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Republic of the Philippines

FIRST DIVISION

G.R. No. 154878             March 16, 2007

CAROLYN M. GARCIA, Petitioner,
vs.
RICA MARIE S. THIO, Respondent.

DECISION

CORONA, J.:

Assailed in this petition for review on certiorari 1 are the June 19, 2002 decision2 and August 20, 2002
resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28,
1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.

Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia
a crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a
certain Marilou Santiago.5 Thereafter, petitioner received from respondent every month (specifically, on
March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,000 6 and ₱76,5007 on July
26,8 August 26, September 26 and October 26, 1995.

In June 1995, respondent received from petitioner another crossed check 9 dated June 29, 1995 in the
amount of ₱500,000, also payable to the order of Marilou Santiago. 10 Consequently, petitioner received
from respondent the amount of ₱20,000 every month on August 5, September 5, October 5 and
November 5, 1995.11

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and
₱500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of
money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the
sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and ₱500,000, with
interest thereon at 4% a month from November 5, 1995, plus attorney’s fees and actual damages. 12

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of
US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October 26,
1995.13 The amount of this loan was covered by the first check. On June 29, 1995, respondent again
borrowed the amount of ₱500,000 at an agreed monthly interest of 4%, the maturity date of which was
on November 5, 1995.14 The amount of this loan was covered by the second check. For both loans, no
promissory note was executed since petitioner and respondent were close friends at the
time.15 Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she
failed to pay the principal amounts despite repeated demands. 16 1awphi1.nét

Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou
Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give
the crossed checks to Santiago. 17 She issued the checks for ₱76,000 and ₱20,000 not as payment of
interest but to accommodate petitioner’s request that respondent use her own checks instead of
Santiago’s.18

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner. 19 It found that respondent
borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and ₱500,000 at a
monthly interest of 4%:20

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby
rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:

1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from
October 26, 1995 until fully paid;

2. ₱500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully
paid.

3. ₱100,000.00 as and for attorney’s fees; and

4. ₱50,000.00 as and for actual damages.

For lack of merit, [respondent’s] counterclaim is perforce dismissed.

With costs against [respondent].

IT IS SO ORDERED.21

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan
between the parties:

A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that
[respondent] indeed borrowed money from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is the fact that [respondent]
received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable
to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of
₱500,000.00, again payable to the order of Marilou Santiago, both of which were issued by
[petitioner]. The checks received by [respondent], being crossed, may not be encashed but only
deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.

It must be noted that crossing a check has the following effects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may be negotiated only once—to one who has an account
with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.

Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the
payee in contemplation of law since the latter is not the person who could take the checks as a holder,
i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as
an agent of Marilou Santiago with respect to the checks because she was merely facilitating the
transactions between the former and [petitioner].

With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan
that existed between the parties. x x x (emphasis supplied) 22

Hence this petition.23

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of
the CA (which held that there were no contracts of loan between petitioner and respondent) and the
RTC (which held that there were contracts of loan) are contradictory.24

The petition is impressed with merit.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object
of the contract.25 This is evident in Art. 1934 of the Civil Code which provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the
object of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when
the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is
bound to pay the creditor an equal amount.26

It is undisputed that the checks were delivered to respondent. However, these checks were crossed
and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the
main question to be answered is: who borrowed money from petitioner — respondent or Santiago?

Petitioner insists that it was upon respondent’s instruction that both checks were made payable to
Santiago.27 She maintains that it was also upon respondent’s instruction that both checks were
delivered to her (respondent) so that she could, in turn, deliver the same to Santiago. 28 Furthermore,
she argues that once respondent received the checks, the latter had possession and control of them
such that she had the choice to either forward them to Santiago (who was already her debtor), to retain
them or to return them to petitioner. 29

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the
actual or constructive possession or control of another. 30 Although respondent did not physically receive
the proceeds of the checks, these instruments were placed in her control and possession under an
arrangement whereby she actually re-lent the amounts to Santiago.

Several factors support this conclusion.

First, respondent admitted that petitioner did not personally know Santiago. 31 It was highly improbable
that petitioner would grant two loans to a complete stranger without requiring as much as promissory
notes or any written acknowledgment of the debt considering that the amounts involved were quite big.
Respondent, on the other hand, already had transactions with Santiago at that time. 32

Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both
parties’ list of witnesses) testified that respondent’s plan was for petitioner to lend her money at a
monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a
higher rate of 5% and realize a profit of 2%.33 This explained why respondent instructed petitioner to
make the checks payable to Santiago. Respondent has not shown any reason why Ruiz’ testimony
should not be believed.

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of ₱76,000
each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the ₱500,000
loan, she also issued her own checks in the amount of ₱20,000 each for four months. 34 According to
respondent, she merely accommodated petitioner’s request for her to issue her own checks to cover
the interest payments since petitioner was not personally acquainted with Santiago. 35 She claimed,
however, that Santiago would replace the checks with cash. 36 Her explanation is simply incredible. It is
difficult to believe that respondent would put herself in a position where she would be compelled to pay
interest, from her own funds, for loans she allegedly did not contract. We declared in one case that:

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to
be believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself
such as the common experience of mankind can approve as probable under the circumstances. We
have no test of the truth of human testimony except its conformity to our knowledge, observation, and
experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical
cognizance.37

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

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story. 39 The
presumption is that "evidence willfully suppressed would be adverse if produced." 40 Respondent was
not able to overturn this presumption.

We hold that the CA committed reversible error when it ruled that respondent did not borrow the
amounts of US$100,000 and ₱500,000 from petitioner. We instead agree with the ruling of the RTC
making respondent liable for the principal amounts of the loans.

We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the
US$100,000 and ₱500,000 loans respectively. There was no written proof of the interest payable
except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956
of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in
writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to
Article 2209 of the Civil Code. It is well-settled that:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.41

Hence, respondent is liable for the payment of legal interest per annum to be computed from
November 21, 1995, the date when she received petitioner’s demand letter. 42 From the finality of the
decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period
being deemed equivalent to a forbearance of credit. 43

The award of actual damages in the amount of ₱50,000 and ₱100,000 attorney’s fees is deleted since
the RTC decision did not explain the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002
resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The
February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with
the MODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000 and
₱500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total
amount due as of the date of finality will earn interest of 12% per annum until fully paid. The award of
actual damages and attorney’s fees is deleted.

SO ORDERED.

RENATO C. CORONA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
decision had been reached in consultation before the case was assigned to the writer of the opinion of
the Court’s Division.

REYNATO S. PUNO
Chief Justice
Footnotes

1
 Under Rule 45 of the Rules of Court.

2
 Penned by former Associate Justice Eubulo G. Verzola (deceased) and concurred in
by Associate Justices Bernardo P. Abesamis (retired) and Josefina Guevara-Salonga of
the Third Division of the Court of Appeals; rollo, pp. 98-102.

3
 Id., pp. 104-105.

4
 This was Metrobank check no. 26910; id., pp. 70, 224 and 368.

5
 Id., pp. 60, 100-101, 224.

6
 Id., pp. 60-61. According to respondent, she originally issued four postdated checks
each in the amount of ₱76,000 on the same dates mentioned but these were not
encashed and instead each check was replaced by Santiago with US$3,000 in cash
given by respondent to petitioner; id., p. 224.

7
 This was the peso equivalent of US$3,000 computed at the exchange rate of ₱25.50
to $1.00; id., pp. 17 and 88. These postdated checks were deposited on their respective
due dates and honored by the drawee bank; id., p. 225.

8
 According to respondent, this check was replaced by Santiago with cash in the
amount of US$3,000.

9
 This was City Trust check no. 467257; rollo, pp. 90 and 327.

10
 Id., pp. 60, 101 and 225.

11
 Id., p. 109.

12
 Docketed as Civil Case No. 96-266; rollo, pp. 15, 60 and 364.

13
 Id., p. 109.

14
 Id., p. 110.

15
 Id., p. 16.

16
 Id., p. 110.

17
 Id., p. 224.

18
 Id.

19
 Id., pp. 60-95.
20
 Id., pp. 79 and 89.

21
 Id., pp. 94-95.

22
 Id., pp. 100-101, citation omitted.

23
 The issues submitted for resolution are the following:

(A) Is actual and physical delivery of the money loaned directly from the lender
to the borrower the only way to perfect a contract of loan?

(B) Does the respondent’s admission that she paid interests to the petitioner on
the amounts represented by the two checks given to her by said petitioner
render said respondent in estoppel to question that there was no loan
transaction between her and the petitioner?

(C) Is respondent’s written manifestation in the trial court, through counsel, that
she interposes no objection to the admission of petitioner’s documentary
exhibits for the multiple purposes specified in the latter’s Formal Offer of
Documentary Exhibits a judicial admission governed by Rule 129, Section 4,
Rules of Court?

(D) Is this Honorable Court bound by the conclusions of fact relied upon by the
[CA] in issuing its disputed Decision?

(E) Have the [RTC’s] findings of fact on the lone issue on which respondent
litigated in the [RTC], viz. existence of privity of contract between petitioner and
respondent, been overturned or set aside by the [CA]?

(F) May the respondent validly change the theory of her case from one of privity
of contract between her and the petitioner in the [RTC], to one of not being a
holder in due course of the crossed checks payable to a third party in the [CA]
and before this Honorable Court?

(G) Is the petitioner’s entitlement to interest, despite absence of a written

(H) Is the deletion by the [CA] of the [RTC’s] award of attorney’s fees and actual
damages in favor pf the petitioner justified? Id., pp. 401-402.

 Philippine National Bank v. Andrada Electric & Engineering Co., G.R. No. 142936, 17
24

April 2002, 381 SCRA 244, 253, citing Fuentes v. CA, 335 Phil. 1163, 1167-1169
(1997).

25
 Naguiat v. Court of Appeals, G.R. No. 118375, 3 October 2003, 412 SCRA 591, 597.

26
 Article 1953 of the Civil Code states:

A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the
 same kind and quality.

27
 Rollo, p. 39.

28
 Id.

29
 Id., pp. 39-40.

 Buenaflor v. Court of Appeals, G.R. No. 142021, 29 November 2000, 346 SCRA 563,
30

569, citing Black's Law Dictionary, 5th ed.

31
 Rollo, p. 64.

32
 Id., p. 70.

33
 Id., pp. 76 and 85.

34
 Id., pp. 16-17, 224-225, 411.

35
 Id., p. 224.

36
 Id., p. 70.

 People v. Mala, G.R. No. 152351, 18 September 2003, 411 SCRA 327, 337,
37

citing People v. Dayag, 155 Phil. 421, 431 (1974).

38
 Rollo, pp. 88 and 94.

39
 Id., p. 93.

40
 Sec. 3 (e), Rule 131, Rules of Court.

 Eusebio-Calderon v. People, G.R. No. 158495, 21 October 2004, 441 SCRA 137,
41

148-149, citing Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12
July 1994, 234 SCRA 78, 95; Cabrera v. People, G.R. No. 150618, 24 July 2003, 407
SCRA 247, 261.

42
 Rollo, p. 65.

43
 Cabrera v. People, supra.

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