Case List 1 Cases

FIRST DIVISION
HERMOJINA ESTORES, Petitioner, - versus - SPOUSES ARTURO and LAURA

SUPANGAN, Respondents.
DECISION
4.
xxxx
6.
Regarding the house located within the perimeter of the subject [lot]
owned by spouses [Magbago], said house shall be moved outside the
perimeter of this subject property to the 300 sq. m. area allocated for
[it]. Vendor hereby accepts the responsibility of seeing to it that such
agreement is carried out before full payment of the sale is made by
vendee.
7.
If and after the vendor has completed all necessary documents for
registration of the title and the vendee fails to complete payment as
per agreement, a forfeiture fee of 25% or downpayment, shall be
applied. However, if the vendor fails to complete necessary
documents within thirty days without any sufficient reason, or without
informing the vendee of its status, vendee has the right to demand
return of full amount of down payment.
DEL CASTILLO, J.:

The only issue posed before us is the propriety of the imposition of interest and
attorneys fees.
Assailed in this Petition for Review [1] filed under Rule 45 of the Rules of Court is the
May 12, 2006 Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 83123, the dispositive
portion of which reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of
interest shall be six percent (6%) per annum, computed from September
27, 2000 until its full payment before finality of the judgment. If the
adjudged principal and the interest (or any part thereof) remain unpaid
thereafter, the interest rate shall be adjusted to twelve percent (12%) per
annum, computed from the time the judgment becomes final and
executory until it is fully satisfied. The award of attorneys fees is hereby
reduced to P100,000.00. Costs against the defendants-appellants.
Vendee shall be informed as to the status of DAR clearance within 10

days upon signing of the documents.
xxxx
9.
As to the boundaries and partition of the lots (15,018 sq. m. and 300
sq. m.) Vendee shall be informed immediately of its approval by the
LRC.
SO ORDERED.[3]
Also assailed is the August 31, 2006 Resolution[4] denying the motion for
reconsideration.
10. The vendor assures the vendee of a peaceful transfer of ownership.
Factual Antecedents
xxxx
On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and

Laura Supangan entered into a Conditional Deed of Sale [5] whereby petitioner offered to sell,
and respondent-spouses offered to buy, a parcel of land covered by Transfer Certificate of Title
No. TCT No. 98720 located at Naic, Cavite for the sum of P4.7 million. The parties likewise
stipulated, among others, to wit:
xxxx
1.
Vendor will secure approved clearance from DAR requirements of

which are (sic):
a)
Letter request
b) Title
c)
Tax Declaration
d) Affidavit of Aggregate Landholding Vendor/Vendee
e)
Certification from the Provl. Assessors as to Landholdings of
Vendor/Vendee
f)
Affidavit of Non-Tenancy
g) Deed of Absolute Sale
xxxx
[6]
After almost seven years from the time of the execution of the contract and
notwithstanding payment of P3.5 million on the part of respondent-spouses, petitioner still
failed to comply with her obligation as expressly provided in paragraphs 4, 6, 7, 9 and 10 of
the contract. Hence, in a letter [7] dated September 27, 2000, respondent-spouses demanded
the return of the amount of P3.5 million within 15 days from receipt of the letter. In reply,
[8]
petitioner acknowledged receipt of the P3.5 million and promised to return the same within
120 days. Respondent-spouses were amenable to the proposal provided an interest of 12%
compounded annually shall be imposed on the P3.5 million.[9] When petitioner still failed to
return the amount despite demand, respondent-spouses were constrained to file a
Complaint[10] for sum of money before the Regional Trial Court (RTC) of Malabon against herein
petitioner as well as Roberto U. Arias (Arias) who allegedly acted as petitioners agent. The
case was docketed as Civil Case No. 3201-MN and raffled off to Branch 170. In their
complaint, respondent-spouses prayed that petitioner and Arias be ordered to:
1.
2.
Pay the principal amount of P3,500,000.00 plus

interest of 12% compounded annually starting October 1,
1993 or an estimated amount of P8,558,591.65;
Pay the following items of damages:
CredTrans - SJBPrior | 1
a)
Moral damages in the amount of P100,000.00;
b)
Actual damages in the amount of P100,000.00;
c)
Exemplary
of P100,000.00;
d)
[Attorneys] fee in the amount of P50,000.00 plus

20% of recoverable amount from the [petitioner].
e)
damages
in
the
amount
[C]ost of suit.[11]
In their Answer with Counterclaim, [12] petitioner and Arias averred that they are
willing to return the principal amount of P3.5 million but without any interest as the same was
not agreed upon. In their Pre-Trial Brief,[13] they reiterated that the only remaining issue
between the parties is the imposition of interest. They argued that since the Conditional Deed
of Sale provided only for the return of the downpayment in case of breach, they cannot be
held liable to pay legal interest as well. [14]
In its Pre-Trial Order[15] dated June 29, 2001, the RTC noted that the parties agreed
that the principal amount of 3.5 million pesos should be returned to the [respondent-spouses]
by the [petitioner] and the issue remaining [is] whether x x x [respondent-spouses] are entitled
to legal interest thereon, damages and attorneys fees.[16]
Trial ensued thereafter. After the presentation of the respondent-spouses evidence,
the trial court set the presentation of Arias and petitioners evidence on September 3, 2003.
[17]
However, despite several postponements, petitioner and Arias failed to appear hence they
were deemed to have waived the presentation of their evidence. Consequently, the case was
deemed submitted for decision.[18]
Ruling of the Regional Trial Court
On May 7, 2004, the RTC rendered its Decision [19] finding respondent-spouses entitled
to interest but only at the rate of 6% per annum and not 12% as prayed by them. [20] It also
found respondent-spouses entitled to attorneys fees as they were compelled to litigate to
protect their interest.[21]
SO ORDERED.[22]
Ruling of the Court of Appeals
Aggrieved, petitioner and Arias filed their notice of appeal. [23] The CA noted that the
only issue submitted for its resolution is whether it is proper to impose interest for an
obligation that does not involve a loan or forbearance of money in the absence of stipulation of
the parties.[24]
On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the
RTC finding the imposition of 6% interest proper. [25] However, the same shall start to run only
from September 27, 2000 when respondent-spouses formally demanded the return of their
money and not from October 1993 when the contract was executed as held by the RTC. The
CA also modified the RTCs ruling as regards the liability of Arias. It held that Arias could not be
held solidarily liable with petitioner because he merely acted as agent of the latter. Moreover,
there was no showing that he expressly bound himself to be personally liable or that he
exceeded the limits of his authority. More importantly, there was even no showing that Arias
was authorized to act as agent of petitioner. [26] Anent the award of attorneys fees, the CA
found the award by the trial court (P50,000.00 plus 20% of the recoverable amount)
excessive[27] and thus reduced the same to P100,000.00.[28]
The dispositive portion of the CA Decision reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of
interest shall be six percent (6%) per annum, computed from September
27, 2000 until its full payment before finality of the judgment. If the
adjudged principal and the interest (or any part thereof) remain[s] unpaid
thereafter, the interest rate shall be adjusted to twelve percent (12%) per
annum, computed from the time the judgment becomes final and
executory until it is fully satisfied. The award of attorneys fees is hereby
reduced to P100,000.00. Costs against the [petitioner].
SO ORDERED.[29]
The dispositive portion of the RTC Decision reads:
Petitioner moved for reconsideration which was denied in the August 31, 2006
Resolution of the CA.
WHEREFORE, premises considered, judgment is hereby rendered

in favor of the [respondent-spouses] and ordering the [petitioner and
Roberto Arias] to jointly and severally:
Hence, this petition raising the sole issue of whether the imposition of interest and
attorneys fees is proper.
1.
Pay [respondent-spouses] the principal amount of
Three Million Five Hundred Thousand pesos (P3,500,000.00) with an
interest of 6% compounded annually starting October 1, 1993 and
attorneys fee in the amount of Fifty Thousand pesos (P50,000.00) plus
20% of the recoverable amount from the defendants and cost of the suit.
The Compulsory Counter Claim is hereby dismissed for lack of
factual evidence.
Petitioners Arguments
Petitioner insists that she is not bound to pay interest on the P3.5 million because the
Conditional Deed of Sale only provided for the return of the downpayment in case of failure to
comply with her obligations. Petitioner also argues that the award of attorneys fees in favor
of the respondent-spouses is unwarranted because it cannot be said that the latter won over
the former since the CA even sustained her contention that the imposition of 12% interest
compounded annually is totally uncalled for.
Respondent-spouses Arguments
Respondent-spouses aver that it is only fair that interest be imposed on the amount
they paid considering that petitioner failed to return the amount upon demand and had been
using theP3.5 million for her benefit. Moreover, it is undisputed that petitioner failed to perform
her obligations to relocate the house outside the perimeter of the subject property and to
complete the necessary documents. As regards the attorneys fees, they claim that they are
entitled to the same because they were forced to litigate when petitioner unjustly withheld the
amount. Besides, the amount awarded by the CA is even smaller compared to the filing fees
they paid.
Our Ruling
The petition lacks merit.
Interest
may
be
imposed even in the
absence of stipulation
in the contract.
We sustain the ruling of both the RTC and the CA that it is proper to impose interest
notwithstanding the absence of stipulation in the contract. Article 2210 of the Civil Code
expressly provides that [i]nterest may, in the discretion of the court, be allowed upon
damages awarded for breach of contract. In this case, there is no question that petitioner is
legally obligated to return the P3.5 million because of her failure to fulfill the obligation under
the Conditional Deed of Sale, despite demand. She has in fact admitted that the conditions
were not fulfilled and that she was willing to return the full amount of P3.5 million but has not
actually done so. Petitioner enjoyed the use of the money from the time it was given to
her[30] until now. Thus, she is already in default of her obligation from the date of
demand, i.e., on September 27, 2000.
The interest at the
rate
of
12%
is
applicable
in
the
instant case.
Anent the interest rate, the general rule is that the applicable rate of interest shall
be computed in accordance with the stipulation of the parties. [31] Absent any stipulation, the
applicable rate of interest shall be 12% per annum when the obligation arises out of a loan or
a forbearance of money, goods or credits. In other cases, it shall be six percent (6%). [32] In
this case, the parties did not stipulate as to the applicable rate of interest. The only question
remaining therefore is whether the 6% as provided under Article 2209 of the Civil Code, or
12% under Central Bank Circular No. 416, is due.
The contract involved in this case is admittedly not a loan but a Conditional Deed of
Sale. However, the contract provides that the seller (petitioner) must return the payment
made by the buyer (respondent-spouses) if the conditions are not fulfilled. There is no
question that they have in fact, not been fulfilled as the seller (petitioner) has admitted
this. Notwithstanding
demand
by
the
buyer
(respondentspouses), the seller (petitioner) has failed to return the money and
should be considered in default from the time that demand was made on September 27,
2000.
Even if the transaction involved a Conditional Deed of Sale, can the stipulation
governing the return of the money be considered as a forbearance of money which required
payment of interest at the rate of 12%? We believe so.
In Crismina Garments, Inc. v. Court of Appeals, [33] forbearance was defined as a
contractual obligation of lender or creditor to refrain during a given period of time, from
requiring the borrower or debtor to repay a loan or debt then due and payable. This
definition describes a loan where a debtor is given a period within which to pay a loan or
debt. In such case, forbearance of money, goods or credits will have no distinct definition
from a loan. We believe however, that the phrase forbearance of money, goods or credits is
meant to have a separate meaning from a loan, otherwise there would have been no need to
add that phrase as a loan is already sufficiently defined in the Civil Code. [34] Forbearance of
money, goods or credits should therefore refer to arrangements other than loan agreements,
where a person acquiesces to the temporary use of his money, goods or credits pending
happening of certain events or fulfillment of certain conditions. In this case, the respondentspouses parted with their money even before the conditions were fulfilled. They have
therefore allowed or granted forbearance to the seller (petitioner) to use their money pending
fulfillment of the conditions. They were deprived of the use of their money for the period
pending fulfillment of the conditions and when those conditions were breached, they are
entitled not only to the return of the principal amount paid, but also to compensation for the
use of their money. And the compensation for the use of their money, absent any stipulation,
should be the same rate of legal interest applicable to a loan since the use or deprivation of
funds is similar to a loan.
Petitioners unwarranted withholding of the money which rightfully pertains to
respondent-spouses amounts to forbearance of money which can be considered as an
involuntary loan. Thus, the applicable rate of interest is 12% per annum. In Eastern Shipping
Lines, Inc. v. Court of Appeals, [35]cited in Crismina Garments, Inc. v. Court of Appeals, [36] the
Court suggested the following guidelines:
I.
When an obligation, regardless of its source, i.e.,

law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on Damages of
the Civil Code govern in determining the measure of
recoverable damages.
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.
2.
3.
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.
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 at the rate of 6% per
annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until
the demand can be established with reasonable
certainty. Accordingly, 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.
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.[37]
Eastern Shipping Lines, Inc. v. Court of Appeals[38]and its predecessor

case, Reformina v. Tongol[39] both involved torts cases and hence, there was no forbearance of
money, goods, or credits. Further, the amount claimed (i.e., damages) could not be
established with reasonable certainty at the time the claim was made. Hence, we arrived at a
different ruling in those cases.
Since the date of demand which is September 27, 2000 was satisfactorily
established during trial, then the interest rate of 12% should be reckoned from said date of
demand until the principal amount and the interest thereon is fully satisfied.
The
award
attorneys
fees
warranted.
of
is
Under Article 2208 of the Civil Code, attorneys fees may be recovered:
xxxx
(2)
When the defendants act or omission has compelled the plaintiff to

litigate with third persons or to incur expenses to protect his interest;
xxxx
(11)
In any other case where the court deems it just and equitable
that attorneys fees and expenses of litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be

reasonable.
Considering the circumstances of the instant case, we find respondent-spouses
entitled to recover attorneys fees. There is no doubt that they were forced to litigate to
protect their interest, i.e., to recover their money. However, we find the amount
of P50,000.00 more appropriate in line with the policy enunciated in Article 2208 of the Civil
Code that the award of attorneys fees must always be reasonable.
WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of
the Court of Appeals in CA-G.R. CV No. 83123 is AFFIRMED with MODIFICATIONS that the
rate of interest shall be twelve percent (12%) per annum, computed from September 27, 2000
until fully satisfied. The award of attorneys fees is further reduced to P50,000.00. SO
ORDERED.
SECOND DIVISION
G.R. No. L-50550-52 October 31, 1979
CHEE KIONG YAM, AMPANG MAH, ANITA YAM JOSE Y.C. YAM AND RICHARD
YAM, petitioners,
vs.
HON. NABDAR J. MALIK, Municipal Judge of Jolo, Sulu (Branch I), THE
PEOPLE OF THE PHILIPPINES, ROSALINDA AMIN, TAN CHU KAO and LT. COL.
AGOSTO SAJOR respondents.
ABAD SANTOS, J.:
This is a petition for certiorari, prohibition, and mandamus with preliminary

injunction. Petitioners alleged that respondent Municipal Judge Nabdar J. Malik of Jolo,
Sulu, acted without jurisdiction, in excess of jurisdiction and with grave abuse of
discretion when:
misappropriation of the amount of P30,000.00. Likewise, the complaint states on its

face that the P30,000.00 was "a simple loan." So does the complaint in Civil Case No.
N-8 filed by respondent Tan Chu Kao on April 6, 1976 with the Court of First Instance
of Sulu for the collection of the same amount. (Annex D of the petition.).
(a) he held in the preliminary investigation of the charges of estafa filed by

respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners that
there was a prima facie case against the latter;
In Criminal Case No. M-208, respondent Augusto Sajor charges petitioners Jose Y.C.
Yam, Anita Yam alias Yong Tai Mah, Chee Kiong Yam and Richard Yam, with estafa
through misappropriation of the amount of P20,000.00. Unlike the complaints in the
other two cases, the complaint in Criminal Case No. M-208 does not state that the
amount was received as loan. However, in a sworn statement dated September 29,
1976, submitted to respondent judge to support the complaint, respondent Augusto
Sajor states that the amount was a "loan." (Annex G of the petition.).
(b) he issued warrants of arrest against petitioners after making the above
determination; and
(c) he undertook to conduct trial on the merits of the charges which were docketed in
his court as Criminal Cases No. M-111, M-183 and M-208.
Respondent judge is said to have acted without jurisdiction, in excess of jurisdiction
and with grave abuse of discretion because the facts recited in the complaints did not
constitute the crime of estafa, and assuming they did, they were not within the
jurisdiction of the respondent judge.
In a resolution dated May 23, 1979, we required respondents to comment in the
petition and issued a temporary restraining order against the respondent judge from
further proceeding with Criminal Cases Nos. M-111, M-183 and M-208 or from
enforcing the warrants of arrest he had issued in connection with said cases.
Comments by the respondent judge and the private respondents pray for the
dismissal of the petition but the Solicitor General has manifested that the People of
the Philippines have no objection to the grant of the reliefs prayed for, except the
damages. We considered the comments as answers and gave due course to the
petition.
The position of the Solicitor General is well taken. We have to grant the petition in
order to prevent manifest injustice and the exercise of palpable excess of authority.
In Criminal Case No. M-111, respondent Rosalinda M. Amin charges petitioners Yam
Chee Kiong and Yam Yap Kieng with estafa through misappropriation of the amount of
P50,000.00. But the complaint states on its face that said petitioners received the
amount from respondent Rosalinda M. Amin "as a loan." Moreover, the complaint in
Civil Case No. N-5, an independent action for the collection of the same amount filed
by respondent Rosalinda M. Amin with the Court of First Instance of Sulu on
September 11, 1975, likewise states that the P50,000.00 was a "simple business
loan" which earned interest and was originally demandable six (6) months from July
12, 1973. (Annex E of the petition.)
In Criminal Case No. M-183, respondent Tan Chu Kao charges petitioners Yam Chee
Kiong, Jose Y.C. Yam, Ampang Mah and Anita Yam, alias Yong Tay, with estafa through
We agree with the petitioners that the facts alleged in the three criminal complaints
do not constitute estafa through misappropriation.
Estafa through misappropriation is committed according to Article 315, paragraph 1,
subparagraph (b), of the Revised Penal Code as follows:
Art. 315. Swindling (Estafa). Any person who shall defraud
another by any of the means mentioned herein below shall be
punished by:
xxx xxx xxx
1. With unfaithfulness or abuse of confidence namely:
xxx xxx xxx
b) By misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of or to
return the same, even though such obligation be totally or partially
guaranteed by a bond; or by denying having received such money,
goods, or other property.
In order that a person can be convicted under the abovequoted provision, it must be
proven that he has the obligation to deliver or return the same money, goods or
personal property that he received. Petitioners had no such obligation to return the
same money, i.e., the bills or coins, which they received from private respondents.
This is so because as clearly stated in criminal complaints, the related civil
complaints and the supporting sworn statements, the sums of money that petitioners
received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.
Art. 1933. By the contract of loan, one of the parties delivers to

another, either something not consumable so that the latter may
use the same for a certain time and return it, in which case the
contract is called a commodatum; or money or other consumable
thing upon the condition that the same amount of the same kind
and quality shall be paid, in which case the contract is simply called
a loan or mutuum.
Commodatum is essentially gratuitous.
imprisonment. (Article 315, Revised Penal Code), Assuming then that the acts recited
in the complaints constitute the crime of estafa, the Municipal Court of Jolo has no
jurisdiction to try them on the merits. The alleged offenses are under the jurisdiction
of the Court of First Instance.
Respondents People of the Philippines being the sovereign authority can not be sued
for damages. They are immune from such type of suit.
With respect to the other respondents, this Court is not the proper forum for the
consideration of the claim for damages against them.
Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing
loaned, while in simple loam ownership passes to the borrower.
Art. 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay
to the creditor an equal amount of the same kind and quality.
It can be readily noted from the above-quoted provisions that in simple loan
(mutuum), as contrasted to commodatum, the borrower acquires ownership of the
money, goods or personal property borrowed. Being the owner, the borrower can
dispose of the thing borrowed (Article 248, Civil Code) and his act will not be
considered misappropriation thereof.
In U.S. vs. Ibaez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a
person to refuse to nay his debt or to deny its existence.
We are of the opinion and so decide that when the relation is purely
that of debtor and creditor, the debtor can not be held liable for the
crime of estafa, under said article, by merely refusing to pay or by
denying the indebtedness.
It appears that respondent judge failed to appreciate the distinction between the two
types of loan, mutuum and commodatum, when he performed the questioned acts,
He mistook the transaction between petitioners and respondents Rosalinda Amin, Tan
Chu Kao and Augusto Sajor to be commodatum wherein the borrower does not
acquire ownership over the thing borrowed and has the duty to return the same thing
to the lender.
Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which
the Municipal Court of Jolo is, has jurisdiction over criminal cases where the penalty
provided by law does not exceed prision correccional or imprisonment for not more
than six (6) years, or fine not exceeding P6,000.00 or both, The amounts allegedly
misappropriated by petitioners range from P20,000.00 to P50,000.00. The penalty for
misappropriation of this magnitude exceeds prision correccional or 6 year
WHEREFORE, the petition is hereby granted; the temporary restraining order

previously issued is hereby made permanent; the criminal complaints against
petitioners are hereby declared null and void; respondent judge is hereby ordered to
dismiss said criminal cases and to recall the warrants of arrest he had issued in
connection therewith. Moreover, respondent judge is hereby rebuked for manifest
ignorance of elementary law. Let a copy of this decision be included in his personal
life. Costs against private respondents.
SO ORDERED.
SECOND DIVISION
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA
SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL
FELIZARDO N. LOTA and CLEMENT DAVID, respondents.
This is a petition for prohibition and injunction with a prayer for the immediate
issuance of restraining order and/or writ of preliminary injunction filed by petitioners
on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by this Court on the same
date, a temporary restraining order was duly issued ordering the respondents, their
officers, agents, representatives and/or person or persons acting upon their
(respondents') orders or in their place or stead to refrain from proceeding with the
preliminary investigation in Case No. 8131938 of the Office of the City Fiscal of Manila
(pp. 47-48, rec.). On January 24, 1983, private respondent Clement David filed a
motion to lift restraining order which was denied in the resolution of this Court dated
May 18, 1983.
As can be gleaned from the above, the instant petition seeks to prohibit public
respondents from proceeding with the preliminary investigation of I.S. No. 81-31938,
in which petitioners were charged by private respondent Clement David, with estafa
and violation of Central Bank Circular No. 364 and related regulations regarding
foreign exchange transactions principally, on the ground of lack of jurisdiction in that
the allegations of the charged, as well as the testimony of private respondent's
principal witness and the evidence through said witness, showed that petitioners'
obligation is civil in nature.
For purposes of brevity, We hereby adopt the antecedent facts narrated by the
Solicitor General in its Comment dated June 28,1982, as follows:t.hqw
On December 23,1981, private respondent David filed I.S. No. 8131938 in the Office of the City Fiscal of Manila, which case was
assigned to respondent Lota for preliminary investigation (Petition,
p. 8).
In I.S. No. 81-31938, David charged petitioners (together with one
Robert Marshall and the following directors of the Nation Savings
and Loan Association, Inc., namely Homero Gonzales, Juan Merino,
Flavio Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime V. Paz,
Paulino B. Dionisio, and one John Doe) with estafa and violation of
Central Bank Circular No. 364 and related Central Bank regulations
on foreign exchange transactions, allegedly committed as follows
(Petition, Annex "A"):t.hqw
"From March 20, 1979 to March, 1981, David
invested with the Nation Savings and Loan
Association, (hereinafter called NSLA) the sum of
P1,145,546.20 on nine deposits, P13,531.94 on
savings account deposits (jointly with his sister,
Denise Kuhne), US$10,000.00 on time deposit,
US$15,000.00 under a receipt and guarantee of
payment and US$50,000.00 under a receipt
dated June 8, 1980 (au jointly with Denise
Kuhne), that David was induced into making the
aforestated investments by Robert Marshall an
Australian national who was allegedly a close
associate of petitioner Guingona Jr., then NSLA
President, petitioner Martin, then NSLA Executive
Vice-President of NSLA and petitioner Santos,
then NSLA General Manager; that on March 21,
1981 N LA was placed under receivership by the
Central Bank, so that David filed claims therewith
for his investments and those of his sister; that
on July 22, 1981 David received a report from the
Central Bank that only P305,821.92 of those
investments were entered in the records of NSLA;
that, therefore, the respondents in I.S. No. 8131938 misappropriated the balance of the
investments, at the same time violating Central
Bank Circular No. 364 and related Central Bank

regulations on foreign exchange transactions;
that after demands, petitioner Guingona Jr. paid
only P200,000.00, thereby reducing the amounts
misappropriated to P959,078.14 and
US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-affidavit
(Petition, Annex' B') in which they stated the following.t.hqw
"That Martin became President of NSLA in March
1978 (after the resignation of Guingona, Jr.) and
served as such until October 30, 1980, while
Santos was General Manager up to November
1980; that because NSLA was urgently in need of
funds and at David's insistence, his investments
were treated as special- accounts with interest
above the legal rate, an recorded in separate
confidential documents only a portion of which
were to be reported because he did not want the
Australian government to tax his total earnings
(nor) to know his total investments; that all
transactions with David were recorded except the
sum of US$15,000.00 which was a personal loan
of Santos; that David's check for US$50,000.00
was cleared through Guingona, Jr.'s dollar account
because NSLA did not have one, that a draft of
US$30,000.00 was placed in the name of one Paz
Roces because of a pending transaction with her;
that the Philippine Deposit Insurance Corporation
had already reimbursed David within the legal
limits; that majority of the stockholders of NSLA
had filed Special Proceedings No. 82-1695 in the
Court of First Instance to contest its (NSLA's)
closure; that after NSLA was placed under
receivership, Martin executed a promissory note
in David's favor and caused the transfer to him of
a nine and on behalf (9 1/2) carat diamond ring
with a net value of P510,000.00; and, that the
liabilities of NSLA to David were civil in nature."
Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C')
stated the following:t.hqw
"That he had no hand whatsoever in the
transactions between David and NSLA since he
(Guingona Jr.) had resigned as NSLA president in
March 1978, or prior to those transactions; that
he assumed a portion o; the liabilities of NSLA to
David because of the latter's insistence that he

placed his investments with NSLA because of his
faith in Guingona, Jr.; that in a Promissory Note
dated June 17, 1981 (Petition, Annex "D") he
(Guingona, Jr.) bound himself to pay David the
sums of P668.307.01 and US$37,500.00 in stated
installments; that he (Guingona, Jr.) secured
payment of those amounts with second
mortgages over two (2) parcels of land under a
deed of Second Real Estate Mortgage (Petition,
Annex "E") in which it was provided that the
mortgage over one (1) parcel shall be cancelled
upon payment of one-half of the obligation to
David; that he (Guingona, Jr.) paid P200,000.00
and tendered another P300,000.00 which David
refused to accept, hence, he (Guingona, Jr.) filed
Civil Case No. Q-33865 in the Court of First
Instance of Rizal at Quezon City, to effect the
release of the mortgage over one (1) of the two
parcels of land conveyed to David under second
mortgages."
At the inception of the preliminary investigation before respondent
Lota, petitioners moved to dismiss the charges against them for
lack of jurisdiction because David's claims allegedly comprised a
purely civil obligation which was itself novated. Fiscal Lota denied
the motion to dismiss (Petition, p. 8).
But, after the presentation of David's principal witness, petitioners
filed the instant petition because: (a) the production of the
Promisory Notes, Banker's Acceptance, Certificates of Time
Deposits and Savings Account allegedly showed that the
transactions between David and NSLA were simple loans, i.e., civil
obligations on the part of NSLA which were novated when
Guingona, Jr. and Martin assumed them; and (b) David's principal
witness allegedly testified that the duplicate originals of the
aforesaid instruments of indebtedness were all on file with NSLA,
contrary to David's claim that some of his investments were not
record (Petition, pp. 8-9).
Petitioners alleged that they did not exhaust available
administrative remedies because to do so would be futile (Petition,
p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole issue for resolution is
whether public respondents acted without jurisdiction when they investigated the
charges (estafa and violation of CB Circular No. 364 and related regulations regarding
foreign exchange transactions) subject matter of I.S. No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in nature
and therefore, public respondents have no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of
the City Fiscal of Manila by private respondent David against petitioners Teopisto
Guingona, Jr., Antonio I. Martin and Teresita G. Santos, together with one Robert
Marshall and the other directors of the Nation Savings and Loan Association, will
show that from March 20, 1979 to March, 1981, private respondent David, together
with his sister, Denise Kuhne, invested with the Nation Savings and Loan Association
the sum of P1,145,546.20 on time deposits covered by Bankers Acceptances and
Certificates of Time Deposits and the sum of P13,531.94 on savings account deposits
covered by passbook nos. 6-632 and 29-742, or a total of P1,159,078.14 (pp. 15-16,
roc.). It appears further that private respondent David, together with his sister, made
investments in the aforesaid bank in the amount of US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid bank was placed under
receivership on March 21, 1981, petitioners Guingona and Martin, upon the request
of private respondent David, assumed the obligation of the bank to private
respondent David by executing on June 17, 1981 a joint promissory note in favor of
private respondent acknowledging an indebtedness of Pl,336,614.02 and
US$75,000.00 (p. 80, rec.). This promissory note was based on the statement of
account as of June 30, 1981 prepared by the private respondent (p. 81, rec.). The
amount of indebtedness assumed appears to be bigger than the original claim
because of the added interest and the inclusion of other deposits of private
respondent's sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the
said indebtedness, and petitioner Guingona executed another promissory note
antedated to June 17, 1981 whereby he personally acknowledged an indebtedness of
P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2 of US$75,000.00) in favor
of private respondent (p. 25, rec.). The aforesaid promissory notes were executed as
a result of deposits made by Clement David and Denise Kuhne with the Nation
Savings and Loan Association.
Furthermore, the various pleadings and documents filed by private respondent David,
before this Court indisputably show that he has indeed invested his money on time
and savings deposits with the Nation Savings and Loan Association.
It must be pointed out that when private respondent David invested his money on
nine. and savings deposits with the aforesaid bank, the contract that was perfected
was a contract of simple loan or mutuum and not a contract of deposit. Thus, Article
1980 of the New Civil Code provides that:t.hqw
Article 1980. Fixed, savings, and current deposits of-money in
banks and similar institutions shall be governed by the provisions
concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We
said:t.hqw
It should be noted that fixed, savings, and current deposits of
money in banks and similar institutions are hat true deposits. are
considered simple loans and, as such, are not preferred credits (Art.
1980 Civil Code; In re Liquidation of Mercantile Batik of China Tan
Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific Coast
Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher
American National Bank vs. Ang Chong UM 66 PWL 385; Pacific
Commercial Co. vs. American Apothecaries Co., 65 PhiL 429;
Gopoco Grocery vs. Pacific Coast Biscuit CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of the
Philippines (96 SCRA 102 [1980]) that:t.hqw
Bank deposits are in the nature of irregular deposits. They are
really 'loans because they earn interest. All kinds of bank deposits,
whether fixed, savings, or current are to be treated as loans and
are to be covered by the law on loans (Art. 1980 Civil Code Gullas
vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits,
are loans to a bank because it can use the same. The petitioner
here in making time deposits that earn interests will respondent
Overseas Bank of Manila was in reality a creditor of the respondent
Bank and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of the respondent Bank to honor the
time deposit is failure to pay its obligation as a debtor and not a
breach of trust arising from a depositary's failure to return the
subject matter of the deposit (Emphasis supplied).
Hence, the relationship between the private respondent and the Nation Savings and
Loan Association is that of creditor and debtor; consequently, the ownership of the
amount deposited was transmitted to the Bank upon the perfection of the contract
and it can make use of the amount deposited for its banking operations, such as to
pay interests on deposits and to pay withdrawals. While the Bank has the obligation
to return the amount deposited, it has, however, no obligation to return or deliver
the same money that was deposited. And, the failure of the Bank to return the
amount deposited will not constitute estafa through misappropriation punishable
under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil
liability over which the public respondents have no- jurisdiction.
respondents. This is so because as clearly as stated in criminal

complaints, the related civil complaints and the supporting sworn
statements, the sums of money that petitioners received were
loans.
The nature of simple loan is defined in Articles 1933 and 1953 of
the Civil Code.t.hqw
"Art. 1933. By the contract of loan, one of the
parties delivers to another, either something not
consumable so that the latter may use the same
for a certain time- and return it, in which case the
contract is called a commodatum; or money
or other consumable thing, upon the condition
that the same amount of the same kind and
quality shall he paid in which case the contract is
simply called a loan or mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a
stipulation to pay interest.
"In commodatum the bailor retains the ownership
of the thing loaned while in simple loan,
ownership passes to the borrower.
"Art. 1953. A person who receives a loan of
money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and
quality."
It can be readily noted from the above-quoted provisions that in
simple loan (mutuum), as contrasted to commodatum the borrower
acquires ownership of the money, goods or personal property
borrowed Being the owner, the borrower can dispose of the thing
borrowed (Article 248, Civil Code) and his act will not be considered
misappropriation thereof' (Yam vs. Malik, 94 SCRA 30, 34 [1979];
Emphasis supplied).
WE have already laid down the rule that:t.hqw

In order that a person can be convicted under the above-quoted
provision, it must be proven that he has the obligation to deliver
or return the some money, goods or personal property that he
receivedPetitioners had no such obligation to return the same
money, i.e., the bills or coins, which they received from private
But even granting that the failure of the bank to pay the time and savings deposits of
private respondent David would constitute a violation of paragraph 1(b) of Article 315
of the Revised Penal Code, nevertheless any incipient criminal liability was deemed
avoided, because when the aforesaid bank was placed under receivership by the
Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to
private respondent David, thereby resulting in the novation of the original contractual
obligation arising from deposit into a contract of loan and converting the original
trust relation between the bank and private respondent David into an ordinary
debtor-creditor relation between the petitioners and private respondent.
Consequently, the failure of the bank or petitioners Guingona and Martin to pay the
deposits of private respondent would not constitute a breach of trust but would
merely be a failure to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish criminal liability, it may
however, prevent the rise of criminal liability as long as it occurs prior to the filing of
the criminal information in court. Thus, in Gonzales vs. Serrano ( 25 SCRA 64, 69
[1968]) We held that:t.hqw
As pointed out in People vs. Nery, novation prior to the filing of the
criminal information as in the case at bar may convert the
relation between the parties into an ordinary creditor-debtor
relation, and place the complainant in estoppel to insist on the
original transaction or "cast doubt on the true nature" thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580581 [1983] ), this Court reiterated the ruling in People vs. Nery ( 10 SCRA 244
[1964] ), declaring that:t.hqw
The novation theory may perhaps apply prior to the filling of the
criminal information in court by the state prosecutors because up
to that time the original trust relation may be converted by the
parties into an ordinary creditor-debtor situation, thereby placing
the complainant in estoppel to insist on the original trust. But after
the justice authorities have taken cognizance of the crime and
instituted action in court, the offended party may no longer divest
the prosecution of its power to exact the criminal liability, as
distinguished from the civil. The crime being an offense against the
state, only the latter can renounce it (People vs. Gervacio, 54 Off.
Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil.
620).
It may be observed in this regard that novation is not one of the
means recognized by the Penal Code whereby criminal liability can
be extinguished; hence, the role of novation may only be to either
prevent the rise of criminal habihty or to cast doubt on the true
nature of the original basic transaction, whether or not it was such
that its breach would not give rise to penal responsibility, as when
money loaned is made to appear as a deposit, or other similar
disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S. vs.
Villareal, 27 Phil. 481).
In the case at bar, there is no dispute that petitioners Guingona and Martin executed
a promissory note on June 17, 1981 assuming the obligation of the bank to private
respondent David; while the criminal complaint for estafa was filed on December 23,
1981 with the Office of the City Fiscal. Hence, it is clear that novation occurred long
before the filing of the criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided but
there will still be a civil liability on the part of petitioners Guingona and Martin to pay
the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of Central Bank
Circular No. 364 and other related regulations regarding foreign exchange
transactions by accepting foreign currency deposit in the amount of US$75,000.00
without authority from the Central Bank. They contend however, that the US dollars
intended by respondent David for deposit were all converted into Philippine currency
before acceptance and deposit into Nation Savings and Loan Association.
Petitioners' contention is worthy of behelf for the following reasons:
1. It appears from the records that when respondent David was about to make a
deposit of bank draft issued in his name in the amount of US$50,000.00 with the
Nation Savings and Loan Association, the same had to be cleared first and converted
into Philippine currency. Accordingly, the bank draft was endorsed by respondent
David to petitioner Guingona, who in turn deposited it to his dollar account with the
Security Bank and Trust Company. Petitioner Guingona merely accommodated the
request of the Nation Savings and loan Association in order to clear the bank draft
through his dollar account because the bank did not have a dollar account.
Immediately after the bank draft was cleared, petitioner Guingona authorized Nation
Savings and Loan Association to withdraw the same in order to be utilized by the
bank for its operations.
2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos
before they were accepted and deposited in Nation Savings and Loan Association,
because the bank is presumed to have followed the ordinary course of the business
which is to accept deposits in Philippine currency only, and that the transaction was
regular and fair, in the absence of a clear and convincing evidence to the contrary
(see paragraphs p and q,Sec. 5, Rule 131, Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein petitioners
despite the fact that it was raised. in petitioners' reply filed on May 7, 1982 to private
respondent's comment and in the July 27, 1982 reply to public respondents' comment
and reiterated in petitioners' memorandum filed on October 30, 1982, thereby adding
more support to the conclusion that the US$75,000.00 were really converted into
Philippine currency before they were accepted and deposited into Nation Savings and
Loan Association. Considering that this might adversely affect his case, respondent
David should have promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil in nature
and that there is no clear showing that they engaged in foreign exchange
transactions, We hold that the public respondents acted without jurisdiction when
they investigated the charges against the petitioners. Consequently, public

respondents should be restrained from further proceeding with the criminal case for
to allow the case to continue, even if the petitioners could have appealed to the
Ministry of Justice, would work great injustice to petitioners and would render
meaningless the proper administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the subject of
prohibition and injunction, this court has recognized the resort to the extraordinary
writs of prohibition and injunction in extreme cases, thus:t.hqw
On the issue of whether a writ of injunction can restrain the
proceedings in Criminal Case No. 3140, the general rule is that
"ordinarily, criminal prosecution may not be blocked by court
prohibition or injunction." Exceptions, however, are allowed in the
following instances:t.hqw
to restrain the prosecution of certain chiropractors although, if

convicted, they could have appealed. We gave due course to their
petition for the orderly administration of justice and to avoid
possible oppression by the strong arm of the law. And inArevalo vs.
Nepomuceno, 63 Phil. 627, the petition for certiorari challenging
the trial court's action admitting an amended information was
sustained despite the availability of appeal at the proper time.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING
ORDER PREVIOUSLY ISSUED IS MADE PERMANENT. COSTS AGAINST THE PRIVATE
RESPONDENT.
SO ORDERED.
"1. for the orderly administration of justice;

"2. to prevent the use of the strong arm of the
law in an oppressive and vindictive manner;
SECOND DIVISION
"3. to avoid multiplicity of actions;

"4. to afford adequate protection to constitutional
rights;
"5. in proper cases, because the statute relied
upon is unconstitutional or was held invalid"
( Primicias vs. Municipality of Urdaneta,
Pangasinan, 93 SCRA 462, 469-470 [1979]; citing
Ramos vs. Torres, 25 SCRA 557 [1968]; and
Hernandez vs. Albano, 19 SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We held
that:t.hqw
G.R. No. 84719 January 25, 1991

YONG CHAN KIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO, Presiding Judge,
RTC, 6th Judicial Region, Branch 28 Iloilo City and Court of Appeals (13th
Division) respondents.
Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.
Hector P. Teodosio for private respondent.
The writs of certiorari and prohibition, as extraordinary legal

remedies, are in the ultimate analysis, intended to annul void
proceedings; to prevent the unlawful and oppressive exercise of
legal authority and to provide for a fair and orderly administration
of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385, We took
cognizance of a petition for certiorari and prohibition although the
accused in the case could have appealed in due time from the
order complained of, our action in the premises being based on the
public welfare policy the advancement of public policy.
In Dimayuga vs. Fajardo, 43 Phil. 304, We also admitted a petition
PADILLA, J.:p
This petition seeks the review on certiorari of the following:
1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court
(Guimbal-Igbaras-Tigbauan-Tubungan) in Guimbal, Iloilo, in Criminal Case No.
628, 1 and the affirming decision of the Regional Trial Court, Branch XXVIII, Iloilo City,
in Criminal Case No. 20958, promulgated on 30 July 1987; 2
2. The decision of the Court of Appeals, dated 29 April 1988, 3 dismissing petitioner's
appeal/petition for review for having been filed out of time, and the resolution, dated
19 August 1988, denying petitioner's motion for reconsideration. 4
The antecedent facts are as follows:
Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture
Department of the Southeast Asian Fisheries Development Center (SEAFDEC) with
head station at Tigbauan, Province of Iloilo. As Head of the Economics Unit of the
Research Division, he conducted prawn surveys which required him to travel to
various selected provinces in the country where there are potentials for prawn
culture.
On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his
travels to different places in Luzon from 16 June to 21 July 1982, a period of thirty five
(35) days. Under this travel order, he received P6,438.00 as cash advance to defray
his travel expenses.
Within the same period, petitioner was issued another travel order, T.O. 2268,
requiring him to travel from the Head Station at Tigbauan, Iloilo to Roxas City from 30
June to 4 July 1982, a period of five (5) days. For this travel order, petitioner received
a cash advance of P495.00.
On 14 January 1983, petitioner presented both travel orders for liquidation,
submitting Travel Expense Reports to the Accounting Section. When the Travel
Expense Reports were audited, it was discovered that there was an overlap of four (4)
days (30 June to 3 July 1982) in the two (2) travel orders for which petitioner
collected per diems twice. In sum, the total amount in the form of per diems and
allowances charged and collected by petitioner under Travel Order No. 2222, when he
did not actually and physically travel as represented by his liquidation papers, was
P1,230.00.
Petitioner was required to comment on the internal auditor's report regarding the
alleged anomalous claim for per diems. In his reply, petitioner denied the alleged
anomaly, claiming that he made make-up trips to compensate for the trips he failed
to undertake under T.O. 2222 because he was recalled to the head office and given
another assignment.
In September 1983, two (2) complaints for Estafa were filed against the petitioner
before the Municipal Circuit Trial Court at Guimbal, Iloilo, docketed as Criminal Case
Nos. 628 and 631.
After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a
decision, the dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the
accused, Yong Chan Kim, guilty beyond reasonable doubt for the
crime of Estafa penalized under paragraph l(b) of Article 315,
Revised Penal Code. Records disclose there is no aggravating
circumstance proven by the prosecution. Neither there is any
mitigating circumstance proven by the accused. Considering the
amount subject of the present complaint, the imposable penalty
should be in the medium period ofarresto mayor in its maximum
period to prision correccional in its minimum period in accordance
with Article 315, No. 3, Revised Penal Code. Consonantly, the Court
hereby sentences the accused to suffer an imprisonment ranging
from four (4) months as the minimum to one (1) year and six (6)
months as the maximum in accordance with the Indeterminate
Sentence Law and to reimburse the amount of P1,230.00 to
SEAFDEC.
The surety bond of the accused shall remain valid until final
judgment in accordance herewith.
Costs against the accused. 5
Criminal Case No. 631 was subsequently dismissed for failure to prosecute.
Petitioner appealed from the decision of the Municipal Circuit Trial Court in Criminal
Case No. 628. On 30 July 1987, the Regional Trial Court in Iloilo City in Criminal Case
No. 20958 affirmed in toto the trial court's decision. 6
The decision of the Regional Trial Court was received by petitioner on 10 August
1987. On 11 August 1987, petitioner, thru counsel, filed a notice of appeal with the
Regional Trial Court which ordered the elevation of the records of the case to the then
Intermediate Appellate Court on the following day, 12 August 1987. The records of
the case were received by the Intermediate Appellate Court on 8 October 1987, and
the appeal was docketed as CA-G.R. No. 05035.
On 30 October 1987, petitioner filed with the appellate court a petition for review. As
earlier stated, on 29 April 1988, the Court of Appeals dismissed the petition for
having been filed out of time. Petitioner's motion for reconsideration was denied for
lack of merit.
Hence, the present recourse.
On 19 October 1988, the Court resolved to require the respondents to comment on

the petition for review. The Solicitor General filed his Comment on 20 January 1989,
after several grants of extensions of time to file the same.
Technicality, when it deserts its proper office as an aid to justice

and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. [Alonzo v. Villamor, et al., 16 Phil. 315]
In his Comment, the Solicitor General prayed for the dismissal of the instant petition
on the ground that, as provided for under Section 22, Batas Pambansa 129, Section
22 of the Interim Rules and Guidelines, and Section 3, Rule 123 of the 1985 Rules of
Criminal Procedure, the petitioner should have filed a petition for review with the
then Intermediate Appellate Court instead of a notice of appeal with the Regional Trial
Court, in perfecting his appeal from the RTC to the Intermediate Appellate Court,
since the RTC judge was rendered in the exercise of its appellate jurisdiction over
municipal trial courts. The failure of petitioner to file the proper petition rendered the
decision of the Regional Trial Court final and executory, according to the Solicitor
General.
Conscience cannot rest in allowing a man to go straight to jail,

closing the door to his every entreaty for a full opportunity to be
heard, even as he has made a prima facie showing of a meritorious
cause, simply because he had chosen an appeal route, to be sure,
recognized by law but made inapplicable to his case, under altered
rules of procedure. While the Court of Appeals can not be faulted
and, in fact, it has to be lauded for correctly applying the rules of
procedure in appeals to the Court of Appeals from decisions of the
RTC rendered in the exercise of its appellate jurisdiction, yet, this
Court, as the ultimate bulwark of human rights and individual
liberty, will not allow substantial justice to be sacrified at the altar
of procedural rigor. 10
Petitioner's counsel submitted a Reply (erroneously termed Comment) 7 wherein she

contended that the peculiar circumstances of a case, such as this, should be
considered in order that the principle barring a petitioner's right of review can be
made flexible in the interest of justice and equity.
In our Resolution of 29 May 1989, we resolved to deny the petition for failure of
petitioner to sufficiently show that the Court of Appeals had committed any reversible
error in its questioned judgment which had dismissed petitioner's petition for review
for having been filed out of time. 8
Petitioner filed a motion for reconsideration maintaining that his petition for review
did not limit itself to the issue upon which the appellate court's decision of 29 April
1988 was based, but rather it delved into the substance and merits of the case. 9
On 10 August 1990, we resolved to set aside our resolution dismissing this case and
gave due course to the petition. In the said resolution, we stated:
In several cases decided by this Court, it had set aside
technicalities in the Rules in order to give way to justice and equity.
In the present case, we note that the petitioner, in filing his Notice
of Appeal the very next day after receiving the decision of the
court a quo lost no time in showing his intention to appeal,
although the procedure taken was not correct. The Court can
overlook the wrong pleading filed, if strict compliance with the rules
would mean sacrificing justice to technicality. The imminence of a
person being deprived unjustly of his liberty due to procedural
lapse of counsel is a strong and compelling reason to warrant
suspension of the Rules. Hence, we shall consider the petition for
review filed in the Court of Appeals as a Supplement to the Notice
of Appeal. As the Court declared in a recent decision, '. . . there is
nothing sacred about the procedure of pleadings. This Court may
go beyond the pleadings when the interest of justice so warrants. It
has the prerogative to suspend its rules for the same purpose. . . .
In the same resolution, the parties were required to file their respective
memoranda, and in compliance with said resolution, petitioner filed his
memorandum on 25 October 1989, while private respondent SEAFDEC filed
its required memorandum on 10 April 1990. On the other hand, the Solicitor
General filed on 13 March 1990 a Recommendation for Acquittal in lieu of
the required memorandum.
Two (2) issues are raised by petitioner to wit:
I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL
CIRCUIT TRIAL COURT (GUIMBAL, ILOILO) AND THE REGIONAL TRIAL
COURT, BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE FACTS
AND EVIDENCE OR CONTRARY TO LAW AND THAT THE TWO
COURTS A QUO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION OR HAVE ACTED WITHOUT
OR IN EXCESS OF JURISDICTION.
II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF
APPEALS IS CONTRARY TO LAW, ESTABLISHED JURISPRUDENCE,
EQUITY AND DUE PROCESS.
The second issue has been resolved in our Resolution dated 10 August 1990, when
we granted petitioner's second motion for reconsideration. We shall now proceed to
the first issue.
We find merit in the petition.
It is undisputed that petitioner received a cash advance from private respondent
SEAFDEC to defray his travel expenses under T.O. 2222. It is likewise admitted that
within the period covered by T.O. 2222, petitioner was recalled to the head station in
Iloilo and given another assignment which was covered by T.O. 2268. The dispute
arose when petitioner allegedly failed to return P1,230.00 out of the cash advance
which he received under T.O. 2222. For the alleged failure of petitioner to return the
amount of P1,230.00, he was charged with the crime of Estafa under Article 315, par.
1(b) of the Revised Penal Code, which reads as follows:
Art. 315. Swindling (Estafa). Any person who shall defraud another
by any of the means mentioned herein below shall be punished by:
xxx xxx xxx
1. With unfaithfulness or abuse of confidence, namely:
(a) xxx xxx xxx
(b) By misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of; or to
return, the same, even though such obligation be fatally or partially
guaranteed by a bond; or by denying having received such money,
goods, or other property.
In order that a person can be convicted under the abovequoted provision, it must be
proven that he had the obligation to deliver or return the same money, good or
personal property that he had received. 11
Was petitioner under obligation to return the same money (cash advance) which he
had received? We belive not. Executive Order No. 10, dated 12 February 1980
provides as follows:
B. Cash Advance for Travel
xxx xxx xxx
4. All cash advances must be liquidated within 30 days after date of
projected return of the person. Otherwise, corresponding salary
deduction shall be made immediately following the expiration day.
Liquidation simply means the settling of an indebtedness. An employee, such as
herein petitioner, who liquidates a cash advance is in fact paying back his debt in the
form of a loan of money advanced to him by his employer, asper diems and
allowances. Similarly, as stated in the assailed decision of the lower court, "if the
amount of the cash advance he received is less than the amount he spent for actual
travel . . . he has the right to demand reimbursement from his employer the amount
he spent coming from his personal funds. 12 In other words, the money advanced by
either party is actually a loan to the other. Hence, petitioner was under no legal
obligation to return the same cash or money, i.e., the bills or coins, which he received
from the private respondent. 13
Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.
Art. 1933. By the contract of loan, one of the parties delivers to
another, either something not consumable so that the latter may
use the same for a certain time and return it, in which case the
contract is called a commodatum; or money or other consumable
thing, upon the condition that the same amount of the same kind
and quality shall be paid, in which case the contract is simply called
a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing
loaned, while in simple loan, ownership passes to the borrower.
Art. 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay
to the creditor an equal amount of the same kind and quality.
The ruling of the trial judge that ownership of the cash advanced to the petitioner by
private respondent was not transferred to the latter is erroneous. Ownership of the
money was transferred to the petitioner. Even the prosecution witness, Virgilio Hierro,
testified thus:
Q When you gave cash advance to the accused in
this Travel Order No. 2222 subject to liquidation,
who owns the funds, accused or SEAFDEC? How
do you consider the funds in the possession of
the accused at the time when there is an actual
transfer of cash? . . .
A The one drawing cash advance already owns
the money but subject to liquidation. If he will not
liquidate, be is obliged to return the amount.
Q xxx xxx xxx
So why do you treat the itinerary of travel
temporary when in fact as of that time the
accused owned already the cash advance. You
said the cash advance given to the accused is his

own money. In other words, at the time you
departed with the money it belongs already to
the accused?
A Yes, but subject for liquidation. He will be only
entitled for that credence if he liquidates.
Q If other words, it is a transfer of ownership
subject to a suspensive condition that he
liquidates the amount of cash advance upon
return to station and completion of the travel?
GUARIA AGRICULTURAL AND REALTY DEVELOPMENT

CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
The foreclosure of a mortgage prior to the mortgagor's default on the principal
obligation is premature, and should be undone for being void and ineffectual. The
mortgagee who has been meanwhile given possession of the mortgaged property by
virtue of a writ of possession issued to it as the purchaser at the foreclosure sale may
be required to restore the possession of the property to the mortgagor and to pay
reasonable rent for the use of the property during the intervening period.
A Yes, sir.
(pp. 26-28, tsn, May 8, 1985).
14
Since ownership of the money (cash advance) was transferred to petitioner, no

fiduciary relationship was created. Absent this fiduciary relationship between
petitioner and private respondent, which is an essential element of the crime of
estafa by misappropriation or conversion, petitioner could not have committed
estafa. 15
Additionally, it has been the policy of private respondent that all cash advances not
liquidated are to be deducted correspondingly from the salary of the employee
concerned. The evidence shows that the corresponding salary deduction was made in
the case of petitioner vis-a-vis the cash advance in question.
WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit Trial
Court in Guimbal, Iloilo in Criminal Case No. 628, finding petitioner guilty of estafa
under Article 315, par. 1 (b) of the Revised Penal Code and the affirming decision of
the Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No. 20958,
promulgated on 30 July 1987 are both hereby SET ASIDE. Petitioner is ACQUITTED of
criminal charge filed against him.
SO ORDERED.
FIRST DIVISION
G.R. No. 160758
January 15, 2014
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
The Case
In this appeal, Development Bank of the Philippines (DBP) seeks the reversal of the
adverse decision promulgated on March 26, 2003 in C.A.-G.R. CV No.
59491,1 whereby the Court of Appeals (CA) upheld the judgment rendered on January
6, 19982 by the Regional Trial Court, Branch 25, in Iloilo City (RTC) annulling the extrajudicial foreclosure of the real estate and chattel mortgages at the instance of DBP
because the debtor-mortgagor, Guaria Agricultural and Realty Development
Corporation (Guaria Corporation), had not yet defaulted on its obligations in favor of
DBP.
Antecedents
In July 1976, Guaria Corporation applied for a loan from DBP to finance the
development of its resort complex situated in Trapiche, Oton, Iloilo. The loan, in the
amount of P3,387,000.00, was approved on August 5, 1976.3Guaria Corporation
executed a promissory note that would be due on November 3, 1988. 4 On October 5,
1976, Guaria Corporation executed a real estate mortgage over several real
properties in favor of DBP as security for the repayment of the loan. On May 17,
1977, Guaria Corporation executed a chattel mortgage over the personal properties
existing at the resort complex and those yet to be acquired out of the proceeds of the
loan, also to secure the performance of the obligation. 5 Prior to the release of the
loan, DBP required Guaria Corporation to put up a cash equity of P1,470,951.00 for
the construction of the buildings and other improvements on the resort complex.
The loan was released in several instalments, and Guaria Corporation used the
proceeds to defray the cost of additional improvements in the resort complex. In all,
the amount released totalled P3,003,617.49, from which DBP withheld P148,102.98
as interest.6
Guaria Corporation demanded the release of the balance of the loan, but DBP
refused. Instead, DBP directly paid some suppliers of Guaria Corporation over the
latter's objection. DBP found upon inspection of the resort project, its developments
and improvements that Guaria Corporation had not completed the construction
works.7 In a letter dated February 27, 1978,8 and a telegram dated June 9, 1978,9 DBP
thus demanded that Guaria Corporation expedite the completion of the project, and
warned that it would initiate foreclosure proceedings should Guaria Corporation not
do so.10
Unsatisfied with the non-action and objection of Guaria Corporation, DBP initiated
extrajudicial foreclosure proceedings. A notice of foreclosure sale was sent to Guaria
Corporation. The notice was eventually published, leading the clients and patrons of
Guaria Corporation to think that its business operation had slowed down, and that
its resort had already closed.11
On January 6, 1979, Guaria Corporation sued DBP in the RTC to demand specific
performance of the latter's obligations under the loan agreement, and to stop the
foreclosure of the mortgages (Civil Case No. 12707).12However, DBP moved for the
dismissal of the complaint, stating that the mortgaged properties had already been
sold to satisfy the obligation of Guaria Corporation at a public auction held on
January 15, 1979 at the Costa Mario Resort Beach Resort in Oton, Iloilo. 13 Due to this,
Guaria Corporation amended the complaint on February 6, 1979 14 to seek the
nullification of the foreclosure proceedings and the cancellation of the certificate of
sale. DBP filed its answer on December 17, 1979, 15 and trial followed upon the
termination of the pre-trial without any agreement being reached by the parties. 16
In the meantime, DBP applied for the issuance of a writ of possession by the RTC. At
first, the RTC denied the application but later granted it upon DBP's motion for
reconsideration. Aggrieved, Guaria Corporation assailed the granting of the
application before the CA on certiorari (C.A.-G.R. No. 12670-SP entitled Guaria
Agricultural and Realty Development Corporation v. Development Bank of the
Philippines). After the CA dismissed the petition for certiorari, DBP sought the
implementation of the order for the issuance of the writ of possession. Over Guaria
Corporation's opposition, the RTC issued the writ of possession on June 16, 1982. 17
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707, disposing
as follows:
WHEREFORE, premises considered, the court hereby resolves that the extra-judicial
sales of the mortgaged properties of the plaintiff by the Office of the Provincial Sheriff
of Iloilo on January 15, 1979 are null and void, so with the consequent issuance of
certificates of sale to the defendant of said properties, the registration thereof with
the Registry of Deeds and the issuance of the transfer certificates of title involving
the real property in its name.
It is also resolved that defendant give back to the plaintiff or its representative the
actual possession and enjoyment of all the properties foreclosed and possessed by it.
To pay the plaintiff the reasonable rental for the use of its beach resort during the
period starting from the time it (defendant) took over its occupation and use up to
the time possession is actually restored to the plaintiff.
And, on the part of the plaintiff, to pay the defendant the loan it obtained as soon as
it takes possession and management of the beach resort and resume its business
operation.
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of P50,000.00.
So ORDERED.18
Decision of the CA
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the RTC, and
insisted that:
I
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN DECLARING DBP'S
FORECLOSURE OF THE MORTGAGED PROPERTIES AS INVALID AND UNCALLED FOR.
II
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS INVOKED BY DBP
TO JUSTIFY FORECLOSURE AS "NOT SUFFICIENT." ON THE CONTRARY, THE MORTGAGE
WAS FORECLOSED BY EXPRESS AUTHORITY OF PARAGRAPH NO. 4 OF THE MORTGAGE
CONTRACT AND SECTION 2 OF P.D. 385 IN ADDITION TO THE QUESTIONED PAR. NO.
26 PRINTED AT THE BACK OF THE FIRST PAGE OF THE MORTGAGE CONRACT.
III
THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE MORTGAGED PROPERTIES
TO DBP AS INVALID UNDER ARTICLES 2113 AND 2141 OF THE CIVIL CODE.
IV
THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE] ERROR IN
ORDERING DBP TO RETURN TO PLAINTIFF THE ACTUAL POSSESSION AND ENJOYMENT
OF ALL THE FORECLOSED PROPERTIES AND TO PAY PLAINTIFF REASONABLE RENTAL
FOR THE USE OF THE FORECLOSED BEACH RESORT.
V
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AGAINST DBP WHICH
MERELY EXERCISED ITS RIGHTS UNDER THE MORTGAGE CONTRACT. 19
In its decision promulgated on March 26, 2003, 20 however, the CA sustained the RTC's
judgment but deleted the award of attorney's fees, decreeing:
WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998, rendered
by the Regional Trial Court of Iloilo City, Branch 25 in Civil Case No. 12707 for Specific
Performance with Preliminary Injunction is hereby AFFIRMED with MODIFICATION, in
that the award for attorney's fees is deleted.
account would be considered due and demandable in the event of a deviation from
the purpose of the loan,23 including the failure to put up the required equity and the
diversion of the loan proceeds to other purposes. 24 It assails the declaration by the
CA that Guaria Corporation had not yet been in default in its obligations despite
violations of the terms of the mortgage contract securing the promissory note.
Guaria Corporation counters that it did not violate the terms of the promissory note
and the mortgage contracts because DBP had fully collected the interest
notwithstanding that the principal obligation did not yet fall due and become
demandable.25
The submissions of DBP lack merit and substance.
SO ORDERED.21
DBP timely filed a motion for reconsideration, but the CA denied its motion on
October 9, 2003.
Hence, this appeal by DBP.
Issues
DBP submits the following issues for consideration, namely:
WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS DATED MARCH 26,
2003 AND ITS RESOLUTION DATED OCTOBER 9, DENYING PETITIONER'S MOTION FOR
RECONSIDERATION WERE ISSUED IN ACCORDANCE WITH LAW, PREVAILING
JURISPRUDENTIAL DECISION AND SUPPORTED BY EVIDENCE;
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED TO THE USUAL
COURSE OF JUDICIAL PROCEEDINGS IN DECIDING C.A.-G.R. CV NO. 59491 AND
THEREFORE IN ACCORDANCE WITH THE "LAW OF THE CASE DOCTRINE." 22
Ruling
The appeal lacks merit.
1.
Findings of the CA were supported by the
evidence as well as by law and jurisprudence
DBP submits that the loan had been granted under its supervised credit financing
scheme for the development of a beach resort, and the releases of the proceeds
would be subject to conditions that included the verification of the progress of works
in the project to forestall diversion of the loan proceeds; and that under Stipulation
No. 26 of the mortgage contract, further loan releases would be terminated and the
The agreement between DBP and Guaria Corporation was a loan. Under the law, a
loan requires the delivery of money or any other consumable object by one party to
another who acquires ownership thereof, on the condition that the same amount or
quality shall be paid.26 Loan is a reciprocal obligation, as it arises from the same
cause where one party is the creditor, and the other the debtor. 27 The obligation of
one party in a reciprocal obligation is dependent upon the obligation of the other, and
the performance should ideally be simultaneous. This means that in a loan, the
creditor should release the full loan amount and the debtor repays it when it
becomes due and demandable.28
In its assailed decision, the CA found and held thusly:
xxxx
x x x It is undisputed that appellee obtained a loan from appellant, and as security,
executed real estate and chattel mortgages. However, it was never established that
appellee was already in default. Appellant, in a telegram to the appellee reminded
the latter to make good on its construction works, otherwise, it would foreclose the
mortgage it executed. It did not mention that appellee was already in default. The
records show that appellant did not make any demand for payment of the promissory
note. It appears that the basis of the foreclosure was not a default on the loan but
appellee's failure to complete the project in accordance with appellant's standards. In
fact, appellant refused to release the remaining balance of the approved loan after it
found that the improvements introduced by appellee were below appellant's
expectations.
The loan agreement between the parties is a reciprocal obligation. Appellant in the
instant case bound itself to grant appellee the loan amount of P3,387,000.00
condition on appellee's payment of the amount when it falls due. Furthermore, the
loan was evidenced by the promissory note which was secured by real estate
mortgage over several properties and additional chattel mortgage. Reciprocal
obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other (Areola vs. Court of Appeals, 236 SCRA 643). They are to
be performed simultaneously such that the performance of one is conditioned upon

the simultaneous fulfilment of the other (Jaime Ong vs. Court of Appeals, 310 SCRA
1). The promise of appellee to pay the loan upon due date as well as to execute
sufficient security for said loan by way of mortgage gave rise to a reciprocal
obligation on the part of appellant to release the entire approved loan amount. Thus,
appellees are entitled to receive the total loan amount as agreed upon and not an
incomplete amount.
The appellant did not release the total amount of the approved loan. Appellant
therefore could not have made a demand for payment of the loan since it had yet to
fulfil its own obligation. Moreover, the fact that appellee was not yet in default
rendered the foreclosure proceedings premature and improper.
The properties which stood as security for the loan were foreclosed without any
demand having been made on the principal obligation. For an obligation to become
due, there must generally be a demand. Default generally begins from the moment
the creditor demands the performance of the obligation. Without such demand,
judicial or extrajudicial, the effects of default will not arise (Namarco vs. Federation of
United Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI of Misamis Occidental,
88 SCRA 576).
xxxx
Appellant also admitted in its brief that it indeed failed to release the full amount of
the approved loan. As a consequence, the real estate mortgage of appellee becomes
unenforceable, as it cannot be entirely foreclosed to satisfy appellee's total debt to
appellant (Central Bank of the Philippines vs. Court of Appeals, 139 SCRA 46).
Since the foreclosure proceedings were premature and unenforceable, it only follows
that appellee is still entitled to possession of the foreclosed properties. However,
appellant took possession of the same by virtue of a writ of possession issued in its
favor during the pendency of the case. Thus, the trial court correctly ruled when it
ordered appellant to return actual possession of the subject properties to appellee or
its representative and to pay appellee reasonable rents.
However, the award for attorney's fees is deleted. As a rule, the award of attorney's
fees is the exception rather than the rule and counsel's fees are not to be awarded
every time a party wins a suit. Attorney's fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to
litigate (Pimentel vs. Court of Appeals, et al., 307 SCRA 38). 29
xxxx
We uphold the CA.
To start with, considering that the CA thereby affirmed the factual findings of the RTC,
the Court is bound to uphold such findings, for it is axiomatic that the trial court's
factual findings as affirmed by the CA are binding on appeal due to the Court not
being a trier of facts.
Secondly, by its failure to release the proceeds of the loan in their entirety, DBP had
no right yet to exact on Guaria Corporation the latter's compliance with its own
obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does
not perform its obligation, the other party cannot be obliged to perform what is
expected of it while the other's obligation remains unfulfilled. 30 In other words, the
latter party does not incur delay. 31
Still, DBP called upon Guaria Corporation to make good on the construction works
pursuant to the acceleration clause written in the mortgage contract (i.e., Stipulation
No. 26),32 or else it would foreclose the mortgages.
DBP's actuations were legally unfounded. It is true that loans are often secured by a
mortgage constituted on real or personal property to protect the creditor's interest in
case of the default of the debtor. By its nature, however, a mortgage remains an
accessory contract dependent on the principal obligation, 33 such that enforcement of
the mortgage contract will depend on whether or not there has been a violation of
the principal obligation. While a creditor and a debtor could regulate the order in
which they should comply with their reciprocal obligations, it is presupposed that in a
loan the lender should perform its obligation - the release of the full loan amount before it could demand that the borrower repay the loaned amount. In other words,
Guaria Corporation would not incur in delay before DBP fully performed its
reciprocal obligation.34
Considering that it had yet to release the entire proceeds of the loan, DBP could not
yet make an effective demand for payment upon Guaria Corporation to perform its
obligation under the loan. According to Development Bank of the Philippines v.
Licuanan,35 it would only be when a demand to pay had been made and was
subsequently refused that a borrower could be considered in default, and the lender
could obtain the right to collect the debt or to foreclose the
mortgage.1wphi1 Hence, Guaria Corporation would not be in default without the
demand.
Assuming that DBP could already exact from the latter its compliance with the loan
agreement, the letter dated February 27, 1978 that DBP sent would still not be
regarded as a demand to render Guaria Corporation in default under the principal
contract because DBP was only thereby requesting the latter "to put up the
deficiency in the value of improvements." 36
Under the circumstances, DBP's foreclosure of the mortgage and the sale of the
mortgaged properties at its instance were premature, and, therefore, void and
ineffectual.37
Being a banking institution, DBP owed it to Guaria Corporation to exercise the

highest degree of diligence, as well as to observe the high standards of integrity and
performance in all its transactions because its business was imbued with public
interest.38 The high standards were also necessary to ensure public confidence in the
banking system, for, according to Philippine National Bank v. Pike: 39 "The stability of
banks largely depends on the confidence of the people in the honesty and efficiency
of banks." Thus, DBP had to act with great care in applying the stipulations of its
agreement with Guaria Corporation, lest it erodes such public confidence. Yet, DBP
failed in its duty to exercise the highest degree of diligence by prematurely
foreclosing the mortgages and unwarrantedly causing the foreclosure sale of the
mortgaged properties despite Guaria Corporation not being yet in default. DBP
wrongly relied on Stipulation No. 26 as its basis to accelerate the obligation of
Guaria Corporation, for the stipulation was relevant to an Omnibus Agricultural
Loan, to Guaria Corporation's loan which was intended for a project other than
agricultural in nature.
Even so, Guaria Corporation did not elevate the actionability of DBP's negligence to
the CA, and did not also appeal the CA's deletion of the award of attorney's fees
allowed by the RTC.1wphi1 With the decision of the CA consequently becoming final
and immutable as to Guaria Corporation, we will not delve any further on DBP's
actionable actuations.
2.
The doctrine of law of the case
did not apply herein
DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP already constituted
the law of the case. Hence, the CA could not decide the appeal in C.A.-G.R. CV No.
59491 differently.
Guaria Corporation counters that the ruling in C.A.-G.R. No. 12670-SP did not
constitute the law of the case because C.A.-G.R. No. 12670-SP concerned the issue of
possession by DBP as the winning bidder in the foreclosure sale, and had no bearing
whatsoever to the legal issues presented in C.A.-G.R. CV No. 59491.
Law of the case has been defined as the opinion delivered on a former appeal, and
means, more specifically, that whatever is once irrevocably established as the
controlling legal rule of decision between the same parties in the same case
continues to be the law of the case, whether correct on general principles or not, so
long as the facts on which such decision was predicated continue to be the facts of
the case before the court.40
The concept of law of the case is well explained in Mangold v. Bacon, 41 an American
case, thusly:
The general rule, nakedly and boldly put, is that legal conclusions announced on a
first appeal, whether on the general law or the law as applied to the concrete facts,
not only prescribe the duty and limit the power of the trial court to strict obedience
and conformity thereto, but they become and remain the law of the case in all other
steps below or above on subsequent appeal. The rule is grounded on convenience,
experience, and reason. Without the rule there would be no end to criticism,
reagitation, reexamination, and reformulation. In short, there would be endless
litigation. It would be intolerable if parties litigants were allowed to speculate on
changes in the personnel of a court, or on the chance of our rewriting propositions
once gravely ruled on solemn argument and handed down as the law of a given case.
An itch to reopen questions foreclosed on a first appeal would result in the
foolishness of the inquisitive youth who pulled up his corn to see how it grew. Courts
are allowed, if they so choose, to act like ordinary sensible persons. The
administration of justice is a practical affair. The rule is a practical and a good one of
frequent and beneficial use.
The doctrine of law of the case simply means, therefore, that when an appellate court
has once declared the law in a case, its declaration continues to be the law of that
case even on a subsequent appeal, notwithstanding that the rule thus laid down may
have been reversed in other cases.42 For practical considerations, indeed, once the
appellate court has issued a pronouncement on a point that was presented to it with
full opportunity to be heard having been accorded to the parties, the pronouncement
should be regarded as the law of the case and should not be reopened on remand of
the case to determine other issues of the case, like damages. 43 But the law of the
case, as the name implies, concerns only legal questions or issues thereby
adjudicated in the former appeal.
The foregoing understanding of the concept of the law of the case exposes DBP's
insistence to be unwarranted.
To start with, the ex parte proceeding on DBP's application for the issuance of the
writ of possession was entirely independent from the judicial demand for specific
performance herein. In fact, C.A.-G.R. No. 12670-SP, being the interlocutory appeal
concerning the issuance of the writ of possession while the main case was pending,
was not at all intertwined with any legal issue properly raised and litigated in C.A.G.R. CV No. 59491, which was the appeal to determine whether or not DBP's
foreclosure was valid and effectual. And, secondly, the ruling in C.A.-G.R. No. 12670SP did not settle any question of law involved herein because this case for specific
performance was not a continuation of C.A.-G.R. No. 12670-SP (which was limited to
the propriety of the issuance of the writ of possession in favor of DBP), and vice
versa.
3.
Guarifia Corporation is legally entitled to the
restoration of the possession of the resort complex
and payment of reasonable rentals by DBP
Having found and pronounced that the extrajudicial foreclosure by DBP was
premature, and that the ensuing foreclosure sale was void and ineffectual, the Court
affirms the order for the restoration of possession to Guarifia Corporation and the
payment of reasonable rentals for the use of the resort. The CA properly held that the
premature and invalid foreclosure had unjustly dispossessed Guarifia Corporation of
its properties. Consequently, the restoration of possession and the payment of
reasonable rentals were in accordance with Article 561 of the Civil Code, which
expressly states that one who recovers, according to law, possession unjustly lost
shall be deemed for all purposes which may redound to his benefit to have enjoyed it
without interruption.
WHEREFORE, the Court AFFIRMS the decision promulgated on March 26, 2003; and
ORDERS the petitioner to pay the costs of suit.
Petitioner Dario Nacar filed a complaint for constructive dismissal before the
Arbitration Branch of the National Labor Relations Commission (NLRC) against
respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR
Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision 3 in favor of petitioner
and found that he was dismissed from employment without a valid or just cause.
Thus, petitioner was awarded backwages and separation pay in lieu of reinstatement
in the amount of P158,919.92. The dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge the
burden of showing that complainant was dismissed from employment for a just or
valid cause. All the more, it is clear from the records that complainant was never
afforded due process before he was terminated. As such, we are perforce constrained
to grant complainants prayer for the payments of separation pay in lieu of
reinstatement to his former position, considering the strained relationship between
the parties, and his apparent reluctance to be reinstated, computed only up to
promulgation of this decision as follows:
SO ORDERED.
SEPARATION PAY
Date Hired
August 1990
Rate
P198/day
Date of Decision
Aug. 18, 1998
Length of Service
8 yrs. & 1 month
EN BANC
G.R. No. 189871
P198.00 x 26 days x 8 months = P41,184.00

BACKWAGES
August 13, 2013
DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
Date Dismissed
January 24, 1997
Rate per day
P196.00
Date of Decisions
Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
DECISION
P196.00/day x 12.36 mos.
PERALTA, J.:
= P62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months

1
This is a petition for review on certiorari assailing the Decision dated September 23,
2008 of the Court of Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution 2 dated
October 9, 2009 denying petitioners motion for reconsideration.
The factual antecedents are undisputed.
Prevailing Rate per day
= P62,986.00
P198.00 x 26 days x 6.4 mos.
= P32,947.20
TOTAL
= P95.933.76
xxxx
WHEREFORE, premises considered, judgment is hereby rendered finding respondents
guilty of constructive dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two thousand nine
hundred eighty-six pesos and 56/100 (P62,986.56) Pesos representing his separation
pay;
To pay jointly and severally the complainant the amount of nine (sic) five thousand
nine hundred thirty-three and 36/100 (P95,933.36) representing his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the
Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained the decision of
the Labor Arbiter. Respondents filed a motion for reconsideration, but it was denied. 6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On
August 24, 2000, the CA issued a Resolution dismissing the petition. Respondents
filed a Motion for Reconsideration, but it was likewise denied in a Resolution dated
May 8, 2001.7
Respondents then sought relief before the Supreme Court, docketed as G.R. No.
151332. Finding no reversible error on the part of the CA, this Court denied the
petition in the Resolution dated April 17, 2002.8
An Entry of Judgment was later issued certifying that the resolution became final and
executory on May 27, 2002.9 The case was, thereafter, referred back to the Labor
Arbiter. A pre-execution conference was consequently scheduled, but respondents
failed to appear.10
On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that
his backwages be computed from the date of his dismissal on January 24, 1997 up to
the finality of the Resolution of the Supreme Court on May 27, 2002. 11 Upon
recomputation, the Computation and Examination Unit of the NLRC arrived at an
updated amount in the sum of P471,320.31.12
13
On December 2, 2002, a Writ of Execution was issued by the Labor Arbiter ordering
the Sheriff to collect from respondents the total amount of P471,320.31. Respondents
filed a Motion to Quash Writ of Execution, arguing, among other things, that since the
Labor Arbiter awarded separation pay of P62,986.56 and limited backwages
ofP95,933.36, no more recomputation is required to be made of the said awards.
They claimed that after the decision becomes final and executory, the same cannot
be altered or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an
Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued on January
14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a
Resolution17 granting the appeal in favor of the respondents and ordered the
recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the
NLRC to be final and executory. Consequently, another pre-execution conference was
held, but respondents failed to appear on time. Meanwhile, petitioner moved that an
Alias Writ of Execution be issued to enforce the earlier recomputed judgment award
in the sum of P471,320.31.18
The records of the case were again forwarded to the Computation and Examination
Unit for recomputation, where the judgment award of petitioner was reassessed to be
in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay
him the original amount as determined by the Labor Arbiter in his Decision dated
October 15, 1998, pending the final computation of his backwages and separation
pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the
judgment award that was due to petitioner in the amount of P147,560.19, which
petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the
monetary award to include the appropriate interests. 19
On May 10, 2005, the Labor Arbiter issued an Order 20 granting the motion, but only
up to the amount ofP11,459.73. The Labor Arbiter reasoned that it is the October 15,
1998 Decision that should be enforced considering that it was the one that became
final and executory. However, the Labor Arbiter reasoned that since the decision
states that the separation pay and backwages are computed only up to the
promulgation of the said decision, it is the amount of P158,919.92 that should be
executed. Thus, since petitioner already receivedP147,560.19, he is only entitled to
the balance of P11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in
its Resolution22 dated September 27, 2006. Petitioner filed a Motion for
Reconsideration, but it was likewise denied in the Resolution 23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No.
98591.
On September 23, 2008, the CA rendered a Decision 24 denying the petition. The CA
opined that since petitioner no longer appealed the October 15, 1998 Decision of the
Labor Arbiter, which already became final and executory, a belated correction thereof
is no longer allowed. The CA stated that there is nothing left to be done except to
enforce the said judgment. Consequently, it can no longer be modified in any
respect, except to correct clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the
Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED,
COMMITTED GRAVE ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN
UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN,
SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE
DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER
LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME
DECISION.26
Petitioner argues that notwithstanding the fact that there was a computation of
backwages in the Labor Arbiters decision, the same is not final until reinstatement is
made or until finality of the decision, in case of an award of separation pay. Petitioner
maintains that considering that the October 15, 1998 decision of the Labor Arbiter
did not become final and executory until the April 17, 2002 Resolution of the
Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27,
2002, the reckoning point for the computation of the backwages and separation pay
should be on May 27, 2002 and not when the decision of the Labor Arbiter was
rendered on October 15, 1998. Further, petitioner posits that he is also entitled to the
payment of interest from the finality of the decision until full payment by the
respondents.
On their part, respondents assert that since only separation pay and limited
backwages were awarded to petitioner by the October 15, 1998 decision of the Labor
Arbiter, no more recomputation is required to be made of said awards. Respondents
insist that since the decision clearly stated that the separation pay and backwages
are "computed only up to [the] promulgation of this decision," and considering that
petitioner no longer appealed the decision, petitioner is only entitled to the award as
computed by the Labor Arbiter in the total amount ofP158,919.92. Respondents
added that it was only during the execution proceedings that the petitioner
questioned the award, long after the decision had become final and executory.
Respondents contend that to allow the further recomputation of the backwages to be
awarded to petitioner at this point of the proceedings would substantially vary the
decision of the Labor Arbiter as it violates the rule on immutability of judgments.
The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v.
Court of Appeals (Sixth Division),27 wherein the issue submitted to the Court for
resolution was the propriety of the computation of the awards made, and whether
this violated the principle of immutability of judgment. Like in the present case, it
was a distinct feature of the judgment of the Labor Arbiter in the above-cited case
that the decision already provided for the computation of the payable separation pay
and backwages due and did not further order the computation of the monetary
awards up to the time of the finality of the judgment. Also in Session Delights, the
dismissed employee failed to appeal the decision of the labor arbiter. The Court
clarified, thus:
In concrete terms, the question is whether a re-computation in the course of
execution of the labor arbiter's original computation of the awards made, pegged as
of the time the decision was rendered and confirmed with modification by a final CA
decision, is legally proper. The question is posed, given that the petitioner did not
immediately pay the awards stated in the original labor arbiter's decision; it delayed
payment because it continued with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this case
proceeds from the way the original labor arbiter framed his decision. The decision
consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been
confirmed with finality. This is the finding of the illegality of the dismissal and the
awards of separation pay in lieu of reinstatement, backwages, attorney's fees, and
legal interests.
The second part is the computation of the awards made. On its face, the computation
the labor arbiter made shows that it was time-bound as can be seen from the figures
used in the computation. This part, being merely a computation of what the first part
of the decision established and declared, can, by its nature, be re-computed. This is
the part, too, that the petitioner now posits should no longer be re-computed
because the computation is already in the labor arbiter's decision that the CA had
affirmed. The public and private respondents, on the other hand, posit that a recomputation is necessary because the relief in an illegal dismissal decision goes all
the way up to reinstatement if reinstatement is to be made, or up to the finality of
the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal
dismissal had taken place, also made a computation of the award, is understandable
in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which requires that
a computation be made. This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as
far as practicable, shall embody in any such decision or order the detailed and full
amount awarded.
Clearly implied from this original computation is its currency up to the finality of the
labor arbiter's decision. As we noted above, this implication is apparent from the
terms of the computation itself, and no question would have arisen had the parties
terminated the case and implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e.,
on the finding of illegality as well as on all the consequent awards made. Hence, the
petitioner appealed the case to the NLRC which, in turn, affirmed the labor arbiter's
decision. By law, the NLRC decision is final, reviewable only by the CA on
jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional
grounds through a timely filed Rule 65 petition for certiorari. The CA decision, finding
that NLRC exceeded its authority in affirming the payment of 13th month pay and
indemnity, lapsed to finality and was subsequently returned to the labor arbiter of
origin for execution.
It was at this point that the present case arose. Focusing on the core illegal dismissal
portion of the original labor arbiter's decision, the implementing labor arbiter ordered
the award re-computed; he apparently read the figures originally ordered to be paid
to be the computation due had the case been terminated and implemented at the
labor arbiter's level. Thus, the labor arbiter re-computed the award to include the
separation pay and the backwages due up to the finality of the CA decision that fully
terminated the case on the merits. Unfortunately, the labor arbiter's approved
computation went beyond the finality of the CA decision (July 29, 2003) and included
as well the payment for awards the final CA decision had deleted - specifically, the
proportionate 13th month pay and the indemnity awards. Hence, the CA issued the
decision now questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it
essentially considered the labor arbiter's original decision in accordance with its basic
component parts as we discussed above. To reiterate, the first part contains the
finding of illegality and its monetary consequences; the second part is the
computation of the awards or monetary consequences of the illegal dismissal,
computed as of the time of the labor arbiter's original decision.28
Consequently, from the above disquisitions, under the terms of the decision which is
sought to be executed by the petitioner, no essential change is made by a
recomputation as this step is a necessary consequence that flows from the nature of
the illegality of dismissal declared by the Labor Arbiter in that decision. 29 A
recomputation (or an original computation, if no previous computation has been
made) is a part of the law specifically, Article 279 of the Labor Code and the
established jurisprudence on this provision that is read into the decision. By the
nature of an illegal dismissal case, the reliefs continue to add up until full satisfaction,
as expressed under Article 279 of the Labor Code. The recomputation of the
consequences of illegal dismissal upon execution of the decision does not constitute
an alteration or amendment of the final decision being implemented. The illegal
dismissal ruling stands; only the computation of monetary consequences of this
dismissal is affected, and this is not a violation of the principle of immutability of final
judgments.30
That the amount respondents shall now pay has greatly increased is a consequence
that it cannot avoid as it is the risk that it ran when it continued to seek recourses
against the Labor Arbiter's decision. Article 279 provides for the consequences of
illegal dismissal in no uncertain terms, qualified only by jurisprudence in its
interpretation of when separation pay in lieu of reinstatement is allowed. When that
happens, the finality of the illegal dismissal decision becomes the reckoning point
instead of the reinstatement that the law decrees. In allowing separation pay, the
final decision effectively declares that the employment relationship ended so that
separation pay and backwages are to be computed up to that point. 31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping
Lines, Inc. v. Court of Appeals,32 the Court laid down the guidelines regarding the
manner of computing legal interest, to wit:
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. 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.
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 at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable certainty.
Accordingly, 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.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its
Resolution No. 796 dated May 16, 2013, approved the amendment of Section 2 34 of
Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, 35 Series of
2013, effective July 1, 2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the
following revisions governing the rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract as
to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 36 of the Manual of Regulations for
Banks and Sections 4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations
for Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of
interest that would govern the parties, the rate of legal interest for loans or
forbearance of any money, goods or credits and the rate allowed in judgments shall
no longer be twelve percent (12%) per annum - as reflected in the case of Eastern
Shipping Lines40 and Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank
Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but will now
be six percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall
apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%)
per annum shall be the prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B.
Olaguer v. Bangko Sentral Monetary Board,41 this Court affirmed the authority of the
BSP-MB to set interest rates and to issue and enforce Circulars when it ruled that "the
BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals
thereof or the forbearance of any money, goods or credits, including those for loans
of low priority such as consumer loans, as well as such loans made by pawnshops,
finance companies and similar credit institutions. It even authorizes the BSP-MB to
prescribe different maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory
prior to July 1, 2013, said judgments shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the case of
Eastern Shipping Lines42 are accordingly modified to embody BSP-MB Circular No.
799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable
damages.1wphi1
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:
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 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
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 at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, 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.
When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and executory prior
to July 1, 2013, shall not be disturbed and shall continue to be implemented applying
the rate of interest fixed therein.
rendered a decision, declaring the questioned Real Estate Mortgage void, which
Naguiat appealed to the Court of Appeals. After the Court of Appeals upheld the RTC
decision, Naguiat instituted the present petition.1vvphi1.nt
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the
Court of Appeals in CA-G.R. SP No. 98591, and the Resolution dated October 9, 2009
are REVERSED and SET ASIDE. Respondents are Ordered to Pay petitioner:
The operative facts follow:
(1) backwages computed from the time petitioner was illegally dismissed on
January 24, 1997 up to May 27, 2002, when the Resolution of this Court in
G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the
rate of one month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary
awards, computed from May 27, 2002 to June 30, 2013 and six percent (6%)
per annum from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the total
monetary benefits awarded and due to petitioner in accordance with this Decision.
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand
Pesos (P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to
Queao Associated Bank Check No. 090990 (dated 11 August 1980) for the amount
of Ninety Five Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by
the Corporate Resources Financing Corporation. She also issued her own Filmanbank
Check No. 065314, to the order of Queao, also dated 11 August 1980 and for the
amount of Ninety Five Thousand Pesos (P95,000.00). The proceeds of these checks
were to constitute the loan granted by Naguiat to Queao. 3
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11
August 1980 in favor of Naguiat, and surrendered to the latter the owners duplicates
of the titles covering the mortgaged properties. 4 On the same day, the mortgage
deed was notarized, and Queao issued to Naguiat a promissory note for the amount
of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest at 12% per annum,
payable on 11 September 1980.5 Queao also issued a Security Bank and Trust
Company check, postdated 11 September 1980, for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat.
SO ORDERED.
SECOND DIVISION
G.R. No. 118375
October 3, 2003
CELESTINA T. NAGUIAT, petitioner,

vs.
COURT OF APPEALS and AURORA QUEAO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of
the Sixteenth Division of the respondent Court of Appeals promulgated on 21
December 19941, which affirmed in toto the decision handed down by the Regional
Trial Court (RTC) of Pasay City.2
The case arose when on 11 August 1981, private respondent Aurora Queao
(Queao) filed a complaint before the Pasay City RTC for cancellation of a Real Estate
Mortgage she had entered into with petitioner Celestina Naguiat (Naguiat). The RTC
Upon presentment on its maturity date, the Security Bank check was dishonored for
insufficiency of funds. On the following day, 12 September 1980, Queao requested
Security Bank to stop payment of her postdated check, but the bank rejected the
request pursuant to its policy not to honor such requests if the check is drawn against
insufficient funds.6
On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding
settlement of the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt
(Ruebenfeldt) met with Naguiat. At the meeting, Queao told Naguiat that she did not
receive the proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, who purportedly was Naguiats agent. 7
Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of
Rizal Province, who then scheduled the foreclosure sale on 14 August 1981. Three
days before the scheduled sale, Queao filed the case before the Pasay City
RTC,8 seeking the annulment of the mortgage deed. The trial court eventually
stopped the auction sale.9
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate
Mortgage null and void, and ordering Naguiat to return to Queao the owners
duplicates of her titles to the mortgaged lots.10 Naguiat appealed the decision before
the Court of Appeals, making no less than eleven assignments of error. The Court of
Appeals promulgated the decision now assailed before us that affirmed in toto the
RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on
the issue of whether Queao had actually received the loan proceeds which were
supposed to be covered by the two checks Naguiat had issued or indorsed. Naguiat
claims that being a notarial instrument or public document, the mortgage deed
enjoys the presumption that the recitals therein are true. Naguiat also questions the
admissibility of various representations and pronouncements of Ruebenfeldt,
invoking the rule on the non-binding effect of the admissions of third persons. 11
The resolution of the issues presented before this Court by Naguiat involves the
determination of facts, a function which this Court does not exercise in an appeal
by certiorari. Under Rule 45 which governs appeal by certiorari, only questions of law
may be raised12 as the Supreme Court is not a trier of facts.13 The resolution of factual
issues is the function of lower courts, whose findings on these matters are received
with respect and are in fact generally binding on the Supreme Court. 14 A question of
law which the Court may pass upon must not involve an examination of the probative
value of the evidence presented by the litigants. 15 There is a question of law in a
given case when the doubt or difference arises as to what the law is on a certain
state of facts; there is a question of fact when the doubt or difference arises as to the
truth or the falsehood of alleged facts.16
Surely, there are established exceptions to the rule on the conclusiveness of the
findings of facts of the lower courts.17 But Naguiats case does not fall under any of
the exceptions. In any event, both the decisions of the appellate and trial courts are
supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists that
Queao received the loan proceeds. Capitalizing on the status of the mortgage deed
as a public document, she cites the rule that a public document enjoys the
presumption of validity and truthfulness of its contents. The Court of Appeals,
however, is correct in ruling that the presumption of truthfulness of the recitals in a
public document was defeated by the clear and convincing evidence in this case that
pointed to the absence of consideration.18 This Court has held that the presumption
of truthfulness engendered by notarized documents is rebuttable, yielding as it does
to clear and convincing evidence to the contrary, as in this case. 19
On the other hand, absolutely no evidence was submitted by Naguiat that the checks
she issued or endorsed were actually encashed or deposited. The mere issuance of
the checks did not result in the perfection of the contract of loan. For the Civil Code
provides that the delivery of bills of exchange and mercantile documents such as
checks shall produce the effect of payment only when they have been cashed. 20 It is
only after the checks have produced the effect of payment that the contract of loan
may be deemed perfected. Art. 1934 of the Civil Code 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."
A loan contract is a real contract, not consensual, and, as such, is perfected only
upon the delivery of the object of the contract. 21 In this case, the objects of the
contract are the loan proceeds which Queao would enjoy only upon the encashment
of the checks signed or indorsed by Naguiat. If indeed the checks were encashed or
deposited, Naguiat would have certainly presented the corresponding documentary
evidence, such as the returned checks and the pertinent bank records. Since Naguiat
presented no such proof, it follows that the checks were not encashed or credited to
Queaos account.1awphi1.nt
Naguiat questions the admissibility of the various written representations made by
Ruebenfeldt on the ground that they could not bind her following the res inter alia
acta alteri nocere non debet rule. The Court of Appeals rejected the argument,
holding that since Ruebenfeldt was an authorized representative or agent of Naguiat
the situation falls under a recognized exception to the rule. 22 Still, Naguiat insists that
Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between Naguiat and
Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court of
Appeals, Ruebenfeldt was not a stranger or an unauthorized person. Naguiat
instructed Ruebenfeldt to withhold from Queao the checks she issued or indorsed to
Queao, pending delivery by the latter of additional collateral. Ruebenfeldt served as
agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it
was in connection with that transaction that Queao came to know Naguiat. 23 It was
also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on that
occasion, on her own and without Queao asking for it, Reubenfeldt actually drew a
check for the sum ofP220,000.00 payable to Naguiat, to cover for Queaos alleged
liability to Naguiat under the loan agreement.24
The Court of Appeals recognized the existence of an "agency by estoppel 25 citing
Article 1873 of the Civil Code.26 Apparently, it considered that at the very least, as a
consequence of the interaction between Naguiat and Ruebenfeldt, Queao got the
impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaos impression. In that situation, the rule is clear. One who clothes
another with apparent authority as his agent, and holds him out to the public as such,
cannot be permitted to deny the authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with such person in good faith, and in the
honest belief that he is what he appears to be.27 The Court of Appeals is correct in
invoking the said rule on agency by estoppel.1awphi1.nt
More fundamentally, whatever was the true relationship between Naguiat and
Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to
Queao were never encashed or deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo that
the lender did not remit and the borrower did not receive the proceeds of the loan.
That being the case, it follows that the mortgage which is supposed to secure the
loan is null and void. The consideration of the mortgage contract is the same as that
of the principal contract from which it receives life, and without which it cannot exist
as an independent contract.28 A mortgage contract being a mere accessory contract,
its validity would depend on the validity of the loan secured by it. 29
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs
against petitioner.
CA-G.R. No. 38830-R, in the two cases affirmed by the Supreme Court, touched on
the ownership of lots 2 and 3 in question; that the two lots were possessed by the
predecessors-in-interest of private respondents under claim of ownership in good
faith from 1906 to 1951; that petitioner had been in possession of the same lots as
bailee in commodatum up to 1951, when petitioner repudiated the trust and when it
applied for registration in 1962; that petitioner had just been in possession as owner
for eleven years, hence there is no possibility of acquisitive prescription which
requires 10 years possession with just title and 30 years of possession without; that
the principle of res judicata on these findings by the Court of Appeals will bar a
reopening of these questions of facts; and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate court's Decision in
the two aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.
SO ORDERED.
FIRST DIVISION
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ, respondents.
GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of Appeals
promulgated a long time ago can properly be considered res judicata by respondent
Court of Appeals in the present two cases between petitioner and two private
respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the
Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No.
3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of
Possession, which affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge
of the Regional Trial Court of Baguio and Benguet in Civil Case No. 3607 (419) and
Civil Case No. 3655 (429), with the dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant,
Catholic Vicar Apostolic of the Mountain Province to return and
surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan
Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the
Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or
insufficiency of evidence, the plaintiffs' claim or damages is hereby
denied. Said defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial
court's conclusions that the Decision of the Court of Appeals, dated May 4,1977 in
The facts and background of these cases as narrated by the trail court are as follows
... The documents and records presented reveal

that the whole controversy started when the
defendant Catholic Vicar Apostolic of the
Mountain Province (VICAR for brevity) filed with
the Court of First Instance of Baguio Benguet on
September 5, 1962 an application for registration
of title over Lots 1, 2, 3, and 4 in Psu-194357,
situated at Poblacion Central, La Trinidad,
Benguet, docketed as LRC N-91, said Lots being
the sites of the Catholic Church building,
convents, high school building, school
gymnasium, school dormitories, social hall,
stonewalls, etc. On March 22, 1963 the Heirs of
Juan Valdez and the Heirs of Egmidio Octaviano
filed their Answer/Opposition on Lots Nos. 2 and
3, respectively, asserting ownership and title
thereto. After trial on the merits, the land
registration court promulgated its Decision, dated
November 17, 1965, confirming the registrable
title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein
Civil Case No. 3655) and the Heirs of Egmidio
Octaviano (plaintiffs in the herein Civil Case No.
3607) appealed the decision of the land
registration court to the then Court of Appeals,
docketed as CA-G.R. No. 38830-R. The Court of
Appeals rendered its decision, dated May 9, 1977,
reversing the decision of the land registration
court and dismissing the VICAR's application as to
Lots 2 and 3, the lots claimed by the two sets of
oppositors in the land registration case (and two
sets of plaintiffs in the two cases now at bar), the

first lot being presently occupied by the convent
and the second by the women's dormitory and
the sister's convent.
on December 7, 1978, denied the motion on the

ground that the Court of Appeals decision in CAG.R. No. 38870 did not grant the Heirs of
Octaviano any affirmative relief.
On May 9, 1977, the Heirs of Octaviano filed a

motion for reconsideration praying the Court of
Appeals to order the registration of Lot 3 in the
names of the Heirs of Egmidio Octaviano, and on
May 17, 1977, the Heirs of Juan Valdez and Pacita
Valdez filed their motion for reconsideration
praying that both Lots 2 and 3 be ordered
registered in the names of the Heirs of Juan
Valdez and Pacita Valdez. On August 12,1977, the
Court of Appeals denied the motion for
reconsideration filed by the Heirs of Juan Valdez
on the ground that there was "no sufficient merit
to justify reconsideration one way or the
other ...," and likewise denied that of the Heirs of
Egmidio Octaviano.
On February 7, 1979, the Heirs of Octaviano filed

with the Court of Appeals a petitioner for
certiorari and mandamus, docketed as CA-G.R.
No. 08890-R, entitled Heirs of Egmidio Octaviano
vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its
decision dated May 16, 1979, the Court of
Appeals dismissed the petition.
Thereupon, the VICAR filed with the Supreme

Court a petition for review on certiorari of the
decision of the Court of Appeals dismissing his
(its) application for registration of Lots 2 and 3,
docketed as G.R. No. L-46832, entitled 'Catholic
Vicar Apostolic of the Mountain Province vs. Court
of Appeals and Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their
motion for reconsideration the Heirs of Juan
Valdez and Pacita Valdez, on September 8, 1977,
filed with the Supreme Court a petition for review,
docketed as G.R. No. L-46872, entitled, Heirs of
Juan Valdez and Pacita Valdez vs. Court of
Appeals, Vicar, Heirs of Egmidio Octaviano and
Annable O. Valdez.
On January 13, 1978, the Supreme Court denied
in a minute resolution both petitions (of VICAR on
the one hand and the Heirs of Juan Valdez and
Pacita Valdez on the other) for lack of merit. Upon
the finality of both Supreme Court resolutions in
G.R. No. L-46832 and G.R. No. L- 46872, the Heirs
of Octaviano filed with the then Court of First
Instance of Baguio, Branch II, a Motion For
Execution of Judgment praying that the Heirs of
Octaviano be placed in possession of Lot 3. The
Court, presided over by Hon. Salvador J. Valdez,
It was at that stage that the instant cases were

filed. The Heirs of Egmidio Octaviano filed Civil
Case No. 3607 (419) on July 24, 1979, for
recovery of possession of Lot 3; and the Heirs of
Juan Valdez filed Civil Case No. 3655 (429) on
September 24, 1979, likewise for recovery of
possession of Lot 2 (Decision, pp. 199-201, Orig.
Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of
Egmidio Octaviano presented one (1) witness, Fructuoso Valdez,
who testified on the alleged ownership of the land in question (Lot
3) by their predecessor-in-interest, Egmidio Octaviano (Exh. C ); his
written demand (Exh. BB-4 ) to defendant Vicar for the return of
the land to them; and the reasonable rentals for the use of the land
at P10,000.00 per month. On the other hand, defendant Vicar
presented the Register of Deeds for the Province of Benguet, Atty.
Nicanor Sison, who testified that the land in question is not covered
by any title in the name of Egmidio Octaviano or any of the
plaintiffs (Exh. 8). The defendant dispensed with the testimony of
Mons.William Brasseur when the plaintiffs admitted that the
witness if called to the witness stand, would testify that defendant
Vicar has been in possession of Lot 3, for seventy-five (75) years
continuously and peacefully and has constructed permanent
structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts
are not in dispute, submitted the case on the sole issue of whether
or not the decisions of the Court of Appeals and the Supreme Court
touching on the ownership of Lot 2, which in effect declared the
plaintiffs the owners of the land constitute res judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is
barred from setting up the defense of ownership and/or long and
continuous possession of the two lots in question since this is
barred by prior judgment of the Court of Appeals in CA-G.R. No.

038830-R under the principle of res judicata. Plaintiffs contend that
the question of possession and ownership have already been
determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No.
038830-R) and affirmed by the Supreme Court (Exh. 1, Minute
Resolution of the Supreme Court). On his part, defendant Vicar
maintains that the principle of res judicata would not prevent them
from litigating the issues of long possession and ownership because
the dispositive portion of the prior judgment in CA-G.R. No. 038830R merely dismissed their application for registration and titling of
lots 2 and 3. Defendant Vicar contends that only the dispositive
portion of the decision, and not its body, is the controlling
pronouncement of the Court of Appeals. 2
The alleged errors committed by respondent Court of Appeals according to petitioner
are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE
ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM
VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS
WERE VALDEZ AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO
WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT
APPLICATIONS AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD
FREE PATENT APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND
JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129
OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO.
038830 WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON
OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF
OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3

MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD
FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY
THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148
and 05149, when it clearly held that it was in agreement with the findings of the trial
court that the Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No.
38830-R, on the question of ownership of Lots 2 and 3, declared that the said Court
of Appeals Decision CA-G.R. No. 38830-R) did not positively declare private
respondents as owners of the land, neither was it declared that they were not owners
of the land, but it held that the predecessors of private respondents were possessors
of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951. Petitioner
was in possession as borrower in commodatum up to 1951, when it repudiated the
trust by declaring the properties in its name for taxation purposes. When petitioner
applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept
of owner only for eleven years. Ordinary acquisitive prescription requires possession
for ten years, but always with just title. Extraordinary acquisitive prescription requires
30 years. 4
On the above findings of facts supported by evidence and evaluated by the Court of
Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no error in
respondent appellate court's ruling that said findings are res judicata between the
parties. They can no longer be altered by presentation of evidence because those
issues were resolved with finality a long time ago. To ignore the principle of res
judicata would be to open the door to endless litigations by continuous determination
of issues without end.
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in
CA-G.R. No. 38830-R, shows that it reversed the trial court's Decision 6 finding
petitioner to be entitled to register the lands in question under its ownership, on its
evaluation of evidence and conclusion of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years possession for ordinary acquisitive prescription because of
the absence of just title. The appellate court did not believe the findings of the trial
court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired
also by purchase from Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the alleged purchases
were never mentioned in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and
Octaviano. Both Valdez and Octaviano had Free Patent Application for those lots since
1906. The predecessors of private respondents, not petitioner Vicar, were in
possession of the questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in
question, but not Lots 2 and 3, because the buildings standing thereon were only
constructed after liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for
taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the
Bishop but said Bishop was appointed only in 1947, the church was constructed only
in 1951 and the new convent only 2 years before the trial in 1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest offered
to buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of
petitioner Vicar only in 1962.
Private respondents were able to prove that their predecessors' house was borrowed
by petitioner Vicar after the church and the convent were destroyed. They never
asked for the return of the house, but when they allowed its free use, they became
bailors in commodatum and the petitioner the bailee. The bailees' failure to return
the subject matter of commodatum to the bailor did not mean adverse possession on
the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared
the lots for taxation purposes. The action of petitioner Vicar by such adverse claim
could not ripen into title by way of ordinary acquisitive prescription because of the
absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents
were possessors under claim of ownership in good faith from 1906; that petitioner
Vicar was only a bailee in commodatum; and that the adverse claim and repudiation
of trust came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in CAG.R. No. 38830-R. Its findings of fact have become incontestible. This Court declined
to review said decision, thereby in effect, affirming it. It has become final and
executory a long time ago.
Respondent appellate court did not commit any reversible error, much less grave
abuse of discretion, when it held that the Decision of the Court of Appeals in CA-G.R.
No. 38830-R is governing, under the principle of res judicata, hence the rule, in the
present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by
evidence established in that decision may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of
merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by
respondent Court of Appeals is AFFIRMED, with costs against petitioner.
SO ORDERED.
THIRD DIVISION
BPI FAMILY BANK,Petitioner,
- versus AMADO FRANCO and COURT OF APPEALS, Respondents.
DECISION
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) Decision[1] in CA-G.R. CV No. 43424 which affirmed with modification
the judgment[2] 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,[6] with 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 Francos introduction of
Eladio Teves,[7] who was looking for a conduit bank to facilitate Tevestecos business
transactions, to Jaime Sebastian, who was then BPI-FB SFDMs Branch Manager. In
turn, the funding for theP2,000,000.00 check was part of the P80,000,000.00 debited
by BPI-FB from FMICs time deposit account and credited to Tevestecos current
account pursuant to an Authority to Debit purportedly signed by FMICs officers.
It appears, however, that the signatures of FMICs 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 FMICs forgery claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion,
instructed Jesus Arangorin[10] to debit Francos savings and current accounts for the
amounts remaining therein. [11] However, Francos time deposit account could not be
debited due to the capacity limitations of BPI-FBs computer. [12]
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 the meantime, two checks [13] drawn by Franco against his BPI-FB current
account were dishonored upon presentment for payment, and stamped with a
notation account under garnishment. Apparently, Francos 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
Tevestecos total withdrawals from its account.
In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica

(Buenaventura, et al.),[19] recipients of a P500,000.00 check proceeding from
theP80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit.
Buenaventura et al., as in the case of Franco, were also prevented from effecting
withdrawals[20] 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.
Notably, the dishonored checks were issued by Franco and presented for
payment at BPI-FB prior to Francos 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-FBs new manager, could not forthwith comply with the demand as the
funds, as previously stated, had already been debited because of FMICs forgery
claim. As such, BPI-FBs computer at the SFDM Branch indicated that the current
account record was not on file.
With respect to Francos 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 Quiaoits 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 Quiaoits savings account passbook to
ensure that no withdrawal would be effected therefrom, and to preserve Francos
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.
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. [17] The 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
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 case[24] remains under
litigation and the respective rights and liabilities of the parties have yet to be
adjudicated.
Consequently, in light of BPI-FBs refusal to heed Francos 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 balance [25] of his current account which was
eventually released to him on October 31, 1991; (2) the balance [26] on his savings
account, plus interest thereon; (3) the advance interest [27] 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 attorneys 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 Francos 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 Francos 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 [Francos] savings
account as of May 18, 1990, together with the interest thereon in
accordance with the banks guidelines on the payment therefor;
3.
P30,000.00 by way of attorneys fees; and
4.
P10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for lack of

factual and legal anchor.
Costs against [BPI-FB].
First. On the issue of who has a better right to the deposits in Francos
accounts, BPI-FB urges us that the legal consequence of FMICs 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 Francos 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 Xs 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:
SO ORDERED.[28]
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.
Unsatisfied with the decision, both parties filed their respective appeals before
the CA. Franco confined his appeal to the Manila RTCs denial of his claim for moral
and exemplary damages, and the diminutive award of attorneys fees. In affirming
with modification the lower courts 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 attorneys fees
from P30,000.00 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 Quiaoits savings
account; (4) the dishonor of Francos checks was not legally in order; (5) BPI-FB is
liable for interest on Francos time deposit, and for moral and exemplary damages;
and (6) BPI-FBs 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 Francos accounts and preclude him from withdrawing his
deposits. However, contrary to the appellate courts ruling, we hold that Franco is
not entitled to unearned interest on the time deposit as well as to moral and
exemplary damages.
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-FBs 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 Francos 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 FMICs account
and credited to Tevestecos, and subsequently traced to Francos 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,
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
[34]
had passed through various transactions in the general course of banking business,
even if of traceable origin, is no exception.
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.
Thus, inasmuch as what is involved is not a specific or determinate personal

property, BPI-FBs 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 FMICs deposits
to Tevestecos 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 Francos 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 Francos accounts, it cannot prevent him from demanding
payment of BPI-FBs 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
Appeals[38] 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 lifes
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
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 FMICs to Tevestecos account, when FMICs account was a
time deposit and it had already paid advance interest to FMIC. Considering that there
is as yet no indubitable evidence establishing Francos 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 Francos current account,
BPI-FB argues that its non-compliance with the Makati RTCs 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 RTCs order to pay interests on Francos
current account arose from BPI-FBs unjustified refusal to comply with its obligation to
pay Franco pursuant to their contract of mutuum. In other words, from the time BPIFB refused Francos 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-FBs non-compliance with the Order Lifting the Order of
Attachment. However, such authority does not preclude the Manila RTC from ruling
on BPI-FBs 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 Quiaoits 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 Sebastians
request to temporarily transfer P400,000.00 from Francos savings account to
Quiaoits 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 Francos belated allegation relative to this particular
arrangement. It insists that the transaction with Quiaoit was not specifically alleged
in Francos 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-FBs 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, Francos action for the recovery of his
deposits appropriately covers the deposits in Quiaoits account.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the
dishonor of Francos checks respectively dated September 11 and 18, 1989 was
legally in order in view of the Makati RTCs 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 Francos accounts under garnishment.
The argument is specious. In this argument, we perceive BPI-FBs 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 Francos accounts without even awaiting service of the Makati RTCs 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 CAs finding that BPI-FB was in bad faith and as such liable for
the advance interest it deducted from Francos 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 CAs award of P75,000.00 as attorneys fees.
In granting Francos 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
Francos deposits were under garnishment; (3) misrepresented that Francos 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 nonperformance of the obligation. (Emphasis supplied.)
We find, as the trial court did, that BPI-FB acted out of the impetus of selfprotection 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 computergenerated 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,
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]
[47]
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.
Thus, 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.
[53]
While it is a sound policy not to set a premium on the right to litigate,

we,
however, find that Franco is entitled to reasonable attorneys fees for having been
compelled to go to court in order to assert his right. Thus, we affirm the CAs grant
of P75,000.00 as attorneys fees.
Attorneys 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 RTCs Order Lifting the Order of Attachment and Quiaoits unwavering
assertion that theP400,000.00 was part of Francos 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 attorneys 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-FBs counter-claim, we uphold the Manila
RTCs ruling, as affirmed by the CA, that BPI-FB is not entitled to
recover P3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a result of
Francos 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.
EN BANC
G.R. No. L-7234
May 21, 1955
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,

vs.
PAZ M. DEL ROSARIO, defendant-appellee.
Assistant Solicitor General, Guillermo E. Torres and Solicitor Pacifico P. de Castro for
appellant.
A. Mendoza, E. del Rosario and G. Romero for appellee.
LABRADOR, J.:
On July 27, 1953, an information was filed in the Municipal Court of Pasay City
charging Paz M. del Rosario with slight physical injuries committed on the 28th day of
May, 1953. The accused thereupon presented a motion to quash the information on
the ground that the offense charged had already prescribed in accordance with the
provisions of Articles 90 and 91 of the Revised Penal Code. The municipal court
sustained this motion and dismissed the case. Against the order of dismissal appeal
is made directly to this Court under the provisions of section 17, sub-paragraph 6 of
the Judiciary Act of 1948 as only questions of law are involved in the appeal.
The pertinent provisions of Articles 90 and 91 of the Revised Penal Code are as
follows:
ART. 90. Prescription of crimes. . . . .

The offenses of oral defamation and slander by deed shall prescribe in six
months.
Light offenses prescribe in two months.
ART. 91. Computation of prescription of offenses. The period of
prescription shall commence to run from the day on which the crime is
discovered by the offended party, the authorities or their agents, . . . ..
The court a quo held that in accordance with Article 13 of the new Civil Code the
"month" mentioned in Article 90 of the Revised Penal Code should be one of 30 days,
and since the period of prescription commences to run from the day "on which the
crime is discovered by the offended party," i.e., in this case on May 28, 1953 when it
was committed, the two months period provided for the prescription of the offense
already expired when the information was filed, because the filing was on the 61st
day. The Solicitor General in this appeal argues that in the same manner that Article
13 of the new Civil Code is applied to determine the length of the two months period
required for the prescription of the offense, its provision (of the said Article 13)
contained in paragraph 3 which reads "In computing a period, the first day shall be
excluded, and the last day included" should also be applied, so that the information
should be considered as filed on the 60th day and not on the 61st day after the
offense has been committed. The resolution of the appeal involves the determination
of two legal issues, first, whether the prescriptive period should commence from the
very day on which the crime was committed, or from the day following that in which
it was committed, in accordance with the third paragraph of Article 13 of the Civil
Code of the Philippines, and second, whether the term "month" in the Revised Penal
Code should be understood to be a month of 30 days, instead of the civil calendar or
calendar month.
As to the first question, we note that Article 91 of the Revised Penal Code provides
that the period shall commence to run from the day on which the offense is
committed or discovered. The title indicates that the provision merely purports to
prescribe the manner of computing the period of prescription. In the computation of a
period of time within which an act is to be done, the law in this jurisdiction has
always directed the first day be excluded and the last included (See section 1, Rule
28 of the Rules of Court; section 13, Rev. Adm. Code and Art. 13, Civil Code of the
Philippines). And in the case of Surbano vs. Gloria, 51 Phil., 415, where the question
involved was whether an offense had prescribed, we held that from February 18 to
March 15, 1927 only a period of 25 days elapsed, because we excluded the first day
(February 18) and included the last day (March 15). The above method of
computation was in force in this jurisdiction even before the advent of the American
regime (Article 7, Spanish Civil Code). It is logical to presume, therefore, that the
Legislature in enacting Article 91 of the Revised Penal Code meant or intended to
mean that in the computation of the period provided for therein, the first day is to be
excluded and the last one to be included, in accord with existing laws.
We find much sense in the argument of the Solicitor General that if the Civil Code of
the Philippines is to be resorted to in the interpretation of the length of the month, so
should it be resorted to in the computation of the period of prescription. Besides,
Article 18 of the Civil Code (Article 16 of the old Civil Code) expressly directs that any
deficiency in any special law (such as the Revised Penal Code) must be supplied by
its provisions. As the Revised Penal Code is deficient in that it does not explicitly
define how the period is to be computed, resort must be had to its Article 13, which
contains in detail the manner of computing a period. We find, therefore, that the trial
court committed error in not excluding the first day in the computation of the period
of prescription of the offense.
The other question is whether a month mentioned in Article 90 should be considered
as the calendar month and not the 30-day month. It is to be noted that no provision
of the Revised Penal Code defines the length of the month. Article 7 of the old Civil
Code provided that a month shall be understood as containing 30 days; but this
concept was modified by section 13 of the Revised Administrative Code which
provides that a month means the civil or calendar month and not the regular 30-day
month (Gutierrez vs. Carpio, 53 Phil., 334). With the approval of the Civil Code of the
Philippines (R.A. No. 386), however, we have reverted to the provisions of the
Spanish Civil Code in accordance with which a month is to be considered as the
regular 30-day month (Article 13). This provision of the new Civil Code has been
intended for general application in the interpretation of the laws. As the offense
charged in the information in the case at bar took place on May 28, 1953, after the
new Civil Code had come to effect, this new provision should apply, and in
accordance therewith the month in Article 90 of the Revised Penal Code should be
understood to mean the regular 30 day month.
In our conclusion that the term "month" used in the Revised Penal Code should be
interpreted in the sense that the new Civil Code defines the said term, we find
persuasive authority in a decision of the Supreme Court of Spain. In a case decided
by it in the year 1887 (S. de 30 de Marzo de 1887), prior to the approval of the Civil
Code of Spain, it had declared that when the law spoke of months, it meant the
natural month or the solar month, in the absence of express provisions to the
contrary. But after the promulgation of the Civil Code of Spain, which provided in its
Article 7 a general rule for the interpretation of the laws, and with particular respect
to months, that a month shall be understood as a 30-day month, said court held that
the two months period for the prescription of a light offense should be understood to
mean 60 days, a month being a 30-day month. (S. de 6 de abril de 1895, 3 Viada, p.
45). Similarly, we hold that in view of the express provisions of Article 13 of the new
Civil Code the term "month" used in Article 90 of the Revised Penal Code should be
understood to mean the 30-day month and not the solar or civil month.
We hold, therefore, that the offense charged in the information prescribed in 60 days,
said period to be counted by excluding May 28, the commission of the offense, and
we find that when the information was filed on July 27, 1953 the offense had not yet
been prescribed because July 27 is the sixtieth day from May 29.
The order of dismissal appealed from is hereby reversed and the case ordered
reinstated. Without costs.
SECOND DIVISION
G.R. No. 194201
November 27, 2013
SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, Petitioners,

vs.
PHILIPPINE NATIONAL BANK REGISTER OF DEEDS OF BATANGAS CITY JOSE
C. CORALES, Respondents.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of
Court seeking to partially set aside the Decision, 2 dated 30 March 2010, and the
Resolution,3 dated 13 October 2010, of the Court of Appeals (CA) in CA-G.R. CV No.
91250. The challenged Decision dismissed the appeal of herein respondent Philippine
National Bank (respondent bank) and affirmed the decision of the Regional Trial
Court (RTC), Branch 84, Batangas City with the modification that the interest rate to
be applied by respondent bank on the principal loan obligation of petitioners Spouses
Bayani H. Andal and Gracia G. Andal (petitionersspouses) shall be 12% per annum,
to be computed from default.
As found by the CA, the facts of this case are as follows:
x x x on September 7, 1995, [petitioners-spouses] obtained a loan from [respondent
bank] in the amount ofP21,805,000.00, for which they executed twelve (12)
promissory notes x x x [undertaking] to pay [respondent bank] the principal loan with
varying interest rates of 17.5% to 27% per interest period. It was agreed upon by the
parties that the rate of interest may be increased or decreased for the subsequent
interest periods, with prior notice to [petitioners-spouses], in the event of changes in
interest rates prescribed by law or the Monetary Board x x x, or in the banks overall
cost of funds.
To secure the payment of the said loan, [petitioners-spouses] executed in favor of
[respondent bank] a real estate mortgage using as collateral five (5) parcels of land
including all improvements therein, all situated in Batangas City and covered by
Transfer Certificate of Title (TCT) Nos. T-641, T-32037, T-16730, T-31193 and RT 363
(3351) of the Registry of Deeds of Batangas City, in the name of [petitionersspouses].
Subsequently, [respondent bank] advised [petitioners-spouses] to pay their loan
obligation, otherwise the former will declare the latters loan due and demandable.
On July 17, 2001, [petitioners-spouses] paid P14,800,000.00 to [respondent bank] to
avoid foreclosure of the properties subject of the real estate mortgage. Accordingly,
[respondent bank] executed a release of real estate mortgage over the parcels of
land covered by TCT Nos. T-31193 and RT-363 (3351). However, despite payment x x
x, [respondent bank] proceeded to foreclose the real estate mortgage, particularly
with respect to the three (3) parcels of land covered by TCT Nos. T-641, T-32037 and
T-16730 x x x.
x x x [A] public auction sale of the properties proceeded, with the [respondent bank]
emerging as the highest and winning bidder. Accordingly, on August 30, 2002, a
certificate of sale of the properties involved was issued. [Respondent bank]
consolidated its ownership over the said properties and TCT Nos. T-52889, T-52890,
and T-52891 were issued in lieu of the cancelled TCT[s] x x x. This prompted
[petitioners-spouses] to file x x x a complaint for annulment of mortgage, sheriffs
certificate of sale, declaration of nullity of the increased interest rates and penalty
charges plus damages, with the RTC of Batangas City.
In their amended complaint, [petitioners-spouses] alleged that they tried to
religiously pay their loan obligation to [respondent bank], but the exorbitant rate of
interest unilaterally determined and imposed by the latter prevented the former from
paying their obligation. [Petitioners-spouses] also alleged that they signed the
promissory notes in blank, relying on the representation of [respondent bank] that
they were merely proforma [sic] bank requirements. Further, [petitioners-spouses]
alleged that the unilateral increase of interest rates and exorbitant penalty charges
are akin to unjust enrichment at their expense, giving [respondent bank] no right to
foreclose their mortgaged properties. x x x.
xxxx
On August 27, 2004 [respondent bank] filed its answer, denying the allegations in the
complaint. x x x [respondent bank] alleged that: the penalty charges imposed on the
loan was expressly stipulated under the credit agreements and in the promissory
notes; although [petitioners-spouses] paid to [respondent bank]P14,800,000.00 on
July 10, 2001, the former was still indebted to the latter in the amount
of P33,960,633.87; assuming arguendo that the imposition was improper, the
foreclosure of the mortgaged properties is in order since [respondent banks] bid in
the amount of P28,965,100.00 was based on the aggregate appraised rates of the
foreclosed properties. x x x4
After trial, the RTC rendered judgment5 in favor of petitioners-spouses and against
respondent bank, ordering that:
1. The rate of interest should be reduced as it is hereby reduced to 6% in accordance
with Article 2209 of the Civil Code effective the next 30, 31 and 180 days
respectively from the date of the twelve (12) promissory notes x x x covered by the
real estate x x x mortgages, to be applied on a declining balance of the principal
after the partial payments of P14,800,00.00 (paid July 17, 2001)
and P2,000,000.006 (payments of P300,000.00 on October 1, 1999, P1,800,000.00 as
[of] December 1, 1999, P700,000.00 [on] January 31, 2000) per certification of
[respondent bank] to be reckoned at (sic) the dates the said payments were made,
thus the corrected amounts of the liability for principal balance and the said 6%
charges per annum shall be the new basis for the [petitioners-spouses] to make
payments to the [respondent bank] x x x which shall automatically extinguish and
release the mortgage contracts and the outstanding liabilities of the [petitionersspouses]; [respondent bank] shall then surrender the new transfer certificates of title
x x x in its name to the [c]ourt x x x, [c]anceling the penalty charges.
xxxx
3. Declaring as illegal and void the foreclosure sales x x x, the Certificates of Sales
and the consolidation of titles of the subject real properties, including the
cancellation of the new Transfer Certificates of Title x x x in the name of the
[respondent] bank and reinstating Transfer Certificates of Title Nos. T-641, T-32037
and T-16730 in the names of the [petitioners-spouses]; the latter acts to be executed
by the Register of Deeds of Batangas City. 7
The foregoing disposition of the RTC was based on the following findings of fact:
As of this writing the [respondent] bank have (sic) not complied with the said orders
as to the interest rates it had been using on the loan of [petitioners-spouses] and the
monthly computation of interest vis a vis (sic) the total shown in the statement of
account as of Aug 30, 2002. Such refusal amounts to suppression of evidence thus
tending to show that the interest used by the bank was unilaterally increased without
the written consent of the [petitioners-spouses]/borrower as required by law and
Central Bank Circular No. 1171. The latter circular provides that any increase of
interest in a given interest period will have to be expressly agreed to in writing by the
borrower. The mortgaged properties were subject of foreclosure and were sold on
August 30, 2002 and the [respondent] banks statement of account as of August 30,
2002 x x x shows unpaid interest up to July 17, 2001 of P12,695,718.99 without
specifying the rate of interest for each interest period of thirty days. Another
statement of account of [respondent bank] x x x as [of] the date of foreclosure on
August 30, 2002 shows account balance ofP20,505,916.51 with a bid price
of P28,965,100.00 and showing an interest of P16,163,281.65. Again, there are no
details of the interest used for each interest period from the time these loans were
incurred up to the date of foreclosure. These statements of account together with the
stated interest and expenses after foreclosure were furnished by the [respondent]
bank during the court hearings. The central legal question is that there is no
agreement in writing from the [petitioners-spouses]/borrowers for the interest rate for
each interest period neither from the data coming from the Central Bank or the cost
of money which is understood to mean the interest cost of the bank deposits form
the public. Such imposition of the increased interest without the consent of the
borrower is null and void pursuant to Article 1956 of the Civil Code and as held in the
pronouncement of the Supreme Court in several cases and C.B. Circular No. 1191
that the interest rate for each re-pricing period under the floating rate of interest is
subject to mutual agreement in writing. Art. 1956 states that no interest is due unless
it has been expressly stipulated and agreed to in writing.
Any stipulation where the fixing of interest rate is the sole prerogative of the
creditor/mortgagee, belongs to the class of potestative condition which is null and
void under Art. 1308 of the New Civil Code. The fulfillment of a condition cannot be
left to the sole will of [one of] the contracting parties.
xxxx
In the instant case, if the interest is declared null and void, the foreclosure sale for a
higher amount than what is legally due is likewise null and void because under the
Civil Code, a mortgage may be foreclosed only to enforce the fulfillment of the
obligation for whose security it was constituted (Art. 2126, Civil Code).
xxxx
Following the declaration of nullity of the stipulation on floating rate of interest since
no interest may be collected based on the stipulation that is null and void and legally
inexistent and unenforceable. x x x. Since the interest imposed is illegal and void
only the rate of 6% interest per month shall be imposed as liquidated damages under
Art. 2209 of the Civil Code.
It is worth mentioning that these forms used by the bank are pre- printed forms and
therefore contracts of adhesion and x x x any dispute or doubt concerning them shall
be resolved in favor of the x x x borrower. This (sic) circumstances tend to support
the contention of the [petitioners-spouses] that they were made to sign the real
estate mortgages/promissory notes in blank with respect to the interest rates.
xxxx
[Respondent bank has] no right to foreclose [petitioners-spouses] property and any
foreclosure thereof is illegal, unreasonable and void, since [petitioners-spouses] are
not and cannot be considered in default for their inability to pay the arbitrarily,
illegally, and unconscionably adjusted interest rates and penalty charges unilaterally
made and imposed by [respondent] bank.
The [petitioners-spouses] submitted to the court certified copies of the weighted
average of Selected Domestic Interest Rates of the local banks obtained from the
Bangko Sentral ng Pilipinas Statistical Center and it shows a declining balance of
interest rates x x x.
xxxx
There is no showing by the [respondent bank] that any of the foregoing rate was ever
used to increase or decrease the interest rates charged upon the [petitionersspouses] mortgage loan for the 30 day re- pricing period subsequent to the first 30
days from [the] dates of the promissory notes. These documents submitted being
certified public documents are entitled to being taken cognizance of by the court as
an aid to its decision making. x x x.8
Respondent bank appealed the above judgment of the trial court to the CA. Its main
contention is that the lower court erred in ordering the re-computation of petitionersspouses loans and applying the interest rate of 6% per annum. According to
respondent bank, the stipulation on the interest rates of 17.5% to 27%, subject to
periodic adjustments, was voluntarily agreed upon by the parties; hence, it was not
left to the sole will of respondent bank. Thus, the lower court erred in reducing the
interest rate to 6% and in setting aside the penalty charges, as such is contrary to
the principle of the obligatory force of contracts under Articles 1315 and 1159 of the
Civil Code.9
The CA disposed of the issue in the following manner:
We partly agree with [respondent banks] contention.
Settled is the rule that the contracting parties are free to enter into stipulations,
clauses, terms and conditions as they may deem convenient, as long as these are not
contrary to law, morals, good customs, public order or public policy. Pursuant to
Article 1159 of the Civil Code, these obligations arising from such contracts have the
force of law between the parties and should be complied with in good faith. x x x.
xxxx
In the case at bar, [respondent bank] and [petitioners-spouses] expressly stipulated
in the promissory notes the rate of interest to be applied to the loan obtained by the
latter from the former, x x x.
xxxx
[Respondent bank] insists that [petitioner-spouses] agreed to the interest rates
stated in the promissory notes since the latter voluntarily signed the same. However,
we find more credible and believable the version of [petitioners-spouses] that they
were made to sign the said promissory notes in blank with respect to the rate of
interest and penalty charges, and subsequently, [respondent] bank filled in the
blanks, imposing high interest rate beyond which they were made to understand at
the time of the signing of the promissory notes.
xxxx
The signing by [petitioners-spouses] of the promissory notes in blank enabled
[respondent] bank to impose interest rates on the loan obligation without prior notice
to [petitioners-spouses]. The unilateral determination and imposition of interest rates
by [respondent] bank without [petitioners-spouses] assent is obviously violative of
the principle of mutuality of contracts ordained in Article 1308 of the Civil Code x x x.
xxxx
[Respondent banks] act converted the loan agreement into a contract of adhesion
where the parties do not bargain on equal footing, the weaker partys participation,
herein [petitioners-spouses], being reduced to the alternative to take it or leave it.
[Respondent] bank tried to sidestep this issue by averring that [petitioners-spouses],
as businessmen, were on equal footing with [respondent bank] as far as the subject
loan agreements are concerned. That may be true insofar as entering into the
original loan agreements and mortgage contracts are concerned. However, that does
not hold true when it comes to the unilateral determination and imposition of the
escalated interest rates imposed by [respondent] bank.
xxxx
The Court further notes that in the case at bar, [respondent] bank imposed different
rates in the twelve (12) promissory notes: interest rate of 18% in five (5) promissory
notes; 17.5% in two (2) promissory notes; 23% in one (1) promissory note; and 27%
in three (3) promissory notes. Obviously, the interest rates are excessive and
arbitrary. Thus, the foregoing interest rates imposed on [petitioners-spouses] loan
obligation without their knowledge and consent should be disregarded, not only for
being iniquitous and exorbitant, but also for being violative of the principle of
mutuality of contracts.
However, we do not agree with the trial court in fixing the rate of interest of 6%. It is
well-settled that when an obligation is breached and consists in the payment of a
sum of money, i.e., loan or forbearance of money, the interest due shall be that
which may have been stipulated in writing. In the absence of stipulation, the rate of
interest shall be 12% interest per annum to be computed from default, i.e., from
judicial or extra-judicial demand and subject to the provisions of Article 1169 of the
Civil Code. Since the interest rates printed in the promissory notes are void for the
reasons above-stated, the rate of interest to be applied to the loan should be 12%
per annum only.10
The CA, consequently, dismissed respondent banks appeal and affirmed the decision
of the trial court with the modification that the rate of interest shall be 12% per
annum instead of 6%. Respondent bank filed a Motion for Reconsideration of the CA
decision. Petitioners-spouses, on the other hand, filed a comment praying for the
denial of respondent banks motion for reconsideration. They also filed an "Urgent
Manifestation"11 calling the attention of the CA to its respective decisions in the cases
of Spouses Enrique and Epifania Mercado v. China Banking Corporation, et. al. (CA-GR
CV No. 75303)12 and Spouses Bonifacio Caraig and Ligaya Caraig v. The Ex-Officio
Sheriff of RTC, Batangas City, et. al. (CA-G.R. CV No. 76029). 13
According to petitioners-spouses, in Spouses Mercado v. China Banking, the Special
Seventh Division of the CA held that where the interest rate is potestative, the entire
interest is null and void and no interest is due.
On the other hand, in the case of Spouses Caraig v. The Ex-Officio Sheriff of RTC,
Batangas City, the then Ninth Division of the CA ruled that under the doctrine of
operative facts, no interest is due after the auction sale because the loan is paid in
kind by the auction sale, and interest shall commence to run again upon finality of
the judgment declaring the auction sale null and void.14
The CA denied respondent banks Motion for Reconsideration for lack of merit. It
likewise found no merit in petitioners-spouses contention that no interest is due on
their principal loan obligation from the time of foreclosure until finality of the
judgment annulling the foreclosure sale. According to the CA:
x x x Notably, this Court disregarded the stipulated rate[s] of interest on the subject
promissory notes after finding that the same are iniquitous and exorbitant, and for
being violative of the principle of mutuality of contracts. Nevertheless, in Equitable
PCI Bank v. Ng Sheung Ngor, the Supreme Court ruled that because the escalation
clause was annulled, the principal amount of the loan was subject to the original or
stipulated interest rate of interest, and that upon maturity, the amount due was
subject to legal interest at the rate of 12% per annum. In this case, while we similarly
annulled the escalation clause contained in the promissory notes, this Court opted
not to impose the original rates of interest stipulated therein for being excessive, the
same being 17.5% to 27% per interest period.
Relevantly, the High Court held in Asian Cathay Finance and Leasing Corporation v.
Spouses Cesario Gravador and Norma De Vera, et. al. that stipulations authorizing
the imposition of iniquitous or unconscionable interest are contrary to morals, if not
against the law. x x x. The nullity of the stipulation on the usurious interest does not,
however, affect the lenders right to recover the principal of the loan. The debt due is
to be considered without the stipulation of the excessive interest. A legal interest of
12% per annum will be added in place of the excessive interest formerly imposed.
Following the foregoing rulings of the Supreme Court, it is clear that the imposition by
this Court of a 12% rate of interest per annum on the principal loan obligation of
[petitioners-spouses], computed from the time of default, is proper as it is consistent
with prevailing jurisprudence.
While the decisions of the Special Seventh Division and the Ninth Division of this
Court in CA-G.R. CV No. 75303 and in CA-G.R. No. 76029 are final and executory, the
same merely have persuasive effect but do not outweigh the decisions of the
Supreme Court which we are duty-bound to follow, conformably with the principle of
stare decisis.
in the Caraig and Mercado Cases. Petitioners-spouses insist that "if the application of
the doctrine of operative facts is upheld, as applied in Caraig vs. Alday, x x x, interest
in the instant case would be computed only from the finality of judgment declaring
the foreclosure sale null and void. If Mercado vs. China Banking Corporation x x x,
applying by analogy the rule on void usurious interest to void potestative interest
rate, is further sustained, no interest is due when the potestative interest rate
stipulation is declared null and void, as in the instant case.16
Our Ruling
We dismiss the appeal.
We cannot subscribe to the contention of petitioners-spouses that no interest should
be due on the loan they obtained from respondent bank, or that, at the very least,
interest should be computed only from the finality of the judgment declaring the
foreclosure sale null and void, on account of the exorbitant rate of interest imposed
on their loan.
It is clear from the contract of loan between petitioners-spouses and respondent bank
that petitioners-spouses, as borrowers, agreed to the payment of interest on their
loan obligation. That the rate of interest was subsequently declared illegal and
unconscionable does not entitle petitioners-spouses to stop payment of
interest.1wphi1 It should be emphasized that only the rate of interest was declared
void. The stipulation requiring petitioners-spouses to pay interest on their loan
remains valid and binding. They are, therefore, liable to pay interest from the time
they defaulted in payment until their loan is fully paid.
It is worth mentioning that both the RTC and the CA are one in saying that
"[petitioners-spouses] cannot be considered in default for their inability to pay the
arbitrary, illegal and unconscionable interest rates and penalty charges unilaterally
imposed by [respondent] bank."17 This is precisely the reason why the foreclosure
proceedings involving petitioners-spouses properties were invalidated. As pointed
out by the CA, "since the interest rates are null and void, [respondent] bank has no
right to foreclose [petitioners-spouses] properties and any foreclosure thereof is
illegal. x x x. Since there was no default yet, it is premature for [respondent] bank to
foreclose the properties subject of the real estate mortgage contract." 18
The doctrine of stare decisis enjoins adherence to judicial precedents.1wphi1 It

requires courts in a country to follow the rule established in a decision of the
Supreme Court thereof. That decision becomes a judicial precedent to be followed in
subsequent cases by all courts in the land. The doctrine of stare decisis is based on
the principle that once a question of law has been examined and decided, it should
be deemed settled and closed to further argument. 15 (Emphasis supplied.)
Thus, for the purpose of computing the amount of liability of petitioners-spouses,

they are considered in default from the date the Resolution of the Court in G.R. No.
194164 (Philippine National Bank v. Spouses Bayani H. Andal and Gracia G. Andal)
which is the appeal interposed by respondent bank to the Supreme Court from the
judgment of the CA became final and executory. Based on the records of G.R. No.
194164, the Court denied herein respondent banks appeal in a Resolution dated 10
January 2011. The Resolution became final and executory on 20 May 2011. 19
Petitioners-spouses are now before us, reiterating their position that no interest
should be imposed on their loan, following the respective pronouncements of the CA
In addition, pursuant to Circular No. 799, series of 2013, issued by the Office of the
Governor of the Bangko Sentral ng Pilipinas on 21 June 2013, and in accordance with
the ruling of the Supreme Court in the recent case of Dario Nacar v. Gallery Frames
and/or Felipe Bordey, Jr.,20 effective 1 July 2013, 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 an express contract as to such rate of interest, shall be six percent (6%)
per annum. Accordingly, the rate of interest of 12% per annum on petitionersspouses obligation shall apply from 20 May 2011 the date of default until 30 June
2013 only. From 1 July 2013 until fully paid, the legal rate of 6% per annum shall be
applied to petitioners-spouses unpaid obligation.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Judgment of the Court of
Appeals in CA-G.R. CV No. 91250 is AFFIRMED with the MODIFICATION that the 12%
interest per annum shall be applied from the date of default until 30 June 2013 only,
after which date and until fully paid, the outstanding obligation of petitioners-spouses
shall earn interest at 6% per annum. Let the records of this case be remanded to the
trial court for the proper computation of the amount of liability of petitioners Spouses
Bayani H. Andal and Gracia G. Andal, in accordance with the pronouncements of the
Court herein and with due regard to the payments previously made by petitionersspouses.
SO ORDERED.
EN BANC
G.R. No. L-27010
April 30, 1969
MARLENE DAUDEN-HERNAEZ, petitioner,

vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of
Quezon City, HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON
VALENZUELA, respondents.
R. M. Coronado and Associates for petitioner.
Francisco Lavides for respondent.
REYES, J.B.L., Acting C.J.:
Petition for a writ of certiorari to set aside certain orders of the Court of First Instance
of Quezon City (Branch IV), in its Civil Case No. Q-10288, dismissing a complaint for
breach of contract and damages, denying reconsideration, refusing to admit an
amended complaint, and declaring the dismissal final and unappealable.
The essential facts are the following:
Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint
against herein private respondents, Hollywood Far East Productions, Inc., and its
President and General Manager, Ramon Valenzuela, to recover P14,700.00
representing a balance allegedly due said petitioner for her services as leading
actress in two motion pictures produced by the company, and to recover damages.
Upon motion of defendants, the respondent court (Judge Walfrido de los Angeles
presiding) ordered the complaint dismissed, mainly because the "claim of plaintiff
was not evidenced by any written document, either public or private", and the
complaint "was defective on its face" for violating Articles 1356 and 1358 of the Civil,
Code of the Philippines, as well as for containing defective allege, petitions. Plaintiff
sought reconsideration of the dismissal and for admission of an amended complaint,
attached to the motion. The court denied reconsideration and the leave to amend;
whereupon, a second motion for reconsideration was filed. Nevertheless, the court
also denied it for being pro forma, as its allegations "are, more or less, the same as
the first motion", and for not being accompanied by an affidavit of merits, and further
declared the dismissal final and unappealable. In view of the attitude of the Court of
First Instance, plaintiff resorted to this Court.
The answer sets up the defense that "the proposed amended complaint did not vary
in any material respect from the original complaint except in minor details, and
suffers from the same vital defect of the original complaint", which is the violation of
Article 1356 of the Civil Code, in that the contract sued upon was not alleged to be in
writing; that by Article 1358 the writing was absolute and indispensable, because the
amount involved exceeds five hundred pesos; and that the second motion for
reconsideration did not interrupt the period for appeal, because it was not served on
three days' notice.
We shall take up first the procedural question. It is a well established rule in our
jurisprudence that when a court sustains a demurrer or motion to dismiss it is error
for the court to dismiss the complaint without giving the party plaintiff an opportunity
to amend his complaint if he so chooses. 1 Insofar as the first order of dismissal
(Annex D, Petition) did not provide that the same was without prejudice to
amendment of the complaint, or reserve to the plaintiff the right to amend his
complaint, the said order was erroneous; and this error was compounded when the
motion to accept the amended complaint was denied in the subsequent order of 3
October 1966 (Annex F, Petition). Hence, the petitioner-plaintiff was within her rights
in filing her so-called second motion for reconsideration, which was actually a first
motion against the refusal to admit the amended complaint.
It is contended that the second motion for reconsideration was merely pro forma and
did not suspend the period to appeal from the first order of dismissal (Annex D)
because (1) it merely reiterated the first motion for reconsideration and (2) it was
filed without giving the counsel for defendant-appellee the 3 days' notice provided by
the rules. This argument is not tenable, for the reason that the second motion for
reconsideration was addressed to the court' refusal to allow an amendment to the
original complaint, and this was a ground not invoked in the first motion for
reconsideration. Thus, the second motion to reconsider was really not pro forma, as it
was based on a different ground, even if in its first part it set forth in greater detail
the arguments against the correctness of the first order to dismiss. And as to the lack
of 3 days' notice, the record shows that appellees had filed their opposition (in detail)
to the second motion to reconsider (Answer, Annex 4); so that even if it were true
that respondents were not given the full 3 days' notice they were not deprived of any
substantial right. Therefore, the claim that the first order of dismissal had become
final and unappealable must be overruled.
It is well to observe in this regard that since a motion to dismiss is not a responsive
pleading, the plaintiff-petitioner was entitled as of right to amend the original
dismissed complaint. In Paeste vs. Jaurigue 94 Phil. 179, 181, this Court ruled as
follows:
Appellants contend that the lower court erred in not admitting their
amended complaint and in holding that their action had already prescribed.
Appellants are right on both counts.
Amendments to pleadings are favored and should be liberally allowed in the
furtherance of justice. (Torres vs. Tomacruz, 49 Phil. 913). Moreover, under
section 1 of Rule 17, Rules of Court, a party may amend his pleading once as
a matter of course, that is, without leave of court, at any time before a
responsive pleading is served. A motion to dismiss is not a "responsive
pleading". (Moran on the Rules of Court, vol. 1, 1952, ed., p. 376). As
plaintiffs amended their complaint before it was answered, the motion to
admit the amendment should not have been denied. It is true that the
amendment was presented after the original complaint had been ordered
dismissed. But that order was not yet final for it was still under
reconsideration.
The foregoing observations leave this Court free to discuss the main issue in this
petition. Did the court below abuse its discretion in ruling that a contract for personal
services involving more than P500.00 was either invalid of unenforceable under the
last paragraph of Article 1358 of the Civil Code of the Philippines?
We hold that there was abuse, since the ruling herein contested betrays a basic and
lamentable misunderstanding of the role of the written form in contracts, as ordained
in the present Civil Code.
In the matter of formalities, the contractual system of our Civil Code still follows that
of the Spanish Civil Code of 1889 and of the "Ordenamiento de Alcala" 2 of upholding
the spirit and intent of the parties over formalities: hence, in general, contracts are
valid and binding from their perfection regardless of form whether they be oral or
written. This is plain from Articles 1315 and 1356 of the present Civil Code. Thus, the
first cited provision prescribes:
ART. 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law. (Emphasis supplied)
Concordantly, the first part of Article 1356 of the Code Provides:
ART. 1356. Contracts shall be obligatory in whatever form they may have
been entered into, provided all the essential requisites for their validity are
present.... (Emphasis supplied)
These essential requisites last mentioned are normally (1) consent (2) proper subject
matter, and (3) consideration or causa for the obligation assumed (Article 1318). 3 So
that once the three elements exist, the contract is generally valid and obligatory,
regardless of the form, oral or written, in which they are couched.lawphi1.nt
To this general rule, the Code admits exceptions, set forth in the second portion of
Article 1356:
However, when the law requires that a contract be in some form in order
that it may be valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable....
It is thus seen that to the general rule that the form (oral or written) is irrelevant to
the binding effect inter partes of a contract that possesses the three validating
elements of consent, subject matter, and causa, Article 1356 of the Code establishes
only two exceptions, to wit:
(a) Contracts for which the law itself requires that they be in some particular form
(writing) in order to make themvalid and enforceable (the socalled solemn contracts). Of these the typical example is the donation of immovable
property that the law (Article 749) requires to be embodied in a public instrument in
order "that the donation may be valid", i.e., existing or binding. Other instances are
the donation of movables worth more than P5,000.00 which must be in writing,
"otherwise the donation shall be void" (Article 748); contracts to pay interest on
loans (mutuum) that must be "expressly stipulated in writing" (Article 1956); and the
agreements contemplated by Article 1744, 1773, 1874 and 2134 of the present Civil
Code.
(b) Contracts that the law requires to be proved by some writing (memorandum) of
its terms, as in those covered by the old Statute of Frauds, now Article 1403(2) of the
Civil Code. Their existence not being provable by mere oral testimony (unless wholly
or partly executed), these contracts are exceptional in requiring a writing embodying
the terms thereof for their enforceability by action in court.
The contract sued upon by petitioner herein (compensation for services) does not
come under either exception. It is true that it appears included in Article 1358, last
clause, providing that "all other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one." But Article 1358 nowhere
provides that the absence of written form in this case will make the agreement
invalid or unenforceable. On the contrary, Article 1357 clearly indicates that
contracts covered by Article 1358 are binding and enforceable by action or suit
despite the absence of writing.
ART. 1357. If the law requires a document or other special form, as in the
acts and contracts enumerated in the following article, the contracting
parties may compel each other to observe that form, once the contract has
been perfected. This right may be exercised simultaneously with the action
the contract. (Emphasis supplied) .
It thus becomes inevitable to conclude that both the court a quo as well as the
private respondents herein were grossly mistaken in holding that because petitioner
Dauden's contract for services was not in writing the same could not be sued upon,
or that her complaint should be dismissed for failure to state a cause of action
because it did not plead any written agreement.
The basic error in the court's decision lies in overlooking that in our contractual
system it is not enough that the law should require that the contract be in writing, as
it does in Article 1358. The law must further prescribe that without the writing the
contract is not valid or not enforceable by action.
WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered
remanded to the court of origin for further proceedings not at variance with this
decision.
Costs to be solidarity paid by private respondents Hollywood Far East Productions,
Inc., and Ramon Valenzuela.
THIRD DIVISION
G.R. No. 141181
April 27, 2007
SAMSON CHING, Petitioner,

vs.
CLARITA NICDAO and HON. COURT OF APPEALS, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari filed by Samson Ching of the
Decision1 dated November 22, 1999 of the Court of Appeals (CA) in CA-G.R. CR No.
23055. The assailed decision acquitted respondent Clarita Nicdao of eleven (11)
counts of violation of Batas Pambansa Bilang (BP) 22, otherwise known as "The
Bouncing Checks Law." The instant petition pertains and is limited to the civil aspect
of the case as it submits that notwithstanding respondent Nicdaos acquittal, she
should be held liable to pay petitioner Ching the amounts of the dishonored checks in
the aggregate sum of P20,950,000.00.
Factual and Procedural Antecedents

On October 21, 1997, petitioner Ching, a Chinese national, instituted criminal
complaints for eleven (11) counts of violation of BP 22 against respondent Nicdao.
Consequently, eleven (11) Informations were filed with the First Municipal Circuit Trial
Court (MCTC) of Dinalupihan-Hermosa, Province of Bataan, which, except as to the
amounts and check numbers, uniformly read as follows:
The undersigned accuses Clarita S. Nicdao of a VIOLATION OF BATAS PAMBANSA
BILANG 22, committed as follows:
That on or about October 06, 1997, at Dinalupihan, Bataan, Philippines, and within
the jurisdiction of this Honorable Court, the said accused did then and there willfully
and unlawfully make or draw and issue Hermosa Savings & Loan Bank, Inc. Check No.
[002524] dated October 06, 1997 in the amount of [P20,000,000.00] in payment of
her obligation with complainant Samson T.Y. Ching, the said accused knowing fully
well that at the time she issued the said check she did not have sufficient funds in or
credit with the drawee bank for the payment in full of the said check upon
presentment, which check when presented for payment within ninety (90) days from
the date thereof, was dishonored by the drawee bank for the reason that it was
drawn against insufficient funds and notwithstanding receipt of notice of such
dishonor the said accused failed and refused and still fails and refuses to pay the
value of the said check in the amount of [P20,000,000.00] or to make arrangement
with the drawee bank for the payment in full of the same within five (5) banking days
after receiving the said notice, to the damage and prejudice of the said Samson T.Y.
Ching in the aforementioned amount of [P20,000,000.00], Philippine Currency.
CONTRARY TO LAW.
Dinalupihan, Bataan, October 21, 1997.
(Sgd.) SAMSON T.Y. CHING
Complainant
The cases were docketed as Criminal Cases Nos. 9433 up to 9443 involving the
following details:
Check
No.
Amount
0025242
P 20,000,00 Oct. 6,
0 1997
0088563
150,000
Date
Oct. 6,
1997
Private
Complainant
Samson T.Y.
Ching
"
Reason for the

Dishonor
DAIF*
"
0121424
100,000
Oct. 6,
1997
"
"
0045315
50,000
Oct. 6,
1997
"
"
0022546
100,000
Oct. 6,
1997
"
"
0088757
100,000
Oct. 6,
1997
"
"
0089368
50,000
Oct. 6,
1997
"
"
0022739
50,000
Oct. 6,
1997
"
"
00894810
150,000
Oct. 6,
1997
"
"
00893511
100,000
Oct. 6,
1997
"
"
01037712
100,000
Oct. 6,
1997
"
"
At about the same time, fourteen (14) other criminal complaints, also for violation of
BP 22, were filed against respondent Nicdao by Emma Nuguid, said to be the
common law spouse of petitioner Ching. Allegedly fourteen (14) checks, amounting
to P1,150,000.00, were issued by respondent Nicdao to Nuguid but were dishonored
for lack of sufficient funds. The Informations were filed with the same MCTC and
docketed as Criminal Cases Nos. 9458 up to 9471.
At her arraignment, respondent Nicdao entered the plea of "not guilty" to all the
charges. A joint trial was then conducted for Criminal Cases Nos. 9433-9443 and
9458-9471.
For the prosecution in Criminal Cases Nos. 9433-9443, petitioner Ching and Imelda
Yandoc, an employee of the Hermosa Savings & Loan Bank, Inc., were presented to
prove the charges against respondent Nicdao. On direct-examination, 13 petitioner
Ching preliminarily identified each of the eleven (11) Hermosa Savings & Loan Bank
(HSLB) checks that were allegedly issued to him by respondent Nicdao amounting
to P20,950,000.00. He identified the signatures appearing on the checks as those of
respondent Nicdao. He recognized her signatures because respondent Nicdao
allegedly signed the checks in his presence. When petitioner Ching presented these
checks for payment, they were dishonored by the bank, HSLB, for being "DAIF" or
"drawn against insufficient funds."
Petitioner Ching averred that the checks were issued to him by respondent Nicdao as
security for the loans that she obtained from him. Their transaction began sometime
in October 1995 when respondent Nicdao, proprietor/manager of Vignette
Superstore, together with her husband, approached him to borrow money in order for
them to settle their financial obligations. They agreed that respondent Nicdao would
leave the checks undated and that she would pay the loans within one year.
However, when petitioner Ching went to see her after the lapse of one year to ask for
payment, respondent Nicdao allegedly said that she had no cash.
Petitioner Ching claimed that he went back to respondent Nicdao several times more
but every time, she would tell him that she had no money. Then in September 1997,
respondent Nicdao allegedly got mad at him for being insistent and challenged him
about seeing each other in court. Because of respondent Nicdao's alleged refusal to
pay her obligations, on October 6, 1997, petitioner Ching deposited the checks that
she issued to him. As he earlier stated, the checks were dishonored by the bank for
being "DAIF." Shortly thereafter, petitioner Ching, together with Emma Nuguid, wrote
a demand letter to respondent Nicdao which, however, went unheeded. Accordingly,
they separately filed the criminal complaints against the latter.
On cross-examination, 14 petitioner Ching claimed that he had been a salesman of the
La Suerte Cigar and Cigarette Manufacturing for almost ten (10) years already. As
such, he delivered the goods and had a warehouse. He received salary and
commissions. He could not, however, state his exact gross income. According to him,
it increased every year because of his business. He asserted that aside from being a
salesman, he was also in the business of extending loans to other people at an
interest, which varied depending on the person he was dealing with.
Petitioner Ching confirmed the truthfulness of the allegations contained in the eleven
(11) Informations that he filed against respondent Nicdao. He reiterated that, upon
their agreement, the checks were all signed by respondent Nicdao but she left them
undated. Petitioner Ching admitted that he was the one who wrote the date, October
6, 1997, on those checks when respondent Nicdao refused to pay him.
With respect to the P20,000,000.00 check (Check No. 002524), petitioner Ching
explained that he wrote the date and amount thereon when, upon his estimation, the
money that he regularly lent to respondent Nicdao beginning October 1995 reached
the said sum. He likewise intimated that prior to 1995, they had another transaction
amounting to P1,200,000.00 and, as security therefor, respondent Nicdao similarly
issued in his favor checks in varying amounts of P100,000.00 and P50,000.00. When
the said amount was fully paid, petitioner Ching returned the checks to respondent
Nicdao.
Petitioner Ching maintained that the eleven (11) checks subject of Criminal Cases
Nos. 9433-9443 pertained to respondent Nicdaos loan transactions with him
beginning October 1995. He also mentioned an instance when respondent Nicdaos
husband and daughter approached him at a casino to borrow money from him. He
lent themP300,000.00. According to petitioner Ching, since this amount was also
unpaid, he included it in the other amounts that respondent Nicdao owed to him
which totaled P20,000,000.00 and wrote the said amount on one of respondent
Nicdaos blank checks that she delivered to him.
Petitioner Ching explained that from October 1995 up to 1997, he regularly delivered
money to respondent Nicdao, in the amount of P1,000,000.00 until the total amount
reached P20,000,000.00. He did not ask respondent Nicdao to acknowledge receiving
these amounts. Petitioner Ching claimed that he was confident that he would be paid
by respondent Nicdao because he had in his possession her blank checks. On the
other hand, the latter allegedly had no cause to fear that he would fill up the checks
with just any amount because they had trust and confidence in each other. When
asked to produce the piece of paper on which he allegedly wrote the amounts that he
lent to respondent Nicdao, petitioner Ching could not present it; he reasoned that it
was not with him at that time.
It was also averred by petitioner Ching that respondent Nicdao confided to him that
she told her daughter Janette, who was married to a foreigner, that her debt to him
was only between P3,000,000.00 and P5,000,000.00. Petitioner Ching claimed that
he offered to accompany respondent Nicdao to her daughter in order that they could
apprise her of the amount that she owed him. Respondent Nicdao refused for fear
that it would cause disharmony in the family. She assured petitioner Ching, however,
that he would be paid by her daughter.
Petitioner Ching reiterated that after the lapse of one (1) year from the time
respondent Nicdao issued the checks to him, he went to her several times to collect
payment. In all these instances, she said that she had no cash. Finally, in September
1997, respondent Nicdao allegedly went to his house and told him that Janette was
only willing to pay him between P3,000,000.00 and P5,000,000.00 because, as far as
her daughter was concerned, that was the only amount borrowed from petitioner
Ching. On hearing this, petitioner Ching angrily told respondent Nicdao that she
should not have allowed her debt to reach P20,000,000.00 knowing that she would
not be able to pay the full amount.
Petitioner Ching identified the demand letter that he and Nuguid sent to respondent
Nicdao. He explained that he no longer informed her about depositing her checks on
his account because she already made that statement about seeing him in court.
Again, he admitted writing the date, October 6, 1997, on all these checks.
Another witness presented by the prosecution was Imelda Yandoc, an employee of
HSLB. On direct-examination, 15 she testified that she worked as a checking account
bookkeeper/teller of the bank. As such, she received the checks that were drawn
against the bank and verified if they were funded. On October 6, 1997, she received
several checks issued by respondent Nicdao. She knew respondent Nicdao because
the latter maintained a savings and checking account with them. Yandoc identified
the checks subject of Criminal Cases Nos. 9433-9443 and affirmed that stamped at
the back of each was the annotation "DAIF". Further, per the banks records, as of
October 8, 1997, only a balance of P300.00 was left in respondent Nicdaos checking
account and P645.83 in her savings account. On even date, her account with the
bank was considered inactive.
On cross-examination, 16 Yandoc stated anew that respondent Nicdaos checks

bounced on October 7, 1997 for being "DAIF" and her account was closed the
following day, on October 8, 1997. She informed the trial court that there were
actually twenty-five (25) checks of respondent Nicdao that were dishonored at about
the same time. The eleven (11) checks were purportedly issued in favor of petitioner
Ching while the other fourteen (14) were purportedly issued in favor of Nuguid.
Yandoc explained that respondent Nicdao or her employee would usually call the
bank to inquire if there was an incoming check to be funded.
For its part, the defense proffered the testimonies of respondent Nicdao, Melanie
Tolentino and Jocelyn Nicdao. On direct-examination, 17 respondent Nicdao stated that
she only dealt with Nuguid. She vehemently denied the allegation that she had
borrowed money from both petitioner Ching and Nuguid in the total amount
ofP22,950,000.00. Respondent Nicdao admitted, however, that she had obtained a
loan from Nuguid but only forP2,100,000.00 and the same was already fully paid. As
proof of such payment, she presented a Planters Bank demand draft dated August
13, 1996 in the amount of P1,200,000.00. The annotation at the back of the said
demand draft showed that it was endorsed and negotiated to the account of
petitioner Ching.
In addition, respondent Nicdao also presented and identified several cigarette
wrappers18 at the back of which appeared computations. She explained that Nuguid
went to the grocery store everyday to collect interest payments. The principal loan
was P2,100,000.00 with 12% interest per day. Nuguid allegedly wrote the payments
for the daily interests at the back of the cigarette wrappers that she gave to
respondent Nicdao.
The principal loan amount of P2,100,000.00 was allegedly delivered by Nuguid to
respondent Nicdao in varying amounts of P100,000.00 and P150,000.00. Respondent
Nicdao refuted the averment of petitioner Ching that prior to 1995, they had another
transaction.
With respect to the P20,000,000.00 check, respondent Nicdao admitted that the
signature thereon was hers but denied that she issued the same to petitioner Ching.
Anent the other ten (10) checks, she likewise admitted that the signatures thereon
were hers while the amounts and payee thereon were written by either Jocelyn
Nicdao or Melanie Tolentino, who were employees of Vignette Superstore and
authorized by her to do so.
Respondent Nicdao clarified that, except for the P20,000,000.00 check, the other ten
(10) checks were handed to Nuguid on different occasions. Nuguid came to the
grocery store everyday to collect the interest payments. Respondent Nicdao said that
she purposely left the checks undated because she would still have to notify Nuguid
if she already had the money to fund the checks.
Respondent Nicdao denied ever confiding to petitioner Ching that she was afraid that
her daughter would get mad if she found out about the amount that she owed him.
What allegedly transpired was that when she already had the money to pay them
(presumably referring to petitioner Ching and Nuguid), she went to them to retrieve
her checks. However, petitioner Ching and Nuguid refused to return the checks
claiming that she (respondent Nicdao) still owed them money. She demanded that
they show her the checks in order that she would know the exact amount of her debt,
but they refused. It was at this point that she got angry and dared them to go to
court.
After the said incident, respondent Nicdao was surprised to be notified by HSLB that
her check in the amount ofP20,000,000.00 was just presented to the bank for
payment. She claimed that it was only then that she remembered that sometime in
1995, she was informed by her employee that one of her checks was missing. At that
time, she did not let it bother her thinking that it would eventually surface when
presented to the bank.
Respondent Nicdao could not explain how the said check came into petitioner Chings
possession. She explained that she kept her checks in an ordinary cash box together
with a stapler and the cigarette wrappers that contained Nuguids computations. Her
saleslady had access to this box. Respondent Nicdao averred that it was Nuguid who
offered to give her a loan as she would allegedly need money to manage Vignette
Superstore. Nuguid used to run the said store before respondent Nicdaos daughter
bought it from Nuguids family, its previous owner. According to respondent Nicdao, it
was Nuguid who regularly delivered the cash to respondent Nicdao or, if she was not
at the grocery store, to her saleslady. Respondent Nicdao denied any knowledge that
the money loaned to her by Nuguid belonged to petitioner Ching.
At the continuation of her direct-examination, 19 respondent Nicdao said that she
never dealt with petitioner Ching because it was Nuguid who went to the grocery
store everyday to collect the interest payments. When shown theP20,000,000.00
check, respondent Nicdao admitted that the signature thereon was hers but she
denied issuing it as a blank check to petitioner Ching. On the other hand, with
respect to the other ten (10) checks, she also admitted that the signatures thereon
were hers and that the amounts thereon were written by either Josie Nicdao or
Melanie Tolentino, her employees whom she authorized to do so. With respect to the
payee, it was purposely left blank allegedly upon instruction of Nuguid who said that
she would use the checks to pay someone else.
On cross-examination,20 respondent Nicdao explained that Josie Nicdao and Melanie
Tolentino were caretakers of the grocery store and that they manned it when she was
not there. She likewise confirmed that she authorized them to write the amounts on
the checks after she had affixed her signature thereon. She stressed, however, that
the P20,000,000.00 check was the one that was reported to her as lost or missing by
her saleslady sometime in 1995. She never reported the matter to the bank because
she was confident that it would just surface when it would be presented for payment.
Again, respondent Nicdao identified the cigarette wrappers which indicated the daily
payments she had made to Nuguid. The latter allegedly went to the grocery store
everyday to collect the interest payments. Further, the figures at the back of the
cigarette wrappers were written by Nuguid. Respondent Nicdao asserted that she
recognized her handwriting because Nuguid sometimes wrote them in her presence.
Respondent Nicdao maintained that she had already paid Nuguid the amount
of P1,200,000.00 as evidenced by the Planters Bank demand draft which she gave to
the latter and which was subsequently negotiated and deposited in petitioner Chings
account. In connection thereto, respondent Nicdao refuted the prosecutions
allegation that the demand draft was payment for a previous transaction that she
had with petitioner Ching. She clarified that the payments that Nuguid collected from
her everyday were only for the interests due. She did not ask Nuguid to make written
acknowledgements of her payments.
Melanie Tolentino was presented to corroborate the testimony of respondent Nicdao.
On direct-examination, 21Tolentino stated that she worked at the Vignette Superstore
and she knew Nuguid because her employer, respondent Nicdao, used to borrow
money from her. She knew petitioner Ching only by name and that he was the
"husband" of Nuguid.
As an employee of the grocery store, Tolentino stated that she acted as its caretaker
and was entrusted with the custody of respondent Nicdaos personal checks.
Tolentino identified her own handwriting on some of the checks especially with
respect to the amounts and figures written thereon. She said that Nuguid instructed
her to leave the space for the payee blank as she would use the checks to pay
someone else. Tolentino added that she could not recall respondent Nicdao issuing a
check to petitioner Ching in the amount of P20,000,000.00. She confirmed that they
lost a check sometime in 1995. When informed about it, respondent Nicdao told her
that the check could have been issued to someone else, and that it would just
surface when presented to the bank.
Tolentino recounted that Nuguid came to the grocery store everyday to collect the
interest payments of the loan. In some instances, upon respondent Nicdaos
instruction, Tolentino handed to Nuguid checks that were already signed by
respondent Nicdao. Sometimes, Tolentino would be the one to write the amount on
the checks. Nuguid, in turn, wrote the amounts on pieces of paper which were kept
by respondent Nicdao.
On cross-examination, 22 Tolentino confirmed that she was authorized by respondent
Nicdao to fill up the checks and hand them to Nuguid. The latter came to the grocery
store everyday to collect the interest payments. Tolentino claimed that in 1995, in the
course of chronologically arranging respondent Nicdaos check booklets, she noticed
that a check was missing. Respondent Nicdao told her that perhaps she issued it to
someone and that it would just turn up in the bank. Tolentino was certain that the
missing check was the same one that petitioner Ching presented to the bank for
payment in the amount of P20,000,000.00.
Tolentino stated that she left the employ of respondent Nicdao sometime in 1996.
After the checks were dishonored in October 1997, Tolentino got a call from
respondent Nicdao. After she was shown a fax copy thereof, Tolentino confirmed that
the P20,000,000.00 check was the same one that she reported as missing in 1995.
Jocelyn Nicdao also took the witness stand to corroborate the testimony of the other
defense witnesses. On direct-examination, 23 she averred that she was a saleslady at
the Vignette Superstore from August 1994 up to April 1998. She knew Nuguid as well
as petitioner Ching.
Jocelyn Nicdao further testified that respondent Nicdao was indebted to Nuguid.
Jocelyn Nicdao used to fill up the checks of respondent Nicdao that had already been
signed by her and give them to Nuguid. The latter came to the grocery store
everyday to pick up the interest payments. Jocelyn Nicdao identified the checks on
which she wrote the amounts and, in some instances, the name of Nuguid as payee.
However, most of the time, Nuguid allegedly instructed her to leave as blank the
space for the payee.
Jocelyn Nicdao identified the cigarette wrappers as the documents on which Nuguid
acknowledged receipt of the interest payments. She explained that she was the one
who wrote the minus entries and they represented the daily interest payments
received by Nuguid.
On cross-examination,24 Jocelyn Nicdao stated that she was a distant cousin of
respondent Nicdao. She stopped working for her in 1998 because she wanted to take
a rest. Jocelyn Nicdao reiterated that she handed the checks to Nuguid at the grocery
store.
After due trial, on December 8, 1998, the MCTC rendered judgment in Criminal Cases
Nos. 9433-9443 convicting respondent Nicdao of eleven (11) counts of violation of BP
22. The MCTC gave credence to petitioner Chings testimony that respondent Nicdao
borrowed money from him in the total amount of P20,950,000.00. Petitioner Ching
delivered P1,000,000.00 every month to respondent Nicdao from 1995 up to 1997
until the sum reachedP20,000,000.00. The MCTC also found that subsequent thereto,
respondent Nicdao still borrowed money from petitioner Ching. As security for these
loans, respondent Nicdao issued checks to petitioner Ching. When the latter
deposited the checks (eleven in all) on October 6, 1997, they were dishonored by the
bank for being "DAIF."
The MCTC explained that the crime of violation of BP 22 has the following elements:
(a) the making, drawing and issuance of any check to apply to account or for value;
(b) the knowledge of the maker, drawer or issuer that at the time of issue he does
not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment; and (c) subsequent dishonor of the check by the
drawee bank for insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop payment. 25
According to the MCTC, all the foregoing elements are present in the case of
respondent Nicdaos issuance of the checks subject of Criminal Cases Nos. 94339443. On the first element, respondent Nicdao was found by the MCTC to have made,
drawn and issued the checks. The fact that she did not personally write the payee
and date on the checks was not material considering that under Section 14 of the
Negotiable Instruments Law, "where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it
by filling up the blanks therein. And a signature on a blank paper delivered by the
person making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it up as such for any
amount x x x." Respondent Nicdao admitted that she authorized her employees to
provide the details on the checks after she had signed them.
The MCTC disbelieved respondent Nicdaos claim that the P20,000,000.00 check was
the same one that she lost in 1995. It observed that ordinary prudence would dictate
that a lost check would at least be immediately reported to the bank to prevent its
unauthorized endorsement or negotiation. Respondent Nicdao made no such report
to the bank. Even if the said check was indeed lost, the MCTC faulted respondent
Nicdao for being negligent in keeping the checks that she had already signed in an
unsecured box.
The MCTC further ruled that there was no evidence to show that petitioner Ching was
not a holder in due course as to cause it (the MCTC) to believe that the said check
was not issued to him. Respondent Nicdaos admission of indebtedness was sufficient
to prove that there was consideration for the issuance of the checks.
The second element was also found by the MCTC to be present as it held that
respondent Nicdao, as maker, drawer or issuer, had knowledge that at the time of
issue she did not have sufficient funds in or credit with the drawee bank for the
payment in full of the checks upon their presentment.
As to the third element, the MCTC established that the checks were subsequently
dishonored by the drawee bank for being "DAIF" or drawn against insufficient funds.
Stamped at the back of each check was the annotation "DAIF." The bank
representative likewise testified to the fact of dishonor.
Under the foregoing circumstances, the MCTC declared that the conviction of
respondent Nicdao was warranted. It stressed that the mere act of issuing a
worthless check was malum prohibitum; hence, even if the checks were issued in the
form of deposit or guarantee, once dishonored, the same gave rise to the prosecution
for and conviction of BP 22.26 The decretal portion of the MCTC decision reads:
WHEREFORE, in view of the foregoing, the accused is found guilty of violating Batas
Pambansa Blg. 22 in 11 counts, and is hereby ordered to pay the private complainant
the amount of P20,950,000.00 plus 12% interest per annum from date of filing of the
complaint until the total amount had been paid. The prayer for moral damages is
denied for lack of evidence to prove the same. She is likewise ordered to suffer
imprisonment equivalent to 1 year for every check issued and which penalty shall be
served successively.
SO ORDERED.27
Incidentally, on January 11, 1999, the MCTC likewise rendered its judgment in
Criminal Cases Nos. 9458-9471 and convicted respondent Nicdao of the fourteen (14)
counts of violation of BP 22 filed against her by Nuguid.
Petitioner [respondent herein] Clarita S. Nicdao, a middle-aged mother and

housekeeper who only finished high school, has a daughter, Janette Boyd, who is
married to a wealthy expatriate.
On appeal, the Regional Trial Court (RTC) of Dinalupihan, Bataan, Branch 5, in

separate Decisions both dated May 10, 1999, affirmed in toto the decisions of the
MCTC convicting respondent Nicdao of eleven (11) and fourteen (14) counts of
violation of BP 22 in Criminal Cases Nos. 9433-9443 and 9458-9471, respectively.
Complainant [petitioner herein] Samson Ching is a Chinese national, who claimed he

is a salesman of La Suerte Cigar and Cigarette Factory.
Respondent Nicdao forthwith filed with the CA separate petitions for review of the
two decisions of the RTC. The petition involving the eleven (11) checks purportedly
issued to petitioner Ching was docketed as CA-G.R. CR No. 23055 (assigned to the
13th Division). On the other hand, the petition involving the fourteen (14) checks
purportedly issued to Nuguid was docketed as CA-G.R. CR No. 23054 (originally
assigned to the 7th Division but transferred to the 6th Division). The Office of the
Solicitor General (OSG) filed its respective comments on the said petitions.
Subsequently, the OSG filed in CA-G.R. CR No. 23055 a motion for its consolidation
with CA-G.R. CR No. 23054. The OSG prayed that CA-G.R. CR No. 23055 pending
before the 13th Division be transferred and consolidated with CA-G.R. CR No. 23054
in accordance with the Revised Internal Rules of the Court of Appeals (RIRCA).
Acting on the motion for consolidation, the CA in CA-G.R. CR No. 23055 issued a
Resolution dated October 19, 1999 advising the OSG to file the motion in CA-G.R. CR
No. 23054 as it bore the lowest number. Respondent Nicdao opposed the
consolidation of the two cases. She likewise filed her reply to the comment of the
OSG in CA-G.R. CR No. 23055.
On November 22, 1999, the CA (13th Division) rendered the assailed Decision in CAG.R. CR No. 23055 acquitting respondent Nicdao of the eleven (11) counts of
violation of BP 22 filed against her by petitioner Ching. The decretal portion of the
assailed CA Decision reads:
WHEREFORE, being meritorious, the petition for review is hereby GRANTED.
Accordingly, the decision dated May 10, 1999, of the Regional Trial Court, 3rd Judicial
Region, Branch 5, Bataan, affirming the decision dated December 8, 1998, of the First
Municipal Circuit Trial Court of Dinalupihan-Hermosa, Bataan, convicting petitioner
Clarita S. Nicdao in Criminal Cases No. 9433 to 9443 of violation of B.P. Blg. 22 is
REVERSED and SET ASIDE and another judgment rendered ACQUITTING her in all
these cases, with costs de oficio.
Emma Nuguid, complainants live-in partner, is a CPA and formerly connected with
Sycip, Gorres and Velayo. Nuguid used to own a grocery store now known as the
Vignette Superstore. She sold this grocery store, which was about to be foreclosed, to
petitioners daughter, Janette Boyd. Since then, petitioner began managing said
store. However, since petitioner could not always be at the Vignette Superstore to
keep shop, she entrusted to her salesladies, Melanie Tolentino and Jocelyn Nicdao,
pre-signed checks, which were left blank as to amount and the payee, to cover for
any delivery of merchandise sold at the store. The blank and personal checks were
placed in a cash box at Vignette Superstore and were filled up by said salesladies
upon instruction of petitioner as to amount, payee and date.
Soon thereafter, Emma Nuguid befriended petitioner and offered to lend money to
the latter which could be used in running her newly acquired store. Nuguid
represented to petitioner that as former manager of the Vignette Superstore, she
knew that petitioner would be in need of credit to meet the daily expenses of running
the business, particularly in the daily purchases of merchandise to be sold at the
store. After Emma Nuguid succeeded in befriending petitioner, Nuguid was able to
gain access to the Vignette Superstore where petitioners blank and pre-signed
checks were kept.29
In addition, the CA also made the finding that respondent Nicdao borrowed money
from Nuguid in the total amount of P2,100,000.00 secured by twenty-four (24) checks
drawn against respondent Nicdaos account with HSLB. Upon Nuguids instruction,
the checks given by respondent Nicdao as security for the loans were left blank as to
the payee and the date. The loans consisted of (a) P950,000.00 covered by ten (10)
checks subject of the criminal complaints filed by petitioner Ching (CA-G.R. CR No.
23055); and (b) P1,150,000.00 covered by fourteen (14) checks subject of the
criminal complaints filed by Nuguid (CA-G.R. CR No. 23054). The loans
totaledP2,100,000.00 and they were transacted between respondent Nicdao and
Nuguid only. Respondent Nicdao never dealt with petitioner Ching.
On even date, the CA issued an Entry of Judgment declaring that the above decision
has become final and executory and is recorded in the Book of Judgments.
Against the foregoing factual findings, the CA declared that, based on the evidence,
respondent Nicdao had already fully paid the loans. In particular, the CA referred to
the Planters Bank demand draft in the amount ofP1,200,000.00 which, by his own
admission, petitioner Ching had received. The appellate court debunked petitioner
Chings allegation that the said demand draft was payment for a previous
transaction. According to the CA, petitioner Ching failed to adduce evidence to prove
the existence of a previous transaction between him and respondent Nicdao.
In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the CA made the following
factual findings:
Apart from the demand draft, the CA also stated that respondent Nicdao made
interest payments on a daily basis to Nuguid as evidenced by the computations
SO ORDERED.28
written at the back of the cigarette wrappers. Based on these computations, as of

July 21, 1997, respondent Nicdao had made a total of P5,780,000.00 payments to
Nuguid for the interests alone. Adding up this amount and that of the Planters Bank
demand draft, the CA placed the payments made by respondent Nicdao to Nuguid as
already amounting to P6,980,000.00 for the principal loan amount of
only P2,100,000.00.
The CA negated petitioner Chings contention that the payments as reflected at the
back of the cigarette wrappers could be applied only to the interests due. Since the
transactions were not evidenced by any document or writing, the CA ratiocinated
that no interests could be collected because, under Article 1956 of the Civil Code, "no
interest shall be due unless it has been expressly stipulated in writing."
The CA gave credence to the testimony of respondent Nicdao that when she had fully
paid her loans to Nuguid, she tried to retrieve her checks. Nuguid, however, refused
to return the checks to respondent Nicdao. Instead, Nuguid and petitioner Ching filled
up the said checks to make it appear that: (a) petitioner Ching was the payee in five
checks; (b) the six checks were payable to cash; (c) Nuguid was the payee in
fourteen (14) checks. Petitioner Ching and Nuguid then put the date October 6, 1997
on all these checks and deposited them the following day. On October 8, 1997,
through a joint demand letter, they informed respondent Nicdao that her checks were
dishonored by HSLB and gave her three days to settle her indebtedness or else face
prosecution for violation of BP 22.
With the finding that respondent Nicdao had fully paid her loan obligations to Nuguid,
the CA declared that she could no longer be held liable for violation of BP 22. It was
explained that to be held liable under BP 22, it must be established, inter alia, that
the check was made or drawn and issued to apply on account or for value. According
to the CA, the word "account" refers to a pre-existing obligation, while "for value"
means an obligation incurred simultaneously with the issuance of the check. In the
case of respondent Nicdaos checks, the pre-existing obligations secured by them
were already extinguished after full payment had been made by respondent Nicdao
to Nuguid. Obligations are extinguished by, among others, payment. 30 The CA
believed that when petitioner Ching and Nuguid refused to return respondent
Nicdaos checks despite her total payment of P6,980,000.00 for the loans secured by
the checks, petitioner Ching and Nuguid were using BP 22 to coerce respondent
Nicdao to pay a debt which she no longer owed them.
With respect to the P20,000,000.00 check, the CA was not convinced by petitioner
Chings claim that he deliveredP1,000,000.00 every month to respondent Nicdao
until the amount reached P20,000,000.00 and, when she refused to pay the same, he
filled up the check, which she earlier delivered to him as security for the loans, by
writing thereon the said amount. In disbelieving petitioner Ching, the CA pointed out
that, contrary to his assertion, he was never employed by the La Suerte Cigar and
Cigarette Manufacturing per the letter of Susan Resurreccion, Vice-President and
Legal Counsel of the said company. Moreover, as admitted by petitioner Ching, he did
not own the house where he and Nuguid lived.
Moreover, the CA characterized as incredible and contrary to human experience that

petitioner Ching would, as he claimed, deliver a total sum of P20,000,000.00 to
respondent Nicdao without any documentary proof thereof, e.g., written
acknowledgment that she received the same. On the other hand, it found plausible
respondent Nicdaos version of the story that the P20,000,000.00 check was the
same one that was missing way back in 1995. The CA opined that this missing check
surfaced in the hands of petitioner Ching who, in cahoots with Nuguid, wrote the
amount P20,000,000.00 thereon and deposited it in his account. To the mind of the
CA, the inference that the check was stolen was anchored on competent
circumstantial evidence. Specifically, Nuguid, as previous manager/owner of the
grocery store, had access thereto. Likewise applicable, according to the CA, was the
presumption that the person in possession of the stolen article was presumed to be
guilty of taking the stolen article. 31
The CA emphasized that the P20,000,000.00 check was never delivered by
respondent Nicdao to petitioner Ching. As such, the said check without the details as
to the date, amount and payee, was an incomplete and undelivered instrument when
it was stolen and ended up in petitioner Chings hands. On this point, the CA applied
Sections 15 and 16 of the Negotiable Instruments Law:
SEC. 15. Incomplete instrument not delivered. Where an incomplete instrument has
not been delivered, it will not, if completed and negotiated without authority, be a
valid contract in the hands of any holder, as against any person whose signature was
placed thereon before delivery.
SEC. 16. Delivery; when effectual; when presumed. Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties and as regards a
remote party other than a holder in due course, the delivery, in order to be effectual,
must be made either by or under the authority of the party making, drawing,
accepting or indorsing, as the case may be; and, in such case, the delivery may be
shown to have been conditional, or for a special purpose only, and not for the
purpose of transferring the property. But where the instrument is in the hands of a
holder in due course, a valid delivery thereof by all parties prior to him so as to make
them liable to him is conclusively presumed. And where the instrument is no longer
in the possession of a party whose signature appears thereon, a valid and intentional
delivery by him is presumed until the contrary is proved.
The CA held that the P20,000,000.00 check was filled up by petitioner Ching without
respondent Nicdaos authority. Further, it was incomplete and undelivered. Hence,
petitioner Ching did not acquire any right or interest therein and could not assert any
cause of action founded on the
stolen checks.32 Under these circumstances, the CA concluded that respondent could
not be held liable for violation of BP 22.
The Petitioners Case
As mentioned earlier, the instant petition pertains and is limited solely to the civil
aspect of the case as petitioner Ching argues that notwithstanding respondent
Nicdaos acquittal of the eleven (11) counts of violation of BP 22, she should be held
liable to pay petitioner Ching the amounts of the dishonored checks in the aggregate
sum ofP20,950,000.00.
He urges the Court to review the findings of facts made by the CA as they are
allegedly based on a misapprehension of facts and manifestly erroneous and
contradicted by the evidence. Further, the CAs factual findings are in conflict with
those of the RTC and MCTC.
Petitioner Ching vigorously argues that notwithstanding respondent Nicdaos
acquittal by the CA, the Supreme Court has the jurisdiction and authority to resolve
and rule on her civil liability. He invokes Section 1, Rule 111 of the Revised Rules of
Court which, prior to its amendment, provided, in part:
SEC. 1. Institution of criminal and civil actions. When a criminal action is instituted,
the civil action for the recovery of civil liability is impliedly instituted with the criminal
action, unless the offended party waives the civil action, reserves his right to institute
it separately, or institutes the civil action prior to the criminal action.
Such civil action includes the recovery of indemnity under the Revised Penal Code,
and damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines
arising from the same act or omission of the accused. x x x
Supreme Court Circular No. 57-9733 dated September 16, 1997 is also cited as it
provides in part:
1. The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to
necessarily include the corresponding civil action, and no reservation to file such civil
action separately shall be allowed or recognized. x x x
Petitioner Ching theorizes that, under Section 1, Rule 111 of the Revised Rules of
Court, the civil action for the recovery of damages under Articles 32, 33, 34, and
2176 arising from the same act or omission of the accused is impliedly instituted with
the criminal action. Moreover, under the above-quoted Circular, the criminal action
for violation of BP 22 necessarily includes the corresponding civil action, which is the
recovery of the amount of the dishonored check representing the civil obligation of
the drawer to the payee.
In seeking to enforce the alleged civil liability of respondent Nicdao, petitioner Ching
maintains that she had loan obligations to him totaling P20,950,000.00. The
existence of the same is allegedly established by his testimony before the MCTC.
Also, he asks the Court to take judicial notice that for a monetary loan secured by a
check, the check itself is the evidence of indebtedness.
He insists that, contrary to her protestation, respondent Nicdao also transacted with
him, not only with Nuguid. Petitioner Ching pointed out that during respondent
Nicdaos testimony, she referred to her creditors in plural form, e.g. "[I] told them,
most checks that I issued I will inform them if I have money." Even respondent
Nicdaos employees allegedly knew him; they testified that Nuguid instructed them
at times to leave as blank the payee on the checks as they would be paid to someone
else, who turned out to be petitioner Ching.
It was allegedly erroneous for the CA to hold that he had no capacity to
lend P20,950,000.00 to respondent Nicdao. Petitioner Ching clarified that what he
meant when he testified before the MCTC was that he was engaged in dealership
with La Suerte Cigar and Cigarette Manufacturing, and not merely its sales agent. He
stresses that he owns a warehouse and is also in the business of lending money.
Further, the CAs reasoning that he could not possibly have lent P20,950,000.00 to
respondent Nicdao since petitioner Ching and Nuguid did not own the house where
they live, is allegedly non sequitur.
Petitioner Ching maintains that, contrary to the CAs finding, the Planters Bank
demand draft for P1,200,000.00 was in payment for respondent Nicdaos previous
loan transaction with him. Apart from the P20,000,000.00 check, the other ten (10)
checks (totaling P950,000.00) were allegedly issued by respondent Nicdao to
petitioner Ching as security for the loans that she obtained from him from 1995 to
1997. The existence of another loan obligation prior to the said period was allegedly
established by the testimony of respondent Nicdaos own witness, Jocelyn Nicdao,
who testified that when she started working in Vignette Superstore in 1994, she
noticed that respondent Nicdao was already indebted to Nuguid.
Petitioner Ching also takes exception to the CAs ruling that the payments made by
respondent Nicdao as reflected on the computations at the back of the cigarette
wrappers were for both the principal loan and interests. He insists that they were for
the interests alone. Even respondent Nicdaos testimony allegedly showed that they
were daily interest payments. Petitioner Ching further avers that the interest
payments totaling P5,780,000.00 can only mean that, contrary to respondent
Nicdaos claim, her loan obligations amounted to much more thanP2,100,000.00.
Further, she is allegedly estopped from questioning the interests because she
willingly paid the same.
Petitioner Ching also harps on respondent Nicdaos silence when she received his and
Nuguids demand letter to her. Through the said letter, they notified her that the
twenty-five (25) checks valued at P22,100,000.00 were dishonored by the HSLB, and
that she had three days to settle her ndebtedness with them, otherwise, face
prosecution. Respondent Nicdaos silence, i.e., her failure to deny or protest the same
by way of reply, vis--vis the demand letter, allegedly constitutes an admission of the
statements contained therein.
On the other hand, the MCTCs decision, as affirmed by the RTC, is allegedly based on
the evidence on record; it has been established that the checks were respondent
Nicdaos personal checks, that the signatures thereon were hers and that she had
issued them to petitioner Ching. With respect to the P20,000,000.00 check, petitioner
Ching assails the CAs ruling that it was stolen and was never delivered or issued by
respondent Nicdao to him. The issue of the said check being stolen was allegedly not
raised during trial. Further, her failure to report the alleged theft to the bank to stop
payment of the said lost or missing check is allegedly contrary to human experience.
Petitioner Ching describes respondent Nicdaos defense of stolen or lost check as
incredible and, therefore, false.
Aside from the foregoing substantive issues that he raised, petitioner Ching also
faults the CA for not acting and ordering the consolidation of CA-G.R. CR No. 23055
with CA-G.R. CR No. 23054. He informs the Court that latter case is still pending with
the CA.
In fine, it is petitioner Chings view that the CA gravely erred in disregarding the
findings of the MCTC, as affirmed by the RTC, and submits that there is more than
sufficient preponderant evidence to hold respondent Nicdao civilly liable to him in the
amount of P20,950,000.00. He thus prays that the Court direct respondent Nicdao to
pay him the said amount plus 12% interest per annum computed from the date of
written demand until the total amount is fully paid.
The Respondents Counter-Arguments
Respondent Nicdao urges the Court to deny the petition. She posits preliminarily that
it is barred under Section 2(b), Rule 111 of the Revised Rules of Court which states:
SEC. 2. Institution of separate of civil action. - Except in the cases provided for in
Section 3 hereof, after the criminal action has been commenced, the civil action
which has been reserved cannot be instituted until final judgment in the criminal
action.
xxxx
(b) Extinction of the penal action does not carry with it extinction of the civil, unless
the extinction proceeds from a declaration in a final judgment that the fact from
which the civil might arise did not exist.
According to respondent Nicdao, the assailed CA decision has already made a finding
to the effect that the fact upon which her civil liability might arise did not exist. She
refers to the ruling of the CA that the P20,000,000.00 check was stolen; hence,
petitioner Ching did not acquire any right or interest over the said check and could
not assert any cause of action founded on the said check. Consequently, the CA held
that respondent Nicdao had no obligation to make good the stolen check and cannot
be held liable for violation of BP 22. She also refers to the CAs pronouncement
relative to the ten (10) other checks that they were not issued to apply on account or
for value, considering that the loan obligations secured by these checks had already
been extinguished by her full payment thereof.
To respondent Nicdaos mind, these pronouncements are equivalent to a finding that

the facts upon which her civil liability may arise do not exist. The instant petition,
which seeks to enforce her civil liability based on the eleven (11) checks, is thus
allegedly already barred by the final and executory decision acquitting her.
In any case, respondent Nicdao contends that the CA did not commit serious
misapprehension of facts when it found that the P20,000,000.00 check was a stolen
check and that she never made any transaction with petitioner Ching. Moreover, the
other ten (10) checks were not issued to apply on account or for value. These
findings are allegedly supported by the evidence on record which consisted of the
respective testimonies of the defense witnesses to the effect that: respondent Nicdao
had the practice of leaving pre-signed checks placed inside an unsecured cash box in
the Vignette Superstore; the salesladies were given the authority to fill up the said
checks as to the amount, payee and date; Nuguid beguiled respondent Nicdao to
obtain loans from her; as security for the loans, respondent Nicdao issued checks to
Nuguid; when the salesladies gave the checks to Nuguid, she instructed them to
leave blank the payee and date; Nuguid had access to the grocery store; in 1995, one
of the salesladies reported that a check was missing; in 1997, when she had fully
paid her loans to Nuguid, respondent Nicdao tried to retrieve her checks but Nuguid
and petitioner Ching falsely told her that she still owed them money; they then
maliciously filled up the checks making it appear that petitioner Ching was the payee
in the five checks and the six others were payable to "cash"; and knowing fully well
that these checks were not funded because respondent Nicdao already fully paid her
loans, petitioner Ching and Nuguid deposited the checks and caused them to be
dishonored by HSLB.
It is pointed out by respondent Nicdao that her testimony (that the P20,000,000.00
check was the same one that she lost sometime in 1995) was corroborated by the
respective testimonies of her employees. Another indication that it was stolen was
the fact that among all the checks which ended up in the hands of petitioner Ching
and Nuguid, only the P20,000,000.00 check was fully typewritten; the rest were
invariably handwritten as to the amounts, payee and date.
Respondent Nicdao defends the CAs conclusion that the P20,000,000.00 check was
stolen on the ground that an appeal in a criminal case throws open the whole case to
the appellate courts scrutiny. In any event, she maintains that she had been
consistent in her theory of defense and merely relied on the disputable presumption
that the person in possession of a stolen article is presumed to be the author of the
theft.
Considering that it was stolen, respondent Nicdao argues, the P20,000,000.00 check
was an incomplete and undelivered instrument in the hands of petitioner Ching and
he did not acquire any right or interest therein. Further, he cannot assert any cause
of action founded on the said stolen check. Accordingly, petitioner Chings attempt to
collect payment on the said check through the instant petition must fail.
Respondent Nicdao describes as downright incredible petitioner Chings testimony
that she owed him a total sum of P20,950,000.00 without any documentary proof of
the loan transactions. She submits that it is contrary to human experience for loan
transactions involving such huge amounts of money to be devoid of any
documentary proof. In relation thereto, respondent Nicdao underscores that
petitioner Ching lied about being employed as a salesman of La Suerte Cigar and
Cigarette Manufacturing. It is underscored that he has not adequately shown that he
possessed the financial capacity to lend such a huge amount to respondent Nicdao as
he so claimed.
Neither could she be held liable for the ten (10) other checks (in the total amount
of P950,000,000.00) because as respondent Nicdao asseverates, she merely issued
them to Nuguid as security for her loans obtained from the latter beginning October
1995 up to 1997. As evidenced by the Planters Bank demand draft in the amount
ofP1,200,000.00, she already made payment in 1996. The said demand draft was
negotiated to petitioner Chings account and he admitted receipt thereof. Respondent
Nicdao belies his claim that the demand draft was payment for a prior existing
obligation. She asserts that petitioner Ching was unable to present evidence of such
a previous transaction.
In addition to the Planters Bank demand draft, respondent Nicdao insists that
petitioner Ching received, through Nuguid, cash payments as evidenced by the
computations written at the back of the cigarette wrappers. Nuguid went to the
Vignette Superstore everyday to collect these payments. The other defense
witnesses corroborated this fact. Petitioner Ching allegedly never disputed the
accuracy of the accounts appearing on these cigarette wrappers; nor did he dispute
their authenticity and accuracy.
Based on the foregoing evidence, the CA allegedly correctly held that, computing the
amount of the Planters Bank demand draft (P1,200,000.00) and those reflected at the
back of the cigarette wrappers (P5,780,000.00), respondent Nicdao had already paid
petitioner Ching and Nuguid a total sum of P6,980,000.00 for her loan obligations
totaling only P950,000.00, as secured by the ten (10) HSLB checks excluding the
stolenP20,000,000.00 check.
Respondent Nicdao rebuts petitioner Chings argument (that the daily payments were
applied to the interests), and claims that this is illegal. Petitioner Ching cannot insist
that the daily payments she made applied only to the interests on the loan
obligations, considering that there is admittedly no document evidencing these loans,
hence, no written stipulation for the payment of interests thereon. On this point, she
invokes Article 1956 of the Civil Code, which proscribes the collection of interest
payments unless expressly stipulated in writing.
Respondent Nicdao emphasizes that the ten (10) other checks that she issued to
Nuguid as security for her loans had already been discharged upon her full payment
thereof. It is her belief that these checks can no longer be used to coerce her to pay a
debt that she does not owe.
On the CAs failure to consolidate CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054,
respondent Nicdao proffers the explanation that under the RIRCA, consolidation of
the cases is not mandatory. In fine, respondent Nicdao urges the Court to deny the
petition as it failed to discharge the burden of proving her civil liability with the
required preponderance of evidence. Moreover, the CAs acquittal of respondent
Nicdao is premised on the finding that, apart from the stolen check, the ten (10)
other checks were not made to apply to a valid, due and demandable obligation.
This, in effect, is a categorical ruling that the fact from which the civil liability of
respondent Nicdao may arise does not exist.
The Courts Rulings
The petition is denied for lack of merit.
Notwithstanding respondent Nicdaos acquittal, petitioner Ching is entitled to appeal
the civil aspect of the case within the reglementary period
It is axiomatic that "every person criminally liable for a felony is also civilly
liable."34 Under the pertinent provision of the Revised Rules of Court, the civil action
is generally impliedly instituted with the criminal action. At the time of petitioner
Chings filing of the Informations against respondent Nicdao, Section 1, 35 Rule 111 of
the Revised Rules of Court, quoted earlier, provided in part:
SEC. 1. Institution of criminal and civil actions. When a criminal action is instituted,
the civil action for the recovery of civil liability is impliedly instituted with the criminal
action, unless the offended party waives the civil action, reserves his right to institute
it separately, or institutes the civil action prior to the criminal action.
Such civil action includes the recovery of indemnity under the Revised Penal Code,
and damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines
arising from the same act or omission of the accused.
xxxx
As a corollary to the above rule, an acquittal does not necessarily carry with it the
extinguishment of the civil liability of the accused. Section 2(b) 36 of the same Rule,
also quoted earlier, provided in part:
(b) Extinction of the penal action does not carry with it extinction of the civil, unless
the extinction proceeds from a declaration in a final judgment that the fact from
which the civil might arise did not exist.
It is also relevant to mention that judgments of acquittal are required to state
"whether the evidence of the prosecution absolutely failed to prove the guilt of the
accused or merely failed to prove his guilt beyond reasonable doubt. In either case,
the judgment shall determine if the act or omission from which the civil liability might
arise did not exist."37
In Sapiera v. Court of Appeals,38 the Court enunciated that the civil liability is not
extinguished by acquittal: (a) where the acquittal is based on reasonable doubt; (b)
where the court expressly declares that the liability of the accused is not criminal but
only civil in nature; and (c) where the civil liability is not derived from or based on the
criminal act of which the accused is acquitted. Thus, under Article 29 of the Civil
Code
ART. 29. When the accused in a criminal prosecution is acquitted on the ground that
his guilt has not been proved beyond reasonable doubt, a civil action for damages for
the same act or omission may be instituted. Such action requires only a
preponderance of evidence. Upon motion of the defendant, the court may require the
plaintiff to file a bond to answer for damages in case the complaint should be found
to be malicious.
If in a criminal case the judgment of acquittal is based upon reasonable doubt, the
court shall so declare. In the absence of any declaration to that effect, it may be
inferred from the text of the decision whether or not the acquittal is due to that
ground.
The Court likewise expounded in Salazar v. People39 the consequences of an acquittal
on the civil aspect in this wise:
The acquittal of the accused does not prevent a judgment against him on the civil
aspect of the criminal case where: (a) the acquittal is based on reasonable doubt as
only preponderance of evidence is required; (b) the court declared that the liability of
the accused is only civil; (c) the civil liability of the accused does not arise from or is
not based upon the crime of which the accused is acquitted. Moreover, the civil
action based on the delict is extinguished if there is a finding in the final judgment in
the criminal action that the act or omission from which the civil liability may arise did
not exist or where the accused did not commit the act or omission imputed to him.
If the accused is acquitted on reasonable doubt but the court renders judgment on
the civil aspect of the criminal case, the prosecution cannot appeal from the
judgment of acquittal as it would place the accused in double jeopardy. However, the
aggrieved party, the offended party or the accused or both may appeal from the
judgment on the civil aspect of the case within the period therefor.
From the foregoing, petitioner Ching correctly argued that he, as the offended party,
may appeal the civil aspect of the case notwithstanding respondent Nicdaos
acquittal by the CA. The civil action was impliedly instituted with the criminal action
since he did not reserve his right to institute it separately nor did he institute the civil
action prior to the criminal action.
Following the long recognized rule that "the appeal period accorded to the accused
should also be available to the offended party who seeks redress of the civil aspect of
the decision," the period to appeal granted to petitioner Ching is the same as that
granted to the accused.40 With petitioner Chings timely filing of the instant petition
for review of the civil aspect of the CAs decision, the Court thus has the jurisdiction
and authority to determine the civil liability of respondent Nicdao notwithstanding her
acquittal.
In order for the petition to prosper, however, it must establish that the judgment of
the CA acquitting respondent Nicdao falls under any of the three categories
enumerated in Salazar and Sapiera, to wit:
(a) where the acquittal is based on reasonable doubt as only preponderance
of evidence is required;
(b) where the court declared that the liability of the accused is only civil; and
(c) where the civil liability of the accused does not arise from or is not based
upon the crime of which the accused is acquitted.
Salazar also enunciated that the civil action based on the delict is extinguished if
there is a finding in the final judgment in the criminal action that the act or omission
from which the civil liability may arise did not exist or where the accused did not
commit the act or omission imputed to him.
For reasons that will be discussed shortly, the Court holds that respondent Nicdao
cannot be held civilly liable to petitioner Ching.
The acquittal of respondent Nicdao likewise effectively extinguished her civil liability
A painstaking review of the case leads to the conclusion that respondent Nicdaos
acquittal likewise carried with it the extinction of the action to enforce her civil
liability. There is simply no basis to hold respondent Nicdao civilly liable to petitioner
Ching.
First, the CAs acquittal of respondent Nicdao is not merely based on reasonable
doubt. Rather, it is based on the finding that she did not commit the act penalized
under BP 22. In particular, the CA found that the P20,000,000.00 check was a stolen
check which was never issued nor delivered by respondent Nicdao to petitioner
Ching. As such, according to the CA, petitioner Ching "did not acquire any right or
interest over Check No. 002524 and cannot assert any cause of action founded on
said check,"41 and that respondent Nicdao "has no obligation to make good the stolen
check and cannot, therefore, be held liable for violation of B.P. Blg. 22." 42
With respect to the ten (10) other checks, the CA established that the loans secured
by these checks had already been extinguished after full payment had been made by
respondent Nicdao. In this connection, the second element for the crime under BP 22,
i.e., "that the check is made or drawn and issued to apply on account or for value," is
not present.
Second, in acquitting respondent Nicdao, the CA did not adjudge her to be civilly
liable to petitioner Ching. In fact, the CA explicitly stated that she had already fully
paid her obligations. The CA computed the payments made by respondent Nicdao
vis--vis her loan obligations in this manner:
Clearly, adding the payments recorded at the back of the cigarette cartons by Emma
Nuguid in her own handwriting totaling P5,780,000.00 and the P1,200,000.00
demand draft received by Emma Nuguid, it would appear that petitioner [respondent
herein] had already made payments in the total amount of P6,980,000.00 for her
loan obligation of only P2,100,000.00 (P950,000.00 in the case at bar
and P1,150,000.00 in CA-G.R. CR No. 23054).43
On the other hand, its finding relative to the P20,000,000.00 check that it was a
stolen check necessarily absolved respondent Nicdao of any civil liability thereon as
well.
Third, while petitioner Ching attempts to show that respondent Nicdaos liability did
not arise from or was not based upon the criminal act of which she was acquitted (ex
delicto) but from her loan obligations to him (ex contractu), however, petitioner Ching
miserably failed to prove by preponderant evidence the existence of these unpaid
loan obligations. Significantly, it can be inferred from the following findings of the CA
in its decision acquitting respondent Nicdao that the act or omission from which her
civil liability may arise did not exist. On theP20,000,000.00 check, the CA found as
follows:
True, indeed, the missing pre-signed and undated check no. 002524 surfaced in the
possession of complainant Ching who, in cahoots with his paramour Emma Nuguid,
filled up the blank check with his name as payee and in the fantastic amount
of P20,000,000.00, dated it October 6, 1997, and presented it to the bank on October
7, 1997, along with the other checks, for payment. Therefore, the inference that the
check was stolen is anchored on competent circumstantial evidence. The fact already
established is that Emma Nuguid , previous owner of the store, had access to said
store. Moreover, the possession of a thing that was stolen , absent a credible reason,
as in this case, gives rise to the presumption that the person in possession of the
stolen article is presumed to be guilty of taking the stolen article (People v. Zafra,
237 SCRA 664).
As previously shown, at the time check no. 002524 was stolen, the said check was
blank in its material aspect (as to the name of payee, the amount of the check, and
the date of the check), but was already pre-signed by petitioner. In fact, complainant
Ching himself admitted that check no. 002524 in his possession was a blank check
(TSN, Jan. 7, 1998, pp. 24-27, Annex J, Petition).
Moreover, since it has been established that check no. 002524 had been missing
since 1995 (TSN, Sept. 9, 1998, pp. 14-15, Annex DD, Petition; TSN, Sept. 10, 1998,
pp. 43-46, Annex EE, Petition), it is abundantly clear that said check was never
delivered to complainant Ching. Check no. 002524 was an incomplete and
undelivered instrument when it was stolen and ended up in the hands of complainant
Ching. Sections 15 and 16 of the Negotiable Instruments Law provide:
xxxx
In the case of check no. 002524, it is admitted by complainant Ching that said check
in his possession was a blank check and was subsequently completed by him alone
without authority from petitioner. Inasmuch as check no. 002524 was incomplete and
undelivered in the hands of complainant Ching, he did not acquire any right or
interest therein and cannot, therefore, assert any cause of action founded on said
stolen check (Development Bank of the Philippines v. Sima We, 219 SCRA 736, 740).
It goes without saying that since complainant Ching did not acquire any right or
interest over check no. 002524 and cannot assert any cause of action founded on
said check, petitioner has no obligation to make good the stolen check and cannot,
therefore, be held liable for violation of B.P. Blg. 22. 44
Anent the other ten (10) checks, the CA made the following findings:
Evidence sufficiently shows that the loans secured by the ten (10) checks involved in
the cases subject of this petition had already been paid. It is not controverted that
petitioner gave Emma Nuguid a demand draft valued atP1,200,000 to pay for the
loans guaranteed by said checks and other checks issued to her. Samson Ching
admitted having received the demand draft which he deposited in his bank account.
However, complainant Samson Ching claimed that the said demand draft represents
payment for a previous obligation incurred by petitioner. However, complainant Ching
failed to adduce any evidence to prove the existence of the alleged obligation of the
petitioner prior to those secured by the subject checks.
Apart from the payment to Emma Nuguid through said demand draft, it is also not
disputed that petitioner made cash payments to Emma Nuguid who collected the
payments almost daily at the Vignette Superstore. As of July 21, 1997, Emma Nuguid
collected cash payments amounting to approximately P5,780,000.00. All of these
cash payments were recorded at the back of cigarette cartons by Emma Nuguid in
her own handwriting, the authenticity and accuracy of which were never denied by
either complainant Ching or Emma Nuguid.
Clearly, adding the payments recorded at the back of the cigarette cartons by Emma
Nuguid in her own handwriting totaling P5,780,000.00 and the P1,200,000.00
demand draft received by Emma Nuguid, it would appear that petitioner had already
made payments in the total amount of P6,980,000.00 for her loan in the total amount
of P6,980,000.00 for her loan obligation of only P2,100,000.00 (P950,000.00 in the
case at bar and P1,150,000.00 in CA-G.R. CR No. 23054). 45
Generally checks may constitute evidence of indebtedness.46 However, in view of the
CAs findings relating to the eleven (11) checks - that the P20,000,000.00 was a
stolen check and the obligations secured by the other ten (10) checks had already
been fully paid by respondent Nicdao they can no longer be given credence to
establish respondent Nicdaos civil liability to petitioner Ching. Such civil liability,
therefore, must be established by preponderant evidence other than the discredited
checks.
After a careful examination of the records of the case, 47 the Court holds that the
existence of respondent Nicdaos civil liability to petitioner Ching in the amount
of P20,950,000.00 representing her unpaid obligations to the latter has not been
sufficiently established by preponderant evidence. Petitioner Ching mainly relies on
his testimony before the MCTC to establish the existence of these unpaid obligations.
In gist, he testified that from October 1995 up to 1997, respondent Nicdao obtained
loans from him in the total amount of P20,950,000.00. As security for her obligations,
she issued eleven (11) checks which were invariably blank as to the date, amounts
and payee. When respondent Nicdao allegedly refused to pay her obligations despite
his due demand, petitioner filled up the checks in his possession with the
corresponding amounts and date and deposited them in his account. They were
subsequently dishonored by the HSLB for being "DAIF" and petitioner Ching
accordingly filed the criminal complaints against respondent Nicdao for violation of
BP 22.
It is a basic rule in evidence that the burden of proof lies on the party who makes the
allegations Et incumbit probatio, qui dicit, non qui negat; cum per rerum naturam
factum negantis probatio nulla sit (The proof lies upon him who affirms, not upon him
who denies; since, by the nature of things, he who denies a fact cannot produce any
proof).48 In civil cases, the party having the burden of proof must establish his case
by a preponderance of evidence. Preponderance of evidence is the weight, credit,
and value of the aggregate evidence on either side and is usually considered to be
synonymous with the term "greater weight of evidence" or "greater weight of the
credible evidence." Preponderance of evidence is a phrase which, in the last analysis,
means probability of the truth. It is evidence which is more convincing to the court as
worthy of belief than that which is offered in opposition thereto. 49 Section 1, Rule 133
of the Revised Rules of Court offers the guidelines in determining preponderance of
evidence:
SEC. 1. Preponderance of evidence, how determined. In civil cases, the party having
the burden of proof must establish his case by a preponderance of evidence. In
determining where the preponderance or superior weight of evidence on the issues
involved lies, the court may consider all the facts and circumstances of the case, the
witnesses manner of testifying, their intelligence, their means and opportunity of
knowing the facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or want of
interest, and also their personal credibility so far as the same may legitimately
appear upon the trial. The court may also consider the number of witnesses, though
the preponderance is not necessarily with the greater number.
Unfortunately, petitioner Chings testimony alone does not constitute preponderant
evidence to establish respondent Nicdaos civil liability to him amounting
to P20,950,000.00. Apart from the discredited checks, he failed to adduce any other
documentary evidence to prove that respondent Nicdao still has unpaid obligations to
him in the said amount. Bare allegations, unsubstantiated by evidence, are not
equivalent to proof under our Rules.50
In contrast, respondent Nicdaos defense consisted in, among others, her allegation
that she had already paid her obligations to petitioner Ching through Nuguid. In
support thereof, she presented the Planters Bank demand draft for P1,200,000.00.
The said demand draft was negotiated to petitioner Chings account and he admitted
receipt of the value thereof. Petitioner Ching tried to controvert this by claiming that
it was payment for a previous transaction between him and respondent Nicdao.
However, other than his self-serving claim, petitioner Ching did not proffer any
documentary evidence to prove the existence of the said previous transaction.
Considering that the Planters Bank demand draft was dated August 13, 1996, it is
logical to conclude that, absent any evidence to the contrary, it formed part of
respondent Nicdaos payment to petitioner Ching on account of the loan obligations
that she obtained from him since October 1995.
Additionally, respondent Nicdao submitted as evidence the cigarette wrappers at the
back of which were written the computations of the daily payments that she had
made to Nuguid. The fact of the daily payments was corroborated by the other
witnesses for the defense, namely, Jocelyn Nicdao and Tolentino. As found by the CA,
based on these computations, respondent Nicdao had made a total payment
of P5,780,000.00 to Nuguid as of July 21, 1997.51 Again, the payments made, as
reflected at the back of these cigarette wrappers, were not disputed by petitioner
Ching. Hence, these payments as well as the amount of the Planters Bank demand
draft establish that respondent Nicdao already paid the total amount
of P6,980,000.00 to Nuguid and petitioner Ching.
The Court agrees with the CA that the daily payments made by respondent Nicdao
amounting to P5,780,000.00 cannot be considered as interest payments only. Even
respondent Nicdao testified that the daily payments that she made to Nuguid were
for the interests due. However, as correctly ruled by the CA, no interests could be
properly collected in the loan transactions between petitioner Ching and respondent
Nicdao because there was no stipulation therefor in writing. To reiterate, under Article
1956 of the Civil Code, "no interest shall be due unless it has been expressly
stipulated in writing."
Neither could respondent Nicdao be considered to be estopped from denying the
validity of these interests. Estoppel cannot give validity to an act that is prohibited by
law or one that is against public policy.52 Clearly, the collection of interests without
any stipulation therefor in writing is prohibited by law. Consequently, the daily
payments made by respondent Nicdao amounting to P5,780,000.00 were properly
considered by the CA as applying to the principal amount of her loan obligations.
With respect to the P20,000,000.00 check, the defense of respondent Nicdao that it
was stolen and that she never issued or delivered the same to petitioner Ching was
corroborated by the other defense witnesses, namely, Tolentino and Jocelyn Nicdao.
All told, as between petitioner Ching and respondent Nicdao, the requisite quantum
of evidence - preponderance of evidence - indubitably lies with respondent Nicdao. As
earlier intimated, she cannot be held civilly liable to petitioner Ching for her acquittal;
under the circumstances which have just been discussed lengthily, such acquittal
carried with it the extinction of her civil liability as well.
73, Antipolo City in Civil Case No. 97-4552 that held the petitioners liable
payment of P3,526,117.00 to respondent Arthur F. Menchavez (respondent),
modified the interest rate from 4% per month to 12% per annum, computed from
filing of the complaint to full payment. The assailed CA Resolution denied
petitioners Motion for Reconsideration.
FACTUAL BACKGROUND
The CA committed no reversible error in not consolidating CA-G.R. CR No. 23055 and
CA-G.R. CR No. 23054
During the pendency of CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054 in the CA,
the pertinent provision of the RIRCA on consolidation of cases provided:
SEC. 7. Consolidation of Cases. Whenever two or more allied cases are assigned to
different Justices, they may be consolidated for study and report to a single Justice.
(a) At the instance of any party or Justice to whom the case is assigned for study and
report, and with the conformity of all the Justices concerned, the consolidation may
be allowed when the cases to be consolidated involve the same parties and/or
related questions of fact and/or law. 53
The use of the word "may" denotes the permissive, not mandatory, nature of the
above provision, Thus, no grave error could be imputed to the CA when it proceeded
to render its decision in CA-G.R. CR No. 23055, without consolidating it with CA-G.R.
CR No. 23054.
WHEREFORE, premises considered, the Petition is DENIED for lack of merit.
SO ORDERED.
SECOND DIVISION
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S.
PANTALEON, Petitioners,
versus ARTHUR F. MENCHAVEZ , Respondent.
We resolve in this Decision the petition for review on certiorari[1] filed by
petitioners Prisma Construction & Development Corporation (PRISMA) and Rogelio S.
Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set aside
the Decision[2] dated May 5, 2003 and the Resolution [3] dated October 22, 2003 of the
Former Ninth Division of the Court of Appeals (CA) in CA-G.R. CV No. 69627. The
assailed CA Decision affirmed the Decision of the Regional Trial Court (RTC), Branch
for
but
the
the
below.
The facts of the case, gathered from the records, are briefly summarized
On December 8, 1993, Pantaleon, the President and Chairman of the Board

of PRISMA, obtained a P1,000,000.00[4] loan from the respondent, with a
monthly interest of P40,000.00 payable for six months, or a total obligation
of P1,240,000.00 to be paid within six (6) months, [5] under the following schedule of
payments:
January 8, 1994 . P40,000.00
February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00[6]
Total
P1,240,000.00
To secure the payment of the loan, Pantaleon issued a promissory note [7] that
states:
I, Rogelio S. Pantaleon, hereby acknowledge the receipt of
ONE MILLION TWO HUNDRED FORTY THOUSAND PESOS
(P1,240,000), Philippine Currency, from Mr. Arthur F. Menchavez,
representing a six-month loan payable according to the following
schedule:
January 8, 1994 . P40,000.00
February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00
The checks corresponding to the above amounts are hereby
acknowledged.[8]
and six (6) postdated checks corresponding to the schedule of payments. Pantaleon
signed the promissory note in his personal capacity, [9] and as duly authorized by the
Board of Directors of PRISMA. [10] The petitioners failed to completely pay the loan
within the stipulated six (6)-month period.
From September 8, 1994 to January 4, 1997, the petitioners paid the
following amounts to the respondent:
September 8, 1994 P320,000.00

October 8, 1995.P600,000.00
November 8, 1995.....P158,772.00
January 4, 1997 P30,000.00[11]
As
of January
4,
1997,
the
petitioners
had
already
paid
a
total
of P1,108,772.00. However, the respondent found that the petitioners still had an
outstanding balance ofP1,364,151.00 as of January 4, 1997, to which it applied a 4%
monthly interest.[12] Thus, on August 28, 1997, the respondent filed a complaint for
sum of money with the RTC to enforce the unpaid balance, plus 4% monthly
interest, P30,000.00 in attorneys fees, P1,000.00 per court appearance and costs of
suit.[13]
In their Answer dated October 6, 1998, the petitioners admitted the loan
of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that
the interest was not provided in the promissory note. Pantaleon also denied that he
made himself personally liable and that he made representations that the loan would
be repaid within six (6) months.[14]
THE RTC RULING
The RTC rendered a Decision on October 27, 2000 finding that the respondent
issued a check for P1,000,000.00 in favor of the petitioners for a loan that would
earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6month period. It noted that the petitioners made several payments amounting
to P1,228,772.00, but they were still indebted to the respondent for P3,526,117.00 as
of February 11,[15] 1999 after considering the 4% monthly interest. The RTC observed
that PRISMA was a one-man corporation of Pantaleon and used this circumstance to
justify the piercing of the veil of corporate fiction. Thus, the RTC ordered the
petitioners to jointly and severally pay the respondent the amount of P3,526,117.00
plus 4% per month interest from February 11, 1999 until fully paid.[16]
The petitioners elevated the case to the CA via an ordinary appeal under Rule
41 of the Rules of Court, insisting that there was no express stipulation on the 4%
monthly interest.
THE CA RULING
The CA decided the appeal on May 5, 2003. The CA found that the parties
agreed to a 4% monthly interest principally based on the board resolution that
authorized Pantaleon to transact a loan with an approved interest of not more than
4% per month. The appellate court, however, noted that the interest of 4% per
month, or 48% per annum, was unreasonable and should be reduced to 12% per
annum. The CA affirmed the RTCs finding that PRISMA was a mere instrumentality of
Pantaleon that justified the piercing of the veil of corporate fiction. Thus, the CA
modified the RTC Decision by imposing a 12% per annum interest, computed from the
filing of the complaint until finality of judgment, and thereafter, 12% from finality until
fully paid.[17]
After the CA's denial[18] of their motion for reconsideration, [19] the petitioners
filed the present petition for review on certiorari under Rule 45 of the Rules of Court.
THE PETITION
The petitioners submit that the CA mistakenly relied on their board resolution
to conclude that the parties agreed to a 4% monthly interest because the board
resolution was not an evidence of a loan or forbearance of money, but merely an
authorization for Pantaleon to perform certain acts, including the power to enter into
a contract of loan. The expressed mandate of Article 1956 of the Civil Code is that
interest due should be stipulated in writing, and no such stipulation exists. Even
assuming that the loan is subject to 4% monthly interest, the interest covers the six
(6)-month period only and cannot be interpreted to apply beyond it. The petitioners
also point out the glaring inconsistency in the CA Decision, which reduced the interest
from 4% per month or 48% per annum to 12% per annum, but failed to consider that
the amount of P3,526,117.00 that the RTC ordered them to pay includes the
compounded 4% monthly interest.
THE CASE FOR THE RESPONDENT
The respondent counters that the CA correctly ruled that the loan is subject to
a 4% monthly interest because the board resolution is attached to, and an integral
part of, the promissory note based on which the petitioners obtained the loan. The
respondent further contends that the petitioners are estopped from assailing the 4%
monthly interest, since they agreed to pay the 4% monthly interest on the principal
amount under the promissory note and the board resolution.
THE ISSUE
The core issue boils down to whether the parties agreed to the 4% monthly
interest on the loan. If so, does the rate of interest apply to the 6-month payment
period only or until full payment of the loan?
OUR RULING
We find the petition meritorious.
Interest due should
be
stipulated
in
writing; otherwise,
12% per annum
Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. [20] When the terms of a
contract are clear and leave no doubt as to the intention of the contracting parties,
the literal meaning of its stipulations governs. [21] In such cases, courts have no
authority to alter the contract by construction or to make a new contract for the
parties; a court's duty is confined to the interpretation of the contract the parties
made for themselves without regard to its wisdom or folly, as the court cannot supply
material stipulations or read into the contract words the contract does not contain.
[22]
It is only when the contract is vague and ambiguous that courts are permitted to
resort to the interpretation of its terms to determine the parties intent.
In the present case, the respondent issued a check for P1,000,000.00.[23] In
turn, Pantaleon, in his personal capacity and as authorized by the Board, executed
the promissory note quoted above.
Thus, the P1,000,000.00 loan shall be
payable within six (6) months, or from January 8, 1994 up to June 8, 1994. During
this period, the loan shall earn an interest of P40,000.00 per month, for a total
obligation of P1,240,000.00 for the six-month period. We note that this agreed
sum can be computed at 4% interest per month, but no such rate of interest
was stipulated in the promissory note; rather a fixed sum equivalent to this
rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that no interest shall be
due unless it has been expressly stipulated in writing. Under this provision, the
payment of interest in loans or forbearance of money is allowed only if: (1) there was
an express stipulation for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of the two conditions is
required for the payment of interest at a stipulated rate. Thus, we held in Tan v.
Valdehueza[24] and Ching v. Nicdao[25] that collection of interest without any stipulation
in writing is prohibited by law.
Applying this provision, we find that the interest of P40,000.00 per month
corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to
June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the
interest on the loan should be at the legal interest rate of 12% per annum, consistent
with our ruling inEastern Shipping Lines, Inc. v. Court of Appeals:[26]
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.
(Emphasis supplied)
We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61,
Sulit v. Court of Appeals,[28] Crismina Garments, Inc. v. Court of Appeals,[29]Eastern
Assurance and Surety Corporation v. Court of Appeals,[30] Sps. Catungal v. Hao,
[31]
Yong v. Tiu,[32] and Sps. Barrera v. Sps. Lorenzo.[33] Thus, the RTC and the CA
misappreciated the facts of the case; they erred in finding that the parties agreed to a
4% interest, compounded by the application of this interest beyond the promissory
notes six (6)-month period. The facts show that the parties agreed to the payment of
a specific sum of money of P40,000.00 per month for six months, not to a 4% rate
of interest payable within a six (6)-month period.
[27]
Medel v. Court of
Appeals
not
applicable
The CA misapplied Medel v. Court of Appeals[34] in finding that a 4% interest

per month was unconscionable.
In Medel, the debtors in a P500,000.00 loan were required to pay an
interest of 5.5% per month, a service charge of 2% per annum, and a penalty charge
of 1% per month, plus attorneys fee equivalent to 25% of the amount due, until the
loan is fully paid. Taken in conjunction with the stipulated service charge and penalty,
we found the interest rate of 5.5% to be excessive, iniquitous, unconscionable,
exorbitant and hence, contrary to morals, thereby rendering the stipulation null and
void.
Applying Medel, we invalidated and reduced the stipulated interest
in Spouses Solangon v. Salazar[35] of 6% per month or 72% per annum interest on
a P60,000.00 loan; in Ruiz v. Court of Appeals,[36] of 3% per month or 36% per annum
interest on a P3,000,000.00 loan; in Imperial v. Jaucian,[37] of 16% per month or 192%
per annum interest on a P320,000.00 loan; in Arrofo v. Quio,[38] of 7% interest per
month or 84% per annum interest on a P15,000.00 loan; in Bulos, Jr. v. Yasuma,
[39]
of 4% per month or 48% per annum interest on a P2,500,000.00 loan; and in Chua
v. Timan,[40] of 7% and 5% per month for loans totalling P964,000.00. We note that in
all these cases, the terms of the loans were open-ended; the stipulated interest rates
were applied for an indefinite period.
Medel finds no application in the present case where no other stipulation
exists for the payment of any extra amount except a specific sum of P40,000.00
per month on the principal of a loan payable within six months. Additionally, no
issue on the excessiveness of the stipulated amount of P40,000.00 per month was
ever put in issue by the petitioners; [41] they only assailed the application of a 4%
interest rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that the parties are
bound by the stipulations, clauses, terms and conditions they have agreed to, which
is the law between them, the only limitation being that these stipulations, clauses,
terms and conditions are not contrary to law, morals, public order or public policy.
[42]
The payment of thespecific sum of money of P40,000.00 per month was
voluntarily agreed upon by the petitioners and the respondent. There is nothing from
the records and, in fact, there is no allegation showing that petitioners were victims of
fraud when they entered into the agreement with the respondent.
Therefore, as agreed by the parties, the loan of P1,000,000.00 shall
earn P40,000.00 per month for a period of six (6) months, or from December 8, 1993
to June 8, 1994, for a total principal and interest amount of P1,240,000.00.
Thereafter, interest at the rate of 12% per annum shall apply. The amounts already
paid by the petitioners during the pendency of the suit, amounting to P1,228,772.00
as of February 12, 1999,[43] should be deducted from the total amount due, computed
as indicated above. We remand the case to the trial court for the actual computation
of the total amount due.
Doctrine of Estoppel not applicable
The respondent submits that the petitioners are estopped from disputing the
4% monthly interest beyond the six-month stipulated period, since they agreed to
pay this interest on the principal amount under the promissory note and the board
resolution.
We disagree with the respondents contention.
We cannot apply the doctrine of estoppel in the present case since the facts
and circumstances, as established by the record, negate its application. Under the
promissory note,[44] what the petitioners agreed to was the payment of a specific
sum of P40,000.00 per month for six months not a 4% rate of interest per
month for six (6) months on a loan whose principal is P1,000,000.00, for
the total amount of P1,240,000.00. Thus, no reason exists to place the
petitioners in estoppel, barring them from raising their present defenses against a 4%
per month interest after the six-month period of the agreement. The board
resolution,[45] on the other hand, simply authorizes Pantaleon to contract for a loan
with a monthly interest of not more than 4%. This resolution merely embodies the
extent of Pantaleons authority to contract and does not create any right or obligation
except as between Pantaleon and the board. Again, no cause exists to place the
petitioners in estoppel.
including accrued interests, shall bear interest at 12% per annum from the finality of
this Decision. Let this case be REMANDED to the Regional Trial Court, Branch 73,
Antipolo City for the proper computation of the amount due as herein directed, with
due regard to the payments the petitioners have already remitted. Costs against the
respondent.
SO ORDERED.
THIRD DIVISION
SEBASTIAN SIGA-AN, Petitioner,
-versus
ALICIA VILLANUEVA, Respondent.
Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the
corporate veil of PRISMA.
The doctrine of piercing the corporate veil applies only in three (3) basic
instances, namely: a) when the separate and distinct corporate personality
defeats public convenience, as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation; b) in fraud cases, or when the corporate entity is
used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter
ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego
or business conduit of a person, or where the corporation is so organized and
controlled and its affairs so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation. [46] In the absence of malice, bad
faith, or a specific provision of law making a corporate officer liable, such corporate
officer cannot be made personally liable for corporate liabilities. [47]
In the present case, we see no competent and convincing evidence of any
wrongful, fraudulent or unlawful act on the part of PRISMA to justify piercing its
corporate veil. While Pantaleon denied personal liability in his Answer, he made
himself accountable in the promissory note in his personal capacity and as
authorized by the Board Resolution of PRISMA.[48] With this statement of personal
liability and in the absence of any representation on the part of PRISMA that the
obligation is all its own because of its separate corporate identity, we see no occasion
to consider piercing the corporate veil as material to the case.
WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET
ASIDE the Decision dated May 5, 2003 of the Court of Appeals in CA-G.R. CV No.
69627. The petitioners loan of P1,000,000.00 shall bear interest of P40,000.00 per
month for six (6) months from December 8, 1993 as indicated in the promissory note.
Any portion of this loan, unpaid as of the end of the six-month payment period, shall
thereafter bear interest at 12% per annum. The total amount due and unpaid,
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition [1] for Review on Certiorari under Rule 45 of the Rules
of Court seeking to set aside the Decision, [2] dated 16 December 2005, and
Resolution,[3]dated 19 June 2006 of the Court of Appeals in CA-G.R. CV No. 71814,
which affirmed in toto the Decision,[4] dated 26 January 2001, of the Las Pinas City
Regional Trial Court, Branch 255, in Civil Case No. LP-98-0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a complaint [5] for sum
of money against petitioner Sebastian Siga-an before the Las Pinas City Regional Trial
Court (RTC), Branch 255, docketed as Civil Case No. LP-98-0068. Respondent alleged
that she was a businesswoman engaged in supplying office materials and
equipments to the Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City,
while petitioner was a military officer and comptroller of the PNO from 1991 to 1996.
Respondent claimed that sometime in 1992, petitioner approached her
inside the PNO and offered to loan her the amount of P540,000.00. Since she needed
capital for her business transactions with the PNO, she accepted petitioners
proposal. The loan agreement was not reduced in writing. Also, there was no
stipulation as to the payment of interest for the loan.[6]
On 31 August 1993, respondent issued a check worth P500,000.00 to
petitioner as partial payment of the loan. On 31 October 1993, she issued another
check in the amount of P200,000.00 to petitioner as payment of the remaining
balance of the loan. Petitioner told her that since she paid a total amount
of P700,000.00 for the P540,000.00 worth of loan, the excess amount of P160,000.00
would be applied as interest for the loan. Not satisfied with the amount applied as
interest, petitioner pestered her to pay additional interest. Petitioner threatened to
block or disapprove her transactions with the PNO if she would not comply with his
demand. As all her transactions with the PNO were subject to the approval of
petitioner as comptroller of the PNO, and fearing that petitioner might block or
unduly influence the payment of her vouchers in the PNO, she conceded. Thus, she
paid additional amounts in cash and checks as interests for the loan. She asked
petitioner for receipt for the payments but petitioner told her that it was not
necessary as there was mutual trust and confidence between them. According to her
computation, the total amount she paid to petitioner for the loan and interest
accumulated toP1,200,000.00.[7]
Thereafter, respondent consulted a lawyer regarding the propriety of paying
interest on the loan despite absence of agreement to that effect. Her lawyer told her
that petitioner could not validly collect interest on the loan because there was no
agreement between her and petitioner regarding payment of interest. Since she paid
petitioner a total amount of P1,200,000.00 for the P540,000.00 worth of loan, and
upon being advised by her lawyer that she made overpayment to petitioner, she sent
a demand letter to petitioner asking for the return of the excess amount
of P660,000.00. Petitioner, despite receipt of the demand letter, ignored her claim for
reimbursement.[8]
Respondent prayed that the RTC render judgment ordering petitioner to pay
respondent (1) P660,000.00 plus legal interest from the time of demand;
(2) P300,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4)
an amount equivalent to 25% of P660,000.00 as attorneys fees.[9]
In his answer[10] to the complaint, petitioner denied that he offered a loan to
respondent. He averred that in 1992, respondent approached and asked him if he
could grant her a loan, as she needed money to finance her business venture with
the PNO. At first, he was reluctant to deal with respondent, because the latter had a
spotty record as a supplier of the PNO. However, since respondent was an
acquaintance of his officemate, he agreed to grant her a loan. Respondent paid the
loan in full.[11]
Subsequently, respondent again asked him to give her a loan. As
respondent had been able to pay the previous loan in full, he agreed to grant her
another loan. Later, respondent requested him to restructure the payment of the
loan because she could not give full payment on the due date. He acceded to her
request. Thereafter, respondent pleaded for another restructuring of the payment of
the loan. This time he rejected her plea. Thus, respondent proposed to execute a
promissory note wherein she would acknowledge her obligation to him, inclusive of
interest, and that she would issue several postdated checks to guarantee the
payment of her obligation. Upon his approval of respondents request for
restructuring of the loan, respondent executed a promissory note dated 12
September 1994 wherein she admitted having borrowed an amount ofP1,240,000.00,
inclusive of interest, from petitioner and that she would pay said amount in March
1995. Respondent also issued to him six postdated checks amounting
toP1,240,000.00 as guarantee of compliance with her obligation. Subsequently, he
presented the six checks for encashment but only one check was honored. He
demanded that respondent settle her obligation, but the latter failed to do
so. Hence, he filed criminal cases for Violation of the Bouncing Checks Law (Batas
Pambansa Blg. 22) against respondent. The cases were assigned to the Metropolitan
Trial Court of Makati City, Branch 65 (MeTC). [12]
Petitioner insisted that there was no overpayment because respondent
admitted in the latters promissory note that her monetary obligation as of 12
September 1994 amounted to P1,240,000.00 inclusive of interests. He argued that
respondent was already estopped from complaining that she should not have paid
any interest, because she was given several times to settle her obligation but failed
to do so. He maintained that to rule in favor of respondent is tantamount to
concluding that the loan was given interest-free. Based on the foregoing averments,
he asked the RTC to dismiss respondents complaint.
After trial, the RTC rendered a Decision on 26 January 2001 holding that
respondent made an overpayment of her loan obligation to petitioner and that the
latter should refund the excess amount to the former. It ratiocinated that
respondents obligation was only to pay the loaned amount of P540,000.00, and that
the alleged interests due should not be included in the computation of respondents
total monetary debt because there was no agreement between them regarding
payment of interest. It concluded that since respondent made an excess payment to
petitioner in the amount of P660,000.00 through mistake, petitioner should return the
said amount to respondent pursuant to the principle of solutio indebiti.[13]
The RTC also ruled that petitioner should pay moral damages for the
sleepless nights and wounded feelings experienced by respondent. Further,
petitioner should pay exemplary damages by way of example or correction for the
public good, plus attorneys fees and costs of suit.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing evidence and in the
light of the provisions of law and jurisprudence on the matter,
judgment is hereby rendered in favor of the plaintiff and against
the defendant as follows:
(1)
Ordering defendant to pay plaintiff the
amount of P660,000.00 plus legal interest of 12% per annum
computed from 3 March 1998 until the amount is paid in full;
(2) Ordering defendant to pay plaintiff the amount
of P300,000.00 as moral damages;
of P50,000.00 as exemplary damages;
equivalent to 25% of P660,000.00 as attorneys fees; and
(5) Ordering defendant to pay the costs of suit. [14]
Petitioner appealed to the Court of Appeals. On 16 December 2005, the

appellate court promulgated its Decision affirming in toto the RTC Decision, thus:
WHEREFORE, the foregoing considered, the instant appeal
is hereby DENIED and the assailed decision [is] AFFIRMED in toto.[15]
Petitioner filed a motion for reconsideration of the appellate courts decision
but this was denied.[16] Hence, petitioner lodged the instant petition before us
assigning the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO
INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE
PRINCIPLE OF SOLUTIO INDEBITI.[17]
Interest is a compensation fixed by the parties for the use or forbearance of
money. This is referred to as monetary interest. Interest may also be imposed by law
or by courts as penalty or indemnity for damages. This is called compensatory
interest.[18] The right to interest arises only by virtue of a contract or by virtue of
damages for delay or failure to pay the principal loan on which interest is demanded.
[19]
Article 1956 of the Civil Code, which refers to monetary interest,

specifically mandates that no interest shall be due unless it has been expressly
stipulated in writing. As can be gleaned from the foregoing provision, payment of
monetary interest is allowed only if: (1) there was an express stipulation for the
payment of interest; and (2) the agreement for the payment of interest was reduced
in writing. The concurrence of the two conditions is required for the payment of
monetary interest. Thus, we have held that collection of interest without any
stipulation therefor in writing is prohibited by law. [21]
[20]
It appears that petitioner and respondent did not agree on the payment of
interest for the loan. Neither was there convincing proof of written agreement
between the two regarding the payment of interest. Respondent testified that
although she accepted petitioners offer of loan amounting to P540,000.00, there
was, nonetheless, no verbal or written agreement for her to pay interest on the loan.
[22]
Petitioner presented a handwritten promissory note dated 12 September

1994[23] wherein respondent purportedly admitted owing petitioner capital and
interest. Respondent, however, explained that it was petitioner who made a
promissory note and she was told to copy it in her own handwriting; that all her
transactions with the PNO were subject to the approval of petitioner as comptroller of
the PNO; that petitioner threatened to disapprove her transactions with the PNO if
she would not pay interest; that being unaware of the law on interest and fearing that
petitioner would make good of his threats if she would not obey his instruction to
copy the promissory note, she copied the promissory note in her own handwriting;
and that such was the same promissory note presented by petitioner as alleged proof
of their written agreement on interest. [24] Petitioner did not rebut the foregoing
testimony. It is evident that respondent did not really consent to the payment of
interest for the loan and that she was merely tricked and coerced by petitioner to pay
interest. Hence, it cannot be gainfully said that such promissory note pertains to an
express stipulation of interest or written agreement of interest on the loan between
petitioner and respondent.
Petitioner, nevertheless, claims that both the RTC and the Court of Appeals
found that he and respondent agreed on the payment of 7% rate of interest on the
loan; that the agreed 7% rate of interest was duly admitted by respondent in her
testimony in the Batas Pambansa Blg. 22 cases he filed against respondent; that
despite such judicial admission by respondent, the RTC and the Court of Appeals,
citing Article 1956 of the Civil Code, still held that no interest was due him since the
agreement on interest was not reduced in writing; that the application of Article 1956
of the Civil Code should not be absolute, and an exception to the application of such
provision should be made when the borrower admits that a specific rate of interest
was agreed upon as in the present case; and that it would be unfair to allow
respondent to pay only the loan when the latter very well knew and even admitted in
the Batas Pambansa Blg. 22 cases that there was an agreed 7% rate of interest on
the loan.[25]
We have carefully examined the RTC Decision and found that the RTC did not
make a ruling therein that petitioner and respondent agreed on the payment of
interest at the rate of 7% for the loan. The RTC clearly stated that although
petitioner and respondent entered into a valid oral contract of loan amounting
to P540,000.00, they, nonetheless, never intended the payment of interest thereon.
[26]
While the Court of Appeals mentioned in its Decision that it concurred in the RTCs
ruling that petitioner and respondent agreed on a certain rate of interest as regards
the loan, we consider this as merely an inadvertence because, as earlier elucidated,
both the RTC and the Court of Appeals ruled that petitioner is not entitled to the
payment of interest on the loan. The rule is that factual findings of the trial court
deserve great weight and respect especially when affirmed by the appellate court.
[27]
We found no compelling reason to disturb the ruling of both courts.
Petitioners reliance on respondents alleged admission in the Batas
Pambansa Blg. 22 cases that they had agreed on the payment of interest at the rate
of 7% deserves scant consideration. In the said case, respondent merely testified
that after paying the total amount of loan, petitioner ordered her to pay interest.
[28]
Respondent did not categorically declare in the same case that she and
respondent made an express stipulation in writing as regards payment of interest at
the rate of 7%. As earlier discussed, monetary interest is due only if there was
an express stipulation in writing for the payment of interest.
There are instances in which an interest may be imposed even in the
absence of express stipulation, verbal or written, regarding payment of interest.
Article 2209 of the Civil Code states that if the obligation consists in the payment of a
sum of money, and the debtor incurs delay, a legal interest of 12% per annum may
be imposed as indemnity for damages if no stipulation on the payment of interest
was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due
shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent on this point.
All the same, the interest under these two instances may be imposed only
as a penalty or damages for breach of contractual obligations. It cannot be charged
as a compensation for the use or forbearance of money. In other words, the two
instances apply only to compensatory interest and not to monetary interest. [29] The
case at bar involves petitioners claim for monetary interest.
Further, said compensatory interest is not chargeable in the instant case
because it was not duly proven that respondent defaulted in paying the loan. Also,
as earlier found, no interest was due on the loan because there was no written
agreement as regards payment of interest.
Apropos the second assigned error, petitioner argues that the principle
of solutio indebiti does not apply to the instant case. Thus, he cannot be compelled
to return the alleged excess amount paid by respondent as interest. [30]
Under Article 1960 of the Civil Code, if the borrower of loan pays interest
when there has been no stipulation therefor, the provisions of the Civil Code
concerning solutioindebiti shall be applied. Article 2154 of the Civil Code explains the
principle of solutio indebiti. Said provision provides that if something is received
when there is no right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises. In such a case, a creditor-debtor relationship is created
under a quasi-contract whereby the payor becomes the creditor who then has the
right to demand the return of payment made by mistake, and the person who has no
right to receive such payment becomes obligated to return the same. The quasicontract of solutio indebiti harks back to the ancient principle that no one shall enrich
himself unjustly at the expense of another. [31] The principle of solutio indebiti applies
where (1) a payment is made when there exists no binding relation between the
payor, who has no duty to pay, and the person who received the payment; and (2)
the payment is made through mistake, and not through liberality or some other
cause.[32] We have held that the principle of solutio indebiti applies in case of
erroneous payment of undue interest.[33]
It was duly established that respondent paid interest to petitioner.
Respondent was under no duty to make such payment because there was no express
stipulation in writing to that effect. There was no binding relation between petitioner
and respondent as regards the payment of interest. The payment was clearly a
mistake. Since petitioner received something when there was no right to demand it,
he has an obligation to return it.
We shall now determine the propriety of the monetary award and damages
imposed by the RTC and the Court of Appeals.
Records show that respondent received a loan amounting to P540,000.00
from petitioner.[34] Respondent issued two checks with a total worth of P700,000.00
in favor of petitioner as payment of the loan. [35] These checks were subsequently
encashed by petitioner. [36] Obviously, there was an excess of P160,000.00 in the

payment for the loan. Petitioner claims that the excess of P160,000.00 serves as
interest on the loan to which he was entitled. Aside from issuing the said two checks,
respondent also paid cash in the total amount of P175,000.00 to petitioner as
interest.[37] Although no receipts reflecting the same were presented because
petitioner refused to issue such to respondent, petitioner, nonetheless, admitted in
his Reply-Affidavit[38] in the Batas Pambansa Blg. 22 cases that respondent paid him a
total amount of P175,000.00 cash in addition to the two checks. Section 26 Rule 130
of the Rules of Evidence provides that the declaration of a party as to a relevant fact
may be given in evidence against him. Aside from the amounts of P160,000.00
and P175,000.00 paid as interest, no other proof of additional payment as interest
was presented by respondent. Since we have previously found that petitioner is not
entitled to payment of interest and that the principle of solutio indebiti applies to the
instant case, petitioner should return to respondent the excess amount
ofP160,000.00 and P175,000.00 or the total amount of P335,000.00. Accordingly, the
reimbursable amount to respondent fixed by the RTC and the Court of Appeals should
be reduced from P660,000.00 to P335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for violation of Batas
Pambansa Blg. 22 against respondent. In the said cases, the MeTC found respondent
guilty of violating Batas Pambansa Blg. 22 for issuing five dishonored checks to
petitioner. Nonetheless, respondents conviction therein does not affect our ruling in
the instant case. The two checks, subject matter of this case, totaling P700,000.00
which respondent claimed as payment of the P540,000.00 worth of loan, were not
among the five checks found to be dishonored or bounced in the five criminal cases.
Further, the MeTC found that respondent made an overpayment of the loan by reason
of the interest which the latter paid to petitioner. [39]
Article 2217 of the Civil Code provides that moral damages may be
recovered if the party underwent physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injury. Respondent testified that she experienced sleepless nights and
wounded feelings when petitioner refused to return the amount paid as interest
despite her repeated demands. Hence, the award of moral damages is
justified. However, its corresponding amount of P300,000.00, as fixed by the RTC and
the Court of Appeals, is exorbitant and should be equitably reduced. Article 2216 of
the Civil Code instructs that assessment of damages is left to the discretion of the
court according to the circumstances of each case. This discretion is limited by the
principle that the amount awarded should not be palpably excessive as to indicate
that it was the result of prejudice or corruption on the part of the trial court. [40] To our
mind, the amount of P150,000.00 as moral damages is fair, reasonable, and
proportionate to the injury suffered by respondent.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio
indebiti, exemplary damages may be imposed if the defendant acted in an
oppressive manner. Petitioner acted oppressively when he pestered respondent to
pay interest and threatened to block her transactions with the PNO if she would not
pay interest. This forced respondent to pay interest despite lack of agreement
thereto. Thus, the award of exemplary damages is appropriate. The amount
of P50,000.00 imposed as exemplary damages by the RTC and the Court is fitting so
as to deter petitioner and other lenders from committing similar and other serious
wrongdoings.[41]
Jurisprudence instructs that in awarding attorneys fees, the trial court must
state the factual, legal or equitable justification for awarding the same. [42] In the case
under consideration, the RTC stated in its Decision that the award of attorneys fees
equivalent to 25% of the amount paid as interest by respondent to petitioner is
reasonable and moderate considering the extent of work rendered by respondents
lawyer in the instant case and the fact that it dragged on for several years.
[43]
Further, respondent testified that she agreed to compensate her lawyer handling
the instant case such amount.[44] The award, therefore, of attorneys fees and its
amount equivalent to 25% of the amount paid as interest by respondent to petitioner
is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate of legal
interest on the amount refundable to respondent computed from 3 March 1998 until
its full payment. This is erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of Appeals, [45] that when an
obligation, not constituting a loan or forbearance of money is breached, an interest
on the amount of damages awarded may be imposed at the rate of 6% per
annum. We further declared that when the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal interest, whether it is a
loan/forbearance of money or not, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed equivalent to a forbearance of credit.
In the present case, petitioners obligation arose from a quasi-contract
of solutio indebiti and not from a loan or forbearance of money. Thus, an interest of
6% per annum should be imposed on the amount to be refunded as well as on the
damages awarded and on the attorneys fees, to be computed from the time of the
extra-judicial demand on 3 March 1998,[46] up to the finality of this Decision. In
addition, the interest shall become 12% per annum from the finality of this Decision
up to its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814,
dated 16 December 2005, is hereby AFFIRMED with the followingMODIFICATIONS:
(1) the amount of P660,000.00 as refundable amount of interest is reduced to THREE
HUNDRED THIRTY FIVE THOUSAND PESOS (P335,000.00); (2) the amount
of P300,000.00 imposed as moral damages is reduced to ONE HUNDRED FIFTY
THOUSAND PESOS (P150,000.00); (3) an interest of 6% per annum is imposed on
the P335,000.00, on the damages awarded and on the attorneys fees to be
computed from the time of the extra-judicial demand on 3 March 1998 up to the
finality of this Decision; and (4) an interest of 12% per annum is also imposed from
the finality of this Decision up to its satisfaction. Costs against petitioner.
SO ORDERED.

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FIRST DIVISION

HERMOJINA ESTORES, Petitioner, - versus - SPOUSES ARTURO and LAURA

DEL CASTILLO, J.:

Vendee shall be informed as to the status of DAR clearance within 10

10. The vendor assures the vendee of a peaceful transfer of ownership.

On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and

Vendor will secure approved clearance from DAR requirements of

Pay the principal amount of P3,500,000.00 plus

Moral damages in the amount of P100,000.00;

Actual damages in the amount of P100,000.00;

[Attorneys] fee in the amount of P50,000.00 plus

The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered

When an obligation, regardless of its source, i.e.,

With regard particularly to an award of interest

When the obligation is breached, and it

Eastern Shipping Lines, Inc. v. Court of Appeals[38]and its predecessor

When the defendants act or omission has compelled the plaintiff to

In all cases, the attorneys fees and expenses of litigation must be

This is a petition for certiorari, prohibition, and mandamus with preliminary

misappropriation of the amount of P30,000.00. Likewise, the complaint states on its

(a) he held in the preliminary investigation of the charges of estafa filed by

Art. 1933. By the contract of loan, one of the parties delivers to

Simple loan may be gratuitous or with a stipulation to pay interest.

WHEREFORE, the petition is hereby granted; the temporary restraining order

Bank Circular No. 364 and related Central Bank

David because of the latter's insistence that he

respondents. This is so because as clearly as stated in criminal

WE have already laid down the rule that:t.hqw

they investigated the charges against the petitioners. Consequently, public

to restrain the prosecution of certain chiropractors although, if

"1. for the orderly administration of justice;

"3. to avoid multiplicity of actions;

G.R. No. 84719 January 25, 1991

The writs of certiorari and prohibition, as extraordinary legal

On 19 October 1988, the Court resolved to require the respondents to comment on

Technicality, when it deserts its proper office as an aid to justice

Conscience cannot rest in allowing a man to go straight to jail,

Petitioner's counsel submitted a Reply (erroneously termed Comment) 7 wherein she

said the cash advance given to the accused is his

GUARIA AGRICULTURAL AND REALTY DEVELOPMENT

Since ownership of the money (cash advance) was transferred to petitioner, no

January 15, 2014

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

be performed simultaneously such that the performance of one is conditioned upon

Being a banking institution, DBP owed it to Guaria Corporation to exercise the

Aug. 18, 1998

8 yrs. & 1 month

P198.00 x 26 days x 8 months = P41,184.00

August 13, 2013

DARIO NACAR, PETITIONER,

January 24, 1997

Rate per day

Aug. 18, 1998

a) 1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos.

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day

P198.00 x 26 days x 6.4 mos.

The petition is meritorious.

The operative facts follow:

CELESTINA T. NAGUIAT, petitioner,

"An accepted promise to deliver something by way of commodatum or simple loan is

... The documents and records presented reveal