issues: execution of any of the sales invoices or any of the signatures of
petitioner's representatives or employees appearing therein.
I. WHETHER OR NOT MIDTOWN'S SALES INVOICES HAVE PROBATIVE Furthermore, petitioner failed to specify which of the sales invoices
VALUE, CONSIDERING THAT THEIR GENUINENESS, DUE EXECUTION AND pertain to materials delivered which were allegedly substandard and of
AUTHENTICITY ARE NOT ESTABLISHED UNDER SECTION 20, RULE 132 OF poor quality.
THE RULES OF COURT.
The rule on actionable documents is provided under Sections 7 and 8,
II. WHETHER OR NOT [LARA'S GIFTS & DECORS, INC.] IS IN DEFAULT OF Rule 8 of the 1997 Rules of Civil Procedure:
ITS CONTRACTUAL OBLIGATIONS. III. WHETHER OR NOT ARTICLES 1192
AND 1283 OF THE CIVIL CODE ARE APPLICABLE IN THE PRESENT CASE. Sec. 7. Action or defense based on document. - Whenever an action or
defense is based upon a written instrument or document, the substance
IV. WHETHER OR NOT THE INTEREST RATE FIXED AT 24% PERANNUM IS of such instrument or document shall be set forth in the pleading, and
VOID. the original or a copy thereof shall be attached to the pleading as an
exhibit, which shall be deemed to be a part of the pleading, or said copy
V. ASSUMING THAT THE INTEREST RATE OF 24% IS VALID, WHETHER OR may with like effect be set forth in the pleading.
NOT THE SAID RATE SHALL BE APPLIED ONLY UNTIL FINALITY OF
JUDGMENT.9 Sec. 8. How to contest such documents. - When an action or defense is
founded upon a written instrument, copied in or attached to the
The Court's Ruling corresponding pleading as provided in the preceding section, the
genuineness and due execution of the instrument shall be deemed
We find the petition without merit. We affirm the ruling of the Court of admitted unless the adverse party, under oath, specifically denies them,
Appeals with modification. and sets forth what he claims to be the facts; but the requirement of an
oath does not apply when the adverse party does not appear to be a
Admissibility of the Sales Invoices party to the instrument or when compliance with an order for an
inspection of the original instrument is refused. (Emphasis supplied)
Petitioner argues that the sales invoices on the alleged purchases have
no probative value because their genuineness, due execution, and Section 10 of Rule 8 further describes how a specific denial should be
authenticity have not been established. Petitioner stresses that in made:
Sec. 10. Specific denial. - A defendant must specify each material receipt of the deliveries without protest. The sales invoices clearly
allegation of fact the truth of which he does not admit and, whenever stated that petitioner "RECEIVED MERCHANDISE IN GOOD ORDER &
practicable, shall set forth the substance of the matters upon which be CONDITION." 16 Furthermore, petitioner admits issuing the postdated
relies to support his denial. Where a defendant desires to deny only a checks as payment for the materials delivered. The postdated checks
part of an averment, he shall specify so much of it as is true and were subsequently dishonored for being "drawn against insufficient
material and shall deny only the remainder. Where a defendant is funds" or for "account closed." Petitioner insists that the checks were
without knowledge or information sufficient to form a belief as to the issued without valuable consideration since most of the materials
truth of a material averment made in the complaint, he shall so state, delivered did not comply with the required specifications. However,
and this shall have the effect of a denial. (Emphasis supplied) other than its bare allegation that the materials delivered were
substandard and of poor quality, petitioner failed to prove or
In this case, petitioner did not state the facts or substance of the substantiate its claims. As found by the trial court, none of petitioner's
matters relied upon to support its denial of the due execution of the witnesses was able to present proof that the materials delivered were
sales invoices. As held in Sy-Quia v. Marsman, 11 "the Rules require that substandard or of poor quality.
besides specifying the allegations of fact not admitted, the answer
should set forth the matters relied upon in support of the denial; so Applicability of Articles 1192 and 1283 of the Civil Code
that, in effect, the Rules are no longer satisfied with mere denials, even
if specific, but demand that defendant manifest what he considers to be Articles 1192 and 1283 of the Civil Code read:
the true facts." The purpose of the specific denial is to compel the
defendant to specify the allegations which he or she intends to disprove Art. 1192. In case both parties have committed a breach of the
and disclose the matters relied upon to support such denial, 12 thereby obligation, the liability of the first infractor shall be equitably tempered
limiting the issues and avoiding unnecessary delays and surprises. 13 by the courts. If it cannot be determined which of the parties first
Petitioner's general denial amounts to an admission of the genuineness violated the contract, the same shall be deemed extinguished, and each
and due execution of the sales invoices. shall bear his own damages.

Default in the Contractual Obligations Art. 1283. If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his right
Petitioner admits that it made purchases amounting to ₱1,263,104.22, to said damages and the amount thereof.
but that the materials delivered were substandard or of poor quality. 14
In effect, petitioner is alleging fraud in the transactions, which petitioner As previously discussed, petitioner failed to substantiate its claims that
is bound to substantiate. Whoever alleges fraud or mistake affecting a the materials delivered were substandard or of poor quality. Thus,
transaction must substantiate his allegation and has the burden of petitioner cannot demand either a tempering of its liability or an offset
proof. 15 As found by the trial court and the appellate court, petitioner of damages.
failed to substantiate its claim that the materials delivered by
respondent did not comply with the specifications required or that the Validity of the 24% Interest Rate In Asian Construction and
materials were substandard and of poor quality. Development Corporation v. Cathay Pacific Steel Corporation, 17 the
Court upheld the validity of interest rate fixed at 24% per annum that
The best evidence of the transaction between petitioner and was expressly stipulated in the sales invoices. The Court held that
respondent are the sales invoices and the checks issued by petitioner as petitioner construction company is presumed to have full knowledge of
payments for the materials purchased. The sales invoices show that the terms and conditions of the contract and that by not objecting to
petitioner, through its authorized staff or employees, acknowledged the stipulations in the sales invoice, it also bound itself to pay not only
the stated selling price but also the interest of 24% per annum on judicially demanded. In the absence of stipulation, the rate of interest
overdue accounts and the 25% of the unpaid invoice for attorney's fees. shall be 6% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of Article
In the present case, petitioner, which has been doing business since 1169 of the Civil Code.
1990 and has been purchasing various materials from respondent since
2004, cannot claim to have been misled into agreeing to the 24% 2. When an obligation, not constituting a loan or forbearance of money,
interest rate which was expressly stated in the sales invoices. Besides, is breached, an interest on the amount of damages awarded may be
this Court has already ruled in several cases that an interest rate of 24% imposed at the discretion of the court at the rate of 6% per annum. No
per annum agreed upon between the parties is valid and binding18 and interest, however, shall be adjudged on unliquidated claims or damages,
not excessive and unconscionable. 19 Thus, the stipulated 24% interest except when or until the demand can be established with reasonable
per annum is binding on petitioner. Imposition of Legal Interest certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the
The rates of interest stated in the guidelines on the imposition of claim is made judicially or extra judicially (Art. 1169, Civil Code), but
interests, as laid down in the landmark case of Eastern Shipping Lines, when such certainty cannot be so reasonably established at the time the
Inc. v. Court of Appeals20 have already been modified in Bangko Sentral demand is made, the interest shall begin to run only from the date the
ng Pilipinas Monetary Board (BSP-MB) Circular No. 799, Series of 2013, judgment of the court is made (at which time the quantification of
which reduced the rate of legal interest from twelve percent (12%) per damages may be deemed to have been reasonably ascertained). The
annum to six percent (6%)per annum. actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.
The modified guidelines are detailed in the 2013 case of Nacar v. Gallery
Frames,21 thus: 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
To recapitulate and for future guidance, the guidelines laid down in the under paragraph 1 or paragraph 2, above, shall be 6% per annum from
case of Eastern Shipping Lines are accordingly modified to embody BSP- such finality until its satisfaction, this interim period being deemed to be
MB Circular No. 799, as follows: by then an equivalent to a forbearance of credit.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi- And, in addition to the above, judgments that have become final and
contracts, delicts or quasi-delicts is breached, the contravenor can be executory prior to July 1, 2013, shall not be disturbed and shall continue
held liable for damages. The provisions under Title XVIII on "Damages" to be implemented applying the rate of interest fixed therein.22
of the Civil Code govern in determining the measure of recoverable (Emphasis supplied)
damages.
However, if the rate of interest is stipulated, such stipulated interest
II. With regard particularly to an award of interest in the concept of shall apply and not the legal interest,23 provided the stipulated interest
actual and compensatory damages, the rate of interest, as well as the is not excessive and unconscionable.24 The stipulated interest shall be
accrual thereof, is imposed, as follows: applied until full payment of the obligation because that is the law
between the parties. 25 The legal interest only applies in the absence of
1. When the obligation is breached, and it consists in the payment of a stipulated interest. This is in accord with Article 2209 of the Civil Code,
sum of money, i.e., a loan or forbearance of money, the interest due which states:
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is
Art. 2209. If the obligation consists in the payment of a sum of money, I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
and the debtor incurs in delay, the indemnity for damages, there being contracts, delicts or quasi-delicts is breached, the contravenor can be
no stipulation to the contrary, shall be the payment of the interest held liable for damages. The provisions under Title XVIII on "Damages"
agreed upon, and in the absence of stipulation, the legal interest, which of the Civil Code govern in determining the measure of recoverable
is six percent per annum. (Boldfacing and italicization supplied) damages.

Even BSP-MB Circular No. 799 expressly states that the legal interest II. With regard particularly to an award of interest in the concept of
applies only in the absence of stipulated interest in loan contracts. actual and compensatory damages, the rate of interest, as well as the
Circular No. 799 reads: accrual thereof, is imposed, as follows:

CIRCULAR NO. 799 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
Series of 2013 should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is
Subject: Rate of interest in the absence of stipulation 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
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, or extrajudicial demand under and subject to the provisions of Article
approved the following revisions governing the rate of interest in the 1169 of the Civil Code.
absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982: 2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
Section 1. The rate of interest for the loan or forbearance of any money, imposed at the discretion of the court at the rate of 6% per annum. No
goods or credits and the rate allowed in judgments, in the absence of an interest, however, shall be adjudged on unliquidated claims or damages
express contract as to such rate of interest, shall be six percent (6%) per except when or until the demand can be established with reasonable
annum. certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the
Section 2. In view of the above, Subsection X305 .1 of the Manual of claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the such certainty cannot be so reasonably established at the time the
Manual of Regulations for Non-Bank Financial Institutions are hereby demand is made, the interest shall begin to run only from the date of
amended accordingly. the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The
This Circular shall take effect on 1 July 2013. (Emphasis supplied) actual base for the computation of legal interest shall, in any case, be on
the amount of [sic] finally adjudged.
Clearly, Circular No. 799 will apply only in the absence of stipulated
interest. 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
In Eastern Shipping Lines, which first laid down the guidelines on the under paragraph 1 or paragraph 2, above, shall be 12% per annum from
computation of legal interest, the Court declared: such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit. 26 (Emphasis supplied)
Paragraph 3 above failed to qualify that for loans or forbearance of Articles 2210 and 2211 of the Civil Code Apply to Obligations Other Than
money, the prevailing legal interest should only apply in the absence of Loans or Forbearance of Money, Goods or Credits
stipulated interest. The stipulated interest is the law between the
parties and should apply from the time of extrajudicial or judicial Articles 2210 and 2211 of the Civil Code provide:
demand until full payment.27 This omission resulted in several rulings of
this Court, which imposed the stipulated interest on the adjudged Art. 2210. Interest may, in the discretion of the court, be allowed upon
amount until finality of the decision BUT applied the prevailing legal damages awarded for breach of contract.
interest in lieu of the stipulated interest from finality of the decision
until full payment of the obligation.28 This is in direct contravention of Art. 2211. In crimes and quasi-delicts, interest as a part of the damages
the law, particularly Article 2209 of the Civil Code, which mandates that may, in a proper case, be adjudicated in the discretion of the court.
when a debtor incurs a delay in obligations to pay a sum of money, the
indemnity for damages shall be the payment of the interest agreed Under these articles, when the obligation, other than loans or
upon. Only in the absence of a stipulated interest will the legal interest forbearance of money, goods or credits, is breached, the court may in
be applied. its discretion impose an interest on the damages awarded. The interest
imposed in the discretion of the court will be the prevailing legal
To repeat, the stipulated interest is the law between the parties, and interest prescribed by the Bangko Sentral ng Pilipinas.
should be applied until full payment of the obligation. Article 1159 of
the Civil Code provides that "[o]bligations arising from contracts have In contrast, Article 2209 of the Civil Code is applicable only to loans or
the force of law between the contracting parties and should be forbearance of money, goods or credit which arise out of "obligations
complied with in good faith." Article 1956 of the Civil Code also states consisting in the payment of a sum of money, and the debtor incurs in
that "[n]o interest shall be due unless it has been expressly stipulated in delay," and thus where there is a debtor-creditor relationship. Articles
writing." Furthermore, the contracting parties may establish such 2210 and 2211 refer to obligations that do not involve the payment of a
stipulations as they may deem convenient, provided they are not sum of money and there is no debtor-creditor relationship. Moreover,
contrary to law, morals, good customs, public order, or public policy, 29 the payment of interest in Article 2209 is mandatory, while the payment
and the parties are bound to fulfill what has been expressly of interest in Articles 2210 and 2211 is discretionary on the court.
stipulated.30 Thus, unless the stipulated interest is excessive and
unconscionable, there is no legal basis for the reduction of the The Legal Interest Rate in Article 2209 of the Civil Code Has Been
stipulated interest at any time until full payment of the principal Amended
amount. The stipulated interest remains in force until the obligation is
satisfied. In the absence of stipulated interest, the prevailing legal On 24 Feb1uary 1916, Act No. 265533 or the Usury Law was enacted,
interest prescribed by the Bangko Sentral ng Pilipinas shall apply. which fixed the legal interest at 6% per annum for loans, forbearance of
money, goods, credits or judgments.34 This legal interest applied in the
Moreover, there should be no compounding of interest, whether absence of stipulated interest.
stipulated or legal, unless compounding is expressly agreed upon in
writing by the parties or mandated by law or regulation.31 Section 5 of On 18 June 1949, Republic Act No. 386,35 otherwise known as the Civil
the Usury Law, as amended, expressly provides that compounded Code of the Philippines, was enacted and took effect the following year.
interest "shall not be reckoned, except by agreement."32 Being more Article 220936 of the Civil Code declared that the legal interest in
burdensome than simple interest, compounded interest must be obligations to pay a sum of money is 6% per annum when the debtor
expressly stipulated by the parties or mandated by law or regulation. incurs in delay. Article 2209 applies to loans and forbearance of money,
goods or credits. 37 This legal interest will apply in the absence of
stipulated interest. 38 Forbearance of Money, Goods or Credits

On 29 January 1973, Presidential Decree No. 11639 (P.D. No. 116) was The term "forbearance" in the context of the Usury Law has been
issued, which amended the Usury Law and fixed the legal interest for defined as "a contractual obligation of lender or creditor to refrain,
loans, forbearance of money, goods, credits or judgments at 6% per during a given period of time, from requiring the borrower or debtor to
annum "or such rate as may be prescribed by the Monetary Board of repay a loan or debt then due and payable."42 In consideration of this
the Central Bank of the Philippines." This legal interest applies in the forbearance, the parties often agree on the payment of interest on the
absence of stipulated interest. Section 11 of P.D. No. 116 states: "All amount due.
Acts and parts of Acts inconsistent with the provisions of this Decree are
hereby repealed." This repealing clause applied to Acts, Commonwealth In Estores v. Spouses Supangan,43 the Court ruled that "forbearance of
Acts, and Republic Acts, including Article 2209 of Republic Act No. 386 money, goods or credits" has a "separate meaning from a loan." The
(Civil Code of the Philippines). When P.D. No. 116 says "[a]ll Acts and Court then reiterated, citing Crismina Garments, Inc. v. Court of
parts of Acts," it does not mean only Act No. 2655 (Usury Law) but all Appeals,44 that "forbearance of money, goods or credits" refers to
other Acts, without exception. P.D. No. 116 was obviously intended to "arrangements other than loan agreements, where a person acquiesces
amend all laws prescribing the rate of legal interest in the absence of to the temporary use of his money, goods or credits pending happening
stipulated interest. The Whereas clauses of P.D. No. 116 state that "the of certain events or fulfillment of certain conditions." The Court
monetary authorities have recognized the need to amend the present explained in Estores:
Usury Law to allow for more flexible interest rate ceilings that would be
more responsive to the requirements of changing economic The contract involved in this case is admittedly not a loan but a
conditions,"40 and that "the availability of adequate capital resources is, Conditional Deed of Sale. However, the contract provides that the seller
among other factors, a decisive element in the achievement of the (petitioner) must return the payment made by the buyer (respondent
declared objective of accelerating the growth of the national spouses) if the conditions are not fulfilled. There is no question that
economy."41 Thus, P.D. No. 116 amended all laws, including Article they have in fact, not been fulfilled as the seller (petitioner) has
2209 of the Civil Code, prescribing the rate of legal interest to allow the admitted this. Notwithstanding demand by the buyer (respondent-
Bangko Sentral ng Pilipinas to calibrate the legal interest rate to meet spouses), the seller (petitioner) has failed to return the money and
changing economic conditions and to accelerate the growth of the should be considered in default from the time that demand was made
national economy. If P.D. No. 116 did not amend Article 2209, then all on September 27, 2000.
"obligations consisting in the payment of a sum of money," which is the
all-encompassing coverage of Article 2209 applying to all loans or Even if the transaction involved a Conditional Deed of Sale, can the
forbearance of money, goods, credits or judgments, would still be stipulation governing the return of the money be considered as a
subject to the fixed 6% legal interest rate. This would prevent the forbearance of money which required payment of interest at the rate of
Bangko Sentral ng Pilipinas from calibrating the legal interest to meet 12%? We believe so.
changing economic conditions and to accelerate the growth of the
national economy. In Crismina Garments, Inc. v. Court of Appeals, "forbearance" was
defined as a "contractual obligation of lender or creditor to refrain
Thus, the legal interest referred to in Article 2209 of the Civil Code is during a given period of time, from requiring the borrower or debtor to
now 6% per annum or as may be fixed by the Monetary Board of the repay a loan or debt then due and payable." This definition describes a
Bangko Sentral ng Pilipinas pursuant to the Usury Law, as amended by loan where a debtor is given a period within which to pay a loan or debt.
PD 116. In such case, "forbearance of money, goods or credits" will have no
distinct definition from a loan. We believe, however, that the phrase Central Bank of the Philippines for that purpose in accordance with the
"forbearance of money, goods or credits" is meant to have a separate authority hereby granted."
meaning from a loan, otherwise there would have been no need to add
that phrase as a loan is already sufficiently defined in the Civil Code. SECTION 2. The same Act is hereby amended by adding the following
Forbearance of money, goods or credits should therefore refer to section immediately after section one thereof, which reads as follows:
arrangements other than loan agreements, where a person acquiesces
to the temporary use of his money, goods or credits pending happening "Sec. 1-a. The Monetary Board is hereby authorized to prescribe the
of certain events or fulfillment of certain conditions. In this case, the maximum rate or rate of interest for the loan or renewal thereof or the
respondent-spouses parted with their money even before the forbearance of any money, goods or credits, and to chance [sic] such
conditions were fulfilled. They have therefore allowed or granted rate or rates whenever warranted by prevailing economic and social
forbearance to the seller (petitioner) to use their money pending conditions: Provided, That such changes shall not be made oftener than
fulfillment of the conditions. They were deprived of the use of their once every twelve months.
money for the period pending fulfillment of the conditions and when
those conditions were breached, they are entitled not only to the return In the exercise of the authority herein granted, the Monetary Board may
of the principal amount paid, but also to compensation for the use of prescribe higher maximum rates for consumer loans or renewals
their money. And the compensation for the use of their money, absent thereof as well as loans made by pawnshops, finance companies and
any stipulation, should be the same rate of legal interest applicable to a other similar credit institutions although the rates prescribed for these
loan since the use or deprivation of funds is similar to a loan. 45 institutions need not necessarily be uniform."
(Emphasis supplied)
xxxx
The Court further stressed in Reformina v. Judge Tomol, Jr. 46 that Act
No. 2655 or the Usury Law deals with "interest on (1) loans; (2) SECTION 7. Section five of the same Act is hereby amended to read as
forbearance of any money, goods or credits; and (3) the rate allowed in follows:
judgments."47 The Court clarified that the term "judgments" refers to
judgments in litigations involving loans or forbearance of any money, "Sec. 5. In computing the interest on any obligation, promissory note or
goods or credits.48 As declared in Eastern Shipping Lines, the "finality other instrument or contract, compound interest shall not be reckoned,
[of judgment] until its satisfaction x x x [is a] period being deemed to be except by agreement: Provided, That whatever compound interest is
by then an equivalent to a forbearance of credit"49 or a forbearance of agreed upon, the effective rate of interest charged by the creditor shall
money. not exceed the equivalent of the maximum rate prescribed by the
Monetary Board, or, in default thereof, whenever the debt is judicially
P.D. No. 116 amended Act No. 2655 or the Usury Law, as follows: claimed, in which last case it shall draw six per centum per annum
interest or such rate as may be prescribed by the Monetary Board. No
SECTION 1. Section one of Act Numbered two thousand six hundred person or corporation shall require interest to be paid in advance for a
fifty-five is hereby amended to read as follows: period of not more than one year: Provided, however, That whenever
interest is paid in advance, the effective rate of interest charged by the
"Sec. 1. The rate of interest for the loan or forbearance of any money, creditor shall not exceed the equivalent of the maximum rate
goods, or credits and the rate allowed in judgments, in the absence of prescribed by the Monetary Board."
express contract as to such rate of interest, shall be six per centum per
annum or such rate as may be prescribed by the Monetary Board of the x x x x (Boldfacing and italicization supplied)
Clearly, under the law and jurisprudence, the prevailing legal interest Sentral ng Pilipinas,55 from the time of judicial demand UNTIL FULL
prescribed by the Bangko Sentral ng Pilipinas applies, in the absence of PAYMENT.56
stipulated interest, on the following: (1) loans; (2) forbearance of any
money, goods or credits; and (3) judgments in litigations involving loans 2. In the absence of stipulated interest, in a loan or forbearance of
or forbearance of money, goods or credits. It should be noted that money, goods, credits or judgments, the rate of interest on the principal
under Section 1 of P.D. No.116, the prevailing legal interest prescribed amount shall be the prevailing legal interest prescribed by the Bangko
by the Bangko Sentral ng Pilipinas applies to "judgments" in the absence Sentral ng Pilipinas, which shall be computed from default, i.e., from
of stipulated interest. extrajudicial or judicial demand in accordance with Article 1169 of the
Civil Code, UNTIL FULL PAYMENT, without compounding any interest
Forbearance of goods includes the sale of goods on installment, unless compounded interest is expressly stipulated by law or regulation.
requiring periodic payment of money to the creditor.1âшphi1 Interest due on the principal amount accruing as of judicial demand
Forbearance of credits includes the sale of anything on credit, where the shall SEPARATELY earn legal interest at the prevailing rate prescribed by
full amount due can be paid at a date after the sale. the Bangko Sentral ng Pilipinas,57 from the time of judicial demand
UNTIL FULL PAYMENT. 58
As previously discussed, the general rule is that the interest stipulated
by the parties shall apply, provided it is not excessive and 3. When the obligation, not constituting a loan or forbearance of
unconscionable. Absent any stipulation, the Court has consistently held money, goods, credits or judgments, is breached, an interest on the
that the prevailing legal interest prescribed by the Bangko Sentral ng amount of damages awarded may be imposed in the discretion of the
Pilipinas applies to loans or forbearance of money, goods or credits, as court at the prevailing legal interest prescribed by the Bangko Sentral ng
well as to judgments.50 Pilipinas, pursuant to Articles 2210 and 2011 of the Civil Code.59 No
interest, however, shall be adjudged on unliquidated claims or damages
To summarize, the guidelines on the imposition of interest as provided until the demand can be established with reasonable certainty.60
in Eastern Shipping Lines and Nacar are further modified for clarity and Accordingly, where the amount of the claim or damages is established
uniformity, as follows: with reasonable certainty, the prevailing legal interest shall begin to run
from the time the claim is made extrajudicially or judicially (Art. 1169,
With regard to an award of interest in the concept of actual and Civil Code) UNTIL FULL PAYMENT, but when such certainty cannot be so
compensatory damages, the rate of interest, as well as the accrual reasonably established at the time the demand is made, the interest
thereof, is imposed, as follows: shall begin to run only from the date of the judgment of the trial court
(at which time the quantification of damages may be deemed to have
1. When the obligation is breached, and it consists in the payment of a been reasonably ascertained) UNTIL FULL PAYMENT. The actual base for
sum of money, i.e, a loan or forbearance of money, goods, credits or the computation of the interest shall, in any case, be on the principal
judgments, the interest due shall be that which is stipulated by the amount finally adjudged, without compounding any interest unless
parties in writing,51 provided it is not excessive and unconscionable, compounded interest is expressly stipulated by law or regulation.61
which, in the absence of a stipulated reckoning date,52 shall be
computed from default, i.e., from extrajudicial or judicial demand in This case involves a forbearance of credit wherein petitioner was
accordance with Article 116953 of the Civil Code, UNTIL FULL PAYMENT, granted a 60-day credit term on its purchases, with the condition that a
without compounding any interest unless compounded interest is 24% interest per annum would be charged on all accounts overdue.
expressly stipulated by the parties, by law or regulation. Interest due on Since there was an extra judicial demand before the complaint was
the principal amount accruing as of judicial demand shall SEPARATELY filed, interest on the amount due begins to run not from the filing of the
earn legal interest54 at the prevailing rate prescribed by the Bangko complaint but from the date of such extrajudicial demand. 62 Thus, the
unpaid principal obligation of ₱1,263,104.22 shall earn the stipulated
interest of 24% per annum from the date of extrajudicial demand on 22 4. Cost of the suit.
January 2008 until full payment.
SO ORDERED.
Furthermore, in accordance with Article 221263 of the Civil Code, the
24% interest per annum due on the principal amount accruing as of the
judicial demand shall earn legal interest at the rate of 12% per annum
from the date of judicial demand on 5 February 2008 until 30 June 2013,
and thereafter at the rate of 6% per annum from 1 July 2013 until full
payment. From the date of judicial demand on 5 February 2008 until 30
June 2013, the prevailing rate of legal interest was 12% per annum. The
6% per annum legal interest prescribed under BSP-MB Circular No. 799
took effect on 1 July 2013 and could only be applied prospectively. 64
The ₱50,000.00 attorney's fees shall also earn legal interest at the rate
of 6% per annum from the finality of this Decision until full
payment.1âшphi1

WHEREFORE, the Decision dated 21 April 2016 of the Court of Appeals

in CA-G.R. CV No. 102465, affirming the 27 January 2014 Decision of the
Regional Trial Court, Branch 128, Caloocan City, is AFFIRMED with
MODIFICATION, as follows:

Petitioner Lara's Gifts & Decors, Inc. is ordered to pay respondent

Midtown Industrial Sales, Inc. the following:

1. ONE MILLION TWO HUNDRED SIXTY THREE THOUSAND ONE

HUNDRED FOUR PESOS and 22/100 (₱1,263,104.22) representing the
principal amount plus stipulated interest at 24% per annum to be
computed from 22 January 2008, the date of extrajudicial demand, until
full payment.

2. Legal interest on the 24% per annum interest due on the principal
amount accruing as of judicial demand, at the rate of 12% per annum
from the date of judicial demand on 5 February 2008 until 30 June 2013, G.R. No. 205578
and thereafter at the rate of 6% per annum from 1 July 2013 until full
payment. GEORGIA OSMEÑA-JALANDONI, Petitioner
vs
3. The sum of FIFTY THOUSAND PESOS (₱50,000.00) as attorney's fees, CARMEN A. ENCOMIENDA, Respondent
plus legal interest thereon at the rate of 6% per annum to be computed
from the finality of this Decision until full payment. DECISION
 15. Bankard bill of Georgia 840.00
PERALTA, J.: 16. Services of 2 security guards for 2/1-15/97 and 3/1-31/97
14,715.00
This is an appeal from the Decision1 of the Court of Appeals, Cebu City 17. One sack of rice and gasoline 1,270.00
(CA) dated March 29, 2012 and its Resolution2 dated December 19, 18. Food allowance for Georgia's household and payment for food
2012 in CA-G.R. CV No. 01339 which set aside the Decision3 of the Cebu ordered 2,900.00
Regional Trial Court (RTC), Branch 57, dated January 9, 2006, dismissing 19. Shipping charge of immigration papers sent to Georgia in Manila
respondent Carmen Encomienda's claim for sum of money. 145.45
20. Shipping charge of cellphone and easy call pager sent to Georgia
The facts, as shown by the records of the case, are as follows: 145 .45
21. Salary of Georgia's helper Renilda Atillo from April 1-15, 1997
Encomienda narrated that she met petitioner Georgia Osmeña- 750.00
Jalandoni in Cebu on October 24, 1995, when the former was 22. Purchase of cellphone registered in the name of Encomienda's
purchasing a condominium unit and the latter was the real estate sister, Paz 10,260.00
broker. Thereafter, Encomienda and Jalandoni became close friends. On 23. Pager acquired on April 10, 1997 upon Georgia's request
March 2, 1997, Jalandoni called Encomienda to ask if she could borrow 6,351.00
money for the search and rescue operation of her children in Manila, 24. Wanted ad in Panay News and expenses of Georgia's secretary
who were allegedly taken by their father, Luis Jalandoni. Encomienda 8,500.00
then went to Jalandoni's house and handed ₱l00,000.00 in a sealed 25. Salary of Billy Tano from April 1-15, 1997 2,000.00
envelope to the latter's security guard. While in Manila, Jalandoni again 26. Water consumption of Georgia's house in Paradise Village
borrowed money for the following errands:4 1,120.00
2 7. Services of security guard from April 1-15, 1997 4,905.00
1âwphi1 28. Telephone bill for Georgia's residential phone from March 25 to
1. Publication in SunStar Daily of Georgia's missing children April 24, 1997 3,609.77
₱l1,000.00 29. Telephone bill for Georgia's other telephone line 440.20
2. Reproduction of the pictures of Georgia's children 720.00 30. Plane ticket for Georgia's psychic friends $1,570.00
3. Additional reproduction of pictures 1,350.00 31. Petty cash for GRO Co. owned by Georgia 3,150.00
4. Plane fare for Georgia's secretary to Manila 3,196.00 32. Bill of cellphone under the name of Paz Encomienda 5,468.70
5. Allowance of Germana Berning in going to Manila 4,080.00 33. Another bill of cellphone used by Georgia 3,923.87
6. Cash airbill of Kabayan Forwarders 49.50 34. Cost of reproduction of pictures 2,500.00
7. Cash airbill of Kabayan Forwarders 49.50 35. Salary of driver and house help of Georgia from May 15-31, 1997
8. Salary of Georgia's household helper Reynilda Atillo for March 16-31, 3,250.00
1997 750.00 36. Service charge of Georgia's cellphone number 550.00
9. Salary of Georgia's driver Billy Tano for March 16-31, 1997 37. Ritual performed in Georgia's house to drive away evil spirits
2,000.00 17,500.00
10. Petty cash for Germana Berning 250.00 38. Prayers for Georgia's missing children 5,500.00
11. Consultancy fee of Germana Berning 7,000.00 39. Amount given to priest who performed a blessing of the house of
12. Filing fee of case filed by Georgia against CIS 100,500.00 Georgia500.00
13. Cebu cable bill per receipt No. 197743 380.00 40. Globe cellular phone bill of Georgia as of 5/10/97 7,957.24
14. Cebu cable bill per receipt No. 197742 380.00 41. Salary of Germana Berning for May 1997 6,000.00
42. Amount given to priest for mass and blessing 2,500.00 When Jalandoni came back to Cebu on July 14, 1997, she never
43. Cash given to G. Berning for payment of Georgia's phone bill informed Encomienda. Encomienda then later gave Jalandoni six (6)
3,000.00 weeks to settle her debts. Despite several demands, no payment was
44. Gasoline for Georgia's car paid on 6/10/97 per cash slip #221088 made. Jalandoni insisted that the amounts given were not in the form of
150.00 loans. When they had to appear before the Barangay for conciliation, no
45. Gasoline for Georgia's car paid on 6/10/97 per cash slip #220997 settlement was reached. But a member of the Lupong Tagapamayapa of
379.44 Barangay Kasambagan, Laureano Rogero, attested that J alandoni
46. Bill for Georgia's Easycall pager 1,605.09 admitted having borrowed money from Encomienda and that she was
47. Security guard services for May 16-31 4,905.00 willing to return it. Jalandoni said she would talk to her lawyer first, but
48. Globe bill for cellular phone from April 18, 1997 to May 17, 1997 she never came back. Hence, Encomienda filed a complaint. She
5,543.98 impleaded Luis as a necessary party, being Georgia's husband.
49. Bill of cellular phone registered in the name of Paz Encomienda but
used by Georgia paid on June 18, 1997 14,169.21 For her defense, Jalandoni claimed that there was never a discussion or
50. Charge for changing the cap of Easycall pager on June 21, 1997 even just an allusion about a loan. She confirmed that Encomienda
275.00 would indeed deposit money in her bank account and pay her bills in
51. Monthly bill for Georgia's Easycall pager from 7 /15/97 to 10/14/97 Cebu. But when asked, Encomienda would tell her that she just wanted
1,551.00 to extend some help and that it was not a loan. When Jalandoni
52. Water bill for April-May 1997 paid on June 25, 1997 1,728.31 returned to Cebu, Encomienda wanted to fetch her at the airport but
53. Cebu Cable bill paid on 6125197 380.00 the former refused. This allegedly made Encomienda upset, causing her
54. PLDT bill for the telephone in Georgia's residence 2,097.98 to eventually demand payment for the amounts originally intended to
55. Electric bill paid on 6/25/97 1,964.43 be gratuitous.
56. Purchase of steel cabinet on 6/25/97 2,750.00
57. Airbill of JRS in sending the cap of Easycall pager 20.00 On January 9, 2006, the RTC of Cebu City dismissed Encomienda's
58. Bill for the cellphone in the name of Paz Encomienda but used by complaint, the dispositive portion of which states:
Georgia, June to July 8, 1997 8,630.11
59. Penalty for downgrading of executive line of cellphone WHEREFORE, in view of the foregoing, this case is hereby dismissed.
1,045.00
60. Globe cellphone bill paid on 9/10/971,903.00 SO ORDERED.5
61. Charge for downgrading of cellphone plan from Advantage to Basic
660.00 Therefore, Encomienda brought the case to the CA. On March 29, 2012,
62. Penalty for Easycall 11/17/97 1,248.50 the appellate court granted the appeal and reversed the RTC Decision,
On April 1, 1997, Jalandoni borrowed ₱l Million from Encomienda and to wit:
promised that she would pay the same when her money in the bank
matured. Thereafter, Encomienda went to Manila to attend the hearing WHEREFORE, the defendant-appellant's appeal is GRANTED. The
of Jalandoni's habeas corpus case before the CA where ₱100,000.00 decision of the trial court dated January 9, 2006 is hereby REVERSED
more was requested. On May 26, 1997, now crying, Jalandoni asked if and SET ASIDE and in its stead render judgment against defendant-
Encomienda could lend her an additional ₱900,000.00. Encomienda still appellee Georgia Osmefia-Jalandoni ordering the latter to pay plaintiff-
acceded, albeit already feeling annoyed. All in all, Encomienda spent appellant Carmen A. Encomienda the following:
around ₱3,245,836.02 and $6,638.20 for Jalandoni.
1. The sum of Three Million Two Hundred Forty-Five Thousand Eight Encomienda who has not been endowed with such wealth and powerful
Hundred Thirty-Six (₱3,245,836.02) Pesos and 02/100 and Six Thousand pedigree.
Six Hundred Thirty-Eight (US$6,638.20) US Dollars and 20/100;
The appellate court aptly pointed out that when Encomienda gave a
2. Legal interest of Twelve (12%) Percent from August 14, 1997 the date Barbie doll to Jalandoni's daughter, she was quick to send a letter
of extrajudicial demand. acknowledging receipt and thanking Encomienda for the simple gift.
However, not once did Jalandoni ever send a simple note or letter, let
3. Attorney's fees and expenses of litigation in the amount of One alone a card, expressing her gratitude towards Encomienda for the
Hundred Thousand (₱l 00,000.00) Pesos. countless instances she received various amounts of money supposedly
given to her as gifts.
Let a copy of this Decision be served upon defendants-appellees
through their respective counsels. The Division Clerk of Court is directed Jalandoni also contends that the amounts she received from
to furnish a copy of this Decision to plaintiff-appellant who, to date, has Encomienda were mostly provided and paid without her prior
yet to submit the name of her new counsel following the death of knowledge and thus she could not have consented to any loan
appellant's original counsel ofrecord, Atty. Richard W. Sison. agreement. She relies on the trial court's finding that Encomienda's
claims were not supported by any documentary evidence. It must be
SO ORDERED.6 stressed, however, that the trial court merely found that no
documentary evidence was offered showing Jalandoni's authorization or
Jalandoni filed a motion for reconsideration, but the same was denied.7 undertaking to pay the expenses. But the second paragraph of Article
Hence, the instant petition. 1236 of the Civil Code provides:

The sole issue in this case is whether or not Encomienda is entitled to be xxxx
reimbursed for the amounts she defrayed for Jalandoni.
Whoever pays for another may demand from the debtor what he has
Jalandoni insists that she never borrowed any amount of money from paid, except that if he paid without the knowledge or against the will of
Encomienda. During the entire time that Encomienda was sending the debtor, he can recover only insofar as the payment has been
hermoney and paying her bills, there was not one reference to a loan. In beneficial to the debtor.8
other words, Jalandoni would have the Court believe that Encomienda
volunteeredto spend about ₱3,245,836.02 and $6,638.20 of her hard- Clearly, Jalandoni greatly benefited from the purportedly unauthorized
earned money in a span of eight (8) months for her and her family payments. Thus, even if she asseverates that Encomienda's payment of
simply out of pure generosity and the kindness of her heart, without her household bills was without her knowledge or against her will, she
expecting anything in return. Suchpresupposition is incredible, highly cannot deny the fact that the same still inured to her benefit and
unusual, and contrary to common experience, unless the benefactor is a Encomienda must therefore be consequently reimbursed for it. Also,
billionaire philanthropist who usuallyspends his days distributing his when Jalandoni learned about the payments, she did nothing to express
fortune to the needy. It is a notable fact that Jalandoni was married to her objection to or repudiation of the same, within a reasonable time.
one of the richest hacienderos of Iloilo and belongto the privileged and Even when she claimed that she was prepared with her own money,9
affluent Osmeña family, being the daughter of the late Senator Sergio she still accepted the financial assistance and actually made use of it.
Osmeña, Jr. Clearly then, Jalandoni is not one to be aconvincing object While she asserts to have been upset because of Encomienda's
of anyone's charitable acts, especially not from someone like supposedly intrusive actions, she failed to protest and, in fact,
repeatedly accepted money from her and further allowed her to pay her
driver, security guard, househelp, and bills for her cellular phone, cable
television, pager, gasoline, food, and other utilities. She cannot, Truly, Jalandoni herself admitted that she received the aforementioned
therefore, deny the benefits she reaped from said acts now that the amounts from Encomienda and is merely using her lack of authorization
time for restitution has come. The debtor who knows that another has over the payments as her defence. In fact, Lupong Tagapamayapa
paid his obligation for him and who does not repudiate it at any time, member Rogero, a disinterested third party, confirmed this, saying that
must corollarily pay the amount advanced by such third person.10 during the barangay conciliation, Jalandoni indeed admitted having
borrowed money from Encomienda and that she would return it.
The RTC likewise harped on the fact that if Encomienda really intended Jalandoni, however, reneged on said promise.
the amounts to be a loan, nonnal human behavior would have
prompted at least a handwritten acknowledgment or a promissory note The principle of unjust enrichment finds application in this case. Unjust
the moment she parted with her money for the purpose of granting a enrichment exists when a person unfairly retains a benefit to the loss of
loan. This would be particularly true if the loan obtained was part of a another, or when a person retains money or property of another against
business dealing and not one extended to a close friend who suddenly the fundamental principles of justice, equity, and good conscience.
needed monetary aid. In fact, in case of loans between friends and There is unjust enrichment under Article 22 of the Civil Code when (1) a
relatives, the absence of acknowledgment receipts or promissory notes person is unjustly benefited, and (2) such benefit is derived at the
is more natural and real. In a similar case,11 the Court upheld the CA' s expense of or with damages to another. The principle of unjust
pronouncement that the existence of a contract of loan cannot be enrichment essentially contemplates payment when there is no duty to
denied merely because it was not reduced in writing. Surely, there can pay, and the person who receives the payment has no right to receive
be a verbal loan. Contracts are binding between the parties, whether it.12 The CA is then correct when it ruled that allowing Jalandoni to
oral or written. The law is explicit that contracts shall be obligatory in keep the amounts received from Encomienda will certainly cause an
whatever form they may have been entered into, provided all the unjust enrichment on Jalandoni' s part and to Encomienda's damage
essential requisites for their validity are present. A simple loan or and prejudice.
mutuum exists when a person receives a loan of money or any other
fungible thing and acquires its ownership. He is bound to pay to the WHEREFORE, PREMISES CONSIDERED, the Court DISMISSES the petition
creditor the equal amount of the same kind and quality. Jalandoni posits for lack of merit and AFFIRMS the Decision of the Court of Appeals,
that the more logical reason behind the disbursements would be what Cebu City dated March 29, 2012 and its Resolution dated December 19,
Encomiendacandidly told the trial court, that her acts were plainly an 2012 in CA-G.R. CV No. 01339, with MODIFICATION as to the interest
"unselfish display of Christian help" and done out of "genuine concern which must be twelve percent (12%) per annum of the amount awarded
for Georgia's children." However, the "display of Christian help" is not from the time of demand on August 14, 1997 to June 30, 2013, and six
inconsistent with theexistence of a loan. Encomienda immediately percent (6%)13 per annum from July 1, 2013 until its full satisfaction.
offered a helping hand when a friend asked for it. But this does not
mean that she had already waived herright to collect in the future. SO ORDERED.
Indeed, when Encomienda felt that Jalandoni was beginning to avoid
her, that was when she realized that she had to protect her right to
demand payment. The fact that Encomienda kept the receipts even for
the smallest amounts she had advanced, repeatedly sent demand
letters, and immediately filed the instant case when Jalandoni
stubbornly refused to heed her demands sufficiently disproves the
latter’s belief that all the sums of money she received were merely given
out of charity. G.R. No. 133179 March 27, 2008
ALLIED BANKING CORPORATION, Petitioner, Later, Santos arrived at the bank and signed the application form for a
vs. manager’s check to be issued.7 The bank issued Manager’s Check No.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS 035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio
BANK, Respondents. Wan’s money market placement in the name of Lim Sio Wan, as payee.8
The check was cross-checked "For Payee’s Account Only" and given to
DECISION Santos.9

VELASCO, JR., J.: Thereafter, the manager’s check was deposited in the account of
Filipinas Cement Corporation (FCC) at respondent Metropolitan Bank
To ingratiate themselves to their valued depositors, some banks at and Trust Co. (Metrobank),10 with the forged signature of Lim Sio Wan
times bend over backwards that they unwittingly expose themselves to as indorser.11
great risks.
Earlier, on September 21, 1983, FCC had deposited a money market
The Case placement for PhP 2 million with respondent Producers Bank. Santos
was the money market trader assigned to handle FCC’s account.12 Such
This Petition for Review on Certiorari under Rule 45 seeks to reverse the deposit is evidenced by Official Receipt No. 31756813 and a Letter dated
Court of Appeals’ (CA’s) Decision promulgated on March 18, 19981 in September 21, 1983 of Santos addressed to Angie Lazo of FCC,
CA-G.R. CV No. 46290 entitled Lim Sio Wan v. Allied Banking acknowledging receipt of the placement.14 The placement matured on
Corporation, et al. The CA Decision modified the Decision dated October 25, 1983 and was rolled-over until December 5, 1983 as
November 15, 19932 of the Regional Trial Court (RTC), Branch 63 in evidenced by a Letter dated October 25, 1983.15 When the placement
Makati City rendered in Civil Case No. 6757. matured, FCC demanded the payment of the proceeds of the
placement.16 On December 5, 1983, the same date that So received the
The Facts phone call instructing her to pre-terminate Lim Sio Wan’s placement,
the manager’s check in the name of Lim Sio Wan was deposited in the
The facts as found by the RTC and affirmed by the CA are as follows: account of FCC, purportedly representing the proceeds of FCC’s money
market placement with Producers Bank.17 In other words, the Allied
On November 14, 1983, respondent Lim Sio Wan deposited with check was deposited with Metrobank in the account of FCC as
petitioner Allied Banking Corporation (Allied) at its Quintin Paredes Producers Bank’s payment of its obligation to FCC.
Branch in Manila a money market placement of PhP 1,152,597.35 for a
term of 31 days to mature on December 15, 1983,3 as evidenced by To clear the check and in compliance with the requirements of the
Provisional Receipt No. 1356 dated November 14, 1983.4 Philippine Clearing House Corporation (PCHC) Rules and Regulations,
Metrobank stamped a guaranty on the check, which reads: "All prior
On December 5, 1983, a person claiming to be Lim Sio Wan called up endorsements and/or lack of endorsement guaranteed."18
Cristina So, an officer of Allied, and instructed the latter to pre-
terminate Lim Sio Wan’s money market placement, to issue a manager’s The check was sent to Allied through the PCHC. Upon the presentment
check representing the proceeds of the placement, and to give the of the check, Allied funded the check even without checking the
check to one Deborah Dee Santos who would pick up the check.5 Lim authenticity of Lim Sio Wan’s purported indorsement. Thus, the amount
Sio Wan described the appearance of Santos so that So could easily on the face of the check was credited to the account of FCC.19
identify her.6
On December 9, 1983, Lim Sio Wan deposited with Allied a second the amended complaint despite the opposition of Metrobank.34
money market placement to mature on January 9, 1984.20 Consequently, Allied’s third party complaint against Metrobank was
converted into a cross-claim and the latter’s fourth party complaint
On December 14, 1983, upon the maturity date of the first money against FCC was converted into a third party complaint.35
market placement, Lim Sio Wan went to Allied to withdraw it.21 She
was then informed that the placement had been pre-terminated upon After trial, the RTC issued its Decision, holding as follows:
her instructions. She denied giving any instructions and receiving the
proceeds thereof. She desisted from further complaints when she was WHEREFORE, judgment is hereby rendered as follows:
assured by the bank’s manager that her money would be recovered.22
1. Ordering defendant Allied Banking Corporation to pay plaintiff the
When Lim Sio Wan’s second placement matured on January 9, 1984, So amount of P1,158,648.49 plus 12% interest per annum from March 16,
called Lim Sio Wan to ask for the latter’s instructions on the second 1984 until fully paid;
placement. Lim Sio Wan instructed So to roll-over the placement for
another 30 days.23 On January 24, 1984, Lim Sio Wan, realizing that the 2. Ordering defendant Allied Bank to pay plaintiff the amount of
promise that her money would be recovered would not materialize, P100,000.00 by way of moral damages;
sent a demand letter to Allied asking for the payment of the first
placement.24 Allied refused to pay Lim Sio Wan, claiming that the latter 3. Ordering defendant Allied Bank to pay plaintiff the amount of
had authorized the pre-termination of the placement and its P173,792.20 by way of attorney’s fees; and,
subsequent release to Santos.25
4. Ordering defendant Allied Bank to pay the costs of suit.
Consequently, Lim Sio Wan filed with the RTC a Complaint dated
February 13, 198426 docketed as Civil Case No. 6757 against Allied to Defendant Allied Bank’s cross-claim against defendant Metrobank is
recover the proceeds of her first money market placement. Sometime in DISMISSED.
February 1984, she withdrew her second placement from Allied.
Likewise defendant Metrobank’s third-party complaint as against
Allied filed a third party complaint27 against Metrobank and Santos. In Filipinas Cement Corporation is DISMISSED.
turn, Metrobank filed a fourth party complaint28 against FCC. FCC for its
part filed a fifth party complaint29 against Producers Bank. Summonses Filipinas Cement Corporation’s fourth-party complaint against
were duly served upon all the parties except for Santos, who was no Producer’s Bank is also DISMISSED.
longer connected with Producers Bank.30
SO ORDERED.36
On May 15, 1984, or more than six (6) months after funding the check,
Allied informed Metrobank that the signature on the check was The Decision of the Court of Appeals
forged.31 Thus, Metrobank withheld the amount represented by the
check from FCC. Later on, Metrobank agreed to release the amount to Allied appealed to the CA, which in turn issued the assailed Decision on
FCC after the latter executed an Undertaking, promising to indemnify March 18, 1998, modifying the RTC Decision, as follows:
Metrobank in case it was made to reimburse the amount.32
WHEREFORE, premises considered, the decision appealed from is
Lim Sio Wan thereafter filed an amended complaint to include MODIFIED. Judgment is rendered ordering and sentencing defendant-
Metrobank as a party-defendant, along with Allied.33 The RTC admitted appellant Allied Banking Corporation to pay sixty (60%) percent and
defendant-appellee Metropolitan Bank and Trust Company forty (40%) trial court that heard the witness and had the opportunity to observe
of the amount of P1,158,648.49 plus 12% interest per annum from closely her deportment and manner of testifying. Unless the trial court
March 16, 1984 until fully paid. The moral damages, attorney’s fees and had plainly overlooked facts of substance or value, which, if considered,
costs of suit adjudged shall likewise be paid by defendant-appellant might affect the result of the case,40 we find it best to defer to the trial
Allied Banking Corporation and defendant-appellee Metropolitan Bank court on matters pertaining to credibility of witnesses.
and Trust Company in the same proportion of 60-40. Except as thus
modified, the decision appealed from is AFFIRMED. Additionally, this Court has held that the matter of negligence is also a
factual question.41 Thus, the finding of the RTC, affirmed by the CA, that
SO ORDERED.37 the respective parties were negligent in the exercise of their obligations
is also conclusive upon this Court.
Hence, Allied filed the instant petition.
The Liability of the Parties
The Issues
As to the liability of the parties, we find that Allied is liable to Lim Sio
Allied raises the following issues for our consideration: Wan. Fundamental and familiar is the doctrine that the relationship
between a bank and a client is one of debtor-creditor.
The Honorable Court of Appeals erred in holding that Lim Sio Wan did
not authorize [Allied] to pre-terminate the initial placement and to Articles 1953 and 1980 of the Civil Code provide:
deliver the check to Deborah Santos.
Art. 1953. A person who receives a loan of money or any other fungible
The Honorable Court of Appeals erred in absolving Producers Bank of thing acquires the ownership thereof, and is bound to pay to the
any liability for the reimbursement of amount adjudged demandable. creditor an equal amount of the same kind and quality.

The Honorable Court of Appeals erred in holding [Allied] liable to the Art. 1980. Fixed, savings, and current deposits of money in banks and
extent of 60% of amount adjudged demandable in clear disregard to the similar institutions shall be governed by the provisions concerning
ultimate liability of Metrobank as guarantor of all endorsement on the simple loan.
check, it being the collecting bank.38
Thus, we have ruled in a line of cases that a bank deposit is in the nature
The petition is partly meritorious. of a simple loan or mutuum.42 More succinctly, in Citibank, N.A.
(Formerly First National City Bank) v. Sabeniano, this Court ruled that a
A Question of Fact money market placement is a simple loan or mutuum.43 Further, we
defined a money market in Cebu International Finance Corporation v.
Allied questions the finding of both the trial and appellate courts that Court of Appeals, as follows:
Allied was not authorized to release the proceeds of Lim Sio Wan’s
money market placement to Santos. Allied clearly raises a question of [A] money market is a market dealing in standardized short-term credit
fact. When the CA affirms the findings of fact of the RTC, the factual instruments (involving large amounts) where lenders and borrowers do
findings of both courts are binding on this Court.39 not deal directly with each other but through a middle man or dealer in
open market. In a money market transaction, the investor is a lender
We also agree with the CA when it said that it could not disturb the trial who loans his money to a borrower through a middleman or dealer.
court’s findings on the credibility of witness So inasmuch as it was the
In the case at bar, the money market transaction between the petitioner Payment made by the debtor to a wrong party does not extinguish the
and the private respondent is in the nature of a loan.44 obligation as to the creditor, if there is no fault or negligence which can
be imputed to the latter. Even when the debtor acted in utmost good
Lim Sio Wan, as creditor of the bank for her money market placement, is faith and by mistake as to the person of his creditor, or through error
entitled to payment upon her request, or upon maturity of the induced by the fraud of a third person, the payment to one who is not in
placement, or until the bank is released from its obligation as debtor. fact his creditor, or authorized to receive such payment, is void, except
Until any such event, the obligation of Allied to Lim Sio Wan remains as provided in Article 1241. Such payment does not prejudice the
unextinguished. creditor, and accrual of interest is not suspended by it.45 (Emphasis
supplied.)
Art. 1231 of the Civil Code enumerates the instances when obligations
are considered extinguished, thus: Since there was no effective payment of Lim Sio Wan’s money market
placement, the bank still has an obligation to pay her at six percent (6%)
Art. 1231. Obligations are extinguished: interest from March 16, 1984 until the payment thereof.

(1) By payment or performance; We cannot, however, say outright that Allied is solely liable to Lim Sio
Wan.
(2) By the loss of the thing due;
Allied claims that Metrobank is the proximate cause of the loss of Lim
(3) By the condonation or remission of the debt; Sio Wan’s money. It points out that Metrobank guaranteed all prior
indorsements inscribed on the manager’s check, and without
(4) By the confusion or merger of the rights of creditor and debtor; Metrobank’s guarantee, the present controversy would never have
occurred. According to Allied:
(5) By compensation;
Failure on the part of the collecting bank to ensure that the proceeds of
(6) By novation. the check is paid to the proper party is, aside from being an efficient
intervening cause, also the last negligent act, x x x contributory to the
Other causes of extinguishment of obligations, such as annulment, injury caused in the present case, which thereby leads to the conclusion
rescission, fulfillment of a resolutory condition, and prescription, are that it is the collecting bank, Metrobank that is the proximate cause of
governed elsewhere in this Code. (Emphasis supplied.) the alleged loss of the plaintiff in the instant case.46

From the factual findings of the trial and appellate courts that Lim Sio We are not persuaded.
Wan did not authorize the release of her money market placement to
Santos and the bank had been negligent in so doing, there is no Proximate cause is "that cause, which, in natural and continuous
question that the obligation of Allied to pay Lim Sio Wan had not been sequence, unbroken by any efficient intervening cause, produces the
extinguished. Art. 1240 of the Code states that "payment shall be made injury and without which the result would not have occurred."47 Thus,
to the person in whose favor the obligation has been constituted, or his there is an efficient supervening event if the event breaks the sequence
successor in interest, or any person authorized to receive it." As leading from the cause to the ultimate result. To determine the
commented by Arturo Tolentino: proximate cause of a controversy, the question that needs to be asked
is: If the event did not happen, would the injury have resulted? If the
answer is NO, then the event is the proximate cause.
In the instant case, Allied avers that even if it had not issued the check The provisions of subdivision (c) of this section do not apply to persons
payment, the money represented by the check would still be lost negotiating public or corporation securities, other than bills and notes.
because of Metrobank’s negligence in indorsing the check without (Emphasis supplied.)
verifying the genuineness of the indorsement thereon.
The warranty "that the instrument is genuine and in all respects what it
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law purports to be" covers all the defects in the instrument affecting the
provides: validity thereof, including a forged indorsement. Thus, the last indorser
will be liable for the amount indicated in the negotiable instrument
Section 66. Liability of general indorser.—Every indorser who indorses even if a previous indorsement was forged. We held in a line of cases
without qualification, warrants to all subsequent holders in due course; that "a collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior
a) The matters and things mentioned in subdivisions (a), (b) and (c) of indorsements, including the forged indorsement itself, and ultimately
the next preceding section; and should be held liable therefor."48

b) That the instrument is at the time of his indorsement valid and However, this general rule is subject to exceptions. One such exception
subsisting; is when the issuance of the check itself was attended with negligence.
Thus, in the cases cited above where the collecting bank is generally
And in addition, he engages that on due presentment, it shall be held liable, in two of the cases where the checks were negligently
accepted or paid, or both, as the case may be according to its tenor, and issued, this Court held the institution issuing the check just as liable as
that if it be dishonored, and the necessary proceedings on dishonor be or more liable than the collecting bank.
duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it. In isolated cases where the checks were deposited in an account other
than that of the payees on the strength of forged indorsements, we held
Section 65. Warranty where negotiation by delivery, so forth.—Every the collecting bank solely liable for the whole amount of the checks
person negotiating an instrument by delivery or by a qualified involved for having indorsed the same. In Republic Bank v. Ebrada,49
indorsement, warrants: the check was properly issued by the Bureau of Treasury. While in
Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable
a) That the instrument is genuine and in all respects what it purports to Banking Corporation,50 Banco de Oro admittedly issued the checks in
be; the name of the correct payees. And in Traders Royal Bank v. Radio
Philippines Network, Inc.,51 the checks were issued at the request of
b) That he has a good title of it; Radio Philippines Network, Inc. from Traders Royal Bank.1avvphi1

c) That all prior parties had capacity to contract; However, in Bank of the Philippine Islands v. Court of Appeals, we said
that the drawee bank is liable for 60% of the amount on the face of the
d) That he has no knowledge of any fact which would impair the validity negotiable instrument and the collecting bank is liable for 40%. We also
of the instrument or render it valueless. noted the relative negligence exhibited by two banks, to wit:

But when the negotiation is by delivery only, the warranty extends in Both banks were negligent in the selection and supervision of their
favor of no holder other than the immediate transferee. employees resulting in the encashment of the forged checks by an
impostor. Both banks were not able to overcome the presumption of also remiss in its duty to ascertain the genuineness of the payee’s
negligence in the selection and supervision of their employees. It was indorsement.53
the gross negligence of the employees of both banks which resulted in
the fraud and the subsequent loss. While it is true that petitioner BPI’s A reading of the facts of the two immediately preceding cases would
negligence may have been the proximate cause of the loss, respondent reveal that the reason why the bank or institution which issued the
CBC’s negligence contributed equally to the success of the impostor in check was held partially liable for the amount of the check was because
encashing the proceeds of the forged checks. Under these of the negligence of these parties which resulted in the issuance of the
circumstances, we apply Article 2179 of the Civil Code to the effect that checks.
while respondent CBC may recover its losses, such losses are subject to
mitigation by the courts. (See Phoenix Construction Inc. v. Intermediate In the instant case, the trial court correctly found Allied negligent in
Appellate Courts, 148 SCRA 353 [1987]). issuing the manager’s check and in transmitting it to Santos without
even a written authorization.54 In fact, Allied did not even ask for the
Considering the comparative negligence of the two (2) banks, we rule certificate evidencing the money market placement or call up Lim Sio
that the demands of substantial justice are satisfied by allocating the Wan at her residence or office to confirm her instructions. Both actions
loss of P2,413,215.16 and the costs of the arbitration proceeding in the could have prevented the whole fraudulent transaction from unfolding.
amount of P7,250.00 and the cost of litigation on a 60-40 ratio.52 Allied’s negligence must be considered as the proximate cause of the
resulting loss.
Similarly, we ruled in Associated Bank v. Court of Appeals that the
issuing institution and the collecting bank should equally share the To reiterate, had Allied exercised the diligence due from a financial
liability for the loss of amount represented by the checks concerned due institution, the check would not have been issued and no loss of funds
to the negligence of both parties: would have resulted. In fact, there would have been no issuance of
indorsement had there been no check in the first place.
The Court finds as reasonable, the proportionate sharing of fifty
percent-fifty percent (50%-50%). Due to the negligence of the Province The liability of Allied, however, is concurrent with that of Metrobank as
of Tarlac in releasing the checks to an unauthorized person (Fausto the last indorser of the check. When Metrobank indorsed the check in
Pangilinan), in allowing the retired hospital cashier to receive the checks compliance with the PCHC Rules and Regulations55 without verifying
for the payee hospital for a period close to three years and in not the authenticity of Lim Sio Wan’s indorsement and when it accepted the
properly ascertaining why the retired hospital cashier was collecting check despite the fact that it was cross-checked payable to payee’s
checks for the payee hospital in addition to the hospital’s real cashier, account only,56 its negligent and cavalier indorsement contributed to
respondent Province contributed to the loss amounting to P203,300.00 the easier release of Lim Sio Wan’s money and perpetuation of the
and shall be liable to the PNB for fifty (50%) percent thereof. In effect, fraud. Given the relative participation of Allied and Metrobank to the
the Province of Tarlac can only recover fifty percent (50%) of instant case, both banks cannot be adjudged as equally liable. Hence,
P203,300.00 from PNB. the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the
CA, must be upheld.
The collecting bank, Associated Bank, shall be liable to PNB for fifty
(50%) percent of P203,300.00. It is liable on its warranties as indorser of FCC, having no participation in the negotiation of the check and in the
the checks which were deposited by Fausto Pangilinan, having forgery of Lim Sio Wan’s indorsement, can raise the real defense of
guaranteed the genuineness of all prior indorsements, including that of forgery as against both banks.57
the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was
As to Producers Bank, Allied Bank’s argument that Producers Bank must thereby benefitting the former. Clearly, Producers Bank was unjustly
be held liable as employer of Santos under Art. 2180 of the Civil Code is enriched at the expense of Lim Sio Wan. Based on the facts and
erroneous. Art. 2180 pertains to the vicarious liability of an employer for circumstances of the case, Producers Bank should reimburse Allied and
quasi-delicts that an employee has committed. Such provision of law Metrobank for the amounts the two latter banks are ordered to pay Lim
does not apply to civil liability arising from delict. Sio Wan.

One also cannot apply the principle of subsidiary liability in Art. 103 of It cannot be validly claimed that FCC, and not Producers Bank, should be
the Revised Penal Code in the instant case. Such liability on the part of considered as having been unjustly enriched. It must be remembered
the employer for the civil aspect of the criminal act of the employee is that FCC’s money market placement with Producers Bank was already
based on the conviction of the employee for a crime. Here, there has due and demandable; thus, Producers Bank’s payment thereof was
been no conviction for any crime. justified. FCC was entitled to such payment. As earlier stated, the fact
that the indorsement on the check was forged cannot be raised against
As to the claim that there was unjust enrichment on the part of FCC which was not a part in any stage of the negotiation of the check.
Producers Bank, the same is correct. Allied correctly claims in its petition FCC was not unjustly enriched.
that Producers Bank should reimburse Allied for whatever judgment
that may be rendered against it pursuant to Art. 22 of the Civil Code, From the facts of the instant case, we see that Santos could be the
which provides: "Every person who through an act of performance by architect of the entire controversy. Unfortunately, since summons had
another, or any other means, acquires or comes into possession of not been served on Santos, the courts have not acquired jurisdiction
something at the expense of the latter without just cause or legal over her.60 We, therefore, cannot ascribe to her liability in the instant
ground, shall return the same to him."1avvphi1 case.

The above provision of law was clarified in Reyes v. Lim, where we ruled Clearly, Producers Bank must be held liable to Allied and Metrobank for
that "[t]here is unjust enrichment when a person unjustly retains a the amount of the check plus 12% interest per annum, moral damages,
benefit to the loss of another, or when a person retains money or attorney’s fees, and costs of suit which Allied and Metrobank are
property of another against the fundamental principles of justice, equity adjudged to pay Lim Sio Wan based on a proportion of 60:40.
and good conscience."58
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA
In Tamio v. Ticson, we further clarified the principle of unjust Decision in CA-G.R. CV No. 46290 and the November 15, 1993 RTC
enrichment, thus: "Under Article 22 of the Civil Code, there is unjust Decision in Civil Case No. 6757 are AFFIRMED with MODIFICATION.
enrichment when (1) a person is unjustly benefited, and (2) such benefit
is derived at the expense of or with damages to another."59 Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as
follows:
In the instant case, Lim Sio Wan’s money market placement in Allied
Bank was pre-terminated and withdrawn without her consent. WHEREFORE, premises considered, the decision appealed from is
Moreover, the proceeds of the placement were deposited in Producers MODIFIED. Judgment is rendered ordering and sentencing defendant-
Bank’s account in Metrobank without any justification. In other words, appellant Allied Banking Corporation to pay sixty (60%) percent and
there is no reason that the proceeds of Lim Sio Wans’ placement should defendant-appellee Metropolitan Bank and Trust Company forty (40%)
be deposited in FCC’s account purportedly as payment for FCC’s money of the amount of P1,158,648.49 plus 12% interest per annum from
market placement and interest in Producers Bank.lavvphil With such March 16, 1984 until fully paid. The moral damages, attorney’s fees and
payment, Producers Bank’s indebtedness to FCC was extinguished, costs of suit adjudged shall likewise be paid by defendant-appellant
Allied Banking Corporation and defendant-appellee Metropolitan Bank
and Trust Company in the same proportion of 60-40. Except as thus On 31 August 1993, respondent issued a check worth ₱500,000.00 to
modified, the decision appealed from is AFFIRMED. petitioner as partial payment of the loan. On 31 October 1993, she
issued another check in the amount of ₱200,000.00 to petitioner as
SO ORDERED. payment of the remaining balance of the loan. Petitioner told her that
since she paid a total amount of ₱700,000.00 for the ₱540,000.00 worth
of loan, the excess amount of ₱160,000.00 would be applied as interest
G.R. No. 173227 January 20, 2009 for the loan. Not satisfied with the amount applied as interest,
petitioner pestered her to pay additional interest. Petitioner threatened
SEBASTIAN SIGA-AN, Petitioner, to block or disapprove her transactions with the PNO if she would not
vs. comply with his demand. As all her transactions with the PNO were
ALICIA VILLANUEVA, Respondent. subject to the approval of petitioner as comptroller of the PNO, and
fearing that petitioner might block or unduly influence the payment of
DECISION her vouchers in the PNO, she conceded. Thus, she paid additional
amounts in cash and checks as interests for the loan. She asked
CHICO-NAZARIO, J.: petitioner for receipt for the payments but petitioner told her that it
was not necessary as there was mutual trust and confidence between
Before Us is a Petition1 for Review on Certiorari under Rule 45 of the them. According to her computation, the total amount she paid to
Rules of Court seeking to set aside the Decision,2 dated 16 December petitioner for the loan and interest accumulated to ₱1,200,000.00.7
2005, and Resolution,3 dated 19 June 2006 of the Court of Appeals in
CA-G.R. CV No. 71814, which affirmed in toto the Decision,4 dated 26 Thereafter, respondent consulted a lawyer regarding the propriety of
January 2001, of the Las Pinas City Regional Trial Court, Branch 255, in paying interest on the loan despite absence of agreement to that effect.
Civil Case No. LP-98-0068. Her lawyer told her that petitioner could not validly collect interest on
the loan because there was no agreement between her and petitioner
The facts gathered from the records are as follows: regarding payment of interest. Since she paid petitioner a total amount
of ₱1,200,000.00 for the ₱540,000.00 worth of loan, and upon being
On 30 March 1998, respondent Alicia Villanueva filed a complaint5 for advised by her lawyer that she made overpayment to petitioner, she
sum of money against petitioner Sebastian Siga-an before the Las Pinas sent a demand letter to petitioner asking for the return of the excess
City Regional Trial Court (RTC), Branch 255, docketed as Civil Case No. amount of ₱660,000.00. Petitioner, despite receipt of the demand
LP-98-0068. Respondent alleged that she was a businesswoman letter, ignored her claim for reimbursement.8
engaged in supplying office materials and equipments to the Philippine
Navy Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner Respondent prayed that the RTC render judgment ordering petitioner to
was a military officer and comptroller of the PNO from 1991 to 1996. pay respondent (1) ₱660,000.00 plus legal interest from the time of
demand; (2) ₱300,000.00 as moral damages; (3) ₱50,000.00 as
Respondent claimed that sometime in 1992, petitioner approached her exemplary damages; and (4) an amount equivalent to 25% of
inside the PNO and offered to loan her the amount of ₱540,000.00. ₱660,000.00 as attorney’s fees.9
Since she needed capital for her business transactions with the PNO, she
accepted petitioner’s proposal. The loan agreement was not reduced in In his answer10 to the complaint, petitioner denied that he offered a
writing. Also, there was no stipulation as to the payment of interest for loan to respondent. He averred that in 1992, respondent approached
the loan.6 and asked him if he could grant her a loan, as she needed money to
finance her business venture with the PNO. At first, he was reluctant to After trial, the RTC rendered a Decision on 26 January 2001 holding that
deal with respondent, because the latter had a spotty record as a respondent made an overpayment of her loan obligation to petitioner
supplier of the PNO. However, since respondent was an acquaintance of and that the latter should refund the excess amount to the former. It
his officemate, he agreed to grant her a loan. Respondent paid the loan ratiocinated that respondent’s obligation was only to pay the loaned
in full.11 amount of ₱540,000.00, and that the alleged interests due should not
be included in the computation of respondent’s total monetary debt
Subsequently, respondent again asked him to give her a loan. As because there was no agreement between them regarding payment of
respondent had been able to pay the previous loan in full, he agreed to interest. It concluded that since respondent made an excess payment to
grant her another loan. Later, respondent requested him to restructure petitioner in the amount of ₱660,000.00 through mistake, petitioner
the payment of the loan because she could not give full payment on the should return the said amount to respondent pursuant to the principle
due date. He acceded to her request. Thereafter, respondent pleaded of solutio indebiti.13
for another restructuring of the payment of the loan. This time he
rejected her plea. Thus, respondent proposed to execute a promissory The RTC also ruled that petitioner should pay moral damages for the
note wherein she would acknowledge her obligation to him, inclusive of sleepless nights and wounded feelings experienced by respondent.
interest, and that she would issue several postdated checks to Further, petitioner should pay exemplary damages by way of example or
guarantee the payment of her obligation. Upon his approval of correction for the public good, plus attorney’s fees and costs of suit.
respondent’s request for restructuring of the loan, respondent executed
a promissory note dated 12 September 1994 wherein she admitted The dispositive portion of the RTC Decision reads:
having borrowed an amount of ₱1,240,000.00, inclusive of interest,
from petitioner and that she would pay said amount in March 1995. WHEREFORE, in view of the foregoing evidence and in the light of the
Respondent also issued to him six postdated checks amounting to provisions of law and jurisprudence on the matter, judgment is hereby
₱1,240,000.00 as guarantee of compliance with her obligation. rendered in favor of the plaintiff and against the defendant as follows:
Subsequently, he presented the six checks for encashment but only one
check was honored. He demanded that respondent settle her (1) Ordering defendant to pay plaintiff the amount of ₱660,000.00 plus
obligation, but the latter failed to do so. Hence, he filed criminal cases legal interest of 12% per annum computed from 3 March 1998 until the
for Violation of the Bouncing Checks Law (Batas Pambansa Blg. 22) amount is paid in full;
against respondent. The cases were assigned to the Metropolitan Trial
Court of Makati City, Branch 65 (MeTC).12 (2) Ordering defendant to pay plaintiff the amount of ₱300,000.00 as
moral damages;
Petitioner insisted that there was no overpayment because respondent
admitted in the latter’s promissory note that her monetary obligation as (3) Ordering defendant to pay plaintiff the amount of ₱50,000.00 as
of 12 September 1994 amounted to ₱1,240,000.00 inclusive of exemplary damages;
interests. He argued that respondent was already estopped from
complaining that she should not have paid any interest, because she (4) Ordering defendant to pay plaintiff the amount equivalent to 25% of
was given several times to settle her obligation but failed to do so. He ₱660,000.00 as attorney’s fees; and
maintained that to rule in favor of respondent is tantamount to
concluding that the loan was given interest-free. Based on the foregoing (5) Ordering defendant to pay the costs of suit.14
averments, he asked the RTC to dismiss respondent’s complaint.
Petitioner appealed to the Court of Appeals. On 16 December 2005, the agreement between the two regarding the payment of interest.
appellate court promulgated its Decision affirming in toto the RTC Respondent testified that although she accepted petitioner’s offer of
Decision, thus: loan amounting to ₱540,000.00, there was, nonetheless, no verbal or
written agreement for her to pay interest on the loan.22
WHEREFORE, the foregoing considered, the instant appeal is hereby
DENIED and the assailed decision [is] AFFIRMED in toto.15 Petitioner presented a handwritten promissory note dated 12
September 199423 wherein respondent purportedly admitted owing
Petitioner filed a motion for reconsideration of the appellate court’s petitioner "capital and interest." Respondent, however, explained that it
decision but this was denied.16 Hence, petitioner lodged the instant was petitioner who made a promissory note and she was told to copy it
petition before us assigning the following errors: in her own handwriting; that all her transactions with the PNO were
subject to the approval of petitioner as comptroller of the PNO; that
I. petitioner threatened to disapprove her transactions with the PNO if
she would not pay interest; that being unaware of the law on interest
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO and fearing that petitioner would make good of his threats if she would
INTEREST WAS DUE TO PETITIONER; not obey his instruction to copy the promissory note, she copied the
promissory note in her own handwriting; and that such was the same
II. promissory note presented by petitioner as alleged proof of their
written agreement on interest.24 Petitioner did not rebut the foregoing
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE testimony. It is evident that respondent did not really consent to the
PRINCIPLE OF SOLUTIO INDEBITI.17 payment of interest for the loan and that she was merely tricked and
coerced by petitioner to pay interest. Hence, it cannot be gainfully said
Interest is a compensation fixed by the parties for the use or that such promissory note pertains to an express stipulation of interest
forbearance of money. This is referred to as monetary interest. Interest or written agreement of interest on the loan between petitioner and
may also be imposed by law or by courts as penalty or indemnity for respondent.
damages. This is called compensatory interest.18 The right to interest
arises only by virtue of a contract or by virtue of damages for delay or Petitioner, nevertheless, claims that both the RTC and the Court of
failure to pay the principal loan on which interest is demanded.19 Appeals found that he and respondent agreed on the payment of 7%
rate of interest on the loan; that the agreed 7% rate of interest was duly
Article 1956 of the Civil Code, which refers to monetary interest,20 admitted by respondent in her testimony in the Batas Pambansa Blg. 22
specifically mandates that no interest shall be due unless it has been cases he filed against respondent; that despite such judicial admission
expressly stipulated in writing. As can be gleaned from the foregoing by respondent, the RTC and the Court of Appeals, citing Article 1956 of
provision, payment of monetary interest is allowed only if: (1) there was the Civil Code, still held that no interest was due him since the
an express stipulation for the payment of interest; and (2) the agreement on interest was not reduced in writing; that the application
agreement for the payment of interest was reduced in writing. The of Article 1956 of the Civil Code should not be absolute, and an
concurrence of the two conditions is required for the payment of exception to the application of such provision should be made when the
monetary interest. Thus, we have held that collection of interest borrower admits that a specific rate of interest was agreed upon as in
without any stipulation therefor in writing is prohibited by law.21 the present case; and that it would be unfair to allow respondent to pay
only the loan when the latter very well knew and even admitted in the
It appears that petitioner and respondent did not agree on the payment Batas Pambansa Blg. 22 cases that there was an agreed 7% rate of
of interest for the loan. Neither was there convincing proof of written interest on the loan.25
 interest and not to monetary interest.29 The case at bar involves
We have carefully examined the RTC Decision and found that the RTC petitioner’s claim for monetary interest.
did not make a ruling therein that petitioner and respondent agreed on
the payment of interest at the rate of 7% for the loan. The RTC clearly Further, said compensatory interest is not chargeable in the instant case
stated that although petitioner and respondent entered into a valid oral because it was not duly proven that respondent defaulted in paying the
contract of loan amounting to ₱540,000.00, they, nonetheless, never loan. Also, as earlier found, no interest was due on the loan because
intended the payment of interest thereon.26 While the Court of Appeals there was no written agreement as regards payment of interest.
mentioned in its Decision that it concurred in the RTC’s ruling that
petitioner and respondent agreed on a certain rate of interest as Apropos the second assigned error, petitioner argues that the principle
regards the loan, we consider this as merely an inadvertence because, of solutio indebiti does not apply to the instant case. Thus, he cannot be
as earlier elucidated, both the RTC and the Court of Appeals ruled that compelled to return the alleged excess amount paid by respondent as
petitioner is not entitled to the payment of interest on the loan. The interest.30
rule is that factual findings of the trial court deserve great weight and
respect especially when affirmed by the appellate court.27 We found no Under Article 1960 of the Civil Code, if the borrower of loan pays
compelling reason to disturb the ruling of both courts. interest when there has been no stipulation therefor, the provisions of
the Civil Code concerning solutio indebiti shall be applied. Article 2154
Petitioner’s reliance on respondent’s alleged admission in the Batas of the Civil Code explains the principle of solutio indebiti. Said provision
Pambansa Blg. 22 cases that they had agreed on the payment of interest provides that if something is received when there is no right to demand
at the rate of 7% deserves scant consideration. In the said case, it, and it was unduly delivered through mistake, the obligation to return
respondent merely testified that after paying the total amount of loan, it arises. In such a case, a creditor-debtor relationship is created under a
petitioner ordered her to pay interest.28 Respondent did not quasi-contract whereby the payor becomes the creditor who then has
categorically declare in the same case that she and respondent made an the right to demand the return of payment made by mistake, and the
express stipulation in writing as regards payment of interest at the rate person who has no right to receive such payment becomes obligated to
of 7%. As earlier discussed, monetary interest is due only if there was an return the same. The quasi-contract of solutio indebiti harks back to the
express stipulation in writing for the payment of interest. ancient principle that no one shall enrich himself unjustly at the expense
of another.31 The principle of solutio indebiti applies where (1) a
There are instances in which an interest may be imposed even in the payment is made when there exists no binding relation between the
absence of express stipulation, verbal or written, regarding payment of payor, who has no duty to pay, and the person who received the
interest. Article 2209 of the Civil Code states that if the obligation payment; and (2) the payment is made through mistake, and not
consists in the payment of a sum of money, and the debtor incurs delay, through liberality or some other cause.32 We have held that the
a legal interest of 12% per annum may be imposed as indemnity for principle of solutio indebiti applies in case of erroneous payment of
damages if no stipulation on the payment of interest was agreed upon. undue interest.33
Likewise, Article 2212 of the Civil Code provides that interest due shall
earn legal interest from the time it is judicially demanded, although the It was duly established that respondent paid interest to petitioner.
obligation may be silent on this point. Respondent was under no duty to make such payment because there
was no express stipulation in writing to that effect. There was no
All the same, the interest under these two instances may be imposed binding relation between petitioner and respondent as regards the
only as a penalty or damages for breach of contractual obligations. It payment of interest. The payment was clearly a mistake. Since
cannot be charged as a compensation for the use or forbearance of petitioner received something when there was no right to demand it, he
money. In other words, the two instances apply only to compensatory has an obligation to return it.
We shall now determine the propriety of the monetary award and Article 2217 of the Civil Code provides that moral damages may be
damages imposed by the RTC and the Court of Appeals. recovered if the party underwent physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral
Records show that respondent received a loan amounting to shock, social humiliation and similar injury. Respondent testified that
₱540,000.00 from petitioner.34 Respondent issued two checks with a she experienced sleepless nights and wounded feelings when petitioner
total worth of ₱700,000.00 in favor of petitioner as payment of the refused to return the amount paid as interest despite her repeated
loan.35 These checks were subsequently encashed by petitioner.36 demands. Hence, the award of moral damages is justified. However, its
Obviously, there was an excess of ₱160,000.00 in the payment for the corresponding amount of ₱300,000.00, as fixed by the RTC and the
loan. Petitioner claims that the excess of ₱160,000.00 serves as interest Court of Appeals, is exorbitant and should be equitably reduced. Article
on the loan to which he was entitled. Aside from issuing the said two 2216 of the Civil Code instructs that assessment of damages is left to the
checks, respondent also paid cash in the total amount of ₱175,000.00 to discretion of the court according to the circumstances of each case. This
petitioner as interest.37 Although no receipts reflecting the same were discretion is limited by the principle that the amount awarded should
presented because petitioner refused to issue such to respondent, not be palpably excessive as to indicate that it was the result of
petitioner, nonetheless, admitted in his Reply-Affidavit38 in the Batas prejudice or corruption on the part of the trial court.40 To our mind, the
Pambansa Blg. 22 cases that respondent paid him a total amount of amount of ₱150,000.00 as moral damages is fair, reasonable, and
₱175,000.00 cash in addition to the two checks. Section 26 Rule 130 of proportionate to the injury suffered by respondent.
the Rules of Evidence provides that the declaration of a party as to a
relevant fact may be given in evidence against him. Aside from the Article 2232 of the Civil Code states that in a quasi-contract, such as
amounts of ₱160,000.00 and ₱175,000.00 paid as interest, no other solutio indebiti, exemplary damages may be imposed if the defendant
proof of additional payment as interest was presented by respondent. acted in an oppressive manner. Petitioner acted oppressively when he
Since we have previously found that petitioner is not entitled to pestered respondent to pay interest and threatened to block her
payment of interest and that the principle of solutio indebiti applies to transactions with the PNO if she would not pay interest. This forced
the instant case, petitioner should return to respondent the excess respondent to pay interest despite lack of agreement thereto. Thus, the
amount of ₱160,000.00 and ₱175,000.00 or the total amount of award of exemplary damages is appropriate. The amount of ₱50,000.00
₱335,000.00. Accordingly, the reimbursable amount to respondent fixed imposed as exemplary damages by the RTC and the Court is fitting so as
by the RTC and the Court of Appeals should be reduced from to deter petitioner and other lenders from committing similar and other
₱660,000.00 to ₱335,000.00. serious wrongdoings.41

As earlier stated, petitioner filed five (5) criminal cases for violation of Jurisprudence instructs that in awarding attorney’s fees, the trial court
Batas Pambansa Blg. 22 against respondent. In the said cases, the MeTC must state the factual, legal or equitable justification for awarding the
found respondent guilty of violating Batas Pambansa Blg. 22 for issuing same.42 In the case under consideration, the RTC stated in its Decision
five dishonored checks to petitioner. Nonetheless, respondent’s that the award of attorney’s fees equivalent to 25% of the amount paid
conviction therein does not affect our ruling in the instant case. The two as interest by respondent to petitioner is reasonable and moderate
checks, subject matter of this case, totaling ₱700,000.00 which considering the extent of work rendered by respondent’s lawyer in the
respondent claimed as payment of the ₱540,000.00 worth of loan, were instant case and the fact that it dragged on for several years.43 Further,
not among the five checks found to be dishonored or bounced in the respondent testified that she agreed to compensate her lawyer handling
five criminal cases. Further, the MeTC found that respondent made an the instant case such amount.44 The award, therefore, of attorney’s
overpayment of the loan by reason of the interest which the latter paid fees and its amount equivalent to 25% of the amount paid as interest by
to petitioner.39 respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate of legal
interest on the amount refundable to respondent computed from 3
March 1998 until its full payment. This is erroneous.

We held in Eastern Shipping Lines, Inc. v. Court of Appeals,45 that when

an obligation, not constituting a loan or forbearance of money is
breached, an interest on the amount of damages awarded may be
imposed at the rate of 6% per annum. We further declared that when
the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether it is a loan/forbearance of
money or not, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed equivalent to a
forbearance of credit.

In the present case, petitioner’s obligation arose from a quasi-contract

of solutio indebiti and not from a loan or forbearance of money. Thus,
an interest of 6% per annum should be imposed on the amount to be
refunded as well as on the damages awarded and on the attorney’s
fees, to be computed from the time of the extra-judicial demand on 3
March 1998,46 up to the finality of this Decision. In addition, the
interest shall become 12% per annum from the finality of this Decision
up to its satisfaction.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No.

71814, dated 16 December 2005, is hereby AFFIRMED with the
following MODIFICATIONS: (1) the amount of ₱660,000.00 as
refundable amount of interest is reduced to THREE HUNDRED THIRTY
FIVE THOUSAND PESOS (₱335,000.00); (2) the amount of ₱300,000.00
imposed as moral damages is reduced to ONE HUNDRED FIFTY
THOUSAND PESOS (₱150,000.00); (3) an interest of 6% per annum is
imposed on the ₱335,000.00, on the damages awarded and on the
attorney’s fees to be computed from the time of the extra-judicial
demand on 3 March 1998 up to the finality of this Decision; and (4) an
interest of 12% per annum is also imposed from the finality of this
Decision up to its satisfaction. Costs against petitioner.

SO ORDERED.
 Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the
construction and development of the Este del Sol Mountain Reserve, a
sports/resort complex project located at Barrio Puray, Montalban,
Rizal.4

Under the terms of the Loan Agreement, the proceeds of the loan were
to be released on staggered basis. Interest on the loan was pegged at
sixteen (16%) percent per annum based on the diminishing balance. The
loan was payable in thirty-six (36) equal and consecutive monthly
amortizations to commence at the beginning of the thirteenth month
from the date of the first release in accordance with the Schedule of
Amortization.5 In case of default, an acceleration clause was, among
others, provided and the amount due was made subject to a twenty
(20%) percent one-time penalty on the amount due and such amount
G.R. No. 141811 November 15, 2001 shall bear interest at the highest rate permitted by law from the date of
default until full payment thereof plus liquidated damages at the rate of
FIRST METRO INVESTMENT CORPORATION, petitioner, two (2%) percent per month compounded quarterly on the unpaid
vs. balance and accrued interests together with all the penalties, fees,
ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., expenses or charges thereon until the unpaid balance is fully paid, plus
MANUEL Q. SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER G. attorney's fees equivalent to twenty-five (25%) percent of the sum
ASUNCION, ALBERTO * M. LADORES, VICENTE M. DE VERA, JR., and sought to be recovered, which in no case shall be less than Twenty
FELIPE B. SESE, respondents. Thousand Pesos (P20,000.00) if the services of a lawyer were hired.6

DE LEON, JR., J.: In accordance with the terms of the Loan Agreement, respondent Este
del Sol executed several documents7 as security for payment, among
Before us is a petition for review on certiorari of the Decision1 of the them, (a) a Real Estate Mortgage dated January 31, 1978 over two (2)
Court of Appeals2 dated November 8, 1999 in CA-G.R. CV No. 53328 parcels of land being utilized as the site of its development project with
reversing the Decision3 of the Regional Trial Court of Pasig City, Branch an area of approximately One Million Twenty-Eight Thousand and
159 dated June 2, 1994 in Civil Case No. 39224. Essentially, the Court of Twenty-Nine (1,028,029) square meters and particularly described in
Appeals found and declared that the fees provided for in the TCT Nos. N-24332 and N-24356 of the Register of Deeds of Rizal,
Underwriting and Consultancy Agreements executed by and between inclusive of all improvements, as well as all the machineries, equipment,
petitioner First Metro Investment Corp. (FMIC) and respondent Este del furnishings and furnitures existing thereon; and (b) individual
Sol Mountain Reserve, Inc. (Este del Sol) simultaneously with the Loan Continuing Suretyship agreements by co-respondents Valentin S. Daez,
Agreement dated January 31, 1978 were mere subterfuges to Jr., Manuel Q. Salientes, Ma. Rocio A. De Vega, Alexander G. Asuncion,
camouflage the usurious interest charged by petitioner FMIC. Alberto M. Ladores, Vicente M. De Vera, Jr. and Felipe B. Sese, all dated
February 2, 1978, to guarantee the payment of all the obligations of
The facts of the case are as follows: respondent Este del Sol up to the aggregate sum of Seven Million Five
Hundred Thousand Pesos (P7,500,000.00) each.8
It appears that on January 31, 1978, petitioner FMIC granted
respondent Este del Sol a loan of Seven Million Three Hundred Eighty-
Respondent Este del Sol also executed, as provided for by the Loan AS OF JUNE 23, 1980
Agreement, an Underwriting Agreement on January 31, 1978 whereby
petitioner FMIC shall underwrite on a best-efforts basis the public PARTICULARS
offering of One Hundred Twenty Thousand (120,000) common shares of
respondent Este del Sol's capital stock for a one-time underwriting fee AMOUNT
of Two Hundred Thousand Pesos (P200,000.00). In addition to the
underwriting fee, the Underwriting Agreement provided that for Total amount due as of 11-22-78 per revised amortization schedule
supervising the public offering of the shares, respondent Este del Sol dated 1-3-78
shall pay petitioner FMIC an annual supervision fee of Two Hundred
Thousand Pesos (P200,000.00) per annum for a period of four (4) P7,999,631.42
consecutive years. The Underwriting Agreement also stipulated for the
payment by respondent Este del Sol to petitioner FMIC a consultancy Interest on P7,999,631.42 @ 16% p.a. from 11-22-78 to 2-22-79 (92
fee of Three Hundred Thirty-Two Thousand Five Hundred Pesos days)
(P332,500.00) per annum for a period of four (4) consecutive years.
Simultaneous with the execution of and in accordance with the terms of 327,096.04
the Underwriting Agreement, a Consultancy Agreement was also
executed on January 31, 1978 whereby respondent Este del Sol engaged Balance
the services of petitioner FMIC for a fee as consultant to render general
consultancy services.9 8,326,727.46

In three (3) letters all dated February 22, 1978 petitioner billed One time penalty of 20% of the entire unpaid obligations under Section
respondent Este del Sol for the amounts of [a] Two Hundred Thousand 6.02 (ii) of Loan Agreement
Pesos (P200,000.00) as the underwriting fee of petitioner FMIC in
connection with the public offering of the common shares of stock of 1,665,345.49
respondent Este del Sol; [b] One Million Three Hundred Thirty Thousand
Pesos (P1,330,000.00) as consultancy fee for a period of four (4) years; Past due interest under Section 6.02 (iii) of loan Agreement:
and [c] Two Hundred Thousand Pesos (P200,000.00) as supervision fee @ 19% p.a. from 2-22-79 to 11-30-79 (281 days)
for the year beginning February, 1978, in accordance to the @ 21% p.a. from 11-30-79 to 6-23-80 (206 days)
Underwriting Agreement.10 The said amounts of fees were deemed
paid by respondent Este del Sol to petitioner FMIC which deducted the 1,481,879.93
same from the first release of the loan. 1,200,714.10

Since respondent Este del Sol failed to meet the schedule of repayment Other charges — publication of extra judicial foreclosure of REM made
in accordance with a revised Schedule of Amortization, it appeared to on 5-23-80 & 6-6-80
have incurred a total obligation of Twelve Million Six Hundred Seventy-
Nine Thousand Six Hundred Thirty Pesos and Ninety-Eight Centavos 4,964.00
(P12,679,630.98) per the petitioner's Statement of Account dated June
23, 1980,11 to wit: Total Amount Due and Collectible as of June 23, 1980

STATEMENT OF ACCOUNT OF ESTE DEL SOL MOUNTAIN RESERVE, INC. P12,679,630.98

 FMIC and imposed upon respondent Este del Sol to camouflage the
Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the usurious interest being charged by petitioner FMIC.16
real estate mortgage on June 23, 1980.12 At the public auction,
petitioner FMIC was the highest bidder of the mortgaged properties for The petitioner FMIC presented as its witnesses during the trial: Cesar
Nine Million Pesos (P9,000,000.00). The total amount of Three Million Valenzuela, its former Senior Vice-President, Felipe Neri, its Vice-
One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and President for Marketing, and Dennis Aragon, an Account Manager of its
Seventy-Five Centavos (P3,188,630.75) was deducted therefrom, that is, Account Management Group, as well as documentary evidence. On the
for the publication fee for the publication of the Sheriff's Notice of Sale, other hand, co-respondents Vicente M. De Vera, Jr. and Valentin S.
Four Thousand Nine Hundred Sixty-Four Pesos (P4,964.00); for Sheriff's Daez, Jr., and Perfecto Doroja, former Senior Manager and Assistant
fees for conducting the foreclosure proceedings, Fifteen Thousand Vice-President of FMIC, testified for the respondents.
Pesos (P15,000.00); and for Attorney's fees, Three Million One Hundred
Sixty-Eight Thousand Six Hundred Sixty-Six Pesos and Seventy-Five After the trial, the trial court rendered its decision in favor of petitioner
Centavos (P3,168,666.75). The remaining balance of Five Million Eight FMIC, the dispositive portion of which reads:
Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and Twenty-
Five Centavos (P5,811,369.25) was applied to interests and penalty WHEREFORE, judgment is hereby rendered in favor of plaintiff and
charges and partly against the principal, due as of June 23, 1980, against defendants, ordering defendants jointly and severally to pay to
thereby leaving a balance of Six Million Eight Hundred Sixty-Three plaintiff the amount of P6,863,297.73 plus 21% interest per annum,
Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three from June 24, 1980, until the entire amount is fully paid, plus the
Centavos (P6,863,297.73) on the principal amount of the loan as of June amount equivalent to 25% of the total amount due, as attorney's fees,
23, 1980.13 plus costs of suit.

Failing to secure from the individual respondents, as sureties of the loan Defendants' counterclaims are dismissed, for lack of merit.
of respondent Este del Sol by virtue of their continuing surety
agreements, the payment of the alleged deficiency balance, despite Finding the decision of the trial court unacceptable, respondents
individual demands sent to each of them,14 petitioner instituted on interposed an appeal to the Court of Appeals. On November 8, 1999,
November 11, 1980 the instant collection suit15 against the the appellate court reversed the challenged decision of the trial court.
respondents to collect the alleged deficiency balance of Six Million Eight The appellate court found and declared that the fees provided for in the
Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Underwriting and Consultancy Agreements were mere subterfuges to
Seventy-Three Centavos (P6,863,297.73) plus interest thereon at camouflage the excessively usurious interest charged by the petitioner
twenty-one (21%) percent per annum from June 24, 1980 until fully FMIC on the loan of respondent Este del Sol; and that the stipulated
paid, and twenty-five (25%) percent thereof as and for attorney's fees penalties, liquidated damages and attorney's fees were "excessive,
and costs. iniquitous, unconscionable and revolting to the conscience," and
declared that in lieu thereof, the stipulated one time twenty (20%)
In their Answer, the respondents sought the dismissal of the case and percent penalty on the amount due and ten (10%) percent of the
set up several special and affirmative defenses, foremost of which is amount due as attorney's fees would be reasonable and suffice to
that the Underwriting and Consultancy Agreements executed compensate petitioner FMIC for those items. Thus, the appellate court
simultaneously with and as integral parts of the Loan Agreement and dismissed the complaint as against the individual respondents sureties
which provided for the payment of Underwriting, Consultancy and and ordered petitioner FMIC to pay or reimburse respondent Este del
Supervision fees were in reality subterfuges resorted to by petitioner Sol the amount of Nine Hundred Seventy-One Thousand Pesos
(P971,000.00) representing the difference between what is due to the
petitioner and what is due to respondent Este del Sol, based on the
following computation:17 The appellee is, therefore, obliged to return to the appellant Este del Sol
the difference of P971,000.00 or (P1,730,000.00 less P759,000.00).
A: DUE TO THE [PETITIONER]
Petitioner moved for reconsideration of the appellate court's adverse
Principal of Loan decision. However, this was denied in a Resolution18 dated February 9,
2000 of the appellate court.
P7,382,500.00
Hence, the instant petition anchored on the following assigned
Add: 20% one-time errors:19
Penalty
Attorney's fees THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A
WAY NOT IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF
1,476,500.00 THIS HONORABLE COURT WHEN IT:
900,000.00
a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY
P9,759,000.00 AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND DISTINCT
FROM THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD BE
Less: Proceeds of foreclosure Sale CONSIDERED AS A SINGLE CONTRACT.

9,000,000.00 b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS

ARE "MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST
Deficiency CHARGED" BY THE PETITIONER.

P759,000.00 c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONER'S

WITNESSES ON THE SERVICES PERFORMED BY PETITIONER.
B. DUE TO [RESPONDENT ESTE DEL SOL]
d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD
Return of usurious interest in the form of: WAIVED THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY PAID
Underwriting fee TO PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED THE
Supervision fee VALIDITY OF THE UNDERWRITING AND CONSULTANCY AGREEMENTS.
Consultancy fee
e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY "WHAT IS
P 200,000.00 DUE TO EACH PARTY AFTER THE FORECLOSURE SALE", AS SHOWN IN PP.
200,000.00 34-35 OF THE ASSAILED DECISION, EVEN GRANTING JUST FOR THE SAKE
1,330,000.00 OF ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN
STIGMATIZING [i] THE PROVISIONS OF THE LOAN AGREEMENT THAT
Total amount due Este REFER TO STIPULATED PENALTIES, LIQUIDATED DAMAGES AND
ATTORNEY'S FEES AS SUPPOSEDLY "EXCESSIVE, INIQUITOUS AND
P1,730,000.00 UNCONSCIONABLE AND REVOLTING TO THE CONSCIENCE" AND [ii] THE
UNDERWRITING, SUPERVISION AND CONSULTANCY SERVICES contracts to determine the intention of the parties. However, this rule is
AGREEMENT AS SUPPOSEDLY "MERE SUBTERFUGES TO CAMOUFLAGE not without exception.24 The form of the contract is not conclusive for
THE USURIOUS INTEREST CHARGED" UPON THE RESPONDENT ESTE BY the law will not permit a usurious loan to hide itself behind a legal form.
PETITIONER. Parol evidence is admissible to show that a written document though
legal in form was in fact a device to cover usury. If from a construction
f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND of the whole transaction it becomes apparent that there exists a corrupt
THUS THE INDIVIDUAL RESPONDENTS, ARE STILL OBLIGATED TO THE intention to violate the Usury Law, the courts should and will permit no
PETITIONER. scheme, however ingenious, to becloud the crime of usury.25

Petitioner essentially assails the factual findings and conclusion of the In the instant case, several facts and circumstances taken altogether
appellate court that the Underwriting and Consultancy Agreements show that the Underwriting and Consultancy Agreements were simply
were executed to conceal a usurious loan. Inquiry upon the veracity of cloaks or devices to cover an illegal scheme employed by petitioner
the appellate court's factual findings and conclusion is not the function FMIC to conceal and collect excessively usurious interest, and these are:
of this Court for the Supreme Court is not a trier of facts. Only when the
factual findings of the trial court and the appellate court are opposed to a) The Underwriting and Consultancy Agreements are both dated
each other does this Court exercise its discretion to re-examine the January 31, 1978 which is the same date of the Loan Agreement.26
factual findings of both courts and weigh which, after considering the Furthermore, under the Underwriting Agreement payment of the
record of the case, is more in accord with law and justice. supervision and consultancy fees was set for a period of four (4) years27
to coincide ultimately with the term of the Loan Agreement.28 This fact
After a careful and thorough review of the record including the evidence means that all the said agreements which were executed
adduced, we find no reason to depart from the findings of the appellate simultaneously were set to mature or shall remain effective during the
court. same period of time.

First, there is no merit to petitioner FMIC's contention that Central Bank b) The Loan Agreement dated January 31, 1978 stipulated for the
Circular No. 905 which took effect on January 1, 1983 and removed the execution and delivery of an underwriting agreement29 and specifically
ceiling on interest rates for secured and unsecured loans, regardless of mentioned that such underwriting agreement is a condition
maturity, should be applied retroactively to a contract executed on precedent30 for petitioner FMIC to extend the loan to respondent Este
January 31, 1978, as in the case at bar, that is, while the Usury Law was del Sol, indicating and as admitted by petitioner FMIC's employees,31
in full force and effect. It is an elementary rule of contracts that the that such Underwriting Agreement is "part and parcel of the Loan
laws, in force at the time the contract was made and entered into, Agreement."32
govern it.20 More significantly, Central Bank Circular No. 905 did not
repeal nor in any way amend the Usury Law but simply suspended the c) Respondent Este del Sol was billed by petitioner on February 28, 1978
latter's effectivity.21 The illegality of usury is wholly the creature of One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00)33 as
legislation. A Central Bank Circular cannot repeal a law. Only a law can consultancy fee despite the clear provision in the Consultancy
repeal another law.22 Thus, retroactive application of a Central Bank Agreement that the said agreement is for Three Hundred Thirty-Two
Circular cannot, and should not, be presumed.23 Thousand Five Hundred Pesos (P332,500.00) per annum for four (4)
years and that only the first year consultancy fee shall be due upon
Second, when a contract between two (2) parties is evidenced by a signing of the said consultancy agreement.34
written instrument, such document is ordinarily the best evidence of the
terms of the contract. Courts only need to rely on the face of written
d) The Underwriting, Supervision and Consultancy fees in the amounts Art. 1957. Contracts and stipulations, under any cloak or device
of Two Hundred Thousand Pesos (P200,000.00), and one Million Three whatever, intended to circumvent the laws against usury shall be void.
Hundred Thirty Thousand Pesos (P1,330,000.00), respectively, were The borrower may recover in accordance with the laws on usury.
billed by petitioner to respondent Este del Sol on February 22, 1978,35
that is, on the same occasion of the first partial release of the loan in the In usurious loans, the entire obligation does not become void because
amount of Two Million Three Hundred Eighty-Two Thousand Five of an agreement for usurious interest; the unpaid principal debt still
Hundred Pesos (P2,382,500.00).36 It is from this first partial release of stands and remains valid but the stipulation as to the usurious interest is
the loan that the said corresponding bills for Underwriting, Supervision void, consequently, the debt is to be considered without stipulation as
and Constantly fees were conducted and apparently paid, thus, to the interest.43 The reason for this rule was adequately explained in
reverting back to petitioner FMIC the total amount of One Million Seven the case of Angel Jose Warehousing Co., Inc. v. Chelda Enterprises44
Hundred Thirty Thousand Pesos (P1,730,000.00) as part of the amount where this Court held:
loaned to respondent Este del Sol.37
In simple loan with stipulation of usurious interest, the prestation of the
e) Petitioner FMIC was in fact unable to organize an underwriting/selling debtor to pay the principal debt, which is the cause of the contract
syndicate to sell any share of stock of respondent Este del Sol and much (Article 1350, Civil Code), is not illegal. The illegality lies only as to the
less to supervise such a syndicate, thus failing to comply with its prestation to pay the stipulated interest; hence, being separable, the
obligation under the Underwriting Agreement.38 Besides, there was latter only should be deemed void, since it is the only one that is illegal.
really no need for an Underwriting Agreement since respondent Este del
Sol had its own licensed marketing arm to sell its shares and all its Thus, the nullity of the stipulation on the usurious interest does not
shares have been sold through its marketing arm.39 affect the lender's right to receive back the principal amount of the
loan. With respect to the debtor, the amount paid as interest under a
f) Petitioner FMIC failed to comply with its obligation under the usurious agreement is recoverable by him, since the payment is deemed
Consultancy Agreement,40 aside from the fact that there was no need to have been made under restraint, rather than voluntarily.45
for a Consultancy Agreement, since respondent Este del Sol's officers
appeared to be more competent to be consultants in the development This Court agrees with the factual findings and conclusion of the
of the projected sports/resort complex.41 appellate court, to wit:

All the foregoing established facts and circumstances clearly belie the We find the stipulated penalties, liquidated damages and attorney's
contention of petitioner FMIC that the Loan, Underwriting and fees, excessive, iniquitous and unconscionable and revolting to the
Consultancy Agreements are separate and independent transactions. conscience as they hardly allow the borrower any chance of survival in
The Underwriting and Consultancy Agreements which were executed case of default. And true enough, ESTE folded up when the appellee
and delivered contemporaneously with the Loan Agreement on January extrajudicially foreclosed on its (ESTE's) development project and
31, 1978 were exacted by petitioner FMIC as essential conditions for the literally closed its offices as both the appellee and ESTE were at the time
grant of the loan. An apparently lawful loan is usurious when it is holding office in the same building. Accordingly, we hold that 20%
intended that additional compensation for the loan be disguised by an penalty on the amount due and 10% of the proceeds of the foreclosure
ostensibly unrelated contract providing for payment by the borrower for sale as attorney's fees would suffice to compensate the appellee,
the lender's services which are of little value or which are not in fact to especially so because there is no clear showing that the appellee hired
be rendered, such as in the instant case.42 In this connection, Article the services of counsel to effect the foreclosure, it engaged counsel only
1957 of the New Civil Code clearly provides that: when it was seeking the recovery of the alleged deficiency.
Attorney's fees as provided in penal clauses are in the nature of
liquidated damages. So long as such stipulation does not contravene any
law, morals, or public order, it is binding upon the parties. Nonetheless,
courts are empowered to reduce the amount of attorney's fees if the
same is "iniquitous or unconscionable."46 Articles 1229 and 2227 of the
New Civil Code provide that:

Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.

Art. 2227. Liquidated damages, whether intended as an indemnity or a

penalty, shall be equitably reduced if they are iniquitous or
unconscionable.

In the case at bar, the amount of Three Million One Hundred Eighty-
Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos
(93,188,630.75) for the stipulated attorney's fees equivalent to twenty-
five (25%) percent of the alleged amount due, as of the date of the
auction sale on June 23, 1980, is manifestly exorbitant and
unconscionable. Accordingly, we agree with the appellate court that a
reduction of the attorney's fees to ten (10%) percent is appropriate and
reasonable under the facts and circumstances of this case.

Lastly, there is no merit to petitioner FMIC's contention that the

appellate court erred in awarding an amount allegedly not asked nor
prayed for by respondents. Whether the exact amount of the relief was
not expressly prayed for is of no moment for the reason that the relief
was plainly warranted by the allegations of the respondents as well as
by the facts as found by the appellate court. A party is entitled to as
much relief as the facts may warrant 47

In view of all the foregoing, the Court is convinced that the appellate
court committed no reversible error in its challenged Decision.

WHEREFORE, the instant petition is hereby DENIED, and the assailed

Decision of the Court of Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.
 period of ten (10) years with a monthly amortization of P5,380.00
beginning March 11, 1982 and every 11th day of the month thereafter;
that the interest rate shall be twenty-four percent (24%) per annum,
with a penalty of three percent (3%) on any unpaid monthly
amortization; that there shall be a service charge of three percent (3%)
per annum on the loan; and that in case respondent bank seeks the
assistance of counsel to enforce the collection of the loan, petitioners
shall be liable for ten percent (10%) of the amount due as attorney’s
fees and fifteen percent (15%) of the amount due as liquidated
damages.

As security for the loan, petitioners mortgaged with respondent bank

their parcel of land located in Dagupan City, Pangasinan, registered
under Transfer Certificate of Title No. 40827.

From March 11, 1982 to July 10, 1991, petitioners paid respondent bank
₱412, 199.36. Thereafter, they failed to pay the remaining balance of
the loan.

On August 7, 1992, petitioners received from respondent bank a

statement of account stating that their indebtedness as of July 31, 1992
G.R. No. 148491 February 8, 2007 amounts to ₱840,845.61.

SPOUSES ZACARIAS BACOLOR and CATHERINE BACOLOR, Petitioners, In its letter dated January 13, 1993, respondent bank informed
vs. petitioners that should they fail to pay their loan within fifteen (15) days
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, DAGUPAN CITY from notice, appropriate action shall be taken against them.
BRANCH and MARCELINO C. BONUAN, Respondents.
Due to petitioners’ failure to settle their obligation, respondent
DECISION instituted, on March 5, 1993, an action for extra-judicial foreclosure of
SANDOVAL-GUTIERREZ, J.: mortgage.

Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Prior thereto, or on February 1, 1993, petitioners filed with Branch 40 of
Procedure, as amended, assailing the Decision 1 of the Court of Appeals the same RTC, a complaint for violation of the Usury Law against
in CA-G.R. CV No. 47732 promulgated on February 23, 2001 and its respondent, docketed as Civil Case No. D-10480. They alleged that the
Resolution dated May 30, 2001. provisions of the promissory note constitute a usurious transaction
considering the (1) rate of interest, (2) the rate of penalties, service
On February 11, 1982, spouses Zacarias and Catherine Bacolor, herein charge, attorney’s fees and liquidated damages, and (3) deductions for
petitioners, obtained a loan of ₱244,000.00 from Banco Filipino Savings surcharges and insurance premium. In their amended complaint,
and Mortgage Bank, Dagupan City Branch, respondent. They executed a petitioners further alleged that, during the closure of respondent bank,
promissory note providing that the amount shall be payable within a
it ceased to be a banking institution and, therefore, could not charge On appeal, the Court of Appeals rendered its Decision affirming the
interests and institute foreclosure proceeding. Decision of the trial court. Petitioner’s subsequent motion for
reconsideration was denied.
On August 25, 1994, the RTC rendered its decision dismissing
petitioners’ complaint, holding that: Hence, this present petition for review on certiorari raising this lone
issue: whether the interest rate is "excessive and unconscionable."
(1) The terms and conditions of the Deed of Mortgage and the
Promissory Note are legal and not usurious. It is the petitioners’ contention that while the Usury Law ceiling on
interest rates was lifted by Central Bank Circular No. 905, there is
The plaintiff freely signed the Deed of Mortgage and the Promissory nothing in the said circular which grants respondent bank carte blanche
Note with full knowledge of its terms and conditions. authority to raise interest rates to levels which "either enslave the
borrower or lead to a hemorrhaging of their assets." 3
The interest rate of 24% per annum is not usurious and does not violate
the Usury Law (Act 2655) as amended by P.D. No. 166. In its comment 4 , respondent bank maintained that petitioner, by
signing the Deed of Mortgage and Promissory Note, knowingly and
The rate of interest, including commissions, premiums, fees and other freely consented to its terms and conditions. A contract between the
charges, on a loan or forbearance of any money etc., regardless of parties must not be impaired. The interest rate of 24% per annum is not
maturity x x x, shall not be subject to any ceiling under or pursuant to usurious and does not violate the Usury Law. 5
the Usury Law, as amended (CB Circular no. 905). Hence, the 24%
interest per annum is allowed under P.D. No. 166. The petition lacks merit.

For sometime now, usury has been legally non-existent. Interest can Article 1956 of the Civil Code provides that no interest shall be due
now be as lender and borrower may agree upon (Verdejo v. CA, Jan. 29, unless it has been expressly stipulated in writing. Here, the parties
1988. 157 SCRA 743). agreed in writing on February 11, 1982 that the rate of interest on the
petitioners’ loan shall be 24% per annum.
The imposition of penalties in case the obligation is not fulfilled is not
prohibited by the Usury Law. Parties to a contract of loan may validly At the time the parties entered into the loan transaction, the applicable
agree upon the imposition of penalty charges in case of delay or non- law was the Usury Law (Act 2655), as amended by P.D. No. 166, which
payment of the loan. The purpose is to compel the debtor to pay his provides that the rate of interest for the forbearance of money when
debt on time (Go Chioco v. Martinez, 45 Phil. 256, 265). secured by a mortgage upon real estate, should not be more than 6%
per annum or the maximum rate prescribed by the Monetary Board of
(2) The closure of Banco Filipino did not suspend or stop its usual and the Central Bank of the Philippines in force at the time the loan was
normal banking operations like the collection of loan receivables and granted. Central Bank Circular No. 783, which took effect on July 1,
foreclosures of mortgages. 1981, removed the ceiling on interest rates on a certain class of loans,
thus:
In view of the foregoing, plaintiffs failed to substantiate their cause of
action against the defendant. 2 SECTION 2. The interest rate on a loan forbearance of any money,
goods, or credits with a maturity of more than seven hundred thirty
(730) days shall not be subject to any ceiling. 6
In the present case, the term of the subject loan is for a period of 10 It is plainly obvious, therefore, from the undisputed facts of the case
years. Considering that its maturity is more than 730 days, the interest that respondent bank unilaterally altered the terms of its contract by
rate is not subject to any ceiling following the above provision. increasing the interest rates of the loan without the prior assent of the
Therefore, the 24% interest rate agreed upon by parties does not violate latter. In fact, the manner of agreement is itself explicitly stipulated by
the Usury Law, as amended by P.D. 116. the Civil Code when it provides, in Article 1956, that "No interest shall
be due unless it has been expressly stipulated in writing." What has
This Court has consistently held that for sometime now, usury has been been "stipulated in writing" from a perusal of the interest rate provision
legally non-inexistent and that interest can now be charged as lender of the credit agreement signed between the parties is that petitioners
and borrower may agree upon. 7 As a matter of fact, Section 1 of were bound merely to pay 21% interest x x x.
Central Bank Circular No. 905 states that:
Petitioners also cannot find refuge in Medel. In this case, what this
SECTION 1. The rate of interest, including commissions, premiums, fees Court declared as unconscionable was the imposition of a 66% interest
and other charges , on a loan or forbearance of any money, goods, or rate per annum. In the instant case, the interest rate is only 24% per
credits, regardless of maturity and whether secured or unsecured, that annum, agreed upon by both parties. By no means can it be considered
may be charged or collected by any person, whether natural or judicial, unconscionable or excessive.1awphi1.net
shall not be subject to any ceiling prescribed under or pursuant to the
Usury Law, as amended. 8 Verily, petitioners cannot now renege on their obligation to comply with
what is incumbent upon them under the loan agreement. A contract is
Moreover, in Trade & Investment Development Corporation of the the law between the parties and they are bound by its stipulations. 12
Philippines v. Roblett Industrial Construction Corporation, 9 this Court
has ruled that: Petitioners further contend that during the closure of respondent bank
(from January 1, 1985 to July 1, 1994), it lost its function as a banking
With the suspension of the Usury Law and the removal of interest institution and, therefore, could no longer charge interests and institute
ceiling, the parties are free to stipulate the interest to be imposed on foreclosure proceedings.
monetary obligations. Absent any evidence of fraud, undue influence, or
any vice of consent exercised by one party against the other, the In the case of Banco Filipino Savings & Mortgage Bank vs. Monetary
interest rate agreed upon is binding upon them. Board, Central Bank of the Philippines, 13 this Court ruled that the
bank’s closure did not diminish the authority and powers of the
There is no indication in the records that any of the incidents which designated liquidator to effectuate and carry on the administration of
vitiate consent on the part of petitioners is present. Indeed, the interest the bank, thus:
rate agreed upon is binding on them. With respect to the penalty and
service charges, the same are unconscionable or excessive. x x x. We did not prohibit however acts such as receiving collectibles and
receivables or paying off creditors’ claims and other transactions
Petitioners invoke this Court’s rulings in Almeda vs. Court of Appeals 10 pertaining to the normal operations of a bank. There is no doubt that
and Medel vs. Court of Appeals 11 to show that the interest rate in the that the prosecution of suits for collection and the foreclosure of
subject promissory note is unconscionable. Their reliance on these cases mortgages against debtors of the bank by the liquidator are among the
is misplaced. In Almeda, what this Court struck down as being usual and ordinary transactions pertaining to the administration of a
unconscionable and excessive was the unilateral increase in the interest bank. x x x.
rates from 18% to 68%. This Court ruled thus:
Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybañez, 14 98591, and the Resolution2 dated October 9, 2009 denying petitioner’s
where one of the issues was whether respondent bank can collect motion for reconsideration.
interest on its loans during its period of liquidation and closure, this
Court held: The factual antecedents are undisputed.

In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the Petitioner Dario Nacar filed a complaint for constructive dismissal
validity of the closure and receivership of Banco Filipino was put in before the Arbitration Branch of the National Labor Relations
issue. But the pendency of the case did not diminish the authority of the Commission (NLRC) against respondents Gallery Frames (GF) and/or
designated liquidator to administer and continue the bank’s Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.
transactions. The Court allowed the bank liquidator to continue
receiving collectibles and receivables or paying off creditor’s claims and On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of
other transactions pertaining to normal operations of a bank. Among petitioner and found that he was dismissed from employment without a
these transactions were the prosecution of suits against debtors for valid or just cause. Thus, petitioner was awarded backwages and
collection and for foreclosure of mortgages. The bank was allowed to separation pay in lieu of reinstatement in the amount of ₱158,919.92.
collect interests on its loans while under liquidation, provided that the The dispositive portion of the decision, reads:
interests were legal.
With the foregoing, we find and so rule that respondents failed to
In fine, we hold that the interest rate on the loan agreed upon between discharge the burden of showing that complainant was dismissed from
the parties is not excessive or unconscionable; and that during the employment for a just or valid cause. All the more, it is clear from the
closure of respondent bank, it could still function as a bonding records that complainant was never afforded due process before he was
institution, hence, could continue collecting interests from petitioners. terminated. As such, we are perforce constrained to grant
complainant’s prayer for the payments of separation pay in lieu of
WHEREFORE, we DENY the petition and AFFIRM the challenged Decision reinstatement to his former position, considering the strained
and Resolution of the Court of Appeals in CA-G.R. CV No. 47732. Costs relationship between the parties, and his apparent reluctance to be
against petitioners. reinstated, computed only up to promulgation of this decision as
follows:
SO ORDERED.
SEPARATION PAY
G.R. No. 189871 August 13, 2013 Date Hired = August 1990
Rate = ₱198/day
DARIO NACAR, PETITIONER, Date of Decision = Aug. 18, 1998
vs. Length of Service = 8 yrs. & 1 month
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS. ₱198.00 x 26 days x 8 months = ₱41,184.00
BACKWAGES
DECISION Date Dismissed = January 24, 1997
PERALTA, J.: Rate per day = ₱196.00
Date of Decisions = Aug. 18, 1998
This is a petition for review on certiorari assailing the Decision1 dated a) 1/24/97 to 2/5/98 = 12.36 mos.
September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. ₱196.00/day x 12.36 mos. = ₱62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = ₱62,986.00 On November 5, 2002, petitioner filed a Motion for Correct
₱198.00 x 26 days x 6.4 mos. = ₱32,947.20 Computation, praying that his backwages be computed from the date of
TOTAL = ₱95.933.76 his dismissal on January 24, 1997 up to the finality of the Resolution of
xxxx the Supreme Court on May 27, 2002.11 Upon recomputation, the
Computation and Examination Unit of the NLRC arrived at an updated
WHEREFORE, premises considered, judgment is hereby rendered finding amount in the sum of ₱471,320.31.12
respondents guilty of constructive dismissal and are therefore, ordered:
On December 2, 2002, a Writ of Execution13 was issued by the Labor
To pay jointly and severally the complainant the amount of sixty-two Arbiter ordering the Sheriff to collect from respondents the total
thousand nine hundred eighty-six pesos and 56/100 (₱62,986.56) Pesos amount of ₱471,320.31. Respondents filed a Motion to Quash Writ of
representing his separation pay; Execution, arguing, among other things, that since the Labor Arbiter
awarded separation pay of ₱62,986.56 and limited backwages of
To pay jointly and severally the complainant the amount of nine (sic) ₱95,933.36, no more recomputation is required to be made of the said
five thousand nine hundred thirty-three and 36/100 (₱95,933.36) awards. They claimed that after the decision becomes final and
representing his backwages; and executory, the same cannot be altered or amended anymore.14 On
January 13, 2003, the Labor Arbiter issued an Order15 denying the
All other claims are hereby dismissed for lack of merit. motion. Thus, an Alias Writ of Execution16 was issued on January 14,
2003.
SO ORDERED.4
Respondents again appealed before the NLRC, which on June 30, 2003
Respondents appealed to the NLRC, but it was dismissed for lack of issued a Resolution17 granting the appeal in favor of the respondents
merit in the Resolution5 dated February 29, 2000. Accordingly, the NLRC and ordered the recomputation of the judgment award.
sustained the decision of the Labor Arbiter. Respondents filed a motion
for reconsideration, but it was denied.6 On August 20, 2003, an Entry of Judgment was issued declaring the
Resolution of the NLRC to be final and executory. Consequently, another
Dissatisfied, respondents filed a Petition for Review on Certiorari before pre-execution conference was held, but respondents failed to appear on
the CA. On August 24, 2000, the CA issued a Resolution dismissing the time. Meanwhile, petitioner moved that an Alias Writ of Execution be
petition. Respondents filed a Motion for Reconsideration, but it was issued to enforce the earlier recomputed judgment award in the sum of
likewise denied in a Resolution dated May 8, 2001.7 ₱471,320.31.18

Respondents then sought relief before the Supreme Court, docketed as The records of the case were again forwarded to the Computation and
G.R. No. 151332. Finding no reversible error on the part of the CA, this Examination Unit for recomputation, where the judgment award of
Court denied the petition in the Resolution dated April 17, 2002.8 petitioner was reassessed to be in the total amount of only
₱147,560.19.
An Entry of Judgment was later issued certifying that the resolution
became final and executory on May 27, 2002.9 The case was, thereafter, Petitioner then moved that a writ of execution be issued ordering
referred back to the Labor Arbiter. A pre-execution conference was respondents to pay him the original amount as determined by the Labor
consequently scheduled, but respondents failed to appear.10 Arbiter in his Decision dated October 15, 1998, pending the final
computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY
to satisfy the judgment award that was due to petitioner in the amount ERRED, COMMITTED GRAVE ABUSE OF DISCRETION AND DECIDED
of ₱147,560.19, which petitioner eventually received. CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF
THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF
Petitioner then filed a Manifestation and Motion praying for the re- LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE
computation of the monetary award to include the appropriate OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT
interests.19 TO AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION.26

On May 10, 2005, the Labor Arbiter issued an Order20 granting the Petitioner argues that notwithstanding the fact that there was a
motion, but only up to the amount of ₱11,459.73. The Labor Arbiter computation of backwages in the Labor Arbiter’s decision, the same is
reasoned that it is the October 15, 1998 Decision that should be not final until reinstatement is made or until finality of the decision, in
enforced considering that it was the one that became final and case of an award of separation pay. Petitioner maintains that
executory. However, the Labor Arbiter reasoned that since the decision considering that the October 15, 1998 decision of the Labor Arbiter did
states that the separation pay and backwages are computed only up to not become final and executory until the April 17, 2002 Resolution of
the promulgation of the said decision, it is the amount of ₱158,919.92 the Supreme Court in G.R. No. 151332 was entered in the Book of
that should be executed. Thus, since petitioner already received Entries on May 27, 2002, the reckoning point for the computation of the
₱147,560.19, he is only entitled to the balance of ₱11,459.73. backwages and separation pay should be on May 27, 2002 and not
when the decision of the Labor Arbiter was rendered on October 15,
Petitioner then appealed before the NLRC,21 which appeal was denied 1998. Further, petitioner posits that he is also entitled to the payment
by the NLRC in its Resolution22 dated September 27, 2006. Petitioner of interest from the finality of the decision until full payment by the
filed a Motion for Reconsideration, but it was likewise denied in the respondents.
Resolution23 dated January 31, 2007.
On their part, respondents assert that since only separation pay and
Aggrieved, petitioner then sought recourse before the CA, docketed as limited backwages were awarded to petitioner by the October 15, 1998
CA-G.R. SP No. 98591. decision of the Labor Arbiter, no more recomputation is required to be
made of said awards. Respondents insist that since the decision clearly
On September 23, 2008, the CA rendered a Decision24 denying the stated that the separation pay and backwages are "computed only up to
petition. The CA opined that since petitioner no longer appealed the [the] promulgation of this decision," and considering that petitioner no
October 15, 1998 Decision of the Labor Arbiter, which already became longer appealed the decision, petitioner is only entitled to the award as
final and executory, a belated correction thereof is no longer allowed. computed by the Labor Arbiter in the total amount of ₱158,919.92.
The CA stated that there is nothing left to be done except to enforce the Respondents added that it was only during the execution proceedings
said judgment. Consequently, it can no longer be modified in any that the petitioner questioned the award, long after the decision had
respect, except to correct clerical errors or mistakes. become final and executory. Respondents contend that to allow the
further recomputation of the backwages to be awarded to petitioner at
Petitioner filed a Motion for Reconsideration, but it was denied in the this point of the proceedings would substantially vary the decision of
Resolution25 dated October 9, 2009. the Labor Arbiter as it violates the rule on immutability of judgments.

Hence, the petition assigning the lone error: The petition is meritorious.

I
The instant case is similar to the case of Session Delights Ice Cream and reinstatement is to be made, or up to the finality of the decision, if
Fast Foods v. Court of Appeals (Sixth Division),27 wherein the issue separation pay is to be given in lieu reinstatement.
submitted to the Court for resolution was the propriety of the
computation of the awards made, and whether this violated the That the labor arbiter's decision, at the same time that it found that an
principle of immutability of judgment. Like in the present case, it was a illegal dismissal had taken place, also made a computation of the award,
distinct feature of the judgment of the Labor Arbiter in the above-cited is understandable in light of Section 3, Rule VIII of the then NLRC Rules
case that the decision already provided for the computation of the of Procedure which requires that a computation be made. This Section
payable separation pay and backwages due and did not further order in part states:
the computation of the monetary awards up to the time of the finality
of the judgment. Also in Session Delights, the dismissed employee failed [T]he Labor Arbiter of origin, in cases involving monetary awards and at
to appeal the decision of the labor arbiter. The Court clarified, thus: all events, as far as practicable, shall embody in any such decision or
order the detailed and full amount awarded.
In concrete terms, the question is whether a re-computation in the
course of execution of the labor arbiter's original computation of the Clearly implied from this original computation is its currency up to the
awards made, pegged as of the time the decision was rendered and finality of the labor arbiter's decision. As we noted above, this
confirmed with modification by a final CA decision, is legally proper. The implication is apparent from the terms of the computation itself, and no
question is posed, given that the petitioner did not immediately pay the question would have arisen had the parties terminated the case and
awards stated in the original labor arbiter's decision; it delayed payment implemented the decision at that point.
because it continued with the litigation until final judgment at the CA
level. However, the petitioner disagreed with the labor arbiter's findings on all
counts - i.e., on the finding of illegality as well as on all the consequent
A source of misunderstanding in implementing the final decision in this awards made. Hence, the petitioner appealed the case to the NLRC
case proceeds from the way the original labor arbiter framed his which, in turn, affirmed the labor arbiter's decision. By law, the NLRC
decision. The decision consists essentially of two parts. decision is final, reviewable only by the CA on jurisdictional grounds.

The first is that part of the decision that cannot now be disputed The petitioner appropriately sought to nullify the NLRC decision on
because it has been confirmed with finality. This is the finding of the jurisdictional grounds through a timely filed Rule 65 petition for
illegality of the dismissal and the awards of separation pay in lieu of certiorari. The CA decision, finding that NLRC exceeded its authority in
reinstatement, backwages, attorney's fees, and legal interests. affirming the payment of 13th month pay and indemnity, lapsed to
finality and was subsequently returned to the labor arbiter of origin for
The second part is the computation of the awards made. On its face, the execution.
computation the labor arbiter made shows that it was time-bound as
can be seen from the figures used in the computation. This part, being It was at this point that the present case arose. Focusing on the core
merely a computation of what the first part of the decision established illegal dismissal portion of the original labor arbiter's decision, the
and declared, can, by its nature, be re-computed. This is the part, too, implementing labor arbiter ordered the award re-computed; he
that the petitioner now posits should no longer be re-computed apparently read the figures originally ordered to be paid to be the
because the computation is already in the labor arbiter's decision that computation due had the case been terminated and implemented at
the CA had affirmed. The public and private respondents, on the other the labor arbiter's level. Thus, the labor arbiter re-computed the award
hand, posit that a re-computation is necessary because the relief in an to include the separation pay and the backwages due up to the finality
illegal dismissal decision goes all the way up to reinstatement if of the CA decision that fully terminated the case on the merits.
Unfortunately, the labor arbiter's approved computation went beyond employment relationship ended so that separation pay and backwages
the finality of the CA decision (July 29, 2003) and included as well the are to be computed up to that point.31
payment for awards the final CA decision had deleted - specifically, the
proportionate 13th month pay and the indemnity awards. Hence, the Finally, anent the payment of legal interest. In the landmark case of
CA issued the decision now questioned in the present petition. Eastern Shipping Lines, Inc. v. Court of Appeals,32 the Court laid down
the guidelines regarding the manner of computing legal interest, to wit:
We see no error in the CA decision confirming that a re-computation is
necessary as it essentially considered the labor arbiter's original decision II. With regard particularly to an award of interest in the concept of
in accordance with its basic component parts as we discussed above. To actual and compensatory damages, the rate of interest, as well as the
reiterate, the first part contains the finding of illegality and its monetary accrual thereof, is imposed, as follows:
consequences; the second part is the computation of the awards or
monetary consequences of the illegal dismissal, computed as of the 1. When the obligation is breached, and it consists in the payment of a
time of the labor arbiter's original decision.28 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,
Consequently, from the above disquisitions, under the terms of the the interest due shall itself earn legal interest from the time it is
decision which is sought to be executed by the petitioner, no essential judicially demanded. In the absence of stipulation, the rate of interest
change is made by a recomputation as this step is a necessary shall be 12% per annum to be computed from default, i.e., from judicial
consequence that flows from the nature of the illegality of dismissal or extrajudicial demand under and subject to the provisions of Article
declared by the Labor Arbiter in that decision.29 A recomputation (or an 1169 of the Civil Code.
original computation, if no previous computation has been made) is a
part of the law – specifically, Article 279 of the Labor Code and the 2. When an obligation, not constituting a loan or forbearance of money,
established jurisprudence on this provision – that is read into the is breached, an interest on the amount of damages awarded may be
decision. By the nature of an illegal dismissal case, the reliefs continue imposed at the discretion of the court at the rate of 6% per annum. No
to add up until full satisfaction, as expressed under Article 279 of the interest, however, shall be adjudged on unliquidated claims or damages
Labor Code. The recomputation of the consequences of illegal dismissal except when or until the demand can be established with reasonable
upon execution of the decision does not constitute an alteration or certainty. Accordingly, where the demand is established with
amendment of the final decision being implemented. The illegal reasonable certainty, the interest shall begin to run from the time the
dismissal ruling stands; only the computation of monetary claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
consequences of this dismissal is affected, and this is not a violation of such certainty cannot be so reasonably established at the time the
the principle of immutability of final judgments.30 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
That the amount respondents shall now pay has greatly increased is a damages may be deemed to have been reasonably ascertained). The
consequence that it cannot avoid as it is the risk that it ran when it actual base for the computation of legal interest shall, in any case, be on
continued to seek recourses against the Labor Arbiter's decision. Article the amount finally adjudged.
279 provides for the consequences of illegal dismissal in no uncertain
terms, qualified only by jurisprudence in its interpretation of when 3. When the judgment of the court awarding a sum of money becomes
separation pay in lieu of reinstatement is allowed. When that happens, final and executory, the rate of legal interest, whether the case falls
the finality of the illegal dismissal decision becomes the reckoning point under paragraph 1 or paragraph 2, above, shall be 12% per annum from
instead of the reinstatement that the law decrees. In allowing such finality until its satisfaction, this interim period being deemed to be
separation pay, the final decision effectively declares that the by then an equivalent to a forbearance of credit.33
 Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board Eduardo B. Olaguer v. Bangko Sentral Monetary Board,41 this Court
(BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved the affirmed the authority of the BSP-MB to set interest rates and to issue
amendment of Section 234 of Circular No. 905, Series of 1982 and, and enforce Circulars when it ruled that "the BSP-MB may prescribe the
accordingly, issued Circular No. 799,35 Series of 2013, effective July 1, maximum rate or rates of interest for all loans or renewals thereof or
2013, the pertinent portion of which reads: the forbearance of any money, goods or credits, including those for
loans of low priority such as consumer loans, as well as such loans made
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, by pawnshops, finance companies and similar credit institutions. It even
approved the following revisions governing the rate of interest in the authorizes the BSP-MB to prescribe different maximum rate or rates for
absence of stipulation in loan contracts, thereby amending Section 2 of different types of borrowings, including deposits and deposit
Circular No. 905, Series of 1982: substitutes, or loans of financial intermediaries."

Section 1. The rate of interest for the loan or forbearance of any money, Nonetheless, with regard to those judgments that have become final
goods or credits and the rate allowed in judgments, in the absence of an and executory prior to July 1, 2013, said judgments shall not be
express contract as to such rate of interest, shall be six percent (6%) per disturbed and shall continue to be implemented applying the rate of
annum. interest fixed therein.1awp++i1

Section 2. In view of the above, Subsection X305.136 of the Manual of To recapitulate and for future guidance, the guidelines laid down in the
Regulations for Banks and Sections 4305Q.1,37 4305S.338 and case of Eastern Shipping Lines42 are accordingly modified to embody
4303P.139 of the Manual of Regulations for Non-Bank Financial BSP-MB Circular No. 799, as follows:
Institutions are hereby amended accordingly.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
This Circular shall take effect on 1 July 2013. contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages"
Thus, from the foregoing, in the absence of an express stipulation as to of the Civil Code govern in determining the measure of recoverable
the rate of interest that would govern the parties, the rate of legal damages.1âwphi1
interest for loans or forbearance of any money, goods or credits and the
rate allowed in judgments shall no longer be twelve percent (12%) per II. With regard particularly to an award of interest in the concept of
annum - as reflected in the case of Eastern Shipping Lines40 and actual and compensatory damages, the rate of interest, as well as the
Subsection X305.1 of the Manual of Regulations for Banks and Sections accrual thereof, is imposed, as follows:
4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-
Bank Financial Institutions, before its amendment by BSP-MB Circular When the obligation is breached, and it consists in the payment of a
No. 799 - but will now be six percent (6%) per annum effective July 1, sum of money, i.e., a loan or forbearance of money, the interest due
2013. It should be noted, nonetheless, that the new rate could only be should be that which may have been stipulated in writing. Furthermore,
applied prospectively and not retroactively. Consequently, the twelve the interest due shall itself earn legal interest from the time it is
percent (12%) per annum legal interest shall apply only until June 30, judicially demanded. In the absence of stipulation, the rate of interest
2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be 6% per annum to be computed from default, i.e., from judicial
shall be the prevailing rate of interest when applicable. or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be The Labor Arbiter is hereby ORDERED to make another recomputation
imposed at the discretion of the court at the rate of 6% per annum. No of the total monetary benefits awarded and due to petitioner in
interest, however, shall be adjudged on unliquidated claims or damages, accordance with this Decision.
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with SO ORDERED.
reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes

final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 6% per annum from
such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall continue
to be implemented applying the rate of interest fixed therein.

WHEREFORE, premises considered, the Decision dated September 23,

2008 of the Court of Appeals in CA-G.R. SP No. 98591, and the
Resolution dated October 9, 2009 are REVERSED and SET ASIDE.
Respondents are Ordered to Pay petitioner:

(1) backwages computed from the time petitioner was illegally

dismissed on January 24, 1997 up to May 27, 2002, when the Resolution
of this Court in G.R. No. 151332 became final and executory;

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

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

Before the Court is the Appeal1 under Rule 45 of the Rules of Court filed
by petitioner Atty. Leonard Florent O. Bulatao (Atty. Bulatao) assailing
the Decision2 dated October 19, 2017 (Decision) of the Court of
Appeals3 (CA) in CA-G.R. CV No. 105581. CA Decision partly granted the
appeal of respondent Zenaida Estonactoc (Zenaida) resulting in the
reversal and setting aside of the Decision4 dated May 4, 2015 rendered
by the Regional Trial Court, Branch 31, Agoo, La Union (RTC) in Civil Case
No. A-2715.

The Facts and Antecedent Proceedings

The CA Decision narrates the factual antecedents as follows:

On June 3, 2008, [Zenaida] executed a Deed of Mortgage of Real
Property [(DMRP)] in favor of [Atty. Bulatao] covering a parcel of land
located in Pongpong, Sto. Tomas, La Union, with an area of 42,727
square meters (subject property), as security for a loan in the amount of
P200,000.00.

The [DMRP] contained the following stipulation:

PROVIDED HOWEVER, that if I, shall pay or cause to be paid to the said
MORTGAGEE the aforementioned amount of TWO HUNDRED
THOUSAND PESOS (Php200,000.00), Philippine currency together with
the interest at the rate of five percent (5%) per month, within a period
of twelve (12) months or one (1) year or before June 4, 2009, then this
MORTGAGE shall thereby be discharged and of no effect. OTHERWISE, it
shall remain in full force and effect and shall be enforceable in the
manner provided for by law.
When [Zenaida] defaulted in her obligation, [Atty. Bulatao] foreclosed
the mortgage and petitioned the court for the sale of the subject
property in a public auction. The Notice of Sale on Extra Judicial
G.R. No. 235020, December 10, 2019 Foreclosure of Property/ies was issued by the Office of the Clerk of
Court of the trial court in Agoo, La Union on July 15, 2011.
ATTY. LEONARD FLORENT O. BULATAO, PETITIONER, v. ZENAIDA C.
ESTONACTOC, RESPONDENT. By reason of the impending sale of the subject property, [Zenaida] filed
[a Complaint for Injunction, Annulment of Deed of Real Estate Mortgage
DECISION and Damages against Atty. Bulatao, Atty. Diosdado L. Doctolero as Clerk
of Court and Ex-Officio Sheriff of the RTC of Agoo, La Union, and Services in the amount of P200,000.00 and that she even told him that
Melchor A. Mabutas, as Sheriff of the Office of the Clerk of Court of the she [was] willing to pay a monthly interest of 20%-30%. [Zenaida]
same court]5 seeking to declare the [DMRP] as illegal, inexistent and agreed to a 5% monthly interest, with the 2.5% to be paid directly to
null and void, and to make the contract unenforceable. She asserted FRB Credit and Financial Services and the other half as his own profit.
that [Atty. Bulatao], in grave abuse of her rights, took advantage of her [Zenaida] even represented that she could pay the loan in a month or
financial distress and urgent financial needs by imposing in the [DMRP] two.
an interest of five percent (5%) per month which is excessive, iniquitous,
unconscionable, exorbitant and contrary to public policy, rendering the [Atty. Bulatao] denied that the interest is usurious on account of Central
contract null and void. She also alleged that she only received Bank Circular No. 905-82, which expressly removed the interest ceilings
P80,000.00 from [Atty.] Bulatao, contrary to the P200,000.00 contracted prescribed under the Usury Law, leaving [the] parties with the liberty to
loan amount. In addition, she sought the award of moral and exemplary mutually agree on an interest rate. Moreover, he denied that [Zenaida]
damages, attorney's fees, and litigation expenses. only received P80,000.00 considering that it was [Zenaida] herself who
encashed Allied Bank Check No. 0024551400 in the amount of
[Zenaida] likewise raised in the complaint that the agreement is invalid P200,000.00, which represent[ed] the proceeds of the loan incurred by
because of the following: (a) it failed to mention that the subject [Atty. Bulatao] from FRB Credit and Financial Services.
property is registered under Transfer Certificate of Title No. T-6288-part
as indicated in the Real Property Field Appraisal and Assessment Sheet As counterclaim, [Atty. Bulatao] sought the recovery of actual, moral
and Tax Declaration No. 020-00304; (b) the mortgage is not registered and exemplary damages as well as attorney's fees, and costs of suit.
and therefore not annotated in the title of the subject property; (c) it
falsely indicated that [Zenaida] is the registered owner of the subject xxxx
property despite the fact that it is co-owned by [Zenaida] with her late
husband, Adolfo T. Estonactoc; and that it has not yet been settled and On March 19, 2012, the complaint was amended to include the
transferred in favor of their son, Jose Rafael C. Estonactoc; and (d) declaration of nullity of the foreclosure sale of the subject property as a
[Zenaida] did not appear before the notary public who notarized the cause of action by reason of the subsequent sale thereof in a public
[DMRP]. auction and the consequent issuance of a certificate of sale of real
property in favor of [Atty. Bulatao] on October 10, 2011.
xxxx
Trial on the merits of the case ensued whereby both parties presented
In response thereto, [Atty. Bulatao] filed an Answer wherein he denied their respective documentary and testimonial pieces of evidence in
all the allegations made against him by [Zenaida] and contended the support of their claims.
following:
On May 4, 2015, the trial court rendered [its] Decision[, the] dispositive
[Zenaida was] guilty of misrepresentation, misdeclaration, false portion of which is cited herein, to wit:
pretenses, and bad faith. The P200,000.00 loan which he extended to WHEREFORE, premises considered, this Court finds in favor of the
[Zenaida] was from the proceeds of the loan which he contracted with defendants and accordingly, DISMISSES the instant complaint against
FRB Credit and Financial Services. [Zenaida] represented to be the sole them for utter lack of merit. Moreover, the plaintiff is hereby order[ed]
owner of the subject property and that the title thereof was lost, to pay the defendants, to wit:
destroyed and/or cannot be recovered although the transfer of the title
in her name is already being processed. It was [Zenaida] who (i) Moral damages in the amount of Thirty Thousand Pesos (P30,000.00);
encouraged him to secure a loan with the FRB Credit and Financial
(ii) Exemplary damages in the amount of Fifteen Thousand Pesos
(P15,000.00); Lastly, the trial court granted moral, exemplary and nominal damages,
and attorney's fees in favor of defendants.
(iii) Nominal damages in the amount of Five Thousand Pesos
(P5,000.00); [Zenaida] moved to reconsider the [trial court's] Decision but the trial
court denied it in an Order dated July 13, 2015. On July 30, 2015,
(iv) Attorney's fees in the amount of Thirty Thousand Pesos [Zenaida] filed a Notice of Appeal which was given due course by the
(P30,000.00), plus Two Thousand Five Hundred Pesos (P2,500.00) per trial court on August 13, 2015.6
court appearance of Attys. Gines and Ulpindo; and Ruling of the CA

(v) Costs of suit. The CA in its Decision7 dated October 19, 2017 found Zenaida's appeal
partly meritorious.8
SO ORDERED.
The trial court ruled that [Zenaida] is bound by the terms and Regarding the real estate mortgage, the CA ruled that Zenaida, being a
stipulations in the contract of loan and real estate mortgage which she co-owner of the subject property, could validly convey through sale or
executed in favor of [Atty. Bulatao]; that the evidence on hand shows mortgage the portion belonging to her and, thus, the real estate
that the interest of 5% per month on the loan is not exorbitant mortgage in favor of Atty. Bulatao is not entirely void.9
considering that the borrower, [Zenaida], appears to be an educated
businesswoman, from a well-to-do family as demonstrated by her On the interest rate, the CA ruled that the 5% monthly interest imposed
having a son who studies in a prestigious school (Ateneo), and her late upon by Atty. Bulatao in the Deed of Mortgage of Real Property (DMRP)
husband being the former town mayor of Sto. Tomas, La Union; that is excessive, unconscionable and exorbitant, which renders the
[Zenaida] is in a position to pay not only the principal loan amount but stipulation on interest void for being contrary to morals, if not against
also the stipulated interest; and that [Zenaida] even expressed her the law.10 After the CA observed, on on hand, that the stipulation on
capacity to pay interest of even up to 20%, to entice [Atty. Bulatao] to interest being void, it is as if there was no express contract on said
extend the loan to her. Hence, the trial court declared that she is now interest rate, thus, the interest rate may be reduced as reason and
estopped from claiming otherwise. equity demand, and on the other hand, that a legal interest of 12% per
annum will be added in place of the excessive interest formerly
Moreover, the trial court declared that [Atty. Bulatao] is an innocent imposed, the CA, then, equitably reduced the stipulated 5% monthly
mortgagee for value, who merely relied on the alleged sole ownership interest to 1% per month or 12% per annum reckoned from the
of [Zenaida] over the subject property as demonstrated in the tax execution of the DMRP on June 3, 2008.11
declaration; and that in fine, the mortgage of the co-owned property by
one of the co-owners, [Zenaida] in this case, sans any participation on The CA further observed that while the nullity of the stipulation on the
the part of her son, as co-owner, did not invalidate the mortgage. usurious interest did not affect the lender's right to recover the principal
obligation or the terms of the real estate mortgage, the foreclosure
The trial court concluded that considering the validity of the loan and proceedings held on September 8 an 15, 2011 in this case could not be
real estate mortgage, the subsequent foreclosure of the mortgage on given effect.12 The CA reasoned that since the debt due is limited to the
the subject property and the issuance of certificate of sale as a principal of P200,000.00 with 12% per annum as legal interest, the
consequence thereof are likewise valid considering that the foreclosure previous demand for payment of the amount of P540,000.00 reflected
was made by proper authorities, who enjoy the presumption of on the demand letter dated April 15, 2011 could not be considered as a
regularity of performance of their official duties. valid demand for payment, and without a valid demand the obligations
is not due.13 The foreclosure could not be considered valid because it fraud committed upon Zenaida, the stipulated interest rate should
would result in an inequitable situation wherein Zenaida would have her stand.19 On the assumption that the 5% monthly interest is invalid, the
land foreclosed for failure to pay an over-inflated loan only a small part ruling of the CA reducing it to 1% per month or 12% per annum is not
of which she was obligated to pay, and she was not given an just and right.20 Atty. Bulatao takes the position that the 5% per month
opportunity to settle her debt at the correct amount without the should be applied to the borrowed amount of P200,000.00 for one year
iniquitous interest imposed.14 (the term of the loan) and thereafter, the 12% yearly interest should
apply.21 Atty. Bulatao cites Prisma Construction & Development Corp. v.
As to the award of damages against Zenaida, the CA found no Menchavez22 (Prisma v. Menchavez) in support of his position because
justification for their imposition.15 said case is a contract for a specific period.23

The dispositive portion of the CA Decision states: Regarding the DMRP, Atty. Bulatao argues that since Zenaida is a co-
WHEREFORE, the appeal is PARTLY GRANTED. owner to the extent of 3/4 (1/2 portion representing her share in the
conjugal property and 1/4 portion as her legitime in the estate of her
The Decision dated May 4, 2015 rendered by Branch 31 of the Regional husband Adolfo Estonactoc) of the subject property and the remaining
Trial Court (RTC), Agoo, La Union in Civil Case No. A-2715 is hereby 1/4 portion being co-owned by her son Jose Rafael Estonactoc, Atty.
REVERSED and SET ASIDE. Accordingly, a new judgment is RENDERED as Bulatao has the right to foreclose Zenaida's 3/4 share.24
follows:
The Deed of Mortgage of Real Property dated June 4, 2008 is DECLARED For her part, Zenaida seeks the dismissal of Atty. Bulatao's appeal for his
as VOID only with respect to the share of deceased Adolfo T. failure to comply with formal and procedural requirements of a Rule 45
Estonactoc; petition for certiorari.25 Assuming that the Court takes cognizance of
the appeal, Zenaida argues that the CA did not err in reversing the RTC
The monthly interest as stipulated in the Deed of Mortgage of Real Decision.26
Property is REDUCED to 1% per month or 12% per annum; and
Despite the formal objections interposed by Zenaida, the Court will
The Foreclosure Sale and the Certificate of Sale issued in favor of proceed to rule on the merits of the Petition. Except as regards the
defendant-appellee Leonard Florent O. Bulatao are DECLARED null and applicable rate of interest and the effect of the DMRP are concerned,
void. the appeal is bereft of merit.
SO ORDERED.16
Dissatisfied, Atty. Bulatao filed the instant Appeal. Zenaida filed her Atty. Bulatao's argument of voluntariness in his and Zenaida's
Comment17 dated May 15, 2018. Atty. Bulatao filed a Reply18 on March agreement on the 5% monthly interest cannot be sustained. The Court
18, 2019. has repudiated this argument in Sps. Abella v. Sps. Abella,27viz.:
Even if it can be shown that the parties have agreed to monthly interest
The Issue at the rate of 2.5%, this is unconscionable. As emphasized in Castro v.
Tan,28the willingness of the parties to enter into a relation involving an
Whether the CA erred when it set aside and reversed the RTC Decision. unconscionable interest rate is inconsequential to the validity of the
stipulated rate:
The Court's Ruling The imposition of an unconscionable rate of interest on a money debt,
even if knowingly and voluntarily assumed, is immoral and unjust. It is
In his appeal, Atty. Bulatao argues that the payment of the 5% monthly tantamount to a repugnant spoliation and an iniquitous deprivation of
interest was voluntarily agreed upon by him and Zenaida and absent property, repulsive to the common sense of man. It has no support in
law, in principles of justice, or in the human conscience nor is there any Given that the agreement on the 5% monthly interest is void for being
reason whatsoever which may justify such imposition as righteous and unconscionable, the interest rate prescribed by the Bangko Sentral ng
as one that may be sustained within the sphere of public or private Pilipinas (BSP) for loans or forbearances of money, credits or goods will
morals. be the surrogate or substitute rate not only for the one-year interest
The imposition of an unconscionable interest rate is void ab initio for period agreed upon but for the entire period that the loan of Zenaida
being "contrary to morals, and the law." remains unpaid.

In determining whether the rate of interest is unconscionable, the The distinction that Atty. Bulatao makes between "open-ended
mechanical application of pre-established floors would be wanting. The contracts" or contracts with indefinite period and "term contracts" or
lowest rates that have previously been considered unconscionable need contracts for a specific period32 is misguided as the distinction has no
not be an impenetrable minimum. What is more crucial is a legal basis as far as a loan, whether commodatum or mutuum, is
consideration of the parties' contexts. Moreover, interest rates must be concerned. As provided in Article 1933 of the Civil Code, "[b]y the
appreciated in light of the fundamental nature of interest as contract of loan, one of the parties delivers to another, either
compensation to the creditor for money lent to another, which he or something not consumable so that the latter may use the same for a
she could otherwise have used for his or her own purposes at the time it certain time and return it, in which case the contract is called a
was lent. It is not the default vehicle for predatory gain. As such, commodatum; or money or other consumable thing, upon the condition
interest need only be reasonable. It ought not be a supine mechanism that the same amount of the same kind and quality shall be paid, in
for the creditor's unjust enrichment at the expense of another. which case the contract is simply called a loan or mutuum."33 Thus, a
period is contemplated in a contract of loan and it cannot be an "open--
Petitioners here insist upon the imposition of 2.5% monthly or 30% ended contract" or a contract with an indefinite period.
annual interest. Compounded at this rate, respondents' obligation
would have more than doubled-increased to 219.7% of the principal-by Atty. Bulatao misreads Prisma v. Menchavez. The facts show therein
the end of the third year after which the loan was contracted if the that the parties agreed to the payment of a specific sum of money of
entire principal remained unpaid. By the end of the ninth year, it would P40,000.00 per month for six months, not a 4% rate of interest, payable
have multiplied more than tenfold (or increased to 1,060.45%). In 2015, within a six-month period;34 and no issue on the excessiveness of the
this would have multiplied by more than 66 times (or increased by stipulated amount of P40,000.00 per month was ever put in issue by the
6,654.17%). Thus, from an initial loan of P500,000.00, respondents petitioners therein since they only assailed the application of a 4%
would be obliged to pay more than P33 million. This is grossly unfair, interest rate to the unpaid amount, since it was not agreed upon.35 As
especially since up to the fourth year from when the loan was obtained, aptly observed by the CA:
respondents had been assiduously delivering payment. This reduces We also could not fathom how the case of [Prisma v. Menchavez] could
their best efforts to satisfy their obligation into a protracted servicing of apply in this case, as defendant-appellee would want to convince Us,
a rapacious loan.29 (Underscoring supplied) because the afore-mentioned case involves an agreed sum as monthly
In the consolidated cases of Rivera v. Sps. Chua30 and Sps. Chua v. interest and no rate of interest was stipulated in the promissory note,
Rivera,31 the Court affirmed the finding of the CA that 5% per month or contrary to the factual antecedents in his case.36
60% per annum interest rate is highly iniquitous and unreasonable; and As to the validity of the foreclosure, jurisprudence on the effect of the
since the interest rate agreed upon is void, the rate of interest should be nullity of the loan's interest rate on the foreclosure of the mortgage
12% per annum (the then prevailing interest rate prescribed by the securing the loan abounds. In the consolidated cases of Vasquez v.
Central Bank of the Philippines for loans or forbearances of money) Philippine National Bank37 and Philippine National Bank v. Vasquez,38
from the date of judicial or extrajudicial demand. the Court has reiterated that:
In a situation wherein null and void interest rates are imposed under a payment of a loan, was invalidated because the interest rates imposed
contract of loan, the non-payment of the principal loan obligation does on the loan were found to be null and void due to their
not place the debtor in a stat of default, considering that under Article unconscionability.
1252 of the Civil Code, if a debt produces interest, payment of the
principal shall not be deemed to have been made until the interests In Sps. Castro v. Tan,41 on the basis of the nullity of the imposed
have been covered. Necessarily, since the obligation of making interest interest rates due to their iniquity, the Court nullified the foreclosure
payments in the instant case is illegal and thus non-demandable, the proceedings "since the amount demanded as the outstanding loan was
payment of the principal loan obligation was likewise not yet overstated. Consequently, it has not been shown that the respondents
demandable on the part of PNB. With Vasquez not being in a state of have failed to pay the correct amount of their outstanding obligation. x
default, the foreclosure of the subject properties should not have x x"
proceeded.
Also, in Sps. Andal v. PNB,42 the Court upheld the nullification of the
In Heirs of Zoilo Espiritu v. Sps. Landrito,39 the loan obligation involved, foreclosure sale, affirming the appellate court's holding that "since the
which was secured by a mortgage, was marred by an iniquitous interest rates are null and void, [respondent] bank has no right to
imposition of monetary interest because the creditors omitted to foreclose [petitioners-spouses'] properties and any foreclosure thereof
specifically identify the imposable interest rate, just as in the instant is illegal. x x x. Since there was no default yet, it is premature for
case. Because of the failure of the debtors to pay back the loan, the [respondent] bank to foreclose the properties subject of the real estate
mortgaged property was foreclosed. The debtors failed to redeem the mortgage contract."43
foreclosed property. The Court in that case held that the foreclosure In Menchavez v. Bermudez,44 Arthur Menchavez and Marlyn Bermudez
proceedings should not be given effect, viz.: entered on November 17, 1993 into a loan agreement, covering the
x x x If the foreclosure proceedings were considered valid, this would amount of P500,000.00, and the Promissory Note provided that the loan
result in an inequitable situation wherein the Spouses Landrito will have was to be paid "on or before Dec[ember] 17, 1993 with interest at 5%
their land foreclosed for failure to pay an over-inflated loan only a small per month."45 The Court, reiterating Castro v. Tan,46 tagged the 5%
part of which they were obligated to pay. monthly interest rate as "excessive, iniquitous, unconscionable and
exorbitant, contrary to morals, and the law."47
xxxx
The invalidity of the 5% per month interest rate does not affect the
Since the Spouses Landrito, the debtors in this case, were not given an obligation of Zenaida to repay her loan of P200,000.00 from Atty.
opportunity to settle their debt, at the correct amount and without the Bulatao. Based on the recent en banc case of Lara's Gifts & Decors, Inc.
iniquitous interest imposed, no foreclosure proceedings may be v. Midtown Industrial Sales, Inc.,48 the applicable interest is the BSP-
instituted. A judgment ordering a foreclosure sale is conditioned upon a prescribed rate of 12% per annum from the execution of the DMRP on
finding on the correct amount of the unpaid obligation and the failure of June 3, 2008, wherein the parties agreed to the payment of interest, to
the debtor to pay the said amount. In this case, it has not yet been June 30, 2013 and at the rate of 6% per annum from July 1, 2013 until
shown that the Spouses Landrito had already failed to pay the correct full payment. Also, taking into account Article 2212 of the Civil Code,
amount of the debt and, therefore, a foreclosure sale cannot be which provides that "[i]nterest due shall earn legal interest from the
conducted in order to answer for the unpaid debt. x x x time it is judicially demanded, although the obligation may be silent
upon this point," the interest due on the principal amount (computed as
xxxx mentioned above) accruing as of judicial demand (the filing of the
Similarly, in Sps. Albos v. Sps. Embisan,40 the extra-judicial foreclosure counterclaim, in this case) shall separately earn interest at the rate
sale of a mortgaged property, which was foreclosed due to the non-
prescribed by the BSP from time of judicial demand up to full payment. designated as mortgage indebtedness amounted to P560,000.00.
Thus, the CA Decision has to be modified in this respect. Likewise, in the demand letter dated April 15, 2011, defendant-appellee
demanded from plaintiff-appellant the amount of P540,000.00 for the
For there to be a valid payment, the three characteristics of payment unpaid loan. Since the debt due is limited to the principal of
must be present. These are: (1) integrity of payment, which is provided P200,000.00 with 12% per annum as legal interest, the previous
for in Article 1233 of the Civil Code: "A debt shall not be understood to demand for payment of the amount of P540,000.00 cannot be
have been paid unless the thing or service in which the obligation considered as a valid demand for payment. For an obligation to become
consists has been completely delivered or rendered, as the case due, there must be a valid demand. Nor can the foreclosure proceedings
maybe;" (2) identity of payment, which is provided for in Article 1244: be considered valid since the total amount of the indebtedness during
"The debtor of a thing cannot compel the creditor to receive different the foreclosure proceedings was pegged at P560,000.00 which included
one, although the latter may be of the same value as, or more valuable interest and which this Court now nullifies for being excessive,
than that which is due. In obligations to do or not to do, an act or iniquitous, and exorbitant. If the foreclosure proceedings were
forbearance cannot be substituted by another act or forbearance considered valid, it would result in an inequitable situation wherein
against the obligee's will;" and (3) indivisibility of payment, which is plaintiff-appellant will have her land foreclosed for failure to pay an
provided for in Article 1248: "Unless there is an express stipulation to over-inflated loan only a small part of which she was obligated to pay.52
that effect, the creditor cannot be compelled partially to receive the As to the DMRP, the CA recognized Zenaida as a co-owner of the
prestations in which the obligation consists. Neither may the debtor be mortgaged property and as such, she could validly convey through sale
required to make partial payments. However, when the debt is in part or mortgage the portion belonging to her.53 Thus, the CA ruled that
liquidated and in part unliquidated, the creditor may demand and the "the Real Estate Mortgage in favor of [Atty. Bulatao] is not entirely
debtor may effect the payment of the former without waiting for the rendered void as its validity is limited only to the portion belonging to
liquidation of the latter."49 Since integrity of payment requires that the [Zenaida]."54
thing or service in which the obligation consists has been completely
delivered or rendered as the case may be, the debtor must comply in its In Bailon-Casilao v. Court of Appeals,55 the Court observed:
entirety with the prestation and that the creditor is satisfied with the The rights of a co-owner of a certain property are clearly specified in
same.50 Article 493 of the Civil Code. Thus:
Art. 493. Each co-owner shall have the full ownership of his part and of
These characteristics of payment should mirror the demand made by the fruits and benefits pertaining thereto, and he may therefore
the creditor in order for the debtor to incur in delay under Article alienate, assign or mortgage it and even substitute another person in its
116951 of the Civil Code. The demand must comply with the integrity, enjoyment, except when personal rights are involved. But the effect of
identity and indivisibility characteristics as well. Since the debtor cannot the alienation or mortgage, with respect to the co-owners, shall be
compel the creditor to accept an incomplete delivery or an amount less limited to the portion which may be allotted to him in the division upon
than what is due, it follows that the creditor cannot compel the debtor the termination of the co-ownership. x x x
to pay more than what is due. Thus, the characteristics of integrity and As early as 1923, this Court has ruled that even if a co-owner sells the
identity will be violated if the creditor demands more than what is due. whole property as his, the sale will affect only his own share but not
those of the other co-owners who did not consent to the sale [Punsalan
As correctly observed by the CA: v. Boon Liat, 44 Phil. 320 (1923)]. This is because under the
However, while the terms of the Real Estate Mortgage remain effective, aforementioned codal provision, the sale or other disposition affects
the foreclosure proceedings held on September 8 and 15, 2011, cannot only his undivided share and the transferee gets only what would
be given effect. In the Notice of Extra-Judicial Sale dated July 15, 2011, correspond to his grantor in the partition of the thing owned in
and in the Certificate of Sale dated October 10, 2011, the amount common. [Ramirez v. Bautista, 14 Phil. 528 (1909)]. Consequently, by
virtue of the sales made by Rosalia and Gaudencio Bailon which are While in Estoque a specific portion of a co-owned property was sold,
valid with respect to their proportionate shares, and the subsequent that situation is no different from a situation wherein a co-owner has
transfers which culminated in the sale to private respondent Celestino sold the entire co-owned property, i.e., a specific parcel of land of which
Afable, the said Afable thereby became a co-owner of the disputed the seller has only an undivided interest therein, because the rationale
parcel of land as correctly held by the lower court since the sales for not recognizing the effectivity of the disposition by a co-owner
produced the effect of substituting the buyers in the enjoyment thereof without the consent of the other co-owners over a specific portion
[Mainit v. Bandoy 14 Phil. 730 (1910)]. equally applies to the disposition of the entire co-owned property,
which is more than the undivided interest or share rightfully pertaining
From the foregoing, it may be deduced that since a co-owner is entitled to the disposing co-owner.61
to sell his undivided share, a sale of the entire property by one co-owner
without the consent of the other co-owners is not null and void. Estoque characterizes the contract entered into by the disposing co-
However, only the rights of the co-owner-seller are transferred, thereby owner as "ineffective, for lack of power in the vendor to sell the specific
making the buyer a co-owner of the property.56 (Emphasis supplied; portion described in the deed" and makes room for a subsequent
italics in the original) ratification of the contract by the other co-owners or validation in case
This ruling was reiterated in Paulmitan v. Court of Appeals,57 where the the disposing co-owner subsequently acquires the undivided or pro-
Court therein ruled that the sale of the property owned in common by indiviso interests of the other co-owners.62 Thus, the subsequent
one co-owner without the consent of the others did not give to the ratification or acquisition will validate and make the contract fully
buyer ownership over the entire land but merely transferred to the effective63 as of the date the contract was entered into pursuant to
buyer the undivided share of the seller, making the buyer the co-owner Article 1396 of the Civil Code, which provides that "[r]atification
of the land in question.58 cleanses the contract from all its defects from the moment it was
constituted" and Article 1434 of the Civil Code, which provides: "[w]hen
The Court's reliance on Article 493 of the Civil Code to justify the validity a person who is not the owner of a thing sells or alienates and delivers
of the sale of the property owned in common by a co-owner without it, and later the seller or grantor acquires title thereto, such title passes
the consent of the other co-owners insofar as the undivided share of by operation of law to the buyer or grantee."
the co-owner seller is concerned has to be reconciled with the ruling of
the Court en banc through Justice J.B.L. Reyes the case of Estoque v. While Article 493 of the Civil Code may not squarely cover the situations
Pajimula59 (Estoque) which has not been overturned. In Estoque, the wherein a co-owner, without the consent of the other co-owners,
Court pronounced: alienate, assign or mortgage: (1) the entire co-owned property; (2) a
x x x The deed of sale to Estoque x x x clearly specifies the object sold as specific portion of the co-owned property; (3) an undivided portion less
the southeastern third portion of Lot 802 of the Rosario Cadastre, with than the part pertaining to the disposing co-owner; and (4) an undivided
an area of 840 square meters, more or less. Granting that the seller, portion more than the part pertaining to the disposing co-owner, the
Crispina Perez Vda. de Aquitania could not have sold this particular principle of estoppel bars the disposing co-owner from disavowing the
portion of the lot owned in common by her and her two brothers, sale to the full extent of his undivided or pro-indiviso share or part in
Lorenzo and Ricardo Perez, by no means does it follow that she the co-ownership, subject to the outcome of the partition, which, using
intended to sell to x x x Estoque her 1/3 undivided interest in the lot the terminology of Article 493, limits the effect of the alienation or
aforementioned. There is nothing in the deed of sale to justify such mortgage to the portion that may be allotted to him in the division upon
inference. That the seller could have validly sold her one-third undivided termination of the co-ownership. Under Article 1431 of the Civil Code,
interest to [Estoque] is no proof that she did choose to sell the same. Ab "[t]hrough estoppel an admission or representation is rendered
posse ad actu non valet illatio.60 conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon."64
 annum until June 30, 2013 and at the rate of 6% per annum from July 1,
Given the foregoing, the CA was correct when it limited the validity of 2013 until full payment.
the DMRP only to the portion belonging to Zenaida. Unfortunately, the SO ORDERED.
dispositive portion reflected differently: "The Deed of Mortgage of Real
Property dated June 4, 2008 is DECLARED as VOID only with respect to
the share of deceased Adolfo T. Estonactoc."65 Accordingly, a
modification thereof is warranted to reflect that it is valid only to the
share pertaining to Zenaida. FIRST DIVISION

As to the share of Zenaida, Atty. Bulatao is correct that Zenaida is a co- [ G.R. No. 228356, March 09, 2020 ]
owner to the extent of 3/4 undivided portion (1/2 portion representing
her share in the conjugal property and 1/4 portion as her legitime in the MERIAN B. SANTIAGO, PETITIONER, VS. SPOUSES EDNA L. GARCIA AND
estate of her husband Adolfo Estonactoc) of the subject property, with BAYANI GARCIA, RESPONDENTS.
the remaining 1/4 undivided portion being co-owned by her son Jose
Rafael Estonactoc. However, Atty. Bulatao has yet no right to foreclose DECISION
Zenaida's 3/4 undivided share inasmuch as the foreclosure proceedings
that he initiated have been declared void in the present proceedings. REYES, J. JR., J.:

WHEREFORE, the Petition is hereby PARTLY GRANTED. Accordingly, the This Petition for Review on Certiorari1 under Rule 45 of the Rules of
Decision dated October 19, 2017 of the Court of Appeals in CA-G.R. CV Court assails the Decision2 dated January 26, 2016 and Resolution3
No. 105581 is AFFIRMED with MODIFICATION: dated November 11, 2016 of the Court of Appeals (CA) in CA-G.R. CV
The Deed of Mortgage of Real Property dated June 3, 2008 is DECLARED No. 101908. In dismissing petitioner's appeal, the CA ruled that the
VALID only with respect to the share of Zenaida C. Estonactoc; contractual relation between the parties is one of investment and, as
such, entails risk on the part of the petitioner as investor. Finding
The monthly interest rate stipulated in the Deed of Mortgage of Real petitioner to have invested her money, the CA ruled that she has no
Property is DECLARED VOID; cause of action for the return of investment.

The Foreclosure Sale and the Certificate of Sale issued in favor of Atty. Facts
Leonard Florent O. Bulatao are DECLARED VOID;
In November 2000, petitioner Merian B. Santiago (Merian) was enticed
Zenaida C. Estonactoc is ORDERED to pay Atty. Leonard Florent O. by respondent Edna L. Garcia (Edna) to invest money in the latter's
Bulatao the amount of P200,000.00 that the former borrowed from the lending business with a promise of a high return in terms of monthly
latter with interest at the rate of 12% per annum from June 3, 2008 to interest ranging from 5% to 8%. The parties agreed that monthly
June 30, 2013 and at the rate of 6 % per annum from July 1, 2013 until interest shall be remitted by Edna to Merian and that the principal
full payment; and, amount invested shall be returned to Merian upon demand.4 Neither of
the parties, however, presented evidence to show that such agreement
Interest due on the principal amount of P200,000.00 accruing as of was reduced in writing.
judicial demand (i.e., filing of the counterclaim of Atty. Leonard Florent
O. Bulatao) shall separately earn legal interest at the rate of 12% per Merian began investing several amounts from November 15, 2000 to
June 30, 2003, reaching an aggregate amount of P1,569,000.00.5 Edna
had remitted to Merian the amount of P877,000.00 as interest on said The Regional Trial Court (RTC) rendered its decision finding that a
amounts. However, in December 2003, Edna defaulted in remitting to partnership was formed between Merian and Edna – the former as
Merian the interest due from said investments. Despite demands, Edna capitalist partner and the latter as industrial partner. It ruled that a
failed to remit the interest to Merian. person who invested in a business which incurred losses cannot convert
such investment into a loan.12 As such, the RTC dismissed Merian's
Consequently, Merian, through her lawyer, sent a letter dated January complaint, and further ordered the payment of moral damages,
20, 2004 to Edna demanding for the return of Merian's total investment attorney's fees, and costs of suit in favor of spouses Garcia.
of P1,569,000.00.6 Merian also went to Edna's house where the latter
agreed to pay the principal amount invested on a "pay when able" basis. When Merian's motion for reconsideration was denied, she appealed to
On the same day, Edna paid Merian P15,000.00 in cash and P5,000.00 in the CA.
gift cheque, for a total of P20,000.00.7 Merian then signed a receipt
prepared by Edna wherein she acknowledged that the P20,000.00 The CA disagreed with the RTC in its finding that a partnership was
constitutes partial payment for the principal amount of P1,569,000.00.8 formed between Merian and Edna. The CA found that the money was
The acknowledgment receipt9 reads as follows: given not as Merian's contribution or share in Edna's capital in the
lending business, but as an investment that will earn interest in case of
This is to acknowledge receipt from Edna L. Garcia partial payment from profit. Nevertheless, the CA agreed with the RTC that the complaint
[the] principal this 18th day of January 2004 the amount of [P]20,000 lacked cause of action as Merian was without legal right to recover her
([P] 15,000 cash and [P]5,000 gift cheque) investment in case of losses, as to what happened to Edna's lending
business, since an investment entails business risk. The CA thus affirmed
Signed the dismissal of Merian's complaint but deleted the award for moral
damages, attorney's fees, and costs of suit.
Me-anne Bernardo
Merian's motion for partial reconsideration met similar denial from the
[T]otal Principal CA. Thus, this petition.
[P]1,569,00010 (emphasis supplied)
Issue
Because Merian learned that several other persons were likewise taken
advantage of by Edna, Merian filed the complaint a quo on February 12, The sole issue raised for resolution is whether the CA erred in finding
2004, for sum of money with prayer for the issuance of a writ of that the contractual relation between Merian and Edna is one of
preliminary attachment against spouses Edna L. Garcia and Bayani investment which entails the assumption of business risk. Merian
Garcia (spouses Garcia). In their Answer, spouses Garcia admitted the maintains that while she agreed to invest or place her money in Edna's
facts that Merian was enticed by Edna to invest in her lending business lending business, it was their further agreement that the amount so
that will yield a high return in terms of monthly interest ranging from invested will earn interest, and that the principal amount shall be
5% to 8%, and that under said investment proposal, it was agreed that returned to her upon demand.13
the interest earned shall be remitted by Edna to Merian on a monthly
basis, while the principal amount shall be returned upon Merian's Ruling of the Court
demand.11 Nevertheless, spouses Garcia sought for the dismissal of the
complaint for lack of cause of action since the amounts given by Merian There is merit in the petition.
were investments, not loans.
There is no dispute that Merian invested the total amount of The facts of the instant case do not support the conclusion that the
P1,569,000.00 as this much was admitted by spouses Garcia in their parties entered into a contract of loan either.1âшphi1 By a contract of
answer to the complaint.14 The contention lies as to whether Edna is simple loan, one of the parties delivers to another money upon the
obligated to return the principal amount to Merian upon demand. In condition that the same amount of the same kind and quality shall be
resolving the issue in the negative, the RTC held that a partnership was paid.18 A person who receives a loan of money acquires ownership
formed between Merian and Edna; while the CA held that the thereof, and is bound to pay to the creditor an equal amount of the
contractual relation between the parties was neither a partnership nor a same kind and quality.19 Merian herself testified that Edna did not
contract of loan but was an investment that entailed business risk. borrow money from her and Merian consistently alleged that she
invested money in Edna's lending business. This is consistent with the
A partnership, a simple contract of loan, and an investment contract fact that Merian gave to Edna money in various amounts and on various
carry peculiar definitions and are governed by pertinent laws. The dates, in a series of transactions beginning November 15, 2000 to June
existence of a partnership, simple loan, or an investment contract 30, 2003, for which she earned profits in the form of interest payments.
should not, therefore, be inferred lightly, especially where any of its
requisite elements are lacking. The facts therefore demonstrate that Edna was engaged in the business
of lending and that she solicited funds from Merian which Edna then
The Court cannot subscribe to the view that Merian and Edna formed a used to grant loans to other persons. The parties' contemporaneous and
partnership. By the contract of partnership two or more persons bind subsequent acts reveal their intent to enter into an investment contract
themselves to contribute money, property, or industry to a common in a lending business.20 Parenthetically, the lending activity conducted
fund, with the intention of dividing the profits among themselves.15 by Edna is what the law under Republic Act (R.A.) No. 947421 or the
Partnership is essentially a result of an agreement or a contract, either Lending Company Act of 2007 presently seeks to regulate. Under R.A.
express or implied, oral or in writing, between two or more persons. 9474, only corporations with a validly subsisting authority from the
Here, there was neither allegation nor proof that Merian and Edna Securities and Exchange Commission can engage in the business of
agreed to enter into a partnership for purposes of carrying out the granting loans sourced from its own capital funds or from funds coming
lending business. from not more than nineteen (19) persons. Nevertheless, since R.A. No.
9474 was passed into law only on May 22, 2007, the lending activities of
There was likewise no agreement for the sharing of profits, only that Edna conducted from 2000 to 2003 cannot be considered unlawful.
Merian expects to receive remittance of monthly interest from the
amount she invested. At any rate, the receipt by a person of a share of Having established that the transaction between Merian and Edna is
the profits, or of a payment of a contingent amount in case of profits one of investment in a lending business, the question to be addressed is
earned, is not a conclusive evidence of partnership. Article (Art.) 1769(3) whether Edna is contractually bound to return Merian's capital.
of the Civil Code provides that "the sharing of gross returns does not of Investment is ordinarily defined as the placement of capital or lay out of
itself establish a partnership, whether or not the persons sharing them money in a way intended to secure income or profit from its
have a joint or common right or interest in any property from which the employment. As in all contractual relations, an investment contract is
returns are derived".16 There must be an unmistakable intention to largely governed by the stipulations, clauses, terms, and conditions as
form a partnership which is lacking in this case.17 Most importantly, the the parties may deem convenient, which shall be respected as long as it
facts do not disclose that there is mutual agency between Merian and is not contrary to law, morals, good customs, public order, or public
Edna, that is, neither party alleged that she can bind by her acts the policy.22 Thus, the parties are free to agree that the investment shall
other, and can be bound by the acts of the other in the ordinary course entail the sharing of profits and losses, or otherwise.
of business.
In this case, Merian alleged that she and Edna agreed that Merian will
be investing capital on the lending business which shall earn a 5%
monthly interest; that the capital will be revolving; and that the capital
shall be returned upon demand. That Edna agreed to return the
principal amount to Merian is further supported by the
acknowledgment receipt which Edna herself had written. In said
acknowledgment receipt, Edna paid the amount of P20,000.00 as
"partial payment from the principal" – thus acknowledging her
obligation to return the principal amount invested. Notably as well,
Edna failed to present countervailing evidence to demonstrate the real
agreement between the parties as her husband, who solely participated
at the trial, merely denied knowledge of the agreement between G.R. No. 233974, July 02, 2018
Merian and Edna.
CATALINA F. ISLA, ELIZABETH ISLA, AND GILBERT F. ISLA, Petitioners, v.
Even assuming that the agreement between the parties was that Merian GENEVIRA* P. ESTORGA, Respondent.
shall bear the risk of losing the principal amount she invested, in case of
business loss, there was no allegation nor proof presented that, indeed, DECISION
Edna's lending business suffered business loss. The ruling, therefore,
that the principal amount should no longer be returned because of
Merian's assumption of risk lacks factual basis. PERLAS-BERNABE, J.:

WHEREFORE, the petition is GRANTED. The Decision dated January 26, Before the Court is a petition for review on certiorari1 filed by
2016 and the Resolution dated November 11, 2016 of the Court of petitioners Catalina F. Isla (Catalina), Elizabeth Isla, and Gilbert F. Isla
Appeals are REVERSED and SET ASIDE. Spouses Edna L. Garcia and (collectively, petitioners) assailing the Decision2 dated May 31, 2017
Bayani Garcia are ORDERED to PAY Merian B. Santiago the principal and the Resolution3 dated August 24, 2017 of the Court of Appeals (CA)
amount of One Million Five Hundred Forty-Nine Thousand Pesos in CA-G.R. CV No. 101743, which affirmed with modification the
(P1,549,000.00) with interest at the rate of 12% per annum from Decision4 dated December 10, 2012 of the Regional Trial Court of Pasay
January 20, 2004, the date of extrajudicial demand, until June 30, 2013, City, Branch 112 (RTC) in Civil Case No. 07-0014, directing petitioners to
and at the rate of 6% per annum from July 1, 2013, until full payment. pay respondent Genevira P. Estorga (respondent) the following sums:
(a) P100,000.00 representing the principal of the loan obligation; (b) an
SO ORDERED. amount equivalent to twelve percent (12%) of P100,000.00 computed
from November 16, 2006 until full payment, representing interest on
the loan; (c) an amount equivalent to six percent (6%) of the sums due
in (a) and (b) per annum computed from the finality of the CA Decision
until full payment, representing legal interest; and (d) P20,000.00 as
attorney's fees.

The Facts
On December 6, 2004, petitioners obtained a loan in the amount of from December 2007 until fully paid and P20,000.00 as attorney's fees.
P100,000.00 from respondent, payable anytime from six (6) months to Alternatively, in the event that petitioners fail to pay or deposit with the
one (1) year and subject to interest at the rate of ten percent (10%) per Clerk of Court the said amounts within a period of six (6) months from
month, payable on or before the end of each month. As security, a real receipt of a copy of the RTC Decision, it held that the subject property
estate mortgage5 was constituted over a parcel of land located in Pasay will be foreclosed and sold at public auction to satisfy the mortgage
City, covered by Transfer Certificate of Title (TCT) No. 1326736 and debt, and the surplus, if any, will be delivered to petitioners with
registered under the name of Edilberto Isla (Edilberto), who is married reasonable interest under the law.17
to Catalina (subject property). When petitioners failed to pay the said
loan, respondent sought assistance from the barangay, and Aggrieved, respondent appealed18 to the CA.
consequently, a Kasulatan ng Pautang7 dated December 8, 2005 was
executed. Petitioners, however, failed to comply with its terms, The CA Ruling
prompting respondent to send a demand letter8 dated November 16,
2006. Once more, petitioners failed to comply with the demand, causing In a Decision19 dated May 31, 2017, the CA affirmed with modification
respondent to file a Petition for Judicial Foreclosure9 against them the RTC Decision, and accordingly, ordered petitioners to pay
before the RTC.10 respondent the following sums: (a) P100,000.00 representing the
principal of the loan obligation; (b) an amount equivalent to twelve
For their part,11petitioners maintained that the subject mortgage was percent (12%) of P100,000.00 computed per year from November 16,
not a real estate mortgage but a mere loan, and that the stipulated 2006 until full payment, representing interest on the loan; (c) an
interest of ten percent (10%) per month was exorbitant and grossly amount equivalent to six percent (6%) of the sums due in (a) and (b) per
unconscionable.12 They also insisted that since petitioners were not the annum computed from the finality of the CA Decision until full payment,
absolute owners of the subject property - as the same was allegedly representing legal interest; and (d) P20,000.00 as attorney's fees.20
owned by Edilberto – they could not have validly constituted the subject
mortgage thereon.13 The CA held that in light of the registry return receipt bearing the
signature of Catalina, it was established that petitioners indeed received
The RTC Ruling the demand letter dated November 16, 2006.21 Meanwhile, it did not
agree with the RTC's order providing petitioners alternative remedies,
In a Decision14 dated December 10, 2012, the RTC granted the Petition which remedies are, by law, mutually exclusive. Thus, since
for Judicial Foreclosure, finding that petitioners themselves admitted respondent's Petition for Judicial Foreclosure was essentially an action
that: (a) they obtained a loan in the amount of P100,000.00 and that the to collect a sum of money, she is then barred from causing the
said loan was secured by a real estate mortgage over the subject foreclosure of the subject mortgage.22
property; and (b) the subject mortgage was annotated on TCT No.
132673.15 Further, the RTC observed that while it is true that the Moreover, the CA ruled that the RTC erred in imposing the interest rate
present action pertains to a judicial foreclosure, the underlying principle of twelve percent (12%) per annum from December 2007 until full
is that a real estate mortgage is but a security and not a satisfaction of payment. It likewise held that the stipulated interest of ten percent
indebtedness. Thus, it is only proper to render petitioners solidarily (10%) per month on the real estate mortgage is exorbitant. And finally,
liable to pay respondent and/or foreclose the subject mortgage should it declared that respondent is entitled to the award of attorney's fees
they fail to fulfill their obligation.16 based on equity and in the exercise of its discretion.23

Consequently, the RTC directed petitioners to pay respondent the Undaunted, petitioners sought partial reconsideration,24 claiming that
amounts of P100,000.00 with twelve percent (12%) interest per annum the award of attorney's fees was without factual, legal, and equitable
justification and should therefore be deleted.25 The same, however, interest) or as damages for delay or failure to pay the principal loan on
was denied in a Resolution26 dated August 24, 2017; hence, the instant which the interest is demanded (compensatory interest).32
petition, claiming that the CA gravely erred not only in awarding
attorney's fees despite the absence of factual justification in the body of Anent monetary interest, the parties are free to stipulate their preferred
its Decision but also in imposing interest of twelve percent (12%) per rate. However, courts are allowed to equitably temper interest rates
annum interest until full payment.27 that are found to be excessive, iniquitous, unconscionable, and/or
exorbitant,33 such as stipulated interest rates of three percent (3%) per
In her Comment,28 respondent retorted that the CA's award of month or higher.34 In such instances, it is well to clarify that only the
attorney's fees was proper and within the discretion of the court. unconscionable interest rate is nullified and deemed not written in the
Likewise, the CA correctly imposed interest at the rate of twelve percent contract; whereas the parties' agreement on the payment of interest on
(12%) per annum to the principal loan obligation of petitioners.29 the principal loan obligation subsists.35 It is as if the parties failed to
specify the interest rate to be imposed on the principal amount, in
The Issues Before the Court which case the legal rate of interest prevailing at the time the
agreement was entered into is applied by the Court.36 This is because,
The issue for the Court's resolution is whether or not the CA erred in according to jurisprudence, the legal rate of interest is the presumptive
awarding: (a) twelve percent (12%) interest on the principal obligation reasonable compensation for borrowed money.37
until full payment; and (b) attorney's fees.
In this case, petitioners and respondent entered into a loan obligation
The Court's Ruling and clearly stipulated for the payment of monetary interest. However,
the stipulated interest of ten percent (10%) per month was found to be
The petition is partly meritorious. unconscionable, and thus, the courts a quo struck down the same and
pegged a new monetary interest of twelve percent (12%) per annum,
I. which was the prevailing legal rate of interest for loans and
forbearances of money at the time the loan was contracted on
In their petition, petitioners contest the interest imposed on the December 6, 2004.
principal amount of the loan at the rate of twelve percent (12%) per
annum from the date of extrajudicial demand until full payment, as In Spouses Abella v. Spouses Abella,38 the Court was also faced with a
stated in paragraph 2 of the CA ruling. In this regard, they argue that situation where the parties entered into a loan with an agreement to
pursuant to ECE Realty and Development, Inc. v. Hernandez (ECE pay monetary interest. Since the stipulated rate of interest by the
Realty),30 the applicable interest rate should only be six percent (6%).31 parties was found to be unconscionable, the Court struck down the
same and substituted it with the prevailing legal interest rate at the time
The argument is untenable. the loan was perfected, i.e., twelve percent (12%) per annum. In holding
that such rate shall persist in spite of supervening events, the Court
Case law states that there are two (2) types of interest, namely, held:
monetary interest and compensatory interest. Monetary interest is the
compensation fixed by the parties for the use or forbearance of money. Jurisprudence is clear about the applicable interest rate if a written
On the other hand, compensatory interest is that imposed by law or by instrument fails to specify a rate. In Spouses Toring v. Spouses Olan
the courts as penalty or indemnity for damages. Accordingly, the right [(589 Phil. 362 [2008])], this court clarified the effect of Article 1956 of
to recover interest arises only either by virtue of a contract (monetary the Civil Code and noted that the legal rate of interest (then at 12%) is
to apply: "In a loan or forbearance of money, according to the Civil
Code, the interest due should be that stipulated in writing, and in the annum, the legal rate of interest at the time the parties executed their
absence thereof, the rate shall be 12% per annum." agreement. Moreover, should conventional interest still be due as of
July 1, 2013, the rate of 12% per annum shall persist as the rate of
Spouses Toring cites and restates (practically verbatim) what this court conventional interest.
settled in Security Bank and Trust Company v. Regional Trial Court of
Makati, Branch 61 [(331 Phil. 787 [1996])]: "In a loan or forbearance of This is so because interest in this respect is used as a surrogate for the
money, the interest due should be that stipulated in writing, and in the parties' intent, as expressed as of the time of the execution of their
absence thereof, the rate shall be 12% per annum." contract. In this sense, the legal rate of interest is an affirmation of the
contracting parties' intent; that is, by their contract's silence on a
xxxx specific rate, the then prevailing legal rate of interest shall be the cost of
borrowing money. This rate, which by their contract the parties have
The rule is not only definite; it is cast in mandatory language. From settled on, is deemed to persist regardless of shifts in the legal rate of
Eastern Shipping [Lines, Inc. v. CA] [(G.R. No. 97412, July 12, 1994, 234 interest. Stated otherwise, the legal rate of interest, when applied as
SCRA 78)] to Security Bank to Spouses Toring, jurisprudence has conventional interest, shall always be the legal rate at the time the
repeatedly used the word "shall," a term that has long been settled to agreement was executed and shall not be susceptible to shifts in rate.39
denote something imperative or operating to impose a duty. Thus, the (Emphases and underscoring supplied)
rule leaves no room for alternatives or otherwise does not allow for
discretion. It requires the application of the legal rate of interest. Following this pronouncement, the Court rules that the CA correctly
imposed a straight monetary interest rate of twelve percent (12%) per
Our intervening Decision in Nacar v. Gallery Frames [(716 Phil. 267 annum on the principal loan obligation of petitioners to respondent,
[2013])] recognized that the legal rate of interest has been reduced to reckoned from the date of extrajudicial demand until finality of this
6% per annum[.] ruling. At this point, suffice it to say that petitioner's reliance on ECE
Realty is misplaced primarily because unlike in this case, the amount
xxxx due therein does not partake of a loan obligation or forbearance of
money.
Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series
of 2013 and Nacar retain the definite and mandatory framing of the rule In addition, not only the principal amount but also the monetary
articulated in Eastern Shipping, Security Bank, and Spouses Toring. interest due to respondent as discussed above shall itself earn
Nacar even restates Eastern Shipping: compensatory interest at the legal rate, pursuant to Article 2212 of the
Civil Code, which states that "[i]nterest due shall earn legal interest
xxxx from the time it is judicially demanded, although the obligation may be
silent upon this point."40 To be sure, Article 2212 contemplates the
Thus, it remains that where interest was stipulated in writing by the presence of stipulated or conventional interest, i.e., monetary interest,
debtor and creditor in a simple loan or mutuum, but no exact interest which has accrued when demand was judicially made. In cases where no
rate was mentioned, the legal rate of interest shall apply. At present, monetary interest had been stipulated by the parties, no accrued
this is 6% per annum, subject to Nacar 's qualification on prospective monetary interest could further earn compensatory .interest upon
application. judicial demand.41 Thus, the principal amount and monetary interest
due to respondent shall earn compensatory interest of twelve percent
Applying this, the loan obtained by respondents from petitioners is (12%) per annum from judicial demand, i.e., the date of the filing of the
deemed subjected to conventional interest at the rate of 12% per
complaint on July 24, 2007,42 to June 30, 2013, and thereafter, at the (d)
rate of six percent (6%) per annum from July 1, 2013 until fully paid. Legal interest at the rate of six percent (6%) per annum imposed on the
sums due in letters (a), (b), and (c) from finality of this ruling until full
II. payment; and
The award of attorney's fees in favor of respondent is DELETED.
On the issue of attorney's fees, the general rule is that the same cannot
be recovered as part of damages because of the policy that no premium SO ORDERED.
should be placed on the right to litigate. They are not to be awarded
every time a party wins a suit.43 The power of the court to award
attorney's fees under Article 220844 of the Civil Code demands factual,
legal, and equitable justification.45 It must clearly state the reasons for
awarding attorney's fees in the body of its decision, and not merely in its
dispositive portion.46

In this case, the CA awarded the amount of P20,000.00 as attorney's

fees premised merely on the general statement "upon equity and in the
exercise of [its] discretion."47 Hence, since the CA failed to "clearly state
the reasons for awarding attorney's fees in the body of its decision", the
Court finds it proper to delete the same.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated

May 31, 2017 and the Resolution dated August 24, 2017 of the Court of
Appeals in CA-G.R. CV No. 101743 are hereby MODIFIED as follows:

Petitioners Catalina F. Isla, Elizabeth Isla, and Gilbert F. Isla are ORDERED
to pay respondent Genevira P. Estorga:
(a)
P100,000.00 representing the principal loan obligation;

(b)
Monetary interest on the principal loan obligation at the rate of twelve
percent (12%) per annum from the date of default, i.e., extrajudicial
demand on November 16, 2006, until finality of this ruling;

(c)
Compensatory interest on the monetary interest as stated in letter (b) at
the rate of twelve percent (12%) per annum from judicial demand, i.e.,
July 24, 2007, to June 30, 2013, and thereafter, at the rate of six percent
(6%) per annum from July 1, 2013 until finality of this ruling; and