G.R. No.

183272 October 15, 2014

SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner,

vs.
SANDRA TAN KIT and The Estate of the Deceased NORBERTO TAN KIT, respondents.

DECISION

DEL CASTILLO, J.:

The Court of Appeals' (CA) imposition of 12o/o interest on the P13,080.93 premium refund is
the only matter in question in this case.

This Petition for Review on Certiorari1 assails the October 17, 2007 Decision2 of CA in CA-GR.
CV No. 86923, which, among others, imposed a 12% per annum rate of interest reckoned from
the time of death of the insured until fully paid, on the premium to be reimbursed by petitioner
Sun Life of Canada (Philippines), Inc. (petitioner) to respondents Sandra Tan Kit (respondent
Tan Kit) and the Estate of the Deceased Norberto Tan Kit (respondent estate). Likewise
assailed in this Petition is the CA's June 12, 2008 Resolution3 denying petitioner's Motion for
Reconsideration of the said Decision.

Factual Antecedents

Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto),
whose application for a life insurance policy,4 with face value of P300,000.00, was granted by
petitioner on October 28, 1999. On February 19, 2001, or within the two-year contestability
period,5 Norberto died of disseminated gastric carcinoma.6 Consequently, respondent Tan Kit
filed a claim under the subject policy.

In a Letter7 dated September 3, 2001, petitioner denied respondent Tan Kits claim on account
of Norbertos failure to fully and faithfully disclose in his insurance application certain
material and relevant information about his health and smoking history. Specifically, Norberto
answered "No" to the question inquiring whether he had smoked cigarettes or cigars within
the last 12 months prior to filling out said application.8 However, the medical report of Dr.
Anna Chua (Dr. Chua), one of the several physicians that Norberto consulted for his illness,
reveals that he was a smoker and had only stopped smoking in August 1999. According to
petitioner, its underwriters would not have approved Norbertos application for life insurance
had they been given the correct information. Believing that the policy is null and void,
petitioner opined that its liability is limited to the refund of all the premiums paid. Accordingly,
it enclosed in the said letter a check for P13,080.93 representing the premium refund.

In a letter9 dated September 13, 2001, respondent Tan Kit refused to accept the check and
insisted on the payment of the insurance proceeds.

On October 4, 2002, petitioner filed a Complaint10 for Rescission of Insurance Contract before
the Regional Trial Court (RTC) of Makati City.

Ruling of the Regional Trial Court

In its November 30, 2005 Decision,11 the RTC noted that petitioners physician, Dr. Charity
Salvador (Dr. Salvador), conducted medical examination on Norberto. Moreover, petitioners
agent, Irma Joy E. Javelosa (Javelosa), answered "NO" to the question "Are you aware of
anything about the life to be insureds lifestyle, hazardous sports, habits, medical history, or
any risk factor that would have an adverse effect on insurability?" in her Agents Report.
Javelosa also already knew Norberto two years prior to the approval of the latters application
for insurance. The RTC concluded that petitioner, through the above-mentioned
circumstances, had already cleared Norberto of any misrepresentation that he may have
committed. The RTC also opined that the affidavit of Dr. Chua, presented as part of
petitioners evidence and which confirmed the fact that the insured was a smoker and only
stopped smoking a year ago [1999], is hearsay since Dr. Chua did not testify in court. Further,
since Norberto had a subsisting insurance policy with petitioner during his application for
insurance subject of this case, it was incumbent upon petitioner to ascertain the health
condition of Norberto considering the additional burden that it was assuming. Lastly,
petitioner did not comply with the requirements for rescission of insurance contract as held in
Philamcare Health Systems, Inc. v. Court of Appeals.12 Thus, the dispositive portion of the
RTC Decision:

WHEREFORE, in view of the foregoing considerations, this court hereby finds in favor of the
[respondents and] against the [petitioner], hence it hereby orders the [petitioner] to pay the
[respondent], Sandra Tan Kit, the sum of Philippine Pesos: THREE HUNDRED THOUSAND
(P300,000.00), representing the face value of the insurance policy with interest at six percent
(6%) per annum from October 4, 2002 until fully paid.

Cost de oficio.

SO ORDERED.13

Petitioner moved for reconsideration,14 but was denied in an Order15 dated February 15,
2006.

Hence, petitioner appealed to the CA.

Ruling of the Court of Appeals

On appeal, the CA reversed and set aside the RTCs ruling in its Decision16 dated October 17,
2007.

From the records, the CA found that prior to his death, Norberto had consulted two physicians,
Dr. Chua on August 19, 2000, and Dr. John Ledesma (Dr. Ledesma) on December 28, 2000, to
whom he confided that he had stopped smoking only in 1999. At the time therefore that he
applied for insurance policy on October 28, 1999, there is no truth to his claim that he did not
smoke cigarettes within 12 months prior to the said application. The CA thus held that
Norberto is guilty of concealment which misled petitioner in forming its estimates of the risks
of the insurance policy. This gave petitioner the right to rescind the insurance contract which
it properly exercised in this case.

In addition, the CA held that the content of Norbertos medical records are deemed admitted
by respondents since they failed to deny the same despite having received from petitioner a
Request for Admission pursuant to Rule 26 of the Rules of Court.17 And since an admission is
in the nature of evidence the legal effects of which form part of the records, the CA
discredited the RTCs ruling that the subject medical records and the affidavits executed by
Norbertos physicians attesting to the truth of the same were hearsay.

The dispositive portion of the CA Decision reads:

WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the
appealed Decision REVERSED and SET ASIDE, and in lieu thereof, a judgment is hereby
rendered GRANTING the complaint a quo.

Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of P13,080.93

representing the [premium] paid by the insured with interest at the rate of 12% per annum
from the time of the death of the insured until fully paid.

SO ORDERED.18

The parties filed their separate motions for reconsideration.19 While respondents questioned
the factual and legal bases of the CA Decision, petitioner, on the other hand, assailed the
imposition of interest on the premium ordered refunded to respondents.

However, the appellate court denied the motions in its June 12, 2008 Resolution,20 viz:

WHEREFORE, the foregoing considered, the separate motions for reconsideration filed by the
[petitioner] and the [respondents] are hereby DENIED.

SO ORDERED.21

Only petitioner appealed to this Court through the present Petition for Review on Certiorari.

Issue

The sole issue in this case is whether petitioner is liable to pay interest on the premium to be
refunded to respondents.

The Parties Arguments

Petitioner argues that no interest should have been imposed on the premium to be refunded
because the CA Decision does not provide any legal or factual basis therefor; that petitioner
directly and timely tendered to respondents an amount representing the premium refund but
they rejected it since they opted to pursue their claim for the proceeds of the insurance
policy; that respondents should bear the consequence of their unsound decision of rejecting
the refund tendered to them; and, that petitioner is not guilty of delay or of invalid or unjust
rescission as to make it liable for interest. Hence, following the ruling in Tio Khe Chio v. Court
of Appeals,22 no interest can be assessed against petitioner.

Respondents, on the other hand, contend that the reimbursement of premium is clearly a
money obligation or one that arises from forbearance of money, hence, the imposition of 12%
interest per annum is just, proper and supported by jurisprudence. While they admit that they
refused the tender of payment of the premium refund, they aver that they only did so because
they did not want to abandon their claim for the proceeds of the insurance policy. In any case,
what petitioner should have done under the circumstances was to consign the amount of
payment in court during the pendency of the case.
Our Ruling

Tio Khe Chio is not applicable in this case.

Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is instructive on the
issue of payment of interest.1wphi1 There, the Court pointed to Sections 243 and 244 of the
Insurance Code which explicitly provide for payment of interest when there is unjustified
refusal or withholding of payment of the claim by the insurer, 23 and to Article 220924 of the
New Civil Code which likewise provides for payment of interest when the debtor is in delay.

The Court finds, however, that Tio Khe Chio is not applicable here as it deals with payment of
interest on the insurance proceeds in which the claim therefor was either unreasonably
denied or withheld or the insurer incurred delay in the payment thereof. In this case, what is
involved is an order for petitioner to refund to respondents the insurance premium paid by
Norberto as a consequence of the rescission of the insurance contract on account of the
latters concealment of material information in his insurance application. Moreover, petitioner
did not unreasonably deny or withhold the insurance proceeds as it was satisfactorily
established that Norberto was guilty of concealment.

Nature of interest imposed by the CA

There are two kinds of interest monetary and compensatory.

"Monetary interest refers to the compensation set by the parties for the use or forbearance of
money."25 No such interest shall be due unless it has been expressly stipulated in writing.26
"On the other hand, compensatory interest refers to the penalty or indemnity for damages
imposed by law or by the courts."27 The interest mentioned in Articles 2209 and 221228of the
Civil Code applies to compensatory interest.29

Clearly and contrary to respondents assertion, the interest imposed by the CA is not
monetary interest because aside from the fact that there is no use or forbearance of money
involved in this case, the subject interest was not one which was agreed upon by the parties
in writing. This being the case and judging from the tenor of the CA, to wit:

Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of P13,080.93

representing the [premium] paid by the insured with interest at the rate of 12% per annum
from time of death of the insured until fully paid.30

there can be no other conclusion than that the interest imposed by the appellate court is in
the nature of compensatory interest.

The CA incorrectly imposed compensatory interest on the premium refund reckoned from the
time of death of the insured until fully paid

As a form of damages, compensatory interest is due only if the obligor is proven to have failed
to comply with his obligation.31

In this case, it is undisputed that simultaneous to its giving of notice to respondents that it
was rescinding the policy due to concealment, petitioner tendered the refund of premium by
attaching to the said notice a check representing the amount of refund. However, respondents
refused to accept the same since they were seeking for the release of the proceeds of the
policy. Because of this discord, petitioner filed for judicial rescission of the contract.
Petitioner, after receiving an adverse judgment from the RTC, appealed to the CA. And as may
be recalled, the appellate court found Norberto guilty of concealment and thus upheld the
rescission of the insurance contract and consequently decreed the obligation of petitioner to
return to respondents the premium paid by Norberto. Moreover, we find that petitioner did not
incur delay or unjustifiably deny the claim.

Based on the foregoing, we find that petitioner properly complied with its obligation under the
law and contract. Hence, it should not be made liable to pay compensatory interest.

Considering the prevailing circumstances of the case, we hereby direct petitioner to

reimburse the premium paid within 15 days from date of finality of this Decision. If petitioner
fails to pay within the said period, then the amount shall be deemed equivalent to a
forbearance of credit.32 In such a case, the rate of interest shall be 6% per annum.33

WHEREFORE, the assailed October 17, 2007 Decision of the Court of Appeals in CA-G.R. CV
No. 86923 is MODIFIED in that petitioner Sun Life of Canada (Philippines), Inc. is ordered to
reimburse to respondents Sandra Tan Kit and the Estate of the Deceased Norberto Tan Kit the
sum of ~13,080.93 representing the premium paid by the insured within fifteen (15) days from
date of finality of this Decision. If the amount is not reimbursed within said period, the same
shall earn interest of 6% per annum until fully paid.

Garcia vs Thio Credit Digest

Carolyn M. Garcia
-vs-
Rica Marie S. Thio
GR No. 154878, 16 March 2007

FACTS
Respondent Thio received from petitioner Garcia two crossed checks which amount to
US$100,000 and US$500,000, respectively, payable to the order of Marilou Santiago.
According to petitioner, respondent failed to pay the principal amounts of the loans when they
fell due and so she filed a complaint for sum of money and damages with the RTC. Respondent
denied that she contracted the two loans and countered that it was Marilou Satiago to whom
petitioner lent the money. She claimed she was merely asked y petitioner to give the checks
to Santiago. She issued the checks for P76,000 and P20,000 not as payment of interest but to
accommodate petitioners request that respondent use her own checks instead of Santiagos.

RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was no contract
of loan between the parties.

ISSUE
(1) Whether or not there was a contract of loan between petitioner and respondent.
(2) Who borrowed money from petitioner, the respondent or Marilou Santiago?

HELD
(1) The Court held in the affirmative. A loan is a real contract, not consensual, and as
such I perfected only upon the delivery of the object of the contract. Upon delivery of the
contract of loan (in this case the money received by the debtor when the checks were
encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay
the creditor an equal amount. It is undisputed that the checks were delivered to respondent.

(2) However, the checks were crossed and payable not to the order of the respondent
but to the order of a certain Marilou Santiago. Delivery is the act by which the res or
substance is thereof placed within the actual or constructive possession or control of another.
Although respondent did not physically receive the proceeds of the checks, these instruments
were placed in her control and possession under an arrangement whereby she actually re-lent
the amount to Santiago.

Petition granted; judgment and resolution reversed and set aside.

CAROLYN M. GARCIA, G.R. No. 154878

Petitioner,

Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,

- v e r s u s - CORONA,

AZCUNA and

GARCIA, JJ.

RICA MARIE S. THIO,

Respondent. Promulgated:

March 16, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION

CORONA, J.:

Assailed in this petition for review on certiorari[1] are the June 19, 2002 decision[2] and
August 20, 2002 resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set
aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch
58.

Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M.
Garcia a crossed check[4] dated February 24, 1995 in the amount of US$100,000 payable to
the order of a certain Marilou Santiago.[5] Thereafter, petitioner received from respondent
every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount
of US$3,000[6] and P76,500[7] on July 26,[8] August 26, September 26 and October 26, 1995.

In June 1995, respondent received from petitioner another crossed check[9] dated June 29,
1995 in the amount of P500,000, also payable to the order of Marilou Santiago.[10]
Consequently, petitioner received from respondent the amount of P20,000 every month on
August 5, September 5, October 5 and November 5, 1995.[11]

According to petitioner, respondent failed to pay the principal amounts of the loans
(US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a
complaint for sum of money and damages in the RTC of Makati City, Branch 58 against
respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month
from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5,
1995, plus attorneys fees and actual damages.[12]

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of
US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on
October 26, 1995.[13] The amount of this loan was covered by the first check. On June 29,
1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of
4%, the maturity date of which was on November 5, 1995.[14] The amount of this loan was
covered by the second check. For both loans, no promissory note was executed since
petitioner and respondent were close friends at the time.[15] Respondent paid the stipulated
monthly interest for both loans but on their maturity dates, she failed to pay the principal
amounts despite repeated demands.[16]

Respondent denied that she contracted the two loans with petitioner and countered that it
was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked
by petitioner to give the crossed checks to Santiago.[17] She issued the checks for P76,000
and P20,000 not as payment of interest but to accommodate petitioners request that
respondent use her own checks instead of Santiagos.[18]

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.[19] It found that
respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of 3%
and P500,000 at a monthly interest of 4%:[20]

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is

hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount
of:

1. [US$100,000.00] or its peso equivalent with interest thereon at 3%

per month from October 26, 1995 until fully paid;

2. P500,000.00 with interest thereon at 4% per month from November

5, 1995 until fully paid.

3. P100,000.00 as and for attorneys fees; and

4. P50,000.00 as and for actual damages.

For lack of merit, [respondents] counterclaim is perforce dismissed.

With costs against [respondent].

IT IS SO ORDERED.[21]
On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of
loan between the parties:

A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that
[respondent] indeed borrowed money from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is the fact that [respondent]
received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00,
payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995
in the amount of P500,000.00, again payable to the order of Marilou Santiago, both of which
were issued by [petitioner]. The checks received by [respondent], being crossed, may not be
encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago
herself.

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

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

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

Hence this petition.[23]

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

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

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

upon the parties, but the commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract. (Emphasis supplied)

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

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

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

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

Several factors support this conclusion.

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

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

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of
P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest.
For the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four
months.[34] According to respondent, she merely accommodated petitioners request for her
to issue her own checks to cover the interest payments since petitioner was not personally
acquainted with Santiago.[35] She claimed, however, that Santiago would replace the checks
with cash.[36] Her explanation is simply incredible. It is difficult to believe that respondent
would put herself in a position where she would be compelled to pay interest, from her own
funds, for loans she allegedly did not contract. We declared in one case that:

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

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

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

We hold that the CA committed reversible error when it ruled that respondent did not borrow
the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of
the RTC making respondent liable for the principal amounts of the loans.

We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the
US$100,000 and P500,000 loans respectively. There was no written proof of the interest
payable except for the verbal agreement that the loans would earn 3% and 4% interest per
month. Article 1956 of the Civil Code provides that [n]o interest shall be due unless it has been
expressly stipulated in writing.

Be that as it may, while there can be no stipulated interest, there can be legal interest
pursuant to Article 2209 of the Civil Code. It is well-settled that:

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

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

The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is
deleted since the RTC decision did not explain the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20,
2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET
ASIDE. The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is
AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts
of US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until the
finality of the decision. The total amount due as of the date of finality will earn interest of
12% per annum until fully paid. The award of actual damages and attorneys fees is deleted.

THIRD DIVISION

SAMSON CHING, G.R. No. 141181

Petitioner,

Present:

YNARES-SANTIAGO, J.,

Chairperson,

- versus - AUSTRIA-MARTINEZ,

CALLEJO, SR.,

CHICO-NAZARIO, and

NACHURA, JJ.

CLARITA NICDAO and

HON. COURT OF APPEALS, Promulgated:

Respondents.

April 27, 2007

x-----------------------------------------------------------------------------------------x

DECISION

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari filed by Samson Ching of the Decision[1]
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 Date Private Reason for

Complainant the Dishonor

002524[2] P 20,000,000 Oct. 6, 1997 Samson T.Y. Ching DAIF*

008856[3] 150,000 Oct. 6, 1997 " "

012142[4] 100,000 Oct. 6, 1997 " "

004531[5] 50,000 Oct. 6, 1997 " "

002254[6] 100,000 Oct. 6, 1997 " "

008875[7] 100,000 Oct. 6, 1997 " "

008936[8] 50,000 Oct. 6, 1997 " "

002273[9] 50,000 Oct. 6, 1997 " "

008948[10] 150,000 Oct. 6, 1997 " "

008935[11] 100,000 Oct. 6, 1997 " "

010377[12] 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 them P300,000.00. 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 of P22,950,000.00. Respondent Nicdao
admitted, however, that she had obtained a loan from Nuguid but only for P2,100,000.00 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 wrappers[18] 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 of P20,000,000.00 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 the P20,000,000.00 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,[21] Tolentino 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 reached P20,000,000.00. 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. 9433-9443. 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.

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.

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 CA-G.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.

SO ORDERED.[28]
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.

In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the CA made the following factual
findings:

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.

Complainant [petitioner herein] Samson Ching is a Chinese national, who claimed he is a

salesman of La Suerte Cigar and Cigarette Factory.

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 totaled P2,100,000.00 and they were transacted between respondent
Nicdao and Nuguid only. Respondent Nicdao never dealt with petitioner Ching.

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 of P1,200,000.00 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.

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 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 delivered P1,000,000.00 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 of P20,950,000.00.
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. 57-97[33] 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 than P2,100,000.00. 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 of P1,200,000.00, 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 stolen P20,000,000.00 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. People[39] 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 the
P20,000,000.00 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 at P1,200,000 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.

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.

HILIPPINE PHOSPHATE FERTILIZER CORPORATION, Petitioner, v. KAMALIG RESOURCES, INC.,

Respondent.

DECISION

TINGA, J.:

This is an appeal by certiorari under Rule 45 of the Revised Rules of Court from the Decision1
dated 26 May 2004 promulgated by the Court of Appeals in CA G.R. No. 52553 which reversed
the Decision2 dated 25 September 1995 of the Regional Trial Court (RTC) of Makati City,
Branch 63, in Civil Case No. 17641, a case for collection of a sum of money representing
overwithdrawals by respondent Kamalig Resources, Inc. (Kamalig) of fertilizer stocks of
various grades from the Iloilo and Manila warehouses of petitioner Philippine Phosphate
Fertilizer Corporation (Philphos).

The factual and legal antecedents follow.

Kamalig purchased fertilizer products from Philphos for eventual sale to its customers. The
agreement governing the business transaction consisted of advance payment to Philphos for
Kamalig's purchases of fertilizer products, followed by Philphos's issuance of a Sales Official
Receipt and an Authority to Withdraw, indicating the kind of fertilizer product purchased and
the location of the warehouse where the merchandise would be picked up. Kamalig would
subsequently resell the fertilizer products and issue to its customers the corresponding
Delivery Orders signed only by its authorized officers. The customers would then present the
Delivery Orders to the proper Philphos warehouse for the release of the fertilizer products.

On 30 September 1985, Kamalig purchased from and made advance payments for fertilizer
products of various grades to Philphos in the total sum of P4,548,152.53, embodied in Sales
Official Receipt No. 03539,3 covering the following commercial invoices: (a) Commercial
Invoice (CI) No. 04891 for fertilizer products to be withdrawn from the warehouse in Poro
Point; (b) CI No. 04892 for fertilizer products to be withdrawn from the Manila supply point; (c)
CI No. 04893 for such products to be withdrawn from the Iloilo warehouse; and (d) CI No.
04894 for the products to be withdrawn from the Davao supply point.4

Prior to the release of fertilizer products at the said supply points, however, Kamalig
requested for a readjustment of the various fertilizer grades and a modification of the
locations from which the fertilizer stocks would be picked up. The request was contained in a
letter dated 11 October 1985.5

In a subsequent letter dated 14 October 1985,6 Kamalig requested another adjustment, this
time a conversion of its stocks in Davao to be delivered and picked up in Manila.

All these requests were approved by Philphos.

In the letter dated 21 July 1986,7 Philphos informed Kamalig of its overwithdrawal of various
fertilizer stocks in the supply depots in Manila and Iloilo. This consisted of 291.45 metric tons
(MT) of fertilizer grade 21-0-0 from the Manila supply point and 50 MT each of fertilizer grades
14-14-14, 16-20-0, and 21-0-0 from the Iloilo supply station. According to Philphos, the cost of
these overwithdrawals by Kamalig amounted to P1,016,994.21. But since Philphos also had an
obligation to Kamalig in the amount of P470,348.91 representing the Capital Recovery
Component, partial compensation took place by operation of law thereby reducing Kamalig's
obligation to P546,645.30. Thus, Philphos demanded that this sum be settled on or before 31
July 1986, otherwise Kamalig would be charged 34% interest per annum. Kamalig, however,
denied that it had exceeded its withdrawals of fertilizer and thus contended that it should not
be made liable for any amount.

On 20 August 1987, Philphos filed the case for collection of a sum of money against Kamalig
before the RTC of Makati City. During pre-trial, the parties agreed to confine the issue to
whether or not Kamalig overwithdrew 150 MT or 3,000 bags of various grades of fertilizer
products amounting to P441,738.50 from Philphos's warehouse in Iloilo and 291.45 MT or
5,829 bags of fertilizer grade 21-0-0 amounting to P575,255.71 from Philphos's warehouse in
Manila.8

After trial, giving more credence to the evidence presented by Philphos, the RTC disposed of
the case in its Decision9 dated 25 September 1995, thus:

In the light of the foregoing, judgment is hereby rendered as follows:

1) Ordering defendant to pay plaintiff the amount of P546,645.30 representing the

overwithdrawn stocks made by defendant to plaintiff plus 34% interest per annum from 20
August 1987 until fully paid;

2) Ordering defendant to pay plaintiff an amount equivalent to 25% of the total claim as and
for attorney's fees; andcralawlibrary

3) Ordering defendant to pay the costs of suit.

SO ORDERED.10

The RTC noted that Kamalig did not categorically deny that there were overwithdrawals of
fertilizer products in its stock, and that if there were overwithdrawals, Kamalig merely
claimed that it should not be at fault because some of the delivery receipts were signed by
Kamalig officers who were not authorized to make such withdrawals. However, the RTC held
that the alleged unauthorized withdrawals did not relieve Kamalig from liability for the
following reasons: first, Kamalig's policy of not allowing withdrawals via handwritten forms or
forms that are not pre-printed or pre-numbered was not communicated to Philphos but was
only an internal company policy; second, if it is Kamalig's internal policy not to allow
withdrawals by unauthorized officers, then it should have been followed by all of its
employees, and the withdrawals by such unauthorized officers only goes to show that said
procedure is actually not an internal policy of Kamalig. Therefore, such withdrawals should be
for the account of Kamalig.11

Kamalig appealed the decision to the Court of Appeals, which found merit in the appeal. The
dispositive portion of the Decision dated 26 May 2004 reads:

WHEREFORE, the assailed Decision is REVERSED and SET ASIDE. The complaint is DISMISSED
and judgment is rendered ordering Philippine Phosphate Fertilizer Corporation to pay Kamalig
Resources, Inc., the following:

1. Actual damages in the sum of P470,348.91, representing the value of the Capital
Recovery Component, plus legal interest from the date of the filing of the Complaint;

2. Actual damages in the sum pf P174,841.34, representing the value of unauthorized

withdrawals erroneously charged to Kamalig Resources, Inc.;

3. Attorney's fees in the amount of P30,000.00; andcralawlibrary

4. The costs of suit.

SO ORDERED.12

The Court of Appeals disagreed with the RTC's finding that Kamalig failed to categorically
deny Philphos's claim of overwithdrawal of fertilizer stocks. The appellate court pointed out
that there were specific denials in Kamalig's Answer that it had not overwithdrawn its stocks,
and in its Pre-Trial Brief that it had withdrawn fertilizer stocks only in such grade and quantity
equivalent to the payment it had previously made. A categorical denial having been made by
Kamalig, the Court of Appeals declared that the burden of proof had shifted to Philphos to
prove such overwithdrawals.13 The Court of Appeals found, however, that Philphos did not
overcome the burden of proof as it failed to prove the alleged overwithdrawal of fertilizer
products by Kamalig which is the core of its cause of action. The Court of Appeals also found
that Philphos's computations not only included improperly documented withdrawals but also
violated Kamalig's policy of authorizing withdrawals based only on pre-printed and numbered
forms duly issued to its customers, which policy according to the Court of Appeals, was
communicated by Kamalig to Philphos. The Court of Appeals likewise found that it was also
Philphos's company policy to disallow withdrawals not using the pre-numbered and pre-printed
delivery receipts. By adopting the same policy, the appellate court declared, Philphos should
have been forewarned that allowing withdrawals without the proper documentation would be
abetting unauthorized withdrawals to its prejudice. Thus, such unauthorized withdrawals
should also be deducted from the value of the fertilizer products withdrawn by Kamalig.14

Consequently, the unauthorized withdrawals, in the total amount of P378,891.45,15 should be

deducted from the total withdrawals made by Kamalig as stated in the delivery receipts,
placed at P4,752,202.62, thereby leaving a difference of P4,373,311.21. Said difference should
then be deducted from the purchase price of P4,548,152.55 previously paid by Kamalig,
leaving an overpayment of P174,841.34 by Kamalig. Add to this the amount of P470,348.91
representing the Capital Recovery Component which Philphos admitted it owed Kamalig,
resulting in the total amount of P645,190.25 owed by Philphos to Kamalig, said the Court of
Appeals.

Total value of withdrawals made by Kamalig P4,752,202.62

Less: Value of unauthorized withdrawals - 378,891.41
Actual value of withdrawals made by Kamalig P4,373,311.41

Amount previously paid by Kamalig P4,548,152.55

Less: Actual value of withdrawals made by Kamalig - 4,373,311.41
174,841.34
Add: Capital Recovery Component + 470,348.91
TOTAL AMOUNT owed by Philphos to Kamalig P645,190.25 16

The Court of Appeals likewise held that there was no basis for the imposition of the 34%
interest per annum on the principal claim of Philphos, the same being merely a unilateral act
on the part of Philphos and no evidence was presented to show that the parties stipulated on
the payment of interest. Besides, such interest cannot be awarded since there were no
overwithdrawals in the first place. The Court of Appeals also deleted the award of attorney's
fees to Philphos, finding that the factual and legal bases of the RTC were erroneous and that
Philphos had not met any of the justifications under Article 2208 of the Civil Code to merit the
award of attorney's fees. Instead, it awarded attorney's fees to Kamalig which was forced to
hire the services of a lawyer to defend itself against an unfounded civil action filed by
Philphos that could have been avoided had Philphos been more diligent.17

Philphos filed a motion for reconsideration of the Decision but this was denied in the
Resolution18 of 7 October 2004.

In the present appeal by certiorari, Philphos alleges that the Court of Appeals erred in holding
that: (a) Philphos is liable to Kamalig for the sum of P645,190.29, considering that based on
Philphos's evidence, it is Kamalig who is indebted to Philphos for the sum of P538,486.74; (b)
Philphos's evidence is not sufficient to prove the existence of an outstanding obligation; (c)
there can be no basis for the imposition of a 34% interest per annum on the outstanding
obligation of Kamalig to Philphos; and (d) there is no basis for awarding attorney's fees to
Philphos.

Philphos alleges that in issuing the questioned decision, the Court of Appeals omitted some
figures and disregarded some material facts which, when taken into account, would have
established Kamalig's liability by as much as P538,486.73. First, in coming up with the value
of P645,190.25 supposedly owed by Philphos to Kamalig, the Court of Appeals erroneously
indicated that Kamalig had withdrawn 1,908.85 MT of fertilizer grade 21-0-0, 150 MT of
fertilizer grade 16-20-0 and 150 MT of fertilizer grade 14-14-14, or a total of 2,208.85 MT. In
doing so, the Court of Appeals did not consider Kamalig's withdrawals in the other
warehouses of Philphos, such as 37.15 MT of 16-20-0 fertilizer grade in Poro Point and 100 MT
each of fertilizer grades 14-14-14 and 16-20-0 in Manila per Kamalig's letter dated 11 October
1985. Thus, the appellate court's computation was short by 237.15 MT worth P803,710.55:19

Fertilizer Grade Quantity in Metric Tons Price/MT amount

14-14-14 100 3,499.10 P349,910.00
 16-20-0 137.15 3,308.79 453,800.55
Total 237.15 P803,710.55

Second, the Court of Appeals supposedly should not have readily believed Kamalig's claim
that the withdrawals based on handwritten delivery orders or those that were not pre-printed
and pre-numbered were unauthorized. The evidence presented by Philphos clearly showed
that said alleged unauthorized withdrawals amounting to P378,891.41 were sufficiently
evidenced by delivery orders signed by Kamalig's authorized signatories and were received by
Kamalig's customers. Philphos asseverates that it should not be faulted for honoring the
delivery orders that were not written on the standard pre-printed forms. While Kamalig asserts
that it communicated its policy of disallowing withdrawals in non-standard forms, Kamalig's
own witness and former company president, Ma. Lourdes Nicandro, testified that the policy
was not communicated officially through a formal written memorandum or letter. Moreover,
the handwritten delivery orders signed by Kamalig's authorized officers would negate the
existence of such a policy since said officers are presumed to be knowledgeable about
Kamalig's policies and accordingly comply with the same.20

Third, the Court of Appeals should have included in its computation the additional deliveries to
Kamalig of 292 MT of fertilizer grade 21-0-0 in Manila per the letter dated 14 October 1985. In
said letter, Kamalig misrepresented to Philphos that it still had an undelivered balance of 200
MT of various fertilizer grades in Davao when in fact it had none, thus Philphos, in good faith,
authorized the delivery of the 292 MT of grade 21-0-0 from the Manila warehouse as
requested. The additional withdrawal of 292 MT of grade 21-0-0 was evidenced by delivery
orders and delivery receipts and should have been included in the computation of Kamalig's
obligation.

Thus, according to Philphos's computations, the fertilizer products withdrawn by Kamalig

totals 2,446.55 MT equivalent to P5,556,988.20. Deducting Kamalig's deposit of P4,548,152.55
and capital recovery component of P470,348.91, Kamalig owes Philphos the amount of
P538,486.74:

Fertilizer Grade Poro Point Manila Iloilo Total mt Cost/MT TOTAL

14-14-14 - 100 100 250 3,499.10 P874,775.00
16-20-0 37.15 100 150 287.15 3,308.79 950,119.05
21-0-0 - 1,709.4 200 1,909.4 1,954.59 3,732,094.15
Total 37.15 1,909.4 450 2,446.55 P5,556,988.20

Total value of fertilizer withdrawn P5,556,998.20

Less: Amount previously paid by Kamalig - 4,548,152.44
1,008,835.65
Less: Capital Recovery Component - 470,348.91
TOTAL AMOUNT owed by Kamalig to Philphos P538,486.74

Since Kamalig's obligation is sufficiently established, Philphos adds that Kamalig is also liable
to pay 34% interest per annum as stated in Philphos's demand letters dated 21 July 1986 and
14 October 1986, starting 21 July 1986 or the date of extra-judicial demand. To support its
claim, Philphos relies on Article 1589 of the Civil Code which sates that the vendee shall owe
interest for the period between the delivery of the thing and the payment of the price, should
he be in default, from the time of judicial or extra-judicial demand for the payment of the
price.21
Lastly, Philphos argues that owing to Kamalig's refusal to pay, Philphos was constrained to
institute the instant case and incurred an obligation in the sum equivalent to 25% of the total
claim as and for attorney's fees at P1,000.00 per appearance, as testified to by Philphos's
witness, Ms. Vida Delute. Thus, citing Article 2208 of the Civil Code, Philphos contends that it
should recover attorney's fees.22

On the other hand, Kamalig, in its Comment23 dated 28 February 2005, contends that the
petition clearly raises questions of fact which are beyond the Court's power to review, since
an appeal by certiorari under Rule 45 of the Rules of Court raises only questions of law. Thus,
findings of fact of the Court of Appeals being held to be final and conclusive, they can no
longer be assailed in the instant appeal by certiorari, especially so when Philphos failed to
show that the case falls under any of the exceptions to the rule. In any event, Kamalig
maintains that the evidence on record shows that Philphos is indebted to Kamalig and no
sufficient evidence was presented to prove Philphos's cause of action. Kamalig also agrees
with the Court of Appeals' rulings that there is no basis for the imposition of 34% interest per
annum as well as attorney's fees.

The petition is not meritorious, but we find that the decision of the Court of Appeals needs to
be modified in certain aspects.

True it is that the jurisdiction of this Court in a Petition for Review under Rule 45 is limited to
reviewing errors of law since it is not a trier of facts and it is a settled doctrine that findings
of fact of the Court of Appeals are binding and conclusive upon this Court, as a general
rule.24 In the case at bar, however, two exceptions to the general rule are present. These are
when the findings of the Court of Appeals are contrary to those of the trial court and when the
Court of Appeals fails to consider certain facts which would result in a different conclusion.

The complaint for a sum of money filed by Philphos arose from Kamalig's refusal to pay the
amount of P575,255.71 of alleged overwithdrawals of fertilizer products from Philphos's
Manila and Iloilo warehouses. As admitted by both parties, Kamalig purchased from Philphos
P4,548,152.53 worth of fertilizer products to be picked up at different supply points or
warehouses of Philphos. According to the CIs,25 Kamalig purchased the following quantities
in metric tons of fertilizer products and paid the corresponding amounts:

Fertilizer Grade Poro Point Manila Iloilo Davao Total mt Cost/MT TOTAL
14-14-14 - - 200 150 350 3,499.10 P1,224,685.00
16-20-0 300 - 200 150 650 3,308.79 2,150,713.50
21-0-0 175 250 100 75 600 1,954.59 1,172,754.00
P4,548,152.50

A readjustment of the quantities of fertilizer products and pick up points was made in
Kamalig's letter dated 11 October 1985:

Fertilizer Grade Poro Point Manila Iloilo Davao Total mt Cost/MT TOTAL
14-14-14 - 100 100 - 200 3,499.10 P699,820.00
16-20-0 37.15 100 100 - 237.15 3,308.79 784,679.54
21-0-0 - 1,417.4 150 - 1,567.4 1,954.59 3,063,624.30
P4,548,123.84
The letter clearly indicates that there were no more stocks for pick up in Davao, as it appears
that the various amounts and grades previously agreed upon for pick up in Davao were instead
distributed among the Poro Point, Manila, and Iloilo supply points.

However, another request for readjustment was made by Kamalig through its letter dated 14
October 1985, this time asking that all its stocks in Davao be converted to only one particular
fertilizer grade for pick up in Manila:

Davao

14-14-14 50 MT P174,955.00
16-20-0 75 MT 248,159.25
21-0-0 75 MT 146,594.25

P569,708.50

Converted to:

Manila

21-0-0 292 MT P570,740.28 26

This request was granted and the authority to withdraw was issued accordingly. Philphos
claims it granted the request inadvertently, believing as it did that Kamalig still had stocks in
Davao when in fact the previous letter of 11 October 1985 indicated that all the stocks in
Davao had already been converted to other fertilizer grades for pick up in the other supply
points.

Philphos presented evidence to show the withdrawals made by Kamalig from the Iloilo
warehouse consisting of Delivery Receipts27 which tended to show that 500 of fertilizer were
withdrawn from the Iloilo warehouse, or an overwithdrawal of 150 MT was made as against
the total of 350 MT requested in the 11 October 1985 letter.

Kamalig claims that some of the withdrawals from the Iloilo warehouse were made under
handwritten delivery orders28 and not through pre-printed and pre-numbered forms, contrary
to its company policy. Philphos admits, too, that its policy is only to honor delivery orders in
the prescribed pre-printed forms, but that it also allows withdrawals pursuant to handwritten
requests on a "case to case basis," i.e., for as long as the handwritten request is signed by an
authorized officer or signatory of Kamalig.29 The handwritten requests upon which the
unauthorized withdrawals were made were all signed by one Angel Supetran, Jr., Senior
Salesman of Kamalig's Iloilo branch, and one of the officials authorized to sign the prescribed
delivery orders.30 On this point, the Court of Appeals correctly ruled that Philphos should
have been forewarned that allowing withdrawals without the approved standard delivery order
would be abetting unauthorized withdrawals to its prejudice.

The pre-printed delivery orders are a vital security measure to prevent unauthorized
withdrawals of fertilizer, and benefits not only Kamalig but Philphos as well. As Kamalig
explains in its Comment, the pre-printed and pre-numbered forms were so designed in such a
way that the person dealing with it will be informed that the delivery order is duly issued by
Kamalig and can be relied upon; corollarily, if the customer presents a delivery order that is
not in the prescribed pre-printed form, the person dealing with it should be alerted that it was
not issued according to standard company practice and anyone acting upon it acts at his own
risk.31 The practice of using these pre-printed delivery orders is obviously the modality in the
ordinary course of business between Kamalig and Philphos. Philphos's failure to strictly
observe and implement this practice precludes it from complaining of the adverse effects of
such failure.

In the case at bar, withdrawals of fertilizer in quantities more than what was paid for was
made possible by Philphos's failure to comply with the policy to use the prescribed forms. The
danger sought to be prevented by the policy came to pass because of Philphos's non-
compliance with its policy. It is of no moment that Kamalig's own authorized signatory, Mr.
Supetran, Jr., accomplished the handwritten delivery orders, since the withdrawals thereon
would not have been made had Philphos strictly implemented the policy and did not honor said
delivery orders. As Philphos could have prevented the loss, it is but fair that it should suffer
the loss. Thus, the value of the unauthorized withdrawals should be for the account of
Philphos and not shifted to Kamalig. The total value of the unauthorized withdrawals in Iloilo
is P378,891.41, per the handwritten delivery orders, as follows:

Fertilizer Grade Total mt Cost/MT

TOTAL
14-14-14 25 3,499.10 P87,477.50
16-20-0 29 3,308.79 95,954.91
21-0-0 100 1,954.59 195,459.00
P378,891.41

As to the alleged overwithdrawal of stocks in the Manila warehouse, Philphos presented

Delivery Receipts32 which showed that a total of 291.45 MT of fertilizer grade 21-0-0 valued at
P569,665.25 was made in accordance with the letter of 14 October 1985. Philphos did not
present the delivery receipts covering all the withdrawals in the Manila warehouse, or the
quantity of fertilizer requested in the 11 and 14 October 1985 letters to be withdrawn in
Manila, but only the delivery receipts allegedly proving the overwithdrawal of 291.45 MT of
fertilizer grade 21-0-0. While it did not present all Manila delivery receipts, Philphos sought to
prove that the 1,417.4 MT of fertilizer grade 21-0-0 requested in the 11 October 1985 letter
was separate and distinct from the 291.45 MT of the same fertilizer grade represented by the
delivery receipts and which were delivered pursuant to the 14 October 1985 letter. Philphos
presented the Certification dated 25 November 1985 and Summary of Withdrawals,33 jointly
prepared by representatives of Kamalig and Philphos, accounting for the 1,417.4 MT of
fertilizer grade 21-0-0. According to Philphos's representative, Warehouse Assistant Mario D.
Garcia, said Certification and Summary refer to "the confirmation and acknowledgement of
receipt by [Kamalig], after due reconciliation, of 1,417.4 MT or 28,348 bags of fertilizer grade
21-0-0 withdrawn and received by [Kamalig] from [Philphos's] Manila warehouse per
[Kamalig's] letter dated 11 October 1985."34

It appears, however, that the representative of Kamalig who signed the Certification and
Summary, Marketing Assistant Ma. Veronica Porciuncula, was not authorized to make or sign
such certifications or summaries or to make any reconciliation of the records of fertilizer
withdrawals, the same not being part of her functions as marketing assistant.35 Even Mr.
Garcia admitted that Ms. Porciuncula did not present any written authority to sign the
Certification and Summary in behalf of Kamalig.36 Thus, the Certification and Summary
cannot be used to prove the delivery and receipt by Kamalig of the 1,417.4 MT of fertilizer
grade 21-0-0 separate and distinct from the 291.45 MT of the same fertilizer grade withdrawn
in accordance with the 14 October 1985 letter. Neither can the Certification and Summary
prove the alleged overwithdrawal of 291.45 MT of fertilizer products from the Manila
warehouse. While the withdrawal of the 291.45 MT of fertilizer grade 21-0-0 was substantiated
by delivery orders and delivery receipts, no other evidence was presented to prove that said
volume was separate and distinct from the 1,417.4 MT withdrawal of the same fertilizer grade.

Thus, Philphos presented proof of overwithdrawal only from the Iloilo warehouse but not from
the Manila warehouse.

In its computations, the Court of Appeals arrived at the total value of withdrawals made by
Kamalig, pegged at P4,752,202.62, by considering only the withdrawals of fertilizer grade 21-
0-0 in Manila and of all fertilizer grades in Iloilo, i.e., by summing up all the amounts in the
receipts presented by Philphos. The problem with this tack is that the delivery receipts
represent only some but not all of the withdrawals made. In doing so, the Court of Appeals
failed to consider the withdrawals of fertilizer grade 16-20-0 in Poro Point and of fertilizer
grades 14-14-14 and 16-20-0 in Manila. These withdrawals should have been taken into
consideration since the advance deposit of P4,548,152.50 made by Kamalig covered and
served as payment for all three kinds of fertilizers to be taken from supply points in Poro
Point, Manila, Iloilo and Davao, and not just in Manila and Iloilo.

Since the Court of Appeals considered all the receipts in coming up with the total
withdrawals, it also took into account the alleged overwithdrawal of 291.45 MT of 21-0-0
fertilizer grade in Manila. However, since we have already determined that the claimed
overwithdrawal has not been proven, the same should not be included in the total withdrawals
made by and charged to Kamalig. Thus, the total withdrawals amount to P4,986,247.92, and
not just P4,752,202.62, computed as follows:

Fertilizer Grade Poro Point Manila Iloilo Davao Total mt Cost/MT TOTAL
14-14-14 - 100 150 - 250 3,499.10 P874,775.00
16-20-0 37.15 100 150 - 287.15 3,308.79 950,119.05
21-0-0 - 1,417.4 200 - 1,617.4 1,954.59 3,161,353.87
P4,986,247.92

From the total withdrawals, the unauthorized withdrawals of P378,891.41 from the Iloilo
warehouse should be deducted since Kamalig should not be made liable for such withdrawals
but instead entered for the account of Philphos. The difference of P4,607,356.51 would then
represent the actual withdrawals from which Kamalig's advance payment of P4,548,152.44
should be deducted, leaving only P59,204.07 representing the overwithdrawals in Iloilo that
Kamalig owes Philphos. Considering that Philphos owes Kamalig P470,348.91 as Capital
Recovery Component, Kamalig's liability of P59,204.07 should be deducted from this amount,
leaving P411,144.84 which Philphos still owes Kamalig, and not P645,190.2537 as found by the
Court of Appeals. Thus:

Total value of fertilizers withdrawn P4,986,247.92

Less: Unauthorized withdrawals in Iloilo - 378,891.41
4,607,356.51
Less: Amount previously paid by Kamalig - 4,548,152.41
Amount owed by Kamalig 59,204.07
 Capital Recovery Component P470,348.91
Less: Amount owed by Kamalig - 59,204.07
TOTAL AMOUNT owed by Philphos to Kamalig P411,144.84

With respect to the 34% per annum interest claimed by Philphos, we agree with the Court of
Appeals that no evidence was presented that would show that the parties stipulated on the
payment of interest. Under Article 1956 of the Civil Code, no interest shall be due unless it has
been expressly stipulated in writing. Philphos presented only its demand letters38 insisting on
payment of the value of the overwithdrawals and imposition of 34% interest per annum if
payment is not made in due time. Said unilateral impositions of interest do not suffice as proof
of agreement on the alleged 34% per annum interest.rbl r l l
lbrr

Philphos claims attorney's fees under Article 2208 of the Civil Code which provides that
attorney's fees may be granted where "the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's plainly valid, just and demandable claim." Suffice it to say the
evidence does not bear out any gross and evident bad faith on the part of Kamalig.

As to the Court of Appeals' award of attorney's fees to Kamalig, it appears that the award was
granted under the auspices of Art. 2208, par. (4) of the Civil Code which provides that
attorney's fees may be recovered "in case of a clearly unfounded civil action or proceeding
against the plaintiff" or in this case, against then defendant Kamalig'since the appellate court
reasoned that Kamalig was compelled to hire the services of a lawyer to defend itself. In this
case, overwithdrawals of fertilizer products in Iloilo had been proven, showing that indeed
there was cause for filing of a complaint against Kamalig. Kamalig is thus not entitled to
attorney's fees. The general rule is that attorney's fees cannot be recovered as part of
damages because no premium should be placed on the right to litigate.39 In short, the grant
of attorney's fees as part of damages is the exception rather than the rule, and counsel's fees
are not awarded every time a party prevails in a suit.40

WHEREFORE, in view of the foregoing, the Decision dated 26 May 2004 of the Court of Appeals
is MODIFIED. Petitioner Philippine Phosphate Fertilizer Corporation is ORDERED to PAY
respondent Kamalig Resources, Inc. the amount of P411,144.84, plus legal interest from the
finality of this Decision,41 and costs of the suit. The award of attorney's fees by the Court of
Appeals in favor of respondent is DELETED.

G.R. No. 198660 October 23, 2013

TING TING PUA, Petitioner,

vs.
SPOUSES BENITO LO BUN TIONG and CAROLINE SIOK CHING TENG, Respondents.

RESOLUTION

VELASCO, JR., J.:

Under consideration is the Motion for Reconsideration interposed by petitioner Ting Ting Pua
Pua) of our Resolution dated April 18, 2012 effectively affirming the Decision1 and Resolution2
dated March 31, 2011 and September 26, 2011, respectively, of the Court of Appeals CA) In
CA- G.R. CV No. 93755, which, in turn, reversed the Decision of the Regional Trial Court RTC)
of the City of Manila, Branch 29 in Civil Case No. 97-83027.

As culled from the adverted R TC Decision, as adopted for the most part by the CA, the
antecedent facts may be summarized as follows:

The controversy arose from a Complaint for a Sum of Money3 filed by petitioner Pua against
respondent-spouses Benito Lo Bun Tiong Benito) and Caroline Siok Ching Teng Caroline). In
the complaint, Pua prayed that, among other things, respondents, or then defendants, pay Pua
the amount eight million five hundred thousand pesos (PhP 8,500,000), covered by a check.
(Exhibit "A," for plaintiff)

During trial, petitioner Pua clarified that the PhP 8,500,000 check was given by respondents to
pay the loans they obtained from her under a compounded interest agreement on various
dates in 1988.4 As Pua narrated, her sister, Lilian Balboa (Lilian), vouched for respondents
ability to pay so that when respondents approached her, she immediately acceded and lent
money to respondents without requiring any collateral except post-dated checks bearing the
borrowed amounts.5 In all, respondents issued 176 checks for a total amount of one million
nine hundred seventy-five thousand pesos (PhP 1,975,000). These checks were dishonored
upon presentment to the drawee bank.7

As a result of the dishonor, petitioner demanded payment. Respondents, however, pleaded for
more time because of their financial difficulties.8 Petitioner Pua obliged and simply reminded
the respondents of their indebtedness from time to time.9

Sometime in September 1996, when their financial situation turned better, respondents
allegedly called and asked petitioner Pua for the computation of their loan obligations.10
Hence, petitioner handed them a computation dated October 2, 199611 which showed that, at
the agreed 2% compounded interest rate per month, the amount of the loan payable to
petitioner rose to thirteen million two hundred eighteen thousand five hundred forty-four pesos
and 20/100 (PhP 13,218,544.20).12 On receiving the computation, the respondents asked
petitioner to reduce their indebtedness to PhP 8,500,000.13 Wanting to get paid the soonest
possible time, petitioner Pua agreed to the lowered amount.14

Respondents then delivered to petitioner Asiatrust Check No. BND057750 bearing the reduced
amount of PhP 8,500,000 dated March 30, 1997 with the assurance that the check was
good.15 In turn, respondents demanded the return of the 17 previously dishonored checks.
Petitioner, however, refused to return the bad checks and advised respondents that she will do
so only after the encashment of Asiatrust Check No. BND057750.16

Like the 17 checks, however, Check No. BND057750 was also dishonored when it was
presented by petitioner to the drawee bank. Hence, as claimed by petitioner, she decided to
file a complaint to collect the money owed her by respondents.

For the defense, both respondents Caroline and Benito testified along with Rosa Dela Cruz
Tuazon (Tuazon), who was the OIC-Manager of Asiatrust-Binondo Branch in 1997. Respondents
categorically denied obtaining a loan from petitioner.17 Respondent Caroline, in particular,
narrated that, in August 1995, she and petitioners sister, Lilian, forged a partnership that
operated a mahjong business. Their agreement was for Lilian to serve as the capitalist while
respondent Caroline was to act as the cashier. Caroline also agreed to use her personal
checks to pay for the operational expenses including the payment of the winners of the
games.18 As the partners anticipated that Caroline will not always be in town to prepare
these checks, she left with Lilian five (5) pre-signed and consecutively numbered checks19 on
the condition that these checks will only be used to cover the costs of the business
operations and in no circumstance will the amount of the checks exceed PhP 5,000.20

In March 1996, however, respondent Caroline and Lilian had a serious disagreement that
resulted in the dissolution of their partnership and the cessation of their business. In the
haste of the dissolution and as a result of their bitter separation, respondent Caroline alleged
that she forgot about the five (5) pre-signed checks she left with Lilian.21 It was only when
Lilians husband, Vicente Balboa (Vicente), filed a complaint for sum of money in February
1997 against respondents to recover five million one hundred seventy-five thousand two
hundred fifty pesos (PhP 5,175,250), covering three of the five post-dated and pre-signed
checks.22

Respondent Caroline categorically denied having completed Check No. BND057750 by using a
check writer or typewriter as she had no check writer and she had always completed checks
in her own handwriting.23 She insisted that petitioner and her sister completed the check
after its delivery.24 Furthermore, she could not have gone to see petitioner Pua with her
husband as they had been separated in fact for nearly 10 years.25 As for the 17 checks issued
by her in 1988, Caroline alleged that they were not intended for Pua but were issued for the
benefit of other persons.26 Caroline postulated that the complaint is designed to allow Puas
sister, Lilian, to recover her losses in the foreign exchange business she had with Caroline in
the 1980s. Respondent Benito corroborated Carolines testimony respecting their almost a
decade separation.27 As such, he could not have had accompanied his wife to see petitioner
to persuade the latter to lower down any alleged indebtedness.28 In fact, Benito declared,
before the filing of the Complaint, he had never met petitioner Pua, let alone approached her
with his wife to borrow money.29 He claimed that he was impleaded in the case to attach his
property and force him to enter into an amicable settlement with petitioner.30 Benito pointed
out that Check No. BND057750 was issued under Asiatrust Account No. 5513-0054-9, which is
solely under the name of his wife.31

The witness for the respondents, Ms. Tuazon, testified that respondent Caroline opened
Asiatrust Account No. 5513-0054-9 in September 1994.32 She claimed that the average
maintaining balance of respondent Caroline was PhP 2,000 and the highest amount issued by
Caroline from her account was PhP 435,000.33 She maintained that respondent Caroline had
always completed her checks with her own handwriting and not with a check writer. On
October 15, 1996, Carolines checking account was closed at the instance of the bank due to
69 instances of check issuance against insufficient balance.34

After trial, the RTC issued its Decision dated January 31, 2006 in favor of petitioner. In holding
thus, the RTC stated that the possession by petitioner of the checks signed by Caroline, under
the Negotiable Instruments Law, raises the presumption that they were issued and delivered
for a valuable consideration. On the other hand, the court a quo discounted the testimony for
the defense completely denying respondents loan obligation to Pua.35

The trial court, however, refused to order respondents to pay petitioner the amount of PhP
8,500,000 considering that the agreement to pay interest on the loan was not expressly
stipulated in writing by the parties. The RTC, instead, ordered respondents to pay the principal
amount of the loan as represented by the 17 checks plus legal interest from the date of
demand. As rectified,36 the dispositive portion of RTCs Decision reads:
Defendant-spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng, are hereby ordered
jointly and solidarily:

1. To pay plaintiff P1,975,000.00 plus 12% interest per annum from September 30, 1998, until
fully paid;

2. To pay plaintiff attorneys fees of P200,000.00; and

3. To pay the costs of the suit.

Aggrieved, respondents went to the CA arguing that the court a quo erred in finding that they
obtained and are liable for a loan from petitioner. To respondents, petitioner has not
sufficiently proved the existence of the loan that they supposedly acquired from her way back
in the late 1980s by any written agreement or memorandum.

By Decision of March 31, 2011, as reiterated in a Resolution dated September 26, 2011, the
appellate court set aside the RTC Decision holding that Asiatrust Bank Check No. BND057550
was an incomplete delivered instrument and that petitioner has failed to prove the existence
of respondents indebtedness to her. Hence, the CA added, petitioner does not have a cause of
action against respondents.37

Hence, petitioner came to this Court via a Petition for Review on Certiorari38 alleging grievous
reversible error on the part of the CA in reversing the findings of the court a quo.

As adverted to at the outset, the Court, in a Minute Resolution dated April 18, 2012, resolved
to deny the petition.39

In this Motion for Reconsideration,40 petitioner pleads that this Court take a second hard look
on the facts and issues of the present case and affirm the RTCs case disposition. Petitioner
argues, in the main, that the finding of the appellate court that petitioner has not established
respondents indebtedness to her is not supported by the evidence on record and is based
solely on respondents general denial of liability.

Respondents, on the other hand, argued in their Comment on the Motion for Reconsideration
dated October 6, 2012 that the CA correctly ruled that Asiatrust Check No. BND057550 is an
incomplete instrument which found its way into petitioners hands and that the petitioner
failed to prove respondents indebtedness to her. Petitioner, so respondents contend, failed to
show to whom the 17 1988 checks were delivered, for what consideration or purpose, and
under whose account said checks were deposited or negotiated.

Clearly, the issue in the present case is factual in nature as it involves an inquiry into the very
existence of the debt supposedly owed by respondents to petitioner.

The general rule is that this Court in petitions for review on certiorari only concerns itself
with questions of law, not of fact,41 the resolution of factual issues being the primary function
of lower courts.42 However, several exceptions have been laid down by jurisprudence to allow
the scrutiny of the factual arguments advanced by the contending parties, viz: (1) the
conclusion is grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible ; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting ; (6)
there is no citation of specific evidence on which the factual findings are based; (7) the
findings of absence of fact are contradicted by the presence of evidence on record ; (8) the
findings of the CA are contrary to those of the trial court ; (9) the CA manifestly overlooked
certain relevant and undisputed facts that, if properly considered, would justify a different
conclusion ; (10) the findings of the CA are beyond the issues of the case; and (11) such
findings are contrary to the admissions of both parties.43 At the very least, therefore, the
inconsonance of the findings of the RTC and the CA regarding the existence of the loan
sanctions the recalibration of the evidence presented by the parties before the trial court.

In the main, petitioner asserts that respondents owed her a sum of money way back in 1988
for which the latter gave her several checks. These checks, however, had all been dishonored
and petitioner has not been paid the amount of the loan plus the agreed interest. In 1996,
respondents approached her to get the computation of their liability including the 2%
compounded interest. After bargaining to lower the amount of their liability, respondents
supposedly gave her a postdated check bearing the discounted amount of the money they
owed to petitioner. Like the 1988 checks, the drawee bank likewise dishonored this check. To
prove her allegations, petitioner submitted the original copies of the 17 checks issued by
respondent Caroline in 1988 and the check issued in 1996, Asiatrust Check No. BND057750. In
ruling in her favor, the RTC sustained the version of the facts presented by petitioner.

Respondents, on the other hand, completely deny the existence of the debt asserting that they
had never approached petitioner to borrow money in 1988 or in 1996. They hypothesize,
instead, that petitioner Pua is simply acting at the instance of her sister, Lilian, to file a false
charge against them using a check left to fund a gambling business previously operated by
Lilian and respondent Caroline. While not saying so in express terms, the appellate court
considered respondents denial as worthy of belief.

After another circumspect review of the records of the present case, however, this Court is
inclined to depart from the findings of the CA.

Certainly, in a suit for a recovery of sum of money, as here, the plaintiff-creditor has the
burden of proof to show that defendant had not paid her the amount of the contracted loan.
However, it has also been long established that where the plaintiff-creditor possesses and
submits in evidence an instrument showing the indebtedness, a presumption that the credit
has not been satisfied arises in her favor. Thus, the defendant is, in appropriate instances,
required to overcome the said presumption and present evidence to prove the fact of payment
so that no judgment will be entered against him.44

In overruling the trial court, however, the CA opined that petitioner "failed to establish [the]
alleged indebtedness in writing."45 Consequently, so the CA held, respondents were under no
obligation to prove their defense. Clearly, the CA had discounted the value of the only hard
pieces of evidence extant in the present casethe checks issued by respondent Caroline in
1988 and 1996 that were in the possession of, and presented in court by, petitioner.

In Pacheco v. Court of Appeals,46 this Court has expressly recognized that a check
"constitutes an evidence of indebtedness"47 and is a veritable "proof of an obligation."48
Hence, it can be used "in lieu of and for the same purpose as a promissory note."49 In fact, in
the seminal case of Lozano v. Martinez,50 We pointed out that a check functions more than a
promissory note since it not only contains an undertaking to pay an amount of money but is an
"order addressed to a bank and partakes of a representation that the drawer has funds on
deposit against which the check is drawn, sufficient to ensure payment upon its presentation
to the bank."51 This Court reiterated this rule in the relatively recent Lim v. Mindanao Wines
and Liquour Galleria stating that "a check, the entries of which are in writing, could prove a
loan transaction."52 This very same principle underpins Section 24 of the Negotiable
Instruments Law (NIL):

Section 24. Presumption of consideration. Every negotiable instrument is deemed prima

facie to have been issued for a valuable consideration; and every person whose signature
appears thereon to have become a party for value.

Consequently, the 17 original checks, completed and delivered to petitioner, are sufficient by
themselves to prove the existence of the loan obligation of the respondents to petitioner. Note
that respondent Caroline had not denied the genuineness of these checks.53 Instead,
respondents argue that they were given to various other persons and petitioner had simply
collected all these 17 checks from them in order to damage respondents reputation.54 This
account is not only incredible; it runs counter to human experience, as enshrined in Sec. 16 of
the NIL which provides that when an instrument is no longer in the possession of the person
who signed it and it is complete in its terms "a valid and intentional delivery by him is
presumed until the contrary is proved."

The appellate courts justification in giving credit to respondents contention that the
respondents had delivered the 17 checks to persons other than petitioner lies on the supposed
failure of petitioner "to establish for whose accounts [the checks] were deposited and
subsequently dishonored."55 This is clearly contrary to the evidence on record. It seems that
the appellate court overlooked the original copies of the bank return slips offered by petitioner
in evidence. These return slips show that the 1988 checks issued by respondent Caroline were
dishonored by the drawee banks because they were "drawn against insufficient funds."56
Further, a close scrutiny of these return slips will reveal that the checks were deposited
either in petitioners account57 or in the account of her brother, Ricardo Yuloa fact she had
previously testified to explaining that petitioner indorsed some checks to her brother to pay
for a part of the capital she used in her financing business.58

As for the Asiatrust check issued by respondent Caroline in 1996 to substitute the
compounded value of the 1988 checks, the appellate court likewise sympathized with
respondents version of the story holding that it is buttressed by respondents allegations
describing the same defense made in the two related cases filed against them by petitioners
brother-in-law, Vicente Balboa.1wphi1 These related cases consisted of a criminal case for
violation of BP 2259 and a civil case for collection of sum of money60 involving three (3) of the
five (5) consecutively numbered checks she allegedly left with Lilian.61 It should be noted,
however, that while respondents were exculpated from their criminal liability,62 in Sps. Benito
Lo Bun Tiong and Caroline Siok Ching Teng v. Vicente Balboa,63 this Court sustained the
factual findings of the appellate court in the civil case finding respondents civilly liable to pay
the amount of the checks.

It bears to note that the Decision of the appellate court categorically debunked the same
defense advanced by respondents in the present case primarily because of Carolines
admission to the contrary. The Decision of the appellate court found without any reversible
error by this Court reads, thus:

The claim of Caroline Siok Ching Teng that the three (3) checks were part of the blank checks
she issued and delivered to Lilian Balboa, wife of plaintiff-appellee, and intended solely for the
operational expenses of their mahjong business is belied by her admission that she issued
three (3) checks (Exhs. "A", "B" "C") because Vicente showed the listing of their account
totaling P5,175,250.00 (TSN, November 17, 1997, p. 10).64 x x x

Clearly, respondents defense that Caroline left blank checks with petitioners sister who, it is
said, is now determined to recoup her past losses and bring financial ruin to respondents by
falsifying the same blank checks, had already been thoroughly passed upon and rejected by
this Court. It cannot, therefore, be used to support respondents denial of their liability.

Respondents other defenses are equally unconvincing. They assert that petitioner could not
have accepted a check worth PhP 8.5 million considering that she should have known that
respondent Caroline had issued several checks for PhP 25,000 each in favor of Lilian and all of
them had bounced.65 Needless to state, an act done contrary to law cannot be sustained to
defeat a legal obligation; repeated failure to honor obligations covered by several negotiable
instruments cannot serve to defeat yet another obligation covered by another instrument.

Indeed, it seems that respondent Caroline had displayed a cavalier attitude towards the value,
and the obligation concomitant with the issuance, of a check. As attested to by respondents
very own witness, respondent Caroline has a documented history of issuing insufficiently
funded checks for 69 times, at the very least.66 This fact alone bolsters petitioners allegation
that the checks delivered to her by respondent Caroline were similarly not funded.

In Magdiwang Realty Corp. v. Manila Banking Corp., We stressed that the quantum of evidence
required in civil casespreponderance of evidence"is a phrase which, in the last analysis,
means probability to truth. It is evidence which is more convincing to the court as worthier of
belief than that which is offered in opposition thereto."67 Based on the evidence submitted by
the parties and the legal presumptions arising therefrom, petitioners evidence outweighs that
of respondents. This preponderance of evidence in favor of Pua requires that a judgment
ordering respondents to pay their obligation be entered.

As aptly held by the court a quo, however, respondents cannot be obliged to pay the interest
of the loan on the ground that the supposed agreement to pay such interest was not reduced
to writing. 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.68
Thus, the collection of interest in loans or forbearance of money is allowed only when these
two conditions concur: (1) there was an express stipulation for the payment of interest; (2) the
agreement for the payment of the interest was reduced in writing.69 Absent any of these two
conditions, the money debtor cannot be made liable for interest. Thus, petitioner is entitled
only to the principal amount of the loan plus the allowable legal interest from the time of the
demand,70 at the rate of 6% per annum.71

Respondent Benito cannot escape the joint and solidary liability to pay the loan on the ground
that the obligation arose from checks solely issued by his wife. Without any evidence to the
contrary, it is presumed that the proceeds of the loan redounded to the benefit of their family.
Hence, the conjugal partnership is liable therefor.72 The unsupported allegation that
respondents were separated in fact, standing alone, does not persuade this Court to solely
bind respondent Caroline and exempt Benito. As the head of the family, there is more reason
that respondent Benito should answer for the liability incurred by his wife presumably in
support of their family.

WHEREFORE, the Motion for Reconsideration is GRANTED. The Resolution of this Court dated
April 18, 2012 is set aside and a new one entered REVERSING and SETTING ASIDE the
Decision dated March 31, 2011 and the Resolution dated September 26, 2011 of the Court of
Appeals in CA-G.R. CV No. 93755. The Decision in Civil Case No. 97-83027 of the Regional Trial
Court (RTC) of the City of Manila, Branch 29 is REINSTATED with MODIFICATION.

Accordingly, respondents Benito Lo Bun Tiong and Caroline Siok Ching Teng are ordered
jointly and solidarily to pay petitioner PhP 1,975,000 plus 6% interest per annum from April 18,
1997, until fully paid, and P200,000.00 as attorneys fees.

ELIZABETH EUSEBIO-CALDERON, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, assailing the Decision[1]
dated April 30, 2001 of the Court of Appeals in CA-G.R. CR No. 23466, which reversed and set
aside the Decision[2] dated June 17, 1999 of the Regional Trial Court of Malolos, Bulacan,
Branch 79, acquitting the accused of the crime of Estafa in the consolidated Criminal Cases
No. 1190-M-95, 1191-M-95, and 1192-M-95 but ordering her to pay civil liability to the following:
Amelia Casanova in the total amount of P130,900.00; Teresita Eusebio in the total amount of
P172,250.00; and Manolito Eusebio in the total amount of P60,000.00.

Petitioner Elizabeth Eusebio-Calderon was charged with Estafa in three separate Informations,
to wit:

In Criminal Case No. 1190-M-95:

That in or about the months of May to November, 1994, in the municipality of Pulilan, province
of Bulacan, Philippines and within the jurisdiction of this Honorable Court, the above-named
accused, by means of deceit, false pretenses and fraudulent manifestations, and pretending to
have sufficient funds with the Allied Bank, Planters Bank and PCIBank, Plaridel Branch, did
then and there willfully, unlawfully and feloniously, prepared, issue and make out the following
checks to wit:

BANK CHECK NO. DATE AMOUNT

Allied Bank 16041982 11-30-94 P100,000.00

Planters Bank 115954 12-2-94 4,500.00

-do- 115961 12-4-94 9,500.00

-do- 15109854 12-4-94 2,500.00

-do- 15109930 12-7-94 5,000.00

PCIB 214723 12-7-94 5,000.00

Planters Bank 115968 12-9-94 4,400.00

(Total Amount Supplied) P130,900.00

drawn against the said banks, and deliver the said checks to one Amelia Casanova as
exchange for cash received from the said Amelia Casanova, knowing fully well that at the time
the checks were issued, her representations were false for she had no sufficient funds in the
said bank, so much so, that upon presentation of the said checks with the said banks for
deposit or encashment, the same were dishonored and refused payment for having been
drawn against a Closed Account and inspite of repeated demands to deposit with the said
banks the total amount of P130,900.00, the said accused failed and refused to do so, to the
damage and prejudice of the said Amelia Casanova in the said total amount of P130,900.00.[3]

In Criminal Case No. 1191-M-95:

That in or about the months of May to November 1994, in the municipality of Pulilan, province
of Bulacan, Philippines and within the jurisdiction of this Honorable Court, the above-named
accused, by means of deceit, false pretenses and fraudulent manifestations, and pretending to
have sufficient funds with the Allied Bank, PCIBank and Planters Bank, Plaridel Branch, did
then and there willfully, unlawfully and feloniously, prepared, issue and make out the following
checks to wit:

BANK CHECK NO. DATE AMOUNT

Allied Bank 16076401 11-15-94 P52,500.00

-do- 16076402 11-30-94 105,000.00

PCIB 214730 11-30-94 2,500.00

PCIB 214796 11-30-94 1,750.00

Planters Bank 15109960 12-03-94 5,000.00

Allied Bank 16083156 12-03-94 2,500.00

Planters Bank 15094519 11-30-94 3,000.00

(Total Amount Supplied) P172,250.00

drawn against the said banks, and deliver the said checks to one Teresita Eusebio as
exchange for cash received from the said Teresita Eusebio, knowing fully well that at the time
the checks were issued, her representations were false for she had no sufficient funds in the
said bank, so much so, that upon presentation of the said checks with the said banks for
deposit or encashment, the same were dishonored and refused payment for having been
drawn against a Closed Account and inspite of repeated demands to deposit with the said
banks the total amount of P172,250.00, the said accused failed and refused to do so, to the
damage and prejudice of the said Teresita Eusebio in the said total amount of P172,250.00.[4]

In Criminal Case No. 1192-M-95:

That in or about the months of June to November, 1994, in the municipality of Pulilan, province
of Bulacan, Philippines and within the jurisdiction of this Honorable Court, the above-named
accused, by means of deceit, false pretenses and fraudulent manifestations, and pretending to
have sufficient funds with the Allied Bank and Planters Bank, Plaridel Branch, did then and
there willfully, unlawfully and feloniously, prepared, issue and make out the following checks
to wit:

BANK CHECK NO. DATE AMOUNT

Allied Bank 16083115 12-3-94 P 2,500.00

-do- 16063578 12-6-94 50,000.00

-do- 16063577 12-6-94 2,500.00

-do- 16076436 12-13-94 2,500.00

Planters Bank 116202 12-13-94 2,500.00

(Total Amount Supplied) P60,000.00

drawn against the said banks, and deliver the said checks to one Manolito G. Eusebio as
exchange for cash received from the said Manolito G. Eusebio, knowing fully well that at the
time the checks were issued, her representations were false for she had no sufficient funds in
the said bank, so much so, that upon presentation of the said checks with the said banks for
deposit or encashment, the same were dishonored and refused payment for having been
drawn against a Closed Account and inspite of repeated demands to deposit with the said
banks the total amount of P60,000.00, the said accused failed and refused to do so, to the
damage and prejudice of the said Manolito G. Eusebio in the said total amount of P60,000.00.
[5]

The private complainants, Teresita Eusebio, Amelia Casanova and Manolito Eusebio, are
petitioners aunt and cousins, respectively.

On May 15, 1994, petitioner visited her Aunt Teresita in Bulacan to borrow P50,000.00, in
exchange for which she issued an Allied Bank Check No. 16076401, postdated November 15,
1994, in the amount of P52,500.00. On May 30, 1994, petitioner again borrowed from Teresita
the amount of P100,000.00, in exchange for which she issued Allied Bank Check No.
16076402, postdated November 14, 1994, in the amount of P105,000.00.

Also on May 30, 1994, Amelia Casanova went to the drugstore of petitioner and lent her the
amount of P100,000.00, allegedly to be used for the expansion of her business. In exchange,
petitioner issued Allied Bank Check No. 16041982, postdated November 30, 1994, for
P100,000.00 and six other checks in various amounts purportedly to cover the interests.

Manolito Eusebio alleges that in November 1994, petitioner borrowed money from him because
she needed it for her pharmaceutical business. Manolito loaned her P50,000.00, for which she
issued Allied Bank Check No. 16063578 covering the principal amount of the loan, dated
December 6, 1994, and four other postdated checks for the interests thereon.
According to private complainants, petitioner assured them that the checks will be honored
upon maturity. They gave her the money because she showed them her pieces of jewelry
which convinced them that she has the ability to pay the loans.

In her defense, petitioner admits that she issued the checks but alleges that it was not done
to defraud her creditors. She claims that her dealings with private complainants started in
1987 with her uncle Alberto, the husband of complainant Teresita and the father of Amelia and
Manolito. Although her uncle died in 1989, she continued to make good the value of the
postdated checks she issued until 1990. Finally, she asserts that she is an educated woman
and she never had any intention to deceive the private complainants.

After trial, the lower court rendered a joint decision finding petitioner guilty beyond
reasonable doubt of three counts of Estafa but ruled that her liability for the interest checks
was only civil. The dispositive portion of the decision reads:

In Criminal Case No. 1190-M-95:

PREMISES CONSIDERED the complainant in Criminal Case No. 1190-M-95 wherein the
complainant is one Amelia Casanova was able to prove beyond reasonable doubt the
culpability of herein accused because she would not have parted with her P100,000.00 if not
for the assurance that the check issued was properly funded.

WHEREFORE, the Court hereby renders judgment finding accused ELIZABETH E. CALDERON of
Poblacion, Pulilan, Bulacan guilty beyond reasonable doubt of the crime of Estafa defined and
penalized under Par. 2 (d) of Art. 315, Revised Penal Code as amended by P.D. 818 and
sentencing the said accused as follows:

1. To suffer an indeterminate sentence of imprisonment of nine (9) years and one (1) day of
PRISION MAYOR as minimum to SEVENTEEN (17) YEARS FOUR (4) months and one (1) day of
RECLUSION TEMPORAL as maximum;

2. To suffer the accessory penalties provided by law;

3. To pay the cost; and

4. To indemnify the complainant Amelia Casanova the sum of P100,000.00. (Exh. A)

Necessarily, the other checks exhibits B, C, D, E, F and G in the amount of P5,000.00,

P5,000.00, P4,400.00, P4,500.00, P9,500.00 and P 2,500.00 respectively in the total amount of
P30,900.00 is hereby DISMISSED the same being civil in nature and are interest of transaction
other than the principal amount of P100,000.00.[6]

In Criminal Case No. 1191-M-95:

PREMISES CONSIDERED, the court finds accused Elizabeth Calderon guilty beyond reasonable
doubt of the crime of ESTAFA defined and penalized under Par. 2 (d) of Art. 315, Revised Penal
Code as amended by P.D. 818 sentencing the said accused as follows:

1. To suffer an indeterminate sentence of imprisonment of Ten (10) years and One (1) day of
PRISION MAYOR as minimum to seventeen (17) years FOUR (4) months and one (1) day of
RECLUSION TEMPORAL as maximum;
2. To suffer the accessory penalties provided by law;

3. To pay the cost; and

4. To indemnify the complainant Teresita Eusebio the sum of P157,500.00 representing the
two checks, exhibits A and B.[7]

In Criminal Case No. 1192-M-95:

WHEREFORE, the court hereby renders judgment finding accused Elizabeth Calderon guilty
beyond reasonable doubt of the Crime of ESTAFA defined and penalized under Par. 2 (d) of Art.
315 of the Revised Penal Code as amended by P.D. 818 and sentencing the said accused as
follows:

1. To suffer an indeterminate sentence of imprisonment of FOUR (4) years 2 months and one
(1) day of PRISION CORRECCIONAL as minimum to eight (8) years and one (1) day of PRISION
MAYOR;

2. To suffer the accessory penalties provided by law;

3. To pay the costs; and

4. To indemnify the complainant Manolito Eusebio the sum of P50,000.00.

The other checks exhibit B to E are hereby DISMISSED.[8]

The trial court denied petitioners Motion for Reconsideration for lack of merit.[9] Hence,
petitioner appealed the judgment of the trial court to the Court of Appeals.

In its Decision dated April 30, 2001, the Court of Appeals disposed of the appeal as follows:

WHEREFORE, the Decision appealed from in so far as it bears on the criminal liability of the
accused is REVERSED and SET ASIDE and a new judgment is issued ACQUITTING the accused
of the crimes charged on the ground that her guilt has not been proven beyond reasonable
doubt. However, she is held civilly liable as follows:

In Criminal Case No. 1190-M-95: To indemnify Amelia Casanova the total amount of
P130,900.00;

In Criminal Case No. 1191-M-95: To indemnify Teresita Eusebio the total amount of
P172,250.00;

In Criminal Case No. 1192-M-95: To indemnify Manolito Eusebio the total amount of
P60,000.00;

all with interest thereon at the rate of 12% per annum effective December 20, 1994, the date
of complainants demand thru their counsel, until fully paid, and to pay costs.

SO ORDERED.[10]
In the instant petition for review, petitioner raises the following errors:

1. The Honorable Court of Appeals failed to consider that on the face of the Decision rendered
by the Presiding Judge of RTC Branch 17, Malolos City, that interest checks were dismissed
but found the appellant guilty with respect to the principal loan checks in the three cases
above mentioned.

2. The Honorable Court of Appeals failed to consider that the whole transactions that
transpired between appellant and private appellees covered a period lasting in years whereby
private appellees charged appellant highly usurious interests which under current
jurisprudence maintains that usurious interests are void.

3. With utmost due respect, the Honorable Court of Appeals failed to consider that under the
sorry state of affairs which petitioner experienced when the instant three criminal cases were
pending before RTC Branch 79, Malolos City, that private respondents should have filed a
separate civil complaint for their alleged claim of Sum of Money.[11]

The issues for resolution are as follows: (1) Did the Court of Appeals err in finding the
appellant civilly liable to complainants with respect to the interest in the principal loan
despite the dismissal of the interest checks by the Regional Trial Court? (2) Is the interest
agreed upon by the parties usurious? (3) Should the private respondents file a separate civil
complaint for the claim of Sum of Money?

We find the petition meritorious. Since the 1st and 3rd issues are interrelated they shall be
discussed jointly.

In a criminal case, an appeal throws the whole case wide open for review. Issues whether
raised or not by the parties may be resolved by the appellate court.[12] When petitioner
appealed her conviction, the dismissal of the interest checks by the lower court did not
preclude the Court of Appeals from reviewing such decision and modifying her civil liability.
The appeal conferred upon the appellate court full jurisdiction and rendered it competent to
examine the records, revise the judgment appealed from, increase the penalty and cite the
proper provision of the penal law.[13]

Under Article 29 of the Civil Code, when the accused in a criminal prosecution is acquitted on
the ground that his guilt has not been proven beyond reasonable doubt, a civil action for
damages for the same act or omission may be instituted. The judgment of acquittal
extinguishes the liability of the accused for damages only when it includes a declaration that
the fact from which the civil liability might arise did not exist.[14] Thus, Section 1, paragraph
(a) of Rule 111 of the Rules of Court provides:

SECTION 1. Institution of criminal and civil actions. (a) When a criminal action is instituted,
the civil action for the recovery of civil liability arising from the offense charged shall be
deemed instituted with the criminal action unless the offended party waives the civil action,
reserves the right to institute it separately or institutes the civil action prior to the criminal
action.

In the case of Manantan v. Court of Appeals,[15] we elucidated on the two kinds of acquittal
recognized by our law as well as its different effects on the civil liability of the accused. Thus:
x x x. First is an acquittal on the ground that the accused is not the author of the act or
omission complained of. This instance closes the door to civil liability, for a person who has
been found to be not the perpetrator of any act or omission cannot and can never be held
liable for such act or omission. There being no delict, civil liability ex delicto is out of the
question, and the civil action, if any, which may be instituted must be based on grounds other
than the delict complained of. This is the situation contemplated in Rule 111 of the Rules of
Court. The second instance is an acquittal based on reasonable doubt on the guilt of the
accused. In this case, even if the guilt of the accused has not been satisfactorily established,
he is not exempt from civil liability which may be proved by preponderance of evidence only.
This is the situation contemplated in Article 29 of the Civil Code, x x x.

An accused who is acquitted of Estafa may nevertheless be held civilly liable where the facts
established by the evidence so warrant.[16] Petitioner Elizabeth Calderon is clearly liable to
the private respondents for the amount borrowed. The Court of Appeals found that the former
did not employ trickery or deceit in obtaining money from the private complainants, instead, it
concluded that the money obtained was undoubtedly loans for which petitioner paid interest.
The checks issued by petitioner as payment for the principal loan constitute evidence of her
civil liability which was deemed instituted with the criminal action.

The civil liability of petitioner includes only the principal amount of the loan. With respect to
the interest checks she issued, the same are void. There was no written proof of the payable
interest except for the verbal agreement that the loan shall earn 5% interest per month. Under
Article 1956 of the Civil Code, an agreement as to payment of interest must be in writing,
otherwise it cannot be valid.[17] Consequently, no interest is due and the interest checks she
issued should be eliminated from the computation of her civil liability.

However, while there can be no stipulated interest, there can be legal interest pursuant to
Article 2209 of the Civil Code.[18] It is elementary that in the absence of a stipulation as to
interest, the loan due will now earn interest at the legal rate of 12% per annum.[19] In the
case of Eastern Shipping Lines, Inc. v. Court of Appeals,[20] we established the guidelines
particularly for the award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof 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 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)

Hence, petitioner is liable for the payment of legal interest per annum to be computed from
December 20, 1994, the date when she received the demand letter. After the judgment
becomes final and executory until the obligation is satisfied, the amount due shall earn
interest at 12% per year, the interim period being deemed equivalent to a forbearance of
credit.[21]

In view of our ruling that there can be no stipulated interest in this case, there is no need to
pass upon the second issue of whether or not the interests were usurious.

WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA-G.R. CR No.
23466 is AFFIRMED with the MODIFICATION that petitioner is ordered to pay Amelia Casanova
the sum of P100,00.00; Teresita Eusebio the sum of P157,500.00; and Manolito Eusebio the
sum of P50,000.00 as civil liability with legal interest of twelve percent (12%) per annum from
December 20, 1994 until its satisfaction.

Costs de oficio.

Dino vs. Jardines

G.R. No. 145871
January 31, 2006
FACTS:
Petitioner Leonides filed a petition for Consolidation of Ownership with the RTC of Baguio City
alleging that on
January 31, 1987, respondent Jardines executed in her favor a Deed of Sale with Pacto de
retro over a parcel
of land with improvements which amounted to P165,000.00. It was stipulated that the period
for redemption
would expire in six months or on July 29 1987 however none among Dino and his heirs were
able to redeem
the property. Jardines countered that the true contract of the parties was that of a loan and
the deed with pacto
de retro sale was a mere security to such loan. The amount of the property was around half a
million and
respondent averred that it was unthinkable for her to sell the property for only P165,000.00 In
fact, the loan
was even covered by interest at the rate of 9% to be paid monthly. The court rendered its
decision declaring
the contract as one of deed of sale with right to repurchase or pacto de retro and that
petitioner acquired
whatever rights Jardines had over the parcel of land, and she now became owner of the same.
However, upon
appeal to the Court of Appeals, the judgment was reversed with the finding that the contract
was one of
Equitable Mortgage and not one of Pacto de Retro.
Issue:
Whether or not the contract was one of Pacto de Retro or an Equitable Mortgage
Held:
The Supreme Court upheld the ruling of the Court of Appeals. The findings of said court
are based on
documentary evidence and on admissions and stipulation of facts made by the parties. It was
strengthened by
the fact that a) respondent is still in actual physical possession of the property; b) respondent
is the one paying
the real property taxes on the property; and c) the amount of the supposed sale price,
P165,000.00 earns
monthly interest.
Under Article 1602 of the Civil Code: The Contract shall be presumed to be an equitable
mortgage, in any of
the following cases:
1. When the price of a sale with right to repurchase is unusually inadequate;
2. When the vendor remains in possession as lessee or otherwise;
3. When upon or after the expiration of the right to repurchase another instrument extending
the period of
redemption or granting a new period is executed;
4. When the purchases retains for himself a part of the purchase price;
5. In any other case where it may be fairly inferred that the real intention of the parties is that
the
transaction shall secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee
as rent or
otherwise shall be considered as interest which shall be subject to usury laws.
It was held in the case of Legaspi vs. Ong that the presence of even one of
the above-mentioned
circumstances as enumerated in Article 1602 is enough basis to declare a contract of sale
with pacto de
retro as an equitable mortgage. Further, under Article 1603, in case f doubt, a contract
purporting to be a
sale with right to repurchase shall be construed as an equitable mortgage. The
circumstances under
paragraphs 2 and 5 are present in the case at bar. The property is still in the hands of
petitioner and it is
clearly shown that intention of the parties was merely for the property to stand as security for
the loan.

G.R. No. 145871 January 31, 2006

LEONIDES C. DIO, petitioner,

vs.
LINA JARDINES, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

This resolves the petition for review on certiorari seeking to set aside the Decision1 of the
Court of Appeals (CA) dated June 9, 2000 dismissing the appeal in CA-G.R. CV No. 56118 and
the Resolution dated October 25, 2000 denying the motion for reconsideration.

The antecedent facts are as follows.

On December 14, 1992, Leonides C. Dio (petitioner) filed a Petition for Consolidation of
Ownership with the Regional Trial Court of Baguio City, Branch 7 (RTC). She alleged that: on
January 31, 1987, Lina Jardines (respondent) executed in her favor a Deed of Sale with Pacto
de Retro over a parcel of land with improvements thereon covered by Tax Declaration No.
44250, the consideration for which amounted to P165,000.00; it was stipulated in the deed
that the period for redemption would expire in six months or on July 29, 1987; such period
expired but neither respondent nor any of her legal representatives were able to redeem or
repurchase the subject property; as a consequence, absolute ownership over the property has
been consolidated in favor of petitioner.2

Respondent countered in her Answer that: the Deed of Sale with Pacto de Retro did not
embody the real intention of the parties; the transaction actually entered into by the parties
was one of simple loan and the Deed of Sale with Pacto de Retro was executed just as a
security for the loan; the amount borrowed by respondent during the first week of January
1987 was only P50,000.00 with monthly interest of 9% to be paid within a period of six
months, but since said amount was insufficient to buy construction materials for the house
she was then building, she again borrowed an additional amount of P30,000.00; it was never
the intention of respondent to sell her property to petitioner; the value of respondents
residential house alone is over a million pesos and if the value of the lot is added, it would be
around one and a half million pesos; it is unthinkable that respondent would sell her property
worth one and a half million pesos for only P165,000.00; respondent has even paid a total of
P55,000.00 out of the amount borrowed and she is willing to settle the unpaid amount, but
petitioner insisted on appropriating the property of respondent which she put up as collateral
for the loan; respondent has been the one paying for the realty taxes on the subject property;
and due to the malicious suit filed by petitioner, respondent suffered moral damages.

On September 14, 1993, petitioner filed an Amended Complaint adding allegations that she
suffered actual and moral damages. Thus, she prayed that she be declared the absolute owner
of the property and/or that respondent be ordered to pay her P165,000.00 plus the agreed
monthly interest of 10%; moral and exemplary damages, attorneys fees and expenses of
litigation.

Respondent then filed her Answer to the Amended Complaint reiterating the allegations in her
Answer but increasing the alleged valuation of the subject property to more than two million
pesos.

After trial, the RTC rendered its Decision dated November 20, 1996, the dispositive portion of
which reads as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:

a) Declaring the contract (Exh. A) entered into by the contending parties as one of deed of
sale with right to repurchase or pacto de retro sale;

b) Declaring the plaintiff Dio to have acquired whatever rights Jardines has over the parcel of
land involved it being that Jardines has no torrens title yet over said land;

c) Declaring the plaintiff Dio the owner of the residential house and other improvements
standing on the parcel of land in question;

d) Ordering the consolidation of ownership of Dio over the residential house and other
improvements, and over the rights, she (Dio) acquired over the parcel of land in question; and
ordering the corresponding government official (The City Assessor) of Baguio City to
undertake the consolidation by putting in the name of plaintiff Dio the ownership and/or
rights which she acquired from the defendant Jardines in the corresponding document (Tax
Declarations) on file in his/her office; after the plaintiff has complied with all the requirements
and has paid the fees necessary or incident to the issuance of a new tax declaration as
required by law;
e) Ordering the cancellation of Tax Declaration 44250;

f) Ordering defendant Jardines to pay actual and/or compensatory damages to the plaintiff as
follows:

1) P3,000.00 representing expenses in going to and from Jardines place to collect the
redemption money;

2) P1,000.00 times the number of times Dio came to Baguio to attend the hearing of the case
as evidenced by the signatures of Dio appearing on the minutes of the proceedings found in
the Rollo of the case;

3) P10,000.00 attorneys fee.

Costs against defendant Jardines.

SO ORDERED.3

Respondent then appealed to the CA which reversed the RTC judgment. The CA held that the
true nature of the contract between herein parties is one of equitable mortgage, as shown by
the fact that (a) respondent is still in actual physical possession of the property; (b)
respondent is the one paying the real property taxes on the property; and (c) the amount of
the supposed sale price, P165,000.00, earns monthly interest. The dispositive portion of the
CA Decision promulgated on June 9, 2000 reads:

WHEREFORE, foregoing premises considered, we find that the Regional Trial Court, First
Judicial Region, Branch 07, Baguio City, committed reversible errors in rendering its decision
dated 20 November 1996 in Civil Case No. 2669-R, entitled Leonides G. Dio, etc. vs. Lina
Jardines". The appeal at bar is herby GRANTED and the assailed decision is hereby REVERSED
and SET ASIDE. Let a new judgment be entered as follows:

1. Declaring that the true nature of the contract entered into by the contending parties as one
of equitable mortgage and not a pacto de retro sale;

2. Ordering the defendant-appellant to pay plaintiff-appellee legal interest on the amount of

P165,000.00 from July 29, 1987, the time the said interest fell due, until fully paid;

3. No pronouncement as to cost.

SO ORDERED.4

Petitioner moved for reconsideration of said decision, but the same was denied per Resolution
dated October 25, 2000.

Hence, herein petition for review on certiorari alleging that:

1. THE LOWER COURT COMMITTED AN ERROR IN DECLARING THAT THE TRUE NATURE OF
THE CONTRACT ENTERED INTO BY THE PARTIES AS ONE EQUITABLE MORTGAGE AND NOT A
PACTO DE RETRO SALE;
2. THE LOWER COURT COMMITTED AN ERROR IN ORDERING THE RESPONDENT TO PAY
PETITIONER LEGAL INTEREST DESPITE THE CONFLICTING ADMISSIONS OF THE PARTIES
THAT THE AGREED INTERESTS WAS EITHER 9% OR 10%;

3. THE FINDINGS OF FACTS OF THE LOWER COURT ARE CONTRARY TO EVIDENCE AND THE
ADMISSIONS OF THE PARTIES;

4. THE LOWER COURT COMMITTED AN ERROR IN GOING BEYOND THE ISSUES OF THE CASE
BY DELETING THE AWARD FOR DAMAGES DESPITE THE FACT THAT THE SAME WAS NOT
RAISED AS AN ISSUE IN THE APPEAL; 5

The petition lacks merit.

The Court finds the allegations of petitioner that the findings of fact of the CA are contrary to
evidence and admissions of the parties and that it erred in declaring the contract between the
parties as an equitable mortgage to be absolutely unfounded.

A close examination of the records of this case reveals that the findings of fact of the CA are
all based on documentary evidence and on admissions and stipulation of facts made by the
parties. The CAs finding that there was no gross inadequacy of the price of respondents
residential house as stated in the contract, was based on respondents own evidence, Tax
Declaration No. 44250, which stated that the actual market value of subject residential house
in 1986 was only P93,080.00. The fact that respondent has remained in actual physical
possession of the property in question, and that respondent has been the one paying the real
property taxes on the subject property was established by the admission made by petitioner
during the pre-trial conference and embodied in the Pre-Trial Order6 dated May 25, 1994. The
finding that the purchase price in the amount of P165,000.00 earns monthly interest was
based on petitioners own testimony and admission in her appellees brief that the amount of
P165,000.00, if not paid on July 29, 1987, shall bear an interest of 10% per month.

The Court sees no reversible error with the foregoing findings of fact made by the CA. The CA
correctly ruled that the true nature of the contract entered into by herein parties was one of
equitable mortgage.

Article 1602 of the Civil Code enumerates the instances when a purported pacto de retro sale
may be considered an equitable mortgage, to wit:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending
the period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee
as rent or otherwise shall be considered as interest which shall be subject to the usury laws.
(Emphasis supplied)

In Legaspi vs. Ong,7 the Court further explained that:

The presence of even one of the above-mentioned circumstances as enumerated in Article

1602 is sufficient basis to declare a contract of sale with right to repurchase as one of
equitable mortgage. As stated by the Code Commission which drafted the new Civil Code, in
practically all of the so-called contracts of sale with right of repurchase, the real intention of
the parties is that the pretended purchase price is money loaned and in order to secure the
payment of the loan, a contract purporting to be a sale with pacto de retro is drawn up.8

In the same case, the Court cited Article 1603 of the Civil Code, which provides that in case of
doubt, a contract purporting to be a sale with right to repurchase shall be construed as an
equitable mortgage.9

In the instant case, the presence of the circumstances provided for under paragraphs (2) and
(5) of Article 1602 of the Civil Code, and the fact that petitioner herself demands payment of
interests on the purported purchase price of the subject property, clearly show that the
intention of the parties was merely for the property to stand as security for a loan. The
transaction between herein parties was then correctly construed by the CA as an equitable
mortgage.

The allegation that the appellate court should not have deleted the award for actual and/or
compensatory damages is likewise unmeritorious.

Section 8, Rule 51 of the Rules of Court provides as follows:

Sec. 8. Questions that may be decided. No error which does not affect the jurisdiction over
the subject matter or the validity of the judgment appealed from or the proceedings therein
will be considered unless stated in the assignment of errors, or closely related to or
dependent on an assigned error and properly argued in the brief, save as the court may pass
upon plain errors and clerical errors.

Clearly, the appellate court may pass upon plain errors even if they are not stated in the
assignment of errors. In Villegas vs. Court of Appeals,10 the Court held:

[T]he Court is clothed with ample authority to review matters, even if they are not assigned as
errors in the appeal, if it finds that their consideration is necessary in arriving at a just
decision of the case.11

In the present case, the RTCs award for actual damages is a plain error because a reading of
said trial courts Decision readily discloses that there is no sufficient evidence on record to
prove that petitioner is entitled to the same. Petitioners only evidence to prove her claim for
actual damages is her testimony that she has spent P3,000.00 in going to and from
respondents place to try to collect payment and that she spent P1,000.00 every time she
travels from Bulacan, where she resides, to Baguio in order to attend the hearings.

In People vs. Sara,12 the Court held that a witness testimony cannot be "considered as
competent proof and cannot replace the probative value of official receipts to justify the
award of actual damages, for jurisprudence instructs that the same must be duly
substantiated by receipts."13 Hence, there being no official receipts whatsoever to support
petitioners claim for actual or compensatory damages, said claim must be denied.

The appellate court was also correct in ordering respondent to pay "legal interest" on the
amount of P165,000.00.

Both parties admit that they came to an agreement whereby respondent shall pay petitioner
interest, at 9% (according to respondent) or 10% (according to petitioner) per month, if she is
unable to pay the principal amount of P165,000.00 on July 29, 1987.

In the Pre-Trial Order14 dated May 25, 1994, one of the issues for resolution of the trial court
was "whether or not the interest to be paid under the agreement is 10% or 9% or whether or
not this amount of interest shall be reduced equitably pursuant to law."15

The factual milieu of Carpo vs. Chua16 is closely analogous to the present case. In the Carpo
case, petitioners therein contracted a loan in the amount of P175,000.00 from respondents
therein, payable within six months with an interest rate of 6% per month. The loan was not
paid upon demand. Therein petitioners claimed that following the Courts ruling in Medel vs.
Court of Appeals,17 the rate of interest of 6% per month or 72% per annum as stipulated in
the principal loan agreement is null and void for being excessive, iniquitous, unconscionable
and exorbitant. The Court then held thus:

In a long line of cases, this Court has invalidated similar stipulations on interest rates for
being excessive, iniquitous, unconscionable and exorbitant. In Solangon v. Salazar, we
annulled the stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan. In
Imperial v. Jaucian, we reduced the interest rate from 16% to 1.167% per month or 14% per
annum. In Ruiz v. Court of Appeals, we equitably reduced the agreed 3% per month or 36% per
annum interest to 1% per month or 12% per annum interest. The 10% and 8% interest rates
per month on a P1,000,000.00 loan were reduced to 12% per annum in Cuaton v. Salud.
Recently, this Court, in Arrofo v. Quino, reduced the 7% interest per month on a P15,000.00
loan amounting to 84% interest per annum to 18% per annum.

There is no need to unsettle the principle affirmed in Medel and like cases. From that
perspective, it is apparent that the stipulated interest in the subject loan is excessive,
iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle
embodied in Article 1306 of the Civil Code, contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public policy. In the ordinary
course, the codal provision may be invoked to annul the excessive stipulated interest.

In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the
standards set in the above-cited cases, this stipulation is similarly invalid. x x x.18

Applying the afore-cited rulings to the instant case, the inescapable conclusion is that the
agreed interest rate of 9% per month or 108% per annum, as claimed by respondent; or 10%
per month or 120% per annum, as claimed by petitioner, is clearly excessive, iniquitous,
unconscionable and exorbitant. Although respondent admitted that she agreed to the interest
rate of 9%, which she believed was exorbitant, she explained that she was constrained to do
so as she was badly in need of money at that time. As declared in the Medel case19 and
Imperial vs. Jaucian,20 "[i]niquitous and unconscionable stipulations on interest rates,
penalties and attorneys fees are contrary to morals." Thus, in the present case, the rate of
interest being charged on the principal loan of P165,000.00, be it 9% or 10% per month, is
void. The CA correctly reduced the exhorbitant rate to "legal interest."

In Trade & Investment Development Corporation of the Philippines vs. Roblett Industrial
Construction Corporation,21 the Court held that:

In Eastern Shipping Lines, Inc. v. Court of Appeals, this Court laid down the following rules
with respect to the manner of computing legal interest:

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. 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. 22 (Underscoring supplied)

Applied to the present case, since the agreed interest rate is void, the parties are considered
to have no stipulation regarding the interest rate. Thus, the rate of interest should be 12% per
annum to be computed from judicial or extrajudicial demand, subject to the provisions of
Article 1169 of the Civil Code, to wit:

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

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was
a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.

xxxx
The records do not show any of the circumstances enumerated above. Consequently, the 12%
interest should be reckoned from the date of extrajudicial demand.

Petitioner testified that she went to respondents place several times to try to collect
payment, but she (petitioner) failed to specify the dates on which she made such oral demand.
The only evidence which clearly shows the date when petitioner made a demand on
respondent is the demand letter dated March 19, 1989 (Exh. "C"), which was received by
respondent or her agent on March 29, 1989 per the Registry Return Receipt (Exh. "C-1").
Hence, the interest of 12% per annum should only begin to run from March 29, 1989, the date
respondent received the demand letter from petitioner.

WHEREFORE, the petition is hereby DENIED. The Decision of the Court of Appeals dated June
9, 2000 is AFFIRMED with the MODIFICATION that the legal interest rate to be paid by
respondent on the principal amount of P165,000.00 is twelve (12%) percent per annum from
March 29, 1989 until fully paid.

VICTOR ONGSON, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

DECISION

YNARES-SANTIAGO, J.:

The instant petition for review seeks to annul and set aside the June 27, 2002 decision[1] of
the Court of Appeals in CA-G.R. CR No. 18662 which affirmed with modification the March 8,
1995 decision[2] of the Regional Trial Court of Quezon City, Branch 97, in Criminal Case Nos.
Q-93-43435 to Q-43442, finding petitioner Victor Ongson guilty beyond reasonable doubt of
eight (8) counts of violation of Batas Pambansa Blg. 22 (B.P. 22).

The evidence for the prosecution shows that on separate occasions, private complainant
Samson Uy extended loans to petitioner and as payment therefor, he issued to Uy eight (8)
post dated checks. Upon presentment, the checks were dishonored and despite demands,
petitioner failed to make good the bounced checks. On April 15, 1993, eight (8) separate
Informations were filed against petitioner and docketed as follows:

Criminal Case No.

Check No.

Date

Amount

Drawee Bank
Reason for the dishonor

Q-93-43435[3]

119789[4]

Nov. 23, 1992

P200,000.00

PSB

Payment Stopped/Drawn Against Insufficient Funds (DAIF)

Q-93-43436[5]

492837[6]

Nov. 4, 1992

24,000.00

FBTC

Account Closed

Q-93-43437[7]

492615[8]

Oct. 15, 1992

3,117.00

FBTC
DAIF

Q-93-43438[9]

492319[10]

Oct. 15, 1992

11,887.10

FBTC

DAIF

Q-93-43439[11]

492482[12]

Oct. 15, 1992

50,000.00

FBTC

DAIF

Q-93-43440[13]

492581[14]

Oct. 4, 1992

25,500.00

FBTC
DAIF

Q-93-43441[15]

492666[16]

Oct. 2, 1992

200,000.00

FBTC

DAIF

Q-93-43442[17]

492580[18]

Sept. 28, 1992

68,145.62

FBTC

DAIF

Except as to the check's drawee bank, number, amount and date of issue, the Informations
were similarly worded in this wise:

That on or about the 23rd day of November, 1992, in Quezon City, Philippines, the said accused
did then and there willfully, unlawfully and feloniously make or draw and issue to SAMSON UY
to apply on account or for value Philippine Savings Bank Check No. 119789 dated November
23, 1992 payable to Cash in the amount of P200,000.00, Philippine Currency, said accused well
knowing that at the time of issue she/he/they did not have sufficient funds in or credit with the
drawee bank for payment of such check in full upon its presentment, which check when
presented for payment was subsequently dishonored by the drawee bank for insufficiency of
funds/Account Closed and despite receipt of notice of such dishonor, said accused failed to
pay said Samson Uy the amount of said check or to make arrangement for full payment of the
same within five (5) banking days after receiving said notice.

CONTRARY TO LAW.[19]

Upon arraignment, petitioner entered a plea of not guilty.

At the pre-trial, petitioner admitted the authenticity of his signatures on the checks, the
stamps of dishonored deposit, the dates thereof and reasons for dishonor.[20]

After the prosecution rested its case, the defense presented Rowena Carbon but since she
failed to appear for continuation of the cross-examination,[21] the trial court ordered her
testimony stricken off the record.[22] The defense also presented Evelyn Villareal who
testified that Liana's Supermarket, where Uy was sole distributor of petitioner's beverage
products, issued check vouchers to Uy.[23]

On March 8, 1995, the trial court rendered a one-page decision finding petitioner guilty as
charged, the full text of which reads:

The consolidated Informations, above-numbered, for violation of Batas Pambansa Blg. 22, for
eight (8) counts are on record.

Upon arraignment accused pleaded Not Guilty and at the pre-trial, he agreed to and signed the
Pre-trial order on Page 108, dated July 14th, 1993, wherein accused admitted the authenticity
of the signatures on the checks in question, Exh "B", Exh "C", "D", "E", "F", "G", "H", "I" and
submarkings thereon, showing the fact of dishonor, the reason therefor and the dates thereof,
reserving only for trial on the merits the issue of the correctness of the amounts and the
consideration.

The private complainant testified as to the consideration, which is also presumed under the
law, unless rebutted by accused, which he failed to do, convincing the court beyond
reasonable doubt of his guilt as charged herein.

WHEREFORE, accused Victor Ongson is hereby declared GUILTY of Violations of Batas

Pambansa Blg. 22 on eight (8) counts and sentenced to serve 6 months imprisonment for each
of the eight (8) counts and to pay a fine equivalent to the amount of the said checks
mentioned in the above-numbered informations or a total of P582,149.72, and to indemnify, as
actual and compensatory damages, the private complainant Samson Uy in the same amount of
the said checks, or P582,149.72 plus interest at 12% from the date of this decision.

SO ORDERED.[24]

Petitioner appealed to the Court of Appeals contending he was denied due process and that
the trial court's decision violated the Constitution and the Rules of Court. In the assailed
decision of June 27, 2002, the Court of Appeals found no infirmity in the trial court's decision
and affirmed the conviction of petitioner, but modified the penalty as follows:

WHEREFORE, with the MODIFICATIONS that the penalty of fine is hereby DELETED and
appellant sentenced to a prison term of thirty (30) days in each of the eight (8) counts
whereof he was found guilty by the lower court, the decision appealed from is hereby
AFFIRMED and this appeal DISMISSED.
No pronouncement as to costs.

SO ORDERED.[25]

Petitioner filed a motion for reconsideration but was denied. Hence, the instant petition. The
issues for resolution are:

1) Was the decision of the trial court violative of the requirements of the Constitution and the
Rules of Court?

2) Was the conviction of petitioner proper?

Section 14, Article VIII of the Constitution, as well as Section 1 of Rule 36 and Section 1, Rule
120 of the Rules on Civil Procedure, similarly state that a decision, judgment or final order
determining the merits of the case shall state, clearly and distinctly, the facts and the law on
which it is based. Pertinently, the Court issued on January 28, 1988 Administrative Circular
No. 1, which requires judges to make complete findings of facts in their decision, and
scrutinize closely the legal aspects of the case in the light of the evidence presented, and
avoid the tendency to generalize and to form conclusion without detailing the facts from
which such conclusions are deduced.

We emphasized in Velarde v. Social Justice Society,[26] citing Yao v. Court of Appeals,[27]

that:

"Faithful adherence to the requirements of Section 14, Article VIII of the Constitution is
indisputably a paramount component of due process and fair play. It is likewise demanded by
the due process clause of the Constitution. The parties to a litigation should be informed of
how it was decided, with an explanation of the factual and legal reasons that led to the
conclusions of the court. The court cannot simply say that judgment is rendered in favor of X
and against Y and just leave it at that without any justification whatsoever for its action. The
losing party is entitled to know why he lost, so he may appeal to the higher court, if permitted,
should he believe that the decision should be reversed. A decision that does not clearly and
distinctly state the facts and the law on which it is based leaves the parties in the dark as to
how it was reached and is precisely prejudicial to the losing party, who is unable to pinpoint
the possible errors of the court for review by a higher tribunal. More than that, the
requirement is an assurance to the parties that, in reaching judgment, the judge did so
through the processes of legal reasoning. It is, thus, a safeguard against the impetuosity of
the judge, preventing him from deciding ipse dixit. Vouchsafed neither the sword nor the purse
by the Constitution but nonetheless vested with the sovereign prerogative of passing
judgment on the life, liberty or property of his fellowmen, the judge must ultimately depend on
the power of reason for sustained public confidence in the justness of his decision."

In the present case, it is starkly obvious that the assailed Decision contains no statement of
facts - much less an assessment or analysis thereof - or of the court's findings as to the
probable facts. The assailed Decision begins with a statement of the nature of the action and
the question or issue presented. Then follows a brief explanation of the constitutional
provisions involved, and what the Petition sought to achieve. Thereafter, the ensuing
procedural incidents before the trial court are tracked. The Decision proceeds to a full-length
opinion on the nature and the extent of the separation of church and state. Without expressly
stating the final conclusion she has reached or specifying the relief granted or denied, the trial
judge ends her "Decision" with the clause "SO ORDERED."

What were the antecedents that necessitated the filing of the Petition? What exactly were the
distinct facts that gave rise to the question sought to be resolved by SJS? More important,
what were the factual findings and analysis on which the trial court based its legal findings
and conclusions? None were stated or implied. Indeed, the RTC's Decision cannot be upheld
for its failure to express clearly and distinctly the facts on which it was based. Thus, the trial
court clearly transgressed the constitutional directive.

The significance of factual findings lies in the value of the decision as a precedent. How can it
be so if one cannot apply the ruling to similar circumstances, simply because such
circumstances are unknown? Otherwise stated, how will the ruling be applied in the future, if
there is no point of factual comparison?

Based on the foregoing considerations, we find that the trial court's decision in the case at
bar did not state the material facts, i.e., the transaction that led to the issuance of the checks,
their respective amounts, the date and reason for dishonor. The decision likewise failed to
discuss the elements of B.P. 22 and other pertinent facts. Clearly, the absence of relevant
antecedents as well as the lack of evaluation of the evidence adduced by the parties and
justification for its conclusion render the instant decision void.

The Court would ordinarily remand this case to the court a quo for compliance with the
constitutional requirements. However, we deem it proper to resolve the case on the merits to
avoid further delay.[28]

Section 1 of B.P. 22, states:

SECTION 1. Checks without sufficient funds. - Any person who makes or draws and issues any
check to apply on account or for value, knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon
its presentment, which check is subsequently dishonored by the drawee bank for insufficiency
of funds or credit or would have been dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop payment, shall be punished by
imprisonment of not less than thirty days but not more than one (1) year or by a fine of not
less than but not more than double the amount of the check which fine shall in no case
exceed Two hundred thousand pesos, or both such fine and imprisonment at the discretion of
the court.

The same penalty shall be imposed upon any person who having sufficient funds in or credit
with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient
funds or to maintain a credit to cover the full amount of the check if presented within a period
of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the
drawee bank.

Where the check is drawn by a corporation, company or entity, the person or persons who
actually signed the check in behalf of such drawer shall be liable under this Act.

The elements of violation of B.P. 22 are: (1) making, drawing, and issuance of any check to
apply on account or for value; (2) 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
the check in full upon its presentment; and (3) 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.[29]

The first element, i.e., making, drawing, and issuance of any check, requires that the check be
properly described in the Information to inform the accused of the nature and cause of the
accusation against him. Without a sufficient identification of the dishonored check in the
Information, the conviction of the accused should be set aside for being violative of the
constitutional requirement of due process.[30]

In the instant case, petitioner should be acquitted in Criminal Case Nos. Q-93-43437 and Q-93-
43442, because the date of the check and the amount thereof as stated in the Informations
vary with the exhibits submitted by the prosecution, which inconsistencies violate petitioner's
constitutional right to be informed of the nature of the offense charged.

The Information[31] in Criminal Case No. Q-93-43437, described Check No. 492615 as dated
October 15, 1992, for P3,117.00. The records, however, show that said check differ from
Exhibit "I," because the date and amount stated therein are October 17, 1992 and 3,117.50,
respectively. Likewise in Criminal Case No. Q-93-43442, the date of Check No. 492580 as
reflected in the Information[32] is September 28, 1992, while Exhibit "D" shows October 2,
1992.

As held in Dico v. Court of Appeals,[33] citing Alonto v. People,[34] these inconsistencies

justify the acquittal of the accused. Thus -

In the information filed by Felipe C. Belcina, Prosecutor II, the check involved is described as
Far East Bank and Trust Company (FEBTC) Check No. 364903 dated 12 May 1993 in the
amount of P100,000 payable to Equitable Banking Corporation. However, after going over the
records of the case, the parties, including the courts, overlooked the fact that the check being
identified in court was different from that described in the information. The prosecution
marked as its Exhibit "B" FEBTC Check No. 369403 dated 12 May 1993 in the amount of
P100,000 payable to Equitable Banking Corporation. The issue as to the identity of the check,
though not raised as an error, should be considered in favor of the petitioner.

The variance in the identity of the check nullifies petitioner's conviction. The identity of the
check enters into the first element of the offense under Section 1 of B.P. Blg. 22 - that a
person draws or issues a check on account or for value. There being a discrepancy in the
identity of the checks described in the information and that presented in court, petitioner's
constitutional right to be informed of the nature of the offense charged will be violated if his
conviction is upheld.

In the case of Alonto v. People, this Court had this to say when there was a variance involving
the date as regards the check described in the information and that adduced in evidence:

This Court notes, however, that under the third count, the information alleged that petitioner
issued a check dated 14 May 1992 whereas the documentary evidence presented and duly
marked as Exhibit "I" was BPI Check No. 831258 in the amount of P25,000 dated 05 April
1992. Prosecution witness Fernando Sardes confirmed petitioner's issuance of the three BPI
checks (Exhibits G, H, and I), but categorically stated that the third check (BPI Check No.
831258) was dated 14 May 1992, which was contrary to that testified to by private
complainant Violeta Tizon, i.e., BPI check No. 831258 dated 05 April 1992. In view of this
variance, the conviction of petitioner on the third count (Criminal Case No. Q-93-41751) cannot
be sustained. It is on this ground that petitioner's fourth assignment of error is tenable, in that
the prosecution's exhibit, i.e., Exhibit "I" (BPI Check No. 831258 dated 05 April 1992 in the
amount of P25,000) is excluded by the law and the rules on evidence. Since the identity of the
check enters into the first essential element of the offense under Section 1 of B.P. 22, that is,
that a person makes, draws or issues a check on account or for value, and the date thereof
involves its second element, namely, that at the time of issue the maker, drawer or issuer
knew that he or she did not have sufficient funds to cover the same, there is a violation of
petitioner's constitutional right to be informed of the nature of the offense charged in view of
the aforesaid variance, thereby rendering the conviction for the third count fatally defective.

With respect to Criminal Case Nos. Q-93-43435, Q-93-43436, Q-93-43438, Q-93-43439, Q-93-
43440 and Q-93-43441, the judgment of conviction should be affirmed.

There is no merit in petitioner's contention that the checks were issued without valuable
consideration. We have held that upon issuance of a check, in the absence of evidence to the
contrary, it is presumed that the same was issued for valuable consideration, which may
consist either in some right, interest, profit or benefit accruing to the party who makes the
contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or
service given, suffered or undertaken by the other side. It is an obligation to do, or not to do in
favor of the party who makes the contract, such as the maker or endorser.[35]

In the case at bar, the prosecution established beyond reasonable doubt that petitioner
received money in various amounts from private complainant. Whether the amounts were
loans or investment in the business of petitioner, the checks were issued for valuable
consideration. Either way, petitioner is under obligation to pay private complainant. Likewise,
the prosecution proved that some of the checks were payment for private complainant's
commission from selling the products of petitioner. Hence, the latter cannot successfully
claim that the issuance of the checks were not for a valuable consideration.

Interestingly, while petitioner denied existence of consideration, he at the same time admitted
that his obligation was P358,872.72 and not P582,149.72.[36] It appears from Rowena Carbon's
testimony that, as sole distributor of petitioner's product to Liana's Supermarket, private
complainant received from the latter 3 checks in the amounts of P41,748.00, P78,840.00 and
P105,209.00, but were not remitted to petitioner.[37] Hence, Carbon claimed that the total
unremitted amount of the checks should be deducted from the indebtedness of the latter.

These declarations of Carbon, however, will not warrant the acquittal of petitioner because
Carbon's testimony was stricken off the record by the trial court. Even if Carbon's testimony
was retained, the alleged receipt by private complainant of the P41,748.00 and P78,840.00
checks will not warrant the acquittal of petitioner because the same were without
documentary basis;[38] and while the amount of P105,209.00 was supported with a voucher
dated July 29, 1992,[39] petitioner failed to positively show that private complainant did not
remit said amount. Likewise, Carbon did not specify whether the check was drawn to cash or
to the order of Beverly Food Ventures Corporation. If it was drawn to cash, then it is
petitioner's burden to prove that the payment was intended for Beverly Food Ventures
Corporation and not for private complainant. If it was paid to the order of the corporation, then
the latter must at least establish that private complainant was able to encash and profit from
said check. Moreover, Evelyn Villareal never validated the alleged receipt by private
complainant of the P41,748.00, P78,840.00 and P105,209.00 checks. While she declared that
Liana's Supermarket issued checks to petitioner, the subject 3 checks were not specified in
her testimony.

Then too, the gravamen of the offense punished by B.P. 22 is the act of making and issuing a
worthless check, that is, a check that is dishonored upon its presentation for payment. The
mere act of issuing a worthless check is malum prohibitum. So also, it is not the nonpayment
of the obligation that is being punished, but the making of worthless checks.[40] What the law
punishes is such issuance of a bum check and not the purpose for which the check was issued
nor the terms or conditions relating to its issuance.[41] Thus, even if there had been payment
through compensation or some other means, there could still be prosecution for violation of
B.P. 22.[42]

As to the second element, we have held that knowledge involves a state of mind which is
difficult to establish, thus the statute itself creates a prima facie presumption that the drawer
had knowledge of the insufficiency of his funds in or credit with the bank at the time of the
issuance and on the check's presentment for payment if he fails to pay the amount of the
check within five (5) banking days from notice of dishonor.[43]

Sec. 2 of B.P. 22, provides:

SEC. 2. Evidence of knowledge of insufficient funds. - The making, drawing and issuance of a
check payment of which is refused by the drawee because of insufficient funds in or credit
with such bank, when presented within ninety (90) days from the date of the check, shall be
prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker
or drawer pays the holder thereof the amount due thereon, or makes arrangements for
payment in full by the drawee of such check within five (5) banking days after receiving notice
that such check has not been paid by the drawee.

For this presumption to arise, the prosecution must prove the following: (a) the check is
presented within ninety (90) days from the date of the check; (b) the drawer or maker of the
check receives notice that such check has not been paid by the drawee; and (c) the drawer or
maker of the check fails to pay the holder of the check the amount due thereon, or make
arrangements for payment in full within five (5) banking days after receiving notice that such
check has not been paid by the drawee. In other words, the presumption is brought into
existence only after it is proved that the issuer had received a notice of dishonor and that
within five days from receipt thereof, he failed to pay the amount of the check or to make
arrangements for its payment. The presumption or prima facie evidence as provided in this
section cannot arise, if such notice of nonpayment by the drawee bank is not sent to the
maker or drawer, or if there is no proof as to when such notice was received by the drawer,
since there would simply be no way of reckoning the crucial 5-day period.[44] Furthermore,
the notice of dishonor must be in writing; a verbal notice is not enough.[45]

In the instant case, petitioner through counsel, admitted receipt of private complainant's
demand letters sent via registered mail, informing him of the dishonor of the checks and the
reason therefor; and demanding that the value of the check be paid in cash. Pertinent portion
of the transcript of stenographic notes, reads:

ATTY. YABUT [private respondent's counsel]:

... Exh. "J" is the demand letter dated November 27, 1992 and the signature of the counsel
therein marked as Exh. "J-1" to prove that a demand letter was sent to the accused and to his
wife, Mrs. Grace Tiu Ongson, demanding therein that the said dishonored check be encashed
or be replaced and the Registry Receipt which is Exh. "J-2" and Registry Return Receipt which
is Exh. "J-3" is being offered to prove that the said demand letter was sent by registered mail
and the same was sent as per Exh. "J-2" and received [on December 7, 1992] by the accused
thru his representative which is Exh. "J-3"; and Exh. "K" is the same demand letter dated
November 27, 1992 and signed by the counsel which is marked as Exh. "K-1" addressed to the
accused and/or his wife, Mrs. Grace Tiu Ongson and demanding therein that the said check
which is stated in the said demand letter which bounced be replaced with cash; Exh. "K-2"
which is the Registry Receipt; and Exh. "K-3" which is the Registry Return Receipt is being
offered to prove that the demand letter was sent to the accused by registered mail and that
the same was received [on December 7, 1992] by his authorized representative; Exh. "L" is the
demand letter dated December 3, 1992 addressed to the accused demanding therein that the
said check contained in the demand letter be replaced with cash or be made good and the
signature therein of the lawyer which is Exh. "L-1" is being offered to prove that the demand
letter was sent by the lawyer and that the registry receipt marked as Exh. "L-2" and the
Registry Return Receipt, Exh. "L-3" is being offered to prove that it was sent by registered
mail and that the same was received by the accused [on December 7, 1992]; Exh. "M" which is
a demand letter dated December 15, 1992 sent to the accused demanding therein that the
check bounced and that the same should be replaced with cash or be made good accordingly,
and the signature of the lawyer which is Exh. "M-1" to prove that the said lawyer sent a
demand letter to the accused; and the Registry Receipt marked as Exh. "M-2" and the Registry
Return Receipt Exh. "M-3" to prove that the demand letter was sent to the accused and
received by his representative [on December 18, 1992]; we are therefore offering for the
admission of this Honorable Court the exhibits from Exh. "A" to Exh. "M" accordingly and the
testimony of the private complainant to this Honorable Court.

COURT:

Any comments?

ATTY. GIRONELLA [petitioner's counsel]:

With the kind permission of the Honorable Court.

COURT:

Proceed.

ATTY. GIRONELLA:

With respect to the various demand letters marked as Exhs. "H", "J", "K", "L" and "M", we
admit them insofar as we intend to prove that there was such a demand letter and demand
these letters were received by the accused (sic);[46]

In King v. People,[47] it was held that the accused's admission through counsel, made during
the trial, binds the client. Similarly, in Rigor v. People,[48] the Court ruled that the accused
cannot pretend that he did not receive the notice of dishonor of the check because the
transcript of records shows that the accused admitted knowledge of the dishonor of his check
through a demand letter received by him.

Section 4 of Rule 129, states:

SEC. 4. Judicial admissions. - An admission, verbal or written, made by a party in the course of
the proceedings in the same case, does not require proof. The admission may be contradicted
only by showing that it was made through palpable mistake or that no such admission was
made.

That only a representative of petitioner signed the registry return receipt in the case at bar is
of no consequence because of the unqualified admission by the latter that he received private
complainant's demand letter with notice of dishonor. Said admission binds him considering
that he never denied receipt of the notice of dishonor. Neither did he contradict said judicial
admission of receipt of the notice nor alleged a palpable mistake in making the same. Thus,
petitioner's receipt of the notice of dishonor without paying the value of the checks or making
arrangements for its payment within five (5) days from receipt of said notice, established the
prima facie presumption that he had knowledge of the insufficiency of his funds in or credit
with the bank at the time of the issuance of the checks. Failing to overcome this legal
presumption, the findings of the courts below must be sustained.

The third element of violation of B.P. 22, i.e., the dishonor of the check by the drawee bank, is
also attendant in the present case as shown by the reason for the dishonor as stamped in the
dorsal portion of the checks which are also prima facie presumptions of such dishonor and the
reasons therefor.[49] In Garcia v. Court of Appeals,[50] it was held that while it is true that the
presumption is merely prima facie, the accused must, nonetheless, present proof to the
contrary to overcome this presumption. Here, other than the bare allegations of petitioner, he
presented no well-grounded defense to prove that the subject checks were not dishonored by
the drawee banks.

Likewise, in Recuerdo v. People,[51] the court emphasized that it is not required much less
indispensable, for the prosecution to present the drawee bank's representative as a witness to
testify on the dishonor of the checks. The prosecution may present, as it did in this case, only
private complainant as a witness to prove all the elements of the offense charged. Said
witness is competent and qualified to testify that upon presentment for payment, the subject
checks were dishonored by the drawee bank.

Furthermore, the dishonor was bolstered by the pre-trial order duly signed by petitioner where
he admitted dishonor of the subject checks.[52] Incidentally, there is no merit in petitioner's
contention that the pre-trial was irregular because it was held in his absence and before
arraignment. Records show that the May 17, 1993 pre-trial held in the absence of petitioner
was annulled by the trial court.[53] Pre-trial was re-set and conducted on July 14, 1993, after
arraignment in the presence of petitioner,[54] who affixed his signature in the pre-trial order
with the assistance of counsel.

All told, the Court finds that all the elements of violation of B.P. 22 had been established
beyond reasonable doubt by the prosecution. Nevertheless, the penalty imposed by the Court
of Appeals should be modified.

Under Administrative Circular No. 12-2000, imprisonment need not be imposed on those found
guilty of violating B.P. Blg. 22. Administrative Circular No. 13-2001, issued on February 14,
2001, vests in the courts the discretion to determine, taking into consideration the peculiar
circumstances of each case, whether the imposition of fine (of not less than but not more
than double the amount of the check, but in no case exceeding P200,000.00), would best serve
the interest of justice, or whether forbearing to impose imprisonment would depreciate the
seriousness of the offense, work violence on the social order, or otherwise contrary to the
imperatives of justice.[55]

In Recuerdo v. People, and Young v. Court of Appeals,[56] it was held that where there is
neither proof nor allegation that the accused is not a first time offender, imposition of the
penalty of fine instead of imprisonment is proper. Likewise, in Lee v. Court of Appeals,[57] we
ruled that the policy laid down in Vaca v. Court of Appeals,[58] and Lim v. People,[59] of
redeeming valuable human material and preventing unnecessary deprivation of personal
liberty and economic usefulness, should be considered in favor of the accused who is not
shown to be a habitual delinquent or a recidivist. Said doctrines squarely apply in the instant
case there being no proof or allegation that petitioner is not a first time offender.

Finally, petitioner should be ordered to pay interest of 12% per annum pursuant to Cabrera v.
People,[60] that when an obligation is breached, and it consists in the payment of a sum of
money, the interest due should be that which may have been stipulated in writing. In the
absence of such stipulation, the rate shall be 12% per annum computed from judicial or
extrajudicial demand. In this case, there was no stipulated interest on petitioner's obligation
to pay the value of the dishonored checks. Demand for payment was made extrajudicially as
evidenced by petitioner's receipt of private complainant's demand letter with notice of
dishonor. The applicable interest rate is therefore 12% per annum from the date of receipt of
the demand letter on December 7, 1992 for Check Nos. 492666, 492482, 492581 and 492319;
December 10, 1992 for Check No. 119789; and December 18, 1992 for Check No. 492837 until
finality of this decision. From the finality of this decision, the total amount of the dishonored
checks inclusive of interest shall further earn 12% interest per annum until fully paid.

WHEREFORE, the petition is PARTIALLY GRANTED. The June 27, 2002 decision of the Court of
Appeals in CA-G.R. CR No. 18662 is AFFIRMED with MODIFICATIONS.

In Criminal Case Nos. Q-93-43437 and Q-93-43442, petitioner Victor Ongson is ACQUITTED of
violation of B.P. Blg. 22 on the ground that his guilt has not been proved beyond reasonable
doubt.

In Criminal Case Nos. Q-93-43435, Q-93-43436, Q-93-43438, Q-93-43439, Q-93-43440 and Q-93-
43441 petitioner is found guilty beyond reasonable doubt of violation of B.P. Blg. 22 and is
sentenced as follows:

(1) In Criminal Case No. Q-93-43435, petitioner is sentenced to pay a fine of P200,000.00 and
to indemnify private complainant Samson Uy in the amount of P200,000.00 with 12% interest
per annum from the date of receipt of the demand letter on December 10, 1992, until the
finality of this Decision;

(2) In Criminal Case No. Q-93-43436, petitioner is sentenced to pay a fine of P48,000.00 and to
indemnify private complainant Samson Uy in the amount of P24,000.00 with 12% interest per
annum from the date of receipt of the demand letter on December 18, 1992, until the finality of
this Decision;

(3) In Criminal Case No. Q-93-43438, petitioner is sentenced to pay a fine of P23,774.20 and to
indemnify private complainant Samson Uy in the amount of P11,887.10 with 12% interest per
annum from the date of receipt of the demand letter on December 7, 1992, until the finality of
this Decision;
(4) In Criminal Case No. Q-93-43439, petitioner is sentenced to pay a fine of P100,000.00 and
to indemnify private complainant Samson Uy in the amount of P50,000.00 with 12% interest
per annum from the date of receipt of the demand letter on December 7, 1992, until the finality
of this Decision;

(5) In Criminal Case No. Q-93-43440, petitioner is sentenced to pay a fine of P51,000.00 and to
indemnify private complainant Samson Uy in the amount of P25,500.00 with 12% interest per
annum from the date of receipt of the demand letter on December 7, 1992, until the finality of
this Decision; and

(6) In Criminal Case No. Q-93-43441, petitioner is sentenced to pay a fine of P200,000.00 and
to indemnify private complainant Samson Uy in the amount of P200,000.00 with 12% interest
per annum from the date of receipt of the demand letter on December 7, 1992, until the finality
of this Decision.
The total amount of the dishonored checks inclusive of interest shall further earn 12%
interest per annum from the finality of the decision until fully paid.
No pronouncement as to costs

CITIBANK N.A V. CABAMONGAN

488 SCRA 517

FACTS:
Spouses Cabamongan opened a joint and/or foreign currency time deposit in favor of their two
children with Citibank. On a material date, a person who claimed to be Carmelita sought
the pretermination of the account. She presented identification cards to ascertain her
identity to the then account officer. When she left with the money, she left an
identification card. The account officer then called up the address. The spouses and
their family knew of the incident. They were presently residing in the US and there was a
prior incident wherein they got robbed in their house with the jewelry box and cards stolen.
Spouses made several demands for the return of the amount but Citibank refused to do so.

HELD:
Citibank was negligent. First, the depositor didnt present the Certificate of Deposit.
Second, from the internal memorandum issued by the Account Officer, he admitted to the fact
that the specimen signature was different from the one who misrepresented herself as
Carmelita. Third, the bank kept in its records pictures of its depositors. It is
inconceivable how the bank was duped by an impostor.

ITIBANK vs SPOUSES CABAMONGAN G.R. No. 146918, May 2, 2006

March 16, 2014 Leave a comment

A bank is bound to know the signatures of its customers; and if it pays a forged check, it must
be considered as making the payment out of its own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged.[45]Such principle
equally applies here. The time deposit subject matter of herein petition is a simple loan.The
provisions of the New Civil Code on simple loan govern the contract between a bank and its
depositor. Specifically, Article 1980 thereof categorically provides that . . . savings . . .
deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan. Thus, the relationship between a bank and its depositor is that of a
debtor-creditor, the depositor being the creditor as it lends the bank money, and the bank is
the debtor which agrees to pay the depositor on demand.

Facts: Souses Cabamongan opened a joint and/or foreign currency time deposit in favor of
their two children with Citibank. On When she left with the money, she left an
identification card. The account officer then called up the address. The spouses and
their family knew of the incident. They were presently residing in the US and there was a
prior incident wherein they got robbed in their house, with jewelry box, a the bank certificate
and cards stolen. Subsequently, a person who claimed to be Carmelita sought the pre-
termination of the account. She presented identification cards to ascertain her identity
to the then account officer. The the person withdrew all the proceeds from the dollar
account.

Spouses made several demands for the return of the amount but Citibank refused to do so.
Subsequently, Citibank, thru a new counsel, contended that assuming that it was negligent,
the Cabamongan spouses were guilty of contributory negligence since they failed to notify
Citibank that they had migrated to the United States and were residents thereat and after
having been victims of a burglary, they should have immediately assessed their loss and
informed Citibank of the disappearance of the bank certificate, their passports and other
identification cards, then the fraud would not have been perpetuated and the losses avoided.It
further argues that since the Cabamongan spouses are guilty of contributory negligence, the
doctrine of last clear chance is inapplicable.

Issue: Whether or not City Bank is negligent in letting the person withdraw all the funds from
the dollar account.

Held: Citibank was negligent. First, the depositor didnt present the Certificate of Deposit.
Second, from the internal memorandum issued by the Account Officer, he admitted to the fact
that the specimen signature was different from the one who misrepresented herself as
Carmelita. Third, the bank kept in its records pictures of its depositors. It is
inconceivable how the bank was duped by an impostor. As to the second ground, Citibank
argues that the Cabamongan spouses are not entitled to moral damages since moral damages
can be awarded only in cases of breach of contract where the bank has acted willfully,
fraudulently or in bad faith. It submits that it has not been shown in this case that Citibank
acted willfully, fraudulently or in bad faith and mere negligence, even if the Cabamongan
spouses suffered mental anguish or serious anxiety on account thereof, is not a ground for
awarding moral damages.

In this case, it has been sufficiently shown that the signatures of Carmelita in the forms
forpretermination of deposits are forgeries.Citibank, with its signature verification procedure,
failed to detect the forgery.Its negligence consisted in the omission of that degree of
diligence required of banks. The Court has held that a bank is bound to know the signatures
of its customers; and if it pays a forged check, it must be considered as making the payment
out of its own funds, and cannot ordinarily charge the amount so paid to the account of the
depositor whose name was forged. Such principle equally applies here. The time deposit
subject matter of herein petition is a simple loan.The provisions of the New Civil Code on
simple loan govern the contract between a bank and its depositor. Specifically, Article 1980
thereof categorically provides that . . . savings . . . deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan. Thus, the relationship
between a bank and its depositor is that of a debtor-creditor, the depositor being the creditor
as it lends the bank money, and the bank is the debtor which agrees to pay the depositor on
demand. As to moral damages, in culpa contractual or breach of contract, as in the case
before the Court, moral damages are recoverable only if the defendant has acted fraudulently
or in bad faith, or is found guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligations. The act of Citibanks employee in allowing the
pretermination of Cabamonganspouses account despite the noted discrepancies in
Carmelitas signature and photograph, the absence of the original certificate of time deposit
and the lack of notarized waiver dormant, constitutes gross negligence amounting to bad faith
under Article 2220 of the Civil Code.

JL INVESTMENT AND G.R. No. 148596

DEVELOPMENT, INC.,

Petitioner,

Present:

QUISUMBING, J.,

Chairperson,

- versus - CARPIO,

CARPIO MORALES,

TINGA, and

VELASCO, JR., JJ.

TENDON PHILIPPINES, INC.,

J. STA. MARIA CONSTRUCTION

CORPORATION, and JAIME T. Promulgated:

STA. MARIA, JR.,

Respondents. January 22, 2007

x --------------------------------------------------------------------------------------- x
DECISION

CARPIO, J.:

The Case

This is a petition for review[1] of the Decision[2] dated 3 May 2001 and the Resolution dated
19 June 2001 of the Court of Appeals holding petitioner JL Investment and Development, Inc.
(petitioner) jointly and severally liable with respondents J. Sta. Maria Construction
Corporation (SMCC) and Jaime T. Sta. Maria, Jr. (Sta. Maria) in a collection suit filed by
respondent Tendon Philippines, Inc. (TPI).

The Facts

Petitioner hired respondent SMCC to undertake the structural and architectural work for the
first 12 floors of a 16-floor building (JLID Building) in Kalaw corner Cortada Streets, Ermita,
Manila. Under the Construction Agreement (Agreement) between petitioner and SMCC,
petitioner agreed to pay SMCC P63,333,085.84 for the project. The Agreement also required
SMCC to submit monthly progress billings to petitioner.[3]

To supply the concrete piles needed for the structural work, SMCC subcontracted respondent
TPI, a local manufacturer of pre-cast concrete products. Accordingly, TPI delivered 142 pieces
of concrete piles to SMCC worth P4,118,000 payable on installment basis.

By early August 1996, SMCC, using the concrete piles that TPI supplied, finished the pile
driving work for the first 12 floors of the JLID Building.

On 13 September 1996, petitioner paid SMCC for the pile driving work as indicated in SMCCs
seventh progress billing dated 30 August 1996.
Claiming that SMCC did not fully pay for the concrete piles, TPI sought payment of the balance
from petitioner. Petitioner ignored TPIs demand. Thus, TPI sued SMCC, SMCCs President,
respondent Sta. Maria, and petitioner (respondents) in the Regional Trial Court of Pasig City,
Branch 167 (trial court), to collect the unpaid balance of P1,389,330. TPI prayed that the trial
court hold respondents solidarily liable for the balance with interest, attorneys fees, and the
costs of suit.

In its Answer, petitioner denied any liability, alleging that under the Agreement, SMCC is solely
liable for any obligation due to its suppliers. Nevertheless, petitioner filed a cross-claim
against SMCC, praying reimbursement for any amount it may be held liable to TPI. Petitioner
also prayed for the payment of attorneys fees and litigation expenses.

In their Answer, SMCC and Sta. Maria also raised the defense of full payment. Alternatively,
SMCC and Sta. Maria contended that the pile drives TPI delivered did not conform to the
agreed specifications. SMCC and Sta. Maria counterclaimed for damages.

Before trial commenced, TPI submitted interrogatories to petitioner. In its response, petitioner
claimed, for the first time, that it had made advance payments to SMCC, resulting in an
alleged overpayment.

During the pre-trial, SMCC and Sta. Maria failed to appear, thus the trial court declared them in
default.

The Ruling of the Trial Court

In its Decision dated 17 May 1999, the trial court held SMCC and Sta. Maria solidarily liable to
TPI for P1,389,330 with 12% interest per annum,

computed from the filing of the complaint, and attorneys fees equivalent to 10% of the
principal obligation.[4] The trial court dismissed both TPIs complaint against petitioner and
petitioners cross-claim against SMCC for lack of basis.
In absolving petitioner from any liability, the trial court held that TPIs cause of action against
petitioner under Article 1729 of the Civil Code applies only to the amount petitioner owed
SMCC for the pile driving work. Since at the time TPI demanded payment from petitioner on 3
December 1996, petitioner had already fully paid SMCC for the pile driving work, the trial court
concluded that TPI ceased to have any cause of action against petitioner. The trial court held:

The liability of the defendant contractor J. Sta. Maria Construction, as well as Jaime T. Sta.
Maria Jr., is settled. By preponderance of evidence, plaintiff demonstrates [sic] ineluctably
that all the concrete piles ordered by the defendant J. Sta. Maria Construction were delivered
and used in the building under construction. The defendant J. Sta. Maria benefited from the
materials, as accordingly, it was paid by the defendant-owner of the building.

The claim of plaintiff Tendon [Philippines, Inc.] against the defendant [JL] Investment is
anchored on the provision of Art. 1729 of the Civil Code of the Philippines, which is quoted as
follows:

Those who put their labor upon or furnish materials for a piece of work undertaken by the
contractor have an action against the owner up to the amount owing from the latter to the
contractor at the time the claim is made. However, the following shall not prejudice the
laborers, employees and furnishers of materials:

1. Payments made by the owner to the contractor before they are due;

2. Renunciation by the contractor of any amount due from the owner.

This article is subject to the provision[s] of special laws. x x x

It is readily apparent from the provision invoked that the owner of the materials has a cause of
action against the owner of the building for materials furnished to the contractor only up to
the amount owing from the owner to the contractor at the time the claim is made.

Equating the provision of law to the evidence of the plaintiff, to prove the liability of the
defendant-owner of the building, it is undisputedly clear that at the time the claim or demand
was presented by plaintiff to the defendant JL Investment in December 1996, all the materials
supplied by it and used in the building by the defendant-contractor had all been paid by the
owner of the building JL Investment to the contractor, J. Sta. Maria Construction. In fact, it
does not appear that the owner of the building is indebted at all to the defendant-contractor. It
is qui[te] unfair, if not altogether in[i]quitous, for the defendant-owner of the building to pay
twice for the materials used in the building. In the absence of a clear showing that there is
still an amount due from the owner, JL Investment, to the defendant-contractors representing
the value of the materials used, the plaintiff, as owner of the materials[] used in the building
has no cause of action against the owner of the building JL Investment. The logical recourse
of the owner of the material x x x would be against the contractor, who in the first place
ordered and purchase [sic] the materials. Put otherwise, the privity or tie is between the
owner of the materials and the contractor. But, considering that plaintiff was compelled to
litigate and incurred expenses to protect its interest, an entitlement to a reasonable attorneys
fees is warranted.[5] (Emphasis in the original)

TPI appealed to the Court of Appeals, contending that the trial court erred in not holding
petitioner solidarily liable with SMCC and Sta. Maria.

SMCC and Sta. Maria also appealed. However, for SMCC and Sta. Marias failure to file their
appellants brief, the Court of Appeals considered their appeal abandoned and dismissed it in
the Resolution of 31 July 2000.

The Ruling of the Court of Appeals

In its Decision of 3 May 2001, the Court of Appeals granted TPIs appeal and modified the trial
courts ruling by holding petitioner solidarily liable with SMCC and Sta. Maria. The Court of
Appeals ruled that (1) Article 1729 does not limit the suppliers cause of action against the
owner to the value of the materials the supplier furnished, and (2) petitioner failed to prove its
claim that it had fully paid, if not overpaid, SMCC for the project. The Court of Appeals held:

Art. 1729 of the Civil Code indeed does not make any distinction whether such amount owing
from the owner to the contractor pertains to a specific item of payment or account,
particularly whether such amount owing to the contractor was intended for payment of the x x
x materials supplied. The clear intendment of the law is to provide protection to the x x x
furnisher of materials so that a restrictive interpretation of said provision as what the trial
court had done, would undermine such legislative policy and objective.
xxxx

Of course, where the owner of the building has fully paid the contractor, the formers liability
ceases. In this regard, defendant-appellees [JL Investment] evidence showed that although
the pile driving works was [sic] 100% accomplished or completed, the overall Project
accomplishment is [sic] not yet fully executed as of August 30, 1996, indicating 29.5%
accomplishment for the 7th Progress Billing. Defendant-appellee JL Investment &
Development Corporation also claims to have overpaid the contractor, defendant J. Sta. Maria
Construction Corporation when it extended financial assistance to it on the supply of cement,
deformed bars and formworks system and tower crane, for the period of two (2) months
November to December 1996 at the estimated total amount of P11,539,954.00 and by reason
of which, completion date of the Project was extended to January 6, 1997 as evidenced by the
Addendum to Construction Agreement. Such financial assistance, according to appellant
[TPI], constitutes advance payment to the contractor which under Art. 1729 shall not
prejudice the claim of furnisher of materials such as herein appellant [TPI]. Defendant-
appellee JL Investment & Development Corporation, on the other hand, contends that in view
of the overpayment to the defendant contractor, J. Sta. Maria Construction Corporation, there
is no longer any such amount owing and due to said contractor, and hence, appellant no longer
has any cause of action against the defendant-appellee [JL Investment], the owner of the
building. And yet, no evidence was presented by defendant-appellee [JL Investment] showing
that such advances or financial assistance in the amount stated in the Addendum to
Construction Agreement was actually paid by it. Exhibits 5, 5-A and 5-B reflected only the
payment for the 7th Progress Billing on September 13, 1996 in which the cost of pile driving
works was fully paid. No evidence of payment for the alleged financial assistance on which
the claim of overpayment by defendant-appellee [JL Investment] rests, was submitted by the
defendant-appellee [JL Investment]. Therefore, its defense that there is no longer any such
amount owing to the defendant contractor at the time the claim is made upon it by plaintiff-
appellant [TPI], must fail. The trial court thus erred in holding that only defendants-
contractors [SMCC and Sta. Maria] may be held liable in this action by plaintiff-appellant [TPI],
thereby absolving the owner of the building, defendant-appellee JL Investment & Development
Corporation from any liability for the unpaid materials furnished by the plaintiff-appellant.[6]

Petitioner sought reconsideration but the Court of Appeals denied its motion in the Resolution
of 19 June 2001.

Hence, this petition.

Petitioner insists that it had fully paid SMCC not only for the pile driving work but also for the
entire project, which SMCC allegedly abandoned in 1996 or 1997. Petitioner adds that it had in
fact overpaid SMCC because of advance payments SMCC received in November and December
1996. Petitioner also contests the Court of Appeals finding that it failed to prove its claim of
full or over payment to SMCC. Alternatively, petitioner prays that the Court grant its cross-
claim against SMCC so it can recover reimbursement for any amount it will pay TPI.

The Issues

The petition raises the following issues:

(1) Whether the Court of Appeals erred in holding petitioner solidarily liable with SMCC and
Sta. Maria to TPI for the unpaid balance under the contract between SMCC and TPI, and, if in
the negative,

(2) Whether SMCC is liable to reimburse petitioner under the latters cross-claim.

The Ruling of the Court

The petition is partly meritorious. Although petitioner is solidarily liable with SMCC and Sta.
Maria to TPI for the balance under TPIs contract with SMCC, petitioner has a right to
reimbursement under its cross-claim against SMCC.

On the Owners Liability to Suppliers under Article 1729

Article 1729 of the Civil Code provides:

Those who put their labor upon or furnish materials for a piece of work undertaken by the
contractor have an action against the owner up to the amount owing from the latter to the
contractor at the time the claim is made. However, the following shall not prejudice the
laborers, employees and furnishers of materials:

1. Payments made by the owner to the contractor before they are due;

2. Renunciation by the contractor of any amount due from the owner.

This article is subject to the provisions of special laws. (Emphasis supplied)

This provision imposes a direct liability on an owner of a piece of work in favor of suppliers of
materials (and laborers) hired by the contractor up to the amount owing from the [owner] to
the contractor at the time the claim is made.[7] Thus, to this extent, the owners liability is
solidary with the contractor, if both are sued together. By creating a constructive vinculum
between suppliers of materials (and laborers), on the one hand, and the owner of a piece of
work, on the other hand, as an exception to the rule on privity of contracts, Article 1729
protects suppliers of materials (and laborers) from unscrupulous contractors and possible
connivance between owners and contractors.[8] As the Court of Appeals correctly ruled, the
suppliers cause of action under this provision, reckoned from the time of judicial or extra-
judicial demand, subsists so long as any amount remains owing from the owner to the
contractor. Only full payment of the agreed contract price serves as a defense against the
suppliers claim.[9]

Here, petitioner resists TPIs suit on the ground that it had fully paid, if not overpaid, SMCC at
the time TPI demanded payment on 3 December 1996. However, as the Court of Appeals
found, petitioner failed to substantiate its claim. What petitioner submits as proof of its
alleged full or over payment, namely, its answer to TPIs interrogatories and the testimony of
one of its witnesses, are no more than mere uncorroborated allegations. The only proof of
payment on record are the official receipt, voucher, and check for the seventh progress billing
dated 30 August 1996, nearly four months before TPI sought payment from petitioner on 3
December 1996. Allegation of payments, advance or otherwise, is no substitute for proof of
such fact. Thus, absent incontrovertible proof of payment such as receipts, checks, cash
disbursement vouchers, and the like, petitioners claim of full or over payment remains only
that. At any rate, Article 1729 clearly provides that payments made by the owner to the
contractor before they are due do not prejudice suppliers of materials.

Petitioner is Entitled to Reimbursement

from SMCC under its Cross-claim

Petitioners solidary liability with SMCC and Sta. Maria to TPI does not preclude petitioners
right to demand reimbursement for whatever amount it will pay TPI. This is only proper since
SMCC contracted TPI to supply the concrete piles. To hold otherwise is to sanction unjust
enrichment by the contractor at the expense of the owner. Although Article 1729 protects
suppliers, it is no license to oppress owners. Thus, we grant petitioners prayer for
reimbursement under its cross-claim against SMCC.[10]

On the 12% rate of interest the trial court applied on the principal obligation, this is proper
only when the obligation consists of loans or forbearance of money, in the absence of
stipulation to the contrary.[11] If, as here, the obligation is otherwise, the applicable rate is
6% per annum computed from the time of extra-judicial or judicial demand. Upon the finality of
this ruling, the entire amount due shall earn interest at 12% per annum until its satisfaction.
[12]

WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision dated 3 May 2001 and
the Resolution dated 19 June 2001 of the Court of Appeals with the following MODIFICATIONS:

(1) We ORDER petitioner JL Investment and Development, Inc. and respondents J. Sta. Maria
Construction Corporation and Jaime T. Sta. Maria, Jr. to pay solidarily respondent Tendon
Philippines, Inc. P1,389,330, with interest at 6% per annum computed from the time of the
filing of respondent Tendon Philippines, Inc.s complaint, and attorneys fees equivalent to 10%
of the principal obligation. Upon finality of this judgment, the entire obligation shall earn
interest at 12% per annum until its satisfaction, and
(2) We GRANT the cross-claim of petitioner JL Investment and Development, Inc. against
respondent J. Sta. Maria Construction Corporation. We ORDER respondent J. Sta. Maria
Construction Corporation to reimburse petitioner JL Investment and Development, Inc. any
amount the latter will pay respondent Tendon Philippines, Inc. under this judgment.

UCPB v. Beluso
Oblicon
by Dino de Leon on 17 February 2011
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Transcript of UCPB v. Beluso
UCPB v. Spouses Beluso The UCPB granted the spouses Beluso a Promissory Note Line under
a Credit Agreement. The spouses Beluso constituted other than their promissory notes, a real
estate mortgage over parcels of land as additional security for the obligation. UCPB
unilaterally applied interest rates on the different promissory notes ranging from 18% to 34%:
FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND ODETTE
BELUSO (BORROWER), jointly and severally promise to pay to UNITED COCONUT PLANTERS
BANK (LENDER) or order at UCPB Bldg., Makati Avenue, Makati City, Philippines, the sum of
______________ PESOS, (P_____), Philippine Currency, with interest thereon at the rate indicative
of DBD retail rate or as determined by the Branch Head. The spouses, however, failed to pay
their obligations with the bank. Due to this, the bank foreclosed the property which was under
mortgage. Spouses Beluso filed a petition for the annulment, accounting and damages against
UCPB. Issue:
Is UCPB authorized to unilaterally fix the interest rates?
Ruling:
No! A promissory note which grants the creditor the power to unilaterally fix the interest rate
means that the promissory note does not contain a clear statement in writing of the finance
charge. Such provision is illegal because it violates the provisions of the Civil Code on
mutuality of contracts Ratio:
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them.
We applied this provision in Philippine National Bank v. Court of Appeals, where we held: In
order that obligations arising from contracts may have the force of law between the parties,
there must be mutuality between the parties based on their essential equality. A contract
containing a condition which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21
SCRA 555). Hence, even assuming that the loan agreement between the PNB and the private
respondent gave the PNB a license (although in fact there was none) to increase the interest
rate at will during the term of the loan, that license would have been null and void for being
violative of the principle of mutuality essential in contracts. It would have invested the loan
agreement with the character of a contract of adhesion, where the parties do not bargain on
equal footing, the weaker party's (the debtor) participation being reduced to the alternative
"to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract
is a veritable trap for the weaker party whom the courts of justice must protect against abuse
and imposition. Moral:
Interest Agreements must always be mutually agreed upon by the parties!

BPI FAMILY SAVINGS BANK, INC., petitioner, vs. FIRST METRO INVESTMENT CORPORATION,
respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure, as amended, assailing the Decision[1] dated July 4, 1997 and
Resolution[2] dated January 28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986, First
Metro Investment Corporation vs. BPI Family Bank.

The facts as found by the trial court and affirmed by the Court of Appeals are as follows:

First Metro Investment Corporation (FMIC), respondent, is an investment house organized

under Philippine laws. Petitioner, Bank of Philippine Islands Family Savings Bank, Inc. is a
banking corporation also organized under Philippine laws.

On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, opened current
account no. 8401-07473-0 and deposited METROBANK check no. 898679 of P100 million with
BPI Family Bank* (BPI FB) San Francisco del Monte Branch (Quezon City). Ong made the
deposit upon request of his friend, Ador de Asis, a close acquaintance of Jaime Sebastian,
then Branch Manager of BPI FB San Francisco del Monte Branch. Sebastians aim was to
increase the deposit level in his Branch.

BPI FB, through Sebastian, guaranteed the payment of P14,667,687.01 representing 17% per
annum interest of P100 million deposited by FMIC. The latter, in turn, assured BPI FB that it
will maintain its deposit of P100 million for a period of one year on condition that the interest
of 17% per annum is paid in advance.

This agreement between the parties was reached through their communications in writing.

Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 upon clearance of the latters
check deposit.

However, on August 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma.
Theresa David, Senior Manager of FMIC, BPI FB transferred P80 million from FMICs current
account to the savings account of Tevesteco Arrastre Stevedoring, Inc. (Tevesteco).

FMIC denied having authorized the transfer of its funds to Tevesteco, claiming that the
signatures of Ong and David were falsified. Thereupon, to recover immediately its deposit,
FMIC, on September 12, 1989, issued BPI FB check no. 129077 for P86,057,646.72 payable to
itself and drawn on its deposit with BPI FB SFDM branch. But upon presentation for payment
on September 13, 1989, BPI FB dishonored the check as it was drawn against insufficient
funds (DAIF).
Consequently, FMIC filed with the Regional Trial Court, Branch 146, Makati City Civil Case No.
89-5280 against BPI FB. FMIC likewise caused the filing by the Office of the State Prosecutors
of an Information for estafa against Ong, de Asis, Sebastian and four others. However, the
Information was dismissed on the basis of a demurrer to evidence filed by the accused.

On October 1, 1993, the trial court rendered its Decision in Civil Case No. 89-5280, the
dispositive portion of which reads:

Premises considered, judgment is rendered in favor of plaintiff, ordering defendant to pay:

a. the amount of P80 million with interest at the legal rate from the time this complaint was
filed less P14,667,678.01;

b. the amount of P100,000.00 as reasonable attorneys fees; and

c. the cost.

SO ORDERED.

On appeal by both parties, the Court of Appeals rendered a Decision affirming the assailed
Decision with modification, thus:

WHEREFORE, considering all the foregoing, this Court hereby modifies the decision of the trial
court and adjudges BPI Family Bank liable to First Metro Investment Corporation for the
amount of P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully
restored. Further, this 17% interest shall itself earn interest at 12% from October 4, 1989 until
fully paid.

SO ORDERED.

BPI FB then filed a motion for reconsideration but was denied by the Court of Appeals.

In the instant petition, BPI FB ascribes to the Appellate Court the following assignments of
error:

A. IN VALIDATING A CLEARLY ILLEGAL AND VOID AGREEMENT BETWEEN FMIC AND AN

OVERSTEPPING BRANCH MANAGER OF BPI FB, THE COURT OF APPEALS DECIDED THE
APPEALED CASE IN A MANNER NOT IN ACCORDANCE WITH LAW OR THE APPLICAPLE
DECISIONS OF THE HONORABLE COURT.

B. THE COURT OF APPEALS TOTALLY IGNORED THE JUDICIAL ADMISSIONS MADE BY FMIC
WHEN IT CHARACTERIZED THE TRANSACTION BETWEEN FMIC AND BPI FB AS A TIME
DEPOSIT WHEN IN FACT IT WAS AN INTEREST-BEARING CURRENT ACCOUNT WHICH, UNDER
THE EXISTING BANK REGULATIONS, WAS AN ILLEGAL TRANSACTION.

C. THE COURT OF APPEALS COMMITTED AN EGREGIOUS ERROR IN RULING THAT BPI FB

CLOTHED ITS BRANCH MANAGER WITH APPARENT AUTHORITY TO ENTER INTO SUCH A
PATENTLY ILLEGAL ARRANGEMENT.
D. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT REFUSED TO
CONSIDER THE NEGLIGENT ACTS COMMITTED BY FMIC ITSELF WHICH LED TO THE
TRANSFER OF THE P80 MILLION FROM THE FMIC ACCOUNT TO THE TEVESTECO ACCOUNT.

E. THE COURT OF APPEALS DID NOT ADHERE TO SETTLED JURISPRUDENCE WHEN IT

ADJUDGED BPI FB LIABLE TO FMIC FOR AN AMOUNT WHICH WAS MORE THAN WHAT WAS
CONTEMPLATED OR PRAYED FOR IN FMICS COMPLAINT, MOTION FOR RECONSIDERATION OF
THE TRIAL COURTS DECISION AND APPEAL BRIEF.

F. IN SUPPORT OF ITS ALTERNATIVE PRAYER, PETITIONER SUBMITS THAT THE COURT OF

APPEALS COMMITTED REVERSIBLE ERROR IN NOT ORDERING THE CONSOLIDATION OF THE
INSTANT CASE WITH THE TEVESTECO CASE WHICH IS STILL PENDING BEFORE THE MAKATI
REGIONAL TRIAL COURT.

Petitioner BPI FB contends that the Court of Appeals erred in awarding the 17% per annum
interest corresponding to the amount deposited by respondent FMIC. Petitioner insists that
respondents deposit is not a special savings account similar to a time deposit, but actually a
demand deposit, withdrawable upon demand, proscribed from earning interest under Central
Bank Circular 777. Petitioner further contends that the transaction is not valid as its Branch
Manager, Jaime Sebastian, clearly overstepped his authority in entering into such an
agreement with respondents Executive Vice President.

We hold that the parties did not intend the deposit to be treated as a demand deposit but
rather as an interest-earning time deposit not withdrawable any time. This is quite obvious
from the communications between Jaime Sebastian, petitioners Branch Manager, and Antonio
Ong, respondents Executive Vice President. Both agreed that the deposit of P100 million was
non-withdrawable for one year upon payment in advance of the 17% per annum interest.
Respondents time deposit of P100 million was accepted by petitioner as shown by a deposit
slip prepared and signed by Ong himself who indicated therein the account number to which
the deposit is to be credited, the name of FMIC as depositor or account holder, the date of
deposit, and the amount of P100 million as deposit in check. Clearly, when respondent FMIC
invested its money with petitioner BPI FB, they intended the P100 million as a time deposit, to
earn 17% per annum interest and to remain intact until its maturity date one year thereafter.

Ordinarily, a time deposit is defined as one the payment of which cannot legally be required
within such a specified number of days.[3]

In contrast, demand deposits are all those liabilities of the Bangko Sentral and of other banks
which are denominated in Philippine currency and are subject to payment in legal tender upon
demand by the presentation of (depositors) checks.[4]

While it may be true that barely one month and seven days from the date of deposit,
respondent FMIC demanded the withdrawal of P86,057,646.72 through the issuance of a check
payable to itself, the same was made as a result of the fraudulent and unauthorized transfer
by petitioner BPI FB of its P80 million deposit to Tevestecos savings account. Certainly, such
was a normal reaction of respondent as a depositor to petitioners failure in its fiduciary duty
to treat its account with the highest degree of care.

Under this circumstance, the withdrawal of deposit by respondent FMIC before the one-year
maturity date did not change the nature of its time deposit to one of demand deposit.
On another tack, petitioners argument that Central Bank regulations prohibit demand deposit
from earning interest is bereft of merit.

Under Central Bank Circular No. 22, Series of 1994, demand deposits shall not be subject to
any interest rate ceiling. This, in effect, is an open authority to pay interest on demand
deposits, such interest not being subject to any rate ceiling.

Likewise, time deposits are not subject to interest rate ceiling. In fact, the rate ceiling was
abolished and even allowed to float depending on the market conditions. Sections 1244 and
1244.1 of the Manual of Regulations of the Central Bank of the Philippines provide:

Sec. 1244. Interest on time deposit. Time deposits shall not be subject to any interest rate
ceiling.

Sec. 1244.1. Time of payment. Interest on time deposit may be paid at maturity or upon
withdrawal or in advance. Provided, however, That interest paid in advance shall not exceed
the interest for one year.

Thus, even assuming that respondents account with petitioner is a demand deposit, still it
would earn interest.

Going back to the unauthorized transfer of respondents funds to Tevesteco, in its attempt to
evade any liability therefor, petitioner now impugns the validity of the subject agreement on
the ground that its Branch Manager, Jaime Sebastian, overstepped the limits of his authority
in accepting respondents deposit with 17% interest per annum. We have held that if a
corporation knowingly permits its officer, or any other agent, to perform acts within the scope
of an apparent authority, holding him out to the public as possessing power to do those acts,
the corporation will, as against any person who has dealt in good faith with the corporation
through such agent, be estopped from denying such authority.[5] We reiterated this doctrine in
Prudential Bank vs. Court of Appeals,[6] thus:

A bank holding out its officers and agent as worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to
innocent third persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though the agent is secretly
abusing his authority and attempting to perpetrate a fraud upon his principal or some other
person for his own ultimate benefit.

In Francisco vs. Government Service Insurance System,[7] we ruled:

Corporate transactions would speedily come to a standstill were every person dealing with a
corporation held duty-bound to disbelieve every act of its responsible officers, no matter how
regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist
Co., 38 Phil. 634, 654-655, that

In passing upon the liability of a corporation in cases of this kind it is always well to keep in
mind the situation as it presents itself to the third party with whom the contract is made.
Naturally he can have little or no information as to what occurs in corporate meetings; and he
must necessarily rely upon the external manifestations of corporate consent. The integrity of
commercial transactions can only be maintained by holding the corporation strictly to the
liability fixed upon it by its agents in accordance with law; and we would be sorry to announce
a doctrine which would permit the property of a man in the city of Paris to be whisked out of
his hands and carried into a remote quarter of the earth without recourse against the
corporation whose name and authority had been used in the manner disclosed in this case. As
already observed, it is familiar doctrine that if a corporation knowingly permits one of its
officers, or any other agent, to do acts within the scope of an apparent authority, and thus
holds him out to the public as possessing power to do those acts, the corporation will, as
against any one who has in good faith dealt with the corporation through such agent, be
estopped from denying his authority; and where it is said if the corporation permits, this
means the same as if the thing is permitted by the directing power of the corporation.

Petitioner maintains that respondent should have first inquired whether the deposit of P100
Million and the fixing of the interest rate were pursuant to its (petitioners) internal
procedures. Petitioners stance is a futile attempt to evade an obligation clearly established by
the intent of the parties. What transpires in the corporate board room is entirely an internal
matter. Hence, petitioner may not impute negligence on the part of respondents
representative in failing to find out the scope of authority of petitioners Branch Manager.
Indeed, the public has the right to rely on the trustworthiness of bank managers and their
acts. Obviously, confidence in the banking system, which necessarily includes reliance on
bank managers, is vital in the economic life of our society.

Significantly, the transaction was actually acknowledged and ratified by petitioner when it
paid respondent in advance the interest for one year. Thus, petitioner is estopped from
denying that it authorized its Branch Manager to enter into an agreement with respondents
Executive Vice President concerning the deposit with the corresponding 17% interest per
annum.

Anent the award of interest, petitioner contends that such award is not in order as it had not
been prayed for by respondent in its complaint nor was it an issue agreed upon by the parties
during the pre-trial of the case. Nonetheless, the rule is well settled that when the obligation
is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing, as in this
case. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded.[8] Besides, the matter of how much interest respondent is entitled to falls squarely
within the issues framed by the parties in their respective pleadings filed with the court a quo.
At any rate, courts may indeed grant the relief warranted by the allegations and proof even if
no such specific relief is prayed for if only to conclude a complete and thorough resolution of
the issues involved.[9]

Finally, petitioner faults the Court of Appeals in not ordering the consolidation of Civil Case
No. 89-4996 (filed by petitioner against Tevesteco) with Civil Case No. 89-5280 (the instant
case). According to petitioner, had there been consolidation of these two cases, it would have
been shown that the P80 Million transferred to Tevestecos account were proceeds of a loan
extended by respondent FMIC to Tevesteco. Suffice it to state that as found by both the trial
court and the Appellate Court, petitioners transfer of respondents P80M to Tevesteco was
unauthorized and tainted with fraud.

At this point, we must emphasize that this Court is not a trier of facts. Thus, we uphold the
finding of both lower courts that petitioner failed to exercise that degree of diligence required
by the nature of its obligations to its depositors. A bank is under obligation to treat the
accounts of its depositors with meticulous care, whether such account consists only of a few
hundred pesos or of million of pesos.[10] Here, petitioner cannot claim it exercised such a
degree of care required of it and must, therefore, bear the consequence.

WHEREFORE, the petition is DENIED. The assailed Decision dated July 4, 1997 and the
Resolution dated January 28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986 are hereby
AFFIRMED. Costs against petitioner.

SPOUSES JOVENAL TORING and CECILIA ESCALONA-TORING,

Petitioners,

- versus -

SPOUSES ROSALIE GANZON-OLAN and GILBERT OLAN, and ROWENA OLAN,

Respondents.

G.R. No. 168782

Present:

QUISUMBING, J., Chairperson,

CARPIO MORALES,

TINGA,

VELASCO, JR., and

BRION, JJ.

Promulgated:
October 10, 2008

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

QUISUMBING, J.:

This petition for review on certiorari assails the Decision[1] and Resolution,[2] dated March
28, 2005 and June 30, 2005, respectively, of the Court of Appeals in CA-G.R. CV No. 76831.
The Court of Appeals affirmed the Resolution[3] dated June 10, 2002 of the Regional Trial
Court, Branch 276, Muntinlupa City, in Civil Case No. 00-137 which had ordered petitioners to
pay respondents the sum of P20,000,000 representing the total amount of petitioners loan and
interest due.

The facts are as follows:

On September 4, 1998, petitioner Jovenal Toring obtained from respondents a loan amounting
to P6,000,000 at 3% interest per month. The loan was secured by a mortgage on a parcel of
land covered by Transfer Certificate of Title No. T-27418,[4] as evidenced by a Deed of Real
Estate Mortgage[5] dated September 8, 1998.

On September 23, 1998, the parties executed a Deed of Absolute Sale[6] conveying the
mortgaged property in favor of respondents. Subsequently, respondents gave petitioners an
exclusive option to repurchase the land for P10,000,000. This was embodied in a document
denominated as an Option to Buy[7] dated September 28, 1998. On this same document,
respondents acknowledged receipt of a total sum of P10,000,000 as consideration for the
purchase of the land.[8] The Option to Buy provided that if the option is exercised after
December 5, 1998, the purchase price shall increase at the rate of P300,000 or 3% of the
purchase price every month until September 5, 1999 and thereafter at the rate of P381,000 or
3.81% of the purchase price every month, with the fifth of every month as the cut-off date for
said increases.[9]

On July 28, 2000, petitioners filed a Complaint[10] docketed as Civil Case No. 00-137 for
reformation of instruments, abuse of rights and damages against respondents. Petitioners
prayed that the Deed of Absolute Sale dated September 23, 1998 and Option to Buy dated
September 28, 1998, be treated as an equitable mortgage instead of a sale.

At the pre-trial, the parties made the following stipulations: (1) the principal amount of
P10,000,000 has long become overdue; (2) no payment has been made; (3) the parties had
agreed on an equitable mortgage and not a sale.[11] The parties limited the issues on the
amount of interest due and the time of payment of the entire obligation. Thereafter, the court
ordered the parties to submit their respective position papers, but only respondents complied.
All other claims for damages were waived by the parties.[12]
On June 10, 2002, the trial court issued its Resolution, the pertinent portion of which reads:

...the document of mortgage specified the interest at 3.81% per month from the time it was
obtained, and which was now estimated to be P7,239,000.00. This sum should be added to the
total loan of TEN MILLION PESOS, . . .

xxxx

Therefore, judgment is rendered for defendants ROSALIE GANZON OLAN and GILBERT OLAN
[and] ROWENA GANZON since the loan is not denied, directing spouses [p]laintiffs JOVENAL
TORING and CECILIA ESCALONA TORING, to pay the sum of TWENTY MILLION PESOS within
one month from receipt of this decision.

xxxx

It [i]s SO ORDERED.[13] (Emphasis supplied.)

Petitioners appealed, contending that the trial court erred in awarding interest. Petitioners
stress that Article 1602[14] of the Civil Code governing equitable mortgages provides that any
money, fruits or other benefit to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws. Thus, there should have been
no award of interest.

On March 28, 2005, the Court of Appeals affirmed the trial courts ruling, as follows:

WHEREFORE, the June 10, 2002 Resolution of the Regional Trial Court, Branch 276,
Muntinlupa City, is hereby AFFIRMED.

SO ORDERED.[15]

Their motion for reconsideration having been denied, petitioners now come before us raising
the sole issue:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR

IN DENYING PETITIONERS APPEAL AND IN AFFIRMING THE DECISION OF [THE] TRIAL COURT
DATED JUNE 10, 2002.[16]

Simply put, the issue is: Did the Court of Appeals err in sustaining the trial courts ruling
upholding the 3% and 3.81% stipulated monthly interest?

Petitioners contend that they are not liable to pay interest as the stipulated monthly rates of
3% and 3.81%[17] are unconscionable. Petitioners further contend that the reformed
instrument, i.e., the Option to Buy dated September 28, 1998, did not mention any rate of
interest chargeable to the loan but rather, an escalation[18] of the purchase price.

On the other hand, respondents maintain that petitioners are liable to pay interest based on
the Deed of Absolute Sale and Option to Buy executed by the parties. Respondents assert that
the P300,000 and P381,000 differences per month as stated in the Option to Buy represents
the 3% or 3.81% interest to be charged on the loan. Respondents further assert that the 3% or
3.81% interest is not usurious since Central Bank Circular No. 905-82[19] removed the ceiling
on interest rates on secured and unsecured loans.
In resolving the issue in this controversy, we have agreed to focus our attention on the basic
provisions of statutes as well as the prior decisions of this Court bearing on rates of interest
on monetary obligations.

In a loan or forbearance of money, according to the Civil Code, the interest due should be that
stipulated in writing,[20] and in the absence thereof, the rate shall be 12% per annum.[21]

The first time that the parties in this case entered into a loan transaction was on September
4, 1998 when petitioners obtained the P6,000,000 loan from respondents. Based on the Deed
of Real Estate Mortgage dated September 8, 1998 embodying the promissory note dated
September 4, 1998, the parties agreed on an interest rate of 3% per month.

The second and third times that the parties transacted were on September 23 and 28, 1998
when they executed the Deed of Absolute Sale and the Option to Buy, respectively. These two
documents were the instruments reformed in Civil Case No. 00-137, where both parties agreed
that the transactions embodied therein were really that of an equitable mortgage. The
stipulation in a contract sharply escalating the repurchase price every month is for the
purpose of securing the return of money invested with substantial profit or interest.[22]
Undoubtedly, the P300,000 and P381,000 successive increases stated in the Option to Buy
represent the monthly interest which respondents sought to recover from petitioners.

While the parties are free to stipulate on the interest to be imposed on monetary obligations,
the Court will temper interest rates if they are unconscionable.[23] Even if the Usury Law has
been suspended by Central Bank Circular No. 905-82, and parties to a loan agreement have
been given wide latitude to agree on any interest rate, we have held that stipulated interest
rates are illegal if they are unconscionable.[24] Consequently, in our view, the Court of
Appeals erred in sustaining the trial courts decision upholding the stipulated interest of 3%
and 3.81%. Thus, we are unanimous now in our ruling to reduce the above stipulated interest
rates to 1% per month, in conformity with our ruling in Ruiz v. Court of Appeals.[25] For as well
stressed in that case:

Nothing in the said circular [CB Circular No. 905, s. 1982] grants lenders carte blanche
authority to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets.

Undeniably, in the present case, petitioners failed to pay the principal loan on its maturity and
upon demand by respondents, as well as the interest payments thereafter. Indeed, petitioners
cannot turn their backs on their obligation; they have to comply with what is incumbent upon
them. All other claims for damages having been waived by the parties, petitioners are bound
to pay respondents the principal loan of P10,000,000, plus what we have repeatedly held as
the appropriate rate of interest of 1% per month, from December 6, 1998[26] until fully paid.

WHEREFORE, the assailed Decision and Resolution dated March 28, 2005 and June 30, 2005,
respectively, of the Court of Appeals in CA-G.R. CV No. 76831 are MODIFIED to the effect that
the stipulated interest rate of 3% or 3.81% per month on the subject equitable mortgage is
hereby ordered REDUCED to 1% per month only. No pronouncement as to costs.

THIRD DIVISION
G.R. No. 194507, September 08, 2014

FEDERAL BUILDERS, INC., Petitioner, v. FOUNDATION SPECIALISTS, INC., Respondent.

G.R. NO. 194621

FOUNDATION SPECIALISTS, INC., Petitioner, v. FEDERAL BUILDERS, INC., Respondent.

DECISION

PERALTA, J.:

Before the Court are two consolidated cases, namely: (1) Petition for review on certiorari
under Rule 45 of the Rules of Court, docketed as G.R. No. 194507, filed by Federal Builders,
Inc., assailing the Decision1 and Resolution,2 dated July 15, 2010 and November 23, 2010,
respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 70849, which affirmed with
modification the Decision3 dated May 3, 2001 of the Regional Trial Court (RTC) in Civil Case
No. 92-075; and (2) Petition for review on certiorari under Rule 45 of the Rules of Court,
docketed as G.R. No. 194621, filed by Foundation Specialists, Inc., assailing the same
Decision4 and Resolution,5 dated July 15, 2010 and November 23, 2010, respectively, of the
CA in CA- G.R. CV No. 70849, which affirmed with modification the Decision6 dated May 3,
2001 of the RTC in Civil Case No. 92-075.

The antecedent facts are as follows:ChanRoblesVirtualawlibrary

On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement with Foundation
Specialists, Inc. (FSI) whereby the latter, as sub-contractor, undertook the construction of the
diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza located at Salcedo
Village, Makati City (the Project), for a total contract price of Seven Million Four Hundred
Thousand Pesos (P7,400,000.00).7 Under the agreement,8 FBI was to pay a downpayment
equivalent to twenty percent (20%) of the contract price and the balance, through a progress
billing every fifteen (15) days, payable not later than one (1) week from presentation of the
billing.

On January 9, 1992, FSI filed a complaint for Sum of Money against FBI before the RTC of
Makati City seeking to collect the amount of One Million Six Hundred Thirty-Five Thousand
Two Hundred Seventy-Eight Pesos and Ninety-One Centavos (P1,635,278.91), representing
Billings No. 3 and 4, with accrued interest from August 1, 1991 plus moral and exemplary
damages with attorneys fees.9 In its complaint, FSI alleged that FBI refused to pay said
amount despite demand and its completion of ninety-seven percent (97%) of the contracted
works.

In its Answer with Counterclaim, FBI claimed that FSI completed only eighty-five percent
(85%) of the contracted works, failing to finish the diaphragm wall and component works in
accordance with the plans and specifications and abandoning the jobsite. FBI maintains that
because of FSIs inadequacy, its schedule in finishing the Project has been delayed resulting in
the Project owners deferment of its own progress billings.10 It further interposed
counterclaims for amounts it spent for the remedial works on the alleged defects in FSIs
work.
On May 3, 2001, after evaluating the evidence of both parties, the RTC ruled in favor of FSI,
the dispositive portion of its Decision reads:ChanRoblesVirtualawlibrary

WHEREFORE, on the basis of the foregoing, judgment is rendered ordering defendant to pay
plaintiff the following:

The sum of P1,024,600.00 representing billings 3 and 4, less the amount of P33,354.40
plus 12% legal interest from August 30, 1991;
The sum of P279,585.00 representing the cost of undelivered cement;
The sum of P200,000.00 as attorneys fees; and
The cost of suit.

Defendants counterclaim is denied for lack of factual and legal basis.

SO ORDERED.11cralawred

On appeal, the CA affirmed the Decision of the lower court, but deleted the sum of
P279,585.00 representing the cost of undelivered cement and reduced the award of attorneys
fees to P50,000.00. In its Decision12 dated July 15, 2010, the CA explained that FSI failed to
substantiate how and in what manner it incurred the cost of cement by stressing that its claim
was not supported by actual receipts. Also, it found that while the trial court did not err in
awarding attorneys fees, the same should be reduced for being unconscionable and
excessive.

On FBIs rejection of the 12% annual interest rate on the amount of Billings 3 and 4, the CA
ruled that the lower court did not err in imposing the same in the following
wise:ChanRoblesVirtualawlibrary

x x x The rule is well-settled that when an obligation is breached, and it consists in the
payment of a sum of money, the interest due shall itself earn legal interest from the time it is
judicially demanded (BPI Family Savings Bank, Inc. vs. First Metro Investment Corporation,
429 SCRA 30). When there is no rate of interest stipulated, such as in the present case, the
legal rate of interest shall be imposed, pursuant to Article 2209 of the New Civil Code. In the
absence of a stipulated interest rate on a loan due, the legal rate of interest shall be 12% per
annum.13

Both parties filed separate Motions for Reconsideration assailing different portions of the CA
Decision, but to no avail.14 Undaunted, they subsequently elevated their claims with this
Court via petitions for review on certiorari.

On the one hand, FSI asserted that the CA should not have deleted the sum of P279,585.00
representing the cost of undelivered cement and reduced the award of attorneys fees to
P50,000.00, since it was an undisputed fact that FBI failed to deliver the agreed quantity of
cement. On the other hand, FBI faulted the CA for affirming the decision of the lower court
insofar as the award of the sum representing Billings 3 and 4, the interest imposed thereon,
and the rejection of his counterclaim were concerned. In a Resolution15 dated February 21,
2011, however, this Court denied, with finality, the petition filed by FSI in G.R. No. 194621 for
having been filed late.
Hence, the present petition filed by FBI in G.R. No. 194507 invoking the following
arguments:ChanRoblesVirtualawlibrary

I.

THE COURT OF APPEALS COMMITTED A CLEAR, REVERSABLE ERROR WHEN IT AFFIRMED

THE TRIAL COURTS JUDGMENT THAT FEDERAL BUILDERS, INC. WAS LIABLE TO PAY THE
BALANCE OF P1,024,600.00 LESS THE AMOUNT OF P33,354.40 NOTWITHSTANDING THAT THE
DIAPHRAGM WALL CONSTRUCTED BY FOUNDATION SPECIALIST, INC. WAS CONCEDEDLY
DEFECTIVE AND OUT-OF-SPECIFICATIONS AND THAT PETITIONER HAD TO REDO IT AT ITS
OWN EXPENSE.

II.

THE COURT OF APPEALS COMMITTED SERIOUS, REVERSABLE ERROR WHEN IT IMPOSED

THE 12% LEGAL INTEREST FROM AUGUST 30, 1991 ON THE DISPUTED CLAIM OF
P1,024,600.00 LESS THE AMOUNT OF P33,354.40 DESPITE THE FACT THAT THERE WAS NO
STIPULATION IN THE AGREEMENT OF THE PARTIES WITH REGARD TO INTEREST AND
DESPITE THE FACT THAT THEIR AGREEMENT WAS NOT A LOAN OR FORBEARANCE OF
MONEY.

III.

THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS REVERSABLE ERROR WHEN IT
DISMISSED THE COUNTERCLAIM OF PETITIONER NOTWITHSTANDING OVERWHELMING
EVIDENCE SUPPORTING ITS CLAIM OF P8,582,756.29 AS ACTUAL DAMAGES.

The petition is partly meritorious.

We agree with the courts below and reject FBIs first and third arguments. Well-entrenched in
jurisprudence is the rule that factual findings of the trial court, especially when affirmed by
the appellate court, are accorded the highest degree of respect and considered conclusive
between the parties, save for the following exceptional and meritorious circumstances: (1)
when the factual findings of the appellate court and the trial court are contradictory; (2) when
the findings of the trial court are grounded entirely on speculation, surmises or conjectures;
(3) when the lower courts inference from its factual findings is manifestly mistaken, absurd or
impossible; (4) when there is grave abuse of discretion in the appreciation of facts; (5) when
the findings of the appellate court go beyond the issues of the case, or fail to notice certain
relevant facts which, if properly considered, will justify a different conclusion; (6) when there
is a misappreciation of facts; (7) when the findings of fact are themselves conflicting; and (8)
when the findings of fact are conclusions without mention of the specific evidence on which
they are based, are premised on the absence of evidence, or are contradicted by evidence on
record. 16cralawred

None of the aforementioned exceptions are present herein. In the assailed Decision, the RTC
meticulously discussed the obligations of each party, the degree of their compliance
therewith, as well as their respective shortcomings, all of which were properly substantiated
with the corresponding documentary and testimonial evidence.
Under the construction agreement, FSIs scope of work consisted in (1) the construction of
the guide walls, diaphragm walls, and capping beam; and (2) the installation of steel props.17
As the lower courts aptly observed from the records at hand, FSI had, indeed, completed
ninety-seven percent (97%) of its contracted works and the non-completion of the remaining
three percent (3%), as well as the alleged defects in the said works, are actually attributable
to FBIs own fault such as, but not limited to, the failure to deliver the needed cement as
agreed upon in the contract, to wit:ChanRoblesVirtualawlibrary

On March 8, 1991, plaintiff had finished the construction of the guide wall and diaphragm
wall (Exh. R) but had not yet constructed the capping beam as of April 22, 1991 for
defendants failure to deliver the needed cement in accordance with their agreement (Exhibit
I). The diaphragm wall had likewise been concrete tested and was found to have conformed
with the required design strength (Exh. R).

Subsequently, plaintiff was paid the aggregate amount of P5,814,000.00. But as of May 30,
1991, plaintiffs billings numbers 3 and 4 had remained unpaid (Exhs. L, M, and M-1).

xxxx

On the misaligned diaphragm wall from top to bottom and in-between panels, plaintiff
explained that in the excavation of the soil where the rebar cages are lowered and later
poured with concrete cement, the characteristics of the soil is not the same or homogenous
all throughout. Because of this property of the soil, in the process of excavation, it may erode
in some places that may cause spaces that the cement may fill or occupy which would
naturally cause bulges, protrusions and misalignment in the concrete cast into the excavated
ground (tsn., June 1, 2000, pp 14-18). This, in fact was anticipated when the agreement was
executed and included as provision 6.4 thereof.

The construction of the diaphragm wall panel by panel caused misalignment and the
chipping off of the portions misaligned is considered a matter of course. Defendant, as the
main contractor of the project, has the responsibility of chopping or chipping off of bulges
(tsn., ibid, pp 20-21).

Wrong location of rebar dowels was anticipated by both contractor and subcontractor as
the latter submitted a plan called Detail of Sheer Connectors (Exh T) which was approved.
The plan provided two alternatives by which the wrong location of rebar dowels may be
remedied. Hence, defendant, aware of the possibility of inaccurate location of these bars,
cannot therefore ascribe the same to the plaintiff as defective work.

Construction of the capping beam required the use of cement. Records, however, show that
from September 14, 1990 up to May 30, 1991 (Exhs. B to L), plaintiff had repeatedly
requested defendant to deliver cement. Finally, on April 22, 1991, plaintiff notified defendant
of its inability to construct the capping beam for the latters failure to deliver the cement as
provided in their agreement (Exh. I). Although records show that there was mention of
revision of design, there was no evidence presented to show such revision required less
amount of cement than what was agreed on by plaintiff and defendant.

The seventh phase of the construction of the diaphragm wall is the construction of the
steel props which could be installed only after the soil has been excavated by the main
contractor. When defendant directed plaintiff to install the props, the latter requested for a
site inspection to determine if the excavation of the soil was finished up to the 4th level
basement. Plaintiff, however, did not receive any response. It later learned that defendant had
contracted out that portion of work to another sub-contractor (Exhs. O and P).
Nevertheless, plaintiff informed defendant of its willingness to execute that portion of its
work.18

It is clear from the foregoing that contrary to the allegations of FBI, FSI had indeed completed
its assigned obligations, with the exception of certain assigned tasks, which was due to the
failure of FBI to fulfil its end of the bargain.

It can similarly be deduced that the defects FBI complained of, such as the misaligned
diaphragm wall and the erroneous location of the rebar dowels, were not only anticipated by
the parties, having stipulated alternative plans to remedy the same, but more importantly, are
also attributable to the very actions of FBI. Accordingly, considering that the alleged defects
in FSIs contracted works were not so much due to the fault or negligence of the FSI, but were
satisfactorily proven to be caused by FBIs own acts, FBIs claim of P8,582,756.29
representing the cost of the measures it undertook to rectify the alleged defects must
necessarily fail. In fact, as the lower court noted, at the time when FBI had evaluated FSIs
works, it did not categorically pose any objection thereto, viz:ChanRoblesVirtualawlibrary

Defendant admitted that it had paid P6 million based on its evaluation of plaintiffs
accomplishments (tsn., Sept. 28, 2000, p. 17) and its payment was made without objection on
plaintiffs works, the majority of which were for the accomplishments in the construction of
the diaphragm wall (tsn., ibid, p. 70).

xxxx

While there is no evidence to show the scope of work for these billings, it is safe to assume
that these were also works in the construction of the diaphragm wall considering that as of
May 16, 1991, plaintiff had only the installation of the steel props and welding works to
complete (Exh. H). If defendant was able to evaluate the work finished by plaintiff the
majority of which was the construction of the diaphragm wall and paid it about P6 million as
accomplishment, there was no reason why it could not evaluate plaintiffs works covered by
billings 3 and 4. In other words, defendants did not have to excavate in order to determine and
evaluate plaintiffs works. Hence, defendants refusal to pay was not justified and the alleged
defects of the diaphragm wall (tsn, Sept. 28, 2000, p. 17) which it claims to have discovered
only after January 1992 were mere afterthoughts.19

Thus, in the absence of any record to otherwise prove FSIs neglect in the fulfilment of its
obligations under the contract, this Court shall refrain from reversing the findings of the
courts below, which are fully supported by and deducible from, the evidence on record.
Indeed, FBI failed to present any evidence to justify its refusal to pay FSI for the works it was
contracted to perform. As such, We do not see any reason to deviate from the assailed rulings.

Anent FBIs second assignment of error, however, We find merit in the argument that the 12%
interest rate is inapplicable, since this case does not involve a loan or forbearance of money.
In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,20 We laid down the
following guidelines in computing legal interest:ChanRoblesVirtualawlibrary
 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:ChanRoblesVirtualawlibrary

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.21

In line, however, with the recent circular of the Monetary Board of the Bangko Sentral ng
Pilipinas (BSP-MB) No. 799, we have modified the guidelines in Nacar v. Gallery Frames,22 as
follows:ChanRoblesVirtualawlibrary

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:ChanRoblesVirtualawlibrary

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 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.

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 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.23

It should be noted, however, 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. Thus, the need to determine whether the
obligation involved herein is a loan and forbearance of money nonetheless exists.

In S.C. Megaworld Construction and Development Corporation v. Engr. Parada,24 We clarified

the meaning of obligations constituting loans or forbearance of money in the following
wise:ChanRoblesVirtualawlibrary

As further clarified in the case of Sunga-Chan v. CA, a loan or forbearance of money, goods
or credit describes a contractual obligation whereby a lender or creditor has refrained during
a given period from requiring the borrower or debtor to repay the loan or debt then due and
payable. Thus:ChanRoblesVirtualawlibrary

In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under
Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or
forbearance of money. And for transactions involving payment of indemnities in the concept of
damages arising from default in the performance of obligations in general and/or for money
judgment not involving a loan or forbearance of money, goods, or credit, the governing
provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently
provides:ChanRoblesVirtualawlibrary

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six per cent per annum.
 The term "forbearance," within the context of usury law, has been described as a
contractual obligation of a lender or creditor to refrain, during a given period of time, from
requiring the borrower or debtor to repay the loan or debt then due and payable.25

Forbearance of money, goods or credits, therefore, refers to arrangements other than loan
agreements, where a person acquiesces to the temporary use of his money, goods or credits
pending the happening of certain events or fulfilment of certain conditions.26 Consequently, if
those conditions are breached, said person is entitled not only to the return of the principal
amount paid, but also to compensation for the use of his money which would be the same rate
of legal interest applicable to a loan since the use or deprivation of funds therein is similar to
a loan.27cralawred

This case, however, does not involve an acquiescence to the temporary use of a partys money
but a performance of a particular service, specifically the construction of the diaphragm wall,
capping beam, and guide walls of the Trafalgar Plaza.

A review of similar jurisprudence would tell us that this Court had repeatedly recognized this
distinction and awarded interest at a rate of 6% on actual or compensatory damages arising
from a breach not only of construction contracts,28 such as the one subject of this case, but
also of contracts wherein one of the parties reneged on its obligation to perform messengerial
services,29 deliver certain quantities of molasses,30 undertake the reforestation of a denuded
forest land,31 as well as breaches of contracts of carriage,32 and trucking agreements.33 We
have explained therein that the reason behind such is that said contracts do not partake of
loans or forbearance of money but are more in the nature of contracts of service.

Thus, in the absence of any stipulation as to interest in the agreement between the parties
herein, the matter of interest award arising from the dispute in this case would actually fall
under the second paragraph of the above-quoted guidelines in the landmark case of Eastern
Shipping Lines, which necessitates the imposition of interest at the rate of 6%, instead of the
12% imposed by the courts below.

The 6% interest rate shall further be imposed from the finality of the judgment herein until
satisfaction thereof, in light of our recent ruling in Nacar v. Gallery Frames.34cralawred

Note, however, that contrary to FBIs assertion, We find no error in the RTCs ruling that the
interest shall begin to run from August 30, 1991 as this is the date when FSI extrajudicially
made its claim against FBI through a letter demanding payment for its services.35cralawred

In view of the foregoing, therefore, We find no compelling reason to disturb the factual
findings of the RTC and the CA, which are fully supported by and deducible from, the evidence
on record, insofar as the sum representing Billings 3 and 4 is concerned. As to the rate of
interest due thereon, however, We note that the same should be reduced to 6% per annum
considering the fact that the obligation involved herein does not partake of a loan or
forbearance of money.

WHEREFORE, premises considered, the instant petition is DENIED. The Decision and
Resolution, dated July 15, 2010 and November 23, 2010, respectively, of the Court of Appeals
in CA-G.R. CV No. 70849 are hereby AFFIRMED with MODIFICATION. Federal Builders, Inc. is
ORDERED to pay Foundation Specialists, Inc. the sum of P1,024,600.00 representing billings 3
and 4, less the amount of P33,354.40, plus interest at six percent (6%) per annum reckoned
from August 30, 1991 until full payment thereof.

SO ORDERED

G.R. No. 212689 August 6, 2014

ECE REALTY and DEVELOPMENT, INC., Petitioner,

vs.
HAYDYN HERNANDEZ, Respondent.

RESOLUTION

REYES, J.:

This is a Petition for Review on Certiorari1 from the Decision2 dated November 4, 2013 of the
Court of Appeals (CA) in CA-G.R. SP No. 120738, which affirmed with modification the
Decision3 dated January 10, 2011 of the Office of the President (OP) in O.P. Case Number 09-
D-152, entitled, "The Housing and Land Use Regulatory Board and Haydyn Hernandez v. ECE
Realty and Development Corporation." The fallo of the appellate court's decision reads:

We AFFIRM the assailed Decision of the Office of the President in O.P. Case Number 09-D-152,
with MODIFICATION: We DIRECT petitioner ECE REALTY AND DEVELOPMENT INC., to pay
respondent Haydyn Hernandez, the amount of [P]452,551.65 (representing the total amount
respondent Hernandez paid petitioner ECE), plus 6% interest per annum starting 07 September
2006, and 12% interest per annum from the time the judgment becomes final and executor[y],
until fully paid.

IT IS SO ORDERED.4

On September 7, 2006, Haydyn Hernandez (respondent) filed a Complaint for specific

performance, with damages, against Emir Realty and Development Corporation (EMIR) and
ECE Realty and Development Incorporated (ECE) before the Housing and Land Use Regulatory
Board Expanded National Capital Region Field Office (HLURB-Regional Office). The respondent
alleged that ECE and EMIR, engaged in condominium development and marketing,respectively,
sold tohim a 30-square meter condominium unit in the "Harrison Mansion" described as Unit
808, Building B, Phase 1 (Unit 808). On July 22, 1997 the respondent paid the reservation fee
of P35,000.00, and on August 2, 1997 he paid P104,063.65 to complete the downpayment.5 In
the parties Contract to Sell6 dated November 5, 1997, EMIR and ECE promised that Unit 808
would be ready for occupancy by December 31, 1999.

EMIR and ECE failed to deliver Unit 808 to the respondent on December 31, 1999, by which
date he had already paid a total of P452,551.65. Moreover, the respondentdiscovered that Unit
808 contained only 26 sq m, not 30 sq m as contracted, thus, he asked for a corresponding
reduction in the price by P120,000.00, based on the price per sq m of P30,000.00. Instead,
EMIR and ECE demanded that he settle all his amortizations in arrears with interest.
Sometime in 2005, the respondent learned that EMIR and ECE had sold Unit 808 to a third
party.7
The respondent in his complaint inthe HLURB asked that EMIR and ECE be ordered to accept
his payment of the balance of the price of Unit 808, less P120,000.00, without interest; and to
pay him moral damages of P500,000.00, actual damages of P100,000.00, exemplary damages
of P100,000.00, and attorneys fees of P50,000.00 plus P2,000.00 per appearance fee. If Unit
808 is no longer available, the respondent asked that EMIR and ECE reimburse him the
amountof P452,551.65 he paid, plus legal interest.8

In their Answer with Counterclaim, EMIR and ECE sought to dismiss the complaint for lack of
cause of action, and to drop EMIR as defendant because it has no contractual relations with
the respondent.9 They alleged that the respondent unjustifiably refused to accept the turn-
over of Unit 808, that he was duly given a Grace Period Notice10 that he was in arrears in his
monthly amortizations, but the respondentlet the said period lapse without settling his past-
due amortizations. Thus, ECE was compelled to cancel his contract to sell, invoking
RepublicAct No. 6552 (An Act to provide protection to buyers of Real Estate on Installment
Payments). EMIR and ECE also sought exemplary damages, attorneys fees, and litigation
expenses.

On May 12, 2008, the HLURB-Regional Office ordered EMIR and ECE to reimburse the
respondent the amount of P452,551.65, plus legal interest, from the filing of the complaint,
and to pay the respondent P50,000.00 as moral damages, P50,000.00 as attorneys fees, and
P50,000.00 as exemplary damages.11

EMIR and ECE appealed to the HLURB Board of Commissioners, which in its Decision12 dated
January 23, 2009 upheld the HLURB-Regional Office but dropped EMIR as defendant. ECE
appealed to the OP, but the OP in its Decision13 dated January 10, 2011 dismissed ECEs
appeal. On July 5, 2011, the OP denied ECEs motion for reconsideration.

On petition for review to the CA, ECE argued that the OP erred in affirming the rescission of
the parties contract to sell and the order to refund the respondents payments with legal
interest from filing of the complaint, along with the award of moral and exemplary damages
and attorneys fees to the respondent. ECE pointed out that the respondent did not ask for
rescission and refund on account of the delay in the delivery of Unit 808, but only for a
reduction in the price. It further argued that interest may be imposed only from finality of
judgment.Insisting that it was not in bad faith, ECE sought the deletion of the award for
damages and attorneys fees, saying also that they are excessive.

In upholding the OP, the CA cited Section 23 of Presidential Decree (P.D.) No. 957 (Regulating
the Sale of Subdivision Lots and Condominiums, Providing for Penalties for Violations Thereof),
which reads:

Sec. 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision

or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the
owner or developer when the buyer, after due notice to the owner or developer, desists from
further payment due to the failure of the owner or developer to develop the subdivision or
condominium project according to the approved plans and within the time limit for complying
with the same. Such buyer may, at his option, be reimbursed the total amount paid including
amortization interests but excluding delinquency interests, with interest thereon at the legal
rate. The CA found that the respondent duly notified ECE that he was suspending his
subsequent amortizationsbecause of the delayed delivery of Unit 808. The CA then ruled that
under P.D. No. 957, when the owner of the subdivision or condominium fails to develop the
same according to the plan within the period agreed, the buyer, after notifying the owner, may
desist from paying the balance, and may demand the reimbursement of all that he has paid.
ECE failed to deliver Unit 808 on or before December 31, 1999, even as the said unit measured
only 26 sq m, not 30 sqm as agreed. As also found by the CA, by ECEs own evidence Unit 808
was ready for inspection only on June 28, 2002, or two and a half years after the agreed date
of delivery. But the CA deleted the award of moral and exemplary damages, finding that ECE
did not act in bad faith, while sustaining the award of P50,000.00 as attorneys fees pursuant
to Article 2208 (2) of the Civil Code, since ECEs act or omission compelled the respondent to
litigate.

On the imposition of six percent (6%)interest, the appellate court cites Eastern Shipping
Lines, Inc. v. Court of Appeals14 and in Fil-Estate Properties, Inc. v. Spouses Go,15 the amount
to be refunded being neither a loan nor a forbearance of money, goods or credit.

On petition to this Court, the petitioner ECE reiterated all the arguments it proffered before
the CA.

Our Ruling

We resolve to affirm the CA decision with modification, by reducing the interest imposable
after finality fromtwelve percent (12%) to six percent (6%).

Article 2209 of the New Civil Code provides that "If the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum." There is no doubt
that ECE incurred in delay in delivering the subject condominium unit, for which reason the
trial court was justified inawarding interest to the respondent from the filing of his complaint.
There being no stipulation as to interest, under Article 2209 the imposable rate is six percent
(6%) by way of damages, following the guidelines laid down in the landmark case of Eastern
Shipping Lines v. Court of Appeals:16

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, notconstituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the courtat 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.17

As further clarified in Sunga-Chan, et al. v. Court of Appeals, et al.:18

In Reformina v. Judge Tomol, Jr., the Court held that the legal interest at 12% per annumunder
Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or
forbearance of money. And for transactions involving payment of indemnities in the concept of
damages arising from default in the performance of obligations in general and/or for money
judgment not involving a loan or forbearance of money, goods, or credit, the governing
provision is Art. 2209 of the Civil Code prescribing a yearly6% interest. Art. 2209 pertinently
provides: Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum.

The term "forbearance," within the context of usury law, has been described as a contractual
obligation ofa lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay the loan or debt then due and payable.

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and
the applicable rate, as follows: The 12% per annum rate under CB CircularNo. 416 shall apply
only to loans or forbearance of money, goods, or credits, as well as to judgments involving
such loan or forbearance of money, goods, or credit, while the 6%per annumunder Art. 2209 of
the Civil Code applies "when the transaction involves the payment ofindemnities in the
concept of damage arising from the breach or a delay in the performance of obligations in
general," with the application ofboth rates reckoned "from the time the complaint was filed
until the [adjudged] amount is fully paid." In either instance, the reckoning period for the
commencement of the running of the legal interest shall besubject to the condition "that the
courts are vested with discretion, depending on the equities of each case, on the award of
interest."19 (Emphasis ours)

Thus, from the finality of the judgment awarding a sum of money until it is satisfied, the award
shall beconsidered a forbearance of credit, regardless of whether the award in fact pertained
to one.20 Pursuant to Central Bank Circular No. 416 issued on July 29, 1974, in the absence of
written stipulation the interest rate to be imposed in judgments involving a forbearance of
credit was twelve percent (12%) per annum, up from six percent (6%) under Article 2209 of
the Civil Code.1wphi1 This was reiterated in Central Bank Circular No. 905, which suspended
the effectivity of the Usury Law beginning on January 1, 1983.

But since July 1, 2013, the rate of twelve percent (12%) per annum from finality of the
judgment until satisfaction has been brought back to six percent (6%). Section 1 of Resolution
No. 796 of the Monetary Board of the Bangko Sentral ng Pilipinas dated May 16, 2013
provides: "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." Thus, the rate of interest to be imposed from
finality of judgments is now back at six percent (6%), the rate provided in Article 2209 of the
Civil Code.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 120738 is AFFIRMED with
MODIFICATION. Petitioner ECE Realty and Development, Inc. is hereby ordered to pay
respondent Haydyn Hernandez the amount of P452,551.65 representing the total amount he
paid to petitioner ECE Realty and Development Incorporated, plus six percent (6%) interest per
annum from September 7, 2006 until finality hereof by way of actual and compensatory
damages. From finality until full satisfaction, the total amount due now compounded with
interest due from September 7, 2006 up to finality, shall likewise earn interest at six percent
(6%) per annum until fully paid.

G.R. No. 195117, August 14, 2013

HUR TIN YANG, Petitioner, v. PEOPLE OF THE PHILIPPINES, Respondent.

RESOLUTION

VELASCO JR., J.:

This is a motion for reconsideration of our February 1, 2012 Minute Resolution1 sustaining the
July 28, 2010 Decision2 and December 20, 2010 Resolution3 of the Court of Appeals (CA) in
CA-G.R. CR No. 30426, finding petitioner Hur Tin Yang guilty beyond reasonable doubt of the
crime of Estafa under A11icle 315, paragraph 1 (b) of the Revised Penal Code (RPC) in relation
to Presidential Decree No. 115 (PD 115) or the Trust Receipts Law.

In twenty-four (24) consolidated Informations, all dated March 15, 2002, petitioner Hur Tin
Yang was charged at the instance of the same complainant with the crime of Estafa under
Article 315, par. 1(b) of the RPC,4 in relation to PD 115,5 docketed as Criminal Case Nos. 04-
223911 to 34 and raffled to the Regional Trial Court of Manila, Branch 20. The 24
Informationsdiffering only as regards the alleged date of commission of the crime, date of
the trust receipts, the number of the letter of credit, the subject goods and the amount
uniformly recite:

That on or about May 28, 1998, in the City of Manila, Philippines, the said accused being
then the authorized officer of SUPERMAX PHILIPPINES, INC., with office address at No. 11/F,
Global Tower, Gen Mascardo corner M. Reyes St., Bangkal, Makati City, did then and there
willfully, unlawfully and feloniously defraud the METROPOLITAN BANK AND TRUST COMPANY
(METROBANK), a corporation duly organized and existing under and by virtue of the laws of
the Republic of the Philippines, represented by its Officer in Charge, WINNIE M. VILLANUEVA,
in the following manner, to wit: the said accused received in trust from the said Metropolitan
Bank and Trust Company reinforcing bars valued at P1,062,918.84 specified in the undated
Trust Receipt Agreement covered by Letter of Credit No. MG-LOC 216/98 for the purpose of
holding said merchandise/goods in trust, with obligation on the part of the accused to turn
over the proceeds of the sale thereof or if unsold, to return the goods to the said bank within
the specified period agreed upon, but herein accused once in possession of the said
merchandise/goods, far from complying with his aforesaid obligation, failed and refused and
still fails and refuses to do so despite repeated demands made upon him to that effect and
with intent to defraud and with grave abuse of confidence and trust, misappropriated,
misapplied and converted the said merchandise/goods or the value thereof to his own
personal use and benefit, to the damage and prejudice of said METROPOLITAN BANK AND
TRUST COMPANY in the aforesaid amount of P1,062,918.84, Philippine Currency.
 Contrary to law.6cralaw virtualaw library

Upon arraignment, petitioner pleaded not guilty. Thereafter, trial on the merits then ensued.

The facts of these consolidated cases are undisputed:cralawlibrary

Supermax Philippines, Inc. (Supermax) is a domestic corporation engaged in the construction

business. On various occasions in the month of April, May, July, August, September, October
and November 1998, Metropolitan Bank and Trust Company (Metrobank), Magdalena Branch,
Manila, extended several commercial letters of credit (LCs) to Supermax. These commercial
LCs were used by Supermax to pay for the delivery of several construction materials which
will be used in their construction business. Thereafter, Metrobank required petitioner, as
representative and Vice-President for Internal Affairs of Supermax, to sign twenty-four (24)
trust receipts as security for the construction materials and to hold those materials or the
proceeds of the sales in trust for Metrobank to the extent of the amount stated in the trust
receipts.

When the 24 trust receipts fell due and despite the receipt of a demand letter dated August
15, 2000, Supermax failed to pay or deliver the goods or proceeds to Metrobank. Instead,
Supermax, through petitioner, requested the restructuring of the loan. When the intended
restructuring of the loan did not materialize, Metrobank sent another demand letter dated
October 11, 2001. As the demands fell on deaf ears, Metrobank, through its representative,
Winnie M. Villanueva, filed the instant criminal complaints against petitioner.

For his defense, while admitting signing the trust receipts, petitioner argued that said trust
receipts were demanded by Metrobank as additional security for the loans extended to
Supermax for the purchase of construction equipment and materials. In support of this
argument, petitioner presented as witness, Priscila Alfonso, who testified that the
construction materials covered by the trust receipts were delivered way before petitioner
signed the corresponding trust receipts.7 Further, petitioner argued that Metrobank knew all
along that the construction materials subject of the trust receipts were not intended for
resale but for personal use of Supermax relating to its construction business.8cralaw
virtualaw library

The trial court a quo, by Judgment dated October 6, 2006, found petitioner guilty as charged
and sentenced him as follows:

His guilt having been proven and established beyond reasonable doubt, the Court hereby
renders judgment CONVICTING accused HUR TIN YANG of the crime of estafa under Article
315 paragraph 1 (a) of the Revised Penal Code and hereby imposes upon him the
indeterminate penalty of 4 years, 2 months and 1 day of prision correccional to 20 years of
reclusion temporal and to pay Metropolitan Bank and Trust Company, Inc. the amount of
Php13,156,256.51 as civil liability and to pay cost.

SO ORDERED.9cralaw virtualaw library

Petitioner appealed to the CA. On July 28, 2010, the appellate court rendered a Decision,
upholding the findings of the RTC that the prosecution has satisfactorily established the guilt
of petitioner beyond reasonable doubt, including the following critical facts, to wit: (1)
petitioner signing the trust receipts agreement; (2) Supermax failing to pay the loan; and (3)
Supermax failing to turn over the proceeds of the sale or the goods to Metrobank upon
demand. Curiously, but significantly, the CA also found that even before the execution of the
trust receipts, Metrobank knew or should have known that the subject construction materials
were never intended for resale or for the manufacture of items to be sold.10cralaw virtualaw
library

The CA ruled that since the offense punished under PD 115 is in the nature of malum
prohibitum, a mere failure to deliver the proceeds of the sale or goods, if not sold, is sufficient
to justify a conviction under PD 115. The fallo of the CA Decision reads:

WHEREFORE, in view of the foregoing premises, the appeal filed in this case is hereby
DENIED and, consequently, DISMISSED. The assailed Decision dated October 6, 2006 of the
Rregional Trial Court, Branch 20, in the City of Manila in Criminal Cases Nos. 04223911 to
223934 is hereby AFFIRMED.

SO ORDERED.

Petitioner filed a Motion for Reconsideration, but it was denied in a Resolution dated
December 20, 2010. Not satisfied, petitioner filed a petition for review under Rule 45 of the
Rules of Court. The Office of the Solicitor General (OSG) filed its Comment dated November
28, 2011, stressing that the pieces of evidence adduced from the testimony and documents
submitted before the trial court are sufficient to establish the guilt of petitioner.11cralaw
virtualaw library

On February 1, 2012, this Court dismissed the Petition via a Minute Resolution on the ground
that the CA committed no reversible error in the assailed July 28, 2010 Decision. Hence,
petitioner filed the present Motion for Reconsideration contending that the transactions
between the parties do not constitute trust receipt agreements but rather of simple loans.

On October 3, 2012, the OSG filed its Comment on the Motion for Reconsideration, praying for
the denial of said motion and arguing that petitioner merely reiterated his arguments in the
petition and his Motion for Reconsideration is nothing more than a mere rehash of the matters
already thoroughly passed upon by the RTC, the CA and this Court.12cralaw virtualaw library

The sole issue for the consideration of the Court is whether or not petitioner is liable for
Estafa under Art. 315, par. 1(b) of the RPC in relation to PD 115, even if it was sufficiently
proved that the entruster (Metrobank) knew beforehand that the goods (construction
materials) subject of the trust receipts were never intended to be sold but only for use in the
entrustees construction business.

The motion for reconsideration has merit.

In determining the nature of a contract, courts are not bound by the title or name given by the
parties. The decisive factor in evaluating such agreement is the intention of the parties, as
shown not necessarily by the terminology used in the contract but by their conduct, words,
actions and deeds prior to, during and immediately after executing the agreement. As such,
therefore, documentary and parol evidence may be submitted and admitted to prove such
intention.13cralaw virtualaw library

In the instant case, the factual findings of the trial and appellate courts reveal that the dealing
between petitioner and Metrobank was not a trust receipt transaction but one of simple loan.
Petitioners admissionthat he signed the trust receipts on behalf of Supermax, which failed
to pay the loan or turn over the proceeds of the sale or the goods to Metrobank upon
demanddoes not conclusively prove that the transaction was, indeed, a trust receipts
transaction. In contrast to the nomenclature of the transaction, the parties really intended a
contract of loan. This Courtin Ng v. People14 and Land Bank of the Philippines v. Perez,15
cases which are in all four corners the same as the instant caseruled that the fact that the
entruster bank knew even before the execution of the trust receipt agreements that the
construction materials covered were never intended by the entrustee for resale or for the
manufacture of items to be sold is sufficient to prove that the transaction was a simple loan
and not a trust receipts transaction.

The petitioner was charged with Estafa committed in what is called, under PD 115, a trust
receipt transaction, which is defined as:

Section 4. What constitutes a trust receipts transaction.A trust receipt transaction, within
the meaning of this Decree, is any transaction by and between a person referred to in this
Decree as the entruster, and another person referred to in this Decree as entrustee, whereby
the entruster, who owns or holds absolute title or security interests over certain specified
goods, documents or instruments, releases the same to the possession of the entrustee upon
the latters execution and delivery to the entruster of a signed document called a trust
receipt wherein the entrustee binds himself to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents
or instruments with the obligation to turn over to the entruster the proceeds thereof to the
extent of the amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt, or for other purposes
substantially equivalent to any of the following:cralawlibrary

1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the
case of goods delivered under trust receipt for the purpose of manufacturing or processing
before its ultimate sale, the entruster shall retain its title over the goods whether in its
original or processed form until the entrustee has complied full with his obligation under the
trust receipt; or (c) to load, unload, ship or transship or otherwise deal with them in a manner
preliminary or necessary to their sale; or

2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver
them to a principal; or (c) to effect the consummation of some transactions involving delivery
to a depository or register; or (d) to effect their presentation, collection or renewal.

Simply stated, a trust receipt transaction is one where the entrustee has the obligation to
deliver to the entruster the price of the sale, or if the merchandise is not sold, to return the
merchandise to the entruster. There are, therefore, two obligations in a trust receipt
transaction: the first refers to money received under the obligation involving the duty to turn it
over (entregarla) to the owner of the merchandise sold, while the second refers to the
merchandise received under the obligation to return it (devolvera) to the owner.16 A
violation of any of these undertakings constitutes Estafa defined under Art. 315, par. 1(b) of
the RPC, as provided in Sec. 13 of PD 115, viz:

Section 13. Penalty Clause.The failure of an entrustee to turn over the proceeds of the
sale of the goods, documents or instruments covered by a trust receipt to the extent of the
amount owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with the terms
of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred fifteen, paragraph one (b) of Act Numbered Three thousand eight
hundred and fifteen, as amended, otherwise known as the Revised Penal Code. x x x
(Emphasis supplied.)

Nonetheless, when both parties enter into an agreement knowing fully well that the return of
the goods subject of the trust receipt is not possible even without any fault on the part of the
trustee, it is not a trust receipt transaction penalized under Sec. 13 of PD 115 in relation to
Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon by the parties would
be the return of the proceeds of the sale transaction. This transaction becomes a mere loan,
where the borrower is obligated to pay the bank the amount spent for the purchase of the
goods.17cralaw virtualaw library

In Ng v. People, Anthony Ng, then engaged in the business of building and fabricating
telecommunication towers, applied for a credit line of PhP 3,000,000 with Asiatrust
Development Bank, Inc. Prior to the approval of the loan, Anthony Ng informed Asiatrust that
the proceeds would be used for purchasing construction materials necessary for the
completion of several steel towers he was commissioned to build by several
telecommunication companies. Asiatrust approved the loan but required Anthony Ng to sign a
trust receipt agreement. When Anthony Ng failed to pay the loan, Asiatrust filed a criminal
case for Estafa in relation to PD 115 or the Trust Receipts Law. This Court acquitted Anthony
Ng and ruled that the Trust Receipts Law was created to to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased. Since Asiatrust knew
that Anthony Ng was neither an importer nor retail dealer, it should have known that the said
agreement could not possibly apply to petitioner, viz:

The true nature of a trust receipt transaction can be found in the whereas clause of PD
115 which states that a trust receipt is to be utilized as a convenient business device to
assist importers and merchants solve their financing problems. Obviously, the State, in
enacting the law, sought to find a way to assist importers and merchants in their financing in
order to encourage commerce in the Philippines.

[A] trust receipt is considered a security transaction intended to aid in financing importers
and retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased. Similarly, American
Jurisprudence demonstrates that trust receipt transactions always refer to a method of
financing importations or financing sales. The principle is of course not limited in its
application to financing importations, since the principle is equally applicable to domestic
transactions. Regardless of whether the transaction is foreign or domestic, it is important to
note that the transactions discussed in relation to trust receipts mainly involved sales.

Following the precept of the law, such transactions affect situations wherein the entruster,
who owns or holds absolute title or security interests over specified goods, documents or
instruments, releases the subject goods to the possession of the entrustee. The release of
such goods to the entrustee is conditioned upon his execution and delivery to the entruster of
a trust receipt wherein the former binds himself to hold the specific goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents
or instruments with the obligation to turn over to the entruster the proceeds to the extent of
the amount owing to the entruster or the goods, documents or instruments themselves if they
are unsold. x x x [T]he entruster is entitled only to the proceeds derived from the sale of
goods released under a trust receipt to the entrustee.

Considering that the goods in this case were never intended for sale but for use in the
fabrication of steel communication towers, the trial court erred in ruling that the agreement is
a trust receipt transaction.

xxxx

To emphasize, the Trust Receipts Law was created to to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased. Since Asiatrust knew
that petitioner was neither an importer nor retail dealer, it should have known that the said
agreement could not possibly apply to petitioner.18cralaw virtualaw library

Further, in Land Bank of the Philippines v. Perez, the respondents were officers of Asian
Construction and Development Corporation (ACDC), a corporation engaged in the construction
business. On several occasions, respondents executed in favor of Land Bank of the Philippines
(LBP) trust receipts to secure the purchase of construction materials that they will need in
their construction projects. When the trust receipts matured, ACDC failed to return to LBP the
proceeds of the construction projects or the construction materials subject of the trust
receipts. After several demands went unheeded, LBP filed a complaint for Estafa or violation
of Art. 315, par. 1(b) of the RPC, in relation to PD 115, against the respondent officers of
ACDC. This Court, like in Ng, acquitted all the respondents on the postulate that the parties
really intended a simple contract of loan and not a trust receipts transaction, viz:

When both parties enter into an agreement knowing that the return of the goods subject of
the trust receipt is not possible even without any fault on the part of the trustee, it is not a
trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually
agreed upon by the parties would be the return of the proceeds of the sale transaction. This
transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount
spent for the purchase of the goods.

xxxx

Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in
Colinares that the industry or line of work that the borrowers were engaged in was
construction. We pointed out that the borrowers were not importers acquiring goods for
resale. Indeed, goods sold in retail are often within the custody or control of the trustee until
they are purchased. In the case of materials used in the manufacture of finished products,
these finished products if not the raw materials or their components similarly remain in the
possession of the trustee until they are sold. But the goods and the materials that are used for
a construction project are often placed under the control and custody of the clients employing
the contractor, who can only be compelled to return the materials if they fail to pay the
contractor and often only after the requisite legal proceedings. The contractors difficulty and
uncertainty in claiming these materials (or the buildings and structures which they become
part of), as soon as the bank demands them, disqualify them from being covered by trust
receipt agreements.19cralaw virtualaw library
Since the factual milieu of Ng and Land Bank of the Philippines are in all four corners similar
to the instant case, it behooves this Court, following the principle of stare decisis,20 to rule
that the transactions in the instant case are not trust receipts transactions but contracts of
simple loan. The fact that the entruster bank, Metrobank in this case, knew even before the
execution of the alleged trust receipt agreements that the covered construction materials
were never intended by the entrustee (petitioner) for resale or for the manufacture of items to
be sold would take the transaction between petitioner and Metrobank outside the ambit of the
Trust Receipts Law.

For reasons discussed above, the subject transactions in the instant case are not trust
receipts transactions. Thus, the consolidated complaints for Estafa in relation to PD 115 have
really no leg to stand on.

The Courts ruling in Colinares v. Court of Appeals21 is very apt, thus:

The practice of banks of making borrowers sign trust receipts to facilitate collection of
loans and place them under the threats of criminal prosecution should they be unable to pay it
may be unjust and inequitable. if not reprehensible. Such agreements are contracts of
adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort
to this scheme leaves poor and hapless borrowers at the mercy of banks and is prone to
misinterpretation x x x.

Unfortunately, what happened in Colinares is exactly the situation in the instant case. This
reprehensible bank practice described in Colinares should be stopped and discouraged. For
this Court to give life to the constitutional provision of non-imprisonment for nonpayment of
debts,22 it is imperative that petitioner be acquitted of the crime of Estafa under Art. 315, par.
1 (b) ofthe RPC, in relation to PD 115.

WHEREFORE, the Resolution dated February 1, 2012, upholding theCA's Decision dated July
28, 2010 and Resolution dated December 20, 2010 in CA-G.R. CR No. 30426, is hereby
RECONSIDERED. Petitioner Hur Tin Yang is ACQUITTED of the charge of violating Art. 315, par.
1 (b) of the RPC, in relation to the pertinent provision of PD 115 in Criminal Case Nos. 04-
223911 to 34.

SO ORDERED.

HERMOJINA ESTORES,

G.R. No. 175139

Petitioner,
Present:

CORONA, C.J., Chairperson,

- versus -

LEONARDO-DE CASTRO,

BERSAMIN,
DEL CASTILLO, and

VILLARAMA, JR., JJ.

SPOUSES ARTURO and

LAURA SUPANGAN,

Promulgated:

Respondents.

April 18, 2012

x-------------------------------------------------------------------x

DECISION

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.

SO ORDERED.[3]

Also assailed is the August 31, 2006 Resolution[4] denying the motion for reconsideration.

Factual Antecedents

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

4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of
the documents.

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.

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.

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

x x x x [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. 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;

2. Pay the following items of damages:

a) Moral damages in the amount of P100,000.00;

b) Actual damages in the amount of P100,000.00;

c) Exemplary damages in the amount of P100,000.00;

d) [Attorneys] fee in the amount of P50,000.00 plus 20% of recoverable amount from the
[petitioner].

e) [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]

The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent-

spouses] and ordering the [petitioner and Roberto Arias] to jointly and severally:

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.

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]

Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of
the CA.
Hence, this petition raising the sole issue of whether the imposition of interest and attorneys
fees is proper.

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 the
P3.5 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 (respondent-spouses), 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 respondent-spouses 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. 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.[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 of attorneys fees is warranted.

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.

G.R. No. 192371 January 15, 2014

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
EMMANUEL OATE, Respondent.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari1 assails the December 18, 2009 Decision2 of the Court
of Appeals (CA) in CA-G.R. CV No. 89346, which affirmed with modification the May 31, 2006
Decision3 of the Regional Trial Court (RTC), Branch 141 Makati City. The RTC dismissed the
Complaint4 for Sum of Money, which petitioner Land Bank of the Philippines (Land Bank) filed
against respondent Emmanuel C. Oate (Oate), and ordered Land Bank to return the amount
of P1,471,416.52 it unilaterally debited from his accounts. On separate appeals by both
parties, the CA affirmed the RTC Decision with modification that Land Bank was further
ordered to pay Oate the sums of P60,663,488.11 and US$3,210,222.85 representing the
undocumented withdrawals and drawings from his trust accounts with 12% per annum
interest compounded annually from June 21, 1991 until fully paid.
Also assailed is the CAs May 27, 2010 Resolution5 denying Land Banks Motion for
Reconsideration.6

Factual Antecedents

Land Bank is a government financial institution created under Republic Act No. 3844.7 From
1978 to 1980, Oate opened and maintained seven trust accounts with Land Bank, more
particularly described as follows:
Trust Account No. Date Opened Beginning Balance
01-014 09.07.78 P250,000.008
01-017 11.16.78 1,312,896.009
01-024 02.23.79 900,000.0010
01-075 10.08.79 500,000.0011
01-082 10.25.79 200,001.0012
01-089 03.18.80 43.9813
01-125 03.13.80 188,161.0014

Each trust account was covered by an Investment Management Account (IMA) with Full
Discretion15 and has a corresponding passbook where deposits and withdrawals were
recorded. Pertinent portions common to the IMAs read:

You [Land Bank] are appointed as my agent with full powers and discretion, subject only to
the following provisions:

1. You are authorized to hold, invest and reinvest the Fund and keep the same invested, in your
sole discretion, without distinction between principal and income, in any assets which you
deem advisable, without being restricted to those of the character authorized for fiduciaries
under any present or future law.

2. You shall have full power and authority:

(a) to treat all the Fund as one aggregate amount for purposes of investment, and to deposit
all or any part thereof with a reputable bank including your own commercial banking
department;

(b) to pay all costs, expenses and charges incurred in connection with the administration,
preservation, maintenance and protection of the Fund and to charge the same to the Fund;

(c) to vote in person or by proxy on any stocks, bonds or other securities held by you, for
my/our account;

(d) to borrow money for the Fund (from your banking department or from others) with or
without giving securities from the Fund;

(e) to cause any asset of the Fund to be issued, held or registered in your name or in the name
of your nominee, or in such form that title will pass by delivery, provided your records shall
indicate the true ownership of such assets;

(f) to hold the Fund in cash and to invest the same in fixed income placements traded and sold
by your own Money Market Division; and
(g) to sign all documents pertinent to the transaction which you will make in behalf of this
Account.

3. All actions taken by you hereunder shall be for my account and risk. Except for willful
default or gross misconduct, you shall not be liable for any loss or depreciation in the value of
the assets of the Fund arising from any cause whatsoever.

4. You shall maintain accurate records of all investments, receipts, disbursements and other
transactions of the Account. Records relating thereto shall be open at all reasonable times to
inspection and audit by me either personally or through duly authorized representatives.
Statements consisting of a balance sheet, portfolio analysis, statement of income and
expenses, and summary of investment changes are to be sent to me/us quarterly.

I/We shall approve such accounting by delivering in writing to you a statement to that effect
or by failure to express objection to such accounting in writing delivered to you within thirty
(30) days from my receipt of the accounting.

Upon your receipt of a written approval of the accounting, or upon the passage of said
period of time within which objections may be filed, without written objections having been
delivered to you, such accounting shall be deemed to be approved, and you shall be released
and discharged as to all items, matters and things set forth in such accounting as if such
accounting had been settled and allowed by a decree of a court of competent jurisdiction, in
an action or proceeding in which you and I were parties.16 (Emphasis supplied)

In a letter17 dated October 8, 1981, however, Land Bank demanded from Oate the return of
P4 million it claimed to have been inadvertently deposited to Trust Account No. 01-125 as his
additional funds but actually represents the total amount of the checks issued to Land Bank
by its corporate borrowers as payment for their pre-terminated loans. Oate refused. To settle
the matter, a meeting was held, but the parties failed to reach an agreement. Since then, the
issue of "miscrediting" remained unsettled. Then on June 21, 1991, Land Bank unilaterally
applied the outstanding balance in all of Oates trust accounts against his resulting
indebtedness by reason of the "miscrediting" of funds. Although it exhausted the funds in all
of Oates trust accounts, Land Bank was able to debit the amount of P1,528,583.48 only.18

Proceedings before the Regional Trial Court

To recoup the remaining balance of Oates indebtedness, Land Bank filed a Complaint19
for Sum of Money seeking to recover the amount of P8,222,687.8920 plus interest at the legal
rate of 12% per annum computed from May 15, 1992 until fully paid. Pertinent portions of Land
Banks Complaint reads:

5. By virtue of the Deeds of Revocable Trust executed on January 9, 198921 [sic] and February
5, 198922 [sic] by Philippine Virginia Tobacco Administration (PVTA) and Philippine Virginia
Tobacco Board (PVTB), LANDBANK likewise became a Trustee of certain funds belonging to
PVTA and PVTB.

6. As authorized under the [Deeds] of Revocable Trust, on October 10, 1980, LANDBANK
invested P4 Million of the trust accounts of PVTA and PVTB, through a direct lending scheme
to the following companies:
(a) Republic Telephone Company, Inc. (RETELCO), under Promissory Note No. 1145 dated
October 10, 1980, for P1,021,250.00 with maturity date on November 24, 1980, subject to
automatic roll-over up to October 10, 1981 at 17% interest per annum.

(b) Philippine Blooming Mills Company, Inc. (PBM), under Promissory Note (unnumbered) dated
October 10, 1980, for P1,021,250.00, with maturity date on November 24, 1980, subject to
automatic roll-over up to October 10, 1981, at 17% interest per annum;

(c) Cheng Ban Yek (CBY), under Promissory Note (unnumbered) dated October 10, 1980, for
P1,023,138.89, with maturity date on November 28, 1980, subject to automatic roll-over up to
October 10, 1981, at 17% interest per annum;

(d) Philippine Tobacco Filters Corporation (PHILTOFIL), under Promissory Note (unnumbered)
dated October 10, 1980, for P1,021,250.00, with maturity date on November 24, 1980, subject
to automatic roll-over up to October 10, 1981, at 17% interest per annum.

xxxx

7. Pursuant to such direct loan transactions granted to the aforementioned companies,

LANDBANK issued four (4) cashiers checks for P1 Million each payable to RETELCO, PBM,
CBY, and PHILTOFIL x x x

8. On or about November 24 and 28, 1980, the aforesaid borrowers (RETELCO, PBM, CBY, AND
PHILTOFIL), pre-terminated their corresponding loans and paid their respective obligations in
the form of checks payable to LANDBANK and delivered by [Oates] representative, Mr.
Eduardo Polonio.

9. When the checks were delivered, [Oate] fraudulently misrepresented to LANDBANK that
they were [Oates] additional capital contribution to his personal trust account. On the basis
of this misrepresentation, LANDBANK credited the payments made by the aforementioned
corporate borrowers to [Oates] Trust Account No. 01-125.

10. After the payments were credited to his personal trust account, Oate proceeded to
withdraw the same, to the damage and prejudice of LANDBANK as the owner thereof.23

In his Answer (With Compulsory Counterclaim),24 Oate asserted that the setoff was without
legal and factual bases. He specifically denied any knowledge or involvement in the
transaction between Land Bank and its clients Philippine Virginia Tobacco Administration
(PVTA) and Philippine Virginia Tobacco Board (PVTB). He also denied that he made fraudulent
misrepresentation to induce the bank to deposit to his Trust Account No. 01-125 as his
additional capital the payments allegedly tendered by the banks corporate borrowers. He
maintained that all the funds in his accounts came from legitimate sources and that he was
totally unaware of and had nothing to do with the alleged "miscrediting." While Oate
admitted having received the October 8, 1981 demand letter, he argued that he did not
acquiesce thereto and, in fact, disputed the same during a meeting with an officer of Land
Bank. He also refuted Land Banks claim that it formally demanded for the return of the
disputed amount as the September 3, 1991 letter25 it alluded to is not a demand letter. It was
sent in response to his counsels letter requesting for an accounting of his trust accounts.

By way of compulsory counterclaim, Oate pointed out that per Balance Sheets26 as of June
30, 1982 the funds in his trust accounts already totaled P35,555,464.78. And as of January
1993, the accumulated balance of his accounts reached P229,222,160.25 and $3,472,683.94
computed as follows:

With interest at the rate of eighteen percent (18%) compounded every ninety (90) days from
the third quarter of 1982 to January, 1993, the trustors equity of P35,555,464.78 has earned
interest in the amount of P193,666,695.47. Adding the trustors equity to the aforesaid
accrued interest thereon, [Oates] peso deposits [in] his trust accounts with plaintiff bank
have an accumulated balance of P229,222,160.25 as of January 1993 .

But that is not all. [Oates] dollar deposits to Trust Account No. 01-014 (which is for an
"Undisclosed Principal") from the period July-September, 1980 alone, already amounted to
$1,690,943.78. x x x

With interest at the rate of six percent (6%) compounded every ninety (90) days from the first
quarter of 1981, the said dollar deposits have earned interest of $1,781,740.16 up to January,
1993. Thus, [Oates] dollar deposits [in] Trust Account No. 01-014 have an aggregate balance
of $3,472,683.94 as of January 1993.27

Hence, even if the amount of P8,222,687.89 as of May 15, 1992 is deducted from the
outstanding balance of his trust accounts as of January 1993, the bank still owes him
P220,999,472.36 on top of his dollar deposits amounting to $3,472,683.94.

Oate prayed that a judgment be issued dismissing the Complaint and ordering Land Bank to
pay him:

i) The sum of P220,999,472.36, representing the outstanding balance on the peso deposits [of
Oates] various trust accounts as of January 1993, with interest thereon from said date at
the rate of eighteen percent (18%) compounded every ninety (90) days, until the said amount
is fully paid;

ii) The sum of $3,472,683.94, representing the aggregate balance as of January 1993 on
[Oates] dollar deposits [in] Trust Account No. 01-014, with interest thereon from said date at
the rate of six percent (6%) compounded every ninety (90) days, until the said amount is fully
paid;

iii) The sum of P100,000,000.00 as and by way of moral damages;

iv) The sum of P50,000,000.00 as and by way of exemplary damages; and

v) The sum of P15,000,000.00, or 20% of all sums collected, whichever is higher, as and for
attorney's fees, the further sum of P3,000.00 as appearance fee for each hearing attended,
and such other sums that may be proved during the trial as litigation expenses.28

Upon Oates motion, the RTC issued an Order29 dated May 27, 1994, creating a Board of
Commissioners (the Board) for the purpose of examining the records of Oates seven trust
accounts, as well as to determine the total amount of deposits, withdrawals, funds invested,
earnings, and expenses incurred. It was composed of Atty. Engracio M. Escasinas, the Clerk
of Court of the RTC of Makati City, as the Chairman; and, Atty. Ma. Cristina C. Malab and Ms.
Adeliza M. Jaranilla representing Land Bank and Oate, respectively, as members.
Initially, the Board submitted three reports.30 But for clarity, the trial court ordered31 the
Board to reconvene and to submit a consolidated report furnishing copies of the same to both
parties, who were given 10 days from receipt thereof to file their respective comments
thereto. The Board complied and on August 16, 2004 submitted its consolidated report.32 As
summarized by the RTC, the said consolidated report revealed that there were undocumented
and over withdrawals and drawings33 from Oates trust accounts:

Thus, the Commissioners Report showed that the total amount of drawings and withdrawals
from each account without withdrawal slips are as follows:

In Trust Account No. 01-014, there was a total withdrawals [sic] without withdrawal slips but
reflected in the passbook in the amount of P45,103,297.33 and this account showed a
negative balance of P40,367,342.34. On the dollar deposit under the same trust account, there
was a total [withdrawal] without withdrawal slips but reflected in the passbook in the amount
of $3,210,222.85.

In Trust Account No. 01-017, there was a total withdrawal without withdrawal slips in the
amount of P2,682,088.58 and there was an over withdrawal of P11,738,470.53 and $30,000.00.

In Trust Account No. 01-024, there was a total withdrawal without withdrawal slips of
P900,000.00 and over withdrawal of P13,310,328.01.

In Trust Account No. 01-075, there was a total withdrawal of P500,000.00 without withdrawal
slips and there was a negative balance of P33,342,132.64 and $286,399.34 on the dollar
account.

In Trust Account No. 01-082, the total amount of withdrawal without withdrawal slips but
reflected in the passbook was P1,782,741.86 and there was an over withdrawal of P14,031.63.

In Trust Account No. 01-089, there was a total withdrawal without withdrawal slips in the
amount of P5,054,809.00 but the report indicated that there was a negative balance of
P1,296,441.92.

In Trust Account No. 01-125, there was a total withdrawal without withdrawal slips in the
amount of P4,640,551.34 and there was a negative balance of P58,327,459.23.34

On even date, the Board also submitted a Manifestation35 informing the RTC that its findings
as to the outstanding balance of each trust account may not be accurate considering that it
was not given ample opportunity to collate and sort out the documents related to each trust
account and that there may have been double take up of accounts since the documents
previously reviewed may have been considered again in subsequent reports.

In his Comment,36 Oate asserted that the undocumented withdrawals mentioned in the
consolidated report should not be considered as cash outflows. Rather, they should be treated
as unauthorized transactions and the amounts subject thereof must be credited back to his
accounts.

Land Bank did not file any comment or objection to the Boards consolidated comment.
During the pre-trial conference, the parties agreed that they would submit the case for
decision based on the reports of the Board after they have submitted their respective
memoranda. They also stipulated on the following issues for resolution of the RTC:

1. Whether x x x Oate could claim on Trust Account Nos. 01-014 and 01-017 which were
opened for an undisclosed principal;

2. Whether x x x the undocumented withdrawals and drawings are considered valid and
regular and, conversely, if in the negative, whether x x x such amounts shall be credited
[back] to the accounts.37

In his Memorandum38 filed on July 12, 2005, Oate reiterated that Land Bank should be held
liable for the undocumented withdrawals and drawings. For its part, Land Bank posited, inter
alia, that Trust Account Nos. 01-014 and 01-017 should be excluded from the computation of
Oates counterclaim considering his allegation that said accounts are owned by an
undisclosed principal whom/which he failed to join as indispensable party. Land Bank further
theorized that Oate must answer for the negative balances as revealed by the Boards
reports.39

Thereafter, the case was submitted for decision.

Ruling of the Regional Trial Court

On May 31, 2006, the RTC rendered a Decision40 dismissing Land Banks Complaint for its
failure to establish that the amount of P4,086,888.89 allegedly "miscredited" to Oates Trust
Account No. 01-125 actually came from the investments of PVTA and PVTB. Hence, the RTC
ordered Land Bank to restore the total amount of P1,471,416.52 which the bank unilaterally
debited from Oates five trust accounts.41

With regard to Oates counterclaim for the recovery of P220,999,472.36, as well as the
alleged US$3,472,683.94 balance of his dollar deposits in Trust Account No. 01-014, the RTC
ruled that under the IMAs, Land Bank had the authority to withdraw funds (as in fact it was at
all times in possession of the passbooks) from Oates accounts even without a letter of
instruction or withdrawal slip coming from Oate. It thus gave weight to the entries in the
passbooks since the same were made in the ordinary course of business. The RTC also ruled
that Oate is deemed to have approved the entries in the statements of account that were
sent to him as he never interposed any objection thereto within the period given him to do so.

Anent Land Banks claim for the negative balances, the RTC likewise denied the same for Land
Bank never sought them in its Complaint. Moreover, being the manager of the funds and
keeper of the records, the RTC held that Land Bank should not have allowed further
withdrawals if there were no more funds.

The RTC likewise debunked Land Banks argument that Oates counterclaim with respect to
Trust Account Nos. 01-014 and 01-017 should be dismissed for his failure to join his
undisclosed principal. According to the RTC, Land Bank should have earlier invoked such
defense when it filed its answer to the counterclaim. Also, if it is true that said accounts are
not owned by Oate, then the bank had no right to apply the funds in said accounts as
payment for the alleged personal indebtedness of Oate.

The dispositive portion of the RTCs Decision reads:

WHEREFORE, in view of all the foregoing, decision is hereby rendered dismissing the
complaint and ordering [Land Bank] to pay [Oate] the total amount of P1,471,416.52
representing the total amount of funds debited from the five (5) trust accounts of the
defendant with legal rate of interest of 12% per annum, compounded yearly, effective on 21
June 1991 until fully paid.

No pronouncement as to costs.

SO ORDERED.42

Land Bank filed a Motion for Reconsideration.43 In an Order44 dated July 11, 2006, however,
the RTC denied the same.

Both parties appealed to the CA.

Ruling of the Court of Appeals

In its December 18, 2009 Decision,45 the CA denied Land Banks appeal and granted that of
Oate. The CA affirmed the RTCs ruling that Land Bank failed to establish the source of the
funds it claimed to have been erroneously credited to Oates account. With respect to
Oates appeal, the CA agreed that he is entitled to the unaccounted withdrawals which, as
found by the Board, stood at P60,663,488.11 and $3,210,222.85.46 The CAs ruling is anchored
on the banks failure to observe Sections X401 and X425 of the Bangko Sentral ng Pilipinas
Manual of Regulation for Banks (MORB) requiring it to give full disclosure of the services it
offered and conduct its dealings with transparency, as well as to render reports that would
sufficiently apprise its clients of the significant developments in the administration of their
accounts. Aside from allowing undocumented withdrawals, the CA likewise noted that Land
Bank failed to keep an accurate record and render an accounting of Oates accounts. For the
CA, the entries in the passbooks are not sufficient because they do not specify where the
funds withdrawn from Oates accounts were invested.

The dispositive portion of the CAs Decision reads:

WHEREFORE, the appeal of plaintiff-appellant Land Bank is DENIED.

The appeal of defendant-appellant Emmanuel Oate is hereby partially GRANTED. Accordingly,

the May 31, 2006 Decision of the Regional Trial Court, Branch 141, Makati City is hereby
MODIFIED in that, in addition to the previous grant of P1,471,416.52 representing the total
amount of funds debited from defendant-appellant Oates trust accounts, plaintiff-appellant
Land Bank is hereby ordered to pay defendant-appellant Oate the sum of P60,663,488.11 and
$3,210,222.85 representing the undocumented withdrawals it debited from the latters trust
account with interest at the rate of 12% per annum, compounded yearly from June 21, 1991
until fully paid.

SO ORDERED.47

Land Bank filed a Motion for Reconsideration.48 In a Resolution49 dated May 27, 2010,
however, the CA denied its motion. Hence, Land Bank filed the instant Petition for Review on

Certiorari based on the following issues:

Issues

1. WHETHER X X X THE ENTRIES IN THE PASSBOOK ISSUED BY LBP IN OATES TRUST

ACCOUNT (EXPRESS TRUST) COVERED BY AN INVESTMENT MANAGEMENT AGREEMENT
(IMA) WITH FULL DISCRETION ARE SUFFICIENT TO MEET THE "RULE ON PRESUMPTION OF
REGULARITY OF ENTRIES IN THE COURSE OF BUSINESS" PROVIDED FOR UNDER SECTION
43, RULE 130 OF THE RULES OF COURT.

2. WHETHER X X X OATE IS ENTITLED TO CLAIM FOR P1,471,416.52 WHICH IS NOT PLEADED

AS COUNTERCLAIM IN HIS ANSWER PURSUANT TO SECTION 2, RULE 9 OF THE RULES OF
COURT.

3. WHETHER X X X OATE IS ENTITLED TO THE AWARD OF P60,663,488.11 AND $3,210,222.85

REPRESENTING THE ALLEGED UNDOCUMENTED WITHDRAWALS DEBITED FROM HIS TRUST
ACCOUNTS ON THE GROUND OF LBPS ALLEGED FAILURE TO MEET THE STANDARDS SET
FORTH UNDER THE 2008 MANUAL ON REGULATIONS FOR BANKS (MORB) ISSUED BY BSP.

4. WHETHER X X X OATE MAY SUE [ON] TRUST ACCOUNT NOS. 01-014 AND 01-017 OPENED
FOR AN UNDISCLOSED PRINCIPAL WITHOUT JOINING HIS UNDISCLOSED PRINCIPAL.

5. WHETHER X X X THE AWARD OF INTEREST TO OATE AT THE RATE OF TWELVE PERCENT

(12%) PER ANNUM, COMPOUNDED YEARLY FROM JUNE 21, 1991 UNTIL FULLY PAID, IS
VIOLATIVE OF ARTICLE 1959 OF THE CIVIL CODE.50

Land Banks Arguments

Land Bank disputes the ruling of both lower courts that it failed to prove the fact of
"miscrediting" the amount of P4,086,888.89 to Oates Trust Account No. 01-125 as the
deposit slips pertaining thereto were not presented. Land Bank maintains that in trust
accounts the passbooks are always in the banks possession so that it can record the cash
inflows and outflows even without the corresponding deposit or withdrawal slips. Citing
Section 43, Rule 130 of the Rules of Court, it asserts that the entries in the passbooks must
be accepted as proof of the regularity of the transactions reflected in the trust accounts,
including the "miscrediting" of P4,086,888.89, for they were made in the regular course of
business. In addition, said entries are supported by demand letters dated October 8, 198151
and September 3, 1991,52 as well as a Statement of Account53 as of May 15, 1992. Land Bank
avers that Oate never questioned the statements of account and the reports it presented to
him and, hence, he is deemed to have approved all of them.

Land Bank also imputes error on the lower courts in ordering the restoration of the amount of
P1,471,416.52 it debited from Oates five trust accounts because he never sought it in his
Answer.

Petitioner bank vigorously argues that Oate is not entitled to the undocumented withdrawals
amounting to P60,663,488.11 and $3,210,222.85. According to Land Bank, in holding it liable
for the said amounts, the CA erroneously relied on the 2008 MORB which was not yet in
existence at the time the transactions subject of this case were made or even at the time
when Land Bank filed its Complaint. In any case, Land Bank insists that it made proper
accounting and apprised Oate of the status of his investments in accordance with the terms
of the IMAs. In its demand letter54 dated September 3, 1991 Land Bank made a full disclosure
that the total outstanding balance of all the trust accounts amounted to P1,471,416.52, but
that the same was setoff to recoup the "miscredited" funds. It faults Oate for not interposing
any objection as his silence constitutes as his approval after 30 days from receipt thereof.
Land Bank asseverates that Oate could have also inspected and audited the records of his
accounts at any reasonable time. But he never did.

Land Bank likewise faults the CA in treating the undocumented withdrawals as unauthorized
transactions as the Boards reports do not state anything to that effect. It claims that the CAs
reliance on the consolidated report in awarding the extremely huge amounts of
P60,663,488.11 and $3,210,222.85 is a grievous mistake because the Board itself already
manifested that said report "may not be accurate." Consequently too, Land Bank asserts that
the reports of the Board cannot prevail over the entries in the passbooks which were made in
the regular course of business.

Land Bank further states that as computed by the Board, the amount of negative balances in
Oates accounts reached P131,747,487.02 and $818,674.71.55 It thus proposes that if the CA
awarded to Oate the undocumented withdrawals on the basis of the Boards reports, then it
should have also awarded to Land Bank said negative balances or over withdrawals as
reflected in the same reports. After all, Oate admitted in his Answer that all withdrawals
from his trust accounts were done in the ordinary course of business.

Furthermore, Land Bank claims that it argued before the CA that Oate cannot sue on Trust
Account Nos. 01-014 and 01-017. While Oate alleged that said accounts were opened for an
undisclosed principal, he did not, however, join as an indispensable party said principal in
violation of Section 3, Rule 3 of the Rules of Court.56 Unfortunately, the CA sidestepped the
issue and proceeded to grant Oate the unaccounted withdrawals from said accounts in the
aggregate amounts of P47,785,385.91 and $3,210,222.85. Following Quilatan v. Heirs of
Lorenzo Quilatan,57 Land Bank insists that this case should be remanded to the trial court
even if the issue of failure to implead an indispensable party was raised for the first time in a
Motion for Reconsideration of the trial courts Decision.

Finally, Land Bank questions the ruling of the CA imposing 12% per annum rate of interest. It
contends that trust accounts are in the nature of "Express Trust" and not in the nature of a
regular deposit account where a debtor-creditor relationship exists between the bank and its
depositor. It was not indebted to Oate but merely held and managed his funds. There being
no loan or forbearance of money involved, in the absence of stipulation, the applicable rate of
interest is only 6% per annum. Land Bank claims that the CA further erred when it
compounded the 12% interest even in the absence of any such stipulation.

Oates Arguments

In opposing the Petition, Oate argues that the issues raised by Land Bank involve factual
matters not proper in a petition for review on certiorari. He posits that the Petition does not
fall under any of the exceptions where this Court could review factual issues.

As to Land Banks allegation that he cannot claim the funds without divulging and impleading
as an indispensable party his undisclosed principal, Oate points out that in his Answer (With
Compulsory Counterclaim) he alleged that Trust Account Nos. 01-014 and 01-017 were opened
for an "undisclosed principal." Yet Land Bank did not controvert his allegation. It is, therefore,
too late in the day for Land Bank to invoke non-joinder of principal as an indispensable party.
Besides, when he executed the IMAs, he was acting for himself and on behalf of an
undisclosed principal. Hence, he could claim and recover the amounts owing not only to
himself but also to his undisclosed principal.

Oate likewise asserts that Land Bank, as uniformly found by both lower courts, failed to
prove by preponderance of evidence the fact of "miscrediting." As to the demand letters
adverted to by Land Bank, Oate asserts that the lower courts did not consider the same
because they were not formally offered. Land Bank also failed to present competent and
sufficient evidence that he admitted his indebtedness on account of the "miscrediting" of
funds. Since Land Bank failed to prove the fact of "miscrediting" it had no right to debit any
amount from his accounts and must restore whatever funds it had debited therefrom. Oate
also denies having failed to seek the return of the funds debited from his account.

Oate further claims that in 1982 his peso trust accounts had a total balance of
P35,555,464.78 while the dollar trust accounts had a balance of US$1,690,943.78. Since then,
however, he never received any report or update regarding his accounts until the bank sent
him financial reports dated June 30, 1991 indicating that the balances of his trust accounts
had been unilaterally setoff. According to Oate, Land Banks failure to keep an accurate
record of his accounts and to make proper accounting violate several circulars of the Central
Bank.58 Hence, it is only proper to require the bank to return the undocumented withdrawals
which, as found by the Board, amount to P60,663,488.11 and $3,210,222.82. In addition, Oate
points out Land Banks failure to keep an accurate record of his accounts as shown by the
huge amounts of unsupported withdrawals and drawings which constitutes willful default if
not gross misconduct in violation of the IMAs which, in turn, makes the bank liable for its
actions.

Anent Land Banks invocation that the entries in the passbook made in the ordinary course of
business are presumed correct and regular, Oate argues that such presumption does not
relieve the trustee, Land Bank in this case, from presenting evidence that the undocumented
withdrawals and drawings were authorized. In any case, the presumption invoked by Land
Bank does not lie as one of its elements that the entrant must be deceased or unable to
testify is lacking. Land Bank cannot also excuse itself for failing to regularly submit to him
accounting reports as, anyway, he was free to inspect the records at any reasonable day.
Oate emphasizes that it is the duty of the bank to keep him updated with significant
developments in his accounts.

In refutation of Land Banks claim to negative balances and over withdrawals, Oate posits
that the bank cannot benefit from its own negligence in mismanaging the trust accounts.

Lastly, Oate defends the CAs grant of 12% per annum rate of interest as under BSP Circular
No. 416, said rate shall be applied in cases where money is transferred from one person to
another and the obligation to return the same or a portion thereof is adjudged. In any event,
Land Bank is estopped from disputing said rate for Land Bank itself applied the same 12% per
annum rate of interest when it sought to recover the amount allegedly "miscredited" to his
account. As to the compounding of interest, Oate claims that the parties intended that
interest income shall be capitalized and shall form part of the principal.

Our Ruling

We deny the Petition.

The issues raised are factual and do not

involve questions of law.

From the very start the issues involved in this case are factual the very reason why the RTC
created a Board of Commissioners to assist it in examining the records pertaining to Oates
accounts and determine the respective cash inflows and outflows in said accounts.
Thereafter, the parties agreed to submit the case based on the Boards reports. And when the
controversy reached the CA, the appellate court basically conducted an "assiduous
assessment of the evidentiary records."59 No question of law was ever raised for
determination of the lower courts. Now, Land Bank practically beseeches us to assess the
probative weight of the documentary evidence on record to resolve the same basic issues of
(i) whether Land Bank "miscredited" P4,086,888.89 to Trust Account No. 01-125 and (ii)
"whether x x x the undocumented withdrawals and drawings are considered valid and regular
and, conversely, if in the negative, whether x x x such amounts shall be credited to the
accounts."60

These issues could be resolved by consulting the evidence extant on records, such as the
IMAs, the passbooks, the letters of instructions, withdrawal and deposit slips, statements of
account, and the Boards reports. Land Banks heavy reliance on Section 43, Rule 130 of the
Rules of Court61 also attests to the factual nature of the issues involved in this case. "Well-
settled is the rule that in petitions for review on certiorari under Rule 45, only questions of law
can be raised."62 In Velayo-Fong v. Spouses Velayo,63 we defined a question of law as
distinguished from a question of fact:

A question of law arises when there is doubt as to what the law is on a certain state of facts,
while there is a question of fact when the doubt arises as to the truth or falsity of the alleged
facts.

For a question to be one of law, the same must not involve an examination of the probative
value of the evidence presented by the litigants or any of them. The resolution of the issue
must rest solely on what the law provides on the given set of circumstances. Once it is clear
that the issue invites a review of the evidence presented, the question posed is one of fact.
Thus, the test of whether a question is one of law or of fact is not the appellation given to
such question by the party raising the same; rather, it is whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in which case, it is a
question of law; otherwise, it is a question of fact. (Italics supplied)

While there are recognized exceptions64 to this rule, none exists in this case.

Anent Land Banks contention that the determination of whether the CA erred in retroactively
applying the 2008 MORB poses a legal question, the same deserves scant consideration. True,
the CA included in its ratio decidendi a discussion on the 2008 MORB to give emphasis to the
duties of banks to keep an accurate record and regularly apprise their clients of the status of
their accounts. But the issue of whether Land Bank failed to comply with those duties can be
resolved even without the MORB as the same duties are also imposed on Land Bank by the
IMAs, the contract that primarily governs the parties in this case. "As a general rule, a
contract is the law between the parties. Thus, from the moment the contract is perfected, the
parties are bound not only to the fulfilment of what has been expressly stipulated but also to
all consequences which, according to their nature, may be in keeping with good faith, usage
and law. Also, the stipulations of the contract being the law between the parties, courts have
no alternative but to enforce them as they were agreed [upon] and written x x x."65
Based on the factual milieu of this case even without touching on the MORB, we found that
Land Bank still failed to perform its bounden duties to keep accurate records and render
regular accounting. We also found no cogent reason to disturb the other factual findings of the
CA.

Land Bank failed to prove that the

"miscredited" funds came from the
proceeds of the pre-terminated loans of
its corporate borrowers.

Land Bank argues that the entries in the passbooks were made in the regular course of
business and should be accepted as prima facie evidence of the facts stated therein. But
before entries made in the course of business may qualify under the exception to the hearsay
rule and given weight, the party offering them must establish that: (1) the person who made
those entries is dead, outside the country, or unable to testify; (2) the entries were made at, or
near the time of the transaction to which they refer; (3) the entrant was in a position to know
the facts stated therein; (4) the entries were made in the professional capacity or in the
course of duty of the entrant; and, (5) the entries were made in the ordinary or regular course
of business or duty.66

Here, Land Bank has neither identified the persons who made the entries in the passbooks nor
established that they are already dead or unable to testify as required by Section 43,67 Rule
130 of the Rules of Court. Also, and as correctly opined by the CA, "[w]hile the deposit entries
in the banks passbook enjoy a certain degree of presumption of regularity x x x," the same do
"not indicate or explain the source of the funds being deposited or withdrawn from an
individual account."68 They are mere prima facie proof of what are stated therein the dates
of the transactions, the amounts deposited or withdrawn, and the outstanding balances. They
do not establish that the total amount of P4,086,888.89 deposited in Oates Trust Account
No. 01-125 in November 1980 came from the proceeds of the pre-terminated loans of Land
Banks corporate borrowers. It would be too presumptuous to immediately conclude that said
amount came from the checks paid to Land Bank by its corporate borrowers just because the
maturity dates of the loans coincided with the dates said total amount was deposited. There
must be proof showing an unbroken link between the proceeds of the pre-terminated loans
and the amount allegedly "miscredited" to Oates Trust Account No. 01-125. As a bank and
custodian of records, Land Bank could have easily produced documents showing that its
borrowers pre-terminated their loans, the checks they issued as payment for such loans, and
the deposit slips used in depositing those checks. But it did not.

Land Bank did not also bother to explain how Oate or his representative, Eduardo Polonio
(Polonio), obtained possession of the checks when, according to it, the corporate borrowers
issued the checks in its name as payment for their loans.69 Under paragraph 8 of its
Complaint, Land Bank alleged that its corporate borrowers "paid their respective obligations
in the form of checks payable to LANDBANK x x x".70 If it is true, then why were the checks
credited to Oates account? Unless subsequently endorsed to Oate, said checks can only be
deposited in the account of the payee appearing therein. We cannot thus lend credence to
Land Banks excuse that the proximate cause of the alleged "miscrediting" was the fraudulent
representation of Polonio, for assuming that the latter indeed employed fraudulent
machinations, with the degree of prudence expected of banks, Land Bank and its tellers could
have easily detected that Oate was not the intended payee. In Traders Royal Bank v. Radio
Philippines Network, Inc.,71 we held that petitioner bank was remiss in its duty and obligation
for accepting and paying a check to a person other than the payee appearing on the face of
the check sans valid endorsement. Consequently, it was made liable for its own negligence
and in disregarding established banking rules and procedures.

We are also groping in the dark as to the number of checks allegedly deposited by Polonio to
Oates Trust Account No. 01-125. According to Land Bank, the entire amount of
P4,086,888.89 represents the proceeds of the pre-terminated loans of four of its clients,
namely, RETELCO, PBM, CBY and PHILTOFIL. But it could only point to two entries made on
two separate dates in the passbook as reproduced below:
Date WITHDRAWAL DEPOSIT BALANCE
xxx x x x P250,704.60
24NOV80 159,000.00 409,704.60
24NOV80 3,063,750.00CK 3,473,454.60
24NOV80 42,000.00 3,431,454.60
25NOV80 275,923.75 CK 3,707,378.35
25NOV 80 1,235,962.00 2,471,416.35
26NOV80 193,800.00 CK 2,665,216.35
26NOV80 250,000.00 CK 2,915,216.35
2,915,216.35
26NOV80 2,915,216.35
321,188.38 CK 3,236,404.73
26NOV80 1,373,167.00 1,863,237.73
27NOV80 1,021,250.00 CK 2,884,487.73
28NOV80 70,833.33 CK 2,955,321.06
27NOV80 919,300.00 2,036,021.06
28NOV80 1,023,138.89 CK 3,059,159.9572

Were there only two checks issued as payment for the separate loans of these four different
entities? These hanging questions only confirm the correctness of the lower courts uniform
conclusion that Land Bank failed to prove that the amount allegedly "miscredited" to Oates
account came from the proceeds of the pre-terminated loans of its clients. It is worth
emphasizing that in civil cases, the party making the allegations has the burden of proving
them by preponderance of evidence. Mere allegation is not sufficient.73

As a consequence of its failure to prove

the source of the claimed "miscredited"
funds, Land Bank had no right to debit
the total amount of P1,471,416.52 and
must, therefore, restore the same.

In view of the above, Land Banks argument that the lower courts erred in ordering the return
of the amount of P1,471,416.52 it debited from Oates five trust accounts since he did not
seek such relief in his Answer as a counterclaim, falls flat on its face. The order to restore the
debited amount is consistent with the lower courts ruling that Land Bank failed to prove that
the amount of P4,086,888.89 was "miscredited" to Oates account and, hence, it had no right
to seek reimbursement or debit any amount from his accounts in payment therefor.

Without such right, Land Bank should return the amount of P1,471,416.52 it debited from
Oates accounts in its attempt to recoup what it allegedly lost due to "miscrediting."
Moreover, contrary to Land Banks assertion, Oate contested the banks application of the
balance of his trust accounts in payment for the allegedly "miscredited" amount in his Answer
(With Compulsory Counterclaim) for being "without any factual and legal [bases]."74
Land Bank was remiss in performing
its duties under the IMAs and as a
banking institution.

The contractual relation between Land Bank and Oate in this case is primarily governed by
the IMAs. Paragraph 4 thereof expressly imposed on Land Bank the duty to maintain accurate
records of all his investments, receipts, disbursements and other transactions relating to his
accounts. It also obliged Land Bank to provide Oate with quarterly balance sheets,
statements of income and expenses, summary of investments, etc. Thus:

4. You shall maintain accurate records of all investments, receipts, disbursements and other
transactions of the Account. Records relating thereto shall be open at all reasonable times to
inspection and audit by me either personally or through duly authorized representatives.

Statements consisting of a balance sheet, portfolio analysis, statement of income and

expenses, and summary of investment changes are to be sent to me/us quarterly.

I/We shall approve such accounting by delivering in writing to you a statement to that effect or
by failure to express objections to such accounting in writing delivered to you within thirty
(30) days from my receipt of the accounting.

Upon your receipt of a written approval of the accounting, or upon the passage of said period
of time within which objections may be filed, without written objections having been delivered
to you, such accounting shall be deemed to be approved, and you shall be released and
discharged as to all items, matters and things set forth in such accounting as if such
accounting had been settled and allowed by a decree of a court of competent jurisdiction, in
an action or proceeding in which you and I were parties.75 (Emphasis supplied)

These are the obligations of Land Bank which it should have faithfully complied with in good
faith.76 Unfortunately, Land Bank failed in its contractual duties to maintain accurate records
of all investments and to regularly furnish Oate with financial statements relating to his
accounts. Had Land Bank kept an accurate record there would have been no need for the
creation of a Board of Commissioners or at least the latters work would have been a lot
easier and more accurate. But because of Land Banks inefficient record keeping, the Board
performed the tedious task of trying to reconcile messy and incomplete records. The
lackadaisical attitude of Land Bank in keeping an updated record of Oates accounts is
aggravated by its reluctance to accord the Board full and unrestricted access to the records
when it was conducting a review of the accounts upon the orders of the trial court. Thus, in
its Manifestation77 dated August 16, 2004, the Board informed the trial court that its report
pertaining to outstanding balances may not be accurate because "the documents were then in
the custody of Land Bank and the documents to be reviewed by the Board at a designated
hearing depended on what was released by the then handling lawyer of Land Bank." They
were "not given the opportunity to collate/sort-out the documents related to each trust
account"78 and "the folders being reviewed contained documents related to different trust
accounts."79 As a result, "[t]here may have been double take up of accounts since the
documents previously reviewed may have been repeatedly considered in the reports."80

For its failure to faithfully comply with

its obligations under the IMAs and for
having agreed to submit the case on the
basis of the reports of the Board of
Commissioners, the latters findings are
binding on Land Bank.

Because of Land Banks failure to keep an updated and accurate record of Oates account, it
would have been difficult, if not impossible, to determine with some degree of accuracy the
outstanding balances in Oates accounts. Indeed, the creation of a Board of Commissioners
was a significant development in this case as it facilitated the examination of the records and
helped in the determination of the balances in each of Oates accounts. In a span of four
years, the Board held 60 meetings and scoured the voluminous and scattered records of
subject accounts. In the course thereof, it found several undocumented withdrawals and over
withdrawals. Thereafter, the Board submitted its consolidated report, to which Land Bank did
not file its comment despite having been given the opportunity to do so. It did not question the
result of the examinations conducted by the Board, particularly the Boards computation of
the outstanding balance in each account, the existence of undocumented and over
withdrawals, and how often the bank sent Oate statements of account. In fact, during the
pre-trial conference, Land Bank agreed to submit the case based on the reports of the Board.

Consequently, we found no cogent reason to deviate from the same course taken by the CA
give weight to the consolidated report of the Board and treat it as competent and sufficient
evidence of what are stated therein. After all, the dearth of evidentiary documents that could
have shed light on the alleged unintended crediting and unexplained withdrawals was brought
about by Land Banks failure to maintain accurate records as required by the IMAs. In Simex
International (Manila), Inc. v. Court of Appeals,81 we elucidated on the nature of banking
business and the responsibility of banks:

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. As for business entities
like the petitioner, the bank is a trusted and active associate that can help in the running of
their affairs, not only in the form of loans when needed but more often in the conduct of their
day-to-day transactions like the issuance or encashment of checks.

In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit, confident that the bank will deliver it as
and to whomever he directs. x x x

The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligations to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. x x x (Emphasis
supplied)
As to the conceded inaccuracies in the reports, we cannot allow Land Bank to benefit
therefrom. Time and again, we have cautioned banks to spare no effort in ensuring the
integrity of the records of its clients.82 And in Philippine National Bank v. Court of Appeals,83
we held that "as between parties where negligence is imputable to one and not to the other,
the former must perforce bear the consequences of its neglect." In this case, the Board could
have submitted a more accurate report had Land Bank faithfully complied with its duty of
maintaining a complete and accurate record of Oates accounts. But the Board could not find
and present the corresponding slips for the withdrawals reflected in the passbooks. In
addition, and as earlier mentioned, Land Bank was less than cooperative when the Board was
examining the records of Oates accounts. It did not give the Board enough leeway to go over
the records systematically or in orderly fashion. Hence, we cannot allow Land Bank to benefit
from possible inaccuracies in the reports.

Neither does Oates failure to exercise his rights to inspect the records and audit his
accounts excuse the bank from sending the required notices, for under the IMAs it behooved
upon Land Bank to keep him fully informed of the status of his investments by sending him
regular reports and statements. Oates failure to inspect the record of his accounts should
neither be construed as his waiver to be furnished with updates on his accounts nor authority
for the bank to make undocumented withdrawals. As aptly opined by the CA:

x x x The least that Land Bank could have done was to keep a detailed quarterly report on
[its] file. In this case, Land Bank did away with this procedure that made [its] records a
complete mess of voluminous and meaningless records of numerous folders containing more
than 7,600 leaves/pages and some 90 passbooks, with 1,355 leaves/pages of entries,
corresponding to the seven (7) Trust Accounts.

The passbook entries alone are insufficient compliance with Land Banks duty to keep
"accurate records of all investments, receipts, disbursements and other transactions of the
Account." These passbooks do not inform what investments were made on the funds
withdrawn. Moreover, these passbook entries do not show if the amounts purported to have
been invested were indeed received by the concerned entity, facility, or borrower. From these
entries alone, Oate would have no way of knowing where his money went.84

But Land Bank next postulates that if Oate is entitled to the undocumented withdrawals on
the basis of the reports of the Board, then it should also be entitled to the negative balances
or over withdrawals as reflected in the same reports.

We cannot agree for a number of reasons. First, as earlier discussed, Land Bank is guilty of
negligence while Oate (at least insofar as over withdrawals are concerned) is not. Had Land
Bank maintained an accurate record, it would have readily detected and prevented over
withdrawals. But without any qualms, Land Bank asks for the negative balances, unmindful
that such claim is actually detrimental to its cause because it amounts to an admission that it
allowed over withdrawals. As aptly observed by the CA:

Corollarily, the Court cannot allow Land Bank to recover the negative balances from Oates
trust accounts. Examining the Commissioners Report, the Court notes that the funds of
Oates trust accounts became seriously depleted due to the unaccounted withdrawals that
Land Bank charged against his accounts. At any rate, those negative balances on Oates
accounts show Land Banks inefficient performance in managing his trust accounts.
Reasonable bank practice and prudence [dictate] that Land Bank should not have authorized
the withdrawal of various sums from Oates accounts if it would result to overwithdrawals. x
x x85

Second, Land Bank never prayed for the recovery of the negative balances in its Complaint.

It is settled that courts cannot grant a relief not prayed for in the pleadings or in excess of
what is being sought by the party. x x x Due process considerations require that judgments
must conform to and be supported by the pleadings and evidence presented in court. In
Development Bank of the Philippines v. Teston,86 this Court expounded that:

Due process considerations justify this requirement. It is improper to enter an order which
exceeds the scope of relief sought by the pleadings, absent notice which affords the opposing
party an opportunity to be heard with respect to the proposed relief. The fundamental purpose
of the requirement that allegations of a complaint must provide the measure of recovery is to
prevent surprise to the defendant.87

Last, during the pre-trial conference, the issue of the validity of undocumented withdrawals
was properly put into issue. The parties also agreed, as a collateral issue, that should it
appear that the bank was not authorized to make the undocumented withdrawals, the next
issue for consideration would be whether the amount subject thereof should be credited back
to Oates accounts.88 The case of negative balances as alluded to by Land Bank, however, is
different. It was never put into issue during the pre-trial conference. In Caltex (Philippines),
Inc. v. Court of Appeals,89 we held that "to obviate the element of surprise, parties are
expected to disclose at a pre-trial conference all issues of law and fact which they intend to
raise at the trial, except such as may involve privileged or impeaching matters. The
determination of issues at a pre-trial conference bars the consideration of other questions on
appeal." Land Bank interposed its claim to the negative balances for the first time only when
it filed its Memorandum with the RTC.

Land Bank knew from the start and

admitted during trial that Trust
Account Nos. 01-014 and 01-017 do not
belong to Oate; hence, it should not
have debited any amount therefrom to
compensate for the alleged personal
indebtedness of Oate.

Land Bank claims that Oate cannot sue on Trust Account Nos. 01-014 and 01-017 without
joining as an indispensable party his undisclosed principal.

But if anyone in this case is guilty of failing to join an indispensable party, it is Land Bank that
first committed a violation. The IMAs covering Trust Account Nos. 01-014 and 01-017 attached
as Annexes "A"90 and "B,"91 respectively, of Land Banks Complaint clearly state that Oate
signed the same "FOR: UNDISCLOSED PRINCIPAL." As party to the said IMAs, Land Bank knew
and ought not to forget that Oate is merely an agent and not the owner of the funds in said
accounts. Yet Land Bank garnished the total amount of P792,595.25 from Trust Account Nos.
01-014 and 01-017 to answer for the alleged personal indebtedness of Oate. Worse, when
Land Bank filed its Complaint for Sum of Money, it did not implead said undisclosed principal
or inform the trial court thereof. Now that Oate is seeking the restoration of the amounts
debited and withdrawn without withdrawal slips from said accounts, Land Bank is invoking the
defense of failure to implead an indispensable party. We cannot allow Land Bank to do this. As
aptly observed by the trial court:

Under the circumstances obtaining, it is highly unfair, unjust and iniquitous, to dismiss the suit
with respect to the two Trust Accounts after [Land Bank] had garnished the balances of said
accounts to pay the alleged indebtedness of [Oate] allegedly incurred by the erroneous
crediting of P4 million to x x x Trust Account No. 01-125 which does not appear to be owned
by an undisclosed principal. Trust Account No. 01-125 is [Oates] personal trust account with
plaintiff. Stated differently, [Land Bank] having now recognized and admitted that Trust
Account Nos. 01-014 and 01-017 were not owned by [Oate], it has perforce no right, nay
unlawful for it, to apply the funds in said accounts to pay the alleged indebtedness of [Oates]
personal account. Equity and justice so demand that the funds be restored to Trust Account
Nos. 01-014 and 01-017.92

Oate protested the contents of the

statements of account at the earliest
opportunity.

As to Land Banks insistence that Oate is deemed to have accepted the contents of the
statements of account for his failure to manifest his objection thereto within 30 days from
receipt thereof, it should be recalled that from the time the alleged "miscrediting" occurred in
November 1980, the first communication coming from Land Bank was its letter dated October
8, 1981.93 This, however, was the subject of a failed negotiation between the parties.
Besides, said letter can hardly be considered as an statement that would apprise Oate of the
status of his investments. It is not "a balance sheet, portfolio analysis, statement of income
and expenses or a summary of investment changes" as contemplated in paragraph 4 of the
IMAs. It is a demand letter seeking the return of the alleged "miscredited" amount. The same
goes true with Land Banks letter dated September 3, 1991. As can be readily seen from its
opening paragraph, said letter is in response to Oates "demand" for information regarding
the offsetting,94 which Oate protested and is now one of the issues involved in this case. In
fine, it cannot be said that Oate approved and adopted the outstanding balances in his
accounts for his failure to object to the contents of those letters within the 30-day period
allotted to him under the IMAs.

From what is available on the voluminous records of this case and as borne out by the Boards
consolidated report dated August 16, 2004, the statements which Land Bank sent to Oate are
only the following:

Based on the Annexes95 attached to Oates Answer (With Compulsory Counterclaim)

ITF No. Balance Sheet
As of Total Liabilities and Trustors Equity
01-014 June 30, 1982 P1,909,349.80
01-017 June 30, 1982 6,003,616.35
01-089 June 30, 1982 551,267.24
01-082 June 30, 1982 1,915.28
01-075 June 30, 1982 12,113,262.95
01-125 June 30, 1982 13,595,271.16
01-024 June 30, 1982 1,131,854.20

Based on the Consolidated Report

ITF No. Report Details Last Date
of Report Balances
01-024 Schedule of Money Market Placement 03.31.82 P453,140.69
01-075 Statement of Income and Expenses Balance Sheet 03.31.90
03.31.90 0.00
1,207,501.69
01-014 Schedule of Money Market Placement Statement of Income and Expenses
Balance Sheet 06.30.91
06.31.91
06.31.91 14,767.20
3,267.19
20,673.58
01-017 Schedule of Investment
Statement of Income and Expenses Balance Sheet 06.30.91
06.30.91
06.30.91 38,502.06
10,437.22
39,659.56
01-082 Statement of Income and Expenses Balance Sheet 06.30.91
06.30.91 59.75
70.28
01-125 Schedule of Investment
Statement of Income and Expenses Balance Sheet 06.30.91
06.30.91
06.30.91 44,055.72
10,079.16
60,920.42

The patent wide gap between the time Land Bank furnished Oate with Balance Sheets as of
June 30, 1982 and the date it sent him an Statement of Income and Expenses, as well as a
Balance Sheet, on March 31, 1990 is a clear and gross violation of the IMAs requiring it to
furnish him with balance sheet, portfolio analysis, statement of income and expenses and the
like, quarterly. As to the reports dated June 30, 1991 and letters subsequent thereto, it should
be noted that during those times Oate had already interposed his objections to the
outstanding balances of his accounts.96

The proper rate of legal interest.

Land Banks argument that the lower courts erred in imposing 12% per annum rate of interest
is likewise devoid of merit. The unilateral offsetting of funds without legal justification and the
undocumented withdrawals are tantamount to forbearance of money. In the analogous case of
Estores v. Supangan,97 we held that "[the] unwarranted withholding of the money which
rightfully pertains to [another] amounts to forbearance of money which can be considered as
an involuntary loan." Following Eastern Shipping Lines, Inc. v. Court of Appeals,98 therefore,
the applicable rate of interest in this case is 12% per annum. Besides, Land Bank is estopped
from assailing the award of 12% per annum rate of interest. In its Complaint, Land Bank
arrived at P8,222,687.89 as the outstanding indebtedness of Oate by using the same 12% per
annum rate of interest. It was only after the lower courts rendered unfavorable decisions that
Land Bank started to insist that the applicable rate of interest is 6% per annum.

Of equal importance is the determination of when the said 12% per annum rate of interest
should commence.1wphi1 Recall that both the RTC and the CA reckoned the running of the
12% per annum rate of interest from June 21, 1991, or the day Land Bank unilaterally applied
the outstanding balance in all of Oates trust accounts, until fully paid. The compounding of
interest, on the other hand, was based on the provision of the IMAs granting Land Bank "to
hold, invest and reinvest the Fund and keep the same invested, in your sole discretion, without
distinction between principal and income."

While we find sufficient basis for the compounding of interest, we find it necessary however to
modify the commencement date. In Eastern Shipping,99 it was observed that the
commencement of when the legal interest should start to run varies depending on the factual
circumstances obtaining in each case.100 As a rule of thumb, it was suggested that "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 made101 (at which time the
quantification of damages may be deemed to have been reasonably ascertained)."102

In the case at bench, while Oate protested the setting off, no proof was presented that he
formally demanded for the return of the amount so debited prior to the filing of the Complaint.
Quite understandably so because at that time he could not determine with some degree of
certainty the outstanding balances of his accounts as Land Bank neglected on its duty to
keep him updated on the status of his accounts. Land Bank even undertook to furnish him with
"the exact computation"103 of what remains in his accounts after the set off. But this never
happened until Land Bank initiated the Complaint on September 7, 1992. Oate, on the other
hand, filed his Answer (With Compulsory Counterclaim) on May 26, 1993. In other words, we
cannot reckon the running of the interest prior to the filing of the Complaint or Oates
Counterclaim as no demand prior thereto was made. Neither could the interest commence to
run at the time of filing of any of aforesaid pleadings (as to constitute judicial demand) since
the undocumented withdrawals in the sums of P60,663,488.11 and US$3,210,222.85, as well
as the amount actually debited from all of Oates accounts, were determined only after the
Board submitted its consolidated report on August 16, 2004 or more than 10 years after Land
Bank and Oate filed their Complaint and Answer, respectively. Note too that while Oate
sought to recover the amount of undocumented withdrawals before the RTC,104 the same was
denied in the latters May 31, 2006 Decision. The RTC granted Oate only the total amount of
funds debited from his trust accounts. It was only when the CA rendered its December 18,
2009 Decision that Oate was awarded the undocumented withdrawals. Hence, we find it just
and proper to reckon the running of the interest of 12% per annum, compounded yearly, for the
debited amount and undocumented withdrawals on different dates. The debited amount of
P1,471,416.52, shall earn interest beginning May 31, 2006 or the day the RTC rendered its
Decision granting said amount to Oate. As to the undocumented withdrawals of
P60,663,488.11 and US 3,210,222.85, the legal rate of interest should start to run the day the
CA promulgated its Decision on December 18, 2009.

During the pendency of this case, however, the Monetary Board issued Resolution No. 796
dated May 16, 2013, stating that in the absence of express stipulation between the parties,
the rate of interest in loan or forbearance of any money, goods or credits and the rate allowed
in judgments shall be 6% per annum. Said Resolution is embodied in Bangko Sentral ng
Pilipinas Circular No. 799, Series of2013, which took effect on July 1, 2013. Hence, the 12%
annual interest mentioned above shall apply only up to June 30, 2013. Thereafter, or starting
July 1, 2013, the applicable rate of interest for both the debited amount and undocumented
withdrawals shall be 6% per annum compounded annually, until fully paid.
WHEREFORE, the Petition is hereby DENIED and the December 18, 2009 Decision of the Court
of Appeals in CA-G.R. CV No. 89346 is AFFIRMED with modification in that the interest of 12%
per annum compounded annually, for the debited amount of P1,471,416.52 shall commence to
run on May 31, 2006, while the same rate of interest shall apply to the undocumented
withdrawals in the amounts of P60,663,488.11 and US 3,210,222.85 starting December 18
2009. Beginning July 1, 2013, however, the applicable rate of interest on all amounts awarded
shall earn interest at the rate of 6% per annum compounded yearly, until fully paid.

IO KHE CHIO, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE AND SURETY
CORPORATION, respondents.

Rodolfo M. Morelos for petitioner.

Ferrer, Mariano, Sangalang & Gatdula for private respondent.

FERNAN, C.J.:p

The issue in this petition for certiorari and prohibition is the legal rate of interest to be
imposed in actions for damages arising from unpaid insurance claims. Petitioner Tio Khe Chio
claims that it should be twelve (12%) per cent pursuant to Articles 243 and 244 of the
Insurance Code while private respondent Eastern Assurance and Surety Corporation (EASCO)
claims that it should be six (6%) per cent under Article 2209 of the Civil Code.

The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio imported one
thousand (1,000) bags of fishmeal valued at $36,000.30 from Agro Impex, U.S.A. Dallas, Texas,
U.S.A. The goods were insured with respondent EASCO and shipped on board the M/V Peskov,
a vessel owned by Far Eastern Shipping Company. When the goods reached Manila on January
28, 1979, they were found to have been damaged by sea water which rendered the fishmeal
useless. Petitioner filed a claim with EASCO and Far Eastern Shipping. Both refused to pay.
Whereupon, petitioner sued them before the then Court of First Instance of Cebu, Branch II for
damages. EASCO, as the insurer, filed a counterclaim against the petitioner for the recovery of
P18,387.86 representing the unpaid insurance premiums.

On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping
to pay petitioner solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid
premiums with interest at the legal rate from the filing of the complaint, the sum of
P15,000.00 as attorney's fees and the costs. 1

The judgment became final as to EASCO but the shipping company appealed to the Court of
Appeals and was absolved from liability by the said court in AC-G.R. No. 00161, entitled "Tio
Khe Chio vs. Eastern Assurance and Surety Corporation."

The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The
sheriff enforcing the writ reportedly fixed the legal rate of interest at twelve (12%).
Respondent EASCO moved to quash the writ alleging that the legal interest to be computed
should be six (6%) per cent per annum in accordance with Article 2209 of the Civil Code and
not twelve (12%) per cent as insisted upon by petitioner's counsel. In its order of July 30,
1986, the trial court denied EASCO's motion. EASCO then filed a petition for certiorari and
prohibition before the Court of Appeals.

On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of
which states:

WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the
interest at 12% on the principal amount of P87,598.82 from the date of filing of the complaint
until the full payment of the amount, and the interest that the private respondent is entitled to
collect from the petitioner is hereby reduced to 6% per annum.

No pronouncement as to costs. 2

In disputing the aforesaid decision of the Court of Appeals, petitioner maintains that not only
is it unjust and unfair but it is also contrary to the correct interpretation of the fixing of
interest rates under Sections 243 and 244 of the Insurance Code. And since petitioner's claims
is based on an insurance contract, then it is the Insurance Code which must govern and not
the Civil Code.

We rule for respondent EASCO. The legal rate of interest in the case at bar is six (6%) per
annum as correctly held by the Appellate Court.

Section 243 of the Insurance Code provides:

The amount of any loss or damage for which an insurer may be liable, under any policy other
than life insurance policy, shall be paid within thirty days after proof of loss is received by the
insurer and ascertainment of the loss or damage is made either by agreement between the
insured and the insurer or by arbitration; but if such ascertainment is not had or made within
sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall
be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage
within the time prescribed herein will entitle the assured to collect interest on the proceeds of
the policy for the duration of the delay at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.

Section 244 of the aforementioned Code also provides:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be
the duty of the Commissioner or the Court, as the case may be, to make a finding as to
whether the payment of the claim of the insured has been unreasonably denied or withheld;
and in the affirmative case, the insurance company shall be adjudged to pay damages which
shall consist of attorney's fees and other expenses incurred by the insured person by reason
of such undeniable denial or withholding of payment plus interest of twice the ceiling
prescribed by the Monetary Board of the amount of the claim due the insured, from the date
following the time prescribed in section two hundred forty-two or in section two hundred forty-
three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay
any such claim within the time prescribed in said sections shall be considered prima facie
evidence of unreasonable delay in payment.
In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal
or withholding of payment on petitioner's claim. In fact, respondent court had this to say on
EASCO's refusal to settle the claim of petitioner:

... EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground which, while
not sufficient to free it from liability under its policy, nevertheless is sufficient to negate any
assertion that in refusing to pay, it acted unjustifiably.

xxx xxx xxx

The case posed some genuine issues of interpretation of the terms of the policy as to which
persons may honestly differ. This is the reason the trial court did not say EASCO's refusal was
unjustified. 3

Simply put, the aforecited sections of the Insurance Code are not pertinent to the instant
case. They apply only when the court finds an unreasonable delay or refusal in the payment of
the claims.

Neither does Circular No. 416 of the Central Bank which took effect on July 29, 1974 pursuant
to Presidential Decree No. 116 (Usury Law) which raised the legal rate of interest from six
(6%) to twelve (12%) per cent apply to the case at bar as by the petitioner. The adjusted rate
mentioned in the circular refers only to loans or forbearances of money, goods or credits and
court judgments thereon but not to court judgments for damages arising from injury to
persons and loss of property which does not involve a loan. 4

In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143
SCRA 158, the Court declared that the legal rate of interest is six (6%) per cent per annum,
and not twelve (12%) per cent, where a judgment award is based on an action for damages for
personal injury, not use or forbearance of money, goods or credit. In the same vein, the Court
held in GSIS vs. Court of Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311, that the
rates under the Usury Law (amended by P.D. 116) are applicable only to interest by way of
compensation for the use or forbearance of money, interest by way of damages is governed by
Article 2209 of the Civil Code.

Clearly, the applicable law is Article 2209 of the Civil Code which reads:

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

And in the light of the fact that the contending parties did not allege the rate of interest
stipulated in the insurance contract, the legal interest was properly pegged by the Appellate
Court at six (6%) per cent.

WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit

Eastern Shipping Lines, Inc. v CA (Credit Transactions)

G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE
INSURANCE COMPANY, INC., respondents.

VITUG, J.:

FACTS:

This is an action against defendants shipping company, arrastre operator and broker-
forwarder for damages sustained by a shipment while in defendants' custody, filed by the
insurer-subrogee who paid the consignee the value of such losses/damages.

the losses/damages were sustained while in the respective and/or successive custody and
possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage).

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all
the rights of action of said consignee against defendants.

DECISION OF LOWER COURTS: * trial court: ordered payment of damages, jointly and severally
* CA: affirmed trial court.

ISSUES AND RULING:

(a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or
joint and several, liability of the common carrier, the arrastre operator and the customs
broker;

YES, it is solidary. Since it is the duty of the ARRASTRE to take good care of the goods that
are in its custody and to deliver them in good condition to the consignee, such responsibility
also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged
with the obligation to deliver the goods in good condition to the consignee.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of,
and received by, the carrier for transportation until delivered to, or until the lapse of a
reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738,
Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52
Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and there need
not be an express finding of negligence to hold it liable.

(b) whether the payment of legal interest on an award for loss or damage is to be computed
from the time the complaint is filed or from the date the decision appealed from is rendered;
and

FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE SUPREME COURT)

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. 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.

(c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six
percent (6%).

SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of
the court a quo (Court of Appeals) AND A TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon finality of the Supreme Court decision
until the payment thereof.

RATIO: when the judgment awarding a sum of money becomes final and executory, the
monetary award shall earn interest at 12% per annum from the date of such finality until its
satisfaction, regardless of whether the case involves a loan or forbearance of money. The
reason is that this interim period is deemed to be by then equivalent to a forbearance of
credit.

NOTES: the Central Bank Circular imposing the 12% interest per annum applies only to loans
or forbearance of money, goods or credits, as well as to judgments involving such loan or
forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs
when the transaction involves the payment of indemnities in the concept of damage arising
from the breach or a delay in the performance of obligations in general. Observe, too, that in
these cases, a common time frame in the computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.
G.R. No. 189871 : August 13, 2013

DARIO NACAR, Petitioner, v. GALLERY FRAMES AND/OR FELIPE BORDEY, JR., Respondents.

PERALTA,J.:

FACTS:

On October 15, 1998, the Labor Arbiter rendered a Decisionin 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 ofP158,919.92.

Respondents appealed to the NLRC, but it was dismissed for lack of merit. Accordingly, the
NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for
reconsideration, but it was denied. Dissatisfied, respondents filed a Petition for Review on
Certiorari before the CA but it was likewise denied. Respondents then sought relief before the
Supreme Court. Finding no reversible error on the part of the CA, this Court denied the petition
in the Resolution dated April 17, 2002.

An Entry of Judgment was later issued certifying that the resolution became final and
executory on May 27, 2002. The case was, thereafter, referred back to the Labor Arbiter for
execution. 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. Upon recomputation, the Computation and
Examination Unit of the NLRC arrived at an updated amount in the sum ofP471,320.31.

Respondents filed a Motion to Quash Writ of Execution, arguing, among other things, that
since the Labor Arbiter awarded separation pay ofP62,986.56 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. LA denied the motion but the decision was reversed by the NLRC on appeal.

Petitioner appealed to the CA but was denied, stating 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. Thus, petitioner filed this petition
for review on certiorari.

ISSUE: Whether or not a re-computation in the course of execution of the labor arbiter's
original computation of the awards made is legally proper.

HELD: Yes.

Labor Law- computation of backwages

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.

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. 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.

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. 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.

CA Decision reversed and set aside

G.R. No. 184458, January 14, 2015

RODRIGO RIVERA, Petitioner, v. SPOUSES SALVADOR CHUA AND S. VIOLETA CHUA,

Respondents.

[G.R. NO. 184472]

SPS. SALVADOR CHUA AND VIOLETA S. CHUA, Petitioners, v. RODRIGO RIVERA, Respondent.

DECISION

PEREZ, J.:

Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 90609 which affirmed
with modification the separate rulings of the Manila City trial courts, the Regional Trial Court,
Branch 17 in Civil Case No. 02-1052562 and the Metropolitan Trial Court (MeTC), Branch 30, in
Civil Case No. 163661,3 a case for collection of a sum of money due a promissory note. While
all three (3) lower courts upheld the validity and authenticity of the promissory note as duly
signed by the obligor, Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the appellate
court modified the trial courts consistent awards: (1) the stipulated interest rate of sixty
percent (60%) reduced to twelve percent (12%) per annum computed from the date of judicial
or extrajudicial demand, and (2) reinstatement of the award of attorneys fees also in a
reduced amount of P50,000.00.

In G.R. No. 184458, Rivera persists in his contention that there was no valid promissory note
and questions the entire ruling of the lower courts. On the other hand, petitioners in G.R. No.
184472, Spouses Salvador and Violeta Chua (Spouses Chua), take exception to the appellate
courts reduction of the stipulated interest rate of sixty percent (60%) to twelve percent (12%)
per annum.

We proceed to the facts.

The parties were friends of long standing having known each other since 1973: Rivera and
Salvador are kumpadres, the former is the godfather of the Spouses Chuas son.

On 24 February 1995, Rivera obtained a loan from the Spouses

Chua:chanroblesvirtuallawlibrary

PROMISSORY NOTE

120,000.00
 FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA
and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency
(P120,000.00) on December 31, 1995.

It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum
equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the entire
obligation is fully paid for.

Should this note be referred to a lawyer for collection, I agree to pay the further sum
equivalent to twenty percent (20%) of the total amount due and payable as and for attorneys
fees which in no case shall be less than P5,000.00 and to pay in addition the cost of suit and
other incidental litigation expense.

Any action which may arise in connection with this note shall be brought in the proper
Court of the City of Manila.

Manila, February 24, 1995[.]

(SGD.) RODRIGO RIVERA4

In October 1998, almost three years from the date of payment stipulated in the promissory
note, Rivera, as partial payment for the loan, issued and delivered to the Spouses Chua, as
payee, a check numbered 012467, dated 30 December 1998, drawn against Riveras current
account with the Philippine Commercial International Bank (PCIB) in the amount of
P25,000.00.

On 21 December 1998, the Spouses Chua received another check presumably issued by
Rivera, likewise drawn against Riveras PCIB current account, numbered 013224, duly signed
and dated, but blank as to payee and amount. Ostensibly, as per understanding by the parties,
PCIB Check No. 013224 was issued in the amount of P133,454.00 with cash as payee.
Purportedly, both checks were simply partial payment for Riveras loan in the principal amount
of P120,000.00.

Upon presentment for payment, the two checks were dishonored for the reason account
closed.

As of 31 May 1999, the amount due the Spouses Chua was pegged at P366,000.00 covering the
principal of P120,000.00 plus five percent (5%) interest per month from 1 January 1996 to 31
May 1999.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no
avail. Because of Riveras unjustified refusal to pay, the Spouses Chua were constrained to file
a suit on 11 June 1999. The case was raffled before the MeTC, Branch 30, Manila and
docketed as Civil Case No. 163661.

In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never executed the
subject Promissory Note; (2) in all instances when he obtained a loan from the Spouses Chua,
the loans were always covered by a security; (3) at the time of the filing of the complaint, he
still had an existing indebtedness to the Spouses Chua, secured by a real estate mortgage,
but not yet in default; (4) PCIB Check No. 132224 signed by him which he delivered to the
Spouses Chua on 21 December 1998, should have been issued in the amount of only
P1,300.00, representing the amount he received from the Spouses Chuas saleslady; (5)
contrary to the supposed agreement, the Spouses Chua presented the check for payment in
the amount of P133,454.00; and (6) there was no demand for payment of the amount of
P120,000.00 prior to the encashment of PCIB Check No. 0132224.
5chanRoblesvirtualLawlibrary

In the main, Rivera claimed forgery of the subject Promissory Note and denied his
indebtedness thereunder.

The MeTC summarized the testimonies of both parties respective

witnesses:chanroblesvirtuallawlibrary

[The spouses Chuas] evidence include[s] documentary evidence and oral evidence
(consisting of the testimonies of [the spouses] Chua and NBI Senior Documents Examiner
Antonio Magbojos). x x x

xxxx

Witness Magbojos enumerated his credentials as follows: joined the NBI (1987); NBI
document examiner (1989); NBI Senior Document Examiner (1994 to the date he testified);
registered criminologist; graduate of 18th Basic Training Course [i]n Questioned Document
Examination conducted by the NBI; twice attended a seminar on US Dollar Counterfeit
Detection conducted by the US Embassy in Manila; attended a seminar on Effective
Methodology in Teaching and Instructional design conducted by the NBI Academy; seminar
lecturer on Questioned Documents, Signature Verification and/or Detection; had examined
more than a hundred thousand questioned documents at the time he testified.

Upon [order of the MeTC], Mr. Magbojos examined the purported signature of [Rivera]
appearing in the Promissory Note and compared the signature thereon with the specimen
signatures of [Rivera] appearing on several documents. After a thorough study, examination,
and comparison of the signature on the questioned document (Promissory Note) and the
specimen signatures on the documents submitted to him, he concluded that the questioned
signature appearing in the Promissory Note and the specimen signatures of [Rivera] appearing
on the other documents submitted were written by one and the same person. In connection
with his findings, Magbojos prepared Questioned Documents Report No. 712-1000 dated 8
January 2001, with the following conclusion: The questioned and the standard specimen
signatures RODGRIGO RIVERA were written by one and the same person.

[Rivera] testified as follows: he and [respondent] Salvador are kumpadres; in May 1998, he
obtained a loan from [respondent] Salvador and executed a real estate mortgage over a parcel
of land in favor of [respondent Salvador] as collateral; aside from this loan, in October, 1998
he borrowed P25,000.00 from Salvador and issued PCIB Check No. 126407 dated 30 December
1998; he expressly denied execution of the Promissory Note dated 24 February 1995 and
alleged that the signature appearing thereon was not his signature; [respondent Salvadors]
claim that PCIB Check No. 0132224 was partial payment for the Promissory Note was not true,
the truth being that he delivered the check to [respondent Salvador] with the space for
amount left blank as he and [respondent] Salvador had agreed that the latter was to fill it in
with the amount of ?1,300.00 which amount he owed [the spouses Chua]; however, on 29
December 1998 [respondent] Salvador called him and told him that he had written P133,454.00
instead of P1,300.00; x x x. To rebut the testimony of NBI Senior Document Examiner
Magbojos, [Rivera] reiterated his averment that the signature appearing on the Promissory
Note was not his signature and that he did not execute the Promissory Note.6

After trial, the MeTC ruled in favor of the Spouses Chua:chanroblesvirtuallawlibrary

WHEREFORE, [Rivera] is required to pay [the spouses Chua]: P120,000.00 plus stipulated
interest at the rate of 5% per month from 1 January 1996, and legal interest at the rate of 12%
percent per annum from 11 June 1999, as actual and compensatory damages; 20% of the
whole amount due as attorneys fees.7

On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the MeTC, but
deleted the award of attorneys fees to the Spouses Chua:chanroblesvirtuallawlibrary

WHEREFORE, except as to the amount of attorneys fees which is hereby deleted, the rest
of the Decision dated October 21, 2002 is hereby AFFIRMED.8

Both trial courts found the Promissory Note as authentic and validly bore the signature of
Rivera.

Undaunted, Rivera appealed to the Court of Appeals which affirmed Riveras liability under the
Promissory Note, reduced the imposition of interest on the loan from 60% to 12% per annum,
and reinstated the award of attorneys fees in favor of the Spouses
Chua:chanroblesvirtuallawlibrary

WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the

MODIFICATION that the interest rate of 60% per annum is hereby reduced to 12% per annum
and the award of attorneys fees is reinstated at the reduced amount of P50,000.00 Costs
against [Rivera].9

Hence, these consolidated petitions for review on certiorari of Rivera in G.R. No. 184458 and
the Spouses Chua in G.R. No. 184472, respectively raising the following
issues:chanroblesvirtuallawlibrary

A. In G.R. No. 184458

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE

RULING OF THE RTC AND M[e]TC THAT THERE WAS A VALID PROMISSORY NOTE EXECUTED
BY [RIVERA].

2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

DEMAND IS NO LONGER NECESSARY AND IN APPLYING THE PROVISIONS OF THE
NEGOTIABLE INSTRUMENTS LAW.

3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AWARDING

ATTORNEYS FEES DESPITE THE FACT THAT THE SAME HAS NO BASIS IN FACT AND IN LAW
AND DESPITE THE FACT THAT [THE SPOUSES CHUA] DID NOT APPEAL FROM THE DECISION
OF THE RTC DELETING THE AWARD OF ATTORNEYS FEES.10chanRoblesvirtualLawlibrary

B. In G.R. No. 184472

[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED GROSS LEGAL

ERROR WHEN IT MODIFIED THE APPEALED JUDGMENT BY REDUCING THE INTEREST RATE
FROM 60% PER ANNUM TO 12% PER ANNUM IN SPITE OF THE FACT THAT RIVERA NEVER
RAISED IN HIS ANSWER THE DEFENSE THAT THE SAID STIPULATED RATE OF INTEREST IS
EXORBITANT, UNCONSCIONABLE, UNREASONABLE, INEQUITABLE, ILLEGAL, IMMORAL OR
VOID.11

As early as 15 December 2008, we already disposed of G.R. No. 184472 and denied the
petition, via a Minute Resolution, for failure to sufficiently show any reversible error in the
ruling of the appellate court specifically concerning the correct rate of interest on Riveras
indebtedness under the Promissory Note.12chanRoblesvirtualLawlibrary

On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.

Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera questioning
the entire ruling of the Court of Appeals in CA-G.R. SP No. 90609.

Rivera continues to deny that he executed the Promissory Note; he claims that given his
friendship with the Spouses Chua who were money lenders, he has been able to maintain a
loan account with them. However, each of these loan transactions was respectively secured
by checks or sufficient collateral.

Rivera points out that the Spouses Chua never demanded payment for the loan nor interest
thereof (sic) from [Rivera] for almost four (4) years from the time of the alleged default in
payment [i.e., after December 31, 1995].13chanRoblesvirtualLawlibrary

On the issue of the supposed forgery of the promissory note, we are not inclined to depart
from the lower courts uniform rulings that Rivera indeed signed it.

Rivera offers no evidence for his asseveration that his signature on the promissory note was
forged, only that the signature is not his and varies from his usual signature. He likewise
makes a confusing defense of having previously obtained loans from the Spouses Chua who
were money lenders and who had allowed him a period of almost four (4) years before
demanding payment of the loan under the Promissory Note.

First, we cannot give credence to such a naked claim of forgery over the testimony of the
National Bureau of Investigation (NBI) handwriting expert on the integrity of the promissory
note.

On that score, the appellate court aptly disabled Riveras

contention:chanroblesvirtuallawlibrary

[Rivera] failed to adduce clear and convincing evidence that the signature on the
promissory note is a forgery. The fact of forgery cannot be presumed but must be proved by
clear, positive and convincing evidence. Mere variance of signatures cannot be considered as
conclusive proof that the same was forged. Save for the denial of Rivera that the signature on
the note was not his, there is nothing in the records to support his claim of forgery. And while
it is true that resort to experts is not mandatory or indispensable to the examination of
alleged forged documents, the opinions of handwriting experts are nevertheless helpful in the
courts determination of a documents authenticity.

To be sure, a bare denial will not suffice to overcome the positive value of the promissory
note and the testimony of the NBI witness. In fact, even a perfunctory comparison of the
signatures offered in evidence would lead to the conclusion that the signatures were made by
one and the same person.

It is a basic rule in civil cases that the party having the burden of proof must establish his
case by preponderance of evidence, which simply means evidence which is of greater
weight, or more convincing than that which is offered in opposition to it.

Evaluating the evidence on record, we are convinced that [the Spouses Chua] have
established a prima facie case in their favor, hence, the burden of evidence has shifted to
[Rivera] to prove his allegation of forgery. Unfortunately for [Rivera], he failed to substantiate
his defense.14

Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially
when affirmed by the appellate court, are accorded the highest degree of respect and are
considered conclusive between the parties.15 A review of such findings by this Court is not
warranted except upon a showing of highly meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on speculation, surmises or conjectures; (2)
when a lower court's inference from its factual findings is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when
the findings of the appellate court go beyond the issues of the case, or fail to notice certain
relevant facts which, if properly considered, will justify a different conclusion; (5) when there
is a misappreciation of facts; (6) when the findings of fact are conclusions without mention of
the specific evidence on which they are based, are premised on the absence of evidence, or
are contradicted by evidence on record.16 None of these exceptions obtains in this instance.
There is no reason to depart from the separate factual findings of the three (3) lower courts
on the validity of Riveras signature reflected in the Promissory Note.

Indeed, Rivera had the burden of proving the material allegations which he sets up in his
Answer to the plaintiffs claim or cause of action, upon which issue is joined, whether they
relate to the whole case or only to certain issues in the case.17chanRoblesvirtualLawlibrary

In this case, Riveras bare assertion is unsubstantiated and directly disputed by the testimony
of a handwriting expert from the NBI. While it is true that resort to experts is not mandatory
or indispensable to the examination or the comparison of handwriting, the trial courts in this
case, on its own, using the handwriting expert testimony only as an aid, found the disputed
document valid.18chanRoblesvirtualLawlibrary

Hence, the MeTC ruled that:chanroblesvirtuallawlibrary

[Rivera] executed the Promissory Note after consideration of the following: categorical
statement of [respondent] Salvador that [Rivera] signed the Promissory Note before him, in his
([Riveras]) house; the conclusion of NBI Senior Documents Examiner that the questioned
signature (appearing on the Promissory Note) and standard specimen signatures Rodrigo
Rivera were written by one and the same person; actual view at the hearing of the enlarged
photographs of the questioned signature and the standard specimen signatures.19

Specifically, Rivera insists that: [i]f that promissory note indeed exists, it is beyond logic for a
money lender to extend another loan on May 4, 1998 secured by a real estate mortgage, when
he was already in default and has not been paying any interest for a loan incurred in February
1995.20chanRoblesvirtualLawlibrary

We disagree.

It is likewise likely that precisely because of the long standing friendship of the parties as
kumpadres, Rivera was allowed another loan, albeit this time secured by a real estate
mortgage, which will cover Riveras loan should Rivera fail to pay. There is nothing
inconsistent with the Spouses Chuas two (2) and successive loan accommodations to Rivera:
one, secured by a real estate mortgage and the other, secured by only a Promissory Note.

Also completely plausible is that given the relationship between the parties, Rivera was
allowed a substantial amount of time before the Spouses Chua demanded payment of the
obligation due under the Promissory Note.

In all, Riveras evidence or lack thereof consisted only of a barefaced claim of forgery and a
discordant defense to assail the authenticity and validity of the Promissory Note. Although the
burden of proof rested on the Spouses Chua having instituted the civil case and after they
established a prima facie case against Rivera, the burden of evidence shifted to the latter to
establish his defense.21 Consequently, Rivera failed to discharge the burden of evidence,
refute the existence of the Promissory Note duly signed by him and subsequently, that he did
not fail to pay his obligation thereunder. On the whole, there was no question left on where the
respective evidence of the parties preponderatedin favor of plaintiffs, the Spouses Chua.

Rivera next argues that even assuming the validity of the Promissory Note, demand was still
necessary in order to charge him liable thereunder. Rivera argues that it was grave error on
the part of the appellate court to apply Section 70 of the Negotiable Instruments Law
(NIL).22chanRoblesvirtualLawlibrary

We agree that the subject promissory note is not a negotiable instrument and the provisions
of the NIL do not apply to this case. Section 1 of the NIL requires the concurrence of the
following elements to be a negotiable instrument:chanroblesvirtuallawlibrary

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

On the other hand, Section 184 of the NIL defines what negotiable promissory note
is:chanroblesvirtuallawlibrary
 SECTION 184. Promissory Note, Defined. A negotiable promissory note within the meaning
of this Act is an unconditional promise in writing made by one person to another, signed by the
maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in
money to order or to bearer. Where a note is drawn to the makers own order, it is not
complete until indorsed by him.

The Promissory Note in this case is made out to specific persons, herein respondents, the
Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.

However, even if Riveras Promissory Note is not a negotiable instrument and therefore
outside the coverage of Section 70 of the NIL which provides that presentment for payment is
not necessary to charge the person liable on the instrument, Rivera is still liable under the
terms of the Promissory Note that he issued.

The Promissory Note is unequivocal about the date when the obligation falls due and becomes
demandable31 December 1995. As of 1 January 1996, Rivera had already incurred in delay
when he failed to pay the amount of P120,000.00 due to the Spouses Chua on 31 December
1995 under the Promissory Note.

Article 1169 of the Civil Code explicitly provides:chanroblesvirtuallawlibrary

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

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was
a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins. (Emphasis supplied)

There are four instances when demand is not necessary to constitute the debtor in default: (1)
when there is an express stipulation to that effect; (2) where the law so provides; (3) when the
period is the controlling motive or the principal inducement for the creation of the obligation;
and (4) where demand would be useless. In the first two paragraphs, it is not sufficient that
the law or obligation fixes a date for performance; it must further state expressly that after
the period lapses, default will commence.

We refer to the clause in the Promissory Note containing the stipulation of

interest:chanroblesvirtuallawlibrary

It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum
equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the entire
obligation is fully paid for.23

which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the date of
default until the entire obligation is fully paid for. The parties evidently agreed that the
maturity of the obligation at a date certain, 31 December 1995, will give rise to the obligation
to pay interest. The Promissory Note expressly provided that after 31 December 1995, default
commences and the stipulation on payment of interest starts.

The date of default under the Promissory Note is 1 January 1996, the day following 31
December 1995, the due date of the obligation. On that date, Rivera became liable for the
stipulated interest which the Promissory Note says is equivalent to 5% a month. In sum, until
31 December 1995, demand was not necessary before Rivera could be held liable for the
principal amount of P120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became
liable to pay the Spouses Chua damages, in the form of stipulated interest.

The liability for damages of those who default, including those who are guilty of delay, in the
performance of their obligations is laid down on Article 117024 of the Civil Code.

Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an

indemnity for damages when the obligor incurs in delay:chanroblesvirtuallawlibrary

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

Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of
money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or before 31
December 1995; and (3) the Promissory Note provides for an indemnity for damages upon
default of Rivera which is the payment of a 5% monthly interest from the date of default.

We do not consider the stipulation on payment of interest in this case as a penal clause
although Rivera, as obligor, assumed to pay additional 5% monthly interest on the principal
amount of P120,000.00 upon default.

Article 1226 of the Civil Code provides:chanroblesvirtuallawlibrary

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to
the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or
is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions
of this Code.

The penal clause is generally undertaken to insure performance and works as either, or both,
punishment and reparation. It is an exception to the general rules on recovery of losses and
damages. As an exception to the general rule, a penal clause must be specifically set forth in
the obligation.25chanRoblesvirtualLawlibrary

In high relief, the stipulation in the Promissory Note is designated as payment of interest, not
as a penal clause, and is simply an indemnity for damages incurred by the Spouses Chua
because Rivera defaulted in the payment of the amount of P120,000.00. The measure of
damages for the Riveras delay is limited to the interest stipulated in the Promissory Note. In
apt instances, in default of stipulation, the interest is that provided by
law.26chanRoblesvirtualLawlibrary

In this instance, the parties stipulated that in case of default, Rivera will pay interest at the
rate of 5% a month or 60% per annum. On this score, the appellate court
ruled:chanroblesvirtuallawlibrary

It bears emphasizing that the undertaking based on the note clearly states the date of
payment to be 31 December 1995. Given this circumstance, demand by the creditor is no
longer necessary in order that delay may exist since the contract itself already expressly so
declares. The mere failure of [Spouses Chua] to immediately demand or collect payment of
the value of the note does not exonerate [Rivera] from his liability therefrom. Verily, the trial
court committed no reversible error when it imposed interest from 1 January 1996 on the
ratiocination that [Spouses Chua] were relieved from making demand under Article 1169 of the
Civil Code.

xxxx

As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in
addition to legal interests and attorneys fees is, indeed, highly iniquitous and unreasonable.
Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to
temper interest rates when necessary. Since the interest rate agreed upon is void, the parties
are considered to have no stipulation regarding the interest rate, thus, the rate of interest
should be 12% per annum computed from the date of judicial or extrajudicial demand.
[27chanRoblesvirtualLawlibrary

The appellate court found the 5% a month or 60% per annum interest rate, on top of the legal
interest and attorneys fees, steep, tantamount to it being illegal, iniquitous and
unconscionable.

Significantly, the issue on payment of interest has been squarely disposed of in G.R. No.
184472 denying the petition of the Spouses Chua for failure to sufficiently show any reversible
error in the ruling of the appellate court, specifically the reduction of the interest rate
imposed on Riveras indebtedness under the Promissory Note. Ultimately, the denial of the
petition in G.R. No. 184472 is res judicata in its concept of bar by prior judgment on whether
the Court of Appeals correctly reduced the interest rate stipulated in the Promissory Note.

Res judicata applies in the concept of bar by prior judgment if the following requisites
concur: (1) the former judgment or order must be final; (2) the judgment or order must be on
the merits; (3) the decision must have been rendered by a court having jurisdiction over the
subject matter and the parties; and (4) there must be, between the first and the second action,
identity of parties, of subject matter and of causes of action.28chanRoblesvirtualLawlibrary
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of parties and
subject matter raising specifically errors in the Decision of the Court of Appeals. Where the
Court of Appeals disposition on the propriety of the reduction of the interest rate was raised
by the Spouses Chua in G.R. No. 184472, our ruling thereon affirming the Court of Appeals is a
bar by prior judgment.

At the time interest accrued from 1 January 1996, the date of default under the Promissory
Note, the then prevailing rate of legal interest was 12% per annum under Central Bank (CB)
Circular No. 416 in cases involving the loan or forbearance of money.29 Thus, the legal
interest accruing from the Promissory Note is 12% per annum from the date of default on 1
January 1996.

However, the 12% per annum rate of legal interest is only applicable until 30 June 2013,
before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series
of 2013 reducing the rate of legal interest to 6% per annum. Pursuant to our ruling in Nacar v.
Gallery Frames,30 BSP Circular No. 799 is prospectively applied from 1 July 2013. In short, the
applicable rate of legal interest from 1 January 1996, the date when Rivera defaulted, to date
when this Decision becomes final and executor is divided into two periods reflecting two rates
of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013; and (2) 6% per
annum FROM 1 July 2013 to date when this Decision becomes final and executory.

As for the legal interest accruing from 11 June 1999, when judicial demand was made, to the
date when this Decision becomes final and executory, such is likewise divided into two
periods: (1) 12% per annum from 11 June 1999, the date of judicial demand to 30 June 2013;
and (2) 6% per annum from 1 July 2013 to date when this Decision becomes final and
executor.31 We base this imposition of interest on interest due earning legal interest on
Article 2212 of the Civil Code which provides that interest due shall earn legal interest from
the time it is judicially demanded, although the obligation may be silent on this point.

From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to the
Spouses Chua could already be determined with reasonable certainty given the wording of the
Promissory Note.32chanRoblesvirtualLawlibrary

We cite our recent ruling in Nacar v. Gallery Frames:33chanRoblesvirtualLawlibrary

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:ChanRoblesVirtualawlibrary

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. (Emphasis supplied)

On the reinstatement of the award of attorneys fees based on the stipulation in the
Promissory Note, we agree with the reduction thereof but not the ratiocination of the
appellate court that the attorneys fees are in the nature of liquidated damages or penalty. The
interest imposed in the Promissory Note already answers as liquidated damages for Riveras
default in paying his obligation. We award attorneys fees, albeit in a reduced amount, in
recognition that the Spouses Chua were compelled to litigate and incurred expenses to
protect their interests.34 Thus, the award of P50,000.00 as attorneys fees is proper.

For clarity and to obviate confusion, we chart the breakdown of the total amount owed by
Rivera to the Spouses Chua:chanroblesvirtuallawlibrary

Face value of the Promissory Note

Stipulated Interest A & B

Interest due earning legal interest A & B

Attorneys fees

Total Amount
February 24, 1995 to December 31, 1995

A. January 1, 1996 to June 30, 2013

B. July 1 2013 to date when this Decision becomes final and executory

A. June 11, 1999 (date of judicial demand) to June 30, 2013

B. July 1, 2013 to date when this Decision becomes final and executory
 Wholesale amount

P120,000.00

A. 12 % per annum on the principal amount of P120,000.00

B. 6% per annum on the principal amount of P120,000.00

A. 12% per annum on the total amount of column 2

B. 6% per annum on the total amount of column 235

P50,000.00

Total amount of Columns 1-4

The total amount owing to the Spouses Chua set forth in this Decision shall further earn legal
interest at the rate of 6% per annum computed from its finality until full payment thereof, the
interim period being deemed to be a forbearance of credit.chanrobleslaw

WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the Court of Appeals
in CA-G.R. SP No. 90609 is MODIFIED. Petitioner Rodrigo Rivera is ordered to pay respondents
Spouse Salvador and Violeta Chua the following:chanroblesvirtuallawlibrary

(1)

the principal amount of P120,000.00;

(2)

legal interest of 12% per annum of the principal amount of P120,000.00 reckoned from 1
January 1996 until 30 June 2013;
(3)

legal interest of 6% per annum of the principal amount of P120,000.00 form 1 July 2013 to
date when this Decision becomes final and executory;
(4)

12% per annum applied to the total of paragraphs 2 and 3 from 11 June 1999, date of
judicial demand, to 30 June 2013, as interest due earning legal interest;
(5)

6% per annum applied to the total amount of paragraphs 2 and 3 from 1 July 2013 to date
when this Decision becomes final and executor, as interest due earning legal interest;
(6)

Attorneys fees in the amount of P50,000.00; and

(7)

6% per annum interest on the total of the monetary awards from the finality of this Decision
until full payment thereof.
Costs against petitioner Rodrigo Rivera.
FIRST DIVISION

G.R. No. 191594 October 16, 2013

DAVID A. RAYMUNDO, Petitioner,

vs.
GALEN REALTY AND MINING CORPORATION, Respondent.

DECISION

REYES, J.:

Assailed in the present Petition for Review on Certiorari under Rule 451 of the Rules of Court
is the Decision2 dated October 30, 2009 and Resolution3 dated March 10, 2010 of the Court of
Appeals (CA) in CA-G.R. SP No. 105401, which dismissed petitioner David A. Raymundo s
(Raymundo) special civil action for certiorari for lack of merit.

Facts of the Case

Civil Case No. 18808 is an action for Reconveyance with Damages filed by respondent Galen
Realty and Mining Corporation (yalen) against Raymundo and Tensorex Corporation
(Tensorex). Subject of the case was a transaction between Galen and Raymundo over a house
and lot located in Urdaneta Village, Makati City originally covered by Transfer Certificate of
Title (TCT) No. S-105-651 in the name of Galen. By virtue of a Deed of Sale dated September 9,
1987 executed between Galen and Raymundo, title to the property was transferred to the
latter, who later on sold the property to Tensorex, which caused the issuance of TCT No.
149755 in its name.

In a Decision dated April 12, 2000, the Regional Trial Court (RTC) of Makati City, Branch 62, in
Civil Case No. 18808, ruled that the transaction between Raymundo and Galen was actually an
equitable mortgage.4 On appeal, the CA upheld the RTC decision but modified the loan
obligation of Galen and reduced the same to P3,865,000.00. The dispositive portion of the CA
Decision5 dated May 7, 2004 provides:

WHEREFORE, PREMISES CONSIDERED, the Assailed Decision is hereby MODIFIED as follows:

V) the Deed of Absolute Sale between plaintiff-appellant and defendant-appellant David

Raymundo is declared null and void, being a Deed of Equitable Mortgage;

VI) the Deed of Sale between defendant-appellant David Raymundo and defendant-appellant
Tensorex is declared null and void;

VII) defendant-appellant David Raymundo to reconvey the subject property to plaintiff-

appellants [sic] upon plaintiff-appellant[s] payment to defendant-appellant David Raymundo of
P3,865,000.00 plus legal interest thereon from the date of filing of the complaint, until it is
fully paid, or if reconveyance is no longer feasible, for defendants-appellants Raymundo and
Tensorex to solidarily pay plaintiff-appellant the fair market value of the subject property by
expert appraisal;
VIII) defendants-appellants Raymundo and Tensorex to solidarily pay plaintiff-appellant, as
follows:

a) P100,000.00 in exemplary damages;

b) P100,000.00 in attorneys fees;

c) Costs of suit. Defendants-appellants COUNTERCLAIM is hereby DISMISSED.

SO ORDERED.6 (Emphasis ours)

Said CA decision eventually became final and executory on January 11, 2005, and entry of
judgment was made.7

Galen moved for the execution of the CA decision, submitting that the writ of execution should
order Raymundo and Tensorex to solidarily pay the following: (1) the current fair market value
of the property less Galens mortgage debt of P3,865,000.00 with legal interest; and (2) the
award of damages and costs of suit. Raymundo and Tensorex opposed the motion, arguing
that the CA decision provides for two alternatives one, for Raymundo to reconvey the
property to Galen after payment of P3,865,000.00 with legal interest or, two, if reconveyance
is no longer feasible, for Raymundo and Tensorex to solidarily pay Galen the fair market value
of the property.8

In its Order9 dated February 3, 2006, the RTC granted Galens motion and ordered the
issuance of a writ of execution. The property (land and improvements) was appraised by Asian
Appraisal, Inc. at P49,470,000.00.10 Subsequently, the appointed special sheriff issued a
Notice of Reconveyance/Notice of Demand to Pay11 on March 8, 2007. The sheriff also issued
on April 4, 2007 a Notice of Levy on Execution12 to the Register of Deeds of Makati City over
the rights and interest of Tensorex over the property, including all buildings and improvements
covered by TCT No. 149755.

On July 16, 2007, the special sheriff issued a Notice of Sheriffs Sale of Real Estate
Property,13 stating that "the total outstanding balance of mortgage indebtedness as of
January 25, 1988 and interest for 225 months with 2.25% interest is P37,108,750.00 plus costs
x x x,"14 and sale at public auction was set on August 8, 2007. Raymundo filed a Manifestation
and Urgent Motion15 objecting to the auction sale and expressing his willingness to reconvey
the property upon payment in full by Galen of its indebtedness. Galen filed a Counter
Manifestation and Opposition16 claiming that reconveyance is no longer feasible as the
property is heavily encumbered and title to the property is still in the name of Tensorex which
had already gone out of operations and whose responsible officers are no longer accessible.

Raymundo also submitted on August 6, 2007 a duplicate copy of the Cancellation of the Real
Estate Mortgages17 over the property. As regards the other entries on the title, Raymundo
stated that these do not affect his rights, interests and participation over the property as the
Notice of Lis Pendens of Civil Case No. 18808 inscribed on September 27, 1990 was superior
to these entries.18 On the same date, the RTC issued an Order19 noting Raymundos motions,
ordering him to show proof how his willingness to reconvey the property can be realized, and
holding the auction sale in abeyance. The order also provided that "compliance herein is
enjoined x x x, which proof shall consist primarily of a submission of the Transfer Certificate
of Title covering the subject property duly registered in Raymundos name."20
Raymundo filed a Compliance/Comment21 to the RTCs order, contending that his obligation to
reconvey is not yet due pending payment of Galens own obligation.

On December 12, 2007, the RTC issued an Order22 lifting the suspension of the auction sale
and directing Galen to coordinate with the deputy sheriff for the enforcement of the decision.
The RTC ruled that Raymundo failed to show proof that the title was already registered in his
name and thus, it resolves to deny his compliance/comment.

Raymundo filed a Motion for Reconsideration23 of the RTCs order but it was denied per
Order24 dated August 15, 2008. As a result, the property was sold at a public auction on
November 26, 2008 for P37,108,750.00, with Galen as the highest bidder, and a certificate of
sale25 was issued by the sheriff.

Raymundo then filed a special civil action for certiorari with the CA. In the assailed
Decision26

dated October 30, 2009, the petition was dismissed for lack of merit. His motion for
reconsideration having been denied in the assailed CA Resolution27 dated March 10, 2010,
Raymundo is now seeking recourse with the Court on petition for review under Rule 45 of the
Rules of Court.

Raymundo contends that the CA committed an error in upholding the validity of RTCs writ of
execution. He argues that the writ changed the tenor of the final and executory CA decision
as his obligation under said decision is to reconvey the property upon Galens payment of its
obligation. Raymundo also argues that the sale on public auction of the property was void
inasmuch as the RTCs conclusion, as affirmed by the CA, that reconveyance is no longer
feasible has no basis.28

Galen, on the other hand, claims that Raymundo was given the option to choose between
reconveyance and payment of the fair market value of the property but did not manifest his
choice. It was only when the property was set for sale at public auction that Raymundo
manifested his choice of reconveyance, which was opposed by Galen because by that time,
the property was still in the name of Tensorex and was already heavily encumbered.29 Galen
maintains that the writ of execution and the auction sale was valid inasmuch as payment of
the fair market value of the property is the only feasible way to satisfy the judgment.

Ruling of the Court

The manner of execution of a final judgment is not a matter of "choice". It does not revolve
upon the pleasure or discretion of a party as to how a judgment should be satisfied, unless the
judgment expressly provides for such discretion. Foremost rule in execution of judgments is
that "a writ of execution must conform strictly to every essential particular of the judgment
promulgated, and may not vary the terms of the judgment it seeks to enforce, nor may it go
beyond the terms of the judgment sought to be executed."30 As a corollary rule, the Court has
clarified that "a judgment is not confined to what appears on the face of the decision, but
extends as well to those necessarily included therein or necessary thereto."31

In this case, the writ of execution issued by the RTC originated from Civil Case No. 18808,
which is an action for Reconveyance with Damages filed by Galen against Raymundo and
Tensorex, where Galen sought recovery of the property subject of the Deed of Absolute Sale
between Galen and Raymundo. The RTC ruled in favor of Galen, finding that the transaction
between them is an equitable mortgage, which was affirmed by the CA. Both the RTC and the
CA, in the dispositive portions of their respective decisions, ordered Raymundo to "reconvey
the subject property o Galen upon Galens payment to x x x Raymundo x x x plus legal interest
thereon from the date of the filing of the complaint, until it is fully paid, or if reconveyance is
no longer feasible, for x x x Raymundo and Tensorex to solidarily pay Galen the fair market
value of the subject property by expert appraisal."32 In implementing said judgment, the RTC
should have considered the nature of the agreement between Galen and Raymundo. The rule
is that in case of ambiguity or uncertainty in the dispositive portion of a decision, the body of
the decision may be scanned for guidance in construing the judgment.33

Nevertheless, the import of the dispositive portion of the CA Decision dated May 7, 2004 is
clear. The principal obligation of Raymundo under the judgment is to reconvey the property to
Galen; on the other hand, Galens principal obligation is to pay its mortgage obligation to
Raymundo. Performance of Raymundos obligation to reconvey is upon Galens payment of its
mortgage obligation in the amount of P3,865,000.00 plus legal interest thereon from the date
of the filing of the complaint, until fully paid. This is in accord with the nature of the
agreement as an equitable mortgage where the real intention of the parties is to charge the
real property as security for a debt.34 It was wrong for the RTC to require Raymundo to show
proof of his "willingness" to reconvey the property because as stressed earlier, their
agreement was an equitable mortgage and as such, Galen retained ownership of the
property.35 In Montevirgen, et al. v. CA, et al.,36 the Court was emphatic in stating that "the
circumstance that the original transaction was subsequently declared to be an equitable
mortgage must mean that the title to the subject land which had been transferred to private
respondents actually remained or is transferred back to [the] petitioners herein as owners-
mortgagors, conformably to the well-established doctrine that the mortgagee does not
become the owner of the mortgaged property because the ownership remains with the
mortgagor."37 Thus, it does not devolve upon Raymundo to determine whether he is willing to
reconvey the property or not because it was not his to begin with. If Raymundo refuses to
reconvey the property, then the court may direct that the act be done by some other person
appointed by it as authorized by Section 10 of Rule 39 of the Rules of Court, to wit:

Sec. 10. Execution of judgments for specific act. (a) conveyance, delivery of deeds, or other
specific acts; vesting title.If a judgment directs a party to execute a conveyance of land or
personal property, or to deliver deeds or other documents, or to perform any other specific act
in connection therewith, and the party fails to comply within the time specified, the court may
direct the act to be done at the cost of the disobedient party by some other person appointed
by the court and the act when so done shall have like effect as if done by the party. If real or
personal property is situated within the Philippines, the court in lieu of directing a conveyance
thereof may by an order divest the title of any party and vest it in others, which shall have the
force and effect of a conveyance executed in due form of law. (Emphasis and underscoring
ours)

The "some other person appointed by the court" can be the Branch Clerk of Court,38 the
Sheriff,39 or even the Register of Deeds,40 and their acts when done under such authority
shall have the effect of having been done by Raymundo himself. A party cannot frustrate
execution of a judgment for a specific act on the pretext of inability to do so as the Rules
provide ample means by which it can be satisfied.

Conversely, Galens obligation to pay the mortgage obligation is not subject to Raymundos
reconveyance of the property. If Galen refuses to pay, it is only then that the court may direct
the foreclosure of the mortgage on the property and order its sale at public auction to satisfy
Galens judgment debt against Raymundo, pursuant to Rule 68 of the Rules of Court on
Foreclosure.41 If Raymundo, meanwhile, unjustly refuses to accept Galens payment, the
latters remedy is to consign the payment with the court in accordance with the Civil Code
provisions on consignment.

It is only when reconveyance is no longer feasible that Raymundo and Tensorex should pay
Galen the fair market value of the property. In other words, it is when the property has passed
on to an innocent purchaser for value and in good faith, has been dissipated, or has been
subjected to an analogous circumstance which renders the return of the property impossible
that Raymundo and/or Tensorex, is obliged to pay Galen the fair market value of the property.

In this case, it appears that the RTC accommodated Galens choice of payment of the fair
market value of the property and it became the main obligation of Raymundo as well as
Tensorex instead of being the alternative. Worse, it even considered the subject property as
absolutely owned by Tensorex and levied upon the same to satisfy payment of the fair market
value of the very property that has only been pledged as security of Galens loan. While it
indeed appears that Raymundo was able to transfer title of the property to Tensorex, it should
be noted that the latter is a party to Civil Case No. 18808 and is necessarily bound by the
judgment. The dissolution of Tensorex is not a valid reason to avoid reconveyance inasmuch
as the court may order the transfer of title to Galen by some other person appointed by the
court in accordance with Section 10, Rule 39 of the Rules of Court.1avvphi1

The existence of subsequent encumbrances on the property is also not a sufficient ground to
insist on the payment of its fair market value. To begin with, it was Galen which sought the
return of the property by filing the civil case. Moreover, as correctly pointed out by Raymundo,
whatever transactions Tensorex entered into is subject to the notice of lis pendens which
serves as a constructive notice to purchasers or other persons subsequently dealing with the
same property.42 Further, having Raymundo and/or Tensorex keep the property (and later on
levy upon the same) and order the payment of its fair market value virtually amounts to a sale,
which goes against the RTC and CAs conclusion that the transaction subject of Civil Case No.
18808 is not a sale but an equitable mortgage. It also violates the very public policy that
prohibits pactum commissorium.43 In the early case of Guanzon v. Hon. Argel,44 which also
involves an equitable mortgage, the Court ruled

In no way can the judgment at bar be construed to mean that should the Dumaraogs fail to pay
the money within the specified period then the party would be conveyed by the Sheriff to
Guanzon. Any interpretation in that sense would contradict the declaration made in the same
judgment that the contract between the parties was in fact a mortgage and not a pacto de
retro sale.1wphi1 x x x The mortgagors default does not operate to vest in the mortgagee
the ownership of the encumbered property, for any such effect is against public policy, as
enunciated by the Civil Code. The court can not be presumed to have adjudged what would be
contrary to law, unless it be plain and inescapable from its final judgment. No such purport
appears or is legitimately inferable from the terms of the judgment aforequoted. x x x.45
(Citation omitted and emphasis ours)

The RTC, therefore, committed grave abuse of discretion in ordering the payment of the fair
market value of the subject property despite the fact that reconveyance is still feasible under
the circumstances of this case. Consequently, the CA committed a reversible error in
sustaining the assailed RTC orders and in dismissing Raymundos special civil action for
certiorari for lack of merit.
In Muoz v. Ramirez,46 the Court stated:

In Lustan v. CA, where we established the reciprocal obligations of the parties under an
equitable mortgage, we ordered the reconveyance of the property to the rightful owner therein
upon the payment of the loan within 90 days from the finality of this decision.47 (Emphasis
ours)

Before concluding, the Court notes that under the final and executory CA Decision dated May
7, 2004, Galen was adjudged to pay Raymundo the sum of P3,865,000.00 with legal interest
from the date of the filing of the complaint until fully paid. Raymundo, meanwhile, was ordered
to pay damages, attorneys fees and costs of suit.

In Sunga-Chan v. Court of Appeals,48 the Court, citing Eastern Shipping Lines, Inc. v. Court of
Appeals,49 reiterated the rule on the rates and application of interests, viz:

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and
the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply
only to loans or forbearance of money, goods, or credits, as well as to judgments involving
such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209
of the Civil Code applies "when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations in
general," with the application of both rates reckoned "from the time the complaint was filed
until the adjudged amount is fully paid." In either instance, the reckoning period for the
commencement of the running of the legal interest shall be subject to the condition "that the
courts are vested with discretion, depending on the equities of each case, on the award of
interest."

Otherwise formulated, the norm to be followed in the future on the rates and application
thereof is:

"x x x x

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.

xxxx

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."50 (Citations omitted and
emphases and underscoring ours)
Recently, the Monetary Board of the Bangko Sentral ng Pilipinas issued Resolution No. 796
dated May 16, 2013, revising the interest rate to be imposed for the loan or forbearance of any
money, goods or credits, in the absence of an express contract, to six percent (6%) per
annum. This was implemented by BSP Circular No. 799 dated June 21, 2013 and effective July
1, 2013. Applying the foregoing guidelines, the following rates are to be imposed on the
parties respective obligations:

(a) Galens mortgage indebtedness shall earn interest at the rate of 12% per annum from the
date of the filing of the complaint on January 25, 198851 until June 30, 2013; thereafter, it
shall earn six percent (6%) interest per annum until fully paid. The Court is constrained to
retain the application of the interest rate from the filing of the complaint until full payment
because the CAs judgment on this score has already attained finality and cannot be disturbed
at this stage;52 and

(b) The damages, attorneys fees and costs to be paid by Raymundo shall earn interest at the
rate of six percent (6%) per annum from the date of finality of the CA Decision on May 7, 2004
until fully paid.

WHEREFORE, the petition is GRANTED. The Decision dated October 30, 2009 and Resolution
dated March 10, 2010 of the Court of Appeals in CA-G.R. SP No. 105401 are REVERSED and
SET ASIDE. Accordingly, the assailed Orders dated August 6, 2007, December 12, 2007 and
August 15, 2008 of the Regional Trial Court of Makati City Branch 62 as well as the writ o
execution dated January 1 0 2007 and all other orders writs and processes issued pursuant
thereto are NULLIFIED.

The RTC o Makati City Branch 62 is DIRECTED to implement the Decision dated May 7, 2004 of
the Court o Appeals in accordance with this Decision and subject to the interest rates
discussed herein.

SO ORDERED