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

154878 March 16, 2007

CAROLYN M. GARCIA, Petitioner, vs. RICA MARIE S. THIO, Respondent. DECISION CORONA, J.: Assailed in this petition for review on certiorari 1 are the June 19, 2002 decision2 and August 20, 2002 resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58. Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago.5 Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,0006 and P76,5007 on July 26,8 August 26, September 26 and October 26, 1995. In June 1995, respondent received from petitioner another crossed check 9 dated June 29, 1995 in the amount ofP500,000, also payable to the order of Marilou Santiago. 10 Consequently, petitioner received from respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.11 According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual damages.12 Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.13 The amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.14 The amount of this loan was covered by the second check. For both loans, no promissory note was executed since petitioner and respondent were close friends at the time.15 Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands. 16
1awphi1.nt

Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed checks to Santiago. 17 She issued the checks for P76,000 and P20,000

not as payment of interest but to accommodate petitioners request that respondent use her own checks instead of Santiagos.18 In a decision dated February 28, 1997, the RTC ruled in favor of petitioner. 19 It found that respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a monthly interest of 4%:20 WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of: 1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995 until fully paid; 2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid. 3. P100,000.00 as and for attorneys fees; and 4. P50,000.00 as and for actual damages. For lack of merit, [respondents] counterclaim is perforce dismissed. With costs against [respondent]. IT IS SO ORDERED.21 On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties: A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her. There is nothing in the record that shows that [respondent] received money from [petitioner]. What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner]. The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself. It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only onceto one who has an account with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the former and [petitioner]. With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that existed between the parties. x x x (emphasis supplied) 22

Hence this petition.23 As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the CA (which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held that there werecontracts of loan) are contradictory.24 The petition is impressed with merit. A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides: An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. (Emphasis supplied) Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount. 26 It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question to be answered is: who borrowed money from petitioner respondent or Santiago? Petitioner insists that it was upon respondents instruction that both checks were made payable to Santiago.27 She maintains that it was also upon respondents instruction that both checks were delivered to her (respondent) so that she could, in turn, deliver the same to Santiago. 28 Furthermore, she argues that once respondent received the checks, the latter had possession and control of them such that she had the choice to either forward them to Santiago (who was already her debtor), to retain them or to return them to petitioner.29 We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another. 30 Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago. Several factors support this conclusion. First, respondent admitted that petitioner did not personally know Santiago. 31 It was highly improbable that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on the other hand, already had transactions with Santiago at that time. 32 Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of 2%.33 This explained why respondent instructed petitioner to make the checks payable to Santiago. Respondent has not shown any reason why Ruiz testimony should not be believed.

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four months.34 According to respondent, she merely accommodated petitioners request for her to issue her own checks to cover the interest payments since petitioner was not personally acquainted with Santiago.35 She claimed, however, that Santiago would replace the checks with cash. 36 Her explanation is simply incredible. It is difficult to believe that respondent would put herself in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract. We declared in one case that: In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself such as the common experience of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony except its conformity to our knowledge, observation, and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical cognizance.37 Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who was listed as one of her (Santiagos) creditors. 38 Last, respondent inexplicably never presented Santiago as a witness to corroborate her story. 39 The presumption is that "evidence willfully suppressed would be adverse if produced." 40 Respondent was not able to overturn this presumption. We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent liable for the principal amounts of the loans. We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000 andP500,000 loans respectively. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in writing." Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code. It is well-settled that: When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.41 Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when she received petitioners demand letter. 42 From the finality of the decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit. 43 The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted since the RTC decision did not explain the factual bases for these damages.

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

Footnotes
1

Under Rule 45 of the Rules of Court.

Penned by former Associate Justice Eubulo G. Verzola (deceased) and concurred in by Associate Justices Bernardo P. Abesamis (retired) and Josefina Guevara-Salonga of the Third Division of the Court of Appeals;rollo, pp. 98-102.
2 4

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

Id., pp. 60-61. According to respondent, she originally issued four postdated checks each in the amount ofP76,000 on the same dates mentioned but these were not encashed and instead each check was replaced by Santiago with US$3,000 in cash given by respondent to petitioner; id., p. 224.
6

This was the peso equivalent of US$3,000 computed at the exchange rate of P25.50 to $1.00; id., pp. 17 and 88. These postdated checks were deposited on their respective due dates and honored by the drawee bank; id., p. 225.
7

According to respondent, this check was replaced by Santiago with cash in the amount of US$3,000.
8 9

This was City Trust check no. 467257; rollo, pp. 90 and 327. The issues submitted for resolution are the following: (A) Is actual and physical delivery of the money loaned directly from the lender to the borrower the only way to perfect a contract of loan? (B) Does the respondents admission that she paid interests to the petitioner on the amounts represented by the two checks given to her by said petitioner render said respondent in estoppel to question that there was no loan transaction between her and the petitioner? (C) Is respondents written manifestation in the trial court, through counsel, that she interposes no objection to the admission of petitioners documentary exhibits for the

23

multiple purposes specified in the latters Formal Offer of Documentary Exhibits a judicial admission governed by Rule 129, Section 4, Rules of Court? (D) Is this Honorable Court bound by the conclusions of fact relied upon by the [CA] in issuing its disputed Decision? (E) Have the [RTCs] findings of fact on the lone issue on which respondent litigated in the [RTC], viz.existence of privity of contract between petitioner and respondent, been overturned or set aside by the [CA]? (F) May the respondent validly change the theory of her case from one of privity of contract between her and the petitioner in the [RTC], to one of not being a holder in due course of the crossed checks payable to a third party in the [CA] and before this Honorable Court? (G) Is the petitioners entitlement to interest, despite absence of a written stipulation on the payment thereof, justified? (H) Is the deletion by the [CA] of the [RTCs] award of attorneys fees and actual damages in favor pf the petitioner justified? Id., pp. 401-402. Philippine National Bank v. Andrada Electric & Engineering Co. , G.R. No. 142936, 17 April 2002, 381 SCRA 244, 253, citing Fuentes v. CA, 335 Phil. 1163, 1167-1169 (1997).
24 25

Naguiat v. Court of Appeals, G.R. No. 118375, 3 October 2003, 412 SCRA 591, 597. Article 1953 of the Civil Code states: A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

26

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-24968 April 27, 1972 SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs. DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant. Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee. Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J.:p In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment. In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital. Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank. On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in the resolution were the following: 1. That the proceeds of the loan shall be utilized exclusively for the following purposes: For construction of factory building P250,000.00 For payment of the balance of purchase

price of machinery and equipment 240,900.00 For working capital 9,100.00 T O T A L P500,000.00 4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation; 5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of the factory buildings progresses, to be certified to by an appraiser of this Corporation;" Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc. In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the aspects of this approved loan ... with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board." On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as cosigner for the loan, and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with the reexamination of the project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145. On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17. It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows: RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks

in Davao, with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect." On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn. In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned." On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you.". On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," but with the following proviso: That in view of observations made of the shortage and high cost of imported raw materials, the Department of Agriculture and Natural Resources shall certify to the following: 1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and 2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory." The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the certification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials." This point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate a Kenafmill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..." This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in its Resolution No. 9083, a certification from the Department of

Agriculture and Natural Resources as to the availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably even next year;" (2) requesting "assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made as follows: a) For the payment of the receipt for jute mill machineries with the Prudential Bank & Trust Company P250,000.00 (For immediate release) b) For the purchase of materials and equipment per attached list to enable the jute mill to operate 182,413.91 c) For raw materials and labor 67,586.09 1) P25,000.00 to be released on the opening of the letter of credit for raw jute for $25,000.00. 2) P25,000.00 to be released upon arrival of raw jute. 3) P17,586.09 to be released as soon as the mill is ready to operate. On January 25, 1955 RFC sent to Saura, Inc. the following reply: Dear Sirs: This is with reference to your letter of January 21, 1955, regarding the release of your loan under consideration of P500,000. As stated in our letter of December 22, 1954, the releases of the loan, if revived, are proposed to be made from time to time, subject to availability of funds towards the end that the sack factory shall be placed in actual operating status. We shall be able to act on your request for revised purpose and manner of releases upon reappraisal of the securities offered for the loan. With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials needed are available in the immediate vicinity and that there is prospect of increased production thereof to provide adequately the requirements of the factory, we wish to reiterate that the basis of the original approval is to develop the manufacture of sacks on the basis of the locally available raw materials. Your statement that you will have to

rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory, would not be in line with our principle in approving the loan. With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc. It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955. On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project. The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof. We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides: ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract. There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely "that the proceeds of the loan shall be utilizedexclusively for the following purposes: for construction of factory building P250,000.00; for payment of the balance of purchase price of machinery and equipment

P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon. When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature cf mutual desistance what Manresa terms "mutuo disenso" 1 which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. 2 The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance and that on the initiative of the plaintiff-appellee itself. With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the respective briefs of the parties. WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee.

Republic of the Philippines SUPREME COURT Manila SPECIAL SECOND DIVISION G.R. No. 174269 August 25, 2010

POLO S. PANTALEON, Petitioner, vs. AMERICAN EXPRESS INTERNATIONAL, INC., Respondent. RESOLUTION BRION, J.: We resolve the motion for reconsideration filed by respondent American Express International, Inc. (AMEX) dated June 8, 2009,1 seeking to reverse our Decision dated May 8, 2009 where we ruled that AMEX was guilty of culpable delay in fulfilling its obligation to its cardholder petitioner Polo Pantaleon. Based on this conclusion, we held AMEX liable for moral and exemplary damages, as well as attorneys fees and costs of litigation. 2 FACTUAL ANTECEDENTS The established antecedents of the case are narrated below. AMEX is a resident foreign corporation engaged in the business of providing credit services through the operation of a charge card system. Pantaleon has been an AMEX cardholder since 1980. 3 In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son (Adrian Roberto), went on a guided European tour. On October 25, 1991, the tour group arrived in Amsterdam. Due to their late arrival, they postponed the tour of the city for the following day. 4 The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the Coster Diamond House (Coster). To have enough time for take a guided city tour of Amsterdam before their departure scheduled on that day, the tour group planned to leave Coster by 9:30 a.m. at the latest. While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk to pay for this purchase. He did this at around 9:15 a.m. The sales clerk swiped the credit card and asked Pantaleon to sign the charge slip, which was then electronically referred to AMEXs Amsterdam office at 9:20 a.m.5 At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon asked the store clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait a few more minutes. Subsequently, the store manager informed Pantaleon that AMEX was asking for bank references; Pantaleon responded by giving the names of his Philippine depository banks. At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not approved the purchase. Since the city tour could not begin until the Pantaleons were onboard the

tour bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon even without AMEXs approval. When the Pantaleons finally returned to the tour bus, they found their travel companions visibly irritated. This irritation intensified when the tour guide announced that they would have to cancel the tour because of lack of time as they all had to be in Calais, Belgium by 3 p.m. to catch the ferry to London.6 From the records, it appears that after Pantaleons purchase was transmitted for approval to AMEXs Amsterdam office at 9:20 a.m.; was referred to AMEXs Manila office at 9:33 a.m.; and was approved by the Manila office at 10:19 a.m. At 10:38 a.m., AMEXs Manila office finally transmitted the Approval Code to AMEXs Amsterdam office. In all, it took AMEX a total of 78 minutes to approve Pantaleons purchase and to transmit the approval to the jewelry store. 7 After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon experienced delay in securing approval for purchases using his American Express credit card on two separate occasions. He experienced the first delay when he wanted to purchase golf equipment in the amount of US$1,475.00 at the Richard Metz Golf Studio in New York on October 30, 1991. Another delay occurred when he wanted to purchase childrens shoes worth US$87.00 at the Quiency Market in Boston on November 3, 1991. Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation and inconvenience he and his family experienced due to the delays in obtaining approval for his credit card purchases. AMEX responded by explaining that the delay in Amsterdam was due to the amount involved the charged purchase of US$13,826.00 deviated from Pantaleons established charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action for damages against the credit card company with the Makati City Regional Trial Court (RTC). On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon P500,000.00 as moral damages,P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, and P85,233.01 as litigation expenses. On appeal, the CA reversed the awards.8 While the CA recognized that delay in the nature of mora accipiendi or creditors default attended AMEXs approval of Pantaleons purchases, it disagreed with the RTCs finding that AMEX had breached its contract, noting that the delay was not attended by bad faith, malice or gross negligence. The appellate court found that AMEX exercised diligent efforts to effect the approval of Pantaleons purchases; the purchase at Coster posed particularly a problem because it was at variance with Pantaleons established charge pattern. As there was no proof that AMEX breached its contract, or that it acted in a wanton, fraudulent or malevolent manner, the appellate court ruled that AMEX could not be held liable for any form of damages. Pantaleon questioned this decision via a petition for review on certiorari with this Court. In our May 8, 2009 decision, we reversed the appellate courts decision and held that AMEX was guilty of mora solvendi, or debtors default. AMEX, as debtor, had an obligation as the credit provider to act on Pantaleons purchase requests, whether to approve or disapprove them, with "timely dispatch." Based on the evidence on record, we found that AMEX failed to timely act on Pantaleons purchases. Based one ly, tual obligations. 271,ct; moral damages le. uitable that attorney'workers;plaitniff' the testimony of AMEXs credit authorizer Edgardo Jaurique, the approval time for credit card charges would be three to four seconds under regular circumstances. In Pantaleons case, it took AMEX 78

minutes to approve the Amsterdam purchase. We attributed this delay to AMEXs Manila credit authorizer, Edgardo Jaurique, who had to go over Pantaleons past credit history, his payment record and his credit and bank references before he approved the purchase. Finding this delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral and exemplary damages, as well as attorneys fees and costs of litigation. THE MOTION FOR RECONSIDERATION In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX guilty of culpable delay in complying with its obligation to act with timely dispatch on Pantaleons purchases. While AMEX admits that it normally takes seconds to approve charge purchases, it emphasizes that Pantaleon experienced delay in Amsterdam because his transaction was not a normal one. To recall, Pantaleon sought to charge in a single transaction jewelry items purchased from Coster in the total amount of US$13,826.00 or P383,746.16. While the total amount of Pantaleons previous purchases using his AMEX credit card did exceed US$13,826.00, AMEX points out that these purchases were made in a span of more than 10 years, not in a single transaction. Because this was the biggest single transaction that Pantaleon ever made using his AMEX credit card, AMEX argues that the transaction necessarily required the credit authorizer to carefully review Pantaleons credit history and bank references. AMEX maintains that it did this not only to ensure Pantaleons protection (to minimize the possibility that a third party was fraudulently using his credit card), but also to protect itself from the risk that Pantaleon might not be able to pay for his purchases on credit. This careful review, according to AMEX, is also in keeping with the extraordinary degree of diligence required of banks in handling its transactions. AMEX concluded that in these lights, the thorough review of Pantaleons credit record was motivated by legitimate concerns and could not be evidence of any ill will, fraud, or negligence by AMEX. AMEX further points out that the proximate cause of Pantaleons humiliation and embarrassment was his own decision to proceed with the purchase despite his awareness that the tour group was waiting for him and his wife. Pantaleon could have prevented the humiliation had he cancelled the sale when he noticed that the credit approval for the Coster purchase was unusually delayed. In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty of mora solvendi, or delay on the part of the debtor, in complying with its obligation to him. Based on jurisprudence, a just cause for delay does not relieve the debtor in delay from the consequences of delay; thus, even if AMEX had a justifiable reason for the delay, this reason would not relieve it from the liability arising from its failure to timely act on Pantaleons purchase. In response to AMEXs assertion that the delay was in keeping with its duty to perform its obligation with extraordinary diligence, Pantaleon claims that this duty includes the timely or prompt performance of its obligation. As to AMEXs contention that moral or exemplary damages cannot be awarded absent a finding of malice, Pantaleon argues that evil motive or design is not always necessary to support a finding of bad faith; gross negligence or wanton disregard of contractual obligations is sufficient basis for the award of moral and exemplary damages. OUR RULING We GRANT the motion for reconsideration.

Brief historical background A credit card is defined as "any card, plate, coupon book, or other credit device existing for the purpose of obtaining money, goods, property, labor or services or anything of value on credit." 9 It traces its roots to the charge card first introduced by the Diners Club in New York City in 1950.10 American Express followed suit by introducing its own charge card to the American market in 1958.11 In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit card into the country in the 1970s.12 However, it was only in the early 2000s that credit card use gained wide acceptance in the country, as evidenced by the surge in the number of credit card holders then. 13 Nature of Credit Card Transactions To better understand the dynamics involved in credit card transactions, we turn to the United States case of Harris Trust & Savings Bank v. McCray14 which explains: The bank credit card system involves a tripartite relationship between the issuer bank, the cardholder, and merchants participating in the system. The issuer bank establishes an account on behalf of the person to whom the card is issued, and the two parties enter into an agreement which governs their relationship. This agreement provides that the bank will pay for cardholders account the amount of merchandise or services purchased through the use of the credit card and will also make cash loans available to the cardholder. It also states that the cardholder shall be liable to the bank for advances and payments made by the bank and that the cardholders obligation to pay the bank shall not be affected or impaired by any dispute, claim, or demand by the cardholder with respect to any merchandise or service purchased. The merchants participating in the system agree to honor the banks credit cards. The bank irrevocably agrees to honor and pay the sales slips presented by the merchant if the merchant performs his undertakings such as checking the list of revoked cards before accepting the card. x x x. These slips are forwarded to the member bank which originally issued the card. The cardholder receives a statement from the bank periodically and may then decide whether to make payment to the bank in full within a specified period, free of interest, or to defer payment and ultimately incur an interest charge. We adopted a similar view in CIR v. American Express International, Inc. (Philippine branch),15 where we also recognized that credit card issuers are not limited to banks. We said: Under RA 8484, the credit card that is issued by banks in general, or by non-banks in particular, refers to "any card x x x or other credit device existing for the purpose of obtaining x x x goods x x x or services x x x on credit;" and is being used "usually on a revolving basis." This means that the consumer-credit arrangement that exists between the issuer and the holder of the credit card enables the latter to procure goods or services "on a continuing basis as long as the outstanding balance does not exceed a specified limit." The card holder is, therefore, given "the power to obtain present control of goods or service on a promise to pay for them in the future." Business establishments may extend credit sales through the use of the credit card facilities of a non-bank credit card company to avoid the risk of uncollectible accounts from their customers. Under this system, the establishments do not deposit in their bank accounts the credit card drafts

that arise from the credit sales. Instead, they merely record their receivables from the credit card company and periodically send the drafts evidencing those receivables to the latter. The credit card company, in turn, sends checks as payment to these business establishments, but it does not redeem the drafts at full price. The agreement between them usually provides for discounts to be taken by the company upon its redemption of the drafts. At the end of each month, it then bills its credit card holders for their respective drafts redeemed during the previous month. If the holders fail to pay the amounts owed, the company sustains the loss. Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; (b) the loan agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to pay between the credit card issuer and the merchant or business establishment.16 Credit card issuer cardholder relationship When a credit card company gives the holder the privilege of charging items at establishments associated with the issuer,17 a necessary question in a legal analysis is when does this relationship begin? There are two diverging views on the matter. In City Stores Co. v. Henderson, 18 another U.S. decision, held that: The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral and supported by no consideration. The offer may be withdrawn at any time, without prior notice, for any reason or, indeed, for no reason at all, and its withdrawal breaches no duty for there is no duty to continue it and violates no rights. Thus, under this view, each credit card transaction is considered a separate offer and acceptance. Novack v. Cities Service Oil Co.19 echoed this view, with the court ruling that the mere issuance of a credit card did not create a contractual relationship with the cardholder. On the other end of the spectrum is Gray v. American Express Company 20 which recognized the card membership agreement itself as a binding contract between the credit card issuer and the card holder. Unlike in the Novack and the City Stores cases, however, the cardholder in Gray paid an annual fee for the privilege of being an American Express cardholder. In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between the credit card issuer and the credit card holder as a contractual one that is governed by the terms and conditions found in the card membership agreement.21 This contract provides the rights and liabilities of a credit card company to its cardholders and vice versa. We note that a card membership agreement is a contract of adhesion as its terms are prepared solely by the credit card issuer, with the cardholder merely affixing his signature signifying his adhesion to these terms.22 This circumstance, however, does not render the agreement void; we have uniformly held that contracts of adhesion are "as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely." 23 The only effect is that the terms of the contract are construed strictly against the party who drafted it. 24 On AMEXs obligations to Pantaleon

We begin by identifying the two privileges that Pantaleon assumes he is entitled to with the issuance of his AMEX credit card, and on which he anchors his claims. First, Pantaleon presumes that since his credit card has no pre-set spending limit, AMEX has the obligation to approve all his charge requests. Conversely, even if AMEX has no such obligation, at the very least it is obliged to act on his charge requests within a specific period of time. i. Use of credit card a mere offer to enter into loan agreements Although we recognize the existence of a relationship between the credit card issuer and the credit card holder upon the acceptance by the cardholder of the terms of the card membership agreement (customarily signified by the act of the cardholder in signing the back of the credit card), we have to distinguish this contractual relationship from the creditor-debtor relationship which only arises after the credit card issuer has approved the cardholders purchase request. The first relates merely to an agreement providing for credit facility to the cardholder. The latter involves the actual credit on loan agreement involving three contracts, namely: the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; the loan agreement between the credit card issuer and the credit card holder; and the promise to pay between the credit card issuer and the merchant or business establishment. From the loan agreement perspective, the contractual relationship begins to exist only upon the meeting of the offer25 and acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan agreements with the credit card company. Only after the latter approves the purchase requests that the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code, which provides: Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. This view finds support in the reservation found in the card membership agreement itself, particularly paragraph 10, which clearly states that AMEX "reserve[s] the right to deny authorization for any requested Charge." By so providing, AMEX made its position clear that it has no obligation to approve any and all charge requests made by its card holders. ii. AMEX not guilty of culpable delay Since AMEX has no obligation to approve the purchase requests of its credit cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation. Article 1169 of the Civil Code, which provides the requisites to hold a debtor guilty of culpable delay, states: Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. x x x. The three requisites for a finding of default are: (a) that the obligation is demandable and liquidated; (b) the debtor delays performance; and (c) the creditor judicially or extrajudicially requires the debtors performance.26 Based on the above, the first requisite is no longer met because AMEX, by the express terms of the credit card agreement, is not obligated to approve Pantaleons purchase request. Without a demandable obligation, there can be no finding of default.

Apart from the lack of any demandable obligation, we also find that Pantaleon failed to make the demand required by Article 1169 of the Civil Code. As previously established, the use of a credit card to pay for a purchase is only an offer to the credit card company to enter a loan agreement with the credit card holder. Before the credit card issuer accepts this offer, no obligation relating to the loan agreement exists between them. On the other hand, a demand is defined as the "assertion of a legal right; xxx an asking with authority, claiming or challenging as due." 27 A demand presupposes the existence of an obligation between the parties. Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases, what the stores transmitted to AMEX were his offers to execute loan contracts. These obviously could not be classified as the demand required by law to make the debtor in default, given that no obligation could arise on the part of AMEX until after AMEX transmitted its acceptance of Pantaleons offers. Pantaleons act of "insisting on and waiting for the charge purchases to be approved by AMEX" 28 is not the demand contemplated by Article 1169 of the Civil Code. For failing to comply with the requisites of Article 1169, Pantaleons charge that AMEX is guilty of culpable delay in approving his purchase requests must fail. iii. On AMEXs obligation to act on the offer within a specific period of time Even assuming that AMEX had the right to review his credit card history before it approved his purchase requests, Pantaleon insists that AMEX had an obligation to act on his purchase requests, either to approve or deny, in "a matter of seconds" or "in timely dispatch." Pantaleon impresses upon us the existence of this obligation by emphasizing two points: (a) his card has no pre-set spending limit; and (b) in his twelve years of using his AMEX card, AMEX had always approved his charges in a matter of seconds. Pantaleons assertions fail to convince us. We originally held that AMEX was in culpable delay when it acted on the Coster transaction, as well as the two other transactions in the United States which took AMEX approximately 15 to 20 minutes to approve. This conclusion appears valid and reasonable at first glance, comparing the time it took to finally get the Coster purchase approved (a total of 78 minutes), to AMEXs "normal" approval time of three to four seconds (based on the testimony of Edgardo Jaurigue, as well as Pantaleons previous experience). We come to a different result, however, after a closer look at the factual and legal circumstances of the case. AMEXs credit authorizer, Edgardo Jaurigue, explained that having no pre-set spending limit in a credit card simply means that the charges made by the cardholder are approved based on his ability to pay, as demonstrated by his past spending, payment patterns, and personal resources.29 Nevertheless, every time Pantaleon charges a purchase on his credit card, the credit card company still has to determine whether it will allow this charge, based on his past credit history. This right to review a card holders credit history, although not specifically set out in the card membership agreement, is a necessary implication of AMEXs right to deny authorization for any requested charge. As for Pantaleons previous experiences with AMEX (i.e., that in the past 12 years, AMEX has always approved his charge requests in three or four seconds), this record does not establish that Pantaleon had a legally enforceable obligation to expect AMEX to act on his charge requests within a matter of seconds. For one, Pantaleon failed to present any evidence to support his assertion that

AMEX acted on purchase requests in a matter of three or four seconds as an established practice. More importantly, even if Pantaleon did prove that AMEX, as a matter of practice or custom, acted on its customers purchase requests in a matter of seconds, this would still not be enough to establish a legally demandable right; as a general rule, a practice or custom is not a source of a legally demandable or enforceable right. 30 We next examine the credit card membership agreement, the contract that primarily governs the relationship between AMEX and Pantaleon. Significantly, there is no provision in this agreement that obligates AMEX to act on all cardholder purchase requests within a specifically defined period of time. Thus, regardless of whether the obligation is worded was to "act in a matter of seconds" or to "act in timely dispatch," the fact remains that no obligation exists on the part of AMEX to act within a specific period of time. Even Pantaleon admits in his testimony that he could not recall any provision in the Agreement that guaranteed AMEXs approval of his charge requests within a matter of minutes.31 Nor can Pantaleon look to the law or government issuances as the source of AMEXs alleged obligation to act upon his credit card purchases within a matter of seconds. As the following survey of Philippine law on credit card transactions demonstrates, the State does not require credit card companies to act upon its cardholders purchase requests within a specific period of time. Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998, approved on February 11, 1998, is the controlling legislation that regulates the issuance and use of access devices,32 including credit cards. The more salient portions of this law include the imposition of the obligation on a credit card company to disclose certain important financial information 33 to credit card applicants, as well as a definition of the acts that constitute access device fraud. As financial institutions engaged in the business of providing credit, credit card companies fall under the supervisory powers of the Bangko Sentral ng Pilipinas (BSP).34 BSP Circular No. 398 dated August 21, 2003 embodies the BSPs policy when it comes to credit cards The Bangko Sentral ng Pilipinas (BSP) shall foster the development of consumer credit through innovative products such as credit cards under conditions of fair and sound consumer credit practices. The BSP likewise encourages competition and transparency to ensure more efficient delivery of services and fair dealings with customers. (Emphasis supplied) Based on this Circular, "x x x [b]efore issuing credit cards, banks and/or their subsidiary credit card companies must exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling their credit commitments." 35 As the above-quoted policy expressly states, the general intent is to foster "fair and sound consumer credit practices." Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued on September 24, 2004, but this circular merely enumerates the unfair collection practices of credit card companies a matter not relevant to the issue at hand. In light of the foregoing, we find and so hold that AMEX is neither contractually bound nor legally obligated to act on its cardholders purchase requests within any specific period of time, much less a period of a "matter of seconds" that Pantaleon uses as his standard. The standard therefore is implicit and, as in all contracts, must be based on fairness and reasonableness, read in relation to the Civil Code provisions on human relations, as will be discussed below. AMEX acted with good faith

Thus far, we have already established that: (a) AMEX had neither a contractual nor a legal obligation to act upon Pantaleons purchases within a specific period of time; and (b) AMEX has a right to review a cardholders credit card history. Our recognition of these entitlements, however, does not give AMEX an unlimited right to put off action on cardholders purchase requests for indefinite periods of time. In acting on cardholders purchase requests, AMEX must take care not to abuse its rights and cause injury to its clients and/or third persons. We cite in this regard Article 19, in conjunction with Article 21, of the Civil Code, which provide: Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due and observe honesty and good faith. Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. Article 19 pervades the entire legal system and ensures that a person suffering damage in the course of anothers exercise of right or performance of duty, should find himself without relief. 36 It sets the standard for the conduct of all persons, whether artificial or natural, and requires that everyone, in the exercise of rights and the performance of obligations, must: (a) act with justice, (b) give everyone his due, and (c) observe honesty and good faith. It is not because a person invokes his rights that he can do anything, even to the prejudice and disadvantage of another. 37 While Article 19 enumerates the standards of conduct, Article 21 provides the remedy for the person injured by the willful act, an action for damages. We explained how these two provisions correlate with each other in GF Equity, Inc. v. Valenzona:38 [Article 19], known to contain what is commonly referred to as the principle of abuse of rights, sets certain standards which must be observed not only in the exercise of one's rights but also in the performance of one's duties. These standards are the following: to act with justice; to give everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. But while Article 19 lays down a rule of conduct for the government of human relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action for damages under either Article 20 or Article 21 would be proper. In the context of a credit card relationship, although there is neither a contractual stipulation nor a specific law requiring the credit card issuer to act on the credit card holders offer within a definite period of time, these principles provide the standard by which to judge AMEXs actions. According to Pantaleon, even if AMEX did have a right to review his charge purchases, it abused this right when it unreasonably delayed the processing of the Coster charge purchase, as well as his purchase requests at the Richard Metz Golf Studio and Kids Unlimited Store; AMEX should have known that its failure to act immediately on charge referrals would entail inconvenience and result in humiliation, embarrassment, anxiety and distress to its cardholders who would be required to wait before closing their transactions.39 It is an elementary rule in our jurisdiction that good faith is presumed and that the burden of proving bad faith rests upon the party alleging it.40 Although it took AMEX some time before it approved Pantaleons three charge requests, we find no evidence to suggest that it acted with deliberate intent

to cause Pantaleon any loss or injury, or acted in a manner that was contrary to morals, good customs or public policy. We give credence to AMEXs claim that its review procedure was done to ensure Pantaleons own protection as a cardholder and to prevent the possibility that the credit card was being fraudulently used by a third person. Pantaleon countered that this review procedure is primarily intended to protect AMEXs interests, to make sure that the cardholder making the purchase has enough means to pay for the credit extended. Even if this were the case, however, we do not find any taint of bad faith in such motive. It is but natural for AMEX to want to ensure that it will extend credit only to people who will have sufficient means to pay for their purchases. AMEX, after all, is running a business, not a charity, and it would simply be ludicrous to suggest that it would not want to earn profit for its services. Thus, so long as AMEX exercises its rights, performs its obligations, and generally acts with good faith, with no intent to cause harm, even if it may occasionally inconvenience others, it cannot be held liable for damages. We also cannot turn a blind eye to the circumstances surrounding the Coster transaction which, in our opinion, justified the wait. In Edgardo Jaurigues own words: Q 21: With reference to the transaction at the Coster Diamond House covered by Exhibit H, also Exhibit 4 for the defendant, the approval came at 2:19 a.m. after the request was relayed at 1:33 a.m., can you explain why the approval came after about 46 minutes, more or less? A21: Because we have to make certain considerations and evaluations of [Pantaleons] past spending pattern with [AMEX] at that time before approving plaintiffs request because [Pantaleon] was at that time making his very first single charge purchase of US$13,826 [this is below the US$16,112.58 actually billed and paid for by the plaintiff because the difference was already automatically approved by [AMEX] office in Netherland[s] and the record of [Pantaleons] past spending with [AMEX] at that time does not favorably support his ability to pay for such purchase. In fact, if the foregoing internal policy of [AMEX] had been strictly followed, the transaction would not have been approved at all considering that the past spending pattern of the plaintiff with [AMEX] at that time does not support his ability to pay for such purchase. 41 xxxx Q: Why did it take so long? A: It took time to review the account on credit, so, if there is any delinquencies [sic] of the cardmember. There are factors on deciding the charge itself which are standard measures in approving the authorization. Now in the case of Mr. Pantaleon although his account is single charge purchase of US$13,826. [sic] this is below the US$16,000. plus actually billed x x x we would have already declined the charge outright and asked him his bank account to support his charge. But due to the length of his membership as cardholder we had to make a decision on hand.42 As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEXs approval was because he had to go over Pantaleons credit card history for the past twelve months. 43 It would certainly be unjust for us to penalize AMEX for merely exercising its right to review Pantaleons credit history meticulously.

Finally, we said in Garciano v. Court of Appeals that "the right to recover [moral damages] under Article 21 is based on equity, and he who comes to court to demand equity, must come with clean hands. Article 21 should be construed as granting the right to recover damages to injured persons who are not themselves at fault."44 As will be discussed below, Pantaleon is not a blameless party in all this. Pantaleons action was the proximate cause for his injury Pantaleon mainly anchors his claim for moral and exemplary damages on the embarrassment and humiliation that he felt when the European tour group had to wait for him and his wife for approximately 35 minutes, and eventually had to cancel the Amsterdam city tour. After thoroughly reviewing the records of this case, we have come to the conclusion that Pantaleon is the proximate cause for this embarrassment and humiliation. As borne by the records, Pantaleon knew even before entering Coster that the tour group would have to leave the store by 9:30 a.m. to have enough time to take the city tour of Amsterdam before they left the country. After 9:30 a.m., Pantaleons son, who had boarded the bus ahead of his family, returned to the store to inform his family that they were the only ones not on the bus and that the entire tour group was waiting for them. Significantly, Pantaleon tried to cancel the sale at 9:40 a.m. because he did not want to cause any inconvenience to the tour group. However, when Costers sale manager asked him to wait a few more minutes for the credit card approval, he agreed, despite the knowledge that he had already caused a 10-minute delay and that the city tour could not start without him. In Nikko Hotel Manila Garden v. Reyes,45 we ruled that a person who knowingly and voluntarily exposes himself to danger cannot claim damages for the resulting injury: The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law as injury") refers to self-inflicted injury or to the consent to injury which precludes the recovery of damages by one who has knowingly and voluntarily exposed himself to danger, even if he is not negligent in doing so. This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified that the most basic rule when travelling in a tour group is that you must never be a cause of any delay because the schedule is very strict.46 When Pantaleon made up his mind to push through with his purchase, he must have known that the group would become annoyed and irritated with him. This was the natural, foreseeable consequence of his decision to make them all wait. We do not discount the fact that Pantaleon and his family did feel humiliated and embarrassed when they had to wait for AMEX to approve the Coster purchase in Amsterdam. We have to acknowledge, however, that Pantaleon was not a helpless victim in this scenario at any time, he could have cancelled the sale so that the group could go on with the city tour. But he did not. More importantly, AMEX did not violate any legal duty to Pantaleon under the circumstances under the principle of damnum absque injuria, or damages without legal wrong, loss without injury. 47 As we held in BPI Express Card v. CA:48 We do not dispute the findings of the lower court that private respondent suffered damages as a result of the cancellation of his credit card. However, there is a material distinction between damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm which results from the injury; and damages are the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or

harm was not the result of a violation of a legal duty. In such cases, the consequences must be borne by the injured person alone, the law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong. These situations are often called damnum absque injuria. In other words, in order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The underlying basis for the award of tort damages is the premise that an individual was injured in contemplation of law. Thus, there must first be a breach of some duty and the imposition of liability for that breach before damages may be awarded; and the breach of such duty should be the proximate cause of the injury. Pantaleon is not entitled to damages Because AMEX neither breached its contract with Pantaleon, nor acted with culpable delay or the willful intent to cause harm, we find the award of moral damages to Pantaleon unwarranted. Similarly, we find no basis to award exemplary damages. In contracts, exemplary damages can only be awarded if a defendant acted "in a wanton, fraudulent, reckless, oppressive or malevolent manner."49 The plaintiff must also show that he is entitled to moral, temperate, or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded.50 As previously discussed, it took AMEX some time to approve Pantaleons purchase requests because it had legitimate concerns on the amount being charged; no malicious intent was ever established here. In the absence of any other damages, the award of exemplary damages clearly lacks legal basis.
1avvphi1

Neither do we find any basis for the award of attorneys fees and costs of litigation. No premium should be placed on the right to litigate and not every winning party is entitled to an automatic grant of attorney's fees.51 To be entitled to attorneys fees and litigation costs, a party must show that he falls under one of the instances enumerated in Article 2208 of the Civil Code. 52 This, Pantaleon failed to do. Since we eliminated the award of moral and exemplary damages, so must we delete the award for attorney's fees and litigation expenses. Lastly, although we affirm the result of the CA decision, we do so for the reasons stated in this Resolution and not for those found in the CA decision. WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and GRANT the present motion for reconsideration. The Court of Appeals Decision dated August 18, 2006 is hereby AFFIRMED. No costs. SO ORDERED. ARTURO D. BRION Associate Justice

Footnotes

Defined in Section 3 of RA 8484 as "any card, plate, code, account number, electronic serial number, personal identification number, or other telecommunications service, equipment, or instrumental identifier, or other means of account access that can be used to obtain money, goods, services, or any other thing of value or to initiate a transfer of funds (other than a transfer originated solely by paper instrument)." Credit card companies are required to provide information on the annual interest rates on the amount of credit obtained by the card holder, the annual membership fees, if any, the manner by which all charges and fees are computed, among others.
33 34

Section 3 of Republic Act No. 7653, or the New Central Bank Act, provides: Section 3. Responsibility and Primary Objective. - The Bangko Sentral shall provide policy directions in the areas of money, banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as provided in this Act and other pertinent laws over the operations of finance companies and non-bank financial institutions performing quasi-banking functions, hereafter referred to as quasi-banks, and institutions performing similar functions. The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced and sustainable growth of the economy. It shall also promote and maintain monetary stability and the convertibility of the peso. Article 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded; (2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmens compensation and employers liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered. In all cases, the attorneys fees and expenses of litigation must be reasonable.

SECOND DIVISION

[G.R. No. 133632. February 15, 2002]

BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATION,respondents. DECISION
QUISUMBING, J.:

This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals and its resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed the judgment of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against private respondents ALS Management and Development Corporation and Antonio K. Litonjua, consolidated with (b) Civil Case No. 52093, for damages with prayer for the issuance of a writ of preliminary injunction by the private respondents against said petitioner.
[1]

The trial court had held that private respondents were not in default in the payment of their monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature and made in bad faith. It awarded private respondents the amount of P300,000 for moral damages, P50,000 for exemplary damages, and P50,000 for attorneys fees and expenses for litigation. It likewise dismissed the foreclosure suit for being premature. The facts are as follows: Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roas

indebtedness with AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and proposed to grant them a new loan of P500,000 to be applied to Roas debt and secured by the same property, at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding principal balance payable within ten years in equal monthly amortization of P9,996.58 and penalty interest at the rate of 21% per annum per day from the date the amortization became due and payable. Consequently, in March 1981, private respondents executed a mortgage deed containing the above stipulations with the provision that payment of the monthly amortization shall commence on May 1, 1981. On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto the proceeds of private respondents loan of P500,000. On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what was left of their loan after full payment of Roas loan. In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (P475,585.31). A notice of sheriffs sale was published on August 13, 1984. On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among others, that they were not in arrears in their payment, but in fact made an overpayment as of June 30, 1984. They maintained that they should not be made to pay amortization before the actual release of the P500,000 loan in August and September 1982. Further, out of the P500,000 loan, only the total amount of P464,351.77 was released to private respondents. Hence, applying the effects of legal compensation, the balance of P35,648.23 should be applied to the initial monthly amortization for the loan. On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093, thus: WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation and Antonio K. Litonjua and against BPI Investment Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua was only in the principal sum of P464,351.77, with interest at 20% plus service charge of

1% per annum, payable on equal monthly and successive amortizations at P9,283.83 for ten (10) years or one hundred twenty (120) months. The amortization schedule attached as Annex A to the Deed of Mortgage is correspondingly reformed as aforestated. The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their publication in a newspaper of general circulation as defaulting debtors, and therefore orders BPI to pay ALS and Litonjua the following sums: a) P300,000.00 for and as moral damages; b) P50,000.00 as and for exemplary damages; c) P50,000.00 as and for attorneys fees and expenses of litigation. The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature. Costs against BPI. SO ORDERED.
[2]

Both parties appealed to the Court of Appeals. However, private respondents appeal was dismissed for non-payment of docket fees. On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads: WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto. SO ORDERED.
[3]

In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of the object of the contract. The contract of loan between BPIIC and ALS & Litonjua was perfected only on September 13, 1982, the date when BPIIC released the purported balance of the P500,000 loan after deducting therefrom the value of Roas indebtedness. Thus, payment of the monthly amortization should commence only a month after the said date, as can be inferred from the stipulations in the contract. This, despite the express agreement of the parties that payment shall commence on May 1, 1981. From October 1982 to June 1984, the total amortization due was only P194,960.43. Evidence showed that private respondents had an

overpayment, because as of June 1984, they already paid a total amount of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the publication in newspapers concerning private respondents delinquency in the payment of their loan. This fact constituted sufficient ground for moral damages in favor of private respondents. The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition, where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122. II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.

On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a simple loan is perfected upon the delivery of the object of the contract, the loan contract in this case was perfected only on September 13, 1982. Petitioner claims that a contract of loan is a consensual contract, and a loan contract is perfected at the time the contract of mortgage is executed conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan contract was perfected on March 31, 1981, the date when the mortgage deed was executed, hence, the amortization and interests on the loan should be computed from said date. Petitioner also argues that while the documents showed that the loan was released only on August 1982, the loan was actually released on March 31, 1981, when BPIIC issued a cancellation of mortgage of Frank Roas loan. This finds support in the registration on March 31, 1981 of the Deed of Absolute Sale executed by Roa in favor of ALS, transferring the title of the property to ALS, and ALS executing the Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of the loan should be attributed to private respondents. As BPIIC only agreed to extend a P500,000 loan, private respondents were required to reduce Frank Roas loan below said amount. According to petitioner, private respondents were only able to do so in August 1982. In their comment, private respondents assert that based on Article 1934 of the Civil Code, a simple loan is perfected upon the delivery of the object of
[4]

the contract, hence a real contract. In this case, even though the loan contract was signed on March 31, 1981, it was perfected only on September 13, 1982, when the full loan was released to private respondents. They submit that petitioner misread Bonnevie. To give meaning to Article 1934, according to private respondents, Bonnevie must be construed to mean that the contract to extend the loan was perfected onMarch 31, 1981 but the contract of loan itself was only perfected upon the delivery of the full loan to private respondents on September 13, 1982. Private respondents further maintain that even granting, arguendo, that the loan contract was perfected on March 31, 1981, and their payment did not start a month thereafter, still no default took place. According to private respondents, a perfected loan agreement imposes reciprocal obligations, where the obligation or promise of each party is the consideration of the other party. In this case, the consideration for BPIIC in entering into the loan contract is the promise of private respondents to pay the monthly amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Therefore, private respondents conclude, they did not incur in delay when they did not commence paying the monthly amortization on May 1, 1981, as it was only on September 13, 1982 when petitioner fully complied with its obligation under the loan contract. We agree with private respondents. A loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract. Petitioner misappliedBonnevie. The contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple loan.
[5]

In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner applied for a loan of P500,000 with respondent bank. The latter approved the application through a board resolution. Thereafter, the corresponding mortgage was executed and registered. However, because of acts attributable to petitioner, the loan was not released. Later, petitioner instituted an action for damages. We recognized in this case, a perfected consensual contract which under normal circumstances could have made the bank liable for not releasing the loan. However, since the fault was attributable to petitioner therein, the court did not award it damages.

A perfected consensual contract, as shown above, can give rise to an action for damages. However, said contract does not constitute the real contract of loan which requires the delivery of the object of the contract for its perfection and which gives rise to obligations only on the part of the borrower.
[6]

In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected only on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties on the commencement of the monthly amortization, as found by the Court of Appeals, private respondents obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract.
[7]

We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other. As averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after the supposed release of the loan. It is a basic principle in reciprocal obligations that 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. Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for the payment of the monthly amortization after September 13, 1982 for it was only then when it complied with its obligation under the loan contract. Therefore, in computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13, 1982 and not May 1, 1981.
[8] [9]

Other points raised by petitioner in connection with the first issue, such as the date of actual release of the loan and whether private respondents were the cause of the delay in the release of the loan, are factual. Since petitioner has not shown that the instant case is one of the exceptions to the basic rule that only questions of law can be raised in a petition for review under Rule 45 of the Rules of Court, factual matters need not tarry us now. On these points we are bound by the findings of the appellate and trial courts.
[10]

On the second issue, petitioner claims that it should not be held liable for moral and exemplary damages for it did not act maliciously when it initiated the foreclosure proceedings. It merely exercised its right under the mortgage contract because private respondents were irregular in their monthly amortization. It invoked our ruling in Social Security System vs. Court of Appeals, 120 SCRA 707, where we said:

Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of Appeals the negligence of the appellant is not so gross as to warrant moral and temperate damages, except that, said Court reduced those damages by only P5,000.00 instead of eliminating them. Neither can we agree with the findings of both the Trial Court and respondent Court that the SSS had acted maliciously or in bad faith. The SSS was of the belief that it was acting in the legitimate exercise of its right under the mortgage contract in the face of irregular payments made by private respondents and placed reliance on the automatic acceleration clause in the contract. The filing alone of the foreclosure application should not be a ground for an award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral damages. Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages because it insisted on the payment of amortization on the loan even before it was released. Further, it did not make the corresponding deduction in the monthly amortization to conform to the actual amount of loan released, and it immediately initiated foreclosure proceedings when private respondents failed to make timely payment. But as admitted by private respondents themselves, they were irregular in their payment of monthly amortization. Conformably with our ruling in SSS, we can not properly declare BPIIC in bad faith. Consequently, we should rule out the award of moral and exemplary damages.
[11]

However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without checking and correspondingly adjusting its records on the amount actually released to private respondents and the date when it was released. Such negligence resulted in damage to private respondents, for which an award of nominal damages should be given in recognition of their rights which were violated by BPIIC. For this purpose, the amount of P25,000 is sufficient.
[12]

Lastly, as in SSS where we awarded attorneys fees because private respondents were compelled to litigate, we sustain the award of P50,000 in favor of private respondents as attorneys fees. WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. The award of moral and exemplary damages in favor of private respondents is DELETED, but the award to them of attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private respondents P25,000 as nominal damages. Costs against petitioner.

SO ORDERED. Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

People v. Concepcion Case Digest

People v. Concepcion G.R. No. 19190 (November 29, 1922) FACTS: Defendant authorized an extension of credit in favor of Concepcion, a copartnership. Defendants wife was a director of this co-partnership. Defendant was found guilty of violating Sec. 35 of Act No. 2747 which says that The National Bank shall not, directly or indirectly, grant loans to any of the members of the Board of Directors of the bank nor to agents of the branch banks. This Section was in effect in 1919 but was repealed in Act No. 2938 approved on January 30, 1921. ISSUE: W/N Defendant can be convicted of violating Sections of Act No. 2747, which were repealed by Act No. 2938. HELD: In the interpretation and construction, the primary rule is to ascertain and give effect to the intention of the Legislature. Section 49 in relation to Sec. 25 of Act No. 2747 provides a punishment for any person who shall violate any provisions of the Act. Defendant contends that the repeal of these Sections by Act No. 2938 has served to take away basis for criminal prosecution. The Court holds that where an act of the Legislature which penalizes an offense repeals a former act which penalized the same offense, such repeal does not have the effect of thereafter depriving the Courts of jurisdiction to try, convict and sentence offenders charged with violations of the old law.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-19190 November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. VENANCIO CONCEPCION, defendant-appellant. Recaredo Ma. Calvo for appellant. Attorney-General Villa-Real for appellee.

MALCOLM, J.: By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This special authorization was essential in view of the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power of the local manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain cases, could be increased to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with the interest, were taken up and paid by July 17, 1919. "Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of the company. On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member of the board of directors of this bank, was charged in the Court of First Instance of Cagayan with a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs. Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly, grant loans to any of the members of the board of directors of the bank nor to

agents of the branch banks." Section 49 of the same Act provides: "Any person who shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by both such fine and imprisonment." These two sections were in effect in 1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921. Counsel for the defense assign ten errors as having been committed by the trial court. These errors they have argued adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-General Villa-Real, in an exceptionally accurate and comprehensive brief, answers the proposition of appellant one by one. The question presented are reduced to their simplest elements in the opinion which follows: I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, a "loan" within the meaning of section 35 of Act No. 2747? Counsel argue that the documents of record do not prove that authority to make a loan was given, but only show the concession of a credit. In this statement of fact, counsel is correct, for the exhibits in question speak of a "credito" (credit) and not of a " prestamo" (loan). The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit," II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"? Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what is commonly known as a "discount." In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said section referred to loans alone, and placed no restriction upon discount transactions. It becomes material, therefore, to discover the distinction between a "loan" and a "discount," and to ascertain if the instant transaction comes under the first or the latter denomination. Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live, transaction. But in its last analysis, to discount a paper is only a mode of loaning money, with, however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on single-name paper. Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet the conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because

(1) interest was not deducted from the face of the notes, but was paid when the notes fell due; and (2) they were single-name and not double-name paper. The facts of the instant case having relation to this phase of the argument are not essentially different from the facts in the Binalbagan Estate case. Just as there it was declared that the operations constituted a loan and not a discount, so should we here lay down the same ruling. III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of section 35 of Act No. 2747? Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In this connection, it should be recalled that the wife of the defendant held one-half of the capital of this partnership. In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of safety against temptation for a director of the bank. The prohibition against indirect loans is a recognition of the familiar maxim that no man may serve two masters that where personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband is financially interested in the success or failure of his wife's business venture, a loan to partnership of which the wife of a director is a member, falls within the prohibition. Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a partnership of which the wife of a director of a bank is a member, is an indirect loan to such director. That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact that in this instance the defendant was tempted to mingle his personal and family affairs with his official duties, and to permit the loan P300,000 to a partnership of no established reputation and without asking for collateral security. In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court of Maryland said: What then was the purpose of the law when it declared that no director or officer should borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this section he shall be punished by fine and imprisonment?" We say to protect the stockholders, depositors and creditors of the bank, against the temptation to which the directors and officers might be exposed, and the power which as such they must necessarily possess in the control and management of the bank, and the legislature unwilling to rely upon the implied understanding that in assuming this relation they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty, declared in express terms that they should not borrow, etc., of the bank. In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it was said: We are of opinion the statute forbade the loan to his copartnership firm as well as to himself directly. The loan was made indirectly to him through his firm.

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

It is fraud for directors to secure by means of their trust, and advantage not common to the other stockholders. The law will not allow private profit from a trust, and will not listen to any proof of honest intent. JUDGMENT On a review of the evidence of record, with reference to the decision of the trial court, and the errors assigned by the appellant, and with reference to previous decisions of this court on the same subject, we are irresistibly led to the conclusion that no reversible error was committed in the trial of this case, and that the defendant has been proved guilty beyond a reasonable doubt of the crime charged in the information. The penalty imposed by the trial judge falls within the limits of the punitive provisions of the law. Judgment is affirmed, with the costs of this instance against the appellant. So ordered. Araullo, C. J., Johnson, Street, Avancea, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.