1

GARCIA VS THIU

Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M.

Garcia a crossed check[4] dated February 24, 1995 in the amount of US$100,000 payable to the order

of a certain Marilou Santiago.[5] Thereafter, petitioner received from respondent every month

(specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of

US$3,000[6] and P76,500[7] on July 26,[8] August 26, September 26 and October 26, 1995.

In June 1995, respondent received from petitioner another crossed check[9] dated June 29,

1995 in the amount of P500,000, also payable to the order of Marilou Santiago. [10] Consequently,

petitioner received from respondent the amount of P20,000 every month on August 5, September 5,

October 5 and November 5, 1995.[11]

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000

and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of

money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the

sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with

interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual damages.[12]

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of
US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October

26, 1995.[13] The amount of this loan was covered by the first check. On June 29, 1995, respondent

again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which

was on November 5, 1995.[14] The amount of this loan was covered by the second check. For both

loans, no promissory note was executed since petitioner and respondent were close friends at the

time.[15] Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she

failed to pay the principal amounts despite repeated demands.[16]

Respondent denied that she contracted the two loans with petitioner and countered that it was

Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner
 2

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.

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan

between the parties:

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

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

Consequently, the receipt of the [crossed] check by [respondent] is not the

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

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

Hence this petition.[23]

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45

of the Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual

findings of the CA (which held that there were no contracts of loan between petitioner and respondent)

and the RTC (which held that there were contracts of loan) are contradictory.[24]
 3

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.
 4

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
 5

except its conformity to our knowledge, observation, and experience. Whatever is

repugnant to these belongs to the miraculous, and is outside of juridical cognizance. [37]

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not

petitioner, who was listed as one of her (Santiagos) creditors.[38]

Last, respondent inexplicably never presented Santiago as a witness to corroborate her

story.[39] The presumption is that evidence willfully suppressed would be adverse if

produced.[40] Respondent was not able to overturn this presumption.

We hold that the CA committed reversible error when it ruled that respondent did not borrow the

amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC

making respondent liable for the principal amounts of the loans.

We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the

US$100,000 and P500,000 loans respectively. There was no written proof of the interest payable

except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956

of the Civil Code provides that [n]o interest shall be due unless it has been expressly stipulated in

writing.

Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant

to Article 2209 of the Civil Code. It is well-settled that:

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

Hence, respondent is liable for the payment of legal interest per annum to be computed from

November 21, 1995, the date when she received petitioners demand letter. [42] From the finality of the
 6

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.

SAURA IMPORT VS DBP

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,
 7

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

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

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

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

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

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

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for
China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the
loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter
dated July 2 requested RFC that the registration of the mortgage be withdrawn.
 8

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

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

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

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

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

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

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

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

a) For the payment of the receipt for jute mill

machineries with the Prudential Bank &
 9

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equip-

ment 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 open-

ing 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 re-appraisal of the securities offered for the loan.

With respect to our requirement that the Department of Agriculture and

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

With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter
further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed
the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of
Saura, Inc.
 10

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

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

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

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

ART. 1954. An accepted promise to deliver something, by way of commodatum or

simple loan is binding upon the parties, but the commodatum or simple loan itself shall
not be perferted until the delivery of the object of the contract.

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

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the
factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no
serious dispute about this. It was in line with such assumption that when RFC, by Resolution No.
9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it
imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to
carry out its operation are available in the immediate vicinity; and (2) that there is prospect of
increased production thereof to provide adequately for the requirements of the factory." The
imposition of those conditions was by no means a deviation from the terms of the agreement, but
rather a step in its implementation. There was nothing in said conditions that contradicted the terms
laid down in RFC Resolution No. 145, passed on January 7, 1954, namely — "that the proceeds of
the loan shall be utilized exclusively for the following purposes: for construction of factory building —
P250,000.00; for payment of the balance of purchase price of machinery and equipment —
P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc. realized that it could not meet
the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will
not be able in sufficient quantity this year or probably next year," and asking that out of the loan
agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation
from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it
did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.
 11

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.

BPI VS CA
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.
 12

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.

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.
 13

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, [4] a
simple loan is perfected upon the delivery of the object of 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 on March 31, 1981 but the
contract of loan itself was only perfected upon the delivery of the full loan to private respondents
onSeptember 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.[5]Petitioner misapplied Bonnevie. 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.
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
 14

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. [8] 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.[9] 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.
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,[10] factual matters need not tarry us now. On these points we are bound by the findings of the
appellate and trial courts.
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.
 15

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.[12] For this purpose, the amount of P25,000 is sufficient.
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.

PANTALEON VS AMERICAN EXPRESS

After the Amsterdam incident that happened involving the delay of American Express Card to
approve his credit card purchases worth US$13,826.00 at the Coster store, Pantaleon commenced a
complaint for moral and exemplary damages before the RTC against American Express. He said that
he and his family experienced inconvenience and humiliation due to the delays in credit authorization.
RTC rendered a decision in favor of Pantaleon. CA reversed the award of damages in favor of
Pantaleon, holding that AmEx had not breached its obligations to Pantaleon, as the purchase at
Coster deviated from Pantaleon's established charge purchase pattern.

ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to Pantaleon.
2. Whether or not AmEx is liable for damages.

RULING:
1. Yes. The popular notion that credit card purchases are approved “within seconds,” there really is
no strict, legally determinative point of demarcation on how long must it take for a credit card
company to approve or disapprove a customer’s purchase, much less one specifically contracted
upon by the parties. One hour appears to be patently unreasonable length of time to approve or
disapprove a credit card purchase.

The culpable failure of AmEx herein is not the failure to timely approve petitioner’s purchase, but the
more elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming
that AmEx’s credit authorizers did not have sufficient basis on hand to make a judgment, we see no
reason why it could not have promptly informed Pantaleon the reason for the delay, and duly advised
him that resolving the same could take some time.

2. Yes. The reason why Pantaleon is entitled to damages is not simply because AmEx incurred delay,
but because the delay, for which culpability lies under Article 1170, led to the particular injuries under
Article 2217 of the Civil Code for which moral damages are remunerative. The somewhat unusual
attending circumstances to the purchase at Coster – that there was a deadline for the completion of
that purchase by petitioner before any delay would redound to the injury of his several traveling
companions – gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings and
social humiliation sustained by Pantaleon, as concluded by the RTC.
 16

PRODUCERS BANK VS CA

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles
Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the
Sterela Marketing and Services ("Sterela" for brevity). Specifically, Sanchez asked private respondent
to deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its
incorporation. She assured private respondent that he could withdraw his money from said account
within a month’s time. Private respondent asked Sanchez to bring Doronilla to their house so that
they could discuss Sanchez’s request.3

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronilla’s
private secretary, met and discussed the matter. Thereafter, relying on the assurances and
representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two
Hundred Thousand Pesos (₱200,000.00) in favor of Sterela. Private respondent instructed his wife,
Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the
name of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However, only
Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an
authorization letter from Doronilla authorizing Sanchez and her companions, "in coordination with Mr.
Rufo Atienza," to open an account for Sterela Marketing Services in the amount of ₱200,000.00. In
opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A
passbook for Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.4

Subsequently, private respondent learned that Sterela was no longer holding office in the address
previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still
intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed
them that part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and
that only ₱90,000.00 remained therein. He likewise told them that Mrs. Vives could not withdraw said
remaining amount because it had to answer for some postdated checks issued by Doronilla.
According to Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla
opened Current Account No. 10-0320 for Sterela and authorized the Bank to debit Savings Account
No. 10-1567 for the amounts necessary to cover overdrawings in Current Account No. 10-0320. In
opening said current account, Sterela, through Doronilla, obtained a loan of ₱175,000.00 from the
Bank. To cover payment thereof, Doronilla issued three postdated checks, all of which were
dishonored. Atienza also said that Doronilla could assign or withdraw the money in Savings Account
No. 10-1567 because he was the sole proprietor of Sterela.5

Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
received a letter from Doronilla, assuring him that his money was intact and would be returned to him.
On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos
(₱212,000.00) in favor of private respondent. However, upon presentment thereof by private
respondent to the drawee bank, the check was dishonored. Doronilla requested private respondent to
present the same check on September 15, 1979 but when the latter presented the check, it was again
dishonored.6

Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for
the return of his client’s money. Doronilla issued another check for ₱212,000.00 in private
respondent’s favor but the check was again dishonored for insufficiency of funds. 7
 17

Private respondent instituted an action for recovery of sum of money in the Regional Trial Court
(RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was
docketed as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and
Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while the case was
pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its
Decision in Civil Case No. 44485, the dispositive portion of which reads:

Petitioner appealed the trial court’s decision to the Court of Appeals. In its Decision dated June 25,
1991, the appellate court affirmed in toto the decision of the RTC. 9 It likewise denied with finality
petitioner’s motion for reconsideration in its Resolution dated May 5, 1994. 10

Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on
September 25, 1995. The Court then required private respondent to submit a rejoinder to the reply.
However, said rejoinder was filed only on April 21, 1997, due to petitioner’s delay in furnishing private
respondent with copy of the reply12 and several substitutions of counsel on the part of private
respondent.13 On January 17, 2001, the Court resolved to give due course to the petition and required
the parties to submit their respective memoranda.14 Petitioner filed its memorandum on April 16, 2001
while private respondent submitted his memorandum on March 22, 2001.

Petitioner contends that the transaction between private respondent and Doronilla is a simple loan
(mutuum) since all the elements of a mutuum are present: first, what was delivered by private
respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous
as Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount
of ₱212,000.00, or ₱12,000 more than what private respondent deposited in Sterela’s bank
account.15 Moreover, the fact that private respondent sued his good friend Sanchez for his failure to
recover his money from Doronilla shows that the transaction was not merely gratuitous but "had a
business angle" to it. Hence, petitioner argues that it cannot be held liable for the return of private
respondent’s ₱200,000.00 because it is not privy to the transaction between the latter and Doronilla. 16

It argues further that petitioner’s Assistant Manager, Mr. Rufo Atienza, could not be faulted for
allowing Doronilla to withdraw from the savings account of Sterela since the latter was the sole
proprietor of said company. Petitioner asserts that Doronilla’s May 8, 1979 letter addressed to the
bank, authorizing Mrs. Vives and Sanchez to open a savings account for Sterela, did not contain any
authorization for these two to withdraw from said account. Hence, the authority to withdraw therefrom
remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who alone had legal
title to the savings account.17 Petitioner points out that no evidence other than the testimonies of
private respondent and Mrs. Vives was presented during trial to prove that private respondent
deposited his ₱200,000.00 in Sterela’s account for purposes of its incorporation. 18 Hence, petitioner
should not be held liable for allowing Doronilla to withdraw from Sterela’s savings
account.1a\^/phi1.net

Petitioner also asserts that the Court of Appeals erred in affirming the trial court’s decision since the
findings of fact therein were not accord with the evidence presented by petitioner during trial to prove
that the transaction between private respondent and Doronilla was a mutuum, and that it committed
no wrong in allowing Doronilla to withdraw from Sterela’s savings account.19

Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for
the actual damages suffered by private respondent, and neither may it be held liable for moral and
exemplary damages as well as attorney’s fees.20
 18

Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a
mutuum but an accommodation,21 since he did not actually part with the ownership of his
₱200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so that a
certification can be issued to the effect that Sterela had sufficient funds for purposes of its
incorporation but at the same time, he retained some degree of control over his money through his
wife who was made a signatory to the savings account and in whose possession the savings account
passbook was given.22

He likewise asserts that the trial court did not err in finding that petitioner, Atienza’s employer, is liable
for the return of his money. He insists that Atienza, petitioner’s assistant manager, connived with
Doronilla in defrauding private respondent since it was Atienza who facilitated the opening of
Sterela’s current account three days after Mrs. Vives and Sanchez opened a savings account with
petitioner for said company, as well as the approval of the authority to debit Sterela’s savings account
to cover any overdrawings in its current account.23

There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a petition for review
filed with this Court. The Court has repeatedly held that it is not its function to analyze and weigh all
over again the evidence presented by the parties during trial.24 The Court’s jurisdiction is in principle
limited to reviewing errors of law that might have been committed by the Court of
Appeals.25 Moreover, factual findings of courts, when adopted and confirmed by the Court of Appeals,
are final and conclusive on this Court unless these findings are not supported by the evidence on
record.26 There is no showing of any misapprehension of facts on the part of the Court of Appeals in
the case at bar that would require this Court to review and overturn the factual findings of that court,
especially since the conclusions of fact of the Court of Appeals and the trial court are not only
consistent but are also amply supported by the evidence on record.

No error was committed by the Court of Appeals when it ruled that the transaction between private
respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of the
records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code
distinguishes between the two kinds of loans in this wise:

By the contract of loan, one of the parties delivers to another, either something not consumable so
that the latter may use the same for a certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that the same amount of the
same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

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

In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower.

The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such
as money, the contract would be a mutuum. However, there are some instances where a
commodatum may have for its object a consumable thing. Article 1936 of the Civil Code provides:
 19

Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the
parties is to lend consumable goods and to have the very same goods returned at the end of the
period agreed upon, the loan is a commodatum and not a mutuum.

The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract.27 In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination. 28

As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that
private respondent agreed to deposit his money in the savings account of Sterela specifically for the
purpose of making it appear "that said firm had sufficient capitalization for incorporation, with the
promise that the amount shall be returned within thirty (30) days." 29 Private respondent merely
"accommodated" Doronilla by lending his money without consideration, as a favor to his good friend
Sanchez. It was however clear to the parties to the transaction that the money would not be removed
from Sterela’s savings account and would be returned to private respondent after thirty (30) days.

Doronilla’s attempts to return to private respondent the amount of ₱200,000.00 which the latter
deposited in Sterela’s account together with an additional ₱12,000.00, allegedly representing interest
on the mutuum, did not convert the transaction from a commodatum into a mutuum because such
was not the intent of the parties and because the additional ₱12,000.00 corresponds to the fruits of
the lending of the ₱200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in
commodatum acquires the use of the thing loaned but not its fruits." Hence, it was only proper for
Doronilla to remit to private respondent the interest accruing to the latter’s money deposited with
petitioner.

Neither does the Court agree with petitioner’s contention that it is not solidarily liable for the return of
private respondent’s money because it was not privy to the transaction between Doronilla and private
respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no
bearing on the question of petitioner’s liability for the return of private respondent’s money because
the factual circumstances of the case clearly show that petitioner, through its employee Mr. Atienza,
was partly responsible for the loss of private respondent’s money and is liable for its restitution.

Petitioner’s rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of
Sterela for Savings Account No. 10-1567 expressly states that—

"2. Deposits and withdrawals must be made by the depositor personally or upon his written authority
duly authenticated, and neither a deposit nor a withdrawal will be permitted except upon the
production of the depositor savings bank book in which will be entered by the Bank the amount
deposited or withdrawn."30

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant
Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without presenting
the passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, but
several times. Both the Court of Appeals and the trial court found that Atienza allowed said
withdrawals because he was party to Doronilla’s "scheme" of defrauding private respondent:
 20

XXX

But the scheme could not have been executed successfully without the knowledge, help and
cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of the
defendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the commission
of the fraud but he likewise helped in devising the means by which it can be done in such manner as
to make it appear that the transaction was in accordance with banking procedure.

To begin with, the deposit was made in defendant’s Buendia branch precisely because Atienza was a
key officer therein. The records show that plaintiff had suggested that the ₱200,000.00 be deposited
in his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in
defendant’s branch in Makati for "it will be easier for them to get a certification". In fact before he was
introduced to plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch
manager authorizing Angeles B. Sanchez and company to open a savings account for Sterela in the
amount of ₱200,000.00, as "per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x
x x" (Exh. 1). This is a clear manifestation that the other defendants had been in consultation with
Atienza from the inception of the scheme. Significantly, there were testimonies and admission that
Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and business associate of
Doronilla.1awphi1.nét

Then there is the matter of the ownership of the fund. Because of the "coordination" between
Doronilla and Atienza, the latter knew before hand that the money deposited did not belong to
Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that
the money belonged to her and her husband and the deposit was merely to accommodate Doronilla.
Atienza even declared that the money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose that the only
ones empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the
signature card pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives
&/or Angeles B. Sanchez. Atienza stated that it is the usual banking procedure that withdrawals of
savings deposits could only be made by persons whose authorized signatures are in the signature
cards on file with the bank. He, however, said that this procedure was not followed here because
Sterela was owned by Doronilla. He explained that Doronilla had the full authority to withdraw by
virtue of such ownership. The Court is not inclined to agree with Atienza. In the first place, he was all
the time aware that the money came from Vives and did not belong to Sterela. He was also told by
Mrs. Vives that they were only accommodating Doronilla so that a certification can be issued to the
effect that Sterela had a deposit of so much amount to be sued in the incorporation of the firm. In the
second place, the signature of Doronilla was not authorized in so far as that account is concerned
inasmuch as he had not signed the signature card provided by the bank whenever a deposit is
opened. In the third place, neither Mrs. Vives nor Sanchez had given Doronilla the authority to
withdraw.

Moreover, the transfer of fund was done without the passbook having been presented. It is an
accepted practice that whenever a withdrawal is made in a savings deposit, the bank requires the
presentation of the passbook. In this case, such recognized practice was dispensed with. The transfer
from the savings account to the current account was without the submission of the passbook which
Atienza had given to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella
Dumagpi that a duplicate passbook was issued to Sterela because the original passbook had been
surrendered to the Makati branch in view of a loan accommodation assigning the savings account
 21

(Exh. C). Atienza, who undoubtedly had a hand in the execution of this certification, was aware that
the contents of the same are not true. He knew that the passbook was in the hands of Mrs. Vives for
he was the one who gave it to her. Besides, as assistant manager of the branch and the bank official
servicing the savings and current accounts in question, he also was aware that the original passbook
was never surrendered. He was also cognizant that Estrella Dumagpi was not among those
authorized to withdraw so her certification had no effect whatsoever.

The circumstance surrounding the opening of the current account also demonstrate that Atienza’s
active participation in the perpetration of the fraud and deception that caused the loss. The records
indicate that this account was opened three days later after the ₱200,000.00 was deposited. In spite
of his disclaimer, the Court believes that Atienza was mindful and posted regarding the opening of the
current account considering that Doronilla was all the while in "coordination" with him. That it was he
who facilitated the approval of the authority to debit the savings account to cover any overdrawings in
the current account (Exh. 2) is not hard to comprehend.

Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x.31

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for
damages caused by their employees acting within the scope of their assigned tasks. To hold the
employer liable under this provision, it must be shown that an employer-employee relationship exists,
and that the employee was acting within the scope of his assigned task when the act complained of
was committed.32 Case law in the United States of America has it that a corporation that entrusts a
general duty to its employee is responsible to the injured party for damages flowing from the
employee’s wrongful act done in the course of his general authority, even though in doing such act,
the employee may have failed in its duty to the employer and disobeyed the latter’s instructions. 33

There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny
that Atienza was acting within the scope of his authority as Assistant Branch Manager when he
assisted Doronilla in withdrawing funds from Sterela’s Savings Account No. 10-1567, in which
account private respondent’s money was deposited, and in transferring the money withdrawn to
Sterela’s Current Account with petitioner. Atienza’s acts of helping Doronilla, a customer of the
petitioner, were obviously done in furtherance of petitioner’s interests34 even though in the process,
Atienza violated some of petitioner’s rules such as those stipulated in its savings account
passbook.35 It was established that the transfer of funds from Sterela’s savings account to its current
account could not have been accomplished by Doronilla without the invaluable assistance of Atienza,
and that it was their connivance which was the cause of private respondent’s loss.

The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil
Code, petitioner is liable for private respondent’s loss and is solidarily liable with Doronilla and
Dumagpi for the return of the ₱200,000.00 since it is clear that petitioner failed to prove that it
exercised due diligence to prevent the unauthorized withdrawals from Sterela’s savings account, and
that it was not negligent in the selection and supervision of Atienza. Accordingly, no error was
committed by the appellate court in the award of actual, moral and exemplary damages, attorney’s
fees and costs of suit to private respondent.

Catholic bicai apostolic v ca

Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division
of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R.
 22

No. 05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the Decision
of the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in
Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:

WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar

Apostolic of the Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to
the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other set of
plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or
insufficiency of evidence, the plaintiffs' claim or damages is hereby denied. Said
defendant is ordered to pay costs. (p. 36, Rollo)

Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's
conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in
the two cases affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in question;
that the two lots were possessed by the predecessors-in-interest of private respondents under claim
of ownership in good faith from 1906 to 1951; that petitioner had been in possession of the same lots
as bailee in commodatum up to 1951, when petitioner repudiated the trust and when it applied for
registration in 1962; that petitioner had just been in possession as owner for eleven years, hence
there is no possibility of acquisitive prescription which requires 10 years possession with just title and
30 years of possession without; that the principle of res judicata on these findings by the Court of
Appeals will bar a reopening of these questions of facts; and that those facts may no longer be
altered.

Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two
aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.

The facts and background of these cases as narrated by the trail court are as follows —

... The documents and records presented reveal that the whole
controversy started when the defendant Catholic Vicar Apostolic of the
Mountain Province (VICAR for brevity) filed with the Court of First Instance
of Baguio Benguet on September 5, 1962 an application for registration of
title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central,
La Trinidad, Benguet, docketed as LRC N-91, said Lots being the sites of
the Catholic Church building, convents, high school building, school
gymnasium, school dormitories, social hall, stonewalls, etc. On March 22,
1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed
their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting
ownership and title thereto. After trial on the merits, the land registration
court promulgated its Decision, dated November 17, 1965, confirming the
registrable title of VICAR to Lots 1, 2, 3, and 4.

The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and
the Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case No.
3607) appealed the decision of the land registration court to the then Court
of Appeals, docketed as CA-G.R. No. 38830-R. The Court of Appeals
rendered its decision, dated May 9, 1977, reversing the decision of the
land registration court and dismissing the VICAR's application as to Lots 2
and 3, the lots claimed by the two sets of oppositors in the land
 23

registration case (and two sets of plaintiffs in the two cases now at bar),
the first lot being presently occupied by the convent and the second by the
women's dormitory and the sister's convent.

On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration

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

Thereupon, the VICAR filed with the Supreme Court a petition for review
on certiorari of the decision of the Court of Appeals dismissing his (its)
application for registration of Lots 2 and 3, docketed as G.R. No. L-46832,
entitled 'Catholic Vicar Apostolic of the Mountain Province vs. Court of
Appeals and Heirs of Egmidio Octaviano.'

From the denial by the Court of Appeals of their motion for reconsideration
the Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed
with the Supreme Court a petition for review, docketed as G.R. No. L-
46872, entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of
Appeals, Vicar, Heirs of Egmidio Octaviano and Annable O. Valdez.

On January 13, 1978, the Supreme Court denied in a minute resolution

both petitions (of VICAR on the one hand and the Heirs of Juan Valdez
and Pacita Valdez on the other) for lack of merit. Upon the finality of both
Supreme Court resolutions in G.R. No. L-46832 and G.R. No. L- 46872,
the Heirs of Octaviano filed with the then Court of First Instance of Baguio,
Branch II, a Motion For Execution of Judgment praying that the Heirs of
Octaviano be placed in possession of Lot 3. The Court, presided over by
Hon. Salvador J. Valdez, on December 7, 1978, denied the motion on the
ground that the Court of Appeals decision in CA-G.R. No. 38870 did not
grant the Heirs of Octaviano any affirmative relief.

On February 7, 1979, the Heirs of Octaviano filed with the Court of

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

It was at that stage that the instant cases were filed. The Heirs of Egmidio
Octaviano filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of
possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No.
3655 (429) on September 24, 1979, likewise for recovery of possession of
Lot 2 (Decision, pp. 199-201, Orig. Rec.).
 24

In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano
presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership of
the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano (Exh. C
); his written demand (Exh. B—B-4 ) to defendant Vicar for the return of the land to
them; and the reasonable rentals for the use of the land at P10,000.00 per month. On
the other hand, defendant Vicar presented the Register of Deeds for the Province of
Benguet, Atty. Nicanor Sison, who testified that the land in question is not covered by
any title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The
defendant dispensed with the testimony of Mons.William Brasseur when the plaintiffs
admitted that the witness if called to the witness stand, would testify that defendant
Vicar has been in possession of Lot 3, for seventy-five (75) years continuously and
peacefully and has constructed permanent structures thereon.

In Civil Case No. 3655, the parties admitting that the material facts are not in dispute,
submitted the case on the sole issue of whether or not the decisions of the Court of
Appeals and the Supreme Court touching on the ownership of Lot 2, which in effect
declared the plaintiffs the owners of the land constitute res judicata.

In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting
up the defense of ownership and/or long and continuous possession of the two lots in
question since this is barred by prior judgment of the Court of Appeals in CA-G.R. No.
038830-R under the principle of res judicata. Plaintiffs contend that the question of
possession and ownership have already been determined by the Court of Appeals (Exh.
C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh. 1,
Minute Resolution of the Supreme Court). On his part, defendant Vicar maintains that
the principle of res judicata would not prevent them from litigating the issues of long
possession and ownership because the dispositive portion of the prior judgment in CA-
G.R. No. 038830-R merely dismissed their application for registration and titling of lots 2
and 3. Defendant Vicar contends that only the dispositive portion of the decision, and
not its body, is the controlling pronouncement of the Court of Appeals. 2

The petition is bereft of merit.

Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149,
when it clearly held that it was in agreement with the findings of the trial court that the Decision of the
Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2
and 3, declared that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not positively
declare private respondents as owners of the land, neither was it declared that they were not owners
of the land, but it held that the predecessors of private respondents were possessors of Lots 2 and 3,
with claim of ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower in
commodatum up to 1951, when it repudiated the trust by declaring the properties in its name for
taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in
possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires
possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30
years. 4

On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-
G.R. No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's ruling that
said findings are res judicatabetween the parties. They can no longer be altered by presentation of
 25

evidence because those issues were resolved with finality a long time ago. To ignore the principle
of res judicata would be to open the door to endless litigations by continuous determination of issues
without end.

An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R. No.
38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to register
the lands in question under its ownership, on its evaluation of evidence and conclusion of facts.

The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for
acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years
possession for ordinary acquisitive prescription because of the absence of just title. The appellate
court did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by
purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar
because there was absolutely no documentary evidence to support the same and the alleged
purchases were never mentioned in the application for registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both
Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of
private respondents, not petitioner Vicar, were in possession of the questioned lots since 1906.

There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots
2 and 3, because the buildings standing thereon were only constructed after liberation in 1945.
Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The improvements oil Lots
1, 2, 3, 4 were paid for by the Bishop but said Bishop was appointed only in 1947, the church was
constructed only in 1951 and the new convent only 2 years before the trial in 1963.

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot
from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner
Vicar after the church and the convent were destroyed. They never asked for the return of the house,
but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee.
The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence of just title.

The Court of Appeals found that the predecessors-in-interest and private respondents were
possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee
in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R.
Its findings of fact have become incontestible. This Court declined to review said decision, thereby in
effect, affirming it. It has become final and executory a long time ago.

Respondent appellate court did not commit any reversible error, much less grave abuse of discretion,
when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under
 26

the principle of res judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R.
No. 05149. The facts as supported by evidence established in that decision may no longer be altered.

RP VS BAGTAS

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of
Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56
and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding
purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon
the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for another period of
one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof
of only one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the
other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would
pay the value of the three bulls. On 17 October 1950 he reiterated his desire to buy them at a value
with a deduction of yearly depreciation to be approved by the Auditor General. On 19 October 1950
the Director of Animal Industry advised him that the book value of the three bulls could not be
reduced and that they either be returned or their book value paid not later than 31 October 1950.
Jose V. Bagtas failed to pay the book value of the three bulls or to return them. So, on 20 December
1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an action
against him praying that he be ordered to return the three bulls loaned to him or to pay their book
value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with
interests, and costs; and that other just and equitable relief be granted in (civil No. 12818).

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that
because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao,
and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and
the President of the Philippines from the refusal by the Director of Animal Industry to deduct from the
book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, to which
depreciation the Auditor General did not object, he could not return the animals nor pay their value
and prayed for the dismissal of the complaint.

After hearing, on 30 July 1956 the trial court render judgment —

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three
bulls plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the
legal rate from the filing of this complaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18
October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by
the plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside
Manila. Of this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the
surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of
his estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two
bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry and that sometime in
November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on
Hacienda Felicidad Intal, and praying that the writ of execution be quashed and that a writ of
preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her motion. On 6
February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion.
 27

Hence, this appeal certified by the Court of Appeals to this Court as stated at the beginning of this
opinion.

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant,
returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station,
Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt
signed by the latter (Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's
motion to quash the writ of execution the appellee prays "that another writ of execution in the sum of
P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held
liable for the two bulls which already had been returned to and received by the appellee.

The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in
November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where
the animal was kept, and that as such death was due to force majeure she is relieved from the duty of
returning the bull or paying its value to the appellee. The contention is without merit. The loan by the
appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of
one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was
subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The
appellant contends that the contract was commodatum and that, for that reason, as the appellee
retained ownership or title to the bull it should suffer its loss due to force majeure. A contract
of commodatum is essentially gratuitous.1 If the breeding fee be considered a compensation, then the
contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject
to the responsibilities of a possessor in bad faith, because she had continued possession of the bull
after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable,
because article 1942 of the Civil Code provides that a bailee in a contract of commodatum —

. . . is liable for loss of the things, even if it should be through a fortuitous event:

(2) If he keeps it longer than the period stipulated . . .

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was
renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the
bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent
and delivered to the deceased husband of the appellant the bulls had each an appraised book value,
to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not
stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant
would be exempt from liability.

The appellant's contention that the demand or prayer by the appellee for the return of the bull or the
payment of its value being a money claim should be presented or filed in the intestate proceedings of
the defendant who died on 23 October 1951, is not altogether without merit. However, the claim that
his civil personality having ceased to exist the trial court lost jurisdiction over the case against him, is
untenable, because section 17 of Rule 3 of the Rules of Court provides that —
 28

After a party dies and the claim is not thereby extinguished, the court shall order, upon proper
notice, the legal representative of the deceased to appear and to be substituted for the
deceased, within a period of thirty (30) days, or within such time as may be granted. . . .

and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of
Rule 3 which provides that —

Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the
court promptly of such death . . . and to give the name and residence of the executory
administrator, guardian, or other legal representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had
been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having
claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied,
whether the same be due, not due, or contingent, for funeral expenses and expenses of the last
sickness of the said decedent, and judgment for monopoly against him, to file said claims with the
Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the
date of the first publication of this order, serving a copy thereof upon the aforementioned Felicidad M.
Bagtas, the appointed administratrix of the estate of the said deceased," is not a notice to the court
and the appellee who were to be notified of the defendant's death in accordance with the above-
quoted rule, and there was no reason for such failure to notify, because the attorney who appeared
for the defendant was the same who represented the administratrix in the special proceedings
instituted for the administration and settlement of his estate. The appellee or its attorney or
representative could not be expected to know of the death of the defendant or of the administration
proceedings of his estate instituted in another court that if the attorney for the deceased defendant did
not notify the plaintiff or its attorney of such death as required by the rule.

As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is
only liable for the sum of P859.63, the value of the bull which has not been returned to the appellee,
because it was killed while in the custody of the administratrix of his estate. This is the amount prayed
for by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the
appellant for the quashing of the writ of execution.

Special proceedings for the administration and settlement of the estate of the deceased Jose V.
Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment
rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be
presented to the probate court for payment by the appellant, the administratrix appointed by the court.

QUINTOS VS ANSALDO

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

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar
street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the
 29

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

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

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

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's
demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of
the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on
deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the
defendant wanted to retain the three gas heaters and the four electric lamps.

As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by
the defendant in case of his inability to return some of the furniture because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said
 30

value. Should the defendant fail to deliver some of the furniture, the value thereof should be latter
determined by the trial Court through evidence which the parties may desire to present.

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

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

PP VS PORRAS

On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed before Branch 68 of the RTC in
Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo
Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural
Bank of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-3054 to 05-3165.

The allegations in the Informations1 filed before the RTC were uniform and pro-forma, except for the
amounts, date and time of commission, to wit:

INFORMATION

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

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

(1) the element of ‘taking without the consent of the owners’ was missing on the ground
that it is the depositors-clients, and not the Bank, which filed the complaint in these cases, who
are the owners of the money allegedly taken by respondents and hence, are the real parties-
in-interest; and

(2) the Informations are bereft of the phrase alleging "dependence, guardianship or
vigilance between the respondents and the offended party that would have created a
high degree of confidence between them which the respondents could have abused."
 31

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through
would be violative of the right of the respondents under Section 14(2), Article III of the 1987
Constitution which states that in all criminal prosecutions, the accused shall enjoy the right to be
informed of the nature and cause of the accusation against him. Following Section 6, Rule 112 of the
Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30 January 2006 and refused
to issue a warrant of arrest against Puig and Porras.

A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.

On 9 June 2006, an Order3 denying petitioner’s Motion for Reconsideration was issued by the RTC,
finding as follows:

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

Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the
sole legal issue of:

WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY

ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND
THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE.

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

Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits
of money in banks and similar institutions shall be governed by the provisions concerning simple
loans." Corollary thereto, Article 1953 of the same Code provides that "a person who receives a loan
of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality." Thus, it posits that the depositors who place
their money with the bank are considered creditors of the bank. The bank acquires ownership of the
money deposited by its clients, making the money taken by respondents as belonging to the bank.

Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified
theft, citing that a perusal of the Informations will show that they specifically allege that the
respondents were the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and
that they took various amounts of money with grave abuse of confidence, and without the knowledge
and consent of the bank, to the damage and prejudice of the bank.

Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a
Petition for Review on Certiorari via Rule 45 is the wrong mode of appeal because a finding of
probable cause for the issuance of a warrant of arrest presupposes evaluation of facts and
circumstances, which is not proper under said Rule.

Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is
the principal party to file a Petition for Review on Certiorari, considering that the incident was indorsed
by the DOJ.
 32

We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations
and, therefore, because of this defect, there is no basis for the existence of probable cause which will
justify the issuance of the warrant of arrest. Petitioner assails the dismissal contending that the
Informations for Qualified Theft sufficiently state facts which constitute (a) the qualifying circumstance
of grave abuse of confidence; and (b) the element of taking, with intent to gain and without the
consent of the owner, which is the Bank.

In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the
allegations in the Information inadequate. He ruled that the Information failed to state facts
constituting the qualifying circumstance of grave abuse of confidence and the element of taking
without the consent of the owner, since the owner of the money is not the Bank, but the depositors
therein. He also cites People v. Koc Song,4 in which this Court held:

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

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable
cause simply on the insufficiency of the allegations in the Informations concerning the facts
constitutive of the elements of the offense charged. This, therefore, makes the issue of sufficiency of
the allegations in the Informations the focal point of discussion.

Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed
as follows, viz:

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

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

1. Intent to gain;

2. Unlawful taking;

3. Personal property belonging to another;

4. Absence of violence or intimidation against persons or force upon things.

To fall under the crime of Qualified Theft, the following elements must concur:
 33

1. Taking of personal property;

2. That the said property belongs to another;

3. That the said taking be done with intent to gain;

4. That it be done without the owner’s consent;

5. That it be accomplished without the use of violence or intimidation against persons, nor of
force upon things;

6. That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia,
that the information must state the acts or omissions complained of as constitutive of the offense.

On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court,
is enlightening:

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

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

The portion of the Information relevant to this discussion reads:

A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and
Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank x x x.

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

Article 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning loan.
 34

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

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

In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of confidence, and the bank places money in the teller’s
possession due to the confidence reposed on the teller, the felony of qualified theft would be
committed.7

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

That in or about and during the period compressed between January 24, 1992 and February
13, 1992, both dates inclusive, in the City of Manila, Philippines, the said accused did then and
there wilfully, unlawfully and feloniously, with intent of gain and without the knowledge and
consent of the owner thereof, take, steal and carry away the following, to wit:

Cash money amounting to P6,000,000.00 in different denominations belonging to the

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch,
Manila represented by its Branch Manager, HELEN U. FARGAS, to the damage and prejudice
of the said owner in the aforesaid amount of P6,000,000.00, Philippine Currency.

That in the commission of the said offense, herein accused acted with grave abuse of
confidence and unfaithfulness, he being the Branch Operation Officer of the said complainant
and as such he had free access to the place where the said amount of money was kept.

The judgment of conviction elaborated thus:

 35

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

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

Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of
the respondents; that the crime was committed with grave abuse of confidence, with intent to gain
and without the knowledge and consent of the Bank, without necessarily stating the phrase being
assiduously insisted upon by respondents, "of a relation by reason of dependence, guardianship
or vigilance, between the respondents and the offended party that has created a high degree
of confidence between them, which respondents abused,"12 and without employing the word
"owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency of allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case,
there is even no reason to quibble on the allegation in the Informations that they acted with grave
abuse of confidence. In fact, the Information which alleged grave abuse of confidence by accused
herein is even more precise, as this is exactly the requirement of the law in qualifying the crime of
Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the employees
of the Bank, who are entrusted with the possession of money of the Bank due to the confidence
reposed in them, occupy positions of confidence. The Informations, therefore, sufficiently allege all
the essential elements constituting the crime of Qualified Theft.

On the theory of the defense that the DOJ is the principal party who may file the instant petition, the
ruling in Mobilia Products, Inc. v. Hajime Umezawa13 is instructive. The Court thus enunciated:

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

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that
in appeals by certiorari under Rule 45 of the Rules of Court, only errors of law may be raised,14 and
herein petitioner certainly raised a question of law.

As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at
the records of the preliminary investigation conducted will show that, indeed, probable cause exists
 36

for the indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the
judge shall issue a warrant of arrest only upon a finding of probable cause after personally evaluating
the resolution of the prosecutor and its supporting evidence. Soliven v. Makasiar,15 as reiterated
in Allado v. Driokno,16 explained that probable cause for the issuance of a warrant of arrest is the
existence of such facts and circumstances that would lead a reasonably discreet and prudent person
to believe that an offense has been committed by the person sought to be arrested. 17 The records
reasonably indicate that the respondents may have, indeed, committed the offense charged.

Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case
may be, to relieve the respondents from the pain of going through a trial once it is ascertained that no
probable cause exists to form a sufficient belief as to the guilt of the respondents, conversely, it is
also equally imperative upon the judge to proceed with the case upon a showing that there is a prima
faciecase against the respondents.

BPI VS CA

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and
current account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment
Corporation (FMIC) also opened a time deposit account with the same branch of BPI-FB with a deposit
of P100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,[4] savings,[5] and
time deposit,[6] with BPI-FB. The current and savings accounts were respectively funded with an initial
deposit of P500,000.00 each, while the time deposit account had P1,000,000.00 with a maturity date
of August 31, 1990. The total amount of P2,000,000.00 used to open these accounts is traceable to a
check issued by Tevesteco allegedly in consideration of Francos introduction of Eladio Teves, [7] who
was looking for a conduit bank to facilitate Tevestecos business transactions, to Jaime Sebastian, who
was then BPI-FB SFDMs Branch Manager. In turn, the funding for the P2,000,000.00 check was part
of the P80,000,000.00 debited by BPI-FB from FMICs time deposit account and credited to Tevestecos
current account pursuant to an Authority to Debit purportedly signed by FMICs officers.

It appears, however, that the signatures of FMICs officers on the Authority to Debit were
forged.[8] On September 4, 1989, Antonio Ong,[9] upon being shown the Authority to Debit, personally
declared his signature therein to be a forgery. Unfortunately, Tevesteco had already effected several
withdrawals from its current account (to which had been credited the P80,000,000.00 covered by the
forged Authority to Debit) amounting to P37,455,410.54, including the P2,000,000.00 paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMICs forgery
claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin[10] to
debit Francos savings and current accounts for the amounts remaining therein. [11] However, Francos
time deposit account could not be debited due to the capacity limitations of BPI-FBs computer.[12]
 37

In the meantime, two checks[13] drawn by Franco against his BPI-FB current account were dishonored
upon presentment for payment, and stamped with a notation account under garnishment. Apparently,
Francos current account was garnished by virtue of an Order of Attachment issued by the Regional
Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed by
BPI-FB against Franco et al.,[14] to recover the P37,455,410.54 representing Tevestecos total
withdrawals from its account.

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB
prior to Francos receipt of notice that his accounts were under garnishment. [15] In fact, at the time the
Notice of Garnishment dated September 27, 1989 was served on BPI-FB, Franco had yet to be
impleaded in the Makati case where the writ of attachment was issued.

It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil
Case No. 89-4996, that Franco was impleaded in the Makaticase.[16] Immediately, upon receipt of such
copy, Franco filed a Motion to Discharge Attachment which the Makati RTC granted on May 16,
1990. The Order Lifting the Order of Attachment was served on BPI-FB on even date, with Franco
demanding the release to him of the funds in his savings and current accounts. Jesus Arangorin, BPI-
FBs new manager, could not forthwith comply with the demand as the funds, as previously stated, had
already been debited because of FMICs forgery claim. As such, BPI-FBs computer at the SFDM Branch
indicated that the current account record was not on file.

With respect to Francos savings account, it appears that Franco agreed to an arrangement, as a favor
to Sebastian, whereby P400,000.00 from his savings account was temporarily transferred to Domingo
Quiaoits savings account, subject to its immediate return upon issuance of a certificate of deposit which
Quiaoit needed in connection with his visa application at the Taiwan Embassy. As part of the
arrangement, Sebastian retained custody of Quiaoits savings account passbook to ensure that no
withdrawal would be effected therefrom, and to preserve Francos deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount
of P63,189.00 from the remaining balance of the time deposit account representing advance interest
paid to him.

These transactions spawned a number of cases, some of which we had already resolved.

FMIC filed a complaint against BPI-FB for the recovery of the amount of P80,000,000.00 debited from
its account.[17] The case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First
Metro Investment Corporation,[18] we upheld the finding of the courts below that BPI-FB failed to
exercise the degree of diligence required by the nature of its obligation to treat the accounts of its
depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the debited amount in its
time deposit. It was ordered to pay P65,332,321.99 plus interest at 17% per annum from August 29,
1989 until fully restored. In turn, the 17% shall itself earn interest at 12% from October 4, 1989 until
fully paid.
 38

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et
al.),[19]
recipients of a P500,000.00 check proceeding from the P80,000,000.00 mistakenly credited to
Tevesteco, likewise filed suit. Buenaventura et al., as in the case of Franco, were also prevented from
effecting withdrawals[20]from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City
Branch. Likewise, when the case was elevated to this Court docketed as BPI Family Bank v.
Buenaventura,[21] we ruled that BPI-FB had no right to freeze Buenaventura, et al.s accounts and
adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators
of the multi-million peso scam.[22] In the criminal case, Franco, along with the other accused, except for
Manuel Bienvenida who was still at large, were acquitted of the crime of Estafa as defined and
penalized under Article 351, par. 2(a) of the Revised Penal Code. [23] However, the civil case[24] remains
under litigation and the respective rights and liabilities of the parties have yet to be adjudicated.

Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his accounts and
release his deposits therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his
complaint, Franco prayed for the following reliefs: (1) the interest on the remaining balance [25] of his
current account which was eventually released to him on October 31, 1991; (2) the balance[26] on his
savings account, plus interest thereon; (3) the advance interest [27] paid to him which had been deducted
when he pre-terminated his time deposit account; and (4) the payment of actual, moral and exemplary
damages, as well as attorneys fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and
refusing to release his deposits, claiming that it had a better right to the amounts which consisted of
part of the money allegedly fraudulently withdrawn from it by Tevesteco and ending up in Francos
accounts. BPI-FB asseverated that the claimed consideration of P2,000,000.00 for the introduction
facilitated by Franco between George Daantos and Eladio Teves, on the one hand, and Jaime
Sebastian, on the other, spoke volumes of Francos participation in the fraudulent transaction.
We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze
Francos accounts and preclude him from withdrawing his deposits. However, contrary to the appellate
courts ruling, we hold that Franco is not entitled to unearned interest on the time deposit as well as to
moral and exemplary damages.

First. On the issue of who has a better right to the deposits in Francos accounts, BPI-FB urges us that
the legal consequence of FMICs forgery claim is that the money transferred by BPI-FB to Tevesteco is
its own, and considering that it was able to recover possession of the same when the money was
redeposited by Franco, it had the right to set up its ownership thereon and freeze Francos accounts.

BPI-FB contends that its position is not unlike that of an owner of personal property who regains
possession after it is stolen, and to illustrate this point, BPI-FB gives the following example: where Xs
television set is stolen by Y who thereafter sells it to Z, and where Z unwittingly entrusts possession of
the TV set to X, the latter would have the right to keep possession of the property and preclude Z from
 39

recovering possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code, which
provides:

Article 559. The possession of movable property acquired in good faith is equivalent to a
title. Nevertheless, one who has lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived,
has acquired it in good faith at a public sale, the owner cannot obtain its return without
reimbursing the price paid therefor.

BPI-FBs argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil
Code pertains to a specific or determinate thing.[30] A determinate or specific thing is one that is
individualized and can be identified or distinguished from others of the same kind. [31]

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

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived
of a movable to recover the exact same thing from the current possessor, BPI-FB simply claims
ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly debited
from FMICs account and credited to Tevestecos, and subsequently traced to Francos account. In fact,
this is what BPI-FB did in filing the Makati Case against Franco, et al. It staked its claim on the money
itself which passed from one account to another, commencing with the forged Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership, [34] and this
characteristic is all the more manifest in the instant case which involves money in a banking transaction
gone awry. Its primary function is to pass from hand to hand as a medium of exchange, without other
evidence of its title.[35] Money, which had passed through various transactions in the general course of
banking business, even if of traceable origin, is no exception.

Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FBs
illustrative example, ostensibly based on Article 559, is inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as
a legal consequence of its unauthorized transfer of FMICs deposits to Tevestecos account. BPI-FB
 40

conveniently forgets that the deposit of money in banks is governed by the Civil Code provisions on
simple loan or mutuum.[36] As there is a debtor-creditor relationship between a bank and its depositor,
BPI-FB ultimately acquired ownership of Francos deposits, but such ownership is coupled with a
corresponding obligation to pay him an equal amount on demand.[37] Although BPI-FB owns the
deposits in Francos accounts, it cannot prevent him from demanding payment of BPI-FBs obligation by
drawing checks against his current account, or asking for the release of the funds in his savings
account. Thus, when Franco issued checks drawn against his current account, he had every right as
creditor to expect that those checks would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based
on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it
pleases on deposits which it supposes are derived from shady transactions, would open the floodgates
of public distrust in the banking industry.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of
its customers. Having failed to detect the forgery in the Authority to Debit and in the process
inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco
and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable final judgment.

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the
signature in the Authority to Debit, effected the transfer of P80,000,000.00 from FMICs to Tevestecos
account, when FMICs account was a time deposit and it had already paid advance interest to FMIC.
Considering that there is as yet no indubitable evidence establishing Francos participation in the
forgery, he remains an innocent party. As between him and BPI-FB, the latter, which made possible
the present predicament, must bear the resulting loss or inconvenience.

Second. With respect to its liability for interest on Francos current account, BPI-FB argues that
its non-compliance with the Makati RTCs Order Lifting the Order of Attachment and the legal
consequences thereof, is a matter that ought to be taken up in that court.

The argument is tenuous. We agree with the succinct holding of the appellate court in this
respect. The Manila RTCs order to pay interests on Francos current account arose from BPI-FBs
unjustified refusal to comply with its obligation to pay Franco pursuant to their contract of mutuum. In
other words, from the time BPI-FB refused Francos demand for the release of the deposits in his current
account, specifically, from May 17, 1990, interest at the rate of 12% began to accrue thereon. [39]
 41

Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of
BPI-FBs non-compliance with the Order Lifting the Order of Attachment. However, such authority does
not preclude the Manila RTC from ruling on BPI-FBs liability to Franco for payment of interest based
on its continued and unjustified refusal to perform a contractual obligation upon demand. After all, this
was the core issue raised by Franco in his complaint before the Manila RTC.

Third. As to the award to Franco of the deposits in Quiaoits account, we find no reason to depart
from the factual findings of both the Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually
owned by Franco who simply accommodated Jaime Sebastians request to temporarily
transfer P400,000.00 from Francos savings account to Quiaoits account. [40] His testimony cannot be
characterized as hearsay as the records reveal that he had personal knowledge of the arrangement
made between Franco, Sebastian and himself.[41]

BPI-FB makes capital of Francos belated allegation relative to this particular arrangement. It
insists that the transaction with Quiaoit was not specifically alleged in Francos complaint before the
Manila RTC. However, it appears that BPI-FB had impliedly consented to the trial of this issue given its
extensive cross-examination of Quiaoit.

Section 5, Rule 10 of the Rules of Court provides:

Section 5. Amendment to conform to or authorize presentation of evidence. When issues

not raised by the pleadings are tried with the express or implied consent of the
parties, they shall be treated in all respects as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause them
to conform to the evidence and to raise these issues may be made upon motion of
any party at any time, even after judgment; but failure to amend does not affect the
result of the trial of these issues. If evidence is objected to at the trial on the ground
that it is now within the issues made by the pleadings, the court may allow the pleadings
to be amended and shall do so with liberality if the presentation of the merits of the action
and the ends of substantial justice will be subserved thereby. The court may grant a
continuance to enable the amendment to be made. (Emphasis supplied)

In all, BPI-FBs argument that this case is not the right forum for Franco to recover the P400,000.00
begs the issue. To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of
the funds in his account, and pointed to Franco as the actual owner thereof. Clearly, Francos action for
the recovery of his deposits appropriately covers the deposits in Quiaoits account.
 42

Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Francos
checks respectively dated September 11 and 18, 1989 was legally in order in view of the Makati RTCs
supplemental writ of attachment issued on September 14, 1989. It posits that as the party that applied
for the writ of attachment before the Makati RTC, it need not be served with the Notice of Garnishment
before it could place Francos accounts under garnishment.

The argument is specious. In this argument, we perceive BPI-FBs clever but transparent ploy to
circumvent Section 4,[42] Rule 13 of the Rules of Court. It should be noted that the strict requirement on
service of court papers upon the parties affected is designed to comply with the elementary requisites
of due process. Franco was entitled, as a matter of right, to notice, if the requirements of due process
are to be observed. Yet, he received a copy of the Notice of Garnishment only on September 27, 1989,
several days after the two checks he issued were dishonored by BPI-FB on September 20 and 21,
1989. Verily, it was premature for BPI-FB to freeze Francos accounts without even awaiting service of
the Makati RTCs Notice of Garnishment on Franco.

Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made
without including in the main suit the owner of the property attached by virtue thereof. Section 5, Rule
13 of the Rules of Court specifically provides that no levy or attachment pursuant to the writ issued x x
x shall be enforced unless it is preceded, or contemporaneously accompanied, by service of summons,
together with a copy of the complaint, the application for attachment, on the defendant within the
Philippines.

Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire
jurisdiction over the person of Franco when BPI-FB garnished his accounts.[43] Effectively, therefore,
the Makati RTC had no authority yet to bind the deposits of Franco through the writ of attachment, and
consequently, there was no legal basis for BPI-FB to dishonor the checks issued by Franco.

Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the advance interest it
deducted from Francos time deposit account, and for moral as well as exemplary damages, we find it
proper to reinstate the ruling of the trial court, and allow only the recovery of nominal damages in the
amount of P10,000.00. However, we retain the CAs award of P75,000.00 as attorneys fees.
In granting Francos prayer for interest on his time deposit account and for moral and exemplary
damages, the CA attributed bad faith to BPI-FB because it (1) completely disregarded its obligation to
Franco; (2) misleadingly claimed that Francos deposits were under garnishment; (3) misrepresented
that Francos current account was not on file; and (4) refused to return the P400,000.00 despite the fact
that the ostensible owner, Quiaoit, wanted the amount returned to Franco.
 43

In this regard, we are guided by Article 2201 of the Civil Code which provides:

Article 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable consequences
of the breach of the obligation, and which the parties have foreseen or could have
reasonable foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-
performance of the obligation. (Emphasis supplied.)

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of
malevolence or ill will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and
should not be held liable for all damages now being imputed to it for its breach of obligation. For the
same reason, it is not liable for the unearned interest on the time deposit.

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it partakes of the nature of fraud. [44] We have held that it
is a breach of a known duty through some motive of interest or ill will.[45] In the instant case, we cannot
attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court found, there was no
denial whatsoever by BPI-FB of the existence of the accounts. The computer-generated document
which indicated that the current account was not on file resulted from the prior debit by BPI-FB of the
deposits. The remedy of freezing the account, or the garnishment, or even the outright refusal to honor
any transaction thereon was resorted to solely for the purpose of holding on to the funds as a security
for its intended court action,[46] and with no other goal but to ensure the integrity of the accounts.

We have had occasion to hold that in the absence of fraud or bad faith, [47] moral damages cannot be
awarded; and that the adverse result of an action does not per se make the action wrongful, or the party
liable for it. One may err, but error alone is not a ground for granting such damages.[48]
An award of moral damages contemplates the existence of the following requisites: (1) there must be
an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must
be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is
the proximate cause of the injury sustained by the claimant; and (4) the award for damages is
predicated on any of the cases stated in Article 2219 of the Civil Code. [49]

Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil
Code,[50] upon which to base his claim for moral damages.
 44

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220
of the Civil Code for breach of contract.[51]

We also deny the claim for exemplary damages. Franco should show that he is entitled to moral,
temperate, or compensatory damages before the court may even consider the question of whether
exemplary damages should be awarded to him.[52] As there is no basis for the award of moral damages,
neither can exemplary damages be granted.

While it is a sound policy not to set a premium on the right to litigate, [53] we, however, find that Franco
is entitled to reasonable attorneys fees for having been compelled to go to court in order to assert his
right. Thus, we affirm the CAs grant of P75,000.00 as attorneys fees.

Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect his
interest,[54] or when the court deems it just and equitable. [55] In the case at bench, BPI-FB refused to
unfreeze the deposits of Franco despite the Makati RTCs Order Lifting the Order of Attachment and
Quiaoits unwavering assertion that the P400,000.00 was part of Francos savings account. This refusal
constrained Franco to incur expenses and litigate for almost two (2) decades in order to protect his
interests and recover his deposits. Therefore, this Court deems it just and equitable to grant
Franco P75,000.00 as attorneys fees. The award is reasonable in view of the complexity of the issues
and the time it has taken for this case to be resolved.[56]

Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs ruling, as affirmed by
the CA, that BPI-FB is not entitled to recover P3,800,000.00 as actual damages. BPI-FBs alleged loss
of profit as a result of Francos suit is, as already pointed out, of its own making. Accordingly, the denial
of its counter-claim is in order.
FRIAS vs. SAN DIEGO-SISON
GR No. 155223
April 4, 2007

FACTS:
Frias is the owner of a lot in Alabang, Mandaluyong she acquired from, Island Master Realty and
Development Corp. (IMRDC) by virtue of a deed of sale dated Nov. 16, 1990. On Dec. 7, 1990, Frias
and San Diego-Sison entered into a MOA over the property for the consideration of 3M pesos. The
terms of the MOA are as follows: San Diego-Sison has 6 months from the date of the execution of the
contract to notify Frias of her intention to purchase the property with improvements at 6.4 M pesos.
Frias may still offer the property to other persons, provided that the 3M pesos be paid to Sison, including
interest based on prevailing compounded bank interest plus the amount of sale in excess of 7M pesos
should the property be sold at a price greater than 7M pesos. But, if Frias has no other buyer within 6
 45

months from the contract’s execution, no interest shall be charged by San Diego-Sison on the 3M
pesos. If San Diego-Sison decides not to buy the property, Frias has 6 months to pay 3M pesos. The
3M pesos is treated as a loan and the property is considered the security for the mortgage.
Upon notice of intention to purchase, San Diego-Sison has 6 months to pay the remaining balance of
3.4M pesos. Frias received 3M pesos – 2M pesos in cash and 1M pesos in post-dated check dated
Feb. 28, 1990. Frias gave San Diego-Sispon the TCT and Deed of Absolute Sale, but the latter decided
not to purchase the property and notified the later through a letter dated March 20, 1991. Frias received
the letter on June 11, 1991 with the reminder that that the 2M pesos San Diego-Sison paid earlier
should be considered as a loan payable within 6 months. Frias defaulted and San Diego-Sison filed a
complaint for sum of money with preliminary attachment. San Diego-Sison averred that Frias tried to
deprive her of the security for the loan by making a false report of the loss of her owner’s copy of TCT,
executing an affidavit of loss and by filing a petition for the issuance of a new owner’s duplicate copy.
RTC issued a writ of preliminary attachment upon the filing of a 2M bond. RTC found that Frias was
under obligation to pay Sison 2M with compounded interest pursuant to their MOA. RTC ordered Frias
to pay Sison : 2M pesos + 32% annual interest beginning December 7, 1991 until fully paid, 70k pesos
representing premiums paid by Sison on the attachment bond with legal interest counted from the date
of this decision until fully paid, 100k pesos moral, corrective, exemplary damages, and 100k pesos
attorney’s fees plus cost of litigation. CA affirmed RTC with modification—32% reduced to 25%.
CA said that there was no basis for Frias to say that the interest should be charged for 6 months only.
It said that a loan always bears interest; otherwise, it is not a loan. The interest should commence on
June 7, 1991 until fully paid, with compounded bank interest prevailing at the time of June 1991, the
2M pesos was considered as a loan (as certified by the bank).
RELEVANT ISSSUE:
WoN the compounded bank interest should be limited to 6 months as contained in the MOA.
RULING:

A loan always bears interest otherwise it is not a loan, is flawed since a simple loan may be gratuitous
or with a stipulation to pay interest. No error committed by the CA in awarding a 25% interest per
annum on the two-million peso loan even beyond the second six months stipulated period.

The MOA executed between the parties is the law between the parties. In resolving an issue based
upon a contract, we must first examine the contract itself, especially the provisions thereof which are
relevant to the controversy. In this case, the phrase "for the last six months only" should be taken in the
context of the entire agreement. Their agreement speaks of 2 periods of six months each. The first six-
month period was given to San Diego-Sison to make up her mind whether or not to purchase Frias’
property. The second six-month period was given to Frias to pay the P2 million loan in the event that
San Diego-Sison decided not to buy the subject property in which case interest will be charged "for the
last six months only", referring to the second six-month period. This means that no interest will be
charged for the first six-month period while San Diego-Sison was making up her mind whether to buy
the property, but only for the second period of six months after she had decided not to buy the property.

The agreement that the amount given shall bear compounded bank interest for the last six months
only, i.e., referring to the second six-month period, does not mean that interest will no longer be charged
after the second six-month period since such stipulation was made on the logical and reasonable
expectation that such amount would be paid within the date stipulated. Considering that Frias failed to
 46

pay the amount given which under the MOA shall be considered as a loan, the monetary interest for
the last six months continued to accrue until actual payment of the loaned amount.

The payment of regular interest constitutes the price or cost of the use of money and thus, until the
principal sum due is returned to the creditor, regular interest continues to accrue since the debtor
continues to use such principal amount. It has been held that for a debtor to continue in possession of
the principal of the loan and to continue to use the same after maturity of the loan without payment of
the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of
the creditor.

STATE INVESTMENT HOUSE V CA

On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain shares of stock to
petitioner State Investment House, Inc. ("State") in order to secure a loan of P120,000.00 designated
as Account No. IF-82-0631-AA. Prior to the execution of the pledge, respondent-spouses, as an
accommodation to and together with the spouses Jose and Marcelina Aquino, signed an agreement
(Account No. IF-82-1379-AA) with petitioner State for the latter's purchase of receivables amounting
to P375,000.00. When Account No. IF-82-0631-AA fell due, respondent spouses paid the same partly
with their own funds and partly from the proceeds of another loan which they obtained also from
petitioner State designated as Account No. IF-82-0904-AA. This new loan was secured by the same
pledge agreement executed in relation to Account No. IF-820631-AA. When the new loan matured,
State demanded payment. Respondents expressed willingness to pay, requesting that upon payment,
the shares of stock pledged be released. Petitioner State denied the request on the ground that the
loan which it had extended to the spouses Jose and Marcelina Aquino (Account No. IF-82-1379- AA)
had remained unpaid.

On 29 June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of Notarial Sale
stating that upon request of State and by virtue of the pledge agreement, he would sell at public
auction the shares of stock pledged to State. This prompted respondents to file a case before the
Regional Trial Court of Quezon City alleging that the intended foreclosure sale was illegal because
from the time the obligation under Account No. IF-82-0904-AA became due, they had been able and
willing to pay the same, but petitioner had insisted that respondents pay even the loan account of
Jose and Marcelina Aquino which had not been secured by the pledge. It was further alleged that
their failure to pay their loan (Account No. IF-82-0904-AA) was excused because the petitioner State
itself had prevented the satisfaction of the obligation.

The trial court, in a decision dated 14 December 1984 rendered by Judge Willelmo Fortun, initially
dismissed the complaint. Respondent spouses filed a motion for reconsideration praying for a new
decision ordering petitioner State to release the shares upon payment of respondents' loan "without
interest," as the latter had not been in delay in the performance of their obligation. State countered
that the pledge executed by respondent spouses also covered the loan extended to Jose and
Marcelina Aquino, which too should be paid before the shares may be released.

Acting on the motion for reconsideration, Judge Fortun set aside his original decision and rendered a
new judgment dated 29 January 1985, ordering State to immediately release the pledge and to
deliver to respondents the share of stock "upon payment of the loan under Code No. 82-0904-AA."

On appeal, the Court of Appeals affirmed in toto the new decision of the trial court, holding that the
loan extended to Jose and Marcelina Aquino, having been executed prior to the pledge was not
 47

covered by the pledge which secured only loans executed subsequently. Thus, upon payment of the
loan under Code No. IF-0904-AA, the shares of stock should be released. The decisions of the Court
of Appeals and of Judge Fortun became final and executory.

Upon remand of the records of the case to the trial court for execution, there developed disagreement
over the amount which respondent spouses Rafael and Refugio Aquino should pay to secure the
release of the shares of stock — petitioner State contending that respondents should also pay
interest and respondents arguing they should not. Respondent spouses then filed a motion with the
trial court to clarify the Fortun decision praying that an order issue clarifying the phrase "upon
payment of plaintiffs' loan" to mean upon payment of plaintiff' loan in the principal amount of
P110,000.00 alone, "without interest, penalties and other charges."

On 17 February 1989, the trial court, speaking this time through Judge Perlita Tria Tirona, rendered a
decision purporting to clarify the decision of Judge Fortun and ruling that petitioner State shall release
respondents' shares of stock upon payment by respondents of the principal of the loan as set forth in
PN No. 82-0904-AA in the amount of P110,000.00, without interest, penalties and other charges.

Petitioner State appealed Judge Tirona's decision to the Court of Appeals; the appeal was dismissed.
The Court of Appeals agreed with Judge Tirona that no interest need be paid and added that the
clarificatory (Tirona) decision of the trial court merely restated what had been provided for in the
earlier (Fortun) decision; that the Tirona decision did not go beyond what had been adjudged in the
earlier decision. The motion for reconsideration filed by petitioner was accordingly denied.

Hence, this Petition for Review contending that no manifest ambiguity existed in the decision penned
by Judge Fortun; that the trial court through Judge Tirona, erred in clarifying the decision of Judge
Fortun; and that the amendment sought to be introduced in the Fortun decision by respondents may
not be made as the same was substantial in nature and the Fortun decision had become final.

We begin by noting that the trial court has asserted authority to issue the clarificatory order in respect
of the decision of Judge Fortun, even though that judgment had become final and executory.
In Reinsurance Company of the Orient, Inc. v. Court of Appeals,1 this Court had occasion to deal with
the applicable doctrine to some extent:

- - - [E]ven a judgment which has become final and executory may be clarified under certain
circumstances. The dispositive portion of the judgment may, for instance, contain an error
clearly clerical in nature (perhaps best illustrated by an error in arithmetical computation) or an
ambiguity arising from inadvertent omission, which error may be rectified or ambiguity clarified
and the omission supplied by reference primarily to the body of the decision itself
Supplementary reference to the pleadings previously filed in the case may also be resorted to
by way of corroboration of the existence of the error or of the ambiguity in the dispositive part
of the judgment. In Locsin, et al. v. Parades, et al., this Court allowed a judgment which had
become final and executory to be clarified by supplying a word which had been inadvertently
omitted and which, when supplied, in effect changed the literal import of the original
phraseology:

. . . it clearly appears from the allegations of the complaint, the promissory note
reproduced therein and made a part thereof, the prayer and the conclusions of fact and
of law contained in the decision of the respondent judge, that the obligation contracted
by the petitioners is joint and several and that the parties as well as the trial judge so
 48

understood it. Under the juridical rule that the judgment should be in accordance with
the allegations, the evidence and the conclusions of fact and law, the dispositive part of
the judgment under consideration should have ordered that the debt be paid 'severally'
and in omitting the word or adverb 'severally' inadvertently, said judgment became
ambiguous. This ambiguity may be clarified at any time after the decision is rendered
and even after it had become final (34 Corpus Juris, 235, 326). This respondent judge
did not, therefore, exceed his jurisdiction in clarifying the dispositive part of the judgment
by supplying the omission. (Emphasis supplied)

In Filipino Legion Corporation vs. Court of Appeals, et al., the applicable principle was set out in the
following terms:

[W]here there is ambiguity caused by an omission or mistake in the dispositive portion of a decision,
the court may clarify such ambiguity by an amendment even after the judgment had become
final, and for this purpose it may resort to the pleadings filed by the parties, the court's findings of
facts and conclusions of law as expressed in the body of the decision. (Emphasis supplied)

In Republic Surety and Insurance Company, Inc. v. Intermediate Appellate Court, the Court, in
applying the above doctrine, said:

. . . We clarify, in other words, what we did affirm. That is involved here is not what is ordinarily
regarded as a clerical error in the dispositive part of the decision of the Court of First Instance, . . . At
the same time, what is involved here is not a correction of an erroneous judgment or dispositive
portion of a judgment. What we believe is involved here is in the nature of an inadvertent omission on
the part of the Court of First Instance (which should have been noticed by private respondents'
counsel who had prepared the complaint), of what might be described as a logical follow-through of
something set forth both in the body of the decision and in the dispositive portion thereof; the
inevitable follow-through, or translation into, operational or behavioral terms, of the annulment of the
Deed of Sale with Assumption of Mortgage, from which petitioners' title or claim of title embodied in
TCT 133153 flows. (Emphasis supplied)2 (Underscoring in the original; citations omitted)

The question we must resolve is thus whether or not there is an ambiguity or clerical error or
inadvertent omission in the dispositive portion of the decision of Judge Fortun which may be
legitimately clarified by referring to the body of the decision and perhaps even the pleadings filed
before him. The decision of Judge Fortun disposing of the motion for reconsideration filed by
respondent spouses Rafael and Refugio Aquino consisted basically of quoting practically the whole
motion for reconsideration. In its dispositive portion, Judge Fortun's decision stated:

WHEREFORE, plaintiffs "Motion for Reconsideration" dated January 3, 1985, is granted and
the decision of this Court dated December 14, 1984 is hereby revoked and set aside and
another judgment is hereby rendered in favor of plaintiffs as follows:

(1) Ordering defendants to immediately release the pledge on, and to deliver to plaintiffs, the
shares of stocks enumerated and described in paragraph 4 of plaintiffs' complaint dated July
17, 1984, upon payment of plaintiffs loan under Code No. 82-0904-AA to defendants;

(2) Ordering defendant State Investment House, Inc. to pay to plaintiffs P10,000.00 as moral
damages, P5,000.00 as exemplary damages, P6,000.00 as attorney's fees, plus costs;
 49

(3) Dismissing defendants' counterclaim, for lack of merit and making the preliminary injunction
permanent.

SO ORDERED.3

Judge Fortun evidently meant to act favorably on the motion for reconsideration of the respondent
Aquino spouses and in effect accepted respondent spouses' argument that they
had not incurred mora considering that their failure to pay PN No. IF82-0904-AA on time had been
due to petitioner State's unjustified refusal to release the shares pledged to it. It is not, however, clear
to what precise extent Judge Fortun meant to grant the motion for reconsideration. The promissory
note in Account No. IF-82-0904-AA had three (3) components: (a) principal of the loan in the amount
of P110,000.00; (b) regular interest in the amount of seventeen percent (17%) per annum; and (c)
additional or penalty interest in case of non-payment at maturity, at the rate of two percent (2%) per
month or twenty-four percent (24%) per annum. In the dispositive part of his resolution, Judge Fortun
did not specify which of these components of the loan he was ordering respondent spouses to pay
and which component or components he was in effect deleting. We cannot assume that Judge Fortun
meant to grant the relief prayed for by respondent spouses in all its parts. For one thing, respondent
spouses in their motion for reconsideration asked for "at least P50,000.00" for moral damages and "at
least P50,000.00" for exemplary damages, as well as P20,000.00 by way of attorney's fees and
litigation expenses. Judge Fortun granted respondent spouses only P10,000.00 as moral damages
and P5,000.00 as exemplary damages, plus P6,000.00 as attorney's fees and costs. For another,
respondent spouses asked Judge Fortun to order the release of the shares pledged "upon payment
of [respondent spouses'] loan under Code No. 82-0904-AA without interest, as plaintiffs were not in
delay in accordance with Article 69 of the New Civil Code –– " (Emphasis supplied). In other words,
respondent spouses did not themselves become very clear what they were asking Judge Fortun to
grant them; they did not apparently distinguish between regular interest or "monetary interest" in the
amount of seventeen percent (17%) per annum and penalty charges or "compensatory interest" in the
amount of two percent (2%) per month or twenty-four percent (24%) per annum.

It thus appears that the Fortun decision was ambiguous in the sense that it was cryptic. We believe
that in these circumstances, we must assume that Judge Fortun meant to decide in accordance with
law, that we cannot fairly assume that Judge Fortun was grossly ignorant of the law, or that he
intended to grant the respondent spouses relief to which they were not entitled under law. Thus, the
ultimate question which arises is: if respondent Aquino spouses were not in delay, what should they
have been held liable for in accordance with law?

We believe and so hold that since respondent Aquino spouses were held not to have been in delay,
they were properly liable only for: (a) the principal of the loan or P110,000.00; and (b) regular or
monetary interest in the amount of seventeen percent (17%) per annum. They were not liable for
penalty or compensatory interest, fixed by the promissory note in Account No. IF-82-0904-AA at two
percent (2%) per month or twenty-four (24%) per annum. It must be stressed in this connection that
under Article 2209 of the Civil Code which provides that

. . . [i]f the obligation consists in the payment of a sum of money, and the debtor incurs in
delay. the indemnity for damages, there being no stimulation to the contrary. shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which
is six per cent per annum.
 50

the appropriate measure for damages in case of delay in discharging an obligation consisting of the
payment of a sum or money, is the payment of penalty interest at the rate agreed upon; and in the
absence of a stipulation of a particular rate of penalty interest, then the payment of additional interest
at a rate equal to the regular monetary interest; and if no regular interest had been agreed upon, then
payment of legal interest or six percent (6%) per annum.4

The fact that the respondent Aquino spouses were not in default did not mean that they, as a matter
of law, were relieved from the payment not only of penalty or compensatory interest at the rate of
twenty-four percent (24%) per annum but also of regular or monetary interest of seventeen percent
(17%) per annum. The regular or monetary interest continued to accrue under the terms of the
relevant promissory note until actual payment is effected. The payment of regular interest constitutes
the price or cost of the use of money and thus, until the principal sum due is returned to the creditor,
regular interest continues to accrue since the debtor continues to use such principal amount. The
relevant rule is set out in Article 1256 of the Civil Code which provides as follows:

Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause
to accept it, the debtor shall be released from responsibility by the consignation of the thing or
sum due.

Consignation alone shall produce the same effect in the following cases:

(1) When the creditor is absent or unknown, or does not appear at the place of payment;

(2) When he is incapacitated to receive the payment at the time it is due;

(3) When, without just cause, he refuses to give a receipt;

(4) When two or more persons claim the same right to collect;

(5) When the title of the obligation has been lost. (Emphasis supplied)

Where the creditor unjustly refuses to accept payment, the debtor desirous of being released from his
obligation must comply with two (2) conditions: (a) tender of payment; and (b) consignation of the
sum due. Tender of payment must be accompanied or followed by consignation in order that the
effects of payment may be produced. Thus, in Llamas v. Abaya,5 the Supreme Court stressed that a
written tender of payment alone, without consignation in court of the sum due, does not suspend the
accruing of regular or monetary interest.

In the instant case, respondent spouses Aquino, while they are properly regarded as having made a
written tender of payment to petitioner State, failed to consign in court the amount due at the time of
the maturity of Account No. IF-820904-AA. It follows that their obligation to pay principal-cum-regular
or monetary interest under the terms and conditions of Account No. IF-82-0904-AA
was not extinguished by such tender of payment alone.

For the respondent spouses to continue in possession of the principal of the loan amounting to
P110,000.00 and to continue to use the same after maturity of the loan without payment of regular or
monetary interest, would constitute unjust enrichment on the part of the respondent spouses at the
expense of petitioner State even though the spouses had not been guilty of mora. It is precisely this
unjust enrichment which Article 1256 of the Civil Code prevents by requiring, in addition to tender of
 51

payment, the consignation of the amount due in court which amount would thereafter be deposited by
the Clerk of Court in a bank and earn interest to which the creditor would be entitled.

CONCEPCION VS CA

On 17 January 1979, the Home Savings Bank and Trust Company (now Insular Life Savings and
Trust Company) granted to the Concepcions a loan amounting to P1,400,000.00. The Concepcions,
in turn, executed in favor of the bank a promissory note and a real estate mortgage over their
property located at 11 Albany St., Greenhills, San Juan, Metro Manila. The loan was payable in equal
quarterly amortizations for a period of fifteen (15) years and carried an interest rate of sixteen percent
(16%) per annum. The promissory note provided that the Concepcions had authorized —

. . . the Bank to correspondingly increase the interest rate presently stipulated in this
transaction without advance notice to me/us in the event the Central Bank of the
Philippines raises its rediscount rate to member banks, and/or the interest rate on
savings and time deposit, and/or the interest rate on such loans and/or advances. 4

In accordance with the above provision, the bank unilaterally increased the interest rate from
16% to 21% effective 17 February 1980; from 21% to 30% effective 17 October 1984; and
from 30% to 38% effective 17 November 1984, increasing the quarterly amortizations from
P67,830.00 to, respectively, P77,619.72, P104,661.10, and P123,797.05 for the periods
aforestated. The Concepcions paid, under protest, the increased amortizations of P77,619.72
and P104,661.10 until January 1985 but thereafter failed to pay the quarterly amortization of
P123,797.05 (starting due date of 17 April 1985).

In a letter, dated 15 July 1985, the bank's President made a demand on the Concepcions for the
payment of the arrearages. The Concepcions failed to pay, constraining the bank's counsel to send a
final demand letter, dated 26 August 1985, for the payment of P393,878.81, covering the spouses'
due account for three quarterly payments plus interest, penalty, and service charges. Still, no
payment was received.

On 14 April 1986, the bank finally filed with the Office of the Provincial Sheriff of Pasig City a petition
for extrajudicial foreclosure of the real estate mortgage executed by the Concepcions. A notice of sale
was issued on 15 May 1986, setting the public auction sale on 11 June 1986. The notice was
published in the newspaper "Mabuhay." A copy of the notice was sent to the Concepcions at 59
Whitefield St., White Plains Subdivision, Quezon City and/or at 11 Albany St., Greenhills Subdivision,
San Juan, Metro Manila. The public auction sale went on as scheduled with the bank emerging as the
highest bidder. A Certificate of Sale was issued in favor of the bank.

The Concepcions were unable to exercise their right of redemption within the one-year period
provided under Act No. 3135. The bank thus consolidated its title over the property and, after the
cancellation of the title in the name of the Concepcions, a new transfer certificate of title (No. 090-R)
was issued in the name of Home Savings Bank and Trust Company.

On 31 July 1987, the bank executed a Deed of Absolute Sale in favor of Asaje Realty Corporation
and a new certificate of title was issued in the latter's name.

Meanwhile, on 29 July 1987, the Concepcions filed an action against Home Savings Bank and Trust
Company, the Sheriff of San Juan, Metro Manila, and the Register of Deeds of San Juan, Metro
 52

Manila, for the cancellation of the foreclosure sale, the declaration of nullity of the consolidation of title
in favor of the bank, and the declaration of nullity of the unilateral increases of the interest rates on
their loan. The spouses likewise claimed damages against the defendants. The Concepcions, having
learned of the sale of the property to Asaje Realty Corporation, filed an amended complaint
impleading the realty corporation and so praying as well for the cancellation of the sale executed
between said corporation and the bank and the cancellation of the certificate of title issued in the
name of Asaje.

On 31 August 1992, the trial court found for the defendants and ruled:

In view of all the foregoing premises, this Court finally concludes that the plaintiffs have
no cause of action either against defendant Home Savings Bank & Trust Company or
defendant Asaje Realty Corporation; and under the circumstances of this case, it deems
it just and equitable that attorney's fees and expenses of litigation should be recovered
by said defendants.

WHEREFORE, judgment is hereby rendered dismissing the amended complaint of

plaintiffs Spouses Antonio E.A. Concepcion and Manuela S. Concepcion against the
defendants for lack of merit, and ordering the said plaintiffs to pay attorney's fees and
expenses of litigation in the sum of P30,000.00 to defendant Home Savings Bank &
Trust Company and in the amount of P25,000.00 to defendant Asaje Realty
Corporation, in addition to their respective costs of suit.

SO ORDERED.5

The Concepcions went to the Court of Appeals.

On 15 September 1995, the appellate court affirmed the trial court's decision, with modification, as
follows:

Under the facts and circumstances of the case at bench, the award of attorney's fees,
expenses of litigation and costs of suit in favor of defendant-appellee should be deleted.
It is not a sound policy to place a penalty on the right to litigate, nor should counsel's
fees be awarded everytime a party wins a suit (Arenas vs. Court of Appeals, 169 SCRA
558).

WHEREFORE, the appealed judgment is AFFIRMED with the modification that the
award of attorneys fees, litigation expenses and costs of suit in favor of defendant-
appellees are deleted from the dispositive portion.

SO ORDERED.6

The Concepcions forthwith filed with this Court a petition for review on certiorari, contending that they
have been denied their contractually stipulated right to be personally notified of the foreclosure
proceedings on the mortgaged property.

There is some merit in the petition.

 53

The three common types of forced sales arising from a failure to pay a mortgage debt include (a) an
extrajudicial foreclosure sale, governed by Act No. 3135; (b) a judicial foreclosure sale, regulated by
Rule 68 of the Rules of Court; and (c) an ordinary execution sale, covered by Rule 39 of the Rules of
Court.7 Each mode, peculiarly, has its own requirements.

In an extrajudicial foreclosure, such as here, Section 3 of Act No. 3135 8 is the law applicable;9 the
provision reads:

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

The Act only requires (1) the posting of notices of sale in three
public places, and (2) the publication of the same in a newspaper of general
circulation. 10 Personal notice to the mortgagor is not necessary. 11, Nevertheless, the parties
to the mortgage contract are not precluded from exacting additional requirements.

In the case at bar, the mortgage contract stipulated that —

All correspondence relative to this Mortgage, including demand letters, summons,

subpoenas, or notifications of any judicial or extrajudicial actions shall be sent to the
Mortgagor at the address given above or at the address that may hereafter be given in
writing by the Mortgagor to the Mortgagee, and the mere act of sending any
correspondence by mail or by personal delivery to the said address shall be valid and
effective notice to the Mortgagor for all legal purposes, and fact that any communication
is not actually received by the Mortgagor, or that it has been returned unclaimed to the
Mortgagee, or that no person was found at the address given, or that the address is
fictitious or cannot be located, shall not excuse or relieve Mortgagor from the effects of
such notice. 12

The stipulation, not being contrary to law, morals, good customs, public order or public policy,
is the law between the contracting parties and should be faithfully complied with. 13

Private respondent bank maintains that the stipulation that "all correspondence relative to (the)
Mortgage . . . shall be sent to the Mortgagor at the address given above or at the address that may
hereafter be given in writing by the Mortgagor to the Mortgagee" 14 gives the mortgagee an alternative
to send its correspondence either at the old or the new address given. 15 This stand is illogical. It
could not have been the intendment of the parties to defeat the very purpose of the provision referred
to which is obviously to apprise the mortgagors of the bank's action that might affect the property and
to accord to them an opportunity to safeguard their rights. The Court finds the bank's failure to comply
with its agreement with petitioners an inexcusable breach of the mortgagee's covenant. Neither
petitioners' subsequent opportunity to redeem the property nor their failed negotiations with the bank
for a new schedule of payments, 16 can be a valid justification for the breach.

The foregoing notwithstanding, petitioners may no longer seek the reconveyance of the property from
private respondent Asaje Realty Corporation, the latter having been, evidently, an innocent purchaser
in good faith. 17 The realty corporation purchased the property when the title was already in the name
 54

of the bank. It was under no obligation to investigate the title of the bank or to look beyond what
clearly appeared to be on the face of the certificate. 18

Private respondent bank, however, can still be held to account for the bid price of Asaje Realty
Corporation over and above, if any, the amount due the bank on the basis of the original interest rate,
the unilateral increases made by the bank having been correctly invalidated by the Court of Appeals.

The validity of "escalation" or "escalator" clauses in contracts, in general, was upheld by the Supreme
Court in Banco Filipino Savings and Mortgage Bank vs. Hen. Navarro and Del Valle. 19 Hence:

Some contracts contain what is known as an "escalator clause," which is defined as one
in which the contract fixes a base price but contains a provision that in the event of
specified cost increases, the seller or contractor may raise the price up to a fixed
percentage of the base. Attacks on such a clause have usually been based on the claim
that, because of the open price-provision, the contract was too indefinite to be
enforceable and did not evidence actual meeting of the minds of the parties or that the
arrangement left the price to be determined arbitrarily by one party so that the contract
lacked mutuality. In most instances, however, these attacks have been unsuccessful.

The Court further finds as a matter of law that the cost of living index adjustment, or
substantively unconscionable.

Cost of living index adjustment clauses are widely used in commercial contracts in an
effort to maintain fiscal stability and to retain "real dollar" value to the price terms of long
term contracts. The provision is a common one, and has been universally upheld and
enforced. Indeed, the Federal government has recognized the efficacy of escalator
clauses in tying Social Security benefits to the cost of living index, 42 U.S.C.s 415(i).
Pension benefits and labor contracts negotiated by most of the major labor unions are
other examples. That inflation, expected or otherwise, will cause a particular bargain to
be more costly in terms of total dollars than originally contemplated can be of little
solace to the plaintiffs. 20

In Philippine National Bank vs. Court of Appeals, 21 the Court further elucidated, as follows:

It is basic that there can be no contract in the true sense in the absence of the element
of agreement, or of mutual assent of the parties. If this assent is wanting on the part of
one who contracts his act has no more efficacy than if it had been done under duress or
by a person of unsound mind.

Similarly, contract changes must be made with the consent of the contracting parties.
The minds of all the parties must meet as to the proposed modification especially when
it affects an important aspect of the agreement. In the case of loan contracts, it cannot
be gainsaid that the rate of interest is component, for it can make or break a capital
venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any
binding effect.

We cannot countenance petitioner bank's posturing that the escalation clause at bench
gives it unbridled right to unilaterally upwardly adjust the interest on private respondents'
loan. That would completely take away from private respondents the right to assent to
 55

an important modification in their agreement, and would negate the element of mutuality
in contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-
545 (1991) we held —

. . . (T)he unilateral action of the PNB in increasing the interest rate on the private
respondent's loan violated the mutuality of contracts ordained in Article 1308 of the Civil
Code:

Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.

In order that obligations arising from contracts may have the force or law between the
parties, there must be mutuality between the parties based on their essential equality. A
contract containing a condition which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties, is void . . . Hence, even assuming
that the
. . . loan agreement between the PNB and the private respondent gave the PNB a
license (although in fact there was none) to increase the interest rate at will during the
term of the loan, that license would have been null and void for being violative of the
principle of mutuality essential in contracts. It would have invested the loan agreement
with the character of a contract of adhesion, where the parties do not equal footing the
weaker party's (the debtor) participation being reduced to the alternative to take it or
leave it'
. . . Such a contract is a veritable trap for the weaker party whom the courts of justice
must protect against abuse and imposition. (Citations
omitted.) 22

Even if we were to consider that petitioners were bound by their agreement allowing an increase in
the interest rate despite the lack of advance notice to them, the escalation should still be subject, as
so contractually stipulated, to a corresponding increase by the Central Bank of its rediscount rate to
member banks, or of the interest rate on savings and time deposit, or of the interest rate on such
loans and advances. The notices sent to petitioners merely read:

Letter of 19 July 1984:

Please be informed that the Bank has increased the interest rate of your existing loan
from 21 to 30%per annum beginning October 17, 1984. This increase of interest rate is
in accordance with the provision of Section 2 of Presidential Decree No.
1684 23 amending Act No. 2655. This provision of the decree is reiterated under
paragraph 1 of your Promissory Note. Your quarterly amortization has been increased
to P104,661.10.

We trust that you will be guided accordingly. 24

Letter of 14 November 1984:

On account of the prevailing business and economic condition, we are compelled to

increase the interest rate of your existing loan from 30% to 38 % per annum effective
 56

November 17, 1984. This increase is in accordance with your agreement (escalation
clause) in your promissory note/s.

In view of this increase in the interest rate of your loan, your Quarterly amortization
correspondingly increased to P123,797.05 commencing on April 17, 1985.

We trust that you will understand our position and please be guided accordingly. 25

Given the circumstances, the Court sees no cogent reasons to fault the appellate court in its finding
that there are no sufficient valid justifications aptly shown for the unilateral increases by private
respondent bank of the interest rates on the loan.