Cases on Loans: The MeTC, in its Decision 10 of June 30, 2006, upheld the 6% monthly interest.

In so ruling, it ra
thereto and voluntarily paid the interest at such rate from 2000 to 2003, it is already estop
1. De la Paz v. L & J Dev. Co., G.R. No. 183360, September 8, 2014 Nonetheless, for reasons of equity, the said court reduced the interest rate to 12% per an
obligation of P350,000.00. With regard to Rolando's prayer for moral damages, the MeTC denie
[G.R. No. 183360. September 8, 2014.] or bad faith on the part of L&J in not paying the obligation. It likewise relieved Atty. Salonga
merely acted in his official capacity in obtaining the loan. The MeTC disposed of the case as fo
ROLANDO C. DE LA PAZ, * petitioner, vs. L & J DEVELOPMENT COMPANY, respondent.
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff, A
DECISION against the defendant, L & J Development Co., Inc., as follows:

DEL CASTILLO, J p: a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Three
(P350,000.00) representing the principal obligation, plus interest at the legal rate of 12% per ann
"No interest shall be due unless it has been expressly stipulated in writing." 1 20, 2005, the date of the filing of the complaint, until the whole obligation is fully paid;

This is a Petition for Review on Certiorari 2 assailing the February 27, 2008 Decision 3 of the Court of Appeals (CA) in CA-G.R. b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Five Thou
SP No. 100094, which reversed and set aside the Decision 4 dated April 19, 2007 of the Regional Trial Court (RTC), Branch for attorney's fees; and
192, Marikina City in Civil Case No. 06-1145-MK. The said RTC Decision affirmed in all respects the Decision 5 dated June 30,
2006 of the Metropolitan Trial Court (MeTC), Branch 75, Marikina City in Civil Case No. 05-7755, which ordered respondent L & c) to pay the costs of this suit.
J Development Company (L&J) to pay petitioner Architect Rolando C. De La Paz (Rolando) its principal obligation of
P350,000.00, plus 12% interest per annum reckoned from the filing of the Complaint until full payment of the obligation. SO ORDERED. 11

Likewise assailed is the CA's June 6, 2008 Resolution 6 which denied Rolando's Motion for Reconsideration. Ruling of the Regional Trial Court
L&J appealed to the RTC. It asserted in its appeal memorandum 12 that from December 200
Factual Antecedents interest of P21,000.00 based on the agreed-upon interest rate of 6% monthly and from Apr
On December 27, 2000, Rolando lent P350,000.00 without any security to L&J, a property developer with Atty. Esteban Salonga payments in various amounts. 13 The total of interest payments made amounts to P576,000
(Atty. Salonga) as its President and General Manager. The loan, with no specified maturity date, carried a 6% monthly interest, more than the principal obligation of P350,000.00.
i.e., P21,000.00. From December 2000 to August 2003, L&J paid Rolando a total of P576,000.00 7 representing interest charges.
AHDaET L&J insisted that the 6% monthly interest rate is unconscionable and immoral. Hence, the 12%
have been applied from the time of the constitution of the obligation. At 12% per annum interes
As L&J failed to pay despite repeated demands, Rolando filed a Complaint 8 for Collection of Sum of Money with Damages of interest it ought to pay from December 2000 to March 2003 and from April 2003 to August 200
against L&J and Atty. Salonga in his personal capacity before the MeTC, docketed as Civil Case No. 05-7755. Rolando alleged, If this amount is deducted from the total interest payments already made, which is P576,000
among others, that L&J's debt as of January 2005, inclusive of the monthly interest, stood at P772,000.00; that the 6% monthly appears to have been paid over and above what is due. Applying the rule on compensation, t
interest was upon Atty. Salonga's suggestion; and, that the latter tricked him into parting with his money without the loan should be set-off against the P471,000.00, resulting in the complete payment of the principal lo
transaction being reduced into writing.
Unconvinced, the RTC, in its April 19, 2007 Decision, 14 affirmed the MeTC Decision, viz.: TEc
In their Answer, 9 L&J and Atty. Salonga denied Rolando's allegations. While they acknowledged the loan as a corporate debt,
they claimed that the failure to pay the same was due to a fortuitous event, that is, the financial difficulties brought about by the WHEREFORE, premises considered, the Decision appealed from is hereby AFFIRMED in all
economic crisis. They further argued that Rolando cannot enforce the 6% monthly interest for being unconscionable and appellant.
shocking to the morals. Hence, the payments already made should be applied to the P350,000.00 principal loan.
SO ORDERED. 15
During trial, Rolando testified that he had no communication with Atty. Salonga prior to the loan transaction but knew him as a
lawyer, a son of a former Senator, and the owner of L&J which developed Brentwood Subdivision in Antipolo where his associate Ruling of the Court of Appeals
Nilo Velasco (Nilo) lives. When Nilo told him that Atty. Salonga and L&J needed money to finish their projects, he agreed to lend Undaunted, L&J went to the CA and echoed its arguments and proposed computation as proff
them money. He personally met with Atty. Salonga and their meeting was cordial.
In a Decision 16 dated February 27, 2008, the CA reversed and set aside the RTC Decision.
He narrated that when L&J was in the process of borrowing the P350,000.00 from him, it was Arlene San Juan (Arlene), the
secretary/treasurer of L&J, who negotiated the terms and conditions thereof. She said that the money was to finance L&J's The CA stressed that the parties failed to stipulate in writing the imposition of interest on the
housing project. Rolando claimed that it was not he who demanded for the 6% monthly interest. It was L&J and Atty. Salonga, due thereon pursuant to Article 1956 of the Civil Code.17 And even if payment of interest has b
through Arlene, who insisted on paying the said interest as they asserted that the loan was only a short-term one. ESCcaT monthly interest is still outrightly illegal and unconscionable because it is contrary to morals, i
this cannot be ratified and may be set up by the debtor as defense. For these reasons, Rolando
Ruling of the Metropolitan Trial Court if L&J offered to pay interest. Consequently, he has to return all the interest payments of P576
Considering further that Rolando and L&J thereby became creditor and debtor of each other, the CA applied the principle of a creditor from charging monetary
legal compensation under Article 1279 of the Civil Code. 18 Accordingly, it set off the principal loan of P350,000.00 against the interest.
P576,000.00 total interest payments made, leaving an excess of P226,000.00, which the CA ordered Rolando to pay L&J plus Under Article 1956 of the Civil Code,no interest shall be due unless it has been expressly stipu
interest. Thus: the matter also holds that for interest to be due and payable, two conditions must concur: a) ex
of interest; and b) the agreement to pay interest is reduced in writing.
WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET ASIDE.
Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no
CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is ordered to pay to the petitioner the amount of interest without any stipulation in writing is prohibited by law. 22
P226,000.00, plus interest of 12% per annum from the finality of this decision.
But Rolando asserts that his situation deserves an exception to the application of Article 1956.
Costs of suit to be paid by respondent Dela Paz. lack of a written document, claiming that said lawyer used his legal knowledge to dupe him. R
the part of L&J and Atty. Salonga. The Court, however, finds no deception on the part of L&J an
SO ORDERED. 19 the lack of a document stipulating the payment of interest, L&J nevertheless devotedly paid inte
when it suffered from financial difficulties that prevented it from continuously paying the 6% mon
In his Motion for Reconsideration, 20 Rolando argued that the circumstances exempt both the application of Article 1956 and of of Atty. Salonga's profession, Rolando who is an architect and an educated man himself cou
jurisprudence holding that a 6% monthly interest is unconscionable, unreasonable, and exorbitant. He alleged that Atty. Salonga, prudent person under the circumstances. To top it all, he admitted that he had no prior communic
a lawyer, should have taken it upon himself to have the loan and the stipulated rate of interest documented but, by way of legal Atty. Salonga being a complete stranger, he immediately trusted him and lent his company P3
maneuver, Atty. Salonga, whom he fully trusted and relied upon, tricked him into believing that the undocumented and Moreover, as the creditor, he could have requested or required that all the terms and conditio
uncollateralized loan was within legal bounds. Had Atty. Salonga told him that the stipulated interest should be in writing, he include the payment of interest, be put down in writing to ensure that he and L&J are on the sa
would have readily assented. ESIcaC of not acceding and to insist that their contract be put in written form as this will favor a
Unfortunately, he did not. It must be stressed that "[c]ourts cannot follow one every step of hi
Furthermore, Rolando insisted that the 6% monthly interest rate could not be unconscionable as in the first place, the interest bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul
was not imposed by the creditor but was in fact offered by the borrower, who also dictated all the terms of the loan. He stressed cannot constitute themselves guardians of persons who are not legally incompetent." 23 AcDH
that in cases where interest rates were declared unconscionable, those meant to be protected by such declaration are helpless
borrowers which is not the case here. It may be raised that L&J is estopped from questioning the interest rate considering that it has
such rate for more than two and a half years. In fact, in its pleadings before the MeTC and the
Still, the CA denied Rolando's motion in its Resolution 21 of June 6, 2008. reduction of interest from 6% monthly to 1% monthly or 12% per annum. However, in Ching v.
the debtor to the lender were considered as payment of the principal amount of the loan becau
Hence, this Petition. with. This was notwithstanding the debtor's admission that the payments made were for the inter
stated therein that "[e]stoppel cannot give validity to an act that is prohibited by law or one that
The Parties' Arguments
Rolando argues that the 6% monthly interest rate should not have been invalidated because Atty. Salonga took advantage of Even if the payment of interest has been
his legal knowledge to hoodwink him into believing that no document was necessary to reflect the interest rate. Moreover, the reduced in writing, a 6% monthly
cases anent unconscionable interest rates that the CA relied upon involve lenders who imposed the excessive rates, which are interest rate on a loan is unconscionable,
totally different from the case at bench where it is the borrower who decided on the high interest rate. This case does not fall regardless of who between the parties
under a scenario that 'enslaves the borrower or that leads to the hemorrhaging of his assets' that the courts seek to prevent. proposed the rate.
Indeed at present, usury has been legally non-existent in view of the suspension of the Usury
L&J, in controverting Rolando's arguments, contends that the interest rate is subject of negotiation and is agreed upon by both No. 905 s. 1982. 26 Even so, not all interest rates levied upon loans are permitted by the c
parties, not by the borrower alone. Furthermore, jurisprudence has nullified interest rates on loans of 3% per month and higher equitably reduce unreasonable interest rates. In Trade & Investment Development Corporat
as these rates are contrary to morals and public interest. And while Rolando raises bad faith on Atty. Salonga's part, L&J avers Industrial Construction Corporation, 27 we said:
that such issue is a question of fact, a matter that cannot be raised under Rule 45.
While the Court recognizes the right of the parties to enter into contracts and who are expecte
Issue obligations, this rule is not absolute. Stipulated interest rates are illegal if they are unconscion
The Court's determination of whether to uphold the judgment of the CA that the principal loan is deemed paid is dependent on temper interest rates when necessary. In exercising this vested power to determine what is in
the validity of the monthly interest rate imposed. And in determining such validity, the Court must necessarily delve into matters Court must consider the circumstances of each case. What may be iniquitous and unconscion
regarding a) the form of the agreement of interest under the law and b) the alleged unconscionability of the interest rate. another. . . . 28

Our Ruling Time and again, it has been ruled in a plethora of cases that stipulated interest rates of 3% per m
The Petition is devoid of merit. EcICSA iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to mor
Court, however, stresses that these rates shall be invalidated and shall be reduced only in cas
The lack of a written stipulation to pay are open-ended, and where the interest rates are applied for an indefinite period. Hence, the
interest on the loaned amount disallows P40,000.00 a month for six months on a P1,000,000.00 loan is not considered unconscionabl
is no specified period as to the payment of the loan. Hence, levying 6% monthly or 72% interest per annum is "definitely In a Letter 7 dated September 3, 2001, petitioner denied respondent Tan Kit's claim on accoun
outrageous and inordinate." 31 faithfully disclose in his insurance application certain material and relevant information about
Specifically, Norberto answered "No" to the question inquiring whether he had smoked cigar
The situation that it was the debtor who insisted on the interest rate will not exempt Rolando from a ruling that the rate is void. months prior to filling out said application. 8 However, the medical report of Dr. Anna Chua
As this Court cited in Asian Cathay Finance and Leasing Corporation v. Gravador, 32 "[t]he imposition of an unconscionable rate physicians that Norberto consulted for his illness, reveals that he was a smoker and had only s
of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant According to petitioner, its underwriters would not have approved Norberto's application for lif
spoliation and an iniquitous deprivation of property, repulsive to the common sense of man." 33 Indeed, "voluntariness does not the correct information. Believing that the policy is null and void, petitioner opined that its liabilit
make the stipulation on [an unconscionable] interest valid." 34 ISCaDH premiums paid. Accordingly, it enclosed in the said letter a check for P13,080.93 representing

As exhaustibly discussed, no monetary interest is due Rolando pursuant to Article 1956. The CA thus correctly adjudged that In a letter 9 dated September 13, 2001, respondent Tan Kit refused to accept the check and
the excess interest payments made by L&J should be applied to its principal loan. As computed by the CA, Rolando is bound to insurance proceeds.
return the excess payment of P226,000.00 to L&J following the principle of solutio indebiti. 35
On October 4, 2002, petitioner filed a Complaint 10 for Rescission of Insurance Contract befor
However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on July 1, 2013, 36 the interest imposed by the of Makati City.
CA must be accordingly modified. The P226,000.00 which Rolando is ordered to pay L&J shall earn an interest of 6% per annum
from the finality of this Decision. Ruling of the Regional Trial Court
In its November 30, 2005 Decision, 11 the RTC noted that petitioner's physician, Dr. Charity Sa
WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CA-G.R. SP No. 100094 is hereby AFFIRMED medical examination on Norberto. Moreover, petitioner's agent, Irma Joy E. Javelosa (Javelosa
with modification that petitioner Rolando C. De La Paz is ordered to pay respondent L&J Development Company the amount of "Are you aware of anything about the life to be insured's lifestyle, hazardous sports, habits, m
P226,000.00, plus interest of 6% per annum from the finality of this Decision until fully paid. that would have an adverse effect on insurability?" in her Agent's Report. Javelosa also alread
to the approval of the latter's application for insurance. The RTC concluded that petitione
SO ORDERED. circumstances, had already cleared Norberto of any misrepresentation that he may have comm
the affidavit of Dr. Chua, presented as part of petitioner's evidence and which confirmed the fa
||| (De la Paz v. L & J Development Co., G.R. No. 183360, [September 8, 2014]) and only stopped smoking a year ago [1999], is hearsay since Dr. Chua did not testify in cou
subsisting insurance policy with petitioner during his application for insurance subject of th
2. Sun Life of Canada (Phils.) Inc. v. Sandra Tan Kit, et al., G.R. No. 183272, October 15, 2014 petitioner to ascertain the health condition of Norberto considering the additional burden that it
did not comply with the requirements for rescission of insurance contract as held inPhilamcare
[G.R. No. 183272. October 15, 2014.] Appeals. 12 Thus, the dispositive portion of the RTC Decision: DCTHaS

SUN LIFE OF CANADA (PHILIPPINES), INC., petitioner, vs. SANDRA TAN KIT and The Estate of the Deceased NORBERTO WHEREFORE, in view of the foregoing considerations, this court hereby finds in favor of th
TAN KIT, respondents. [petitioner], hence it hereby orders the [petitioner] to pay the [respondent], Sandra Tan Kit, the
HUNDRED THOUSAND (P300,000.00), representing the face value of the insurance policy wit
DECISION annum from October 4, 2002 until fully paid.

DEL CASTILLO, J p: Cost de oficio.

The Court of Appeals' (CA) imposition of 12% interest on the P13,080.93 premium refund is the only matter in question in this SO ORDERED. 13
case.
Petitioner moved for reconsideration, 14 but was denied in an Order 15 dated February 15, 20
This Petition for Review on Certiorari 1 assails the October 17, 2007 Decision 2 of CA in CA-G.R. CV No. 86923, which, among
others, imposed a 12% per annum rate of interest reckoned from the time of death of the insured until fully paid, on the premium Hence, petitioner appealed to the CA.
to be reimbursed by petitioner Sun Life of Canada (Philippines), Inc. (petitioner) to respondents Sandra Tan Kit (respondent Tan
Kit) and the Estate of the Deceased Norberto Tan Kit (respondent estate). Likewise assailed in this Petition is the CA's June 12, Ruling of the Court of Appeals
2008 Resolution 3 denying petitioner's Motion for Reconsideration of the said Decision. On appeal, the CA reversed and set aside the RTC's ruling in its Decision 16 dated October 17

Factual Antecedents From the records, the CA found that prior to his death, Norberto had consulted two physician
Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto), whose application for a life insurance and Dr. John Ledesma (Dr. Ledesma) on December 28, 2000, to whom he confided that he ha
policy, 4 with face value of P300,000.00, was granted by petitioner on October 28, 1999. On February 19, 2001, or within the At the time therefore that he applied for insurance policy on October 28, 1999, there is no truth t
two-year contestability period, 5 Norberto died of disseminated gastric carcinoma. 6 Consequently, respondent Tan Kit filed a cigarettes within 12 months prior to the said application. The CA thus held that Norberto is gu
claim under the subject policy. petitioner in forming its estimates of the risks of the insurance policy. This gave petitioner th
contract which it properly exercised in this case.
In addition, the CA held that the content of Norberto's medical records are deemed admitted by respondents since they failed to
deny the same despite having received from petitioner a Request for Admission pursuant to Rule 26 of the Rules of Court. 17 The Court finds, however, that Tio Khe Chio is not applicable here as it deals with payment of in
And since an admission is in the nature of evidence the legal effects of which form part of the records, the CA discredited the in which the claim therefor was either unreasonably denied or withheld or the insurer incurred
RTC's ruling that the subject medical records and the affidavits executed by Norberto's physicians attesting to the truth of the this case, what is involved is an order for petitioner to refund to respondents the insurance
same were hearsay. consequence of the rescission of the insurance contract on account of the latter's concealm
insurance application. Moreover, petitioner did not unreasonably deny or withhold the insurance
The dispositive portion of the CA Decision reads: established that Norberto was guilty of concealment.

WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the appealed Decision REVERSED and Nature of interest imposed by the CA
SET ASIDE, and in lieu thereof, a judgment is hereby rendered GRANTING the complaint a quo. There are two kinds of interest monetary and compensatory.

Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of P13,080.93 representing the [premium] paid by the "Monetary interest refers to the compensation set by the parties for the use or forbearance of m
insured with interest at the rate of 12% per annum from the time of the death of the insured until fully paid. be due unless it has been expressly stipulated in writing. 26 "On the other hand, compensator
indemnity for damages imposed by law or by the courts." 27 The interest mentioned in Article
SO ORDERED. 18 Code applies to compensatory interest. 29

The parties filed their separate motions for reconsideration. 19 While respondents questioned the factual and legal bases of the Clearly and contrary to respondents' assertion, the interest imposed by the CA is not monetary
CA Decision, petitioner, on the other hand, assailed the imposition of interest on the premium ordered refunded to respondents. fact that there is no use or forbearance of money involved in this case, the subject interest was
by the parties in writing. This being the case and judging from the tenor of the CA, to wit:
However, the appellate court denied the motions in its June 12, 2008 Resolution, 20 viz.:
Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of P13,080.93 repres
WHEREFORE, the foregoing considered, the separate motions for reconsideration filed by the [petitioner] and the [respondents] insured with interest at the rate of 12% per annum from time of death of the insured until fully p
are hereby DENIED.
there can be no other conclusion than that the interest imposed by the appellate court is in the
SO ORDERED. 21 The CA incorrectly imposed
compensatory interest on the premium
Only petitioner appealed to this Court through the present Petition for Review on Certiorari. refund reckoned from the time of death
of the insured until fully paid
Issue As a form of damages, compensatory interest is due only if the obligor is proven to have failed
The sole issue in this case is whether petitioner is liable to pay interest on the premium to be refunded to respondents.
In this case, it is undisputed that simultaneous to its giving of notice to respondents that it w
The Parties' Arguments concealment, petitioner tendered the refund of premium by attaching to the said notice a ch
Petitioner argues that no interest should have been imposed on the premium to be refunded because the CA Decision does not refund. However, respondents refused to accept the same since they were seeking for the rele
provide any legal or factual basis therefor; that petitioner directly and timely tendered to respondents an amount representing Because of this discord, petitioner filed for judicial rescission of the contract. Petitioner, after rec
the premium refund but they rejected it since they opted to pursue their claim for the proceeds of the insurance policy; that the RTC, appealed to the CA. And as may be recalled, the appellate court found Norberto guilty
respondents should bear the consequence of their unsound decision of rejecting the refund tendered to them; and, that petitioner the rescission of the insurance contract and consequently decreed the obligation of petition
is not guilty of delay or of invalid or unjust rescission as to make it liable for interest. Hence, following the ruling in Tio Khe Chio premium paid by Norberto. Moreover, we find that petitioner did not incur delay or unjustifiably
v. Court of Appeals, 22 no interest can be assessed against petitioner. cECaHA
Based on the foregoing, we find that petitioner properly complied with its obligation under the la
Respondents, on the other hand, contend that the reimbursement of premium is clearly a money obligation or one that arises not be made liable to pay compensatory interest.
from forbearance of money, hence, the imposition of 12% interest per annum is just, proper and supported by jurisprudence.
While they admit that they refused the tender of payment of the premium refund, they aver that they only did so because they Considering the prevailing circumstances of the case, we hereby direct petitioner to reimburse
did not want to abandon their claim for the proceeds of the insurance policy. In any case, what petitioner should have done under from date of finality of this Decision. If petitioner fails to pay within the said period, then the am
the circumstances was to consign the amount of payment in court during the pendency of the case. to a forbearance of credit. 32 In such a case, the rate of interest shall be 6% per annum. 33 cD

Our Ruling WHEREFORE, the assailed October 17, 2007 Decision of the Court of Appeals in CA-G.R. CV
Tio Khe Chio is not applicable in this petitioner Sun Life of Canada (Philippines), Inc. is ordered to reimburse to respondents Sand
case. Deceased Norberto Tan Kit the sum of P13,080.93 representing the premium paid by the insu
Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is instructive on the issue of payment of interest. There, date of finality of this Decision. If the amount is not reimbursed within said period, the same sha
the Court pointed to Sections 243 and 244 of the Insurance Code which explicitly provide for payment of interest when there is until fully paid.
unjustified refusal or withholding of payment of the claim by the insurer, 23 and to Article 2209 24 of the New Civil Code which
likewise provides for payment of interest when the debtor is in delay. SO ORDERED.
 1. The sum of P1,024,600.00 representing billings 3 and 4, less the amount of P33,354.40 plu
||| (Sun Life of Canada (Phils.), Inc. v. Tan Kit, G.R. No. 183272, [October 15, 2014]) 30, 1991;

3. Federal Builders, Inc. v. Foundation Specialists, Inc., G.R. No. 194507, September 8, 2014 2. The sum of P279,585.00 representing the cost of undelivered cement;

[G.R. No. 194507. September 8, 2014.] 3. The sum of P200,000.00 as attorney's fees; and

FEDERAL BUILDERS, INC., petitioner, vs. FOUNDATION SPECIALISTS, INC., respondent, 4. The cost of suit.

[G.R. No. 194621. September 8, 2014.] Defendant's counterclaim is denied for lack of factual and legal basis.

FOUNDATION SPECIALISTS, INC., petitioner, vs. FEDERAL BUILDERS, INC., respondent. SO ORDERED. 11

DECISION On appeal, the CA affirmed the Decision of the lower court, but deleted the sum of P279,
undelivered cement and reduced the award of attorney's fees to P50,000.00. In its Decision
PERALTA, J p: explained that FSI failed to substantiate how and in what manner it incurred the cost of ceme
not supported by actual receipts. Also, it found that while the trial court did not err in awarding
Before the Court are two consolidated cases, namely: (1) Petition for review on certiorari under Rule 45 of the Rules of Court, be reduced for being unconscionable and excessive.
docketed as G.R. No. 194507, filed by Federal Builders, Inc., assailing the Decision 1 and Resolution, 2 dated July 15, 2010 and
November 23, 2010, respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 70849, which affirmed with modification the On FBI's rejection of the 12% annual interest rate on the amount of Billings 3 and 4, the CA rul
Decision 3 dated May 3, 2001 of the Regional Trial Court (RTC) in Civil Case No. 92-075; and (2) Petition for review on certiorari in imposing the same in the following wise:
under Rule 45 of the Rules of Court, docketed as G.R. No. 194621, filed by Foundation Specialists, Inc., assailing the same
Decision 4 and Resolution, 5 dated July 15, 2010 and November 23, 2010, respectively, of the CA in CA-G.R. CV No. 70849, . . . The rule is well-settled that when an obligation is breached, and it consists in the paymen
which affirmed with modification the Decision 6 dated May 3, 2001 of the RTC in Civil Case No. 92-075. due shall itself earn legal interest from the time it is judicially demanded (BPI Family Savings Ban
Corporation, 429 SCRA 30). When there is no rate of interest stipulated, such as in the prese
The antecedent facts are as follows: shall be imposed, pursuant to Article 2209 of the New Civil Code. In the absence of a stipulate
legal rate of interest shall be 12% per annum. 13
On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement with Foundation Specialists, Inc. (FSI) whereby the
latter, as sub-contractor, undertook the construction of the diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza Both parties filed separate Motions for Reconsideration assailing different portions of the C
located at Salcedo Village, Makati City (the Project), for a total contract price of Seven Million Four Hundred Thousand Pesos Undaunted, they subsequently elevated their claims with this Court via petitions for review on c
(P7,400,000.00). 7 Under the agreement, 8 FBI was to pay a downpayment equivalent to twenty percent (20%) of the contract
price and the balance, through a progress billing every fifteen (15) days, payable not later than one (1) week from presentation On the one hand, FSI asserted that the CA should not have deleted the sum of P279,585.00 rep
of the billing. cement and reduced the award of attorney's fees to P50,000.00, since it was an undisputed
agreed quantity of cement. On the other hand, FBI faulted the CA for affirming the decision
On January 9, 1992, FSI filed a complaint for Sum of Money against FBI before the RTC of Makati City seeking to collect the award of the sum representing Billings 3 and 4, the interest imposed thereon, and the rej
amount of One Million Six Hundred Thirty-Five Thousand Two Hundred Seventy-Eight Pesos and Ninety-One Centavos concerned. In a Resolution 15 dated February 21, 2011, however, this Court denied, with finalit
(P1,635,278.91), representing Billings No. 3 and 4, with accrued interest from August 1, 1991 plus moral and exemplary damages No. 194621 for having been filed late.
with attorney's fees. 9 In its complaint, FSI alleged that FBI refused to pay said amount despite demand and its completion of
ninety-seven percent (97%) of the contracted works. Hence, the present petition filed by FBI in G.R. No. 194507 invoking the following arguments:

In its Answer with Counterclaim, FBI claimed that FSI completed only eighty-five percent (85%) of the contracted works, failing I.
to finish the diaphragm wall and component works in accordance with the plans and specifications and abandoning the jobsite.
FBI maintains that because of FSI's inadequacy, its schedule in finishing the Project has been delayed resulting in the Project THE COURT OF APPEALS COMMITTED A CLEAR, REVERSABLE ERROR WHEN IT AF
owner's deferment of its own progress billings. 10 It further interposed counterclaims for amounts it spent for the remedial works JUDGMENT THAT FEDERAL BUILDERS, INC. WAS LIABLE TO PAY THE BALANCE OF P1,
on the alleged defects in FSI's work. caCSDT OF P33,354.40 NOTWITHSTANDING THAT THE DIAPHRAGM WALL CONSTRUCTED BY F
WAS CONCEDEDLY DEFECTIVE AND OUT-OF-SPECIFICATIONS AND THAT PETITIONER
On May 3, 2001, after evaluating the evidence of both parties, the RTC ruled in favor of FSI, the dispositive portion of its Decision EXPENSE. SHDAEC
reads:
II.
WHEREFORE, on the basis of the foregoing, judgment is rendered ordering defendant to pay plaintiff the following:
THE COURT OF APPEALS COMMITTED SERIOUS, REVERSABLE ERROR WHEN IT
INTEREST FROM AUGUST 30, 1991 ON THE DISPUTED CLAIM OF P1,024,000.00 LESS
DESPITE THE FACT THAT THERE WAS NO STIPULATION 1N THE AGREEMENT OF THE PARTIES WITH REGARD TO
INTEREST AND DESPITE THE FACT THAT THEIR AGREEMENT WAS NOT A "LOAN OR FORBEARANCE OF MONEY." Wrong location of rebar dowels was anticipated by both contractor and subcontractor as the latt
of Sheer Connectors" (Exh "T") which was approved. The plan provided two alternatives by w
III. dowels may be remedied. Hence, defendant, aware of the possibility of inaccurate location
ascribe the same to the plaintiff as defective work.
THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS REVERSABLE ERROR WHEN IT DISMISSED THE
COUNTERCLAIM OF PETITIONER NOTWITHSTANDING OVERWHELMING EVIDENCE SUPPORTING ITS CLAIM OF Construction of the capping beam required the use of cement. Records, however, show that
P8,582,756.29 AS ACTUAL DAMAGES. May 30, 1991 (Exhs. "B" to "L"), plaintiff had repeatedly requested defendant to deliver cement.
notified defendant of its inability to construct the capping beam for the latter's failure to delive
The petition is partly meritorious. agreement (Exh. "I"). Although records show that there was mention of revision of design, the
show such revision required less amount of cement than what was agreed on by plaintiff and d
We agree with the courts below and reject FBI's first and third arguments. Well-entrenched in jurisprudence is the rule that factual
findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and The seventh phase of the construction of the diaphragm wall is the construction of the steel pr
considered conclusive between the parties, save for the following exceptional and meritorious circumstances: (1) when the after the soil has been excavated by the main contractor. When defendant directed plainti
factual findings of the appellate court and the trial court are contradictory; (2) when the findings of the trial court are grounded requested for a site inspection to determine if the excavation of the soil was finished up to
entirely on speculation, surmises or conjectures; (3) when the lower court's inference from its factual findings is manifestly however, did not receive any response. It later learned that defendant had contracted out tha
mistaken, absurd or impossible; (4) when there is grave abuse of discretion in the appreciation of facts; (5) when the findings of contractor (Exhs. "O" and "P"). Nevertheless, plaintiff informed defendant of its willingness to e
the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if properly considered, will
justify a different conclusion; (6) when there is a misappreciation of facts; (7) when the findings of fact are themselves conflicting; It is clear from the foregoing that contrary to the allegations of FBI, FSI had indeed completed
and (8) when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised exception of certain assigned tasks, which was due to the failure of FBI to fulfil its end of the ba
on the absence of evidence, or are contradicted by evidence on record. 16
It can similarly be deduced that the defects FBI complained of, such as the misaligned diaphragm
None of the aforementioned exceptions are present herein. In the assailed Decision, the RTC meticulously discussed the of the rebar dowels, were not only anticipated by the parties, having stipulated alternative plan
obligations of each party, the degree of their compliance therewith, as well as their respective shortcomings, all of which were importantly, are also attributable to the very actions of FBI. Accordingly, considering that the al
properly substantiated with the corresponding documentary and testimonial evidence. works were not so much due to the fault or negligence of the FSI, but were satisfactorily proven
FBI's claim of P8,582,756.29 representing the cost of the measures it undertook to rectify the
Under the construction agreement, FBI's scope of work consisted in (1) the construction of the guide walls, diaphragm walls, fail. In fact, as the lower court noted, at the time when FBI had evaluated FSI's works, it did not
and capping beam; and (2) the installation of steel props. 17 As the lower courts aptly observed from the records at hand, FSI thereto, viz.:
had, indeed, completed ninety-seven percent (97%) of its contracted works and the non-completion of the remaining three
percent (3%), as well as the alleged defects in the said works, are actually attributable to FBI's own fault such as, but not limited Defendant admitted that it had paid P6 million based on its evaluation of plaintiff s accomplishm
to, the failure to deliver the needed cement as agreed upon in the contract, to wit: and its payment was made without objection on plaintiff's works, the majority of which were
construction of the diaphragm wall (tsn., ibid., p. 70).
On March 8, 1991, plaintiff had finished the construction of the guide wall and diaphragm wall (Exh. "R") but had not yet
constructed the capping beam as of April 22, 1991 for defendant's failure to deliver the needed cement in accordance with their xxx xxx xxx
agreement (Exhibit "I"). The diaphragm wall had likewise been concrete tested and was found to have conformed with the
required design strength (Exh. "R"). While there is no evidence to show the scope of work for these billings, it is safe to assume t
construction of the diaphragm wall considering that as of May 16, 1991, plaintiff had only the i
Subsequently, plaintiff was paid the aggregate amount of P5,814,000.00. But as of May 30, 1991, plaintiff's billings numbers 3 welding works to complete (Exh. "H"). If defendant was able to evaluate the work finished by p
and 4 had remained unpaid (Exhs. "L", "M", and "M-1"). the construction of the diaphragm wall and paid it about P6 million as accomplishment, there
evaluate plaintiff's works covered by billings 3 and 4. In other words, defendants did not have t
xxx xxx xxx and evaluate plaintiff's works. Hence, defendant's refusal to pay was not justified and the alleg
(tsn, Sept. 28, 2000, p. 17) which it claims to have discovered only after January 1992 were m
On the misaligned diaphragm wall from top to bottom and in-between panels, plaintiff explained that in the excavation of the soil
where the rebar cages are lowered and later poured with concrete cement, the characteristics of the soil is not the same or Thus, in the absence of any record to otherwise prove FSI's neglect in the fulfilment of its ob
homogenous all throughout. Because of this property of the soil, in the process of excavation, it may erode in some places that Court shall refrain from reversing the findings of the courts below, which are fully supported by a
may cause spaces that the cement may fill or occupy which would naturally cause bulges, protrusions and misalignment in the on record. Indeed, FBI failed to present any evidence to justify its refusal to pay FSI for the wo
concrete cast into the excavated ground (tsn., June 1, 2000, pp 14-18). This, in fact was anticipated when the agreement was As such, We do not see any reason to deviate from the assailed rulings.
executed and included as provision 6.4 thereof. DISEaC
Anent FBI's second assignment of error, however, We find merit in the argument that the 12% i
The construction of the diaphragm wall panel by panel caused misalignment and the chipping off of the portions misaligned is this case does not involve a loan or forbearance of money. In the landmark case of Eastern
considered a matter of course. Defendant, as the main contractor of the project, has the responsibility of chopping or chipping Appeals, 20 We laid down the following guidelines in computing legal interest:
off of bulges (tsn., ibid., pp. 20-21).
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as It should be noted, however, that the new rate could only be applied prospectively and not retroa
well as the accrual thereof, is imposed, as follows: percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013
per annum shall be the prevailing rate of interest when applicable. Thus, the need to determin
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 herein is a loan and forbearance of money nonetheless exists.
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 In S. C. Megaworld Construction and Development Corporation v. Engr. Parada, 24 We cla
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. constituting loans or forbearance of money in the following wise:

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages As further clarified in the case of Sunga-Chan v. CA, a loan or forbearance of money, goods
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on obligation whereby a lender or creditor has refrained during a given period from requiring the
unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, loan or debt then due and payable. Thus:
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Ce
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the shall be adjudged only in cases involving the loan or forbearance of money. And for transactions
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal in the concept of damages arising from default in the performance of obligations in general
interest shall, in any case, be on the amount finally adjudged. involving a loan or forbearance of money, goods, or credit, the governing provision is Art. 220
yearly 6% interest. Art. 2209 pertinently provides: EHCcIT
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in d
period being deemed to be by then an equivalent to a forbearance of credit. 21 there being no stipulation to the contrary, shall be the payment of the interest agreed upon, a
the legal interest, which is six per cent per annum.
In line, however, with the recent circular of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP-MB) No. 799, we have
modified the guidelines in Nacar v. Gallery Frames, 22 as follows: The term "forbearance," within the context of usury law, has been described as a contractual o
refrain, during a given period of time, from requiring the borrower or debtor to repay the loan o
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in Forbearance of money, goods or credits, therefore, refers to arrangements other than loa
determining the measure of recoverable damages. HSAcaE acquiesces to the temporary use of his money, goods or credits pending the happening of cert
conditions. 26 Consequently, if those conditions are breached, said person is entitled not o
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as amount paid, but also to compensation for the use of his money which would be the same rat
well as the accrual thereof, is imposed, as follows: loan since the use or deprivation of funds therein is similar to a loan. 27

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 This case, however, does not involve an acquiescence to the temporary use of a party's money
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest service, specifically the construction of the diaphragm wall, capping beam, and guide walls of t
from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. A review of similar jurisprudence would tell us that this Court had repeatedly recognized this di
a rate of 6% on actual or compensatory damages arising from a breach not only of constructio
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages subject of this case, but also of contracts wherein one of the parties reneged on its obligation to
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on 29 deliver certain quantities of molasses, 30 undertake the reforestation of a denuded forest
unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly, contracts of carriage, 32 and trucking agreements. 33 We have explained therein that the
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made contracts do not partake of loans or forbearance of money but are more in the nature of contra
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 Thus, in the absence of any stipulation as to interest in the agreement between the parties he
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal arising from the dispute in this case would actually fall under the second paragraph of the
interest shall, in any case, be on the amount finally adjudged. landmark case of Eastern Shipping Lines, which necessitates the imposition of interest at the
imposed by the courts below.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim The 6% interest rate shall further be imposed from the finality of the judgment herein until s
period being deemed to be by then an equivalent to a forbearance of credit. recent ruling in Nacar v. Gallery Frames. 34

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and Note, however, that contrary to FBI's assertion, We find no error in the RTC's ruling that the
shall continue to be implemented applying the rate of interest fixed therein. 23 August 30, 1991 as this is the date when FSI extrajudicially made its claim against FBI through
its services. 35
In view of the foregoing, therefore, We find no compelling reason to disturb the factual findings of the RTC and the CA, which b) Title
are fully supported by and deducible from, the evidence on record, insofar as the sum representing Billings 3 and 4 is concerned.
As to the rate of interest due thereon, however, We note that the same should be reduced to 6% per annum considering the fact c) Tax Declaration
that the obligation involved herein does not partake of a loan or forbearance of money.
d) Affidavit of Aggregate Landholding Vendor/Vendee
WHEREFORE, premises considered, the instant petition is DENIED. The Decision and Resolution, dated July 15, 2010 and
November 23, 2010, respectively, of the Court of Appeals in CA-G.R. CV No. 70849 are hereby AFFIRMED with e) Certification from the Prov'l. Assessor's as to Landholdings of Vendor/Vendee
MODIFICATION. Federal Builders, Inc. is ORDERED to pay Foundation Specialists, Inc. the sum of P1,024,600.00 representing
billings 3 and 4, less the amount of P33,354.40, plus interest at six percent (6%) per annum reckoned from August 30, 1991 until f) Affidavit of Non-Tenancy
full payment thereof. ECaTDc
g) Deed of Absolute Sale
SO ORDERED.
xxx xxx xxx
||| (Federal Builders, Inc. v. Foundation Specialists, Inc., G.R. No. 194507, G.R. No. 194621, [September 8, 2014])
4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of
4. Estores v. Supangan, G.R. No. 175139, April 8, 2012, 670 SCRA 95
xxx xxx xxx
[G.R. No. 175139. April 18, 2012.]
6. Regarding the house located within the perimeter of the subject [lot] owned by spouses [Magb
HERMOJINA ESTORES, petitioner, vs. SPOUSES ARTURO and LAURA SUPANGAN, respondents. outside the perimeter of this subject property to the 300 sq. m. area allocated for [it]. Vendor
of seeing to it that such agreement is carried out before full payment of the sale is made by ve
DECISION
7. If and after the vendor has completed all necessary documents for registration of the title a
DEL CASTILLO, J p: payment as per agreement, a forfeiture fee of 25% or downpayment, shall be applied. Howev
necessary documents within thirty days without any sufficient reason, or without informing the
The only issue posed before us is the propriety of the imposition of interest and attorney's fees. acIASE the right to demand return of full amount of down payment.

Assailed in this Petition for Review 1 filed under Rule 45 of the Rules of Court is the May 12, 2006 Decision 2 of the Court of xxx xxx xxx
Appeals (CA) in CA-G.R. CV No. 83123, the dispositive portion of which reads:
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee sha
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum, computed from approval by the LRC.
September 27, 2000 until its full payment before finality of the judgment. If the adjudged principal and the interest (or any part
thereof) remain unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum, computed from the time 10. The vendor assures the vendee of a peaceful transfer of ownership.
the judgment becomes final and executory until it is fully satisfied. The award of attorney's fees is hereby reduced to P100,000.00.
Costs against the defendants-appellants. xxx xxx xxx 6

SO ORDERED. 3 After almost seven years from the time of the execution of the contract and notwithstanding pa
of respondent-spouses, petitioner still failed to comply with her obligation as expressly provide
Also assailed is the August 31, 2006 Resolution 4 denying the motion for reconsideration. of the contract. Hence, in a letter 7 dated September 27, 2000, respondent-spouses demanded
million within 15 days from receipt of the letter. In reply, 8 petitioner acknowledged receipt of
Factual Antecedents return the same within 120 days. Respondent-spouses were amenable to the proposal provided
On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan entered into a annually shall be imposed on the P3.5 million. 9 When petitioner still failed to return the amou
Conditional Deed of Sale 5 whereby petitioner offered to sell, and respondent-spouses offered to buy, a parcel of land covered spouses were constrained to file a Complaint 10 for sum of money before the Regional Trial
by Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum of P4.7 million. The parties likewise herein petitioner as well as Roberto U. Arias (Arias) who allegedly acted as petitioner's agent.
stipulated, among others, to wit: Case No. 3201-MN and raffled off to Branch 170. In their complaint, respondent-spouses pra
ordered to:
xxx xxx xxx
1. Pay the principal amount of P3,500,000.00 plus interest of 12% compounded annually starting
1. Vendor will secure approved clearance from DAR requirements of which are (sic): amount of P8,558,591.65;

a) Letter request 2. Pay the following items of damages:

 merely acted as agent of the latter. Moreover, there was no showing that he expressly bound
a) Moral damages in the amount of P100,000.00; that he exceeded the limits of his authority. More importantly, there was even no showing tha
agent of petitioner. 26 Anent the award of attorney's fees, the CA found the award by the trial c
b) Actual damages in the amount of P100,000.00; recoverable amount) excessive 27 and thus reduced the same to P100,000.00. 28 AcSHCD

c) Exemplary damages in the amount of P100,000.00; The dispositive portion of the CA Decision reads:

d) [Attorney's] fee in the amount of P50,000.00 plus 20% of recoverable amount from the [petitioner]. WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent
September 27, 2000 until its full payment before finality of the judgment. If the adjudged princ
e) [C]ost of suit. 11 thereof) remain[s] unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%
time the judgment becomes final and executory until it is fully satisfied. The award of attor
In their Answer with Counterclaim, 12 petitioner and Arias averred that they are willing to return the principal amount of P3.5 P100,000.00. Costs against the [petitioner].
million but without any interest as the same was not agreed upon. In their Pre-Trial Brief, 13 they reiterated that the only remaining
issue between the parties is the imposition of interest. They argued that since the Conditional Deed of Sale provided only for the SO ORDERED. 29
return of the downpayment in case of breach, they cannot be held liable to pay legal interest as well. 14 TIcEDC
Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of th
In its Pre-Trial Order 15 dated June 29, 2001, the RTC noted that "the parties agreed that the principal amount of 3.5 million
pesos should be returned to the [respondent-spouses] by the [petitioner] and the issue remaining [is] whether . . . [respondent- Hence, this petition raising the sole issue of whether the imposition of interest and attorney's fe
spouses] are entitled to legal interest thereon, damages and attorney's fees." 16
Petitioner's Arguments
Trial ensued thereafter. After the presentation of the respondent-spouses' evidence, the trial court set the presentation of Arias Petitioner insists that she is not bound to pay interest on the P3.5 million because the Condit
and petitioner's evidence on September 3, 2003. 17 However, despite several postponements, petitioner and Arias failed to for the return of the downpayment in case of failure to comply with her obligations. Petitione
appear hence they were deemed to have waived the presentation of their evidence. Consequently, the case was deemed attorney's fees in favor of the respondent-spouses is unwarranted because it cannot be said th
submitted for decision. 18 since the CA even sustained her contention that the imposition of 12% interest compounded a

Ruling of the Regional Trial Court Respondent-spouses' Arguments

On May 7, 2004, the RTC rendered its Decision 19 finding respondent-spouses entitled to interest but only at the rate of 6% per Respondent-spouses aver that it is only fair that interest be imposed on the amount they paid
annum and not 12% as prayed by them. 20 It also found respondent-spouses entitled to attorney's fees as they were compelled to return the amount upon demand and had been using the P3.5 million for her benefit. Moreov
to litigate to protect their interest. 21 failed to perform her obligations to relocate the house outside the perimeter of the subject proper
documents. As regards the attorney's fees, they claim that they are entitled to the same bec
The dispositive portion of the RTC Decision reads: when petitioner unjustly withheld the amount. Besides, the amount awarded by the CA is eve
fees they paid.
WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent-spouses] and ordering the
[petitioner and Roberto Arias] to jointly and severally: Our Ruling
The petition lacks merit.
1. Pay [respondent-spouses] the principal amount of Three Million Five Hundred Thousand pesos (P3,500,000.00) with an
interest of 6% compounded annually starting October 1, 1993 and attorney's fee in the amount of Fifty Thousand pesos Interest may be imposed even in
(P50,000.00) plus 20% of the recoverable amount from the defendants and cost of the suit. the absence of stipulation in the
contract.
The Compulsory Counter Claim is hereby dismissed for lack of factual evidence. We sustain the ruling of both the RTC and the CA that it is proper to impose interest notwithsta
in the contract. Article 2210 of the Civil Code expressly provides that "[i]nterest may, in the d
SO ORDERED. 22 upon damages awarded for breach of contract." In this case, there is no question that petitione
P3.5 million because of her failure to fulfill the obligation under the Conditional Deed of Sale,
Ruling of the Court of Appeals admitted that the conditions were not fulfilled and that she was willing to return the full amount o
Aggrieved, petitioner and Arias filed their notice of appeal. 23 The CA noted that the only issue submitted for its resolution is done so. Petitioner enjoyed the use of the money from the time it was given to her 30 until now
"whether it is proper to impose interest for an obligation that does not involve a loan or forbearance of money in the absence of of her obligation from the date of demand, i.e., on September 27, 2000.
stipulation of the parties." 24
The interest at the rate of 12% is
On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the RTC finding the imposition of 6% interest applicable in the instant case.
proper. 25 However, the same shall start to run only from September 27, 2000 when respondent-spouses formally demanded Anent the interest rate, the general rule is that the applicable rate of interest "shall be computed
the return of their money and not from October 1993 when the contract was executed as held by the RTC. The CA also modified of the parties." 31 Absent any stipulation, the applicable rate of interest shall be 12% per annum
the RTC's ruling as regards the liability of Arias. It held that Arias could not be held solidarily liable with petitioner because he of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (
did not stipulate as to the applicable rate of interest. The only question remaining therefore is whether the 6% as provided under 3. When the judgment of the court awarding a sum of money becomes final and executory, the
Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due. cACDaH case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finalit
period being deemed to be by then an equivalent to a forbearance of credit. 37
The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract provides that
the seller (petitioner) must return the payment made by the buyer (respondent-spouses) if the conditions are not fulfilled. There Eastern Shipping Lines, Inc. v. Court of Appeals 38 and its predecessor case, Reformina v. To
is no question that they have in fact, not been fulfilled as the seller (petitioner) has admitted this. Notwithstanding demand by the and hence, there was no forbearance of money, goods, or credits. Further, the amount claim
buyer (respondent-spouses), the seller (petitioner) has failed to return the money and should be considered in default from the established with reasonable certainty at the time the claim was made. Hence, we arrived at a d
time that demand was made on September 27, 2000.
Since the date of demand which is September 27, 2000 was satisfactorily established during t
Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be considered should be reckoned from said date of demand until the principal amount and the interest there
as a forbearance of money which required payment of interest at the rate of 12%? We believe so.
The award of attorney's fees is
In Crismina Garments, Inc. v. Court of Appeals, 33 "forbearance" was defined as a "contractual obligation of lender or creditor warranted.
to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable." This Under Article 2208 of the Civil Code, attorney's fees may be recovered:
definition describes a loan where a debtor is given a period within which to pay a loan or debt. In such case, "forbearance of
money, goods or credits" will have no distinct definition from a loan. We believe however, that the phrase "forbearance of money, xxx xxx xxx
goods or credits" is meant to have a separate 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. 34 Forbearance of money, goods or credits should therefore refer to (2) When the defendant's act or omission has compelled the plaintiff to litigate with third person
arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits his interest;
pending happening of certain events or fulfillment of certain conditions. In this case, the respondent-spouses parted with their
money even before the conditions were fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to xxx xxx xxx
use their money pending fulfillment of the conditions. They were deprived of the use of their money for the period pending
fulfillment of the conditions and when those conditions were breached, they are entitled not only to the return of the principal (11) In any other case where the court deems it just and equitable that attorney's fees and
amount paid, but also to compensation for the use of their money. And the compensation for the use of their money, absent any recovered.
stipulation, should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is similar to a loan.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
Petitioner's unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to forbearance of
money which can be considered as an involuntary loan. Thus, the applicable rate of interest is 12% per annum. In Eastern Considering the circumstances of the instant case, we find respondent-spouses entitled to rec
Shipping Lines, Inc. v. Court of Appeals, 35 cited in Crismina Garments, Inc. v. Court of Appeals, 36 the Court suggested the doubt that they were forced to litigate to protect their interest, i.e., to recover their money. H
following guidelines: P50,000.00 more appropriate in line with the policy enunciated in Article 2208 of the Civil Code
must always be reasonable.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on 'Damages' of the Civil Code govern in WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court of A
determining the measure of recoverable damages. is AFFIRMED with MODIFICATIONS that the rate of interest shall be twelve percent (12
September 27, 2000 until fully satisfied. The award of attorney's fees is further reduced to P50
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows: SO ORDERED. SCADIT

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 ||| (Estores v. Spouses Supangan, G.R. No. 175139, [April 18, 2012], 686 PHIL 86-100)
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 5. Province of Cebu v. WT Construction Inc., G.R. No. 209245, September 16, 2015
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
[G.R. No. 208984. September 16, 2015.]
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages WT CONSTRUCTION, INC., petitioner, vs. THE PROVINCE OF CEBU, respondent.
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, [G.R. No. 209245. September 16, 2015.]
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made PROVINCE OF CEBU, petitioner, vs. WT CONSTRUCTION, INC., respondent.
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 DECISION
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. DSTCIa PERLAS-BERNABE, J p:
Before this Court are consolidated petitions for review on certiorari 1 assailing the Decision 2 dated December 19, 2012 and the works has been rendered immaterial in view of the admission by the Province of Cebu tha
Resolution 3 dated August 8, 2013 of the Court of Appeals (CA) in CA-G.R. CEB-CV No. 03791, which affirmed the Order 4 P257,413,911.73, and that it had paid the same to WTCI; hence, only the award of interest, atto
dated September 22, 2009 of the Regional Trial Court of Cebu City, Branch 6 (RTC) in Civil Case No. CEB-34012 finding the at issue. 30 In this regard, the CA pointed out that the reduction of the interest rate from 12%
Province of Cebu liable to pay WT Construction, Inc. (WTCI) the amount of P257,413,911.73, but reduced the legal interest rate given that the liability of the Province of Cebu did not arise from a loan or forbearance of mon
imposable thereon from 12% to 6% per annum. services rendered by WTCI. 31 Anent the award of attorney's fees and costs of suit, the CA af
The Facts the Province of Cebu acted maliciously and in bad faith when it refused to pay the value of the
Sometime in 2005, the Province of Cebu was chosen by former President Gloria Macapagal-Arroyo to host the 12th Association On January 24, 2013, the Province of Cebu moved for reconsideration 33 which was, however,
of Southeast Asian Nations (ASEAN) Summit scheduled on December 10, 2006. To cater to the event, it decided to construct 34 dated August 8, 2013.
the Cebu International Convention Center (CICC or the project) at the New Mandaue Reclamation Area, Mandaue City, Cebu, WTCI, on the other hand, did not seek for a reconsideration of the CA's December 19, 2012 De
which would serve as venue for the ASEAN Summit. 5 2013, a petition for review on certiorari 35 before this Court, docketed as G.R. No. 208984. In
Accordingly, the Province of Cebu conducted a public bidding for the project and, on February 22, 2006, WTCI emerged as the that the obligation is one for forbearance of money since its performance of the addition
winning bidder for the construction of Phase I thereof which consists of the substructure of CICC. On July 26, 2006, after accommodation to the Province of Cebu, thereby warranting the imposition of legal interest a
completing Phase I and receiving payment therefor, WTCI again won the bidding for Phase II of the project involving the adjacent originally decreed by the RTC. 36 It further claimed that the interest should be computed from
works on CICC. 6 i.e., from the date of receipt of the Province of Cebu of its February 8 and 12, 2007 billing lette
As Phase II neared completion, the Province of Cebu caused WTCI to perform additional works on the project which included On November 13, 2013, the Province of Cebu filed its own petition for review on certiorari 38 be
site development, and additional structural, architectural, electric, and plumbing works (additional works). Cognizant of the need No. 209245. It contended that there was no perfected contract between the parties and that ev
to complete the project in time for the ASEAN Summit, and with the repeated assurances that it would be promptly paid, WTCI for lack of public bidding as required under RA 9184. 39 While it admitted paying P257,413,
agreed to perform the additional works notwithstanding the lack of public bidding. 7 Cebu averred that it did so only under the principle of quantum meruit, 40 adding too that it co
In November 2006, weeks before the scheduled ASEAN Summit, WTCI completed the project, including the additional works attorney's fees, and costs of suit because there was no valid contract and that, at any rate, even
and, accordingly, demanded payment therefor. 8 In a letter 9 dated February 8, 2007, WTCI billed the Province of Cebu the it could not do so owing to the lack of documentation. 41
amount of P175,951,478.69 corresponding to the added cost for the site development and extended structural and architectural In a Resolution 42 dated December 4, 2013, the Court consolidated the present petitions.
works. In a separate letter dated February 12, 2007, 10 WTCI billed the Province of Cebu the amount of P85,266,407.97 The Issues before the Court
representing the cost for the additional electrical and plumbing works. The Province of Cebu, however, refused to pay, 11 thereby The issues for the resolution of the Court are: (a) whether or not the liability of the Province of
prompting WTCI to send a Final Billing 12 dated February 21, 2007 where it demanded payment of the aggregate sum of forbearance of money; and (b) whether or not the interest due should be computed from the da
P261,217,886.66. from the time extrajudicial demand was made.
In the letters dated March 20, 2007 13 and September 11, 2007, 14 WTCI again reiterated its demand for payment but the The Court's Ruling
Province of Cebu still refused to pay. Thus, on January 22, 2008, WTCI filed a complaint 15 for collection of sum of money before At the outset, it must be pointed out that a determination of whether or not there was a per
the RTC which was docketed as Civil Case No. CEB-34012. Province of Cebu and WTCI is a question of fact which is beyond the scope of the Court's p
For its defense, the Province of Cebu admitted the existence of the additional works but maintained that there was no contract certiorari, subject to certain exceptions which do not obtain in this case. It is a settled rule that
between it and WTCI therefor. It also claimed that the additional works did not undergo public bidding as required by Republic before this Court on petition for review on certiorari under Rule 45 of the Rules of Court. This
Act No. (RA) 9184, 16 otherwise known as the "Government Procurement Reform Act." 17 Upon joint verification by the parties, factual findings of the RTC, when affirmed by the CA, as in this case, are entitled to great weig
the value of the additional works was pegged at P263,263,261.41. 18 HESIcT are deemed final and conclusive when supported by the evidence on record. 43 Accordingly, th
The RTC Ruling Province of Cebu to WTCI in the amount of P257,413,911.73 which corresponds to the value o
In a Judgment 19 dated May 20, 2009, the RTC ruled in favor of WTCI and ordered the Province of Cebu to pay the following The Court now proceeds to determine the nature of the liability of the Province of Cebu to WTC
amounts: (a) P263,263,261.41 representing the cost of the additional works, with legal interest at the rate of 12% per annum There is no question that the present case does not involve an obligation arising from a loan
computed from the filing of the complaint on January 22, 2008 until fully paid; (b) P50,000.00 as attorney's fees; and (c) costs of liability of the Province of Cebu involves a forbearance of money, based on WTCI's claim that i
suit. 20 The RTC found that there was a perfected oral contract between the parties for the additional works on CICC, and that additional works. In Sunga-Chan v. CA, 44 the Court characterized a transaction involving forb
WTCI must be duly compensated therefor under the doctrine of quantum meruit; otherwise, the Province of Cebu would be The term "forbearance," within the context of usury law, has been described as a contractual o
unjustly enriched. 21 refrain, during a given period of time, from requiring the borrower or debtor to repay the loan o
The Province of Cebu sought a reconsideration 22 of the foregoing and argued that its valuation of the additional works was only In Estores v. Supangan, 46 the Court explained that forbearance of money, goods, or credit re
P257,413,911.73. 23 Further, it maintained that it was not liable to pay interests as WTCI performed the additional works at its loan agreements where a person acquiesces to the temporary use of his money, goods or c
own risk, given that there was no public bidding. 24 certain events or fulfilment of certain conditions such that if these conditions are breached, the
WTCI, on the other hand, neither filed an appeal nor a motion for reconsideration of the May 20, 2009 Judgment of the RTC. the return of the principal amount given, but also to compensation for the use of his money equ
In an Order 25 dated September 22, 2009, the RTC granted in part the motion for reconsideration and reduced the amount of the use or deprivation of funds is akin to a loan. 47
actual damages from P263,263,261.41 to P257,413,911.73, in accordance with the cost standards for the year 2006 provided Applying the foregoing standards to the case at hand, the Court finds that the liability of the Pr
by the Commission on Audit (COA), the National Statistics Office (NSO), the Department of Trade and Industry (DTI), and the the nature of a forbearance of money as it does not involve an acquiescence to the temporary
Province of Cebu itself. On all other points, including the award of 12% legal interest from the filing of the complaint, as well as credits. Rather, this case involves WTCI's performance of a particular service, i.e., the performa
the award of attorney's fees and costs of suit, the RTC sustained its earlier ruling. 26 consisting of site development, additional structural, architectural, plumbing, and electrical wor
Dissatisfied, the Province of Cebu appealed 27 to the CA. Verily, the Court has repeatedly recognized that liabilities arising from construction contra
The CA Ruling forbearance of money but are in the nature of contracts of service. In Federal Builders, Inc. v
In a Decision 28 dated December 19, 2012, the CA affirmed the RTC's Order dated September 22, 2009 but reduced the interest the Court ruled that the liability arising from the non-payment for the construction works, s
rate to 6% per annum. 29 It remarked that the issue of whether or not a contract existed between the parties for the additional diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza in Makati City, do not pa
money but is more in the nature of a contract of service. 49 The Court, therefore, sustains the CA's ruling that the rate of legal PERLAS-BERNABE, J p:
interest imposable on the liability of the Province of Cebu to WTCI is 6% per annum, in accordance with the guidelines laid down Assailed in this petition for review on certiorari 1 are the Decision 2 dated November 4, 2011
in Eastern Shipping Lines, Inc. v. Court of Appeals 50 (Eastern Shipping Lines, Inc.), viz.: 14, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 81258 which recalled and set asid
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as 2003 4 and January 14, 2004 5 of the Regional Trial Court (RTC) of Las Pias City, Branch 20
well as the accrual thereof, is imposed, as follows: 98-0156, and reinstated the Decision 6 dated August 28, 2003 directing petitioner Norlinda S
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 respondent Marcelino B. Martinez (respondent) the latter's excess payment, plus interest, an
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest costs of suit.
from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed The Facts
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. On July 30, 1992, Rafael Martinez (Rafael), respondent's father, obtained from petitioner a loa
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages with a stipulated monthly interest of five percent (5%), payable within a period of six (6) months
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on estate mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No. T-2
unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, obligation upon maturity and despite repeated demands, prompting petitioner to file a Complain
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made Estate Mortgage before the RTC of Imus, Cavite, Branch 90 7 (RTC-Imus) on November 10, 19
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the 1208-95 (judicial foreclosure case).
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the Rafael failed to file his answer and, upon petitioner's motion, was declared in default. After an ex
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal evidence, the RTC-Imus issued a Decision 9 dated January 30, 1998, (January 30, 1998 D
interest shall, in any case, be on the amount finally adjudged. declaring the stipulated 5% monthly interest to be usurious and reducing the same to 12%
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the ordered Rafael to pay petitioner the amount of P229,200.00, consisting of the principal of P16
case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim P59,200.00 from July 30, 1992 to September 30, 1995. 10 Records do not show that this Deci
period being deemed to be by then an equivalent to a forbearance of credit. 51 (Emphases supplied) Meanwhile, prior to Rafael's notice of the above decision, respondent agreed to pay Rafael's o
The foregoing guidelines have been updated in Nacar v. Gallery Frames 52 (Nacar), pursuant to Bangko Sentral ng Pilipinas pegged at P689,000.00. After making a total payment of P400,000.00, 11 he executed a promi
(BSP) Circular No. 799, series of 2013, which reduced the rate of legal interest for loans or transactions involving forbearance 1998 (subject PN), binding himself to pay on or before March 31, 1998 the amount of P289,0
of money, goods, or credit from 12% to 6% per annum. 53 Nevertheless, the rate of legal interest for obligations not constituting of the agreed financial obligation of [his] father to [petitioner]." 13 After learning of the Januar
loans or forbearance such as the one subject of this case remains unchanged at 6% per annum. refused to pay the amount covered by the subject PN despite demands, prompting petitioner
Coming now to the issue of whether the RTC and the CA erred in computing the interest due WTCI from the time of the filing of money and damages before the court a quo on July 2, 1998, docketed as Civil Case No. 98-01
the complaint, the Court finds merit in WTCI's argument that the same should be reckoned from the time WTCI made the Respondent filed his answer, 15 contending that petitioner has no cause of action against h
extrajudicial demand for the payment of the principal, i.e., upon receipt of the Province of Cebu of WTCI's February 8, 2007 and settled Rafael's obligation and that he committed a mistake in paying more than the amount du
February 12, 2007 letters demanding payment for the additional structural and architectural works, and additional electrical and of P229,200.00 as adjudged by the RTC-Imus in the judicial foreclosure case which, thus, wa
plumbing works, respectively. The Count observes, however, that WTCI neither appealed from nor sought a reconsideration of payment. He therefore prayed for the dismissal of the complaint, and interposed a compulsor
the May 20, 2009 Judgment of the RTC which awarded interest to it computed from the time of the filing of the complaint on the mortgage, the return of the excess payment, and the payment of moral and exemplary dama
January 22, 2008. Accordingly, the RTC's determination of the interest's reckoning point had already become final as against expenses. 16
WTCI since it was not one of the assigned errors considered on appeal. It is settled that a decision becomes final as against a The Court A Quo's Ruling
party who does not appeal the same. 54 Consequently, the present petition of WTCI questioning the RTC's determination on In a Decision 17 dated August 28, 2003 (August 28, 2003 Decision), the court a quo denied rec
the reckoning point of the legal interest awarded can no longer be given due course. The Court is, therefore, constrained to that the consideration for its execution was Rafael's indebtedness to petitioner, the extinguishm
uphold the rulings of the RTC and the CA that the legal interest shall be computed from the time of the filing of the complaint. in the consequent extinguishment of the cause therefor. Considering that the RTC-Imus had ad
TCAScE only for the amount of P229,200.00, for which a total of P400,000.00 had already been paid,
Lastly, the Court agrees with the CA that the legal interest rate of 6% shall be imposed from the finality of the herein judgment compelling reason to allow petitioner to recover further on the subject PN. There being an ex
until satisfaction thereof. This is in view of the principle that in the interim, the obligation assumes the nature of a forbearance of declared that a quasi-contract (in the concept of solutio indebiti) exists between the parties and
credit which, pursuant to Eastern Shipping Lines, Inc. as modified by Nacar, is subject to legal interest at the rate of 6% per to return the said amount to respondent, plus 6% interest p.a. 18 reckoned from the date of
annum. 1998 until fully paid, and to pay attorney's fees and the costs of suit. 20
WHEREFORE, the petitions are DENIED. The Decision dated December 19, 2012 and the Resolution dated August 8, 2013 of In an Order 21 dated November 3, 2003 (November 3, 2003 Order), however, the court a qu
the Court of Appeals in CA-G.R. CEB-CV No. 03791 are hereby AFFIRMED. reconsideration, and recalled and set aside its August 28, 2003 Decision. It declared that the
SO ORDERED. and foreclosure cases are distinct, and respondent's failure to comply with his obligation under
||| (WT Construction, Inc. v. Province of Cebu, G.R. Nos. 208984 & 209245, [September 16, 2015]) to seek judicial relief. It further opined that the stipulated 5% monthly interest is no longer usurio
considering the suspension of the Usury Law pursuant to Central Bank Circular 905, series
6. Marilag v. Martinez, G.R. No. 201892, July 22, 2015 respondent to pay the amount of P289,000.00 due under the subject PN, plus interest at the
extra-judicial demand on May 15, 1998, until fully paid, as well as attorney's fees and the costs
[G.R. No. 201892. July 22, 2015.] Aggrieved, respondent filed a motion for reconsideration 23 which was denied in an Order 24 da
NORLINDA S. MARILAG, petitioner, vs. MARCELINO B. MARTINEZ, respondent. him to elevate the matter to the CA. 25
The CA Ruling
DECISION In a Decision 26 dated November 4, 2011, the CA recalled and set aside the court a quo's No
2004 Orders, and reinstated the August 28, 2003 Decision. It held that the doctrine of res judica
case, 27 considering that both the judicial foreclosure and collection cases were filed as a consequence of the non-payment of case, under the principle of litis pendentia, considering that the foreclosure case only remains
Rafael's loan, which was the principal obligation secured by the real estate mortgage and the primary consideration for the have attained finality.
execution of the subject PN. Since res judicata only requires substantial, not actual, identity of causes of action and/or identity While the ensuing collection case was anchored on the promissory note executed by responden
of issue, 28 it ruled that the judgment in the judicial foreclosure case relating to Rafael's obligation to petitioner is final and the same does not constitute a separate and distinct contract of loan which would have given r
conclusive on the collection case. upon breach. Notably, records are bereft of any indication that respondent's agreement to pay
Petitioner's motion for reconsideration was denied in a Resolution 29 dated May 14, 2012; hence, this petition. execution of the subject PN extinguished by novation 40 the contract of loan between Rafael
The Issue Before the Court express agreement or any act of equal import. Well-settled is the rule that novation is never pr
The essential issue for the Court's resolution is whether or not the CA committed reversible error in upholding the dismissal of unequivocally shown. Thus, in order for a new agreement to supersede the old one, the part
the collection case. agree that they are abrogating their old contract in favor of a new one, 41 which was not show
The Court's Ruling On the contrary, it is significant to point out that: (a) the consideration for the subject PN w
The petition lacks merit. supported the original loan obligation of Rafael; (b) respondent merely assumed to pay Rafael's
A case is barred by prior judgment or res judicata when the following elements concur: (a) the judgment sought to bar the new latter's behalf, i.e., as Rafael's agent or representative; 42 and (c) the subject PN was execute
action must be final; (b) the decision must have been rendered by a court having jurisdiction over the subject matter and the to pay Rafael's obligation and made several payments thereon. Case law states that the fact th
parties; (c) the disposition of the case must be a judgment on the merits; and (d) there must be as between the first and second from a third person, who has assumed the obligation, will result merely in the addition of debto
action, identity of parties, subject matter, and causes of action. 30 may enforce the obligation against both debtors. 43 For ready reference, the subject PN reads
After a punctilious review of the records, the Court finds the principle of res judicata to be inapplicable to the present case. This February 20, 1998
is because the records are bereft of any indication that the August 28, 2003 Decision in the judicial foreclosure case had already PROMISSORY NOTE
attained finality, evidenced, for instance, by a copy of the entry of judgment in the said case. Accordingly, with the very first P289,000.00
element of res judicata missing, said principle cannot be made to obtain. =========
This notwithstanding, the Court holds that petitioner's prosecution of the collection case was barred, instead, by the principle of I, MARCELINO B. MARTINEZ, son of Mr. RAFAEL MARTINEZ, of legal age, Filipino, married
litis pendentia in view of the substantial identity of parties and singularity of the causes of action in the foreclosure and collection I-A, Imus, Cavite, by these presents do hereby specifically and categorically PROMISE, UNDE
cases, such that the prior foreclosure case barred petitioner's recourse to the subsequent collection case. SaCIDT of my father, to pay to Miss NORLINDA S. MARILAG, Mortgagee-Creditor of my said father, the
To lay down the basics, litis pendentia, as a ground for the dismissal of a civil action, refers to that situation wherein another NINE THOUSAND PESOS (P289,000.00), Philippine Currency, on or before MARCH 31, 1998
action is pending between the same parties for the same cause of action, such that the second action becomes unnecessary agreed financial obligation of my said father to her. (Emphases supplied)
and vexatious. For the bar of litis pendentia to be invoked, the following requisites must concur: (a) identity of parties, or at least Executed at Pamplona I, Las Pias City, Metro Manila, this 20th day of February, 1998.
such parties as represent the same interests in both actions; (b) identity of rights asserted and relief prayed for, the relief being Sgd.
founded on the same facts; and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending MARCELINO B. MARTINEZ
case, regardless of which party is successful would amount to res judicata in the other. 31 The underlying principle of litis Promissor 44
pendentia is the theory that a party is not allowed to vex another more than once regarding the same subject matter and for the Petitioner's contention that the judicial foreclosure and collection cases enforce independe
same cause of action. This theory is founded on the public policy that the same subject matter should not be the subject of because the Deed of Real Estate Mortgage 46 and the subject PN both refer to one and the sa
controversy in courts more than once, in order that possible conflicting judgments may be avoided for the sake of the stability of obligation. As such, there exists only one cause of action for a single breach of that obligation.
the rights and status of persons, and also to avoid the costs and expenses incident to numerous suits. 32 Consequently, a party of action on Rafael's unpaid loan obligation by filing a petition for the judicial foreclosure of th
will not be permitted to split up a single cause of action and make it a basis for several suits as the whole cause must be the said loan, and, thereafter, a personal action for the collection of the unpaid balance of
determined in one action. 33 To be sure, splitting a cause of action is a mode of forum shopping by filing multiple cases based deficiency arising from foreclosure, without violating the proscription against splitting a single c
on the same cause of action, but with different prayers, where the ground of dismissal is litis pendentia (or res judicata, as the for dismissal is either res judicata or litis pendentia, as in this case. cHECAS
case may be). 34 As elucidated by this Court in the landmark case of Bachrach Motor Co., Inc. v. Icarangal. 47
In this relation, it must be noted that the question of whether a cause of action is single and entire or separate is not always easy For non-payment of a note secured by mortgage, the creditor has a single cause of action aga
to determine and the same must often be resolved, not by the general rules, but by reference to the facts and circumstances of of action consists in the recovery of the credit with execution of the security. In other words, the
the particular case. The true rule, therefore, is whether the entire amount arises from one and the same act or contract which two demands, the payment of the debt and the foreclosure of his mortgage. But both demand
must, thus, be sued for in one action, or the several parts arise from distinct and different acts or contracts, for which a party non-payment of the debt, and, for that reason, they constitute a single cause of action. Tho
may maintain separate suits. 35 constitute separate agreements, the latter is subsidiary to the former, and both refer to
In loan contracts secured by a real estate mortgage, the rule is that the creditor-mortgagee has a single cause of action against Consequently, there exists only one cause of action for a single breach of that obligation. Pl
the debtor-mortgagor, i.e., to recover the debt, through the filing of a personal action for collection of sum of money or the above stated, cannot split up his single cause of action by filing a complaint for payment of
institution of a real action to foreclose on the mortgage security. The two remedies are alternative, 36 not cumulative or complaint for foreclosure of the mortgage. If he does so, the filing of the first complaint will b
successive, 37 and each remedy is complete by itself. Thus, if the creditor-mortgagee opts to foreclose the real estate mortgage, allowing the creditor to file two separate complaints simultaneously or successively, one to r
he waives the action for the collection of the unpaid debt, 38 except only for the recovery of whatever deficiency may remain in foreclose his mortgage, we will, in effect, be authorizing him plural redress for a single breach o
the outstanding obligation of the debtor-mortgagor after deducting the bid price in the public auction sale of the mortgaged courts and with so much vexation and oppression to the debtor. (Emphases and underscoring
properties. 39 Accordingly, a deficiency judgment shall only issue after it is established that the mortgaged property was sold at Further on the point, the fact that no foreclosure sale appears to have been conducted is of no
public auction for an amount less than the outstanding obligation. foreclosure of mortgage is deemed chosen upon the filing of the complaint therefor. 48 In Sui
In the present case, records show that petitioner, as creditor-mortgagee, instituted an action for judicial foreclosure pursuant to CA, 49 it was explained:
the provisions of Rule 68 of the Rules of Court in order to recover on Rafael's debt. In light of the foregoing discussion, the . . . . In sustaining the rule that prohibits mortgage creditors from pursuing both the remedies
availment of such remedy thus bars recourse to the subsequent filing of a personal action for collection of the same debt, in this real action to foreclose the mortgage, the Court held in the case of Bachrach Motor Co., Inc. v
rule which would authorize the plaintiff to bring a personal action against the debtor and simultaneously or successively another amount to be refunded and on the damages and attorney's fees awarded, if any, computed fro
action against the mortgaged property, would result not only in multiplicity of suits so offensive to justice and obnoxious to law satisfaction. 61 Consequently, petitioner must return to respondent the excess payments in t
and equity, but also in subjecting the defendant to the vexation of being sued in the place of his residence or of the residence of with legal interest at the rate of 6% p.a. from the filing of the Answer on August 6, 1998 62 int
the plaintiff, and then again in the place where the property lies. Hence, a remedy is deemed chosen upon the filing of the suit overpayment, until fully settled.
for collection or upon the filing of the complaint in an action for foreclosure of mortgage, pursuant to the provisions of Rule 68 of However, inasmuch as the court a quo failed to state in the body of its decision the factua
the Rules of Court. As to extrajudicial foreclosure, such remedy is deemed elected by the mortgage creditor upon filing of the attorney's fees to the respondent, as required under Article 2208 63 of the New Civil Code,
petition not with any court of justice but with the office of the sheriff of the province where the sale is to be made, in accordance same. The rule is well-settled that the trial court must clearly state the reasons for awarding
with the provisions of Act No. 3135, as amended by Act No. 4118. (Emphases supplied) decision, not merely in its dispositive portion, as the appellate courts are precluded from su
As petitioner had already instituted judicial foreclosure proceedings over the mortgaged property, she is now barred from availing award. 64
herself of an ordinary action for collection, regardless of whether or not the decision in the foreclosure case had attained finality. Finally, in the absence of showing that the court a quo's award of the costs of suit in favor of res
In fine, the dismissal of the collection case is in order. Considering, however, that respondent's claim for return of excess payment 65 the Court finds no reason to disturb the same.
partakes of the nature of a compulsory counterclaim and, thus, survives the dismissal of petitioner's collection suit, the same WHEREFORE, the petition is DENIED. The Decision dated November 4, 2011 and the Reso
should be resolved based on its own merits and evidentiary support. 50 Court of Appeals in CA-G.R. CV No. 81258 reinstating the court a quo's Decision dated Augu
Records show that other than the matter of interest, the principal loan obligation and the payments made were not disputed by 0156 are hereby AFFIRMED with the MODIFICATIONS: (a) directing petitioner Norlinda S.
the parties. Nonetheless, the Court finds the stipulated 5% monthly interest to be excessive and unconscionable. In a plethora Marcelino B. Martinez the latter's excess payments in the total amount of P134,400.00, plus le
of cases, the Court has affirmed that stipulated interest rates of three percent (3%)per month and higher are excessive, iniquitous, from the filing of the Answer on August 6, 1998 until full satisfaction; and (b) deleting the award
unconscionable, and exorbitant, 51 hence, illegal 52 and void for being contrary to morals. 53 In Agner v. BPI Family Savings SO ORDERED.
Bank, Inc., 54 the Court had the occasion to rule: ||| (Marilag v. Martinez, G.R. No. 201892, [July 22, 2015])
Settled is the principle which this Court has affirmed in a number of cases that stipulated interest rates of three percent (3%) per
month and higher are excessive, iniquitous, unconscionable, and exorbitant. While Central Bank Circular No. 905-82, which took 7. Producers Bank v. CA, et al., G.R. No. 115324, February 19, 2003
effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of
maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates [G.R. No. 115324. February 19, 2003.]
to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets. Since the stipulation on the interest
rate is void for being contrary to morals, if not against the law, it is as if there was no express contract on said interest rate; thus, PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner,
the interest rate may be reduced as reason and equity demand. (Emphases supplied) AHDacC AND FRANKLIN VIVES, respondents.
As such, the stipulated 5% monthly interest should be equitably reduced to 1% per month or 12% p.a. reckoned from the
execution of the real estate mortgage on July 30, 1992. In order to determine whether there was any overpayment as claimed Domingo & Dizon for petitioner.
by respondent, we first compute the interest until January 30, 1998 55 when he made a payment in the amount of P300,000.00
on Rafael's loan obligation. Accordingly, the amount due on the loan as of the latter date is hereby computed as follows: Mauricio Law Office for private respondent.
Principal
P160,000.00 SYNOPSIS

Add: Interest from 07/30/1992 to 01/30/1998 Upon request of a friend, Franklin Vives accommodated Arturo Doronilla by opening a savings
coordination with Producer's Bank assistant branch manager, Rufo Atienza. The purpose
(P160,000.00 x 12% x 5.5 yrs.) agreement was that the money would not be removed from Sterela's savings account and return
105,600.00 Later, however, part of the money had been withdrawn by Doronilla who also opened a current
to debit the savings account to cover overdrawing in the current account. Vives filed a case fo
__________ both the trial court and the appellate court ruled on the solidary liability of Producers Bank to Vi
Amount due on the loan
P265,600.00 The Court affirmed the appealed decision. Under Art. 2180 of the Civil Code, employers shall b
Less: Payment made on 01/30/98 by their employees acting within the scope of their assigned tasks. The Bank, through it
(300,000.00) responsible for the loss of Vives' money and is liable for its restitution. That despite limitation o
issued to Mrs. Vives on behalf of Sterela, Doronilla was allowed to withdraw several times wit
__________ as required.
Overpayment as of 01/30/98
(P34,400.00) 56 SYLLABUS

Thus, as of January 30, 1998, only the amount of P265,600.00 was due under the loan contract, and the receipt of an amount 1. REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF THE TRIAL COURT ADOPTED
more than that renders petitioner liable for the return of the excess. Respondent, however, made further payment in the amount RESPECTED. At the outset, it must be emphasized that only questions of law may be raised
of P100,000.00 57 on the belief that the subject loan obligation had not yet been satisfied. Such payments were, therefore, this Court. The Court has repeatedly held that it is not its function to analyze and weigh all ov
clearly made by mistake, giving rise to the quasi-contractual obligation of solutio indebiti under Article 2154 58 in relation to by the parties during trial. The Court's jurisdiction is in principle limited to reviewing errors of law
Article 2163 59 of the Civil Code.Not being a loan or forbearance of money, an interest of 6% p.a. should be imposed on the by the Court of Appeals. Moreover, factual findings of courts, when adopted and confirmed b
and conclusive on this Court unless these findings are not supported by the evidence on record. There is no showing of any
misapprehension of facts on the part of the Court of Appeals in the case at bar that would require this Court to review and On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doro
overturn the factual findings of that court, especially since the conclusions of fact of the Court of Appeals and the trial court are discussed the matter. Thereafter, relying on the assurances and representations of Sanchez a
not only consistent but are also amply supported by the evidence on record. issued a check in the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Stere
his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings acco
2. CIVIL LAW; SPECIAL CONTRACTS; LOAN; MUTUUM AND COMMODATUM, DISTINGUISHED. Article 1933 of the Civil Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs.
Code distinguishes between the two kinds of loans in this wise: By the contract of loan, one of the parties delivers to another, bank to deposit the check. They had with them an authorization letter from Doronilla authorizin
either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract "in coordination with Mr. Rufo Atienza," to open an account for Sterela Marketing Services in
is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez.
quality shall be paid, in which case the contract is simply called a loan or mutuum. Commodatum is essentially gratuitous. Simple No. 10-1567 was thereafter issued to Mrs. Vives. 4
loan may be gratuitous or with a stipulation to pay interest. In commodatum, the bailor retains the ownership of the thing loaned,
while in simple loan, ownership passes to the borrower. The foregoing provision seems to imply that if the subject of the contract Subsequently, private respondent learned that Sterela was no longer holding office in the a
is a consumable thing, such as money, the contract would be a mutuum. However, there are some instances where a Alarmed, he and his wife went to the Bank to verify if their money was still intact. The bank ma
commodatum may have for its object a consumable thing. Article 1936 of the Civil Code provides: Consumable goods may be Atienza, the assistant manager, who informed them that part of the money in Savings Account
the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. by Doronilla, and that only P90,000.00 remained therein. He likewise told them that Mrs. Vives c
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend consumable amount because it had to answer for some postdated checks issued by Doronilla. According
goods and to have the very same goods returned at the end of the period agreed upon, the loan is a commodatum and not a Sanchez opened Savings Account No. 10-1567, Doronilla opened Current Account No. 10-032
mutuum. The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual Bank to debit Savings; Account No. 10-1567 for the amounts necessary to cover overdrawings
character of a contract. In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered in such In opening said current account, Sterela, through Doronilla, obtained a loan of P175,000.00 fr
determination. thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also s
withdraw the money in Savings Account No. 10-1567 because he was the sole proprietor of St
3. ID.; ID.; ID.; ADDITIONAL AMOUNT PAID TO ORIGINAL AMOUNT LOANED AS INTEREST DID NOT CONVERT
AGREEMENT OF COMMODATUM TO MUTUUM. Doronilla's attempts to return to private respondent the amount of Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
P200,000.00 which the latter deposited in Sterela's account together with an additional P12,000.00, allegedly representing assuring him that his money was intact and would be returned to him. On August 13, 1979, Do
interest on the mutuum, did not convert the transaction from a commodatum into a mutuum because such was not the intent of for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private respondent. Howev
the parties and because the additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of private respondent to the drawee bank, the check was dishonored. Doronilla requested private
the Civil Code expressly states that "[t]he bailee in commodatum acquires the use of the thing loaned but not its fruits." Hence, check on September 15, 1979 but when the latter presented the check, it was again dishonore
it was only proper for Doronilla to remit to private respondent the interest accruing to the latter's money deposited with petitioner.

4. ID.; EXTRA-CONTRACTUAL OBLIGATIONS; QUASI-DELICTS; EMPLOYERS LIABLE FOR DAMAGES CAUSED BY

EMPLOYEES ACTING WITHIN THE SCOPE OF THEIR ASSIGNED TASKS. Under Article 2180 of the Civil Code, employers Private respondent referred the matter to a lawyer, who made a written demand upon Doro
shall be held primarily and solidarily liable for damages caused by their employees acting within the scope of their assigned money. Doronilla issued another check for P212,000.00 in private respondent's favor but the
tasks. To hold the employer liable under this provision, it must be shown that an employer-employee relationship exists, and that insufficiency of funds. 7
the employee was acting within the scope of his assigned task when the act complained of was committed. Case law in the
United States of America has it that a corporation that entrusts a general duty to its employee is responsible to the injured party Private respondent instituted an action for recovery of sum of money in the Regional Trial Co
for damages flowing from the employee's wrongful act done in the course of his general authority, even though in doing such against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case N
act, the employee may have failed in its duty to the employer and disobeyed the latter's instructions. ACTEHI actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passed aw
case was pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157,
DECISION Case No. 44485, the dispositive portion of which reads:

CALLEJO, SR., J p: IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J
Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and severally
This is a petition for review on certiorari of the Decision 1 of the Court of Appeals dated June 25, 1991 in CA-G.R. CV No. 11791
and of its Resolution 2 dated May 5, 1994, denying the motion for reconsideration of said decision filed by petitioner Producers (a) the amount of P200,000.00, representing the money deposited, with interest at the legal ra
Bank of the Philippines. until the same is fully paid;

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles Sanchez to help her friend (b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;
and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela 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 (c) the amount of P40,000.00 for attorney's fees; and
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. (d) the costs of the suit.
3
SO ORDERED. 8 transaction was not merely gratuitous but "had a business angle" to it. Hence, petitioner argue
the return of private respondent's P200,000.00 because it is not privy to the transaction betwee
Petitioner appealed the trial court's decision to the Court of Appeals. In its Decision dated June 25, 1991, the appellate court
affirmed in toto the decision of the RTC 9 It likewise denied with finality petitioner's motion for reconsideration in its Resolution It argues further that petitioner's Assistant Manager, Mr. Rufo Atienza, could not be faulted f
dated May 5, 1994. 10 from the savings account of Sterela since the latter was the sole proprietor of said company. P
May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a sav
On June 30, 1994, petitioner filed the present petition, arguing that contain any authorization for these two to withdraw from said account. Hence, the authority
exclusively with Doronilla, who was the sole proprietor of Sterela, and who alone had legal
I. Petitioner points out that no evidence other than the testimonies of private respondent and Mrs
to prove that private respondent deposited his P200,000.00 in Sterela's account for purpose
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE DEFENDANT petitioner should not be held liable for allowing Doronilla to withdraw from Sterela's savings ac
DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;
Petitioner also asserts that the Court of Appeals erred in affirming the trial court's decision sinc
II. not accord with the evidence presented by petitioner during trial to prove that the transaction
Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to withdraw from
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONER'S BANK MANAGER, MR. RUFO
ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable
RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF by private respondent, and neither may it be held liable for moral and exemplary damages as w
NATURAL JUSTICE;
Private respondent, on the other hand, argues that the transaction between him and Do
III. accommodation, 21 since he did not actually part with the ownership of his P200,000.00 and
said amount in the account of Sterela so that a certification can be issued to the effect tha
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL TRIAL purposes of its incorporation but at the same time, he retained some degree of control over his
COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT made a signatory to the savings account and in whose possession the savings account passbo
WERE BASED ON A MISAPPREHENSION OF FACTS;
He likewise asserts that the trial court did not err in finding that petitioner, Atienza's employer, is
IV. He insists that Atienza, petitioner's assistant manager, connived with Doronilla in defrauding
Atienza who facilitated the opening of Sterela's current account three days after Mrs. Vives
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES VS. account with petitioner for said company, as well as the approval of the authority to debit Stere
MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS overdrawings in its current account. 23
APPLICABLE;
There is no merit in the petition.
V.
At the outset, it must be emphasized that only questions of law may be raised in a petition for
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT HEREIN Court has repeatedly held that it is not its function to analyze and weigh all over again the ev
PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF during trial. 24 The Court's jurisdiction is in principle limited to reviewing errors of law that mi
P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR Court of Appeals. 25 Moreover, factual findings of courts, when adopted and confirmed by the
EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEY'S FEES AND THE COSTS OF SUIT. 11 conclusive on this Court unless these findings are not supported by the evidence on record
misapprehension of facts on the part of the Court of Appeals in the case at bar that would
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September 25, 1995. The overturn the factual findings of that court, especially since the conclusions of fact of the Court
Court then required private respondent to submit a rejoinder to the reply. However, said rejoinder was filed only on April 21, not only consistent but are also amply supported by the evidence on record.
1997, due to petitioner's delay in furnishing private respondent with copy of the reply 12 and several substitutions of counsel on
the part of private respondent. 13 On January 17, 2001, the Court resolved to give due course to the petition and required the No error was committed by the Court of Appeals when it ruled that the transaction between p
parties to submit their respective memoranda. 14 Petitioner filed its memorandum on April 16, 2001 while private respondent was a commodatum and not a mutuum. A circumspect examination of the records reveals th
submitted his memorandum on March 22, 2001. was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loan

Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all the By the contract of loan, one of the parties delivers to another, either something not consumab
elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money, a consumable thing; same for a certain time and return it, in which case the contract is called a commodatum; or m
and second, the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla upon the condition that the same amount of the same kind and quality shall be paid, in which c
in the amount of P212,000.00, or P12,000 more than what private respondent deposited in Sterela's bank account. 15 Moreover, a loan or mutuum.
the fact that private respondent sued his good friend Sanchez for his failure to recover his money from Doronilla shows that the
Commodatum is essentially gratuitous.
 possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals and
Simple loan may be gratuitous or with a stipulation to pay interest. allowed said withdrawals because he was party to Doronilla's "scheme" of defrauding private r

In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower. xxx xxx xxx

The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money, the contract But the scheme could not have been executed successfully without the knowledge, help a
would be a mutuum. However, there are some instances where a commodatum may have for its object a consumable thing. assistant manager and cashier of the Makati (Buendia) branch of the defendant bank. Indeed, th
Article 1936 of the Civil Code provides: had not only facilitated the commission of the fraud but he likewise helped in devising the mean
manner as to make it appear that the transaction was in accordance with banking procedure.
Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as
when it is merely for exhibition. To begin with, the deposit was made in defendant's Buendia branch precisely because Atienz
records show that plaintiff had suggested that the P200,000.00 be deposited in his bank, the
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend consumable Doronilla and Dumagpi insisted that it must be in defendant's branch Makati for "it will be easi
goods and to have the very same goods returned at the end of the period agreed upon, the loan is a commodatum and not a In fact before he was introduced to plaintiff, Doronilla had already prepared a letter addressed
mutuum. authorizing Angeles B. Sanchez and company to open a savings account for Sterela in the
coordination with Mr. Rufo Atienza, Assistant Manager of the Bank . . ." (Exh. 1). This is a c
defendants had been in consultation with Atienza from the inception of the scheme. Significa
admission that Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and business
The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual character
of a contract. 27 In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered in such Then there is the matter of the ownership of the fund. Because of the "coordination" between
determination. 28 knew before hand that the money deposited did not belong to Doronilla nor to Sterela. Aside fr
explicitly told by Inocencia Vives that the money belonged to her and her husband and the dep
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private respondent agreed to Doronilla. Atienza even declared that the money came from Mrs. Vives.
deposit his money in the savings account of Sterela specifically for the purpose of making it appear "that said firm had sufficient
capitalization for incorporation, with the promise that the amount shall be returned within thirty (30) days. 29 Private respondent Although the savings account was in the name of Sterela, the bank records disclose that the o
merely "accommodated" Doronilla by lending his money without consideration, as a favor to his good friend Sanchez. It was the same were Inocencia Vives and Angeles B. Sanchez. In the signature card pertaining to this
however clear to the parties to the transaction that the money would not be removed from Sterela's savings account and would signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual ba
be returned to private respondent after thirty (30) days. of savings deposits could only be made by persons whose authorized signatures are in the sign
He, however, said that this procedure was not followed here because Sterela was owned
Doronilla's attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterela's account Doronilla had the full authority to withdraw by virtue of such ownership. The Court is not inclin
together with an additional P12,000.00, allegedly representing interest on the mutuum, did not convert the transaction from a first place, he was all the time aware that the money came from Vives and did not belong to S
commodatum into a mutuum because such was not the intent of the parties and because the additional P12,000.00 corresponds Vives that they were only accommodating Doronilla so that a certification can be issued to the
to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in commodatum of so much amount to be sued in the incorporation of the firm. In the second place, the signatur
acquires the use of the thing loaned but not its fruits." Hence, it was only proper for Doronilla to remit to private respondent the in so far as that account is concerned inasmuch as he had not signed the signature card pr
interest accruing to the latter's money deposited with petitioner. deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had given Doronilla the a

Neither does the Court agree with petitioner's contention that it is not solidarily liable for the return of private respondent's money Moreover, the transfer of fund was done without the passbook having been presented. It is an
because it was not privy to the transaction between Doronilla and private respondent. The nature of said transaction, that is, a withdrawal is made in a savings deposit, the bank requires the presentation of the passboo
whether it is a mutuum or a commodatum, has no bearing on the question of petitioner's liability for the return of private practice was dispensed with. The transfer from the savings account to the current account w
respondent's money because the factual circumstances of the case clearly show that petitioner, through its employee Mr. passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a certifica
Atienza, was partly responsible for the loss of private respondent's money and is liable for its restitution. that a duplicate passbook was issued to Sterela because the original passbook had been surr
view of a loan accommodation assigning the savings account (Exh. C). Atienza, who undoubt
Petitioner's rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for Savings Account No. of this certification, was aware that the contents of the same are not true. He knew that the pa
10-1567 expressly states that Vives for he was the one who gave it to her. Besides, as assistant manager of the branch a
savings and current accounts in question, he also was aware that the original passbook was
"2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly authenticated, and cognizant that Estrella Dumagpi was not among those authorized to withdraw so her certificati
neither a deposit nor a withdrawal will be permitted except upon the production of the depositor savings bank book in which will
be entered by the Bank the amount deposited or withdrawn." 30 The circumstance surrounding the opening of the current account also demonstrate that Ati
perpetration of the fraud and deception that caused the loss. The records indicate that this acco
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch Manager for the Buendia after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that Atienza w
Branch of petitioner, to withdraw therefrom even without presenting the passbook (which Atienza very well knew was in the the opening of the current account considering that Doronilla was all the while in "coordinatio
facilitated the approval of the authority to debit the savings account to cover any overdrawings in the current account (Exh. 2) is provision of Article 315, 1(b) of the Revised Penal Code it must be proven that he had the obliga
not hard to comprehend. money, goods or personal property that he had received.

Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case . . . . 31 2. ID.; ID.; ID.; EMPLOYEE WITHOUT ANY OBLIGATION TO RETURN ANY CASH ADVA
THEREOF; CASE AT BAR. Liquidation simply means the settling of an indebtedness. An em
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused by their who liquidates a cash advance is in fact paying back his debt in the form of a loan of money a
employees acting within the scope of their assigned tasks. To hold the employer liable under this provision, it must be shown as per diems and allowances. Similarly, as stated in the assailed decision of the lower court, "if
that an employer-employee relationship exists, and that the employee was acting within the scope of his assigned task when the he received is less than the amount he spent for actual travel . . . he has the right to demand r
act complained of was committed. 32 Case law in the United States of America has it that a corporation that entrusts a general the amount he spent coming from his personal funds." In other words, the money advanced by
duty to its employee is responsible to the injured party for damages flowing from the employee's wrongful act done in the course the other. Hence, petitioner was under no legal obligation to return the same cash or money
of his general authority, even though in doing such act, the employee may have failed in its duty to the employer and disobeyed received from the private respondent.
the latter's instructions. 33
DECISION
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that Atienza was acting
within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in withdrawing funds from Sterela's PADILLA, J p:
Savings Account No. 10-1567, in which account private respondent's money was deposited, and in transferring the money
withdrawn to Sterela's Current Account with petitioner. Atienza's acts of helping Doronilla, a customer of the petitioner, were This petition seeks the review on certiorari of the following:
obviously done in furtherance of petitioner's interests 34 even though in the process, Atienza violated some of petitioner's rules
such as those stipulated in its savings account passbook. 35 It was established that the transfer of funds from Sterela's savings 1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court (Guimbal
account to its current account could not have been accomplished by Doronilla without the invaluable assistance of Atienza, and Guimbal, Iloilo, in Criminal Case No. 628, 1 and the affirming decision of the Regional Trial Co
that it was their connivance which was the cause of private respondent's loss. Criminal Case No. 20958, promulgated on 30 July 1987; 2

2. The decision of the Court of Appeals, dated 29 April 1988, 3 dismissing petitioner's appeal/p
filed out of time, and the resolution, dated 19 August 1988, denying petitioner's motion for reco
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code, petitioner is liable for
private respondent's loss and is solidarily liable with Doronilla and Dumagpi for the return of the P200,000.00 since it is clear The antecedent facts are as follows:
that petitioner failed to prove that it exercised due diligence to prevent the unauthorized withdrawals from Sterela's savings
account, and that it was not negligent in the selection and supervision of Atienza. Accordingly, no error was committed by the Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department o
appellate court in the award of actual, moral and exemplary damages, attorney's fees and costs of suit to private respondent. Development Center (SEAFDEC) with head station at Tigbauan, Province of Iloilo. As Hea
Research Division, he conducted prawn surveys which required him to travel to various selecte
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals are AFFIRMED. there are potentials for prawn culture.

SO ORDERED. On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to d
June to 21 July 1982, a period of thirty five (35) days. Under this travel order, he received P6,4
||| (Producers Bank of the Philippines v. Court of Appeals, G.R. No. 115324, [February 19, 2003], 445 PHIL 702-717) his travel expenses.

8. Kim v. People, G.R. No. 84719, January 25, 1991 Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him t
Tigbauan, Iloilo to Roxas City from 30 June to 4 July 1982, a period of five (5) days. For this t
[G.R. No. 84719. January 25, 1991.] cash advance of P495.00.

YONG CHAN KIM, petitioner, vs. PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO, Presiding Judge, RTC, 6th On 14 January 1983, petitioner presented both travel orders for liquidation, submitting Travel Ex
Judicial Region, Branch 28 Iloilo City and Court of Appeals (13th Division), respondents. Section. When the Travel Expense Reports were audited, it was discovered that there was an
to 3 July 1982) in the two (2) travel orders for which petitioner collected per diems twice. In sum
Remedios C . Balbin and Manuel C . Cases, Jr. for petitioner. per diems and allowances charged and collected by petitioner under Travel Order No. 222
physically travel as represented by his liquidation papers, was P1,230.00. llcd
Hector P. Teodosio for private respondent.
Petitioner was required to comment on the internal auditor's report regarding the alleged anom
SYLLABUS reply, petitioner denied the alleged anomaly, claiming that he made make-up trips to comp
undertake under T.O. 2222 because he was recalled to the head office and given another assi
1. CRIMINAL LAW; ESTAFA WITH UNFAITHFULNESS OR ABUSE OF CONFIDENCE; OBLIGATION TO RETURN THE SAME
MONEY, GOODS OR PERSONAL PROPERTY, INDISPENSABLE. In order that a person can be convicted under the In September 1983, two (2) complaints for Estafa were filed against the petitioner before the
Guimbal, Iloilo, docketed as Criminal Case Nos. 628 and 631.
 Petitioner filed a motion for reconsideration maintaining that his petition for review did not limit
After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a decision, the dispositive part of which reads as appellate court's decision of 29 April 1988 was based, but rather it delved into the substance a
follows:
On 10 August 1990, we resolved to set aside our resolution dismissing this case and gave due
"IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the accused, Yong Chan Kim, guilty beyond reasonable resolution, we stated:
doubt for the crime of Estafa penalized under paragraph 1(b) of Article 315, Revised Penal Code. Records disclose there is no
aggravating circumstance proven by the prosecution. Neither there is any mitigating circumstance proven by the accused. "In several cases decided by this Court, it had set aside technicalities in the Rules in order to
Considering the amount subject of the present complaint, the imposable penalty should be in the medium period of arresto mayor the present case, we note that the petitioner, in filing his Notice of Appeal the very next day a
in its maximum period to prision correccional in its minimum period in accordance with Article 315, No. 3, Revised Penal Code. court a quo, lost no time in showing his intention to appeal, although the procedure taken was no
Consonantly, the Court hereby sentences the accused to suffer an imprisonment ranging from four (4) months as the minimum the wrong pleading filed, if strict compliance with the rules would mean sacrificing justice to
to one (1) year and six (6) months as the maximum in accordance with the Indeterminate Sentence Law and to reimburse the person being deprived unjustly of his liberty due to procedural lapse of counsel is a strong a
amount of P1,230.00 to SEAFDEC. suspension of the Rules. Hence, we shall consider the petition for review filed in the Court of
Notice of Appeal. As the Court declared in a recent decision, '. . . there is nothing sacred about
"The surety bond of the accused shall remain valid until final judgment in accordance herewith. Court may go beyond the pleadings when the interest of justice so warrants. It has the prerog
same purpose . . . Technicality, when it deserts its proper office as an aid to justice and becom
"Costs against the accused." 5 enemy, deserves scant consideration from courts. [Alonzo v. Villamor, et al., 16 Phil. 315]'

Criminal Case No. 631 was subsequently dismissed for failure to prosecute. Conscience cannot rest in allowing a man to go straight to jail, closing the door to his every en
heard, even as he has made a prima facie showing of a meritorious cause, simply because he
Petitioner appealed from the decision of the Municipal Circuit Trial Court in Criminal Case No. 628. On 30 July 1987, the Regional be sure, recognized by law but made inapplicable to his case, under altered rules of procedure
Trial Court in Iloilo City in Criminal Case No. 20958 affirmed in toto the trial court's decision. 6 not be faulted and, in fact, it has to be lauded for correctly applying the rules of procedure in
from decisions of the RTC rendered in the exercise of its appellate jurisdiction, yet, this Court, a
The decision of the Regional Trial Court was received by petitioner on 10 August 1987. On 11 August 1987, petitioner, thru rights and individual liberty, will not allow substantial justice to be sacrificed at the altar of proc
counsel, filed a notice of appeal with the Regional Trial Court which ordered the elevation of the records of the case to the then
Intermediate Appellate Court on the following day, 12 August 1987. The records of the case were received by the Intermediate
Appellate Court on 8 October 1987, and the appeal was docketed as CA-G.R. No. 05035.
In the same resolution, the parties were required to file their respective memoranda, and in
On 30 October 1987, petitioner filed with the appellate court a petition for review. As earlier stated, on 29 April 1988, the Court petitioner filed his memorandum on 25 October 1989, while private respondent SEAFDEC filed
of Appeals dismissed the petition for having been filed out of time. Petitioner's motion for reconsideration was denied for lack of April 1990. On the other hand, the Solicitor General filed on 13 March 1990 a Recommendation
merit. memorandum.

Hence, the present recourse. Two (2) issues are raised by petitioner, to wit:

On 19 October 1988, the Court resolved to require the respondents to comment on the petition for review. The Solicitor General I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL CIRCUIT TRIAL COURT
filed his Comment on 20 January 1989, after several grants of extensions of time to file the same. REGIONAL TRIAL COURT, BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE FACTS A
TO LAW AND THAT THE TWO COURTS A QUO HAVE ACTED WITH GRAVE ABUSE OF
In his Comment, the Solicitor General prayed for the dismissal of the instant petition on the ground that, as provided for under LACK OF JURISDICTION OR HAVE ACTED WITHOUT OR IN EXCESS OF JURISDICTION.
Section 22, Batas Pambansa 129, Section 22 of the Interim Rules and Guidelines, and Section 3, Rule 123 of the 1985 Rules
of Criminal Procedure, the petitioner should have filed a petition for review with the then Intermediate Appellate Court instead of II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF APPEA
a notice of appeal with the Regional Trial Court, in perfecting his appeal from the RTC to the Intermediate Appellate Court, since ESTABLISHED JURISPRUDENCE, EQUITY AND DUE PROCESS. llcd
the RTC judge was rendered in the exercise of its appellate jurisdiction over municipal trial courts. The failure of petitioner to file
the proper petition rendered the decision of the Regional Trial Court final and executory, according to the Solicitor General. The second issue has been resolved in our Resolution dated 10 August 1990, when we grant
LLphil reconsideration. We shall now proceed to the first issue.

Petitioner's counsel submitted a Reply (erroneously termed Comment) 7 wherein she contended that the peculiar circumstances We find merit in the petition.
of a case, such as this, should be considered in order that the principle barring a petitioner's right of review can be made flexible
in the interest of justice and equity. It is undisputed that petitioner received a cash advance from private respondent SEAFDEC to
T.O. 2222. It is likewise admitted that within the period covered by T.O. 2222, petitioner was re
In our Resolution of 29 May 1989, we resolved to deny the petition for failure of petitioner to sufficiently show that the Court of and given another assignment which was covered by T.O. 2268. The dispute arose when pe
Appeals had committed any reversible error in its questioned judgment which had dismissed petitioner's petition for review for P1,230.00 out of the cash advance which he received under T.O. 2222. For the alleged failure
having been filed out of time. 8 of P1,230.00, he was charged with the crime of Estafa under Article 315, par. 1(b) of the Revi
follows:
 The ruling of the trial judge that ownership of the cash advanced to the petitioner by private re
"Art. 315. Swindling (Estafa). Any person who shall defraud another by any of the means mentioned herein below shall be the latter is erroneous. Ownership of the money was transferred to the petitioner. Even the pro
punished by: testified thus:

xxx xxx xxx "Q When you gave cash advance to the accused in this Travel Order No. 2222 subject to
accused or SEAFDEC? How do you consider the funds in the possession of the accused at
"1. With unfaithfulness or abuse of confidence, namely: transfer of cash? . . .

(a) . . . A The one drawing cash advance already owns the money but subject to liquidation. If he will no
the amount.
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of; or Q...
to return, the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such
money, goods, or other property." So why do you treat the itinerary of travel temporary when in fact as of that time the accused o
You said the cash advance given to the accused is his own money. In other words, at the tim
In order that a person can be convicted under the abovequoted provision, it must be proven that he had the obligation to deliver belongs already to the accused?
or return the same money, goods or personal property that he had received. 11
A Yes, but subject for liquidation. He will be only entitled for that credence if he liquidates.
Was petitioner under obligation to return the same money (cash advance) which he had received? We believe not. Executive
Order No. 10, dated 12 February 1980 provides as follows: Q If other words, it is a transfer of ownership subject to a suspensive condition that he liquida
upon return to station and completion of the travel?
"B. Cash Advance for Travel.
A Yes, sir.
xxx xxx xxx
(pp. 26-28, tsn, May 8, 1985)." 14
"4. All cash advances must be liquidated within 30 days after date of projected return of the person. Otherwise, corresponding
salary deduction shall be made immediately following the expiration day." Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary relat
fiduciary relationship between petitioner and private respondent, which is an essential ele
Liquidation simply means the settling of an indebtedness. An employee, such as herein petitioner, who liquidates a cash advance misappropriation or conversion, petitioner could not have committed estafa. 15
is in fact paying back his debt in the form of a loan of money advanced to him by his employer, as per diems and allowances.
Similarly, as stated in the assailed decision of the lower court, "if the amount of the cash advance he received is less than the Additionally, it has been the policy of private respondent that all cash advances not liquidated ar
amount he spent for actual travel . . . he has the right to demand reimbursement from his employer the amount he spent coming from the salary of the employee concerned. The evidence shows that the corresponding salary
from his personal funds." 12 In other words, the money advanced by either party is actually a loan to the other. Hence, petitioner of petitioner vis-a-vis the cash advance in question.
was under no legal obligation to return the same cash or money, i.e., the bills or coins, which he received from the private
respondent. 13 WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court in
No. 628, finding petitioner guilty of estafa under Article 315, par. 1 (b) of the Revised Penal C
Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan. LexLib the Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated
SET ASIDE. Petitioner is ACQUITTED of the criminal charges filed against him. prLL
"Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may
use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable SO ORDERED.
thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply
called a loan or mutuum. ||| (Yong Chan Kim v. People, G.R. No. 84719, [January 25, 1991], 271 PHIL 362-372)

Commodatum is essentially gratuitous. 9. PNB v. CA, et al., G.R. No. 109563, July 9, 1996

Simple loan may be gratuitous or with a stipulation to pay interest. [G.R. No. 109563. July 9, 1996.]

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower." PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS, MARIA AMOR BASC
respondents.
"Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound
to pay to the creditor an equal amount of the same kind and quality." Marciano S. Bascos for private respondents.
SYLLABUS
All short-term loans to be granted starting January 1, 1978 shall be made subject to the condit
1. CIVIL LAW; CONTRACTS; LOAN; RATE OF INTEREST; ESCALATION CLAUSE; THE CA'S NULLIFICATION OF THE hereof that will leave any portion of the amount still unpaid after 730 days shall automatically
ESCALATION CLAUSE IN A PROMISSORY NOTE WHICH FAILED TO PROVIDE FOR A DE-ESCALATION CLAUSE IS into a medium or long-term obligation as the case may be and give the Bank the right to cha
CORRECT, BECAUSE SUCH FAILURE MADE THE ESCALATION CLAUSE SO ONE-SIDED AS TO MAKE IT under its policies from the date the account was originally granted.
UNREASONABLE. PNB's argument rests on a misapprehension of the import of the appellate court's ruling. The Court of
Appeals nullified the interest rate increases not because the promissory note did not comply with P.D. No. 1684 by providing for To secure payment of the loan the parties executed a real estate mortgage contract which prov
a de-escalation, but because the absence of such provision made the clause so one-sided as to make it unreasonable. That
ruling is correct. It is in line with our decision in Banco Filipino Savings & Mortgage Bank v. Navarro that although P.D. 1684 is (k) INCREASE OF INTEREST RATE:
not to be retroactively applied to loans granted before its effectivity, there must nevertheless be a de-escalation clause to mitigate
the one-sidedness of the escalation clause. Indeed because of concern for the unequal status of borrowers vis-a-vis the banks, The rate of interest charged on the obligation secured by this mortgage as well as the interes
our cases after Banco Filipino have fashioned the rule that any increase in the rate of interest made pursuant to an escalation been advanced by the MORTGAGEE, in accordance with the provision hereof, shall be subjec
clause must be the result of agreement between the parties. Thus in Philippine National Bank v. Court of Appeals, two promissory such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE
notes authorized PNB to increase the stipulated interest per annum "within the limits allowed by law at any time depending on
whatever policy [PNB] may adopt in the future; Provided, that the interest rate on this note shall be correspondingly decreased On December 12, 1980, PNB extended the period of payment of the loan to June 5, 1981, thus
in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board." This Court declared the term to a medium-term loan, i.e., a loan which matured over two to five years. 6 PNB also i
increases unilaterally imposed by PNB to be in violation of the principle of mutuality as embodied in Art. 1308 of the Civil Code, annum, first to 14%, effective December 1, 1979; 7 then to 22% effective February 21, 1983; 8 t
which provides that "[t]he contract must bind both contracting parties; its validity or compliance cannot be left to the will of one 9 to 23% from November 2, 1983; 10 to 25% effective March 2, 1984; 11 and finally to 28% fro
of them."
Because private respondents defaulted in paying their obligation, the Provincial Sheriff of Nueva
2. ID.; USURY LAW; C.B. CIRCULAR 905; SAID CIRCULAR DOES NOT GRANT A LENDING BANK UNRESTRICTED foreclosure of the mortgage on June 15, 1984 to pay private respondents' indebtedness which,
AUTHORITY TO RAISE INTEREST LEVEL. Only recently we invalidated another round of interest increases decreed by from P15,000.00 to P35,125.84, plus 28% annual interest. 13
PNB pursuant to a similar agreement it had with other borrowers: "[W]hile the Usury Law ceiling on interest rates was lifted by
C.B. Circular 905, nothing in the said circular could possibly be read as granting respondent bank carte blanche authority to raise Private respondents brought suit against PNB, its Branch Manager Jetro Godoy, and the P
interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their assets." Numeriano Y. Galang (1) for a declaration of nullity of C.B. Monetary Board Resolution No.
(embodied in C.B. Circular No. 705 dated December 1, 1979), which increased the ceiling on
DECISION unsecured loans to 16% per annum and 14% per annum, respectively, on the ground that it was
morals, public policy, customs and traditions, social justice, due process and the equal protectio
MENDOZA, J p: (2) for a declaration that the interest rate increases on their loan were contrary to Art. 1959 of th
interest due and unpaid shall not earn interest. Pending final determination of the case, priv
This is a petition seeking review of the decision dated August 10, 1992, 1 of the Eighth Division of the Court of Appeals and its auction sale be enjoined.
resolution dated March 25, 1993, 2 both rendered in CA-G.R. CV No. 27653, which affirmed the decision of the Regional Trial
Court (RTC) of San Jose City (Branch 38). PNB filed an answer with compulsory counterclaim. It alleged that private respondents had no
the Usury Law, as amended by P.D. No. 1684, did not limit the number of times the interest co
The facts are as follows: respondents were estopped from questioning the increases because they failed to object to
complaint be dismissed and that private respondents be ordered to pay P35,125.84, plus inte
On June 4, 1979, private respondent spouses Maria Amor and Marciano Bascos obtained a loan from the Philippine National obligation was fully paid, attorney's fees and moral damages in such amount as may be determ
Bank in the amount of P15,000.00 evidenced by a promissory note and secured by a real estate mortgage.
On June 13, 1984 private respondents deposited with the clerk of court P8,000.00 14 and on
The promissory note contained the following stipulation: 3 in partial payment of their loan.

For value received, I/we, [private respondents] jointly and severally promise to pay to the ORDER of the PHILIPPINE NATIONAL On June 15, 1990, the RTC rendered a decision, the dispositive portion of which reads:
BANK, at its office in San Jose City, Philippines, the sum of FIFTEEN THOUSAND ONLY (P15,000.00), Philippine Currency,
together with interest thereon at the rate of 12 % per annum until paid, which interest rate the Bank may at any time without WHEREFORE, judgment is hereby rendered as follows:
notice, raise within the limits allowed by law, and I/we also agree to pay jointly and severally ____% per annum penalty charge,
by way of liquidated damages should this note be unpaid or is not renewed on due date. 1. There having [sic] no evidence against the defendants Jetro Godoy, and the Provincial Sh
Galang, the case against them is dismissed;
Payment of this note shall be as follows:
2. The increase in interest rates based on the escalation clauses in the Promissory Note and t
*THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE being contrary to Sec. 3, P.D. No. 116 are declared null and void, that henceforth, the defendan
from enforcing the increased rate of interest more than TWELVE (12%) per cent on plaintiffs' lo
On the reverse side of the note the following condition was stamped: 4
3. The compulsory counterclaim of the defendants is also dismissed; Pursuant to these clauses, PNB successively increased the interest from 18% to 32%, then to 4
declared the increases unilaterally imposed by PNB to be in violation of the principle of mutu
4. On the other hand, the plaintiffs can settle their unpaid obligation with the defendant PNB at the interest rate of TWELVE the Civil Code, which provides that "[t]he contract must bind both contracting parties; its validit
(12%) per cent per annum computed from the inception of the loan until the same is fully paid; advances made by the PNB for the will of one of them." As the Court explained: 18
insurance premiums and penalties added; and the P10,000.00 paid to and defendant bank to be credited as payment by the
plaintiffs; In order that obligations arising from contracts may have the force of law between the parties,
the parties based on their essential equality. A contract containing a condition which makes its
5. Plaintiffs' claim for damages is, likewise, dismissed; and upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, In
assuming that the P1.8 million loan agreement between the PNB and the private respondent g
6. The parties shall each bear out [sic] the expenses incurred by them. in fact there was none) to increase the interest rate at will during the term of the loan, that licens
for being violative of the principle of mutuality essential in contracts. It would have invested the lo
SO ORDERED. of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party
reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 9
The RTC invalidated the stipulations in the promissory note and the real estate mortgage, which authorized PNB to increase the veritable trap for the weaker party whom the courts of justice must protect against abuse and i
interest rate, on the ground that there was no corresponding stipulation that the interest rate would be reduced in the event the
law reduced the applicable maximum rate as provided under P.D. No. 1684; that P.D. No. 116, which sets a ceiling of 12% A similar ruling was made in Philippine National Bank v. Court of Appeals. 19 The credit agree
interest on secured loans, is a "law," which should prevail over Circular No. 705, used by PNB to increase the interest; that
collection of the increased interest sanctions unjust enrichment contrary to Art. 22 of the Civil Code; and that the promissory The BANK reserves the right to increase the interest rate within the limits allowed by law at a
note and real estate mortgage contracts of adhesion which should be interpreted in favor of private respondents. policy it may adopt in the future: Provided, that the interest rate on this accommodation shall
the event that the applicable maximum interest is reduced by law or by the Monetary Board . .
PNB appealed. However, the Court of Appeals affirmed the trial court's decision. The appellate court held that the escalation
clause in the promissory note could not be given effect because of the absence of a provision for a de-escalation in the event a As in the first case, PNB successively increased the stipulated interest so that what was origina
reduction of interest was ordered by law. In addition it held that pursuant to the escalation clause any increase in interest must only two years, 42%. In declaring the increases invalid, we held: 20
be within "the limits allowed by law" but C.B. circulars, on the basis of which PNB increased the interest, could not be considered
"laws." We cannot countenance petitioner bank's posturing that the escalation clause at bench give
upwardly adjust the interest on private respondents' loan. That would completely take away fr
to assent to an important modification in their agreement, and would negate the element of mu

PNB moved for a reconsideration. As its motion was denied, it filed this petition. PNB's argument is that the Court of Appeals Only recently we invalidated another round of interest increases decreed by PNB pursuant to
erred in applying 2 of P.D. No. 1684, which makes the validity of an escalation clause turn on the presence of a de-escalation other borrowers: 21
clause, to the promissory note and the real estate mortgage in this case. PNB contends that the two had been executed on June
4, 1979, before the effectivity of P.D. No. 1684 on March 17, 1980. [W]hile the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the sa
as granting respondent bank carte blanche authority to raise interest rates to levels which wou
To begin with, PNB's argument rests on a misapprehension of the import of the appellate court's ruling. The Court of Appeals lead to a hemorrhaging of their assets.
nullified the interest rate increases not because the promissory note did not comply with P.D. No. 1684 by providing for a de-
escalation, but because the absence of such provision made the clause so one-sided as to make it unreasonable. In this case no attempt was made by PNB to secure the conformity of private respondents to
interest rate. Private respondents' assent to the increases cannot be implied from their lack o
That ruling is correct. It is in line with our decision in Banco Filipino Savings & Mortgage Bank v. Navarro 16 that although P.D. PNB, informing them of the increases. For as stated in one case, 22 no one receiving a propos
1684 is not to be retroactively applied to loans granted before its effectivity, there must nevertheless be a de-escalation clause to answer the proposal.
to mitigate the one-sideness of the escalation clause. Indeed because of concern for the unequal status of borrowers vis-a-vis
the banks, our cases after Banco Filipino have fashioned the rule that any increase in the rate of interest made pursuant to an WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
escalation clause must be the result of agreement between the parties.
SO ORDERED.
Thus in Philippine National Bank v. Court of Appeals, 17 two promissory notes authorized PNB to increase the stipulated interest
per annum "within the limits allowed by law at any time depending on whatever policy [PNB] may adopt in the future; Provided, ||| (Philippine National Bank v. Court of Appeals, G.R. No. 109563, [July 9, 1996], 328 PHIL 54
that the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is
reduced by law or by the Monetary Board." The real estate mortgage likewise provided: 10. Sps. Sitos v. PNB, G.R. No. 181045, July 2, 2014

The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may have [G.R. No. 181045. July 2, 2014.]
been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be subject during the life of this contract
to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors. SPOUSES EDUARDO and LYDIA SILOS, petitioners, vs. PHILIPPINE NATIONAL BANK, res
DECISION 5. 5th Promissory Note dated December 17, 1990 28%;

DEL CASTILLO, J p: 6. 6th Promissory Note dated February 14, 1991 32%;

In loan agreements, it cannot be denied that the rate of interest is a principal condition, if not the most important component. 7. 7th Promissory Note dated March 1, 1991 30%; and
Thus, any modification thereof must be mutually agreed upon; otherwise, it has no binding effect. Moreover, the Court cannot
consider a stipulation granting a party the option to prepay the loan if said party is not agreeable to the arbitrary interest rates 8. 8th Promissory Note dated July 11, 1991 24%. 13
imposed. Premium may not be placed upon a stipulation in a contract which grants one party the right to choose whether to
continue with or withdraw from the agreement if it discovers that what the other party has been doing all along is improper or In August 1991, an Amendment to Credit Agreement 14 was executed by the parties, with th
illegal. ADEHTS interest:

This Petition for Review on Certiorari 1 questions the May 8, 2007 Decision 2 of the Court of Appeals (CA) in CA-G.R. CV No. 1.03.Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment fr
79650, which affirmed with modifications the February 28, 2003 Decision 3 and the June 4, 2003 Order 4 of the Regional Trial but not including the date of full payment thereof at the rate per annum which is determined b
Court (RTC), Branch 6 of Kalibo, Aklan in Civil Case No. 5975. applicable spread in effect as of the date of each Availment. 15 (Emphases supplied) SAHIaD

Factual Antecedents Under this Amendment to Credit Agreement, petitioners issued in favor of PNB the followi
Spouses Eduardo and Lydia Silos (petitioners) have been in business for about two decades of operating a department store petitioners settled except the last (the note covering the principal) at the following interes
and buying and selling of ready-to-wear apparel. Respondent Philippine National Bank (PNB) is a banking corporation organized
and existing under Philippine laws. 1. 9th Promissory Note dated November 8, 1991 26%;

To secure a one-year revolving credit line of P150,000.00 obtained from PNB, petitioners constituted in August 1987 a Real 2. 10th Promissory Note dated March 19, 1992 25%;
Estate Mortgage 5 over a 370-square meter lot in Kalibo, Aklan covered by Transfer Certificate of Title No. (TCT) T-14250. In
July 1988, the credit line was increased to P1.8 million and the mortgage was correspondingly increased to P1.8 million. 6 And 3. 11th Promissory Note dated July 11, 1992 23%;
in July 1989, a Supplement to the Existing Real Estate Mortgage 7 was executed to cover the same credit line, which was
increased to P2.5 million, and additional security was given in the form of a 134-square meter lot covered by TCT T-16208. In 4. 12th Promissory Note dated November 10, 1992 21%;
addition, petitioners issued eight Promissory Notes 8 and signed a Credit Agreement. 9 This July 1989 Credit Agreement
contained a stipulation on interest which provides as follows: EHScCA 5. 13th Promissory Note dated March 15, 1993 21%;

1.03.Interest (a) The Loan shall be subject to interest at the rate of 19.5% per annum. Interest shall be payable in advance every 6. 14th Promissory Note dated July 12, 1993 17.5%;
one hundred twenty days at the rate prevailing at the time of the renewal.
7. 15th Promissory Note dated November 17, 1993 21%;
(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending on whatever policy the Bank may
adopt in the future, including without limitation, the shifting from the floating interest rate system to the fixed interest rate system, 8. 16th Promissory Note dated March 28, 1994 21%;
or vice versa. Where the Bank has imposed on the Loan interest at a rate per annum, which is equal to the Bank's spread over
the current floating interest rate, the Borrower hereby agrees that the Bank may, without need of notice to the Borrower, increase 9. 17th Promissory Note dated July 13, 1994 21%;
or decrease its spread over the floating interest rate at any time depending on whatever policy it may adopt in the future. 10
(Emphases supplied) 10. 18th Promissory Note dated November 16, 1994 16%;

The eight Promissory Notes, on the other hand, contained a stipulation granting PNB the right to increase or reduce interest 11. 19th Promissory Note dated April 10, 1995 21%;
rates "within the limits allowed by law or by the Monetary Board." 11 The Real Estate Mortgage agreement provided the same
right to increase or reduce interest rates "at any time depending on whatever policy PNB may adopt in the future." 12 12. 20th Promissory Note dated July 19, 1995 18.5%;

Petitioners religiously paid interest on the notes at the following rates: 13. 21st Promissory Note dated December 18, 1995 18.75%;

1. 1st Promissory Note dated July 24, 1989 19.5%; 14. 22nd Promissory Note dated April 22, 1996 18.5%;

2. 2nd Promissory Note dated November 22, 1989 23%; 15. 23rd Promissory Note dated July 22, 1996 18.5%;

3. 3rd Promissory Note dated March 21, 1990 22%; 16. 24th Promissory Note dated November 25, 1996 18%;

4. 4th Promissory Note dated July 19, 1990 24%; 17. 25th Promissory Note dated May 30, 1997 17.5%; and
18. 26th Promissory Note (PN 9707237) dated July 30, 1997 25%. 16 made liable for interest at the legal rate of 12%. They claimed further that they overpaid intere
that due to this overpayment of steep interest charges, their debt should now be deemed paid
The 9th up to the 17th promissory notes provide for the payment of interest at the "rate the Bank may at any time without notice, TCTs T-14250 and T-16208 became unnecessary and wrongful. As for the imposed penalty of
raise within the limits allowed by law . . . ." 17 On the other hand, the 18th up to the 26th promissory notes including PN that since the Real Estate Mortgage and the Supplement thereto did not include penalties as
9707237, which is the 26th promissory note carried the following provision: same should be excluded from the foreclosure amount or bid price, even if such penalties are pr
Note, or PN 9707237. 22
. . . For this purpose, I/We agree that the rate of interest herein stipulated may be increased or decreased for the subsequent
Interest Periods, with prior notice to the Borrower in the event of changes in interest rate prescribed by law or the Monetary In addition, petitioners sought to be reimbursed an alleged overpayment of P848,285.00 ma
Board of the Central Bank of the Philippines, or in the Bank's overall cost of funds. I/We hereby agree that in the event I/we are 1991 to March 5, 1998, resulting from respondent's imposition of the alleged illegal and steep
not agreeable to the interest rate fixed for any Interest Period, I/we shall have the option to prepay the loan or credit facility to be awarded P200,000.00 by way of attorney's fees. 23
without penalty within ten (10) calendar days from the Interest Setting Date. 18 (Emphasis supplied)
In its Answer, 24 PNB denied that it unilaterally imposed or fixed interest rates; that petitioners
Respondent regularly renewed the line from 1990 up to 1997, and petitioners made good on the promissory notes, religiously PNB may modify interest rates depending on future policy adopted by it; and that the impositi
paying the interests without objection or fail. But in 1997, petitioners faltered when the interest rates soared due to the Asian in the Credit Agreement. It added that the imposition of penalties is supported by the all-inc
financial crisis. Petitioners' sole outstanding promissory note for P2.5 million PN 9707237 executed in July 1997 and due 120 Mortgage agreement which provides that the mortgage shall stand as security for any and all o
days later or on October 28, 1997 became past due, and despite repeated demands, petitioners failed to make good on the and nature owing to respondent, which thus includes penalties imposed upon default or non-pay
note. on due date.

Incidentally, PN 9707237 provided for the penalty equivalent to 24% per annum in case of default, as follows: On pre-trial, the parties mutually agreed to the following material facts, among others:

Without need for notice or demand, failure to pay this note or any installment thereon, when due, shall constitute default and in a) That since 1991 up to 1998, petitioners had paid PNB the total amount of P3,484,287.00; 25
such cases or in case of garnishment, receivership or bankruptcy or suit of any kind filed against me/us by the Bank, the
outstanding principal of this note, at the option of the Bank and without prior notice of demand, shall immediately become due b) That PNB sent, and petitioners received, a March 10, 2000 demand letter. 26
and payable and shall be subject to a penalty charge of twenty four percent (24%) per annum based on the defaulted principal
amount. . . . 19 (Emphasis supplied) During trial, petitioner Lydia Silos (Lydia) testified that the Credit Agreement, the Amendment t
Mortgage and the Supplement thereto were all prepared by respondent PNB and were pre
PNB prepared a Statement of Account 20 as of October 12, 1998, detailing the amount due and demandable from petitioners in Eduardo only for signature; that she was told by PNB that the latter alone would determine
the total amount of P3,620,541.60, broken down as follows: Amendment to Credit Agreement, she was told that PNB would fill up the interest rate portion th
executed the said Credit Agreement, she was not informed about the applicable spread that PN
Principal that the interest rate portion of all Promissory Notes she and Eduardo issued were always left in
P2,500,000.00 with respondent's mere assurance that it would be the one to enter or indicate thereon the pre
Interest availment; and that they agreed to such arrangement. She further testified that the two Real E
538,874.94 signed did not stipulate the payment of penalties; that she and Eduardo consulted with a lawyer,
Penalties were improper, and so on March 20, 2000, they wrote to the latter seeking a recomputation of
581,666.66 when PNB did not oblige, they instituted Civil Case No. 5975. 27

On cross-examination, Lydia testified that she has been in business for 20 years; that she also
Total and another bank; that it was only with banks that she was asked to sign loan documents wi
P3,620,541.60 she did not bother to read the terms of the loan documents which she signed; and that she rec
account detailing their outstanding obligations, but she did not complain; that she assumed inst
============ is correct. 28

For his part, PNB Kalibo Branch Manager Diosdado Aspa, Jr. (Aspa), the sole witness fo
Despite demand, petitioners failed to pay the foregoing amount. Thus, PNB foreclosed on the mortgage, and on January 14, examination that as a practice, the determination of the prime rates of interest was the respon
1999, TCTs T-14250 and T-16208 were sold to it at auction for the amount of P4,324,172.96. 21 The sheriff's certificate of sale Department which is based in Manila; that these prime rates were simply communicated to all P
was registered on March 11, 1999. SDIaCT that there are a multitude of considerations which determine the interest rate, such as the cost o
PNB's spread, bank administrative costs, profitability, and the practice in the banking industr
More than a year later, or on March 24, 2000, petitioners filed Civil Case No. 5975, seeking annulment of the foreclosure sale loan availment, the borrower has the right to question the rates, but that this was not done by
and an accounting of the PNB credit. Petitioners theorized that after the first promissory note where they agreed to pay 19.5% that is not found in the Promissory Note may be supplemented by the Credit Agreement. 29
interest, the succeeding stipulations for the payment of interest in their loan agreements with PNB which allegedly left to the
latter the sole will to determine the interest rate became null and void. Petitioners added that because the interest rates were Ruling of the Regional Trial Court
fixed by respondent without their prior consent or agreement, these rates are void, and as a result, petitioners should only be On February 28, 2003, the trial court rendered judgment dismissing Civil Case No. 5975. 30 It
 3. [T]hat [PNB] is hereby ordered to reimburse [petitioners] the excess in the bid price of P37
1. While the Credit Agreement allows PNB to unilaterally increase its spread over the floating interest rate at any time depending between the total amount due [PNB] and the amount of its bid price.
on whatever policy it may adopt in the future, it likewise allows for the decrease at any time of the same. Thus, such stipulation
authorizing both the increase and decrease of interest rates as may be applicable is valid, 31 as was held in Consolidated Bank SO ORDERED. 41
and Trust Corporation (SOLIDBANK) v. Court of Appeals; 32
On the other hand, respondent did not appeal the June 4, 2003 Order of the trial court which
2. Banks are allowed to stipulate that interest rates on loans need not be fixed and instead be made dependent on prevailing fees. It simply raised the issue in its appellee's brief in the CA, and included a prayer for the re
rates upon which to peg such variable interest rates; 33
In effect, the CA limited petitioners' appeal to the following issues:
3. The Promissory Note, as the principal contract evidencing petitioners' loan, prevails over the Credit Agreement and the Real
Estate Mortgage. As such, the rate of interest, penalties and attorney's fees stipulated in the Promissory Note prevail over those 1) Whether . . . the interest rates on petitioners' outstanding obligation were unilaterally and arb
mentioned in the Credit Agreement and the Real Estate Mortgage agreements; 34 aTSEcA
2) Whether . . . the penalty charges were secured by the real estate mortgage; and
4. Roughly, PNB's computation of the total amount of petitioners' obligation is correct; 35
3) Whether . . . the extrajudicial foreclosure and sale are valid. 42
5. Because the loan was admittedly due and demandable, the foreclosure was regularly made; 36
The CA noted that, based on receipts presented by petitioners during trial, the latter dutifully
6. By the admission of petitioners during pre-trial, all payments made to PNB were properly applied to the principal, interest and interest for the period August 7, 1991 to August 6, 1997, over and above the P2.5 million principa
penalties. 37 of payments for insurance premiums, documentary stamp taxes, and penalty. All the while,
object to the imposition of interest; they in fact paid the same religiously and without fail for s
The dispositive portion of the trial court's Decision reads: ruled that petitioners are thus estopped from questioning the same.

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the respondent and against the petitioners by The CA nevertheless noted that for the period July 30, 1997 to August 14, 1997, PNB wrongly a
DISMISSING the latter's petition. instead of the agreed 25%; thus it overcharged petitioners, and the latter paid, an excess of P7

Costs against the petitioners. On the issue of penalties, the CA ruled that the express tenor of the Real Estate Mortgag
inclusion of the PN 9707237-stipulated 24% penalty in the amount to be secured by the mortga
SO ORDERED. 38
For and in consideration of certain loans, overdrafts and other credit accommodations obtaine
Petitioners moved for reconsideration. In an Order 39 dated June 4, 2003, the trial court granted only a modification in the award secure the payment of the same and those others that the MORTGAGEE may extend to the M
of attorney's fees, reducing the same from 10% to 1%. Thus, PNB was ordered to refund to petitioner the excess in attorney's and expenses, and other obligations owing by the MORTGAGOR to the MORTGAGEE, whet
fees in the amount of P356,589.90, viz.: secondary, as appearing in the accounts, books and records of the MORTGAGEE, the MORTG
convey by way of mortgage unto the MORTGAGEE . . . 43 (Emphasis supplied)
WHEREFORE, judgment is hereby rendered upholding the validity of the interest rate charged by the respondent as well as the
extra-judicial foreclosure proceedings and the Certificate of Sale. However, respondent is directed to refund to the petitioner the The CA believes that the 24% penalty is covered by the phrase "and other obligations owing by
amount of P356,589.90 representing the excess interest charged against the latter. and should thus be added to the amount secured by the mortgages. 44
The CA then proceeded to declare valid the foreclosure and sale of properties covered by TC
No pronouncement as to costs. came as a necessary result of petitioners' failure to pay the outstanding obligation upon deman
the trial court's award of 1% to 10%, finding the latter rate to be reasonable and citing the R
SO ORDERED. 40 which authorized the collection of the higher rate. 46 SaCIAE

Ruling of the Court of Appeals Finally, the CA ruled that petitioners are entitled to P377,505.09 surplus, which is the differe
Petitioners appealed to the CA, which issued the questioned Decision with the following decretal portion: P4,324,172.96 and petitioners' total computed obligation as of January 14, 1999, or the date o
of P3,946,667.87. 47
WHEREFORE, in view of the foregoing, the instant appeal is PARTLY GRANTED. The modified Decision of the Regional Trial
Court per Order dated June 4, 2003 is hereby AFFIRMED with MODIFICATIONS, to wit: Hence, the present Petition.

1. [T]hat the interest rate to be applied after the expiration of the first 30-day interest period for PN. No. 9707237 should be 12% Issues
per annum; The following issues are raised in this Petition:

2. [T]hat the attorney's fees of 10% is valid and binding; and IDEHCa I
A. THE COURT OF APPEALS AS WELL AS THE LOWER COURT ERRED IN NOT NULLIFYING THE INTEREST RATE be understood to secure the penalty"; 53 while the mortgages are the accessory contracts, wha
PROVISION IN THE CREDIT AGREEMENT DATED JULY 24, 1989 . . . AND IN THE AMENDMENT TO CREDIT AGREEMENT determined from the provisions of the mortgage contracts, and not from the Credit Agreement
DATED AUGUST 21, 1991 . . . WHICH LEFT TO THE SOLE UNILATERAL DETERMINATION OF THE RESPONDENT PNB
THE ORIGINAL FIXING OF INTEREST RATE AND ITS INCREASE, WHICH AGREEMENT IS CONTRARY TO LAW, ART. Finally, petitioners submit that the trial court's award of 1% attorney's fees should be maintain
1308 OF THE [NEW CIVIL CODE], AS ENUNCIATED IN PONCIANO ALMEIDA V. COURT OF APPEALS, G.R. [NO.] 113412, lawyer's work consists merely in the preparation and filing of the petition, and involves minimal
APRIL 17, 1996, AND CONTRARY TO PUBLIC POLICY AND PUBLIC INTEREST, AND IN APPLYING THE PRINCIPLE OF of a staggering P396,211.00 for such work would be contrary to equity. Petitioners state that
ESTOPPEL ARISING FROM THE ALLEGED DELAYED COMPLAINT OF PETITIONER[S], AND [THEIR] PAYMENT OF THE cases of this nature "is not to give respondent a larger compensation for the loan than the law
INTEREST CHARGED. against any future loss or damage by being compelled to retain counsel . . . to institute judicial
its credit." 55 And because the instant case involves a simple extrajudicial foreclosure, a
B. CONSEQUENTLY, THE COURT OF APPEALS AND THE LOWER COURT ERRED IN NOT DECLARING THAT PNB IS tempered.
NOT AT ALL ENTITLED TO ANY INTEREST EXCEPT THE LEGAL RATE FROM DATE OF DEMAND, AND IN NOT APPLYING
THE EXCESS OVER THE LEGAL RATE OF THE ADMITTED PAYMENTS MADE BY PETITIONER[S] FROM 1991-1998 IN Respondent's Arguments
THE ADMITTED TOTAL AMOUNT OF P3,484,287.00, TO PAYMENT OF THE PRINCIPAL OF P2,500,000.[00] LEAVING AN For its part, respondent disputes petitioners' claim that interest rates were unilaterally fixe
OVERPAYMENT OF P984,287.00 REFUNDABLE BY RESPONDENT TO PETITIONER[S] WITH INTEREST OF 12% PER pronouncement that petitioners are deemed estopped by their failure to question the imposed ra
ANNUM. thereof without opposition. It adds that because the Credit Agreement and promissory notes con
and a de-escalation clause, it may not be said that the bank violated the principle of mutuality. B
II in interest rates have been mutually agreed upon by the parties, as shown by petitioners' con
Respondent adds that the alleged unilateral imposition of interest rates is not a proper subject
THE COURT OF APPEALS AND THE LOWER COURT ERRED IN HOLDING THAT PENALTIES ARE INCLUDED IN THE the issue was never raised in the lower court.
SECURED AMOUNT, SUBJECT TO FORECLOSURE, WHEN NO PENALTIES ARE MENTIONED [NOR] PROVIDED FOR IN
THE REAL ESTATE MORTGAGE AS A SECURED AMOUNT AND THEREFORE THE AMOUNT OF PENALTIES SHOULD As for petitioners' claim that interest rates imposed by it are null and void for the reasons that 1
HAVE BEEN EXCLUDED FROM [THE] FORECLOSURE AMOUNT. IHEDAT promissory notes were signed in blank; 2) interest rates were at short periods; 3) no interest r
agreement on interest rates was made in writing; 4) PNB fixed interest rates on the basis of ar
III to its choosing; and 5) interest rates based on prime rate plus applicable spread are indetermina

THE COURT OF APPEALS ERRED IN REVERSING THE RULING OF THE LOWER COURT, WHICH REDUCED THE a. That Credit Agreements and promissory notes were signed by petitioner[s] in blank Resp
ATTORNEY'S FEES OF 10% OF THE TOTAL INDEBTEDNESS CHARGED IN THE . . . EXTRAJUDICIAL FORECLOSURE never raised in the lower court. Besides, documentary evidence prevails over testimonial evide
TO ONLY 1%, AND [AWARDING] 10% ATTORNEY'S FEES. 48 regard is self-serving, unsupported and uncorroborated, and for being the lone evidence on
these documents are in proper form, presumed regular, and endure, against arbitrary claims b
Petitioners' Arguments business person that she signed questionable loan documents whose provisions for intere
Petitioners insist that the interest rate provision in the Credit Agreement and the Amendment to Credit Agreement should be she continued to pay the interests without protest for a number of years. 56
declared null and void, for they relegated to PNB the sole power to fix interest rates based on arbitrary criteria or factors such as
bank policy, profitability, cost of money, foreign currency values, and bank administrative costs; spaces for interest rates in the b. That interest rates were at short periods Respondent argues that the law which governs
two Credit Agreements and the promissory notes were left blank for PNB to unilaterally fill, and their consent or agreement to rates made more than once every twelve months has been removed 57 with the issuance of P
the interest rates imposed thereafter was not obtained; the interest rate, which consists of the prime rate plus the bank spread,
is determined not by agreement of the parties but by PNB's Treasury Department in Manila. Petitioners conclude that by this c. That no interest rates could be charged where no agreement on interest rates was made in
method of fixing the interest rates, the principle of mutuality of contracts is violated, and public policy as well as Circular 905 49 of the Civil Code,which provides that no interest shall be due unless it has been expressly sti
of the then Central Bank had been breached. insists that the stipulated 25% per annum as embodied in PN 9707237 should be imposed duri
the loan became due and while it remains unpaid, and not the legal interest of 12% as claimed
Petitioners question the CA's application of the principle of estoppel, saying that no estoppel can proceed from an illegal act.
Though they failed to timely question the imposition of the alleged illegal interest rates and continued to pay the loan on the basis d. That PNB fixed interest rates on the basis of arbitrary policies and standards left to its choo
of these rates, they cannot be deemed to have acquiesced, and hence could recover what they erroneously paid. 50 interest rates were fixed taking into consideration increases or decreases as provided by law
bank's overall costs of funds, and upon agreement of the parties. 60
Petitioners argue that if the interest rates were nullified, then their obligation to PNB is deemed extinguished as of July 1997;
moreover, it would appear that they even made an overpayment to the bank in the amount of P984,287.00. e. That interest rates based on prime rate plus applicable spread are indeterminate and arbitr
submits there are various factors that influence interest rates, from political events to economi
Next, petitioners suggest that since the Real Estate Mortgage agreements did not include nor specify, as part of the secured money, profitability and foreign currency transactions may not be discounted. 61 ATHCac
amount, the penalty of 24% authorized in PN 9707237, such amount of P581,666.66 could not be made answerable by or
collected from the mortgages covering TCTs T-14250 and T-16208. Claiming support from Philippine Bank of Communications On the issue of penalties, respondent reiterates the trial court's finding that during pre-tri
[PBCom] v. Court of Appeals, 51 petitioners insist that the phrase "and other obligations owing by the mortgagor to the Statement of Account as of October 12, 1998 which detailed and included penalty charge
mortgagee" 52 in the mortgage agreements cannot embrace the P581,666.66 penalty, because, as held in the PBCom case, obligation owing to the bank was correct. Respondent justifies the imposition and collection
"[a] penalty charge does not belong to the species of obligations enumerated in the mortgage, hence, the said contract cannot practice, and the standard rate per annum for all commercial banks, at the time, was 24%. Re
of the penalty or a penal clause for that matter is to ensure the performance of the obligation and substitute for damages and The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time with
the payment of interest in the event of non-compliance. 62 And the promissory note being the principal agreement as opposed rate of 12% but only "within the limits allowed by law."
to the mortgage, which is a mere accessory should prevail. This being the case, its inclusion as part of the secured amount
in the mortgage agreements is valid and necessary. The Real Estate Mortgage contract likewise provided that

Regarding the foreclosure of the mortgages, respondent accuses petitioners of pre-empting consolidation of its ownership over (k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation secured
TCTs T-14250 and T-16208; that petitioners filed Civil Case No. 5975 ostensibly to question the foreclosure and sale of interest on the amount which may have been advanced by the MORTGAGEE, in accordance w
properties covered by TCTs T-14250 and T-16208 in a desperate move to retain ownership over these properties, because they subject during the life of this contract to such an increase within the rate allowed by law, a
failed to timely redeem them. MORTGAGEE may prescribe for its debtors.

Respondent directs the attention of the Court to its petition in G.R. No. 181046, 63 where the propriety of the CA's ruling on the xxx xxx xxx
following issues is squarely raised:
In making the unilateral increases in interest rates, petitioner bank relied on the escalation
1. That the interest rate to be applied after the expiration of the first 30-day interest period for PN 9707237 should be 12% per agreement which provides, as follows: TDaAHS
annum; and
The Bank reserves the right to increase the interest rate within the limits allowed by law at a
2. That PNB should reimburse petitioners the excess in the bid price of P377,505.99 which is the difference between the total policy it may adopt in the future and provided, that, the interest rate on this accommodation sha
amount due to PNB and the amount of its bid price. in the event that the applicable maximum interest rate is reduced by law or by the Monetary Boa
in the interest rate agreed upon shall take effect on the effectivity date of the increase or decre
Our Ruling
The Court grants the Petition. This clause is authorized by Section 2 of Presidential Decree (P.D.) No. 1684 which further am
Law"), as amended, thus:
Before anything else, it must be said that it is not the function of the Court to re-examine or re-evaluate evidence adduced by
the parties in the proceedings below. The rule admits of certain well-recognized exceptions, though, as when the lower courts' Section 2. The same Act is hereby amended by adding a new section after Section 7, to read a
findings are not supported by the evidence on record or are based on a misapprehension of facts, or when certain relevant and
undisputed facts were manifestly overlooked that, if properly considered, would justify a different conclusion. This case falls Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or cre
within such exceptions. interest agreed upon may be increased in the event that the applicable maximum rate of inter
Monetary Board; Provided, That such stipulation shall be valid only if there is also a stipulation
The Court notes that on March 5, 2008, a Resolution was issued by the Court's First Division denying respondent's petition in interest agreed upon shall be reduced in the event that the applicable maximum rate of inte
G.R. No. 181046, due to late filing, failure to attach the required affidavit of service of the petition on the trial court and the Monetary Board; Provided further, That the adjustment in the rate of interest agreed upon
petitioners, and submission of a defective verification and certification of non-forum shopping. On June 25, 2008, the Court effectivity of the increase or decrease in the maximum rate of interest.
issued another Resolution denying with finality respondent's motion for reconsideration of the March 5, 2008 Resolution. And on
August 15, 2008, entry of judgment was made. This thus settles the issues, as above-stated, covering a) the interest rate or Section 1 of P.D. No. 1684 also empowered the Central Bank's Monetary Board to prescribe t
12% per annum that applies upon expiration of the first 30 days interest period provided under PN 9707237, and b) the CA's loans and certain forbearances. Pursuant to such authority, the Monetary Board issued Cent
decree that PNB should reimburse petitioner the excess in the bid price of P377,505.09. series of 1982, Section 5 of which provides:

It appears that respondent's practice, more than once proscribed by the Court, has been carried over once more to the Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other Financial Intermediarie
petitioners. In a number of decided cases, the Court struck down provisions in credit documents issued by PNB to, or required follows:
of, its borrowers which allow the bank to increase or decrease interest rates "within the limits allowed by law at any time
depending on whatever policy it may adopt in the future." Thus, in Philippine National Bank v. Court of Appeals, 64 such Sec. 1303. Interest and Other Charges. The rate of interest, including commissions, premi
stipulation and similar ones were declared in violation of Article 1308 65 of the Civil Code.In a second case, Philippine National any loan, or forbearance of any money, goods or credits, regardless of maturity and whether se
Bank v. Court of Appeals, 66 the very same stipulations found in the credit agreement and the promissory notes prepared and subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
issued by the respondent were again invalidated. The Court therein said:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate
The Credit Agreement provided inter alia, that adjustment in the interest rate that shall accrue on a loan or forbearance of money, goods or c
adjust, upward or downward, the interest previously stipulated. However, contrary to the stubb
(a) The BANK reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever the said law and circular did not authorize either party to unilaterally raise the interest rate with
policy it may adopt in the future; Provided, that the interest rate on this accommodation shall be correspondingly decreased in
the event that the applicable maximum interest is reduced by law or by the Monetary Board. In either case, the adjustment in the It is basic that there can be no contract in the true sense in the absence of the element of agre
interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in the maximum interest rate. parties. If this assent is wanting on the part of the one who contracts, his act has no more effica
duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as settlement of their obligations; respondent bank was demanding P58,377,487.00 over and
to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it previously paid by the spouses.
cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture. Thus, any
change must be mutually agreed upon, otherwise, it is bereft of any binding effect. Escalation clauses are not basically wrong or legally objectionable so long as they are not
reasonable and valid grounds. Here, as clearly demonstrated above, not only [are] the incre
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to unilaterally basis of the escalation clause patently unreasonable and unconscionable, but also there are no
upwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the right upon which the increases are anchored. TcDAHS
to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. In Philippine
National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held xxx xxx xxx

. . . The unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the mutuality of In the face of the unequivocal interest rate provisions in the credit agreement and in the law
contracts ordained in Article 1308 of the Civil Code: changes in the interest rate in writing, we hold that the unilateral and progressive increases im
null and void. Their effect was to increase the total obligation on an eighteen million peso lo
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. times that which was originally granted to the borrowers. That these increases, occasioned by c
rates is unconscionable and neutralizes the salutary policies of extending loans to spur b
In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between (Emphases supplied)
the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the contracting parties, is void . . . . Hence, even assuming that the . . . loan agreement Still, in a fourth case, Philippine National Bank v. Court of Appeals, 70 the above doctrine was
between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest
rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality The promissory note contained the following stipulation:
essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties
do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave For value received, I/we, [private respondents] jointly and severally promise to pay to the ORDE
it" . . . . Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and BANK, at its office in San Jose City, Philippines, the sum of FIFTEEN THOUSAND ONLY (P
imposition. 67 (Emphases supplied) together with interest thereon at the rate of 12% per annum until paid, which interest rate th
notice, raise within the limits allowed by law, and I/we also agree to pay jointly and severally _
Then again, in a third case, Spouses Almeda v. Court of Appeals, 68 the Court invalidated the very same provisions in the by way of liquidated damages should this note be unpaid or is not renewed on due dated.
respondent's prepared Credit Agreement, declaring thus:
Payment of this note shall be as follows:
The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation
arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based *THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE
on their essential equality. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of On the reverse side of the note the following condition was stamped:
one of the parties, is likewise, invalid.
All short-term loans to be granted starting January 1, 1978 shall be made subject to the condit
It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally altered the terms of its hereof that will leave any portion of the amount still unpaid after 730 days shall automatically
contract with petitioners by increasing the interest rates on the loan without the prior assent of the latter. In fact, the manner of into a medium or long-term obligation as the case may be and give the Bank the right to cha
agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be due unless it under its policies from the date the account was originally granted.
has been expressly stipulated in writing." What has been "stipulated in writing" from a perusal of interest rate provision of the
credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest, subject to a possible To secure payment of the loan the parties executed a real estate mortgage contract which prov
escalation or de-escalation, when 1) the circumstances warrant such escalation or de-escalation; 2) within the limits allowed by
law; and 3) upon agreement. (k) INCREASE OF INTEREST RATE:

Indeed, the interest rate which appears to have been agreed upon by the parties to the contract in this case was the 21% rate The rate of interest charged on the obligation secured by this mortgage as well as the interes
stipulated in the interest provision. Any doubt about this is in fact readily resolved by a careful reading of the credit agreement been advanced by the MORTGAGEE, in accordance with the provision hereof, shall be subjec
because the same plainly uses the phrase "interest rate agreed upon," in reference to the original 21% interest rate. . . . such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE

xxx xxx xxx xxx xxx xxx

Petitioners never agreed in writing to pay the increased interest rates demanded by respondent bank in contravention to the To begin with, PNB's argument rests on a misapprehension of the import of the appellate cou
tenor of their credit agreement. That an increase in interest rates from 18% to as much as 68% is excessive and unconscionable nullified the interest rate increases not because the promissory note did not comply with P.D.
is indisputable. Between 1981 and 1984, petitioners had paid an amount equivalent to virtually half of the entire principal escalation, but because the absence of such provision made the clause so one-sided as to ma
(P7,735,004.66) which was applied to interest alone. By the time the spouses tendered the amount of P40,142,518.00 in
That ruling is correct. It is in line with our decision in Banco Filipino Savings & Mortgage Bank v. Navarro that although P.D. No. PNB, informing them of the increases. For as stated in one case, no one receiving a proposal t
1684 is not to be retroactively applied to loans granted before its effectivity, there must nevertheless be a de-escalation clause answer the proposal. 71 (Emphasis supplied)
to mitigate the one-sidedness of the escalation clause. Indeed because of concern for the unequal status of borrowers vis-a-vis
the banks, our cases after Banco Filipino have fashioned the rule that any increase in the rate of interest made pursuant to an We made the same pronouncement in a fifth case, New Sampaguita Builders Construction, In
escalation clause must be the result of agreement between the parties. thus

Thus in Philippine National Bank v. Court of Appeals, two promissory notes authorized PNB to increase the stipulated interest Courts have the authority to strike down or to modify provisions in promissory notes that gran
per annum "within the limits allowed by law at any time depending on whatever policy [PNB] may adopt in the future; Provided, to increase interest rates, penalties and other charges at the latter's sole discretion and without g
that the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is the consent of the borrowers. This unilateral authority is anathema to the mutuality of contracts a
reduced by law or by the Monetary Board." The real estate mortgage likewise provided: advantage of borrowers. Although the Usury Law has been effectively repealed, courts
unconscionable rates charged for the use of money. Furthermore, excessive interests, penaltie
The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may have in disclosure statements issued by banks, even if stipulated in the promissory notes, cannot b
been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be subject during the life of this contract Lending Act. 73 (Emphasis supplied)
to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors.
Yet again, in a sixth disposition, Philippine National Bank v. Spouses Rocamora, 74 the above
Pursuant to these clauses, PNB successively increased the interest from 18% to 32%, then to 41% and then to 48%. This Court to debunk PNB's repeated reliance on its invalidated contract stipulations:
declared the increases unilaterally imposed by [PNB] to be in violation of the principle of mutuality as embodied in Art. 1308 of
the Civil Code,which provides that "[t]he contract must bind both contracting parties; its validity or compliance cannot be left to We repeated this rule in the 1994 case of PNB v. CA and Jayme-Fernandez and the 1996 c
the will of one of them." As the Court explained: Basco. Taking no heed of these rulings, the escalation clause PNB used in the present case
rates is no different from the escalation clause assailed in the 1996 PNB case; in both, the in
In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the agreed 12% per annum rate to 42%. . . .
the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even xxx xxx xxx
assuming that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license (although
in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void On the strength of this ruling, PNB's argument that the spouses Rocamora's failure to contes
for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character were purportedly reflected in the statements of account and the demand letters sent by the
of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being acceptance of the increase should likewise fail.
reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a
veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. aEIADT Evidently, PNB's failure to secure the spouses Rocamora's consent to the increased interest ra
declare excessive and illegal the interest rates imposed. To go around this lower court finding, P
A similar ruling was made in Philippine National Bank v. Court of Appeals. The credit agreement in that case provided: deficiency claim was computed using only the original 12% per annum interest rate. We find
PNB's own ledgers, included in the records of the case, clearly indicates that PNB imposed inte
The BANK reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever 12% per annum rate. This confirmatory finding, albeit based solely on ledgers found in the reco
policy it may adopt in the future: Provided, that the interest rate on this accommodation shall be correspondingly decreased in this case of the rule that findings of the RTC, when affirmed by the CA, are binding upon this
the event that the applicable maximum interest is reduced by law or by the Monetary Board. . . . HSaIDc

As in the first case, PNB successively increased the stipulated interest so that what was originally 12% per annum became, after Verily, all these cases, including the present one, involve identical or similar provisions found in
only two years, 42%. In declaring the increases invalid, we held: and promissory notes. Thus, the July 1989 Credit Agreement executed by petitioners and res
stipulation on interest:
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to unilaterally
upwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the right 1.03.Interest. (a) The Loan shall be subject to interest at the rate of 19.5% [per annum]. Inte
to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. every one hundred twenty days at the rate prevailing at the time of the renewal.

Only recently we invalidated another round of interest increases decreed by PNB pursuant to a similar agreement it had with (b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending o
other borrowers: adopt in the future, including without limitation, the shifting from the floating interest rate system
or vice versa. Where the Bank has imposed on the Loan interest at a rate per annum which is
[W]hile the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said circular could possibly be read the current floating interest rate, the Borrower hereby agrees that the Bank may, without need o
as granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its borrowers or or decrease its spread over the floating interest rate at any time depending on whatever poli
lead to a hemorrhaging of their assets. (Emphases supplied)

In this case no attempt was made by PNB to secure the conformity of private respondents to the successive increases in the
interest rate. Private respondents' assent to the increases can not be implied from their lack of response to the letters sent by
while the eight promissory notes issued pursuant thereto granted PNB the right to increase or reduce interest rates "within the made obvious by the fact that they signed the promissory notes in blank for the respondent to f
limits allowed by law or the Monetary Board" 77 and the Real Estate Mortgage agreement included the same right to increase of Lydia in this respect. Respondent failed to discredit her; in fact, its witness PNB Kalibo Bra
or reduce interest rates "at any time depending on whatever policy PNB may adopt in the future." 78 interest rates were fixed solely by its Treasury Department in Manila, which were then simply co
On the basis of the Credit Agreement, petitioners issued promissory notes which they signed in blank, and respondent later on for implementation. If this were the case, then this would explain why petitioners had to sign the
entered their corresponding interest rates, as follows: the imposable interest rates have yet to be determined and fixed by respondent's Treasury De

1st Promissory Note dated July 24, 1989 19.5%; Moreover, in Aspa's enumeration of the factors that determine the interest rates PNB fixes
2nd Promissory Note dated November 22, 1989 23%; currency values, bank administrative costs, profitability, and considerations which affect the ba
3rd Promissory Note dated March 21,1990 22%; that considerations which affect PNB's borrowers are ignored. A borrower's current financial st
4th Promissory Note dated July 19, 1990 24%; nature and purpose of his borrowings, the effect of foreign currency values or fluctuations on h
5th Promissory Note dated December 17, 1990 28%; these are not factors which influence the fixing of interest rates to be imposed on him. Clear
6th Promissory Note dated February 14, 1991 32%; interest rates based on one-sided, indeterminate, and subjective criteria such as profitability, c
7th Promissory Note dated March 1, 1991 30%; and arbitrary for there is no fixed standard or margin above or below these considerations.
8th Promissory Note dated July 11, 1991 24%. 79
On the other hand, the August 1991 Amendment to Credit Agreement contains the following stipulation regarding interest: The stipulation in the promissory notes subjecting the interest rate to review does not render th
rates on the obligations of the spouses Beluso valid. According to said stipulation:
1.03.Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of each Availment up to
but not including the date of full payment thereof at the rate per annum which is determined by the Bank to be prime rate plus The interest rate shall be subject to review and may be increased or decreased by the LENDE
applicable spread in effect as of the date of each Availment. 80 (Emphases supplied) prevailing financial and monetary conditions; or the rate of interest and charges which other ban
or offer to charge for similar accommodations; and/or the resulting profitability to the LENDE
and under this Amendment to Credit Agreement, petitioners again executed and signed the following promissory notes in blank, dealings with the BORROWER.
for the respondent to later on enter the corresponding interest rates, which it did, as follows:
9th Promissory Note dated November 8, 1991 26%; It should be pointed out that the authority to review the interest rate was given [to] UCPB alone
10th Promissory Note dated March 19, 1992 25%; may apply the considerations enumerated in this provision as it wishes. As worded in the abo
11th Promissory Note dated July 11, 1992 23%; much weight as it desires to each of the following considerations: (1) the prevailing financial an
12th Promissory Note dated November 10, 1992 21%; of interest and charges which other banks or financial institutions charge or offer to charge for
13th Promissory Note dated March 15, 1993 21%; (3) the resulting profitability to the LENDER (UCPB) after due consideration of all dealings wit
14th Promissory Note dated July 12, 1993 17.5%; Beluso). Again, as in the case of the interest rate provision, there is no fixed margin above or b
15th Promissory Note dated November 17, 1993 21%;
16th Promissory Note dated March 28, 1994 21%; In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB
17th Promissory Note dated July 13, 1994 21%; as both options violate the principle of mutuality of contracts. 84 (Emphases supplied)
18th Promissory Note dated November 16, 1994 16%;
19th Promissory Note dated April 10, 1995 21%; To repeat what has been said in the above-cited cases, any modification in the contract, suc
20th Promissory Note dated July 19, 1995 18.5%; made with the consent of the contracting parties. The minds of all the parties must meet a
21st Promissory Note dated December 18, 1995 18.75%; especially when it affects an important aspect of the agreement. In the case of loan agreements
22nd Promissory Note dated April 22, 1996 18.5%; condition, if not the most important component. Thus, any modification thereof must be mutua
23rd Promissory Note dated July 22, 1996 18.5%; no binding effect.
24th Promissory Note dated November 25, 1996 18%;
25th Promissory Note dated May 30, 1997 17.5%; and What is even more glaring in the present case is that, the stipulations in question no longer pr
26th Promissory Note (PN 9707237) dated July 30, 1997 25%. 81 upon the interest rate to be fixed; -instead, they are worded in such a way that the borrower sha
The 9th up to the 17th promissory notes provide for the payment of interest at the "rate the Bank may at any time without notice, respondent fixes. In credit agreements covered by the above-cited cases, it is provided that:
raise within the limits allowed by law . . . ." 82 On the other hand, the 18th up to the 26th promissory notes which includes PN
9707237 carried the following provision: The Bank reserves the right to increase the interest rate within the limits allowed by law at a
policy it may adopt in the future: Provided, that, the interest rate on this accommodation shall
. . . For this purpose, I/We agree that the rate of interest herein stipulated may be increased or decreased for the subsequent the event that the applicable maximum interest rate is reduced by law or by the Monetary Boa
Interest Periods, with prior notice to the Borrower in the event of changes in interest rate prescribed by law or the Monetary in the interest rate agreed upon shall take effect on the effectivity date of the increase or decre
Board of the Central Bank of the Philippines, or in the Bank's overall cost of funds. I/We hereby agree that in the event I/we are (Emphasis supplied)
not agreeable to the interest rate fixed for any Interest Period, I/we shall have the option to prepay the loan or credit facility
without penalty within ten (10) calendar days from the Interest Setting Date. 83 (Emphasis supplied) CSHEAI Whereas, in the present credit agreements under scrutiny, it is stated that:

These stipulations must be once more invalidated, as was done in previous cases. The common denominator in these cases is IN THE JULY 1989 CREDIT AGREEMENT
the lack of agreement of the parties to the imposed interest rates. For this case, this lack of consent by the petitioners has been
(b) The Borrower agrees that the Bank may modify the interest rate on the Loan depending on whatever policy the Bank may By requiring the petitioners to sign the credit documents and the promissory notes in blank, an
adopt in the future, including without limitation, the shifting from the floating interest rate system to the fixed interest rate system, later on, respondent violated the Truth in Lending Act, and was remiss in its disclosure obligatio
or vice versa. Where the Bank has imposed on the Loan interest at a rate per annum, which is equal to the Bank's spread over finds applicable here, it was held:
the current floating interest rate, the Borrower hereby agrees that the Bank may, without need of notice to the Borrower, increase
or decrease its spread over the floating interest rate at any time depending on whatever policy it may adopt in the future. 86 UCPB further argues that since the spouses Beluso were duly given copies of the subject prom
(Emphases supplied) then they were duly notified of the terms thereof, in substantial compliance with the Truth in Le

IN THE AUGUST 1991 AMENDMENT TO CREDIT AGREEMENT Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclos
prior to the consummation of the transaction:
1.03.Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of each Availment up to
but not including the date of full payment thereof at the rate per annum which is determined by the Bank to be prime rate plus SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the con
applicable spread in effect as of the date of each Availment. 87 (Emphasis supplied) TDcHCa clear statement in writing setting forth, to the extent applicable and in accordance with rules a
Board, the following information:
Plainly, with the present credit agreement, the element of consent or agreement by the borrower is now completely lacking,
which makes respondent's unlawful act all the more reprehensible. (1) the cash price or delivered price of the property or service to be acquired;

Accordingly, petitioners are correct in arguing that estoppel should not apply to them, for "[e]stoppel cannot be predicated on an (2) the amounts, if any, to be credited as down payment and/or trade-in;
illegal act. As between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against
public policy." 88 It appears that by its acts, respondent violated the Truth in Lending Act, or Republic Act No. 3765, which was (3) the difference between the amounts set forth under clauses (1) and (2);
enacted "to protect . . . citizens from a lack of awareness of the true cost of credit to the user by using a full disclosure of such
cost with a view of preventing the uninformed use of credit to the detriment of the national economy." 89 The law "gives a detailed (4) the charges, individually itemized, which are paid or to be paid by such person in connecti
enumeration of the specific information required to be disclosed, among which are the interest and other charges incident to the are not incident to the extension of credit;
extension of credit." 90 Section 4 thereof provides that a disclosure statement must be furnished prior to the consummation of
the transaction, thus: (5) the total amount to be financed;

SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a (6) the finance charge expressed in terms of pesos and centavos; and
clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the
Board, the following information: (7) the percentage that the finance bears to the total amount to be financed expressed as a simp
unpaid balance of the obligation.
(1) the cash price or delivered price of the property or service to be acquired;
The rationale of this provision is to protect users of credit from a lack of awareness of the true c
(2) the amounts, if any, to be credited as down payment and/or trade-in; experience that banks are able to conceal such true cost by hidden charges, uncertainty of inte
from the loaned amount, and the like. The law thereby seeks to protect debtors by permitting
(3) the difference between the amounts set forth under clauses (1) and (2); cost of their loan, to enable them to give full consent to the contract, and to properly evaluate th
decisions. Upholding UCPB's claim of substantial compliance would defeat these purposes
(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which belated discovery of the true cost of credit will too often not be able to reverse the ill effects of an
are not incident to the extension of credit; decision.

(5) the total amount to be financed; In addition, the promissory notes, the copies of which were presented to the spouses Beluso
notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficie
(6) the finance charge expressed in terms of pesos and centavos; and interest rate to be applied to the loan covered by said promissory notes. 92 (Emphases supplie

(7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding However, the one-year period within which an action for violation of the Truth in Lending Act m
unpaid balance of the obligation. long ago, or sometime in 2001, one year after petitioners received the March 2000 demand
charges. TDCaSE
Under Section 4 (6), "finance charge" represents the amount to be paid by the debtor incident to the extension of credit such as
interest or discounts, collection fees, credit investigation fees, attorney's fees, and other service charges. The total finance charge The fact that petitioners later received several statements of account detailing its outstan
represents the difference between (1) the aggregate consideration (down payment plus installments) on the part of the debtor, respondent's breach. To repeat, the belated discovery of the true cost of credit does not rev
and (2) the sum of the cash price and non-finance charges. 91 consummated business decision. 93 Neither may the statements be considered proposals
conformity; they were sent after the imposition and application of the interest rate, and not b
presumed that these are proposals or offers, there was no acceptance by petitioners. "No one
loan contract, especially regarding interest, is obliged to answer the proposal." 94
 Now to the issue of penalty. PN 9707237 provides that failure to pay it or any installment the
Loan and credit arrangements may be made enticing by, or "sweetened" with, offers of low initial interest rates, but actually default, and a penalty charge of 24% per annum based on the defaulted principal amount sh
accompanied by provisions written in fine print that allow lenders to later on increase or decrease interest rates unilaterally, that this penalty should be excluded from the foreclosure amount or bid price because the
without the consent of the borrower, and depending on complex and subjective factors. Because they have been lured into these Supplement thereto did not specifically include it as part of the secured amount. Respondent ju
contracts by initially low interest rates, borrowers get caught and stuck in the web of subsequent steep rates and penalties, amount, saying that the purpose of the penalty or a penal clause is to ensure the performanc
surcharges and the like. Being ordinary individuals or entities, they naturally dread legal complications and cannot afford court for damages and the payment of interest in the event of non-compliance. 100 Respondent adds
litigation; they succumb to whatever charges the lenders impose. At the very least, borrowers should be charged rightly; but then of a penalty is a normal banking practice, and the standard rate per annum for all commercial
again this is not possible in a one-sided credit system where the temptation to abuse is strong and the willingness to rectify is inclusion as part of the secured amount in the mortgage agreements is thus valid and necessa
made weak by the eternal desire for profit.
The Court sustains petitioners' view that the penalty may not be included as part of the secured
Given the above supposition, the Court cannot subscribe to respondent's argument that in every repricing of petitioners' loan agreements and promissory notes to be tainted, we must accord the same treatment to the m
availment, they are given the right to question the interest rates imposed. The import of respondent's line of reasoning cannot and a note secured by it are deemed parts of one transaction and are construed together." 101
be other than that if one out of every hundred borrowers questions respondent's practice of unilaterally fixing interest rates, then attributes of a contract of adhesion as the principal credit documents, we must construe the
only the loan arrangement with that lone complaining borrower will enjoy the benefit of review or re-negotiation; as to the 99 against the party who drafted it. An examination of the mortgage agreements reveals that nowh
others, the questionable practice will continue unchecked, and respondent will continue to reap the profits from such to be included in the secured amount. Construing this silence strictly against the respondent,
unscrupulous practice. The Court can no more condone a view so perverse. This is exactly what the Court meant in the the parties did not intend to include the penalty allowed under PN 9707237 as part of the secu
immediately preceding cited case when it said that "the belated discovery of the true cost of credit does not reverse the ill effects respondent could have if it truly wanted to conveniently prepared and executed an amend
of an already consummated business decision;" 95 as to the 99 borrowers who did not or could not complain, the illegal act shall petitioners, thereby including penalties in the amount to be secured by the encumbered proper
have become a fait accompli to their detriment, they have already suffered the oppressive rates.
With regard to attorney's fees, it was plain error for the CA to have passed upon the issue since i
Besides, that petitioners are given the right to question the interest rates imposed is, under the circumstances, irrelevant; we in their appeal; it was the respondent that improperly brought it up in its appellee's brief, wh
have a situation where the petitioners do not stand on equal footing with the respondent. It is doubtful that any borrower who appeal, since the trial court's Decision on this issue is adverse to it. It is an elementary principle
finds himself in petitioners' position would dare question respondent's power to arbitrarily modify interest rates at any time. In the appellee who does not himself appeal cannot obtain from the appellate court any affirmative r
second place, on what basis could any borrower question such power, when the criteria or standards which are really one- the decision of the court below.
sided, arbitrary and subjective for the exercise of such power are precisely lost on him?
. . . [A]n appellee, who is at the same time not an appellant, may on appeal be permitted to ma
For the same reasons, the Court cannot validly consider that, as stipulated in the 18th up to the 26th promissory notes, petitioners in ordinary actions, when the purpose is merely to defend himself against an appeal in which
are granted the option to prepay the loan or credit facility without penalty within 10 calendar days from the Interest Setting Date committed by the trial court both in the appreciation of facts and in the interpretation of the law
if they are not agreeable to the interest rate fixed. It has been shown that the promissory notes are executed and signed in blank, in his favor but not when his purpose is to seek modification or reversal of the judgment, in whi
meaning that by the time petitioners learn of the interest rate, they are already bound to pay it because they have already pre- have excepted to and appealed from the judgment. 102
signed the note where the rate is subsequently entered. Besides, premium may not be placed upon a stipulation in a contract
which grants one party the right to choose whether to continue with or withdraw from the agreement if it discovers that what the Since petitioners did not raise the issue of reduction of attorney's fees, the CA possessed no
other party has been doing all along is improper or illegal. instance of respondent. The ruling of the trial court in this respect should remain undisturbed.

Thus said, respondent's arguments relative to the credit documents that documentary evidence prevails over testimonial For the fixing of the proper amounts due and owing to the parties to the respondent as credi
evidence; that the credit documents are in proper form, presumed regular, and endure, against arbitrary claims by petitioners, entitled to a refund as a consequence of overpayment considering that they paid more by way
experienced business persons that they are, they signed questionable loan documents whose provisions for interest rates were per annum 103 herein allowed the case should be remanded to the lower court for prop
left blank, and yet they continued to pay the interests without protest for a number of years deserve no consideration. applying the following procedure:

With regard to interest, the Court finds that since the escalation clause is annulled, the principal amount of the loan is subject to 1. The 1st Promissory Note with the 19.5% interest rate is deemed proper and paid;
the original or stipulated rate of interest, and upon maturity, the amount due shall be subject to legal interest at the rate of 12%
per annum. This is the uniform ruling adopted in previous cases, including those cited here. 96 The interests paid by petitioners 2. All subsequent promissory notes (from the 2nd to the 26th promissory notes) shall carry
should be applied first to the payment of the stipulated or legal and unpaid interest, as the case may be, and later, to the capital annum. 104 Thus, interest payment made in excess of 12% on the 2nd promissory note sha
or principal. 97 Respondent should then refund the excess amount of interest that it has illegally imposed upon petitioners; "[t]he principal, and the principal shall be accordingly reduced. The reduced principal shall then be s
amount to be refunded refers to that paid by petitioners when they had no obligation to do so." 98 Thus, the parties' original on the 3rd promissory note, and the excess over 12% interest payment on the 3rd promissory n
agreement stipulated the payment of 19.5% interest; however, this rate was intended to apply only to the first promissory note principal, which shall again be reduced accordingly. The reduced principal shall then be subjec
which expired on November 21, 1989 and was paid by petitioners; it was not intended to apply to the whole duration of the loan. promissory note, and the excess over 12% interest payment on the 4th promissory note shall
Subsequent higher interest rates have been declared illegal; but because only the rates are found to be improper, the obligation which shall again be reduced accordingly. And so on and so forth;
to pay interest subsists, the same to be fixed at the legal rate of 12% per annum. However, the 12% interest shall apply only
until June 30, 2013. Starting July 1, 2013, the prevailing rate of interest shall be 6% per annum pursuant to our ruling in Nacar 3. After the above procedure is carried out, the trial court shall be able to conclude if petitioners
v. Gallery Frames 99 and Bangko Sentral ng Pilipinas-Monetary Board Circular No. 799. BALANCE/OBLIGATION or b) MADE PAYMENTS OVER AND ABOVE THEIR TOTAL OBLIG
4. Such outstanding balance/obligation, if there be any, shall then be subjected to a 12% per annum interest from October 28,
1997 until January 14, 1999, which is the date of the auction sale; 2. The penalty charge imposed in Promissory Note No. 9707237 shall be EXCLUDED from t
estate mortgages;
5. Such outstanding balance/obligation shall also be charged a 24% per annum penaltyfrom August 14, 1997 until January 14,
1999. But from this total penalty, the petitioners' previous payment of penalties in the amount of P202,000.00 made on January 3. The trial court's award of one per cent (1%) attorney's fees is REINSTATED;
27, 1998 106 shall be DEDUCTED;
4. The case is ordered REMANDED to the Regional Trial Court, Branch 6 of Kalibo, Aklan for t
6. To this outstanding balance (3.), the interest (4.), penalties (5.), and the final and executory award of 1% attorney's fees shall made by petitioners spouses Eduardo and Lydia Silos to respondent Philippine National Ba
be ADDED; foregoing dispositions, and applying the procedure hereinabove set forth;

7. The sum total of the outstanding balance (3.), interest (4.) and 1% attorney's fees (6.) shall be DEDUCTED from the bid price 5. Thereafter, the trial court is ORDERED to make a determination as to the validity of the e
of P4,324,172.96. The penalties (5.) are not included because they are not included in the secured amount; declaring the same null and void in case of overpayment and ordering the release and retur
Nos. T-14250 and TCT T-16208 to petitioners, or ordering the delivery to the petitioners of the
8. The difference in (7.) [P4,324,172.96 LESS sum total of the outstanding balance (3.), interest (4.), and 1% attorney's fees (6.)] and the total remaining obligation of petitioners, if any;
shall be DELIVERED TO THE PETITIONERS;
6. In the meantime, the respondent Philippine National Bank is ENJOINED from consolidatin
9. Respondent may then proceed to consolidate its title to TCTs T-14250 and T-16208; Title Nos. T-14250 and T-16208 until all the steps in the procedure above set forth have been

10. ON THE OTHER HAND, if after performing the procedure in (2.), it turns out that petitioners made an OVERPAYMENT, the 7. The reimbursement of the excess in the bid price of P377,505.99, which respondent Philip
interest (4.), penalties (5.), and the award of 1% attorney's fees (6.) shall be DEDUCTED from the overpayment. There is no reimburse petitioners, should be HELD IN ABEYANCE until the true amount owing to or owe
outstanding balance/obligation precisely because petitioners have paid beyond the amount of the principal and interest; other is determined;

11. If the overpayment exceeds the sum total of the interest (4.), penalties (5.), and award of 1% attorney's fees (6.), the excess 8. Considering that this case has been pending for such a long time and that further procee
shall be RETURNED to the petitioners, with legal interest, under the principle of solutio indebiti; 107 required, the trial court is ORDERED to proceed with dispatch.

12. Likewise, if the overpayment exceeds the total amount of interest (4.) and award of 1% attorney's fees (6.), the trial court SO ORDERED.
shall INVALIDATE THE EXTRAJUDICIAL FORECLOSURE AND SALE; aSAHCE
||| (Spouses Silos v. Philippine National Bank, G.R. No. 181045, [July 2, 2014])
13. HOWEVER, if the total amount of interest (4.) and award of 1% attorney's fees (6.) exceed petitioners' overpayment, then
the excess shall be DEDUCTED from the bid price of P4,324,172.96; 11. Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013

14. The difference in (13.) [P4,324,172.96 LESS sum total of the interest (4.) and 1% attorney's fees (6.)] shall be DELIVERED [G.R. No. 189871. August 13, 2013.]
TO THE PETITIONERS;
DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or FELIPE BORDEY, JR., responden
15. Respondent may then proceed to consolidate its title to TCTs T-14250 and T-16208. The outstanding penalties, if any, shall
be collected by other means. DECISION

From the above, it will be seen that if, after proper accounting, it turns out that the petitioners made payments exceeding what PERALTA, J p:
they actually owe by way of principal, interest, and attorney's fees, then the mortgaged properties need not answer for any
outstanding secured amount, because there is not any; quite the contrary, respondent must refund the excess to petitioners. In This is a petition for review on certiorari assailing the Decision 1 dated September 23, 2008 of
such case, the extrajudicial foreclosure and sale of the properties shall be declared null and void for obvious lack of basis, the G.R. SP No. 98591, and the Resolution 2 dated October 9, 2009 denying petitioner's motion fo
case being one of solutio indebiti instead. If, on the other hand, it turns out that petitioners' overpayments in interests do not The factual antecedents are undisputed.
exceed their total obligation, then the respondent may consolidate its ownership over the properties, since the period for Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch
redemption has expired. Its only obligation will be to return the difference between its bid price (P4,324,172.96) and petitioners' Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docke
total obligation outstanding except penalties after applying the latter's overpayments. 00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision 3 in favor of petitioner and fou
WHEREFORE, premises considered, the Petition is GRANTED. The May 8, 2007 Decision of the Court of Appeals in CA-G.R. employment without a valid or just cause. Thus, petitioner was awarded backwages and separ
CV No. 79650 is ANNULLED and SET ASIDE. Judgment is hereby rendered as follows: in the amount of P158,919.92. The dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge the burden o
1. The interest rates imposed and indicated in the 2nd up to the 26th Promissory Notes are DECLARED NULL AND VOID, and dismissed from employment for a just or valid cause. All the more, it is clear from the records tha
such notes shall instead be subject to interest at the rate of twelve percent (12%) per annum up to June 30, 2013, and starting due process before he was terminated. As such, we are perforce constrained to grant complai
July 1, 2013, six percent (6%) per annum until full satisfaction;
separation pay in lieu of reinstatement to his former position, considering the strained relationship between the parties, and his
apparent reluctance to be reinstated, computed only up to promulgation of this decision as follows: CcSTHI
WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty
therefore, ordered:

SEPARATION PAY 1. To pay jointly and severally the complainant the amount of sixty-two thousand nine hund
(P62,986.56) Pesos representing his separation pay;

2. To pay jointly and severally the complainant the amount of nine (sic) five thousand nine
Date Hired = (P95,933.36) representing his backwages; and
August 1990
Rate = 3. All other claims are hereby dismissed for lack of merit.
P198/day
Date of Decision = SO ORDERED. 4
Aug. 18, 1998
Length of Service = Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolut
8 yrs. & 1 month Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motio
P198.00 x 26 days x 8 months = denied. 6
P41,184.00
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24,
dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise den
BACKWAGES 2001. 7

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Find
of the CA, this Court denied the petition in the Resolution dated April 17, 2002. 8
Date Dismissed =
January 24, 1997 An Entry of Judgment was later issued certifying that the resolution became final and executo
Rate per day = was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was conseque
P196.00 failed to appear. 10
Date of Decisions =
Aug. 18, 1998 On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backw
a) 1/24/97 to 2/5/98 = 12.36 mos. of his dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme C
recomputation, the Computation and Examination Unit of the NLRC arrived at an updated am
P196.00/day x 12.36 mos. = 12 DSCIEa
P62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months On December 2, 2002, a Writ of Execution 13 was issued by the Labor Arbiter ordering the S
the total amount of P471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguin
Prevailing Rate per day = the Labor Arbiter awarded separation pay of P62,986.56 and limited backwages of P95,93
P62,986.00 required to be made of the said awards. They claimed that after the decision becomes final an
P198.00 x 26 days x 6.4 mos. = altered or amended anymore. 14 On January 13, 2003, the Labor Arbiter issued an Order 15 de
P32,947.20 Writ of Execution 16 was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution 1
TOTAL = the respondents and ordered the recomputation of the judgment award.
P95,933.76
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the N
======== Consequently, another pre-execution conference was held, but respondents failed to appea
moved that an Alias Writ of Execution be issued to enforce the earlier recomputed judgment a
18

The records of the case were again forwarded to the Computation and Examination Unit for rec
xxx xxx xxx award of petitioner was reassessed to be in the total amount of only P147,560.19.
 contend that to allow the further recomputation of the backwages to be awarded to petitioner
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as determined by would substantially vary the decision of the Labor Arbiter as it violates the rule on immutability
the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his backwages and separation pay.
The petition is meritorious.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was due to petitioner
in the amount of P147,560.19, which petitioner eventually received. The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Cou
wherein the issue submitted to the Court for resolution was the propriety of the computation o
Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the appropriate this violated the principle of immutability of judgment. Like in the present case, it was a distin
interests. 19 Labor Arbiter in the above-cited case that the decision already provided for the computation o
backwages due and did not further order the computation of the monetary awards up to the tim
On May 10, 2005, the Labor Arbiter issued an Order 20 granting the motion, but only up to the amount of P11,459.73. The Labor Also in Session Delights, the dismissed employee failed to appeal the decision of the labor arb
Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced considering that it was the one that became
final and executory. However, the Labor Arbiter reasoned that since the decision states that the separation pay and backwages In concrete terms, the question is whether a re-computation in the course of execution of the la
are computed only up to the promulgation of the said decision, it is the amount of P158,919.92 that should be executed. Thus, of the awards made, pegged as of the time the decision was rendered and confirmed with mod
since petitioner already received P147,560.19, he is only entitled to the balance of P11,459.73. legally proper. The question is posed, given that the petitioner did not immediately pay the aw
arbiter's decision; it delayed payment because it continued with the litigation until final judgmen
Petitioner then appealed before the NLRC, 21 which appeal was denied by the NLRC in its Resolution 22 dated September 27,
2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Resolution 23 dated January 31, 2007. A source of misunderstanding in implementing the final decision in this case proceeds from
framed his decision. The decision consists essentially of two parts.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
The first is that part of the decision that cannot now be disputed because it has been confirme
On September 23, 2008, the CA rendered a Decision 24 denying the petition. The CA opined that since petitioner no longer of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement, back
appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a belated correction interests. TaISEH
thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce the said judgment.
Consequently, it can no longer be modified in any respect, except to correct clerical errors or mistakes. The second part is the computation of the awards made. On its face, the computation the labo
time-bound as can be seen from the figures used in the computation. This part, being merely a
Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution 25 dated October 9, 2009. of the decision established and declared, can, by its nature, be re-computed. This is the part, t
should no longer be re-computed because the computation is already in the labor arbiter's de
Hence, the petition assigning the lone error: ScaATD The public and private respondents, on the other hand, posit that a re-computation is necessa
dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or up
I separation pay is to be given in lieu reinstatement.

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken
DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of
WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE computation be made. This Section in part states:
PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION
EXPRESSED IN THE BODY OF THE SAME DECISION. 26 [T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as
such decision or order the detailed and full amount awarded.
Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiter's decision, the
same is not final until reinstatement is made or until finality of the decision, in case of an award of separation pay. Petitioner Clearly implied from this original computation is its currency up to the finality of the labor arbite
maintains that considering that the October 15, 1998 decision of the Labor Arbiter did not become final and executory until the this implication is apparent from the terms of the computation itself, and no question would have
April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27, 2002, the the case and implemented the decision at that point.
reckoning point for the computation of the backwages and separation pay should be on May 27, 2002 and not when the decision
of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that he is also entitled to the payment of interest However, the petitioner disagreed with the labor arbiter's findings on all counts i.e., on the fin
from the finality of the decision until full payment by the respondents. the consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in
decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdictional ground
On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by the
October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made of said awards. Respondents The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds throu
insist that since the decision clearly stated that the separation pay and backwages are "computed only up to [the] promulgation for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the p
of this decision," and considering that petitioner no longer appealed the decision, petitioner is only entitled to the award as indemnity, lapsed to finality and was subsequently returned to the labor arbiter of origin for exe
computed by the Labor Arbiter in the total amount of P158,919.92. Respondents added that it was only during the execution
proceedings that the petitioner questioned the award, long after the decision had become final and executory. Respondents
It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor arbiter's 3. When the judgment of the court awarding a sum of money becomes final and executory, the
decision, the implementing labor arbiter ordered the award re-computed; he apparently read the figures originally ordered to be case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finalit
paid to be the computation due had the case been terminated and implemented at the labor arbiter's level. Thus, the labor arbiter period being deemed to be by then an equivalent to a forbearance of credit. 33
re-computed the award to include the separation pay and the backwages due up to the finality of the CA decision that fully
terminated the case on the merits. Unfortunately, the labor arbiter's approved computation went beyond the finality of the CA Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resoluti
decision (July 29, 2003) and included as well the payment for awards the final CA decision had deleted specifically, the approved the amendment of Section 2 34 of Circular No. 905, Series of 1982 and, accordin
proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision now questioned in the present Series of 2013, effective July 1, 2013, the pertinent portion of which reads: AHcaDC
petition.
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revis
We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the labor arbiter's in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905
original decision in accordance with its basic component parts as we discussed above. To reiterate, the first part contains the
finding of illegality and its monetary consequences; the second part is the computation of the awards or monetary consequences Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and
of the illegal dismissal, computed as of the time of the labor arbiter's original decision. 28 ESaITA the absence of an express contract as to such rate of interest, shall be six percent (6%) per an

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the petitioner, no Section 2. In view of the above, Subsection X305.1 36 of the Manual of Regulations for Banks an
essential change is made by a recomputation as this step is a necessary consequence that flows from the nature of the illegality 38 and 4303P.1 39 of the Manual of Regulations for Non-Bank Financial Institutions are hereb
of dismissal declared by the Labor Arbiter in that decision. 29 A recomputation (or an original computation, if no previous
computation has been made) is a part of the law specifically, Article 279 of the Labor Code and the established jurisprudence This Circular shall take effect on 1 July 2013.
on this provision that is read into the decision. By the nature of an illegal dismissal case, the reliefs continue to add up until
full satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of the consequences of illegal dismissal Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest th
upon execution of the decision does not constitute an alteration or amendment of the final decision being implemented. The rate of legal interest for loans or forbearance of any money, goods or credits and the rate allow
illegal dismissal ruling stands; only the computation of monetary consequences of this dismissal is affected, and this is not a be twelve percent (12%) per annum as reflected in the case of Eastern Shipping Lines 4
violation of the principle of immutability of final judgments. 30 Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manu
Financial Institutions, before its amendment by BSP-MB Circular No. 799 but will now be six
That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk that it July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied pro
ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the consequences of illegal Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 3
dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of reinstatement new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable
is allowed. When that happens, the finality of the illegal dismissal decision becomes the reckoning point instead of the
reinstatement that the law decrees. In allowing separation pay, the final decision effectively declares that the employment Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v.
relationship ended so that separation pay and backwages are to be computed up to that point. 31 41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforc
BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof o
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, 32 the goods or credits, including those for loans of low priority such as consumer loans, as well as s
Court laid down the guidelines regarding the manner of computing legal interest, to wit: finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe di
different types of borrowings, including deposits and deposit substitutes, or loans of financial in
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows: Nonetheless, with regard to those judgments that have become final and executory prior to Ju
not be disturbed and shall continue to be implemented applying the rate of interest fixed therei
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Sh
from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed modified to embody BSP-MB Circular No. 799, as follows:
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages contravenor can be held liable for damages. The provisions under Title XVIII on "Damag
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on determining the measure of recoverable damages.
unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made II. With regard particularly to an award of interest in the concept of actual and compensatory
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the well as the accrual thereof, is imposed, as follows: HcSaTI
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 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a lo
interest shall, in any case, be on the amount finally adjudged. interest due should be that which may have been stipulated in writing. Furthermore, the interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall b
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of A
 2. ID.; ID.; ESTAFA BY POSTDATING OR ISSUING A BAD CHECK; ELEMENTS. The foll
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages 315, paragraph 2 (d) of the Revised Penal Code for this kind of estafa: (1) postdating or issua
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on obligation contracted at the time the check was issued; (2) lack or insufficiency of funds to cov
unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly, the payee thereof (People v. Tugbang, et al;, G.R. No. 76212, April 26, 1991; and other cases)
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the 3. ID.; ID.; ID.; INDORSER MUST HAVE THE KNOWLEDGE OF THE FACT THAT DRAWER
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the WHEN HE NEGOTIATED THE CHECK. In the case of People v. Isleta, et al., 61 Phil. 332
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal the case of Zagado v. Court of Appeals, G.R. No. 76612, September 29, 1989, 178 SCRA
interest shall, in any case, be on the amount finally adjudged. appellant, who only negotiated the check drawn by another, guilty of estafa. This case of Peop
by the trial court in its order dated April 3, 1990, which denied the accused-appellant's motion
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the same defense. The trial court erred in doing so. It must have overlooked the ratio decidendi
case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim held the accused-appellant therein guilty of estafa because he "had guilty knowledge of the fa
period being deemed to be by then an equivalent to a forbearance of credit. in the bank when he negotiated the (subject) check" (at p. 334). In the present case, the pro
accused-appellant had such knowledge with respect to the subject checks that he indorsed. In
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and enough that courts take into account only the facts and the dispositive portions thereof. It is imp
shall continue to be implemented applying the rate of interest fixed therein. decisions be read and comprehended thoroughly.

WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP No. 98591, 4. ID.; ID.; ID.; IN PAYMENT OF AN OBLIGATION CONTRACTED AT THE TIME THE CHECK
and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are ORDERED to PAY petitioner: NOT APPLICABLE IN CASE AT BAR. Regarding the second part of the first element of A
Revised Penal Code, the accused-appellant alleges that when he deposited the subject chec
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002, when the clearly not in payment of an obligation to the Bank. The Office of the Solicitor General misses th
Resolution of this Court in G.R. No. 151332 became final and executory; This single argument of the accused-appellant spells tilting the scale to his advantage. In sev
that bank deposits are in the nature of irregular deposits. They are really loans because they
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of service; and deposits, whether fixed, savings, or current are to be treated as loans and are to be covered
savings deposits are loans to a bank because it can use the same (Serrano v. Central Bank o
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June 30, 2013 and L-30511, February 14, 1980, 96 SCRA 96; and other cases).
six percent (6%) per annum from July 1, 2013 until their full satisfaction.
5. ID.; ID.; ID.; DECEIT AS AN ELEMENT; NOT ESTABLISHED IN CASE AT BAR. Aside
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and due to discussed earlier, in the crime of estafa by postdating or issuing a bad check, deceit and dama
petitioner in accordance with this Decision. offense and have to be established with satisfactory proof to warrant conviction (U.S. v. Rivera
In this connection, the Office of the Solicitor General advances the view that by reason of the
SO ORDERED. TSIaAc acts of issuing and depositing checks, and withdrawing the amounts thereof before clearing by
were later honored and paid by the drawee banks, he was able to gain the trust and confid
||| (Nacar v. Gallery Frames, G.R. No. 189871, [August 13, 2013]) practice, albeit contrary to sound banking policy, was tolerated by the Bank. After thus having
of the Bank, he issued and deposited the subject checks, the amounts of which he later with
12. People v. Ong, G.R. No. 93849, December 10, 1991 sufficient funds to cover the amounts of said checks in the drawee banks. This view is not su
Rather, the evidence for the prosecution proved that the Bank on its own accorded him a dr
[G.R. No. 93849. December 20, 1991.] (DAUD) privilege without need of any pretensions on his part. Moreover, this privilege was no
for other past transactions. Fernando Esguerra and Felix Hocson even testified that in some
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO especially where the depositor is an important client, the Bank relaxed its rule and internal poli
VILLARAN AND LUCILA TALABIS, accused, DICK ONG y CHAN, accused-appellant. uncollected deposits, and allowed such depositor to withdraw against his uncleared checks and
the accused-appellant was one of the important depositors of the Bank. Granting, in gratia arg
The Solicitor General for plaintiff-appellee. fraudulently, he could not have done so without the active cooperation of the Bank's employees
and Ricardo Villaran were declared innocent of the crimes charged against them, the same
Leoncio T. Mercado for accused-appellant. appellant (see People v. Jalandoni, G.R. No. 57555, May 30, 1983, 122 SCRA 588). True it is t
the amount of P575,504.00 but the accused-appellant's liability thereon is only civil.
SYLLABUS
6. ID.; ID.; ID.; LIABILITY OF DRAWER WHO FAILED TO INFORM PAYEE OF THE INSU
1. CRIMINAL LAW; ESTAFA; ELEMENTS IN GENERAL. The elements of estafa in general are: (1) that the accused BANK; ELIMINATED UNDER REPUBLIC ACT NO. 4885. The trial court said that "[t]he cir
defrauded another (a) by abuse of confidence, or (b) by means of deceit; and (2) that damage or prejudice capable of pecuniary check had insufficient or no funds in the drawee bank to cover the amount of his check at the ti
estimation is caused to the offended party or third person. inform the payee or holder of such fact, are sufficient to make him liable for estafa". This state
have clarified in the case of People v. Sabio, Sr., etc., et al., supra, that Republic Act No. 4885
under the old provision for the drawer to inform the payee that he had no funds in the bank or the funds deposited by him were Upon being arraigned, the remaining three (3) accused entered the plea of not guilty to the
not sufficient to cover the amount of the check. merits, the trial court rendered its decision on January 11, 1990, the dispositive portion of whic

DECISION

MEDIALDEA, J p: "WHEREFORE, judgment is rendered: (1) pronouncing accused DICK ONG y CHAN guilt
principal, of ESTAFA defined under No. 2 (d) of Article 315 of the Revised Penal Code, as ame
The accused, Dick Ong y Chan, Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, were charged with the crime of penalized under the 1st paragraph of the same Code as amended by Presidential Decree No. 8
estafa in Criminal Case No. 44080 before the Regional Trial Court of Manila, Branch 35. The information filed in said case reads, to RECLUSION PERPETUA; (2) ACQUITTING accused Lucila Talabis and Ricardo Villaran the
as follows (pp. 8-9, Rollo): against them not having been established beyond reasonable doubt; (3) ordering accused Dic
Bank and Trust Company the sum of P559,381.34 as partial reparation of the damage caused to
"That in (sic) or about and during the period comprised between December 6, 1978 and January 31, 1979, both dates inclusive, in favor of the Home Savings Bank and Trust Company the sum of P16,122.66 the positive b
in the City of Manila, Philippines, the said accused, conspiring and confederating together and helping one another, did then and Savings Account No. 6-1931 of accused Dick Ong with, and in the possession of, said Bank
there wilfully, unlawfully and feloniously defraud the Home Savings Bank in the following manner, to wit: the said accused Dick damage caused by Dick Ong to the Bank; (5) ordering accused Dick Ong to pay one-third (1
Ong y Chan, by means of false manifestations and fraudulent representations which he made to the management of the Home two-thirds (2/3) of the costs charged de oficio.
Savings Bank, Aurea Annex Branch, located at 640 Rizal Avenue, Sta. Cruz, in said City, to the effect that the following checks,
to wit: "SO ORDERED."

PAYABLE On February 15, 1990, the accused-appellant filed a motion for reconsideration. On March 2
NAME OF CHECK NUMBER TO DATE AMOUNT memorandum in support of the motion for reconsideration. On April 3, 1990, said motion was
Metropolitan 82508 Cash 1-30-79 P49,500.00 576, Records). Hence, the present appeal by Dick Ong y Chan.
Bank & Trust Co. The facts of this case were summarized by the trial court, as follows (pp. 18-20, Rollo):
Equitable Bank 27624961 do. do. 14,569.00
Phil. Bank of Comm. T1907249 do. do. 59,00.00 "Accused Dick Ong was one of the depositors of the Home Savings Bank and Trust Company in
-do- T1907249 do. do. 67,400.00 Avenue Sta. Cruz, Manila, hereafter, to be referred to as the Bank. He opened his savings acco
China Banking Corp. QC 086174A do. 1-31-79 69,850.00 the Bank's Savings Account No. 6-1981, with an initial deposit of P22.14 in cash and P10,000.
Pacific Banking Corp. PCB 238056 S do. 1-31-79 60,890.00
Producers Bank "On the same date, December 6, 1978, without his check undergoing the usual and reglementa
of the Phil. C 987955 do. do. 49,090.00 takes about five working days, Dick Ong was allowed to withdraw from his savings account with
Equitable 27624963 do. do. 14,965.00 The corresponding withdrawal slip was signed and approved by Lino Morfe, then the Branc
Banking Talabis, the Branch Cashier. LibLex
Phil. Bank of the Phil. 1915852 do. do. 63,900.00
-do- 1915855 do. do. 59,800.00 "That initial transaction was followed by other similar transactions where Dick Ong, upon deposit
-do- 1915856 do. do. 65,880.00 with the Bank, was allowed to withdraw against those uncleared checks and uncollected
or all in the total amount of P575,504.00, are good and covered with sufficient funds in the banks, and by means of other similar authorized and approved by accused Ricardo Villaran and Lucila Talabis, sometimes jointly, s
deceits, with the conspiracy of his co-accused Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, in their capacities as alone, and at other times by one of them together with another official of the Bank. But all of th
officer-in-charge, branch accountant and bank branch cashier, respectively, of said bank (Home Savings Bank), induced and by Dick Ong prior to January 30, 1979 and against which he was allowed to withdraw were su
succeeded in inducing the management of the said bank to accept said checks as deposits, all the said accused well knowing the drawee banks. (TSN, Mar. 9, 1981, pp. 101-104; TSN, Mar. 18, 1981, pp. 144-146.)
that his (Dick Ong y Chan's) representations and manifestations are false and untrue and were made solely for the purpose of
defrauding the said bank, and, in accordance with their conspiracy, his co-accused Lino Morfe y Gutierrez, Ricardo Villaran and "On January 30, 1979, Dick Ong issued and deposited in his savings account with the Bank th
Lucila Talabis, facilitated the opening of a savings account in the name of accused Dick Ong y Chan and, thereafter, approved
said deposits; that on the strength of such deposits made and the opening of an account, the said accused were able to withdraw Drawee Bank Check No. Payee Amount
the total amount of P575,504.00, which once in their possession, with intent to defraud, they thereafter wilfully, unlawfully and
feloniously misappropriated, misapplied and converted to their own personal use and benefit, to the damage and prejudice of 1. Metropolitan 82508 Cash P49,500.00
said Home Savings Bank in the said amount of P575,504.00, Philippine Currency. cdphil Bank & Trust Co.
2. Equitable Bank 27624961 Cash 14,569.00
"Contrary to law." 3. Phil. Bank of Comm. T-1907265 Cash 59,600.00
4. Phil. Bank of Comm. T-1907249 Cash 67,400.00
On October 15, 1979, the prosecution moved for the dismissal of the case, insofar as accused Lino Morfe y Gutierrez is TOTAL P191,069.00
concerned, on the ground that after a reinvestigation, it was found that the evidence against him is not sufficient to sustain the
allegations contained in the information (p. 54, Records). On October 31, 1979, the trial court granted the motion (p. 60, Records). "Afterwards but before these checks could be cleared and the Bank could collect their amoun
Talabis allowed and approved the withdrawal of Dick Ong against the amounts of said checks.
 "7. Exhibit 5-b Ong. The Bank's Memorandum dated January 31, 1979, to all Branch Man
"On the following day, January 31, 1979, Dick Ong also issued and deposited in his savings account with the Bank the following requiring them to furnish the Head Office of the Bank every Monday and Thursday with
checks: 'encashment' accommodations (sic) of P1,000.00 and above granted by the Branch during the

Drawee Bank Check No. Payee Amount "8. Exhibit 6 Ong. The sworn statement of accused Dick Ong.

1. China Banking QC 086174A Cash P69,850.00 On the other hand, accused Lucila Talabis admitted that she approved the withdrawals of th
Corporation uncleared checks. However, she explained that her approval thereof was in accordance with the
2. Pacific Banking PCB 238056 S Cash 60,890.00 Lino Morfe; that this accommodation given or extended to the accused-appellant had been g
Corporation giving the same accommodation; that this was a common practice in the bank; that she appr
3. Producers Bank C 987955 Cash 49,090.00 with one other bank official, namely, either the bank manager, the bank accountant, the other ba
of the Phil. cashier; and that they reported those withdrawals against, and the dishonor of, the subject c
4. Equitable Banking 27624963 Cash 14,965.00 their reports to the head office.
5. Phil. Bank of 1915852 Cash 63,900.00
Communications Accused Ricardo Villaran testified on his behalf that the accused-appellant was able to withdr
6. Phil. Bank of 1915855 Cash 59,860.00 because of the accommodations extended to him by bank officials Lino Morfe, co-accused Lu
Communications Salamat, and Cora Gascon; that this practice of drawing against uncollected deposits was a co
7. Phil. Bank of 1915856 Cash 65,880.00 the Bank; that on December 14, 1978, the accused-appellant withdrew the sum of P75,000.0
Communications that on December 21, 1978, the accused-appellant deposited several checks in the total amou
TOTAL P384,435.00 on the same date the sum of P120,000.00; that on January 23, 1979, the accused-appellant a
the aggregate sum of P260,000.00 and withdrew, also on the same date, the amount of P2
"Subsequently, but before said seven checks were cleared and the Bank had collected their amounts, Lucila Talabis and then approved these three withdrawals of the accused-appellant against his uncollected deposits.
officer in charge of the Bank Grace Silao allowed and approved the withdrawals of Dick Ong against the amounts of these seven
checks. (TSN, Ibid., pp. 47-48.) LexLib In this appeal, the accused-appellant assigns the following errors committed by the trial court:

"However, when the Bank presented those eleven checks issued and deposited by Dick Ong on January 30, 1979 and January 1) it concluded that the withdrawals against the amounts of the subject checks before
31, 1979 and against which he made withdrawals against (sic) their amounts, to their respective drawee banks for payment, they corresponding amounts thereof by the depository bank from the drawee banks is deceit or fraud
were all dishonored for lack or insufficiency of funds. (TSN, Jan. 7, 1981, pp. 90-101; TSN, May 8, 1981, pp. 74-75.)" 315, paragraph 2(d) of the Revised Penal Code, in the total absence of evidence showing crimin
bank; and not a case which is civil in nature governed solely by the Negotiable Instruments La
The accused-appellant neither took the witness stand to testify in his behalf, nor presented any witness to testify in his favor.
Instead, he offered the following documents (p. 20, Rollo): 2) it stated that he issued and deposited the subject checks when he is not the issuer, maker,
indorser; hence, his liability, if any, is that of a general indorser under the Negotiable Instrumen
"1. Exhibit 1 Ong. The letter dated June 27, 1980 of the Central Bank Governor to all banks authorized to accept demand
deposits, enjoining strict compliance with Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a 3) it convicted him on mere presumption, without any evidence that he had prior knowledge of
matter of policy, drawing against uncollected deposits effective July 1, 1980. in the drawee banks to cover the amounts of the subject checks; and

"2. Exhibit 2 Ong. The Memorandum of the Central Bank Governor dated July 9, 1980, to all banks for their guidance, that 4) it failed to consider that a general indorser under the Negotiable Instruments Law warrants pa
Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a matter of policy, drawing against uncollected indorsed by him; no damage could have been suffered by the depository bank because he had
deposits effective July 1, 1980, covers drawing against demand deposits as well as withdrawals from savings deposits.
To support the aforementioned assignment of errors, the accused-appellant alleges that based
"3. Exhibits 3 Ong. and 3-a. Clippings from the Bulletin Today issue on July 25, 1980 regarding on (sic) ban on DAUD Lucila Talabis and Ricardo Villaran, he did not employ any deceit or fraud on the Bank beca
(drawn against uncollected deposits) effective July 1, 1980, and the one-day loan which replaced the DAUD arrangement. withdrawal against uncleared checks and uncollected deposits was tolerated by it. As soon as
subject checks, he offered to pay the amounts thereof (see pp. 48-49, tsn of Felix Hocson, Ma
"4. Exhibit 4 Ong. The sworn statement of Lino Morfe before the METROCOM taken on February 11, 1979 his property. The subject checks were not in payment of an obligation but were deposited in his
a general indorser of the subject checks and this being the case, his obligations as such, if any
"5. Exhibit 5 Ong. The letter dated July 6, 1979, of Lino Morfe to the Assistant Fiscal of Manila, transmitting his (Morfe's) 66 of the Negotiable Instruments Law. * The subject checks were issued or drawn by his cust
affidavit. not have had any knowledge as to the sufficiency of their funds in the drawee banks.

"6. Exhibits 5-a Ong to 5-a-3 Ong. Affidavit of Lino Morfe sworn on June 28, 1979.

The Office of the Solicitor General disputes the allegations of the accused-appellant. Accordin
appellant's antecedent acts of issuing and depositing checks, and withdrawing the amounts ther
banks, which checks were later honored and paid by the drawee banks, he was able to gain the trust and confidence of the
Bank, such that the practice, albeit contrary to sound banking policy, was tolerated by the Bank. After thus having gained the The contention of the Office of the Solicitor General is accurate only in part. In the trial court's
trust and confidence of the Bank, the accused-appellant issued and deposited the subject checks, the amounts of which he later accused-appellant, it said (p. 22, Rollo):
withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks in the drawee banks. Contrary to the
accused-appellant's allegation, the trial court found that he issued and deposited the subject checks in his savings account. As "There is no question that on January 30, 1979, accused Dick Ong issued or used and indors
drawer of the subject checks, the accused-appellant had the obligation to maintain funds in his current account in the drawee Account No. 6-1981 with the Bank the four checks . . .
banks sufficient to cover the amounts thereof or, in case of dishonor, to deposit within three (3) days from receipt of notice of
dishonor, the amounts necessary to cover the checks. The testimony of Felix Hocson, Senior Vice President and Treasurer of "There is likewise no dispute that on the following date, January 31, 1979, Dick Ong issued or u
the Bank, apart from being hearsay, does not prove that the accused-appellant made an offer to pay the amounts covered by in his savings account with the Bank seven checks . . ." (emphasis supplied).
the subject checks. Even assuming arguendo that the accused-appellant made an offer to pay the amounts covered by the
subject checks, said offer is not sufficient to rebut the prima facie evidence of deceit. There is no showing that the accused- On this subject matter, Fernando Esguerra, Internal Auditor of the Bank and a witness for the pr
appellant deposited the amounts necessary to cover the subject checks within three (3) days from receipt of notice from the 103, tsn, January 7, 1981): LLpr
Bank and or the payee or holder that said checks have been dishonored. The damage suffered by the Bank consists in its "Court
inability to make use of the P575,504.00 it had delivered to the accused-appellant. LexLib
Q: You mentioned these checks, Mr. Witness. Did you or anybody for that matter ever verif
We are convinced that the accused-appellant is innocent of the crime charged against him. checks whether it is Mr. Dick Ong himself?

Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885, provides: A: Yes, Your Honor. Our Vice-President for Bank Operations verified said checks and found
those checks are in the account of Mr. Dick Ong but the other checks are not in his account.
"ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall
be punished by: Court

. . ., provided that in the four cases mentioned, the fraud be committed by any of the following means: Q: In other words, there are checks where the depositor himself was also Mr. Dick Ong?

xxx xxx xxx. A: Could I go over the checks, Your Honor.

2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission Q: Is it indicated there?
of the fraud:
A: Yes, Your Honor, it is.
xxx xxx xxx.
Q: All right, go over the checks.
(d) By post-dating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his
funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit A: There is one check, Your Honor. It is a China Banking Corporation check in the amount of
the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder Exhibit 'Z').
that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false
pretense or fraudulent act." Q: Now, why do you say that the current checking account or current account was opened by M

The following are the elements of this kind of estafa: (1) postdating or issuance of a check in payment of an obligation contracted A: Because he is the drawer of the check, Your Honor." (emphasis supplied).
at the time the check was issued; (2) lack or insufficiency of funds to cover the check; and (3) damage to the payee thereof
(People v. Tugbang, et al., G.R. No. 76212, April 26, 1991; Sales v. Court of Appeals, et al., G.R. No. L-47817, August 29, 1988, Thus, the fact established by the prosecution and adopted by the trial court is that the subje
164 SCRA 717; People v. Sabio, Sr., etc., et al., G.R. No. L-45490, November 20, 1978, 86 SCRA 568). Based thereon, the trial indorsed by the accused-appellant.
court concluded that the guilt of the accused-appellant has "been duly established by the required quantum of evidence adduced In the case of People v. Isleta, et al., 61 Phil. 332, which was recently reiterated in the case of Z
by the People against (him)" (p. 22, Rollo). We shall confine Our discussion only on the first element because there is no No. 76612, September 29, 1989, 178 SCRA 146, We declared the accused-appellant, who on
argument that the second and third elements are present in this case. For an orderly discussion of this element, We will divide another, guilty of estafa. This case of People v. Isleta, et al. was relied upon by the trial cour
it into two (2) parts: first, "postdating or issuance of a check," and second, "in payment of an obligation contracted at the time the which denied the accused-appellant's motion for reconsideration based on the same defense.
check was issued." It must have overlooked the ratio decidendi of the aforementioned case. We held the accused
Inasmuch as the first part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code is concerned with the act because he "had guilty knowledge of the fact that (the drawer) had no funds in the bank when h
of "postdating or issuance of a check," the accused-appellant raises the defense that he was neither the issuer nor drawer of the (at p. 334). In the present case, the prosecution failed to prove that the accused-appellant had
subject checks, but only an indorser thereof Thus, his liability, if any, should be governed by the provision of the Negotiable the subject checks that he indorsed. In applying Our decisions, it is not enough that courts tak
Instruments Law, particularly Section 66 thereof, supra. Also, he could not have had any knowledge as to the sufficiency of the the dispositive portions thereof. It is imperative that the rationale of these decisions be read an
drawers' funds in their respective banks. The Office of the Solicitor General contends that the trial court found as a fact that the
accused-appellant issued the subject checks.
It goes without saying that with respect to the subject checks wherein the accused-appellant was the issuer/drawer, the first part We, therefore, find that the guilt of the accused-appellant for the crime of estafa under Article 31
of the first element of Article 315, paragraph 2(d) of the Revised Penal Code is applicable. However, this statement will lose its Penal Code has not been proven beyond reasonable doubt. However, We find him civilly lia
significance in Our next discussion. P575,504.00, less the balance remaining in his savings account with it (p. 26, Rollo), with legal
of this case until full payment.
Regarding the second part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code, the accused-appellant
alleges that when he deposited the subject checks in his savings account, it was clearly not in payment of an obligation to the ACCORDINGLY, the decision and order appealed from are hereby SET ASIDE. The accused
Bank. The Office of the Solicitor General misses this point of the accused-appellant. LLphil crime charged against him but ordered to pay the aforementioned amount. No costs.

This single argument of the accused-appellant spells tilting the scale to his advantage. In several cases, We were categorical SO ORDERED.
that bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank
deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. Current and ||| (People v. Ong y Chan, G.R. No. 93849, [December 20, 1991])
savings deposits are loans to a bank because it can use the same (Serrano v. Central Bank of the Philippines, et al., G.R. No.
L-30511, February 14, 1980, 96 SCRA 96; Gullas v. Philippine National Bank, 62 Phil. 519; Central Bank of the Philippines v. 13. Sps. Pascual v. Ramos, G.R. No. 144812, July 4, 2002
Morfe, etc., et al., G.R. No. L-38427, March 12, 1975, 63 SCRA 114; Guingona, Jr., et al. v. The City Fiscal of Manila, et al.,
G.R. No. 60033, April 4, 1984, 128 SCRA 577). [G.R. No. 144712. July 4, 2002.]

The elements of estafa in general are: (1) that the accused defrauded another (a) by abuse of confidence, or (b) by means of SPOUSES SILVESTRE and CELIA PASCUAL, petitioners, vs. RODRIGO V. RAMOS, respon
deceit; and (2) that damage or prejudice capable of pecuniary estimation is caused to the offended party or third person. Aside
from the elements that We have discussed earlier, in the crime of estafa by postdating or issuing a bad check, deceit and damage DECISION
are essential elements of the offense and have to be established with satisfactory proof to warrant conviction (U.S. v. Rivera, 23
Phil. 383; People, et al. v. Grospe, etc., et al., G.R. No. 74053-54, January 20, 1988, 157 SCRA 154; Buaya v. Polo, etc., et al., DAVIDE, JR., C.J p:
G.R. No. 75079, January 26, 1989, 169 SCRA 471).
Before us is a petition for review on certiorari assailing the 5 November 1999 Decision 1 and t
of the Court of Appeals in CA-G.R. CV No. 52848. The former affirmed the 5 June 1995 and
Regional Trial Court, Malolos, Bulacan, Branch 21, in Civil Case No. 526-M-93, and the latt
In this connection, the Office of the Solicitor General advances the view that by reason of the accused-appellant's antecedent reconsideration.
acts of issuing and depositing checks, and withdrawing the amounts thereof before clearing by the drawee banks, which checks
were later honored and paid by the drawee banks, he was able to gain the trust and confidence of the Bank, such that the The case at bar stemmed from the petition 3 for consolidation of title or ownership filed on 5
practice, albeit contrary to sound banking policy, was tolerated by the Bank. After thus having gained the trust and confidence herein respondent Rodrigo V. Ramos (hereafter RAMOS) against herein petitioners, Spous
of the Bank, he issued and deposited the subject checks, the amounts of which he later withdrew, fully aware that he had no (hereafter the PASCUALs). In his petition, RAMOS alleged that on 3 June 1987, for and in
sufficient funds to cover the amounts of said checks in the drawee banks. PASCUALs executed in his favor a Deed of Absolute Sale with Right to Repurchase ov
improvements thereon located in Bambang, Bulacan, Bulacan, covered by Transfer Certificate
This view is not supported by the facts of this case. Rather, the evidence for the prosecution proved that the Bank on its own Registry of Deeds of Bulacan. This document was annotated at the back of the title. The PASC
accorded him a drawn against uncollected deposit (DAUD) privilege without need of any pretensions on his part (pp. 7-8, supra). to repurchase the property within the stipulated one-year period; hence, RAMOS prayed tha
Moreover, this privilege was not only for the subject checks, but for other past transactions. Fernando Esguerra and Felix Hocson subject parcels of land and improvements thereon be consolidated in his favor.
even testified that in some instances prior to July 1, 1980, especially where the depositor is an important client, the Bank relaxed
its rule and internal policy against uncleared checks and uncollected deposits, and allowed such depositor to withdraw against In their Answer, 4 the PASCUALs admitted having signed the Deed of Absolute Sale with Right t
his uncleared checks and uncollected deposits. Admittedly, the accused-appellant was one of the important depositors of the of P150,000 but averred that what the parties had actually agreed upon and entered into w
Bank (pp. 24-25, Rollo). Granting, in gratia argumenti, that he had in fact acted fraudulently, he could not have done so without further alleged that there was no agreement limiting the period within which to exercise the righ
the active cooperation of the Bank's employees. Therefore, since Lucila Talabis and Ricardo Villaran were declared innocent of even overpaid RAMOS. Furthermore, they interposed the following defenses: (a) the trial c
the crimes charged against them, the same should be said for the accused-appellant (see People v. Jalandoni, G.R. No. 57555, subject or nature of the petition; (b) RAMOS had no legal capacity to sue; (c) the cause of
May 30, 1983, 122 SCRA 588). True it is that the Bank suffered damage in the amount of P575,504.00 but the accused- statute of limitations; (d) the petition stated no cause of action; (e) the claim or demand set forth
appellant's liability thereon is only civil. LLpr paid, waived, abandoned, or otherwise extinguished; and (f) RAMOS has not complied with
conciliation before the barangay.
One additional statement made by the trial court in its decision requires correction. It said that "[t]he circumstances that the
drawer of a check had insufficient or no funds in the drawee bank to cover the amount of his check at the time of its issuance By way of counterclaim, the PASCUALs prayed that RAMOS be ordered to execute a De
and he did not inform the payee or holder of such fact, are sufficient to make him liable for estafa" (p. 23, Rollo). This statement Discharge of the Deed of Absolute Sale with Right to Repurchase or a Deed of Real Estate Mort
is no longer controlling. We have clarified in the case of People v. Sabio, Sr., etc., et al., supra, that Republic Act No. 4885 has duplicate of TCT No. T-305626; return the amount they had overpaid; and pay each of them
eliminated the requirement under the old provision for the drawer to inform the payee that he had no funds in the bank or the damages in the amounts of P200,000 and P50,000, respectively, plus attorney's fees of P100
funds deposited by him were not sufficient to cover the amount of the check. per hearing; litigation expenses; and costs of suit.
After the pre-trial, the trial court issued an order 5 wherein it identified the following issues: (1) whether the Deed of Absolute
Sale with Right to Repurchase is an absolute sale or a mere mortgage; (2) whether the PASCUALs have paid or overpaid the WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintif
principal obligation; (3) whether the ownership over the parcel of land may be consolidated in favor of RAMOS; and (4) whether
damages may be awarded. 1. Dismissing the plaintiff's petition;

Among the documents offered in evidence by RAMOS during the trial on the merits was a document denominated as 2. Directing the Register of Deeds to cancel the annotation of the Deed of Sale with Right to R
Sinumpaang Salaysay 6 signed by RAMOS and Silvestre Pascual, but not notarized. The contents of the document read: TCT No. 305626;

Ako, si SILVESTRE PASCUAL, Filipino, nasa hustong gulang, may asawa at kasalukuyang naninirahan sa Bambang, Bulacan, 3. Awarding the defendants the sum of P141,500.00 as overpayment on the loan and interests
Bulacan, ay nagsasabing buong katotohanan at sumusumpa sa aking mga salaysay sa kasulatang ito:
4. Granting the defendants attorney's fee in the sum of P15,000.00 and P3,000.00 for litigation
1. Na ngayong June 3, 1987 dahil sa aking matinding pangangailangan ng puhunan ay lumapit ako at nakiusap kay Rodrigo
Ramos ng Taal, Pulilan, Bulacan na pautangin ako ng halagang P150,000.00. With costs against the plaintiff.

2. Na aming napagkasunduan na ang nasabing utang ay babayaran ko ng tubo ng seven percent (7%) o P10,500.00 isang RAMOS moved for the reconsideration of the decision, alleging that the trial court erred in using
buwan (7% per month). in the computation of the total amount of obligation because what was expressly stipulated in
7% per month. The total interest due from 3 June 1987 to 3 April 1995 was P987,000. Deducting
3. Na bilang sangla (collateral security) sa aming utang, kami ay nagkasundo na mag-execute ng Deed of Sale with Right to made in the sum of P344,000, the amount of P643,000 was still due as interest. Adding the latter
Repurchase para sa aking bahay at lupa (TCT No. 305626) sa Bo. Taliptip, Bambang, Bulacan, Bulacan ngayong June 3, 1987 the total amount due from the PASCUALs as of 3 April 1995 was P793,000.
at binigyan ako ni Mr. Ramos ng isang taon hanggang June 3, 1988 upang mabiling muli ang aking isinanla sa kaniya sa
kasunduang babayaran kong lahat ang capital na P150,000 00 pati na ang P10,500 00 na tubo buwan buwan. Finding merit in the motion for reconsideration, which was not opposed by the PASCUALs, the
an Order 9 modifying its decision by deleting the award of P141,500 to the PASCUALs as ove
4. Na bilang karagdagaag condition, si RODRIGO RAMOS ay pumayag sa aking kahilingan na kung sakali na hindi ko and ordering them to pay RAMOS P511,000 representing the principal loan plus interest. The
mabayaran ng buo ang aking pagkakautang (Principal plus interest) sa loob ng isang taon mula ngayon, ang nakasanglang had inadvertently declared the interest rate to be 7% per annum when, in fact, the Sinumpa
bahay at lupa ay hindi muna niya iilitin (foreclose) o ipalilipat sa pangalan niya at hindi muna kami paaalisin sa tinitirahan naming month. It noted that during trial, the PASCUALs never disputed the stipulated interest rate. How
bahay hanggat ang tubo (interest) na P10,500.00 ay nababayaran ko buwan buwan. 7% per month interest is too burdensome and onerous. Invoking the protective mantle of Ar
mandates the courts to be vigilant for the protection of a party at a disadvantage due to hi
5. Na ako ay sumasang-ayon sa kundisyon ni Rodrigo Ramos pagkatapos ng isang taon mula ngayon hanggang June 3, 1988 indigence, mental weakness, tender age or other handicap, the trial court unilaterally reduce
at puro interest lamang ang aking naibabayad buwan-buwan, kung sakaling hindi ako makabayad ng tubo for six (6) consecutive month to 5% per month. Thus, the interest due from 3 June 1987 to 3 April 1995 was P70
months (1/2 year after June 9, 1988 (6 na buwang hindi bayad ng interest ang utang ko) si Rodrigo Ramos ay binibigyan ko ng payments made by the PASCUALs in the amount of P344,000, the net interest due was P3
karapatan at kapangyarihan na magmay-ari ng aming bahay at lupa at kami ng aking pamilya ay kusang loob na aalis sa principal of P150,000, the total amount due from the PASCUALs was P511,000.
nasabing bahay at lupa na lumalabas na ibinenta ko sa kaniya dahil hindi ako nakasunod sa aming mga pinagkasunduang
usapan. Aggrieved by the modification of the decision, the PASCUALs filed a motion to reconsider the Or
that the motion for reconsideration filed by RAMOS was a mere scrap of paper because they re
6. At bilang finale ng aming kasunduan, ako ay nangangako na hindi maghahabol ng ano mang sukli sa pagkakailit ng aming a day before the hearing, in violation of the 3-day-notice rule. Moreover, they had already p
bahay at lupa kung sakali mang dumating sa ganuong pagkakataon o sitwasyon o di kaya'y magsasampa ng reklamo kanino overpaid the principal sum of P150,000. Besides, RAMOS, being an individual, could not ch
man. month or 12% per annum; and, the interest of either 5% or 7% a month is exorbitant, unconsc
and inequitable.
Bilang pagsang-ayon sa mga nasabing kasunduan, kami ay lumagda sa ibaba nito kalakip ng aking mga pangalan ngayong ika-
3 ng Hunyo, 1987 RAMOS opposed the motion of the PASCUALs. He contended that the non-compliance with
when the trial court gave them an opportunity to file their opposition, but despite the lapse of the
(Sgd.) Rodrigo Ramos (Sgd.) Silvestre Pascual was filed. It is not correct to say that he was not allowed to collect more than 1% per month
moratorium on the Usury Law, the allowable interest is that agreed upon by the parties. In th
Nagpautang Umutang there was fraud, force or undue influence exerted upon the PASCUALs when they entered into
agreement embodied in the Sinumpaang Salaysay should be respected. Furthermore, the tria
For their part, the PASCUALs presented documentary evidence consisting of acknowledgment receipts 7 to prove the payments interest rate to 5% per month, a rate which is not exorbitant, unconscionable, unreasonable an
they had made.

The trial court found that the transaction between the parties was actually a loan in the amount of P150,000, the payment of
which was secured by a mortgage of the property covered by TCT No. 305626. It also found that the PASCUALs had made Their motion for reconsideration having been denied in the Order 10 of 7 September 1995, the P
payments in the total sum of P344,000, and that with interest at 7% per annum, the PASCUALs had overpaid the loan by to the Court of Appeals. They pointed out that since the only prayer of RAMOS in his petition w
P141,500. Accordingly, in its Decision 8 of 15 March 1995 the trial court decreed as follows:
over the subject land and the improvements thereon consolidated in his favor and he did not have any prayer for general relief,
the trial court had no basis in ordering them to pay him the sum of P511,000. Our ruling in Medel v. Court of Appeals 14 is not applicable to the present case. In that case, th
interest at the rate of 5.5% per month was put in issue by the defendants in the Answer. Moreo
In its Decision 11 of 5 November 1999, the Court of Appeals affirmed in toto the trial court's Orders of 5 June 1995 and 7 debtors were also required, as per stipulation in the promissory note, to pay service charge
September 1995. It ruled that while RAMOS's petition for consolidation of title or ownership did not include a prayer for the charge of 1% per month plus attorney's fee of equivalent to 25% of the amount due. In the case a
payment of the balance of the petitioners' obligation and a prayer for general relief, the issue of whether there was still a balance for the payment of an extra amount except interest on the principal loan. Thus, taken in conju
from the amount loaned was deemed to have been raised in the pleadings by virtue of Section 5, Rule 10 of the Rules of Court, charge and penalty, the interest rate of 5.5% in the Medel case was found to be excessive, iniqu
which provides that "[w]hen issues not raised by the pleadings are tried with the express or implied consent of the parties, they and hence, contrary to morals, thereby making such stipulation null and void.
shall be treated in all respects as if they had been raised in the pleadings." In the course of the trial, receipts were presented by
the PASCUALs evidencing the payments they had made. Taken in conjunction with the Sinumpaang Salaysay which specified Considering the variance in the factual circumstances of the Medel case and the instant case,
the interest rate at 7% per month, a mathematical computation readily leads to the conclusion that there is still a balance due former lest it be construed that we can strike down anytime interest rates agreed upon by parti
from the PASCUALs, even at a reduced interest rate of 5% interest per month.
It is a basic principle in civil law that parties are bound by the stipulations in the contracts volunta
With the denial of their motion for reconsideration of the decision by the Court of Appeals, the PASCUALs filed before us the are free to stipulate terms and conditions which they deem convenient provided they are n
instant petition raising the sole issue of whether they are liable for 5% interest per month from 3 June 1987 to 3 April 1995. customs, public order, or public policy. 15
Invoking this Court's ruling in Medel v. Court of Appeals, 12 they argue that the 5% per month interest is excessive, iniquitous,
unconscionable and exorbitant. Moreover, respondent should not be allowed to collect interest of more than 1% per month The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the PASCUALs.
because he tried to hide the real transaction between the parties by imposing upon them to sign a Deed of Absolute Sale with and, in fact, there is no allegation showing that petitioners were victims of fraud when they
Right to Repurchase. RAMOS. Neither is there a showing that in their contractual relations with RAMOS, the PASC
account of their moral dependence, ignorance, mental weakness, tender age or other handicap
For his part, RAMOS contends that the issue raised by petitioners cannot be entertained anymore because it was neither raised vigilant protection of the courts as mandated by Article 24 of the Civil Code. Apropos in our rul
in the complaint nor ventilated during the trial. In any case, there was nothing illegal on the rate of interest agreed upon by the
parties, since the ceilings on interest rates prescribed under the Usury Law had expressly been removed, and hence parties are All men are presumed to be sane and normal and subject to be moved by substantially the s
left freely at their discretion to agree on any rate of interest. Moreover, there was no scheme to hide a usurious transaction. sane, they must take care of themselves. In their relations with others in the business of life, w
RAMOS then prays that the challenged decision and resolution be affirmed and that petitioners be further ordered to pay legal ability and judgment meet and clash and contest, sometimes with gain and advantage to all, so
interest on the interest due from the time it was demanded. and injury to others. In these contests men must depend upon themselves upon their own
acumen, judgment. The fact that one may be worsted by another, of itself, furnishes no caus
We see at once the proclivity of the PASCUALs to change theory almost every step of the case. complain because another is more able, or better trained, or has better sense or judgment than
on a fair field the inferior cannot murmur if the battle goes against him. The law furnishes no
By invoking the decision in Medel v. Court of Appeals, the PASCUALs are actually raising as issue the validity of the stipulated because he is inferior, any more than it protects the strong because he is strong. The law furnis
interest rate. It must be stressed that they never raised as a defense or as basis for their counterclaim the nullity of the stipulated one no more or less than to the other. It makes no distinction between the wise and the foo
interest. While overpayment was alleged in the Answer, no ultimate facts which constituted the basis of the overpayment was strong and the weak. The foolish may lose all they have to the wise; but that does not mean tha
alleged. In their pre-trial brief, the PASCUALs made a long list of issues, but not one of them touched on the validity of the again. Courts cannot follow one every step of his life and extricate him from bad bargains, prote
stipulated interest rate. Their own evidence clearly shows that they have agreed on, and have in fact said interest at, the rate of relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot con
7% per month. Exhibits "1" to "8" specifically mentioned that the payments made were for the interest due on the P150,000 loan persons who are not legally incompetent. Courts operate not because one person has been d
of the PASCUALs. In the course of the trial, the PASCUALs never put in issue the validity of the stipulated interest rate. but because he has been defeated or overcome illegally. Men may do foolish things, make rid
judgment, and lose money by then indeed, all they have in the world; but not for that alone c
After the trial court sustained petitioners' claim that their agreement with RAMOS was actually a loan with real estate mortgage, There must be, in addition, a violation of law, the commission of what the law knows as an act
the PASCUALs should not be allowed to turn their back on the stipulation in that agreement to pay interest at the rate of 7% per are authorized to lay hold of the situation and remedy it. 16
month. The PASCUALs should accept not only the favorable aspect of the court's declaration that the document is actually an
equitable mortgage but also the necessary consequence of such declaration, that is, that interest on the loan as stipulated by With the suspension of the Usury Law and the removal of interest ceiling, the parties are fr
the parties in that same document should be paid. Besides, when RAMOS moved for a reconsideration of the 15 March 1995 imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consen
Decision of the trial court pointing out that the interest rate to be used should be 7% per month, the PASCUALs never lifted a PASCUALs, the interest agreed upon is binding upon them. This Court is not in a position to
finger to oppose the claim. Admittedly, in their Motion for Reconsideration of the Order of 5 June 1995, the PASCUALs argued stipulations different from what they have agreed upon. As declared in the decision of Cuizon v
that the interest rate, whether it be 5% or 7%, is exorbitant, unconscionable, unreasonable, usurious and inequitable. However,
in their Appellants' Brief, the only argument raised by the PASCUALs was that RAMOS's petition did not contain a prayer for
general relief and, hence, the trial court had no basis for ordering them to pay RAMOS P511,000 representing the principal and
unpaid interest. It was only in their motion for the reconsideration of the decision of the Court of Appeals that the PASCUALs It is not the province of the court to alter a contract by construction or to make a new contract f
made an issue of the interest rate and prayed for its reduction to 12% per annum. to the interpretation of the one which they have made for themselves without regard to its wis
supply material stipulations or read into the contract words which it does not contain.
In Manila Bay Club Corp. v. Court of Appeals, 13 this Court ruled that if an issue is raised only in the motion for reconsideration
of the decision of the Court of Appeals, the effect is that it is as if it was never duly raised in that court at all. Thus, we cannot supplant the interest rate, which was reduced to 5% per month without oppos
We are not persuaded by the argument of the PASCUALs that since RAMOS tried to hide the real transaction by imposing upon
them the execution of a Deed of Absolute Sale with Right to Repurchase, he should not be allowed to collect more than 1% per 1. REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF; A PARTY MUST PROVE HIS OWN
month interest. It is undisputed that simultaneous with the execution of the said deed was the execution of the Sinumpaang A party is bound by his own affirmative allegations. This is a well-known postulate echoed
Salaysay, which set forth the true agreement of the parties. The PASCUALs cannot then claim that they did not know the real Revised Rules of Court. Each party must prove his own affirmative allegations by the amount o
transaction. in civil cases, as in this case, is preponderance of evidence, to obtain a favorable judgment.
terms of a policy which insures against other perils or hazards, loss from such a risk constitutes
RAMOS's claim that the interest due should earn legal interest cannot be acted upon favorably because he did not appeal from urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defea
the Order of the trial court of 5 June 1995, which simply ordered the payment by the PASCUALs of the amount of P511,000 or limitation in the policy has the burden of proving that the loss comes within the purview of th
without interest thereon. No relief can be granted a party who does not appeal. 18 Therefore, the order of the trial court should a proof is made of a loss apparently within a contract of insurance, the burden is upon the ins
stand. from a cause of loss which is expected or for which it is not liable, or from a cause which limits i
the petitioner in this case is defending on the ground of non-coverage and relying upon an exe
Incidentally, we noticed that in the Memorandum filed by RAMOS, the ruling in Vales v. Valle was reproduced by his counsel fire insurance policy, it has the burden of proving the facts upon which such excepted risk i
without the proper citation. Such act constitutes plagiarism. Atty. Felimon B. Mangahas is hereby warned that a repetition of evidence. But petitioner failed to do so. EDcIAC
such act shall be dealt with accordingly.
2. ID.; ID.; ADMISSIBILITY; HEARSAY RULE; ELUCIDATED. A witness can testify only to t
WHEREFORE, in view of all the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals in CA-G.R. CV personal knowledge, which means those facts which are derived from his perception. Conseq
No. 52848 is AFFIRMED in toto. as to what he merely learned from others either because he was told or read or heard the sam
hearsay and may not be received as proof of the truth of what he has learned. Such is the he
Costs against petitioners. to oral testimony or statements but also to written evidence as well. The hearsay rule is based
trustworthiness and reliability of hearsay evidence inasmuch as such evidence are not given
SO ORDERED. and, more importantly, have not been subjected to cross-examination by opposing counsel
veracity and articulateness of the out-of-court declarant or actor upon whose reliability on wh
||| (Sps. Pascual v. Ramos, G.R. No. 144712, [July 4, 2002], 433 PHIL 449-463) statement depends. Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo
being hearsay, inasmuch as they did not take the witness stand and could not therefore be cross
14. Country Bankers Ins. Corp. v. Lianga Bay & Com. Multi-Purpose Cooperative, Inc., G.R. No. 136914, January 25, to the hearsay rule, among which are entries in official records. To be admissible in evidence, h
2002 concur, to wit: (a) that the entry was made by a public officer, or by another person specially en
was made by the public officer in the performance of his duties, or by such other person in the
[G.R. No. 136914. January 25, 2002.] enjoined by law; and (c) that the public officer or other person had sufficient knowledge of the
have been acquired by him personally or through official information. The third requisite wa
COUNTRY BANKERS INSURANCE CORPORATION, petitioner, vs. LIANGA BAY AND COMMUNITY MULTI-PURPOSE investigation, independent of the statements gathered from Jose Lomocso, was conducted by
COOPERATIVE, INC., respondent.
3. ID.; ID.; ID.; REPORT RELATIVE TO THE STATEMENT OF ANOTHER MAY BE CONS
Velasquez Meru & Associates for petitioner. RELEVANT STATEMENT BUT NOT NECESSARILY TO PROVE THE TRUTH THEREOF.
Juarbal relative to the statement of Jose Lomocso to the effect that NPA rebels allegedly set fi
Alvizo Alvvizo Ranoco & Alvizo Law Offices for private respondent. inadmissible in evidence, for the purpose of proving the truth of the statements contained in th
The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. A
SYNOPSIS took the witness stand and was available for cross-examination. The portions of his Spot Re
knowledge or which consisted of his perceptions and conclusions are not hearsay. The rest
For the loss it sustained fire as a result of the fire, respondent filed an insurance claim with petitioner. Petitioner, however, denied statement of Jose Lomocso may be considered as independently relevant statements gath
the claim on the ground that based on the submitted documents, the building of respondent was set on fire by two NPA rebels investigation and may be admitted as such but not necessarily to prove the truth thereof.
who wanted to obtain provisions. This was an excepted risk under the policy contract.
The RTC decision, affirmed by the Court of Appeals, ordered petitioner to pay respondent P200,000 with interest at 12% per 4. CIVIL LAW; DAMAGES; AWARD OF INTEREST; PROPER INTEREST RATE IN INSURAN
annum from the date of the filing of the complaint until paid, as well as actual damages, exemplary damages, litigation expenses, the application of the proper interest rates, the guidelines were set in Eastern Shipping Line
attorney's fees and the costs of suit. Indeed, petitioner failed to prove the facts upon which the excepted risk was based. Mercantile Insurance Co., Inc. The Court observed that a "forbearance" in the context of the usu
Petitioner relied on the sworn statements of two witnesses and the Spot Report of Pfc. Juarbal. The sworn statements, however, of lender or creditor to refrain, during a given period of time, from requiring the borrower or de
were inadmissible for being hearsay inasmuch as the people who executed them did not take the witness stand and could not, due and payable." The insurance claim in this case is evidently not a forbearance of money, goo
therefore, be cross-examined. No investigation, independent of the statements, was conducted. The testimony of Pfc. Juarbal rate should be as it is hereby fixed at six percent (6%) computed from the date of filing of the c
relative to the sworn statements, on the other hand, may be considered as independently relevant statements gathered in the
course of investigation and may be admitted as such but not necessarily to prove the truth thereof. Nevertheless, the 12% interest 5. ID.; ID.; ACTUAL DAMAGES MUST BE PROVED. We find no justification for the aw
and other monetary awards were held not proper for lack of legal and valid basis. The interest rate should be and was set to 6% Thousand Pesos (P50,000.00). Well-entrenched is the doctrine that actual, compensatory and
from the date of filing of the complaint. proved, and cannot be presumed.
SYLLABUS
6. ID.; ID.; EXEMPLARY DAMAGES; WHEN PROPER. Concerning the award of exemplary damages for Fifty Thousand The petitioner, however, denied the insurance claim on the ground that, based on the submit
Pesos (P50,000.00), we likewise find no legal and valid basis for granting the same. Article 2229 of the New Civil Code provides set on fire by two (2) NPA rebels who wanted to obtain canned goods, rice and medicines as
that exemplary damages may be imposed by way of example or correction for the public good. Exemplary damages are imposed the forest, and that such loss was an excepted risk under paragraph No. 6 of the policy condit
not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially F-1397, which provides:
deleterious actions. They are designed to permit the courts to mould behavior that has socially deleterious consequences, and
its imposition is required by public policy to suppress the wanton acts of an offender. However, it cannot be recovered as a This insurance does not cover any loss or damage occasioned by or through or in consequenc
matter of right. It is based entirely on the discretion of the court. We find no cogent and valid reason to award the same in the the following occurrences, namely:
case at bar. IcHTED
xxx xxx xxx
7. ID.; ID.; LITIGATION EXPENSES AND ATTORNEY'S FEES; ELUCIDATED. With respect to the award of litigation (d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurpe
expenses and attorney's fees, Article 2208 of the New Civil Code enumerates the instances where such may be awarded and,
in all cases, it must be reasonable, just and equitable if the same were to be granted. Attorney's fees as part of damages are not Any loss or damage happening during the existence of abnormal conditions (whether ph
meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit occasioned by or through or in consequence, directly or indirectly, of any of said occurrence
because of the policy that no premium should be placed on the right to litigate. The award of attorney's fees is the exception damage which is not covered by this insurance, except to the extent that the Insured shall
rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case happened independently of the existence of such abnormal conditions.
within the exception and justify the grant of such award.
Finding the denial of its claim unacceptable, the respondent then instituted in the trial court th
DECISION damage or liability" against petitioner. The petitioner answered the complaint and reiterated t
the insurance claim, that is, that the loss was due to NPA rebels, an excepted risk under the fir
DE LEON, JR., J p:
In due time, the trial court rendered its Decision dated December 26, 1991 in favor of the respo
Before us is a petition for review on certiorari of the Decision 1 of the Court of Appeals 2 dated December 29, 1998 in CA-G.R.
CV Case No. 36902 affirming in toto the Decision 3 dated December 26, 1991 of the Regional Trial Court of Lianga, Surigao del Based on its findings, it is therefore the considered opinion of this Court, as it so holds, that th
Sur, Branch 28, in Civil Case No. L-518 which ordered petitioner Country Bankers Insurance Corporation to fully pay the Country Bankers has utterly crumbled on account of its inherent weakness, incredibility an
insurance claim of respondent Lianga Bay and Community Multi-Purpose Cooperative, Inc., under Fire Insurance Policy No. F- those helpful tools like common sense, logic and the Court's honest appraisal of the real and
1397, for loss sustained as a result of the fire that occurred on July 1, 1989 in the amount of Two Hundred Thousand Pesos area, such defenses remains (sic) unimpressive and unconvincing, and therefore, the defenda
(P200,000.00), with interest at twelve percent (12%) per annum from the date of filing of the complaint until fully paid, as well as irreversibly adjudged liable, as it should be, to plaintiff-Insolvent Cooperative, represented in thi
Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five Jamero, and thus, ordering said defendant Country Bankers to pay the plaintiff-Insolvent Co
Thousand Pesos (P5,000.00) as litigation expenses, Ten Thousand Pesos (P10,000.00) as attorney's fees, and the costs of suit.
1. To fully pay the insurance claim for the loss the insured-plaintiff sustained as a result of the fi
No. F-1397 in its full face value of P200,000.00 with interest of 12% per annum from date of filin
is fully paid;
The facts are undisputed:
2. To pay as and in the concept of actual or compensatory damages in the total sum of P50,00
The petitioner is a domestic corporation principally engaged in the insurance business wherein it undertakes, for a consideration,
to indemnify another against loss, damage or liability from an unknown or contingent event including fire while the respondent is 3. To pay as and in the concept of exemplary damages in the total sum of P50,000.00;
a duly registered cooperative judicially declared insolvent and represented by the elected assignee, Cornelio Jamero.
4. To pay in the concept of litigation expenses the sum of P5,000.00;
It appears that sometime in 1989, the petitioner and the respondent entered into a contract of fire insurance. Under Fire Insurance
Policy No. F-1397, the petitioner insured the respondent's stocks-in-trade against fire loss, damage or liability during the period 5. To pay by way of reimbursement the attorney's fees in the sum of P10,000.00; and
starting from June 20, 1989 at 4:00 p.m. to June 20, 1990 at 4:00 p.m., for the sum of Two Hundred Thousand Pesos
(P200,000.00). 6. To pay the costs of the suit.

On July 1, 1989, at or about 12:40 a.m., the respondent's building located at Barangay Diatagon, Lianga, Surigao del Sur was For being unsubstantiated with credible and positive evidence, the "counterclaim" is dismissed
gutted by fire and reduced to ashes, resulting in the total loss of the respondent's stocks-in-trade, pieces of furniture and fixtures,
equipments and records. IT IS SO ORDERED.

Due to the loss, the respondent filed an insurance claim with the petitioner under its Fire Insurance Policy No. F-1397, submitting: Petitioner interposed an appeal to the Court of Appeals. On December 29, 1998, the appella
(a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated July 1, 1989; (b) the Sworn Statement of Jose Lomocso; decision of the trial court in its entirety. Petitioner now comes before us via the instant petition
and (c) the Sworn Statement of Ernesto Urbiztondo. errors, 4 to wit:
1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE CREDENCE TO THE SPOT REPORT OF (a) that the entry was made by a public officer, or by another person specially enjoined by law
PFC. ARTURO JUARBAL (EXH. 3) AND THE SWORN STATEMENT OF JOSE LOMOCSO (EXH. 4) THAT THE
RESPONDENT'S STOCK-IN-TRADE WAS BURNED BY THE NPA REBELS, HENCE AN EXCEPTED RISK UNDER THE FIRE (b) that it was made by the public officer in the performance of his duties, or by such other per
INSURANCE POLICY. specially enjoined by law; and

2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE FOR 12% INTEREST PER ANNUM (c) that the public officer or other person had sufficient knowledge of the facts by him stated, w
ON THE FACE VALUE OF THE POLICY FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID. him personally or through official information. 12

3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER LIABLE FOR ACTUAL AND The third requisite was not met in this case since no investigation, independent of the statemen
EXEMPLARY DAMAGES, LITIGATION EXPENSES, ATTORNEYS FEES AND COST OF SUIT. was conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner itself pointed out, citing the
13 the latter's Spot Report "was based on the personal knowledge of the caretaker Jose Lomo
A party is bound by his own affirmative allegations. This is a well-known postulate echoed in Section 1 of Rule 131 of the Revised incident surrounding the facts and circumstances of the case." This argument undeniably wea
Rules of Court. Each party must prove his own affirmative allegations by the amount of evidence required by law which in civil the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose Lomocso to the effect
cases, as in this case, is preponderance of evidence, to obtain a favorable judgment. 5 to the respondent's building is inadmissible in evidence, for the purpose of proving the truth o
said report, for being hearsay.
In the instant case, the petitioner does not dispute that the respondent's stocks-in-trade were insured against fire loss, damage
or liability under Fire Insurance Policy No. F-1397 and that the respondent lost its stocks-in-trade in a fire that occurred on July The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. A
1, 1989, within the duration of said fire insurance. The petitioner, however, posits the view that the cause of the loss was an took the witness stand and was available for cross-examination. The portions of his Spot Re
excepted risk under the terms of the fire insurance policy. knowledge or which consisted of his perceptions and conclusions are not hearsay. The rest
statement of Jose Lomocso may be considered as independently relevant statements gath
Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes investigation and may be admitted as such but not necessarily to prove the truth thereof. 14
a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat
a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview of The petitioner's evidence to prove its defense is sadly wanting and thus, gives rise to its liabi
the exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the burden is upon the Insurance Policy No. F-1397. Nonetheless, we do not sustain the trial court's imposition of twe
insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which insurance claim as well as the monetary award for actual and exemplary damages, litigation
limits its liability. 6 Stated elsewise, since the petitioner in this case is defending on the ground of non-coverage and relying upon lack of legal and valid basis.
an exemption or exception clause in the fire insurance policy, it has the burden of proving the facts upon which such excepted
risk is based, by a preponderance of evidence. 7 But petitioner failed to do so. Concerning the application of the proper interest rates, the following guidelines were set in Eas
of Appeals and Mercantile Insurance Co., Inc.: 15
The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as on the Spot Report of Pfc.
Arturo V. Juarbal dated July 1, 1989, more particularly the following statement therein: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts o
contravenor can be held liable for damages. The provisions under Title XVIII on "Damag
. . . investigation revealed by Jose Lomocso that those armed men wanted to get can goods and rice for their consumption in determining the measure of recoverable damages.
the forest PD investigation further disclosed that the perpetrator are member (sic) of the NPA PD end. . . .
II. With regard particularly to an award of interest in the concept of actual and compensatory
A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are derived well as the accrual thereof, is imposed, as follows:
from his perception. 8 Consequently, a witness may not testify as to what he merely learned from others either because he was
told or read or heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of what he 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a lo
has learned. Such is the hearsay rule which applies not only to oral testimony or statements but also to written evidence as well. interest due should be that which may have been stipulated in writing. Furthermore, the interest
9 from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of A
The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as
such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross- 2. When an obligation, not constituting a loan or forbearance of money, is breached, an inte
examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interes
actor upon whose reliability on which the worth of the out-of-court statement depends. 10 unliquidated claims or damages except when or until the demand can be established with re
where the demand is established with reasonable certainty, the interest shall begin to run f
Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay, inasmuch judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reaso
as they did not take the witness stand and could not therefore be cross-examined. demand is made, the interest shall begin to run only from the date the judgment of the c
quantification of damages may be deemed to have been reasonably ascertained). The actual
There are exceptions to the hearsay rule, among which are entries in official records. 11 To be admissible in evidence, however, interest shall, in any case, be on the amount finally adjudged.
three (3) requisites must concur, to wit:
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim PANGANIBAN, J p:
period being deemed to be by then an equivalent to a forbearance of credit.
Iniquitous and unconscionable stipulations on interest rates, penalties and attorney's fees are c
In the said case of Eastern Shipping, the Court further observed that a "forbearance" in the context of the usury law is a courts are granted authority to reduce them equitably. If reasonably exercised, such authority s
"contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay courts.
a loan or debt then due and payable."
Considering the foregoing, the insurance claim in this case is evidently not a forbearance of money, goods or credit, and thus The Case
the interest rate should be as it is hereby fixed at six percent (6%) computed from the date of filing of the complaint. Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the July 19, 2
2001 Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 43635. The decretal portion
We find no justification for the award of actual damages of Fifty Thousand Pesos (P50,000.00). Well-entrenched is the doctrine
that actual, compensatory and consequential damages must be proved, and cannot be presumed. 16 That part of the dispositive "WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court, 5th J
portion of the Decision of the trial court ordering the petitioner to pay actual damages of Fifty Thousand Pesos (P50,000.00) has City, dated August 31, 1993, in Civil Case No. 89-1911 for Sum of Money, is hereby AFFIRME
no basis at all. The justification, if any, for such an award of actual damages does not appear in the body of the decision of the
trial court. Neither is there any testimonial and documentary evidence on the alleged actual damages of Fifty Thousand Pesos The assailed Resolution denied petitioner's Motion for Reconsideration.
(P50,000.00) to warrant such an award. Thus, the same must be deleted.
The dispositive portion of the August 31, 1993 Decision, promulgated by the Regional Trial C
Concerning the award of exemplary damages for Fifty Thousand Pesos (P50,000.00), we likewise find no legal and valid basis 21) and affirmed by the CA, reads as follows:
for granting the same. Article 2229 of the New Civil Code provides that exemplary damages may be imposed by way of example
or correction for the public good. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as "Wherefore, Judgment is hereby rendered declaring Section I, Central Bank Circular No. 905,
a deterrent against or as a negative incentive to curb socially deleterious actions. They are designed to permit the courts to and legal effect, it having been promulgated by the Monetary Board of the Central Bank of the
mould behavior that has socially deleterious consequences, and its imposition is required by public policy to suppress the wanton discretion amounting to excess of jurisdiction; declaring that the rate of interest, penalty, and ch
acts of an offender. However, it cannot be recovered as a matter of right. It is based entirely on the discretion of the court. We upon between the parties are unconscionable, iniquitous, and in violation of Act No. 2655, oth
find no cogent and valid reason to award the same in the case at bar. as amended; and ordering Defendant to pay Plaintiff the amount of FOUR HUNDRED SEVE
HUNDRED NINETY-FOUR and 54/100 (P478,194.54) PESOS, Philippine currency, with reg
With respect to the award of litigation expenses and attorney's fees, Article 2208 of the New Civil Code 17 enumerates the thereon at the rate of twenty-eight (28%) per centum per annum, computed from August 31, 1
instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be granted. amount, and in addition, an amount equivalent to ten (10%) per centum of the total amount due
Attorney's fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not without pronouncement as to costs." 5
awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. 18
The award of attorney's fees is the exception rather than the general rule. As such, it is necessary for the court to make findings The Facts
of facts and law that would bring the case within the exception and justify the grant of such award. We find none in this case to The CA summarized the facts of the case in this wise:
warrant the award by the trial court of litigation expenses and attorney's fees in the amounts of Five Thousand Pesos (P5,000.00)
and Ten Thousand Pesos (P10,000.00), respectively, and therefore, the same must also be deleted. "The present controversy arose from a case for collection of money, filed by Alex A. Jaucia
October 26, 1989. The complaint alleges, inter alia, that defendant obtained from plaintiff six
WHEREFORE, the appealed Decision is MODIFIED. The rate of interest on the adjudged principal amount of Two Hundred former executed in favor of the latter six (6) separate promissory notes and issued several ch
Thousand Pesos (P200,000.00) shall be six percent (6%) per annum computed from the date of filing of the Complaint in the When the said loans became overdue and unpaid, especially when the defendant's checks
trial court. The awards in the amounts of Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos repeated oral and written demands for payment. cSITDa
(P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, and Ten Thousand Pesos
(P10,000.00) as attorney's fees are hereby DELETED. Costs against the petitioner. "Specifically, the six (6) separate loans obtained by defendant from plaintiff on various dates a

SO ORDERED. (a) November 13, 1987 P50,000.00

||| (Country Bankers Insurance Corp. v. Lianga Bay & Community Multi-Purpose Cooperative, Inc., G.R. No. 136914, [January (b) December 28, 1987 40,000.00
25, 2002], 425 PHIL 511-525)
(c) January 6, 1988 30,000.00
15. Imperial v. Jaucian, G.R. No. 149004, April 14, 2004
(d) January 11, 1988 50,000.00
[G.R. No. 149004. April 14, 2004.]
(e) January 12, 1988 50,000.00
RESTITUTA M. IMPERIAL, petitioner, vs. ALEX A. JAUCIAN, respondent.
(f) January 13, 1988 100,000.00
DECISION


Total P320,000.00
Total P320,000.00
"The loans were covered by six (6) separate promissory notes executed by defendant. The face value of each promissory note
is bigger [than] the amount released to defendant because said face value already include[d] the interest from date of note to "The loan on November 13, 1987 and January 6, 1988 ha[d] been fully paid including the usur
date of maturity. Said promissory notes, which indicate the interest of 16% per month, date of issue, due date, the corresponding this is the reason why these were not included in the complaint.
guarantee checks issued by defendant, penalties and attorney's fees, are the following:
"Defendant alleges that all the above amounts were released respectively by checks drawn b
1. Exhibit 'D' for loan of P40,000.00 on December 28, 1987, with face value of P65,000.00; produce these checks as these were returned to him being the drawer if only to serve the truth
amount released to the defendant but the plaintiff by masterful machinations made it appear th
2. Exhibit 'E' for loan of P50,000.00 on January 11, 1988, with face value of P82,000.00; P462,600.00. Because in his computation he made it appear that the true amounts released w
it include[d] the unconscionable interest for four months. SaAcHE
3. Exhibit 'F' for loan of P50,000.00 on January 12, 1988, with face value of P82,000.00;
"Further, defendant claims that as of January 25, 1989, the total payments made by defendant
4. Exhibit 'G' for loan of P100,000.00 on January 13, 1988, with face value of P164,000.00;
a. Paid releases on November 13, 1987 of P50,000.00 and January 6, 1988 of P30,000.00 thes
5. Exhibit 'H' This particular promissory note covers the second renewal of the original loan of P50,000.00 on November 13, the complaint affirming the fact that these were paid P80,000.00
1987, which was renewed for the first time on March 16, 1988 after certain payments, and which was renewed finally for the
second time on January 4, 1988 also after certain payments, with a face value of P56,240.00; b. Exhibit '26' Receipt 231,000.00

6. Exhibit 'I' This particular promissory note covers the second renewal of the original loan of P30,000.00 on January 6, 1988, c. Exhibit '8-25' Receipt 65,300.00
which was renewed for the first time on June 4, 1988 after certain payments, and which was finally renewed for the second time
on August 6, 1988, also after certain payments, with [a] face value of P12,760.00; d. Exhibit '27' Receipt 65,000.00

"The particulars about the postdated checks, i.e., number, amount, date, etc., are indicated in each of the promissory notes.
Thus, for Exhibit 'D', four (4) PB checks were issued; for Exhibit 'E' four (4) checks; for Exhibit 'F' four (4) checks; for Exhibit 'G'
four (4) checks; for Exhibit 'H' one (1) check; for Exhibit 'I' one (1) check; Total P441,780.00

"The arrangement between plaintiff and defendant regarding these guarantee checks was that each time a check matures the Less: 320,000.00
defendant would exchange it with cash.

"Although, admittedly, defendant made several payments, the same were not enough and she always defaulted whenever her
loans mature[d]. As of August 16, 1991, the total unpaid amount, including accrued interest, penalties and attorney's fees, [was] Excess Payment P121,780.00
P2,807,784.20.
"Defendant contends that from all perspectives the above excess payment of P121,780.00 is
"On the other hand, defendant claims that she was extended loans by the plaintiff on several occasions, i.e., from November 13, be legally charged, and in fact as of January 25, 1989, the total releases have been fully paid.
1987 to January 13, 1988, in the total sum of P320,000.00 at the rate of sixteen percent (16%) per month. The notes mature[d]
every four (4) months with unearned interest compounding every four (4) months if the loan [was] not fully paid. The loan releases "On 31 August 1993, the trial court rendered the assailed decision." 6
[were] as follows:
Ruling of the Court of Appeals
(a) November 13, 1987 P50,000.00 On appeal, the CA held that without judicial inquiry, it was improper for the RTC to rule on t
Central Bank Circular No. 905, Series of 1982. Nonetheless, the appellate court affirmed the ju
(b) December 28, 1987 40,000.00 that the latter's clear and detailed computation of petitioner's outstanding obligation to r
satisfactory.
(c) January 6, 1988 30,000.00
Hence, this Petition. 7
(d) January 11, 1988 50,000.00
The Issues
(e) January 12, 1988 50,000.00 Petitioner raises the following arguments for our consideration:

(f) January 13, 1988 100,000.00 "1. That the petitioner has fully paid her obligations even before filing of this case.
 annum. When the agreed rate is iniquitous or unconscionable, it is considered "contrary to mor
"2. That the charging of interest of twenty-eight (28%) per centum per annum without any writing is illegal. stipulation is void." 15

"3. That charging of excessive attorney's fees is hemorrhagic. Since the stipulation on the interest rate is void, it is as if there were no express contract thereo
the interest rate as reason and equity demand. We find no justification to reverse or modify th
"4. Charging of excessive penalties per month is in the guise of hidden interest. courts.

"5. The non-inclusion of the husband of the petitioner at the time the case was filed should have dismissed this case." 8 Third and Fourth Issue:
Penalties and Attorney's Fees
The Court's Ruling Article 1229 of the Civil Code states thus:
The Petition has no merit.
"The judge shall equitably reduce the penalty when the principal obligation has been partly o
First Issue: debtor. Even if there has been no performance, the penalty may also be reduced by
Computation of Outstanding Obligation unconscionable."
Arguing that she had already fully paid the loan before the filing of the case, petitioner alleges that the two lower courts
misappreciated the facts when they ruled that she still had an outstanding balance of P208,430. In exercising this power to determine what is iniquitous and unconscionable, courts must con
case. 17 What may be iniquitous and unconscionable in one may be totally just and equitable
This issue involves a question of fact. Such question exists when a doubt or difference arises as to the truth or the falsehood of iniquitous and unconscionable was the parties' stipulated penalty charge of 5 percent per mo
alleged facts; and when there is need for a calibration of the evidence, considering mainly the credibility of witnesses and the addition to regular interests and attorney's fees. Also, there was partial performance by petitio
existence and the relevancy of specific surrounding circumstances, their relation to each other and to the whole, and the as partial payment of her principal obligation of P320,000. Under the circumstances, the trial c
probabilities of the situation. 9 stipulated penalty charge to the more equitable rate of 14 percent per annum.

It is a well-entrenched rule that pure questions of fact may not be the subject of an appeal by certiorari under Rule 45 of the The Promissory Note carried a stipulation for attorney's fees of 25 percent of the principal amou
Rules of Court, as this remedy is generally confined to questions of law. 10 The jurisdiction of this Court over cases brought to speaking, this covenant on attorney's fees is different from that mentioned in and regulated b
it is limited to the review and rectification of errors of law allegedly committed by the lower court. As a rule, the latter's factual the attorney's fees here are in the nature of liquidated damages and the stipulation therefor is
findings, when adopted and affirmed by the CA, are final and conclusive and may not be reviewed on appeal. 11 So long as the stipulation does not contravene the law, morals, public order or public policy, i
the litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by ex
Generally, this Court is not required to analyze and weigh all over again the evidence already considered in the proceedings
below. 12 In the present case, we find no compelling reason to overturn the factual findings of the RTC that the total amount Nevertheless, it appears that petitioner's failure to comply fully with her obligation was not m
of the loans extended to petitioner was P320,000, and that she paid a total of only P116,540 on twenty-nine dates. These findings twenty-nine partial payments she made were a manifestation of her good faith. Again, Article 1
are supported by a preponderance of evidence. Moreover, the amount of the outstanding obligation has been meticulously empowers the judge to reduce the civil penalty equitably, when the principal obligation has be
computed by the trial court and affirmed by the CA. Petitioner has not given us sufficient reason why her cause falls under any with. Upon this premise, we hold that the RTC's reduction of attorney's fees from 25 percent
of the exceptions to this rule on the finality of factual findings. AcIaST due and payable is reasonable.

Fifth Issue:
Non-Inclusion of Petitioner's Husband
Second Issue: Petitioner contends that the case against her should have been dismissed, because her h
Rate of Interest proceedings before the RTC.
The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to 1.167 percent per month or 14 percent per
annum; and the stipulated penalty charge, from 5 percent to 1.167 percent per month or 14 percent per annum. We are not persuaded. The husband's non-joinder does not warrant dismissal, as it is merely a
cured by amendment. 20 Since petitioner alleges that her husband has already passed awa
Petitioner alleges that absent any written stipulation between the parties, the lower courts should have imposed the rate of 12 become moot. cSITDa
percent per annum only.
WHEREFORE, the Petition is DENIED. Costs against petitioner.
The records show that there was a written agreement between the parties for the payment of interest on the subject loans at the
rate of 16 percent per month. As decreed by the lower courts, this rate must be equitably reduced for being iniquitous, SO ORDERED.
unconscionable and exorbitant. "While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the
said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or ||| (Imperial v. Jaucian, G.R. No. 149004, [April 14, 2004], 471 PHIL 484-496)
lead to a hemorrhaging of their assets." 13
16. Angel Jose Warehousing Co., Inc. v. Chelda Ent., G.R. No. L-25704, April 24, 1968
In Medel v. CA, 14 the Court found the stipulated interest rate of 5.5 percent per month, or 66 percent per annum,
unconscionable. In the present case, the rate is even more iniquitous and unconscionable, as it amounts to 192 percent per [G.R. No. L-25704. April 24, 1968.]
 Answering, defendants averred that they obtained four loans from plaintiff in the total amount of
ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee, vs. CHELDA ENTERPRISES and DAVID SYJUECO, defendants- had been paid, leaving a balance of P20,880.00; that plaintiff charged and deducted from the
appellants. rates of 2% and 2.5% per month, and, consequently, plaintiff has no cause of action agains
permitted to recover under the law. A counterclaim for P2,000.00 attorney's fees was interpose
Burgos and Sarte for appellants.
Plaintiff filed on June 25, 1964 an answer to the counterclaim, specifically denying under oath
Luis Ma. Guerrero for appellee.
After trial, decision was rendered on November 10, 1965. The court found that there remained
SYLLABUS principal amount of P20,287.50; that plaintiff charged usurious interests, of which P1,048.15
advance by plaintiff from the loan; that said amount of P1,048.15 should therefore be deduc
1. CONTRACTS; LOANS; CONTRACT WITH USURIOUS INTEREST; LOAN IS VALID BUT USURIOUS INTEREST VOID. P20,287.50, leaving a balance of P19,247.35 1 still payable to the plaintiff. Said court held t
A contract of loan with usurious interest is valid as to the loan but void as to the usurious interest (Lopez vs. El Hogar Filipino, interest charged, plaintiff is not barred from collecting the principal of the loan or its balance of P
47 Phil., 249). in the dispositive portion of the decision, thus:

2. ID.; ID.; ID.; DIVISIBLE CONTRACT;. VOID TERM. In case of a divisible contract, if the illegal terms can be separated "WHEREFORE, judgment is hereby rendered ordering the defendant partnership to pay to the p
from the legal ones, the latter may be enforced. In simple loan with stipulation of usurious interest, the prestation of the debtor with legal interest thereon from May 29, 1964 until paid, plus an additional sum of P2,000.00 as
to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to in case the assets of defendant partnership be insufficient to satisfy this judgment in full, order
the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only to pay to the plaintiff one-half (1/2) of the unsatisfied portion of this judgment.
one that is illegal.
With costs against the defendants."
3. ID.; ID.; ID.; ID.; ARTICLE 1413 OF THE NEW CIVIL CODE CONSTRUED. Article 1413, in speaking of "interest paid in
excess of the interest allowed by the usury laws" means the whole usurious interest; that is, in a loan of P1,000 with interest of Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious inter
20% per annum or P200 for one year, if the borrower pays said P200, the whole P200 is the usurious interest, not just that part principal of the loan? (2) Should attorney's fees be awarded in plaintiff's favor?
thereof in excess of the interest allowed by law. It is in this case that the law does not allow division. The whole stipulation as to
interest is void, since payment of said interest is the cause or object and said interest is illegal. The only change effected, To refute the lower court's decision which is based on the doctrine laid down by this Court in Lo
therefore, by Article 1413, New Civil Code, is not to provide for the recovery of the interest paid in excess of that allowed by law, 249, holding that a contract of loan with usurious interest is valid as to the loan but void as to
which the Usury Law already provided for, but to add that the same can be recovered "with interest thereon from the date of argue that in light of the New Civil Code provisions said doctrine no longer applies. In support th
payment." by the Court of Appeals in Sebastian v. Bautista, 58 O.G. No. 15, p. 3146.

4. ID.; ID.; RECOVERY OF PRINCIPAL; REMEDY OF CREDITOR. The principal debt remaining with stipulation for payment The Sebastian case was an action for recovery of a parcel of land. The Court of First Instance t
of interest can thus be recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns on the ground that the so-called sale with pacto de retro of said land was in fact only an equitab
interest from the date of the demand (in this case from the filing of the complaint). Such interest is not due to stipulation, for there court, the writer of the opinion of the Court of Appeals went further to state the view that the loa
was none, the same being void. Rather, it is due to the general provision of law that in obligations to pay money, where the usurious in nature, and, thus, totally void. Such reasoning of the latter, however, was not conc
debtor incurs in delay, he has to pay interest by way of damages (Art. 2209, Civil Code) The court a quo therefore, did not err in the Court, who concurred in the result and voted for affirmance on the grounds stated by
ordering defendants to pay the principal debt with interest thereon at the legal rate, from the date of filing of the complaint. affirmance of the existence of equitable mortgage necessarily implies the existence of a val
former is an accessory contract to the latter.
5. ATTORNEY'S FEES; WHEN AWARD RECOVERABLE. The rule as to attorney's fees is that the same are not recoverable,
in the absence of stipulation. Several exceptions to this rule are provided (Art. 2208, Civil Code). Unless shown to fall under an Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:
exception, the act of plaintiff in engaging counsel's services due to refusal of defendants to pay his demand, does not justify
award of attorney's fees (Estate of Buan vs. Camaganacan, L-21569, Feb. 28, 1966). "ART. 1411. When the nullity proceeds from the illegality of the cause or object of the contract,
offense, both parties being in pari delicto, they shall have no action against each other, and bot
DECISION the provisions of the Penal Code relative to the disposal of effects or instruments of a crime sh
the price of the contract.
BENGZON, J.P., J p:
"This rule shall be applicable when only one of the parties is guilty; but the innocent one may cl
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against the partnership Chelda Enterprises not be bound to comply with his promise."
and David Syjueco, its capitalist partner, for recovery of alleged unpaid loans in the total amount of P20,880.00, with legal interest
from the filing of the complaint, plus attorney's fees of P5,000.00. Alleging that post dated checks issued by defendants to pay Since, according to the appellants, a usurious loan is void due to illegality of cause or object th
said account were dishonored, that defendants' industrial partner, Chellaram I. Mohinani, had left the country, and that Article 1411, supra, applies, so that neither party can bring action against each other. Said r
defendants have removed or disposed of their property, or are about to do so, with intent to defraud their creditors, preliminary modified as to the borrower, by express provision of the law (Art. 1413, New Civil Code), allowin
attachment was also sought. paid in excess of the interest allowed by the usury law. As to the lender, no exception is ma
recover on the contract. So they continue the New Civil Code provisions must be upheld
which a loan with usurious interest is not totally void, because of Article 1961 of the New Civil Code, that: "Usurious contracts services of counsel. The rule as to attorney's fees is that the same are not recoverable, in the
shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code." (Emphasis exceptions to this rule are provided (Art. 2208, Civil Code). Unless shown to fall under an except
supplied). counsel's services due to refusal of defendants to pay his demand, does not justify award of a
We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of the Old Camaganacan, L-21569, Feb. 28, 1966). Defendants, moreover, had reason to resist the claim
Civil Code. Therefore, said provision is no warrant for departing from previous interpretation that, as provided in the Usury Law ruling of this Court on the point of law involved herein in light of the New Civil Code. Said awar
(Act No. 2655, as amended), a loan with usurious interest is not totally void but void only as to the interest.
WHEREFORE, with the modification that the award of attorney's fees in plaintiff's favor is dele
True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies where a contract's nullity proceeds from of the clerical error as to the principal still recoverable from P19,247.35 to P19,239.35, the appe
illegality of the cause or object of said contract. No costs.

However, appellants fail to consider that a contract of loan with usurious interest consists of principal and accessory stipulations; SO ORDERED.
the principal one is to pay the debt; the accessory stipulation is to pay interest thereon. 2
||| (Angel Jose Warehousing Co., Inc. v. Chelda Enterprises, G.R. No. L-25704, [April 24, 1968
And said two stipulations are divisible in the sense that the former can still stand without the latter. Article 1273, Civil Code,
attests to this: "The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall 17. Manzano v. Lazaro, G.R. No. 173320, April 11, 2012
leave the former in force."
[G.R. No. 173320. April 11, 2012.]
The question therefore to resolve is whether the illegal terms as to payment of interest likewise renders a nullity the legal terms
as to payments of the principal debt. Article 1420 of the New Civil Code provides in this regard: "In case of a divisible contract, EDUARDO B. MANZANO, petitioner, vs. ANTONIO B. LAZARO, respondent.
if the illegal terms can be separated from the legal ones, the latter may be enforced."
DECISION

PERALTA, J p:
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the
contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, Before us is a Petition for Review on Certiorari of the Decision 1 and Resolution 2 of the Cou
being separable, the latter only should be deemed void, since it is the only one that is illegal. 82753, dated February 28, 2006 and June 21, 2006, respectively, affirming the Decision 3 of
Branch 97, Quezon City, in Civil Case No. Q-98-35924. EHTSCD
Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in Sec. 6, any person who for a loan
shall have paid a higher rate or greater sum or value than is allowed in said law, may recover the whole interest paid. The New On February 16, 1998, petitioner Eduardo B. Manzano and respondent Antonio B. Lazaro ente
Civil Code, in Article 1413 states: "Interest paid in excess of the interest allowed by the usury laws may be recovered by the Contract 4 pertaining to the former's candidacy for the Vice-Mayoralty post in Makati City.
debtor, with interest thereon from the date of payment." Article 1413, in speaking of "interest paid in excess of the interest allowed respondent as the second party agreed that the contract shall take effect on February 16, 1998
by the usury laws" means the whole usurious interest; that is, in a loan of P1,000, with interest of 20% per annum or P200 for provided among others:
one year, if the borrower pays said P200, the whole P200 is the usurious interest, not just that part thereof in excess of the
interest allowed by law. It is in this case that the law does not allow division. The whole stipulation as to interest is void, since II. Roles and Responsibilities of Contracting Parties
payment of said interest is the cause or object and said interest is illegal. The only change effected, therefore, by Article 1413,
New Civil Code, is not to provide for the recovery of the interest paid in excess of that allowed by law, which the Usury law Responsibilities of the Second Party:
already provided for, but to add that the same can be recovered "with interest thereon from the date of payment."
1. He shall head the organizational machinery of the First Party.
The foregoing interpretation is reached with the philosophy of usury legislation in mind; to discourage stipulations on usurious
interest, said stipulations are treated as wholly void, so that the loan becomes one without stipulation as to payment of interest. 2. He shall be responsible in hiring and firing the required personnel to man the different positi
It should not, however, be interpreted to mean forfeiture even of the principal, for this would unjustly enrich the borrower at the
expense of the lender. Furthermore, penal sanctions are available against a usurious lender, as a further deterrence to usury. 3. He shall authorize the expenditures of the campaign.

The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action. And in case of 4. He shall assist in the mobilization of resources for the campaign.
such demand, and the debtor incurs in delay, the debt earns interest from the date of the demand (in this case from the filing of
the complaint). Such interest is not due to stipulation, for there was none, the same being void. Rather, it is due to the general 5. He shall set-up administrative mechanisms to safeguard the efficient and effective use of re
provision of law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of damages
(Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to pay the principal debt with interest thereon 6. He shall take full responsibility for all the furniture and fixtures to be assigned to the designa
at the legal rate, from the date of filing of the complaint.
7. He shall develop programs and projects in aid of ensuring the winnability of the candidate.
As regards, however, the attorney's fees, the court a quo stated no basis for its award, beyond saying that as a result of
defendants' refusal to pay the amount of P19,247.35 notwithstanding repeated demands, plaintiff was obliged to retain the Responsibilities of the First Party.
 1. Two Hundred Twenty Thousand Pesos (PHP220,000.00) representing the plaintiff's professio
1. He shall ensure the provision of financial resources and other logistical requirements for the conduct of operations. 1-15, 1998 period and bonus for the defendant's electoral victory as stipulated in the Professi
interests from 03 July 1998 until fully paid; and
2. He shall compensate the second party as stipulated in the Section III for Remuneration and Manner of Payment.
2. Thirty Thousand Pesos (PHP30,000.00) as Attorney's Fees. 11
III. Remuneration and Manner of Payment:
In so ruling, the RTC said that to allege that petitioner's consent was vitiated would not just
A. The monthly rate due for the Second Party is SEVENTY THOUSAND PESOS (P70,000.00). This will be given in two equal remuneration in the absence of a court ruling annulling the subject contract; and that unless
tranches, on the 15th and 30th of each month, from February 16, 1998 up to May 15, 1998, or a total of three (3) months. terms therein remained enforceable. As to the alleged failure to comply with the responsibilities
said that the power to rescind obligation is implied in reciprocal ones, but in the absence of
B. A bonus pay amounting to TWO HUNDRED THOUSAND PESOS (P200,000.00) shall be given to the second party in the power must be invoked judicially and cannot be exercised solely on a party's own judgment
event that the First Party win the Vice-Mayoralty post. 5 HSaCcE breach of obligation. It also found petitioner's allegation of breach of contract inconsistent with
where petitioner acknowledged the balance due respondent, since if petitioner believed that
Subsequently, petitioner won as Vice-Mayor of Makati. Respondent, thereafter, learned in a transmittal letter 6 dated June 16, responsibilities, he should not have stated in the last payroll that the balance due respondent
1998 representing the last payroll of certain individuals, which included him, that he would be paid the amount of P15,000.00 of the inventory of the campaign materials. The RTC concluded that petitioner's contention w
only and the balance of P20,000.00 shall be forwarded only upon his final inventory of materials used during the campaign. evade payment after respondent had complied with the conditions requiring the latter to submit s
Hence, respondent, in his letter 7 dated July 3, 1998 to petitioner, wrote that he had already turned over the equipment used for attorney's fees, because of petitioner's refusal to pay respondent's claim which compelled him
the campaign. Respondent then demanded the payment of P20,000.00 as balance of his compensation and the P200,000.00
bonus pay agreed upon. Dissatisfied, petitioner filed his appeal with the CA. Respondent filed his Comment and petition
the case was submitted for decision.
Petitioner acknowledged respondent's demand letter and the delivery of the campaign equipment and furniture in his letter 8
dated July 17, 1998, but wrote that he needed to receive the liquidation of the expenses incurred during the campaign, which On February 28, 2006, the CA rendered its assailed Decision, which dismissed the appeal and
task was requested shortly after the May 11, 1998 elections.
Petitioner's motion for reconsideration was denied in a Resolution dated June 21, 2006.
In his letter 9 dated July 30, 1998, respondent wrote that the preparation of the audited financial report of the campaign was not
part of his responsibilities as he was not in charge of the management of campaign funds; that such function was assigned to Hence, the instant petition which raises the following errors:
Robert Gomez and Soliman Cruz (Cruz) who acted as petitioner's Director for Finance with petitioner's brother, Angie Manzano
(Angie), as the auditor. He reiterated the payment of P220,000.00 due him. I

On even date, Cruz wrote petitioner a letter 10 dated July 30, 1998, stating that he did not volunteer respondent to prepare the THE COURT OF APPEALS GRAVELY ERRED IN LIMITING THE DISCUSSION OF ITS QUE
liquidation of expenses, as respondent had nothing to do with the campaign accounting records; and that petitioner's request for THE SUBJECT OF THE PROFESSIONAL SERVICES CONTRACT BETWEEN PETITIONE
liquidation of campaign expenses was another switch in petitioner's condition prior to settling his obligation with respondent. VOIDABLE AND ITS ALLEGED RATIFICATION BY PETITIONER. THE RULING OF THE CO
IN ANY WAY, TOUCH UPON THE ISSUE OF RESPONDENT'S MATERIAL BREACH OF TH
As respondent's demand for petitioner to pay him remained unheeded, he filed with the RTC an action for collection of sum of HE IS ENTITLED TO THE BONUS OF P200,000.00 AS A RESULT OF SUCH BREACH.
money against petitioner.
II
In his defense, petitioner argued that he hired respondent's services because of the latter's representation of being a seasoned
and an experienced campaign manager. However, during the campaign period, he discovered that respondent had no expertise THE COURT OF APPEALS GRAVELY ERRED IN FAILING TO HOLD THAT RESPONDENT C
or capacity for political organization and was often absent during campaign sorties and public meetings; that he failed to provide BY FAILING TO PERFORM HIS DUTIES UNDER HIS PROFESSIONAL SERVICES CON
petitioner with poll watchers to safeguard his chances of winning against electoral fraud. Petitioner deemed it best to merely HEAD OF THE LATTER'S CAMPAIGN AND ORGANIZATIONAL MACHINERY.
exclude him from the strategic planning sessions rather than confront him as he had already the knowledge of the campaign
activities and supporters. Petitioner opined that he won the elections due to his popularity and the support of his family and III
friends; and that respondent was not entitled to a bonus pay, since respondent failed to show any significant contribution or role
in his electoral victory. THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT RESPONDENT CO
PROFESSIONAL SERVICES CONTRACT WITH PETITIONER BY MISREPRESENTING T
On June 7, 2004, the RTC rendered its Decision, the dispositive portion of which reads: SCHIcT ESTABLISHING A POLITICAL CAMPAIGN MACHINERY. EaDATc

WHEREFORE, premises considered, Decision is hereby rendered directing the defendant Eduardo B. Manzano to pay to the IV
plaintiff the following:
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT RESPONDENT
BALANCE OF HIS REMUNERATION ON THE BASIS OF EQUITY AND SUBSTANTIAL JUS
BE UNJUSTLY ENRICHED AS A RESULT OF SUCH PAYMENT. 12
 of the balance of P20,000.00 was conditioned upon respondent's final inventory of the equipme
Petitioner contends that the CA decision was limited to the issue that the contract was merely voidable and its alleged ratification 3, 1998, respondent wrote petitioner a letter informing the latter that he had already turned ove
by petitioner but did not take into account respondent's breach of his obligations which goes into the heart of the issue of same to petitioner's doorstep on July 2, 1998; and that his final act of turning over his obligati
respondent's entitlement to the bonus; and that awarding him of bonus despite such breach would result to unjust enrichment. action. Consequently, respondent demanded the payment of P20,000.00 as well as the P200
He argues that respondent was always absent or unavailable during the campaign sorties and public meetings which resulted won the Vice-Mayoralty race.
in petitioner's having to continue his campaign with little or no assistance from respondent; that he failed to provide the required
personnel to man the different positions of the organization since the personnel provided by respondent were also working for Petitioner admitted having received the equipment in his letter reply dated July 17, 1998 to res
another candidate in Mandaluyong City; that there was no assistance extended in the mobilization of resources for his campaign
because of the less visibility of the personnel hired to serve as his advance party to the territories covered by petitioner's . . . I appreciate your delivering the inventory at my doorstep even though it was never requeste
campaign which constrained petitioner to proceed to the areas on his own; and that during the canvassing of votes, respondent action, I have yet to receive the liquidation of the expenses incurred during the campaign. Mr
only made a brief appearance and was thereafter gone with his whereabouts unknown; and that he also failed to provide weeks back that when we requested said liquidation from Mr. S. Cruz he volunteered that you
petitioner with poll watchers in the precinct level to ensure that all votes cast for him were all accounted for. be preparing the report. We have yet to receive the breakdown from either you or Mr. Cruz con
after the May 11, 1998 elections. I, more than anyone else, would like to end this chapter of my
Petitioner also argues that respondent misrepresented himself to be an expert in carrying out a political campaign, thus, his you soonest. 16 cDCHaS
consent into entering the contract with respondent was vitiated by fraud and mistake as to the latter's qualifications and
credentials. In respondent's letter reply dated July 30, 1998, he clearly indicated that the preparation of the
part of his responsibilities as he was not in charge of the management of campaign funds; tha
We find no merit in the petition. Cruz who would write a separate letter to support his statement.

The above-stated arguments by petitioner raise factual matters. As a rule, only questions of law may be appealed to the Court In his letter to petitioner, Cruz clarified that there was never a request for liquidation of expense
by a petition for review. The Court is not a trier of facts, its jurisdiction being limited to errors of law. Moreover, factual findings of from him was the preparation of the summary of transportation and other expenses which w
the trial court, particularly when affirmed by the Court of Appeals, are generally binding on this Court. 13 In weighing the evidence campaign expenses to be filed with the Comelec; that he did not volunteer respondent to prepa
of the parties, the RTC, as affirmed by the CA, found respondent's evidence to be sufficient in proving his case. We found no do with the campaign's accounting records; that he only instructed his secretary to assemble th
reason to disturb such finding as it was borne by the evidence on record. her to seek respondent's help for expediency. He also wrote that to ask respondent with the li
was another switch in petitioner's condition prior to settling his obligation with respondent.
Under the Professional Services Contract executed between petitioner and respondent on February 16, 1998, particularly under
the subheading of remuneration and manner of payment, it was provided that: As shown by the foregoing exchange of correspondences, the first condition imposed before the
was the inventory of campaign equipment. After respondent complied with such condition whic
A. The monthly rate due for the Second Party is SEVENTY THOUSAND PESOS (P70,000.00). This will be given in two equal respondent asked for the payment of the balance as well as his bonus. However, a subseq
tranches, on the 15th and 30th of each month, from February 16, 1998 up to May 15, 1998, or a total of three (3) months. respondent before payment would be given, i.e., submission of report on the liquidation o
DHEACI campaign, which respondent and Cruz wrote that respondent had nothing to do with, to which p
to the contrary.
B. A bonus pay amounting to TWO HUNDRED THOUSAND PESOS (P200,000.00) shall be given to the second party in the
event that the First Party wins the Vice-Mayoralty post. Surprisingly, respondent's alleged breach of obligation was never brought up by petitioner du
asking for the payment of the amounts owing to him which betrays the falsity of petitioner's alle
It is basic that a contract is the law between the parties. Obligations arising from contracts have the force of law between the the fact that petitioner had even paid respondent his salary for the three-month period with
contracting parties and should be complied with in good faith. 14 Unless the stipulations in a contract are contrary to law, morals, conditioned upon respondent's delivery of the inventory of campaign equipment. Such p
good customs, public order or public policy, the same are binding as between the parties. 15 respondent had performed his responsibilities under the contract. We, therefore, agree with the
claim of breach of contract was merely used as an excuse to evade payment of the amounts d
In this case, the three-month period stated in the contract had already elapsed and petitioner won as Vice-Mayor of Makati in
the 1998 elections, thus, respondent is entitled not only to the full payment of his compensation but also to a bonus pay. However, Petitioner's contention that respondent's misrepresentation that he had the expertise in establis
respondent's compensation for the period from May 1 to 15, 1998 was not yet paid in full as there was still a balance of campaign, was not at all true thus his consent was vitiated, is not meritorious. Again, petitione
P20,000.00 as well as his bonus pay. Petitioner refuses to pay the said amounts on the allegation that respondent failed to fulfill by the evidence on record. We find apropos what the CA said on this issue, to wit:
his obligations under the contract.
It bears emphasis that vitiated consent does not make a contract unenforceable but merely v
We are not persuaded. on all the contracting parties until annulled and set aside by a court of law. If indeed appellant's
would have been to annul the contract, considering that voidable contracts produce legal effec
Petitioner's claim of breach of obligation consisted only of his uncorroborated and self-serving statement which was contradicted the clear import of Article 1390 (2) of the Civil Code,which provides:
by the evidence on record.
Art. 1390. The following contracts are voidable or annullable, even though there may have be
In the June 1998 remittance of the last payroll, it was stated that respondent would be paid the amount of P15,000.00 and the parties. aIAEcD
balance of P20,000.00 shall be forwarded upon his final inventory of equipment used during the campaign. Clearly, the payment
1. Those where one of the parties is incapable of giving consent to a contract.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finalit
period being deemed to be by then an equivalent to a forbearance of credit. 20
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.
In this case, petitioner's obligation does not constitute a loan or forbearance of money, but a co
Pursuant to the above-quoted provision, the alleged fraud committed by appellee upon appellant made the contract for respondent as petitioner's campaign manager. Hence, the amount of P220,000.00 owing to res
professional services a voidable contract. Being a voidable contract, it is susceptible of either ratification or annulment. If the 6% per annum to be computed from the time the extrajudicial demand for payment was made o
contract is ratified, the action to annul it is extinguished and the contract is cleansed from all its defects. But if the contract is this decision. As ruled in Eastern Shipping, after a judgment has become final and executory,
annulled, the contracting parties are restored to their respective situations before the contract and mutual restitution follows as the obligation was in the form of a loan or forbearance of money or otherwise, shall be 12% p
a consequence. its satisfaction. Thus, from the date the liability for the principal obligation has become final and
12% shall be imposed until its final satisfaction, this interim period being deemed to be by the
As stated earlier, an annullable contract may be rendered perfectly valid by ratification, which can be express or implied. Implied of credit. 21
ratification may take the form of accepting and retaining the benefits of a contract. This is what happened in this case. No action
was taken by appellant to annul the professional service contract. Appellant also did not confront appellee regarding the latter's WHEREFORE, in view of all the foregoing, the instant petition is DENIED. The Decision da
poor campaign services. This silence, taken together with appellant's demand for appellee to make an inventory of equipment Resolution dated June 21, 2006 of the Court of Appeals in CA-G.R. CV No. 82753, which aff
and a liquidation of the funds used during the campaign, constitutes in itself an effective ratification of the original agreement in petitioner to pay respondent the amount of P220,000.00, plus P30,000.00 as attorney's
accordance with Article 1393 of the Civil Code,which reads: MODIFICATION that the award of P220,000.00 shall earn interest at the rate of 6% per annum
of this decision. After this decision becomes final and executory, petitioner is ORDERED to pa
xxx xxx xxx the principal obligation until full payment. ECaTAI

If appellant was, indeed, tricked into contracting with appellee and was unsatisfied with the latter's services, he should have SO ORDERED.
taken steps in order for the latter not to expect any bonus. After all, the bonus was dependent solely on the condition of appellant's
victory in the elections. Or he could have immediately instituted an action for annulment of their contract. But none of these ||| (Manzano v. Lazaro, G.R. No. 173320, [April 11, 2012], 685 PHIL 445-460)
happened. As the records show, appellant even went further by giving appellant other election related tasks. This bolsters the
view that, indeed there was ratification. One cannot continue on demanding a certain task to be performed but at the same time 18. Techno Dev. Chemical Corp. v. Viking Metal Ind. Inc., G.R. No. 203179, July 4, 201
contend that the contract cannot be enforced because of poor performance and misrepresentation. Notably, it was only when
appellee already demanded the payment of the stipulated amount that appellant raised the defense of vitiated consent. Clearly, [G.R. No. 203179. July 4, 2016.]
appellant was agreeable to the contract except that appellee's expertise fell short of appellant's expectations. 17 TECHNO DEVELOPMENT & CHEMICAL CORPORATION, petitioner, vs. VIKING METAL IN
respondent.
We also affirm the award of attorney's fees, as respondent was compelled to litigate and incur expenses to protect his interest DECISION
because of petitioner's unjust refusal to satisfy respondent's claim. 18 TIESCA PERALTA, J p:
Before the Court is a petition for review on certiorari under Rule 45 of the Rule
The RTC, as affirmed by the CA, ordered petitioner to pay respondent the amount of P220,000.00 plus legal interest, however, and set aside the Decision 1 dated March 16, 2012 and Resolution 2 dated August 22, 2012
the legal rate of interest was not specified. As to computation of legal interest, Eastern Shipping Lines, Inc. v. Court of Appeals in CA-G.R. CV No. 84186, which modified the Decision 3 dated August 27, 2003 of the
19 laid down the following guidelines, thus: National Capital Judicial Region, Branch 145, Makati City.
The factual antecedents are as follows.
xxx xxx xxx On September 23, 1993, respondent Viking Metal Industries, Incorporated
and General Manager, Brilly Bernardez, presented to the PNOC Energy Development Cor
II.With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as proposal to supply and deliver, within one hundred and sixty (160) days, various fabrica
well as the accrual thereof, is imposed, as follows: shoes and structural supports, for the PNOC-EDC First 40 MW Mindanao-Geothermal Pro
of Award dated January 17, 1994, the project was awarded to VMI for having the lowest b
1. . . . said document provided for January 18, 1994 as the project's starting date and June 26, 1
parties agreed to move the starting date to January 31, 1994 and July 9, 1994 as the com
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages 1994, PNOC-EDC likewise awarded to VMI the Bifurcator Fabrication of the MG Project a
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on expire on July 18, 1994. Pending the execution of a formal contract, VMI and PNOC-EDC a
unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, and the Notice of Award shall constitute as the binding contract between them. 6
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made In a meeting held on April 13, 1994 among the representatives of PNOC-ED
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the Techno Development & Chemical Corporation, the parties agreed to paint the fabricated ite
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the anti-rust primer manufactured by petitioner Techno. 7 Consequently, VMI began purchas
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal while Techno provided VMI with technical personnel to supervise the application of the prim
interest shall, in any case, be on the amount finally adjudged. Thereafter, VMI made several deliveries of the fabricated items to PNOC-ED
1994, June 2, 1994, November 19, 1994, and finally on January 3, 1996. 8 On the third week of June 1994, however, in the performance of its obligation cannot be solely attributed to it. It was
PNOC-EDC advised VMI of the rejection of 410 pieces of the fabricated items due to the premature rusting of the coated by the paint failure on the fabricated materials. PNOC-EDC was cognizant
surfaces thereof. In response, the President of VMI and the Vice-President for Technical Services of Techno conducted shown in its letter of July 13, 1994.
a joint ocular inspection on June 24, 1994 at the PNOC-EDC Stockyard in Sta. Mesa, Manila. As a result thereof, they xxx xxx xxx
noted that rust had manifested on the surface of the fabricated products despite being coated with the Ultrazinc primer. From this aforequoted letter, it is palpably clear tha
They likewise noted that the primer was very soft and had started to pulverize. 9 CAIHTE acknowledged the fact that the delay was caused by defendant Techno. T
On July 13, 1994, the VMI and Techno representatives met again and agreed that corrective measures insist now that it was plaintiff alone who was responsible for it. . . .
on the defective painting would have to be done. Thus, in a follow-up letter dated July 15, 1994, VMI reminded Techno xxx xxx xxx
of their agreement that the pull-out of the defective fabricated items, including trucking services, electric and power It cannot be denied that plaintiff purchased from Techno the
supply, as well as administration costs, would be for Techno's account. 10 Thereafter, in another meeting among PNOC- the fabrication of the subject materials. This is in accordance with the directiv
EDC, VMI, and Techno, PNOC-EDC reminded VMI of its contractual obligations to finish the project as scheduled and PNOC-EDC since Techno was a duly accredited supplier of paints as it (PN
that any delay by VMI's subcontractor, Techno, would be borne by it. In the same meeting, Techno agreed to rectify the satisfied by the quality of the paint products of Techno after a test was co
balance of the fabricated items with the defective primer applications stocked at the PNOC-EDC Stockyard, while VMI Hence, there being accreditation for the purchase and use of Ultracoat 2130
agreed to the withdrawal and repair of the rejected structural supports/pipe shoes. In a later meeting held on August 19, it has warranted the good quality of this paint. Even if there was no directiv
1994, VMI and Techno agreed on the time-sharing use of VMI's shop and that Techno would deliver the Ultracoat Paints EDC, Techno is still obligated to the plaintiff to deliver good Ultracoat
to be used for the repairs. the contract of sale between it and the plaintiff carries with it the implie
While the corrosion problem on the fabricated items was being remedied, VMI incurred delays in the Techno against hidden defects of the products bought by the plaintiff.
submission of required fabrication drawings, encountered difficulties in sourcing construction materials, and committed xxx xxx xxx
gross miscalculations of the tons requirements, ultimately resulting in the delay in the deliveries of the structural supports, The defense of Techno that plaintiff did not follow the manual of procedure given to it fo
which should have been completed on July 8 and 18, 1994 but as of August 5, 1994, were only about 60% finished. 11 subject paint is less convincing in the face of its failure to adduce evidence on the exist
In spite of said problems, however, PNOC-EDC still proceeded to formally execute the Fabrication Contract with VMI on procedure. What it offered in evidence to prove the fault of the plaintiff are "daily inspec
September 28, 1994, but retained July 9, 1994 as the completion date. of pipe support." . . . Again, these documentary evidence do not persuade, mainly becau
In the next several months, VMI and PNOC-EDC further encountered several delays and consequent representatives of defendant Techno who allegedly conducted the inspection and prepa
contract extensions due to deficiencies and non-conformance of the fabricated items with PNOC-EDC's specifications. presented as witnesses to testify on these matters. More than this, Techno did not even
In the end, PNOC-EDC advised VMI that it only had until July 30, 1995 to complete the rectification work on the rejected communicate to either the plaintiff or defendant PNOC-EDC of the alleged faulty proced
items and that any remaining undelivered items after said deadline would be inventoried and deleted from the contract. the intention of Techno to withdraw the warranty of its products sold to the plaintiff.
12 True enough, PNOC-EDC decreased the original fabrication contract price of P6,794,172.30, which was adjusted to
P6,871,605.64 in February 1996, to P6,578,034.99. 13 Finally, while it is true that defendant Techno is not privy to the Fabrication Contract, its
In a letter dated April 3, 1998, VMI appealed to PNOC-EDC to reconsider its demand of P2,265,645.09 as rectification is enough proof that it was aware of the fact that its product is defective. Ha
the total collectible amount representing liquidated damages and deductions ratiocinating that the delay was ultimately not have assumed the obligation.
attributable to the poor and substandard primer paint of Techno. In reply, PNOC-EDC affirmed its deduction and informed PREMISES CONSIDERED, judgment is rendered in favor of t
VMI that its approval of Techno as paint supplier would not relieve it of its obligation under their contract. 14 Thus, on against the defendants as follows:
September 30, 1999, VMI filed before the RTC of Makati City a Complaint for Sum of Money and Damages against 1) Ordering defendant PNOC-EDC to pay the amount of
PNOC-EDC due to its continued refusal to pay VMI for the remaining balance of the contract price allegedly amounting representing the balance of the stipulated price under the Fabrication Contra
to P2,265,644.23 and against Techno for the reimbursement of P550,000.00 for the alleged repairs done on the defective 2) Ordering defendant Techno to pay the plaintiff th
coating of the fabricated items. 15 P550,000.00 representing the cost of the rectification on the subject ma
On the one hand, PNOC-EDC averred in its Answer with Counterclaim that VMI is not entitled to recovery 3) Ordering both defendants to pay jointly and severall
of any amount since the retained amount of P2,230,410.10 (not P2,265,644.23 as VMI claims) was applied as follows: P100,000.00 for as attorney's fees plus cost of suit.
P1,374,321.13 as penalty for the delays; P293,570.65 as deletion of work from the contract; and P490,959.72 as repairs SO ORDERED. 19
and rectification costs of defective pipes. 16 On the other hand, Techno averred that: it provided VMI with the manual for Aggrieved, petitioner Techno appealed the RTC's Decision to the CA contend
the proper application of its paint products and technical personnel, who actually witnessed and recorded the failure by that the trial court erred in finding that it was liable to pay the costs of the rectification in
VMI personnel to comply with the proper procedures on the application of its paint products and, thus, warned said VMI without any legal or factual basis on record, that it did not enter into any contract with VMI o
personnel that Techno would not give them any guarantee in case the fabricated items get rusty; the re-painting of the as cost of rectification, and that VMI did not adduce any sufficient evidence to support its
defective fabricated items were all undertaken at the sole expense of Techno, without any cost to VMI; Techno is not a Techno saw the huge estimates made by VMI on the projected cost of rectification, it under
party to the Fabrication Contract between VMI and PNOC-EDC; and it is actually VMI that has an unpaid obligation in expense instead without any cost to VMI. Also, Techno faulted the trial court for failin
favor of Techno amounting to P166,750.00 plus interest. 17 counterclaim against VMI for the unpaid purchases of paint products amounting to P166,75
During the pre-trial, the parties agreed on the following issues for resolution: (1) whether PNOC-EDC In its Decision dated March 16, 2012, the CA pertinently ruled as follows:
rightfully withheld the amount of P2,265,644.23 as penalty; (2) whether VMI was in delay in the fulfillment of its obligation VMI's claim falls squarely within the realm of actual or compensatory damages. Howeve
with PNOC-EDC; and (3) whether Techno could be held liable to VMI and, on the other hand, whether VMI has an expenditure consequently conducts to a failure of its claim. In determining actual damag
outstanding unpaid obligation in favor of Techno. 18 mere assertions, speculations, conjectures or guesswork but must depend on compete
On August 27, 2003, the RTC rendered its Decision the pertinent portions of which read: evidence obtainable regarding the actual amount of loss such as receipts or other docu
An examination of the evidence on record shows that the delay of the plaintiff such claim.
To support its claim of Php550,000.00 against Techno, VMI presented a letter dated June 28, 1994 of VMI Bernardez several Invoices and Delivery Receipts 24 signed by representatives of VMI evidencing
addressed to Danilo Tuazon, President of Techno, containing a price quotation for the scope of work to be done on products and receipt thereof by VMI; (3) corroborating testimony of Techno's Chief Accoun
the fabricated items with defective coating in the amount of Php426,165.85. We note that said letter did not bear the President attesting to the fact that VMI still had an outstanding account with Techno in the afo
conformity of Techno and worse, it was a mere photocopy. Techno asserts that VMI's witness, its President Brilly Bernardez, even admitted his know
A price quotation is not a competent proof to show that VMI solely undertook the repainting of the defective unpaid obligation of VMI in favor of Techno as shown by the following excerpt of his testim
fabricated products. In a meeting held among the parties on August 19, 1994, VMI and Techno agreed on the time- Q: Are you aware of the fact that you may still have some unpaid obligation due to Techn
sharing use of VMI's shop and for Techno to deliver the Ultracoat paints to be used for the repairs of the fabricated (Brilly Bernardez)
items. This only proves that Techno did its share. Failing to satisfy the Court that VMI certainly suffered actual A: Yes, there could be but subject to verification.
damages amounting to Php550,000.00, its claim must necessarily fail. Q: And the amount due is in connection with this project?
We do not find the award of attorney's fees justified in this case. The general rule is that no premium should be A: That particular project, sir.
placed on the right to litigate and attorney's fees as part of damages are not meant to enrich the winning party at the COURT
expense of the losing litigant. We find no evidence of bad faith by PNOC-EDC and Techno which would justify the This project?
award of attorney's fees. WITNESS (Brilly Bernardez)
WHEREFORE, PNOC-EDC's appeal is PARTIALLY GRANTED. The A: Yes, Your Honor. 25
appealed Decision of the RTC, Makati City, Branch 145 is MODIFIED, as follows: At the same trial, moreover, Techno recounts that while VMI attempted to pr
1) The award of actual damages in the amount of Php550,000.00 in ultimately withdrew said evidence thereby establishing Techno's assertion that VMI utterly fa
favor of VMI and against Techno is DELETED; In the end, Techno avers that it would be rather unfair to deem the appellate court's judgmen
2) The award of unpaid balance of the Contract Price in the amount of will not be considered, VMI will be unjustly enriched at the expense of Techno in view of
Php2,265,644.23 in favor of Viking Metal Industries, Inc. against PNOC-Energy actually received and used Techno's products without giving any corresponding considerat
Development Corporation is reduced to Php2,230,410.10 and the penalty charges in the For its part, respondent VMI countered that when the trial court rendered it
amount of Php180,663.21 is to be deducted therefrom, for a net award of Php2,049,746.89. was guilty of breach in its respective obligation towards VMI, it was clearly implied that Techn
3) The award of Attorney's fees amounting to Php100,000.00 is also basis. 27 Thereafter, while the CA opted to cancel the trial court's award of damages in
DELETED. sufficient evidence, it did not disturb the rest of the findings of the lower court including th
SO ORDERED. 21 Thus, VMI claims that Techno can no longer assert its counterclaim and allege that the
In a Motion for Partial Reconsideration dated April 12, 2012, petitioner Techno averred that while the Besides, to do so would request the Court to reopen the factual issues and to assume the r
appellate court correctly deleted the award of actual damages in the amount of P550,000.00, and attorney's fees in the We rule in favor of petitioner.
amount of P100,000.00 against Techno and in favor of VMI, the appellate court nevertheless omitted to rule on its At the outset, the Court notes that its jurisdiction in cases brought before
counterclaim against VMI for the unpaid purchases of paint products amounting to P166,750.00. In its Resolution dated limited to reviewing errors of law, and findings of fact of the Court of Appeals are conclusive
August 22, 2012, however, the CA denied petitioner Techno's Motion for Partial Reconsideration finding no cogent and the Court's function to analyze and weigh the evidence all over again. 29 In several c
persuasive reason to deviate from its previous findings and conclusions considering that the allegations in their motions repeatedly held that the rule that factual findings of the Court of Appeals are binding on
are a mere rehash and had already been passed upon. 22 Hence, this petition involving the following argument: following exceptions: (1) when the findings are grounded entirely on speculations, surmises
I. inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abu
THE COURT OF APPEALS GRAVELY ERRED IN OMITTING AND FAILING TO CONSIDER THE judgment is based on a misapprehension of facts; (5) when the findings of fact are confl
COUNTERCLAIM OF PETITIONER TECHNO AGAINST RESPONDENT VIKING findings the Court of Appeals went beyond the issues of the case, or its findings are contr
DESPITE THE FACT THAT RESPONDENT HAD ADMITTED ITS OBLIGATION AND the appellant and the appellee; (7) when the findings are contrary to that of the trial cou
PETITIONER HAD ESTABLISHED BY A PREPONDERANCE OF EVIDENCE THAT conclusions without citation of specific evidence on which they are based; (9) when the fa
RESPONDENT HAS FAILED TO PAY FOR PETITIONER'S PRODUCTS IN THE TOTAL well as in the petitioner's main and reply briefs are not disputed by the respondent; (10)
AMOUNT OF PHP166,750.00. premised on the supposed absence of evidence and contradicted by the evidence on reco
In the instant petition, Techno reiterates that while the appellate court correctly deleted the costs of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which,
rectification in the amount of P550,000.00 and the P100,000.00 attorney's fees awarded by the trial court, it nonetheless justify a different conclusion.
erred when it omitted, without any legal basis, to render a ruling on its counterclaim against respondent VMI for the unpaid In the instant case, while the appellate court aptly ruled upon and rejected
products purchased by the latter. According to Techno, the CA overlooked and disregarded the issue of whether it is subject of VMI's Complaint for Sum of Money against Techno, it clearly overlooked the
entitled to its counterclaim despite the fact that VMI had already admitted its obligation and that it had sufficiently proven Techno in its counterclaim against VMI. In its thirty-five (35)-page Decision, the CA seem
its claim. Techno points out that from the very beginning, it had already established in its Answer with Compulsory with the other issues presented by VMI as against PNOC-EDC and Techno, without addres
Counterclaim dated October 19, 1999 that VMI is still indebted thereto in the amount of P166,750.00 plus interest has an outstanding unpaid obligation in favor of Techno, nor providing any reason for
equivalent to one percent (1%) per month beginning January 1995 until full payment, as stipulated in the purchase additional effort in taking Techno's claims into consideration, as well as their supporting p
invoice, exclusive of additional charges and attorney's fees. In fact, during the pre-trial, the parties even agreed on said warranted their meritorious and evidentiary value.
counterclaim as one of the issues which will be submitted for resolution. Yet, while the appellate court's Decision A review of the records of the case would reveal that the evidence presente
mentioned such counterclaim in the narration of issues raised, it failed to resolve the same, offering no explanation and established its counterclaim. By preponderance of evidence is meant that the evidence a
legal basis for such omission. whole, superior to that of the other side. 30 Essentially, preponderance of evidence refers
In support of its claim, Techno presented the following evidence: (1) Statement of Account 23 dated the evidence presented by the opposing parties. 31 As such, it has been defined as "the w
January 31, 1995 containing a list of accounts receivable from VMI for its unpaid products purchased from Techno; (2) aggregate evidence on either side," and is usually considered to be synonymous with th
evidence or greater weight of the credible evidence. 32 It is proof that is more convincing to the court as worthy of belief honorarium of P5,000.00 per appearance, the Court finds said amounts to be inconsiste
than that which is offered in opposition thereto. 33 Delivery Receipts and Invoices submitted by Techno which provides that "the buyer agrees
Here, the Court finds that petitioner Techno duly proved its claims that VMI purchased paint products is filed in Court, an additional Twenty-Five (25%) Per Cent of the total amount of the obliga
therefrom, that the same were delivered to VMI, and that VMI failed to fully pay the price therefor. As borne by the the nature of attorney's fees." 38 Thus, instead of the P200,000.00 attorney's fees, as well
evidence on record, Techno not only submitted a Statement of Account containing a list of accounts receivable from VMI per appearance, the award of attorney's fees must be computed on the basis of said stip
for its unpaid products purchased from Techno, as well as the corresponding delivery receipts and invoices signed by twenty-five percent (25%) charge on the total amount due to petitioner Techno. ETHIDa
VMI representatives evidencing delivery by Techno of paint products and receipt thereof by VMI, it further presented Finally, with respect to the matter of interest, the Court notes the stipulation
corroborating testimony of Techno's Chief Accountant and also the testimony of its President attesting to the fact that Invoices submitted by Techno which provides that "one (1) Per Cent interest per month sh
VMI still had an outstanding account with Techno. It is evident, therefore, that petitioner Techno preponderantly accounts." 39 Accordingly, respondent VMI is liable to pay interest at the rate of one perce
established its counterclaim, especially in light of the fact that respondent VMI never contested the same in spite of every percent (12%) per annum to be computed from default, i.e., judicial or extrajudicial demand
opportunity to do so. Article 1169 of the Civil Code.Furthermore, in accordance with the doctrine laid down in
A cursory reading of the records shows that VMI never bothered to refute Techno's counterclaim by when the judgment of the court awarding the sum of money becomes final and executory,
contrary evidence or by any sort of denial in its pleadings filed before the RTC, the CA, or the present Court. As petitioner be six percent (6%) per annum from such finality until its satisfaction, taking the form of a ju
Techno points out, while VMI attempted to present rebuttal evidence, VMI ultimately withdrew said evidence. Note that WHEREFORE, premises considered, the instant petition is GRANTED. The dispositive portion
from the very first instance when Techno raised the counterclaim in its Answer with Compulsory Counterclaim dated March 16, 2012 of the Court of Appeals in CA-G.R. CV No. 84186 shall now read as follows:
October 19, 1999 up until the filing of its Comment before the Court on January 28, 2013, VMI had every opportunity to 1) The award of actual damages in the amount of P550,000.00 in favor
refute Techno's claims of non-payment. Regrettably for VMI, however, it never denied the existence of its outstanding Industries, Incorporated and against petitioner Techno Development & Chemical Corporati
account with Techno, not even on rebuttal. In fact, as asserted by Techno, VMI's witness, President Brilly Bernardez, 2) The award of unpaid balance of the Contract Price in the amount of P2,
even acknowledged the possibility of the existence of an unpaid obligation in favor of Techno, albeit its susceptibility of Metal Industries, Incorporated against PNOC-Energy Development Corporation is reduce
being subject to verification. It is interesting to note, moreover, that instead of rectifying its failure to refute Techno's penalty charges in the amount of P180,663.21 is to be deducted therefrom, for a net award
claims before the courts below, all VMI had to say in its Comment filed before the Court was that it was clearly implied 3) The award of Attorney's fees amounting to P100,000.00 is also DELETED
from the trial court's ruling that Techno's counterclaim was without basis and that the same was effectively affirmed by 4) Respondent Viking Metal Industries, Incorporated is ORDERED to PAY pe
the appellate court when it did not rule upon the same. To this Court, such reasoning barely repudiates the preponderance & Chemical Corporation the following: (a) the unpaid purchased paint products in the
of Techno's evidence. Thus, taking VMI's complete and utter failure to offer any sort of opposing evidence, documentary attorney's fees at the rate of twenty-five percent (25%) of the total unpaid amount; (c) inter
or testimonial, in conjunction with those pieces of evidence duly adduced by Techno, the Court deems it necessary to (1%) per month or twelve percent (12%) per annum to be computed from January 31, 199
consider Techno's claim. from the date of promulgation of this Decision up to full payment, interest at the rate of six
At this point, it is worthy to note that a careful look at the rulings of the trial court and appellate court would the sum of money plus the interest computed under paragraph (c) above.
reveal that neither court exerted any effort in determining the veracity of petitioner's assertions. While both courts SO ORDERED.
acknowledged the counterclaim in their decisions, and even listed the same as part of the issues that needed to be ||| (Techno Development & Chemical Corp. v. Viking Metal Industries, Inc., G.R.
resolved, nowhere in their decisions did they even remotely pass upon said claim. It can hardly be said, therefore, that
the courts below definitively denied Techno's claim to the payment of the unpaid products in the sheer absence of any 19. Durban Apartments Corp v. Pioneer Ins. & Surety Corp.,
showing that they took into consideration Techno's allegations much less the probative value of the evidence presented
to support it. Even granting VMI's argument that the trial court implicitly denied Techno's counterclaim against it, and that [G.R. No. 179419. January 12, 2011.]
the appellate court affirmed said denial, the Court finds the need to reverse said implicit denials and grant Techno's
counterclaim for as previously threshed out, not only did petitioner Techno present sufficient proof to substantiate its DURBAN APARTMENTS CORPORATION, doing business under the name and style of C
claim, VMI consistently and utterly failed to adduce any evidence to refute the same. PIONEER INSURANCE AND SURETY CORPORATION, respondent.
Ultimately, it must be noted that if Techno's claim was to be denied simply by the failure of the lower courts
to pass upon the same in their decisions, without any factual or legal explanation therefor, VMI would be unjustly enriched DECISION
at the expense of Techno for VMI's failure to pay for the paints it received. Such unjust enrichment due to the failure to
make remuneration of or for property or benefits received cannot be countenanced and must be correspondingly NACHURA, J p:
corrected by the Court. 34 In view of the foregoing, the Court finds Techno to be entitled to the payment of the unpaid
paint products purchased by VMI therefrom. For review is the Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which affirm
On the matter of petitioner Techno's prayer for exemplary damages in the amount of P200,000.00, Trial Court (RTC), Branch 66, Makati City, in Civil Case No. 03-857, holding petitioner Durba
however, the Court resolves to deny the same. Article 2234 35 of the Civil Code of the Philippines requires a party to first liable to respondent Pioneer Insurance and Surety Corporation for the loss of Jeffrey See's (Se
prove that he is entitled to moral, temperate or compensatory damages before he can be awarded exemplary damages. The facts, as found by the CA, are simple.
Moreover, Article 2220 36 of the same Code provides that in breaches of contract, moral damages may be awarded On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation . . ., by right of su
when the party at fault acted fraudulently or in bad faith. Thus, to justify an award for exemplary damages, the wrongful Makati City] a Complaint for Recovery of Damages against [petitioner] Durban Apartments Co
act must be accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in a the name and style of City Garden Hotel, and [defendant before the RTC] Vicente Justimbaste
wanton, fraudulent, reckless or malevolent manner. 37 In the instant case, there is no showing that VMI failed to pay for it is the insurer for loss and damage of Jeffrey S. See's [the insured's] 2001 Suzuki Grand Vi
its purchased paint products fraudulently or in bad faith. The Court, therefore, does not find Techno to be entitled to under Policy No. MC-CV-HO-01-0003846-00-D in the amount of P1,175,000.00; on April 30, 2
exemplary damages. at the City Garden Hotel in Makati corner Kalayaan Avenues, Makati City before midnight, and
As to Techno's claim for the award of attorney's fees in the amount of P200,000.00, as well as an . . . Justimbaste got the key to said Vitara from See to park it[. O]n May 1, 2002, at about 1:00
awakened in his room by [a] telephone call from the Hotel Chief Security Officer who informed him that his Vitara was carnapped Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer Insurance tasked,
while it was parked unattended at the parking area of Equitable PCI Bank along Makati Avenue between the hours of 12:00 claims and documents from the insured, investigation of the said claim, inspection of damages,
[a.m.] and 1:00 [a.m.]; See went to see the Hotel Chief Security Officer, thereafter reported the incident to the Operations Division and monitoring of the processing of the claim until its payment; he monitored the processin
of the Makati City Police Anti-Carnapping Unit, and a flash alarm was issued; the Makati City Police Anti-Carnapping Unit reported the incident to [respondent] Pioneer Insurance; [respondent] Pioneer Insurance as
investigated Hotel Security Officer, Ernesto T. Horlador, Jr. . . . and defendant . . . Justimbaste; See gave his Sinumpaang verified See's report, conducted an investigation, obtained the necessary documents for th
Salaysay to the police investigator, and filed a Complaint Sheet with the PNP Traffic Management Group in Camp Crame, tendered a settlement check to See; they evaluated the case upon receipt of the subrogatio
Quezon City; the Vitara has not yet been recovered since July 23, 2002 as evidenced by a Certification of Non-Recovery issued report, and eventually recommended for its settlement for the sum of P1,163,250.00 which w
by the PNP TMG; it paid the P1,163,250.00 money claim of See and mortgagee ABN AMRO Savings Bank, Inc. as indemnity was referred and forwarded to their counsel, R.B. Sarajan & Associates, who prepared and s
for the loss of the Vitara; the Vitara was lost due to the negligence of [petitioner] Durban Apartments and [defendant] Justimbaste Durban Apartments and [defendant] Justimbaste, who did not pay [respondent] Pioneer Insura
because it was discovered during the investigation that this was the second time that a similar incident of carnapping happened of the demand letters; and the services of R.B. Sarajan & Associates were engaged, for P10
in the valet parking service of [petitioner] Durban Apartments and no necessary precautions were taken to prevent its repetition; P3,000.00 per court appearance, to prosecute the claims of [respondent] Pioneer Insura
[petitioner] Durban Apartments was wanting in due diligence in the selection and supervision of its employees particularly Apartments and Justimbaste before the lower court.
defendant . . . Justimbaste; and defendant . . . Justimbaste and [petitioner] Durban Apartments failed and refused to pay its valid,
just, and lawful claim despite written demands. Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer Insurance ass
of See's case, and he was the one actually assigned to investigate it; he conducted his investiga
Upon service of Summons, [petitioner] Durban Apartments and [defendant] Justimbaste filed their Answer with Compulsory See, going to the City Garden Hotel, required subrogation documents from See, and verified
Counterclaim alleging that: See did not check in at its hotel, on the contrary, he was a guest of a certain Ching Montero . . .; learned that it is the standard procedure of the said hotel as regards its valet parking service
defendant . . . Justimbaste did not get the ignition key of See's Vitara, on the contrary, it was See who requested a parking they get to the lobby entrance, park the cars for their guests, and place the ignition keys in thei
attendant to park the Vitara at any available parking space, and it was parked at the Equitable Bank parking area, which was the hotel has only twelve (12) available parking slots, it has an agreement with Equitable PCI
within See's view, while he and Montero were waiting in front of the hotel; they made a written denial of the demand of the parking space of the bank at night; he also learned that a Hyundai Starex van was carna
[respondent] Pioneer Insurance for want of legal basis; valet parking services are provided by the hotel for the convenience of month before the occurrence of this incident because Liberty Insurance assigned the said incid
its customers looking for a parking space near the hotel premises; it is a special privilege that it gave to Montero and See; it does defendant . . . Justimbaste admitted the occurrence of the same in their sworn statements be
not include responsibility for any losses or damages to motor vehicles and its accessories in the parking area; and the same the Makati City Police; upon verification with the PNP TMG [Unit] in Camp Crame, he learned t
holds true even if it was See himself who parked his Vitara within the premises of the hotel as evidenced by the valet parking recovered; upon evaluation, Vesper recommended to [respondent] Pioneer Insurance to settl
customer's claim stub issued to him; the carnapper was able to open the Vitara without using the key given earlier to the parking See contested the recommendation of Vesper by reasoning out that the 10% depreciation sh
attendant and subsequently turned over to See after the Vitara was stolen; defendant . . . Justimbaste saw the Vitara speeding considering the fact that the Vitara was used for barely eight (8) months prior to its loss; and
away from the place where it was parked; he tried to run after it, and blocked its possible path but to no avail; and See was duly acceded to See's contention, tendered the sum of P1,163,250.00 as settlement, the former acc
and immediately informed of the carnapping of his Vitara; the matter was reported to the nearest police precinct; and defendant claim and subrogation receipt.
. . . Justimbaste, and Horlador submitted themselves to police investigation. SATDHE
The lower court denied the Motion to Admit Pre-Trial Brief and Motion for Reconsideration field b
During the pre-trial conference on November 28, 2003, counsel for [respondent] Pioneer Insurance was present. Atty. Monina and Justimbaste in its Orders dated May 4, 2005 and October 20, 2005, respectively, for being
Lee . . ., counsel of record of [petitioner] Durban Apartments and Justimbaste was absent, instead, a certain Atty. Nestor Mejia
appeared for [petitioner] Durban Apartments and Justimbaste, but did not file their pre-trial brief. Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner Durban Apartments Corpora
On November 5, 2004, the lower court granted the motion of [respondent] Pioneer Insurance, despite the opposition of [petitioner] Insurance and Surety Corporation] the sum of P1,163,250.00 with legal interest thereon from
Durban Apartments and Justimbaste, and allowed [respondent] Pioneer Insurance to present its evidence ex parte before the is fully paid and attorney's fees and litigation expenses amounting to P120,000.00.
Branch Clerk of Court.
SO ORDERED. 4
See testified that: on April 30, 2002, at about 11:30 in the evening, he drove his Vitara and stopped in front of City Garden Hotel
in Makati Avenue, Makati City; a parking attendant, whom he had later known to be defendant . . . Justimbaste, approached and On appeal, the appellate court affirmed the decision of the trial court, viz.:
asked for his ignition key, told him that the latter would park the Vitara for him in front of the hotel, and issued him a valet parking WHEREFORE, premises considered, the Decision dated January 27, 2006 of the RTC, Branch
customer's claim stub; he and Montero, thereafter, checked in at the said hotel; on May 1, 2002, at around 1:00 in the morning, 03-857 is hereby AFFIRMED insofar as it holds [petitioner] Durban Apartments Corporation sol
the Hotel Security Officer whom he later knew to be Horlador called his attention to the fact that his Vitara was carnapped while Insurance and Surety Corporation for the loss of Jeffrey See's Suzuki Grand Vitara.
it was parked at the parking lot of Equitable PCI Bank which is in front of the hotel; his Vitara was insured with [respondent]
Pioneer Insurance; he together with Horlador and defendant . . . Justimbaste went to Precinct 19 of the Makati City Police to SO ORDERED. 5
report the carnapping incident, and a police officer came accompanied them to the Anti-Carnapping Unit of the said station for
investigation, taking of their sworn statements, and flashing of a voice alarm; he likewise reported the said incident in PNP TMG Hence, this recourse by petitioner.
in Camp Crame where another alarm was issued; he filed his claim with [respondent] Pioneer Insurance, and a representative The issues for our resolution are:
of the latter, who is also an adjuster of Vesper Insurance Adjusters-Appraisers [Vesper], investigated the incident; and 1. Whether the lower courts erred in declaring petitioner as in default for failure to appear at the
[respondent] Pioneer Insurance required him to sign a Release of Claim and Subrogation Receipt, and finally paid him the sum pre-trial brief;
of P1,163,250.00 for his claim.
2. Corollary thereto, whether the trial court correctly allowed respondent to present evidence e
 The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and with o
3. Whether petitioner is liable to respondent for attorney's fees in the amount of P120,000.00; and counsel for petitioner, was correctly rejected by the trial court. Accordingly, the trial court, as af
not err in allowing respondent to present evidence ex-parte. SEDaAH
4. Ultimately, whether petitioner is liable to respondent for the loss of See's vehicle. Former Chief Justice Andres R. Narvasa's words continue to resonate, thus:
Everyone knows that a pre-trial in civil actions is mandatory, and has been so since January 1,
The petition must fail. the scheme of things is not fully appreciated, and it receives but perfunctory treatment in man
We are in complete accord with the common ruling of the lower courts that petitioner was in default for failure to appear at the a mere technicality, serving no useful purpose save perhaps, occasionally to furnish groun
pre-trial conference and to file a pre-trial brief, and thus, correctly allowed respondent to present evidence ex-parte. Likewise, declaring a defendant in default, or, wistfully, to bring about a compromise. The pre-trial device
the lower courts did not err in holding petitioner liable for the loss of See's vehicle. it has failed in the main to accomplish the chief objective for it: the simplification, abbreviation
Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate court, indeed its dispensation. This is a great pity, because the objective is attainable, and with not m
are accorded the highest degree of respect and are considered conclusive between the parties. 6 A review of such findings by more intelligently and extensively handled.
this Court is not warranted except upon a showing of highly meritorious circumstances, such as: (1) when the findings of a trial
court are grounded entirely on speculation, surmises, or conjectures; (2) when a lower court's inference from its factual findings xxx xxx xxx
is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when
the findings of the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if properly Consistently with the mandatory character of the pre-trial, the Rules oblige not only the lawyers
considered, will justify a different conclusion; (5) when there is a misappreciation of facts; (6) when the findings of fact are for this purpose before the Court, and when a party "fails to appear at a pre-trial conference (he)
conclusions without mention of the specific evidence on which they are based, are premised on the absence of evidence, or are as in default." The obligation "to appear" denotes not simply the personal appearance, or the
contradicted by evidence on record. 7 None of the foregoing exceptions permitting a reversal of the assailed decision exists in party of one's self, but connotes as importantly, preparedness to go into the different subject a
this instance. IDASHa in those instances where a party may not himself be present at the pre-trial, and another person
Petitioner urges us, however, that "strong [and] compelling reason[s]" such as the prevention of miscarriage of justice warrant a undertakes to appear not only as an attorney but in substitution of the client's person, it is imp
suspension of the rules and excuse its and its counsel's non-appearance during the pre-trial conference and their failure to file the lawyer to have "special authority" to make such substantive agreements as only the client
a pre-trial brief. That "special authority" should ordinarily be in writing or at the very least be "duly established
We are not persuaded. serving assertion of counsel (or the proclaimed representative) himself." Without that s
Rule 18 of the Rules of Court leaves no room for equivocation; appearance of parties and their counsel at the pre-trial conference, representative cannot be deemed capacitated to appear in place of the party; hence, it will b
along with the filing of a corresponding pre-trial brief, is mandatory, nay, their duty. Thus, Section 4 and Section 6 thereof provide: failed to put in an appearance at all, and he [must] therefore "be non-suited or considered a
SEC. 4. Appearance of parties. It shall be the duty of the parties and their counsel to appear at the pre-trial. The non- lawyer's or delegate's presence. 9
appearance of a party may be excused only if a valid cause is shown therefor or if a representative shall appear in his behalf
fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter We are not unmindful that defendant's (petitioner's) preclusion from presenting evidence during
into stipulations or admissions of facts and documents. in a judgment in favor of plaintiff (respondent). The plaintiff must still substantiate the allegation
it would be inutile to continue with the plaintiff's presentation of evidence each time the defend
SEC. 6. Pre-trial brief. The parties shall file with the court and serve on the adverse party, in such manner as shall ensure In this case, respondent substantiated the allegations in its complaint, i.e., a contract of neces
their receipt thereof at least three (3) days before the date of the pre-trial, their respective pre-trial briefs which shall contain, insured See and petitioner. On this score, we find no error in the following disquisition of the ap
among others: [The] records also reveal that upon arrival at the City Garden Hotel, See gave notice to the d
the said hotel, . . . Justimbaste, about his Vitara when he entrusted its ignition key to the latte
xxx xxx xxx parking customer claim stub to See, parked the Vitara at the Equitable PCI Bank parking area,
a safety key box while See proceeded to the hotel lobby to check in. The Equitable PCI Bank p
Failure to file the pre-trial brief shall have the same effect as failure to appear at the pre-trial. City Garden Hotel when the management of the said bank allowed the parking of the vehicl
evening after banking hours. 11
Contrary to the foregoing rules, petitioner and its counsel of record were not present at the scheduled pre-trial conference.
Worse, they did not file a pre-trial brief. Their non-appearance cannot be excused as Section 4, in relation to Section 6, allows Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a nec
only two exceptions: (1) a valid excuse; and (2) appearance of a representative on behalf of a party who is fully authorized in in hotels or inns:
writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter into stipulations or Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to ano
admissions of facts and documents. keeping it and returning the same. If the safekeeping of the thing delivered is not the principal
Petitioner is adamant and harps on the fact that November 28, 2003 was merely the first scheduled date for the pre-trial no deposit but some other contract. aCSTDc
conference, and a certain Atty. Mejia appeared on its behalf. However, its assertion is belied by its own admission that, on said
date, this Atty. Mejia "did not have in his possession the Special Power of Attorney issued by petitioner's Board of Directors." Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as n
As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial on October 27, 2003, thirty-two (32) days or inns shall be responsible for them as depositaries, provided that notice was given to them, or
prior to the scheduled conference. In that span of time, Atty. Lee, who was charged with the duty of notifying petitioner of the brought by the guests and that, on the part of the latter, they take the precautions which said
scheduled pre-trial conference, 8 petitioner, and Atty. Mejia should have discussed which lawyer would appear at the pre-trial advised relative to the care and vigilance of their effects.
conference with petitioner, armed with the appropriate authority therefor. Sadly, petitioner failed to comply with not just one rule;
it also did not proffer a reason why it likewise failed to file a pre-trial brief. In all, petitioner has not shown any persuasive reason Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for saf
why it should be exempt from abiding by the rules. the latter's employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the c
from See's delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with the obligation the renter of a safe-deposit box therein, is often described as contractual, express or implied, o
of safely keeping and returning it. Ultimately, petitioner is liable for the loss of See's vehicle. But there is apparently no jurisdiction in which any rule other than that applicable to bailments
Lastly, petitioner assails the lower courts' award of attorney's fees to respondent in the amount of P120,000.00. Petitioner claims and rights of the parties in respect of loss of the contents of safe-deposit boxes." In the con
that the award is not substantiated by the evidence on record. banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the preva
We disagree. been adopted. Section 72 of the General Banking Act pertinently provides: "SEC. 72. In addit
While it is a sound policy not to set a premium on the right to litigate, 12 we find that respondent is entitled to reasonable authorized elsewhere in this Act, banking institutions other than building and loan associa
attorney's fees. Attorney's fees may be awarded when a party is compelled to litigate or incur expenses to protect its interest, 13 services: (a) Receive in custody funds, documents, and valuable objects, and rent safety depo
or when the court deems it just and equitable. 14 In this case, petitioner refused to answer for the loss of See's vehicle, which such effects. . . . The banks shall perform the services permitted under subsections (a), (b) and
was deposited with it for safekeeping. This refusal constrained respondent, the insurer of See, and subrogated to the latter's or as agents. . . ." Note that the primary function is still found within the parameters of a contra
right, to litigate and incur expenses. However, we reduce the award of P120,000.00 to P60,000.00 in view of the simplicity of the custody of funds, documents and other valuable objects for safekeeping. The renting out of
issues involved in this case. independent from, but related to or in conjunction with, this principal function.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 86869 is AFFIRMED with the
MODIFICATION that the award of attorney's fees is reduced to P60,000.00. Costs against petitioner. 3. ID.; ID.; ID.; DEGREE OF DILIGENCE REQUIRED OF DEPOSITARY; FREEDOM TO S
SO ORDERED. contract of deposit may be entered into orally or in writing and, pursuant to Article 1306 of the C
establish such stipulations, clauses, terms and conditions as they may deem convenient, prov
||| (Durban Apartments Corp. v. Pioneer Insurance and Surety Corp., G.R. No. 179419, [January 12, 2011], 654 PHIL 413-427) morals, good customs, public order or public policy. The depositary's responsibility for the safe
in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depository
its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the a
stipulation prescribing the degree of diligence required, that of a good father of a family is to be
exempting the depositary from any liability arising from the loss of the thing deposited on acco
would be void for being contrary to law and public policy. . . . It has been said: "With respect
20. CA Agro Ind. Dev. Corp. v. CA, et. al. deposit box by a customer of a safe-deposit company, the parties, since the relation is a contrac
define their respective duties or provide for increasing or limiting the liability of the deposit com
[G.R. No. 90027. March 3, 1993.] not in violation of law or public policy. It must clearly appear that there actually was such a spec
vary the ordinary obligations implied by law from the relationship of the parties; liability of
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs. THE HONORABLE COURT OF APPEALS and SECURITY enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit b
BANK AND TRUST COMPANY, respondents. liability for loss of the contents by its own fraud or negligence or that of its agents or servants,
may be construed as an attempt to do so, it will be held ineffective for the purpose. Although i
Dolorfino & Dominguez Law Offices for petitioner. a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negl
that such a lessor may limit its liability to some extent by agreement or stipulation."
Danilo B. Banares for private respondent.
4. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. In the instant case, petitioner maintains that condi
SYLLABUS contract of lease of the safety deposit box, which read: "13. That bank is not a depositary of th
neither the possession nor control of the same. 14. The bank has no interest whatsoever in said c
1. CIVIL LAW; CONTRACTS; CONTRACT FOR RENT OF SAFETY DEPOSIT BOX; A SPECIAL KIND OF DEPOSIT NOT provided, and it assumes absolutely no liability in connection therewith." are void as they are
STRICTLY GOVERNED BY CIVIL CODE PROVISIONS ON DEPOSIT. We agree with the petitioner's contention that the We find Ourselves in agreement with this proposition for indeed, said provisions are inconsis
contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code. responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt the
However, We do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence o
provisions in the Civil Code on deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as admitted to any rented safe, to wit: "8. The Bank shall use due diligence that no unauthorized
an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box rented safe and beyond this, the Bank will not be responsible for the contents of any safe rente
was not given to the joint renters the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not co
without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the neither the possession nor control of the contents of the box since in fact, the safety deposit b
box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access and is under its absolute control; moreover, the respondent Bank keeps the guard key to the sa
to the box. cannot open their respective boxes unless the Bank cooperates by presenting and using thi
extent above stated, the foregoing conditions in the contract in question are void and ineffectiv
2. ID.; ID.; ID.; PREVAILING RULE IN AMERICAN JURISPRUDENCE ADOPTED IN THIS JURISDICTION. We observe,
however, that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. We agree DECISION
with the petitioner that under the latter, the prevailing rule is that the relation between a bank renting out safe-deposit boxes and
its customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and mutual benefit. DAVIDE, JR., J p:
This is just the prevailing view because: "There is, however, some support for the view that the relationship in question might be
more properly characterized as that of landlord and tenant, or lessor and lessee. It has also been suggested that it should be Is the contractual relation between a commercial bank and another party in a contract of rent of
characterized as that of licensor and licensee. The relation between a bank, safe-deposit company, or storage company, and to its contents placed by the latter one of bailor and bailee or one of lessor and lessee?
 The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and
This is the crux of the present controversy. LLjur Bank has no liability for the loss of the certificates of title. The court declared that the said prov

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into an Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse dec
agreement whereby the former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of this Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the responden
amount, P75,725.00 was paid as downpayment while the balance was covered by three (3) postdated checks. Among the terms decision because the trial court erred in (a) absolving the respondent Bank from liability from
and conditions of the agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were that the titles and void, for being contrary to law, public order and public policy, the provisions in the contra
to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the box absolving the Bank from any liability for loss, (c) not concluding that in this jurisdicti
certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank an
box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos for nominal and exemplary damages and attorney's fees. 8
upon full payment of the purchase price .Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No.
1448 of private respondent Security Bank and Trust Company, a domestic banking corporation hereinafter referred to as the In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision
respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia, the following conditions: contract (Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a contr
petitioner and its co-renter were given control over the safety deposit box and its contents wh
"13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same. open the said box because it had neither the possession nor control over it and its contents. A
by Article 1643 of the Civil Code 10 which provides:
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability
in connection therewith." 1 "ARTICLE 1643. In the lease of things, one of the parties binds himself to give to another the
price certain, and for a period which may be definite or indefinite. However, no lease for more
After the execution of the contract, two (2) renter's keys were given to the renters one to Aguirre (for the petitioner) and the valid."
other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has two (2)
keyholes, one for the guard key and the other for the renter's key, and can be opened only with the use of both keys. Petitioner It invoked Tolentino vs. Gonzales 11 which held that the owner of the property loses his
claims that the certificates of title were placed inside the said box. during the period of the contract and Article 1975 of the Civil Code which provides:
"ARTICLE 1975. The depositary holding certificates, bonds, securities or instruments which earn
the latter when it becomes due, and to take such steps as may be necessary in order that the se
and the rights corresponding to them according to law.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of P225.00 per square
meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 per square meter or a total of P280,500.00 The above provision shall not apply to contracts for the rent of safety deposit boxes."
for the entire property. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the
certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October and then concluded that "[c]learly, the defendant-appellee is not under any duty to mainta
1979 to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's stipulation absolving the defendant-appellee from liability is in accordance with the nature of the
representative, the box yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew regarded as contrary to law, public order and public policy." 12 The appellate court was quick
her earlier offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the expected profit of contract of lease of the safety deposit box, respondent Bank is not completely free from liability a
P280,500.00. Hence, the latter filed on 1 September 1980 a complaint 2 for damages against the respondent Bank with the in case unauthorized persons enter into the vault area or when the rented box is forced open. T
Court of First Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the same as Civil Case No. 38382. stipulation number 8 of the contract in question:
Cdpr "8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rente
will not be responsible for the contents of any safe rented from it." 13
In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no cause of action because of paragraphs
13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in the box could not give Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 2
rise to an action against it. It then interposed a counterclaim for exemplary damages as well as attorney's fees in the amount of this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the res
P20,000.00. Petitioner subsequently filed an answer to the counterclaim. 4 avers that both the respondent Court and the trial court (a) did not properly and legally apply
acted with grave abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c
In due course, the trial court. now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro Manila, rendered to, or is a departure from precedents adhered to and affirmed by decisions of this Court and pre
a decision 5 adverse to the petitioner on 8 December 1986, the dispositive portion of which reads: adopted in the Philippines. It reiterates the arguments it had raised in its motion to reconsider
submitted to the respondent Court and the motion to reconsider the latter's decision. In a n
"WHEREFORE, premises considered, judgment is hereby rendered dismissing plaintiff's complaint. regardless of nomenclature, the contract for the rent of the safety deposit box (Exhibit "2")
governed by Title XII, Book IV of the Civil Code of the Philippines. 16 Accordingly, it is claimed t
On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defendant the amount of FIVE THOUSAND for the loss of the certificates of title pursuant to Article 1972 of the said Code which provides:
(P5,000.00) PESOS as attorney's fees.
"ARTICLE 1972. The depositary is obliged to keep the thing safely and to return it, when req
With costs against plaintiff." 6 heirs and successors, or to the person who may have been designated in the contract. His
safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Book
 "There is, however, some support for the view that the relationship in question might be more
If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the depositary must landlord and tenant, or lessor and lessee. It has also been suggest that should be characterized
observe." The relation between a bank, safe-deposit company, or storage company, and the renter of a
described as contractual, express or implied, oral or written, in whole or in part. But there is a
Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound on the prevailing rule in the any rule other than that applicable to bailments governs questions of the liability and rights of th
United States, to wit: contents of safe-deposit boxes." 22 (citations omitted).
"The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe and the lessee takes
possession of the box or safe and places therein his securities or other valuables, the relation of bailee and bailor is created In the context of our laws which authorize banking institutions to rent out safety deposit boxes,
between the parties to the transaction as to such securities or other valuables; the fact that the safe-deposit company does not the prevailing rule in the United States has been adopted. Section 72 of the General Banking A
know, and that it is not expected that it shall know, the character or description of the property which is deposited in such safe-
deposit box or safe does not change that relation. That access to the contents of the safe-deposit box can be had only by the "SECTION 72. In addition to the operations specifically authorized elsewhere in this Act, banki
use of a key retained by the lessee (whether it is the sole key or one to be used in connection with one retained by the lessor) and loan associations may perform the following services:
does not operate to alter the foregoing rule. The argument that there is not, in such a case, a delivery of exclusive possession
and control to the deposit company, and that therefore the situation is entirely different from that of ordinary bailment, has been (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit box
generally rejected by the courts, usually on the ground that as possession must be either in the depositor or in the company, it effects.
should reasonably be considered as in the latter rather than in the former, since the company is, by the nature of the contract,
given absolute control of access to the property, and the depositor cannot gain access thereto without the consent and active xxx xxx xxx
participation of the company. . . ." (citations omitted).
The banks shall perform the services permitted under subsections (a), (b) and (c) of this sectio
and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety deposit box in consideration . . " 24 (emphasis supplied).
of a fixed amount at stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy and should Note that the primary function is still found within the parameters of a contract of deposit, i.e.,
be declared null and void. In support thereof, it cites Article 1306 of the Civil Code which provides that parties to a contract may documents and other valuable objects for safekeeping. The renting out of the safety deposit bo
establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, related to or in conjunction with, this principal function. A contract of deposit may be entered
morals, good customs, public order or public policy. pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations,
they may deem convenient, provided they are not contrary to law, morals, good customs, p
After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to simultaneously depositary's responsibility for the safekeeping of the objects deposited in the case at bar is go
submit their respective Memoranda. Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found
or contravention of the tenor of the agreement. 2 6 In the absence of any stipulation prescribing
The petition is partly meritorious. that of a good father of a family is to be observed. 27 Hence, any stipulation exempting the de
from the loss of the thing deposited on account of fraud, negligence or delay would be void for
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary contract of policy. In the instant case, petitioner maintains that conditions 13 and 14 of the questioned cont
lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a contract of box, which read:
deposit that is to be strictly governed by the provisions in the Civil Code on deposit; 19 the contract in the case at bar is a special
kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute "13. The bank is not a depositary of the contents of the safe and it has neither the possession
possession and control of the safety deposit box was not given to the renters the petitioner and the Pugaos. The guard key
of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, 14. The bank has no interest whatsoever in said contents, except herein expressly provided, and
the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which in connection therewith." 28
was made so that both renters could have access to the box.
are void as they are contrary to law and public policy. We find Ourselves in agreement with
provisions are inconsistent with the respondent Bank's responsibility as a depositary under Sec
Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof
Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article 1975, also relied upon reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:
by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first paragraph of such provision "8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rente
cannot apply to a depositary of certificates, bonds, securities or instruments which earn interest if such documents are kept in a will not be responsible for the contents of any safe rented from it." 2 9
rented safety deposit box. It is clear that the depositary cannot open the box without the renter being present. prcd
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of th
We observe, however, that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. that the Bank has neither the possession nor control of the contents of the box since in fact, the s
We agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank renting out safe-deposit in its premises and is under its absolute control; moreover, the respondent Bank keeps the gua
boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting
mutual benefit. 21 This is just the prevailing view because: then, to the extent above stated, the foregoing conditions in the contract in question are void a
"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation disparity between the factual findings and conclusions of the Court of Appeals and the trial cou
is a contractual one may by special contract define their respective duties or provide for increasing or limiting the liability of the present case.
deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was
such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; 2. MERCANTILE LAW; GENERAL BANKING ACT (Republic Act No. 337, as amended); BAIL
liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe- BANK RENTING OUT SAFE DEPOSIT BOXES AND ITS CUSTOMERS WITH RESPECT TO
deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that of its agents or recent case of CA Agro-Industrial Development Corp. vs. Court of Appeals, this Court explici
servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book
Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Co
own negligence, the view has been taken that such a lessor may limit its liability to some extent by agreement or stipulation." 30 We declared, a special kind of deposit. The prevailing rule in American jurisprudence that the
(citations omitted). out safe deposit boxes and its customer with respect to the contents of the box is that of a bail
for hire and mutual benefit has been adopted in this jurisdiction (Section 72 of the Ge
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be dismissed, but on amended]).
grounds quite different from those relied upon by the Court of Appeals. In the instant case, the respondent Bank's exoneration
cannot, contrary to the holding of the Court of Appeals, be based on or proceed from a characterization of the impugned contract 3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; LIABILITY FOR DAMAGES FOR NEGLIG
as a contract of lease, but rather on the fact that no competent proof was presented to show that respondent Bank was aware OF OBLIGATION; CASE AT BAR. Public respondent failed to consider that the instant ca
of the agreement between the petitioner and the Pugaos to the effect that the certificates of title were withdrawable from the court, SBTC was guilty of negligence. The facts constituting negligence are enumerated
safety deposit box only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the summarized in this ponencia. SBTC's negligence aggravated the injury or damage to the petitio
certificates of title was due to the fraud or negligence of the respondent Bank. This in turn flows from this Court's determination or destruction of the stamp collection. SBTC was aware of the floods of 1985 and 1986; it
that the contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (1) inundated the room where Safe Deposit Box No. 54 was located. In view hereof, it should h
renter's key, it was obvious that either of them could ask the Bank for access to the safety deposit box and, with the use of such petitioner in order that the box could have been opened to retrieved the stamps, thus saving th
key and the Bank's own guard key, could open the said box, without the other renter being present. and loss. In this respect, it failed to exercise the reasonable care and prudence expected of a
becoming a party to the aggravation of the injury or loss. Accordingly, the aforementioned fo
Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been established, event is absent and Article 1170 of the Civil Code applies.
the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision
(dispositive portion) of public respondent Court of Appeals must be modified. 4. ID.; MORAL DAMAGES; AWARD THEREOF IN CASE OF BREACH OF CONTRACT; FRAU
ABSENCE THEREOF IN CASE AT BAR. We cannot place Our imprimatur on the trial court's
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July 1989 the relationship between the petitioner and SBTC is based on a contract, either of them may b
Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We for breach thereof only if said party had acted fraudulently or in bad faith. There is here no proo
made above on the nature of the relationship between the parties in a contract of lease of safety deposit boxes, the dispositive of SBTC.
portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit. LLpr
DECISION
No pronouncement as to costs.
DAVIDE, JR., J p:
SO ORDERED.
The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on
||| (CA Agro-Industrial Development Corp. v. Court of Appeals, G.R. No. 90027, [March 3, 1993]) setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial Court
87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is challenged in thi
21. Sia v. CA et. al under Rule 45 of the Rules of Court.

[G.R. No. 102970. May 13, 1993.] Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of th
(petitioner herein) contained in Safety Deposit Box No. 54 which had been rented from the d
LUZAN SIA, petitioner, vs. COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents. denominated as a Lease Agreement. 3 Judgment therein was rendered in favor of the plaintif
reads:
Asuncion Law Offices for petitioner.
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
Cauton, Banares, Carpio & Associates for private respondent. Bank & Trust Company, ordering the defendant bank to pay the plaintiff the sum of

SYLLABUS a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;

1. REMEDIAL LAW; EVIDENCE; CREDIBILITY; FINDINGS OF FACT OF THE COURT OF APPEALS, GENERALLY UPHELD b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and
ON APPEAL; EXCEPTIONS. Findings of fact of the Court of Appeals, when supported by substantial evidence, are not
reviewable on appeal by certiorari. The foregoing rule is, of course, subject to certain exceptions such as when there exists a c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal expens
 1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The lea
The counterclaim[s] set up by the defendant are hereby dismissed for lack of merit. every page and cannot be lifted without destroying it, hence the stamps contained therein are

No costs. 2. The second album measures 12 1/2 inches in length, 9 3/4 in width and 1 inch thick. Some o
stamps therein can still be distinguished but beyond restoration. Others have lost its original fo
SO ORDERED." 4
3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to th
The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision as follows: of the album is the same as described in the second above-mentioned album.'" 5

"The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its Binondo Branch located at The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the
the Fookien Times Building, Soler St., Binondo, Manila wherein he placed his collection of stamps. The said safety deposit box respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737.
leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the defendant bank at its aforesaid
Binondo Branch. In urging the public respondent to reverse the decision of the trial court, SBTC contended that
the lease agreement is a contract of adhesion; (b) finding that the defendant had failed to
During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped into the expected of a bank in maintaining the safety deposit box; (c) awarding to the plaintiff ac
safety deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps collection. The defendant P20,000.00, moral damages in the amount of P100,000.00 and attorney's fees and legal expen
bank rejected the plaintiff's claim for compensation for his damaged stamps collection, so, the plaintiff instituted an action for and (d) dismissing the counterclaim.
damages against the defendant bank.
On 21 August 1991, the public respondent promulgated its decision the dispositive portion of w
The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the 'Rules and Regulations
Governing the Lease of Safe Deposit Boxes' (Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which reads (sic): "WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee's
The appellant bank's counterclaim is likewise DISMISSED. No costs." 6
'9. The liability of the Bank, by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the safe
by any person other than the Renter, his authorized agent or legal representative; In reversing the trial court's decision and absolving SBTC from liability, the public respondent f

xxx xxx xxx a) the fine print in the "Lease Agreement" (Exhibits "A" and "1") constitutes the terms and co
which the appellee (now petitioner) had voluntarily and knowingly executed with SBTC;
13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the same. The
Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection
therewith.'
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a cont
The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease and not became a depositary of the subject stamp collection; hence, as contended by SBTC, the prov
of deposit and, therefore, governed by the lease agreement (Exhs. "A", "L") which should be the applicable law; that the Civil Code on deposits do not apply;
destruction of the plaintiff's stamps collection was due to a calamity beyond its control; and that there was no obligation on its
part to notify the plaintiff about the floodwaters that inundated its premises at Binondo branch which allegedly seeped into the c) The following provisions of the questioned lease agreement of the safety deposit box limiting
safety deposit box leased to the plaintiff. cdll
"9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to
The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit box be conducted, which was by any person other than the Renter, his authorized agent or legal representative;
done on December 8, 1988 by its clerk of court in the presence of the parties and their counsels. A report thereon was then
submitted on December 12, 1988 (Records, p. 98-A) and confirmed in open court by both parties thru counsel during the hearing xxx xxx xxx
on the same date (Ibid, p. 102) stating:
13. The bank is not a depositary of the contents of the Safe and it has neither the possession
'That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the Acting Branch Manager Jimmy B. Ynion in Bank has no interest whatsoever in said contents, except as herein provided, and it assumes ab
the presence of the undersigned, plaintiff's and defendant's counsel. Said Safety Box when opened contains two albums of therewith,"
different sizes and thickness, length and width and a tin box with printed word 'Thai Ping Shiang Roast Pork in pieces with
Chinese designs and character.' are valid since said stipulations are not contrary to law, morals, good customs, public order or
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence
Condition of the above-stated Items box; what was proven was that the floods of 1985 and 1986, which were beyond the control of S
stamp collection; said floods were fortuitous events which SBTC should not be held liable for
'Both albums are wet, moldy and badly damaged. participated in the aggravation of the damage to the stamp collection; on the contrary, it o
assistance of an expert in order to save most of the stamps, but the appellee refused; appelle
the principle of "res perit domino."
 are valid and binding upon the parties. In the challenged decision, the public respondent furthe
Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner filed the instant petition limitation of liability, SBTC should still be absolved from any responsibility for the damage sustain
wherein he contends that: that such damage was occasioned by a fortuitous event and that the respondent bank was f
aggravation of the injury.
"I We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to b
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT COURT WHEN IT
RULED THAT RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE In the recent case of CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court
SAFETY DEPOSIT BOX OF THE PETITIONER CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, B
CONTRARY. We fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civi
is, as We declared, a special kind of deposit. The prevailing rule in American jurisprudence
II renting out safe deposit boxes and its customer with respect to the contents of the box is that o
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE RESPONDENT FROM ANY LIABILITY being for hire and mutual benefit 15 has been adopted in this jurisdiction, thus:
WHATSOEVER BY REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A" AND
"A-1"). "In the context of our laws which authorize banking institutions to rent out safety deposit boxes
the prevailing rule in the United States has been adopted. Section 72 of the General Bank
III pertinently provides:
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF THE TRIAL COURT FOR
ACTUAL AND MORAL DAMAGES, INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF THE 'SEC. 72. In addition to the operations specifically authorized elsewhere in this Act, banking in
PETITIONER." 8 loan associations may perform the following services:

We subsequently gave due course to the petition and required both parties to submit their respective memoranda, which they (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit box
complied with. 9 effects.

Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence expected of a bank xxx xxx xxx
maintaining such safety deposit box . . . in the light of the environmental circumstances of said safety deposit box after the floods
of 1985 and 1986." He argues that such a conclusion is supported by the evidence on record, to wit: SBTC was fully cognizant The banks shall perform the services permitted under subsections (a), (b) and (c) of this sectio
of the exact location of the safety deposit box in question; it knew that the premises were inundated by floodwaters in 1985 and . . (emphasis supplied)
1986 and considering that the bank is guarded twenty-four (24) hours a day, it is safe to conclude that it was also aware of the
inundation of the premises where the safety deposit box was located; despite such knowledge, however, it never bothered to Note that the primary function is still found within the parameters of a contract of deposit, i.e., t
inform the petitioner of the flooding or take any appropriate measures to insure the safety and good maintenance of the safety documents and other valuable objects for safekeeping. The renting out of the safety deposit bo
deposit box in question. related to or in conjunction with, this principal function. A contract of deposit may be entered i
Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of fact of the Court of Appeals, when and conditions as they may deem convenient, provided they are not contrary to law, morals, goo
supported by substantial evidence, are not reviewable on appeal by certiorari. 10 policy. The depositary's responsibility for the safekeeping of the objects deposited in the case a
IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its oblig
The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity between the factual findings negligence, delay or contravention of the tenor of the agreement [Art. 1170, id.]. In the absence
and conclusions of the Court of Appeals and the trial court. 11 Such a disparity obtains in the present case. prLL degree of diligence required, that of good father of a family is to be observed [Art. 1173, id.]. H
the depositary from any liability arising from the loss of the thing deposited on account of frau
As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement" covering Safe Deposit void for being contrary to law and public policy. In the instant case, petitioner maintains th
Box No. 54 (Exhibits "A" and "1") is just that a contract of lease and not a contract of deposit, and that paragraphs 9 and questioned contract of lease of the safety deposit box, which read:
13 thereof, which expressly limit the bank's liability as follows:
'13. The bank is not a depositary of the contents of the safe and it has neither the possession n
"9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the Safe
by any person other than the Renter, his authorized agent or legal representative; 14. The bank has no interest whatsoever in said contents, except as herein expressly provide
liability in connection therewith.'
xxx xxx xxx
are void as they are contrary to law and public policy. We find Ourselves in agreement with
13. The bank is not a depositary of the contents of the Safe and it has neither the possession nor the control of the same. The provisions are inconsistent with the respondent Bank's responsibility as a depositary under Sec
Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof
therewith," 12 reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:
'8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank Here, the unforeseen or unexpected inundating floods were independent of the will of the appe
will not be responsible for the contents of any safe rented from it.' shown to have participated in aggravating damage (sic) to the stamps collection of the app
offered its services to secure the assistance of an expert to save most of the then good stamps
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert (sic) these recoverable stamps inside the safety deposit box until they were ruined." 20
that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located
in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to said box. As stated Both the law and authority cited are clear enough and require no further elucidation. Un
earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly respondent failed to consider that the instant case, as correctly held by the trial court, SBTC w
then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said: constituting negligence are enumerated in the petition and have been summarized in thi
aggravatedthe injury or damage to the petitioner which resulted from the loss or destruction of
aware of the floods of 1985 and 1986; it also knew that the floodwaters inundated the room wh
located. In view hereof, it should have lost no time in notifying the petitioner in order that the
'With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation retrieved the stamps, thus saving the same from further deterioration and loss. In this respect, it
is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the care and prudence expected of a good father or a family, thereby becoming a party to the a
deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent and Artic
such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; reads:
liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-
deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that of its agents or "Those who in the performance of their obligations are guilty of fraud, negligence, or delay
servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. contravene the tenor thereof, are liable for damages,"
Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its
own negligence, the view has been taken that such a lessor may limit its liability to some extent by agreement or stipulation.' [10 thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which
AM JUR 2d., 446]." (citations omitted) 16 court, the "product of 27 years of patience and diligence" 21 caused the petitioner pecu
compensated therefor.
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-Industrial We cannot, however, place Our imprimatur on the trial court's award of moral damages. Sin
Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both condition No. 8 in CA petitioner and SBTC is based on a contract, either of them may be held liable for moral damag
Agro-Industrial Development Corp. and condition No. 9 in the present case in limit the scope of the exercise of due diligence by party had acted fraudulently or in bad faith. 22 There is here no proof of fraud or bad faith on th
the banks involved to merely seeing to it that only the renter, his authorized agent or his legal representative should open or
have access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercise diligence WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resoluti
of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agro-Industrial Development Corp., it is not of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737
at all difficult to conclude that both conditions No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in Civi
question (Exhibits "A" and "1") must be stricken down for being contrary to law and public policy as they are meant to exempt REINSTATED in full, except as to the award of moral damages which is hereby set aside.
SBTC from any liability for damage, loss or destruction of the contents of the safety deposit box which may arise from its own or
its agents' fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the said conditions. cdphil Costs against the private respondent.

Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp collection SO ORDERED.
because the flooding was a fortuitous event and there was no showing of SBTC's participation in the aggravation of the loss or
injury. It states: ||| (Sia v. Court of Appeals, G.R. No. 102970, [May 13, 1993])

"Article 1174 of the Civil Code provides: 22. YHT Realty Corp. v. CA

'Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation [G.R. No. 126780. February 17, 2005.]
requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though
foreseen, were inevitable.' YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners, vs. T
MAURICE McLOUGHLIN, respondents.
In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espaola 17 says: 'In a legal sense and, consequently,
also in relation to contracts, a 'caso fortuito' prevents (sic) 18 the following essential characteristics: (1) the cause of the DECISION
unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the
human will; (2) it must be impossible to foresee the event which constitutes the 'caso fortuito,' or if it can be foreseen, it must be TINGA, J p:
impossible to avoid; (3) the occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a normal
manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor.' (cited in The primary question of interest before this Court is the only legal issue in the case: It is wheth
Servando vs. Phil. Steam Navigation Co., supra). 19 the loss of items left with it for safekeeping by its guests, by having these guests exec
establishment or its employees free from blame for such loss in light of Article 2003 of the Civil
Before this Court is a Rule 45 petition for review of the Decision 1 dated 19 October 1995 of the Court of Appeals which affirmed containing Ten Thousand Australian Dollars (AUS$10,000.00), Four Thousand Five Hundred A
the Decision 2 dated 16 December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT Realty Corporation, were missing. 10
Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam) jointly and solidarily liable for damages in an
action filed by Maurice McLoughlin (McLoughlin) for the loss of his American and Australian dollars deposited in the safety When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who adm
deposit box of Tropicana Copacabana Apartment Hotel, owned and operated by YHT Realty Corporation. deposit box with the key assigned to him. 11 McLoughlin went up to his room where Tan was
admitted that she had stolen McLoughlin's key and was able to open the safety deposit box with
The factual backdrop of the case follow. IHcSCA and Lainez. 12 Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin whil

Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton Hotel during his trips to the McLoughlin requested the management for an investigation of the incident. Lopez got in tou
Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin by showing him around, introducing him to important meeting with the police and McLoughlin. When the police did not arrive, Lopez and Tan we
people, accompanying him in visiting impoverished street children and assisting him in buying gifts for the children and in Tropicana and thereat, Lopez wrote on a piece of paper a promissory note dated 21 April 198
distributing the same to charitable institutions for poor children. Tan convinced McLoughlin to transfer from Sheraton Hotel to follows:
Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as manager of the hotel while Lainez and
Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan took care of McLoughlin's booking at the Tropicana I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its
where he started staying during his trips to the Philippines from December 1984 to September 1987. 3 on or before May 5, 1988. 14

On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as it was Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as
his practice to rent a safety deposit box every time he registered at Tropicana in previous trips. As a tourist, McLoughlin was of promissory note by Tan, McLoughlin insisted that it must be the hotel who must assume resp
aware of the procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit box could only be opened However, Lopez refused to accept the responsibility relying on the conditions for renting
through the use of two keys, one of which is given to the registered guest, and the other remaining in the possession of the "Undertaking For the Use Of Safety Deposit Box," 15 specifically paragraphs (2) and (4) thereo
management of the hotel. When a registered guest wished to open his safety deposit box, he alone could personally request the
management who then would assign one of its employees to accompany the guest and assist him in opening the safety deposit 2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liab
box with the two keys. 4 contents and/or use of the said deposit box for any cause whatsoever, including but not limited
by any other person should the key be lost;
McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand US Dollars (US$15,000.00) which he
placed in two envelopes, one envelope containing Ten Thousand US Dollars (US$10,000.00) and the other envelope Five xxx xxx xxx
Thousand US Dollars (US$5,000.00); Ten Thousand Australian Dollars (AUS$10,000.00) which he also placed in another
envelope; two (2) other envelopes containing letters and credit cards; two (2) bankbooks; and a checkbook, arranged side by 4. To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTE
side inside the safety deposit box. 5 box. 16

On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin opened his safety deposit box with his key and On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the
with the key of the management and took therefrom the envelope containing Five Thousand US Dollars (US$5,000.00), the stipulations. They opined that the stipulations are void for being violative of universal hotel pra
envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his passports and his credit cards. 6 McLoughlin left prepared a letter dated 30 May 1988 which was signed by McLoughlin and sent to President C
the other items in the box as he did not check out of his room at the Tropicana during his short visit to Hongkong. When he the President referred the letter to the Department of Justice (DOJ) which forwarded the sam
arrived in Hongkong, he opened the envelope which contained Five Thousand US Dollars (US$5,000.00) and discovered upon (WPD). 18
counting that only Three Thousand US Dollars (US$3,000.00) were enclosed therein. 7 Since he had no idea whether somebody
else had tampered with his safety deposit box, he thought that it was just a result of bad accounting since he did not spend After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and
anything from that envelope. 8 of Tropicana. McLoughlin went to Malacaang to follow up on his letter but he was instructed to
him to proceed to the WPD for documentation. But McLoughlin went back to Australia as he h
After returning to Manila, he checked out of Tropicana on 18 December 1987 and left for Australia. When he arrived in Australia, attend to.
he discovered that the envelope with Ten Thousand US Dollars (US$10,000.00) was short of Five Thousand US Dollars
(US$5,000). He also noticed that the jewelry which he bought in Hongkong and stored in the safety deposit box upon his return For several times, McLoughlin left for Australia to attend to his business and came back to th
to Tropicana was likewise missing, except for a diamond bracelet. 9 letter to the President but he failed to obtain any concrete assistance. 19

When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if some money and/or jewelry which he had McLoughlin left again for Australia and upon his return to the Philippines on 25 August 19
lost were found and returned to her or to the management. However, Lainez told him that no one in the hotel found such things petitioners, the WPD conducted an investigation which resulted in the preparation of an affid
and none were turned over to the management. He again registered at Tropicana and rented a safety deposit box. He placed Manila City Fiscal's Office. Said affidavit became the basis of preliminary investigation. How
therein one (1) envelope containing Fifteen Thousand US Dollars (US$15,000.00), another envelope containing Ten Thousand Australia without receiving the notice of the hearing on 24 November 1989. Thus, the case at t
Australian Dollars (AUS$10,000.00) and other envelopes containing his traveling papers/documents. On 16 April 1988, for failure to prosecute. McLoughlin requested the reinstatement of the criminal charge for the
McLoughlin requested Lainez and Payam to open his safety deposit box. He noticed that in the envelope containing Fifteen and his lawyers wrote letters of demand to those having responsibility to pay the damage. The
Thousand US Dollars (US$15,000.00), Two Thousand US Dollars (US$2,000.00) were missing and in the envelope previously
Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila. Meetings were held between
McLoughlin and his lawyer which resulted to the filing of a complaint for damages on 3 December 1990 against YHT Realty As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth approxima
Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss of McLoughlin's money which was discovered on 16 April US Dollars (US$1,200.00) which allegedly occurred during his stay at Tropicana previous to 4
1988. After filing the complaint, McLoughlin left again for Australia to attend to an urgent business matter. Tan and Lopez, by McLoughlin for such losses in his complaint dated 21 November 1990 because he was not
however, were not served with summons, and trial proceeded with only Lainez, Payam and YHT Realty Corporation as the responsible persons were. But considering the admission of the defendants in their pre-
defendants. jur2005cd occasions they allowed Tan to open the box, the trial court opined that it was logical and reason
assets consisting of Seven Thousand US Dollars (US$7,000.00) and jewelry were taken by
without McLoughlin's consent through the cooperation of Payam and Lainez. 25

After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and assisted Tan to open the safety The trial court also found that defendants acted with gross negligence in the performance
deposit box, McLoughlin filed an Amended/Supplemental Complaint 20 dated 10 June 1991 which included another incident of obligations as innkeepers and were therefore liable to answer for the losses incurred by McLou
loss of money and jewelry in the safety deposit box rented by McLoughlin in the same hotel which took place prior to 16 April
1988. 21 The trial court admitted the Amended/Supplemental Complaint. IcDESA Moreover, the trial court ruled that paragraphs (2) and (4) of the "Undertaking For The Use Of
for being contrary to the express mandate of Article 2003 of the New Civil Code and against pu
During the trial of the case, McLoughlin had been in and out of the country to attend to urgent business in Australia, and while fraud or wanton conduct on the part of defendants, they should be responsible for all damage
staying in the Philippines to attend the hearing, he incurred expenses for hotel bills, airfare and other transportation expenses, non-performance of their contractual obligations. 28
long distance calls to Australia, Meralco power expenses, and expenses for food and maintenance, among others. 22
The Court of Appeals affirmed the disquisitions made by the lower court except as to the am
After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the dispositive portion of which reads: decretal text of the appellate court's decision reads:

WHEREFORE, above premises considered, judgment is hereby rendered by this Court in favor of plaintiff and against the THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but modified
defendants, to wit:
The appellants are directed jointly and severally to pay the plaintiff/appellee the following amou
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of US$11,400.00 or its equivalent in Philippine Currency of
P342,000.00, more or less, and the sum of AUS$4,500.00 or its equivalent in Philippine Currency of P99,000.00, or a total of 1) P153,200.00 representing the peso equivalent of US$2,000.00 and AUS$4,500.00;
P441,000.00, more or less, with 12% interest from April 16, 1988 until said amount has been paid to plaintiff (Item 1, Exhibit CC);
2) P308,880.80, representing the peso value for the air fares from Sidney [sic] to Manila and ba
2. Ordering defendants, jointly and severally to pay plaintiff the sum of P3,674,238.00 as actual and consequential damages
arising from the loss of his Australian and American dollars and jewelries complained against and in prosecuting his claim and 3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Apartment Hot
rights administratively and judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. "CC");
4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;
3. Ordering defendants, jointly and severally, to pay plaintiff the sum of P500,000.00 as moral damages (Item X, Exh. "CC");
5) One-half of P179,863.20 or P89,931.60 for the taxi . . . transportation from the residence to
4. Ordering defendants, jointly and severally, to pay plaintiff the sum of P350,000.00 as exemplary damages (Item XI, Exh. "CC"); to the hotel here in Manila, for the eleven (11) trips;

5. And ordering defendants, jointly and severally, to pay litigation expenses in the sum of P200,000.00 (Item XII, Exh. "CC"); 6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;

6. Ordering defendants, jointly and severally, to pay plaintiff the sum of P200,000.00 as attorney's fees, and a fee of P3,000.00 7) One-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance;
for every appearance; and
8) P50,000.00 for moral damages;
7. Plus costs of suit.
9) P10,000.00 as exemplary damages; and
SO ORDERED. 23
10) P200,000 representing attorney's fees.
The trial court found that McLoughlin's allegations as to the fact of loss and as to the amount of money he lost were sufficiently
shown by his direct and straightforward manner of testifying in court and found him to be credible and worthy of belief as it was With costs.
established that McLoughlin's money, kept in Tropicana's safety deposit box, was taken by Tan without McLoughlin's consent.
The taking was effected through the use of the master key which was in the possession of the management. Payam and Lainez SO ORDERED. 29
allowed Tan to use the master key without authority from McLoughlin. The trial court added that if McLoughlin had not lost his
dollars, he would not have gone through the trouble and personal inconvenience of seeking aid and assistance from the Office Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this appeal by c
of the President, DOJ, police authorities and the City Fiscal's Office in his desire to recover his losses from the hotel management
and Tan. 24
Petitioners submit for resolution by this Court the following issues: (a) whether the appellate court's conclusion on the alleged The management contends, however, that McLoughlin, by his act, made its employees believe
prior existence and subsequent loss of the subject money and jewelry is supported by the evidence on record; (b) whether the was always with him most of the time. The evidence on record, however, is bereft of any sho
finding of gross negligence on the part of petitioners in the performance of their duties as innkeepers is supported by the evidence Tan to the management as his wife. Such an inference from the act of McLoughlin will not excu
on record; (c) whether the "Undertaking For The Use of Safety Deposit Box" admittedly executed by private respondent is null in the absence of any showing that he made the management believe that Tan was his wife
and void; and (d) whether the damages awarded to private respondent, as well as the amounts thereof, are proper under the access to the safety deposit box. Mere close companionship and intimacy are not enough to war
circumstances. 30 that what is involved in the instant case is the very safety of McLoughlin's deposit. If only petit
taking care of McLoughlin's safety deposit box, they should have confronted him as to his relat
The petition is devoid of merit. the latter had been observed opening McLoughlin's safety deposit box a number of times at the
acts should have prompted the management to investigate her relationship with McLoughli
It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law and any peripheral factual question exercised due diligence required of them. Failure to do so warrants the conclusion that the m
addressed to this Court is beyond the bounds of this mode of review. complying with the obligations imposed upon hotel-keepers under the law. TEDHaA

Petitioners point out that the evidence on record is insufficient to prove the fact of prior existence of the dollars and the jewelry Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, a
which had been lost while deposited in the safety deposit boxes of Tropicana, the basis of the trial court and the appellate court for damages. As to who shall bear the burden of paying damages, Article 2180, paragraph (4)
being the sole testimony of McLoughlin as to the contents thereof. Likewise, petitioners dispute the finding of gross negligence the owners and managers of an establishment or enterprise are likewise responsible for damag
on their part as not supported by the evidence on record. the service of the branches in which the latter are employed or on the occasion of their function
if an employee is found negligent, it is presumed that the employer was negligent in selectin
We are not persuaded. We adhere to the findings of the trial court as affirmed by the appellate court that the fact of loss was hard for the victim to prove the negligence of such employer. 35 Thus, given the fact that the
established by the credible testimony in open court by McLoughlin. Such findings are factual and therefore beyond the ambit of consummated through the negligence of Tropicana's employees in allowing Tan to open th
the present petition. guest's consent, both the assisting employees and YHT Realty Corporation itself, as owner a
be held solidarily liable pursuant to Article 2193. 36
The trial court had the occasion to observe the demeanor of McLoughlin while testifying which reflected the veracity of the facts
testified to by him. On this score, we give full credence to the appreciation of testimonial evidence by the trial court especially if The issue of whether the "Undertaking For The Use of Safety Deposit Box" executed by McLoug
what is at issue is the credibility of the witness. The oft-repeated principle is that where the credibility of a witness is an issue, a legal question appropriate for resolution in this petition. Notably, both the trial court and the a
the established rule is that great respect is accorded to the evaluation of the credibility of witnesses by the trial court. 31 The trial be null and void. We find no reason to reverse their common conclusion. Article 2003 is contro
court is in the best position to assess the credibility of witnesses and their testimonies because of its unique opportunity to
observe the witnesses firsthand and note their demeanor, conduct and attitude under grilling examination. 32 Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the
articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereb
We are also not impressed by petitioners' argument that the finding of gross negligence by the lower court as affirmed by the as set forth in Articles 1998 to 2001 37 is suppressed or diminished shall be void.
appellate court is not supported by evidence. The evidence reveals that two keys are required to open the safety deposit boxes
of Tropicana. One key is assigned to the guest while the other remains in the possession of the management. If the guest desires Article 2003 was incorporated in the New Civil Code as an expression of public policy precise
to open his safety deposit box, he must request the management for the other key to open the same. In other words, the guest that presented in this case. The hotel business like the common carrier's business is imbued w
alone cannot open the safety deposit box without the assistance of the management or its employees. With more reason that public, hotelkeepers are bound to provide not only lodging for hotel guests and security to th
access to the safety deposit box should be denied if the one requesting for the opening of the safety deposit box is a stranger. twin duty constitutes the essence of the business. The law in turn does not allow such duty to th
Thus, in case of loss of any item deposited in the safety deposit box, it is inevitable to conclude that the management had at by any contrary stipulation in so-called "undertakings" that ordinarily appear in prepared form
least a hand in the consummation of the taking, unless the reason for the loss is force majeure. guests for their signature.

Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of the master key of the In an early case, 38 the Court of Appeals through its then Presiding Justice (later Associa
management when the loss took place. In fact, they even admitted that they assisted Tan on three separate occasions in opening Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the effects of their guests, it is n
McLoughlin's safety deposit box. 33 This only proves that Tropicana had prior knowledge that a person aside from the registered delivered to the innkeepers or their employees. It is enough that such effects are within the ho
guest had access to the safety deposit box. Yet the management failed to notify McLoughlin of the incident and waited for him should the liability of the hotelkeeper be enforced when the missing items are taken without the
to discover the taking before it disclosed the matter to him. Therefore, Tropicana should be held responsible for the damage from a safety deposit box provided by the hotel itself, as in this case.
suffered by McLoughlin by reason of the negligence of its employees.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New Civ
to be released from liability arising from any loss in the contents and/or use of the safety depos
40 Evidently, the undertaking was intended to bar any claim against Tropicana for any loss of t
The management should have guarded against the occurrence of this incident considering that Payam admitted in open court box whether or not negligence was incurred by Tropicana or its employees. The New Civil Cod
that she assisted Tan three times in opening the safety deposit box of McLoughlin at around 6:30 A.M. to 7:30 A.M. while the of the hotel-keeper shall extend to loss of, or injury to, the personal property of the guests
latter was still asleep. 34 In light of the circumstances surrounding this case, it is undeniable that without the acquiescence of employees of the keepers of hotels or inns as well as by strangers, except as it may proceed fro
the employees of Tropicana to the opening of the safety deposit box, the loss of McLoughlin's money could and should have loss through force majeure that may spare the hotel-keeper from liability. In the case at bar, th
been avoided. the thief or robber was done with the use of arms or through an irresistible force to qualify the s
Petitioners likewise anchor their defense on Article 2002 43 which exempts the hotel-keeper from liability if the loss is due to the
acts of his guest, his family, or visitors. Even a cursory reading of the provision would lead us to reject petitioners' contention. (2) P308,880.80, representing the peso value for the air fares from Sydney to Manila and back
The justification they raise would render nugatory the public interest sought to be protected by the provision. What if the
negligence of the employer or its employees facilitated the consummation of a crime committed by the registered guest's relatives (3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Copacabana
or visitor? Should the law exculpate the hotel from liability since the loss was due to the act of the visitor of the registered guest
of the hotel? Hence, this provision presupposes that the hotel-keeper is not guilty of concurrent negligence or has not contributed (4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;
in any degree to the occurrence of the loss. A depositary is not responsible for the loss of goods by theft, unless his actionable
negligence contributes to the loss. 44 (5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense from McLough
and from MIA to the hotel here in Manila, for the eleven (11) trips;
In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also by the
management since two keys are necessary to open the safety deposit box. Without the assistance of hotel employees, the loss (6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
would not have occurred. Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was not the registered guest,
to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing another (7) One-half of P356,400.00 or P178,200.00 representing expenses for food and maintenance
person to use his key. To rule otherwise would result in undermining the safety of the safety deposit boxes in hotels for the
management will be given imprimatur to allow any person, under the pretense of being a family member or a visitor of the guest, (8) P50,000.00 for moral damages;
to have access to the safety deposit box without fear of any liability that will attach thereafter in case such person turns out to be
a complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its employees in conspiracy with (9) P10,000.00 as exemplary damages; and
the guest's relatives and visitors. DaECST
(10) P200,000 representing attorney's fees.
Petitioners contend that McLoughlin's case was mounted on the theory of contract, but the trial court and the appellate court
upheld the grant of the claims of the latter on the basis of tort. 45 There is nothing anomalous in how the lower courts decided With costs.
the controversy for this Court has pronounced a jurisprudential rule that tort liability can exist even if there are already contractual
relations. The act that breaks the contract may also be tort. 46 SO ORDERED.

As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the appellate court for the same ||| (YHT Realty Corp. v. Court of Appeals, G.R. No. 126780, [February 17, 2005], 492 PHIL 29
were based on facts and law. It is within the province of lower courts to settle factual issues such as the proper amount of
damages awarded and such finding is binding upon this Court especially if sufficiently proven by evidence and not 23. Mamaril v. Boy Scouts of the Phil., et. al.
unconscionable or excessive. Thus, the appellate court correctly awarded McLoughlin Two Thousand US Dollars (US$2,000.00)
and Four Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the time of payment, 47 being [G.R. No. 179382. January 14, 2013.]
the amounts duly proven by evidence. 48 The alleged loss that took place prior to 16 April 1988 was not considered since the
amounts alleged to have been taken were not sufficiently established by evidence. The appellate court also correctly awarded SPOUSES BENJAMIN C. MAMARIL AND SONIA P. MAMARIL, petitioners, vs. THE BOY SCO
the sum of P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven (11) SECURITY AGENCY, INC., CESARIO PEA, n AND VICENTE GADDI, respondents.
trips; 49 one-half of P336,207.05 or P168,103.52 representing payment to Tropicana; 50 one-half of P152,683.57 or P76,341.785
representing payment to Echelon Tower; 51 one-half of P179,863.20 or P89,931.60 for the taxi or transportation expenses from DECISION
McLoughlin's residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; 52 one-half of
P7,801.94 or P3,900.97 representing Meralco power expenses; 53 one-half of P356,400.00 or P178,000.00 representing PERLAS-BERNABE, J p:
expenses for food and maintenance. 54
This is a Petition for Review on Certiorari assailing the May 31, 2007 Decision 1 and August 16
The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given discretion to determine the amount of Appeals (CA) in CA-G.R. CV No. 75978. The dispositive portion of the said Decision reads:
of moral damages, the appellate court may modify or change the amount awarded when it is palpably and scandalously
excessive. Moral damages are not intended to enrich a complainant at the expense of a defendant. They are awarded only to WHEREFORE, the Decision dated November 28, 2001 and the Order dated June 11, 2002 ren
enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has of Manila, Branch 39 is hereby MODIFIED to the effect that only defendants AIB Security Agenc
undergone, by reason of defendants' culpable action. 55 Gaddi are held jointly and severally liable to pay plaintiffs-appellees Spouses Benjamin C. Ma
amount of Two Hundred Thousand Pesos (P200,000.00) representing the cost of the lost veh
The other monetary awards are DELETED for lack of merit and/or basis.

The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorney's fees are likewise sustained. Defendant-Appellant Boy Scout of the Philippines is absolved from any liability.

WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated 19 October 1995 is hereby SO ORDERED. 3
AFFIRMED. Petitioners are directed, jointly and severally, to pay private respondent the following amounts:
The Antecedent Facts
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment;
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney operators since 1971. They would park their The RTC found that the act of Pea and Gaddi in allowing the entry of an unidentified person an
six (6) passenger jeepneys every night at the Boy Scout of the Philippines' (BSP) compound located at 181 Concepcion Street, vehicle in violation of their internal agreement with Sps. Mamaril constituted gross negligenc
Malate, Manila for a fee of P300.00 per month for each unit. On May 26, 1995 at 8 o'clock in the evening, all these vehicles were guards liable for the former's loss. BSP was also adjudged liable because the Guard Service
parked inside the BSP compound. The following morning, however, one of the vehicles with Plate No. DCG 392 was missing offered protection to all properties inside the BSP premises, which necessarily included Sps. M
and was never recovered. 4 According to the security guards Cesario Pea (Pea) and Vicente Gaddi (Gaddi) of AIB Security said contract stipulated AIB's obligation to indemnify BSP for all losses or damages that may be
Agency, Inc. (AIB) with whom BSP had contracted 5 for its security and protection, a male person who looked familiar to them of its security guards. Accordingly, the BSP, AIB, and security guards Pea and Gaddi were h
took the subject vehicle out of the compound. SICDAa the loss suffered by Sps. Mamaril.

On November 20, 1996, Sps. Mamaril filed a complaint 6 for damages before the Regional Trial Court (RTC) of Manila, Branch On June 11, 2002, the RTC modified its decision reducing the cost of the stolen vehicle from P
39, against BSP, AIB, Pea and Gaddi. In support thereof, Sps. Mamaril averred that the loss of the subject vehicle was due to
the gross negligence of the above-named security guards on-duty who allowed the subject vehicle to be driven out by a stranger Only BSP appealed the foregoing disquisition before the CA. aSTcCE
despite their agreement that only authorized drivers duly endorsed by the owners could do so. Pea and Gaddi even admitted
their negligence during the ensuing investigation. Notwithstanding, BSP and AIB did not heed Sps. Mamaril's demands for a The CA Ruling
conference to settle the matter. They therefore prayed that Pea and Gaddi, together with AIB and BSP, be held liable for: (a) In its assailed Decision, 12 the CA affirmed the finding of negligence on the part of security gu
the value of the subject vehicle and its accessories in the aggregate amount of P300,000.00; (b) P275.00 representing daily loss it absolved BSP from any liability, holding that the Guard Service Contract is purely between
of income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral damages; (e) attorney's fees; nothing therein that would indicate any obligation and/or liability on the part of BSP in favo
and (f) cost of suit. Mamaril. Nor was there evidence sufficient to establish that BSP was negligent.

In its Answer, 7 BSP denied any liability contending that not only did Sps. Mamaril directly deal with AIB with respect to the It further ruled that the agreement between Sps. Mamaril and BSP was substantially a contract
manner by which the parked vehicles would be handled, but the parking ticket 8 itself expressly stated that the "Management parking fees to the latter for the lease of parking slots. As such, the lessor, BSP, was not an
shall not be responsible for loss of vehicle or any of its accessories or article left therein." It also claimed that Sps. Mamaril and/or protect the lessees' vehicles. HEDSIc
erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its provisions cover only the protection
of BSP's properties, its officers, and employees. On the matter of damages, the CA deleted the award of P50,000.00 representing the value o
vehicle and the P275.00 a day for loss of income in the absence of proof to support them. It als
In addition to the foregoing defenses, AIB alleged that it has observed due diligence in the selection, training and supervision of exemplary damages and attorney's fees for lack of factual and legal bases.
its security guards while Pea and Gaddi claimed that the person who drove out the lost vehicle from the BSP compound
represented himself as the owners' authorized driver and had with him a key to the subject vehicle. Thus, they contended that Sps. Mamaril's motion for reconsideration thereof was denied in the August 16, 2007 Resolutio
Sps. Mamaril have no cause of action against them.
Issues Before the Court
The RTC Ruling Hence, the instant petition based on the following assignment of errors, to wit:
After due proceedings, the RTC rendered a Decision 9 dated November 28, 2001 in favor of Sps. Mamaril. The dispositive
portion of the RTC decision reads: I.

WHEREFORE, judgment is hereby rendered ordering the defendants Boy Scout of the Philippines and AIB Security Agency, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ABSOLVING RESPO
with security guards Cesario Pena and Vicente Gaddi: PHILIPPINES FROM ANY LIABILITY.

1. To pay the plaintiffs jointly and severally the cost of the vehicle which is P250,000.00 plus accessories of P50,000.00; aHATDI II.

2. To pay jointly and severally to the plaintiffs the daily [loss] of the income/boundary of the said jeepney to be reckoned [from] THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS MISTAKE WHEN IT RULE
its loss up to the final adjudication of the case, which is P275.00 a day; CONTRACT IS PURELY BETWEEN BOY SCOUT OF THE PHILIPPINES AND AIB SECU
HOLDING THAT THERE IS ABSOLUTELY NOTHING IN THE SAID CONTRACT THAT WOUL
3. To pay jointly and severally to the plaintiffs moral damages in the amount of P50,000.00; AND/OR LIABILITY ON THE PART OF THE PARTIES THEREIN IN FAVOR OF THIRD PERS
HEREIN. HSCcTD
4. To pay jointly and severally to the plaintiffs exemplary damages in the amount of P50,000.00;
III.
5. To pay jointly and severally the attorney's fees of P50,000.00 and appearances in court the amount of P1,500.00 per
appearance; and THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN THE INTER
CONSIDERED THE AGREEMENT BETWEEN BOY SCOUT OF THE PHILIPPINES AND PE
6. To pay cost. LEASE, WHEREBY THE BOY SCOUT IS NOT DUTY BOUND TO PROTECT OR TAKE CARE

SO ORDERED. 10 IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT PETITIONERS ARE NOT ENTITLED Notwithstanding, however, Sps. Mamaril insist that BSP should be held liable for their loss on
TO DAMAGES AND ATTORNEY'S FEES. 14 Contract that the latter entered into with AIB and their parking agreement with BSP.

In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for the loss of their vehicle based on the Guard Service Contract Such contention cannot be sustained.
and the parking ticket it issued; and (2) the CA erred in deleting the RTC awards of damages and attorney's fees.
Article 1311 of the Civil Code states:
The Court's Ruling
The petition lacks merit. Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
arising from the contract are not transmissible by their nature, or by stipulation or by provision of
Article 20 of the Civil Code provides that every person, who, contrary to law, willfully or negligently causes damage to another, the value of the property he received from the decedent.
shall indemnify the latter for the same. Similarly, Article 2176 of the Civil Code states:
If a contract should contain some stipulation in favor of a third person, he may demand its fulfill
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the his acceptance to the obligor before its revocation. A mere incidental benefit or interest o
damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict contracting parties must have clearly and deliberately conferred a favor upon a third person. C
and is governed by the provisions of this Chapter.
Thus, in order that a third person benefited by the second paragraph of Article 1311, referred to
In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril's vehicle was the negligent act of security demand its fulfillment, the following requisites must concur: (1) There is a stipulation in favor of
guards Pea and Gaddi in allowing an unidentified person to drive out the subject vehicle. Proximate cause has been defined is a part, not the whole, of the contract; (3) The contracting parties clearly and deliberately con
as that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury or the favor is not merely incidental; (4) The favor is unconditional and uncompensated; (5) Th
loss, and without which the result would not have occurred. 15 Moreover, Pea and Gaddi failed to refute Sps. Mamaril's or her acceptance of the favor before its revocation; and (6) The contracting parties do not rep
contention 16 that they readily admitted being at fault during the investigation that ensued. CDcHSa the third party. 22 However, none of the foregoing elements obtains in this case.

On the other hand, the records are bereft of any finding of negligence on the part of BSP. Hence, no reversible error was It is undisputed that Sps. Mamaril are not parties to the Guard Service Contract. Neither did th
committed by the CA in absolving it from any liability for the loss of the subject vehicle based on fault or negligence. stipulation pour autrui. And even if there was, Sps. Mamaril did not convey any acceptance the
relativity of contracts, they cannot validly claim any rights or favor under the said agreement.
Neither will the vicarious liability of an employer under Article 2180 17 of the Civil Code apply in this case. It is uncontested that cHEATI
Pea and Gaddi were assigned as security guards by AIB to BSP pursuant to the Guard Service Contract. Clearly, therefore, no
employer-employee relationship existed between BSP and the security guards assigned in its premises. Consequently, the First, the Guard Service Contract between defendant-appellant BSP and defendant AIB Secur
latter's negligence cannot be imputed against BSP but should be attributed to AIB, the true employer of Pea and Gaddi. 18 parties therein. It may be observed that although the whereas clause of the said agreement p
desires security and protection for its compound and all properties therein, as well as for its offi
In the case of Soliman, Jr. v. Tuazon, 19 the Court enunciated thus: the premises, the same should be correlated with paragraph 3(a) thereof which provides that th
defendant-appellant for all losses and damages suffered by it attributable to any act or neglige
It is settled that where the security agency, as here, recruits, hires and assigns the work of its watchmen or security guards, the
agency is the employer of such guards and watchmen. Liability for illegal or harmful acts committed by the security guards Otherwise stated, defendant-appellant sought the services of defendant AIB Security Agency fo
attaches to the employer agency, and not to the clients or customers of such agency. As a general rule, a client or customer of protection of its properties, as well as that of its officers and employees, so much so that in cas
a security agency has no hand in selecting who among the pool of security guards or watchmen employed by the agency shall by it as a result of any act or negligence of the guards, the security agency would then be he
be assigned to it; the duty to observe the diligence of a good father of a family in the selection of the guards cannot, in the absolutely nothing in the said contract that would indicate any obligation and/or liability on the p
ordinary course of events, be demanded from the client whose premises or property are protected by the security guards. The of third persons such as herein plaintiffs-appellees. 24
fact that a client company may give instructions or directions to the security guards assigned to it, does not, by itself, render the
client responsible as an employer of the security guards concerned and liable for their wrongful acts or omissions. Those Moreover, the Court concurs with the finding of the CA that the contract between the parties
instructions or directions are ordinarily no more than requests commonly envisaged in the contract for services entered into with defined under Article 1643 26 of the Civil Code.It has been held that the act of parking a vehicl
the security agency. 20 aIcDCT fixed amount, is a lease. 27 Even in a majority of American cases, it has been ruled that whe
parks his car in any available space in the lot, locks the car and takes the key with him, the p
Nor can it be said that a principal-agent relationship existed between BSP and the security guards Pea and Gaddi as to make necessary elements in bailment, do not pass to the parking lot operator, hence, the contractua
the former liable for the latter's complained act. Article 1868 of the Civil Code states that "[b]y the contract of agency, a person is one of lease. 28 cACHSE
binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority
of the latter." The basis for agency therefore is representation, 21 which element is absent in the instant case. Records show In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP compo
that BSP merely hired the services of AIB, which, in turn, assigned security guards, solely for the protection of its properties and for each unit and took the keys home with them. Hence, a lessor-lessee relationship indubitably
premises. Nowhere can it be inferred in the Guard Service Contract that AIB was appointed as an agent of BSP. Instead, what On this score, Article 1654 of the Civil Code provides that "[t]he lessor (BSP) is obliged: (1) to de
the parties intended was a pure principal-client relationship whereby for a consideration, AIB rendered its security services to of the contract in such a condition as to render it fit for the use intended; (2) to make on th
BSP. necessary repairs in order to keep it suitable for the use to which it has been devoted, unless the
and (3) to maintain the lessee in the peaceful and adequate enjoyment of the lease for the e
relation thereto, Article 1664 of the same Code states that "[t]he lessor is not obliged to answer for a mere act of trespass which
a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder." Here,
BSP was not remiss in its obligation to provide Sps. Mamaril a suitable parking space for their jeepneys as it even hired security
guards to secure the premises; hence, it should not be held liable for the loss suffered by Sps. Mamaril.

It bears to reiterate that the subject loss was caused by the negligence of the security guards in allowing a stranger to drive out
plaintiffs-appellants' vehicle despite the latter's instructions that only their authorized drivers may do so. Moreover, the agreement
with respect to the ingress and egress of Sps. Mamaril's vehicles were coordinated only with AIB and its security guards, 29
without the knowledge and consent of BSP. Accordingly, the mishandling of the parked vehicles that resulted in herein
complained loss should be recovered only from the tort feasors (Pea and Gaddi) and their employer, AIB; and not against the
lessor, BSP. 30

Anent Sps. Mamaril's claim that the exculpatory clause: "Management shall not be responsible for loss of vehicle or any of its
accessories or article left therein" 31 contained in the BSP issued parking ticket was void for being a contract of adhesion and
against public policy, suffice it to state that contracts of adhesion are not void per se. It is binding as any other ordinary contract
and a party who enters into it is free to reject the stipulations in its entirety. If the terms thereof are accepted without objection,
as in this case, where plaintiffs-appellants have been leasing BSP's parking space for more or less 20 years, 32 then the contract
serves as the law between them. 33 Besides, the parking fee of P300.00 per month or P10.00 a day for each unit is too minimal
an amount to even create an inference that BSP undertook to be an insurer of the safety of plaintiffs-appellants' vehicles. EHCDSI

On the matter of damages, the Court noted that while Sonia P. Mamaril testified that the subject vehicle had accessories worth
around P50,000.00, she failed to present any receipt to substantiate her claim. 34 Neither did she submit any record or journal
that would have established the purported P275.00 35 daily earnings of their jeepney. It is axiomatic that actual damages must
be proved with reasonable degree of certainty and a party is entitled only to such compensation for the pecuniary loss that was
duly proven. Thus, absent any competent proof of the amount of damages sustained, the CA properly deleted the said awards.
36

Similarly, the awards of moral and exemplary damages and attorney's fees were properly disallowed by the CA for lack of factual
and legal bases. While the RTC granted these awards in the dispositive portion of its November 28, 2001 decision, it failed to
provide sufficient justification therefor. 37

WHEREFORE, premises considered, the instant petition is DENIED. The May 31, 2007 Decision and August 16, 2007 Resolution
of the Court of Appeals in CA-G.R. CV No. 75978 are AFFIRMED.

SO ORDERED.

||| (Spouses Mamaril v. Boy Scouts of the Phils., G.R. No. 179382, [January 14, 2013], 701 PHIL 400-415)