Petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, Respondents

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK),
petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1[1] of the Court of Appeals dated June
25, 1991 in CA-G.R. CV No. 11791 and of its Resolution2[2] dated May 5, 1994, denying the
motion for reconsideration of said decision filed by petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend
Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his
business, the Sterela Marketing and Services (Sterela for brevity). Specifically, Sanchez asked
private respondent to deposit in a bank a certain amount of money in the bank account of Sterela
for purposes of its incorporation. She assured private respondent that he could withdraw his
money from said account within a months time. Private respondent asked Sanchez to bring
Doronilla to their house so that they could discuss Sanchezs request.3[3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronillas private secretary, met and discussed the matter. Thereafter, relying on the assurances
and representations of Sanchez and Doronilla, private respondent issued a check in the amount of
Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed
his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings
account in the name of Sterela in the Buendia, Makati branch of Producers Bank of the
Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the
check. They had with them an authorization letter from Doronilla authorizing Sanchez and her
companions, in coordination with Mr. Rufo Atienza, to open an account for Sterela Marketing
Services in the amount of P200,000.00. In opening the account, the authorized signatories were
Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account No. 10-1567 was
thereafter issued to Mrs. Vives.4[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 P90,000.00 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 P175,000.00 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[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 (P212,000.00) 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[6]
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla
for the return of his clients money. Doronilla issued another check for P212,000.00 in private
respondents favor but the check was again dishonored for insufficiency of funds.7[7]
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:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J.

Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin
Vives jointly and severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the legal
rate from the filing of the complaint until the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.

SO ORDERED.8[8]
Petitioner appealed the trial courts 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[9] It likewise denied with
finality petitioners motion for reconsideration in its Resolution dated May 5, 1994.10[10]
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE

TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES
WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS

BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER
DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE RESPONDENT)
AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER
THE PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE

RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT
APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE
BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED

DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE
LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS
APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF

THE LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND
SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF
P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR
MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR
ATTORNEYS FEES AND THE COSTS OF SUIT.11[11]
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 petitioners delay in
furnishing private respondent with copy of the reply12[12] and several substitutions of counsel on
the part of private respondent.13[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[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 P212,000.00, or P12,000 more than what private respondent deposited in
Sterelas bank account.15[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 respondents P200,000.00 because it is not privy to the transaction
between the latter and Doronilla.16[16]
It argues further that petitioners 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 Doronillas 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[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 P200,000.00 in Sterelas account for purposes of its
incorporation.18[18] Hence, petitioner should not be held liable for allowing Doronilla to withdraw
from Sterelas savings account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts 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 Sterelas savings account.19[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 attorneys fees.20[20]
Private respondent, on the other hand, argues that the transaction between him and Doronilla is
not a mutuum but an accommodation,21[21] since he did not actually part with the ownership of
his P200,000.00 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[22]
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is
liable for the return of his money. He insists that Atienza, petitioners assistant manager, connived
with Doronilla in defrauding private respondent since it was Atienza who facilitated the opening
of Sterelas 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 Sterelas
savings account to cover any overdrawings in its current account.23[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[24] The Courts
jurisdiction is in principle limited to reviewing errors of law that might have been committed by
the Court of Appeals.25[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[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:
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[27] In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.28[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[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 Sterelas savings account and would be returned to private respondent after
thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter
deposited in Sterelas account together with an additional P12,000.00, 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 P12,000.00 corresponds
to the fruits of the lending of the P200,000.00. 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 latters
money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the
return of private respondents 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 petitioners liability for the return of private
respondents 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 respondents
money and is liable for its restitution.
Petitioners 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[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 Doronillas scheme of defrauding private
respondent:
X X X
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 defendants Buendia branch precisely because Atienza
was a key officer therein. The records show that plaintiff had suggested that the P200,000.00 be
deposited in his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that
it must be in defendants 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 P200,000.00, 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.
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 (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 Atienzas
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 P200,000.00 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[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[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 employees 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 latters instructions.33[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 Sterelas Savings Account No. 10-1567, in
which account private respondents money was deposited, and in transferring the money
withdrawn to Sterelas Current Account with petitioner. Atienzas acts of helping Doronilla, a
customer of the petitioner, were obviously done in furtherance of petitioners interests34[34] even
though in the process, Atienza violated some of petitioners rules such as those stipulated in its
savings account passbook.35[35] It was established that the transfer of funds from Sterelas 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
respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil
Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla and
Dumagpi for the return of the P200,000.00 since it is clear that petitioner failed to prove that it
exercised due diligence to prevent the unauthorized withdrawals from Sterelas 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,
attorneys fees and costs of suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the
Court of Appeals are AFFIRMED.
SO ORDERED.
****************************
SPOUSES ANTONIO and G.R. No. 160892

LOLITA TAN,
Petitioners,
Present:
PANGANIBAN, J., Chairman,

SANDOVAL-GUTIERREZ,*
CORONA,
CARPIO MORALES, and
- versus -
GARCIA, JJ.
Promulgated:
November 22, 2005
CARMELITO VILLAPAZ,
Respondent.
xx - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -xx
DECISION
CARPIO MORALES, J.:
From the January 25, 2001 decision[1] of the Court of Appeals reversing that of
the Regional Trial Court (RTC) of Digos, Davao del Sur[2] which dismissed the
complaint filed by herein respondent Carmelito Villapaz against herein petitioners-
spouses Antonio Tony and Lolita Tan, the present Petition for Review on
Certiorari[3] was lodged.
On February 6, 1992, respondent issued a Philippine Bank of Communications
(PBCom) crossed check[4] in the amount of P250,000.00, payable to the order of
petitioner Tony Tan. On even date, the check was deposited at the drawee bank,
PBCom Davao City branch at Monteverde Avenue, to the account of petitioner
Antonio Tan also at said bank.
The Malita, Davao del Sur Police, by letter of June 22, 1994,[5] issued an
invitation-request to petitioner Antonio Tan at his address at Malatibas Plaza,
Lolitas Rendezvous, Bonifacio St., Davao City inviting him to appear before the
Deputy Chief of Police Office on June 27, 1994 at 9:00 oclock in the morning in
connection with the request of [herein respondent] Carmelito Villapaz, for
conference of vital importance.
The invitation-request was received by petitioner Antonio Tan on June 22, 1994[6]
but on the advice of his lawyer,[7] he did not show up at the Malita, Davao del Sur
Police Office.
On November 7, 1994,[8] respondent filed before the Digos, Davao del Sur RTC a
Complaint for sum of money against petitioners-spouses, alleging that, inter alia,
on February 6, 1992, petitioners-spouses repaired to his place of business at Malita,
Davao and obtained a loan of P250,000.00, hence, his issuance of the February 6,
1992 PBCom crossed check which loan was to be settled interest-free in six (6)
months; on the maturity date of the loan or on August 6, 1992, petitioner Antonio
Tan failed to settle the same, and despite repeated demands, petitioners never did,
drawing him to file the complaint thru his counsel to whom he agreed to pay 30%
of the loan as attorneys fees on a contingent basis and P1,000.00 per appearance
fee; and on account of the willful refusal of petitioners to honor their obligation, he
suffered moral damages in the amount of P50,000.00, among other things.
By their Answer,[9] petitioners, denying having gone to Malita and having

obtained a loan from respondent, alleged that the check was issued by respondent
in Davao City on February 6, 1992 in exchange for equivalent cash; they never
received from respondent any demand for payment, be it verbal or written,
respecting the alleged loan; since the alleged loan was one with a period payable in
six months, it should have been expressly stipulated upon in writing by the parties
but it was not, hence, the essential requisite for the validity and enforceability of a
loan is wanting; and the check is inadmissible to prove the existence of a loan for
P250,000.00.
By way of Compulsory Counterclaim, petitioners prayed for the award of damages

and litigation expenses and attorneys fees.[10]
Crediting defendants-petitioners version, Branch 19 of the RTC, Digos, Davao del
Sur, by Decision[11] of July 24, 1996, dismissed the Complaint and granted the
Counterclaim, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the dismissal of the complaint;
2. On the counterclaim ordering the plaintiff Carmelito Villapaz to

pay to defendants spouses Antonio and Lolita Tan:
a. P100,000.00 as moral damages;

b. P50,000.00 as exemplary damages;
c. P30,000.00 as attorneys fees; and
3. Plaintiff Carmelito Villapaz to pay the costs.
SO ORDERED. (Underscoring in the original)[12]
Respondent appealed to the Court of Appeals which, by Decision[13] of January

25, 2001, credited his version and accordingly reversed the trial courts decision in
this wise:
Briefly stated, the lower Court gave four reasons for ruling out a loan, namely: (a) the
defense of defendants-appellees that they did not go to plaintiff-appellants
place on February 6, 1992, date the check was given to them; (b) defendants-
appellees could not have borrowed money on that date because from January
to March, 1992, they had an average daily deposit of P700,000 and on
February 6, 1992, they had P1,211,400.64 in the bank, hence, they had surely
no reason nor logic to borrow money from plaintiff-appellant; (c) the alleged
loan was not reduced in writing and (d) the check could not be a competent
evidence of loan.
The four-fold reasoning cannot be sustained. They are faulty and do not accord either
with law or ordinary conduct of men. For one thing, the first two given reasons
partake more of alibi and speculation, hence, deserve scant consideration. For
another, the last two miss the applicable provisions of law.
The existence of a contract of loan cannot be denied merely because it is not

reduced in writing. Surely, there can be a verbal loan. Contracts are binding
between the parties, whether oral or written. The law is explicit that contracts
shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. A loan
(simple loan or mutuum) exists when a person receives a loan of money or any
other fungible thing and acquires the ownership thereof. He is bound to pay to
the creditor the equal amount of the same kind and quality.
Contracts are perfected by mere consent, and from that moment the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, maybe in keeping with
good faith, usage and law.
The lower Court misplaced its reliance on Article 1358 of the Civil Code
providing that to be enforceable, contracts where the amount involved
exceed five hundred pesos, must appear in writing. Such requirement, it has
been held, is only for convenience, not for validity. It bears emphasis that at
the time plaintiff-appellant delivered the crossed-check to defendants-
appellees, plaintiff-appellant had no account whatsoever with them.
Defendants-appellees contention that they did not obtain any loan but
merely exchanged the latters check for cash is not borne by any evidence.
Notably, plaintiff-appellant and defendant-appellee Antonio Tan are compadres, one

of them being a godfather to the others son. There is no established enmity
between them such that plaintiff-appellant would be motivated to institute an
unfounded action in court. Plaintiff-appellants sole purpose was to be paid
back the loan he extended to defendants-appellees. Thus, a pertinent portion of
his testimony on cross-examination discloses:
ATTY. TAN (On Cross Examination):

Q: Now, aside from this check that you issued, did you let the defendant sign a cash
voucher?
A: I did not require him any cash voucher or any written document because as I
said we are close friends and I trusted him so I issued a check in
his name Tony Tan.
Q: You said that the spouses Tan were in need of money on February 6, 1992. Why
did you have to issue a cross-check?
A: I issued a cross-check in order to be sure that he received the money from me so
that he could not deny that he did not receive. (TSN of Villapaz
dtd 7/25/95, p. 21)
Apart from their self-serving testimonies, there is no evidence or proof that

defendants-appellees actually delivered to plaintiff-appellant the cash amount
of P250,000.00 in exchange for the check. Defendant-appellee Tan testified
that he records his transactions if it involves a huge cash amount. But
surprisingly in this case, he did not follow his usual practice.
ATTY. CARPENTERO (On Cross-Examination):
Q: x x x you have noticed Carmelito Villapaz to have trusted and have full confidence
in you during your business relationship, correct?
A: All people have trust and confidence but whenever there is a transaction, it should
be covered a (sic) proof.
Q: You mean you are a fellow who adheres that every transaction should be recorded?
A: Yes, if the transaction involves a big amount,
Q: But in this case of Carmelito Villapaz you noticed personally that he has trust and
confidence in your person, correct?
A: The truth is, if ever we have a transaction which involves P1,000.00 or P2,000.00,
we need no document at all as proof, but because it is a big
amount, it needs documents. (TSN of Tan dtd 5/9/96, pp. 12-13.
Plaintiff-appellant has a checking account with PBCom Bank. This is located within
walking distance (300 meters) from defendants-appellees store. If plaintiff-
appellant was in dire need of money, he could have personally withdrawn
said money from his own account, since it was sufficiently funded.
Defendant-appellee Antonio Tan himself testified that plaintiff-appellants
check was sufficiently funded.
It is well-nigh unlikely that the wife who was supposed to have delivered the money
on such a short notice, produced, prepared and counted the money at home
from Obrero, Davao City, then delivered it to plaintiff-appellant who was in
the Golden Harvest Store at Sta Ana Avenue, Davao City. In contrast, PBCom
Bank where plaintiff-appellant has his account is in the same vicinity of
the store of Golden Harvest.
Certainly, by way of exception to the general rule, the erroneous inferences in the
factual finding of the trial Court cannot bind the appellate courts.
The trial Court placed much emphasis on the daily and time deposit accounts of
defendants-appellees. It is immaterial whether or not one is financially
capable. A pauper may borrow money for survival; a prince may incur a loan
for expansion.[14] (Emphasis supplied; underscoring in the original)
Thus, the Court of Appeals disposed:
WHEREFORE, the appealed judgment is hereby REVERSED and SET ASIDE.

Defendants-appellees are ordered to pay plaintiff-appellant the sum of
P250,000.00 with 12% interest per annum from judicial demand or filing of
the complaint in Court until fully paid.[15]
Hence, the present appeal by petitioners anchored on the following grounds:
I.
The Honorable Court of Appeals erred in concluding that the transaction in dispute
was a contract of loan and not a mere matter of check encashment as found by
the trial court.
II.
The Honorable Court likewise erred in reasoning that the trial court placed much
emphasis on the daily and time deposits of herein petitioners to determine their
financial capability.
III.
The Honorable Court failed to consider the wanton, reckless manner of respondent in
attempting to enforce an obligation that does not even exist, thus justifying the
award for moral and exemplary damages, as well as attorneys fees and costs of
suit.[16] (Underscoring supplied)
Petitioners maintain that they did not secure a loan from respondent, insisting that
they encashed in Davao City respondents February 6, 1992 crossed check; in the
ordinary course of business, prudence dictates that a contract of loan must be in
writing as in fact the New Civil Code provides that to be enforceable contracts
where the amount involved exceed[s] P500.00 must appear in writing even a
private one, hence, respondents self-serving claim does not suffice to prove the
existence of a loan; respondents allegation that no memorandum in writing of the
transaction was executed because he and they are kumpadres does not inspire
belief for respondent, being a businessman himself, was with more reason expected
to be more prudent; and the mere encashment of the check is not a contractual
transaction such as a sale or a loan which ordinarily requires a receipt and that
explains why they did not issue a receipt when they encashed the check of
respondent.
Petitioners add that they could not have gone to Malita on February 6, 1992, as
claimed by respondent, to obtain the alleged loan represented by the check because
February 6, 1992 was the opening for business in Davao City of Golden Harvest of
which petitioner Antonio Tan is treasurer and in-charge of the bodega, during
which opening guests and well-wishers including respondent were entertained.
Petitioners furthermore maintain that they were financially stable on February 6,

1992 as shown by the entries of their bank passbook,[17] hence, there was no
reason for them to go to a distant place like Malita to borrow money.
The petition fails.
By petitioner Antonio Tans account, respondent arrived at the Golden Harvest

place of business at Davao City on February 6, 1992 at about 10:30 in the
morning[18] and left before noon of the same day; respondent, however, returned
to Golden Harvest shortly before 3:00 oclock in the afternoon of the same day
upon which he informed him (petitioner Antonio Tan) that he needed to bring cash
to Malita in the amount of P250,000.00 but time was running out and . . . he was so
busy that was why he requested [him] to accommodate (sic) the said amount at
3:00 p.m.[19]
Still by petitioner Antonio Tans account, he thereupon inquire by telephone from
his wife who was at their house whether she had P250,000.00 cash and as his wife
replied she had, he asked her to bring the cash, as she did, to the Golden Harvest
where she gave the amount of P250,000.00 to him (petitioner Antonio Tan); in the
meantime, as respondent had left for a while but not before leaving the check, he
(petitioner Antonio Tan) kept the P250,000.00 cash and gave the check to his wife
who had it deposited on the same afternoon to his account at PBCom Monteverde
branch after he received clearance from the bank manager, who knows him
(petitioner Antonio Tan) very well, that respondents account at same branch of the
bank was funded and the check could be deposited and credited to his (petitioner
Antonio Tans) account that same afternoon; and when later that same afternoon
respondent returned to the Golden Harvest, he turned over to him the P250,000.00
cash.
Petitioner Antonio Tans foregoing tale hardly inspires credence. For it is contrary
to common experience. If indeed respondent, who came all the way from Malita to
Davao City, arriving at petitioner Antonio Tans workplace at Golden Harvest at
10:30 in the morning, needed cash of P250,000.00, and the drawee bank PBCom
Davao City, Monteverde branch where respondent maintained a current account
could even be reached by foot from the Golden Harvest in just a few minutes
(albeit by petitioner Antonio Tans own information respondent brought his truck
with him),[20] it being about 300 meters away,[21] respondent could just have
gone there and drew cash from his current account via over the counter transaction.
After all, his account had sufficient funds. In other words, he did not have to
encash his check from petitioners.
Even assuming that, as claimed by petitioner Antonio Tan, at the time respondent
needed to have his check encashed, it was already close to 3:00 oclock in the
afternoon, why could not have PBCom Monteverde branch also accommodated
him and allow him to encash his check that same time when he, like petitioners,
was also a client-depositor and the bank was still open for business?
Petitioners version was thus correctly denied credit by the appellate court.
That apart from the check no written proof of the grant of the loan was executed
was credibly explained by respondent when he declared that petitioners son being
his godson, he, out of trust and respect, believed that the crossed check sufficed to
prove their transaction.
As for petitioners reliance on Art. 1358[22] of the Civil Code, the same is
misplaced for the requirement that contracts where the amount involved exceeds
P500.00 must appear in writing is only for convenience.[23]
At all events, a check, the entries of which are no doubt in writing, could prove a
loan transaction.[24]
That petitioner Antonio Tan had, on February 6, 1992, an outstanding balance of
more than P950,000.00 in his account at PBCom Monteverde branch where he was
later to deposit respondents check did not rule out petitioners securing a loan. It is
pure naivete to believe that if a businessman has such an outstanding balance in his
bank account, he would have no need to borrow a lesser amount.
In fine, as petitioners side of the case is incredible as it is inconsistent with the

principles by which men similarly situated are governed, whereas respondents
claim that the proceeds of the check, which were admittedly received by
petitioners, represented a loan[25] extended to petitioner Antonio Tan is credible,
the preponderance of evidence inclines on respondent.
WHEREFORE, the present petition is DENIED.
**************************
Serrano vs. Central Bank
February 14, 1980; GR No. L-30511
Facts:
Petitioners Serrano (150k; 6% interest) and Maneja (200k; 6.5% interest) made 1 year time
deposits with the respondent Overseas Bank of Manila (OBM). Serrano and Maneja got
married. Consequently Maneja conveyed her deposits to Serrano. Despite Serrano’s demands
for the encasement of such deposits, none of the certificates of deposit was honored by the
respondent.
Consequently Serrano filed a petition for mandamus and prohibition, with preliminary injunction
against respondents. Serrano argued that respondent Central Bank failed in its duty to exercise
strict supervision over respondent OBM to protect depositors and the general public. He also
filed a petition for judgment based on the case of Emerito M. Ramos, et al. vs. Central Bank of
the Philippines, where the Supreme Court annulled and set aside CBP resolutions which
prohibited OBM to participate in clearing, direct the suspension of its operation, and ordering
its liquidation.
Respondent Central Bank of Philippines (CBP) argued that; 1) it does not have the duty to
exercise a most rigid and stringent supervision of banks; 2) it is not a guarantor of the
permanent solvency of any banking institution; that 3) there was no constructive trust created
in favor of Serrano and Maneja when their time deposits were made in 1966 and 1967 with
respondent OBM as during that time such bank was not insolvent and its operations as a
banking institution was being salvaged by the respondent CBP; and 4) that it had no
knowledge of petitioner’s claim that the properties given by respondent OBM as additional
collaterals to respondent CBP for former’s overdrafts and emergency loans were acquired
through the use of depositors’ money, including that of the petitioner and Maneja.
Issue:
WON the petitioner’s petition for mandamus and prohibition, with preliminary injunction against
respondent Banks will prosper.
Held:
No. The Supreme Court ruled that in reality the nature of the claims and cases of the petitioner
are recovery of time deposits plus interest from respondent OBM and revery of damages
against respondent CBP for its alleged failure in the performance of its duty to supervise all
banks.
These claims of these nature according to the court, are not proper in actions for mandamus
and prohibition as there is no shown clear abuse of discretion by the Central Bank in its
exercise of supervision over the other respondent Overseas Bank of Manila, and if there was,
petitioner here is not the proper party to raise that question, but rather the Overseas Bank of
Manila.
Finally, the Supreme Court explained that Bank deposits are in the nature of irregular deposits.
They are really loans because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the law on loans.
Current and savings deposits are loans to a bank because it can use the same. The petitioner
here in making time deposits that earn interests with respondent Overseas Bank of Manila was
in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure
to pay its obligation as a debtor and not a breach of trust arising from a depositary's failure to
return the subject matter of the deposit.
_______________________________________________________
SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. SANDRA TAN KIT AND
THE ESTATE OF THE DECEASED NORBERTO TAN KIT, Respondents.
DECISION
DEL CASTILLO, J.:
The Court of Appeals’ (CA) imposition of 12% interest on the P13,080.93 premium refund is the
only matter in question in this case.
This Petition for Review on Certiorari1 assails the October 17, 2007 Decision2 of CA in CA-
G.R. CV No. 86923, which, among others, imposed a 12% per annum rate of interest reckoned
from the time of death of the insured until fully paid, on the premium to be reimbursed by
petitioner Sun Life of Canada (Philippines), Inc. (petitioner) to respondents Sandra Tan Kit
(respondent Tan Kit) and the Estate of the Deceased Norberto Tan Kit (respondent estate).
Likewise assailed in this Petition is the CA’s June 12, 2008 Resolution3 denying petitioner’s
Motion for Reconsideration of the said Decision.
Factual Antecedents
Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto),
whose application for a life insurance policy,4 with face value of P300,000.00, was granted by
petitioner on October 28, 1999. On February 19, 2001, or within the two-year contestability
period,5 Norberto died of disseminated gastric carcinoma.6 Consequently, respondent Tan Kit
filed a claim under the subject policy.
In a Letter7 dated September 3, 2001, petitioner denied respondent Tan Kit’s claim on account of
Norberto’s failure to fully and faithfully disclose in his insurance application certain material and
relevant information about his health and smoking history. Specifically, Norberto answered ―No‖
to the question inquiring whether he had smoked cigarettes or cigars within the last 12 months
prior to filling out said application.8 However, the medical report of Dr. Anna Chua (Dr. Chua),
one of the several physicians that Norberto consulted for his illness, reveals that he was a smoker
and had only stopped smoking in August 1999. According to petitioner, its underwriters would
not have approved Norberto’s application for life insurance had they been given the correct
information. Believing that the policy is null and void, petitioner opined that its liability is
limited to the refund of all the premiums paid. Accordingly, it enclosed in the said letter a check
for P13,080.93 representing the premium refund.
In a letter9 dated September 13, 2001, respondent Tan Kit refused to accept the check and
insisted on the payment of the insurance proceeds.
On October 4, 2002, petitioner filed a Complaint10 for Rescission of Insurance Contract before
the Regional Trial Court (RTC) of Makati City.
Ruling of the Regional Trial Court
In its November 30, 2005 Decision,11 the RTC noted that petitioner’s physician, Dr. Charity
Salvador (Dr. Salvador), conducted medical examination on Norberto. Moreover, petitioner’s
agent, Irma Joy E. Javelosa (Javelosa), answered ―NO‖ to the question ―Are you aware of
anything about the life to be insured’s lifestyle, hazardous sports, habits, medical history, or any
risk factor that would have an adverse effect on insurability?‖ in her Agent’s Report. Javelosa
also already knew Norberto two years prior to the approval of the latter’s application for
insurance. The RTC concluded that petitioner, through the above-mentioned circumstances, had
already cleared Norberto of any misrepresentation that he may have committed. The RTC also
opined that the affidavit of Dr. Chua, presented as part of petitioner’s evidence and which
confirmed the fact that the insured was a smoker and only stopped smoking a year ago [1999], is
hearsay since Dr. Chua did not testify in court. Further, since Norberto had a subsisting insurance
policy with petitioner during his application for insurance subject of this case, it was incumbent
upon petitioner to ascertain the health condition of Norberto considering the additional burden
that it was assuming. Lastly, petitioner did not comply with the requirements for rescission of
insurance contract as held in Philamcare Health Systems, Inc. v. Court of Appeals.12 Thus, the
dispositive portion of the RTC Decision: chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing considerations, this court hereby finds in favor of the
[respondents and] against the [petitioner], hence it hereby orders the [petitioner] to pay the
[respondent], Sandra Tan Kit, the sum of Philippine Pesos: THREE HUNDRED THOUSAND
(P300,000.00), representing the face value of the insurance policy with interest at six percent
(6%) per annum from October 4, 2002 until fully paid.
Cost de oficio.
SO ORDERED.13
Petitioner moved for reconsideration,14 but was denied in an Order15 dated February 15, 2006.
Hence, petitioner appealed to the CA.
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside the RTC’s ruling in its Decision16 dated October 17,
2007.
From the records, the CA found that prior to his death, Norberto had consulted two physicians,
Dr. Chua on August 19, 2000, and Dr. John Ledesma (Dr. Ledesma) on December 28, 2000, to
whom he confided that he had stopped smoking only in 1999. At the time therefore that he
applied for insurance policy on October 28, 1999, there is no truth to his claim that he did not
smoke cigarettes within 12 months prior to the said application. The CA thus held that Norberto
is guilty of concealment which misled petitioner in forming its estimates of the risks of the
insurance policy. This gave petitioner the right to rescind the insurance contract which it
properly exercised in this case.
In addition, the CA held that the content of Norberto’s medical records are deemed admitted by
respondents since they failed to deny the same despite having received from petitioner a Request
for Admission pursuant to Rule 26 of the Rules of Court.17 And since an admission is in the
nature of evidence the legal effects of which form part of the records, the CA discredited the
RTC’s ruling that the subject medical records and the affidavits executed by Norberto’s
physicians attesting to the truth of the same were hearsay.
The dispositive portion of the CA Decision reads: chanRob lesvirtualLawlibrary
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the
appealed Decision REVERSED and SET ASIDE, and in lieu thereof, a judgment is hereby
rendered GRANTING the complaint a quo.
Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of P13,080.93

representing the [premium] paid by the insured with interest at the rate of 12% per annum
from the time of the death of the insured until fully paid.
SO ORDERED.18 chanrobleslaw
The parties filed their separate motions for reconsideration.19 While respondents questioned the
factual and legal bases of the CA Decision, petitioner, on the other hand, assailed the imposition
of interest on the premium ordered refunded to respondents.
However, the appellate court denied the motions in its June 12, 2008 Resolution,20viz: chanRoblesvirtualLawlibrary
WHEREFORE, the foregoing considered, the separate motions for reconsideration filed by the
[petitioner] and the [respondents] are hereby DENIED.
SO ORDERED.21
Only petitioner appealed to this Court through the present Petition for Review on Certiorari.
Issue
The sole issue in this case is whether petitioner is liable to pay interest on the premium to be
refunded to respondents.
The Parties’ Arguments
Petitioner argues that no interest should have been imposed on the premium to be refunded
because the CA Decision does not provide any legal or factual basis therefor; that petitioner
directly and timely tendered to respondents an amount representing the premium refund but they
rejected it since they opted to pursue their claim for the proceeds of the insurance policy; that
respondents should bear the consequence of their unsound decision of rejecting the refund
tendered to them; and, that petitioner is not guilty of delay or of invalid or unjust rescission as to
make it liable for interest. Hence, following the ruling in Tio Khe Chio v. Court of Appeals,22 no
interest can be assessed against petitioner.
Respondents, on the other hand, contend that the reimbursement of premium is clearly a money
obligation or one that arises from forbearance of money, hence, the imposition of 12% interest
per annum is just, proper and supported by jurisprudence. While they admit that they refused the
tender of payment of the premium refund, they aver that they only did so because they did not
want to abandon their claim for the proceeds of the insurance policy. In any case, what petitioner
should have done under the circumstances was to consign the amount of payment in court during
the pendency of the case.
Our Ruling
Tio Khe Chio is not applicable in this case.
Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is instructive on the
issue of payment of interest. There, the Court pointed to Sections 243 and 244 of the Insurance
Code which explicitly provide for payment of interest when there is unjustified refusal or
withholding of payment of the claim by the insurer, 23 and to Article 220924 of the New Civil
Code which likewise provides for payment of interest when the debtor is in delay.
The Court finds, however, that Tio Khe Chio is not applicable here as it deals with payment of
interest on the insurance proceeds in which the claim therefor was either unreasonably denied or
withheld or the insurer incurred delay in the payment thereof. In this case, what is involved is an
order for petitioner to refund to respondents the insurance premium paid by Norberto as a
consequence of the rescission of the insurance contract on account of the latter’s concealment of
material information in his insurance application. Moreover, petitioner did not unreasonably
deny or withhold the insurance proceeds as it was satisfactorily established that Norberto was
guilty of concealment.
Nature of interest imposed by the CA
There are two kinds of interest – monetary and compensatory.
―Monetary interest refers to the compensation set by the parties for the use or forbearance of
money.‖25 No such interest shall be due unless it has been expressly stipulated in writing.26 ―On
the other hand, compensatory interest refers to the penalty or indemnity for damages imposed by
law or by the courts.‖27 The interest mentioned in Articles 2209 and 221228 of the Civil Code
applies to compensatory interest.29 cralawlawlibrary
Clearly and contrary to respondents’ assertion, the interest imposed by the CA is not monetary
interest because aside from the fact that there is no use or forbearance of money involved in this
case, the subject interest was not one which was agreed upon by the parties in writing. This being
the case and judging from the tenor of the CA, to wit: chanRoblesvirtualLawlibrary
Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of P13,080.93

representing the [premium] paid by the insured with interest at the rate of 12% per annum
from time of death of the insured until fully paid.30 chanrobleslaw
there can be no other conclusion than that the interest imposed by the appellate court is in the
nature of compensatory interest.
The CA incorrectly imposed

compensatory interest on the premium
refund reckoned from the time of death
of the insured until fully paid
As a form of damages, compensatory interest is due only if the obligor is proven to have failed to
comply with his obligation.31 cralawlawlibrary
In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was
rescinding the policy due to concealment, petitioner tendered the refund of premium by attaching
to the said notice a check representing the amount of refund. However, respondents refused to
accept the same since they were seeking for the release of the proceeds of the policy. Because of
this discord, petitioner filed for judicial rescission of the contract. Petitioner, after receiving an
adverse judgment from the RTC, appealed to the CA. And as may be recalled, the appellate court
found Norberto guilty of concealment and thus upheld the rescission of the insurance contract
and consequently decreed the obligation of petitioner to return to respondents the premium paid
by Norberto. Moreover, we find that petitioner did not incur delay or unjustifiably deny the
claim.
Based on the foregoing, we find that petitioner properly complied with its obligation under the
law and contract. Hence, it should not be made liable to pay compensatory interest.
Considering the prevailing circumstances of the case, we hereby direct petitioner to reimburse
the premium paid within 15 days from date of finality of this Decision. If petitioner fails to pay
within the said period, then the amount shall be deemed equivalent to a forbearance of credit.32
In such a case, the rate of interest shall be 6% per annum.33 cralawlawlibrary
WHEREFORE, the assailed October 17, 2007 Decision of the Court of Appeals in CA-G.R. CV
No. 86923 is MODIFIED in that petitioner Sun Life of Canada (Philippines), Inc. is ordered to
reimburse to respondents Sandra Tan Kit and the Estate of the Deceased Norberto Tan Kit the
sum of P13,080.93 representing the premium paid by the insured within fifteen (15) days from
date of finality of this Decision. If the amount is not reimbursed within said period, the same
shall earn interest of 6% per annum until fully paid.
SO ORDERED. cralawred
_______________________________________________________________
SPOUSES SALVADOR ABELLA AND ALMA ABELLA, Petitioners, v. SPOUSES

ROMEO ABELLA AND ANNIE ABELLA, Respondents.
DECISION
LEONEN, J.:
This resolves a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying
that judgment be rendered reversing and setting aside the September 30, 2010 Decision1 and the
January 4, 2011 Resolution2 of the Court of Appeals Nineteenth Division in CA-G.R. CV No.
01388. The Petition also prays that respondents Spouses Romeo and Annie Abella be ordered to
pay petitioners Spouses Salvador and Alma Abella 2.5% monthly interest plus the remaining
balance of the amount loaned.
The assailed September 30, 2010 Decision of the Court of Appeals reversed and set aside the
December 28, 2005 Decision3 of the Regional Trial Court, Branch 8, Kalibo, Aklan in Civil Case
No. 6627. It directed petitioners to pay respondents P148,500.00 (plus interest), which was the
amount respondents supposedly overpaid. The assailed January 4, 2011 Resolution of the Court
of Appeals denied petitioners' Motion for Reconsideration.
The Regional Trial Court's December 28, 2005 Decision ordered respondents to pay petitioners
the supposedly unpaid loan balance of P300,000.00 plus the allegedly stipulated interest rate of
30% per annum, as well as litigation expenses and attorney's fees.4 redarclaw
On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a Complaint5 for sum of
money and damages with prayer for preliminary attachment against respondents Spouses Romeo
and Annie Abella before the Regional Trial Court, Branch 8, Kalibo, Aklan. The case was
docketed as Civil Case No. 6627.6 redarclaw
In their Complaint, petitioners alleged that respondents obtained a loan from them in the amount
of P500,000.00. The loan was evidenced by an acknowledgment receipt dated March 22, 1999
and was payable within one (1) year. Petitioners added that respondents were able to pay a total
of P200,000.00—P100,000.00 paid on two separate occasions—leaving an unpaid balance of
P300,000.00.7 redarclaw
In their Answer8 (with counterclaim and motion to dismiss), respondents alleged that the amount
involved did not pertain to a loan they obtained from petitioners but was part of the capital for a
joint venture involving the lending of money.9 redarclaw
Specifically, respondents claimed that they were approached by petitioners, who proposed that if
respondents were to "undertake the management of whatever money [petitioners] would give
them, [petitioners] would get 2.5% a month with a 2.5% service fee to [respondents]."10 The
2.5% that each party would be receiving represented their sharing of the 5% interest that the joint
venture was supposedly going to charge against its debtors. Respondents further alleged that the
one year averred by petitioners was not a deadline for payment but the term within which they
were to return the money placed by petitioners should the joint venture prove to be not lucrative.
Moreover, they claimed that the entire amount of P500,000.00 was disposed of in accordance
with their agreed terms and conditions and that petitioners terminated the joint venture,
prompting them to collect from the joint venture's borrowers. They were, however, able to
collect only to the extent of P200,000.00; hence, the P300,000.00 balance remained unpaid.11 redarclaw
In the Decision12 dated December 28, 2005, the Regional Trial Court ruled in favor of
petitioners. It noted that the terms of the acknowledgment receipt executed by respondents
clearly showed that: (a) respondents were indebted to the extent of P500,000.00; (b) this
indebtedness was to be paid within one (1) year; and (c) the indebtedness was subject to interest.
Thus, the trial court concluded that respondents obtained a simple loan, although they later
invested its proceeds in a lending enterprise.13 The Regional Trial Court adjudged respondents
solidarity liable to petitioners. The dispositive portion of its Decision reads:
ChanRob lesVirtualawlibrary
Lawlib rary ofCRAlaw
WHEREFORE, premises considered, judgment is hereby rendered: Lawlibrary ofCRAlaw
1. Ordering the defendants jointly and severally to pay the plaintiffs the sum of
P300,000.00 with interest at the rate of 30% per annum from the time the
complaint was filed on July 31, 2002 until fully paid; chanRoblesvirtualLawlibrary
2. Ordering the defendants to pay the plaintiffs the sum of P2,227.50 as

reimbursement for litigation expenses, and another sum of P5,000.00 as attorney's
fees.
For lack of legal basis, plaintiffs' claim for moral and exemplary damages has to be denied, and
for lack of merit the counter-claim is ordered dismissed.14
In the Order dated March 13, 2006,15 the Regional Trial Court denied respondents' Motion for
Reconsideration.
On respondents' appeal, the Court of Appeals ruled that while respondents had indeed entered
into a simple loan with petitioners, respondents were no longer liable to pay the outstanding
amount of P300,000.00.16 redarclaw
The Court of Appeals reasoned that the loan could not have earned interest, whether as
contractually stipulated interest or as interest in the concept of actual or compensatory damages.
As to the loan's not having earned stipulated interest, the Court of Appeals anchored its ruling on
Article 1956 of the Civil Code, which requires interest to be stipulated in writing for it to be
due.17 The Court of Appeals noted that while the acknowledgement receipt showed that interest
was to be charged, no particular interest rate was specified.18 Thus, at the time respondents were
making interest payments of 2.5% per month, these interest payments were invalid for not being
properly stipulated by the parties. As to the loan's not having earned interest in the concept of
actual or compensatory damages, the Court of Appeals, citing Eusebio-Calderon v. People,19
noted that interest in the concept of actual or compensatory damages accrues only from the time
that demand (whether judicial or extrajudicial) is made. It reasoned that since respondents
received petitioners' demand letter only on July 12, 2002, any interest in the concept of actual or
compensatory damages due should be reckoned only from then. Thus, the payments for the 2.5%
monthly interest made after the perfection of the loan in 1999 but before the demand was made
in 2002 were invalid.20 redarclaw
Since petitioners' charging of interest was invalid, the Court of Appeals reasoned that all
payments respondents made by way of interest should be deemed payments for the principal
amount of P500,000.00.21 redarclaw
The Court of Appeals further noted that respondents made a total payment of P648,500.00,
which, as against the principal amount of P500,000.00, entailed an overpayment of P148,500.00.
Applying the principle of solutio indebiti, the Court of Appeals concluded that petitioners were
liable to reimburse respondents for the overpaid amount of P148,500.00.22 The dispositive
portion of the assailed Court of Appeals Decision reads:
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WHEREFORE, the Decision of the Regional Trial Court is hereby REVERSED and SET
ASIDE, and a new one issued, finding that the Spouses Salvador and Alma Abella are
DIRECTED to jointly and severally pay Spouses Romeo and Annie Abella the amount of
P148,500.00, with interest of 6% interest (sic) per annum to be computed upon receipt of this
decision, until full satisfaction thereof. Upon finality of this judgment, an interest as the rate of
12% per annum, instead of 6%, shall be imposed on the amount due, until full payment thereof.23
In the Resolution24 dated January 4, 2011, the Court of Appeals denied petitioners' Motion for
Reconsideration.
Aggrieved, petitioners filed the present appeal25 where they claim that the Court of Appeals erred
in completely striking off interest despite the parties' written agreement stipulating it, as well as
in ordering them to reimburse and pay interest to respondents.
In support of their contentions, petitioners cite Article 1371 of the Civil Code,26 which calls for
the consideration of the contracting parties' contemporaneous and subsequent acts in determining
their true intention. Petitioners insist that respondents' consistent payment of interest in the year
following the perfection of the loan showed that interest at 2.5% per month was properly agreed
upon despite its not having been expressly stated in the acknowledgment receipt. They add that
during the proceedings before the Regional Trial Court, respondents admitted that interest was
due on the loan.27 redarclaw
In their Comment,28 respondents reiterate the Court of Appeals' findings that no interest rate was
ever stipulated by the parties and that interest was not due and demandable at the time they were
making interest payments.29 redarclaw
In their Reply,30 petitioners argue that even though no interest rate was stipulated in the
acknowledgment receipt, the case fell under the exception to the Parol Evidence Rule. They also
argue that there exists convincing and sufficiently credible evidence to supplement the
imperfection of the acknowledgment receipt.31 redarclaw
For resolution are the following issues: Lawlibrary ofCRAlaw
First, whether interest accrued on respondents' loan from petitioners, If so, at what rate?
Second, whether petitioners are liable to reimburse respondents for the Litter's supposed excess
payments and for interest.
As noted by the Court of Appeals and the Regional Trial Court, respondents entered into a
simple loan or mutuum, rather than a joint venture, with petitioners.
Respondents' claims, as articulated in their testimonies before the trial court, cannot prevail over
the clear terms of the document attesting to the relation of the parties. "If the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of
its stipulations shall control."32 redarclaw
Articles 1933 and 1953 of the Civil Code provide the guideposts that determine if a contractual
relation is one of simple loan or mutuum:
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Art. 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case the
contract is called a commodatum; or money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall be paid, in which case the contract is simply
called a loan or mutuum.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower.
....
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality. (Emphasis supplied)
On March 22, 1999, respondents executed an acknowledgment receipt to petitioners, which
states:
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Batan, Aklan
March 22, 1999
This is to acknowledge receipt of the Amount of Five Hundred Thousand (P500,000.00) Pesos
from Mrs. Alma R. Abella, payable within one (1) year from date hereof with interest.
Annie C. Abella (sgd.) Romeo M. Abella (sgd.)33

(Emphasis supplied)
The text of the acknowledgment receipt is uncomplicated and straightforward. It attests to: first,
respondents' receipt of the sum of P500,000.00 from petitioner Alma Abella; second,
respondents' duty to pay tack this amount within one (1) year from March 22, 1999; and third,
respondents' duty to pay interest. Consistent with what typifies a simple loan, petitioners
delivered to respondents with the corresponding condition lat respondents shall pay the same
amount to petitioners within one (1) year.
II
Although we have settled the nature of the contractual relation between petitioners and
respondents, controversy persists over respondents' duty to pay conventional interest, i.e.,
interest as the cost of borrowing money.34 redarclaw
Article 1956 of the Civil Code spells out the basic rule that "[n]o interest shall be due unless it
has been expressly stipulated in writing."
On the matter of interest, the text of the acknowledgment receipt is simple, plain, and
unequivocal. It attests to the contracting parties' intent to subject to interest the loan extended by
petitioners to respondents. The controversy, however, stems from the acknowledgment receipt's
failure to state the exact rate of interest.
Jurisprudence is clear about the applicable interest rate if a written instrument fails to specify a
rate. In Spouses Toring v. Spouses Olan,35 this court clarified the effect of Article 1956 of the
Civil Code and noted that the legal rate of interest (then at 12%) is to apply: "In a loan or
forbearance of money, according to the Civil Code, the interest due should be that stipulated in
writing, and in the absence thereof, the rate shall be 12% per annum."36 redarclaw
Spouses Toring cites and restates (practically verbatim) what this court settled in Security Bank
and Trust Company v. Regional Trial Court of Makati, Branch 61: "In a loan or forbearance of
money, the interest due should be that stipulated in writing, and in the absence thereof the rate
shall be 12% per annum."37 redarclaw
Security Bank also refers to Eastern Shipping Lines, Inc. v. Court of Appeals, which, in turn,
stated:38
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.39 (Emphasis supplied)
The rule is not only definite; it is cast in mandatory language. From Eastern Shipping to Security
Bank to Spouses Toring, jurisprudence has repeatedly used the word "shall," a term that has long
been settled to denote something imperative or operating to impose a duty.40 Thus, the rule
leaves no room for alternatives or otherwise does not allow for discretion. It requires the
application of the legal rate of interest.
Our intervening Decision in Nacar v. Gallery Frames41 recognized that the legal rate of interest
has been reduced to 6% per annum:
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Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its
Resolution No. 796 dated May 16, 2013, approved the amendment of Section 2 of Circular No.
905, Series of 1982 and, accordingly, issued Circular No. 799, Series of 2013, effective July 1,
2013, the pertinent portion of which reads:
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The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:
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Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall
be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods
or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum
— as reflected in the case of Eastern Shipping Lines and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of
Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No.
799 — but will now be six percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not retroactively.
Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30,
2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate
of interest when applicable.42 (Emphasis supplied, citations omitted)
Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013 and Nacar
retain the definite and mandatory framing of the rule articulated in Eastern Shipping, Security
Bank, and Spouses Toring. Nacar even restates Eastern Shipping:
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To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows: Lawlibrary ofCRAlaw
....
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
Joan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
6% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.43 (Emphasis
supplied, citations omitted)
Thus, it remains that where interest was stipulated in writing by the debtor and creditor in a
simple loan or mutuum, but no exact interest rate was mentioned, the legal rate of interest shall
apply. At present, this is 6% per annum, subject to Nacar's qualification on prospective
application.
Applying this, the loan obtained by respondents from petitioners is deemed subjected to
conventional interest at the rate of 12% per annum, the legal rate of interest at the time the
parties executed their agreement. Moreover, should conventional interest still be due as of July 1,
2013, the rate of 12% per annum shall persist as the rate of conventional interest.
This is so because interest in this respect is used as a surrogate for the parties' intent, as
expressed as of the time of the execution of their contract. In this sense, the legal rate of interest
is an affirmation of the contracting parties' intent; that is, by their contract's silence on a specific
rate, the then prevailing legal rate of interest shall be the cost of borrowing money. This rate,
which by their contract the parties have settled on, is deemed to persist regardless of shifts in the
legal rate of interest. Stated otherwise, the legal rate of interest, when applied as conventional
interest, shall always be the legal rate at the time the agreement was executed and shall not be
susceptible to shifts in rate.
Petitioners, however, insist on conventional interest at the rate of 2.5% per month or 30% per
annum. They argue that the acknowledgment receipt fails to show the complete and accurate
intention of the contracting parties. They rely on Article 1371 of the Civil Code, which provides
that the contemporaneous and subsequent acts of the contracting parties shall be considered
should there be a need to ascertain their intent.44 In addition, they claim that this case falls under
the exceptions to the Parol Evidence Rule, as spelled out in Rule 130, Section 9 of the Revised
Rules on Evidence.45 redarclaw
It is a basic precept in legal interpretation and construction that a rule or provision that treats a
subject with specificity prevails over a rule or provision that treats a subject in general terms.46 redarclaw
The rule spelled out in Security Bank and Spouses Toring is anchored on Article 1956 of the
Civil Code and specifically governs simple loans or mutuum. Mutuum is a type of nominate
contract that is specifically recognized by the Civil Code and for which the Civil Code provides a
specific set of governing rules: Articles 1953 to 1961. In contrast, Article 11371 is among the
Civil Code provisions generally dealing with contracts. As this case particularly involves a
simple loan, the specific rule spelled out in Security Bank and Spouses Toring finds preferential
application as against Article 1371.
Contrary to petitioners' assertions, there is no room for entertaining extraneous (or parol)
evidence. In Spouses Bonifacio and Lucia Paras v. Kimwa Construction and Development
Corporation,47 we spelled out the requisites for the admission of parol evidence:
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In sum, two (2) things must be established for parol evidence to be admitted: first, that the
existence of any of the four (4) exceptions has been put in issue in a party's pleading or has not
been objected to by the adverse party; and second, that the parol evidence sought to be presented
serves to form the basis of the conclusion proposed by the presenting party.48
The issue of admitting parol evidence is a matter that is proper to the trial, not the appellate,
stage of a case. Petitioners raised the issue of applying the exceptions to the Parol Evidence Rule
only in the Reply they filed before this court. This is the last pleading that either of the parties
has filed in the entire string of proceedings culminating in this Decision. It is, therefore, too late
for petitioners to harp on this rule. In any case, what is at issue is not admission of evidence per
se, but the appreciation given to the evidence adduced by the parties. In the Petition they filed
before this court, petitioners themselves acknowledged that checks supposedly attesting to
payment of monthly interest at the rate of 2.5% were admitted by the trial court (and marked as
Exhibits "2," "3," "4," "5," "6," "7," and "8").49 What petitioners have an issue with is not the
admission of these pieces of evidence but how these have not been appreciated in a manner
consistent with the conclusions they advance.
Even if it can be shown that the parties have agreed to monthly interest at the rate of 2.5%, this is
unconscionable. As emphasized in Castro v. Tan,50 the willingness of the parties to enter into a
relation involving an unconscionable interest rate is inconsequential to the validity of the
stipulated rate:
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The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property, repulsive to the common sense of man. It has no support in
law, in principles of justice, or in the human conscience nor is there any reason whatsoever
which may justify such imposition as righteous and as one that may be sustained within the
sphere of public or private morals.51
The imposition of an unconscionable interest rate is void ab initio for being "contrary to morals,
and the law."52 redarclaw
In determining whether the rate of interest is unconscionable, the mechanical application of pre-
established floors would be wanting. The lowest rates that have previously been considered
unconscionable need not be an impenetrable minimum. What is more crucial is a consideration
of the parties' contexts. Moreover, interest rates must be appreciated in light of the fundamental
nature of interest as compensation to the creditor for money lent to another, which he or she
could otherwise have used for his or her own purposes at the time it was lent. It is not the default
vehicle for predatory gain. As such, interest need only be reasonable. It ought not be a supine
mechanism for the creditor's unjust enrichment at the expense of another.
Petitioners here insist upon the imposition of 2.5% monthly or 30% annual interest.
Compounded at this rate, respondents' obligation would have more than doubled—increased to
219.7% of the principal—by the end of the third year after which the loan was contracted if the
entire principal remained unpaid. By the end of the ninth year, it would have multiplied more
than tenfold (or increased to 1,060.45%). In 2015, this would have multiplied by more than 66
times (or increased to 6,654.17%). Thus, from an initial loan of only P500,000.00, respondents
would be obliged to pay more than P33 million. This is grossly unfair, especially since up to the
fourth year from when the loan was obtained, respondents had been assiduously delivering
payment. This reduces their best efforts to satisfy their obligation into a protracted servicing of a
rapacious loan.
The legal rate of interest is the presumptive reasonable compensation for borrowed money.
While parties are free to deviate from this, any deviation must be reasonable and fair. Any
deviation that is far-removed is suspect. Thus, in cases where stipulated interest is more than
twice the prevailing legal rate of interest, it is for the creditor to prove that this rate is required by
prevailing market conditions. Here, petitioners have articulated no such justification.
In sum, Article 1956 of the Civil Code, read in light of established jurisprudence, prevents the
application of any interest rate other than that specifically provided for by the parties in their loan
document or, in lieu of it, the legal rate. Here, as the contracting parties failed to make a specific
stipulation, the legal rate must apply. Moreover, the rate that petitioners adverted to is
unconscionable. The conventional interest due on the principal amount loaned by respondents
from petitioners is held to be 12% per annum.
III
Apart from respondents' liability for conventional interest at the rate of 12% per annum,
outstanding conventional interest—if any is due from respondents—shall itself earn legal interest
from the time judicial demand was made by petitioners, i.e., on July 31, 2002, when they filed
their Complaint. This is consistent with Article 2212 of the Civil Code, which provides:
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Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although
the obligation may be silent upon this point.
So, too, Nacar states that "the interest due shall itself earn legal interest from the time it is
judicially demanded."53 redarclaw
Consistent with Nacar, as well as with our ruling in Rivera v. Spouses Chua,54 the interest due on
conventional interest shall be at the rate of 12% per annum from July 31, 2002 to June 30, 2013.
Thereafter, or starting July 1, 2013, this shall be at the rate of 6% per annum.
IV
Proceeding from these premises, we find that respondents made an overpayment in the amount
of P3,379.17.
As acknowledged by petitioner Salvador Abella, respondents paid a total of P200,000.00, which

was charged against the principal amount of P500,000.00. The first payment of P100,000.00 was
made on June 30, 2001,55 while the second payment of P100,000.00 was made on December 30,
2001.56 redarclaw
The Court of Appeals' September 30, 2010 Decision stated that respondents paid P6,000.00 in
March 1999.57 redarclaw
The Pre-Trial Order dated December 2, 2002,58 stated that the parties admitted that "from the
time the principal sum of P500,000.00 was borrowed from [petitioners], [respondents] ha[d]
been religiously paying"59 what was supposedly interest "at the rate of 2.5% per month."60 redarclaw
From March 22, 1999 (after the loan was perfected) to June 22, 2001 (before respondents'
payment of P100,000.00 on June 30, 2001, which was deducted from the principal amount of
P500,000.00), the 2.5% monthly "interest" was pegged to the principal amount of P500,000.00.
These monthly interests, thus, amounted to P12,500.00 per month. Considering that the period
from March 1999 to June 2001 spanned twenty-seven (27) months, respondents paid a total of
P337,500.00.61 redarclaw
From June 22, 2001 up to December 22, 2001 (before respondents' payment of another
P100,000.00 on December 30, 2001, which was deducted from the remaining principal amount
of P400,000.00), the 2.5% monthly "interest" was pegged to the remaining principal amount of
P400,000.00. These monthly interests, thus, amounted to P10,000.00 per month. Considering
that this period spanned six (6) months, respondents paid a total of P60,000.00.62 redarclaw
From after December 22, 2001 up to June 2002 (when petitioners filed their Complaint), the
2.5% monthly "interest" was pegged to the remaining principal amount of P300,000.00. These
monthly interests, thus, amounted to P7,500.00 per month. Considering that this period spanned
six (6) months, respondents paid a total of P45,000.00.63redarclaw
Applying these facts and the properly applicable interest rate (for conventional interest, 12% per
annum; for interest on conventional interest, 12% per annum from July 31, 2002 up to June 30,
2013 and 6% per annum henceforth), the following conclusions may be drawn: Lawlibrary ofCRAlaw
By the end of the first year following the perfection of the loan, or as of March 21, 2000,
P560,000.00 was due from respondents. This consisted cf the principal of P500,000.00 and
conventional interest of P60,000.00.
Within this first year, respondents made twelve (12) monthly payments totalling P150,000.00
(P12,500.00 each from April 1999 to March 2000). This was in addition to their initial payment
of P6,000.00 in March 999.
Application of payments must be in accordance with Article 1253 of the Civil Code, which
reads:
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Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have
been made until the interests have been covered.
Thus, the payments respondents made must first be reckoned as interest payments. Thereafter,
any excess payments shall be charged against the principal. As respondents paid a total of
P156,000.00 within the first year, the conventional interest of P60,000.00 must be deemed fully
paid and the remaining amount that respondents paid (i.e., P96,000.00) is to be charged against
the principal. This yields a balance of P404,000.00.
By the end of the second year following the perfection of the loan, or as of March 21, 2001,
P452,480.00 was due from respondents. This consisted of the outstanding principal of
P404,000.00 and conventional interest of P48,480.00.
Within this second year, respondents completed another round of twelve (12) monthly payments
totaling P150,000.00.
Consistent with Article 1253 of the Civil Code, as respondents paid a total of P156,000.00 within
the second year, the conventional interest of P48,480.00 must be deemed fully paid and the
remaining amount that respondents paid (i.e., P101,520.00) is to be charged against the principal.
This yields a balance of P302,480.00.
By the end of the third year following the perfection of the loan, or as of March 21, 2002,
P338,777.60 was due from respondents. This consists of he outstanding principal of P302,480.00
and conventional interest of P36,297.60.
Within this third year, respondents paid a total of P320,000.00, as follows: Lawlibrary ofCRAlaw
(a) Between March 22, 2001 and June 30, 2001, respondents completed three (3) monthly
payments of P12,500.00 each, totaling P37,500.00.
(b) On June 30, 2001, respondents paid P100,000.00, which was charged as principal payment.
(c) Between June 30, 2001 and December 30, 2001, respondents delivered monthly payments
of P10,000.00 each. At this point, the monthly payments no longer amounted to P12,500.00
each because the supposed monthly interest payments were pegged to the supposedly
remaining principal of P400,000.00. Thus, during this period, they paid a total of six (6)
monthly payments totaling P60,000.00.
(d) On December 30, 2001, respondents paid P100,000.00, which, like the June 30, 2001
payment, was charged against the principal.
(e) From the end of December 2002 to the end of February 2002, respondents delivered
monthly payments of P7,500.00 each. At this point, the supposed monthly interest payments
were now pegged to the supposedly remaining principal of P300,000.00. Thus, during this
period, they delivered three (3) monthly payments totaling P22,500.00.
Consistent with Article 1253 of the Civil Code, as respondents paid a total of P320,000.00 within
the third year, the conventional interest of P36,927.50 must be deemed fully paid and the
remaining amount that respondents paid (i.e., P283,702.40) is to be charged against the principal.
This yields a balance of P18,777.60.
By the end of the fourth year following the perfection of the loan, or as of March 21, 2003,
P21,203.51 would have been due from respondents. This consists of: (a) the outstanding
principal of P18,777.60, (b) conventional interest of P2,253.31, and (c) interest due on
conventional interest starting from July 31, 2002, the date of judicial demand, in the amount of
P172.60. The last (i.e., interest on interest) must be pro-rated. There were only 233 days from
July 31, 2002 (the date of judicial demand) to March 21, 2003 (the end of the fourth year); this
left 63.83% of the fourth year, within which interest on interest might have accrued. Thus, the
full annual interest on interest of 12% per annum could not have been completed, and only the
proportional amount of 7.66% per annum may be properly imposed for the remainder of the
fourth year.
From the end of March 2002 to June 2002, respondents delivered three (3) more monthly
payments of P7,500.00 each. Thus, during this period, they delivered three (3) monthly payments
totalling P22,500.00.
At this rate, however, payment would have been completed by respondents even before the end of
the fourth year. Thus, for precision, it is more appropriate to reckon the amounts due as
against payments made on monthly, rather than an annual, basis.
By April 21, 2002, P18,965.38 (i.e., remaining principal of P18,777.60 plus pro-rated monthly
conventional interest at 1%, amounting to P187.78) would have been due from respondents.
Deducting the monthly payment of P7,500.00 for the preceding month in a manner consistent
with Article 1253 of the Civil Code would yield a balance of P11,465.38.
By May 21, 2002, P11,580.03 (i.e., remaining principal of P11,465.38 plus pro-rated monthly
with Article 1253 of the Civil Code would yield a balance of P4,080.03.
By June 21, 2002, P4,120.83 (i.e., remaining principal of P4,080.03 plus pro-rated monthly
with Article 1253 of the Civil Code would yield a negative balance of P3,379.17.
Thus, by June 21, 2002, respondents had not only fully paid the principal and all the
conventional interest that had accrued on their loan. By this date, they also overpaid P3,379.17.
Moreover, while hypothetically, interest on conventional interest would not have run from July
31, 2002, no such interest accrued since there was no longer any conventional interest due from
respondents by then.
As respondents made an overpayment, the principle of solutio indebiti as provided by Article

2154 of the Civil Code64 applies. Article 2154 reads:
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Article 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
In Moreno-Lentfer v. Wolff,65 this court explained the application of solutio indebiti:
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The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich
himself unjustly at the expense of another. It applies where (1) a payment is made when there
exists no binding relation between the payor, who has no duty to pay, and the person who
received the payment, and (2) the payment is made through mistake, and not through liberality or
some other cause.66
As respondents had already fully paid the principal and all conventional interest that had
accrued, they were no longer obliged to make further payments. Any further payment they made
was only because of a mistaken impression that they were still due. Accordingly, petitioners are
now bound by a quasi-contractual obligation to return any and all excess payments delivered by
respondents.
Nacar provides that "[w]hen an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum."67 This applies to obligations arising from quasi-contracts
such as solutio indebiti.
Further, Article 2159 of the Civil Code provides:

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Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of
money is involved, or shall be liable for fruits received or which should have been received if the
thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing from any cause, and
for damages to the person who delivered the thing, until it is recovered.
Consistent however, with our finding that the excess payment made by respondents were borne
out of a mere mistake that it was due, we find it in the better interest of equity to no longer hold
petitioners liable for interest arising from their quasi-contractual obligation.
Nevertheless, Nacar also provides: Lawlibrary ofCRAlaw
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 6% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.68
Thus, interest at the rate of 6% per annum may be properly imposed on the total judgment award.
This shall be reckoned from the finality of this Decision until its full satisfaction.
WHEREFORE, the assailed September 30, 2010 Decision and the January 4, 2011 Resolution
of the Court of Appeals Nineteenth Division in CA-G.R. CV No. 01388 are SET ASIDE.
Petitioners Spouses Salvador and Alma Abella are DIRECTED to jointly and severally
reimburse respondents Spouses Romeo and Annie Abella the amount of P3,379.17, which
respondents have overpaid.
A legal interest of 6% per annum shall likewise be imposed on the total judgment award from the
finality of this Decision until its full satisfaction.
SO ORDERED. cralawlawlibrary
____________________________________________________________________
CHEE KIONG YAM, AMPANG MAH, ANITA YAM JOSE Y.C. YAM AND RICHARD
YAM, petitioners,
vs.
HON. NABDAR J. MALIK, Municipal Judge of Jolo, Sulu (Branch I), THE PEOPLE
OF THE PHILIPPINES, ROSALINDA AMIN, TAN CHU KAO and LT. COL. AGOSTO
SAJOR respondents.
Tomas P. Matic, Jr. for petitioners.
Jose E. Fernandez for private respondent.
Office of the Solicitor General for respondent the People of the Philippines.
ABAD SANTOS, J.:

This is a petition for certiorari, prohibition, and mandamus with preliminary injunction.
Petitioners alleged that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted
without jurisdiction, in excess of jurisdiction and with grave abuse of discretion when:
(a) he held in the preliminary investigation of the charges of estafa filed by respondents
Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners that there was a
prima facie case against the latter;
(b) he issued warrants of arrest against petitioners after making the above
determination; and
(c) he undertook to conduct trial on the merits of the charges which were docketed in his
court as Criminal Cases No. M-111, M-183 and M-208.
Respondent judge is said to have acted without jurisdiction, in excess of jurisdiction and
with grave abuse of discretion because the facts recited in the complaints did not
constitute the crime of estafa, and assuming they did, they were not within the
jurisdiction of the respondent judge.
In a resolution dated May 23, 1979, we required respondents to comment in the petition
and issued a temporary restraining order against the respondent judge from further
proceeding with Criminal Cases Nos. M-111, M-183 and M-208 or from enforcing the
warrants of arrest he had issued in connection with said cases.
Comments by the respondent judge and the private respondents pray for the dismissal
of the petition but the Solicitor General has manifested that the People of the Philippines
have no objection to the grant of the reliefs prayed for, except the damages. We
considered the comments as answers and gave due course to the petition.
The position of the Solicitor General is well taken. We have to grant the petition in order
to prevent manifest injustice and the exercise of palpable excess of authority.
In Criminal Case No. M-111, respondent Rosalinda M. Amin charges petitioners Yam
Chee Kiong and Yam Yap Kieng with estafa through misappropriation of the amount of
P50,000.00. But the complaint states on its face that said petitioners received the
amount from respondent Rosalinda M. Amin "as a loan." Moreover, the complaint in
Civil Case No. N-5, an independent action for the collection of the same amount filed by
respondent Rosalinda M. Amin with the Court of First Instance of Sulu on September
11, 1975, likewise states that the P50,000.00 was a "simple business loan" which
earned interest and was originally demandable six (6) months from July 12, 1973.
(Annex E of the petition.)
In Criminal Case No. M-183, respondent Tan Chu Kao charges petitioners Yam Chee
Kiong, Jose Y.C. Yam, Ampang Mah and Anita Yam, alias Yong Tay, with estafa
through misappropriation of the amount of P30,000.00. Likewise, the complaint states
on its face that the P30,000.00 was "a simple loan." So does the complaint in Civil Case
No. N-8 filed by respondent Tan Chu Kao on April 6, 1976 with the Court of First
Instance of Sulu for the collection of the same amount. (Annex D of the petition.).
In Criminal Case No. M-208, respondent Augusto Sajor charges petitioners Jose Y.C.
Yam, Anita Yam alias Yong Tai Mah, Chee Kiong Yam and Richard Yam, with estafa
through misappropriation of the amount of P20,000.00. Unlike the complaints in the
other two cases, the complaint in Criminal Case No. M-208 does not state that the
amount was received as loan. However, in a sworn statement dated September 29,
1976, submitted to respondent judge to support the complaint, respondent Augusto
Sajor states that the amount was a "loan." (Annex G of the petition.).
We agree with the petitioners that the facts alleged in the three criminal complaints do
not constitute estafa through misappropriation.
Estafa through misappropriation is committed according to Article 315, paragraph 1,

subparagraph (b), of the Revised Penal Code as follows:
Art. 315. Swindling (Estafa). — Any person who shall defraud another by
any of the means mentioned herein below shall be punished by:
xxx xxx xxx
1. With unfaithfulness or abuse of confidence namely:
xxx xxx xxx
b) By misappropriating or converting, to the prejudice of another, money,

goods, or any other personal property received by the offender in trust or
on commission, or for administration, or under any other obligation
involving the duty to make delivery of or to return the same, even though
such obligation be totally or partially guaranteed by a bond; or by denying
having received such money, goods, or other property.
In order that a person can be convicted under the abovequoted provision, it must be
proven that he has the obligation to deliver or return the same money, goods or
personal property that he received. Petitioners had no such obligation to return the
same money, i.e., the bills or coins, which they received from private respondents. This
is so because as clearly stated in criminal complaints, the related civil complaints and
the supporting sworn statements, the sums of money that petitioners received were
loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.
Art. 1933. — By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing upon the condition
that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.
In commodatum the bailor retains the ownership of the thing loaned, while
in simple loam ownership passes to the borrower.
Art. 1953. — A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor
an equal amount of the same kind and quality.
It can be readily noted from the above-quoted provisions that in simple loan (mutuum),
as contrasted to commodatum, the borrower acquires ownership of the money, goods
or personal property borrowed. Being the owner, the borrower can dispose of the thing
borrowed (Article 248, Civil Code) and his act will not be considered misappropriation
thereof.
In U.S. vs. Ibañez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a
person to refuse to nay his debt or to deny its existence.
We are of the opinion and so decide that when the relation is purely that of
debtor and creditor, the debtor can not be held liable for the crime of
estafa, under said article, by merely refusing to pay or by denying the
indebtedness.
It appears that respondent judge failed to appreciate the distinction between the two
types of loan, mutuum and commodatum, when he performed the questioned acts, He
mistook the transaction between petitioners and respondents Rosalinda Amin, Tan Chu
Kao and Augusto Sajor to be commodatum wherein the borrower does not acquire
ownership over the thing borrowed and has the duty to return the same thing to the
lender.
Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which the
Municipal Court of Jolo is, has jurisdiction over criminal cases where the penalty
provided by law does not exceed prision correccional or imprisonment for not more than
six (6) years, or fine not exceeding P6,000.00 or both, The amounts allegedly
misappropriated by petitioners range from P20,000.00 to P50,000.00. The penalty for
misappropriation of this magnitude exceeds prision correccional or 6 year imprisonment.
(Article 315, Revised Penal Code), Assuming then that the acts recited in the
complaints constitute the crime of estafa, the Municipal Court of Jolo has no jurisdiction
to try them on the merits. The alleged offenses are under the jurisdiction of the Court of
First Instance.
Respondents People of the Philippines being the sovereign authority can not be sued
for damages. They are immune from such type of suit.
With respect to the other respondents, this Court is not the proper forum for the
consideration of the claim for damages against them.
WHEREFORE, the petition is hereby granted; the temporary restraining order

previously issued is hereby made permanent; the criminal complaints against petitioners
are hereby declared null and void; respondent judge is hereby ordered to dismiss said
criminal cases and to recall the warrants of arrest he had issued in connection
therewith. Moreover, respondent judge is hereby rebuked for manifest ignorance of
elementary law. Let a copy of this decision be included in his personal life. Costs
against private respondents.
SO ORDERED.
___________________________________________________________
BPI vs CA Credit Digest
BPI Investment Corporation

-vs-
CA
GR No. 133632, 15 February 2002
377 SCRA 117
FACTS
Frank Roa obtained a loan from Ayala Investment and Development
Corporation (AIDC), for the construction of his house. Said house and lot
were mortgaged to AIDC to secure the loan. Roa sold the properties to ALS
and Litonjua, the latter paid in cash and assumed the balance of Roa’s
indebtedness wit AIDC. AIDC was not willing to extend the old interest to
private respondents and proposed a grant of new loan of P500,000 with
higher interest to be applied to Roa’s debt, secured by the same property.
Private respondents executed a mortgage deed containing the stipulation.
The loan contract was signed on 31 March 1981 and was perfected on 13
September 1982, when the full loan was released to private respondents.
BPIIC, AIDC’s predecessor, released to private respondents P7,146.87,

purporting to be what was left of their loan after full payment of Roa’s loan.
BPIIC filed for foreclosure proceedings on the ground that private
respondents failed to pay the mortgage indebtedness. Private respondents
maintained that they should not be made to pay amortization before the
actual release of the P500,000 loan. The suit was dismissed and affirmed by
the CA.
ISSUE
Whether or not a contract of loan is a consensual contract.
HELD
The Court held in the negative. A loan contract is not a consensual contract
but a real contract. It is perfected only upon delivery of the object of the
contract. A contract o loan involves a reciprocal obligation, wherein the
obligation or promise of each party is the consideration for that of the other;
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 is a proper
manner with what is incumbent upon him responding mortgage was executed
and registered, there arises a perfected consensual contract.
______________________________________
Pajuyo v. CA GR No. 146364 June 3, 2004
Facts: Pajuyo entrusted a house to Guevara for the latter's use provided he should return the
same upon demand and with the condition that Guevara should be responsible of the
maintenance of the property. Upon demand Guevara refused to return the property to Pajuyo.
The petitioner then filed an ejectment case against Guevara with the MTC who ruled in favor of
the petitioner. On appeal with the CA, the appellate court reversed the judgment of the lower
court on the ground that both parties are illegal settlers on the property thus have no legal right
so that the Court should leave the present situation with respect to possession of the property as
it is, and ruling further that the contractual relationship of Pajuyo and Guevara was that of a
commodatum.
CLAIMS:
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION
TANTAMOUNT TO LACK OF JURISDICTION:
1. In ruling that the Kasunduan voluntarily entered into by the parties was in fact a
commodatum, instead of a Contract of Lease as found by the Metropolitan Trial Court and in
holding that “the ejectment case filed against defendant-appellant is without legal and factual
basis”.
2. In reversing and setting aside the Decision of the Regional Trial Court in Civil Case No.
Q-96-26943 and in holding that the parties are in pari delicto being both squatters, therefore,
illegal occupants of the contested parcel of land.
3. In deciding the unlawful detainer case based on the so-called Code of Policies of the
National Government Center Housing Project instead of deciding the same under the Kasunduan
voluntarily executed by the parties, the terms and conditions of which are the laws between
themselves.
CA:
1. Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally occupied the
contested lot which the government owned.
2. Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez
had no right or title over the lot because it is public land. The assignment of rights
between Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not
have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court
will leave them where they are.
3. Reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo
and Guevarra created a legal tie akin to that of a landlord and tenant relationship. The
Court of Appeals ruled that the Kasunduan is not a lease contract but a commodatum
because the agreement is not for a price certain.
Issue: Is the contractual relationship of Pajuyo and Guevara that of a commodatum?
Held: No. The Court of Appeals’ theory that the Kasunduan is one of commodatum is devoid
of merit. In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it. An essential
feature of commodatum is that it is gratuitous. Another feature of commodatum is that the
use of the thing belonging to another is for a certain period. Thus, the bailor cannot demand
the return of the thing loaned until after expiration of the period stipulated, or after
accomplishment of the use for which the commodatum is constituted. If the bailor should
have urgent need of the thing, he may demand its return for temporary use. If the use of the
thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which
case the contractual relation is called a precarium. Under the Civil Code, precarium is a kind
of commodatum. The Kasunduan reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the Kasunduan did not require Guevarra to
pay rent, it obligated him to maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from a commodatum. The effects of the
Kasunduan are also different from that of a commodatum. Case law on ejectment has treated
relationship based on tolerance as one that is akin to a landlord-tenant relationship where
the withdrawal of permission would result in the termination of the lease. The tenant’s
withholding of the property would then be unlawful.
___________________________________________________
2. Garcia vs Thio
16 March 2007
J. Corona
FACTS:
Petitioner – Garcia
Respondent – Thio
- In February 1995, Thio received from Garcia a crossed check amounting to $100,000 payable to
the order of Marilou Santiago.
o Garcia the received from Thio $3,000 for 4 months and P76,500 on July, August,
September and October (Representing interest due)
- In June 1995, Thio received again from Garcia P500,000
o Garcia the received from Thio P20,000 on August, September October and November.
(Represent interest due)
- According to Garcia, Thio failed to pay the $100,000 and P500,000 amount opting him to file a
case for sum of money and damages.
- Both loans are not covered by a promissory note as the two are close friends
- Thio countered that it was Marilou Santiago whom the money was lent by Garcia.
- She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate
petitioner’s request that respondent use her own checks instead of Santiago
- RTC ruled in favor of Garcia
- CA reversed RTC.
ISSUE:
1. Who borrowed the money (Santiago or Thio)
HELD:
1. Thio
RATIO:
- A loan is a real contract as it is perfected upon delivery of the object. This is different from a
consensual contract which only requires consent.
- An accepted promise to deliver by way of commodatum or simple loan is binding upon parties,
however, the loan itself is only perfected upon delivery of the object.
- Petitioner insisted that it was upon respondent’s instruction that both checks were made
payable to Santiago.
o It was also argued that upon delivery of the checks, respondents acquired control and
possession of it and can choose to retain or delivery it to Santiago
- Factors that supported the conclusions are:
o Petitioner did not know Santiago personally
o Leticia Ruiz (friend of both petitioner and respondent) testified that the plan of Thio is to
borrow money from Garcia then subsequently lend it out to Santiago.
ofor 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.
 She claimed, however, that Santiago would replace the checks with cash. 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.
o In the petition of insolvency filed by Santiago, the one listed as creditor is Thio rather
than Garcia.
o No corroborative evidence was presented by Thio
_________________________________________________________
2. Garcia vs Thio
16 March 2007
J. Corona
FACTS:
Petitioner – Garcia
Respondent – Thio
- In February 1995, Thio received from Garcia a crossed check amounting to $100,000 payable to
the order of Marilou Santiago.
o Garcia the received from Thio $3,000 for 4 months and P76,500 on July, August,
September and October (Representing interest due)
- In June 1995, Thio received again from Garcia P500,000
o Garcia the received from Thio P20,000 on August, September October and November.
(Represent interest due)
- According to Garcia, Thio failed to pay the $100,000 and P500,000 amount opting him to file a
case for sum of money and damages.
- Both loans are not covered by a promissory note as the two are close friends
- Thio countered that it was Marilou Santiago whom the money was lent by Garcia.
- She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate
petitioner’s request that respondent use her own checks instead of Santiago
- RTC ruled in favor of Garcia
- CA reversed RTC.
ISSUE:
1. Who borrowed the money (Santiago or Thio)
HELD:
1. Thio
RATIO:
- A loan is a real contract as it is perfected upon delivery of the object. This is different from a
consensual contract which only requires consent.
- An accepted promise to deliver by way of commodatum or simple loan is binding upon parties,
however, the loan itself is only perfected upon delivery of the object.
- Petitioner insisted that it was upon respondent’s instruction that both checks were made
payable to Santiago.
o It was also argued that upon delivery of the checks, respondents acquired control and
possession of it and can choose to retain or delivery it to Santiago
- Factors that supported the conclusions are:
o Petitioner did not know Santiago personally
o Leticia Ruiz (friend of both petitioner and respondent) testified that the plan of Thio is to
borrow money from Garcia then subsequently lend it out to Santiago.
o 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.
 She claimed, however, that Santiago would replace the checks with cash. 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.
o In the petition of insolvency filed by Santiago, the one listed as creditor is Thio rather
than Garcia.
o No corroborative evidence was presented by Thio
_______________________________________________________
Producers Bank of the Philippines vs CA (2003)
Doctrine:
Facts:
 Vives (will be the creditor in this case) was asked by his friend Sanchez to help the latter’s friend, Doronilla
(will be the debtor in this case) in incorporating Doronilla’s business “Strela”. This “help” basically involved
Vives depositing a certain amount of money in Strela’s bank account for purposes of incorporation (rationale:
Doronilla had to show that he had sufficient funds for incorporation). This amount shall later be returned to
Vives.
 Relying on the assurances and representations of Sanchez and Doronilla, Vives issued a check of P200,00 in
favor of Strela and deposited the same into Strela’s newly-opened bank account (the passbook was given to
the wife of Vives and the passbook had an instruction that no withdrawals/deposits will be allowed unless the
passbook is presented).
 Later on, Vives learned that Strela was no longer holding office in the address previously given to him. He
later found out that the funds had already been withdrawn leaving only a balance of P90,000. The Vives
spouses tried to withdraw the amount, but it was unable to since the balance had to answer for certain
postdated checks issued by Doronilla.
 Doronilla made various tenders of check in favor of Vives in order to pay his debt. All of which were
dishonored.
 Hence, Vives filed an action for recovery of sum against Doronilla, Sanchez, Dumagpi and Producer’s Bank.
 TC & CA: ruled in favor of Vives.
Issue/s:
(1) WON the transaction is a commodatum or a mutuum. COMMODATUM.
(2) WON the fact that there is an additional P 12,000 (allegedly representing interest) in the amount to be
returned to Vives converts the transaction from commodatum to mutuum. NO.
(3) WON Producer’s Bank is solidarily liable to Vives, considering that it was not privy to the transaction
between Vives and Doronilla. YES.
Held/Ratio:
(1) The transaction is a commodatum.
 CC 1933 (the provision distinguishing between the two kinds of loans) seem to imply that if the subject of the
contract is a consummable thing, such as money, the contract would be a mutuum. However, there are
instances when a commodatum may have for its object a consummable thing. Such can be found in CC 1936
which states that “consummable 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”. In this case, the intention of the
parties was merely for exhibition. Vives agreed to deposit his money in Strela’s account specifically for
purpose of making it appear that Streal had sufficient capitalization for incorporation, with the promise that
the amount should be returned withing 30 days.
(2) CC 1935 states that “the bailee in commodatum acquires the use of the thing loaned but not its fruits”. In this
case, the additional P 12,000 corresponds to the fruits of the lending of the P 200,000.
(3) Atienza, the Branch Manager of Producer’s Bank, allowed the withdrawals on the account of Strela despite
the rule written in the passbook that neither a deposit, nor a withdrawal will be permitted except upon the
production of the passbook (recall in this case that the passbook was in the possession of the wife of Vives all
along). Hence, this only proves to show that Atienza allowed the withdrawals because he was party to
Doronilla’s scheme of defrauding Vives. By virtue of CC 2180, PNB, as employer, is held primarily and
solidarily liable for damages caused by their employees acting within the scope of their assigned tasks.
Atienza’s acts, in helpong Doronilla, a customer of the bank, were obviously done in furtherance of the
business of the bank, even though in the process, Atienza violated some rules.

Petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, Respondents

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Petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, Respondents

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PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK),

petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

CALLEJO, SR., J.:

IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J.

(c) the amount of P40,000.00 for attorneys fees; and

(d) the costs of the suit.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE

THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF

There is no merit in the petition.

Commodatum is essentially gratuitous.

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

SPOUSES ANTONIO and G.R. No. 160892

PANGANIBAN, J., Chairman,

November 22, 2005

CARPIO MORALES, J.:

By their Answer,[9] petitioners, denying having gone to Malita and having

By way of Compulsory Counterclaim, petitioners prayed for the award of damages

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the dismissal of the complaint;

2. On the counterclaim ordering the plaintiff Carmelito Villapaz to

a. P100,000.00 as moral damages;

3. Plaintiff Carmelito Villapaz to pay the costs.

SO ORDERED. (Underscoring in the original)[12]

Respondent appealed to the Court of Appeals which, by Decision[13] of January

The existence of a contract of loan cannot be denied merely because it is not

Notably, plaintiff-appellant and defendant-appellee Antonio Tan are compadres, one

ATTY. TAN (On Cross Examination):

Apart from their self-serving testimonies, there is no evidence or proof that

ATTY. CARPENTERO (On Cross-Examination):

Thus, the Court of Appeals disposed:

WHEREFORE, the appealed judgment is hereby REVERSED and SET ASIDE.

Hence, the present appeal by petitioners anchored on the following grounds:

Petitioners furthermore maintain that they were financially stable on February 6,

The petition fails.

By petitioner Antonio Tans account, respondent arrived at the Golden Harvest

In fine, as petitioners side of the case is incredible as it is inconsistent with the

WHEREFORE, the present petition is DENIED.

Serrano vs. Central Bank

February 14, 1980; GR No. L-30511

respondent Banks will prosper.

return the subject matter of the deposit.

DEL CASTILLO, J.:

Ruling of the Regional Trial Court

Hence, petitioner appealed to the CA.

Ruling of the Court of Appeals

The dispositive portion of the CA Decision reads: chanRob lesvirtualLawlibrary

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

The Parties’ Arguments

Tio Khe Chio is not applicable in this case.

Nature of interest imposed by the CA

There are two kinds of interest – monetary and compensatory.

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

The CA incorrectly imposed

SPOUSES SALVADOR ABELLA AND ALMA ABELLA, Petitioners, v. SPOUSES

WHEREFORE, premises considered, judgment is hereby rendered: Lawlibrary ofCRAlaw

2. Ordering the defendants to pay the plaintiffs the sum of P2,227.50 as

For resolution are the following issues: Lawlibrary ofCRAlaw

Commodatum is essentially gratuitous.

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

Annie C. Abella (sgd.) Romeo M. Abella (sgd.)33