Republic of the Philippines
Was the granting of a credit of P300,000 to the copartnership "Puno
SUPREME COURT
Manila
EN BANC
G.R. No. L-19190 November 29, 1922
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,
vs.
VENANCIO CONCEPCION, defendant-appellant.
Recaredo Ma. Calvo for appellant.
Attorney-General Villa-Real for appellee.
MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the Aparri
branch of the Philippine National Bank, Venancio Concepcion,
President of the Philippine National Bank, between April 10, 1919, and
May 7, 1919, authorized an extension of credit in favor of "Puno y
Concepcion, S. en C." in the amount of P300,000. This special
authorization was essential in view of the memorandum order of
President Concepcion dated May 17, 1918, limiting the discretional
power of the local manager at Aparri, Cagayan, to grant loans and
discount negotiable documents to P5,000, which, in certain cases,
could be increased to P10,000. Pursuant to this authorization, credit
aggregating P300,000, was granted the firm of "Puno y Concepcion, S.
en C.," the only security required consisting of six demand notes. The
notes, together with the interest, were taken up and paid by July 17,
1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at
P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de
Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno,
P20,000; and Rosario San Agustin, "casada con Gral. Venancio
Concepcion," P50,000. Member Miguel S. Concepcion was the
administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the
Philippine National Bank and as member of the board of directors of
this bank, was charged in the Court of First Instance of Cagayan with a
violation of section 35 of Act No. 2747. He was found guilty by the
Honorable Enrique V. Filamor, Judge of First Instance, and was
sentenced to imprisonment for one year and six months, to pay a fine
of P3,000, with subsidiary imprisonment in case of insolvency, and the
costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just
mentioned, to which reference must hereafter repeatedly be made,
reads as follows: "The National Bank shall not, directly or indirectly,
grant loans to any of the members of the board of directors of the bank
nor to agents of the branch banks." Section 49 of the same Act
provides: "Any person who shall violate any of the provisions of this Act
shall be punished by a fine not to exceed ten thousand pesos, or by
imprisonment not to exceed five years, or by both such fine and
imprisonment." These two sections were in effect in 1919 when the
alleged unlawful acts took place, but were repealed by Act No. 2938,
approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed
by the trial court. These errors they have argued adroitly and
exhaustively in their printed brief, and again in oral argument. Attorney-
General Villa-Real, in an exceptionally accurate and comprehensive
brief, answers the proposition of appellant one by one.
The question presented are reduced to their simplest elements in the
opinion which follows:
I.
y Concepcion, S. en C." by Venancio Concepcion, President of the
Philippine National Bank, a "loan" within the meaning of section 35 of
Act No. 2747?
Counsel argue that the documents of record do not prove that authority
to make a loan was given, but only show the concession of a credit. In
this statement of fact, counsel is correct, for the exhibits in question
speak of a "credito" (credit) and not of a " prestamo" (loan).
The "credit" of an individual means his ability to borrow money by
virtue of the confidence or trust reposed by a lender that he will pay
what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490;
Bouvier's Law Dictionary.) A "loan" means the delivery by one party
and the receipt by the other party of a given sum of money, upon an
agreement, express or implied, to repay the sum loaned, with or
without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The
concession of a "credit" necessarily involves the granting of
"loans" up to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership "Puno
y Concepcion, S. en C.," by Venancio Concepcion, President of the
Philippine National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the
granting of a "loan," it does not prohibit what is commonly known as a
"discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the
National Bank, inquired of the Insular Auditor whether section 37 of Act
No. 2612 was intended to apply to discounts as well as to loans. The
ruling of the Acting Insular Auditor, dated August 11, 1916, was to the
effect that said section referred to loans alone, and placed no
restriction upon discount transactions. It becomes material, therefore,
to discover the distinction between a "loan" and a "discount," and to
ascertain if the instant transaction comes under the first or the latter
denomination.
Discounts are favored by bankers because of their liquid nature,
growing, as they do, out of an actual, live, transaction. But in its last
analysis, to discount a paper is only a mode of loaning money, with,
however, these distinctions: (1) In a discount, interest is deducted in
advance, while in a loan, interest is taken at the expiration of a credit;
(2) a discount is always on double-name paper; a loan is generally on
single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the
law covers loans and not discounts, yet the conclusion is inevitable
that the demand notes signed by the firm "Puno y Concepcion, S.
en C." were not discount paper but were mere evidences of
indebtedness, because (1) interest was not deducted from the
face of the notes, but was paid when the notes fell due; and (2)
they were single-name and not double-name paper.
The facts of the instant case having relation to this phase of the
argument are not essentially different from the facts in the Binalbagan
Estate case. Just as there it was declared that the operations
constituted a loan and not a discount, so should we here lay down the
same ruling.
III. Was the granting of a credit of P300,000 to the copartnership,
"Puno y Concepcion, S. en C." by Venancio Concepcion, President of
the Philippine National Bank, an "indirect loan" within the meaning of
section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S.
en C." was not an "indirect loan." In this connection, it should be
recalled that the wife of the defendant held one-half of the capital of
this partnership.
In the interpretation and construction of statutes, the primary rule is to
ascertain and give effect to the intention of the Legislature. In this
instance, the purpose of the Legislature is plainly to erect a wall of Philippine National Bank, in violation of section 35 of Act No. 2747,
safety against temptation for a director of the bank. The prohibition penalized by this law?
against indirect loans is a recognition of the familiar maxim that no man
may serve two masters — that where personal interest clashes with
Counsel argue that since the prohibition contained in section 35 of Act
fidelity to duty the latter almost always suffers. If, therefore, it is shown
No. 2747 is on the bank, and since section 49 of said Act provides a
that the husband is financially interested in the success or failure of his
punishment not on the bank when it violates any provisions of the law,
wife's business venture, a loan to partnership of which the wife of a
but on a person violating any provisions of the same, and imposing
director is a member, falls within the prohibition.
imprisonment as a part of the penalty, the prohibition contained in said
section 35 is without penal sanction. lawph!l.net

Various provisions of the Civil serve to establish the familiar

relationship called a conjugal partnership. (Articles 1315, 1393, 1401,
The answer is that when the corporation itself is forbidden to do
1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a
an act, the prohibition extends to the board of directors, and to
partnership of which the wife of a director of a bank is a member, is an
each director separately and individually.
indirect loan to such director.
(People vs. Concepcion, supra.)

That it was the intention of the Legislature to prohibit exactly such an

VI. Does the alleged good faith of Venancio Concepcion, President of
occurrence is shown by the acknowledged fact that in this instance the
the Philippine National Bank, in extending the credit of P300,000 to the
defendant was tempted to mingle his personal and family affairs with
copartnership "Puno y Concepcion, S. en C." constitute a legal
his official duties, and to permit the loan P300,000 to a partnership of
defense?
no established reputation and without asking for collateral security.

Counsel argue that if defendant committed the acts of which he was

In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3
convicted, it was because he was misled by rulings coming from the
Am. Rep., 211), the Supreme Court of Maryland said:
Insular Auditor. It is furthermore stated that since the loans made to the
copartnership "Puno y Concepcion, S. en C." have been paid, no loss
What then was the purpose of the law when it declared that has been suffered by the Philippine National Bank.
no director or officer should borrow of the bank, and "if any
director," etc., "shall be convicted," etc., "of directly or
Neither argument, even if conceded to be true, is conclusive. Under
indirectly violating this section he shall be punished by fine
the statute which the defendant has violated, criminal intent is not
and imprisonment?" We say to protect the stockholders,
necessarily material. The doing of the inhibited act, inhibited on
depositors and creditors of the bank, against the temptation
account of public policy and public interest, constitutes the crime. And,
to which the directors and officers might be exposed, and the
in this instance, as previously demonstrated, the acts of the President
power which as such they must necessarily possess in the
of the Philippine National Bank do not fall within the purview of the
control and management of the bank, and the legislature
rulings of the Insular Auditor, even conceding that such rulings have
unwilling to rely upon the implied understanding that in
controlling effect.
assuming this relation they would not acquire any interest
hostile or adverse to the most exact and faithful discharge of
duty, declared in express terms that they should not borrow, Morse, in his work, Banks and Banking, section 125, says:
etc., of the bank.
It is fraud for directors to secure by means of their trust, and
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in advantage not common to the other stockholders. The law
the Binalbagan Estate decision, it was said: will not allow private profit from a trust, and will not listen to
any proof of honest intent.
We are of opinion the statute forbade the loan to his
copartnership firm as well as to himself directly. The loan JUDGMENT
was made indirectly to him through his firm.
On a review of the evidence of record, with reference to the decision of
IV. Could Venancio Concepcion, President of the Philippine National the trial court, and the errors assigned by the appellant, and with
Bank, be convicted of a violation of section 35 of Act No. 2747 in reference to previous decisions of this court on the same subject, we
relation with section 49 of the same Act, when these portions of Act are irresistibly led to the conclusion that no reversible error was
No. 2747 were repealed by Act No. 2938, prior to the finding of the committed in the trial of this case, and that the defendant has been
information and the rendition of the judgment? proved guilty beyond a reasonable doubt of the crime charged in the
information. The penalty imposed by the trial judge falls within the
limits of the punitive provisions of the law.
As noted along toward the beginning of this opinion, section 49 of Act
No. 2747, in relation to section 35 of the same Act, provides a
punishment for any person who shall violate any of the provisions of Judgment is affirmed, with the costs of this instance against the
the Act. It is contended, however, by the appellant, that the repeal of appellant. So ordered.
these sections of Act No. 2747 by Act No. 2938 has served to take
away the basis for criminal prosecution.
Araullo, C. J., Johnson, Street, Avanceña, Villamor, Ostrand, Johns,
and Romualdez, JJ., concur.
This same question has been previously submitted and has received
an answer adverse to such contention in the cases of United Stated vs.
Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil.,
653); and Ong Chang Wing and Kwong Fok vs. United States ([1910],
218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, G.R. No. 154878 - CAROLYN M. GARCIA v. RICA MARIE S. THIO
and it must again be the holding, that where an Act of the Legislature
which penalizes an offense, such repeals a former Act which penalized
the same offense, such repeal does not have the effect of thereafter
depriving the courts of jurisdiction to try, convict, and sentenced
offenders charged with violations of the old law.

V. Was the granting of a credit of P300,000 to the copartnership "Puno

y Concepcion, S. en C." by Venancio Concepcion, President of the
FIRST DIVISION
[G.R. NO. 154878 : March 16, 2007]
CAROLYN M. GARCIA, Petitioner, v. RICA
THIO, Respondent.
DECISION
CORONA, J.:
Assailed in this Petition for Review on Certiorari 1 are the June 19,
2002 decision2 and August 20, 2002 resolution3 of the Court of Appeals
(CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997
decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received
from petitioner Carolyn M. Garcia a crossed check 4 dated February 24,
1995 in the amount of US$100,000 payable to the order of a certain
Marilou Santiago.5 Thereafter, petitioner received from respondent
every month (specifically, on March 24, April 26, June 26 and July 26,
all in 1995) the amount of US$3,0006 and P76,5007 on July
26,8 August 26, September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed
check9 dated June 29, 1995 in the amount of P500,000, also payable
to the order of Marilou Santiago.10 Consequently, petitioner received
from respondent the amount of P20,000 every month on August 5,
September 5, October 5 and November 5, 1995.11
According to petitioner, respondent failed to pay the principal amounts
of the loans (US$100,000 and P500,000) when they fell due. Thus, on
February 22, 1996, petitioner filed a complaint for sum of money and
damages in the RTC of Makati City, Branch 58 against respondent,
seeking to collect the sums of US$100,000, with interest thereon at 3%
a month from October 26, 1995 and P500,000, with interest thereon at
4% a month from November 5, 1995, plus attorney's fees and actual
damages.12
Petitioner alleged that on February 24, 1995, respondent borrowed
from her the amount of US$100,000 with interest thereon at the rate of
3% per month, which loan would mature on October 26, 1995. 13 The
amount of this loan was covered by the first check. On June 29, 1995,
respondent again borrowed the amount of P500,000 at an agreed
monthly interest of 4%, the maturity date of which was on November 5,
1995.14 The amount of this loan was covered by the second check. For
both loans, no promissory note was executed since petitioner and
respondent were close friends at the time. 15 Respondent paid the
stipulated monthly interest for both loans but on their maturity dates,
she failed to pay the principal amounts despite repeated
demands.16 ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Respondent denied that she contracted the two loans with petitioner
and countered that it was Marilou Santiago to whom petitioner lent the
money. She claimed she was merely asked by petitioner to give the
crossed checks to Santiago.17 She issued the checks for P76,000
and P20,000 not as payment of interest but to accommodate
petitioner's request that respondent use her own checks instead of
Santiago's.18
In a decision dated February 28, 1997, the RTC ruled in favor of
petitioner.19 It found that respondent borrowed from petitioner the
amounts of US$100,000 with monthly interest of 3% and P500,000 at a
monthly interest of 4%:20
WHEREFORE, finding preponderance of evidence to sustain the
instant complaint, judgment is hereby rendered in favor of [petitioner],
sentencing [respondent] to pay the former the amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3%
per month from October 26, 1995 until fully paid;
2. P500,000.00 with interest thereon at 4% per month from November
5, 1995 until fully paid.
3. P100,000.00 as and for attorney's fees; and cralawlibrary
MARIE S.
4. P50,000.00 as and for actual damages.
For lack of merit, [respondent's] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.21
On appeal, the CA reversed the decision of the RTC and ruled that
there was no contract of loan between the parties:
A perusal of the record of the case shows that [petitioner] failed to
substantiate her claim that [respondent] indeed borrowed money from
her. There is nothing in the record that shows that [respondent]
received money from [petitioner]. What is evident is the fact that
[respondent] received a MetroBank [crossed] check dated February
24, 1995 in the sum of US$100,000.00, payable to the order of Marilou
Santiago and a CityTrust [crossed] check dated June 29, 1995 in the
amount of P500,000.00, again payable to the order of Marilou
Santiago, both of which were issued by [petitioner]. The checks
received by [respondent], being crossed, may not be encashed
but only deposited in the bank by the payee thereof, that is, by
Marilou Santiago herself.
It must be noted that crossing a check has the following effects: (a) the
check may not be encashed but only deposited in the bank; (b) the
check may be negotiated only once to one who has an account with
the bank; (c) and the act of crossing the check serves as warning to
the holder that the check has been issued for a definite purpose so that
he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not
the issuance and delivery to the payee in contemplation of law since
the latter is not the person who could take the checks as a holder, i.e.,
as a payee or indorsee thereof, with intent to transfer title thereto.
Neither could she be deemed as an agent of Marilou Santiago with
respect to the checks because she was merely facilitating the
transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there
were really no contracts of loan that existed between the parties. x x x
(emphasis supplied)22
Hence this petition.23
As a rule, only questions of law may be raised in a Petition for Review
on Certiorari under Rule 45 of the Rules of Court. However, this case
falls under one of the exceptions, i.e., when the factual findings of the
CA (which held that there were no contracts of loan between petitioner
and respondent) and the RTC (which held that there were contracts of
loan) are contradictory.24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected
only upon the delivery of the object of the contract.25 This is
evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the
object of the contract. (Emphasis supplied) cralawlibrary
Upon delivery of the object of the contract of loan (in this case the
money received by the debtor when the checks were encashed) the
debtor acquires ownership of such money or loan proceeds and is
bound to pay the creditor an equal amount.26
It is undisputed that the checks were delivered to respondent.
However, these checks were crossed and payable not to the order of
respondent but to the order of a certain Marilou Santiago. Thus the
main question to be answered is: who borrowed money from petitioner
- respondent or Santiago? cralaw library
Petitioner insists that it was upon respondent's instruction that both
checks were made payable to Santiago.27 She maintains that it was
also upon respondent's instruction that both checks were delivered to
her (respondent) so that she could, in turn, deliver the same to
Santiago.28 Furthermore, she argues that once respondent received
the checks, the latter had possession and control of them such that
she had the choice to either forward them to Santiago (who was
already her debtor), to retain them or to return them to petitioner. 29
suppressed would be adverse if produced."40 Respondent was not able
to overturn this presumption.
We hold that the CA committed reversible error when it ruled that
respondent did not borrow the amounts of US$100,000 and P500,000
from petitioner. We instead agree with the ruling of the RTC making
respondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4%
monthly interest for the US$100,000 and P500,000 loans respectively.
There was no written proof of the interest payable except for
the verbal agreement that the loans would earn 3% and 4% interest
per month. Article 1956 of the Civil Code provides that "[n]o interest
shall be due unless it has been expressly stipulated in writing."
Be that as it may, while there can be no stipulated interest, there can
be legal interest pursuant to Article 2209 of the Civil Code. It is well-
settled that:

When the obligation is breached, and it consists in the payment of a

We agree with petitioner. Delivery is the act by which the res or
substance thereof is placed within the actual or constructive
possession or control of another.30 Although respondent did not
physically receive the proceeds of the checks, these instruments were
placed in her control and possession under an arrangement whereby
she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know
Santiago.31 It was highly improbable that petitioner would grant two
loans to a complete stranger without requiring as much as promissory
notes or any written acknowledgment of the debt considering that the
amounts involved were quite big. Respondent, on the other hand,
already had transactions with Santiago at that time.32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and
whose name appeared in both parties' list of witnesses) testified that
respondent's plan was for petitioner to lend her money at a monthly
interest rate of 3%, after which respondent would lend the same
amount to Santiago at a higher rate of 5% and realize a profit of
2%.33 This explained why respondent instructed petitioner to make the
checks payable to Santiago. Respondent has not shown any reason
why Ruiz' testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own
checks in the amount of P76,000 each (peso equivalent of US$3,000)
for eight months to cover the monthly interest. For the P500,000 loan,
she also issued her own checks in the amount of P20,000 each for four
months.34 According to respondent, she merely accommodated
petitioner's request for her to issue her own checks to cover the
interest payments since petitioner was not personally acquainted with
Santiago.35 She claimed, however, that Santiago would replace the
checks with cash.36 Her explanation is simply incredible. It is difficult to
believe that respondent would put herself in a position where she
would be compelled to pay interest, from her own funds, for loans she
allegedly did not contract. We declared in one case that:
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.41
Hence, respondent is liable for the payment of legal
interest per annum to be computed from November 21, 1995, the date
when she received petitioner's demand letter.42 From the finality of the
decision until it is fully paid, the amount due shall earn interest at
12% per annum, the interim period being deemed equivalent to a
forbearance of credit.43
The award of actual damages in the amount of P50,000 and P100,000
attorney's fees is deleted since the RTC decision did not explain the
factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19,
2002 decision and August 20, 2002 resolution of the Court of Appeals
in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The
February 28, 1997 decision of the Regional Trial Court in Civil Case
No. 96-266 is AFFIRMED with the MODIFICATION that respondent is
directed to pay petitioner the amounts of US$100,000 and P500,000 at
12% per annum interest from November 21, 1995 until the finality of
the decision. The total amount due as of the date of finality will earn
interest of 12% per annum until fully paid. The award of actual
damages and attorney's fees is deleted.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

In the assessment of the testimonies of witnesses, this Court is guided

EN BANC
by the rule that for evidence to be believed, it must not only proceed
from the mouth of a credible witness, but must be credible in itself such
as the common experience of mankind can approve as probable under
the circumstances. We have no test of the truth of human testimony
except its conformity to our knowledge, observation, and experience. G.R. No. L-24968 April 27, 1972
Whatever is repugnant to these belongs to the miraculous, and is
outside of juridical cognizance.37
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
Fourth, in the petition for insolvency sworn to and filed by Santiago, it DEVELOPMENT BANK OF THE PHILIPPINES, defendant-
was respondent, not petitioner, who was listed as one of her appellant.
(Santiago's) creditors.38

Mabanag, Eliger and Associates and Saura, Magno and

Last, respondent inexplicably never presented Santiago as a witness
to corroborate her story.39 The presumption is that "evidence willfully
Associates for plaintiff-appellee.
Jesus A. Avanceña and Hilario G. Orsolino for defendant-
appellant.
MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28,
1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and
consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68,
plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of
P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.)
applied to the Rehabilitation Finance Corporation (RFC),
before its conversion into DBP, for an industrial loan of
P500,000.00, to be used as follows: P250,000.00 for the
construction of a factory building (for the manufacture of jute
sacks); P240,900.00 to pay the balance of the purchase price
of the jute mill machinery and equipment; and P9,100.00 as
additional working capital.
Parenthetically, it may be mentioned that the jute mill
machinery had already been purchased by Saura on the
strength of a letter of credit extended by the Prudential Bank
and Trust Co., and arrived in Davao City in July 1953; and that
to secure its release without first paying the draft, Saura, Inc.
executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145
approving the loan application for P500,000.00, to be secured
by a first mortgage on the factory building to be constructed,
the land site thereof, and the machinery and equipment to be
installed. Among the other terms spelled out in the resolution
were the following:
1. That the proceeds of the loan shall be
utilized exclusively for the following
purposes:
For construction of factory
P250,000.00
For payment of the balance of purchase
price of machinery and
240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano,
Aniceto Caolboy and Gregoria Estabillo and China Engineers,
Ltd. shall sign the promissory notes jointly with the borrower-
corporation;
5. That release shall be made at the discretion of the
Rehabilitation Finance Corporation, subject to availability of
funds, and as the construction of the factory buildings
progresses, to be certified to by an appraiser of this
Corporation;"
Saura, Inc. was officially notified of the resolution on January 9,
1954. The day before, however, evidently having otherwise
been informed of its approval, Saura, Inc. wrote a letter to
RFC, requesting a modification of the terms laid down by it,
namely: that in lieu of having China Engineers, Ltd. (which was
willing to assume liability only to the extent of its stock
subscription with Saura, Inc.) sign as co-maker on the
corresponding promissory notes, Saura, Inc. would put up a
bond for P123,500.00, an amount equivalent to such
subscription; and that Maria S. Roca would be substituted for
Inocencia Arellano as one of the other co-makers, having
acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on
February 4, 1954, designating of the members of its Board of
Governors, for certain reasons stated in the resolution, "to
reexamine all the aspects of this approved loan ... with special
reference as to the advisability of financing this particular
project based on present conditions obtaining in the operations
of jute mills, and to submit his findings thereon at the next
meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China
Engineers, Ltd. had again agreed to act as co-signer for the
loan, and asked that the necessary documents be prepared in
accordance with the terms and conditions specified in
Resolution No. 145. In connection with the reexamination of
the project to be financed with the loan applied for, as stated in
Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet with each
other and undertake the necessary studies, although in
appointing its own committee Saura, Inc. made the observation
that the same "should not be taken as an acquiescence on (its)
part to novate, or accept new conditions to, the agreement
already) entered into," referring to its acceptance of the terms
and conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the
promissory note, with F.R. Halling, representing China
Engineers, Ltd., as one of the co-signers; and the
corresponding deed of mortgage, which was duly registered on
the following April 17.
building
It appears, however, that despite the formal execution of the
loan agreement the reexamination contemplated in Resolution
No. 736 proceeded. In a meeting of the RFC Board of
Governors on June 10, 1954, at which Ramon Saura,
President of Saura, Inc., was present, it was decided to reduce
equipment the loan from P500,000.00 to P300,000.00. Resolution No.
3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura
Import & Export Co., Inc. under Resolution No. 145, C.S., from
P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736,
c.s., authorizing the re-examination of all the various aspects of
the loan granted the Saura Import & Export Co. under
Resolution No. 145, c.s., for the purpose of financing the
manufacture of jute sacks in Davao, with special reference as
to the advisability of financing this particular project based on
present conditions obtaining in the operation of jute mills, and
after having heard Ramon E. Saura and after extensive
discussion on the subject the Board, upon recommendation of
the Chairman, RESOLVED that the loan granted the Saura
Import & Export Co. be REDUCED from P500,000 to P300,000
and that releases up to P100,000 may be authorized as may
be necessary from time to time to place the factory in actual
operation: PROVIDED that all terms and conditions of
Resolution No. 145, c.s., not inconsistent herewith, shall
remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who
had signed the promissory note for China Engineers Ltd. jointly
and severally with the other RFC that his company no longer to
of the loan and therefore considered the same as cancelled as
far as it was concerned. A follow-up letter dated July 2
requested RFC that the registration of the mortgage be
withdrawn.
In the meantime Saura, Inc. had written RFC requesting that
the loan of P500,000.00 be granted. The request was denied
by RFC, which added in its letter-reply that it was "constrained
to consider as cancelled the loan of P300,000.00 ... in view of
a notification ... from the China Engineers Ltd., expressing their
desire to consider the loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation
of the loan and informed RFC that China Engineers, Ltd. "will
at any time reinstate their signature as co-signer of the note if
RFC releases to us the P500,000.00 originally approved by
you.".
On December 17, 1954 RFC passed Resolution No. 9083,
restoring the loan to the original amount of P500,000.00, "it
appearing that China Engineers, Ltd. is now willing to sign the
promissory notes jointly with the borrower-corporation," but
with the following proviso:
its Resolution No. 9083, a certification from the Department of
Agriculture and Natural Resources as to the availability of local
raw materials to provide adequately for the requirements of the
factory. Saura, Inc. itself confirmed the defendant's stand
impliedly in its letter of January 21, 1955: (1) stating that
according to a special study made by the Bureau of Forestry
"kenaf will not be available in sufficient quantity this year or
probably even next year;" (2) requesting "assurances (from
RFC) that my company and associates will be able to bring in
sufficient jute materials as may be necessary for the full
operation of the jute mill;" and (3) asking that releases of the
loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09

That in view of observations made of the 1) P25,000.00 to be

shortage and high cost of imported raw released on the open-
materials, the Department of Agriculture and ing of the letter of credit for
Natural Resources shall certify to the raw jute
following: for $25,000.00.

1. That the raw materials needed by the 2) P25,000.00 to be

borrower-corporation to carry out its released upon arrival
operation are available in the immediate of raw jute.
vicinity; and
3) P17,586.09 to be
2. That there is prospect of increased released as soon as the
production thereof to provide adequately for mill is ready to operate.
the requirements of the factory."
On January 25, 1955 RFC sent to Saura, Inc. the following
The action thus taken was communicated to Saura, Inc. in a reply:
letter of RFC dated December 22, 1954, wherein it was
explained that the certification by the Department of Agriculture Dear Sirs:
and Natural Resources was required "as the intention of the
original approval (of the loan) is to develop the manufacture of This is with reference to
sacks on the basis of locally available raw materials." This your letter of January 21,
point is important, and sheds light on the subsequent 1955, regarding the
actuations of the parties. Saura, Inc. does not deny that the release of your loan under
factory he was building in Davao was for the manufacture of consideration of P500,000.
bags from local raw materials. The cover page of its brochure As stated in our letter of
(Exh. M) describes the project as a "Joint venture by and December 22, 1954, the
between the Mindanao Industry Corporation and the Saura releases of the loan, if
Import and Export Co., Inc. to finance, manage and operate revived, are proposed to
a Kenaf mill plant, to manufacture copra and corn bags, be made from time to time,
runners, floor mattings, carpets, draperies; out of 100% local subject to availability of
raw materials, principal kenaf." The explanatory note on page 1 funds towards the end that
of the same brochure states that, the venture "is the first the sack factory shall be
serious attempt in this country to use 100% locally grown raw placed in actual operating
materials notably kenaf which is presently grown commercially status. We shall be able to
in theIsland of Mindanao where the proposed jutemill is located act on your request for
..." revised purpose and
manner of releases upon
This fact, according to defendant DBP, is what moved RFC to re-appraisal of the
approve the loan application in the first place, and to require, in
 securities offered for the
loan.
With respect to our
requirement that the
Department of Agriculture
and Natural Resources
certify that the raw
materials needed are
available in the immediate
vicinity and that there is
prospect of increased
production thereof to
provide adequately the
requirements of the
factory, we wish to
reiterate that the basis of
the original approval is to
develop the manufacture
of sacks on the basis of
the locally available raw
materials. Your statement
that you will have to rely
on the importation of jute
and your request that we
give you assurance that
your company will be able
to bring in sufficient jute
materials as may be
necessary for the
operation of your factory,
would not be in line with
our principle in approving
the loan.
With the foregoing letter the negotiations came to a standstill.
Saura, Inc. did not pursue the matter further. Instead, it
requested RFC to cancel the mortgage, and so, on June 17,
1955 RFC executed the corresponding deed of cancellation
and delivered it to Ramon F. Saura himself as president of
Saura, Inc.
It appears that the cancellation was requested to make way for
the registration of a mortgage contract, executed on August 6,
1954, over the same property in favor of the Prudential Bank
and Trust Co., under which contract Saura, Inc. had up to
December 31 of the same year within which to pay its
obligation on the trust receipt heretofore mentioned. It appears
further that for failure to pay the said obligation the Prudential
Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor
of RFC was cancelled at the request of Saura, Inc., the latter
commenced the present suit for damages, alleging failure of
RFC (as predecessor of the defendant DBP) to comply with its
obligation to release the proceeds of the loan applied for and
approved, thereby preventing the plaintiff from completing or
paying contractual commitments it had entered into, in
connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that
there was a perfected contract between the parties and that
the defendant was guilty of breach thereof. The defendant
pleaded below, and reiterates in this appeal: (1) that the
plaintiff's cause of action had prescribed, or that its claim had
been waived or abandoned; (2) that there was no perfected
contract; and (3) that assuming there was, the plaintiff itself did
not comply with the terms thereof.
We hold that there was indeed a perfected consensual
contract, as recognized in Article 1934 of the Civil Code, which
provides:
ART. 1954. An accepted promise to deliver
something, by way of commodatum or
simple loan is binding upon the parties, but
the commodatum or simple loan itself shall
not be perferted until the delivery of the
object of the contract.
There was undoubtedly offer and acceptance in this case: the
application of Saura, Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. But this
fact alone falls short of resolving the basic claim that the
defendant failed to fulfill its obligation and the plaintiff is
therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of
Saura, Inc. on the assumption that the factory to be
constructed would utilize locally grown raw materials,
principally kenaf. There is no serious dispute about this. It was
in line with such assumption that when RFC, by Resolution No.
9083 approved on December 17, 1954, restored the loan to the
original amount of P500,000.00. it imposed two conditions, to
wit: "(1) that the raw materials needed by the borrower-
corporation to carry out its operation are available in the
immediate vicinity; and (2) that there is prospect of increased
production thereof to provide adequately for the requirements
of the factory." The imposition of those conditions was by no
means a deviation from the terms of the agreement, but rather
a step in its implementation. There was nothing in said
conditions that contradicted the terms laid down in RFC
Resolution No. 145, passed on January 7, 1954, namely —
"that the proceeds of the loan shall be utilized exclusively for
the following purposes: for construction of factory building —
P250,000.00; for payment of the balance of purchase price of
machinery and equipment — P240,900.00; for working capital
— P9,100.00." Evidently Saura, Inc. realized that it could not
meet the conditions required by RFC, and so wrote its letter of
January 21, 1955, stating that local jute "will not be able in
sufficient quantity this year or probably next year," and asking
that out of the loan agreed upon the sum of P67,586.09 be
released "for raw materials and labor." This was a deviation
from the terms laid down in Resolution No. 145 and embodied
in the mortgage contract, implying as it did a diversion of part
of the proceeds of the loan to purposes other than those
agreed upon.
When RFC turned down the request in its letter of January 25,
1955 the negotiations which had been going on for the
implementation of the agreement reached an impasse. Saura,
Inc. obviously was in no position to comply with RFC's
conditions. So instead of doing so and insisting that the loan be
released as agreed upon, Saura, Inc. asked that the mortgage
be cancelled, which was done on June 15, 1955. The action
thus taken by both parties was in the nature cf mutual
desistance — what Manresa terms "mutuo disenso" — which 1
is a mode of extinguishing obligations. It is a concept that
derives from the principle that since mutual agreement can
create a contract, mutual disagreement by the parties can
cause its extinguishment. 2
The subsequent conduct of Saura, Inc. confirms this
desistance. It did not protest against any alleged breach of
contract by RFC, or even point out that the latter's stand was
legally unjustified. Its request for cancellation of the mortgage
carried no reservation of whatever rights it believed it might
have against RFC for the latter's non-compliance. In 1962 it
even applied with DBP for another loan to finance a rice and
corn project, which application was disapproved. It was only in
1964, nine years after the loan agreement had been cancelled
at its own request, that Saura, Inc. brought this action for
damages.All these circumstances demonstrate beyond doubt
that the said agreement had been extinguished by mutual
desistance — and that on the initiative of the plaintiff-appellee
itself.
With this view we take of the case, we find it unnecessary to
consider and resolve the other issues raised in the respective
briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and
the complaint dismissed, with costs against the plaintiff-
appellee.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 136202 January 25, 2007
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
COURT OF APPEALS, ANNABELLE A. SALAZAR, and
JULIO R. TEMPLONUEVO, Respondents
DECISION
AZCUNA, J.:
This is a petition for review under Rule 45 of the Rules of Court
seeking the reversal of the Decision1 dated April 3, 1998, and
the Resolution2 dated November 9, 1998, of the Court of
Appeals in CA-G.R. CV No. 42241.
The facts3 are as follows:
A.A. Salazar Construction and Engineering Services filed an
action for a sum of money with damages against herein
petitioner Bank of the Philippine Islands (BPI) on December 5,
1991 before Branch 156 of the Regional Trial Court (RTC) of
Pasig City. The complaint was later amended by substituting
the name of Annabelle A. Salazar as the real party in interest
in place of A.A. Salazar Construction and Engineering
Services. Private respondent Salazar prayed for the recovery
of the amount of Two Hundred Sixty-Seven Thousand, Seven
Hundred Seven Pesos and Seventy Centavos (P267,707.70)
debited by petitioner BPI from her account. She likewise
prayed for damages and attorney’s fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991,
Julio R. Templonuevo, third-party defendant and herein also a
private respondent, demanded from the former payment of the
amount of Two Hundred Sixty-Seven Thousand, Six Hundred
Ninety-Two Pesos and Fifty Centavos (P267,692.50)
representing the aggregate value of three (3) checks, which
were allegedly payable to him, but which were deposited with
the petitioner bank to private respondent Salazar’s account
(Account No. 0203-1187-67) without his knowledge and
corresponding endorsement.
Accepting that Templonuevo’s claim was a valid one, petitioner
BPI froze Account No. 0201-0588-48 of A.A. Salazar and
Construction and Engineering Services, instead of Account No.
0203-1187-67 where the checks were deposited, since this
account was already closed by private respondent Salazar or
had an insufficient balance.
Private respondent Salazar was advised to settle the matter
with Templonuevo but they did not arrive at any settlement. As
it appeared that private respondent Salazar was not entitled to
the funds represented by the checks which were deposited and
accepted for deposit, petitioner BPI decided to debit the
amount of P267,707.70 from her Account No. 0201-0588-48
and the sum of P267,692.50 was paid to Templonuevo by
means of a cashier’s check. The difference between the value
of the checks (P267,692.50) and the amount actually debited
from her account (P267,707.70) represented bank charges in
connection with the issuance of a cashier’s check to
Templonuevo.
In the answer to the third-party complaint, private respondent
Templonuevo admitted the payment to him of P267,692.50 and
argued that said payment was to correct the malicious deposit
made by private respondent Salazar to her private account,
and that petitioner bank’s negligence and tolerance regarding
the matter was violative of the primary and ordinary rules of
banking. He likewise contended that the debiting or taking of
the reimbursed amount from the account of private respondent
Salazar by petitioner BPI was a matter exclusively between
said parties and may be pursuant to banking rules and
regulations, but did not in any way affect him. The debiting
from another account of private respondent Salazar,
considering that her other account was effectively closed, was
not his concern.
After trial, the RTC rendered a decision, the dispositive portion
of which reads thus:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff [private respondent Salazar]
and against the defendant [petitioner BPI] and ordering the
latter to pay as follows:
1. The amount of P267,707.70 with 12% interest
thereon from September 16, 1991 until the said
amount is fully paid;
2. The amount of P30,000.00 as and for actual
damages;
3. The amount of P50,000.00 as and for moral
damages;
4. The amount of P50,000.00 as and for exemplary
damages;
5. The amount of P30,000.00 as and for attorney’s
fees; and
 6. Costs of suit.
The counterclaim is hereby ordered DISMISSED for lack of
factual basis.
The third-party complaint [filed by petitioner] is hereby likewise
ordered DISMISSED for lack of merit.
Third-party defendant’s [i.e., private respondent
Templonuevo’s] counterclaim is hereby likewise DISMISSED
for lack of factual basis.
SO ORDERED.4
On appeal, the Court of Appeals (CA) affirmed the decision of
the RTC and held that respondent Salazar was entitled to the
proceeds of the three (3) checks notwithstanding the lack of
endorsement thereon by the payee. The CA concluded that
Salazar and Templonuevo had previously agreed that the
checks payable to JRT Construction and Trading 5 actually
belonged to Salazar and would be deposited to her account,
with petitioner acquiescing to the arrangement.6
Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in
misinterpreting Section 49 of the Negotiable Instruments Law
and Section 3 (r and s) of Rule 131 of the New Rules on
Evidence.
II.
The Court of Appeals committed reversible error in NOT
applying the provisions of Articles 22, 1278 and 1290 of the
Civil Code in favor of BPI.
III.
The Court of Appeals committed a reversible error in holding,
based on a misapprehension of facts, that the account from
which BPI debited the amount of P267,707.70 belonged to a
corporation with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding,
based entirely on speculations, surmises or conjectures, that
there was an agreement between SALAZAR and
TEMPLONUEVO that checks payable to TEMPLONUEVO
may be deposited by SALAZAR to her personal account and
that BPI was privy to this agreement.
V.
The Court of Appeals committed reversible error in holding,
based entirely on speculation, surmises or conjectures, that
SALAZAR suffered great damage and prejudice and that her
business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the
decision of the lower court against BPI and dismissing
SALAZAR’s complaint.
VII.
The Honorable Court erred in affirming the decision of the
lower court dismissing the third-party complaint of BPI.7
The issues center on the propriety of the deductions made by
petitioner from private respondent Salazar’s account. Stated
otherwise, does a collecting bank, over the objections of its
depositor, have the authority to withdraw unilaterally from such
depositor’s account the amount it had previously paid upon
certain unendorsed order instruments deposited by the
depositor to another account that she later closed?
Petitioner argues thus:
1. There is no presumption in law that a check
payable to order, when found in the possession of a
person who is neither a payee nor the indorsee
thereof, has been lawfully transferred for value.
Hence, the CA should not have presumed that
Salazar was a transferee for value within the
contemplation of Section 49 of the Negotiable
Instruments Law,8 as the latter applies only to a holder
defined under Section 191of the same.9
2. Salazar failed to adduce sufficient evidence to
prove that her possession of the three checks was
lawful despite her allegations that these checks were
deposited pursuant to a prior internal arrangement
with Templonuevo and that petitioner was privy to the
arrangement.
3. The CA should have applied the Civil Code
provisions on legal compensation because in
deducting the subject amount from Salazar’s account,
petitioner was merely rectifying the undue payment it
made upon the checks and exercising its prerogative
to alter or modify an erroneous credit entry in the
regular course of its business.
4. The debit of the amount from the account of A.A.
Salazar Construction and Engineering Services was
proper even though the value of the checks had been
originally credited to the personal account of Salazar
because A.A. Salazar Construction and Engineering
Services, an unincorporated single proprietorship, had
no separate and distinct personality from Salazar.
5. Assuming the deduction from Salazar’s account
was improper, the CA should not have dismissed
petitioner’s third-party complaint against
Templonuevo because the latter would have the legal
duty to return to petitioner the proceeds of the checks
which he previously received from it.
6. There was no factual basis for the award of
damages to Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the
factual findings made by the CA. The CA’s conclusion that the
deductions from the bank account of A.A. Salazar Construction
and Engineering Services were improper stemmed from its
finding that there was no ineffective payment to Salazar which
would call for the exercise of petitioner’s right to set off against
the former’s bank deposits. This finding, in turn, was drawn
from the pleadings of the parties, the evidence adduced during
trial and upon the admissions and stipulations of fact made
during the pre-trial, most significantly the following:
(a) That Salazar previously had in her possession the
following checks:
(1) Solid Bank Check No. CB766556 dated
January 30, 1990 in the amount
of P57,712.50;
(2) Solid Bank Check No. CB898978 dated
July 31, 1990 in the amount of P55,180.00;
and,
(3) Equitable Banking Corporation Check
No. 32380638 dated August 28, 1990 for the
amount of P154,800.00;
(b) That these checks which had an aggregate
amount of P267,692.50 were payable to the order of
JRT Construction and Trading, the name and style
under which Templonuevo does business;
(c) That despite the lack of endorsement of the
designated payee upon such checks, Salazar was
able to deposit the checks in her personal savings
account with petitioner and encash the same;
(d) That petitioner accepted and paid the checks on
three (3) separate occasions over a span of eight
months in 1990; and
(e) That Templonuevo only protested the purportedly
unauthorized encashment of the checks after the
lapse of one year from the date of the last check.10
Petitioner concedes that when it credited the value of the
checks to the account of private respondent Salazar, it made a
mistake because it failed to notice the lack of endorsement
thereon by the designated payee. The CA, however, did not
lend credence to this claim and concluded that petitioner’s
actions were deliberate, in view of its admission that the
"mistake" was committed three times on three separate
occasions, indicating acquiescence to the internal arrangement
between Salazar and Templonuevo. The CA explained thus:
It was quite apparent that the three checks which appellee
Salazar deposited were not indorsed. Three times she
deposited them to her account and three times the amounts
borne by these checks were credited to the same. And in those
separate occasions, the bank did not return the checks to her
so that she could have them indorsed. Neither did the bank
question her as to why she was depositing the checks to her
account considering that she was not the payee thereof, thus
allowing us to come to the conclusion that defendant-appellant
BPI was fully aware that the proceeds of the three checks
belong to appellee.
For if the bank was not privy to the agreement between
Salazar and Templonuevo, it is most unlikely that appellant BPI
(or any bank for that matter) would have accepted the checks
for deposit on three separate times nary any question. Banks
are most finicky over accepting checks for deposit without the
corresponding indorsement by their payee. In fact, they
hesitate to accept indorsed checks for deposit if the depositor
is not one they know very well.11
The CA likewise sustained Salazar’s position that she received
the checks from Templonuevo pursuant to an internal
arrangement between them, ratiocinating as follows:
If there was indeed no arrangement between Templonuevo
and the plaintiff over the three questioned checks, it baffles us
why it was only on August 31, 1991 or more than a year after
the third and last check was deposited that he demanded for
the refund of the total amount of P267,692.50.
A prudent man knowing that payment is due him would have
demanded payment by his debtor from the moment the same
became due and demandable. More so if the sum involved
runs in hundreds of thousand of pesos. By and large, every
person, at the very moment he learns that he was deprived of
a thing which rightfully belongs to him, would have created a
big fuss. He would not have waited for a year within which to
do so. It is most inconceivable that Templonuevo did not do
this.12
Generally, only questions of law may be raised in an appeal
by certiorari under Rule 45 of the Rules of Court.13 Factual
findings of the CA are entitled to great weight and respect,
especially when the CA affirms the factual findings of the trial
court.14 Such questions on whether certain items of evidence
should be accorded probative value or weight, or rejected as
feeble or spurious, or whether or not the proofs on one side or
the other are clear and convincing and adequate to establish a
proposition in issue, are questions of fact. The same holds true
for questions on whether or not the body of proofs presented
by a party, weighed and analyzed in relation to contrary
evidence submitted by the adverse party may be said to be
strong, clear and convincing, or whether or not inconsistencies
in the body of proofs of a party are of such gravity as to justify
refusing to give said proofs weight – all these are issues of fact
which are not reviewable by the Court.15
This rule, however, is not absolute and admits of certain
exceptions, namely: a) when the conclusion is a finding
grounded entirely on speculations, surmises, or conjectures; b)
when the inference made is manifestly mistaken, absurd, or
impossible; c) when there is a grave abuse of discretion; d)
when the judgment is based on a misapprehension of facts; e)
when the findings of fact are conflicting; f) when the CA, in
making its findings, went beyond the issues of the case and
the same are contrary to the admissions of both appellant and
appellee; g) when the findings of the CA are contrary to those
of the trial court; h) when the findings of fact are conclusions
without citation of specific evidence on which they are based; i)
when the finding of fact of the CA is premised on the supposed
absence of evidence but is contradicted by the evidence on
record; and j) when the CA manifestly overlooked certain
relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion.16
In the present case, the records do not support the finding
made by the CA and the trial court that a prior arrangement
existed between Salazar and Templonuevo regarding the
transfer of ownership of the checks. This fact is crucial as
Salazar’s entitlement to the value of the instruments is based
on the assumption that she is a transferee within the
contemplation of Section 49 of the Negotiable Instruments
Law.
Section 49 of the Negotiable Instruments Law contemplates a
situation whereby the payee or indorsee delivers a negotiable
instrument for value without indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an
instrument payable to his order transfers it for value without
indorsing it, the transfer vests in the transferee such title as the
transferor had therein, and the transferee acquires in addition,
the right to have the indorsement of the transferor. But for the
purpose of determining whether the transferee is a holder in
due course, the negotiation takes effect as of the time when
the indorsement is actually made. 17
It bears stressing that the above transaction is an equitable
assignment and the transferee acquires the instrument subject
to defenses and equities available among prior parties. Thus, if
the transferor had legal title, the transferee acquires such title
and, in addition, the right to have the indorsement of the
transferor and also the right, as holder of the legal title, to
maintain legal action against the maker or acceptor or other
party liable to the transferor. The underlying premise of this
provision, however, is that a valid transfer of ownership of the
negotiable instrument in question has taken place.
Transferees in this situation do not enjoy the presumption of
ownership in favor of holders since they are neither payees nor
indorsees of such instruments. The weight of authority is that
the mere possession of a negotiable instrument does not in
itself conclusively establish either the right of the possessor to
receive payment, or of the right of one who has made payment
to be discharged from liability. Thus, something more than
mere possession by persons who are not payees or indorsers
of the instrument is necessary to authorize payment to them in
the absence of any other facts from which the authority to
receive payment may be inferred.18
The CA and the trial court surmised that the subject checks
belonged to private respondent Salazar based on the pre-trial
stipulation that Templonuevo incurred a one-year delay in
demanding reimbursement for the proceeds of the same. To
the Court’s mind, however, such period of delay is not of such
unreasonable length as to estop Templonuevo from asserting
ownership over the checks especially considering that it was
readily apparent on the face of the instruments 19 that these
were crossed checks.
In State Investment House v. IAC, the Court enumerated the
20
effects of crossing a check, thus: (1) that the check may not be
encashed but only deposited in the bank; (2) that the check
may be negotiated only once - to one who has an account with
a bank; and (3) that the act of crossing the check serves as a
warning to the holder that the check has been issued for a
definite purpose so that such holder must inquire if the check
has been received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is
taken in conjunction with Salazar’s possession of the checks, it
cannot be said that the presumption of ownership in
Templonuevo’s favor as the designated payee therein was
sufficiently overcome. This is consistent with the principle that
if instruments payable to named payees or to their order have
not been indorsed in blank, only such payees or their
indorsees can be holders and entitled to receive payment in
their own right.21
The presumption under Section 131(s) of the Rules of Court
stating that a negotiable instrument was given for a sufficient
consideration will not inure to the benefit of Salazar because
the term "given" does not pertain merely to a transfer of
physical possession of the instrument. The phrase "given or
indorsed" in the context of a negotiable instrument refers to the
manner in which such instrument may be negotiated.
Negotiable instruments are negotiated by "transfer to one
person or another in such a manner as to constitute the
transferee the holder thereof. If payable to bearer it is
negotiated by delivery. If payable to order it is negotiated by
the indorsement completed by delivery."22 The present case
involves checks payable to order. Not being
a payee or indorsee of the checks, private respondent Salazar
could not be a holder thereof.
It is an exception to the general rule for a payee of an order
instrument to transfer the instrument without indorsement.
Precisely because the situation is abnormal, it is but fair to the
maker and to prior holders to require possessors to prove
without the aid of an initial presumption in their favor, that they
came into possession by virtue of a legitimate transaction with
the last holder.23 Salazar failed to discharge this burden, and
the return of the check proceeds to Templonuevo was
therefore warranted under the circumstances despite the fact
that Templonuevo may not have clearly demonstrated that he
never authorized Salazar to deposit the checks or to encash
the same. Noteworthy also is the fact that petitioner stamped
on the back of the checks the words: "All prior endorsements
and/or lack of endorsements guaranteed," thereby making the
assurance that it had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a general
indorser, petitioner’s liability to the designated payee cannot be
denied.
Consequently, petitioner, as the collecting bank, had the right
to debit Salazar’s account for the value of the checks it
previously credited in her favor. It is of no moment that the
account debited by petitioner was different from the original
account to which the proceeds of the check were credited
because both admittedly belonged to Salazar, the former being
the account of the sole proprietorship which had no separate
and distinct personality from her, and the latter being her
personal account.
The right of set-off was explained in Associated Bank v. Tan:24
A bank generally has a right of set-off over the deposits therein
for the payment of any withdrawals on the part of a depositor.
The right of a collecting bank to debit a client's account for the
value of a dishonored check that has previously been credited
has fairly been established by jurisprudence. To begin with,
Article 1980 of the Civil Code provides that "[f]ixed, savings,
and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan."
Hence, the relationship between banks and depositors has
been held to be that of creditor and debtor. Thus, legal
compensation under Article 1278 of the Civil Code may take
place "when all the requisites mentioned in Article 1279 are
present," as follows:
 (1) That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of
the other;
(2) That both debts consist in a sum of money, or if
the things due are consumable, they be of the same
kind, and also of the same quality if the latter has
been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
While, however, it is conceded that petitioner had the right of
set-off over the amount it paid to Templonuevo against the
deposit of Salazar, the issue of whether it acted judiciously is
an entirely different matter.25 As businesses affected with public
interest, and because of the nature of their functions, banks
are under obligation to treat the accounts of their depositors
with meticulous care, always having in mind the fiduciary
nature of their relationship.26 In this regard, petitioner was
clearly remiss in its duty to private respondent Salazar as its
depositor.
To begin with, the irregularity appeared plainly on the face of
the checks. Despite the obvious lack of indorsement thereon,
petitioner permitted the encashment of these checks three
times on three separate occasions. This negates petitioner’s
claim that it merely made a mistake in crediting the value of the
checks to Salazar’s account and instead bolsters the
conclusion of the CA that petitioner recognized Salazar’s claim
of ownership of checks and acted deliberately in paying the
same, contrary to ordinary banking policy and practice. It must
be emphasized that the law imposes a duty of diligence on the
collecting bank to scrutinize checks deposited with it, for the
purpose of determining their genuineness and regularity. The
collecting bank, being primarily engaged in banking, holds itself
out to the public as the expert on this field, and the law thus
holds it to a high standard of conduct.27 The taking and
collection of a check without the proper indorsement amount to
a conversion of the check by the bank.28
More importantly, however, solely upon the prompting of
Templonuevo, and with full knowledge of the brewing dispute
between Salazar and Templonuevo, petitioner debited the
account held in the name of the sole proprietorship of Salazar
without even serving due notice upon her. This ran contrary to
petitioner’s assurances to private respondent Salazar that the
account would remain untouched, pending the resolution of the
controversy between her and Templonuevo. 29 In this
connection, the CA cited the letter dated September 5, 1991 of
Mr. Manuel Ablan, Senior Manager of petitioner bank’s
Pasig/Ortigas branch, to private respondent Salazar informing
her that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to
conclude that Account No. 0201-0588-48 will remain frozen or
untouched until herein [Salazar] has settled matters with
Templonuevo. But, in an unexpected move, in less than two
weeks (eleven days to be precise) from the time that letter was
written, [petitioner] bank issued a cashier’s check in the name
of Julio R. Templonuevo of the J.R.T. Construction and
Trading for the sum of P267,692.50 (Exhibit "8") and debited
said amount from Ms. Arcilla’s account No. 0201-0588-48
which was supposed to be frozen or controlled. Such a move
by BPI is, to Our minds, a clear case of negligence, if not a
fraudulent, wanton and reckless disregard of the right of its
depositor.
The records further bear out the fact that respondent Salazar
had issued several checks drawn against the account of A.A.
Salazar Construction and Engineering Services prior to any
notice of deduction being served. The CA sustained private
respondent Salazar’s claim of damages in this regard:
The act of the bank in freezing and later debiting the amount
of P267,692.50 from the account of A.A. Salazar Construction
and Engineering Services caused plaintiff-appellee great
damage and prejudice particularly when she had already
issued checks drawn against the said account. As can be
expected, the said checks bounced. To prove this, plaintiff-
appellee presented as exhibits photocopies of checks dated
September 8, 1991, October 28, 1991, and November 14,
1991 (Exhibits "D", "E" and "F" respectively)30
These checks, it must be emphasized, were subsequently
dishonored, thereby causing private respondent Salazar undue
embarrassment and inflicting damage to her standing in the
business community. Under the circumstances, she was
clearly not given the opportunity to protect her interest when
petitioner unilaterally withdrew the above amount from her
account without informing her that it had already done so.
For the above reasons, the Court finds no reason to disturb the
award of damages granted by the CA against petitioner. This
whole incident would have been avoided had petitioner
adhered to the standard of diligence expected of one engaged
in the banking business. A depositor has the right to recover
reasonable moral damages even if the bank’s negligence may
not have been attended with malice and bad faith, if the former
suffered mental anguish, serious anxiety, embarrassment and
humiliation.31 Moral damages are not meant to enrich a
complainant at the expense of defendant. It is only intended to
alleviate the moral suffering she has undergone. The award of
exemplary damages is justified, on the other hand, when the
acts of the bank are attended by malice, bad faith or gross
negligence. The award of reasonable attorney’s fees is proper
where exemplary damages are awarded. It is proper where
depositors are compelled to litigate to protect their interest. 32
WHEREFORE, the petition is partially GRANTED. The
assailed Decision dated April 3, 1998 and Resolution dated
April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV
No. 42241 are MODIFIED insofar as it ordered petitioner Bank
of the Philippine Islands to return the amount of Two Hundred
Sixty-seven Thousand Seven Hundred and Seven and 70/100
Pesos (P267,707.70) to respondent Annabelle A. Salazar,
which portion is REVERSED and SET ASIDE. In all other
respects, the same are AFFIRMED.
No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174269 May 8, 2009
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter
Anna Regina and son Adrian Roberto, joined an escorted tour of
Western Europe organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in Amsterdam in the afternoon
of 25 October 1991, the second to the last day of the tour. As the
group had arrived late in the city, they failed to engage in any sight-
seeing. Instead, it was agreed upon that they would start early the next
day to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the
Coster Diamond House in Amsterdam around 10 minutes before 9:00
a.m. The group had agreed that the visit to Coster should end by 9:30
a.m. to allow enough time to take in a guided city tour of Amsterdam.
The group was ushered into Coster shortly before 9:00 a.m., and
listened to a lecture on the art of diamond polishing that lasted for
around ten minutes.1 Afterwards, the group was led to the store’s
showroom to allow them to select items for purchase. Mrs. Pantaleon
had already planned to purchase even before the tour began a 2.5
karat diamond brilliant cut, and she found a diamond close enough in
approximation that she decided to buy.2 Mrs. Pantaleon also selected
for purchase a pendant and a chain,3 all of which totaled U.S.
$13,826.00.
To pay for these purchases, Pantaleon presented his American
Express credit card together with his passport to the Coster sales
clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour
group was slated to depart from the store. The sales clerk took the
card’s imprint, and asked Pantaleon to sign the charge slip. The
charge purchase was then referred electronically to respondent’s
Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his
AmexCard had not yet been approved. His son, who had already
boarded the tour bus, soon returned to Coster and informed the other
members of the Pantaleon family that the entire tour group was waiting
for them. As it was already 9:40 a.m., and he was already worried
about further inconveniencing the tour group, Pantaleon asked the
store clerk to cancel the sale. The store manager though asked plaintiff
to wait a few more minutes. After 15 minutes, the store manager
informed Pantaleon that respondent had demanded bank references.
Pantaleon supplied the names of his depositary banks, then instructed
his daughter to return to the bus and apologize to the tour group for the
delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had
presented his AmexCard, and 30 minutes after the tour group was
supposed to have left the store, Coster decided to release the items
even without respondent’s approval of the purchase. The spouses
Pantaleon returned to the bus. It is alleged that their offers of apology
were met by their tourmates with stony silence. 4 The tour group’s
visible irritation was aggravated when the tour guide announced that
the city tour of Amsterdam was to be canceled due to lack of remaining
time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to
London.5 Mrs. Pantaleon ended up weeping, while her husband had to
take a tranquilizer to calm his nerves.
It later emerged that Pantaleon’s purchase was first transmitted for
approval to respondent’s Amsterdam office at 9:20 a.m., Amsterdam
time, then referred to respondent’s Manila office at 9:33 a.m, then
finally approved at 10:19 a.m., Amsterdam time.6 The Approval Code
was transmitted to respondent’s Amsterdam office at 10:38 a.m.,
several minutes after petitioner had already left Coster, and 78 minutes
from the time the purchases were electronically transmitted by the
jewelry store to respondent’s Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded
to the United States before returning to Manila on 12 November 1992.
While in the United States, Pantaleon continued to use his AmEx card,
several times without hassle or delay, but with two other incidents
similar to the Amsterdam brouhaha. On 30 October 1991, Pantaleon
purchased golf equipment amounting to US $1,475.00 using his AmEx
card, but he cancelled his credit card purchase and borrowed money
instead from a friend, after more than 30 minutes had transpired
without the purchase having been approved. On 3 November 1991,
Pantaleon used the card to purchase children’s shoes worth $87.00 at
a store in Boston, and it took 20 minutes before this transaction was
approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a
letter7 through counsel to the respondent, demanding an apology for
the "inconvenience, humiliation and embarrassment he and his family
thereby suffered" for respondent’s refusal to provide credit
authorization for the aforementioned purchases.8 In response,
respondent sent a letter dated 24 March 1992,9 stating among others
that the delay in authorizing the purchase from Coster was attributable
to the circumstance that the charged purchase of US $13,826.00 "was
out of the usual charge purchase pattern established."10 Since
respondent refused to accede to Pantaleon’s demand for an apology,
the aggrieved cardholder instituted an action for damages with the
Regional Trial Court (RTC) of Makati City, Branch 145. 11 Pantaleon
prayed that he be awarded ₱2,000,000.00, as moral damages;
₱500,000.00, as exemplary damages; ₱100,000.00, as attorney’s fees;
and ₱50,000.00 as litigation expenses.12
On 5 August 1996, the Makati City RTC rendered a decision13 in favor
of Pantaleon, awarding him ₱500,000.00 as moral damages,
₱300,000.00 as exemplary damages, ₱100,000.00 as attorney’s fees,
and ₱85,233.01 as expenses of litigation. Respondent filed a Notice of
Appeal, while Pantaleon moved for partial reconsideration, praying that
the trial court award the increased amount of moral and exemplary
damages he had prayed for.14 The RTC denied Pantaleon’s motion for
partial reconsideration, and thereafter gave due course to respondent’s
Notice of Appeal.15
On 18 August 2006, the Court of Appeals rendered a
decision16 reversing the award of damages in favor of Pantaleon,
holding that respondent had not breached its obligations to petitioner.
Hence, this petition.
The key question is whether respondent, in connection with the
aforementioned transactions, had committed a breach of its obligations
to Pantaleon. In addition, Pantaleon submits that even assuming that
respondent had not been in breach of its obligations, it still remained
liable for damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of
Pantaleon and respondent’s credit authorizer, Edgardo Jaurigue, that
the normal approval time for purchases was "a matter of seconds."
Based on that standard, respondent had been in clear delay with
respect to the three subject transactions. As it appears, the Court of
Appeals conceded that there had been delay on the part of respondent
in approving the purchases. However, it made two critical conclusions
in favor of respondent. First, the appellate court ruled that the delay
was not attended by bad faith, malice, or gross negligence. Second, it
ruled that respondent "had exercised diligent efforts to effect the
approval" of the purchases, which were "not in accordance with the
charge pattern" petitioner had established for himself, as exemplified
by the fact that at Coster, he was "making his very first single charge
purchase of US$13,826," and "the record of [petitioner]’s past
spending with [respondent] at the time does not favorably support his
ability to pay for such purchase."17
On the premise that there was an obligation on the part of respondent
"to approve or disapprove with dispatch the charge purchase,"
petitioner argues that the failure to timely approve or disapprove the
purchase constituted mora solvendi on the part of respondent in the
performance of its obligation. For its part, respondent characterizes the
depiction by petitioner of its obligation to him as "to approve purchases
instantaneously or in a matter of seconds."
Petitioner correctly cites that under mora solvendi, the three requisites
for a finding of default are that the obligation is demandable and
liquidated; the debtor delays performance; and the creditor judicially or
extrajudicially requires the debtor’s performance. 18 Petitioner asserts
that the Court of Appeals had wrongly applied the principle of mora
accipiendi, which relates to delay on the part of the obligee in
accepting the performance of the obligation by the obligor. The
requisites of mora accipiendi are: an offer of performance by the debtor
who has the required capacity; the offer must be to comply with the
prestation as it should be performed; and the creditor refuses the
performance without just cause.19 The error of the appellate court,
argues petitioner, is in relying on the invocation by respondent of "just
cause" for the delay, since while just cause is determinative of mora
accipiendi, it is not so with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora
to appreciate. Generally, the relationship between a credit card
provider and its card holders is that of creditor-debtor,20 with the card
company as the creditor extending loans and credit to the card holder,
who as debtor is obliged to repay the creditor. This relationship already
takes exception to the general rule that as between a bank and its
depositors, the bank is deemed as the debtor while the depositor is
considered as the creditor.21 Petitioner is asking us, not baselessly, to
again shift perspectives and again see the credit card company as the
debtor/obligor, insofar as it has the obligation to the customer as
creditor/obligee to act promptly on its purchases on credit.
Ultimately, petitioner’s perspective appears more sensible than if we
were to still regard respondent as the creditor in the context of this
cause of action. If there was delay on the part of respondent in its
normal role as creditor to the cardholder, such delay would not have
been in the acceptance of the performance of the debtor’s obligation
(i.e., the repayment of the debt), but it would be delay in the extension
of the credit in the first place. Such delay would not fall under mora
accipiendi, which contemplates that the obligation of the debtor, such
as the actual purchases on credit, has already been constituted.
Herein, the establishment of the debt itself (purchases on credit of the
jewelry) had not yet been perfected, as it remained pending the
approval or consent of the respondent credit card company.
Still, in order for us to appreciate that respondent was in mora
solvendi, we will have to first recognize that there was indeed an
obligation on the part of respondent to act on petitioner’s purchases
with "timely dispatch," or for the purposes of this case, within a period
significantly less than the one hour it apparently took before the
purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the
tardiness on the part of respondent in acting on petitioner’s purchase
at Coster did constitute culpable delay on its part in complying with its
obligation to act promptly on its customer’s purchase request, whether
such action be favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval
time for purchases was a matter of seconds.
Plaintiff testified that his personal experience with the use of the card
was that except for the three charge purchases subject of this case,
approvals of his charge purchases were always obtained in a matter of
seconds.
Defendant’s credit authorizer Edgardo Jaurique likewise testified:
Q. – You also testified that on normal occasions, the normal
approval time for charges would be 3 to 4 seconds?
A. – Yes, Ma’am.
Both parties likewise presented evidence that the processing and
approval of plaintiff’s charge purchase at the Coster Diamond House
was way beyond the normal approval time of a "matter of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at
Coster, at 9:15 a.m. and by the time he had to leave the store at 10:05
a.m., no approval had yet been received. In fact, the Credit
Authorization System (CAS) record of defendant at Phoenix Amex
shows that defendant’s Amsterdam office received the request to
approve plaintiff’s charge purchase at 9:20 a.m., Amsterdam time or
01:20, Phoenix time, and that the defendant relayed its approval to
Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total
time lapse of one hour and [18] minutes. And even then, the approval
was conditional as it directed in computerese [sic] "Positive
Identification of Card holder necessary further charges require bank
information due to high exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the
frantic successive queries of Amexco Amsterdam which reads:
"US$13,826. Cardmember buying jewels. ID seen. Advise how long
will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and
02:08, all times Phoenix. Manila Amexco could be unaware of the need
for speed in resolving the charge purchase referred to it, yet it sat on
its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the
Amsterdam transaction shows how Amexco Netherlands viewed the
delay as unusually frustrating. In sequence expressed in Phoenix time
from 01:20 when the charge purchased was referred for authorization,
defendants own record shows:
01:22 – the authorization is referred to Manila Amexco
01:32 – Netherlands gives information that the identification
of the cardmember has been presented and he is buying
jewelries worth US $13,826.
01:33 – Netherlands asks "How long will this take?"
02:08 – Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its
contractual obligation to act on his use of the card abroad "with special
handling."22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are
approved "within seconds," there really is no strict, legally
determinative point of demarcation on how long must it take for a credit
card company to approve or disapprove a customer’s purchase, much
less one specifically contracted upon by the parties. Yet this is one of
those instances when "you’d know it when you’d see it," and one hour
appears to be an awfully long, patently unreasonable length of time to
approve or disapprove a credit card purchase. It is long enough time
for the customer to walk to a bank a kilometer away, withdraw money
over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve
or disapprove" the purchase "in timely dispatch," and not "to approve
the purchase instantaneously or within seconds." Certainly, had
respondent disapproved petitioner’s purchase "within seconds" or
within a timely manner, this particular action would have never seen
the light of day. Petitioner and his family would have returned to the
bus without delay – internally humiliated perhaps over the rejection of
his card – yet spared the shame of being held accountable by newly-
made friends for making them miss the chance to tour the city of
Amsterdam.
We do not wish do dispute that respondent has the right, if not the
obligation, to verify whether the credit it is extending upon on a
particular purchase was indeed contracted by the cardholder, and that
the cardholder is within his means to make such transaction. The
culpable failure of respondent herein is not the failure to timely approve
petitioner’s purchase, but the more elemental failure to timely act on
the same, whether favorably or unfavorably. Even assuming that
respondent’s credit authorizers did not have sufficient basis on hand to
make a judgment, we see no reason why respondent could not have
promptly informed petitioner the reason for the delay, and duly advised
him that resolving the same could take some time. In that way,
petitioner would have had informed basis on whether or not to pursue
the transaction at Coster, given the attending circumstances. Instead,
petitioner was left uncomfortably dangling in the chilly autumn winds in
a foreign land and soon forced to confront the wrath of foreign folk.
would redound to the injury of his several traveling companions – gave
rise to the moral shock, mental anguish, serious anxiety, wounded
feelings and social humiliation sustained by the petitioner, as
concluded by the RTC.27 Those circumstances are fairly unusual, and
should not give rise to a general entitlement for damages under a more
mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the
RTC. There is no hard-and-fast rule in determining what would be a
fair and reasonable amount of moral damages, since each case must
be governed by its own peculiar facts, however, it must be
commensurate to the loss or injury suffered.28 Petitioner’s original
prayer for ₱5,000,000.00 for moral damages is excessive under the
circumstances, and the amount awarded by the trial court of
₱500,000.00 in moral damages more seemly. 1avvphi 1

Moral damages avail in cases of breach of contract where the

Likewise, we deem exemplary damages available under the
defendant acted fraudulently or in bad faith, and the court should find
circumstances, and the amount of ₱300,000.00 appropriate. There is
that under the circumstances, such damages are due. The findings of
similarly no cause though to disturb the determined award of
the trial court are ample in establishing the bad faith and unjustified
₱100,000.00 as attorney’s fees, and ₱85,233.01 as expenses of
neglect of respondent, attributable in particular to the "dilly-dallying" of
litigation.
respondent’s Manila credit authorizer, Edgardo Jaurique. 23 Wrote the
trial court:
WHEREFORE, the petition is GRANTED. The assailed Decision of the
Court of Appeals is REVERSED and SET ASIDE. The Decision of the
While it is true that the Cardmembership Agreement, which defendant
Regional Trial Court of Makati, Branch 145 in Civil Case No. 92-1665
prepared, is silent as to the amount of time it should take defendant to
is hereby REINSTATED. Costs against respondent.
grant authorization for a charge purchase, defendant acknowledged
that the normal time for approval should only be three to four seconds.
Specially so with cards used abroad which requires "special handling", SO ORDERED.
meaning with priority. Otherwise, the object of credit or charge cards
would be lost; it would be so inconvenient to use that buyers and
consumers would be better off carrying bundles of currency or SECOND DIVISION
traveller’s checks, which can be delivered and accepted quickly. Such
right was not accorded to plaintiff in the instances complained off for
reasons known only to defendant at that time. This, to the Court’s
G.R. No. 133632 : February 15, 2002
mind, amounts to a wanton and deliberate refusal to comply with its
contractual obligations, or at least abuse of its rights, under the BPI INVESTMENT CORPORATION,, Petitioner, v.
contract.24
HON. COURT OF APPEALS and ALS MANAGEMENT
& DEVELOPMENT CORPORATION, Respondents.
xxx

The delay committed by defendant was clearly attended by unjustified

neglect and bad faith, since it alleges to have consumed more than
one hour to simply go over plaintiff’s past credit history with defendant,
his payment record and his credit and bank references, when all such
data are already stored and readily available from its computer. This
Court also takes note of the fact that there is nothing in plaintiff’s billing
history that would warrant the imprudent suspension of action by
defendant in processing the purchase. Defendant’s witness Jaurique
admits:
Q. – But did you discover that he did not have any
outstanding account?
A. – Nothing in arrears at that time.
Q. – You were well aware of this fact on this very date?
A. – Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in
plaintiff’s account.25
It should be emphasized that the reason why petitioner is entitled to
damages is not simply because respondent incurred delay, but
because the delay, for which culpability lies under Article 1170, led to
the particular injuries under Article 2217 of the Civil Code for which
moral damages are remunerative.26 Moral damages do not avail to
soothe the plaints of the simply impatient, so this decision should not
be cause for relief for those who time the length of their credit card
transactions with a stopwatch. The somewhat unusual attending
circumstances to the purchase at Coster – that there was a deadline
for the completion of that purchase by petitioner before any delay
DECISION
QUISUMBING, J.:
This petition for certiorari assails the decision dated
February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, in CA-G.R. CV No.
38887. The appellate court affirmed the judgment of the
Regional Trial Court of Pasig City, Branch 151, in (a)
Civil Case No. 11831, for foreclosure of mortgage by
petitioner BPI Investment Corporation (BPIIC for brevity)
against private respondents ALS Management and
Development Corporation and Antonio K. Litonjua,1
consolidated with (b) Civil Case No. 52093, for damages
with prayer for the issuance of a writ of preliminary
injunction by the private respondents against said
petitioner.
The trial court had held that private respondents were
not in default in the payment of their monthly
amortization, hence, the extrajudicial foreclosure
conducted by BPIIC was premature and made in bad
faith. It awarded private respondents the amount of
P300,000 for moral damages, P50,000 for exemplary
damages, and P50,000 for attorneys fees and expenses
for litigation. It likewise dismissed the foreclosure suit for
being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4%
per annum from Ayala Investment and Development
Corporation (AIDC), the predecessor of petitioner BPIIC,
for the construction of a house on his lot in New Alabang
Village, Muntinlupa. Said house and lot were mortgaged
to AIDC to secure the loan. Sometime in 1980, Roa sold
the house and lot to private respondents ALS and
Antonio Litonjua for P850,000. They paid P350,000 in
cash and assumed the P500,000 balance of Roas
indebtedness with AIDC. The latter, however, was not
willing to extend the old interest rate to private
respondents and proposed to grant them a new loan of
P500,000 to be applied to Roas debt and secured by the
same property, at an interest rate of 20% per annum and
service fee of 1% per annum on the outstanding
principal balance payable within ten years in equal
monthly amortization of P9,996.58 and penalty interest
at the rate of 21% per annum per day from the date the
amortization became due and payable.
Consequently, in March 1981, private respondents
executed a mortgage deed containing the above
stipulations with the provision that payment of the
monthly amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas
arrearages by paying BPIIC the sum of P190,601.35.
This reduced Roas principal balance to P457,204.90
which, in turn, was liquidated when BPIIC applied
thereto the proceeds of private respondents loan of
P500,000.
On September 13, 1982, BPIIC released to private
respondents P7,146.87, purporting to be what was left of
their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings
against private respondents on the ground that they
failed to pay the mortgage indebtedness which from May
1, 1981 to June 30, 1984, amounted to Four Hundred
Seventy Five Thousand Five Hundred Eighty Five and
31/100 Pesos (P475,585.31). A notice of sheriffs sale
was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case
No. 52093 against BPIIC. They alleged, among others,
that they were not in arrears in their payment, but in fact
made an overpayment as of June 30, 1984. They
maintained that they should not be made to pay
amortization before the actual release of the P500,000
loan in August and September 1982. Further, out of the
P500,000 loan, only the total amount of P464,351.77
was released to private respondents. Hence, applying
the effects of legal compensation, the balance of
P35,648.23 should be applied to the initial monthly
amortization for the loan.
On August 31, 1988, the trial court rendered its judgment
in Civil Case Nos. 11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of
ALS Management and Development Corporation and
Antonio K. Litonjua and against BPI Investment
Corporation, holding that the amount of loan granted by
BPI to ALS and Litonjua was only in the principal sum of
P464,351.77, with interest at 20% plus service charge of
1% per annum, payable on equal monthly and
successive amortizations at P9,283.83 for ten (10) years
or one hundred twenty (120) months. The amortization
schedule attached as Annex A to the Deed of Mortgage
is correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered
compensable damages when BPI caused their
publication in a newspaper of general circulation as
defaulting debtors, and therefore orders BPI to pay ALS
and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of
litigation.
The foreclosure suit (Civil Case No. 11831) is hereby
DISMISSED for being premature.
Costs against BPI.
SO ORDERED.2 cräl äwvirtualibr är y
Both parties appealed to the Court of Appeals. However,
private respondents appeal was dismissed for non-
payment of docket fees.
On February 28, 1997, the Court of Appeals
promulgated its decision, the dispositive portion reads:
WHEREFORE, finding no error in the appealed decision
the same is hereby AFFIRMED in toto.
SO ORDERED.3 cräl äwvirtualibr är y
In its decision, the Court of Appeals reasoned that a
simple loan is perfected only upon the delivery of the
object of the contract. The contract of loan between
BPIIC and ALS & Litonjua was perfected only on
September 13, 1982, the date when BPIIC released the
purported balance of the P500,000 loan after deducting
therefrom the value of Roas indebtedness. Thus,
payment of the monthly amortization should commence
only a month after the said date, as can be inferred from
the stipulations in the contract. This, despite the express
agreement of the parties that payment shall commence
on May 1, 1981. From October 1982 to June 1984, the
total amortization due was only P194,960.43. Evidence
showed that private respondents had an overpayment,
because as of June 1984, they already paid a total
amount of P201,791.96. Therefore, there was no basis
for BPIIC to extrajudicially foreclose the mortgage and
cause the publication in newspapers concerning private
respondents delinquency in the payment of their loan.
This fact constituted sufficient ground for moral damages
in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC
was likewise denied, hence this petition, where BPIIC
submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A
CONSENSUAL CONTRACT IN THE LIGHT OF THE
RULE LAID DOWN IN BONNEVIE VS. COURT OF
APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE
FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEYS FEES IN THE FACE OF IRREGULAR
PAYMENTS MADE BY ALS AND OPPOSED TO THE
RULE LAID DOWN IN SOCIAL SECURITY SYSTEM
VS. COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of
Appeals erred in ruling that because a simple loan is
perfected upon the delivery of the object of the contract,
the loan contract in this case was perfected only on
September 13, 1982. Petitioner claims that a contract of
loan is a consensual contract, and a loan contract is
perfected at the time the contract of mortgage is
executed conformably with our ruling in Bonnevie v.
Court of Appeals, 125 SCRA 122. In the present case,
the loan contract was perfected on March 31, 1981, the
date when the mortgage deed was executed, hence, the
amortization and interests on the loan should be
computed from said date.
Petitioner also argues that while the documents showed
that the loan was released only on August 1982, the loan
was actually released on March 31, 1981, when BPIIC
issued a cancellation of mortgage of Frank Roas loan.
This finds support in the registration on March 31, 1981
of the Deed of Absolute Sale executed by Roa in favor of
ALS, transferring the title of the property to ALS, and
ALS executing the Mortgage Deed in favor of BPIIC.
Moreover, petitioner claims, the delay in the release of
the loan should be attributed to private respondents. As
BPIIC only agreed to extend a P500,000 loan, private
respondents were required to reduce Frank Roas loan
below said amount. According to petitioner, private
respondents were only able to do so in August 1982.
In their comment, private respondents assert that based
on Article 1934 of the Civil Code,4 a simple loan is
perfected upon the delivery of the object of the contract,
hence a real contract. In this case, even though the loan
contract was signed on March 31, 1981, it was perfected
only on September 13, 1982, when the full loan was
released to private respondents. They submit that
petitioner misread Bonnevie. To give meaning to Article
1934, according to private respondents, Bonnevie must
be construed to mean that the contract to extend the
loan was perfected on March 31, 1981 but the contract
of loan itself was only perfected upon the delivery of the
full loan to private respondents on September 13, 1982.
Private respondents further maintain that even granting,
arguendo, that the loan contract was perfected on March
31, 1981, and their payment did not start a month
thereafter, still no default took place. According to private
respondents, a perfected loan agreement imposes
reciprocal obligations, where the obligation or promise of
each party is the consideration of the other party. In this
case, the consideration for BPIIC in entering into the
loan contract is the promise of private respondents to
pay the monthly amortization. For the latter, it is the
promise of BPIIC to deliver the money. In reciprocal
obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner
with what is incumbent upon him. Therefore, private
respondents conclude, they did not incur in delay when
they did not commence paying the monthly amortization
on May 1, 1981, as it was only on September 13, 1982
when petitioner fully complied with its obligation under
the loan contract.
We agree with private respondents. A loan contract is
not a consensual contract but a real contract. It is
perfected only upon the delivery of the object of the
contract.5 Petitioner misapplied Bonnevie. The contract
in Bonnevie declared by this Court as a perfected
consensual contract falls under the first clause of Article
1934, Civil Code. It is an accepted promise to deliver
something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development
Bank of the Philippines, 44 SCRA 445, petitioner applied
for a loan of P500,000 with respondent bank. The latter
approved the application through a board resolution.
Thereafter, the corresponding mortgage was executed
and registered. However, because of acts attributable to
petitioner, the loan was not released. Later, petitioner
instituted an action for damages. We recognized in this
case, a perfected consensual contract which under
normal circumstances could have made the bank liable
for not releasing the loan. However, since the fault was
attributable to petitioner therein, the court did not award
it damages.
A perfected consensual contract, as shown above, can
give rise to an action for damages. However, said
contract does not constitute the real contract of loan
which requires the delivery of the object of the contract
for its perfection and which gives rise to obligations only
on the part of the borrower.6
cräläwvirtualibrär y
In the present case, the loan contract between BPI, on
the one hand, and ALS and Litonjua, on the other, was
perfected only on September 13, 1982, the date of the
second release of the loan. Following the intentions of
the parties on the commencement of the monthly
amortization, as found by the Court of Appeals, private
respondents obligation to pay commenced only on
October 13, 1982, a month after the perfection of the
contract.7cräl äwvirtuali brär y
We also agree with private respondents that a contract
of loan involves a reciprocal obligation, wherein the
obligation or promise of each party is the consideration
for that of the other.8 As averred by private respondents,
the promise of BPIIC to extend and deliver the loan is
upon the consideration that ALS and Litonjua shall pay
the monthly amortization commencing on May 1, 1981,
one month after the supposed release of the loan. It is a
basic principle in reciprocal obligations that neither party
incurs in delay, if the other does not comply or is not
ready to comply in a proper manner with what is
incumbent upon him.9 Only when a party has performed
his part of the contract can he demand that the other
party also fulfills his own obligation and if the latter fails,
default sets in. Consequently, petitioner could only
demand for the payment of the monthly amortization
after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract.
Therefore, in computing the amount due as of the date
when BPIIC extrajudicially caused the foreclosure of the
mortgage, the starting date is October 13, 1982 and not
May 1, 1981.
Other points raised by petitioner in connection with the
first issue, such as the date of actual release of the loan
and whether private respondents were the cause of the
delay in the release of the loan, are factual. Since
petitioner has not shown that the instant case is one of
the exceptions to the basic rule that only questions of
law can be raised in a petition for review under Rule 45
of the Rules of Court,10 factual matters need not tarry us
now. On these points we are bound by the findings of
the appellate and trial courts.
On the second issue, petitioner claims that it should not
be held liable for moral and exemplary damages for it did
not act maliciously when it initiated the foreclosure
proceedings. It merely exercised its right under the
mortgage contract because private respondents were
irregular in their monthly amortization. It invoked our
ruling in Social Security System vs. Court of Appeals,
120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate
damages. As concluded by the Court of Appeals the
negligence of the appellant is not so gross as to warrant
moral and temperate damages, except that, said Court
reduced those damages by only P5,000.00 instead of
eliminating them. Neither can we agree with the findings
of both the Trial Court and respondent Court that the
SSS had acted maliciously or in bad faith. The SSS was
of the belief that it was acting in the legitimate exercise
of its right under the mortgage contract in the face of
irregular payments made by private respondents and
placed reliance on the automatic acceleration clause in
the contract. The filing alone of the foreclosure
application should not be a ground for an award of moral
damages in the same way that a clearly unfounded civil
action is not among the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad
faith and should be liable for said damages because it
insisted on the payment of amortization on the loan even
before it was released. Further, it did not make the
corresponding deduction in the monthly amortization to
conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when
private respondents failed to make timely payment.
But as admitted by private respondents themselves, they
were irregular in their payment of monthly amortization.
Conformably with our ruling in SSS, we can not properly
declare BPIIC in bad faith. Consequently, we should rule
out the award of moral and exemplary damages.11 cräl äwvirtuali brär y
However, in our view, BPIIC was negligent in relying
merely on the entries found in the deed of mortgage,
without checking and correspondingly adjusting its
records on the amount actually released to private
respondents and the date when it was released. Such
negligence resulted in damage to private respondents, for
which an award of nominal damages should be given in
recognition of their rights which were violated by
BPIIC.12 For this purpose, the amount of P25,000 is
sufficient.
Lastly, as in SSS where we awarded attorneys fees
because private respondents were compelled to litigate,
we sustain the award of P50,000 in favor of private
respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997,
of the Court of Appeals and its resolution dated April 21,
1998, are AFFIRMED WITH MODIFICATION as to
the award of damages. The award of moral and
exemplary damages in favor of private respondents is
DELETED, but the award to them of attorneys fees in
the amount of P50,000 is UPHELD. Additionally,
petitioner is ORDERED to pay private respondents
P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.