UP Law F2021 002 Garcia v.

Thio
Credit Transactions Art. 1934 (Obligation to 2007 Corona, J.
Deliver), Art. 1956, Art.
2209

SUMMARY

Thio received from Garcia crossed checks* both payable to the order of a certain Santiago. Consequently,
Thio issued check to cover the interest of the said sums of money. Thio failed to pay the the principal
amounts of the loans when they fell due. Thio denied that she contracted the 2 loans and countered that it
was Santiago to whom Garcia lent the money. SC concluded that it was Thio who borrowed money from
Garcia since it was Thio who had the possession and control of the checks after she received it.

FACTS

 Sometime in February 1995 - Rica Thio (respondent) received from Carolyn Garcia (petitioner) a
crossed check* in the amount of USD 100k. The check was payable to the order of a certain Marilou
Santiago. More crossed checks were issued by Garcia, still payable to Santiago, to Thio within the
same year.
 According to Garcia, Thio failed to pay the principal amounts of the loans (USD100k and P500k)
when they fell due, thus she filed a complaint for sum of money and damages in the Makati RTC
against Thio.
 (Background) Feb 24, 1995 – Thio borrowed from Garcia the amount of US100k with interest
thereon at the rate of 3% per month. (The amount of this loan was covered by the first check.)
 June 29, 1995 – Thio again borrowed P500k at an agreed monthly interest of 4%.
 For both loans, no promissory note was executed since Garcia and Thio were close friends at the
time.
 Thio paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay
the principal amounts despite repeated demands.
 Thio denied that she contracted the two loans with Garcia and countered that it was Marilou
Santiago to whom Garcia lent the money.
 She claimed she was merely asked by Garcia to give the crossed checks to Santiago.
 She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate
Garcia’s request that Thio use her own checks instead of Santiago’s.
 RTC: In favor of Garcia and ordered Thio to pay $100K with monthly interest at 3% and P500K with
4% monthly interest.
 CA: Reversed; no contract of loan between the two parties
o What Thio received were crossed checks payable to Marilou Santiago. The checks (being
crossed) may not be encashed but only deposited in the bank by the payee (Marilou Santiago)
thereof.
o Receipt of the crossed check by Thio 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,
with intent to transfer title thereto.

RATIO

W/N there is a contract of loan between the parties

Yes. A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of
the contract. (Art. 1934 NCC) In other words, Thio received a loan from Garcia and is liable to pay.

Although Thio 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.
 Thio admitted that Garcia did not personally know Santiago.
 Leticia Ruiz, a friend of both parties, testified that Thio’s plan was for Garcia to lend her money at a
monthly interest rate of 3%, after which Thio would lend the same amount to Santiago at a higher
rate of 5% and realize a profit of 2%.
  Thio admitted using her own checks to cover the monthly interest.
 In the petition for insolvency sworn to and filed by Santiago, it was Thio, not Garcia, who was listed
as one of Santiago’s creditors.
 Thio inexplicably never presented Santiago as a witness to corroborate her story. The presumption
is that evidence willfully suppressed would be adverse if produced.

Thio cannot be liable for interest on the loan because as per Art. 1956 NCC, no interest shall be due unless it
has been expressly stipulated in writing. They only had a verbal agreement. But Thio is liable for legal
interest (Art. 2209 NCC).

FALLO

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.

NOTES:
*Effects of crossing a check:
 check may not be encashed but only deposited in the bank
 check may be negotiated only once – to the one who has an account with the bank
 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