Case and Digest

Republic of the PhilippinesSUPREME COURT

ManilaEN BANC

G.R. No. L-19190 November 29, 1922THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs.VENANCIO CONCEPCION, defendant-appellant.Recaredo Ma. Calvo for appellant. Attorney-General Villa-Real for appellee. MALCOLM, J.:By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This special authorization was essential in view of the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power of the local manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain cases, could be increased to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with the interest, were taken up and paid by July 17, 1919."Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and RosarioSan Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of the company.On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member of the board of directors of this bank, was charged in the Court of First Instance of Cagayan with a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs.Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly, grant loans to any of the members of the board of directors of the bank nor to agents of the branch banks." Section 49 of the same Act provides: "Any person who shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by both such fine and imprisonment." These two sections were in effect in 1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.Counsel for the defense assign ten errors as having been committed by the trial court. These errors they have argued adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-General Villa-Real, in an exceptionally accurate and comprehensive brief, answers the proposition of appellant one by one.The question presented are reduced to their simplest elements in the opinion which follows:I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, a "loan" within the meaning of section 35 of Act No. 2747?Counsel argue that the documents of record do not prove that authority to make a loan was given, but only show the concession of a credit. In this statement of fact, counsel is correct, for the exhibits in question speak of a "credito" (credit) and not of a " prestamo" (loan).The "credit" of an individual means his ability to borrow MONEY by virtue of the confidence or trust reposed by a lender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the receipt by

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the other party of a given sum of MONEY , upon an agreement, express or implied, to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"?Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what is commonly known as a "discount."In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as WELL as to loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said section referred to loans alone, and placed no restriction upon discount transactions. It becomes material, therefore, to discover the distinction between a "loan" and a "discount," and to ascertain if the instant transaction comes under the first or the latter denomination.Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live, transaction. But in its last analysis, to discount a paper is only a mode of loaning MONEY , with, however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on single-name paper.Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet the conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because (1) interest was not deducted from the face of the notes, but was paid when the notes fell due; and (2) they were single-name and not double-name paper.The facts of the instant case having relation to this phase of the argument are not essentially different from the facts in the Binalbagan Estate case. Just as there it was declared that the operations constituted a loan and not a discount, so should we here lay down the same ruling.III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of section 35 of Act No. 2747?Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In this connection, it should be recalled that the wife of the defendant held one-half of the capital of this partnership.In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of safety against temptation for a director of the bank. The prohibition against indirect loans is a recognition of the familiar maxim that no man may serve two masters — that where personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband is financially interested in the success or failure of his wife's business venture, a loan to partnership of which the wife of a director is a member, falls within the prohibition.Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a partnership of which the wife of a director of a bank is a member, is an indirect loan to such director.That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact that in this instance the defendant was tempted to mingle his personal and family affairs with his official duties, and to permit the loan P300,000 to a partnership of no established reputation and without asking for collateral security.In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court of Maryland said:

What then was the purpose of the law when it declared that no director or officer should borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this section he shall be punished by fine and imprisonment?" We say to







protect the stockholders, depositors and creditors of the bank, against the temptation to which the directors and officers might be exposed, and the power which as such they must necessarily possess in the control and management of the bank, and the legislature unwilling to rely upon the implied understanding that in assuming this relation they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty, declared in express terms that they should not borrow, etc., of the bank.

In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it was said:

We are of opinion the statute forbade the loan to his copartnership firm as WELL as to himself directly. The loan was made indirectly to him through his firm.

IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of section 35 of Act No. 2747 in relation with section 49 of the same Act, when these portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information and the rendition of the judgment?As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35 of the same Act, provides a punishment for any person who shall violate any of the provisions of the Act. It is contended, however, by the appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938 has served to take away the basis for criminal prosecution.This same question has been previously submitted and has received an answer adverse to such contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and it must again be the holding, that where an Act of the Legislature which penalizes an offense, such repeals a former Act which penalized the same offense, such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and sentenced offenders charged with violations of the old law.V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, in violation of section 35 of Act No. 2747, penalized by this law?Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section 49 of said Act provides a punishment not on the bank when it violates any provisions of the law, but on a personviolating any provisions of the same, and imposing imprisonment as a part of the penalty, the prohibition contained in said section 35 is without penal sanction.lawph!l.netThe answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the board of directors, and to each director separately and individually. (People vs. Concepcion, supra.)VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal defense?Counsel argue that if defendant committed the acts of which he was convicted, it was because he was misled by rulings coming from the Insular Auditor. It is furthermore stated that since the loans made to the copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been suffered by the Philippine National Bank.Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has violated, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account of public policy and public interest, constitutes the crime. And, in this instance, as previously demonstrated, the acts of the President of the Philippine National Bank do not fall within the purview of the rulings of the Insular Auditor, even conceding that such rulings have controlling effect.Morse, in his work, Banks and Banking, section 125, says:

It is fraud for directors to secure by means of their trust, and advantage not common to the other stockholders. The law will not allow private profit from a trust, and will not listen to any proof of honest intent.



JUDGMENTOn a review of the evidence of record, with reference to the decision of the trial court, and the errors assigned by the appellant, and with reference to previous decisions of this court on the same subject, we are irresistibly led to the conclusion that no reversible error was committed in the trial of this case, and that the defendant has been proved guilty beyond a reasonable doubt of the crime charged in the information. The penalty imposed by the trial judge falls within the limits of the punitive provisions of the law.Judgment is affirmed, with the costs of this instance against the appellant. So ordered.

PEOPLE vs. CONCEPCION, 44 Phil. 126FACTS:Venancio Concepcion, President of the Philippine National Bank and a member of theBoard thereof, authorized an extension of credit in favor of "Puno y Concepcion, S. en C.” to themanager of the Aparri branch of the Philippine National Bank. "Puno y Concepcion, S. en C."was a co-partnership where Concepcion is a partner. Subsequently, Concepcion was charged andfound guilty in the Court of First Instance of Cagayan with violation of section 35 of Act No.2 7 4 7 . S e c t i o n 3 5 o f A c t N o . 2 7 4 7 p r o v i d e s t h a t t h e N a t i o n a l B a n k s h a l l n o t , d i r e c t l y o r indirectly, grant loans to any of the members of the board of directors of the bank nor to agentsof the branch banks. Counsel for the defense argue that the documents of record do not provethat authority to make a loan was given, but only show the concession of a credit. They averredthat the granting of a credit to the co-partnership "Puno y Concepcion, S. en C." by VenancioConcepcion, President of the Philippine National Bank, is not a "loan" within the meaning of section 35 of Act No. 2747.ISSUE:Whethe r o r no t t he g r an t i ng o f a c r ed i t o f P300 ,000 t o t he co -pa r t ne r sh ip "Puno yConcepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, a"loan" within the meaning of section 35 of Act No. 2747.HELD:The Supreme Court ruled in the affirmative. The "credit" of an individual means his ability to borrow MONEY by virtue of the confidence or trust reposed by a lender that he will paywhat he may promise. A "loan" means the delivery by one party and the receipt by the other party of a given sum of MONEY , upon an agreement, express or implied, to repay the sum loaned,with or without interest. The concession of a "credit" necessarily involves the granting of "loans"up to the limit of the amount fixed in the "credit,"

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Manila

THIRD DIVISION

PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, - versus - NORMAN SITCO and RAYMUNDO BAGTAS (deceased), Accused-Appellants.

G.R. No. 178202 Present: CORONA, J., Chairperson,VELASCO, JR.,PERALTA,BERSAMIN,* andMENDOZA, JJ. Promulgated: May 14, 2010

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D E C I S I O N

VELASCO, JR., J.:

This is an appeal from the October 19, 2006 Decision of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 00038

entitledPeople of the Philippines v. Norman Sitco y De Jesus and Raymundo Bagtas y Caparas, which affirmed the Decision of

the Regional Trial Court (RTC), Branch 72 in Malabon, in Criminal Case Nos. 19456-MN to 19459-MN for violation of Sections

15 and 16 of Republic Act No. (RA) 6425 or The Dangerous Drugs Act of 1972. The affirmed RTC decision adjudged accused-

appellants Raymundo Bagtas and Norman Sitco guilty in Crim. Case No. 19456-MN for drug pushing and sentenced them

toreclusion perpetua. For illegal possession of drugs, Bagtas was sentenced to two months and one day of arresto mayor, as

minimum, to one year and one day of prision correccional, as maximum, in Crim. Case No. 19458-MN, and reclusion

perpetua in Crim. Case No. 19459-MN. While the RTC convicted Sitco in Crim. Case No. 19457-MN, the CA would later

overturn his conviction in this case.

The Facts

In Crim. Case No. 19456-MN, Sitco and Bagtas were charged with drug pushing in an information reading: That on or about the 11th day of May 1998, in Navotas, Metro Manila, and within the jurisdiction of this Honorable Court, the above-named accused, being private persons and without authority of law, conspiring[,] confederating and mutually helping with one another, did then and there willfully, unlawfully and feloniously sell and deliver, in consideration of the sum of P2,000.00+, most of which were boodle or fake money to a poseur buyer[,] two (2) heat-sealed transparent plastic bags containing white crystalline substance with net weight of 108.40 grams and 105.84 grams respectively, which substance when subjected to chemistry examination gave positive result for Methamphetamine Hydrochloride, otherwise known as “Shabu,” a regulated [drug].[1]

The other informations for illegal possession of drugs that were separately filed against either Sitco or Bagtas read as

follows:

Crim. Case No. 19457-MN against Sitco (illegal possession)

That on or about the 11th day of May 1998, in Navotas, Metro Manila, and within the jurisdiction of this Honorable Court, the above-named accused, being [a] private person and without authority of law, did then and there willfully, unlawfully and feloniously have in [his] possession, custody and control One (1) heat-sealed transparent plastic bag, containing white crystalline substance with net weight of 20.29 grams, which substance when subjected to chemistry examination gave positive result for Methamphetamine Hydrochloride otherwise known as “Shabu,” a regulated drug.[2]

Crim. Case No. 19458-MN against Bagtas (illegal possession)

That on or about the 11th day of May 1998, in Navotas, Metro Manila, and within the jurisdiction of this Honorable Court, the above-named accused, being [a] private person and without authority of law, did then and there willfully, unlawfully and feloniously have in his possession, custody and control One (1) heat-sealed transparent plastic bag, containing white crystalline substance with net weight of 1.31 grams, which substance when subjected to chemistry examination gave positive result for Methamphetamine Hydrochloride otherwise known as “Shabu,” a regulated drug.

Crim. Case No. 19459-MN against Bagtas (illegal possession) That on or about the 11th day of May 1998, in Navotas, Metro Manila, and within the jurisdiction of this Honorable Court, the above-named accused, being [a] private person and without authority of law, did then and there willfully, unlawfully and feloniously have in his possession, custody and control One (1) brick of suspected marijuana with net weight of 887.01 grams, which is a regulated drug.[3]

During the arraignment, both accused-appellants entered a “not guilty” plea to all the charges. A joint trial then ensued.

Version of the Prosecution

From the testimony of the prosecution witness, Police Officer 3 (PO3) Alex Buan, the following version is gathered:

Acting on a tip from an informant, Senior Inspector Gatlet of the Navotas Police Station ordered the conduct of a buy-

bust operation against accused-appellants, who were allegedly selling illegal drugs on Espina St. in Navotas, Metro Manila. The

team consisted of Buan, as poseur-buyer, a confidential informant, and several police operatives as back-up. Marked money,

consisting of four (4) PhP 500 bills for a total of PhP 2,000 and boodles or fake money amounting to PhP 196,000, was prepared.

On May 11, 1998 at 11:15 in the evening, the team proceeded to a house in the target place where Bagtas answered the

knocking of the door. Thereupon, the confidential informant introduced him to Buan who, then and there, expressed his desire to

buy shabu. Bagtas replied that he did not have enough supply of shabu, but manifested that marijuana was available. Buan,

however, insisted on buying only shabu.[4]

Bagtas informed Buan that someone would be delivering more shabu. After waiting for a few minutes, a man, who turned

out to be Sitco, arrived. After the usual introductions, Sitco told Buan to follow him to his motorcycle. He asked for the payment

and took out a bag with two plastic bags of shabu inside. Buan examined the contents, then identified himself as a police officer,

and arrested Sitco. The back-up officers joined the scene and frisked Sitco and Bagtas. Sitco was found to have in his possession a

loaded caliber .38 paltik revolver, the buy-bust money, and more shabu. Bagtas had in his possession marijuana and shabu.[5]

The seized items were sent to Forensic Chemist Grace N. Eustaquio for laboratory examination and were found positive

forshabu and marijuana per Physical Science No. D-411-98.

During trial, Buan identified accused-appellants, the four (4) PhP 500-bill marked money used, the shabu confiscated from

both accused-appellants, and the marijuana seized from Bagtas. Buan explained during his testimony that the boodle money

placed in-between the genuine marked money the buy-bust team used was unavailable as it had been confiscated by a policeman

named “Barlin” when he himself (Buan) was arrested for violating Sec. 27 of the Dangerous Drugs Act.[6]

Version of the Defense

The evidence for the defense consists of the testimonies of Sitco and Bagtas.

Bagtas branded as fabricated the accusations against him and Sitco. According to him, on the day of the alleged buy-bust

operation, he was busy cleaning his motorcycle when, all of a sudden, policemen, led by Buan, entered his house. Buan came

armed with an armalite rifle and a .45 caliber pistol, but did not show any document to justifying the police officers’ entry into his

(Bagtas’) home. The intruders pointed guns at Bagtas, his common-law wife, his nephew, a certain Boy Macapagal, a certain

Malou, a helper in his store, a girl applying for work as a househelper, and Sitco, who was visiting Buan at the time. They were

ordered to lie face down as Bagtas’ house was being searched. He was told that he was a suspect in the killing of a Navotas

policeman named Ira. After the search was done, no illegal drugs were found. Yet the police officers took his camera, tape

recorder, and the cash from his store’s sales. The pieces of jewelry they were wearing, including his ring and necklace, were also

confiscated. Afterwards, all of them were handcuffed and asked to board the police officers’ vehicles. Two motorcycles belonging

to Sitco and Bagtas were also seized.[7]

At the police headquarters, Buan and the other police officers demanded payment for the release of Bagtas’ group. After

some haggling, the group relented and paid some amount for their freedom. Sitco and Bagtas, however, were detained. Instead,

they were handcuffed to a steel post after being blindfolded by the police. [8] Bagtas overheard the police officers dividing the

jewelry among them. He was then beaten along with Sitco to extort money for their release. The police officers eventually told

them to pay a reduced amount, which they still could not afford to give. Complaints were thus filed against them, with the police

officers manufacturing the evidence used by the prosecution. Bagtas ended his testimony with a declaration that he was filing

complaints against the police officers once he was released from detention.[9]

Sitco corroborated Bagtas’ testimony, adding that Buan had already been dismissed from the service. [10] He testified that the

police officers frisked him and confiscated his wallet, watch, ring, and motorbike. He was told that they were suspects in the

killing of a Navotas policeman. At the headquarters, he claimed being tortured. Eventually, he fell asleep. When he woke up, he

saw Buan with two others sniffing shabu. He declined Buan’s invitation to join the session. The police officer likewise instructed

him to produce PhP 100,000 for his release. Sitco informed Buan that he could not afford the amount. The next day, May 12,

Buan took some shabu from the cabinet and told Sitco that the charge against him would push through if he did not pay. Sitco was

also warned about the difficulty of posting bail once charged. Since he could not raise the money, the police officers brought him

to the prosecutor’s office for inquest where manufactured evidence allegedly taken from him and Bagtas were shown to the fiscal.

[11] On cross-examination, he admitted to having been previously arrested for possession of shabu and violation of Presidential

Decree No. 1866.[12]

Ruling of the Trial Court

The RTC gave full credence to the testimony of Buan and, mainly on that basis, convicted Bagtas and Sitco of the crimes

charged.

The dispositive portion of the RTC Decision[13] reads:

WHEREFORE, premises considered, judgment is hereby rendered finding the two accused, namely Norman Sitco y de Jesus and Raymundo Bagtas y Caparas guilty beyond reasonable doubt of the offenses charged against them in these cases. In the absence of any mitigating or aggravating circumstances and applying the provisions of the Indeterminate Sentence Law (where applicable), the two accused are hereby sentenced as follows: 1) In Crim. Case No. 19456-MN: for drug pushing under Section 15, Article III, RA 6425, as amended by RA 7659, involving more than 200 grams of shabu, for each of them to suffer imprisonment of reclusion perpetua and for each of them to pay a fine in the amount of Php500,000.00; 2) In Crim. Case No. 19457-MN against Sitco only for illegal possession of 20.29 grams of shabu under Section 16, Article III, RA 6425, as amended by RA 7659, to a prison term ranging from SIX (6) MONTHS of arresto mayor as minimum, to SIX (6) years of prision correccional, as maximum; 3) In Crim. Case No. 19458-MN against Bagtas only for illegal possession of 1.31 grams of shabu under Section 16, Article III, RA 6425, as amended by RA 7659, to a prison term ranging from TWO (2) MONTHS and ONE (1) DAY of arresto mayor, as minimum, to ONE (1) YEAR and ONE (1) DAY of prision correccional, as maximum; 4) In Crim. Case No. 19459-MN against Bagtas only for illegal possession of 887.01 grams of marijuana under Section 8, Article II, RA 6425, as amended by RA 7659, said accused is sentenced to suffer the prison term of reclusion perpetua and to pay a fine of P500,000.00.

Since the death penalty was imposed, the case came to this Court on automatic review. In accordance with People v.

Mateo,[14] however, we ordered the transfer of the case to the CA for intermediate review.

Pending CA review of the case, or on May 5, 2006, Bagtas died at the National Bilibid Prison Hospital.

Ruling of the Appellate Court

Before the CA, Sitco argued against the credibility of Buan as witness, the latter having been involved in drug-related

activities and was in fact dismissed from the service in March 1999. He also claimed that the alleged drug sale involving him was

improbable as no one would sell drugs to a stranger.

On October 19, 2006, the CA acquitted Sitco of illegal possession of drugs but affirmed his conviction of the other

offenses charged. It reasoned that Buan’s testimony was focused only on the two (2) plastic bags of shabu which were the object

of the buy-bust; no attempt was made to make a distinction between the said bags and the additional bag of shabu supposedly

recovered from Sitco when he was frisked. The quantum of proof necessary to sustain a conviction for illegal possession

of shabu was, thus, not met. However, as to the other charges, the CA ruled that the factual findings of the trial court on Buan’s

credibility must be respected and upheld.

The fallo of the CA’s Decision[15] reads:WHEREFORE, premises considered, the assailed Joint Decision dated August 26, 1999 of the RTC of Malabon, Metro

Manila, Branch 72 in Criminal Case Nos. 19456-MN to 19459 is hereby AFFIRMED with modification ACQUITTING accused-appellant Norman Sitco y De Jesus in Criminal Case No. 19457-MN for violation of Sec. 16, Art. II of RA 6425, as amended by RA 7659, on the basis of reasonable doubt. The rest of the Joint Decision stand[s]. SO ORDERED.

On November 14, 2006, Sitco filed his Notice of Appeal of the appellate court’s Decision.

On September 24, 2007, this Court required the parties to submit supplemental briefs if they so desired. The People,

represented by the Office of the Solicitor General, manifested that it was submitting the case for decision based on the records

previously submitted. In his Supplemental Brief, Sitco submits that PO3 Buan is not a credible witness given his arrest on drug

charges and dismissal from the service.

The Issue

WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING ACCUSED-APPELLANT’S CONVICTION ON THE BASIS OF AN UNRELIABLE WITNESS.

The Ruling of the Court

We find sufficient compelling reasons to acquit the surviving accused-appellant Sitco.

Credibility of Buan as Witness

We start with the credibility of the lone prosecution witness, Buan, whose testimony Sitco has assailed at every turn. Sitco

insists and with reason that Buan cannot competently make a plausible account of something of which he himself was equally

culpable.

Sitco’s assault on the credibility of Buan is well-taken. As it were, Buan’s involvement as a police officer in illegal drug

activities makes him a polluted source and renders his testimony against Sitco and Bagtas suspect, at best. It is like a pot calling a

kettle black.

To be believed, testimonial evidence should come only from the mouth of a credible witness. [16] Given his service record,

Buan can hardly qualify as a witness worthy, under the limited confines of this case, of full faith and credit. And lest it be

overlooked, Buan is a rogue cop, having, per his own admission, been arrested for indulging in a pot session, eventually charged

and dismissed from the police service. [17] It would appear, thus, that Buan’s had been a user. His arrest for joining a pot session

only confirms this undesirable habit.

The Court, to be sure, has taken stock of the well-settled rule that prosecutions involving illegal drugs depend largely on the

credibility of police buy-bust operators, and that the trial court’s finding on the police-witness’ credibility deserves respect.

Juxtaposed with this rule, however, is the postulate that when confronted with circumstances that would support a reasonable

doubt in favor of the accused, then acquittal or the least liability is in order. Buan’s involvement in drugs and his alleged attempt

to extort money from appellant Sitco in exchange for his freedom has put his credibility under a heavy cloud.

The imperative of proof beyond reasonable doubt has a vital role in our criminal justice system, the accused, during a

criminal prosecution, having a stake interest of immense importance, both because of the possibility that he may lose his freedom

if convicted and because of the certainty that his conviction will leave a permanent stain on his reputation and name. [18] As

articulated in Rabanal v. People:

Law and jurisprudence demand proof beyond reasonable doubt before any person may be deprived of his life, liberty, or

even property. Enshrined in the Bill of Rights is the right of the petitioner to be presumed innocent until the contrary is proved, and to overcome the presumption, nothing but proof beyond reasonable doubt must be established by the prosecution. The constitutional presumption of innocence requires courts to take “a more than casual consideration” of every circumstances or doubt proving the innocence of petitioner.[19] (Emphasis added.)

Chain of Custody

But over and above the credibility of the prosecution’s lone witness as ground for acquittal looms the matter of the

custodial chain, a term which has gained traction in the prosecution of drug-related cases.

In prosecutions involving narcotics and other illegal substances, the substance itself constitutes part of the corpus delicti of the offense

and the fact of its existence is vital to sustain a judgment of conviction beyond reasonable doubt.[20] Of chief concern in drug cases then is

the requirement that the prosecution prove that what was seized by police officers is the same item presented in court. This

identification, as we have held in the past, must be established with moral certainty [21] and is a function of the rule on chain of

custody. The chain of custody requirement is essential to ensure that doubts regarding the identity of the evidence are removed

through the monitoring and tracking of the movements of the seized drugs from the accused, to the police, to the forensic chemist,

and finally to the court.[22]

The procedure to be followed in adhering to the chain of custody requirements is found in Sec. 21 of RA 9165:

Section 21. Custody and Disposition of Confiscated, Seized, and/or Surrendered Dangerous Drugs, Plant Sources of Dangerous Drugs, Controlled Precursors and Essential Chemicals, Instruments/Paraphernalia and/or Laboratory Equipment. – The PDEA shall take charge and have custody of all dangerous drugs, plant sources of dangerous drugs, controlled precursors and essential chemicals, as well as instruments/paraphernalia and/or laboratory equipment so confiscated, seized and/or surrendered, for proper disposition in the following manner:(1) The apprehending team having initial custody and control of the drugs shall, immediately after seizure and confiscation, physically inventory and photograph the same in the presence of the accused or the person/s from whom such items were confiscated and/or seized, or his/her representative or counsel, a representative from the media and the Department of Justice (DOJ), and any elected public official who shall be required to sign the copies of the inventory and be given a copy thereof;(2) Within twenty-four (24) hours upon confiscation/seizure of dangerous drugs, plant sources of dangerous drugs, controlled precursors and essential chemicals, as well as instruments/paraphernalia and/or laboratory equipment, the same shall be submitted to the PDEA Forensic Laboratory for a qualitative and quantitative examination.

The trial court summarized the chain of custody over the evidence as follows:

x x x [Sitco] asked for the money and then took from a covered part of the motorcycle a plastic bag inside [of] which were two plastic bags with shabu which Sitco gave to Buan. Buan examined the same and upon being satisfied that it was really shabu, identified himself as a policeman and arrested Sitco. Buan’s companions then approached and Sitco and Bagtas were frisked. Found from Sitco was a caliber .38 “paltik” revolver with six bullets, the buy-bust money and additional shabu. The marijuana earlier shown to Buan by Bagtas was also recovered along with the additional shabu found in the motorcycle of Bagtas which was parked nearby. The buy-bust shabu, the marijuana and the confiscated additional shabu from Sitco and Bagtas were sent to a Forensic Chemist for laboratory examination (Exhibit A) and were found to be positive for being shabu and marijuana, respectively, by examining PNP Forensic Chemist Grace N. Eustaquio under an initial laboratory report (Exhibit B) and a final report (Physical Science No. D-411-98) marked as Exhibit C.[23]

From this narration and an examination of the records, a number of disturbing questions arise as to the identification and

handling of the prohibited drugs seized. It is unclear at the outset whether Buan himself made the inventory of the seized items.

There is no detail as to who brought the specimens to the forensic laboratory and who received it prior to the examination by the

forensic chemist. It is also uncertain who took custody of the specimens before they were presented as evidence in court. There

are, thus, glaring gaps or missing links in the chain of custody of evidence, raising doubt as to the identity of the seized items and

necessarily their evidentiary value. This broken chain of custody is especially significant given that what are involved are fungible

items that may be easily altered or tampered with.[24]

It cannot be over-emphasized that pertinent provisions of RA 9165 require that the seized illegal items shall, after their

inventory, be photographed in the presence of the drug dealer, representatives of media, the Department of Justice, or any elected

public official who participated in the operation. The records do not yield an indication that this particular requirement has been

complied with.

The Court reiterates that, on account of the built-in danger of abuse that it carries, a buy-bust operation is governed by

specific procedures on the seizure and custody of drugs, separately from the general law procedures geared to ensure that the

rights of persons under criminal investigation and of the accused facing a criminal charge are safeguarded.[25] To reiterate, the

chain of custody requirement is necessary in order to remove doubts as to the identity of the evidence, by monitoring and tracking

custody of the seized drugs from the accused, until they reach the court. We find that the procedure and statutory safeguards

prescribed for compliance by drug enforcement agencies have not been followed in this case. A failure to comply with the

aforequoted Sec. 21(1) of RA 9165 implies a concomitant failure on the part of the prosecution to establish the identity of the

seized illegal items as part of the corpus delicti.[26]

Although the non-presentation of some of the witnesses who can attest to an unbroken chain of custody of evidence may, in

some instances, be excused, there should be a justifying factor for the prosecution to dispense with their testimonies. [27] In People

v. Denoman,[28] the Court discussed the saving mechanism provided by Sec. 21(a), Article II of the Implementing Rules and

Regulations of RA 9165.[29] Denoman explains that the aforementioned provision contains a saving mechanism to ensure that not

every case of non-compliance will permanently prejudice the prosecution’s case. The saving mechanism applies when the

prosecution recognizes and explains the lapse or lapses in the prescribed procedures. [30] In this case, the prosecution did not even

acknowledge and discuss the reasons for the missing links in the chain.

To reiterate, in prosecutions involving dangerous drugs, the substance itself constitutes the key part of the corpus delicti of

the offense and the fact of its existence is vital to sustain a judgment of conviction beyond reasonable doubt. [31] Taken with the

uncorroborated testimony of Buan, the broken chain of custody over the marijuana and shabu in the instant case creates

reasonable doubt on accused-appellant’s guilt.

In a string of cases,[32] we declared that the failure of the prosecution to offer the testimony of key witnesses to establish a

sufficiently complete chain of custody of a specimen of shabu, and the irregularity which characterized the handling of the

evidence before it was finally offered in court, fatally conflicts with every proposition relative to the culpability of the accused.

As in People v. Partoza,[33] this case suffers from the failure of the prosecution witness to provide the details establishing an

unbroken chain of custody. In Partoza, the police officer testifying did not relate to whom the custody of the drugs was turned

over. The evidence of the prosecution likewise did not disclose the identity of the person who had the custody and safekeeping of

the drugs after its examination and pending presentation in court.

Given the prosecution’s failure to abide by the rules on the chain of custody, the evidentiary presumption that official duties

have been regularly performed cannot apply to this case. This presumption, it must be emphasized, is not conclusive. Not only is

it rebutted by contrary proof, as here, but it is also inferior to the constitutional presumption of innocence. [34] On this score, we

have held that while an accused’s defense engenders suspicion that he probably perpetrated the crime charged, it is not sufficient

for a conviction that the evidence establishes a strong suspicion or probability of guilt. It is the burden of the prosecution to

overcome the presumption of innocence by presenting the quantum of evidence required. [35] This quantum of evidence has not

been met in the instant case.

WHEREFORE, the assailed CA Decision in CA-G.R. CR-H.C. No. 00038 is REVERSED and SET ASIDE. Accused-

appellant Norman Sitco y De Jesus is ACQUITTED on reasonable doubt and is ordered immediately RELEASED from

detention, unless he is confined for any other lawful cause. The Director of the Bureau of Corrections

is DIRECTED to IMPLEMENT this Decision and to report to this Court the action taken hereon within five (5) days from

receipt.

SO ORDERED.

PRESBITERO J. VELASCO, JR. Associate JusticeWE CONCUR:

RENATO C. CORONAAssociate Justice

Chairperson DIOSDADO M. PERALTA LUCAS P. BERSAMIN Associate Justice Associate Justice

JOSE CATRAL MENDOZAAssociate Justice

A T T E S T A T I O N

I attest 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.

RENATO C. CORONA

Associate Justice Chairperson

C E R T I F I C A T I O N Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, 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

REPUBLIC v. BAGTAS, 116 SCRA 262FACTS: On May 8, 1948, Jose Bagtas borrowed from the Bureau of Animal Industry three bullsfor one year

for breeding purposes upon payment of a breeding fee of 10% of the book value of the bulls. After one year, the contract was renewed but only for one bull. Bagtas offered to buythe bulls at book value less depreciation, but the Bureau told him that he should either return the bulls or pay for their book value. Bagtas failed to pay the book value, so the Republic filed anaction with the CFI Manila to order the return of the bulls or the payment of the book value.Felicidad Bagtas, the surviving spouse and administratrix of the decedent’s estate, said that thetwo bulls have already been returned in 1952, and that the remaining one died of gunshot duringa Huk raid. It was established that the two bulls were returned, thus, there is no more obligationon the part of Bagtas. With regards the bull not returned, Felicidad maintained that the obligationis extinguished since the contract is that of a commodatum and that the loss through fortuitousevent should be borne by the owner.

ISSUE: Whether or not the contract entered into between Bagtas and the Republic is that

of commodatum making Bagtas not liable for the death of the bull. HELD: A contract of commodatum is essentially gratuitous. If the breeding fee be

consideredcompensation, then the contract would be a lease of the bull. Under article 1671 of the CivilCode the lessee would be subject to the responsibilities of a possessor in bad faith because shehad con t i nued pos se s s ion o f t he bu l l a f t e r t he exp i ry o f t he con t r ac t . Even i f t he con t r ac t be commodatum, still Bagtas is liable because article 1942 of the Civil Code provides that a bailee in a contract of commodatum is liable for loss of the things even if it should be through afortuitous event if he keeps it longer than the period stipulated or if the thing loaned has beendelivered with appraisal of its value, unless there is a stipulation exempting the bailee fromresponsibility in case of a fortuitous event. The loan of one bull was renewed for another periodof one year but Bagtas kept and used the bull more than one year where during a Huk raid it waskilled by stray bullets. Furthermore, when lent and delivered to the deceased husband of Bagtas,the bulls had each an appraised book value. It was not stipulated that in case of loss of the bulldue to fortuitous event the late husband of the appellant would be exempt from liability


Manila EN BANC

G.R. No. L-46240 November 3, 1939 MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,

vs.BECK, defendant-appellee.

Mauricio Carlos for appellants.Felipe Buencamino, Jr. for appellee.

IMPERIAL, J.: The plaintiff brought this action to compel the defendant to return her certain furniture which she

lent him for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the other furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs.

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were found. On November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. On November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should pay their respectivelegal expenses or the costs; and in denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied with his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and whether she is entitled to the costs of litigation.lawphi1.net

The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to her.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court could not legally compel her to bear the expenses occasioned by the

deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the defendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver some of the furniture, the value thereof should be latter determined by the trial Court through evidence which the parties may desire to present.

The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). The defendant was the one who breached the contract of commodatum, and without any reason he refused to return and deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just and equitable that he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise defrayed.

The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances. So ordered.

QUINTOS VS BECK 69 PHIL 108 Facts: Quintos and Beck entered into a contract of lease, whereby the latteroccupied the former’s

house. On Jan 14, 19 !, the contract of lease was no"ated,wherein the Q#intos $ratuitously $ranted to Beck the use of the furniture, sub%ect tothe condition that Beck should return the furnitures to Quintos upon demand. &hereafter, Quintos sold the property to 'aria and (osario )ope*. Beck was noti+edof the con"eyance and $i"en him ! days to "acate the premises. - addition, Quintos re/uired Beck to return all the furniture. Beck refused to return $asheaters and 4 electric lamps since he would use them until the lease was due toe0pire. Quintos refused to $et the furniture since Beck had declined to return all ofthem. Beck deposited all the furniture belon$in$ to Q#intos to the sheri .

ISSUE: WON Beck complied with his obli$ation of returnin$ the furnitures toQuintos when it deposited the furnitures to

the sheri . RULING: &he contract entered into between the parties is one of commadatum ,because under it the plainti $ratuitously $ranted the use of the furniture to the defendant, reser"in$

for herself the ownership thereof2 by this contract thedefendant bound himself to return the furniture to the plainti , upon the latters demand 3clause of the contract, 50hibit 62 articles 1 4 , para$raph 1, and 1 41 of the 7i"il 7ode8. &he obli$ation "oluntarily assumed by the defendant to return thefurniture upon the plainti s demand, means that he should return all of them to theplainti at the latter s residence or house. &he defendant did not comply with this obli$ation when he merely placed them at the disposal of the plainti , retainin$ for his bene+t the three $as heaters and the four eletric lamps.6s the defendant had "oluntarily undertaken to return all the furniture to theplainti , upon the latter s demand, the 7ourt could not le$ally compel her to bearthe e0penses occasioned by the deposit of the furniture at the defendant s behest. &he latter, as bailee, was nt entitled to place the furniture on deposit2 nor was theplainti under a duty to accept the o er to return the furniture, because thedefendant wanted to retain the three $as heaters and the four electric lamps.


Manila

EN BANC

G.R. No. L-24968 April 27, 1972

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs.DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.

Jesus A. Avanceña and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J.:p

In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.

In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation(RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.

Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.

On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in the resolution were the following:

1. That the proceeds of the loan shall be utilized exclusively for the following purposes:

For construction of factory building P250,000.00

For payment of the balance of purchase

price of machinery and equipment 240,900.00

For working capital 9,100.00

T O T A L P500,000.00

4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;

5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of the factory buildings progresses, to be certified to by an appraiser of this Corporation;"

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.

In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the aspects of this approved loan ... with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."

On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with the reexamination of the project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145.

On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17.

It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:

RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn.

In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned."

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you.".

On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," but with the following proviso:

That in view of observations made of the shortage and high cost of imported raw materials, the Department of Agriculture and Natural Resources shall certify to the following:

1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and

2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory."

The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the certification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials." This point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate a Kenaf mill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."

This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to the availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably even next year;" (2) requesting "assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made as follows:

a) For the payment of the receipt for jute mill machineries with the Prudential Bank &

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equip-ment per attached list to enable the jutemill to operate 182,413.91

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the open-ing of the letter of credit for raw jutefor $25,000.00.

2) P25,000.00 to be released upon arrivalof raw jute.

3) P17,586.09 to be released as soon as themill is ready to operate.

On January 25, 1955 RFC sent to Saura, Inc. the following reply:

Dear Sirs:

This is with reference to your letter of January 21, 1955, regarding the release of your loan under consideration of P500,000. As stated in our letter of December 22, 1954, the releases of the loan, if revived, are proposed to be made from time to time, subject to availability of funds towards the end that the sack factory shall be placed in actual operating status. We shall be able to act on your request for revised purpose and manner of releases upon re-appraisal of the securities offered for the loan.

With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials needed are available in the immediate vicinity and that there is prospect of increased production thereof to provide adequately the requirements of the factory, we wish to reiterate that the basis of the original approval is to develop the manufacture of sacks on the basis of the locally available raw materials. Your statement that you will have to rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory, would not be in line with our principle in approving the loan.

With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.

It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.

We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides:

ART. 1954. 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 perferted until the delivery of the object of the contract.

There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in

RFC Resolution No. 145, passed on January 7, 1954, namely — "that the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building — P250,000.00; for payment of the balance of purchase price of machinery and equipment — P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature cf mutual desistance — what Manresa terms "mutuo disenso" 1 — which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. 2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance — and that on the initiative of the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the respective briefs of the parties.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee.

Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.

Makasiar, J., took no part.

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs.DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

G.R. No. L-15184 May 31, 1963

Lessons Applicable: Mortgagor (Insurance)

Laws Applicable:

FACTS:

Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a parcel of land.

The mortgage was amended to guarantee an increased amount, bringing the total mortgaged debt to P37,000

On the land mortgage is a building owned by Saura Import & Export Co Inc. which was insured with Philippine International Surety (Insurer) even before the mortgage contract so it was required to endorse to mortgagee PNB

October 15, 1954: Barely 13 days after the issuance of the fire insurance policy, the insurer cancelled it. Notice of the cancellation was given to PNB (mortgagee). But Saura (insured) was not informed.

April 6, 1955: The building and all its contents worth P40,685.69 wereburned so Saura filed a claim with the Insurer and mortgagee Bank

RTC: dismissedISSUE: W/N Philippine International Surety should be held liable for the claim because notice to only the mortgagee is not substantial

HELD:YES. Appealed from is hereby reversed. Philippine International Surety Co., Inc., to pay Saura Import & Export Co., Inc., P29,000 It was the primary duty of Philippine International Surety to notify the insured, but

it did not If a mortgage or lien exists against the property insured, and the policy contains a

clause stating that loss, if any, shall be payable to such mortgagee or the holder of such lien as interest may appear, notice of cancellation to the mortgagee or lienholder alone is ineffective as a cancellation of the policy to the owner of the property.

liability attached principally the insurance company, for its failure to give notice of the cancellation of the policy to Saura

it is unnecessary to discuss the errors assigned against appellee bank


Manila

FIRST DIVISION

G.R. No. 199650 June 26, 2013

J PLUS ASIA DEVELOPMENT CORPORATION, Petitioner, vs.UTILITY ASSURANCE CORPORATION, Respondent.

D E C I S I O N

VILLARAMA, JR., J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision1 dated January 27,2011 and Resolution2 dated December 8, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112808.

The Facts

On December 24, 2007, petitioner J Plus Asia Development Corporation represented by its Chairman, Joo Han Lee, and Martin E. Mabunay, doing business under the name and style of Seven Shades of Blue Trading and Services, entered into a Construction Agreement3 whereby the latter undertook to build the former's 72-room condominium/hotel (Condotel Building 25) located at the Fairways & Bluewaters Golf & Resort in Boracay Island, Malay, Aklan. The project, costing P42,000,000.00, was to be completed within one year or 365 days reckoned from the first calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down payment (20% of contract price). The P8,400,000.00 down payment was fully paid on January 14, 2008.4 Payment of the balance of the contract price will be based on actual work finished within 15 days from receipt of the monthly progress billings. Per the agreed work schedule, the completion date of the project was December 2008.5 Mabuhay also submitted the required Performance Bond6 issued by respondent Utility Assurance Corporation (UTASSCO) in the amount equivalent to 20% down payment or P8.4 million.

Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th monthly progress billing sent by Mabunay. As of September 16, 2008, petitioner had paid the total amount of P15,979,472.03 inclusive of the 20% down payment. However, as of said date, Mabunay had accomplished only 27.5% of the project.7

In the Joint Construction Evaluation Result and Status Report8 signed by Mabunay assisted by Arch. Elwin Olavario, and Joo Han Lee assisted by Roy V. Movido, the following findings were accepted as true, accurate and correct:

III STATUS OF PROJECT AS OF 14 NOVEMBER 2008

1) After conducting a joint inspection and evaluation of the project to determine the actual percentage of accomplishment, the contracting parties, assisted by their respective technical groups, SSB assisted by Arch. Elwin Olavario and JPLUS assisted by Engrs. Joey Rojas and Shiela Botardo, concluded and agreed that as of 14 November 2008, the project is only Thirty One point Thirty Nine Percent (31.39%) complete.

2) Furthermore, the value of construction materials allocated for the completion of the project and currently on site has been determined and agreed to be ONE MILLION FORTY NINE THOUSAND THREE HUNDRED SIXTY FOUR PESOS AND FORTY FIVE CENTAVOS (P1,049,364.45)

3) The additional accomplishment of SSB, reflected in its reconciled and consolidated 8th and 9th billings, is Three point Eighty Five Percent (3.85%) with a gross value of P1,563,553.34 amount creditable to SSB after deducting the withholding tax is P1,538,424.84

4) The unrecouped amount of the down payment is P2,379,441.53 after deducting the cost of materials on site and the net billable amount reflected in the reconciled and consolidated 8th and 9th billings. The uncompleted portion of the project is 68.61% with an estimated value per construction agreement signed isP27,880,419.52.9 (Emphasis supplied.)

On November 19, 2008, petitioner terminated the contract and sent demand letters to Mabunay and respondent surety. As its demands went unheeded, petitioner filed a Request for Arbitration10 before the Construction Industry Arbitration Commission (CIAC). Petitioner prayed that Mabunay and respondent be ordered to pay the sums ofP8,980,575.89 as liquidated damages and P2,379,441.53 corresponding to the unrecouped down payment or overpayment petitioner made to Mabunay.11

In his Answer,12 Mabunay claimed that the delay was caused by retrofitting and other revision works ordered by Joo Han Lee. He asserted that he actually had until April 30, 2009 to finish the project since the 365 days period of completion started only on May 2, 2008 after clearing the retrofitted old structure. Hence, the termination of the contract by petitioner was premature and the filing of the complaint against him was baseless, malicious and in bad faith.

Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has no cause of action and the complaint states no cause of action against it. The CIAC denied the motion to dismiss. Respondent’s motion for reconsideration was likewise denied.13

In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Cross-claims,14 respondent argued that the performance bond merely guaranteed the 20% down payment and not the entire obligation of Mabunay under the Construction Agreement. Since the value of the project’s accomplishment already exceeded the said amount, respondent’s obligation under the performance bond had been fully extinguished. As to the claim for alleged overpayment to Mabunay, respondent contended that it should not be credited against the 20% down payment which was already exhausted and such application by petitioner is tantamount to reviving an obligation that had been legally extinguished by payment. Respondent also set up a cross-claim against Mabunay who executed in its favor an Indemnity Agreement whereby Mabunay undertook to indemnify respondent for whatever amounts it may be adjudged liable to pay petitioner under the surety bond.

Both petitioner and respondent submitted their respective documentary and testimonial evidence. Mabunay failed to appear in the scheduled hearings and to present his evidence despite due notice to his counsel of record. The CIAC thus declared that Mabunay is deemed to have waived his right to present evidence.15

On February 2, 2010, the CIAC rendered its Decision16 and made the following award:

Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges, orders and directs:

1. Respondents Mabunay and Utassco to jointly and severally pay claimant the following:

a) P4,469,969.90, as liquidated damages, plus legal interest thereon at the rate of 6% per annum computed from the date of this decision up to the time this decision becomes final, and 12% per annum computed from the date this decision becomes final until fully paid, and

b) P2,379,441.53 as unrecouped down payment plus interest thereon at the rate of 6% per annum computed from the date of this decision up to the time this decision becomes final, and 12% per annum computed from the date this decision becomes final until fully paid.

It being understood that respondent Utassco’s liability shall in no case exceed P8.4 million.

2. Respondent Mabunay to pay to claimant the amount of P98,435.89, which is respondent Mabunay’s share in the arbitration cost claimant had advanced, with legal interest thereon from January 8, 2010 until fully paid.

3. Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to claimant under this decision, plus interest thereon at the rate of 12% per annum computed from the date he is notified of such payment made by respondent Utassco to claimant until fully paid, and to pay UtasscoP100,000.00 as attorney’s fees.

SO ORDERED.17

Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, as amended.

In the assailed decision, the CA agreed with the CIAC that the specific condition in the Performance Bond did not clearly state the limitation of the surety’s liability. Pursuant to Article 137718 of the Civil Code, the CA said that the provision should be construed in favor of petitioner considering that the obscurely phrased provision was drawn up by respondent and Mabunay. Further, the appellate court stated that respondent could not possibly guarantee the down payment because it is not Mabunay who owed the down payment to petitioner but the other way around. Consequently, the completion by Mabunay of 31.39% of the construction would not lead to the extinguishment of respondent’s liability. The P8.4 million was a limit on the amount of respondent’s liability and not a limitation as to the obligation or undertaking it guaranteed.

However, the CA reversed the CIAC’s ruling that Mabunay had incurred delay which entitled petitioner to the stipulated liquidated damages and unrecouped down payment. Citing Aerospace Chemical Industries, Inc. v. Court of Appeals,19 the appellate court said that not all requisites in order to consider the obligor or debtor in default were present in this case. It held that it is only from December 24, 2008 (completion date) that we should reckon default because the Construction Agreement provided only for delay in the completion of the project and not delay on a monthly basis using the work schedule approved by petitioner as the reference point. Hence, petitioner’s termination of the contract was premature since the delay in this case was merely speculative; the obligation was not yet demandable.

The dispositive portion of the CA Decision reads:

WHEREFORE, premises considered, the instant petition for review is GRANTED. The assailed Decision dated 13 January 2010 rendered by the CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REVERSED and SET ASIDE. Accordingly, the Writ of Execution dated 24 November 2010 issued by the same tribunal is hereby ANNULLED and SET ASIDE.

SO ORDERED.20

Petitioner moved for reconsideration of the CA decision while respondent filed a motion for partial reconsideration. Both motions were denied.

The Issues

Before this Court petitioner seeks to reverse the CA insofar as it denied petitioner’s claims under the Performance Bond and to reinstate in its entirety the February 2, 2010 CIAC Decision. Specifically, petitioner alleged that –

A. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE ALTERNATIVE DISPUTE RESOLUTION ACT AND THE SPECIAL RULES ON ALTERNATIVE DISPUTE RESOLUTION HAVE STRIPPED THE COURT OF APPEALS OF JURISDICTION TO REVIEW ARBITRAL AWARDS.

B. THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL AWARD ON AN ISSUE THAT WAS NOT RAISED IN THE ANSWER. NOT IDENTIFIED IN THE TERMS OF REFERENCE, NOT ASSIGNED AS ANERROR, AND NOT ARGUED IN ANY OF THE PLEADINGS FILED BEFORE THE COURT.

C. THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF AEROSPACE CHEMICAL INDUSTRIES, INC. v. COURT OF APPEALS, 315 SCRA 94, WHICH HAS NOTHING TO DO WITH CONSTRUCTION AGREEMENTS.21

Our Ruling

On the procedural issues raised, we find no merit in petitioner’s contention that with the institutionalization of alternative dispute resolution under Republic Act (R.A.) No. 9285,22 otherwise known as the Alternative Dispute Resolution Act of 2004, the CA was divested of jurisdiction to review the decisions or awards of the CIAC. Petitioner erroneously relied on the provision in said law allowing any party to a domestic arbitration to file in the Regional Trial Court (RTC) a petition either to confirm, correct or vacate a domestic arbitral award.

We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review awards or decisions of the CIAC in construction disputes. On the contrary, Section 40 thereof expressly declares that confirmation by the RTC is not required, thus:

SEC. 40. Confirmation of Award. – The confirmation of a domestic arbitral award shall be governed by Section 23 of R.A. 876.

A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory decisions of the Regional Trial Court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under E.O. No. 1008. (Emphasis supplied.)

Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. By express provision of Section 19 thereof, the arbitral award of the CIAC is final and unappealable, except on questions of law, which are appealable to the Supreme Court. With the amendments introduced by R.A. No. 7902 and promulgation of the 1997 Rules of Civil Procedure, as amended, the CIAC was included in the enumeration of quasijudicial agencies whose decisions or awards may be appealed to the CA in a petition for review under Rule 43. Such review of the CIAC award may involve either questions of fact, of law, or of fact and law.23

Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by this Court and which took effect on October 30, 2009. Since R.A. No. 9285 explicitly excluded CIAC awards from domestic arbitration awards that need to be confirmed to be executory, said awards are therefore not covered by Rule 11 of the Special ADR Rules,24 as they continue to be governed by EO No. 1008, as amended and the rules of procedure of the CIAC. The CIAC Revised Rules of Procedure Governing Construction Arbitration25 provide for the manner and mode of appeal from CIAC decisions or awards in Section 18 thereof, which reads:

SECTION 18.2 Petition for review. – A petition for review from a final award may be taken by any of the parties within fifteen (15) days from receipt thereof in accordance with the provisions of Rule 43 of the Rules of Court.

As to the alleged error committed by the CA in deciding the case upon an issue not raised or litigated before the CIAC, this assertion has no basis. Whether or not Mabunay had incurred delay in the performance of his obligations under the Construction Agreement was the very first issue stipulated in the Terms of Reference26 (TOR), which is distinct from the issue of the extent of respondent’s liability under the Performance Bond.

Indeed, resolution of the issue of delay was crucial upon which depends petitioner’s right to the liquidated damages pursuant to the Construction Agreement. Contrary to the CIAC’s findings, the CA opined that delay should be reckoned only after the lapse of the one-year contract period, and consequently Mabunay’s liability for liquidated damages arises only upon the happening of such condition.

We reverse the CA.

Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to the former. It is the non-fulfillment of an obligation with respect to time.27

Article 1169 of the Civil Code provides:

ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

x x x x

It is a general rule that one who contracts to complete certain work within a certain time is liable for the damage for not completing it within such time, unless the delay is excused or waived.28

The Construction Agreement provides in Article 10 thereof the following conditions as to completion time for the project

1. The CONTRACTOR shall complete the works called for under this Agreement within ONE (1) YEAR or 365 Days reckoned from the 1st calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down payment.

2. In this regard the CONTRACTOR shall submit a detailed work schedule for approval by OWNER within Seven (7) days after signing of this Agreement and full payment of 20% of the agreed contract price. Said detailed work schedule shall follow the general schedule of activities and shall serve as basis for the evaluation of the progress of work by CONTRACTOR.29

In this jurisdiction, the following requisites must be present in order that the debtor may be in default: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.30

In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation to perform or complete the project was not yet demandable as of November 19, 2008 when petitioner terminated the contract, because the agreed completion date was still more than one month away (December 24, 2008). Since the parties contemplated delay in the completion of the entire project, the CA concluded that the failure of the contractor to catch up with schedule of work activities did not constitute delay giving rise to the contractor’s liability for damages.

We cannot sustain the appellate court’s interpretation as it is inconsistent with the terms of the Construction Agreement. Article 1374 of the Civil Code requires that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. Here, the work schedule approved by petitioner was intended, not only to serve as its basis for the payment of monthly progress billings, but also for evaluation of the progress of work by the contractor. Article 13.01 (g) (iii) of the Construction Agreement provides that the contractor shall be deemed in default if, among others, it had delayed without justifiable cause the completion of the project "by more than thirty (30) calendar days based on official work schedule duly approved by the OWNER."31

Records showed that as early as April 2008, or within four months after Mabunay commenced work activities, the project was already behind schedule for reasons not attributable to petitioner. In the succeeding months, Mabunay was still unable to catch up with his accomplishment even as petitioner constantly advised him of the delays, as can be gleaned from the following notices of delay sent by petitioner’s engineer and construction manager, Engr. Sheila N. Botardo:

April 30, 2008

Seven Shades of BlueBoracay IslandMalay, Aklan

1âwphi1

Attention : Mr. Martin MabunayGeneral Manager

Thru : Engr. Reynaldo Gapasin

Project : Villa Beatriz

Subject : Notice of Delay

Dear Mr. Mabunay:

This is to formalize our discussion with your Engineers during our meeting last April 23, 2008 regarding the delay in the implementation of major activities based on your submitted construction schedule. Substantial delay was noted in concreting works that affects your roof framing that should have been 40% completed as of this date. This delay will create major impact on your over-all schedule as the finishing works will all be dependent on the enclosure of the building.

In this regard, we recommend that you prepare a catch-up schedule and expedite the delivery of critical materials on site. We would highly appreciate if you could attend our next regular meeting so we could immediately address this matter. Thank you.

Very truly yours,

Engr. Sheila N. BotardoConstruction Manager – LMI/FEPI32

October 15, 2008

x x x x

Dear Mr. Mabunay,

We have noticed continuous absence of all the Engineers that you have assigned on-site to administer and supervise your contracted work. For the past two (2) weeks, your company does not have a Technical Representative manning the jobsite considering the critical activities that are in progress and the delays in schedule that you have already incurred. In this regard, we would highly recommend the immediate replacement of your Project Engineer within the week.

We would highly appreciate your usual attention on this matter.

x x x x33

November 5, 2008

x x x x

Dear Mr. Mabunay,

This is in reference to your discussion during the meeting with Mr. Joohan Lee last October 30, 2008 regarding the construction of the Field Office and Stock Room for Materials intended for Villa Beatriz use only. We understand that you have committed to complete it November 5, 2008 but as of this date there is no improvement or any ongoing construction activity on the said field office and stockroom.

We are expecting deliveries of Owner Supplied Materials very soon, therefore, this stockroom is badly needed. We will highly appreciate if this matter will be given your immediate attention.

Thank you.

x x x x34

November 6, 2008

x x x x

Dear Mr. Mabunay,

We would like to call your attention regarding the decrease in your manpower assigned on site. We have observed that for the past three (3) weeks instead of increasing your manpower to catch up with the delay it was reduced to only 8 workers today from an average of 35 workers in the previous months.

Please note that based on your submitted revised schedule you are already delayed by approximately 57% and this will worsen should you not address this matter properly.

We are looking forward for [sic] your cooperation and continuous commitment in delivering this project as per contract agreement.

x x x x35

Subsequently, a joint inspection and evaluation was conducted with the assistance of the architects and engineers of petitioner and Mabunay and it was found that as of November 14, 2008, the project was only 31.39% complete and that the uncompleted portion was 68.61% with an estimated value per Construction Agreement asP27,880,419.52. Instead of doubling his efforts as the scheduled completion date approached, Mabunay did nothing to remedy the delays and even reduced the deployment of workers at the project site. Neither did Mabunay, at anytime, ask for an extension to complete the project. Thus, on November 19, 2008, petitioner advised Mabunay of its decision to terminate the contract on account of the tremendous delay the latter incurred. This was followed by the claim against the Performance Bond upon the respondent on December 18, 2008.

Petitioner’s claim against the Performance Bond included the liquidated damages provided in the Construction Agreement, as follows:

ARTICLE 12 – LIQUIDATED DAMAGES:

12.01 Time is of the essence in this Agreement. Should the CONTRACTOR fail to complete the PROJECT within the period stipulated herein or within the period of extension granted by the OWNER, plus One (1) Week grace period, without any justifiable reason, the CONTRACTOR hereby agrees –

a. The CONTRACTOR shall pay the OWNER liquidated damages equivalent to One Tenth of One Percent (1/10 of 1%) of the Contract Amount for each day of delay after any and all extensions and the One (1) week Grace Period until completed by the CONTRACTOR.

b. The CONTRACTOR, even after paying for the liquidated damages due to unexecuted works and/or delays shall not relieve it of the obligation to complete and finish the construction.

Any sum which maybe payable to the OWNER for such loss may be deducted from the amounts retained under Article 9 or retained by the OWNER when the works called for under this Agreement have been finished and completed.

Liquidated Damage[s] payable to the OWNER shall be automatically deducted from the contractors collectibles without prior consent and concurrence by the CONTRACTOR.

12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby, without necessity of any further act and deed, authorizes the OWNER to deduct any amount that may be due under Item (a) above, from any and all MONEY or amounts due or which will become due to the CONTRACTOR by virtue of this Agreement and/or to collect such amounts from the Performance Bond filed by the CONTRACTOR in this Agreement.36 (Emphasis supplied.)

Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code, which provide:

ART. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof.

ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

http://www.lawphil.net/judjuris/juri2013/jun2013/gr_199650_2013.html

ART. 2228. When the breach of the contract committed by the defendant is not the one contemplated by the parties in agreeing upon the liquidated damages, the law shall determine the measure of damages, and not the stipulation.

A stipulation for liquidated damages is attached to an obligation in order to ensure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.37 The amount agreed upon answers for damages suffered by the owner due to delays in the completion of the project.38 As a precondition to such award, however, there must be proof of the fact of delay in the performance of the obligation.39

Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the contractor to complete the project within the stipulated period or the extension granted by the owner. However, this will not defeat petitioner’s claim for damages nor respondent’s liability under the Performance Bond. Mabunay was clearly in default considering the dismal percentage of his accomplishment (32.38%) of the work he contracted on account of delays in executing the scheduled work activities and repeated failure to provide sufficient manpower to expedite construction works. The events of default and remedies of the Owner are set forth in Article 13, which reads:

ARTICLE 13 – DEFAULT OF CONTRACTOR:

13.01 Any of the following shall constitute an Event of Default on the part of the CONTRACTOR.

x x x x

g. In case the CONTRACTOR has done any of the following:

(i.) has abandoned the Project

(ii.) without reasonable cause, has failed to commence the construction or has suspended the progress of the Project for twenty-eight days

(iii.) without justifiable cause, has delayed the completion of the Project by more than thirty (30) calendar days based on official work schedule duly approved by the OWNER

(iv.) despite previous written warning by the OWNER, is not executing the construction works in accordance with the Agreement or is persistently or flagrantly neglecting to carry out its obligations under the Agreement.

(v.) has, to the detriment of good workmanship or in defiance of the Owner’s instructions to the contrary, sublet any part of the Agreement.

13.02 If the CONTRACTOR has committed any of the above reasons cited in Item 13.01, the OWNER may after giving fourteen (14) calendar days notice in writing to the CONTRACTOR, enter upon the site and expel the CONTRACTOR therefrom without voiding this Agreement, or releasing the CONTRACTOR from any of its obligations, and liabilities under this Agreement. Also without diminishing or affecting the rights and powers conferred on the OWNER by this Agreement and the OWNER may himself complete the work or may employ any other contractor to complete the work. If the OWNER shall enter and expel the CONTRACTOR under this clause, the OWNER shall be entitled to confiscate the performance bond of the CONTRACTOR to compensate for all kinds of damages the OWNER may suffer. All expenses incurred to finish the Project shall be charged to the CONTRACTOR and/or his bond. Further, the OWNER shall not be liable to pay the CONTRACTOR until the cost of execution, damages for the delay in the completion, if any, and all; other expenses incurred by the OWNER have been ascertained which amount shall be deducted from any money due to the CONTRACTOR on account of this Agreement. The CONTRACTOR will not be compensated for any loss of profit, loss of goodwill, loss of use of any equipment or property, loss of BUSINESS OPPORTUNITY , additional financing cost or overhead or opportunity losses related to the unaccomplished portions of the work.40 (Emphasis supplied.)

As already demonstrated, the contractor’s default in this case pertains to his failure to substantially perform the work on account of tremendous delays in executing the scheduled work activities. Where a party to a building construction contract fails to comply with the duty imposed by the terms of the contract, a breach results for


which an action may be maintained to recover the damages sustained thereby, and of course, a breach occurs where the contractor inexcusably fails to perform substantially in accordance with the terms of the contract.41

The plain and unambiguous terms of the Construction Agreement authorize petitioner to confiscate the Performance Bond to answer for all kinds of damages it may suffer as a result of the contractor’s failure to complete the building. Having elected to terminate the contract and expel the contractor from the project site under Article 13 of the said Agreement, petitioner is clearly entitled to the proceeds of the bond as indemnification for damages it sustained due to the breach committed by Mabunay. Such stipulation allowing the confiscation of the contractor’s performance bond partakes of the nature of a penalty clause. A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of the obligor in case of breach of an obligation. It functions to strengthen the coercive force of obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. It is well-settled that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon the obligor.42

Respondent, however, insists that it is not liable for the breach committed by Mabunay because by the terms of the surety bond it issued, its liability is limited to the performance by said contractor to the extent equivalent to 20% of the down payment. It stresses that with the 32.38% completion of the project by Mabunay, its liability was extinguished because the value of such accomplishment already exceeded the sum equivalent to 20% down payment (P8.4 million).

The appellate court correctly rejected this theory of respondent when it ruled that the Performance Bond guaranteed the full and faithful compliance of Mabunay’s obligations under the Construction Agreement, and that nowhere in law or jurisprudence does it state that the obligation or undertaking by a surety may be apportioned.

The pertinent portions of the Performance Bond provide:

The conditions of this obligation are as follows:

Whereas the JPLUS ASIA, requires the principal SEVEN SHADES OF BLUE CONSTRUCTION AND DEVELOPMENT, INC. to post a bond of the abovestated sum to guarantee 20% down payment for the construction of Building 25 (Villa Beatriz) 72-Room Condotel, The Lodgings inside Fairways and Bluewater, Boracay Island, Malay, Aklan.

Whereas, said contract required said Principal to give a good and sufficient bond in the above-stated sum to secure the full and faithful performance on his part of said contract.

It is a special provision of this undertaking that the liability of the surety under this bond shall in no case exceed the sum of P8,400,000.00 Philippine Currency.

Now, Therefore, if the Principal shall WELL and truly perform and fulfill all the undertakings, covenants, terms, conditions and agreements stipulated in said contract, then this obligation shall be null and void; otherwise to remain in full force and effect.43 (Emphasis supplied.)

While the above condition or specific guarantee is unclear, the rest of the recitals in the bond unequivocally declare that it secures the full and faithful performance of Mabunay’s obligations under the Construction Agreement with petitioner. By its nature, a performance bond guarantees that the contractor will perform the contract, and usually provides that if the contractor defaults and fails to complete the contract, the surety can itself complete the contract or pay damages up to the limit of the bond.44 Moreover, the rule is that if the language of the bond is ambiguous or uncertain, it will be construed most strongly against a compensated surety and in favor of the obligees or beneficiaries under the bond, in this case petitioner as the Project Owner, for whose benefit it was ostensibly executed.45

The imposition of interest on the claims of petitioner is likewise in order. As we held in Commonwealth Insurance Corporation v. Court of Appeals46

Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the condition that its liability shall in no case exceed the amount of the said bonds.


We are not persuaded. Petitioner’s argument is misplaced.

Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., and more recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc., we have sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying, its liability becomes more than the principal obligation. The increased liability is not because of the contract but because of the default and the necessity of judicial collection.

Petitioner’s liability under the suretyship contract is different from its liability under the law. 1âwphi1 There is no question that as a surety, petitioner should not be made to pay more than its assumed obligation under the surety bonds. However, it is clear from the above-cited jurisprudence that petitioner’s liability for the payment of interest is not by reason of the suretyship agreement itself but because of the delay in the payment of its obligation under the said agreement.47 (Emphasis supplied; citations omitted.)

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated January 27, 2011 and Resolution dated December 8, 2011 of the Court of Appeals in CA-G.R. SP No. 112808 are hereby REVERSED and SET ASIDE.

The Award made in the Decision dated February 2, 2010 of the Construction Industry Arbitration Commission Is hereby REINSTATED with the following MODIFICATIONS:

"Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges, orders and directs:

1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full amount of the Performance Bond, P8,400,000.00, pursuant to Art. 13 of the Construction Agreement dated December 24, 2007, with interest at the rate of 6% per annum computed from the date of the filing of the complaint until the finality of this decision, and 12% per annum computed from the date this decision becomes final until fully paid; and

2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to claimant under this decision, plus interest thereon at the rate of 12% per annum computed from the date he is notified of such payment made by respondent Utassco to claimant until fully paid, and to pay UtasscoP100,000.00 as attorney's fees.

SO ORDERED.

With the above modifications, the Writ of Execution dated November 24, 2010 issued by the CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REINSTATED and UPHELD.

No pronouncement as to costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENOChief JusticeChairperson

TERESITA J. LEONARDO-DE CASTROAssociate Justice

LUCAS P. BERSAMINAssociate Justice

BIENVENIDO L. REYESAssociate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the 1987 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.

MARIA LOURDES P. A. SERENOChief Justice

Ligutan vs. CA G.R#138677Facts: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissorynote binding themselves, jointly and severally, with an interest of 15.189% per annum upon maturityand to pay a penalty of 5% every month on the outstanding principal and interest in case of default andalso a 10% attorney’s fees if the matter were indorsed to a lawyer for collection. The obligation matured, the petitioners were not able to settle the obligation; The bank gave anextension, still the same happened. Since the petitioners still defaulted, the former filed a complaint forrecovery of the due amount.Issue: Whether the interest and penalty charge imposed by private respondent bank on petitioners’ loanare manifestly exorbitant, iniquitous and unconscionable?Ruling: The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court may not atliberty ignore the freedom of the parties to agree on such terms and conditions as they see fit thatcontravene neither law nor morals, good customs, public order or public policy, a stipulated penalty,nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if theprincipal obligation has been partly or irregularly complied with.The question of whether a penalty is reasonable or iniquitous can be partly subjective and partlyobjective. Its resolution would depend on such factors as, but not necessarily confined to, the type,extent and purpose of the penalty, the nature of the obligation, the mode of breach and itsconsequences, the supervening realities, the standing and relationship of the parties, and the like, theapplication of which, by and large, is addressed to the sound discretion of the court.The CA EXERCISED good judgment in reducing the stipulated penalty interest from 5% to 3% a month. Itwas also been held that the 15.189% per annum stipulated interest and the 10% attorney’s is reasonableand not excessive. The interest prescribed in loan financing arrangements is a fundamental part of thebanking business and the core of a bank's existence.

http://www.scribd.com/doc/155648122/Ligutan-vs-CA-Digest


ManilaEN BANC

G.R. No. 97412 July 12, 1994EASTERN SHIPPING LINES, INC., petitioner, vs.HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.Zapa Law Office for private respondent. VITUG, J.:The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customsbroker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%).The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages.On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38.Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff.On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still EXERCISED extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it.From the evidence the court found the following:The issues are:

1. Whether or not the shipment sustained losses/damages;

http://www.lawphil.net/judjuris/juri1994/jul1994/gr_97412_1994.html

2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable);3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order.Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".

and thus held:WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract);2. P3,000.00 as attorney's fees, and3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.

SO ORDERED. (p. 207, Record).Dissatisfied, defendant's recourse to US.The appeal is devoid of merit.After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court a quo.In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when —

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to this case.The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it.It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.Let us first see a chronological recitation of the major rulings of this Court:The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of MONEY arising out of short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed,inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of MONEY , absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point.But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." And as was held by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447;



Lichauco v. Guzman, 38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of Property." After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows:Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons:

xxx xxx xxx(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus —

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any MONEY , goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text) —

should have, instead, been applied. This Court 6 ruled:The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any MONEY , goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any MONEY , goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank.

xxx xxx xxxComing to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any MONEY , goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads —

Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court 8 modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co., Inc. (one of the petitioners) . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of the





building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per annum imposed on the total amount of the monetary award was in contravention of law." The Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any MONEY , goods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any MONEY , goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the imposition of the interest.It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach of EMPLOYMENT contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of EMPLOYMENT contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of MONEY as just compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of MONEY , goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages







for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate Appellate Court (1988).In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16of money, goods or credits, as WELL as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest.Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid.The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance.I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as WELL as the accrual thereof, is imposed, as follows:1. When the obligation is breached, and it consists in the payment of a sum of MONEY , i.e., a loan or forbearance of MONEY , the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code.2. When an obligation, not constituting a loan or forbearance of MONEY , is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.3. When the judgment of the court awarding a sum of MONEY becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof.SO ORDERED.







Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.Mendoza, J., took no part.

#Footnotes

1 Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;(2) Act of the public enemy in war, whether international or civil;(3) Act or omission of the shipper or owner of the goods;(4) The character of the goods or defects in the packing or in the containers;(5) Order or act of competent public authority.

2 28 SCRA 65.3 Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio Dizon, Querube Makalintal, Calixto Zaldivar, Enrique Fernando, Francisco Capistrano, Claudio Teehankee and Antonio Barredo, Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on official leave.4 The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-6998, 29 February 1956," 98 Phil. 516.5 139 SCRA 260, 265.6 Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes Concepcion, Jr., Vicente Abad Santos, Ameurfina Melencio-Herrera, Venicio Escolin, Lorenzo Relova, Hugo Gutierrez, Jr., Buenaventura de la Fuente, Nestor Alampay and Lino Patajo. Justice Ramon Aquino concurred in the result. Justice Efren Plana filed a concurring and dissenting opinion, concurred in by Justice Claudio Teehankee while Chief Justice Felix Makasiar concurred with the separate opinion of Justice Plana.7 143 SCRA 158.8 Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by Justices Pedro Yap, Ameurfina Melencio-Herrera, Isagani A. Cruz and Edgardo Paras.9 160 SCRA 334.10 Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo Fernan, Teodoro Padilla, Abdulwahid Bidin, and Irene Cortes. Justice Hugo Gutierrez, Jr., took no part because he was the ponente in the Court of Appeals.11 167 SCRA 209.12 Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan, Justices Andres Narvasa, Isagani A. Cruz, Emilio Gancayco, Teodoro Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene Cortes, Carolina Griño-Aquino, Leo Medialdea and Florenz Regalado. Justices Ameurfina Melencio-Herrera and Hugo Gutierrez, Jr., took no part because they did not participate in the deliberations. Justices Edgardo Paras and Florentino Feliciano also took no part.13 170 SCRA 461.14 208 SCRA 542.15 Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina Melencio-Herrera, Teodoro Padilla, Florenz Regalado and Rodolfo Nocon.16 Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth, 22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable.17 In the case of Malayan Insurance, the application of the 6% and 12% interest per annum has no bearing considering that this case was decided upon before the issuance of Circular No. 416 by the Central Bank.18 Art. 1157. Obligations arise from.

(1) Law;(2) Contracts;(3) Quasi-contracts;(4) Acts or omissions punished by law; and(5) Qausi-delicts."

19 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.20 Art. 2195. The provisions of this Title (on Damages) shall be respectively applicable to all obligations mentioned in article 1157.21 Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.

22 Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.23 Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

"However, the demand by the creditor shall not be necessary in order that delay may exist:(1) When the obligation or the law expressly so declare; or(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform."In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins."

24 Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the discretion of the court.25 Art. 2209. If the obligation consists in the payment of a sum of MONEY , and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.26 Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty.

Eastern Shipping Lines, Inc. v. CA and The First Nationwide Assurance Corp.G.R. No. 97412 July 12, 1994Vitug, J.FACTS:

13 coils of uncoated 7-wire stress relieved wire strand for pre-stressed concrete wereshipped on board a vessel owned and operated by Eastern Shipping Lines at Kobe, Japan,for delivery to Stresstek Post-Tensioning Phils., Inc. in Manila

while en route from Kobe to Manila, the carrying vessel encountered very rough seas andstormy weather; the coils wrapped in burlap cloth and cardboard paper were stored in thelower hold of the hatch of the vessel which was flooded with water; the water entered thehatch when the vessel encountered heavy weather en route to Manila; upon request, asurvey of bad order cargo was conducted at the pier in the presence of the representativesof the consignee and E. Razon, Inc. and it was found that 7 coils were rusty on one sideeach; upon survey conducted at the consignee’s warehouse it was found that the wettingo f t h e c a r g o w a s c a u s e d b y f r e s h w a t e r t h a t e n t e r e d t h e h a t c h w h e n t h e v e s s e l encountered heavy weather; all 13 coils were extremely rusty and totally unsuitable forthe intended purpose The F i rs t Na t ionwide Assurance Corp . indemni f ied the cons ignee in the amount o f P171,923.00 for damage and loss to the insured cargoISSUE:WON Eastern Shipping Lines is liableHELD:Yes. under Art. 1733, common carriers are bound to observe extra-ordinary vigilance overgoods according to all circumstances of each caseArt. 1735: In all cases other than those mentioned in Art. 1734, if the goods are lost,destroyed or deteriorated, common carriers are presumed to have been at fault or to haveacted negligently, unless they prove that they observed extraordinary diligenceSince the carrier has failed to establish any caso fortuito, the presumption by law of faultor negligence on the part of the carrier applies; and the carrier must present evidence thatit has


observed the extraordinary diligence required by Article 1733 of the Civil Code inorder to escape liability for damage or destruction to the goods that it had admittedlycarried in this case. But no evidence was presented; hence, the carrier cannot escape liability.


ManilaTHIRD DIVISION

G.R. No. 111584 September 17, 2001PRODUCERS BANK OF THE PHILIPPINES, petitioner, vs.COURT OF APPEALS and SPOUSES SALVADOR Y. CHUA and EMILIA U. CHUA, respondents.MELO, J.:The instant petition assails the decision of the Court of Appeals in its CA G.R.CV No. 20220, dated October 31, 1991, affirming with modification the decision of Branch 48 of the Regional Trial Court of the 6th Judicial Region stationed in Bacolod City, as WELL as the resolution dated August 12, 1993 denying petitioner's motion for partial consideration. Undersigned ponente was given this case in pursuance of A. M. No. 00-9-03-SC dated February 27, 2001 distributing the so-called back-log cases.The generative facts of the case may be chronicled as follows:Sometime in April, 1982, respondent Salvador Chua was offered by Mr. Jimmy Rojas, manager of petitioner bank, to transfer his account from Pacific Banking Corporation to herein petitioner Producers Bank of the Philippines. In view of Rojas' assurances of longer loan terms and lower rates of interest, respondent spouses opened and maintained substantial savings and current deposits with the Bacolod branch of petitioner bank. Likewise, private respondents obtained various loans from petitioner bank, one of which was a loan for P2,000,000.00 which was secured by a real estate mortgage and payable within a period of three (3) years or from 1982 to 1985. On January 20, 1984, private respondents deposited with petitioner bank the total sum of P960,000.00, which was duly entered in private respondents' savings account passbook. However, petitioner bank failed to credit this deposit in private respondents' savings account due to the fact that its Branch Manager, Sixto Castillo, absconded with the MONEY of the bank's depositors. Also, petitioner bank dishonored the checks drawn out by private respondents in favor of their various creditors on the ground of insufficient funds, despite the fact that at that time, the balance of private respondents' deposit was in the amount of P1,051,051.19. These events prompted private respondents to request for copies of their ledgers covering their savings and current accounts, but petitioner bank refused. Due to petitioner bank's refusal to furnish private respondents copies of their ledgers, private respondents instituted on January 30, 1984 an action for damages against petitioner bank which was docketed as Civil Case No. 2718. On the other hand, petitioner bank filed with the City Sheriff of Bacolod a petition for extrajudicial foreclosure of the real estate mortgage during the pendency of Civil Case No. 2718. As a result, private respondents filed a complaint for injunction and damages docketed as Civil Case No. 3276, alleging that the petition for extrajudicial foreclosure was without basis and was instituted maliciously in order to harass private respondents. On April 26, 1988, the trial court rendered its decision on the latter case, the dispositive portion of which reads:

WHEREFORE, from the evidence adduced, judgment is hereby rendered in favor of plaintiff ordering the defendant as follows:

1) To pay plaintiff the sum of P2,000,000.00 as moral damages, with legal rate of interest; the sum of P90,000.00 per month and P18,000.00 per month representing plaintiff's unrealized profits from his cement and gasoline station business, respectively, to commence from October 16, 1984, with legal rate of interest until fully paid; the sum of P250,000.00 as exemplary damages;2) To off-set the sum of P960,000.00 deposited by plaintiff on January 20, 1984 and entered in his Passbook No. 38240, together with its incremental interests computed at banking rate and to commence from January 20, 1984 with his agricultural loan account in the sum of P1,300,000.00 with interest thereon computed at fourteen (14%) percent per annum, to commence from January 4, 1984, covered by a real estate mortgage, both of which shall have a cut-off time frame on the date of this decision;3) That should the said savings deposit and its interest be sufficient to cover the off-setting, compensation shall take place and to be taken from the amounts awarded to plaintiff in the form of moral, actual and compensatory damages;4) That the time loan in the sum of P175,000.00 and the clean loan of P400,000.00, both without interest, shall be off-settled by the moral, actual and compensatory damages herein awarded to plaintiff;5) That after compensation or set-off had taken place, to pay plaintiff the balance of the adjudged moral, actual and compensatory damages, with legal rate of interest until fully paid;

http://www.lawphil.net/judjuris/juri2001/sep2001/gr_111584_2001.html


6) To render an accounting to plaintiff with respect to his Account Nos. 0142-0014-0 and 042-0014-1 for the period covering January to December, 1982;7) That in order to make the bank's record complete, to reform the deed of real estate mortgage conformably with the agreement by stipulating in the said document that the maturity date of the agricultural loan is April 5, 1987 at the same rate of interest of fourteen (14%) percent per annum, deducting from the original amount of the loan the payments made on the principal and interests; this reformation shall take place simultaneously with the off-setting of accounts;8) To pay plaintiff the sum equivalent to fifteen (15%) percent of the amount representing the balance of the sums awarded as moral, actual and compensatory damages as attorney's fees;9) To pay plaintiff the costs of suit;10) The writ of preliminary injunction issued by this Court is rendered permanent; and11) The counterclaim is hereby dismissed.

SO ORDERED.(Rollo, pp. 261-263.)

On October 31, 1991, upon appeal by petitioner bank, the Court of Appeals modified the decision of the trial court as follows:

WHEREFORE, from the evidence adduced, judgment is hereby rendered as follows:1. Ordering the defendant —

a. To pay plaintiff the sum of P500,000.00 as moral and exemplary damages;b. To pay the sum of P18,000.00 per month representing plaintiffs' unrealized profits from his gasoline station business to commence from October 16, 1984, with legal rate of interest, until fully paid;c. To allow the plaintiffs to offset their financial obligation with the defendant bank by the moral, exemplary, actual and compensatory damages herein awarded in favor of the aforesaid plaintiffs;d. If, after the off-setting, a balance remains in favor of the plaintiffs, to pay the said plaintiffs such balance of the adjudged moral, exemplary, actual and compensatory damages, with legal rate of interest until fully paid, as of the time of off-setting;e. To render an accounting to plaintiffs with respect to their Account Nos. 0142-0014-0 and 042-0014-1 for the period covering January to December, 1982;f. To pay plaintiffs the sum of P100,000.00 as attorney's fees.g. To pay the costs of suit.

2. Ordering the plaintiffs —a. To settle their loan obligation with the defendant bank within 90 days from the finality of this decision, subject to the resolution of this Court to the effect that they shall be relieved from the payment of penalties and surcharges on their outstanding balance starting January 20, 1984;

3. The plaintiffs' prayer for reformation of their mortgage contract or annulment thereof is hereby denied;4. The counterclaim of defendant-appellant are hereby dismissed.SO ORDERED.

(Rollo, pp. 86-87.)Petitioner moved for a partial reconsideration of the above decision but the same was denied on August 12, 1993. Hence, the instant petition with the following submissions which allegedly warrant our review of the assailed decision, viz.:

1. The Court of Appeals erred in not ruling that the application for extrajudicial foreclosure of real estate mortgage is legal and valid;2. The Court of Appeals erred in not granting petitioner bank its right to foreclose extrajudicially the real estate mortgage and to proceed with its application for extrajudicial foreclosure of real estate mortgage;3. The Court of Appeals erred in ruling that private respondents be relieved from the payment of penalties and surcharges on their outstanding balance starting January 20, 1984;4. The Court of Appeals erred in awarding moral and exemplary damages of P500,000.00, unrealized profit of P18,000.00 per month, and attorney's fees of P100,000.00 against petitioner bank;5. The Court of Appeals erred in ordering an accounting to private respondents with respect to their Account Nos. 0142-0014-0 and 042-0014-1 for the period covering January to December, 1982.

It should at once be apparent that except for the first and second imputed errors which involve petitioner bank's right to foreclose extrajudicially the real estate mortgage, the resolution of the assigned errors entails a review of the factual conclusions of the appellate court and the evidentiary bases thereof. Such an assessment is not, as a rule, proper in appeals from the Court of Appeals which should be confined to a consideration and determination only of issues of law as its findings of fact are deemed conclusive (Villanueva vs. Court of Appeals, 294 SCRA 90 [1998]) especially so in this case because the findings of fact of the appellate court concur with those of the trial court. To reiterate, this Court's jurisdiction is only limited to reviewing errors of law in the absence of any showing that the findings complained of are totally devoid of support in the record or they

are glaringly erroneous as to constitute serious abuse of discretion. Nonetheless, considering the amount involved, as WELL as for the satisfaction of the parties who have vigorously pursued this case since 1984, the Court, in the EXERCISE of its discretion, examined the factual bases, particularly with respect to the propriety of the damages awarded to private respondents.The first and second assignments of error, being interrelated, shall be jointly discussed.Petitioner contends that it has the right to foreclose the real estate mortgage executed by private respondents in its favor as the loan under the real estate mortgage contract had become due and demandable. This argument is not well-taken. Foreclosure is but a necessary consequence of non-payment of a mortgage indebtedness. As a rule, the mortgage can be foreclosed only when the debt remains unpaid at the time it is due (Gov't. of the P.I. vs. Espejo, 57 Phil. 496 [1932]). As found by the trial court and the Court of Appeals, and as borne by the evidence on record, private respondents were constantly paying their loan obligations with petitioner bank. In fact the amount of P960,000.00 was properly deposited with petitioner bank as evidenced by the corresponding deposit slip and the entry made in private respondents' savings account passbook. It is, therefore, not the fault of private respondents that their payment amounting to P960,000.00 was not credited to their account. Thus, it is certain that the loan which was secured by a real estate mortgage cannot be considered as unpaid so as to warrant foreclosure on the mortgage.Clearly, private respondents have not yet defaulted on the payment of their loans. Moreover, the term of the loan, as agreed upon by the parties, is three years, or from 1982 to 1985. But petitioner filed its application for extrajudicial foreclosure on October 15, 1984. Indisputably, the application for foreclosure of the mortgage on October 15, 1984 was premature because by then, private respondents' loan was not yet due and demandable.Likewise, both the Court of Appeals and the trial court found that private respondents are entitled to moral and exemplary damages. We agree. Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such damages, the court shall take into account the circumstances obtaining in the case and assess damages according to its discretion. As borne out by the record of this case, private respondents are engaged in several businesses, such as rice and corn trading, cement dealership, and gasoline proprietorship. The dishonor of private respondents' checks and the foreclosure initiated by petitioner adversely affected the credit standing as well as the business dealings of private respondents as their suppliers discontinued credit lines resulting in the collapse of their businesses. In the case of Leopoldo Araneta vs. Bank of America (40 SCRA 144 [1971]), we held that:

"The financial credit of a businessman is a prized and valuable asset, it being a significant part of the foundation of his business. Any adverse reflection thereon constitutes some financial loss to him."

The damage to private respondents' reputation and social standing entitles them to moral damages. Article 2217, in relation to Article 2220, of the Civil Code explicitly provides that "moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury." Obviously, petitioner bank's wrongful act caused serious anxiety, embarrassment, and humiliation to private respondents for which they are entitled to recover moral damages in the amount of P300,000.00 which we deem to be reasonable.The award of exemplary damages is in order in view of the malicious and unwarranted application for extrajudicial foreclosure by petitioner which was obviously done to harass, embarrass, annoy, or ridicule private respondents. Likewise, petitioner, in its application for extrajudicial foreclosure, included the other loans of private respondents which were not covered by the real estate mortgage agreement, such as the loan of P175,000.00 which was a time loan, and the amount of P400,000.00 which was a clean loan. Moreover, petitioner unjustifiably refused to give private respondents copies of their account ledgers which would show the deposits made by them. Also, petitioner bank's failure to credit the deposit in the account of private respondents constituted gross negligence in the performance of its contractual obligation which amounts to evident bad faith. Verily, all these acts of petitioner were accompanied by bad faith and done in wanton, fraudulent and malevolent manner warranting the award of exemplary damages in favor of private respondents, in accordance with Article 2232 of the Civil Code which provides:

ART. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

Of course, a plaintiff need not prove the actual extent of exemplary damages, for its determination is addressed to the sound discretion of the court upon proof of the plaintiff's entitlement to moral, temperate, or compensatory damages (Article 2234, Civil Code). In the instant case, exemplary damages in the amount of P150,000.00 are proper.Anent the award of actual damages, the Court of Appeals granted private respondents the amount of P18,000.00 per month representing private respondents' unrealized profits from his gasoline station business, to commence from October 16, 1984. Under Articles 2199 and 2200 of the Civil Code, actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. They proceed from a sense of natural justice and are designed to repair the wrong that has been done. There are two kinds of actual or compensatory damages one is the loss of what a person already possesses, and the other is the failure to receive as a benefit that which would have pertained to him (Tolentino, Civil Code of the Phil., Vol. V, 1992 ed., pp. 633-636). In the latter instance, the familiar rule is that damages consisting of unrealized profits,



frequently referred as "ganacias frustradas" or "lucrum cessans," are not to be granted on the basis of mere speculation, conjecture, or surmise, but rather by reference to some reasonably definite standard such as market value, established experienced, or direct inference from known circumstances (Talisay-Silay Milling Co., Inc. vs. Asociacion de Agricultores de Talisay-Silay, Inc., 247 SCRA 361 [1995])In the case at bar, actual damages in the form of unrealized profits were awarded on the basis of the sole testimony of private respondent Salvador Chua, to wit:

Atty. Chua:Q: You mentioned earlier during your direct testimony that you are engaged in gasoline business. Do you have a gasoline station?A: Yes, sir.Q: Where is that located?A: It is located at Corner Araneta-San Sebastian Sts.Q: Before the filing of the Extra Judicial Foreclosure, how much more or less, you earned from that gasoline station by way of conservative estimate?A: In my gasoline business, based on my record, I have an average of 114,000 liters.Q: Do you mean to say you can dispose 114,000 liters a month?A: Yes, sir.Q: How much is the mark up per liter?A: Before the publication of the Extra Judicial Foreclosure the markup is P0.27 per liter. So, it comes out that the profit is P30,78.00 (sic).Q: How much is your overhead for disposing that much liters of gasoline every month?A: The overhead is about 12,280.00.Q: That will give you an average of P18,000.00 a month?A: Yes, sir.Q: After the filing of the Extra Judicial Foreclosure, what happened to your gasoline business?A: Because of the publication of the Extra Judicial Foreclosure I did not have credit line anymore. Since I have no capital I was forced to sell my right to operate to my relatives.

(tsn, March 25, 1986, pp. 9-12)However, other than the testimony of Salvador Chua, private respondents failed to present documentary evidence which is necessary to substantiate their claim for actual or compensatory damages. In order to recover this kind of damages, the injured party must prove his case, thus:When the existence of a loss is established, absolute certainty as to its amount is not required. The benefit to be derived from a contract which one of the parties has absolutely failed to perform is of necessity to some extent, a matter of speculation, but the injured party is not to be denied for that reason alone. He must produce the best evidence of which his case is susceptible and if that evidence warrants the inference that he has been damaged by the loss of profits which he might with reasonable certainty have anticipated but for the defendant's wrongful act, he is entitled to recover. (Cerreno vs. Tan Chuco, 28 Phil. 312 [1914] quoted in Central Bank of the Philippines vs. Court of Appeals, 63 SCRA 431 [1975])Applying the foregoing test to the instant case, the Court finds the evidence of private respondents insufficient to be considered within the purview of "best evidence." The bare assertion of private respondent Salvador Chua that he lost an average of P18,000.00 per month is inadequate if not speculative and should be admitted with extreme caution especially because it is not supported by independent evidence. Private respondents could have presented such evidence as reports on the average actual profits earned by their gasoline business, their financial statements, and other evidence of profitability which could aid the court in arriving with reasonable certainty at the amount of profits which private respondents failed to earn. Private respondents did not even present any instrument or deed evidencing their claim that they have transferred their right to operate their gasoline station to their relatives. We cannot, therefore, sustain the award of P18,000.00 a month as unrealized profits commencing from October 16, 1984 because this amount is not amply justified by the evidence on record.Further, well-settled is the rule that even if the petition for extrajudicial foreclosure filed by petitioner against private respondents is clearly unfounded, this does not necessarily mean, in the absence of specific facts proving damages, that actual damage has been sustained. The Court cannot rely on speculations as to the fact and amount of damages. It must depend on actual proof of the damages alleged to have been suffered (Perfecto vs. Gonzales, 128 SCRA 635 [1984]).Finally, the award of attorney's fees as part of damages is deemed just and equitable under the circumstances. Attorney's fees may be awarded when a party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of the other party (Ching Sen Ben vs. Court of Appeals, 314 SCRA 762 [1999]). In this case, petitioner bank's act of not crediting private respondents' deposit of P960,000.00, as WELL as the premature filing of the extrajudicial foreclosure, have compelled private respondents to institute an action for injunction and damages primarily in order to protect their rights and interests. The award of attorney's fees is also justified under Article 2208 of the Civil Code which provides:


ART. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

(1) when exemplary damages are awarded;(2) when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

WHEREFORE, the decision of the Court of Appeals in its CA-G.R. CV No. 20220 is affirmed with MODIFICATION only as to the award of damages in that petitioner bank is ordered to pay private respondents the following:

1. Three Hundred Thousand Pesos (P300,000.00) as moral damages;2. One Hundred Fifty Thousand Pesos (P150,000.00) as exemplary damages; and3. One Hundred Thousand Pesos (P100,000.00) as attorney's fees and litigation expenses.

In all other respects, the said judgment is affirmed.SO ORDERED.

G.R. No. 111584 September 17, 2001

Producers Bank vs CA case digest

Lessons Applicable: Factors in determining amount (Torts and Damages)

Laws Applicable: ART. 2208, Article 2232 of the Civil Code

FACTS:

April, 1982: Salvador Chua was offered by Mr. Jimmy Rojas, manager of Producers Bank of

the Philippines to transfer his account from Pacific Banking Corporation to Producers Bank.

Chua did and was able to obtain a loan for P2,000,000 which was secured by a real estate

mortgage and payable within a period of 3 years or from 1982 to 1985

January 20, 1984: Chua deposited with Producers Bank P960,000 which was entered into

their savings account passbook but failed to credit it because Sixto Castillo, absconded

with the MONEY .

Producers Bank dishonored the checks drawn by Chua in favor of various creditors.

Although his balance was P1,051,051.19.

Despite their request for copies of the bank's ledgers, it refused so Chua filed an action for

damages.

October 15, 1984: Producer's Bank filed a petition for extrajudicialforeclosure of the real

estate mortgage

RTC: favored Chua ordering Producers to pay P2,000,000 moral damages, with legal rate

of interest; P90,000/month and P18,000/month unrealized profits from his cement

and gasoline station business, to commence from October 16, 1984, with legal rate of

interest until fully paid; P250,000 exemplary damages. Offset the P960,000 with his

agricultural loan of P1,300,000 with 14% interest, to commence from January 4, 1984,

covered by a real estate mortgage, both of which shall have a cut-off time frame on the

date of this decision. Loan of P175,000 and the clean loan of P400,000 without interest

shall be off-settled by the moral, actual and compensatory damages. 15% of moral, actual

and compensatory damages as attorney's fees. Cost of suit.

CA: modified moral damages to P500,000. P100,000.00 attorney's fees

ISSUE: W/N the award for damages is reasonable.

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HELD: YES. affirmed with MODIFICATION. P300,000 moral damages. P150,000 exemplary

damages. P100,000 attorney's fees and litigation expenses.

Obviously, petitioner bank's wrongful act caused serious anxiety, embarrassment, and

humiliation to private respondents for which they are entitled to recover moral damages in

the amount of P300,000.00 which we deem to be reasonable

Producer's bank failure to credit the deposit constituted gross negligence in the

performance of its contractual obligation which amounts to evident bad faith

Verily, all these acts of petitioner were accompanied by bad faith and done in wanton,

fraudulent and malevolent manner warranting the award of exemplary damages in favor

of private respondents, in accordance with Article 2232 of the Civil Code

Need not prove the actual extent of exemplary damages, for its determination is

addressed to the sound discretion of the court upon proof of the plaintiff's entitlement to

moral, temperate, or compensatory damages (Article 2234, Civil Code)

There are two kinds of actual or compensatory damages:

loss of what a person already possesses

failure to receive as a benefit that which would have pertained to him

damages consisting of unrealized profits, frequently referred as "ganacias frustradas" or

"lucrum cessans," are not to be granted on the basis of mere speculation, conjecture, or

surmise, but rather by reference to some reasonably definite standard such as market

value, established experienced, or direct inference from known circumstances

When the existence of a loss is established, absolute certainty as to its amount is not

required. The benefit to be derived from a contract which one of the parties has absolutely

failed to perform is of necessity to some extent, a matter of speculation, but the injured

party is not to be denied for that reason alone. He must produce the best evidence of

which his case is susceptible and if that evidence warrants the inference that he has been

damaged by the loss of profits which he might with reasonable certainty have anticipated

but for the defendant's wrongful act, he is entitled to recover.

evidence of private respondents insufficient to be considered within the purview of "best

evidence."

The bare assertion of private respondent Salvador Chua that he lost an average of

P18,000/month is inadequate if not speculative and should be admitted with extreme

caution especially because it is not supported by independent evidence.

Could have presented such evidence as reports on the average actual profits earned by

their gasoline business, their financial statements, and other evidence of profitability

which could aid the court in arriving with reasonable certainty at the amount of profits

which private respondents failed to earn. Did not even present any instrument or deed

evidencing their claim that they have transferred their right to operate their gasoline

station to their relatives.

Extrajudicial foreclosure is clearly unfounded, this does not necessarily mean, in the

absence of specific facts proving damages, that actual damage has been sustained.

It must depend on actual proof of the damages alleged to have been suffered.

Attorney's fees may be awarded when a party is compelled to litigate or to incur expenses

to protect his interest by reason of an unjustified act of the other party

act of not crediting private respondents' deposit of P960,000.00, as WELL as the

premature filing of the extrajudicial foreclosure, have compelled private respondents to

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institute an action for injunction and damages primarily in order to protect their rights and

interests

FIRST DIVISION[G.R. No. 146364. June 3, 2004]

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.D E C I S I O N

CARPIO, J.:The Case

Before us is a petition for review[1] of the 21 June 2000 Decision[2] and 14 December 2000 Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November 1996 decision[3] of the Regional Trial Court of Quezon City, Branch 81,[4] affirming the 15 December 1995 decision[5] of the Metropolitan Trial Court of Quezon City, Branch 31.[6]

The AntecedentsIn June 1979, petitioner Colito T. Pajuyo (“Pajuyo”) paid P400 to a certain Pedro Perez for the rights over a 250-square meter lot in Barrio

Payatas, Quezon City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (“Guevarra”) executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that he would voluntarily vacate the premises on Pajuyo’s demand.

In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the house. Guevarrarefused.Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31 (“MTC”).In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the house stands because the lot is

within the 150 hectares set aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot.

On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the MTC decision reads:WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant, ordering the latter to:

A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right under him;B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable compensation for the use of the premises

starting from the last demand;C) pay plaintiff the sum of P3,000.00 as and by way of attorney’s fees; andD) pay the cost of suit.

SO ORDERED.[7]

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 (“RTC”).On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from, being in accord with the law and evidence presented, and the same is hereby affirmed en toto.SO ORDERED.[8]

Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996 to file his appeal with the Court of Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra filed with the Supreme Court a “Motion for Extension of Time to File Appeal by Certiorari Based on Rule 42” (“motion for extension”). Guevarra theorized that his appeal raised pure questions of law. The Receiving Clerk of the Supreme Court received the motion for extension on 13 December 1996 or one day before the right to appeal expired.

On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.On 8 January 1997, the First Division of the Supreme Court issued a Resolution [9] referring the motion for extension to the Court of Appeals

which has concurrent jurisdiction over the case. The case presented no special and important matter for the Supreme Court to take cognizance of at the first instance.

On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution[10] granting the motion for extension conditioned on the timeliness of the filing of the motion.

On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevara’s petition for review. On 11 April 1997, Pajuyo filed his Comment.

On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive portion of the decision reads:WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the ejectment case filed against defendant-appellant is without factual and legal basis.SO ORDERED.[11]

Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals should have dismissed outright Guevarra’s petition for review because it was filed out of time. Moreover, it was Guevarra’s counsel and not Guevarra who signed the certification against forum-shopping.

On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyo’s motion for reconsideration. The dispositive portion of the resolution reads:WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.SO ORDERED.[12]

The Ruling of the MTC The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the lot. Pajuyo is the owner of the

house, and he allowed Guevarra to use the house only by tolerance. Thus, Guevarra’s refusal to vacate the house on Pajuyo’s demand made Guevarra’s continued possession of the house illegal.

The Ruling of the RTCThe RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo and Guevarra. The terms of

the Kasunduan bound Guevarra to return possession of the house on demand.The RTC rejected Guevarra’s claim of a better right under Proclamation No. 137, the Revised National Government Center Housing Project

Code of Policies and other pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarra’s rights under these laws. The RTC declared that in an ejectment case, the only issue for resolution is material or physical possession, not ownership.

The Ruling of the Court of AppealsThe Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally occupied the contested lot which the

government owned.Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title over the lot because it is public

land. The assignment of rights between Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave them where they are.

The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord and tenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract but acommodatum because the agreement is not for a price certain.

Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that Guevarra has a better right over the property under Proclamation No. 137. President Corazon C. Aquino (“President Aquino”) issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical possession of the property. Under Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and Structures in the National Housing Project (“the Code”), the actual occupant or caretaker of the lot shall have first priority as beneficiary of the project. The Court of Appeals concluded that Guevarra is first in the hierarchy of priority.

In denying Pajuyo’s motion for reconsideration, the appellate court debunked Pajuyo’s claim that Guevarra filed his motion for extension beyond the period to appeal.

The Court of Appeals pointed out that Guevarra’s motion for extension filed before the Supreme Court was stamped “13 December 1996 at 4:09 PM” by the Supreme Court’s Receiving Clerk. The Court of Appeals concluded that the motion for extension bore a date, contrary to Pajuyo’s claim that the motion for extension was undated. Guevarra filed the motion for extension on time on 13 December 1996 since he filed the motion one day before the expiration of the reglementary period on 14 December 1996. Thus, the motion for extension properly complied with the condition imposed by the Court of Appeals in its 28 January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to file the petition for review was deemed granted because of such compliance.

The Court of Appeals rejected Pajuyo’s argument that the appellate court should have dismissed the petition for review because it was Guevarra’s counsel and not Guevarra who signed the certification against forum-shopping. The Court of Appeals pointed out that Pajuyo did not raise this issue in his Comment. The Court of Appeals held that Pajuyo could not now seek the dismissal of the case after he had extensively argued on the merits of the case. This technicality, the appellate court opined, was clearly an afterthought.

The IssuesPajuyo raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:

1) in GRANTING, instead of denying, Private Respondent’s Motion for an Extension of thirty days to file petition for review at the time when there was no more period to extend as the decision of the Regional Trial Court had already become final and executory.

2) in giving due course, instead of dismissing, private respondent’s Petition for Review even though the certification against forum-shopping was signed only by counsel instead of by petitioner himself.

3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum, instead of a Contract of Lease as found by the Metropolitan Trial Court and in holding that “the ejectment case filed against defendant-appellant is without legal and factual basis”.

4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-96-26943 and in holding that the parties are in pari delicto being both squatters, therefore, illegal occupants of the contested parcel of land.

5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National Government Center Housing Project instead of deciding the same under the Kasunduan voluntarily executed by the parties, the terms and conditions of which are the laws between themselves.[13]

The Ruling of the CourtThe procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive issues Pajuyo is submitting for resolution.

Procedural IssuesPajuyo insists that the Court of Appeals should have dismissed outright Guevarra’s petition for review because the RTC decision had already

become final and executory when the appellate court acted on Guevarra’s motion for extension to file the petition. Pajuyo points out that Guevarra had only one day before the expiry of his period to appeal the RTC decision. Instead of filing the petition for review with the Court of Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to file a petition for review. This Court merely referred the motion to the Court of Appeals. Pajuyo believes that the filing of the motion for extension with this Court did not toll the running of the period to perfect the appeal. Hence, when the Court of Appeals received the motion, the period to appeal had already expired.

We are not persuaded.Decisions of the regional trial courts in the EXERCISE of their appellate jurisdiction are appealable to the Court of Appeals by petition for

review in cases involving questions of fact or mixed questions of fact and law.[14] Decisions of the regional trial courts involving pure questions of law are appealable directly to this Court by petition for review. [15] These modes of appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.

Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his motion for extension to file petition for review before this Court on 14 December 1996. On 3 January 1997, Guevarra then filed his petition for review with this Court. A perusal of Guevarra’s petition for review gives the impression that the issues he raised were pure questions of law. There is a question of law when the doubt or difference is on what the law is on a certain state of facts. [16] There is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.[17]

In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarra’s petition for review raised these questions: (1) Do ejectment cases pertain only to possession of a structure, and not the lot on which the structure stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid case for ejectment? (3) Should a Presidential Proclamation governing the lot on which a squatter’s structure stands be considered in an ejectment suit filed by the owner of the structure?

These questions call for the evaluation of the rights of the parties under the law on ejectment and the Presidential Proclamation. At first glance, the questions Guevarra raised appeared purely legal. However, some factual questions still have to be resolved because they have a bearing on the legal questions raised in the petition for review. These factual matters refer to the metes and bounds of the disputed property and the application of Guevarra as beneficiary of Proclamation No. 137.

The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana v. Second Special Cases Division of the Intermediate Appellate Court,[18] we declared that the Court of Appeals could grant extension of time in appeals by petition for review. In Liboro v. Court of Appeals,[19] we clarified that the prohibition against granting an extension of time applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply in a petition for review where the pleading needs verification. A petition for review, unlike an ordinary appeal, requires preparation and research to present a persuasive position. [20] The drafting of the petition for review entails more time and effort than filing a notice of appeal. [21] Hence, the Court of Appeals may allow an extension of time to file a petition for review.

In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,[22] we held that Liboro’s clarification ofLacsamana is consistent with the Revised Internal Rules of the Court of Appeals and Supreme Court Circular No. 1-91. They all allow an extension of time for filing petitions for review with the Court of Appeals. The extension, however, should be limited to only fifteen days save in exceptionally meritorious cases where the Court of Appeals may grant a longer period.

A judgment becomes “final and executory” by operation of law. Finality of judgment becomes a fact on the lapse of the reglementary period to appeal if no appeal is perfected.[23] The RTC decision could not have gained finality because the Court of Appeals granted the 30-day extension to Guevarra.

The Court of Appeals did not commit grave abuse of discretion when it approved Guevarra’s motion for extension. The Court of Appeals gave due course to the motion for extension because it complied with the condition set by the appellate court in its resolution dated 28 January 1997. The resolution stated that the Court of Appeals would only give due course to the motion for extension if filed on time. The motion for extension met this condition.

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The material dates to consider in determining the timeliness of the filing of the motion for extension are (1) the date of receipt of the judgment or final order or resolution subject of the petition, and (2) the date of filing of the motion for extension. [24] It is the date of the filing of the motion or pleading, and not the date of execution, that determines the timeliness of the filing of that motion or pleading. Thus, even if the motion for extension bears no date, the date of filing stamped on it is the reckoning point for determining the timeliness of its filing.

Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion for extension before this Court on 13 December 1996, the date stamped by this Court’s Receiving Clerk on the motion for extension. Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the reglementary period to appeal.

Assuming that the Court of Appeals should have dismissed Guevarra’s appeal on technical grounds, Pajuyo did not ask the appellate court to deny the motion for extension and dismiss the petition for review at the earliest opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was only when the Court of Appeals ruled in Guevarra’s favor that Pajuyo raised the procedural issues against Guevarra’s petition for review.

A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the merits, is estopped from attacking the jurisdiction of the court.[25] Estoppel sets in not because the judgment of the court is a valid and conclusive adjudication, but because the practice of attacking the court’s jurisdiction after voluntarily submitting to it is against public policy.[26]

In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarra’s failure to sign the certification against forum shopping. Instead, Pajuyo harped on Guevarra’s counsel signing the verification, claiming that the counsel’s verification is insufficient since it is based only on “mere information.”

A party’s failure to sign the certification against forum shopping is different from the party’s failure to sign personally the verification. The certificate of non-forum shopping must be signed by the party, and not by counsel.[27] The certification of counsel renders the petition defective.[28]

On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional requisite. [29] It is intended simply to secure an assurance that what are alleged in the pleading are true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith.[30] The party need not sign the verification. A party’s representative, lawyer or any person who personally knows the truth of the facts alleged in the pleading may sign the verification.[31]

We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an afterthought. Pajuyo did not call the Court of Appeals’ attention to this defect at the early stage of the proceedings. Pajuyo raised this procedural issue too late in the proceedings.

Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue of PossessionSettled is the rule that the defendant’s claim of ownership of the disputed property will not divest the inferior court of its jurisdiction over the

ejectment case.[32] Even if the pleadings raise the issue of ownership, the court may pass on such issue to determine only the question of possession, especially if the ownership is inseparably linked with the possession.[33] The adjudication on the issue of ownership is only provisional and will not bar an action between the same parties involving title to the land. [34] This doctrine is a necessary consequence of the nature of the two summary actions of ejectment, forcible entry and unlawful detainer, where the only issue for adjudication is the physical or material possession over the real property.[35]

In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the contested property and that they are mere squatters. Will the defense that the parties to the ejectment case are not the owners of the disputed lot allow the courts to renounce their jurisdiction over the case? The Court of Appeals believed so and held that it would just leave the parties where they are since they are in pari delicto.

We do not agree with the Court of Appeals.Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession. The parties cannot present

evidence to prove ownership or right to legal possession except to prove the nature of the possession when necessary to resolve the issue of physical possession.[36] The same is true when the defendant asserts the absence of title over the property. The absence of title over the contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case.

The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical possession of the premises, that is, to the possession de facto and not to the possession de jure.[37] It does not even matter if a party’s title to the property is questionable, [38] or when both parties intruded into public land and their applications to own the land have yet to be approved by the proper government agency.[39] Regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be thrown out by a strong hand, violence or terror.[40] Neither is the unlawful withholding of property allowed. Courts will always uphold respect for prior possession.

Thus, a party who can prove prior possession can recover such possession even against the owner himself. [41] Whatever may be the character of his possession, if he has in his favor prior possession in time, he has the security that entitles him to remain on the property until a person with a better right lawfully ejects him.[42] To repeat, the only issue that the court has to settle in an ejectment suit is the right to physical possession.

In Pitargue v. Sorilla,[43] the government owned the land in dispute. The government did not authorize either the plaintiff or the defendant in the case of forcible entry case to occupy the land. The plaintiff had prior possession and had already introduced improvements on the public land. The plaintiff had a pending application for the land with the Bureau of Lands when the defendant ousted him from possession. The plaintiff filed the action of forcible entry against the defendant. The government was not a party in the case of forcible entry.

The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the application of the plaintiff was still pending, title remained with the government, and the Bureau of Public Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that courts have jurisdiction to entertain ejectment suits even before the resolution of the application. The plaintiff, by priority of his application and of his entry, acquired prior physical possession over the public land applied for as against other private claimants. That prior physical possession enjoys legal protection against other private claimants because only a court can take away such physical possession in an ejectment case.

While the Court did not brand the plaintiff and the defendant in Pitargue[44] as squatters, strictly speaking, their entry into the disputed land was illegal. Both the plaintiff and defendant entered the public land without the owner’s permission. Title to the land remained with the government because it had not awarded to anyone ownership of the contested public land. Both the plaintiff and the defendant were in effect squatting on government property. Yet, we upheld the courts’ jurisdiction to resolve the issue of possession even if the plaintiff and the defendant in the ejectment case did not have any title over the contested land.

Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public need to preserve the basic policy behind the summary actions of forcible entry and unlawful detainer. The underlying philosophy behind ejectment suits is to prevent breach of the peace and criminal disorder and to compel the party out of possession to respect and resort to the law alone to obtain what he claims is his. [45] The party deprived of possession must not take the law into his own hands. [46] Ejectment proceedings are summary in nature so the authorities can settle speedily actions to recover possession because of the overriding need to quell social disturbances.[47]

We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession. We made the following pronouncements in Pitargue:The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory actions involving these public lands before final award is made by the Lands Department, and before title is given any of the conflicting claimants? It is one of utmost importance, as there are public lands everywhere and there are thousands of settlers, especially in newly opened regions. It also involves a matter of policy, as it requires the determination of the respective authorities and functions of two coordinate branches of the Government in connection with public land conflicts.Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in this country before the American occupation, or in the new, we have a possessory action, the aim and purpose of which is the recovery of the physical possession of real property, irrespective of the question as to who has the title thereto. Under the Spanish Civil Code we had the accion interdictal, a summary proceeding which could be brought within one year from dispossession (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil Procedure (Act No. 190 of the Philippine Commission) we implanted the common law action of forcible entry (section 80 of Act No. 190), the object of which has been stated by this Court to be “to prevent breaches of the peace and

criminal disorder which would ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those persons who, believing themselves entitled to the possession of property, resort to force to gain possession rather than to some appropriate action in the court to assert their claims.” (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public Land Act (Act No. 926) the action of forcible entry was already available in the courts of the country. So the question to be resolved is, Did the Legislature intend, when it vested the power and authority to alienate and dispose of the public lands in the Lands Department, to exclude the courts from entertaining the possessory action of forcible entry between rival claimants or occupants of any land before award thereof to any of the parties? Did Congress intend that the lands applied for, or all public lands for that matter, be removed from the jurisdiction of the judicial Branch of the Government, so that any troubles arising therefrom, or any breaches of the peace or disorders caused by rival claimants, could be inquired into only by the Lands Department to the exclusion of the courts? The answer to this question seems to us evident. The Lands Department does not have the means to police public lands; neither does it have the means to prevent disorders arising therefrom, or contain breaches of the peace among settlers; or to pass promptly upon conflicts of possession. Then its power is clearly limited to disposition and alienation, and while it may decide conflicts of possession in order to make proper award, the settlement of conflicts of possession which is recognized in the court herein has another ultimate purpose, i.e., the protection of actual possessors and occupants with a view to the prevention of breaches of the peace. The power to dispose and alienate could not have been intended to include the power to prevent or settle disorders or breaches of the peace among rival settlers or claimants prior to the final award. As to this, therefore, the corresponding branches of the Government must continue to EXERCISE power and jurisdiction within the limits of their respective functions. The vesting of the Lands Department with authority to administer, dispose, and alienate public lands, therefore, must not be understood as depriving the other branches of the Government of the EXERCISE of the respective functions or powers thereon, such as the authority to stop disorders and quell breaches of the peace by the police, the authority on the part of the courts to take jurisdiction over possessory actions arising therefrom not involving, directly or indirectly, alienation and disposition.Our attention has been called to a principle enunciated in American courts to the effect that courts have no jurisdiction to determine the rights of claimants to public lands, and that until the disposition of the land has passed from the control of the Federal Government, the courts will not interfere with the administration of matters concerning the same. (50 C. J. 1093-1094.) We have no quarrel with this principle. The determination of the respective rights of rival claimants to public lands is different from the determination of who has the actual physical possession or occupation with a view to protecting the same and preventing disorder and breaches of the peace. A judgment of the court ordering restitution of the possession of a parcel of land to the actual occupant, who has been deprived thereof by another through the use of force or in any other illegal manner, can never be “prejudicial interference” with the disposition or alienation of public lands. On the other hand, if courts were deprived of jurisdiction of cases involving conflicts of possession, that threat of judicial action against breaches of the peace committed on public lands would be eliminated, and a state of lawlessness would probably be produced between applicants, occupants or squatters, where force or might, not right or justice, would rule.It must be borne in mind that the action that would be used to solve conflicts of possession between rivals or conflicting applicants or claimants would be no other than that of forcible entry. This action, both in England and the United States and in our jurisdiction, is a summary and expeditious remedy whereby one in peaceful and quiet possession may recover the possession of which he has been deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach of the peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of physical possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action of forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove the nature of the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of the imagination can conclusion be arrived at that the use of the remedy in the courts of justice would constitute an interference with the alienation, disposition, and control of public lands. To limit ourselves to the case at bar can it be pretended at all that its result would in any way interfere with the manner of the alienation or disposition of the land contested? On the contrary, it would facilitate adjudication, for the question of priority of possession having been decided in a final manner by the courts, said question need no longer waste the time of the land officers making the adjudication or award. (Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment CasesThe Court of Appeals erroneously applied the principle of pari delicto to this case.Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari delicto. We explained the principle of pari delicto in these words:

The rule of pari delicto is expressed in the maxims ‘ex dolo malo non eritur actio’ and ‘in pari delicto potior est conditio defedentis.’ The law will not aid either party to an illegal agreement. It leaves the parties where it finds them.[49]

The application of the pari delicto principle is not absolute, as there are exceptions to its application. One of these exceptions is where the application of the pari delicto rule would violate well-established public policy.[50]

In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of forcible entry and unlawful detainer. We held that:It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be turned out by strong hand, violence or terror. In affording this remedy of restitution the object of the statute is to prevent breaches of the peace and criminal disorder which would ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those persons who, believing themselves entitled to the possession of property, resort to force to gain possession rather than to some appropriate action in the courts to assert their claims. This is the philosophy at the foundation of all these actions of forcible entry and detainer which are designed to compel the party out of possession to respect and resort to the law alone to obtain what he claims is his.[52]

Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught with danger. To shut out relief to squatters on the ground of pari delicto would openly invite mayhem and lawlessness. A squatter would oust another squatter from possession of the lot that the latter had illegally occupied, emboldened by the knowledge that the courts would leave them where they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior possession at all cost.

Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of possession seek to prevent. [53]Even the owner who has title over the disputed property cannot take the law into his own hands to regain possession of his property. The owner must go to court.

Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The determination of priority and superiority of possession is a serious and urgent matter that cannot be left to the squatters to decide. To do so would make squatters receive better treatment under the law. The law restrains property owners from taking the law into their own hands. However, the principle of pari delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow squatters or violently retake possession of properties usurped from them. Courts should not leave squatters to their own devices in cases involving recovery of possession.

Possession is the only Issue for Resolution in an Ejectment CaseThe case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals refused to rule on the issue of

physical possession. Nevertheless, the appellate court held that the pivotal issue in this case is who between Pajuyo and Guevarra has the “priority right as beneficiary of the contested land under Proclamation No. 137.” [54] According to the Court of Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of the Code declares that the actual occupant or caretaker is the one qualified to apply for socialized housing.

The ruling of the Court of Appeals has no factual and legal basis.First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under Proclamation No. 137. Proclamation

No. 137 laid down the metes and bounds of the land that it declared open for disposition to bona fide residents.The records do not show that the contested lot is within the land specified by Proclamation No. 137. Guevarra had the burden to prove that

the disputed lot is within the coverage of Proclamation No. 137. He failed to do so.



Second. The Court of Appeals should not have given credence to Guevarra’s unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.

There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. President Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the property in September 1994.

During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo was reclaiming possession of the property, Guevarra did not take any step to comply with the requirements of Proclamation No. 137.

Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra has a pending application over the lot, courts should still assume jurisdiction and resolve the issue of possession. However, the jurisdiction of the courts would be limited to the issue of physical possession only.

In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions involving public land to determine the issue of physical possession. The determination of the respective rights of rival claimants to public land is, however, distinct from the determination of who has the actual physical possession or who has a better right of physical possession. [56] The administrative disposition and alienation of public lands should be threshed out in the proper government agency.[57]

The Court of Appeals’ determination of Pajuyo and Guevarra’s rights under Proclamation No. 137 was premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should not preempt the decision of the administrative agency mandated by law to determine the qualifications of applicants for the acquisition of public lands. Instead, courts should expeditiously resolve the issue of physical possession in ejectment cases to prevent disorder and breaches of peace.[58]

Pajuyo is Entitled to Physical Possession of the Disputed PropertyGuevarra does not dispute Pajuyo’s prior possession of the lot and ownership of the house built on it. Guevarra expressly admitted the

existence and due execution of the Kasunduan. The Kasunduan reads:Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng “walang bayad.” Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.Sa sandaling kailangan na namin ang bahay at lote, sila’y kusang aalis ng walang reklamo.

Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but Guevarra was under obligation to maintain the premises in good condition. Guevarra promised to vacate the premises on Pajuyo’s demand but Guevarra broke his promise and refused to heed Pajuyo’s demand to vacate.

These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person from another of the possession of real property to which the latter is entitled after the expiration or termination of the former’s right to hold possession under a contract, express or implied.[59]

Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant is necessarily bound by an implied promise that he will vacate on demand, failing which, an action for unlawful detainer will lie. [60] The defendant’s refusal to comply with the demand makes his continued possession of the property unlawful.[61] The status of the defendant in such a case is similar to that of a lessee or tenant whose term of lease has expired but whose occupancy continues by tolerance of the owner.[62]

This principle should apply with greater force in cases where a contract embodies the permission or tolerance to use the property. TheKasunduan expressly articulated Pajuyo’s forbearance. Pajuyo did not require Guevarra to pay any rent but only to maintain the house and lot in good condition. Guevarra expressly vowed in the Kasunduan that he would vacate the property on demand. Guevarra’s refusal to comply with Pajuyo’s demand to vacate made Guevarra’s continued possession of the property unlawful.

We do not subscribe to the Court of Appeals’ theory that the Kasunduan is one of commodatum.In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a

certain time and return it.[63] An essential feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain period. [64] Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted.[65] If the bailor should have urgent need of the thing, he may demand its return for temporary use.[66] If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual relation is called a precarium.[67] Under the Civil Code, precarium is a kind ofcommodatum.[68]

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the Kasunduandid not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The imposition of this obligation makes theKasunduan a contract different from a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of permission would result in the termination of the lease.[69] The tenant’s withholding of the property would then be unlawful. This is settled jurisprudence.

Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of commission, administration and commodatum.[70] These contracts certainly involve the obligation to deliver or return the thing received.[71]

Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that the contract is void.

Guevarra should know that there must be honor even between squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical possession of the contested property. The Kasunduan is the undeniable evidence of Guevarra’s recognition of Pajuyo’s better right of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a different result, as there would still be an implied promise to vacate.

Guevarra contends that there is “a pernicious evil that is sought to be avoided, and that is allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act.”[72] Guevarra bases his argument on the preferential right given to the actual occupant or caretaker under Proclamation No. 137 on socialized housing.

We are not convinced.Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without paying any rent. There is also no

proof that Pajuyo is a professional squatter who rents out usurped properties to other squatters. Moreover, it is for the proper government agency to decide who between Pajuyo and Guevarra qualifies for socialized housing. The only issue that we are addressing is physical possession.

Prior possession is not always a condition sine qua non in ejectment.[73] This is one of the distinctions between forcible entry and unlawful detainer.[74] In forcible entry, the plaintiff is deprived of physical possession of his land or building by means of force, intimidation, threat, strategy or stealth. Thus, he must allege and prove prior possession. [75] But in unlawful detainer, the defendant unlawfully withholds possession after the expiration or termination of his right to possess under any contract, express or implied. In such a case, prior physical possession is not required. [76]

Pajuyo’s withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarra’s transient right to possess the property ended as WELL . Moreover, it was Pajuyo who was in actual possession of the property because Guevarra had to seek Pajuyo’s permission to temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control over the property still rested with Pajuyo and this is evidence of actual possession.

Pajuyo’s absence did not affect his actual possession of the disputed property. Possession in the eyes of the law does not mean that a man has to have his feet on every square meter of the ground before he is deemed in possession. [77] One may acquire possession not only by physical occupation, but also by the fact that a thing is subject to the action of one’s will.[78] Actual or physical occupation is not always necessary.[79]


Ruling on Possession Does not Bind Title to the Land in DisputeWe are aware of our pronouncement in cases where we declared that “squatters and intruders who clandestinely enter into titled government

property cannot, by such act, acquire any legal right to said property.” [80] We made this declaration because the person who had title or who had the right to legal possession over the disputed property was a party in the ejectment suit and that party instituted the case against squatters or usurpers.

In this case, the owner of the land, which is the government, is not a party to the ejectment case. This case is between squatters. Had the government participated in this case, the courts could have evicted the contending squatters, Pajuyo and Guevarra.

Since the party that has title or a better right over the property is not impleaded in this case, we cannot evict on our own the parties. Such a ruling would discourage squatters from seeking the aid of the courts in settling the issue of physical possession. Stripping both the plaintiff and the defendant of possession just because they are squatters would have the same dangerous implications as the application of the principle of pari delicto. Squatters would then rather settle the issue of physical possession among themselves than seek relief from the courts if the plaintiff and defendant in the ejectment case would both stand to lose possession of the disputed property. This would subvert the policy underlying actions for recovery of possession.

Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the property until a person who has title or a better right lawfully ejects him. Guevarra is certainly not that person. The ruling in this case, however, does not preclude Pajuyo and Guevarra from introducing evidence and presenting arguments before the proper administrative agency to establish any right to which they may be entitled under the law.[81]

In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of physical possession does not affect title to the property nor constitute a binding and conclusive adjudication on the merits on the issue of ownership. [82] The owner can still go to court to recover lawfully the property from the person who holds the property without legal title. Our ruling here does not diminish the power of government agencies, including local governments, to condemn, abate, remove or demolish illegal or unauthorized structures in accordance with existing laws.

Attorney’s Fees and RentalsThe MTC and RTC failed to justify the award of P3,000 attorney’s fees to Pajuyo. Attorney’s fees as part of damages are awarded only in the

instances enumerated in Article 2208 of the Civil Code.[83] Thus, the award of attorney’s fees is the exception rather than the rule.[84]Attorney’s fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. [85] We therefore delete the attorney’s fees awarded to Pajuyo.

We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not dispute this factual finding of the two courts. We find the amount reasonable compensation to Pajuyo. The P300 monthly rental is counted from the last demand to vacate, which was on 16 February 1995.

WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorney’s fees is deleted. No costs.

SO ORDERED.

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.[G.R. No. 146364, June 3, 2004, Carpio, J.]Topic: CommodatumDoctrine: In a contract for commodatum, one of the parties delivers to another something not so consumable sothat the latter may use the same for a certain time and return it. An essential feature of commodatum is that it isgratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certainperiod. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the of the periodstipulated or after the accomplishment of the use for which commodatum is constituted. If the bailor should haveurgent need of the thing, he may demand its return for temporary use. If the use of the thing is merely toleratedby the bailor, he can demand the return of the thing at will, in which case the contract relation is called the aprecarium. Under the Civil Code, precarium is a kind of commodatum.Nature:Petition for reviewFacts: 1.Petitioner Colito T. Pajuyo (“Pajuyo”) paid P400 to a certain Pedro Perez for the rights over a 250-square meter lot in Barrio Payatas, QC. Pajuyo then constructed a house made of light materials on thelot. Pajuyo and his family lived in the house from 1979 to 1985. 2.In1985, Pajuyo and private respondent Eddie Guevarra (“Guevarra”) executed a Kasunduan oragreement.> Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra wouldmaintain the cleanliness and orderliness of the house. Guevarra promised that he would voluntarilyvacate the premises on Pajuyo’s demand. 3.In 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate thehouse.> Guevarra refused.4. Pajuyo filed an ejectment case against Guevarra with the MTC of QC> In his Answer, Guevarra claimed that:a) Pajuyo had no valid title or right of possession over the lot where the house stands because the lot is withinthe 150 hectares set aside by Proclamation No. 137 for socialized housing.b) from December 1985 to September 1994, Pajuyo did not show up or communicate with himc) neither he nor Pajuyo has valid title to the lot> the MTC rendered its decision in favor of Pajuyo, ordering Guevarra to:a) vacate the house and lot or have anyone claiming a right under him to vacate it.b) pay Pajuyo 300php/month from last demand for the use of the premisesc) pay attoney’s fees + cost of the suit > the subject of the agreement between Pajuyo and Guevarra is the house and not the lot. Pajuyo is the ownerof the house, and he allowed Guevarra to use the house only by tolerance. Thus, Guevarra’s refusal to vacate thehouse on Pajuyo’s demand made Guevarra’s continued possession of the house illegal.

5. Guevarra appealed to the RTC.> the RTC affirmed the MTC decision> The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo andGuevarra, and so the terms of the Kasunduan bound Guevarra to return possession of the house on demand.> The RTC rejected Guevarra’s claim of a better right under Proclamation No. 137, the Revised NationalGovernment Center Housing Project Code of Policies and other pertinent laws.>In an ejectment suit, the RTC has no power to decide Guevarra’s rights under these laws because in anejectment case, the only issue for resolution is material or physical possession, not ownership.> both MTC and RTC: the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlordand tenant relationship.



G.R. No. 123498 November 23, 2007BPI FAMILY BANK, Petitioner, vs.AMADO FRANCO and COURT OF APPEALS, Respondents.

D E C I S I O NNACHURA, J.:Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity. We reiterate this exhortation in the case at bench.Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA) Decision1 in CA-G.R. CV No. 43424 which affirmed with modification the judgment2 of the Regional Trial Court, Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB) allegedly by respondent Amado Franco (Franco) in conspiracy with other individuals,3 some of whom opened and maintained separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a series of transactions.On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro INVESTMENT Corporation (FMIC) also opened a time deposit account with the same branch of BPI-FB with a deposit of P100,000,000.00, to mature one year thence.Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,4 savings,5 and time deposit,6with BPI-FB. The current and savings accounts were respectively funded with an initial deposit of P500,000.00 each, while the time deposit account had P1,000,000.00 with a maturity date of August 31, 1990. The total amount of P2,000,000.00 used to open these accounts is traceable to a check issued by Tevesteco allegedly in consideration of Franco’s introduction of Eladio Teves,7 who was looking for a conduit bank to facilitate Tevesteco’sbusiness transactions, to Jaime Sebastian, who was then BPI-FB SFDM’s Branch Manager. In turn, the funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from FMIC’s time deposit account and credited to Tevesteco’s current account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged.8 On September 4, 1989, Antonio Ong,9 upon being shown the Authority to Debit, personally declared his signature therein to be a forgery. Unfortunately, Tevesteco had already effected several withdrawals from its current account (to which had been credited the P80,000,000.00 covered by the forged Authority to Debit) amounting to P37,455,410.54, including the P2,000,000.00 paid to Franco.On September 8, 1989, impelled by the need to protect its interests in light of FMIC’s forgery claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin10 to debit Franco’s savings and current accounts for the amounts remaining therein.11 However, Franco’s time deposit account could not be debited due to the capacity limitations of BPI-FB’s computer.12

In the meantime, two checks13 drawn by Franco against his BPI-FB current account were dishonored upon presentment for payment, and stamped with a notation "account under garnishment." Apparently, Franco’s current account was garnished by virtue of an Order of Attachment issued by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-FB against Franco et al.,14 to recover the P37,455,410.54 representing Tevesteco’s total withdrawals from its account.Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Franco’s receipt of notice that his accounts were under garnishment.15 In fact, at the time the Notice of Garnishment dated September 27, 1989 was served on BPI-FB, Franco had yet to be impleaded in the Makati case where the writ of attachment was issued.It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil Case No. 89-4996, that Franco was impleaded in the Makati case.16 Immediately, upon receipt of such copy, Franco filed a Motion to Discharge Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the Order of Attachment was served on BPI-FB on even date, with Franco demanding the release to him of the funds in his savings and current accounts. Jesus Arangorin, BPI-FB’s new manager, could not forthwith comply with the demand as the funds, as previously stated, had already been debited because of FMIC’s forgery claim. As such, BPI-FB’s computer at the SFDM Branch indicated that the current account record was "not on file."With respect to Franco’s savings account, it appears that Franco agreed to an arrangement, as a favor to Sebastian, whereby P400,000.00 from his savings account was temporarily transferred to Domingo Quiaoit’s savings account, subject to its immediate return upon issuance of a certificate of deposit which Quiaoit needed in connection with his visa application at the Taiwan Embassy. As part of the arrangement, Sebastian retained custody of Quiaoit’s savings account passbook to ensure that no withdrawal would be effected therefrom, and to preserve Franco’s deposits.On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit account representing advance interest paid to him.

http://www.lawphil.net/judjuris/juri2007/nov2007/gr_123498_2007.html

These transactions spawned a number of cases, some of which we had already resolved.FMIC filed a complaint against BPI-FB for the recovery of the amount of P80,000,000.00 debited from its account.17The case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro INVESTMENT Corporation,18 we upheld the finding of the courts below that BPI-FB failed to EXERCISE the degree of diligence required by the nature of its obligation to treat the accounts of its depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the debited amount in its time deposit. It was ordered to pay P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully restored. In turn, the 17% shall itself earn interest at 12% from October 4, 1989 until fully paid.In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),19 recipients of aP500,000.00 check proceeding from the P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit. Buenaventura et al., as in the case of Franco, were also prevented from effecting withdrawals20 from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise, when the case was elevated to this Court docketed as BPI Family Bank v. Buenaventura,21 we ruled that BPI-FB had no right to freeze Buenaventura, et al.’s accounts and adjudged BPI-FB liable therefor, in addition to damages.Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multi-million peso scam.22 In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida who was still at large, were acquitted of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the Revised Penal Code.23 However, the civil case24 remains under litigation and the respective rights and liabilities of the parties have yet to be adjudicated.Consequently, in light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and release his deposits therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco prayed for the following reliefs: (1) the interest on the remaining balance25 of his current account which was eventually released to him on October 31, 1991; (2) the balance26 on his savings account, plus interest thereon; (3) the advance interest27 paid to him which had been deducted when he pre-terminated his time deposit account; and (4) the payment of actual, moral and exemplary damages, as WELL as attorney’s fees.BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to release his deposits, claiming that it had a better right to the amounts which consisted of part of the MONEY allegedly fraudulently withdrawn from it by Tevesteco and ending up in Franco’s accounts. BPI-FB asseverated that the claimed consideration of P2,000,000.00 for the introduction facilitated by Franco between George Daantos and Eladio Teves, on the one hand, and Jaime Sebastian, on the other, spoke volumes of Franco’s participation in the fraudulent transaction.On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows:WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and against [BPI-FB], ordering the latter to pay to the former the following sums:

1. P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from May 18, 1990 to October 31, 1991;2. P498,973.23 representing the balance on [Franco’s] savings account as of May 18, 1990, together with the interest thereon in accordance with the bank’s guidelines on the payment therefor;3. P30,000.00 by way of attorney’s fees; and4. P10,000.00 as nominal damages.

The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.Costs against [BPI-FB].SO ORDERED.28

Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his appeal to the Manila RTC’s denial of his claim for moral and exemplary damages, and the diminutive award of attorney’s fees. In affirming with modification the lower court’s decision, the appellate court decreed, to wit:WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification ordering [BPI-FB] to pay [Franco] P63,189.00 representing the interest deducted from the time deposit of plaintiff-appellant.P200,000.00 as moral damages and P100,000.00 as exemplary damages, deleting the award of nominal damages (in view of the award of moral and exemplary damages) and increasing the award of attorney’s fees fromP30,000.00 to P75,000.00.Cost against [BPI-FB].SO ORDERED.29

In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the deposits in the subject accounts which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to interest on his current account; (3) Franco can recover the P400,000.00 deposit in Quiaoit’s savings account; (4) the dishonor of Franco’s checks was not legally in order; (5) BPI-FB is liable for interest on Franco’s time deposit, and for moral and exemplary damages; and (6) BPI-FB’s counter-claim has no factual and legal anchor.The petition is partly meritorious.We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze Franco’s accounts and preclude him from withdrawing his deposits. However, contrary to the appellate court’s ruling, we hold that Franco is not entitled to unearned interest on the time deposit as WELL as to moral and exemplary damages.First. On the issue of who has a better right to the deposits in Franco’s accounts, BPI-FB urges us that the legal consequence of FMIC’s forgery claim is that the MONEY transferred by BPI-FB to Tevesteco is its own, and considering that it was able to recover possession of the same when the MONEY was redeposited by Franco, it had the right to set up its ownership thereon and freeze Franco’s accounts.BPI-FB contends that its position is not unlike that of an owner of personal property who regains possession after it is stolen, and to illustrate this point, BPI-FB gives the following example: where X’s television set is stolen by Y who thereafter sells it to Z, and where Z unwittingly entrusts possession of the TV set to X, the latter would have the right to keep possession of the property and preclude Z from recovering possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code, which provides:Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same.If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.BPI-FB’s argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil Code pertains to a specific or determinate thing.30 A determinate or specific thing is one that is individualized and can be identified or distinguished from others of the same kind.31








In this case, the deposit in Franco’s accounts consists of MONEY which, albeit characterized as a movable, is generic and fungible.32 The quality of being fungible depends upon the possibility of the property, because of its nature or the will of the parties, being substituted by others of the same kind, not having a distinct individuality.33

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a movable to recover the exact same thing from the current possessor, BPI-FB simply claims ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from FMIC’s account and credited to Tevesteco’s, and subsequently traced to Franco’s account. In fact, this is what BPI-FB did in filing the Makati Case against Franco, et al. It staked its claim on the money itself which passed from one account to another, commencing with the forged Authority to Debit.It bears emphasizing that MONEY bears no earmarks of peculiar ownership,34 and this characteristic is all the more manifest in the instant case which involves MONEY in a banking transaction gone awry. Its primary function is to pass from hand to hand as a medium of exchange, without other evidence of its title.35 MONEY , which had passed through various transactions in the general course of banking business, even if of traceable origin, is no exception.Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FB’s illustrative example, ostensibly based on Article 559, is inapplicable to the instant case.There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB conveniently forgets that the deposit of MONEY in banks is governed by the Civil Code provisions on simple loan or mutuum.36 As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately acquired ownership of Franco’s deposits, but such ownership is coupled with a corresponding obligation to pay him an equal amount on demand.37 Although BPI-FB owns the deposits in Franco’s accounts, it cannot prevent him from demanding payment of BPI-FB’s obligation by drawing checks against his current account, or asking for the release of the funds in his savings account. Thus, when Franco issued checks drawn against his current account, he had every right as creditor to expect that those checks would be honored by BPI-FB as debtor.More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry.Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals38 continues to resonate, thus:The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of MONEY or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life’s savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. x x x.In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of MONEY the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever directs. A blunder on the part of the bank, such as the dishonor of the check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. x x x.Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective accounts without the appropriate court writ or a favorable final judgment.Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the Authority to Debit, effected the transfer of P80,000,000.00 from FMIC’s to Tevesteco’s account, when FMIC’s account was a time deposit and it had already paid advance interest to FMIC. Considering that there is as yet no indubitable evidence establishing Franco’s participation in the forgery, he remains an innocent party. As between him and BPI-FB, the latter, which made possible the present predicament, must bear the resulting loss or inconvenience.Second. With respect to its liability for interest on Franco’s current account, BPI-FB argues that its non-compliance with the Makati RTC’s Order Lifting the Order of Attachment and the legal consequences thereof, is a matter that ought to be taken up in that court.The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The Manila RTC’s order to pay interests on Franco’s current account arose from BPI-FB’s unjustified refusal to comply with its obligation to pay Franco pursuant to their contract of mutuum. In other words, from the time BPI-FB refused Franco’s demand for the release of the deposits in his current account, specifically, from May 17, 1990, interest at the rate of 12% began to accrue thereon.39

Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FB’s non-compliance with the Order Lifting the Order of Attachment. However, such authority does not preclude the Manila RTC from ruling on BPI-FB’s liability to Franco for payment of interest based on its continued and unjustified refusal to perform a contractual obligation upon demand. After all, this was the core issue raised by Franco in his complaint before the Manila RTC.Third. As to the award to Franco of the deposits in Quiaoit’s account, we find no reason to depart from the factual findings of both the Manila RTC and the CA.Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned by Franco who simply accommodated Jaime Sebastian’s request to temporarily transfer P400,000.00 from Franco’s savings account to Quiaoit’s account.40 His testimony cannot be characterized as hearsay as the records reveal that he had personal knowledge of the arrangement made between Franco, Sebastian and himself.41

BPI-FB makes capital of Franco’s belated allegation relative to this particular arrangement. It insists that the transaction with Quiaoit was not specifically alleged in Franco’s complaint before the Manila RTC. However, it appears that BPI-FB had impliedly consented to the trial of this issue given its extensive cross-examination of Quiaoit.Section 5, Rule 10 of the Rules of Court provides:Section 5. Amendment to conform to or authorize presentation of evidence.— When issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.








Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is now within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice will be subserved thereby. The court may grant a continuance to enable the amendment to be made. (Emphasis supplied)In all, BPI-FB’s argument that this case is not the right forum for Franco to recover the P400,000.00 begs the issue. To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the funds in his account, and pointed to Franco as the actual owner thereof. Clearly, Franco’s action for the recovery of his deposits appropriately covers the deposits in Quiaoit’s account.Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Franco’s checks respectively dated September 11 and 18, 1989 was legally in order in view of the Makati RTC’s supplemental writ of attachment issued on September 14, 1989. It posits that as the party that applied for the writ of attachment before the Makati RTC, it need not be served with the Notice of Garnishment before it could place Franco’s accounts under garnishment.The argument is specious. In this argument, we perceive BPI-FB’s clever but transparent ploy to circumvent Section 4,42 Rule 13 of the Rules of Court. It should be noted that the strict requirement on service of court papers upon the parties affected is designed to comply with the elementary requisites of due process. Franco was entitled, as a matter of right, to notice, if the requirements of due process are to be observed. Yet, he received a copy of the Notice of Garnishment only on September 27, 1989, several days after the two checks he issued were dishonored by BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze Franco’s accounts without even awaiting service of the Makati RTC’s Notice of Garnishment on Franco.Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made without including in the main suit the owner of the property attached by virtue thereof. Section 5, Rule 13 of the Rules of Court specifically provides that "no levy or attachment pursuant to the writ issued x x x shall be enforced unless it is preceded, or contemporaneously accompanied, by service of summons, together with a copy of the complaint, the application for attachment, on the defendant within the Philippines."Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire jurisdiction over the person of Franco when BPI-FB garnished his accounts.43 Effectively, therefore, the Makati RTC had no authority yet to bind the deposits of Franco through the writ of attachment, and consequently, there was no legal basis for BPI-FB to dishonor the checks issued by Franco.Fifth. Anent the CA’s finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted from Franco’s time deposit account, and for moral as WELL as exemplary damages, we find it proper to reinstate the ruling of the trial court, and allow only the recovery of nominal damages in the amount of P10,000.00. However, we retain the CA’s award of P75,000.00 as attorney’s fees.In granting Franco’s prayer for interest on his time deposit account and for moral and exemplary damages, the CA attributed bad faith to BPI-FB because it (1) completely disregarded its obligation to Franco; (2) misleadingly claimed that Franco’s deposits were under garnishment; (3) misrepresented that Franco’s current account was not on file; and (4) refused to return the P400,000.00 despite the fact that the ostensible owner, Quiaoit, wanted the amount returned to Franco.In this regard, we are guided by Article 2201 of the Civil Code which provides:Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonable foreseen at the time the obligation was constituted.In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. (Emphasis supplied.)We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of malevolence or ill will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and should not be held liable for all damages now being imputed to it for its breach of obligation. For the same reason, it is not liable for the unearned interest on the time deposit.Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it partakes of the nature of fraud.44 We have held that it is a breach of a known duty through some motive of interest or ill will.45 In the instant case, we cannot attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court found, there was no denial whatsoever by BPI-FB of the existence of the accounts. The computer-generated document which indicated that the current account was "not on file" resulted from the prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the garnishment, or even the outright refusal to honor any transaction thereon was resorted to solely for the purpose of holding on to the funds as a security for its intended court action,46 and with no other goal but to ensure the integrity of the accounts.We have had occasion to hold that in the absence of fraud or bad faith,47 moral damages cannot be awarded; and that the adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for granting such damages.48

An award of moral damages contemplates the existence of the following requisites: (1) there must be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil Code.49

Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code,50 upon which to base his claim for moral damages.1âwphi1Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of the Civil Code for breach of contract.51

We also deny the claim for exemplary damages. Franco should show that he is entitled to moral, temperate, or compensatory damages before the court may even consider the question of whether exemplary damages should be awarded to him.52 As there is no basis for the award of moral damages, neither can exemplary damages be granted.While it is a sound policy not to set a premium on the right to litigate,53 we, however, find that Franco is entitled to reasonable attorney’s fees for having been compelled to go to court in order to assert his right. Thus, we affirm the CA’s grant of P75,000.00 as attorney’s fees.Attorney’s fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest,54 or when the court deems it just and equitable.55 In the case at bench, BPI-FB refused to unfreeze the deposits of Franco despite the Makati RTC’s Order Lifting the Order of Attachment and Quiaoit’s unwavering assertion that theP400,000.00 was part of Franco’s savings


account. This refusal constrained Franco to incur expenses and litigate for almost two (2) decades in order to protect his interests and recover his deposits. Therefore, this Court deems it just and equitable to grant Franco P75,000.00 as attorney’s fees. The award is reasonable in view of the complexity of the issues and the time it has taken for this case to be resolved.56

Sixth. As for the dismissal of BPI-FB’s counter-claim, we uphold the Manila RTC’s ruling, as affirmed by the CA, that BPI-FB is not entitled to recover P3,800,000.00 as actual damages. BPI-FB’s alleged loss of profit as a result of Franco’s suit is, as already pointed out, of its own making. Accordingly, the denial of its counter-claim is in order.WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November 29, 1995 is AFFIRMED with the MODIFICATION that the award of unearned interest on the time deposit and of moral and exemplary damages is DELETED.No pronouncement as to costs.SO ORDERED.ANTONIO EDUARDO B. NACHURAAssociate JusticeWE CONCUR:

CONSUELO YNARES-SANTIAGOAssociate Justice

ChairpersonMA. ALICIA AUSTRIA-MARTINEZ

Associate JusticeMINITA V. CHICO-NAZARIO

Associate JusticeRUBEN T. REYESAssociate Justice

A T T E S T A T I O NI attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.CONSUELO YNARES-SANTIAGOAssociate JusticeChairperson, Third Division

C E R T I F I C A T I O NPursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, 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. PUNOChief Justice

BPI FAMILY BANK VS. FRANCOG.R. No. 123498 November 23, 2007 J. NachuraFACTS:On August 15, 1989, Tevesteco opened a savings and current account with BPI-FB. Soonthereafter, FMIC also opened a time deposit account with the same branch of BPI-FB O n A u g u s t 3 1 , 1 9 8 9 , F r a n c o o p e n e d t h r e e a c c o u n t s , n a m e l y , a c u r r e n t , s a v i n g s , a n d t i m e d e p o s i t , w i t h B P I - F B . T h e t o t a l a m o u n t o f P 2 , 0 0 0 , 0 0 0 . 0 0 u s e d t o o p e n t h e s e a c c o u n t s i s traceable to a check issued by Tevesteco allegedly in consideration of Franco’s introduction of Eladio Teves, to Jaime Sebastian, who was then BPI-FB SFDM’s Branch Manager. In turn, thefunding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB fromF M I C ’ s t i m e d e p o s i t a c c o u n t a n d c r e d i t e d t o T e v e s t e c o ’ s c u r r e n t a c c o u n t p u r s u a n t t o a n Authority to Debit purportedly signed by FMIC’s officers. It appears, however, that the signatures of FMIC’s officers on the Authority to Debit weref o r g e d . B P I -F B , d e b i t e d F r a n c o ’ s s a v i n g s a n d c u r r e n t a c c o u n t s f o r t h e a m o u n t s r e m a i n i n g therein. In the meantime, two checks drawn by Franco against his BPI-FB current account weredishonored and stamped with a notation “account under garnishment.” Apparently, Franco’scurrent account was garnished by virtue of an Order of Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Franco’s receipt of notice that his accounts were under garnishment. It was only onMay 15, 1990, that Franco was impleaded in the Makati case. Immediately, upon receipt of suchcopy, Franco filed a Motion to Discharge Attachment. On May 17, 1990, Franco pre-terminatedhis time deposit account.BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time depositaccount representing advance interest paid to him. Consequently, in light of BPI-FB’s refusal toheed Franco’s demands to unfreeze his accounts and release his deposits therein, Franco filed on June 4, 1990 with the Manila RTC the subject suit.ISSUE: WON Respondent had better right to the deposits in the subject accounts which are partof the proceeds of a forged Authority to DebitHELD: NO



G.R. Nos. 173654-765 August 28, 2008PEOPLE OF THE PHILIPPINES, petitioner, vs.TERESITA PUIG and ROMEO PORRAS, respondents.

D E C I S I O NCHICO-NAZARIO, J.:This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the Philippines, represented by the Office of the Solicitor General, praying for the reversal of the Orders dated 30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against respondents Teresita Puig and Romeo Porras, and denying petitioner’s Motion for Reconsideration, in CriminalCases No. 05-3054 to 05-3165.The following are the factual antecedents:On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed before Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-3054 to 05-3165.The allegations in the Informations1 filed before the RTC were uniform and pro-forma, except for the amounts, date and time of commission, to wit:

INFORMATIONThat on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, above-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank and with intent of gain, did then and there willfully, unlawfully and feloniously take, steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency, to the damage and prejudice of the said bank in the aforesaid amount.

After perusing the Informations in these cases, the trial court did not find the existence of probable cause that would have necessitated the issuance of a warrant of arrest based on the following grounds:

(1) the element of ‘taking without the consent of the owners’ was missing on the ground that it is the depositors-clients, and not the Bank, which filed the complaint in these cases, who are the owners of the MONEY allegedly taken by respondents and hence, are the real parties-in-interest; and(2) the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between the respondents and the offended party that would have created a high degree of confidence between them which the respondents could have abused."

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would be violative of the right of the respondents under Section 14(2), Article III of the 1987 Constitution which states that in all criminal prosecutions, the accused shall enjoy the right to be informed of the nature and cause of the accusation against him. Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30 January 2006 and refused to issue a warrant of arrest against Puig and Porras.A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.On 9 June 2006, an Order3 denying petitioner’s Motion for Reconsideration was issued by the RTC, finding as follows:

Accordingly, the prosecution’s Motion for Reconsideration should be, as it hereby, DENIED. The Order dated January 30, 2006 STANDS in all respects.

Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole legal issue of:WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE.

Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006 and 9 June 2006 issued by the trial court, and that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.

http://www.lawphil.net/judjuris/juri2008/aug2008/gr_173654_2008.html

Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits of MONEY in banks and similar institutions shall be governed by the provisions concerning simple loans." Corollary thereto, Article 1953 of the same Code provides that "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." Thus, it posits that the depositors who place their money with the bank are considered creditors of the bank. The bank acquires ownership of the money deposited by its clients, MAKING THE MONEY taken by respondents as belonging to the bank.Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft, citing that a perusal of the Informations will show that they specifically allege that the respondents were the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and that they took various amounts of money with grave abuse of confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the bank.Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a Petition for Review on Certiorari via Rule 45 is the wrong mode of appeal because a finding of probable cause for the issuance of a warrant of arrest presupposes evaluation of facts and circumstances, which is not proper under said Rule.Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the principal party to file a Petition for Review on Certiorari, considering that the incident was indorsed by the DOJ.We find merit in the petition.The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and, therefore, because of this defect, there is no basis for the existence of probable cause which will justify the issuance of the warrant of arrest. Petitioner assails the dismissal contending that the Informations for Qualified Theft sufficiently state facts which constitute (a) the qualifying circumstance of grave abuse of confidence; and (b) the element of taking, with intent to gain and without the consent of the owner, which is the Bank.In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the allegations in the Information inadequate. He ruled that the Information failed to state facts constituting the qualifying circumstance of grave abuse of confidence and the element of taking without the consent of the owner, since the owner of the money is not the Bank, but the depositors therein. He also cites People v. Koc Song,4 in which this Court held:

There must be allegation in the information and proof of a relation, by reason of dependence, guardianship or vigilance, between the respondents and the offended party that has created a high degree of confidence between them, which the respondents abused.

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause simply on the insufficiency of the allegations in the Informations concerning the facts constitutive of the elements of the offense charged. This, therefore, makes the issue of sufficiency of the allegations in the Informations the focal point of discussion.Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as follows, viz:

ART. 310. Qualified Theft. – The crime of theft shall be punished by the penalties next higher by two degrees than those respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of another’s property without violence or intimidation against persons or force upon things. The elements of the crime under this Article are:

1. Intent to gain;2. Unlawful taking;3. Personal property belonging to another;4. Absence of violence or intimidation against persons or force upon things.

To fall under the crime of Qualified Theft, the following elements must concur:1. Taking of personal property;2. That the said property belongs to another;3. That the said taking be done with intent to gain;4. That it be done without the owner’s consent;5. That it be accomplished without the use of violence or intimidation against persons, nor of force upon things;6. That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the information must state the acts or omissions complained of as constitutive of the offense.On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is enlightening:

Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the qualifying and aggravating circumstances must be stated in ordinary and concise language and not necessarily in the language used in the statute but in terms sufficient to enable a person of common understanding to know what offense is being charged as WELL as its qualifying and aggravating circumstances and for the court to pronounce judgment.

It is evident that the Information need not use the exact language of the statute in alleging the acts or omissions complained of as constituting the offense. The test is whether it enables a person of common understanding to know the charge against him, and the court to render judgment properly.5





The portion of the Information relevant to this discussion reads:A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc.,

Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank x x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of the monies deposited therein enjoy the confidence reposed in them by their EMPLOYER . Banks, on the other hand, where monies are deposited, are considered the owners thereof. This is very clear not only from the express provisions of the law, but from established jurisprudence. The relationship between banks and depositors has been held to be that of creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows:

Article 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.Article 1980. Fixed, savings, and current deposits of MONEY in banks and similar institutions shall be governed by the provisions concerning loan.

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the Bank of the MONEY deposits therein, and the duties being performed by its employees who have custody of the money or have come into possession of it. The Court has consistently considered the allegations in the Information that such employees acted with grave abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it as owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration, we cite Roque v. People,6 where the accused teller was convicted for Qualified Theft based on this Information:

That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of Pampanga, Philippines and within the jurisdiction of his Honorable Court, the above-named accused ASUNCION GALANG ROQUE, being then EMPLOYED as teller of the Basa Air Base Savings and Loan Association Inc. (BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga, and as such was authorized and reposed with the responsibility to receive and collect capital contributions from its member/contributors of said corporation, and having collected and received in her capacity as teller of the BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with grave abuse of confidence and without the knowledge and consent of said corporation, did then and there willfully, unlawfully and feloniously take, steal and carry away the amount of P10,000.00, Philippine currency, by making it appear that a certain depositor by the name of Antonio Salazar withdrew from his Savings Account No. 1359, when in truth and in fact said Antonio Salazar did not withdr[a]w the said amount of P10,000.00 to the damage and prejudice of BABSLA in the total amount of P10,000.00, Philippine currency.

In convicting the therein appellant, the Court held that:[S]ince the teller occupies a position of confidence, and the bank places MONEY in the teller’s possession due to the confidence reposed on the teller, the felony of qualified theft would be committed.7

Also in People v. Sison,8 the Branch Operations Officer was convicted of the crime of Qualified Theft based on the Information as herein cited:

That in or about and during the period compressed between January 24, 1992 and February 13, 1992, both dates inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and feloniously, with intent of gain and without the knowledge and consent of the owner thereof, take, steal and carry away the following, to wit:Cash MONEY amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its Branch Manager, HELEN U. FARGAS, to the damage and prejudice of the said owner in the aforesaid amount of P6,000,000.00, Philippine Currency.That in the commission of the said offense, herein accused acted with grave abuse of confidence and unfaithfulness, he being the Branch Operation Officer of the said complainant and as such he had free access to the place where the said amount of MONEY was kept.

The judgment of conviction elaborated thus:The crime perpetuated by appellant against his EMPLOYER , the Philippine Commercial and Industrial Bank (PCIB), is Qualified Theft. Appellant could not have committed the crime had he not been holding the position of Luneta Branch Operation Officer which gave him not only sole access to the bank vault xxx. The management of the PCIB reposed its trust and confidence in the appellant as its Luneta Branch Operation Officer, and it was this trust and confidence which he exploited to enrich himself to the damage and prejudice of PCIB x x x.9

From another end, People v. Locson,10 in addition to People v. Sison, described the nature of possession by the Bank. The MONEY in this case was in the possession of the defendant as receiving teller of the bank, and the possession of the defendant was the possession of the Bank. The Court held therein that when the defendant, with grave abuse of confidence, removed the money and appropriated it to his own use without the consent of the Bank, there was taking as contemplated in the crime of Qualified Theft.11

Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the respondents; that the crime was committed with grave abuse of confidence, with intent to gain and without the knowledge and consent of the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, "of a relation by reason of dependence, guardianship or vigilance, between the respondents and the offended











party that has created a high degree of confidence between them, which respondents abused,"12 and without EMPLOYING the word "owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency of allegations.As regards the respondents who were EMPLOYED as Cashier and Bookkeeper of the Bank in this case, there is even no reason to quibble on the allegation in the Informations that they acted with grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence by accused herein is even more precise, as this is exactly the requirement of the law in qualifying the crime of Theft.In summary, the Bank acquires ownership of the MONEY deposited by its clients; and the employees of the Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed in them, occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential elements constituting the crime of Qualified Theft.On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling in Mobilia Products, Inc. v. Hajime Umezawa13 is instructive. The Court thus enunciated:

In a criminal case in which the offended party is the State, the interest of the private complainant or the offended party is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an acquittal, a reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as the criminal aspect thereof is concerned and may be made only by the public prosecutor; or in the case of an appeal, by the State only, through the OSG. x x x.

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in appeals by certiorari under Rule 45 of the Rules of Court, only errors of law may be raised,14 and herein petitioner certainly raised a question of law.As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the records of the preliminary investigation conducted will show that, indeed, probable cause exists for the indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the judge shall issue a warrant of arrest only upon a finding of probable cause after personally evaluating the resolution of the prosecutor and its supporting evidence. Soliven v. Makasiar,15 as reiterated inAllado v. Driokno,16 explained that probable cause for the issuance of a warrant of arrest is the existence of such facts and circumstances that would lead a reasonably discreet and prudent person to believe that an offense has been committed by the person sought to be arrested.17 The records reasonably indicate that the respondents may have, indeed, committed the offense charged.Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case may be, to relieve the respondents from the pain of going through a trial once it is ascertained that no probable cause exists to form a sufficient belief as to the guilt of the respondents, conversely, it is also equally imperative upon the judge to proceed with the case upon a showing that there is a prima facie case against the respondents.WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET ASIDE. Let the corresponding Warrants of Arrest issue against herein respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive, with reasonable dispatch. No pronouncement as to costs.SO ORDERED.

PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. TERESITA PUIG and ROMEO PORRAS,Accused-Appellant.

THIRD DIVISION

R E S O L U T I O N

CHICO-NAZARIO, J.:

In a Decision dated 28 August 2008, the Court granted the Petition for Review on Certiorari filed in this case. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET ASIDE. Let the corresponding Warrants of Arrest issue against herein respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive, with reasonable dispatch. No pronouncement as to costs.1

However, on 2 September 2008, the Supreme Court En Banc, instead of ordering the arrest of respondents Teresita Puig and Romeo Porras for purposes of proceeding with the trial of Criminal Cases No. 05-3054 to 05-3165, issued a Warrant of Arrest addressed to the Director of the National Bureau of Investigation (NBI) and the Chief of the Philippine National Police (PNP), commanding them to effectuate the immediate arrest of herein respondent Teresita Puig only and commit her to the Correctional Institution for Women in Mandaluyong City. Ï‚Î·Î±Ã±rÎ¿blÎµÅ¡ Î½Î¹râ€ Ï…Î±l lÎ±Ï‰ lÎ¹brÎ±rÃ¿




In light of the 28 August 2008 Decision of this Court and considering that trial on the merits has yet to proceed, the Warrant of Arrest ordering the arrest and commitment of respondent Teresita Puig to theCorrectional Institution is hereby recalled.Ï‚Î·Î±Ã±rÎ¿blÎµÅ¡ Î½Î¹râ€ Ï…Î±l lÎ±Ï‰ lÎ¹brÎ±rÃ¿

ACCORDINGLY, a new WARRANT of ARREST is hereby entered commanding the Director of the NBI and the PNP Chief to immediately ARREST, for the purpose of further proceedings (trial on the merits) in Criminal Cases No. 05-3054 to No. 05-3165, both respondents TERESITA PUIG and ROMEO PORRAS whose known address is Poblacion, Pototan, Iloilo, or anywhere in the Republic of the Philippines. FURTHER, the said officials are both DIRECTED to SUBMIT a report within ten (10) days from compliance herewith.

SO ORDERED.

THIRD DIVISION[G.R. No. 138677. February 12, 2002]

TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. COURT OF APPEALS & SECURITY BANK & TRUST COMPANY, respondents.

D E C I S I O NVITUG, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the decision and resolutions of the Court of Appeals in CA-G.R. CV No. 34594, entitled "Security Bank and Trust Co. vs. Tolomeo Ligutan, et al."

Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory note binding themselves, jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. In addition, petitioners agreed to pay 10% of the total amount due by way of attorney’s fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The obligation matured on 8 September 1981; the bank, however, granted an extension but only up until 29 December 1981.

Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982, amounted to P114,416.10. On30 September 1982, the bank sent a final demand letter to petitioners informing them that they had five days within which to make full payment. Since petitioners still defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court of Makati, Branch 143, a complaint for recovery of the due amount.

After petitioners had filed a joint answer to the complaint, the bank presented its evidence and, on 27 March 1985, rested its case. Petitioners, instead of introducing their own evidence, had the hearing of the case reset on two consecutive occasions. In view of the absence of petitioners and their counsel on 28 August 1985, the third hearing date, the bank moved, and the trial court resolved, to consider the case submitted for decision.

Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the order of the trial court declaring them as having waived their right to present evidence and prayed that they be allowed to prove their case. The court a quo denied the motion in an order, dated 5 September 1988, and on 20 October 1989, it rendered its decision,[1] the dispositive portion of which read:“WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the latter to pay, jointly and severally, to the plaintiff, as follows:

"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge and 5% per month penalty charge, commencing on 20 May 1982 until fully paid;

"2. To pay the further sum equivalent to 10% of the total amount of indebtedness for and as attorney’s fees; and

"3. To pay the costs of the suit.”[2]

Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the trial court of their motion to present evidence and assailing the imposition of the 2% service charge, the 5% per month penalty charge and 10% attorney's fees. In its decision[3]of 7 March 1996, the appellate court affirmed the judgment of the trial court except on the matter of the 2% service charge which was deleted pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision of the appellate court, both parties filed their respective motions for reconsideration.[4] Petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable. The bank, on the other hand, asked that the payment of interest and penalty be commenced not from the date of filing of complaint but from the time of default as so stipulated in the contract of the parties.

On 28 October 1998, the Court of Appeals resolved the two motions thusly:“We find merit in plaintiff-appellee’s claim that the principal sum of P114,416.00 with interest thereon must commence not on the date of filing of the complaint as we have previously held in our decision but on the date when the obligation became due.“Default generally begins from the moment the creditor demands the performance of the obligation. However, demand is not necessary to render the obligor in default when the obligation or the law so provides.“In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the obligation on its maturity date 'without necessity of demand.' They also agreed to pay the interest in case of non-payment from the date of default.

“x x x x x x x x x“While we maintain that defendants-appellants must be bound by the contract which they acknowledged and signed, we take cognizance of their plea for the application of the provisions of Article 1229 x x x.

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“Considering that defendants-appellants partially complied with their obligation under the promissory note by the reduction of the original amount of P120,000.00 to P114,416.00 and in order that they will finally settle their obligation, it is our view and we so hold that in the interest of justice and public policy, a penalty of 3% per month or 36% per annum would suffice.

“x x x x x x x x x“WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The defendants-appellants Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-appellee Security Bank and Trust Company the following:

“1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and 3% per month penalty charge commencing May 20, 1982 until fully paid;

“2. The sum equivalent to 10% of the total amount of the indebtedness as and for attorney’s fees.”[5]

On 16 November 1998, petitioners filed an omnibus motion for reconsideration and to admit newly discovered evidence,[6] alleging that while the case was pending before the trial court, petitioner Tolomeo Ligutan and his wife Bienvenida Ligutan executed a real estate mortgage on 18 January 1984 to secure the existing indebtedness of petitioners Ligutan and dela Llana with the bank. Petitioners contended that the execution of the real estate mortgage had the effect of novating the contract between them and the bank. Petitioners further averred that the mortgage was extrajudicially foreclosed on 26 August 1986, that they were not informed about it, and the bank did not credit them with the proceeds of the sale. The appellate court denied the omnibus motion for reconsideration and to admit newly discovered evidence, ratiocinating that such a second motion for reconsideration cannot be entertained under Section 2, Rule 52, of the 1997 Rules of Civil Procedure. Furthermore, the appellate court said, the newly-discovered evidence being invoked by petitioners had actually been known to them when the case was brought on appeal and when the first motion for reconsideration was filed.[7]

Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case to this Court on 9 July 1999 via a petition for review on certiorari under Rule 45 of the Rules of Court, submitting thusly -

“I. The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners’ loan obligation are still manifestly exorbitant, iniquitous and unconscionable.

“II. The respondent Court of Appeals gravely erred in not reducing to a reasonable level the ten (10%) percent award of attorney’s fees which is highly and grossly excessive, unreasonable and unconscionable.

“III. The respondent Court of Appeals gravely erred in not admitting petitioners’ newly discovered evidence which could not have been timely produced during the trial of this case.

“IV. The respondent Court of Appeals seriously erred in not holding that there was a novation of the cause of action of private respondent’s complaint in the instant case due to the subsequent execution of the real estate mortgage during the pendency of this case and the subsequent foreclosure of the mortgage.”[8]

Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be deleted by petitioners was even insufficient to fully cover and compensate for the cost of money brought about by the radical devaluation and decrease in the purchasing power of the peso, particularly vis-a-vis the U.S. dollar, taking into account the time frame of its occurrence. The Bank would stress that only the amount of P5,584.00 had been remitted out of the entire loan of P120,000.00.[9]

A penalty clause, expressly recognized by law,[10] is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation[11] and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach.[12] Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.[13]

The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. vs. Court of Appeals ,[14] just an example, the Court has tempered the penalty charges after taking into account the debtor’s pitiful situation and its offer to settle the entire obligation with the creditor bank. The stipulated penalty might likewise be reduced when a partial or irregular performance is made by the debtor.[15] The stipulated penalty might even be deleted such as when there has been substantial performance in good faith by the obligor,[16] when the penalty clause itself suffers from fatal infirmity, or when exceptional circumstances so exist as to warrant it.[17]

The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty interest from 5% a month to 3% a month which petitioner still disputes. Given the circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation, the Court sees no cogent ground to modify the ruling of the appellate court..

Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that has not been raised and ventilated














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before the courts below. In any event, the interest stipulation, on its face, does not appear as being that excessive. The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded. [18] What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank's existence.[19]

Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's fees for being grossly excessive, exorbitant and unconscionable vis-a-vis the time spent and the extent of services rendered by counsel for the bank and the nature of the case. Bearing in mind that the rate of attorney’s fees has been agreed to by the parties and intended to answer not only for litigation expenses but also for collection efforts as WELL , the Court, like the appellate court, deems the award of 10% attorney’s fees to be reasonable.

Neither can the appellate court be held to have erred in rejecting petitioners' call for a new trial or to admit newly discovered evidence. As the appellate court so held in its resolution of 14 May 1999 -“Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of a judgment or final resolution by the same party shall be entertained. Considering that the instant motion is already a second motion for reconsideration, the same must therefore be denied.“Furthermore, it would appear from the records available to this court that the newly-discovered evidence being invoked by defendants-appellants have actually been existent when the case was brought on appeal to this court as WELL as when the first motion for reconsideration was filed. Hence, it is quite surprising why defendants-appellants raised the alleged newly-discovered evidence only at this stage when they could have done so in the earlier pleadings filed before this court.“The propriety or acceptability of such a second motion for reconsideration is not contingent upon the averment of 'new' grounds to assail the judgment, i.e., grounds other than those theretofore presented and rejected. Otherwise, attainment of finality of a judgment might be stayed off indefinitely, depending on the party’s ingenuousness or cleverness in conceiving and formulating 'additional flaws' or 'newly discovered errors' therein, or thinking up some injury or prejudice to the rights of the movant for reconsideration.”[20]

At any rate, the subsequent execution of the real estate mortgage as security for the existing loan would not have resulted in the extinguishment of the original contract of loan because of novation. Petitioners acknowledge that the real estate mortgage contract does not contain any express stipulation by the parties intending it to supersede the existing loan agreement between the petitioners and the bank.[21] Respondent bank has correctly postulated that the mortgage is but an accessory contract to secure the loan in the promissory note.

Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the parties to the new contract; third, the extinguishment of the obligation; and fourth, the validity of the new one.[22] In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on every point incompatible with each other.[23] An obligation to pay a sum of MONEY is not extinctively novated by a new instrument which merely changes the terms of payment or adding compatible covenants or where the old contract is merely supplemented by the new one.[24] When not expressed, incompatibility is required so as to ensure that the parties have indeed intended such novation despite their failure to express it in categorical terms. The incompatibility, to be sure, should take place in any of the essential elements of the obligation, i.e., (1) the juridical relation or tie, such as from a mere commodatum to lease of things, or from negotiorum gestio to agency, or from a mortgage toantichresis,[25] or from a sale to one of loan;[26] (2) the object or principal conditions, such as a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor[27] or the subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement should be complete by itself; certain terms and conditions may be carried, expressly or by implication, over to the new obligation.

WHEREFORE, the petition is DENIED. SO ORDERED.











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Manila

SECOND DIVISION

G.R. No. L-40824 February 23, 1989

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs.COURT OF APPEALS and MR. & MRS. ISABELO R. RACHO, respondents.

The Government Corporate Counsel for petitioner.

Lorenzo A. Sales for private respondents.

REGALADO , J.:

Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of petitioner Government Service InsuranceSystem (hereinafter referred to as GSIS) and subsequently, another deed of mortgage, dated April 14, 1958, in connection with two loans granted by the latter in the sums of P 11,500.00 and P 3,000.00, respectively. 1 A parcel of land covered by Transfer Certificate of Title No. 38989 of the Register of Deed of Quezon City, co-owned by said mortgagor spouses, was given as security under the aforesaid two deeds. 2 They also executed a 'promissory note" which states in part:

... for value received, we the undersigned ... JOINTLY, SEVERALLY and SOLIDARILY, promise to pay the GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . . (P 11,500.00) Philippine Currency, with interest at the rate of six (6%) per centum compounded monthly payable in . . . (120)equal monthly installments of . . . (P 127.65) each. 3

On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of Mortgage" under which they obligated themselves to assume the aforesaid obligation to the GSIS and to secure the release of the mortgage covering that portion of the land belonging to herein private respondents and which was mortgaged to the GSIS. 4 This undertaking was not fulfilled. 5

Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the mortgaged property to be sold at public auction on December 3, 1962. 6

More than two years thereafter, or on August 23, 1965, herein private respondents filed a complaint against the petitioner and the Lagasca spouses in the former Court of

First Instance of Quezon City, 7 praying that the extrajudicial foreclosure "made on, their property and all other documents executed in relation thereto in favor of the Government Service Insurance System" be declared null and void. It was further prayed that they be allowed to recover said property, and/or the GSIS be ordered to pay them the value thereof, and/or they be allowed to repurchase the land. Additionally, they asked for actual and moral damages and attorney's fees.

In their aforesaid complaint, private respondents alleged that they signed the mortgage contracts not as sureties or guarantors for the Lagasca spouses but they merely gave their common property to the said co-owners who were solely benefited by the loans from the GSIS.

The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to establish a cause of action. 8

Said decision was reversed by the respondent Court of Appeals 9 which held that:

... although formally they are co-mortgagors, they are so only for accomodation (sic) in that the GSIS required their consent to the mortgage of the entire parcel of land which was covered with only one certificate of title, with full knowledge that the loans secured thereby were solely for the benefit of the appellant (sic) spouses who alone applied for the loan.

x x x x

'It is, therefore, clear that as against the GSIS, appellants have a valid cause for having foreclosed the mortgage without having given sufficient notice to them as required either as to their delinquency in the payment of amortization or as to the subsequent foreclosure of the mortgage by reason of any default in such payment. The notice published in the newspaper, 'Daily Record (Exh. 12) and posted pursuant to Sec 3 of Act 3135 is not the notice to which the mortgagor is entitled upon the application being made for an extrajudicial foreclosure. ... 10

On the foregoing findings, the respondent court consequently decreed that-

In view of all the foregoing, the judgment appealed from is hereby reversed, and another one entered (1) declaring the foreclosure of the mortgage void insofar as it affects the share of the appellants; (2) directing the GSIS to reconvey to appellants their share of the mortgaged property, or the value thereof if already sold to third party, in the sum of P 35,000.00, and (3) ordering the appellees Flaviano Lagasca and Esther Lagasca to pay the appellants the sum of P 10,00.00 as moral damages, P 5,000.00 as attorney's fees, and costs. 11

The case is now before us in this petition for review.

In submitting their case to this Court, both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as the Negotiable Instruments Law, which provide that an accommodation party is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving value therefor, but is held liable on the instrument to a holder for value although the latter knew him to be only an accommodation party.

This approach of both parties appears to be misdirected and their reliance misplaced. The promissory note hereinbefore quoted, as WELL as the mortgage deeds subject of this case, are clearly not negotiable instruments. These documents do not comply with the fourth requisite to be considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not apply; governance shall be afforded, instead, by the provisions of the Civil Code and special laws on mortgages.

As earlier indicated, the factual findings of respondent court are that private respondents signed the documents "only to give their consent to the mortgage as required by GSIS", with the latter having full knowledge that the loans secured thereby were solely for the benefit of the Lagasca spouses. 12 This appears to be duly supported by sufficient evidence on record. Indeed, it would be unusual for the GSIS to arrange for and deduct the monthly amortizations on the loans from the salary as an army officer of Flaviano Lagasca without likewise affecting deductions from the salary of Isabelo Racho who was also an army sergeant. Then there is also the undisputed fact, as already stated, that the Lagasca spouses executed a so-called "Assumption of Mortgage" promising to exclude private respondents and their share of the mortgaged property from liability to the mortgagee. There is no intimation

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that the former executed such instrument for a consideration, thus confirming that they did so pursuant to their original agreement.

The parol evidence rule 13 cannot be used by petitioner as a shield in this case for it is clear that there was no objection in the court below regarding the admissibility of the testimony and documents that were presented to prove that the private respondents signed the mortgage papers just to accommodate their co-owners, the Lagasca spouses. Besides, the introduction of such evidence falls under the exception to said rule, there being allegations in the complaint of private respondents in the court below regarding the failure of the mortgage contracts to express the true agreement of the parties.14

However, contrary to the holding of the respondent court, it cannot be said that private respondents are without liability under the aforesaid mortgage contracts. The factual context of this case is precisely what is contemplated in the last paragraph of Article 2085 of the Civil Code to the effect that third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property

So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca spouses would not invalidate the mortgage with respect to private respondents' share in the property. In consenting thereto, even assuming that private respondents may not be assuming personal liability for the debt, their share in the property shall nevertheless secure and respond for the performance of the principal obligation. The parties to the mortgage could not have intended that the same would apply only to the aliquot portion of the Lagasca spouses in the property, otherwise the consent of the private respondents would not have been required.

The supposed requirement of prior demand on the private respondents would not be in point here since the mortgage contracts created obligations with specific terms for the compliance thereof. The facts further show that the private respondents expressly bound themselves as solidary debtors in the promissory note hereinbefore quoted.

Coming now to the extrajudicial foreclosure effected by GSIS, We cannot agree with the ruling of respondent court that lack of notice to the private respondents of the extrajudicial foreclosure sale impairs the validity thereof. InBonnevie, et al. vs. Court of appeals, et al., 15 the Court ruled that Act No. 3135, as amended, does not require personal notice on the mortgagor, quoting the requirement on notice in such cases as follows:

Section 3. Notice shall be given by posting notices of sale for not less than twenty days in at least three public places of the municipality where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.

There is no showing that the foregoing requirement on notice was not complied with in the foreclosure sale complained of .

The respondent court, therefore, erred in annulling the mortgage insofar as it affected the share of private respondents or in directing reconveyance of their property or the payment of the value thereof Indubitably, whether or not private respondents herein benefited from the loan, the mortgage and the extrajudicial foreclosure proceedings were valid.

WHEREFORE, judgment is hereby rendered REVERSING the decision of the respondent Court of Appeals and REINSTATING the decision of the court a quo in Civil Case No. Q-9418 thereof.

SO ORDERED.


ManilaFIRST DIVISION

G.R. No. 154878 March 16, 2007CAROLYN M. GARCIA, Petitioner, vs.RICA MARIE S. THIO, Respondent.

D E C I S I O NCORONA, J.:Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago.5Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,0006 and P76,5007 on July 26,8 August 26, September 26 and October 26, 1995.In June 1995, respondent received from petitioner another crossed check9 dated June 29, 1995 in the amount ofP500,000, also payable to the order of Marilou Santiago.10 Consequently, petitioner received from respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.11

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5, 1995, plus 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 P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.14 The amount of this loan was covered by the second check. For both loans, no promissory note was executed since petitioner and respondent were close friends at the time.15 Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands.16

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Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed checks to Santiago.17 She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate 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 P500,000 at a monthly interest of 4%:20

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

1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995 until fully paid;2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.3. P100,000.00 as and for attorney’s fees; and4. P50,000.00 as and for actual damages.

http://www.lawphil.net/judjuris/juri2007/mar2007/gr_154878_2007.html#fnt20




















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 P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner]. The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only 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 thatthere were no contracts of loan between petitioner and respondent) and the RTC (which held that there werecontracts of loan) are contradictory.24

The petition is impressed with merit.A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides:An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. (Emphasis supplied)Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount.26

It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question to be answered is: who borrowed money from petitioner — respondent or Santiago?Petitioner insists that it was upon 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 P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four months.34 According to respondent, she merely accommodated 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.36Her explanation is simply incredible. It is difficult to believe that respondent would put herself in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract. We declared in one case that:In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself such as the common experience of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony except its conformity to our knowledge, observation, and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical cognizance.37

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who was listed as one of her (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 P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent liable for the principal amounts of the loans.We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000 andP500,000 loans respectively. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in writing."Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code. It is well-settled that:When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.41

Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when she received 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 P50,000 and P100,000 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 P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total amount due as of the date of finality will earn interest of 12% perannum until fully paid. The award of actual damages and attorney’s fees is deleted.SO ORDERED.RENATO C. CORONAAssociate JusticeWE CONCUR:

REYNATO S. PUNOChief JusticeChairperson

ANGELINA SANDOVAL-GUTIERREZAssociate Justice

ADOLFO S. AZCUNAAsscociate Justice

CANCIO C. GARCIAAssociate Justice

C E R T I F I C A T I O NPursuant 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. PUNOChief Justice











Garcia vs Thio

16 March 2007J. CoronaFACTS:Petitioner – GarciaRespondent – Thio- In February 1995, Thio received from Garcia a crossed check amounting to $100,000 payable tothe order of Marilou Santiago.o Garcia the received from Thio $3,000 for 4 months and P76,500 on July, August,September and October (Representing interest due)- In June 1995, Thio received again from Garcia P500,000o Garcia the received from Thio P20,000 on August, September October and November.(Represent interest due)- According to Garcia, Thio failed to pay the $100,000 and P500,000 amount opting him to file acase for sum of money and damages.- Both loans are not covered by a promissory note as the two are close friends- Thio countered that it was Marilou Santiago whom the money was lent by Garcia.- She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodatepetitioner’s request that respondent use her own checks instead of Santiago - RTC ruled in favor of Garcia- CA reversed RTC.ISSUE:1. Who borrowed the money (Santiago or Thio)HELD:1. ThioRATIO:-A loan is a real contract as it is perfected upon delivery of the object. This is differentfrom a consensual contract which only requires consent.-An accepted promise to deliver by way of commodatum or simple loan is binding uponparties, however, the loan itself is only perfected upon delivery of the object.-Petitioner insisted that itwas upon respondent’s instruction that both checks weremade payable to Santiago.o It was also argued that upon delivery of the checks, respondents acquiredcontrol and possession of it and can choose to retain or delivery it to Santiago-Factors that supported the conclusions are:o

Petitioner did not know Santiago personallyo Leticia Ruiz (friend of both petitioner and respondent) testified that the plan ofThio is to borrow money from Garcia then subsequently lend it out to Santiago.o for the US$100,000 loan, respondent admitted issuing her own checks in theamount of P76,000 each (peso equivalent of US$3,000) for eight months to cover

GSIS V. CA

FACTS:Two deeds of mortgages were issued by spouses Racho in favor of GSIS as security for two loans obtained by them. They also executed a promissory note. Due to the failure to comply with the terms of the mortgage, the mortgages were extrajudicially foreclosed. The foreclosure was being assailed by the spouses as they alleged that the mortgage contracts were signed not as guarantees or sureties but merely gave their common property for the sole benefit of the other spouses. Both sides of the case used the provisions on accommodation parties in the Negotiable Instruments Law. The trial court dismissed the action but this was reversed by the appellate court.

HELD:Both parties rely on the Negotiable Instruments Law but this is misplaced. The promissory note and the deeds of mortgage are not negotiable instruments as they lack the fourth requisite which is it must be payable to order or bearer.

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