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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

80294-95 September 21, 1988 CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner, vs. COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents. Valdez, Ereso, Polido & Associates for petitioner. Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner. Jaime G. de Leon for the Heirs of Egmidio Octaviano. Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.: The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long time ago can properly be considered res judicata by respondent Court of Appeals in the present two cases between petitioner and two private respondents. Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar Apostolic of the Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is hereby denied. Said defendant is ordered to pay costs. (p. 36, Rollo)

Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CAG.R. No. 38830-R, in the two cases affirmed by the Supreme Court, touched on the

ownership of lots 2 and 3 in question; that the two lots were possessed by the predecessors-in-interest of private respondents under claim of ownership in good faith from 1906 to 1951; that petitioner had been in possession of the same lots as bailee in commodatum up to 1951, when petitioner repudiated the trust and when it applied for registration in 1962; that petitioner had just been in possession as owner for eleven years, hence there is no possibility of acquisitive prescription which requires 10 years possession with just title and 30 years of possession without; that the principle of res judicata on these findings by the Court of Appeals will bar a reopening of these questions of facts; and that those facts may no longer be altered. Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied. The facts and background of these cases as narrated by the trail court are as follows —
... The documents and records presented reveal that the whole controversy started when the defendant Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the Court of First Instance of Baguio Benguet on September 5, 1962 an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on the merits, the land registration court promulgated its Decision, dated November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3, and 4. The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed the decision of the land registration court to the then Court of Appeals, docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered its decision, dated May 9, 1977, reversing the decision of the land registration court and dismissing the VICAR's application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the land registration case (and two sets of plaintiffs in the two cases now at bar), the first lot being presently occupied by the convent and the second by the women's dormitory and the sister's convent. On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the Court of Appeals to order the registration of Lot 3 in the names of the Heirs of Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their motion for reconsideration praying that both Lots 2 and 3 be ordered registered in the names of the Heirs of Juan Valdez and Pacita Valdez. On August 12,1977, the Court of Appeals denied the motion for reconsideration filed by the Heirs of Juan Valdez on the ground that there was "no sufficient merit to justify reconsideration one way or the other ...," and likewise denied that of the Heirs of Egmidio Octaviano.

Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals dismissing his (its) application for registration of Lots 2 and 3, docketed as G.R. No. L46832, entitled 'Catholic Vicar Apostolic of the Mountain Province vs. Court of Appeals and Heirs of Egmidio Octaviano.' From the denial by the Court of Appeals of their motion for reconsideration the Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the Supreme Court a petition for review, docketed as G.R. No. L-46872, entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio Octaviano and Annable O. Valdez. On January 13, 1978, the Supreme Court denied in a minute resolution both petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the finality of both Supreme Court resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano filed with the then Court of First Instance of Baguio, Branch II, a Motion For Execution of Judgment praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by Hon. Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the Court of Appeals decision in CA-G.R. No. 38870 did not grant the Heirs of Octaviano any affirmative relief. On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its decision dated May 16, 1979, the Court of Appeals dismissed the petition. It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No. 3655 (429) on September 24, 1979, likewise for recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.). In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano (Exh. C ); his written demand (Exh. B—B-4 ) to defendant Vicar for the return of the land to them; and the reasonable rentals for the use of the land at P10,000.00 per month. On the other hand, defendant Vicar presented the Register of Deeds for the Province of Benguet, Atty. Nicanor Sison, who testified that the land in question is not covered by any title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The defendant dispensed with the testimony of Mons.William Brasseur when the plaintiffs admitted that the witness if called to the witness stand, would testify that defendant Vicar has been in possession of Lot 3, for seventy-five (75) years continuously and peacefully and has constructed permanent structures thereon. In Civil Case No. 3655, the parties admitting that the material facts are not in dispute, submitted the case on the sole issue of whether or not the decisions of the Court of Appeals and the Supreme Court touching on the ownership of Lot 2, which in effect declared the plaintiffs the owners of the land constitute res judicata.

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

05148 and 05149. No. it had been in possession in concept of owner only for eleven years. 38830-R. Petitioner was in possession as borrower in commodatum up to 1951. but it held that the predecessors of private respondents were possessors of Lots 2 and 3. when it clearly held that it was in agreement with the findings of the trial court that the Decision of the Court of Appeals dated May 4. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive prescription because of the absence of just title.R. A GRATUITOUS LOAN FOR USE. 3 The petition is bereft of merit. 4 On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-G. 38830-R) did not positively declare private respondents as owners of the land. They can no longer be altered by presentation of evidence because those issues were resolved with finality a long time ago. NO. To ignore the principle of res judicata would be to open the door to endless litigations by continuous determination of issues without end. shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to register the lands in question under its ownership. affirmed by this Court. 10.R. 38830-R.R. The appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely no documentary evidence to support the same and the alleged purchases were never mentioned in the application for registration. but always with just title.R. with claim of ownership in good faith from 1906 to 1951. neither was it declared that they were not owners of the land. No. . when it repudiated the trust by declaring the properties in its name for taxation purposes. declared that the said Court of Appeals Decision CA-G. We see no error in respondent appellate court's ruling that said findings are res judicata between the parties. Ordinary acquisitive prescription requires possession for ten years.1977 in CA-G. First Division 5 in CA-G.R. No. Extraordinary acquisitive prescription requires 30 years. 1977. on the question of ownership of Lots 2 and 3. on its evaluation of evidence and conclusion of facts. The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for acquisitive prescription over Lots 2 and 3. Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. An examination of the Court of Appeals Decision dated May 4. 038830. When petitioner applied for registration of Lots 2 and 3 in 1962. Nos. 38830-R. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE BOR ROWER) IN COMMODATUM. No.9.

2. were in possession of the questioned lots since 1906. The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim of ownership in good faith from 1906. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. 05148 and CA-G. affirming it. 05148 and 05149. in the present cases CA-G. 05149. not petitioner Vicar. Both Valdez and Octaviano had Free Patent Application for those lots since 1906. 1987 in CA-G. It has become final and executory a long time ago. they became bailors in commodatum and the petitioner the bailee.R.R. This Court declined to review said decision. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962. 38830-R is governing. thereby in effect. No. We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G. the parish priest offered to buy the lot from Fructuoso Valdez. because the buildings standing thereon were only constructed after liberation in 1945. hence the rule. but when they allowed its free use. Lots 2 and 3 were owned by Valdez and Octaviano.R. They never asked for the return of the house. The bailee held in trust the property subject matter of commodatum. 3. this petition is DENIED for lack of merit. and that the adverse claim and repudiation of trust came only in 1951.R. under the principle of res judicata. When petitioner Vicar was notified of the oppositor's claims. The facts as supported by evidence established in that decision may no longer be altered. No. Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. Nos. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. when it held that the Decision of the Court of Appeals in CA-G. Its findings of fact have become incontestible.R. much less grave abuse of discretion. which are not in question. No. by respondent Court of Appeals is AFFIRMED. the Decision dated Aug. . The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title. 4 were paid for by the Bishop but said Bishop was appointed only in 1947. 38830-R. the church was constructed only in 1951 and the new convent only 2 years before the trial in 1963. 31.By the very admission of petitioner Vicar. No. Respondent appellate court did not commit any reversible error. that petitioner Vicar was only a bailee in commodatum. with costs against petitioner. The predecessors of private respondents. The improvements oil Lots 1. There is evidence that petitioner Vicar occupied Lots 1 and 4. WHEREFORE AND BY REASON OF THE FOREGOING. but not Lots 2 and 3.

. FELICIDAD M. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be . concur. JJ.R. for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. JOSE V.320. Griño-Aquino and Medialdea. of P1. a Bhagnari. plaintiff-appellee. J. On 8 May 1948 Jose V.56 and a Sahiniwal. the borrower asked for a renewal for another period of one year.SO ORDERED. Administratrix of the Intestate Estate left by the late Jose V. T. vs. of P744. Upon the expiration on 7 May 1949 of the contract. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1. 1962 G. BAGTAS. Liaison and Associates for petitioner-appellant. D. Reyes. Padilla.: The Court of Appeals certified this case to this Court because only questions of law are raised. However. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls.176. Cruz.46.46. Bagtas. On 25 March 1950 Jose V. Republic of the Philippines SUPREME COURT Manila EN BANC DECISION October 25. petitioner-appellant. Narvasa. the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. No. defendant. BAGTAS. L-17474 REPUBLIC OF THE PHILIPPINES.

returned the Sindhi and Bhagnari bulls to Roman Remorin. was notified. Nueva Vizcaya. the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate. Jose V. on 6 December 1958. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull. On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October and issued on 11 November 1958. died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal. Bagtas failed to pay the book value of the three bulls or to return them. and costs. .09 the total value of the three bulls plus the breeding fees in the amount of P626. Of this order appointing a special sheriff. to which depreciation the Auditor General did not object. On the same day. Superintendent of the NVB Station. Bayombong. through counsel Navarro. he could not return the animals nor pay their value and prayed for the dismissal of the complaint. On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be returned or their book value paid not later than 31 October 1950.62. 6 February. Jr. this appeal certified by the Court of Appeals to this Court as stated at the beginning of this opinion.approved by the Auditor General. sentencing the latter (defendant) to pay the sum of P3. Hence.. Felicidad M. Bagtas. 12818). On 5 July 1951 Jose V.241. Rosete and Manalo. So. the Sahiniwal. on 20 December 1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an action against him praying that he be ordered to return the three bulls loaned to him or to pay their book value in the total sum of P3.45 and the unpaid breeding fee in the sum of P199. particularly in the barrio of Baggao. . the Court denied her motion. both with interests. as evidenced by a memorandum . and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition.625. son of the appellant by the late defendant. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Bureau of Animal Industry. answered that because of the bad peace and order situation in Cagayan Valley. On 6 February 1959 she filed a reply thereto. on 30 July 1956 the trial court render judgment — . Bagtas. On 31 January 1959 the plaintiff objected to her motion.17 with interest on both sums of (at) the legal rate from the filing of this complaint and costs. Bagtas. After hearing. and that other just and equitable relief be granted in (civil No. and praying that the writ of execution be quashed and that a writ of preliminary injunction be issued. It is true that on 26 June 1952 Jose M.

later on renewed for another year as regards one bull. because article 1942 of the Civil Code provides that a bailee in a contract of commodatum — . But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets.53 be issued against the estate of defendant deceased Jose V. for that reason. Bagtas. The contention is without merit. The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of its value being a money claim should be presented or filed in the intestate proceedings of the defendant who died on 23 October 1951. That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of execution the appellee prays "that another writ of execution in the sum of P859. (3) If the thing loaned has been delivered with appraisal of its value. then the contract would be a lease of the bull. is liable for loss of the things. even if it should be through a fortuitous event: (2) If he keeps it longer than the period stipulated . is not altogether without merit.1 If the breeding fee be considered a compensation. . and that as such death was due to force majeure she is relieved from the duty of returning the bull or paying its value to the appellee. because she had continued possession of the bull after the expiry of the contract. The appellant contends that the contract was commodatum and that. Cagayan. . And even if the contract be commodatum. Bagtas of the three bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949. The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal. as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure.56 and the Sahiniwal at P744.176. A contract of commodatum is essentially gratuitous. The loan of one bull was renewed for another period of one year to end on 8 May 1950. when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability. where the animal was kept." She cannot be held liable for the two bulls which already had been returned to and received by the appellee. unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event. was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. to with: the Sindhi.46.320. Furthermore.receipt signed by the latter (Exhibit 2). Baggao. . . The loan by the appellee to the late defendant Jose V. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith. The original period of the loan was from 8 May 1948 to 7 May 1949.46. still the appellant is liable. at P1. . the Bhagnari at P1.

. and to give the name and residence of the executory administrator. because section 17 of Rule 3 of the Rules of Court provides that — After a party dies and the claim is not thereby extinguished. The appellee or its attorney or representative could not be expected to know of the death of the defendant or of the administration proceedings of his estate instituted in another court that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as required by the rule. and there was no reason for such failure to notify. Quezon City. . Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas.. within six (6) months from the date of the first publication of this order. . upon proper notice. . . or contingent. . is untenable." is not a notice to the court and the appellee who were to be notified of the defendant's death in accordance with the above-quoted rule. Bagtas. Highway 54. the value of the bull which has not been returned to the appellee. whether the same be due. As the appellant already had returned the two bulls to the appellee. and judgment for monopoly against him. . guardian. and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which provides that — Whenever a party to a pending case dies . the money . arising from contract express or implied. to file said claims with the Clerk of this Court at the City Hall Bldg. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200). or within such time as may be granted.63. the court shall order. it shall be the duty of his attorney to inform the court promptly of such death . . within a period of thirty (30) days. or other legal representative of the deceased . Bagtas had been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceased Jose V. . serving a copy thereof upon the aforementioned Felicidad M. because it was killed while in the custody of the administratrix of his estate. because the attorney who appeared for the defendant was the same who represented the administratrix in the special proceedings instituted for the administration and settlement of his estate. This is the amount prayed for by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution. the legal representative of the deceased to appear and to be substituted for the deceased. for funeral expenses and expenses of the last sickness of the said decedent.However. the estate of the late defendant is only liable for the sum of P859. . not due. the appointed administratrix of the estate of the said deceased. The notice by the probate court and its publication in the Voz de Manila that Felicidad M. the claim that his civil personality having ceased to exist the trial court lost jurisdiction over the case against him.

vs. Orsolino for defendant-appellant.000. before its conversion into DBP.000. the writ of execution appealed from is set aside. concurs in the result.R. plaintiff-appellee. Eliger and Associates and Saura. J. The present appeal is from that judgment.B. judgment was rendered on June 28. Inc. Barrera. Concepcion. plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of P5. Avanceña and Hilario G.00.L. defendant-appellant.000. J. Regala and Makalintal..343.68.:p In Civil Case No. JJ. 55908 of the Court of First Instance of Manila. In July 1953 the plaintiff (hereinafter referred to as Saura.. 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co.. Dizon. Bengzon. Magno and Associates for plaintiffappellee. J. MAKALINTAL. concur.. ACCORDINGLY. the administratrix appointed by the court. to be used as follows: P250.00. INC.) applied to the Rehabilitation Finance Corporation (RFC). Republic of the Philippines SUPREME COURT Manila EN BANC G. No. C.00 for the construction .judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant. L-24968 April 27. Inc. Bautista Angelo.. Reyes.. Mabanag. in the amount of P383. Labrador. DEVELOPMENT BANK OF THE PHILIPPINES. Paredes. for an industrial loan of P500.J. Jesus A.. 1972 SAURA IMPORT and EXPORT CO. without pronouncement as to costs.

That Mr.500. and that Maria S. 145 approving the loan application for P500. executed a trust receipt in favor of the said bank. evidently having otherwise been informed of its approval.00 to pay the balance of the purchase price of the jute mill machinery and equipment.00 T O T A L P500. Saura. it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co." Saura. namely: that in lieu of having China Engineers.00. and P9. P240. That release shall be made at the discretion of the Rehabilitation Finance Corporation. Among the other terms spelled out in the resolution were the following: 1. for certain reasons stated in the . The day before. to be secured by a first mortgage on the factory building to be constructed.000. Inc. (which was willing to assume liability only to the extent of its stock subscription with Saura. Saura.000. Inocencia Arellano.900. Inc. and arrived in Davao City in July 1953. That the proceeds of the loan shall be utilized exclusively for the following purposes: For construction of factory building P250. requesting a modification of the terms laid down by it. to be certified to by an appraiser of this Corporation. Roca would be substituted for Inocencia Arellano as one of the other co-makers.of a factory building (for the manufacture of jute sacks). wrote a letter to RFC.. Ltd. however. 1954.000. shall sign the promissory notes jointly with the borrower-corporation. designating of the members of its Board of Governors. and as the construction of the factory buildings progresses. & Mrs. Inc.900.00. Ramon E. Ltd. In view of such request RFC approved Resolution No. 1954 RFC passed Resolution No. subject to availability of funds. was officially notified of the resolution on January 9. having acquired the latter's shares in Saura. 5. Saura. and that to secure its release without first paying the draft. and the machinery and equipment to be installed. an amount equivalent to such subscription.100. 736 on February 4. Inc.00 For working capital 9.100. Inc. Parenthetically. the land site thereof.) sign as co-maker on the corresponding promissory notes. Aniceto Caolboy and Gregoria Estabillo and China Engineers. Inc. Saura.00 as additional working capital.00 For payment of the balance of purchase price of machinery and equipment 240. On January 7.00 4. would put up a bond for P123. 1954.

although in appointing its own committee Saura.s.. the agreement already) entered into.000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution No.S.. Saura and after extensive discussion on the subject the Board. President of Saura. 1954 the loan documents were executed: the promissory note.000. the parties named their respective committees of engineers and technical men to meet with each other and undertake the necessary studies.00 to P300.000.." On March 24. at which Ramon Saura. as stated in Resolution No. In a meeting of the RFC Board of Governors on June 10. . shall remain in full force and effect. which was duly registered on the following April 17. however. Halling. with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operations of jute mills.resolution." referring to its acceptance of the terms and conditions mentioned in Resolution No.. A follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn. On April 13. 736 proceeded. for the purpose of financing the manufacture of jute sacks in Davao. or accept new conditions to. c. 145. C. had again agreed to act as co-signer for the loan. c. "to reexamine all the aspects of this approved loan . RESOLVED that the loan granted the Saura Import & Export Co. 1954 another hitch developed. Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. Inc.000. under Resolution No. Res.00.000 to P300. Pursuant to Bd." On June 19. Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate. it was decided to reduce the loan from P500. Inc.R. Reducing the Loan Granted Saura Import & Export Co.00..s. and after having heard Ramon E. wrote RFC that China Engineers. as one of the co-signers. 736. was present. upon recommendation of the Chairman. In connection with the reexamination of the project to be financed with the loan applied for. It appears. who had signed the promissory note for China Engineers Ltd. 1954 Saura.000 and that releases up to P100. and to submit his findings thereon at the next meeting of the Board. 145. 145.000.R. under Resolution No. No. from P500. with F. 3989 was approved as follows: RESOLUTION No. 145. Halling. Inc.. not inconsistent herewith. and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute mills.. be REDUCED from P500.s. authorizing the re-examination of all the various aspects of the loan granted the Saura Import & Export Co.. 736. F.. Resolution No. and the corresponding deed of mortgage.00 to P300. 1954. 145. representing China Engineers. 3989. Ltd. c. that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No.

"will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500.000. and to require. draperies.. the Department of Agriculture and Natural Resources shall certify to the following: 1. expressing their desire to consider the loan insofar as they are concerned. the venture "is the first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located . The cover page of its brochure (Exh. restoring the loan to the original amount of P500.000. M) describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the Saura Import and Export Co. in a letter of RFC dated December 22. 1954 RFC passed Resolution No." This fact.00 be granted.. runners.In the meantime Saura.. took exception to the cancellation of the loan and informed RFC that China Engineers. and sheds light on the subsequent actuations of the parties. Inc. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity. wherein it was explained that the certification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials. The request was denied by RFC." The explanatory note on page 1 of the same brochure states that. On December 17. out of 100% local raw materials. to manufacture copra and corn bags. Saura. is now willing to sign the promissory notes jointly with the borrower-corporation. Inc. Inc." The action thus taken was communicated to Saura. which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300. is what moved RFC to approve the loan application in the first place.000. in its Resolution No. Inc. carpets. itself confirmed the defendant's stand impliedly in its letter of January 21.000. Ltd.". 9083. to finance. 1954 Saura. and 2." (2) requesting . does not deny that the factory he was building in Davao was for the manufacture of bags from local raw materials. 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably even next year." but with the following proviso: That in view of observations made of the shortage and high cost of imported raw materials.00 . "it appearing that China Engineers.. a certification from the Department of Agriculture and Natural Resources as to the availability of local raw materials to provide adequately for the requirements of the factory. That there is prospect of increased production thereof to provide adequately for the requirements of the factory. had written RFC requesting that the loan of P500. 9083. floor mattings. in view of a notification . principal kenaf. Saura. manage and operate a Kenaf mill plant. from the China Engineers Ltd." This point is important. according to defendant DBP.. 1954. Ltd. Inc." On July 24..00 originally approved by you. Inc..00..

00. 3) P17. we wish to reiterate that the basis of the original approval is to develop the manufacture of sacks on the basis of the locally available raw materials.09 1) P25. regarding the release of your loan under consideration of P500. Inc. 1955. the following reply: Dear Sirs: This is with reference to your letter of January 21.000. the releases of the loan.00 to be released upon arrival of raw jute. 1955 RFC sent to Saura. We shall be able to act on your request for revised purpose and manner of releases upon re-appraisal of the securities offered for the loan. As stated in our letter of December 22.000.000.586. Your statement that you will have to rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory. On January 25. would not be in line with our principle in approving the loan.00 (For immediate release) b) For the purchase of materials and equipment per attached list to enable the jute mill to operate 182. are proposed to be made from time to time." and (3) asking that releases of the loan be made as follows: a) For the payment of the receipt for jute mill machineries with the Prudential Bank & Trust Company P250.91 c) For raw materials and labor 67.000.000. 1954. if revived.00 to be released on the opening of the letter of credit for raw jute for $25."assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill. subject to availability of funds towards the end that the sack factory shall be placed in actual operating status. With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials needed are available in the immediate vicinity and that there is prospect of increased production thereof to provide adequately the requirements of the factory.586. 2) P25.413. .09 to be released as soon as the mill is ready to operate.

1954.With the foregoing letter the negotiations came to a standstill. We hold that there was indeed a perfected consensual contract. which provides: ART. under which contract Saura.00. There was undoubtedly offer and acceptance in this case: the application of Saura. restored the loan to the original amount of P500. thereby preventing the plaintiff from completing or paying contractual commitments it had entered into. the plaintiff itself did not comply with the terms thereof. but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract. sued Saura. On January 9. It appears that the cancellation was requested to make way for the registration of a mortgage contract. ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura. in connection with its jute mill project. 1954." . it imposed two conditions. and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. did not pursue the matter further. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. Inc. Inc. Instead.. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. The trial court rendered judgment for the plaintiff. 1964. Inc. on May 15. 1954. There is no serious dispute about this. It was in line with such assumption that when RFC. by Resolution No. 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials. or that its claim had been waived or abandoned. to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity. and so. The defendant pleaded below. 9083 approved on December 17. for a loan of P500. Saura himself as president of Saura. and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed. on June 17. Saura. as recognized in Article 1934 of the Civil Code. it requested RFC to cancel the mortgage. over the same property in favor of the Prudential Bank and Trust Co.00 was approved by resolution of the defendant. and the corresponding mortgage was executed and registered. Inc. An accepted promise to deliver something. 1955.000. executed on August 6. principally kenaf. (2) that there was no perfected contract. the latter commenced the present suit for damages. by way of commodatum or simple loan is binding upon the parties. ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof. Inc. It should be noted that RFC entertained the loan application of Saura. Inc.000. alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved.. and (3) that assuming there was.

J.. stating that local jute "will not be able in sufficient quantity this year or probably next year. took no part. It is a concept that derives from the principle that since mutual agreement can create a contract. nine years after the loan agreement had been cancelled at its own request. When RFC turned down the request in its letter of January 25. Inc. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. Inc. Saura. implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon." and asking that out of the loan agreed upon the sum of P67.09 be released "for raw materials and labor. Makasiar." Evidently Saura. With this view we take of the case.. Barredo and Antonio. So instead of doing so and insisting that the loan be released as agreed upon. 1955. 1955. passed on January 7.B. Teehankee. .000.The imposition of those conditions was by no means a deviation from the terms of the agreement. 2 The subsequent conduct of Saura. we find it unnecessary to consider and resolve the other issues raised in the respective briefs of the parties. the judgment appealed from is reversed and the complaint dismissed. and so wrote its letter of January 21. 145.00. WHEREFORE. Castro. realized that it could not meet the conditions required by RFC. which application was disapproved. for working capital — P9. but rather a step in its implementation. for payment of the balance of purchase price of machinery and equipment — P240. with costs against the plaintiff-appellee.100. or even point out that the latter's stand was legally unjustified.. 145 and embodied in the mortgage contract. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's noncompliance. 1954. In 1962 it even applied with DBP for another loan to finance a rice and corn project. JJ. asked that the mortgage be cancelled. mutual disagreement by the parties can cause its extinguishment.All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance — and that on the initiative of the plaintiff-appellee itself..00. confirms this desistance.00. Actg. Fernando.J.L. Inc. obviously was in no position to comply with RFC's conditions. namely — "that the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building — P250. Zaldivar. which was done on June 15. Inc. Saura. It was only in 1964. Reyes. concur. that Saura.586. 1955 the negotiations which had been going on for the implementation of the agreement reached an impasse." This was a deviation from the terms laid down in Resolution No. C.900. Inc. J. brought this action for damages. The action thus taken by both parties was in the nature cf mutual desistance — what Manresa terms "mutuo disenso" 1 — which is a mode of extinguishing obligations. It did not protest against any alleged breach of contract by RFC.

Rizal Avenue. Mauricio Carlos for appellants. The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. On the 7th of the same month. the defendant wrote another letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. H. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city. On January 14. subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14. in the custody of the said sheriff. and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both parties. these three notified the defendant of the conveyance. the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. L-46240 November 3. upon the novation of the contract of lease between the plaintiff and the defendant. IMPERIAL. 1936. wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. 1521. 1175. Jr. On November 15th. . ANSALDO. the defendant. without pronouncement as to the costs. before vacating the house. BECK. del Pilar street. 1936. plaintiffs-appellants. Felipe Buencamino. On November 5.: The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his use. J. the former gratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts. for appellee.R. 1936. No.Republic of the Philippines SUPREME COURT Manila EN BANC G. giving him sixty days to vacate the premises under one of the clauses of the contract of lease. that she call for the other furniture from the said sheriff of Manila at her own expense. There after the plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were found. through another person. defendant-appellee. vs. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. 1939 MARGARITA QUINTOS and ANGEL A. No.

The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand. In these circumstances. upon the latter's demand. The trial court. in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the furniture.In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they violated the contract by not calling for all the furniture on November 5. we do not believe that the plaintiff is entitled to the payment thereof by the defendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts. Exhibit A. The defendant was the one who breached the contract of commodatum. because under it the plaintiff gratuitously granted the use of the furniture to the defendant. as bailee. whether the latter is bound to bear the deposit fees thereof. As the defendant had voluntarily undertaken to return all the furniture to the plaintiff. The latter. paragraph 1. As to the value of the furniture. . was not entitled to place the furniture on deposit. reserving for herself the ownership thereof. articles 1740. and in denying the motions for reconsideration and new trial. the value thereof should be latter determined by the trial Court through evidence which the parties may desire to present. therefore.net The contract entered into between the parties is one of commadatum. To dispose of the case. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff. by this contract the defendant bound himself to return the furniture to the plaintiff. the defendant has neither agreed to nor admitted the correctness of the said value. in ruling that both parties should pay their respective legal expenses or the costs. and 1741 of the Civil Code). and in denying pay their respective legal expenses or the costs. it is just and equitable that he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise defrayed. because the defendant wanted to retain the three gas heaters and the four electric lamps. The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). in not ordering the defendant to pay them the value of the furniture in case they are not delivered. in holding that they should get all the furniture from the Sheriff at their expenses. upon the latters demand (clause 7 of the contract. it is only necessary to decide whether the defendant complied with his obligation to return the furniture upon the plaintiff's demand. Should the defendant fail to deliver some of the furniture. and without any reason he refused to return and deliver all the furniture upon the plaintiff's demand. when the defendant placed them at their disposal. and whether she is entitled to the costs of litigation.lawphi1. nor was the plaintiff under a duty to accept the offer to return the furniture. means that he should return all of them to the plaintiff at the latter's residence or house. erred when it came to the legal conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to her. retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. 1936. the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest.

Villa-Real. 1910 FELIX DE LOS SANTOS. to be used at the animal-power mill of his hacienda during the season of 1901-2.J. 1906. ordering her to return the ten first-class carabaos loaned to the late Jimenea. Laurel. JJ. alleging that in the latter part of 1901 Jimenea borrowed and obtained from the plaintiff ten first-class carabaos. that Magdaleno Jimenea. deceased. within the legal term. without recompense or remuneration whatever for the use thereof. all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. The defendant was duly summoned. that the plaintiff presented his claim to the commissioners of the estate of Jimenea.R. No. but the said commissioners rejected his claim as appears in their report. the plaintiff prayed that judgment be entered against the defendant as administratrix of the estate of the deceased. she demurred in writing to the complaint on the ground that it was vague. for appellee. 1904.. therefore.: On the 1st of September. J.. or their present value. in the residence or house of the latter. for the return of the said ten carabaos. So ordered. AGUSTINA JARRA. C. TORRES. that Magdaleno Jimenea died on the 28th of October. Republic of the Philippines SUPREME COURT Manila EN BANC G.The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff. L-4150 February 10. Avanceña. however. concur. 1906. Matias Hilado. defendant-appellant. the defendant shall pay the costs in both instances. Felix de los Santos brought suit against Agustina Jarra. plaintiff-appelle. for appellant. did not return the carabaos. the administratrix of the estate of Magdaleno Jimenea. notwithstanding the fact that the plaintiff claimed their return after the work at the mill was finished. and on the 25th of September. vs. but on the 2d of October of the same . The expenses which may be occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. and to pay the costs. under the sole condition that they should be returned to the owner as soon as the work at the mill was terminated. Jose Felix Martinez. Concepcion and Moran. and the defendant herein was appointed by the Court of First Instance of Occidental Negros administratrix of his estate and she took over the administration of the same and is still performing her duties as such administratrix. administratrix of the estate of Magdaleno Jimenea. in the residence to return and deliver to the plaintiff.

and in due course submitted the corresponding bill of exceptions. or the value thereof at the rate of P120 each. The record discloses that it has been fully proven from the testimony of a sufficient number of witnesses that the plaintiff. the court below entered judgment sentencing Agustina Jarra. one being a brother of said Jimenea. and. and that they were sold by the latter to him. By a writing dated the 11th of December. who saw the animals arrive at the hacienda where it was proposed to employ them. that she denied the allegations contained in paragraph 3 of the complaint. for all of which she asked the court to absolve her of the complaint with the cost against the plaintiff. as shown by two letters addressed by the said Jimenea to Felix de los Santos. by a writing dated January 19. therefore. and it is for this reason that the judgment appealed from only deals with six surviving carabaos. The defendant has admitted that Magdaleno Jimenea asked the plaintiff for the loan of ten carabaos which are now claimed by the latter. Four died of rinderpest. and that Jimenea received them in the presence of some of said persons. and that as fees for his professional services he was to receive one half of the amount allowed in the judgment if the same were entered in favor of the plaintiff. and either exhibits were made of record. which were subsequently sold to him by the owner. to return to the plaintiff. Felix de los Santos. The case came up for trial. Magdaleno Jimenea. as administratrix of the estate of Magdaleno Jimenea. moved for anew trial on the ground that the findings of fact were openly and manifestly contrary to the weight of the evidence. Santos. the defendant duly excepted. On the 10th of January. Matias Hilado. sent in charge of various persons the ten carabaos requested by his father-in-law. which was approved and submitted to this court. Santos. . she said that it was true that the late Magdaleno Jimenea asked the plaintiff to loan him ten carabaos. in order to decide this litigation it is indispensable that proof be forthcoming that Jimenea only received three carabaos from his son-in-law Santos. which were afterwards transferred by sale by the plaintiff to the said Jimenea. in the two letters produced at the trial by the plaintiff. nor were the declarations of the witnesses presented by the defendant affirming it satisfactory. or a total of P720 with the costs. Attorney Jose Felix Martinez notified the defendant and her counsel. 1907. but in her answer the said defendant alleged that the late Jimenea only obtained three second-class carabaos. and that he afterwards kept them definitely by virtue of the purchase. The alleged purchase of three carabaos by Jimenea from his son-in-law Santos is not evidenced by any trustworthy documents such as those of transfer. but that he only obtained three second-class animals.year. The motion was overruled. for said reason it can not be considered that Jimenea only received three carabaos on loan from his son-in-law. that he had made an agreement with the plaintiff to the effect that the latter would not compromise the controversy without his consent. 1906. in answer to the complaint. Counsel for the defendant excepted to the foregoing judgment. evidence was adduced by both parties. the remaining six second and third class carabaos.

By the laws in force the transfer of large cattle was and is still made by means of official documents issued by the local authorities; these documents constitute the title of ownership of the carabao or horse so acquired. Furthermore, not only should the purchaser be provided with a new certificate or credential, a document which has not been produced in evidence by the defendant, nor has the loss of the same been shown in the case, but the old documents ought to be on file in the municipality, or they should have been delivered to the new purchaser, and in the case at bar neither did the defendant present the old credential on which should be stated the name of the previous owner of each of the three carabaos said to have been sold by the plaintiff. From the foregoing it may be logically inferred that the carabaos loaned or given on commodatum to the now deceased Magdaleno Jimenea were ten in number; that they, or at any rate the six surviving ones, have not been returned to the owner thereof, Felix de los Santos, and that it is not true that the latter sold to the former three carabaos that the purchaser was already using; therefore, as the said six carabaos were not the property of the deceased nor of any of his descendants, it is the duty of the administratrix of the estate to return them or indemnify the owner for their value. The Civil Code, in dealing with loans in general, from which generic denomination the specific one of commodatum is derived, establishes prescriptions in relation to the last-mentioned contract by the following articles: ART. 1740. By the contract of loan, one of the parties delivers to the other, either anything not perishable, in order that the latter may use it during a certain period and return it to the former, in which case it is called commodatum, or money or any other perishable thing, under the condition to return an equal amount of the same kind and quality, in which case it is merely called a loan. Commodatum is essentially gratuitous. A simple loan may be gratuitous, or made under a stipulation to pay interest. ART. 1741. The bailee acquires retains the ownership of the thing loaned. The bailee acquires the use thereof, but not its fruits; if any compensation is involved, to be paid by the person requiring the use, the agreement ceases to be a commodatum. ART. 1742. The obligations and rights which arise from the commodatum pass to the heirs of both contracting parties, unless the loan has been in consideration for the person of the bailee, in which case his heirs shall not have the right to continue using the thing loaned. The carabaos delivered to be used not being returned by the defendant upon demand, there is no doubt that she is under obligation to indemnify the owner thereof by paying him their value. Article 1101 of said code reads:

Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those who in any manner whatsoever act in contravention of the stipulations of the same, shall be subjected to indemnify for the losses and damages caused thereby. The obligation of the bailee or of his successors to return either the thing loaned or its value, is sustained by the supreme tribunal of Sapin. In its decision of March 21, 1895, it sets out with precision the legal doctrine touching commodatum as follows: Although it is true that in a contract of commodatum the bailor retains the ownership of the thing loaned, and at the expiration of the period, or after the use for which it was loaned has been accomplished, it is the imperative duty of the bailee to return the thing itself to its owner, or to pay him damages if through the fault of the bailee the thing should have been lost or injured, it is clear that where public securities are involved, the trial court, in deferring to the claim of the bailor that the amount loaned be returned him by the bailee in bonds of the same class as those which constituted the contract, thereby properly applies law 9 of title 11 of partida 5. With regard to the third assignment of error, based on the fact that the plaintiff Santos had not appealed from the decision of the commissioners rejecting his claim for the recovery of his carabaos, it is sufficient to estate that we are not dealing with a claim for the payment of a certain sum, the collection of a debt from the estate, or payment for losses and damages (sec. 119, Code of Civil Procedure), but with the exclusion from the inventory of the property of the late Jimenea, or from his capital, of six carabaos which did not belong to him, and which formed no part of the inheritance. The demand for the exclusion of the said carabaos belonging to a third party and which did not form part of the property of the deceased, must be the subject of a direct decision of the court in an ordinary action, wherein the right of the third party to the property which he seeks to have excluded from the inheritance and the right of the deceased has been discussed, and rendered in view of the result of the evidence adduced by the administrator of the estate and of the claimant, since it is so provided by the second part of section 699 and by section 703 of the Code of Civil Procedure; the refusal of the commissioners before whom the plaintiff unnecessarily appeared can not affect nor reduce the unquestionable right of ownership of the latter, inasmuch as there is no law nor principle of justice authorizing the successors of the late Jimenea to enrich themselves at the cost and to the prejudice of Felix de los Santos. For the reasons above set forth, by which the errors assigned to the judgment appealed from have been refuted, and considering that the same is in accordance with the law and the merits of the case, it is our opinion that it should be affirmed and we do hereby affirm it with the costs against the appellant. So ordered. Arellano, C.J., Johnson, Moreland and Elliott, JJ., concur. Carson, J., reserves his vote. SECOND DIVISION

[G.R. No. 115324. February 19, 2003] PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1[1] of the Court of Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and of its Resolution2[2] dated May 5, 1994, denying the motion for reconsideration of said decision filed by petitioner Producers Bank of the Philippines. Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and Services (―Sterela‖ for brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its incorporation. She assured private respondent that he could withdraw his money from said account within a month‘s time. Private respondent asked Sanchez to bring Doronilla to their house so that they could discuss Sanchez‘s request.3[3] On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronilla‘s private secretary, met and discussed the matter. Thereafter, relying on the assurances and representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter from Doronilla authorizing Sanchez and her companions, ―in coordination with Mr. Rufo Atienza,‖ to open an account for Sterela Marketing Services in the amount of P200,000.00. In opening the account, the authorized signatories were

Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos (P212. 10-1567. Rufo Atienza. the check was dishonored.6[6] Private respondent referred the matter to a lawyer.Inocencia Vives and/or Angeles Sanchez. Sterela. Doronilla issued another check for P212. obtained a loan of P175. 10-1567 was thereafter issued to Mrs.000.00 from the Bank.00) in favor of private respondent. 10-0320. after Mrs. 1979. On August 13. he and his wife went to the Bank to verify if their money was still intact. assuring him that his money was intact and would be returned to him. who informed them that part of the money in Savings Account No. through Doronilla.00 in private respondent‘s favor but the check was again dishonored for insufficiency of funds. Doronilla opened Current Account No. He likewise told them that Mrs.4[4] Subsequently. who made a written demand upon Doronilla for the return of his client‘s money.5[5] Private respondent tried to get in touch with Doronilla through Sanchez. However. it was again dishonored. In opening said current account. 10-0320 for Sterela and authorized the Bank to debit Savings Account No. On June 29. private respondent learned that Sterela was no longer holding office in the address previously given to him. Vives could not withdraw said remaining amount because it had to answer for some postdated checks issued by Doronilla. the assistant manager.7[7] . According to Atienza. Doronilla issued three postdated checks. 10-1567 had been withdrawn by Doronilla. and that only P90. Atienza also said that Doronilla could assign or withdraw the money in Savings Account No. Doronilla requested private respondent to present the same check on September 15.000. 10-1567 for the amounts necessary to cover overdrawings in Current Account No. he received a letter from Doronilla. 1979 but when the latter presented the check. Vives and Sanchez opened Savings Account No.000. A passbook for Savings Account No. The bank manager referred them to Mr. Alarmed. To cover payment thereof. upon presentment thereof by private respondent to the drawee bank. 10-1567 because he was the sole proprietor of Sterela.000. 1979.00 remained therein. Vives. all of which were dishonored.

the RTC of Pasig.00 for moral damages and a similar amount for exemplary damages. 1985 while the case was pending before the trial court. 1994.00.00 for attorney‘s fees. judgment is hereby rendered sentencing defendants Arturo J. the dispositive portion of which reads: IN VIEW OF THE FOREGOING. In its Decision dated June 25. 44485. The case was docketed as Civil Case No. However.Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in Pasig. 1995.000. SO ORDERED. the amount of P40. promulgated its Decision in Civil Case No. 1991. Metro Manila against Doronilla. .000. Sanchez and Dumagpi in the RTC. Branch 157. On October 3. representing the money deposited. Sanchez.8[8] Petitioner appealed the trial court‘s decision to the Court of Appeals. Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and severally – (a) the amount of P200. 1994.10[10] On June 30. arguing that – I.9[9] It likewise denied with finality petitioner‘s motion for reconsideration in its Resolution dated May 5.000. Sanchez passed away on March 16. He also filed criminal actions against Doronilla. Doronila. petitioner filed the present petition. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION. Dumagpi and petitioner. and the costs of the suit. 44485. the appellate court affirmed in toto the decision of the RTC. with interest at the legal rate from the filing of the complaint until the same is fully paid. (b) (c) (d) the sum of P50.

Petitioner filed its Reply thereto on September 25. 1997. P50. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF P200.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM. said rejoinder was filed only on April 21.000. However. 1995. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONER‘S BANK MANAGER. III.11[11] Private respondent filed his Comment on September 23. MR.00 FOR ATTORNEY‘S FEES AND THE COSTS OF SUIT.13[13] On January 17. THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES VS.000.00 FOR EXEMPLARY DAMAGES. 1994. P50. the Court resolved to give due course to . RUFO ATIENZA.II. IV.000. MARTINEZ. The Court then required private respondent to submit a rejoinder to the reply. THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE.000. due to petitioner‘s delay in furnishing private respondent with copy of the reply12[12] and several substitutions of counsel on the part of private respondent. Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE. P40. CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. 29 SCRA 745.00 FOR MORAL DAMAGES. UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE. 2001. AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS. V.

18[18] Hence. 2001 while private respondent submitted his memorandum on March 22. what was delivered by private respondent to Doronilla was money.000.000. 2001. Petitioner asserts that Doronilla‘s May 8. a consumable thing. as evidenced by the check issued by Doronilla in the amount of P212. petitioner should not be held liable for allowing Doronilla to withdraw from Sterela‘s savings account. or P12. the authority to withdraw therefrom remained exclusively with Doronilla. and second. Hence. Mr.00.00 in Sterela‘s account for purposes of its incorporation.000. . did not contain any authorization for these two to withdraw from said account. 1979 letter addressed to the bank.000 more than what private respondent deposited in Sterela‘s bank account. who was the sole proprietor of Sterela. petitioner argues that it cannot be held liable for the return of private respondent‘s P200. the transaction was onerous as Doronilla was obliged to pay interest.14[14] Petitioner filed its memorandum on April 16. authorizing Mrs.the petition and required the parties to submit their respective memoranda.16[16] It argues further that petitioner‘s Assistant Manager.15[15] Moreover. Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all the elements of a mutuum are present: first.00 because it is not privy to the transaction between the latter and Doronilla. and who alone had legal title to the savings account. could not be faulted for allowing Doronilla to withdraw from the savings account of Sterela since the latter was the sole proprietor of said company. Rufo Atienza.17[17] Petitioner points out that no evidence other than the testimonies of private respondent and Mrs. the fact that private respondent sued his good friend Sanchez for his failure to recover his money from Doronilla shows that the transaction was not merely gratuitous but ―had a business angle‖ to it. Vives and Sanchez to open a savings account for Sterela. Vives was presented during trial to prove that private respondent deposited his P200. Hence.

000. Atienza‘s employer. and neither may it be held liable for moral and exemplary damages as well as attorney‘s fees. petitioner claims that since there is no wrongful act or omission on its part.20[20] Private respondent. and that it committed no wrong in allowing Doronilla to withdraw from Sterela‘s savings account. he retained some degree of control over his money through his wife who was made a signatory to the savings account and in whose possession the savings account passbook was given. as well as the approval of the authority to debit Sterela‘s savings account to cover any overdrawings in its current account.Petitioner also asserts that the Court of Appeals erred in affirming the trial court‘s decision since the findings of fact therein were not accord with the evidence presented by petitioner during trial to prove that the transaction between private respondent and Doronilla was a mutuum. He insists that Atienza.00 and in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be issued to the effect that Sterela had sufficient funds for purposes of its incorporation but at the same time. argues that the transaction between him and Doronilla is not a mutuum but an accommodation. Vives and Sanchez opened a savings account with petitioner for said company. it is not liable for the actual damages suffered by private respondent. on the other hand. connived with Doronilla in defrauding private respondent since it was Atienza who facilitated the opening of Sterela‘s current account three days after Mrs.21[21] since he did not actually part with the ownership of his P200. is liable for the return of his money.23[23] There is no merit in the petition. . petitioner‘s assistant manager.19[19] Finally.22[22] He likewise asserts that the trial court did not err in finding that petitioner.

the bailor retains the ownership of the thing loaned.26[26] There is no showing of any misapprehension of facts on the part of the Court of Appeals in the case at bar that would require this Court to review and overturn the factual findings of that court. However. when adopted and confirmed by the Court of Appeals. either something not consumable so that the latter may use the same for a certain time and return it. No error was committed by the Court of Appeals when it ruled that the transaction between private respondent and Doronilla was a commodatum and not a mutuum. factual findings of courts. Commodatum is essentially gratuitous. are final and conclusive on this Court unless these findings are not supported by the evidence on record. ownership passes to the borrower.24[24] The Court‘s jurisdiction is in principle limited to reviewing errors of law that might have been committed by the Court of Appeals. while in simple loan. Simple loan may be gratuitous or with a stipulation to pay interest.At the outset. especially since the conclusions of fact of the Court of Appeals and the trial court are not only consistent but are also amply supported by the evidence on record. upon the condition that the same amount of the same kind and quality shall be paid. in which case the contract is called a commodatum. in which case the contract is simply called a loan or mutuum.25[25] Moreover. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise: By the contract of loan. such as money. The foregoing provision seems to imply that if the subject of the contract is a consumable thing. Article 1936 of the Civil Code provides: . it must be emphasized that only questions of law may be raised in a petition for review filed with this Court. the contract would be a mutuum. one of the parties delivers to another. there are some instances where a commodatum may have for its object a consumable thing. or money or other consumable thing. A circumspect examination of the records reveals that the transaction between them was a commodatum. In commodatum. The Court has repeatedly held that it is not its function to analyze and weigh all over again the evidence presented by the parties during trial.

did not convert the transaction from a commodatum into a mutuum because such was not the intent of the parties and because the additional P12. Article 1935 of the Civil Code expressly states that ―[t]he bailee in commodatum acquires the use of the thing loaned but not its fruits. whether it is a mutuum or a commodatum. as when it is merely for exhibition.000. if consumable goods are loaned only for purposes of exhibition. The nature of said transaction. the loan is a commodatum and not a mutuum. Doronilla‘s attempts to return to private respondent the amount of P200.00.27[27] In case of doubt. that is.‖29[29] Private respondent merely ―accommodated‖ Doronilla by lending his money without consideration.000.‖ Hence. Thus.000. the evidence shows that private respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of making it appear ―that said firm had sufficient capitalization for incorporation.00. it was only proper for Doronilla to remit to private respondent the interest accruing to the latter‘s money deposited with petitioner. or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon.Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object. . The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual character of a contract.00 which the latter deposited in Sterela‘s account together with an additional P12. as a favor to his good friend Sanchez. with the promise that the amount shall be returned within thirty (30) days. allegedly representing interest on the mutuum.00 corresponds to the fruits of the lending of the P200. the contemporaneous and subsequent acts of the parties shall be considered in such determination.000. It was however clear to the parties to the transaction that the money would not be removed from Sterela‘s savings account and would be returned to private respondent after thirty (30) days.28[28] As correctly pointed out by both the Court of Appeals and the trial court. has no bearing on the question of petitioner‘s liability for the return of private respondent‘s money because the factual circumstances of the case clearly show that petitioner. Neither does the Court agree with petitioner‘s contention that it is not solidarily liable for the return of private respondent‘s money because it was not privy to the transaction between Doronilla and private respondent.

the Manila Banking Corporation. the Assistant Branch Manager for the Buendia Branch of petitioner. Then there is the matter of the ownership of the fund. he was explicitly told by Inocencia . to withdraw therefrom even without presenting the passbook (which Atienza very well knew was in the possession of Mrs. Because of the ―coordination‖ between Doronilla and Atienza.000. Vives on behalf of Sterela for Savings Account No. Atienza. Vives). not just once. Indeed. 10-1567 expressly states that— ―2. Both the Court of Appeals and the trial court found that Atienza allowed said withdrawals because he was party to Doronilla‘s ―scheme‖ of defrauding private respondent: X X X But the scheme could not have been executed successfully without the knowledge. the deposit was made in defendant‘s Buendia branch precisely because Atienza was a key officer therein. In fact before he was introduced to plaintiff. but Doronilla and Dumagpi insisted that it must be in defendant‘s branch in Makati for ―it will be easier for them to get a certification‖. To begin with.‖30[30] Said rule notwithstanding.00.00 be deposited in his bank. The records show that plaintiff had suggested that the P200. Sanchez and company to open a savings account for Sterela in the amount of P200. Significantly.000. was partly responsible for the loss of private respondent‘s money and is liable for its restitution.through its employee Mr. there were testimonies and admission that Atienza is the brother-in-law of a certain Romeo Mirasol. help and cooperation of Rufo Atienza. assistant manager and cashier of the Makati (Buendia) branch of the defendant bank. but several times. through Atienza. Doronilla was permitted by petitioner. Petitioner‘s rules for savings deposits written on the passbook it issued Mrs. 1). This is a clear manifestation that the other defendants had been in consultation with Atienza from the inception of the scheme. a friend and business associate of Doronilla. Aside from such foreknowledge. the evidence indicates that Atienza had not only facilitated the commission of the fraud but he likewise helped in devising the means by which it can be done in such manner as to make it appear that the transaction was in accordance with banking procedure. as ―per coordination with Mr. Doronilla had already prepared a letter addressed to the Buendia branch manager authorizing Angeles B. Assistant Manager of the Bank x x x‖ (Exh. the latter knew before hand that the money deposited did not belong to Doronilla nor to Sterela. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly authenticated. Rufo Atienza. and neither a deposit nor a withdrawal will be permitted except upon the production of the depositor savings bank book in which will be entered by the Bank the amount deposited or withdrawn.

Besides. In the signature card pertaining to this account (Exh. The records indicate that this account was opened three days later after the P200.Vives that the money belonged to her and her husband and the deposit was merely to accommodate Doronilla. the bank records disclose that the only ones empowered to withdraw the same were Inocencia Vives and Angeles B. The Court is not inclined to agree with Atienza. such recognized practice was dispensed with. Atienza. He explained that Doronilla had the full authority to withdraw by virtue of such ownership. the authorized signatories were Inocencia Vives &/or Angeles B. who undoubtedly had a hand in the execution of this certification. Atienza even declared that the money came from Mrs. Vives nor Sanchez had given Doronilla the authority to withdraw. J). Instead. He. In spite of his disclaimer. It is an accepted practice that whenever a withdrawal is made in a savings deposit. he also was aware that the original passbook was never surrendered. the transfer of fund was done without the passbook having been presented. In this case. The transfer from the savings account to the current account was without the submission of the passbook which Atienza had given to Mrs. he was all the time aware that the money came from Vives and did not belong to Sterela. said that this procedure was not followed here because Sterela was owned by Doronilla. it was made to appear in a certification signed by Estrella Dumagpi that a duplicate passbook was issued to Sterela because the original passbook had been surrendered to the Makati branch in view of a loan accommodation assigning the savings account (Exh. Sanchez. In the second place. . the signature of Doronilla was not authorized in so far as that account is concerned inasmuch as he had not signed the signature card provided by the bank whenever a deposit is opened. That it was he who facilitated the approval of the authority to debit the savings account to cover any overdrawings in the current account (Exh. Vives. Vives for he was the one who gave it to her. the Court believes that Atienza was mindful and posted regarding the opening of the current account considering that Doronilla was all the while in ―coordination‖ with him.00 was deposited. was aware that the contents of the same are not true. as assistant manager of the branch and the bank official servicing the savings and current accounts in question. He was also told by Mrs. He knew that the passbook was in the hands of Mrs.000. Sanchez. In the third place. however. In the first place. C). 2) is not hard to comprehend. neither Mrs. He was also cognizant that Estrella Dumagpi was not among those authorized to withdraw so her certification had no effect whatsoever. Vives. Although the savings account was in the name of Sterela. Moreover. The circumstance surrounding the opening of the current account also demonstrate that Atienza‘s active participation in the perpetration of the fraud and deception that caused the loss. Vives that they were only accommodating Doronilla so that a certification can be issued to the effect that Sterela had a deposit of so much amount to be sued in the incorporation of the firm. Atienza stated that it is the usual banking procedure that withdrawals of savings deposits could only be made by persons whose authorized signatures are in the signature cards on file with the bank. the bank requires the presentation of the passbook.

31[31] Under Article 2180 of the Civil Code. x x x. employers shall be held primarily and solidarily liable for damages caused by their employees acting within the scope of their assigned tasks.35[35] It was established that the transfer of funds from Sterela‘s savings account to its current account could not have been accomplished by Doronilla without the invaluable assistance of Atienza. petitioner is liable for private respondent‘s loss and is solidarily liable with Doronilla and . Furthermore.33[33] There is no dispute that Atienza was an employee of petitioner. were obviously done in furtherance of petitioner‘s interests 34[34] even though in the process. Atienza‘s acts of helping Doronilla.Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. To hold the employer liable under this provision.32[32] Case law in the United States of America has it that a corporation that entrusts a general duty to its employee is responsible to the injured party for damages flowing from the employee‘s wrongful act done in the course of his general authority. it must be shown that an employer-employee relationship exists. and in transferring the money withdrawn to Sterela‘s Current Account with petitioner. a customer of the petitioner. and that it was their connivance which was the cause of private respondent‘s loss. 10-1567. The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code. even though in doing such act. in which account private respondent‘s money was deposited. Atienza violated some of petitioner‘s rules such as those stipulated in its savings account passbook. petitioner did not deny that Atienza was acting within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in withdrawing funds from Sterela‘s Savings Account No. the employee may have failed in its duty to the employer and disobeyed the latter‘s instructions. and that the employee was acting within the scope of his assigned task when the act complained of was committed.

SO ORDERED.00 since it is clear that petitioner failed to prove that it exercised due diligence to prevent the unauthorized withdrawals from Sterela‘s savings account. the party that presents a preponderance of convincing evidence wins. premises considered. THIRD DIVISION [G. ‗J‘ & ‗K‘) over the properties in question void or simulated. judgment is hereby rendered: 1) Declaring the two ‗Kasulatan ng Bilihang Tuluyan‘ (Exh. In the assessment of the facts. DECISION PANGANIBAN. assailing the March 31.: Courts decide cases on the basis of the evidence presented by the parties. The Case Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. concur. the Judgmentiii[3] reversed by the CA ruled in this wise: ―WHEREFORE. . WHEREFORE. No. JJ. vs. MIGUEL PEREZ SR. and that it was not negligent in the selection and supervision of Atienza. 1993 Decisioni[1] of the Court of Appeals (CA)ii[2] in CA-GR CV No. 112485. the judgment appealed from is hereby REVERSED and another one is entered dismissing plaintiff‘s complaint. Quisumbing and Austria-Martinez.. and GLORIA PEREZ. LEONCIO PEREZ. Mendoza.R. Accordingly. J. respondents. The dispositive part of the Decision reads: ―WHEREFORE. attorney‘s fees and costs of suit to private respondent.000. the petition is hereby DENIED. Bellosillo.. MACARIO PEREZ.‖ On the other hand. no error was committed by the appellate court in the award of actual. (Chairman).Dumagpi for the return of the P200. petitioner. NESTOR PEREZ. 2001] EMILIA MANZANO. FLORENCIO PEREZ. In civil cases. moral and exemplary damages. 32594. August 9. reason and logic are used. MIGUEL PEREZ JR. The assailed Decision and Resolution of the Court of Appeals are AFFIRMED.

2) Declaring the two ‗Kasulatan ng Bilihang Tuluyan‘ (Exh. ‗J‘ & ‗K‘) over the properties in question rescinded; 3) Ordering the defendants Miguel Perez, Sr., Macario Perez, Leoncio Perez, Florencio Perez, Miguel Perez, Jr., Nestor Perez and Gloria Perez to execute an Extra Judicial Partition with transfer over the said residential lot and house, now covered and described in Tax Declaration Nos. 1993 and 1994, respectively in the name of Nieves Manzano (Exh. ‗Q‘ & ‗P‘), subject matter of this case, in favor of plaintiff Emilia Manzano; 4) a) b) c) d) Ordering the defendants to pay plaintiff: P25,000.00 as moral damages; P10,000.00 as exemplary damages; P15,000.00 as and for [a]ttorney‘s fees; and To pay the cost of suit.‖iv[4]

The Motion for Reconsideration filed by petitioner before the CA was denied in a Resolution dated October 28, 1993.v[5] The Facts The facts of the case are summarized by the Court of Appeals as follows: ―[Petitioner] Emilia Manzano in her Complaint alleged that she is the owner of a residential house and lot, more particularly described hereunder: ‗A parcel of residential lot (Lots 1725 and 1726 of the Cadastral Survey of Siniloan), together with all the improvements thereon, situated at General Luna Street, Siniloan, Laguna. Bounded on the North by Callejon; on the East, by [a] town river; on the South by Constancia Adofina; and on the West by Gen. Luna Street. Containing an area of 130 square meters more or less, covered by Tax Dec. No. 9583 and assessed at P1,330.00. ‗A residential house of strong mixed materials and G.I. iron roofing, with a floor area of 40 square meters, more or less. Also covered by Tax No. 9583.‘ ―In 1979, Nieves Manzano, sister of the [petitioner] and predecessor-in-interest of the herein [private respondents], allegedly borrowed the aforementioned property as collateral for a projected loan. The [petitioner] acceded to the request of her sister upon the latter‘s promise that she [would] return the property immediately upon payment of her loan. ―Pursuant to their understanding, the [petitioner] executed two deeds of conveyance for the sale of the residential lot on 22 January 1979 (Exhibit ‗J‘) and the sale of the house erected thereon

on 2 February 1979 (Exhibit ‗K‘), both for a consideration of P1.00 plus other valuables allegedly received by her from Nieves Manzano. ―On 2 April 1979, Nieves Manzano together with her husband, [respondent] Miguel Perez, Sr., and her son, [respondent] Macario Perez, obtained a loan from the Rural Bank of Infanta, Inc. in the sum of P30,000.00. To secure payment of their indebtedness, they executed a Real Estate Mortgage (Exhibit ‗A‘) over the subject property in favor of the bank. ―Nieves Manzano died on 18 December 1979 leaving her husband and children as heirs. These heirs, [respondents] herein allegedly refused to return the subject property to the [petitioner] even after the payment of their loan with the Rural Bank (Exhibit ‗B‘). ―The [petitioner] alleged that sincere efforts to settle the dispute amicably failed and that the unwarranted refusal of the [respondents] to return the property caused her sleepless nights, mental shock and social humiliation. She was, likewise, allegedly constrained to engage the services of a counsel to protect her proprietary rights. ―The [petitioner] sought the annulment of the deeds of sale and execution of a deed of transfer or reconveyance of the subject property in her favor, the award of moral damages of not less than P50,000.00, exemplary damages of P10,000.00 attorney‘s fees of P10,000.00 plus P500.00 per court appearance, and costs of suit. ―In seeking the dismissal of the complaint, the [respondents] countered that they are the owners of the property in question being the legal heirs of Nieves Manzano Who purchased the same from the [petitioner] for value and in good faith, as shown by the deeds of sale which contain the true agreements between the parties therein; that except for the [petitioner‘s] bare allegations, she failed to show any proof that the transaction she entered into with her sister was a loan and not a sale. ―By way of special and affirmative defense, the [respondents] argued that what the parties to the [sale] agreed upon was to resell the property to the [petitioner] after the payment of the loan with the Rural Bank. But since the [respondents] felt that the property is the only memory left by their predecessor-in-interest, they politely informed the [petitioner] of their refusal to sell the same. The [respondents] also argued that the [petitioner] is now estopped from questioning their ownership after seven (7) years from the consummation of the sale. ―As a proximate result of the filing of this alleged baseless and malicious suit, the [respondents] prayed as counterclaim the award of moral damages in the amount of P10,000.00 each, exemplary damages in an amount as may be warranted by the evidence on record, attorney‘s fees of P10,000.00 plus P500.00 per appearance in court and costs of suit. ―In ruling for the [petitioner], the court a quo considered the following:

‗First, the properties in question after [they have] been transferred to Nieves Manzano, the same were mortgaged in favor of the Rural Bank of Infante, Inc. (Exh. ‗A‘) to secure payment of the loan extended to Macario Perez.‘ ‗Second, the documents covering said properties which were given to the bank as collateral of said loan, upon payment and [release] to the [private respondents], were returned to [petitioner] by Florencio Perez, one of the [private respondents].‘ ‗[These] uncontroverted facts [are] clear recognition [by private respondents] that [petitioner] is the owner of the properties in question.‘ xxx xxx xxx

‗Third, [respondents‘] pretense of ownership of the properties in question is belied by their failure to present payment of real estate taxes [for] said properties, and it is on [record] that [petitioner] has been paying the real estate taxes [on] the same (Exh. ‗T‘, ‗V‘, ‗V-1‘, ‗V-2‘ & ‗V3‘).‖ xxx xxx xxx

‗Fourth, [respondents] confirmed the fact that [petitioner] went to the house in question and hacked the stairs. According to [petitioner] she did it for failure of the [respondents] to return and vacate the premises. [Respondents] did not file any action against her.‘ ‗This is a clear indication also that they (respondents) recognized [petitioner] as owner of said properties.‘ xxx xxx xxx

‗Fifth, the Cadastral Notice of said properties were in the name of [petitioner] and the same was sent to her (Exh. ‗F‘ & ‗G‘). xxx xxx xxx

‗Sixth, upon request of the [petitioner] to return said properties to her, [respondents] did promise and prepare an Extra Judicial Partition with Sale over said properties in question, however the same did not materialize. The other heirs of Nieves Manzano did not sign.‖ xxx xxx xxx

‗Seventh, uncontroverted is the fact that the consideration [for] the alleged sale of the properties in question is P1.00 and other things of value. [Petitioner] denies she has received any consideration for the transfer of said properties, and the [respondents] have not presented evidence to belie her testimony.‖vi[6] Ruling of the Court of Appeals

if the plaintiff-appellee remained as the rightful owner of the subject property. Tax Declaration No. Book No. Neither was it persuaded by her allegation that respondents‘ predecessor-in-interest had given no consideration for the sale of the property in the latter‘s favor. ―The consideration [for] the questioned [sale] is not the One (P1.The Court of Appeals was not convinced by petitioner‘s claim that there was a supposed oral agreement of commodatum over the disputed house and lot. et al. More importantly. Court of Appeals. The inadequacy of the monetary . A mere execution of the document transferring title in the latter‘s name would suffice for the purpose. 2536). she would not have agreed to reacquire one-half thereof for a consideration of P10. 1990). 9633 (Exhibit ‗H‘). et al. 1993 (Exhibit ‗Q‘) are all in the name of Nieves Manzano.000. Moreover. 196 SCRA 650). ‗V-1‘. vs. plaintiff-appell[ee] was not in possession of the subject property. if the agreement was to merely use plaintiff‘s property as collateral in a mortgage loan. Moreover. Assuming that such consideration is suspiciously insufficient. and are. II. ―Significantly. ―The alleged failure of the defendants-appellants to present evidence of payment of real estate taxes cannot prejudice their cause. 9589 in the name of Nieves Manzano (Exhibits ‗D‘ and ‗D-1‘) indicates that the transfer of the subject property was based on the Absolute Sale executed before Notary Public Alfonso Sanvictores. Rule 131 of the Rules of Court. self-serving. Tax Declaration No[s]. the Certificate of Tax Declaration issued by the Office of the Municipal Treasurer on 8 August 1990 upon the request of the plaintiff-appellee herself (Exhibit ‗W‘) named Nieves Manzano as the owner and possessor of the property in question. Tax receipts only become strong evidence of ownership when accompanied by proof of actual possession of the property (Tabuena vs. June 11. the plaintiff-appellee began paying her taxes only in 1986 after the instant complaint ha[d] been instituted (Exhibits ‗V‘. it was not explained why physical possession of the house and lot had to be with the supposed vendee and her family who even built a pigpen on the lot (p. ―In this case. therefore. Caballero. 45 O. This is especially true if we are to accept her assertion that Nieves Manzano did not purchase the property for value. The execution of a deed purporting to convey ownership of a realty is in itself prima facie evidence of the existence of a valuable consideration and x x x the party alleging lack of consideration has the burden of proving such allegation (Caballero. Court of Appeals. 6.A. C. TSN. is not sufficient to invalidate the sale. this circumstance alone.00 (Exhibit ‗U-1‘). Page 157. duly recorded in his notarial book as Document No.G. The defendantappellants were the ones in actual occupation of the house and lot which as aforestated was unnecessary if the real agreement was merely to lend the property to be used as collateral. 1994 (Exhibit ‗P‘). Realty tax payment of property is not conclusive evidence of ownership (Director of Lands vs. 200 SCRA 37). while plaintiff-appellee was still the owner of the subject property in 1979 (Exhibit ‘I‘). 195 SCRA 38). Intermediate Appellate Court. It explained as follows: ―To begin with.00) Peso alone but also the other valuable considerations. 3157. ―There is always the presumption that a written contract [is] for a valuable consideration (Section 5 (r).. Gamaitan vs. ‗V-3‘ and ‗T‘).

at bottom. Nonetheless. The Court of Appeals erred in failing to consider that: A) B) C) The introduction of petitioner‘s evidence is proper under the parol evidence rule. for the vendor‘s liberality may be a sufficient cause for a valid contract (Ong vs. the main issue is whether the agreement between the parties was a commodatum or an absolute sale. Upon close examination of the records.consideration does not render a conveyance null and void. Main Issue: Sale or Commodatum Obviously. that an elaborate discussion of the parol evidence rule and its exceptions was merely given as a preface by the appellate court. The rules on admission by silence apply in the case at bar. it was not persuaded.viii[8] Issues Petitioner submits the following grounds in support of her cause:ix[9] ―1. petitioner contends that the CA erred in rejecting the introduction of her parol evidence. This Court finds no cogent reason to disturb the findings and conclusions of the Court of Appeals. Ong. The Court‘s Ruling The Petition has no merit. which is ordinarily not reviewable in a petition under Rule 45. A reading of the assailed Decision shows. Petitioner is entitled to the reliefs prayed for.xii[12] . however. it considered and weighed each and every piece thereof. we find that petitioner has failed to discharge her burden of proving her case by preponderance of evidence. as explained in the multitude of reasons explicitly stated in its Decision. Nowhere therein did it consider petitioner‘s evidence as improper under the said rule.‖x[10] In sum. 139 SCRA 133).xi[11] Preliminarily. On the contrary. The Court of Appeals erred in reversing the decision of the trial court whose factual findings are entitled to great respect since it was able to observe and evaluate the demeanor of the witnesses. ―2. because the factual findings of the Court of Appeals are contrary to those of the trial court. this Petition. the issue in this case is enveloped by conflict in factual perception. This concept refers to evidence that has greater weight or is more convincing than that which is offered in opposition. it means probability of truth.‖vii[7] Hence. But the Court is constrained to resolve it.

unsubstantiated by evidence. they even support the claim of respondents.xiv[14] In order to contradict the facts contained in a notarial document. That is why parties to a case are given all the opportunity to present evidence to help the courts decide on who are telling the truth and who are lying. which covered the property. they are presumed to have been duly executed. that of petitioner awfully pales. with her siblings waiving in her favor their claim over the same.000 taken in the names of Nieves Manzano Perez and Respondent Miguel Perez. Indeed. Neither can we give weight to her allegation that respondents‘ possession of the subject property was merely by virtue of her tolerance. Bare allegations. petitioner has presented no convincing proof of her continued ownership of the subject property. Also. On the contrary. The Supreme Court cannot depart from these guidelines and decide on the basis of compassion alone because. as well as the presumption of regularity in the execution thereof. The facts alleged by petitioner in her favor are the following: (1) she inherited the subject house and lot from her parents. In addition to her own oral testimony. as she claims. Oral testimony cannot.00 ―plus other valuable. These matters are not. . although the transfer did not materialize because of the refusal of the other respondents to sign the document. as a rule.‖ Having been notarized. (4) three of the respondents were signatories to a document transferring one half of the property to Emilia Manzano in consideration of the sum of ten thousand pesos. Courts are not blessed with the ability to read what goes on in the minds of people. which petitioner executed in favor of the former‘s predecessor-in-interest. there must be clear and convincing evidence that is more than merely preponderant. however. are not equivalent to proof under our Rules. Both Deeds – for the residential lot and for the house erected thereon – were each in consideration of P1. who are entitled to their claim and who are not. respondents presented two Deeds of Sale. prevail over a written agreement of the parties. without having dominion over it? Why would they execute a reconveyance of one half of it in favor of petitioner? Why would the latter have to pay P10. aside from being contrary to the rule of law and our judicial system. as aptly explained by the CA. (3) upon full payment of the loan. such as the two ―Kasulatan ng Bilihang Tuluyan” in this case. this course of action would ultimately lead to anarchy. cannot be considered in her favor for being self-serving. (2) the property was mortgaged to secure a loan of P30.In the case at bar.xv[15] Here petitioner has failed to come up with even a preponderance of evidence to prove her claim. and (5) petitioner hacked the stairs of the subject house. which was made only after her Complaint had already been lodged before the trial court. 9589. she submitted proof of payment of real property taxes. convincing indicators of petitioner‘s ownership of the house and lot. the documents pertaining to the house and lot were returned by Respondent Florencio Perez to petitioner. yet no case was filed against her.000 for that portion if. But that payment. she owns the whole? Pitted against respondents‘ evidence.xiii[13] On the other hand. issued in favor of respondents‘ predecessor-in-interest the day after the sale was Tax Declaration No. how could one of them obtained a mortgage over the property.

40 exclusive of attorney‘s fees of 25%. petitioners. On 30 October 1979.80 to cover the full invoice value of the goods.720 from Petitioners‘ marginal deposit as partial payment of the loan. HONORABLE COURT OF APPEALS. No. PBC wrotexxi[6] to Petitioners demanding that the amount be paid within seven days from notice.J. J. PBC debited P6. on leave. respondents.xxii[7] PBC sent a new demand letterxxiii[8]to Petitioners on 16 October 1980 and informed them that their outstanding balance as of 17 November 1979 was P20. Petitioners applied for a commercial letter of creditxvii[2] with the Philippine Banking Corporation.824. On 31 October 1979. DECISION DAVIDE. JJ. the Petition is hereby DENIED and the assailed Decision AFFIRMED.389. FIRST DIVISION [G. the evidence offered by petitioner to prove her claim is sadly lacking.83 in the Carmelite Monastery Project and requested for a grace period of until 15 June 1980 to settle the account. 300 SF tanguile wood tiles 12‖x12‖.xxiv[9] . WHEREFORE. Costs against petitioner. not a commodatum over the subject house and lot. Cagayan de Oro City. Petitioners signed a pro-forma trust receiptxix[4] as security.. Sandoval-Gutierrez. Instead of complying with PBC‘s demand. Melo. Jurisprudence on the subject matter. Veloso confessed that they lost P19. JR. C.R.. when applied thereto. (Chairman). Vitug. 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement adhesive from CM Builders Centre for the construction project. 2000] MELVIN COLINARES and LORDINO VELOSO. 90828.xvi[1] The following day.xx[5] On 7 May 1980. concur.We reiterate. 31 October 1979.: In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a consideration of P40. Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. points to the existence of a sale. vs. and THE PEOPLE OF THE PHILIPPINES. and Gonzaga-Reyes.195. Petitioners obtained 5. September 5. The loan was due on 29 January 1980.376 SF Solatone acoustical board 2‘x4‘x½‖. PBC approved the letter of creditxviii[3] for P22.000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter‘s convent at Camaman-an..

80. to the damage and prejudice of the Philippine Banking Corporation.389. received from the entruster the following goods to wit: Solatone Acoustical board Tanguile Wood Tiles Marcelo Cement Tiles Umylin Cement Adhesive with a total value of P22. misappropriated and misapplied the proceeds to their own personal use. 1979. 1390. did then and there wilfully. PBC continued to demand payment of the balance. as entrustee.80. He and petitioner Colinares signed the documents without reading the fine print. with the obligation on the part of the accused-entrustee to hold the aforesaid items in trust for the entruster and/or to sell on cash basis or otherwise dispose of the said items and to turn over to the entruster the proceeds of the sale of said goods or if there be no sale to return said items to the entruster on or before January 29.xxvi[11] and thereafter P500 on 11 February 1981. Contrary to PD 115 in relation to Article 315 of the Revised Penal Code.xxxii[17] . and within the jurisdiction of this Honorable Court. No. PBC‘s former manager. with intent to defraud and cause damage to the entruster.000 on or before 3 December 1980. Mr. During trial. Tuiza assured him that the trust receipt was a mere formality.000 per month starting 31 January 1980 until the account is fully paid. confederating together and mutually helping one another.389. Petitioners proposedxxv[10] that the terms of payment of the loan be modified as follows: P2.xxviii[13] and 20 April 1981. in the City of Cagayan de Oro. Pending approval of the proposal. The accusatory portion of the Information reads: That on or about October 31. Philippine Currency.xxix[14] Concurrently with the separate demand for attorney‘s fees by PBC‘s legal counsel. in the aforesaid sum of P22. benefit and gain.000 to PBC on 4 December 1980.xxx[15] On 14 January 1983. Regional Trial Court of Cagayan de Oro City. conspiring. 1980 but that the said accused after receipt of the goods. only learning of the trust receipt implication much later.D. Petitioners were charged with the violation of P. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code in an Information which was filed with Branch 18.xxvii[12] 16 March 1981. and P1. unlawfully and feloniously fail and refuse to remit the proceeds of the sale of the goods to the entruster despite repeated demands but instead converted. the above-named accused entered into a trust receipt agreement with the Philippine Banking Corporation at Cagayan de Oro City wherein the accused. petitioner Veloso insisted that the transaction was a ―clean loan‖ as per verbal guarantee of Cayo Garcia Tuiza. When he brought this to the attention of PBC. Petitioners paid P1. Philippines.On 2 December 1980.xxxi[16] The case was docketed as Criminal Case No.

12 % penalty charge per annum. Petitioners further maintained that when PBC allowed them to pay in installment.44. Petitioners appealed from the judgment to the Court of Appeals which was docketed as CA-G. WOULD CHANGE THE JUDGMENT. and disbelieved that they were coerced into signing them.D.R. They raised the following issues: I. and would not alter the result of the case. No. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE GROUND OF NEWLY DISCOVERED EVIDENCE. The trial court considered the transaction between PBC and Petitioners as a trust receipt transaction under Section 4. It held that the documentary evidence of the prosecution prevails over Veloso‘s testimony. 115 in relation to Article 315 of the Revised Penal Code and sentencing each of them to suffer imprisonment of two years and one day of prision correccional as minimum to six years and one day of prision mayor as maximum. and to solidarily indemnify PBC the amount of P20. No. the trial court promulgated its decisionxxxiii[18] convicting Petitioners of estafa for violating P. 05408. P. It concluded that the failure of Petitioners to turn over the amount they owed to PBC constituted estafa. That document would have proved that the transaction was indeed a loan as it bears a 14% interest as opposed to the trust receipt which does not at all bear any interest. Hence. 25% of the sums due as attorney‘s fees. It considered Petitioners‘ use of the goods in their Carmelite monastery project an act of ―disposing‖ as contemplated under Section 13. 115. the agreement was novated and a creditor-debtor relationship was created. P. 115. Petitioners asserted therein that the trial court erred in ruling that they violated the Trust Receipt Law. No. In its resolutionxxxviii[23]of 16 October 1989 the Court of Appeals denied the Motion for New Trial/Reconsideration because the alleged newly discovered evidence was actually forgotten evidence already in existence during the trial. the Court of Appeals modified the judgment of the trial court by increasing the penalty to six years and one day of prision mayor as minimum to fourteen years eight months and one day of reclusion temporal as maximum. and costs. ―DISCLOSURE ON LOAN/CREDIT TRANSACTION. with legal interest from 29 January 1980. In its decisionxxxv[20] 6 March 1989. discredited Petitioners‘ claim that the documents they signed were in blank. . they contend that at most they can only be made civilly liable for payment of the loan. Petitioners filed with us the petition in this case on 16 November 1989.‖ WHICH IF INTRODUCED AND ADMITTED. and treated the charge invoicexxxiv[19] for goods issued by CM Builders Centre as a ―document‖ within the meaning of Section 3 thereof.On 7 July 1986. Petitioners filed a Motion for New Trial/Reconsiderationxxxvi[21] alleging that the ―Disclosure Statement on Loan/Credit Transaction‖xxxvii[22] (hereafter Disclosure Statement) signed by them and Tuiza was suppressed by PBC during the trial. CR No.D. On 25 March 1989. NAMELY.D.824. and in holding them criminally liable therefor. In the alternative. DOES NOT CONSTITUTE A DENIAL OF DUE PROCESS.

It was only on 18 May 1999 when this case was assigned to the ponente. including interest and other charges. WHETHER OR NOT THE ACCUSED WERE PROPERLY CHARGED.2. but does not in any way extinguish their criminal liability. In its Comment of 22 January 1990. (2) could not have been discovered and produced at the trial even with the . ASSUMING THERE WAS A VALID TRUST RECEIPT. The parties subsequently filed their respective memoranda.xli[26] For newly discovered evidence to be a ground for new trial. TRIED AND CONVICTED FOR VIOLATION OF SEC. In its Comment of 30 July 1990. New trial may be granted if: (1) errors of law or irregularities have been committed during the trial prejudicial to the substantial rights of the accused. would probably change the judgment. In the Resolution of 13 August 1990.xl[25] We required the Solicitor General to comment on the Motion to Dismiss. 115 IN RELATION TO ARTICLE 315 PARAGRAPH (I) (B) NOTWITHSTANDING THE NOVATION OF THE SO-CALLED TRUST RECEIPT CONVERTING THE TRUSTOR-TRUSTEE RELATIONSHIP TO CREDITOR-DEBTOR SITUATION. or (2) new and material evidence has been discovered which the accused could not with reasonable diligence have discovered and produced at the trial. and which. PD NO. Petitioners submitted their Compliance. not a trust receipt agreement under the Trust Receipts Law. Thereafter. Petitioners assert that it was an ordinary loan. we required the parties to move in the premises and for Petitioners to manifest if they are still interested in the further prosecution of this case and inform us of their present whereabouts and whether their bail bonds are still valid. On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that they had already fully paid PBC on 2 February 1990 the amount of P70.000 for the balance of the loan. we gave due course to the Petition and required the parties to file their respective memoranda. 13. As to the latter. the Solicitor General opined that payment of the loan was akin to a voluntary surrender or plea of guilty which merely serves to mitigate Petitioners‘ culpability. as evidenced by the different receipts issued by PBC. such evidence must be (1) discovered after trial. The grant or denial of a motion for new trial rests upon the discretion of the judge.xxxix[24] and that the PBC executed an Affidavit of desistance. if introduced and admitted. the Office of the Solicitor General urged us to deny the petition for lack of merit. The core issues raised in the petition are the denial by the Court of Appeals of Petitioners‘ Motion for New Trial and the true nature of the contract between Petitioners and the PBC.

xlii[27] It is essential that the offering party exercised reasonable diligence in seeking to locate the evidence before or during trial but nonetheless failed to secure it. P. whereby the entruster who owns or holds absolute title or security interest over certain specified goods.xliii[28] We find no indication in the pleadings that the Disclosure Statement is a newly discovered evidence. Section 4.xlv[30] which they never did. ―NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN. documents or instruments themselves if they are unsold or not otherwise disposed of. and (3) material. documents or instruments. the second issue should be resolved in favor of Petitioners. 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.xlvii[32] However. The Disclosure Statement itself states.xlix[34] without need of proving intent to defraud. covered by the trust receipt to the entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal Code. The second is covered by the provision which refers to merchandise received under the obligation to ―return‖ it (devolvera) to the owner. There are two possible situations in a trust receipt transaction. . until they discovered this new and material evidence‖ only upon learning of the Court of Appeals‘ decision and after they were ―shocked by the penalty imposed. the Trust Receipts Law. meticulously and patiently.xlviii[33] Failure of the entrustee to turn over the proceeds of the sale of the goods. Petitioners could not have been unaware that the two-page document exists. Petitioners have miserably failed to establish the second requisite of the rule on newly discovered evidence. they could have compelled its production in court. The first is covered by the provision which refers to money received under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. No.D. if admitted.‖xlvi[31] Clearly. and of such weight that. releases the same to the possession of the entrustee upon the latter‘s execution and delivery to the entruster of a signed document called a ―trust receipt‖ wherein the entrustee binds himself to hold the designated goods. in accordance with the terms and conditions specified in the trust receipt.exercise of reasonable diligence. not merely cumulative. the alleged newly discovered evidence is mere forgotten evidence that jurisprudence excludes as a ground for new trial. 115. would probably change the judgment. corroborative. or impeaching.‖xliv[29] Assuming Petitioners‘ copy was then unavailable. Petitioners themselves admitted that ―they searched again their voluminous records. defines a trust receipt transaction as any transaction by and between a person referred to as the entruster. and another person referred to as the entrustee.

lii[37] In a certain manner. it takes full title to the goods at the very beginning and continues to hold that title as his indispensable security until the goods are sold and the vendee is called upon to pay for them. of the merchandise imported or purchased. 31 October 1979. yet the trial court took notice even though it failed to attach any significance to such fact in the judgment.li[36] To secure that the bank shall be paid. Despite the Court of Appeals‘ contrary view that the goods were delivered to Petitioners previous to the execution of the letter of credit and trust receipt. Petitioners received the merchandise from CM Builders Centre on 30 October 1979. It was only a day later. we find that the records of the case speak volubly and this fact remains uncontroverted. sir . the making of the marginal deposit and the effective importation of goods through the efforts of the importer. trust receipts partake of the nature of a conditional sale where the importer becomes absolute owner of the imported merchandise as soon as he has paid its price. ownership over the merchandise was already transferred to Petitioners who were to use the materials for their construction project. This situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the bank and only released to the importer in trust subsequent to the grant of the loan. admitted thus: ATTY. or if the merchandise has already been sold. not a trust receipt agreement. On that day. and who may not be able to acquire credit except through utilization. The bank acquires a ―security interest‖ in the goods as holder of a security title for the advances it had made to the entrustee. as collateral.liv[39] The antecedent acts in a trust receipt transaction consist of the application and approval of the letter of credit.lv[40] PBC attempted to cover up the true delivery date of the merchandise. hence.lvi[41] After such perusal Grego Mutia.l[35] The ownership of the merchandise continues to be vested in the person who had advanced payment until he has been paid in full. the importer has never owned the goods and is not able to deliver possession. CABANLET: (continuing) Q Do you know if the goods subject matter of this letter of credit and trust receipt agreement were received by the accused? A Yes. that they went to the bank to apply for a loan to pay for the merchandise. It is not uncommon for us to peruse through the transcript of the stenographic notes of the proceedings to be satisfied that the records of the case do support the conclusions of the trial court. the proceeds of the sale should be turned over to him by the importer or by his representative or successor in interest. PBC‘s credit investigator.A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by the parties was a simple loan.liii[38] Trust receipt transactions are 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.

Q Do you have evidence to show that these goods subject matter of this letter of credit and trust receipt were delivered to the accused? A Q A xxx Q A What is the date of the charge invoice? October 31. sir. Petitioner Veloso‘s claim that they were made to believe that the transaction was a loan was also not denied by PBC. CABANLET (to the witness) Q What do you understand by loan when you were asked? Because in the bank the loan is considered part of the loan. CABANLET: ATTY. A Loan is a promise of a borrower from the value received. What can you say as to that? . 1979. sir. the zero in 30 has been superimposed with numeral 1. Thus: Q In short the amount stated in your Exhibit C. In short it was a special kind of loan. Yes.lvii[42] During the cross and re-direct examinations he also impliedly admitted that the transaction was indeed a loan. are you referring to this document? Yes. He declared: Q Testimony was given here that that was covered by trust receipt. The borrower will pay the bank on a certain specified date with interestlviii[43] Such statement is akin to an admission against interest binding upon PBC. I am showing to you this charge invoice. the trust receipt was a loan to the accused you admit that? A xxx RE-DIRECT BY ATTY. COURT: Make it of record as appearing in Exhibit D.

which should not be the basis for criminal prosecution in the event of violation of its provisions. The Information charges Petitioners with intent to defraud and misappropriating the money for their personal use. The Trust Receipts Law does not seek to enforce payment of the loan.lx[45] Here.A I don‘t think that would be a trust receipt because we were made to understand by the manager who encouraged us to avail of their facilities that they will be granting us a loan lix[44] PBC could have presented its former bank manager.e. PBC showed its true colors and admitted that it was only after collection of the money. and Pardo.D. No. rather it punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. who contracted with Petitioners. Nowhere from Mutia‘s testimony can it be gleaned that PBC represented to Petitioners that the transaction they were entering into was not a pure loan but had trust receipt implications. to refute Veloso‘s testimony. Cayo Garcia Tuiza. i. WHEREFORE. Instead. it is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. and is prone to misinterpretation. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved.lxi[46] 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. . Eventually. No. JJ. Petitioners continually endeavored to meet their obligations. At no time did title over the construction materials pass to the bank. This impresses upon the trust receipt in question vagueness and ambiguity.. Petitioners sought favorable terms precisely to meet their obligation. as shown by several receipts issued by PBC acknowledging payment of the loan. yet it only presented credit investigator Grego Mutia. for violation of P. Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale. intent as a state of mind was not proved to be present in Petitioners‘ situation. 115 in relation to Article 315 of the Revised Penal Code. contrary to the express provision embodied in the trust receipt. as manifested by its Affidavit of Desistance. Petitioners are hereby ACQUITTED of the crime charged. concur. but directly to the Petitioners from CM Builders Centre. Kapunan. The mala prohibita nature of the alleged offense notwithstanding. They are contractors who obtained the fungible goods for their construction project. the challenged Decision of 6 March 1989 and the Resolution of 16 October 1989 of the Court of Appeals in CA-GR. as had happened in this case. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks.. No costs. SO ORDERED. if not reprehensible. Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to abscond. 05408 are REVERSED and SET ASIDE.

the shares of stock pledged be released. IF-82-1379AA) with petitioner State for the latter's purchase of receivables amounting to P375. J. Petitioner State denied the request on the ground that the loan which it had extended to the spouses Jose and Marcelina Aquino (Account No. This new loan was secured by the same pledge agreement executed in relation to Account No.Puno. IF-82-0631-AA. requesting that upon payment. HON. On 29 June 1984.000.00. State demanded payment. respondent spouses Rafael and Refugio Aquino pledged certain shares of stock to petitioner State Investment House. THE HONORABLE COURT OF APPEALS. Ynares-Santiago. on leave.:p On 5 April 1982. he would sell at public auction the shares of stock pledged to State. 90676 June 19... Hechanova & Lim Law Offices for private respondents. Prior to the execution of the pledge. No. IF-82-0904-AA. no part. Atty. INC. J. respondent spouses paid the same partly with their own funds and partly from the proceeds of another loan which they obtained also from petitioner State designated as Account No. respondents. Branch CII and SPS. RAFAEL and REFUGIO AQUINO. as an accommodation to and together with the spouses Jose and Marcelina Aquino. Inc. vs. Respondents expressed willingness to pay.. Galing and Chaves. signed an agreement (Account No. TRIA TIRONA. IF-82-0631-AA fell due. Rodolfo T. 1991 STATE INVESTMENT HOUSE. FELICIANO.R. Rolando Salonga sent to respondent spouses a Notice of Notarial Sale stating that upon request of State and by virtue of the pledge agreement. respondent-spouses.00 designated as Account No. This prompted . petitioner. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G. Padilla Law Office for petitioner. IF82-1379. IF-820631-AA. When the new loan matured. When Account No.AA) had remained unpaid. Presiding Judge of the Regional Trial Court of Quezon City.000. JUDGE PERLITA J. ("State") in order to secure a loan of P120. J.

" as the latter had not been in delay in the performance of their obligation. Acting on the motion for reconsideration. "without interest. in a decision dated 14 December 1984 rendered by Judge Willelmo Fortun. but petitioner had insisted that respondents pay even the loan account of Jose and Marcelina Aquino which had not been secured by the pledge. there developed disagreement over the amount which respondent spouses Rafael and Refugio Aquino should pay to secure the release of the shares of stock — petitioner State contending that respondents should also pay interest and respondents arguing they should not. the Court of Appeals affirmed in toto the new decision of the trial court. which too should be paid before the shares may be released. Petitioner State appealed Judge Tirona's decision to the Court of Appeals. 82-0904-AA. upon payment of the loan under Code No. they had been able and willing to pay the same. Upon remand of the records of the case to the trial court for execution. IF-82-0904-AA) was excused because the petitioner State itself had prevented the satisfaction of the obligation." On 17 February 1989. having been executed prior to the pledge was not covered by the pledge which secured only loans executed subsequently. Respondent spouses filed a motion for reconsideration praying for a new decision ordering petitioner State to release the shares upon payment of respondents' loan "without interest. the shares of stock should be released. rendered a decision purporting to clarify the decision of Judge Fortun and ruling that petitioner State shall release respondents' shares of stock upon payment by respondents of the principal of the loan as set forth in PN No. penalties and other charges. It was further alleged that their failure to pay their loan (Account No. IF-0904-AA. Judge Fortun set aside his original decision and rendered a new judgment dated 29 January 1985. the trial court. speaking this time through Judge Perlita Tria Tirona. ordering State to immediately release the pledge and to deliver to respondents the share of stock "upon payment of the loan under Code No. penalties and other charges. The Court of Appeals agreed with Judge Tirona that no interest need be paid and added that the clarificatory (Tirona) decision of the trial court merely restated . The decisions of the Court of Appeals and of Judge Fortun became final and executory.000. State countered that the pledge executed by respondent spouses also covered the loan extended to Jose and Marcelina Aquino. holding that the loan extended to Jose and Marcelina Aquino." On appeal.00. the appeal was dismissed.00 alone. without interest.respondents to file a case before the Regional Trial Court of Quezon City alleging that the intended foreclosure sale was illegal because from the time the obligation under Account No. Thus. initially dismissed the complaint. IF-82-0904-AA became due. 82-0904-AA in the amount of P110.000. The trial court. Respondent spouses then filed a motion with the trial court to clarify the Fortun decision praying that an order issue clarifying the phrase "upon payment of plaintiffs' loan" to mean upon payment of plaintiff' loan in the principal amount of P110.

v. that the trial court through Judge Tirona. and that the amendment sought to be introduced in the Fortun decision by respondents may not be made as the same was substantial in nature and the Fortun decision had become final. (Emphasis supplied) In Filipino Legion Corporation vs. In Reinsurance Company of the Orient. when supplied. the prayer and the conclusions of fact and of law contained in the decision of the respondent judge. Hence. Under the juridical rule that the judgment should be in accordance with the allegations. We begin by noting that the trial court has asserted authority to issue the clarificatory order in respect of the decision of Judge Fortun.what had been provided for in the earlier (Fortun) decision. which error may be rectified or ambiguity clarified and the omission supplied by reference primarily to the body of the decision itself Supplementary reference to the pleadings previously filed in the case may also be resorted to by way of corroboration of the existence of the error or of the ambiguity in the dispositive part of the judgment. the dispositive part of the judgment under consideration should have ordered that the debt be paid 'severally' and in omitting the word or adverb 'severally' inadvertently. for instance. This respondent judge did not. The motion for reconsideration filed by petitioner was accordingly denied. et al. The dispositive portion of the judgment may. even though that judgment had become final and executory. that the Tirona decision did not go beyond what had been adjudged in the earlier decision. the court may clarify such ambiguity by an amendment even after the judgment had become final. the applicable principle was set out in the following terms: [W]here there is ambiguity caused by an omission or mistake in the dispositive portion of a decision. 235. contain an error clearly clerical in nature (perhaps best illustrated by an error in arithmetical computation) or an ambiguity arising from inadvertent omission. therefore. this Petition for Review contending that no manifest ambiguity existed in the decision penned by Judge Fortun.[E]ven a judgment which has become final and executory may be clarified under certain circumstances. 1 this Court had occasion to deal with the applicable doctrine to some extent: . 326). Inc. in effect changed the literal import of the original phraseology: . the evidence and the conclusions of fact and law. et al. v. the court's findings of facts and conclusions of law as expressed in the body of the decision. Court of Appeals. and for this purpose it may resort to the pleadings filed by the parties. . this Court allowed a judgment which had become final and executory to be clarified by supplying a word which had been inadvertently omitted and which. the promissory note reproduced therein and made a part thereof... In Locsin. . erred in clarifying the decision of Judge Fortun. exceed his jurisdiction in clarifying the dispositive part of the judgment by supplying the omission. et al. that the obligation contracted by the petitioners is joint and several and that the parties as well as the trial judge so understood it.. This ambiguity may be clarified at any time after the decision is rendered and even after it had become final (34 Corpus Juris. it clearly appears from the allegations of the complaint.. said judgment became ambiguous. Court of Appeals. (Emphasis supplied) . Parades.

(2) Ordering defendant State Investment House. of what might be described as a logical follow-through of something set forth both in the body of the decision and in the dispositive portion thereof. 1985. plus costs.000. at the rate of two percent (2%) per .In Republic Surety and Insurance Company.000. 1984. . plaintiffs "Motion for Reconsideration" dated January 3. . in applying the above doctrine. is granted and the decision of this Court dated December 14. or translation into. . SO ORDERED. We clarify. Inc. IF82-0904-AA on time had been due to petitioner State's unjustified refusal to release the shares pledged to it. Intermediate Appellate Court.00. to pay to plaintiffs P10. . At the same time. The promissory note in Account No.00 as moral damages. 1984 is hereby revoked and set aside and another judgment is hereby rendered in favor of plaintiffs as follows: (1) Ordering defendants to immediately release the pledge on. Judge Fortun's decision stated: WHEREFORE. and (c) additional or penalty interest in case of non-payment at maturity. It is not. In its dispositive portion. 82-0904-AA to defendants. 3 Judge Fortun evidently meant to act favorably on the motion for reconsideration of the respondent Aquino spouses and in effect accepted respondent spouses' argument that they had not incurred mora considering that their failure to pay PN No. the inevitable follow-through. of the annulment of the Deed of Sale with Assumption of Mortgage. (Emphasis supplied) (Underscoring in the original. (3) Dismissing defendants' counterclaim. . what is involved here is not a correction of an erroneous judgment or dispositive portion of a judgment. said: . The decision of Judge Fortun disposing of the motion for reconsideration filed by respondent spouses Rafael and Refugio Aquino consisted basically of quoting practically the whole motion for reconsideration. (b) regular interest in the amount of seventeen percent (17%) per annum. however. from which petitioners' title or claim of 2 title embodied in TCT 133153 flows. IF-82-0904-AA had three (3) components: (a) principal of the loan in the amount of P110. P6.00 as attorney's fees. what we did affirm. the shares of stocks enumerated and described in paragraph 4 of plaintiffs' complaint dated July 17. clear to what precise extent Judge Fortun meant to grant the motion for reconsideration. v. Inc. upon payment of plaintiffs loan under Code No. the Court. What we believe is involved here is in the nature of an inadvertent omission on the part of the Court of First Instance (which should have been noticed by private respondents' counsel who had prepared the complaint).000. for lack of merit and making the preliminary injunction permanent.00 as exemplary damages. and to deliver to plaintiffs. That is involved here is not what is ordinarily regarded as a clerical error in the dispositive part of the decision of the Court of First Instance. citations omitted) The question we must resolve is thus whether or not there is an ambiguity or clerical error or inadvertent omission in the dispositive portion of the decision of Judge Fortun which may be legitimately clarified by referring to the body of the decision and perhaps even the pleadings filed before him. P5.000. operational or behavioral terms. in other words.

It thus appears that the Fortun decision was ambiguous in the sense that it was cryptic. and if no regular interest had been agreed upon.000. Judge Fortun did not specify which of these components of the loan he was ordering respondent spouses to pay and which component or components he was in effect deleting. In the dispositive part of his resolution. and the debtor incurs in delay. respondent spouses in their motion for reconsideration asked for "at least P50. and (b) regular or monetary interest in the amount of seventeen percent (17%) per annum. [i]f the obligation consists in the payment of a sum of money.000. respondent spouses asked Judge Fortun to order the release of the shares pledged "upon payment of [respondent spouses'] loan under Code No. They were not liable for penalty or compensatory interest. shall be the payment of the interest agreed upon. as plaintiffs were not in delay in accordance with Article 69 of the New Civil Code –– " (Emphasis supplied). we must assume that Judge Fortun meant to decide in accordance with law.00 as moral damages and P5. fixed by the promissory note in Account No. 82-0904-AA without interest. is the payment of penalty interest at the rate agreed upon. Judge Fortun granted respondent spouses only P10. they did not apparently distinguish between regular interest or "monetary interest" in the amount of seventeen percent (17%) per annum and penalty charges or "compensatory interest" in the amount of two percent (2%) per month or twenty-four percent (24%) per annum. they were properly liable only for: (a) the principal of the loan or P110.00" for exemplary damages. as well as P20. the appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum or money. In other words. respondent spouses did not themselves become very clear what they were asking Judge Fortun to grant them. .000.00. then payment of legal interest or six percent (6%) per annum. We believe that in these circumstances.00 as attorney's fees and costs. We cannot assume that Judge Fortun meant to grant the relief prayed for by respondent spouses in all its parts. the ultimate question which arises is: if respondent Aquino spouses were not in delay.000. there being no stimulation to the contrary. the indemnity for damages. It must be stressed in this connection that under Article 2209 of the Civil Code which provides that . For another.00" for moral damages and "at least P50.000. then the payment of additional interest at a rate equal to the regular monetary interest.000. plus P6.month or twenty-four percent (24%) per annum.00 by way of attorney's fees and litigation expenses. or that he intended to grant the respondent spouses relief to which they were not entitled under law. . what should they have been held liable for in accordance with law? We believe and so hold that since respondent Aquino spouses were held not to have been in delay. For one thing. that we cannot fairly assume that Judge Fortun was grossly ignorant of the law. 4 . Thus. and in the absence of stipulation. the legal interest.000. IF-82-0904-AA at two percent (2%) per month or twenty-four (24%) per annum. which is six per cent per annum. and in the absence of a stipulation of a particular rate of penalty interest.00 as exemplary damages.

(4) When two or more persons claim the same right to collect. It follows that their obligation to pay principal-cum-regular or monetary interest under the terms and conditions of Account No. It is precisely this unjust enrichment which Article 1256 of the Civil Code prevents by requiring. until the principal sum due is returned to the creditor. In the instant case.The fact that the respondent Aquino spouses were not in default did not mean that they. (5) When the title of the obligation has been lost. IF-82-0904-AA was not extinguished by such tender of payment alone. would constitute unjust enrichment on the part of the respondent spouses at the expense of petitioner State even though the spouses had not been guilty of mora. The payment of regular interest constitutes the price or cost of the use of money and thus. while they are properly regarded as having made a written tender of payment to petitioner State. Thus. If the creditor to whom tender of payment has been made refuses without just cause to accept it. Abaya. Tender of payment must be accompanied or followed by consignation in order that the effects of payment may be produced.000. the . and (b) consignation of the sum due. in addition to tender of payment. (2) When he is incapacitated to receive the payment at the time it is due. were relieved from the payment not only of penalty or compensatory interest at the rate of twenty-four percent (24%) per annum but also of regular or monetary interest of seventeen percent (17%) per annum.00 and to continue to use the same after maturity of the loan without payment of regular or monetary interest. in Llamas v. 5 the Supreme Court stressed that a written tender of payment alone. without just cause. For the respondent spouses to continue in possession of the principal of the loan amounting to P110. as a matter of law. failed to consign in court the amount due at the time of the maturity of Account No. Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown. (3) When. The relevant rule is set out in Article 1256 of the Civil Code which provides as follows: Art. regular interest continues to accrue since the debtor continues to use such principal amount. respondent spouses Aquino. without consignation in court of the sum due. or does not appear at the place of payment. the debtor desirous of being released from his obligation must comply with two (2) conditions: (a) tender of payment. the debtor shall be released from responsibility by the consignation of the thing or sum due. The regular or monetary interest continued to accrue under the terms of the relevant promissory note until actual payment is effected. he refuses to give a receipt. (Emphasis supplied) Where the creditor unjustly refuses to accept payment. 1256. IF-820904-AA. does not suspend the accruing of regular or monetary interest.

000. plus costs. respondents.-G. The Decision of the Court of Appeals dated 30 August 1989 in C. The dispositive portion of the decision of Judge Fortun is hereby clarified so as to read as follows: (1) Ordering defendants to immediately release the pledge and to deliver to the plaintiff spouses Rafael and Refugio Aquino the shares of stock enumerated and described in paragraph 4 of said spouses' complaint dated 17 July 1984.J. 17954 and the Decision of the Regional Trial Court dated 17 February 1989 in Civil Case No. . SO ORDERED. INC.R. JJ. petitioner.00 plus seventeen percent (17%) per annum regular interest computed from the time of maturity of the plaintiffs' loan (Account No.000. Jr. WHEREFORE. Alojada & Garcia and Jimenea. and (3) Dismissing defendants' counterclaim for lack of merit and making the preliminary injunction permanent. Dala & Zaragoza for petitoner. Inc. Jr.000." No pronouncement as to costs. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY.00 as attorney's fees. upon full payment of the amount of P110. Republic of the Philippines SUPREME COURT Manila EN BANC G. No.000. Zapa Law Office for private respondent. (2) Ordering defendant State Investment House.. C... 1994 EASTERN SHIPPING LINES..A.00 as exemplary damages. Gutierrez. Fernan. P6.consignation of the amount due in court which amount would thereafter be deposited by the Clerk of Court in a bank and earn interest to which the creditor would be entitled. vs. to pay to the plaintiff spouses Rafael and Refugio Aquino P10.. 97412 July 12. Bidin and Davide. the Petition for Review is hereby GRANTED DUE COURSE.R. concur.. INC. P5. No. Q-42188 are hereby REVERSED and SET ASIDE. HON.00 as moral damages. IF-82-0904-AA) and until full payment of such principal and interest to defendants.

85-86. or joint and several.) There were. 1981. 81/01177 for P36. 1982. 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service. liability of the common carrier. are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary.. the arrastre operator and the customs broker. (pp. one drum opened and without seal (per "Request for Bad Order Survey. said to be in bad order.032. two fiber drums of riboflavin were shipped from Yokohama. On January 7. The findings of the court a quo. due to the fault and negligence of defendants. On January 8 and 14. so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation". B).466. E). 1981. L). arrastre operator and brokerforwarder for damages sustained by a shipment while in defendants' custody. (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. which damage was unknown to plaintiff. "Release" and Philbanking check. Rollo. Exhs.95 under the aforestated marine insurance policy.382. albeit not completely novel. filed by the insurer-subrogee who paid the consignee the value of such losses/damages. Upon arrival of the shipment in Manila on December 12.032. M. the consignee suffered losses totaling P19. Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. N.: The issues. I. is twelve percent (12%) or six percent (6%). Inc. and O). The latter excepted to one drum." Exh. The latter excepted to one drum which contained spillages. YMA-8 (Exh. on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced: This is an action against defendants shipping company. the appellate court said: . it was discharged unto the custody of defendant Metro Port Service. other factual issues that confronted both courts.95. On December 4. adopted by the Court of Appeals.38. K. D). As a consequence of the losses sustained. and (c) whether the applicable rate of interest. The shipment was insured under plaintiff's Marine Insurance Policy No. J. J. to be sure. defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse.VITUG. Plaintiff contended that due to the losses/damage sustained by said drum. plaintiff was compelled to pay the consignee P19. Inc. Exh. H. 10649. Here. referred to above. Claims were presented against defendants who failed and refused to pay the same (Exhs. while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No.

86427. It is obvious. it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern). Records. is no longer its liability (p. but nonetheless. one drum was found opened without seal. therefore. 2. if determinable). Metroport averred that although subject shipment was discharged unto its custody. traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter. that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Allied Brokerage alleged that plaintiff has no cause of action against it. the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of . with its "Additional Survey Notes". 1982. as to the second issue. adopting plaintiff's Records. South Harbor. as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7. 1981 the shipment was delivered to defendant Metro Port Service. not having negligent or at fault for the shipment was already in damage and bad order condition when received by it. 1737 of the New Civil Code. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief. Manila on December 12. Allied's pre-Trial Brief. 34. The two drums were shipped in good order and condition. are considered. 3. one drum was found with adulterated/faked contents. covered by the vessel's Agent's Bad Order Tally Sheet No. there can be no doubt that the shipment sustained losses/damages. p. it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it.Defendants filed their respective answers. it is stated that when the shipment was "landed on vessel" to dock of Pier # 15. Inc. it was observed that "one (1) fiber drum (was) in damaged condition. Correspondingly. p.. Whether or not the shipment sustained losses/damages. As to the first issue. 1981. In the latter notes. Under Art. From the evidence the court found the following: The issues are: 1. cello bag partly torn but contents intact. B and C). 38). This becomes evident when the Marine Cargo Survey Report (Exh. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody. 17. Record). Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached the consignee. Record). arrastre operator (Metro Port) and broker (Allied Brokerage). portion of the same was already in bad order (p. G). it excepted to one drum in bad order. But when on December 12. 11.

B. Inc. whichever is lesser. judgment is hereby rendered: A.95. The appeal is devoid of merit. as subrogee for the amount it paid to the consignee. NCC). Inc. until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. pursuant to Section 6.00 each. Defendant Eastern Shipping's own exhibit. SO ORDERED. In this petition. Rollo.000.032. The amount of P19. crate box or container in no case to exceed P5. the common carrier. II. attributes error and grave abuse of discretion on the part of the appellate court when — I.00 as attorney's fees. Inc. and thus held: WHEREFORE. Dissatisfied.. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE . Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation. P3. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants. and therefore they are liable to the appellee. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION. 87-89. Ordering defendants to pay plaintiff. shall not exceed US$500 per case or the CIF value of the loss. Costs. (pp. Eastern Shipping Lines. 3-Eastern) states that on December 12. the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 1981 one drum was found "open". 2. After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. until fully paid (the liability of defendant Eastern Shipping. PREMISES CONSIDERED. while the liability of defendant Metro Port Service. 1738.01 of the Management Contract). with the present legal interest of 12% per annum from October 1. 1982. and 3. Record).) The Court of Appeals thus affirmed in toto the judgment of the court a quo.000. 207. the date of filing of this complaints. defendant's recourse to US. jointly and severally: 1. shall be to the extent of the actual invoice value of each package. (p.destination.

There are. been passed upon by the Court. In Fireman's Fund Insurance vs. Kui Bai vs. In this decision. being the carrier and not having been able to rebut the presumption of fault. 139 SCRA 87. not one of which can be applied to this case. nor that attendant facts in a given case may not vary the rule. A factual finding of both the court a quo and the appellate court. 19 SCRA 5 [1967]. we take note. thus: The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. . enumerated in Article 1734 1 of the Civil Code. is. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. When the goods shipped either are lost or arrive in damaged condition. 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.COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM. we have explained. Court of Appeals. Court of Appeals. Manila Railroad Co. we have begun by saying that the questions raised by petitioner carrier are not all that novel. 1735. is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Civil Code. Prince Line. v. Dollar Steamship Lines. which. 161 SCRA 646. PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED. we do have a fairly good number of previous decisions this Court can merely tack to. or until the lapse of a reasonable time for their acceptance by.. Metro Port Service vs. 253 [1960]). a presumption arises against the carrier of its failure to observe that diligence. in part. of course. and there need not be an express finding of negligence to hold it liable (Art. in any event. et al. the person entitled to receive them (Arts. 1736-1738.. The instant petition has been brought solely by Eastern Shipping Lines. 863). exceptional cases when such presumption of fault is not observed but these cases. or vice-versa. 52 Phil. 107 Phil. Civil Code. the liability imposed on Eastern Shipping Lines. The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has. of course. 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. We do not. Indeed. are exclusive. too. Court of Appeals. Metro Port Services (182 SCRA 455). Philippine National Railways vs. to be held liable in this particular case. and received by. granted. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors. the carrier for transportation until delivered to. Inc. Accordingly. Ganzon vs. in holding the carrier and the arrastre operator liable in solidum. The petition is. such responsibility also devolves upon the CARRIER. 131 SCRA 365). imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier.

00 which is the value of the insurance recovered and the amount of P10. Guzman. in lieu of proof. fishing gear and equipment minus P80.447. vs. interest "cannot be recovered upon unliquidated claims or damages. Perez. 447. Let us first see a chronological recitation of the major rulings of this Court: The early case of Malayan Insurance Co. involved a suit for recovery of money arising out of short deliveries and pilferage of goods. This demand. the award of legal interest. Lichauco v. 2 decided 3 on 15 May 1969." then.00 which is the value of the boat F B Pacita III together with its accessories. Corporacion de P. if the suit were for damages. judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows: Ordering defendants and third party plaintiffs Shell and Michael. Agustinos. The trial court opted for judicial demand as the starting point.51 was agreed upon. is the legal rate. 4 L-6998. The appellants then assailed. Incorporated to pay jointly and severally the following persons: xxx xxx xxx (g) Plaintiffs Pacita F. absent a stipulation. 5 rendered on 11 October 1985. Manila Port Service. interest "should be from the date of the decision. appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered goods amounted to P3. Reformina and Francisco Reformina the sum of P131." And as was held by this Court in Rivera vs. 1969 up to the time they are actually paid or already the total . 1956. is inevitable regardless of whether there are others solidarily liable with it." After trial.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. Tomol. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1. 38 Phil. February 29. But then upon the provisions of Article 2213 of the Civil Code.. Inc.20. 25 Phil.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6. the sole petitioner in this case. judicial or extrajudicial. this Court ruled: Interest upon an obligation which calls for the payment of money.P. inter alia. was for "Recovery of Damages for Injury to Person and Loss of Property. In the stipulation of facts later entered into by the parties.084.. 302).947.000. Such interest normally is allowable from the date of demand." (Emphasis supplied) The case of Reformina vs. except when the demand can be established with reasonable certainty. the amount of P1. It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.000. In sustaining the appellants. the lower court decreed: WHEREFORE. however. was neither established in its totality nor definitely ascertained. "unliquidated and not known until definitely ascertained.. In this case.Inc.447. assessed and determined by the courts after proof (Montilla c.

(Emphasis supplied. much less forbearances of any money.sum of P370. Cruz. the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid.e. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72. This Court 6 ruled: The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money. v. 7 promulgated on 28 July 1986. and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. been applied. the case was remanded to the lower court for execution. there being no stipulation to the contrary. from the filing of the complaint until fully paid. As correctly argued by the private respondents. and in the absence of stipulation. Inc.00 with legal interest thereon from the filing of the complaint until fully paid. Monetary Board in its Resolution No. in the absence of express contract as to such rate of interest.000. or credits and the rate allowed in judgments.00 with costs against defendants and third party plaintiffs. the indemnity for damages.500. goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. or forbearance of any money. 1622 dated July 29. (Emphasis found in the text) — should have. has prescribed that the rate of interest for the loan. and the debtor incurs in delay.. instead. Relying on the Reformina v.00 as of June 4. goods or credits. In their petition for review on certiorari. The case was for damages occasioned by an injury to person and loss of property. 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5. . as amended. 1974. 2209. — If the obligation consists in the payment of a sum of money. goods or credits. this Court 8 modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof. When the appellate court's decision became final.000. the petitioners contended that Central Bank Circular No. 416. Any other kind of monetary judgment which has nothing to do with. goods..) On appeal to the Court of Appeals. Tomol case. The above rule was reiterated in Philippine Rabbit Bus Lines. shall be the payment of interest agreed upon. shall be twelve (12%) percent per annum. i. xxx xxx xxx Coming to the case at bar. the legal interest which is six percent per annum. the law applicable to the said case is Article 2209 of the New Civil Code which reads — Art. providing thus — By virtue of the authority granted to it under Section 1 of Act 2655. nor involving loans or forbearance of any money. the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan. This Circular shall take effect immediately.

Reformina v. 1723. v.000. . . thus: WHEREFORE... . P2. to pay the plaintiff. .000. the case. . the "defendant United Construction Co. on 03 October 1986. the total sum being payable upon the finality of this decision. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5. inter alia.000. in its resolution of 15 April 1988. . respectively.) The subsequent case of American Express International. 9 the trial court. Inc. Clearly. and its resolution.000.000. they are not applicable to the instant case. .335. it explained: There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. p. 1968. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). Inc. contending that "the interest of twelve (12%) per cent per annum imposed on the total amount of the monetary award was in contravention of law.In Nakpil and Sons vs. Tomol. (2) forbearance of any money. 139 SCRA 260 [1985]). (Philippine Rabbit Bus Lines Inc. (one of the petitioners) . from the filing of the complaint until paid. dated 29 April 1985. in other words." The Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and. goods or credits. upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. Court of Appeals.68 with interest at the legal rate from November 29. the sum of P989. . was decided.00 as .000. Supra. Cruz. (Emphasis supplied) A motion for reconsideration was filed by United Construction.00. When taken to this Court for review.. as We do hereby impose. Upon failure to pay on such finality.00) Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100. dated 27 February 1985. It is true that in the instant case. goods or credit. 143 SCRA 160-161 [1986]. vs. the date of the filing of the complaint until full payment . the Court of Appeals sustained the trial court's decision.00) Pesos as and for attorney's fees. ." Save from the modification of the amount granted by the lower court. that will cause the imposition of the interest. of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court. Jr. restoring the amount of damages awarded by the trial court. twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. the rate of interest is imposed on the total sum. Civil Code. 416 . the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case. ordered. Intermediate Appellate Court 11 was a petition for review on certiorari from the decision. there is neither a loan or a forbearance. we deem it reasonable to render a decision imposing.00 as moral damages and P400.00 and P100..000. (Emphasis supplied. .e. but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. in an action for the recovery of damages arising from the collapse of a building. as part of the judgment for damages. It will be noted that in the cases already adverted to. . It is delay in the payment of such final judgment. i. to P240. and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money.000. is applicable only in the following: (1) loans.

The records were thereupon transmitted to the trial court. The Court 12 thus set aside the decision of the appellate court and rendered a new one. . . the Court 15 declared: . held the award. plus costs of suit. a petition for certiorari assailed the said order. with interest at the legal rate from the date of the filing of the complaint until fully paid (Emphasis supplied. it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the filing of the complaint.00 in concept of compensatory damages.400. .000. 416] does not apply to actions based on a breach of employment contract like the case at bar. . and the interest adjudged by the trial court . Quite recently. goods or credits but expropriation of certain parcels of land for a public purpose. until fully paid. This Court said: . except defendant-appellant Merton Munn. this Court. Ascribing grave abuse of discretion on the part of the trial judge. (Emphasis supplied) Reformina came into fore again in the 21 February 1989 case of Florendo v. later sustained by the IAC. providing any legal interest thereon. . After conducting a hearing on the complaints for eminent domain. the petitioner was awarded by the trial court moral and exemplary damages without. the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for their lands so expropriated "with legal interest thereon . involved the expropriation of certain parcels of land. . .) The petition for review to this Court was denied. the amounts stated in the dispositive portion of the decision. Said circular [Central Bank Circular No.exemplary damages with interest thereon at 12% per annum from notice of judgment. for moral damages by the trial court. however. however. jointly and severally. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint. When the decision was appealed to the Court of Appeals. National Power Corporation vs. 14 decided on 08 May 1992.00) Pesos as moral damages. For having been illegally dismissed. are ordered to pay. . with the modification that defendants-appellants. and an entry of judgment was made. while recognizing the right of the private respondent to recover damages. the latter held: WHEREFORE. In a decision of 09 November 1988. the Court had another occasion to rule on the matter. with six (6%) percent interest thereon computed from the finality of this decision until paid." Again. except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31. to be inconceivably large. . in applying the 6% legal interest per annum under the Civil Code. . (T)he transaction involved is clearly not a loan or forbearance of money. the payment of which is without stipulation regarding interest. "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100. (Emphasis supplied) The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid. Ruiz 13 which arose from a breach of employment contract. 1972 is affirmed in all respects. Angas. including the sum of P1.

as well as to judgments involving such loan or forbearance of money. Ruiz (1989) and National Power Corporation v. since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of money. Tomol (1985). a common time frame in the computation of the 6% interest per annum has been applied. introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid.. did not alter the pronounced rule on the application of the 6% or 12% interest per annum. Intermediate Appellate Court (1988). guided by the rule that the courts are vested with . The "first group" would consist of the cases of Reformina v. etc. assessed and determined by the courts after proof. In the "first group". Manila Port Service (1969). 2209 of the Civil Code shall apply. Court of Appeals (1988). and American Express International v. there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court.e. Cruz (1986). The ostensible discord is not difficult to explain. and not by way of earnings from loans. explaining that "if the suit were for damages. In the "second group" would be Malayan Insurance Company v. too. The factual circumstances may have called for different applications. i.is in the nature of indemnity for damages.' then. The "second group". the "second group" varied on the commencement of the running of the legal interest. the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. Philippine Rabbit Bus Lines v. 17 depending on whether or not the amount involved is a loan or forbearance. Observe. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo. that in these cases.'" American Express International v." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid. Nakpil and Sons v. however. 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. on the other hand. 'unliquidated and not known until definitely ascertained. or one of indemnity for damage. the "first group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid. interest 'should be from the date of the decision. Angas (1992). Unlike. Concededly. goods or credits. Therefore. Art. goods or credits. on the one hand. IAC. Florendo v. from the time the complaint is filed until the adjudged amount is fully paid.

in lieu of SIX PERCENT (6%). where the demand is established with reasonable certainty. it may not be unwise. 26 Accordingly. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code. 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).e. WHEREFORE. a loan or forbearance of money. the rate of interest shall be 12% per annum to be computed from default. and it consists in the payment of a sum of money. 22 In the absence of stipulation. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. the rate of legal interest. contracts. dated 03 February 1988. 3. 21 Furthermore. Nonetheless. shall be imposed on such amount upon finality of this decision until the payment thereof.e. law. delicts or quasi-delicts 18 is breached. quasi-contracts.. 20 II. the interest due shall itself earn legal interest from the time it is judicially demanded. be on the amount finally adjudged. the interest due should be that which may have been stipulated in writing. shall be 12% per annum from such finality until its satisfaction.e. not constituting a loan or forbearance of money. by way of clarification and reconciliation. I. as well as the accrual thereof. With regard particularly to an award of interest in the concept of actual and compensatory damages. i. Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made. above..discretion. 1169. the contravenor can be held liable for damages. regardless of its source. the rate of interest. whether the case falls under paragraph 1 or paragraph 2. an interest on the amount of damages awarded may be imposed at the discretion of the court 24 at the rate of 6% per annum. When the obligation is breached. shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. i. is imposed. The actual base for the computation of legal interest shall. however. this interim period being deemed to be by then an equivalent to a forbearance of credit.. When an obligation. the petition is partly GRANTED. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. as follows: 1. in any case. When the judgment of the court awarding a sum of money becomes final and executory. 2. on the award of interest. to suggest the following rules of thumb for future guidance. i. A TWELVE PERCENT (12%) interest. is breached. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision. When an obligation. depending on the equities of each case. 25 No interest. of the court a quo. SO ORDERED. .

JJ. Davide. 9 160 SCRA 334. Venicio Escolin. 265. Jr. 6 Penned by Justice Serafin Cuevas. took no part because he was the ponente in the Court of Appeals. 5 139 SCRA 260. earthquake. Cruz and Edgardo Paras. whether international or civil. Cruz. Justice Hugo Gutierrez. Justice Efren Plana filed a concurring and dissenting opinion. Nestor Alampay and Lino Patajo. storm. concurred in by Justices Hermogenes Concepcion." 98 Phil. took no part. concurred in by Justice Claudio Teehankee while Chief Justice Felix Makasiar concurred with the separate opinion of Justice Plana. J. Puno and Kapunan. Reyes. (2) Act of the public enemy in war. Claudio Teehankee and Antonio Barredo. unless the same is due to any of the following causes only: (1) Flood. Common carriers are responsible for the loss. Arsenio Dizon. Enrique Fernando. Abdulwahid Bidin.. (4) The character of the goods or defects in the packing or in the containers. Jr. 8 Penned by then Justice. Justice Ramon Aquino concurred in the result. now Chief Justice. 29 February 1956. Isagani A. Quiason. lightning. Lorenzo Relova.. concurred in by Justices Jose B. Ameurfina Melencio-Herrera. Bellosillo.Narvasa. . Francisco Capistrano. Jr. with the concurrence of Justices Marcelo Fernan. concurred in by Justices Pedro Yap. Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on official leave. C. Feliciano. 1734. 3 Penned by Justice Conrado Sanchez. L-6998. 10 Penned by Justice Edgardo Paras. Amadeo Matute.. Andres Narvasa. Calixto Zaldivar. 4 The correct caption of the case is "Claro Rivera vs. (3) Act or omission of the shipper or owner of the goods. Buenaventura de la Fuente. 2 28 SCRA 65. or other natural disaster or calamity. and Irene Cortes... Regalado. Romero. concur. Ameurfina Melencio-Herrera. 516. 7 143 SCRA 158. Teodoro Padilla. or deterioration of the goods.. Mendoza.J. Bidin. #Footnotes 1 Art. (5) Order or act of competent public authority.L.. Melo. Vicente Abad Santos. Padilla. Jr. destruction. Querube Makalintal. Hugo Gutierrez.

within the context of usury law. took no part because they did not participate in the deliberations. 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. Emilio Gancayco. 22 Wash. 2195.. are liable for damages. The provisions of this Title (on Damages) shall be respectively applicable to all obligations mentioned in article 1157. Jr. .. 156 P. Obligations arise from. Abdulwahid Bidin. 416 by the Central Bank. or delay. the application of the 6% and 12% interest per annum has no bearing considering that this case was decided upon before the issuance of Circular No. Justices Andres Narvasa. 13 170 SCRA 461. 18 Art. 15 Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina Melencio-Herrera. 1170. 17 In the case of Malayan Insurance. Justices Ameurfina Melencio-Herrera and Hugo Gutierrez. negligence. Cruz. Interest due shall earn legal interest from the time it is judicially demanded. 20 Art. 22 Art. although the obligation may be silent upon this point. (2) Contracts. Those who in the performance of their obligations are guilty of fraud. (3) Quasi-contracts. (1) Law. 2d 378. 411 defines the word forbearance. during given period of time.11 167 SCRA 209. Florenz Regalado and Rodolfo Nocon. No interest shall be due unless it has been expressly stipulated in writing. as a contractual obligation of lender or creditor to refrain. Carolina Griño-Aquino. from requiring borrower or debtor to repay loan or debt then due and payable. 1956. Leo Medialdea and Florenz Regalado. 2212." 19 Art. 21 Art. Justices Edgardo Paras and Florentino Feliciano also took no part. Irene Cortes. 14 208 SCRA 542. (4) Acts or omissions punished by law. Abraham Sarmiento. Isagani A. 1157. and those who in any manner contravene the tenor thereof. 16 Black's Law Dictionary (1990 ed. and (5) Qausi-delicts. Teodoro Padilla. 644) citing the case of Hafer v. 1169. 12 Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan.2d 408. Teodoro Padilla. Spaeth. 23 Art.

and in the absence of stipulation. the legal interest. 2213. . there being no stipulation to the contrary. Interest may. interest as a part of the damages may. be adjudicated in the discretion of the court. in the discretion of the court. delay by the other begins. as when the obligor has rendered it beyond his power to perform. 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. Art. or (3) When demand would be useless. In crimes and quasi-delicts. which is six per cent per annum." 24 Art. and the debtor incurs in delay. If the obligation consists in the payment of a sum of money. 2211. 26 Art. Interest cannot be recovered upon unliquidated claims or damages. the indemnity for damages. From the moment one of the parties fulfills his obligation. 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. 2210. shall be the payment of the interest agreed upon. 2209. 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. in a proper case. be allowed upon damages awarded for breach of contract. 25 Art. except when the demand can be established with reasonable certainty."However. "In reciprocal obligations.

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500. Caloocan City.: This is a petition for Certiorari and prohibition with preliminary injunction and/or restraining order of the Order of the respondent judge 1 dated July 27. 1982. 1990. 1986 decision of Judge Antonio M. that after payment of said balance mortgage. J. married to Iluminada M.00). The facts of the case are as follows: Private respondents Zenaida Sangalang and Adolfo Cruz are common-law spouses and owners in common of a 2-storey house and lots described in Transfer Certificate of Title (TCT) No.00) will be payable on or before December 31. 45) . :. Zenaida S. Petitioners. EULALIO M. am a tenant of MISS ZENAIDA S. Petitioners. No.000.00 under the following terms and conditions: "That I. a balance of seventy eight thousand five hundred pesos (P78. Luna. Philippines. Sangalang". Ruiz and Iluminada M. Ruiz and Iluminada M.nad Sometime on November 19. p. with residence and postal address at 399 Gen. to be paid as follows: SIXTY FIVE THOUSAND PESOS (P65. SANGALANG and I agree to purchase the above mentioned parcel of land from MISS ZENAIDA S. 1983. for a monthly rental of P650. DOROTEO N.] EULALIO M.00) with the BANK OF THE PHILIPPINE ISLAND. Metro Manila.SECOND DIVISION [G. the spouses Eulalio M. 1988 in Civil Case No. Metro Manila. Eulalio Ruiz and Zenaida Sangalang executed an agreement where it was provided that Ruiz will buy the house and lot for the sum of P175. Sangalang and Adolfo Cruz" amending the May 15. Respondents. vs. THE CITY SHERIFF OF MANILA AND/OR HIS DEPUTIES. Marulas Branch. 56053 of the Registry of Deeds of Caloocan City but registered only in the name of Zenaida Sangalang. SANGALANG for the total amount of ONE HUNDRED AND SEVENTY FIVE THOUSAND PESOS (175. my failure to comply with the above conditions of payment. Ruiz.00) down payment and will assume the amount of balance of THIRTY ONE THOUSAND FIVE HUNDRED PESOS (P31.R. Martinez (now Justice of the Court of Appeals).000. RUIZ. Filipino. HON. ZENAIDA SANGALANG and ADOLFO CRUZ.000. 84884 : December 3. of legal age. RUIZ and ILUMINADA RUIZ. 1 of the aforesaid two storey house divided into 2 doors. DECISION PARAS.00. Ruiz are the lessees of Door No. (Rollo. Philippine Currency. the said property above described will be open for sale and all partial payments will be refunded by Miss Zenaida S. 8424032 entitled "Eulalio M. CANEBA. Ruiz vs.500.

1987. caused the execution of the 1st and 2nd paragraphs of the dispositive portion of the May 15.00 until the property is surrendered to Sangalang (RTC decision.00 while Ruiz insists that they paid P53. "2. the execution of the 3rd par. thereof in favor of the Ruizes.00. 7. On motion of the private respondents. p. (Rollo." praying that a writ of execution be issued for par. Sangalang maintains that she received only P33. p. p. we hereby rule as follows: "1. Hence.00 to Sangalang as down payment and P21. (Rollo. (Ibid. the trial court found that the Ruiz spouses failed to pay in full the balance of P78. in view of the fact that a writ of execution has already been issued and the same was enforced only with respect to paragraphs 1 and 2 of the . 3 as against pars.00 shall have been fully satisfied.000. 1984 for specific performance with damages against Zenaida Sangalang and Adolfo Cruz. May 15.00. (Ibid. p. 1 and 2 thereof. 1986 decision without including in the writ. the Ruiz spouses filed a complaint on April 24. an entry of judgment was made by the Court of Appeals.000.00 moral damages.It was also stipulated that the Ruiz spouses will continue paying the monthly rental of P650. the Ruiz spouses are not entitled to their prayer for specific performance with damages.00 on or before December 31. in his capacity as ex-oficio city sheriff. and to pay the costs of suit. (Ibid. respondent Judge issued an order for the issuance of a writ of execution. in view of all the foregoing. p.119.000. the dispositive portion of the decision reads: "Wherefore. p. 51) On September 2. 59) The Clerk of Court. Further. 92) An order was issued by the respondent judge on September 8.793.. Rollo. SO ORDERED". There is no dispute that the following payments were made by Ruiz: P65. 3 of the said dispositive portion and that the sheriff be ordered to make full execution of the decision by "off-setting" and/or setting-off par. it ruled that the Ruiz spouses shall continue to pay the agreed amount of rental in the amount of P650. : nad More specifically. the Ruiz spouses filed an "Ex-parte Motion for Execution of Decision Now Partly Executed. There is disagreement however as to the amount paid to Sangalang on the balance of P78. p. attorney's fees in the amount of P15. Ordering the plaintiffs to pay defendant Zenaida Sangalang the amount of P20. 1987 the dispositive portion of which reads as follows: : nad "WHEREFORE. 14) In any event. 1983 as stipulated and even on the extended period of March 22.000. Thus. In the same breath.500. (Rollo. A notice of levy as well as a notice of garnishment were both issued to the petitioners. 1984.00. and "3. 162) On May 29.62 to the Bank on the assumed mortgage. p.500.00 until the amount of P175. 1986. 1987. 48). Ordering plaintiffs to pay defendant Sangalang. the trial court decided that it is only fair that Zenaida Sangalang return/refund to the Ruiz spouses the payment made by the latter. Defendant Zenaida Sangalang is hereby ordered to return the payments made by the plaintiffs pursuant to the Agreement.073. 48) The Ruiz spouses appealed the decision to the Court of Appeals but the same was dismissed for failure to pay the docket fee.

1986 decision sufficient to warrant the questioned order of the respondent court amending subject final and executory judgment. :-cralaw There is no question that the Ruizes failed to comply with the agreement and rescission of the contract is in order. 192) while respondents' memorandum was filed on March 30. p. 171). the petition was given due course (Rollo. on July 27. subject matter of the rescission of the contract. 60) after an omnibus motion was filed by the petitioners on September 8. p. p. the dispositive portion of which reads: "WHEREFORE. 1987. 2. 59) The aforequoted order was reiterated by the respondent judge in his order dated December 11. 1988 moved to amend said decision of May 15. the writ of possession be issued on the property. Thus. But the bone of contention in this case is the exact amount to be returned by Sangalang to the Ruiz .dispositive portion of the decision dated May 15. the plaintiffs to pay the defendant the sum of P1. that is the amount to be returned by Sangalang to the Ruiz spouses. 1988. 64) Sangalang and Cruz filed a Motion for Execution on the above-quoted order on September 1... "3. the effective date of the decision up to the date they vacate door No. 1988 (Ibid. 1990. Petitioners' memorandum was filed on April 11. Sangalang and Adolfo Cruz on May 7.00 monthly from May 15. 1986 which they alleged to have clear disparities and evident ambiguities between the body of said decision and the dispositive portion. "SO ORDERED" (Rollo. to amend the decision in question. In the resolution of the 2nd Division of this Court dated January 10. while the trial court is fully aware that a decision once final and executory can no longer be amended or corrected. as regards par.. The petition is impressed with merit. p. 127) On September 15. the cancellation of lis pendens annotated at the back of the title of the subject property by the Register of Deeds of Caloocan City. the parties could not agree on the execution of the decision. "2. and "4. (Ibid. 53) As expected. the Ruizes filed the present petition. 1986. The parties are also agreed that the Ruizes must return the physical possession of the property to Sangalang while the latter is obliged to return all partial payments made on the property to the Ruizes in accordance with the agreement.500. 1986. 1990 (Ibid. The principal issue to be resolved in the instant petition is: whether or not there is an ambiguity in the dispositive portion of the May 15. Order is hereby issued directing: "1. 65) but before the day of the hearing of said motion. 152-A). p. for the purpose of finally settling the claims of the parties and thereby avoid multiplicity of suits. p. p. it opted. 3 thereof. the return of payments made by the plaintiffs to defendant Zenaida Sangalang which shall be without prejudice to off-setting of rental payments from November 1982. p. the Ruiz spouses filed an "Urgent Motion to Cancel Hearing of Motion. 1987 (Ibid. 1988.. 1990 (Ibid. let a writ of execution be issued with respect to paragraph 3 of the said dispositive portion of the decision." (Ibid. "SO ORDERED" (Rollo.. p..

only the amount of P15. 1 and 2 of the dispositive portion of the 1986 decision against the Ruizes. 166) instead of confining themselves to Door No. let alone the computation of interest.119. 1982 P 65.073.073.62. The only set-off specified by the trial court in the assailed May 15. there is no reason for this Court to grant such claim.00 Payment to the Bank of P.000. on the other hand.00 total sum of two (2) dishonored checks P 38. it is evident that this is the amount that Sangalang was ordered to return to the Ruizes pursuant to par. 133 SCRA 762 (1984) that where the court judgment which did not provide for interest is already final. more specifically shown as follows: Downpayment on Nov.00 less P15. or a total amount of P169. p.192.62 Decision. Fule. hence. such claim is groundless since the decision and orders sought to be enforced do not direct the payment of interest and have long become final (Canonizado v. the alleged legal rate under Central Bank Circular. countered that she received only the amount of P120. : nad A careful study of the decision of the trial court of May 15. 19. 1986 shows that aside from the fact that the refund ordered to be made by Sangalang was not specified in exact numbers.092.62 claimed by the Ruiz spouses to have been actually paid to Sangalang. Moreover. 149 SCRA 555 [1987]).000.62 plus 24% interest compounded annually. there appears to be no ambiguity in the decision to such an extent as to warrant an amendment of the dispositive portion. 2 of said house which the Ruizes occupied after the execution of the agreement (Rollo. 2 & 3.95.00 in the form of dishonored checks have been discounted by the trial court leaving a balance of P124. it appearing that there was in fact a part execution of pars.192.00 ————— Total Payments Made P124. Anent the Ruizes' claim of interest as aforementioned.I. Hence.00 from that claimed by the Ruizes.500.414. P 21. The Ruizes claim that they are entitled to a refund of P124. 1986 decision were the lost profits suffered by Sangalang because of the annotation of the notice of lis pendens on her title by the Ruiz spouses which were considered compensated by the increase in value of the property due to the repair made by the latter. 1 which they used to occupy and for which they have originally been paying rentals. Sangalang.000.62. Ordoñez-Benitez.62 or a difference of P4.192. Interest was not demanded by the Ruizes when the case was pending before the lower court.100. p. Furthermore.62 Payment made to Zenaida Sangalang P53. As ruled by this Court.192. it has been held in the case of Santulan v. Sangalang insists that she is entitled to a P1.192. it is but proper that the amount to be paid by Sangalang is the total payments made by the petitioners in the amount of P124.00 a month rental for Door No. 3 of the said dispositive portion. From the total amount of P139. .spouses which was not spelled out by the trial court. there is no reason to add interest in the judgment.

defendants-appellees. (Christian Lit. Filipino Merchants vs. CA. 189). including the entire proceedings held for the purpose (Marcopper Mining vs. He has exceeded his authority. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.192. 147 SCRA 434 [1987]. Baclayan vs. 26. CA. Briones. (a) the instant petition for Certiorari and prohibition is hereby GRANTED. since the May 15. PREMISES CONSIDERED. The issue of additional rentals was brought up by Sangalang only when the motion for execution of par. 85141.plaintiff-appellant. Auchuelo v.R. 107 SCRA 276 [1981]. Crusade. 157 SCRA 425 [1988]. IAC. v. for having substantially affected the final and executory judgment such Order of the respondent judge dated July 27. p. CA. Commercial Credit Corporation vs. vs. considering that the trial court has no authority to modify or vary the terms and conditions of a final and executory judgment (Vda. the respondent judge had lost its jurisdiction thereon (Marcopper Mining Corp. concur. NLRC. Christian Literature Crusade v. supra.Finally. 169 SCRA 1 [1989]. Ramos v. Sadang. 171 SCRA 712 [1989]). supra. SPOUSES EPIFANIA SALAZAR and RICARDO SALAZAR. GR No. 1988 INSULAR BANK OF ASIA AND AMERICA. 1986 decision until they vacate the premises and (e) the Register of Deeds of Caloocan City is hereby required to CANCEL the lis pendens annotated on the title of subject property. Baclayon et al. Servidad. 167 SCRA 232 [1988]. Padilla. as to Sangalang's claim for P1.. CA. Sarmiento and Regalado. Corp. Consequently. de Nabong v. Sept. 82082 March 25. (c) respondent Sangalang is hereby required to PAY petitionersspouses Ruizes the amount of P124. 157 SCRA 434 [1987]. What remains in his authority in relation thereto is purely the ministerial enforcement or execution of the judgment. Feb.R. July 5. 1988 is null and void for lack of jurisdiction. 1989). SO ORDERED.500. 28. the records show that such claim was never raised in the trial court. CA. Sangalang's claim cannot be granted. No. :-cralaw Hence. G. 89132. Dihiansan v. 78282.R. Nov. 19. justice and due process (Matienzo v. G. CA. 140 SCRA 44. Dulos Realty and Dev't. 2. De la Santa v. v. Melencio-Herrera. 3 of the dispositive portion of the decision was filed by the Ruiz spouses (Rollo. vs.62. (d) petitioners Ruizes are hereby required to VACATE the property in question and PAY P650. 1989. supra). [1985]. 1986 decision has long become final and executory and in fact has been partly executed. Briones. (b) the Order of the respondent judge dated July 27. 77210. No. 1990). It is a basic rule that an issue which was not raised in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play. .00 as monthly rental for Door No. CA. 1988 is hereby DECLARED null and void ab initio.) Therefore. CA GR No.00 monthly as rental as agreed upon and as required by the May 15. 1988. JJ.

25 ). On November 22.GUTIERREZ.: This is an appeal by the Insular Bank of Asia and America (IBAA) from the judgment of the Regional Trial Court of Leyte in Civil Case No. The defendants are further . the plaintiff-appellant increased the rate of interest to 21% pursuant to Central Bank Circular No..676.00 ) payable on or before December 12. JR. The trial court then rendered a summary judgment the dispositive portion of which reads: WHEREFORE. with interest thereon at the rate of 19% per annum from the filing of the complaint on September 12.050. On September 12.00. 1984. 1980. The facts are not disputed. defendants-appellees Epifania Salazar and Ricardo Salazar obtained a loan from the plaintiff-appellant in the amount of Forty Two Thousand and Fifty Pesos ( P42.19 as of September 15. The promissory note matured but the defendants-appellees failed to pay their account. 1983. 1984 until fully paid. In the event the account was referred to an attorney for collection. they were able to pay a total of P68.050. 1979. As of November 25.253. The appeal was originally brought to the Court of Appeals but was certified to us by that tribunal because it raises only a question of law. The defendant-spouses admitted the execution of the promissory note in consideration of P48. 6932 for collection of a sum of money with preliminary attachment. 1984. and attorney's fees.75 which payments were applied to partially satisfy the penalty and interest charges. the parties and their counsels appeared. At the pre-trial on October 31. including interest at 21% per annum penalty charges. This loan transaction was evidenced by a promissory note where the defendants-appellees bound themselves jointly and severally to pay the amount with interest at 19% per annum and with the express authority to increase without notice the rate of interest up to the maximum allowed by law and subject further to penalty charges or liquidated damages upon default equivalent to 2% per month on any amount due and unpaid. 1984. 705 dated December 1. the plaintiff-appellant filed a complaint with the Regional Trial Court alleging that the defendants-appellees were indebted to IBAA in the amount of P87. 1978. It was only after several demands that the defendants-appellees were able to make partial payment. judgment is hereby ordered in favor of the plaintiff ordering the defendant spouses Ricardo Salazar and Epifania Salazar to pay Insular Bank of Asia and America (IBAA) the sum of Eleven Thousand Two Hundred Fifty Three Pesos and Twenty Five Centavos ( P11. the defendants-appellees were also bound to pay 25% of any amount due as attorney's fees plus expenses of litigation and costs. In accordance with the agreement. J.647.

without notice.R. L-46591. (pp.300. Plaintiff-Appellant's Brief) The Escalation Clause provided in the promissory note reads: The interest herein charged shall be subject to in . III THE LOWER COURT ERRED IN THE COMPUTATION OF THE AMOUNT OF OBLIGATION DUE FROM DEFENDANTS-APPELLEES APPELLEES IN FAVOR OF PLAINTIFF-APPELLANT III THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF. especially to compensate for any in Central Bank interests or rediscounting rates.APPELLANT ATTORNEY'S FEES EQUIVALENT TO 25% OF THE AMOUNT DUE AND EXPENSES OF LITIGATION. Navarro (G. and IV THE LOWER COURT ERRED IN NOT ORDERING DEFENDANTS-APELLEES TO JOINTLY AND SEVERALLY PAY THE OBLIGATION.1987). under the law. obligations arising from contracts have the force of law between the parties. Plaintiff-appellant now raises the following assigned errors: I THE LOWER COURT ERRED IN NOT AWARDING TO PLAINTIFF-APPELLANT PENALTY CHARGES OR LIQUIDATED DAMAGES IN THE AMOUNT OF 2% PER MONTH ON ALL AMOUNTS DUE AND UNPAID. 1979 pursuant to Central Bank Circular No. Finding strength in the argument that the promissory note is the contract between the parties and. In line with the Court's ruling in the case of Banco Filipino v. 4.ordered to pay the plaintiff-attorney's fees in the amount of one Thousand Pesos ( P1. the interest rate may not be increased by the plaintiff-appellant in the instant case.Appellant's Brief). However.00 she obtained when the interest rates were increased from 12% to 17% per Central Bank Circular No.00 ) and to pay the costs. the enforceability of such stipulations are subject to certain conditions. 4-5. 705. Plaintiff.000. issued on January 2. July 28. 494. II THE LOWER COURT ERRED IN NOT AWARDING INTEREST ON THE LOAN AT 21 % PER ANNUM. In the Banco Filipino case. It is the nile that escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. depending on whatever policy IBAA may in the future adopt conformable to law. (p. the plaintiff-appellant increased the interest rate to 21% per annum effective December 1. No. In a letter written . the borrower questioned the additional interest charges on the loan of P41. 1976.

(Emphasis supplied) Moreover. The increase in the rate of interest can be effective only as of January 2.1976. The pertinent loan contracts/documents contain escalation clauses expressly authorizing lending bank or non-bank performing quasibanking functions to increase the rate of interest stipulated in the contract. provided that: a. the plaintiff-appellant's second assignment of error is without merit.41) the increased rate imposed or charged by petitioner does not exceed the ceiling fixed by law or the Monetary Board. authorizing the increase from 19% to 21% was issued on December 1. in the event that any law or Central Bank regulation is promulgated increasing the maximum interest rate for loans. as of this date. (supra). 1976 or on a later date. 1976.banking functions on loans already existing as of January 3. 492-498: 1 Only banks and non-bank financial intermediaries performing quasi-banking functions may interest rates on I already existing as of January 2. in the light of Central Rank Circulars Nos. Should there be such an agreement. December 1. Court of appeals (145 SCRA 311. the remaining maturity of the loan was less than 730 days. 1980. Said loans were directly granted by them and the remaining maturities thereof were more than 730 days as of January 2. 1976 adopted the following guidelines to govern interest rate adjustments by banks and non-banks performing quasi. 1155 dated June 11. and b. and 2. Central Bank Circular No. 321): In the Bachrach case (supra) the Supreme Court ruled that the Civil Code permits the agreement upon a penalty apart from the interest. the Escalation Clause is a valid provision in the loan agreement provided that. in its Resolution No. 1979. Hence. With respect to the penalty clause. 705. 1979. some clarifications were made. the penalty does not include the interest. (2) the increase is made effective not earlier than the effectivity of the law or regulation authorizing such an increase and (3) the remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation authorizing such an increase. (Emphasis supplied) In the case at bar. in its comment and supplemental comment submit. ted upon orders of this Court. Obviously. Reiterating the same principle in the later case of Equitable Banking Corp. where this Court held that the stipulation about .by the Central Bank to the borrower. the loan was obtained on November 21. and as such the two are different and distinct things which may be demanded separately. Pertinent portions of the letter read: In this connection. the Central Bank took the position that the issuance of its circulars is a valid exercise of its authority to prescribe maximum rates of interest and based on the general principles of contract. As the Court stated in the case of Government Service Insurance System v. 1976. please be advised that the Monetary Board. 1978 and was payable on or before November 12. we have upheld the validity of such agreements in several cases.

In a span of about six (6) years. winch is sanctioned by law. in the event of default. 1978 to September 12. . Records). The stipulation about payment of such additional rate partakes of the nature of a penalty clause. with earnest efforts. therefore.. the defendants-appellees alleged that the bank neglected to credit said payments in the defendant's account folio and subjected it as it did to the additional charges. This may appear to be usurious. Civil Code of the Philippines). to an additional rate of 5%. In their answer with counterclaim. merely applied this amount to satisfy the penalty and interest charges which it additionally imposed.. However. 297).75 had been paid. There is no indication in the records as to the . In accordance with Article 1229 of the Civil Code. In the case of Equitable Banking Corporation v. the date of filing the complaint. We note the trial court's observation that the plaintiffappellant did not even state in the complaint that the defendants-appellees had made partial payments.83. they.202. Efforts were indeed made to make good their promise. Civil Code of the Philippines). the bank was enriched by P 26. the defendants-appellees in the instant case failed to pay the loan on the due date. We do not find any evidence of bad faith on the part of the defendants-appellees in their failure to pay the loan on time. therefore.18 when the complaint was filed. we agree with the trial court that the bank has already profited considerably from the loan. Furthermore.915.339. 1980 up to September 12. Admittedly.676.676. but it is not so. This would yield interest of P7. however. 1983. on the other hand. penalty charges should be P19. owed the bank the amount of P38. the Court is constrained to reduce the penalty for being highly iniquitous With respect to the attorney's fees.00 ) pesos by the trial court appears to be enough. the Court explained: xxx xxx xxx . which is sanctioned by law. the court is likewise empowered to reduce the same if they are unreasonable or unconscionable notwithstanding the express contract for attorney's fees. they tried to pay the loan little by little so that as of November 25. (Art 1229. We have not overlooked the 14% interest that appellant has been sentenced to pay.50 per annum or a total of P 46. making it appear that the spouses Salazars refused to pay the loan.989.payment of such additional rate partakes of the nature of a penalty clause. 1984. The award of one thousand ( P1..75 (p.626. The rate stipulated was 9%. Liwanag (32 SCRA 293. The promissory note signed by the defendants-appellants states that the loan of P42. although.00 shall bear interest at the rate of 19% per annum.050. Considering that the defendants-appellees have paid the amount of P68. (Art. the penalty may also be reduced by the courts if it is iniquitous or unconscionable. out of proportion to the damage incurred by the bank. The penalty charges of 2% a month are. Penalty interest of 1% a month or 12% per annum is reasonable so that from December 12. The plaintiff-appellant.000. 1984.10 from November 22. subject. a total of P68.75.. 1226. 17.

WHEREFORE. 1983 of the Intermediate Appellate Court (now Court of Appeals) in . 66715 PHILIPPINE NATIONAL BANK.: This is a petition for certiorari which seeks to set aside: (a) the decision dated November 29. vs. J. concur. No..R. Rallos and Orlando S. Republic of the Philippines SUPREME COURT Manila EN BANC DECISION September 18. Bidin. therefore. Carlos S. SO ORDERED. respondents. Juan D. 1990 G. we order interest at the legal rate of 12% per annum on the unpaid amount.18 ) with interest thereon at the rate of Twelve Percent (12%) per annum from the filing of the complaint until fully paid. The defendants-appellants Ricardo Salazar and Epifania Salazar are ordered to pay Insular Bank of Asia and America (IBAA) the sum of THIRTY-EIGHT THOUSAND NINE HUNDRED PESOS and EIGHTEEN CENTAVOS (P38. Ayeng for private respondent. Ayeng. took no part.. petitioner.915. Fernan (Chairman).fluctuation of actual interest rates from 1984 and. Diaz. Augustus C. Feliciano and Cortes JJ. Del Rosario and Pedro R. Lazo for petitioner. . the decision of the lower court is MODIFIED. Benjamin C. J. THE HONORABLE INTERMEDIATE APPELLATE COURT (First Civil Cases Division) and ROMEO ALCEDO.

Later. 94. . Romeo Alcedo Mamballo.400. the PNB Branch Manager. Leticia Sepe. 1402. 1984 denying petitioner Philippine National Bank's (PNB for short) motion for reconsideration. revoking the Special Power of Attorney which he had given to Leticia Sepe to mortgage his Lot No. 95. on Lot No. CV No. 1626 (being a portion of Lot No. Rollo). executed an amended real estate mortgage to include his (Alcedo's) Lot No. on February 18. Isabela Cadastre. 1970. 74.9200 hectares. 1970 to the PNB. 1968. Padilla Negros Occidental Dear Mr. covered by TCT 52705 of the Isabela Cadastre) as additional collateral for Sepe's increased loan of P16. 95. The letter reads: May 22. Branch IV. 1970 Mr.R. Replying on May 22. private respondent Romeo Alcedo. 11393. over a lot registered in her name under TCT No. 1969. 5-6. 68021 which affirmed the decision of the Court of First Instance of Negros Occidental (now Regional Trial Court). 1626 (p. The facts of the case are the following: On March 20. T-31913 to secure the payment of a sugar crop loan of P3. Leticia Sepe and private respondent Alcedo verbally agreed to split fifty-fifty (50-50) the proceeds of the loan (p. and (b) respondent court's resolution dated February 29. San Carlos Branch. Alcedo: This is to acknowledge receipt of your letter dated May 12. Leticia de la Vina-Sepe executed a real estate mortgage in favor of PNB. Gellegani advised Alcedo that his land had already been included as collateral for Sepe's 1970-71 sugar crop loan. in Civil Case No. with an area of 20. Rollo) but failing to receive his one-half share from her.CA-G. Rollo). M. Rollo). 1402. p. acting as attorney-in-fact for her brother-in-law.500 (pp. 52705. Bacolod City. requesting us to revoke the 'Special Power of Attorney' you have executed in favor of Mrs. Jose T. which the latter had already availed of. covered by Transfer Certificate of Title No. PNB's Brief. he assured Alcedo that the bank would exclude his lot as collateral for Sepe's forthcoming (1971-72) sugar crop loan (p. San Carlos Branch. Alcedo wrote a letter on May 12. nevertheless. Leticia de la Vina-Sepe. 1970.

Rollo. Record on Appeal. Sepe. May 22. PNB advised Sepe in writing to replace Lot No. . Leticia de la Vina-Sepe. 1402. May 22. In the meantime.9200 Hectares. above-mentioned. we wish to advise you that the aforementioned parcel of land had been included as collateral to secure the 1970-71 sugar crop loan of Mrs.) JOSE T. affecting Lot No. with the same or more appraised value.) On the same day. Isabela Cadastre. GELLEGANI Manager (pp. Our record shows that this parcel of land is mortgaged to us to secure the agricultural sugar crop loans we have granted you. in a letter written to us.In this connection. Leticia de la Vina-Sepe Canla-on City Dear Mrs. In view of your late request. which she had already availed of. 52705 with an area of 20. p. covered by Transfer Certificate of Title No. we enclose a copy of our letter to Mrs. has plans to revoke the 'Special Power of Attorney' he executed in 1969 in your favor. which is self-explanatory. 1402. 6-7. it is requested that you replace Lot No. the same may be excluded as security for future crop loans. 1970 Mrs. (Sgd. Alcedo made us understand that this said property shall serve as security for your 1969/70 sugar crop loan only. Mr. 1970. which you have already availed. Romeo Alcedo. please be advised and assured that we shall exclude the aforementioned lot as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop loan. Thank you. For your information. Sepe: We wish to advice you that Mr. 1402 with another collateral of equal or higher value wjXUeYmO. As it already secures your 1970-71 crop loan. 75. Very truly yours.

69. Rollo. During the pendency of the case. PNB filed in the Office of the Sheriff at Pasig. with damages. Rollo). 33.69 on the security of Alcedo's property as collateral. PNB alleged that it had no knowledge of the agreement between Mrs. On October 18. Alcedo received two (2) letters from PNB: (1) informing him of Sepe's failure to pay her loan in the total amount of P 56. (Sgd. a petition for extrajudicial foreclosure of its real estate mortgage on Alcedo's land. Rollo). and (2) giving him six (6) days to settle Sepe's outstanding obligation. 1974. 1975. In its answer. Sepe was still able to obtain an additional loan from PNB increasing her debt of P 16. Thank you.) JOSE T.319.) Despite the above advice from PNB. and the Provincial Sheriff of Negros Occidental praying additionally for annulment of the extrajudicial foreclosure sale and reconveyance of the land to him free from liens and encumbrances. Metro Manila. Alcedo sued Sepe and PNB in the Court of First Instance of Negros Occidental for collection and injunction with damages (p. On January 15.638. The corresponding Sheriffs Certificate of Sale was issued to the Bank (p. Alcedo requested Sepe to pay her accounts to forestall foreclosure proceedings against his property. Alcedo filed a second amended complaint withdrawing his action to collect his one-half share (amounting to P28. 1974. It required Sepe to put up other collaterals when it granted her an additional loan because Alcedo informed the Bank that he was revoking . p.500 to P56. On November 19. Very truly yours. Rollo). foreclosure proceedings would be commenced against his property (p. GELLEGANI Manager (pp. 33. the property was sold to PNB as the highest bidder in the sale. 7-8. Sepe and Alcedo to split the crop loan proceeds between them. 34. 75. 1974. Alcedo filed an amended complaint against Leticia and her husband Elias Sepe. On April 17. as otherwise. 15. but to no avail (p. 33. Rollo). Record on Appeal.Kindly call on us regarding this matter at your earliest convenience. With leave of court.638. Rollo).34) out of the proceeds of the sugar crop loans obtained by Sepe (p.

1970 by Alcedo did not impair the real estate mortgage earlier executed on April 28.) The bank appealed but to no avail for on November 29. Rollo). it was the absolute intention of the owner to withdraw all authority from said defendant to further bind or encumber his property.00 as attorney's fees and expenses of litigation. 1980. Isabela Cadastre (TCT No.the Special Power of Attorney he gave Sepe. Rollo. in solidum. T-52705). it is hereby directed that PNB proceed to collect against the cross-defendant whatever outstanding obligation the latter owes the former arising from transactions in connection with the instant case. 10-11. Rollo. 1969 which was the date of the original mortgage. Ordering the defendant Philippine National Bank to reconvey to plaintiff the title to aforesaid Lot No. (pp. On March 14.1983. the trial court rendered judgment in favor of Alcedo1. the revocation of the Special Power of Attorney on May 12. 1970 "that we shall exclude the aforementioned lot as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop loan" (p. considering that no evidence has been adduced regarding the updated actual accountability of the latter with the former.00. and another sum of P5. as null and void. No pronouncement as to costs. after having assured Alcedo on May 22. that the revocation was not formalized in accordance with law.) The appellate court reasoned out that the Bank was estopped from foreclosing the mortgage on Alcedo's lot to pay Sepe's 1971-72 sugar crop loan. 3. 1626 free from all liens and encumbrances relative to the loans obtained by defendant Leticia de la Vina-Sepe.000. We can neither interpret it in any other way than that from the moment of notice to the PNB. and that in any event. On the cross-claim of defendant PNB against Leticia de la Vina-Sepe. Ordering defendant spouses Leticia de la Vina-Sepe and Elias Sepe and the Philippine National Bank.000. Declaring the public auction sale and the certificate of sale executed by the Provincial Sheriff of Negros Occidental relative to Lot No. 54.. 1969 by Sepe in favor of the Bank (p. Rollo).. The Court of Appeals held: . the Intermediate Appellate Court affirmed in toto the judgment of the trial court (p. 4. Although We may not hold this revocation to retroact to April 28. 1626. 37. Plaintiff-appellee's letter was unequivocal and clear to the effect that defendant Leticia de la Vina Sepe was no longer empowered to bind. encumber or mortgage his property. 2. to pay to the plaintiff moral damages in the sum of Pl 0. 36. This was clearly understood by the defendant-appellant .

Sec. Estoppel arises when one. but in writing.PNB.' ' Art. in any litigation arising out of such declaration. 685). which is provided for in Articles 1431 and 1433 of the New Civil Code in conjunction with Section 3. To Our minds. and cannot be denied or disproved as against the person relying thereon. acknowledged this revocation of the agency and in no uncertain terms assured the plaintiff-appellee that indeed. 1431. by his acts. and to act upon such belief. by his own declaration. or omission. 1970. This meeting of the minds between the plaintiff-appellee and defendant-appellant took place not through verbal communications only. intentionally and deliberately led another to believe a particular thing true. therefore. be permitted to falsify it. or omission. (Strong v. Through estoppel an admission or representation is rendered conclusive upon the person making it.. Rule 131 of the Rules of Court. There was no question on its part that Leticia de la Vina Sepe was no longer authorized to offer plaintiff-appellee's property as collateral for her contract of mortgage with the PNB. respectively. The following are instances of conclusive presumptions: (a) Whenever a party has.. Defendant-appellant. and which was enunciated in the following decisions of the Supreme Court: Whenever a party has.. the latter's property will no longer be accepted by it as collateral for the sugar crop loan of the aforementioned defendant for the year 1971 to 1972. Conclusive presumptions. 1970 and May 22. paragraph (a). . act. in any litigation arising out of such declaration. all of which provide: Art. 1433. as shown by their letters dated May 12. be permitted to falsify it. Gutierrez Repide. or omission. he cannot.by his own declaration. the aforementioned act and declaration of defendant-appellant PNB as embodied in said letter binds said bank under the principle of estoppel by deed and defined as follows: A doctrine in American jurisprudence whereby a party creating an appearance of fact which is not true is held bound by that appearance as against another person who has acted on the faith of it. act. act. xxx xxx xxx . representations. he cannot. 6 Phil.. Estoppel may be in pais or by deed. or admissions. or by his silence when he . act or omission intentionally and deliberately led another to believe a particular thing true and to act upon such belief. 3.

1978). 1979. Court of Appeals. Under the laws and jurisprudence aforequoted. PNB was a mortgagee in good faith and for value. and its purpose is to forbid one to speak against his own act. This is one of the conclusive presumptions provided for by the Rules of Court. Rollo). fair dealing. Huyatid 47265-R. the Court is not persuaded to disturb the decisions of the trial court and the Court of Appeals in this case. 15. The doctrine of estoppel is based upon the grounds of public policy. After careful deliberation. Jan. good faith and justice. Plaintiff-appellee had the light to rely on said belief. 38-39. 1970. Said doctrine springs from equitable principles and the equities of the case. PNB adduced substantial evidence in support of its cross-claim against defendant Leticia Sepe (p. the doctrine of promissory estoppel does not apply to this case. defendant-appellant bank can no longer be allowed to deny or falsify its act or declaration. 94 SCRA 368) By its letter dated May 22. defendant-appellant PNB led plaintiff-appellee to believe that his property covered by TCT T-52705 would no longer be included as collateral in the sugar crop loan of defendant Leticia de la Vina Sepe for the year 1971-72. because of the aforementioned act and declaration of defendant-appellant bank. November 21. intentionally or through culpable negligence induces another to believe certain facts to exist and such other rightfully relies and acts on such belief. representations. so that he will be prejudiced if the former is permitted to deny the existence of such facts (Huyatid v. 4. It led said plaintiff-appellee to believe that his property as of said year will no longer be encumbered and will be free from any lien or mortgage. 2. It is designed to aid the law in the administration of justice where without its aid injustice might result.ought to speak out. Rollo. or commitments to the injury of one to whom they were directed and who reasonably relied thereon. (pp. These issues boil down to whether or not PNB validly foreclosed the real estate mortgage on Alcedo's property despite notice of Alcedo's revocation of the Special Power of Attorney authorizing Leticia Sepe to mortgage his property as security for her sugar crop loans and despite the Bank's written assurance to Alcedo that it would exclude his property as collateral for Sepe's future loan obligations.' (Philippine National Bank v. or to renege from it. and 3. 37. L-30831. .) PNB seeks a review of that decision on the grounds that: 1.

133 SCRA 505).We agree with the opinion of the appellate court that under the doctrine of promissory estoppel enunciated in the case of Republic Flour Mills Inc. Rollo) is binding on the bank.00 (because P3. transmission. 1979. The mortgage which Sepe gave to the bank on Alcedo's lot as collateral for her 1971-72 sugar crop loan was null and void for having been already disauthorized by Alcedo. L-23542. 31 SCRA 329. the Supreme Court held that the bank must abide by its representations. or commitments to the injury of one to whom they were directed and who reasonably relied thereon. and its purpose is to forbid one to speak against its own act.) In the case of Philippine National Bank vs. It is designed to aid the law in the administration of justice where without its aid injustice might result.. representations. we must rule against petitioner Bank.500.. Having given that assurance. August 11. On equitable principles. of Sepe's 1970-71 loan. Alcedo's property may be held to answer for only the unpaid balance. 37. A party may not go back on his own acts and representations to the prejudice of the other party who relied upon them (Lazo vs. The following must appear in a public document: (1) Acts or contracts which have for their object the creation. since PNB had promised to exclude Alcedo's property as collateral for Sepe's 1971-72 sugar crop loan. the act and assurance given by the PNB to Alcedo "that we shall exclude the aforementioned lot [Lot No. particularly on the ground of estoppel. but not the 1971-72 crop loan. 1402] as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop loan" (p. The doctrine of estoppel springs from equitable principles and the equities in the case. modification or extinguishment of real rights over immovable property. Court of Appeals (94 SCRA 357). 1358. Inc. vs. Central Bank. One may not take inconsistent positions (Republic vs. Since Alcedo's property secured only P13. Court of Appeals. Republic Surety & Insurance Co. fair dealing. In the case at bar. the bank may not turn around and do the exact opposite of what it said it would not do. where the bank manager assured the heirs of the debtor-mortgagor that they would be allowed to pay the remaining obligation of their deceased parents.00 of Sepe's 1970-71 sugar crop loan of P16. if any.400 was secured by Sepe's own property). it should have released the property to Alcedo.100. sales of real property or of an interest . good faith and justice. It has been applied by this Court wherever and whenever the special circumstances of a case so demands. While Article 1358 of the New Civil Code requires that the revocation of Alcedo's Special Power of Attorney to mortgage his property should appear in a public instrument: Art. The doctrine of estoppel is based upon the grounds of public policy.

The extrajudicial foreclosure being null and void ab initio. Cruz. . COURT OF APPEALS and APEX MORTGAGE AND LOANS CORPORATION. 10 Phil. vs. finding no reversible error in the decision of the Court of Appeals. vs. Hawaiian-Philippines Co. Hernaez. (Alano. SO ORDERED. nevertheless. Palabyab. 746) for — The legalization by a public writing and the recording of the same in the registry are not essential requisites of a contract entered into.R. the petition for review is denied for lack of merit. 12 Phil. respondents. . WHEREFORE. Llorin & Associates for petitioner. Depino. 103592 February 4. and to insure that a publicly executed and recorded agreement shall be respected by the latter. 758. No. the certificate of sale which the Sheriff delivered to PNB as the highest bidder at the sale is also null and void. Cruz. Narvasa. 45 Phil. LLORIN.. 511.. Babasa. No. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G. petitioner. vs. 2 and 1405. a revocation embodied in a private writing is valid and binding between the parties (Doliendo v.) The PNB acted with bad faith in proceeding against Alcedo's property to satisfy Sepe's unpaid 1971-72 sugar crop loan. JJ. Gancayco and Medialdea. as between the parties.therein are governed by Articles 1403. JR. but mere conditions of form or solemnities which the law imposes in order that such contract may be valid as against third persons. 1993 IRENEO F. et al. Balgos & Perez for private respondent. concur.

a. are as follows: It is undisputed that on April 11. is payable in two hundred forty (240) installments at P1.511. 1984 21% 25% P 1.00). "8" & "G") (4 years & 5 months or more) August 1. 721 (February 25. The loan. secured by a real estate mortgage. J.68 (Exh. 1978. 88-45055 2 which is an action for collection of a sum of money. service charge of three percent (3%) p. dated April 12. The promissory note provides for an escalation clause which reads: I/We hereby authorized (sic) APEX MORTGAGE AND LOAN CORPORATION to accordingly increase the rate of interest and/or service charges stipulated in this contract without notice to me/us in the event of a law or any applicable Presidential Decree and/or Central Bank regulation (which) should be enacted increasing the lawful rate of interest and/or service charges that may be charged on this particular kind of loan. 1980) and No. 1980 12% 21% P 1. in Civil Case No. 1984 25% 36% P 2.410. Pursuant to the said clause and on the basis of Central Bank Circular No.772. as evidenced by a Promissory Note With Authority to Assign Credit.REGALADO. with interest of 12% per annum. petitioner impugns the decision rendered by respondent Court of Appeals on January 17. defendant Llorin obtained a loan from plaintiff corporation in the amount of Eighty Four Thousand Four Hundred Ten Pesos (P84. "5") (4 months) December 1. Branch 50.: In this petition for review on certiorari. as found by the trial court and adopted by respondent court. and 1 1/2% monthly penalty for unpaid or delayed amortizations. "4") (1 year & 2 months) .94 (Exh. 1992 1 which affirmed in toto the judgment of the Regional Trial Court of Manila. 1978.142. The uncontested antecedent facts.91 (Exhs. 905 (Series of 1982). 1991.482. plaintiff increased the interest rate on the loan from 12% annually as follows: Effective Date From To Monthly Amortization February 25.08 monthly commencing May 11.

1988 computed (in) consonant (sic) with the foregoing CB Circulars.964. Final pre-trial for submission of additional stipulation of facts on last payment.462. respondent Apex Mortgage and Loans Corporation (APEX) filed a complaint with the Regional Trial Court of Manila for the collection of the amount of P323.00 (Exhs. On February 12. "6") (10 months) December 1.27 which was applied to satisfy the penalty. Hon.88 covering the period from September 1981 to June 1987. "7") (2 months) February 1. 1990) On May 11.523. plaintiff wrote defendant for payment of P323. 1988. the trial court issued a second pre-trial order stating.42. 1990 directing the parties to submit their . .42 representing principal and interest as of March 21..720. Defendant. In compliance with said order.14 (Exh. interest charges and part of (the) principal loan. Three pre-trial conferences were had before the court a quo. 1986 28% 24% P 1.Despite the absence of a de-escalation clause. later reduced corresponding to the reduction in the interest rates prescribed by the Central Bank as follows: Effective Date From To Monthly Amortization February 1.732. the parties submitted their respective computations to the trial court which issued an order on March 12. 1986 36% 28% P 1. is set on March 12. requested for recomputation of his account invoking the decisions of the Supreme Court in Banco Filipino Savings and Mortgage Bank vs. .580. On June 17. in his reply. On March 28. Miguel Navarro. with interest at 21% per annum and 10% of the total claim as attorney's fees. Spouses Salazar. 1988.957. the interest rates were. 1990.32. etc.523. computations according to each other's theory.04 (Exh. and Florante Valle and Insular Bank of Asia and 3 America vs. inter alia. however. .m. On July 7. "1") (3 years-Feb. 1987 24% 21% P 1. 1982 plaintiff demanded from defendant the payment of P123. principal balance. 1987. As of July 27. that: xxx xxx xxx Both parties agreed that the material facts of the case are not disputed and that the main issue pertains to whether or not the escalation clause contained in the promissory note validly applies to this case in light of the Supreme Court decision in the case of Banco Filipino. 1990 at 4 8:30 a. 1987 another written demand was sent to defendant for payment of P208. defendant was able to pay the plaintiff the total sum of P79.

we declared such clause to be valid and held that: Some contracts. et al. we disallowed the imposition of the increased rates of interest and declared that the escalation clause should not be given effect because of (1) its one-sidedness in favor of the lender. because of the open price provision. 6 is applicable to the case at bar and. which was referred to the Court of Appeals for determination and disposition pursuant to our resolution dated September 18. affidavits and the three pre-trial orders. 1991. The legality of the escalation clause. plus P10. is not substantively unconscionable. Miguel Navarro. . these attacks have been unsuccessful.respective memoranda. or that the arrangement left the price to be determined arbitrarily by one party so that the contract lacked mutuality. after which the case would be considered submitted for decision on the basis of the pleadings. supra. stipulations. 1991. As earlier stated. however. the same should likewise be declared null and void. respondent court rendered judgment upholding the decision of the court below.561." which is defined as one in which the contract fixes a base price but contains a provision that in the event of specified cost increases. Salazar. Hon. the lower court rendered a decision ordering herein petitioner "to pay plaintiff Apex Mortgage and Loan Corporation the sum of P80. 1981 until fully paid. 7 Petitioner asseverates that in the Banco Filipino case. and (2) the absence of a de-escalation clause. In most instances.13 with interest of 21% and service charge of 3% per annum from September 12. On April 12. the contract was too indefinite to be enforceable and did not evidence an actual meeting of the minds of the parties. We find the petition to be barren of meritorious submissions or arguments. that is. In the case at bar. he argues. petitioner claims that the escalation clause contained in the promissory note executed in favor of private respondent APEX is identical with the escalation clause subject of the Banco Filipino case. contain what is known as an "escalator clause. The same issue raised by petitioner before respondent Court of Appeals is now being presented before us for resolution. if so. whether the decision of this Court in the case of Banco Filipino Savings and Mortgage Bank vs.00 (as) attorney's fees and the costs of suit. whether the computation should be patterned after the formula used in Insular Bank of Asia and America vs. Attacks on such a clause have usually been based on the claim that. In the aforecited case of Banco Filipino Savings and Mortgage Bank vs.000. as in the case at bar.. the seller or contractor may increase the price up to a fixed percentage of the base." 5 Petitioner initially went to this Court on a petition for review on certiorari.. et al. has been recognized in this jurisdiction. Hence. the issue being principally a question of law. The Court further finds as a matter of law that the cost of living index adjustment. Hon Miguel Navarro. or escalator clause. Sps.

. Accordingly. The purpose of the law in mandating the inclusion of a de-escalation clause is to prevent one-sidedness in favor of the lender which is considered repugnant to the principle of mutuality of contracts. it is pointed out that Section 2 of Presidential Decree No. there must be mutuality between the parties based on their essential equality. . where the parties do not bargain on equal footing. 1684. . et al. . That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board: Provided further. that license would have been null and void for being violative of the principle of mutuality essential in contracts. Court of Appeals. . .8 million loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan. its validity or compliance cannot be left to the will of one of them. and has been universally upheld and enforced. . . .Cost of living index adjustment clauses are widely used in commercial contracts in an effort to maintain fiscal stability and to retain "real dollar" value to the price terms of long term contracts. for a stipulation on an escalation clause to be valid. 2. which further amended the Usury Law. The contract must bind both contracting parties. In order that obligations arising from contracts may have the force of law between the parties. even assuming that the P1. and (2) it must include a provision for reduction of the stipulated interest in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board. the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" . Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. 1308. That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. However. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties.: 8 . . the unilateral action of the PNB in increasing the interest rate on the private respondent's loan. The provision is a common one. violated the mutuality of contracts ordained in Article 1308 of the Civil Code: Art. 7-a. The same Act is hereby amended by adding a new section after Section 7. Parties to an agreement pertaining to a loan or forbearance of money. goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the Monetary Board: Provided. to read as follows: Sec. provides: Sec. It would have invested the loan agreement with the character of a contract of adhesion. is void . . As we held in Philippine National Bank vs. it should specifically provide (1) that there can be an increase in interest if increased by law or by the Monetary Board. Hence. .

we hold that with this actuality. however. We do not find here a situation where it can be said that the parties do not stand on equal footing. in the absence of a corresponding de-escalation clause. the escalation clause shall be considered null and void. however. In other words. it is similarly not controverted but.The inescapable conclusion is that a de-escalation clause is an indispensable requisite to the validity and enforceability of an escalation clause in the contract. The evil sought to be thwarted with the enactment and by the application of Presidential Decree No. There is no dispute that the escalation clause in the promissory note involved in this case does not contain a correlative de-escalation clause or a provision providing for the reduction of the stipulated interest in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board. considering the peculiar circumstances obtaining herein. specifically admitted by petitioner that respondent APEX unilaterally and actually decreased the interest charges it imposed on herein petitioner on three occasions. the escalation clause subject of the aforementioned case is different from that stipulated between herein petitioner and private respondent. Navarro case (152 SCRA 346) reads: I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event a law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan. as a matter of fact. Thus: The escalation clause found in the promissory note executed by petitioner Llorin in favor of private respondent Apex on April 11. We are fully persuaded. the escalation clause involved in this case remains valid and enforceable. . Consequently. As correctly found by respondent court. The insistence of petitioner that the ruling enunciated in the Banco Filipino case should be made to apply in this case has no leg to stand on. 1978 reads: I/We hereby authorized (sic) APEX MORTGAGE AND LOAN CORPORATION to correspondingly increase the rate of interest and/or service charges stipulated in this contract without notice to me/us in the event of a law or any applicable Presidential Decree and/or Central Bank regulation (which) should be enacted increasing the lawful rate of interest and/or service charges that may be charged on this particular kind of loan. Notwithstanding the absence of such stipulation. Ergo. 1684 is inexistent in the present case by reason of the actual grant of a concomitant decrease in the interest rates on petitioner's loan. to take particular exception from said ruling insofar as the case at bar is concerned. which is the evil proscribed by said decree. while the escalation clause subject of the Banco Filipino vs. cessante ratione legis cessat ipsa lex.

. 905. FIRST DIVISION [G. JJ. it was not the law contemplated in the said escalation clause contained in the promissory note executed by the respondent del Valle in favor of petitioner Banco Filipino. No. 721 and 905 expressly provide that the interest rates prescribed therein shall be applicable to both "secured and unsecured loans" such that both circulars can very well be made to apply to petitioner's loan. 494 does not make a distinction as to the type of loan to which it is applicable. Jr. Narvasa. 1984 (from 21% to 25% per annum) and December 1. as correctly pointed out by the court a quo is not assailed by the defendant. There existed legal basis for the increases in the interest rate chargeable against petitioner's account made by the respondent Apex on February 25. specifically that the escalation clause found in the Banco Filipino case refers only to a "law" increasing the lawful rates of interest that may be charged. and which are applicable to both secured and unsecured loans. the judgment appealed from is hereby AFFIRMED in toto and the petition at bar is DENIED for lack of merit. Banco Filipino erroneously relied thereon in imposing the increased rates in interest. as correctly advanced by private respondent in its memorandum. 1984 (from 25% to 36% per annum).. Olympic Sawmill Co. Central Bank Regulation" which increases such rate of interest and/or service charges.. On the other hand and with regard to the present case. Liam Law vs. Nocon and Campos. hence. 113412. August 1.. the matter of the controverted computation of petitioners total liability has been rendered moot and academic. 1996] . Notably the Usury Law ceased to be in existence as of December 22. On the foregoing premises and in light of the foregoing disquisitions.J. C. 129 SCRA 439). 10 is that in said case this Court ruled that Central Bank Circular No. Thus. 1980 (from 12% to 21% per annum). April 17. 721 (February 25. the Supreme Court stated in the Banco Filipino case that while Central Bank Circular 494 had the force and effect of a law. 1982 (see Central 9 Bank Circular No. 1980) and 905 (s. 1982) the legality of which. WHEREFORE. both Circulars Nos. Feliciano. whereas the escalation clause found in this case refers not only to a law but also "to any Presidential Decree or. concur. Another justification for the inapplicability of the Banco Filipino case. the escalation clause in question by speaking of "a law or any applicable Presidential Decree and/or Central Bank Regulation" which would increase the lawful rate of interest and fees chargeable on loans of this nature necessarily included Central Bank Circular(s) Nos. the Escalation Clause was dependent on an increase of rate made by "law" alone. SO ORDERED.R. Upon the other hand.There is a significant difference between the two escalation clauses.

SPECIAL CONTRACTS.The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties. ID. respondents. ID. is likewise. ID. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties. NOT BEING A GRANT OF SPECIFIC AUTHORITY. ALMEDA.Spouses PONCIANO ALMEDA and EUFEMIA P. and (2) that there must be mutuality between the parties based on their essential equality.. PREMISED ON THE PRINCIPLE OF MUTUALITY AND OBLIGATORY. SYLLABUS 1. 4.The manner of agreement is itself explicitly stipulated by the Civil Code when it provides. . nothing in the said circular could possibly be read as granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their assets. petitioners. invalid. ID. ID.. obviously. ID..Apart from violating the principle of mutuality of contracts. .. THE COURT OF APPEALS and PHILIPPINE NATIONAL BANK. .. LOAN. CONTRACTS. vs. BINDING EFFECT OF AGREEMENT BETWEEN PARTIES. ID.. CANNOT BE INVOKED TO JUSTIFY ESCALATION CLAUSES. DOES NOT GRANT BANKS CARTE BLANCHE AUTHORITY TO RAISE INTEREST. CIVIL LAW.‖ What has been ―stipulated in writing‖ from a perusal of interest rate provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest. 2. Borrowing represents a transfusion of capital from lending institutions to industries and businesses in order to stimulate growth. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. INTEREST ARE REQUIRED TO BE EXPRESSLY STIPULATED IN WRITING. This would not.. LIFTING OF USURY CEILING. be the effect of PNB‘s unilateral and lopsided policy regarding the interest rates of petitioners‘ borrowings in the instant case.B. subject to a possible escalation or de-escalation. there is authority for . ID. and (3) upon agreement.. in Article 1956 that ―No interest shall be due unless it has been expressly stipulated in writing. Circular 905. 2) within the limits allowed by law.While the Usury Law ceiling on interest rates was lifted by C. 3. RULE UNDER CB CIRCULAR 905. when 1) the circumstances warrant such escalation or de-escalation. .

VALID AS LONG AS NOT SOLELY POTESTATIVE BUT BASED ON REASONABLE AND VALID GROUNDS.D. but also there are no valid and reasonable standards upon which the increases are anchored. Note that the phrase ―limits imposed by law. cited above. . 385 could be validly invoked by respondent only after settlement of the question involving the interest rate on the loan. MORTGAGE. not being a grant of specific authority. ID.. the exact amount of petitioner‘s obligations could not be determined. AUTOMATIC FORECLOSURE PROVISIONS OF PD 385. Here. not only the increases of the interest rates on the basis of the escalation clause patently unreasonable and unconscionable. Court of Appeals. for the credit agreement specifically requires that the increase be ―within the limits allowed by law. 6. 7.‖ refers only to the escalation clause. the foreclosure provisions of P.Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on reasonable and valid grounds. CAN BE INVOKED AFTER SETTLEMENT OF QUESTION INVOLVING INTEREST AND ONLY AFTER DEBTOR REFUSE TO MEET OBLIGATION FOLLOWING SUCH DETERMINATION. Had the parties intended the word ―law‖ to refer to both legislative enactments and administrative circulars and issuances. ESCALATION CLAUSES. . 905 could not be properly invoked to justify the escalation clauses of such contracts. because of the dispute regarding the interest rate increases. 5.. ID. Circular No..disallowing the interest rates imposed by respondent bank. STATUTORY CONSTRUCTION.In the first place. the same agreement allows reduction on the basis of law or the Monetary Board. an issue which was never settled on merit in the courts below. APPEARANCES OF COUNSEL .‖ obviously referring specifically to legislative enactments not administrative circulars. However. THE PHRASE “WITHIN THE LIMITS ALLOWED BY LAW” REFERS TO LEGISLATIVE ENACTMENTS NOT ADMINISTRATIVE CIRCULARS. the agreement would not have gone as far as making a distinction between ―law or the Monetary Board Circulars‖ in referring to mutually agreed upon reductions in interest rates. this Court clearly emphasized that C. ID.B. and only after the spouses refused to meet their obligations following such determination.. .. Thus. ID.The escalation clause of the credit agreement requires that the same be made ―within the limits allowed by law.‖ In the case of PNB vs. as clearly demonstrated above. ID.

To secure the loan. Almeda several loan/credit accommodations totaling P18.: On various dates in 1981. DECISION KAPUNAN. Cruz Cruz & Navarro III collaborating counsel for petitioners.Cuevas De la Cuesta & De las Alas for petitioners. the spouses Almeda executed a Real Estate Mortgage Contract covering a 3. Almeda and Eufemia P. xxx III. that the interest rate on this/these accommodations shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. The loan shall likewise be subject to the appropriate service charge and a penalty charge of three per cent (3%) per annum to be imposed on any amount remaining unpaid or not rendered when due. Metro Manila. payable semi-annually in arrears. Makati. the first interest payment to become due and payable six (6) months from date of initial release of the loan. PNB Legal Department for private respondent. the spouses Ponciano L.500 square meter parcel of land. the Philippine National Bank granted to herein petitioners. the . In either case. J. OTHER CONDITIONS (c) Interest and Charges xxx xxx (1) The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future. together with the building erected thereon (the Marvin Plaza) located at Pasong Tamo.0 Million pesos payable in a period of six years at an interest rate of 21 % per annum. Pertinent portions of the said agreement are quoted below: SPECIAL CONDITIONS xxx xxx xxx The loan shall be subject to interest at the rate of twenty one per cent (21 %) per annum. A credit agreement embodying the terms and conditions of the loan was executed between the parties. provided.

the spouses filed on February 6. on March 3. which was raffled to Branch 134 presided by Judge Ignacio Capulong. the lower court. to no avail.00 with the . upon the posting of a counterbond by the PNB. 18872.5 As a result of PNB‘s refusal of the tender of payment. In said petition.66. 1984. petitioners tendered to respondent bank the amount of P40.142. docketed as Civil Case No. on March 8. as amended and P. raised the interest rate to 28%. On January 15.4 a substantial portion of which was applied to accrued interest. Invoking the Law on Mandatory Foreclosure (Act 3135. formally consigned the amount of P40. 1990. 905.735. the PNB countered by ordering the extrajudicial foreclosure of petitioners‘ mortgaged properties and scheduled an auction sale for March 14. on April 5.518.000.000.518. respondent bank once more set a new date for the foreclosure sale of Marvin Plaza which was March 12. however. over petitioners‘ protestations. granted a supplemental writ of preliminary injunction. the lower court.adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease of the maximum interest rate. the trial court dissolved the supplemental writ of preliminary injunction. 1988 a petition for declaratory relief with prayer for a writ of preliminary injunction and temporary restraining order with the Regional Trial Court of Makati. consisting of the principal (P18. staying the public auction of the mortgaged property. petitioners.00) and accrued interest calculated at the originally stipulated rate of 21%. 1990. and in relation to Central Bank Circular No.23 On March 31. Petitioners filed a motion for reconsideration. the spouses sought clarification as to whether or not the PNB could unilaterally raise interest rates on the loan. 1990. As a preliminary measure. 1989. The PNB refused to accept the payment. Petitioners protested the increase in interest rates. respondent bank. pursuant to the credit agreement‘s escalation clause.00. Upon motion by petitioners. however. Prior to the scheduled date. Before the loan was to mature in March. 1986.D. 1988.1 Between 1981 and 1984.004. In the interim. allegedly pursuant to Section III-c (1) of its credit agreement. By this time the spouses were already in default of their loan obligations. Said interest rate thereupon increased from an initial 21% to a high of 68% between March of 1984 to September. 1989. 385).142. issued a writ of preliminary injunction enjoining the Philippine National Bank from enforcing an interest rate above the 21% stipulated in the credit agreement. 1988. petitioners made several partial payments on the loan totaling P7.

dated September 15. 385. 1990 respondent bank filed a motion for reconsideration of the said order. Order of Judge Capulong dated July 3. 1992 denying respondent bank‘s motion for reconsideration. respectively. On March 15. Hence the instant petition. Petitioners‘ Motion for Reconsideration and Supplemental Motion for Reconsideration. The case was raffled to Branch 147. They prayed therein for a writ of preliminary injunction with a temporary restraining order. 1992 denying respondent bank‘s motion to lift the writ of injunction issued by Judge Guadiz as well as its motion to dismiss Civil Case No.Regional Trial Court in Civil Case No. On March 30. 1994. 3. Prohibition and Mandamus with respondent Court of Appeals. 90-663 was transferred to Branch 66 presided by Judge Eriberto Rosario who issued an order consolidating said case with Civil Case 18871 presided by Judge Ignacio Capulong. 90-663. . 1992 denying respondent bank‘s subsequent motion to lift the writ of preliminary injunction. Order of Judge Ignacio Capulong dated January 10. On April 17. assailing the following orders of the Regional Trial Court: 1. were denied by respondent court in its resolution dated January 10. respondent bank filed a petition for Certiorari. On August 16. as amended and P. respondent court rendered its decision setting aside the assailed orders and upholding respondent bank‘s right to foreclose the mortgaged property pursuant to Act 3135. 1990. 90-663. For Judge Ignacio Capulong‘s refusal to lift the writ of preliminary injunction issued March 30. 1990. 1990 Judge Guadiz in Civil Case No. and 4. 1990 of Judge Guadiz granting the writ of preliminary injunction restraining the foreclosure sale of Marvin Plaza set on March 12. respondent bank sought the dismissal of the case. 2.D. 90-663 issued an order granting the writ of preliminary injunction enjoining the foreclosure sale of ―Marvin Plaza‖ scheduled on March 12. 1993. Order dated March 30. 1990. On August 27. 1990. 1993 and October 28. 1993. Order of Judge Capulong dated October 20. 1991. Civil Case No. presided by Judge Teofilo Guadiz.

1993 raises two principal issues namely: 1) Whether or not respondent bank was authorized to raise its interest rates from 21% to as high as 68% under the credit agreement. In fact.This appeal by certiorari from the respondent court‘s decision dated August 27. Any doubt about this is in fact readily resolved by a careful reading of the credit agreement because the same plainly uses the . therefore. and (2) that there must be mutuality between the parties based on their essential equality. 385. The instant petition is impressed with merit. The binding effect of any agreement between parties to a contract is premised on two settled principles:(1) that any obligation arising from contract has the force of law between the parties. Respondent bank further contends that it had a right to foreclose the mortgaged property pursuant to P. from the undisputed facts of the case that respondent bank unilaterally altered the terms of its contract with petitioners by increasing the interest rates on the loan without the prior assent of the latter. subject to a possible escalation or de-escalation. when 1) the circumstances warrant such escalation or de-escalation. unilateral. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties. the manner of agreement is itself explicitly stipulated by the Civil Code when it provides.‖ What has been ―stipulated in writing‖ from a perusal of interest rate provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest.D.6 Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. 2) within the limits allowed by law. excessive and arbitrary.D. Indeed. after petitioners were unable to pay their loan obligations to the bank based on the increased rates upon maturity in 1984. invalid. It is plainly obvious. in Article 1956 that ―No interest shall be due unless it has been expressly stipulated in writing. 1994. In its comment dated April 19. it argues that the escalated rates of interest it imposed was based on the agreement of the parties. and 2) Whether or not respondent bank is granted the authority to foreclose the Marvin Plaza under the mandatory foreclosure provisions of P. and 3) upon agreement. respondent bank vigorously denied that the increases in the interest rates were illegal. 385. is likewise. the interest rate which appears to have been agreed upon by the parties to the contract in this case was the 21% rate stipulated in the interest provision.

11) removed the Usury Law ceiling on interest rates – ‘x x x increases in interest rates are not subject to any ceiling prescribed by the Usury Law. 116 which limits such changes to once every twelve months. the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease of the maximum interest rate.‘ but it did not authorize the PNB. 21 SCRA 555). that the interest rate on this/these accommodations shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. or any bank for that matter. even assuming that the P1. The interest provision states: (c) Interest and Charges (1) The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future. Inc. 116. In Philippine National Bank v.D.7 this Court disauthorized respondent bank from unilaterally raising the interest rate in the borrower‘s loan from 18% to 32%. 1308.D. there must be mutuality between the parties based on their essential equality. violated the mutuality of contracts ordained in Article 1308 of the Civil Code: ART. Court of Appeals. The Court held: CB Circular No. 905. The contract must bind both contracting parties. 41% and 48% partly because the aforestated increases violated the principle of mutuality of contracts expressed in Article 1308 of the Civil Code. is void (Garcia vs. Rita Legarda.8 million loan agreement between the . to unilaterally and successively increase the agreed interest rates from 18% to 48% within a span of four (4) months.phrase ―interest rate agreed upon. provided. In order that obligations arising from contracts may have the force of law between the parties.‖ in reference to the original 21% interest rate.. its validity or compliance cannot be left to the will of one of them. In either case.‘ Besides violating P. the unilateral action of the PNB in increasing the interest rate on the private respondent‘s loan. Series of 1982 (Exh. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties. in violation of P. Hence.

however. to progressively increase interest rates on borrowings to an extent which would have made it virtually impossible for debtors to comply with their own obligations. Such clauses. that license would have been null and void for being violative of the principle of mutuality essential in contracts. is indisputable. PNB‘s successive increases of the interest rate on the private respondent‘s loan. over the latter‘s protest. True. where the parties do not bargain on equal footing. hence.. 1) Section 9.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. 905.01 that its terms ‗may be amended only by an instrument in writing signed by the party to be bound as burdened by such amendment. Moreover. as found by the Court of Appeals. he is not bound to pay a higher rate than that.B.‘ The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24% per annum. It would have invested the loan agreement with the character of a contract of adhesion. Circular No. (as are stipulations in other contracts) are nonetheless still subject to laws and provisions governing agreements between parties. which agreements . That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive.implicitly incorporate provisions of existing law. nothing in the said circular could possibly be read as granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its borrowers or . or any lending institution for that matter. Law Union & Rock Insurance Co. Clearly. Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. 1956 of the Civil Code which provides that ‗no interest shall be due unless it has been expressly stipulated in writing. 85). the galloping increases in interest rate imposed by respondent bank on petitioners’ loan. the weaker party‘s (the debtor) participation being reduced to the alternative ‗to take it or lease it‘ (Qua vs. Circular 905.‘ The increases imposed by PNB also contravene Art. over the latter‘s vehement protests. Consequently. while the Usury Law ceiling on interest rates was lifted by C. respondent bank‘s reliance on C.while they may be the law between the contracting parties . 95 Phil. escalation clauses in credit agreements are perfectly valid and do not contravene public policy. Series of 1982 did not authorize the bank. were arbitrary.B. were arbitrary as they violated an express provision of the Credit Agreement (Exh.

lead to a hemorrhaging of their assets.‖ refers only to the escalation clause. not being a grant of specific authority. 905 could not be properly invoked to justify the escalation clauses of such contracts. Had the parties intended the word ―law‖ to refer to both legislative enactments and administrative circulars and issuances. Apart from violating the principle of mutuality of contracts. However. Court of Appeals. Circular No.‖ obviously referring specifically to legislative enactments not administrative circulars. It is our considered opinion that it may not. for the credit agreement specifically requires that the increase be ―within the limits allowed by law. the escalation clause of the credit agreement requires that the same be made ―within the limits allowed by law. This distinction was the subject of the Court‘s disquisition in the case of Banco Filipino Savings and Mortgage Bank v. Navarro8 where the Court held that: What should be resolved is whether BANCO FILIPINO can increase the interest rate on the LOAN from 12% to 17% per annum under the Escalation Clause. Borrowing represents a transfusion of capital from lending institutions to industries and businesses in order to stimulate growth. Note that the phrase ―limits imposed by law. Furthermore.B. the same agreement allows reduction on the basis of law or the Monetary Board. be the effect of PNB‘s unilateral and lopsided policy regarding the interest rates of petitioners‘ borrowings in the instant case. this Court clearly emphasized that C. cited above. This would not. The Escalation Clause reads as follows: I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event.‖ In the case of PNB v. obviously. the agreement would not have gone as far as making a distinction between ―law or the Monetary Board Circulars‖ in referring to mutually agreed upon reductions in interest rates. there is authority for disallowing the interest rates imposed by respondent bank. a law increasing the lawful rates of interest .

1684. 1976 (supra).’ (Paragraphing and italics supplied) It is clear from the stipulation between the parties that the interest rate may be increased ‗in the event a law should be enacted increasing the lawful rate of interest that may be charged on this particular kind of loan. No. providing that parties to an agreement pertaining to a loan could stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased ‘by law or by the Monetary Board. although it has the effect of law. 494. for a loan‘s interest to be subject to the increases provided in CIRCULAR No. goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the Monetary Board: Provided.‖ The distinction between a law and an administrative regulation is recognized in the Monetary Board guidelines quoted in the latter to the BORROWER of Ms.that may be charged on this particular kind of loan. ―An administrative regulation adopted pursuant to law has the force and effect of law. 494. Paderes of September 24. there must be an Escalation Clause allowing the increase ‗in the event that any law or Central Bank regulation is promulgated increasing the maximum rate for loans. That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board.‖ ―That administrative rules and regulations have the force of law can no longer be questioned. Parties to an agreement pertaining to a loan or forbearance of money.D. adding Section 7-a to the Usury Law. promulgated on March 17. it has. the force and effect of law.’ The Escalation Clause was dependent on an increase of rate made by ‗law‘ alone. .‘ The distinction is again recognized by P.‘ The guidelines thus presuppose that a Central Bank regulation is not within the term ‗any law. According to the guidelines. CIRCULAR No.’ To quote: Sec. ―Although a circular duly issued is not strictly a statute or a law. however. 1980.‖ (Italics supplied). 7-a. is not a law.

004. Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on reasonable and valid grounds. 385. but also there are no valid and reasonable standards upon which the increases are anchored. and (2) in order for such stipulation to be valid.11 .‘ Petitioners never agreed in writing to pay the increased interest rates demanded by respondent bank in contravention to the tenor of their credit agreement. Between 1981 and 1984. We go now to respondent bank‘s claim that the principal issue in the case at bench involves its right to foreclose petitioners‘ properties under P.518. not exempted from observing basic principles of law.00 over and above those amounts already previously paid by the spouses. further. By the time the spouses tendered the amount of P40. 1980. That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest.487.9 Here. respondent bank was demanding P58.142. as clearly demonstrated above.D. That an increase in interest rates from 18% to as much as 68% is excessive and unconscionable is indisputable.377. Presidential Decree No. We find respondent‘s pretense untenable. escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board. and ordinary fairness and decency under the due process clause of the Constitution. petitioners had paid an amount equivalent to virtually half of the entire principal (P7.10 In facilitating collection of debts through its automatic foreclosure provisions. it must include a provision for reduction of the stipulated interest ‗in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board. not only the increases of the interest rates on the basis of the escalation clause patently unreasonable and unconscionable.‘ (Paragraphing and italics supplied).66) which was applied to interest alone.735. 385 was issued principally to guarantee that government financial institutions would not be denied substantial cash inflows necessary to finance the government‘s development projects all over the country by large borrowers who resort to litigation to prevent or delay the government‘s collection of their debts or loans. It is now clear that from March 17.Provided. the government is however.00 in settlement of their obligations.

385 will ‗sweep under the rug‘ this iceberg of a scandal in the sugar industry during the Marcos Martial Law years. This we can not allow to happen. Consequently. the exact amount of petitioners‘ obligations could not be determined. 385 to satisfy the whole amount of the loan would be a gross mistake.D. honestly . then the foreclosure of the petitioner‘s properties under the provisions of P. 385 will have to await the presentation of evidence in a trial on the merits. For the benefit of future generations. even if only in part. 385‘s provisions on mandatory foreclosure.12 involving P.In the first place. all the dirty linen in the PHILSUCOM/NASUTRA/RPB closets have to be exposed in public so that the same may NEVER be repeated.D. Furthermore. In Republic Planters Bank v. the foreclosure provisions of P. Thus. in good faith and in compliance with the letter of the Credit Agreement. and only after the spouses refused to meet their obligations following such determination. for the benefit of the petitioner be determined.D. we held that: We cannot. This matter should rightfully be litigated below in the main action. its employees and their families. because of the dispute regarding the interest rate increases. at this point. Pending the outcome of such litigation. held: The enforcement of P. petitioners made a valid consignation of what they. 385 cannot automatically be applied for if it is really proven that respondent DBP is responsible for the misappropriation of the loan. conclude that respondent DBP together with the Bancom people actually misappropriated and misspent the $5 million loan in whole or in part although the trial court found that there is ‗persuasive‘ evidence that such acts were committed by the respondent. It is of paramount national interest. It would unduly prejudice the petitioner. Only after trial on the merits of the main case can the true amount of the loan which was applied wisely or not. P.D. an issue which was never settled on merit in the courts below. Court of Appeals13 the Court reiterating the dictum in Filipinas Marble Corporation. 385 could be validly invoked by respondent bank only after settlement of the question involving the interest rate on the loan. that we allow the trial court to proceed with dispatch to allow the parties below to present their evidence.D. In Filipinas Marble Corporation v. the extent of the loan where there was no failure of consideration and which may be properly satisfied by foreclosure proceedings under P.D. Intermediate Appellate Court.

: . July 9. No. 1994 is hereby REVERSED AND SET ASIDE. concur. Padilla.D. SECOND DIVISION [G. In the face of the unequivocal interest rate provisions in the credit agreement and in the law requiring the parties to agree to changes in the interest rate in writing. J. 1996] PHILIPPINE NATIONAL BANK. Respondent bank‘s rush to inequitably invoke the foreclosure provisions of P. MARIA AMOR BASCOS and MARCIANO BASCOS.. 109563. Their effect was to increase the total obligation on an eighteen million peso loan to an amount way over three times that which was originally granted to the borrowers. 385 through its legal machinations in the courts below. J. as well as the resolution dated February 10. in spite of the unsettled differences in interpretation of the credit agreement was obviously made in bad faith. SO ORDERED. COURT OF APPEALS.. 1993. The case is remanded to the Regional Trial Court of Makati for further proceedings. vs. we hold that the unilateral and progressive increases imposed by respondent PNB were null and void. DECISION MENDOZA. WHEREFORE. PREMISES CONSIDERED... JJ. Bellosillo and Hermosisima. No part. respondents. The latter could not therefore claim that there was no honest-to-goodness attempt on the part of the spouses to settle their obligations. occasioned by crafty manipulations in the interest rates is unconscionable and neutralizes the salutary policies of extending loans to spur business cannot be disputed.believed to be the real amount of their remaining obligations with the respondent bank.R. No part. having handled (while in law practice) several cases adverse to petitioners. petitioner. Jr. J. to gain the upper hand over petitioners. That these increases. Vitug. the decision of the Court of Appeals dated August 27. One of the parties used to be a client.

Payment of this note shall be as follows: *THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE On the reverse side of the note the following condition was stamped:xlv[4] All short-term loans to be granted starting January 1. by way of liquidated damages should this note be unpaid or is not renewed on due dated. at its office in San Jose City. in accordance with the provision hereof. Philippines. and I/we also agree to pay jointly and severally ____% per annum penalty charge. 1978 shall be made subject to the condition that any and/or all extensions hereof that will leave any portion of the amount still unpaid after 730 days shall automatically convert the outstanding balance into a medium or long-term obligation as the case may be and give the Bank the right to charge the interest rates prescribed under its policies from the date the account was originally granted. raise within the limits allowed by law. The facts are as follows: On June 4. the sum of FIFTEEN THOUSAND ONLY (P15. The promissory note contained the following stipulation:xlv[3] For value received. 1993. as the Board of Directors of the MORTGAGEE may prescribe for its debtors. which interest rate the Bank may at any time without notice. Philippine Currency.00).000. To secure payment of the loan the parties executed a real estate mortgage contract which provided:xlv[5] (k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may have been advanced by the MORTGAGEE. . CV No.000. 1979. together with interest thereon at the rate of 12 % per annum until paid. [private respondents] jointly and severally promise to pay to the ORDER of the PHILIPPINE NATIONAL BANK. 1992.xlv[2] both rendered in CA-G. which affirmed the decision of the Regional Trial Court (RTC) of San Jose City (Branch 38). shall be subject during the life of this contract to such an increase within the rate allowed by law. private respondent spouses Maria Amor and Marciano Bascos obtained a loan from the Philippine National Bank in the amount of P15.R. I/we.00 evidenced by a promissory note and secured by a real estate mortgage.xlv[1] of the Eight Division of the Court of Appeals and its resolution dated March 25.This is a petition seeking review of the decision dated August 10. 27653.

1985 P2. Circular No.000. 1984.D. 1979).00. good morals. the Provincial Sheriff of Nueva Ecija scheduled the extrajudicial foreclosure of the mortgage on June 15. 1684. judgment is hereby rendered as follows: 1. public policy. its Branch Manager Jetro Godoy. 3. 116 are declared null and void. Pending final determination of the case. Galang (1) for a declaration of nullity of C. par. PNB asked that the complaint be dismissed and that private respondents be ordered to pay P35. K. 1983. On June 13. effective December 1. the defendant PNB is hereby directed to desist from enforcing the increased rate of interest more than TWELVE (12%) per cent on plaintiffs' loan.xlv[8] to 22. being contrary to Sec. No.B.e. 1984. On June 15. which increased the ceiling on the interest rate of secured and unsecured loans to 16% per annum and 14% per annum. The increase in interest rates based on the escalation clauses in the Promissory Note and the Real Estate Mortgage.xlv[6] PNB also increased the rate of interest per annum. 1983.125. 1983. that henceforth. the RTC rendered a decision.D. 1980.84.000.xlv[10] to 25% effective March 2. first to 14%.xlv[9] to 23% from November 2. according to PNB. P. Monetary Board Resolution No. 1979 (embodied in C. . did not limit the number of times the interest could be increased and that private respondents were estopped from questioning the increases because they failed to object to the same. 1979. 1959 of the Civil Code which provides that interest due and unpaid shall not earn interest. i.On December 12. PNB extended the period of payment of the loan to June 5. respectively. 2. attorney's fees and moral damages in such amount as may be determined by the court. plus 28% annual interest.5% effective June 20. 705 dated December 1. and the Provincial Sheriff of Nueva Ecija. due process and the equal protection clause of the Constitution.125.xlv[15] in partial payment of their loan.B. and the Provincial Sheriff of Nueva Ecija Numeriano Y. on the ground that it was contrary to the Usury Law.xlv[11] and finally to 28% from April 10. the dispositive portion of which reads: WHEREFORE. 1990. No.xlv[12] Because private respondents defaulted in paying their obligation. the case against them is dismissed. private respondents asked that the auction sale be enjoined.84. Numeriano Galang.000. It alleged that private respondents had no cause of action because §1-a of the Usury Law.. customs and traditions. 1981.xlv[13] Private respondents brought suit against PNB. as amended by P. There having [sic] no evidence against the defendants Jetro Godoy. 1984 private respondents deposited with the clerk of court P8.xlv[7] then to 22% effective February 21. 1984 to pay private respondents' indebtedness which. 1984. a loan which matured over two to five years. until the obligation was fully paid. thus converting the loan from a short-term to a medium-term loan. PNB filed an answer with compulsory counterclaim. and (2) for a declaration that the interest rate increases on their loan were contrary to Art. 2126 dated November 29.00 to P35. plus interest from April 10. had increased from P15. social justice.00xlv[14] and on January 15.

1684. To begin with. dismissed. 1979. No. likewise. advances made by the PNB for insurance premiums and penalties added. In addition it held that pursuant to the escalation clause any increase in interest must be within "the limits allowed by law" but C. The RTC invalidated the stipulations in the promissory note and the real estate mortgage. The appellate court held that the escalation clause in the promissory note could not be given effect because of the absence of a provision for a de-escalation in the event a reduction of interest was ordered by law. 1684 on March 17. it filed this petition. PNB contends that the two had been executed on June 4. 1684 by providing for a de-escalation.00 paid to and defendant bank to be credited as payment by the plaintiffs.D. that P." which should prevail over Circular No. No. 705. 4. and The parties shall each bear out [sic] the expenses incurred by them. PNB's argument is that the Court of Appeals erred in applying §2 of P. but because the absence of such provision made the clause so one-sided as to make it unreasonable.B. No. Indeed because of concern for the unequal status of borrowers . used by PNB to increase the interest. It is in line with our decision in Banco Filipino Savings & Mortgage Bank v. 5. which makes the validity of an escalation clause turn on the presence of a de-escalation clause.000. 22 of the Civil Code. On the other hand. As its motion was denied. 1684 is not to be retroactively applied to loans granted before its effectivity. which sets a ceiling of 12% interest on secured loans.D.D. the Court of Appeals affirmed the trial court's decision. No. 1980. could not be considered "laws. and the 10. 1684. That ruling is correct. The compulsory counterclaim of the defendants is also dismissed.D. The Court of Appeals nullified the interest rate increases not because the promissory note did not comply with P. 6. 116. PNB's argument rests on a misapprehension of the import of the appellate court's ruling. which authorized PNB to increase the interest rate. is a "law. and that the promissory note and real estate mortgage were contracts of adhesion which should be interpreted in favor of private respondents. on the ground that there was no corresponding stipulation that the interest rate would be reduced in the event the law reduced the applicable maximum rate as provided under P. before the effectivity of P. there must nevertheless be a de-escalation clause to mitigate the onesideness of the escalation clause. the plaintiffs can settle their unpaid obligation with the defendant PNB at the interest rate of TWELVE (12%) per cent per annum computed from the inception of the loan until the same is fully paid.3. circulars. Navarroxlv[16] that although P. However." PNB moved for a reconsideration. Plaintiffs' claim for damages is. to the promissory note and the real estate mortgage in this case. PNB appealed.D. on the basis of which PNB increased the interest. that collection of the increased interest sanctions unjust enrichment contrary to Art.D. No. SO ORDERED.

Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. our cases after Banco Filipino have fashioned the rule that any increase in the rate of interest made pursuant to an escalation clause must be the result of agreement between the parties. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties. that the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board.. . Court of Appeals." As the Court explained:xlv[18] In order that obligations arising from contracts may have the force of law between the parties. the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Court of Appeals. Law Union & Rock Insurance Co. . This Court declared the increases unilaterally imposed by PNB to be in violation of the principle of mutuality as embodied in Art.vis-a-vis the banks.. 1308 of the Civil Code. 21 SCRA 555). Provided.xlv[19] The credit agreement in that case provided: The BANK reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future: Provided. 85). Rita Legarda.xlv[17] two promissory notes authorized PNB to increase the stipulated interest per annum ―within the limits allowed by law at any time depending on whatever policy [PNB] may adopt in the future." The real estate mortgage likewise provided: The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may have been advanced by the MORTGAGEE. It would have invested the loan agreement with the character of a contract of adhesion. its validity or compliance cannot be left to the will of one of them. . even assuming that the P1. Inc. Thus in Philippine national Bank v. 95 Phil. Hence. PNB successively increased the interest from 18% to 32%. shall be subject during the life of this contract to such an increase within the rate allowed by law. in accordance with the provisions hereof. as the Board of Directors of the MORTGAGEE may prescribe for its debtors. . where the parties do not bargain on equal footing. that license would have been null and void for being violative of the principle of mutuality essential in contracts. Pursuant to these clauses. there must be mutuality between the parties based on their essential equality. then to 41% and then to 48%. that the interest rate on this accommodation shall be correspondingly decreased in the event that the applicable maximum interest is reduced by law or by the Monetary Board . A similar ruling was made in Philippine National Bank v. which provides that "[t]he contract must bind both contracting parties.8 million loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan. is void (Garcia vs.

.B. SO ORDERED.As in the first case. nothing in the said circular could possibly be read as granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their assets. Jr. In this case no attempt was made by PNB to secure the conformity of private respondents to the successive increases in the interest rate. JJ.xlv[22] no one receiving a proposal to change a contract is obliged to answer the proposal.. Only recently we invalidated another round of interest increases decreed by PNB pursuant to a similar agreement it had with other borrowers:xlv[21] [W]hile the Usury Law ceiling on interest rates was lifted by C. Regalado (Chairman). Romero. In declaring the increases invalid. For as stated in one case. and Torres. concur. That would completely take away from private respondents the right to assent to an important modification in their agreement. after only two years. the decision of the Court of Appeals is AFFIRMED. Private respondents' assent to the increases can not be implied from their lack of response to the letters sent by PNB. PNB successively increased the stipulated interest so that what was originally 12% per annum became. WHEREFORE. informing them of the increases. Circular 905. we held:xlv[20] We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to unilaterally upwardly adjust the interest on private respondents' loan. . and would negate the element of mutuality in contracts. Puno. 42%.