JANUARY 23, 2020 CIVIL LAW CASE DIGESTS

A.

Coca-Cola Bottlers v. Court of Appeals, G.R. No. 110295, October 18, 1993

Facts:
 This case concerns the proprietress of a school canteen which had to close down as a consequence of the
big drop in its sales of soft drinks triggered by the discovery of foreign substances in certain beverages
sold by it.
 The interesting issue posed is whether the subsequent action for damages by the proprietress against the
soft drinks manufacturer should be treated as one for breach of implied warranty against hidden defects
or merchantability, as claimed by the manufacturer, the petitioner herein which must, therefore, be filed
within six months from the delivery of the thing sold pursuant to Article 1571 of the Civil Code, or one for
quasi-delict, as held by the public respondent, which can be filed within four years pursuant to Article
1146 of the same Code.
 On 7 May 1990, Lydia L. Geronimo, the herein private respondent, filed a complaint for damages against
petitioner with the Regional Trial Court (RTC) of Dagupan City.
 The case was docketed as Civil Case No. D-9629. She alleges in her complaint that she was the
proprietress of Kindergarten Wonderland Canteen docketed as located in Dagupan City, an enterprise
engaged in the sale of soft drinks (including Coke and Sprite) and other goods to the students of
Kindergarten Wonderland and to the public
 On or about 12 August 1989, some parents of the students complained to her that the Coke and Sprite
soft drinks sold by her contained fiber-like matter and other foreign substances or particles; he then went
over her stock of softdrinks and discovered the presence of some fiber-like substances in the contents of
some unopened Coke bottles and a plastic matter in the contents of an unopened Sprite bottle
 She brought the said bottles to the Regional Health Office of the Department of Health at San Fernando,
La Union, for examination
 Subsequently, she received a letter from the Department of Health informing her that the samples she
submitted “are adulterated;”
 As a consequence of the discovery of the foreign substances in the beverages, her sales of soft drinks
severely plummeted from the usual 10 cases per day to as low as 2 to 3 cases per day resulting in losses of
from P200.00 to P300.00 per day, and not long after that she had to close shop on 12 December 1989
 She became jobless and destitute
 She demanded from the petitioner the payment of damages but was rebuffed by it.
 She prayed for judgment ordering the petitioner to pay her P5,000.00 as actual damages, P72,000.00 as
compensatory damages, P500,000.00 as moral damages, P10,000.00 as exemplary damages, the amount
equal to 30% of the damages awarded as attorney’s fees, and the costs.

Issue:
Whether the vendor could also be liable for quasi-delict

Ruling:
 YES
 In her Comment, the private respondent argues that in case of breach of the seller’s implied warranties,
the vendee may, under Article 1567 of the Civil Code, elect between withdrawing from the contract or
demanding a proportionate reduction of the price, with damages in either case.
 She asserts that Civil Case No. D-9629 is neither an action for rescission nor for proportionate reduction of
the price, but for damages arising from a quasi-delict and that the public respondent was correct in ruling
that the existence of a contract did not preclude the action for quasi-delict.
  As to the issue of prescription, the private respondent insists that since her cause of action is based on
quasi-delict, the prescriptive period, therefore, is four (4) years in accordance with Article 1144 of the Civil
Code and thus the filing of the complaint was well within the said period.
 We find no merit in the petition.
 The public respondent’s conclusion that the cause of action in Civil Case No. D-9629 is found on quasi-
delict and that, therefore, pursuant to Article 1146 of the Civil Code, it prescribes in four (4) years is
supported by the allegations in the complaint, more particularly paragraph 12 thereof, which makes
reference to the reckless and negligent manufacture of “adulterated food items intended to be sold for
public consumption.”
 The vendee’s remedies against a vendor with respect to the warranties against hidden defects of or
encumbrances upon the thing sold are not limited to those prescribed in Article 1567 of the Civil Code
which provides:
o Art. 1567. In the case of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect
between withdrawing from the contract and demanding a proportionate reduction of the price,
with damages either case.
 The vendee may also ask for the annulment of the contract upon proof of error or fraud, in which case the
ordinary rule on obligations shall be applicable.
 Under the law on obligations, responsibility arising from fraud is demandable in all obligations and any
waiver of an action for future fraud is void.
 Responsibility arising from negligence is also demandable in any obligation, but such liability may be
regulated by the courts, according to the circumstances.
 Those guilty of fraud, negligence, or delay in the performance of their obligations and those who in any
manner contravene the tenor thereof are liable for damages.
 The vendor could likewise be liable for quasi-delict under Article 2176 of the Civil Code, and an action
based thereon may be brought by the vendee.
 While it may be true that the pre-existing contract between the parties may, as a general rule, bar the
applicability of the law on quasi-delict, the liability may itself be deemed to arise from quasi-delict, i.e.,
the acts which break the contract may also be a quasi-delict.

Casupanan v. Laroya, G.R. No. 145391, August 26, 2002

A negligent act or omission causing damages can arise from quasi-delict or crime; but prohibits double recovery.

FACTS:
 Two vehicles figured in an accident, one driven by respondent Laroya and the other owned by petitioner
Capitulo and driven by petitioner Casupanan.
 As a result, two cases were filed with the MCTC of Capas, Tarlac.
o Laroya filed a criminal case against Casupanan for reckless imprudence resulting in damage to
property
o On the other hand, Casupanan and Capitulo filed a civil case against Laroya for quasi-delict
 When the civil case was filed, the criminal case was then at its preliminary investigation stage.
 Casupanan and Capitulo insisted that the civil case is a separate civil action, which can proceed
independently of the criminal case.

ISSUE: Whether an accused in a pending criminal case for reckless imprudence can validly file, simultaneously and
independently, a separate civil action for quasi-delict against the private complainant in the criminal case.

RULING:
 Yes. The accused can file a civil action for quasi-delict for the same act or omission he is accused of in the
criminal case.
  The present Rule 111 mandates the accused to file his counterclaim in a separate civil action which shall
proceed independently of the criminal action, even as the civil action of the offended party is litigated
in the criminal action

 Section 3 of the present Rule 111, like its counterpart in the amended 1985 Rules, expressly allows the
“offended party” to bring an independent civil action under Articles 32, 33, 34 and 2176 of the Civil Code.
 As stated in Section 3 of the present Rule 111, this civil action shall proceed independently of the criminal
action and shall require only a preponderance of evidence.
 In no case, however, may the “offended party recover damages twice for the same act or omission
charged in the criminal action.”
 There is no question that the offended party in the criminal action can file an independent civil action for
quasi-delict against the accused.
 Section 3 of the present Rule 111 expressly states that the “offended party” may bring such an action but
the “offended party” may not recover damages twice for the same act or omission charged in the criminal
action.
o Clearly, Section 3 of Rule 111 refers to the offended party in the criminal action, not to the
accused.

 HOWEVER, Casupanan and Capitulo invoke the ruling in Cabaero vs. Cantos where the Court held that the
accused therein could validly institute a separate civil action for quasi-delict against the private
complainant in the criminal case.
o In Cabaero, the accused in the criminal case filed his Answer with Counterclaim for malicious
prosecution.
o At that time the Court noted the “absence of clear-cut rules governing the prosecution on
impliedly instituted civil actions and the necessary consequences and implications thereof.”
o Thus, the Court ruled that the trial court should confine itself to the criminal aspect of the case
and disregard any counterclaim for civil liability.
o The Court further ruled that the accused may file a separate civil case against the offended
party “after the criminal case is terminated and/or in accordance with the new Rules which
may be promulgated.”
o The Court explained that a cross-claim, counterclaim or third-party complaint on the civil aspect
will only unnecessarily complicate the proceedings and delay the resolution of the criminal case.
 Paragraph 6, Section 1 of the present Rule 111 was incorporated in the 2000 Rules precisely to address
the lacuna mentioned in Cabaero.
 Under this provision, the accused is barred from filing a counterclaim, cross-claim or third-party complaint
in the criminal case.
 However, the same provision states that “any cause of action which could have been the subject (of the
counterclaim, cross-claim or third-party complaint) may be litigated in a separate civil action.”
 The present Rule 111 mandates the accused to file his counterclaim in a separate civil action which shall
proceed independently of the criminal action, even as the civil action of the offended party is litigated
in the criminal action

Conclusion
 Under Section 1 of the present Rule 111, the independent civil action in Articles 32, 33, 34 and 2176 of the
Civil Code is not deemed instituted with the criminal action but may be filed separately by the offended
party even without reservation.
 Thus, the offended party can file two separate suits for the same act or omission.
o The first a criminal case where the civil action to recover civil liability ex-delicto is deemed
instituted, and the other a civil case for quasi-delict—without violating the rule on non-forum
shopping.
o The two cases can proceed simultaneously and independently of each other.
 o The commencement or prosecution of the criminal action will not suspend the civil action for
quasi- delict.
o The only limitation is that the offended party cannot recover damages twice for the same act
or omission of the defendant.

 SIMILARLY, the accused can file a civil action for quasi- delict for the same act or omission he is accused
of in the criminal case.
 This is expressly allowed in paragraph 6, Section 1 of the present Rule 111 which states that the
counterclaim of the accused “may be litigated in a separate civil action”
 This is only fair for two reasons.
 First, the accused is prohibited from setting up any counterclaim in the civil aspect that is deemed
instituted in the criminal case.
o The accused is therefore forced to litigate separately his counterclaim against the offended party.
o If the accused does not file a separate civil action for quasi-delict, the prescriptive period may set
in since the period continues to run until the civil action for quasi-delict is filed.
 Second, the accused, who is presumed innocent, has a right to invoke Article 2177 of the Civil Code, in
the same way that the offended party can avail of this remedy which is independent of the criminal
action.
o To disallow the accused from filing a separate civil action for quasi-delict, while refusing to
recognize his counterclaim in the criminal case, is to deny him due process of law, access to the
courts, and equal protection of the law
 Thus, the civil action based on quasi-delict filed separately by Casupanan and Capitulo is proper.

B.

Necesito v. Paras, G.R. No. L- 10605, June 30, 1958

Doctrine: Standard of care is diligence of a good father of a family (Arts. 1163 & 1173). Common
carrier is extraordinary diligence Art. 1733

Facts:
 These cases involve ex contractu against the owners and operators of the common carrier known as Philippine
Rabbit Bus Lines, filed by one passenger, and the heirs of another, who injured as a result of the fall into a river
of the vehicle in which they were riding.
 In the morning of January 28, 1964, Severina Garces and her one-year old son, Precillano Necesito, carrying
vegetables, boarded passenger auto truck or bus No. 199 of the Philippine Rabbit Bus Lines at Agno,
Pangasinan.
 The passenger truck, driven by Francisco Bandonell, then proceeded on its regular run from Agno to Manila.
After passing Mangatarem, Pangasinan truck No. 199 entered a wooden bridge, but the front wheels swerved
to the right; the driver lost control, and after wrecking the bridge's wooden rails, the truck fell on its right
side into a creek where water was breast deep.
 The mother, Severina Garces, was drowned; the son, Precillano Necesito, was injured, suffering abrasions and
fracture of the left femur. He was brought to the Provincial Hospital at Dagupan, where the fracture was set
but with fragments one centimeter out of line. The money, wrist watch and cargo of vegetables were lost.
 Two actions for damages and attorney's fees totalling over P85,000 having been filed in the Court of First
Instance of Tarlac (Cases Nos. 908 and 909) against the carrier, the latter pleaded that the accident was due to
"engine or mechanical trouble" independent or beyond the control of the defendants or of the driver
Bandonell.
 After joint trial, the Court of First Instance found that the bus was proceeding slowly due to the
bad condition of the road; that the accident was caused by the fracture of the right steering knuckle,
which was defective in that its center or core was not compact but "bubbled and cellulous", a condition
 that could not be known or ascertained by the carrier despite the fact that regular thirty-day inspections
were made of the steering knuckle, since the steel exterior was smooth and shiny to the depth of 3/16 of
an inch all around; that the knuckles are designed and manufactured for heavy duty and may last up to
ten years; that the knuckle of bus No. 199 that broke on January 28, 1954, was last inspected on January
5, 1954, and was due to be inspected again on February 5th. Hence, the trial court, holding that the
accident was exclusively due to fortuitous event, dismissed both actions.
 Plaintiffs appealed directly to this Court in view of the amount in controversy.
 We are inclined to agree with the trial court that it is not likely that bus No. 199 of the Philippine Rabbit Lines
was driven over the deeply rutted road leading to the bridge at a speed of 50 miles per hour, as testified for
the plaintiffs.
 Such conduct on the part of the driver would have provoked instant and vehement protest on the part of the
passengers because of the attendant discomfort, and there is no trace of any such complaint in the records.
 We are thus forced to assume that the proximate cause of the accident was the reduced strength of the
steering knuckle of the vehicle caused by defects in casting it. While appellants hint that the broken knuckle
exhibited in court was not the real fitting attached to the truck at the time of the accident, the records they
registered no objection on that ground at the trial below. T

ISSUE: WHETHER OR NOT THE CARRIER IS LIABLE FOR THE MANUFACTURING DEFECT OF THE STEERING
KNUCKLE, AND WHETHER THE EVIDENCE DISCLOSES THAT IN REGARD THERETO THE CARRIER EXERCISED THE
DILIGENCE REQUIRED BY LAW (Art. 1755, new Civil Code).

Ruling: No.

 ART. 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with a due regard for the all the
circumstances.
 It is clear that the carrier is not an insurer of the passengers' safety.
 His liability rests upon negligence, his failure to exercise the "utmost" degree of diligence that the law
requires, and by Art. 1756, in case of a passenger's death or injury the carrier bears the burden of satisfying
the court that he has duly discharged the duty of prudence required.
 In the American law, where the carrier is held to the same degree of diligence as under the new Civil Code, the
rule on the liability of carriers for defects of equipment is thus expressed: "The preponderance of authority is
in favor of the doctrine that a passenger is entitled to recover damages from a carrier for an injury resulting
from a defect in an appliance purchased from a manufacturer, whenever it appears that the defect would
have been discovered by the carrier if it had exercised the degree of care which under the circumstances was
incumbent upon it, with regard to inspection and application of the necessary tests.
 For the purposes of this doctrine, the manufacturer is considered as being in law the agent or servant of the
carrier, as far as regards the work of constructing the appliance.
 According to this theory, the good repute of the manufacturer will not relieve the carrier from liability.
 The rationale of the carrier's liability is the fact that the passenger has neither choice nor control over the
carrier in the selection and use of the equipment and appliances in use by the carrier. Having no privity
whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy
against him, while the carrier usually has.
 It is but logical, therefore, that the carrier, while not in insurer of the safety of his passengers, should
nevertheless be held to answer for the flaws of his equipment if such flaws were at all discoverable. Thus
Hannen, J., in Francis vs. Cockrell, LR 5 Q. B. 184, said:
 In the ordinary course of things, the passenger does not know whether the carrier has himself
manufactured the means of carriage, or contracted with someone else for its manufacture. If the carrier
 has contracted with someone else the passenger does not usually know who that person is, and in no case
has he any share in the selection.
 The liability of the manufacturer must depend on the terms of the contract between him and the
carrier, of which the passenger has no knowledge, and over which he can have no control, while the
carrier can introduce what stipulations and take what securities he may think proper. For injury resulting
to the carrier himself by the manufacturer's want of care, the carrier has a remedy against the
manufacturer; but the passenger has no remedy against the manufacturer for damage arising from a
mere breach of contract with the carrier . . . . Unless, therefore, the presumed intention of the parties be
that the passenger should, in the event of his being injured by the breach of the manufacturer's contract,
of which he has no knowledge, be without remedy, the only way in which effect can be given to a
different intention is by supposing that the carrier is to be responsible to the passenger, and to look for
his indemnity to the person whom he selected and whose breach of contract has caused the mischief. (29
ALR 789)
 And in the leading case of Morgan vs. Chesapeake & O. R. Co. 15 LRA (NS) 790, 16 Ann. Cas. 608, the Court, in
holding the carrier responsible for damages caused by the fracture of a car axle, due to a "sand hole" in the
course of moulding the axle, made the following observations.
 The carrier, in consideration of certain well-known and highly valuable rights granted to it by
the public, undertakes certain duties toward the public, among them being to provide itself with
suitable and safe cars and vehicles in which carry the traveling public.
 There is no such duty on the manufacturer of the cars. There is no reciprocal legal relation
between him and the public in this respect. When the carrier elects to have another build its cars, it ought
not to be absolved by that facts from its duty to the public to furnish safe cars.
 The carrier cannot lessen its responsibility by shifting its undertaking to another's shoulders.
 Its duty to furnish safe cars is side by side with its duty to furnish safe track, and to operate them
in a safe manner. None of its duties in these respects can be sublet so as to relieve it from the full
measure primarily exacted of it by law. The carrier selects the manufacturer of its cars, if it does not itself
construct them, precisely as it does those who grade its road, and lay its tracks, and operate its trains.
That it does not exercise control over the former is because it elects to place that matter in the hands of
the manufacturer, instead of retaining the supervising control itself. The manufacturer should be deemed
the agent of the carrier as respects its duty to select the material out of which its cars and locomotive are
built, as well as in inspecting each step of their construction. If there be tests known to the crafts of car
builders, or iron moulders, by which such defects might be discovered before the part was incorporated
into the car, then the failure of the manufacturer to make the test will be deemed a failure by the carrier
to make it. This is not a vicarious responsibility. It extends, as the necessity of this business demands, the
rule of respondeat superior to a situation which falls clearly within its scope and spirit.
 Where an injury is inflicted upon a passenger by the breaking or wrecking of a part of the train
on which he is riding, it is presumably the result of negligence at some point by the carrier. As stated by
Judge Story, in Story on Bailments, sec. 601a: "When the injury or damage happens to the passenger by
the breaking down or overturning of the coach, or by any other accident occurring on the ground, the
presumption prima facie is that it occurred by the negligence of the coachmen, and onus probandi is on
the proprietors of the coach to establish that there has been no negligence whatever, and that the
damage or injury has been occasioned by inevitable casualty, or by some cause which human care and
foresight could not prevent; for the law will, in tenderness to human life and limb, hold the proprietors
liable for the slightest negligence, and will compel them to repel by satisfactory proofs every imputation
thereof."
 When the passenger has proved his injury as the result of a breakage in the car or the wrecking
of the train on which he was being carried, whether the defect was in the particular car in which he was
riding or not, the burden is then cast upon the carrier to show that it was due to a cause or causes
which the exercise of the utmost human skill and foresight could not prevent. And the carrier in this
 connection must show, if the accident was due to a latent defect in the material or construction of the
car, that not only could it not have discovered the defect by the exercise of such care, but that the
builders could not by the exercise of the same care have discovered the defect or foreseen the result.
 This rule applies the same whether the defective car belonged to the carrier or not.

APPLICATION OF THE CASE

 In the case now before us, the record is to the effect that the only test applied to the steering knuckle in
question was a purely visual inspection every thirty days, to see if any cracks developed.
 It nowhere appears that either the manufacturer or the carrier at any time tested the steering knuckle to
ascertain whether its strength was up to standard, or that it had no hidden flaws would impair that strength.
 And yet the carrier must have been aware of the critical importance of the knuckle's resistance; that its failure
or breakage would result in loss of balance and steering control of the bus, with disastrous effects upon the
passengers.
 No argument is required to establish that a visual inspection could not directly determine whether the
resistance of this critically important part was not impaired. Nor has it been shown that the weakening of the
knuckle was impossible to detect by any known test; on the contrary, there is testimony that it could be
detected.
 We are satisfied that the periodical visual inspection of the steering knuckle as practiced by the carrier's
agents did not measure up to the required legal standard of "utmost diligence of very cautious persons" — "as
far as human care and foresight can provide", and therefore that the knuckle's failure can not be considered a
fortuitous event that exempts the carrier from responsibility (Lasam vs. Smith, 45 Phil. 657; Son vs. Cebu
Autobus Co., 94 Phil., 892.)
 It may be impracticable, as appellee argues, to require of carriers to test the strength of each and every part of
its vehicles before each trip; but we are of the opinion that a due regard for the carrier's obligations toward
the traveling public demands adequate periodical tests to determine the condition and strength of those
vehicle portions the failure of which may endanger the safe of the passengers.
 As to the damages suffered by the plaintiffs, we agree with appellee that no allowance may be made for
moral damages, since under Article 2220 of the new Civil Code, in case of suits for breach of contract, moral
damages are recoverable only where the defendant acted fraudulently or in bad faith, and there is none in
the case before us.
 As to exemplary damages, the carrier has not acted in a "wanton, fraudulent, reckless, oppressive or
malevolent manner" to warrant their award. Hence, we believe that for the minor Precillano Necesito (G. R.
No. L-10605), an indemnity of P5,000 would be adequate for the abrasions and fracture of the femur,
including medical and hospitalization expenses, there being no evidence that there would be any permanent
impairment of his faculties or bodily functions, beyond the lack of anatomical symmetry.
 As for the death of Severina Garces (G. R. No. L-10606) who was 33 years old, with seven minor children when
she died, her heirs are obviously entitled to indemnity not only for the incidental loses of property (cash, wrist
watch and merchandise) worth P394 that she carried at the time of the accident and for the burial expenses of
P490, but also for the loss of her earnings (shown to average P120 a month) and for the deprivation of her
protection, guidance and company. In our judgment, an award of P15,000 would be adequate (cf Alcantara vs.
Surro, 49 Off. Gaz. 2769; 93 Phil., 472).
 The low income of the plaintiffs-appellants makes an award for attorney's fees just and equitable (Civil Code,
Art. 2208, par. 11). Considering that he two cases filed were tried jointly, a fee of P3,500 would be reasonable.
 In view of the foregoing, the decision appealed from is reversed, and the defendants-appellees are sentenced
to indemnify the plaintiffs-appellants in the following amounts: P5,000 to Precillano Necesito, and P15,000 to
the heirs of the deceased Severina Garces, plus P3,500 by way of attorney's fees and litigation expenses. Costs
against defendants-appellees. So ordered.
Philippine Bank of Commerce v Court of Appeals
G.R. No. 97626, March 14, 1997

FACTS:
 Rommel’s Marketing Corporation (RMC represented by President and General Manager Romeo Lipana)
maintained two (2) separate current accounts, Current Account Nos. 53-01980-3 and 53-01748-7, with
the Pasig Branch of PBC in connection with its business of selling appliances.
 From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have entrusted RMC funds in the
form of cash totalling P304,979.74 to his secretary, Irene Yabut, for the purpose of depositing said funds
in the current accounts of RMC with PBC.
 However, the deposits were not credited to RMC’s account but were instead deposited to Account No.
53-01734-7 of Yabut’s husband, Bienvenido Cotas
 Irene Yabut’s modus operandi is far from complicated. She would accomplish two (2) copies of the deposit
slip, an original and a duplicate.
o The original showed the name of her husband as depositor and his current account number.
o On the duplicate copy was written the account number of her husband but the name of the
account holder was left blank.
 PBC’s teller, Azucena Mabayad, would, however, validate and stamp both the original and the duplicate of
these deposit slips retaining only the original copy despite the lack of information on the duplicate slip.
 Upon discovery of the loss of its funds, RMC demanded from petitioner bank the return of its money in
the amount of P304,979.04.
 Its demand went unheeded, RMC filed a complaint to recover from the former Philippine Bank of
Commerce (PBC for brevity), now absorbed by the Philippine Commercial International Bank, the sum of
P304,979.74 representing various deposits it had made in its current account with said bank but which
were not credited to its account, and were instead deposited to the account of one Bienvenido Cotas,
allegedly due to the gross and inexcusable negligence of the petitioner bank.
 The trial court found that defendant Philippine Bank of Commerce, now absorbed by defendant Philippine
Commercial & Industrial Bank, and defendant Azucena Mabayad to pay the plaintiff, jointly and severally,
and without prejudice to any criminal action which may be instituted if found warranted
 On appeal, the appellate court affirmed the foregoing decision with modifications
 Hence, this petition.

ISSUE: Whether or not Philippine Bank of Commerce, now absorbed by defendant Philippine Commercial &
Industrial Bank exercised extraordinary diligence or the degree of diligence more than that of a good father of a
family?
RULING:
 No, the defendant failed to exercise extraordinary diligence.
 The New Civil Code provides:
"ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows bad faith, the provisions of articles
1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required. 
 In the case of banks, however, the degree of diligence required is more than that of a good father of a
family.
 Considering the fiduciary nature of their relationship with their depositors, banks are duty bound to treat
the accounts of their clients with the highest degree of care.
  In the case of Simex International (Manila), Inc. v. Court of Appeals, the court ruled that the depositor
expects the bank to treat his account with the utmost fidelity, whether such account consists only of a
few hundred pesos or of millions.
o The bank must record every single transaction accurately, down to the last centavo, and as
promptly as possible.
o This has to be done if the account is to reflect at any given time the amount of money the
depositor can dispose as he sees fit, confident that the bank will deliver it as and to whomever he
directs.
o A blunder on the part of the bank, such as the failure to duly credit him his deposits as soon as
they are made, can cause the depositor not a little embarrassment if not financial loss and
perhaps even civil and criminal litigation.
 The point is that as a business affected with public interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.
 In the case before us, it is apparent that the petitioner bank was remiss in that duty and violated that
relationship.
 Petitioners nevertheless aver that the failure of respondent RMC to cross-check the bank’s statements of
account with its own records during the entire period of more than one (1) year is the proximate cause of
the commission of subsequent frauds and misappropriation committed by Ms. Irene Yabut.
o Ms. Mabayad failed to observe this very important procedure and it was this negligence, coupled
by the negligence of the petitioner bank in the selection and supervision of its bank teller, which
was the proximate cause of the loss suffered by the private respondent, and not the latter’s act
of entrusting cash to a dishonest employee, as insisted by the petitioners.
 However, it cannot be denied that, indeed, private respondent was likewise negligent in not checking its
monthly statements of account.
 Had it done so, the company would have been alerted to the series of frauds being committed against
RMC by its secretary.
 The damage would definitely not have ballooned to such an amount if only RMC, particularly Romeo
Lipana, had exercised even a little vigilance in their financial affairs.
 This omission by RMC amounts to contributory negligence which shall mitigate the damages that may
be awarded to the private respondent
 The demands of substantial justice are satisfied by allocating the damage on a 60-40 ratio.
 Thus, 40% of the damage awarded by the respondent appellate court, except the award of P25,000.00
attorney’s fees, shall be borne by private respondent RMC; only the balance of 60% needs to be paid by
the petitioners.
E.

Philippine Amusement Enterprises v. Natividad, G.R. No. L- 21876, September 29, 1967

<JUKEBOX case>
Facts:
 On January 6, 1961 the plaintiff, a domestic corporation with main office in Quezon City and a branch
office in Davao City, entered into a contract with the defendant Soledad Natividad, owner of the Irene's
Refreshment Parlor in Davao City, whereby the former leased to the latter an automatic phonograph
(Seeburg Selectomatic 100-R), more popularly known as "jukebox".

 On July 17, 1961, Mariano Natividad, husband of the defendant Soledad Natividad, wrote the following
letter to the plaintiff's branch office in Davao City:
For two (2) weeks ago, I had advised your representative here in Davao to get back your jukebox,
but until today said representative did not mind us. So upon receipt of this letter, you are hereby
 again advised to get the said Jukebox and failure on your part to get it, we shall not be
responsible anymore for the said Jukebox.

 On July 27, 1961 Mariano Natividad wrote another letter to the plaintiff to its main office in Quezon City,
informing it of his letter of July 17 and of the reasons for requesting the return of the jukebox to the
company:
Please may you hear our revelations or relations prior to the advice we had made to your
company regarding our slight difference from your agent, stationed here in Davao City.
1. We requested your agent that the said Jukebox should be inspected once in a while there are
times when the said Jukebox stock up and the coins which will be dropped will just be
confiscated due to the selected record which will not give our selected music.
2. About a year ago, we asked your agent here in Davao City if we could buy your Jukebox. He
replied, "yes" and he will inform the Manila office. From that time, we made always an inquiry if
said matter was already referred to. But we were surprised why until last May we did not hear
any word from your agent. So we decided to order one from the United States.
3. On July 3rd, we advised personally your agent that the said Jukebox should be taken from our
establishment. He answered us that he will report the matter to your Central Office. xxxx

 In its reply of August 4, 1961 the plaintiff stated that —

the stocking up of coins is quite normal in any coin-operated phonograph, as well as failure to get
the desired selection. It has been the policy of our company, however, to give top priority to the
complaints of our customers. It is not clear from your letter whether our Branch Manager for
Davao City has been remiss in his duties. We are willing to give the benefit of the doubt by
concluding that he might have failed to respond to your calls in time and I assure you that
immediate instructions will be issued from this office directing him to give personal attention to
any service that you might wish in connection with the said Jukebox.

 It as well denied knowledge of the defendants' desire to buy a jukebox and deplored the fact that the
defendants ordered one from the United States without first sending the request to buy directly to it since
the plaintiff was anyway willing to sell a jukebox to any interested person.

 On August 4 and October 16, 1961, the plaintiff, through counsel, wrote the defendant spouses,
demanding anew compliance with the lease contract and the payment of damages, and warning them
that it would file the corresponding action in court if they did not comply with its demand. As the
defendants refused the demand, the plaintiff brought action in the CFI of Davao on November 21, 1961,
praying for the return to it of the automatic phonograph, subject of the contract of lease and the payment
of P5,850 as liquidated damages, P5,000 as exemplary damages, P500 as attorney's fees and P400 as
expenses of litigation.

 The plaintiff imputes four errors to the lower court, the vital one being the court's holding that the facts
fully warrant a rescission of the contract of lease in favor of the defendants by reason of the plaintiff's
failure to perform its obligation to render the automatic phonograph suitable for the purpose for which it
was intended.

ISSUE: WON the contract of lease between the plaintiff and the defendant Soledad Natividad should be rescinded
in favor of the defendants for plaintiff's failure to perform its obligation to render the automatic phonograph
suitable for the purpose for which it was intended?
RULING: NO. The contract of lease between the plaintiff and the defendant Soledad Natividad is hereby rescinded
in favor of the plaintiff

 It is our view that the decision of the lower court should be reversed on three grounds.

 First. The power to rescind obligations is implied in reciprocal ones in case one of the obligors should not
comply with what is incumbent upon him.
 So the Civil Code provides. But it is equally settled that, in the absence of a stipulation to the contrary, this
power must be invoked judicially; it cannot be exercised solely on a party's own judgment that the other
has committed a breach of the obligation.
o Hence, as there is nothing in the contract of lease empowering the defendants to rescind it
without resort to the courts, the defendants' action in unilaterally terminating the contract is
unjustified.

 As this Court said in Escueta v. Pando:

The defendant could not, by himself alone and without judicial intervention, resolve or annul the
agreement. Under article 1124 [now art. 1191] of the Civil Code, the right to resolve reciprocal
obligations, in case one of the obligors shall fail to comply with that which is incumbent upon
him, is deemed to be implied. But that right must be invoked judicially for the same article also
provides: "The court shall decree the resolution demanded, unless there should be grounds
which justify the allowance of a term for the performance of the obligation."

 Second. Rescission will be ordered only where the breach complained of is substantial as to defeat the
object of the parties in entering into the agreement. It will not be granted where the breach is slight or
casual.
o The defendants asked the plaintiff to retrieve its phonograph, claiming that there were times
when the coins dropped into the slot would get stuck, resulting in its failure to play the desired
music.
 But apart from this bare statement, there is nothing in the evidence which shows the
frequency with which the jukebox failed to function properly.
o The expression "there are times" connotes occasional failure of the phonograph to operate, not
frequent enough to render it unsuitable and unserviceable. As a matter of fact, there is not even
a claim that, as a result of unsatisfactory performance thereof, the income therefrom dropped to
such a level that the defendants could not even pay the plaintiff its guaranteed share of P50 a
week. On the contrary, the evidence (Stipulation of Facts, Annexes J, K, L, M, N, and O) shows
that, during the period complained of, the operation of the jukebox was quite profitable to both
parties.7

 Third. We believe that the defendants actually bought a jukebox only in 1961 after they had signed the
lease contract in question, although they might have expressed a desire to buy one the year before, for
otherwise they would not have entered into a three-year lease. But certainly their decision to buy a
jukebox and operate it themselves was made long before they ever complained in July, 1961 of any defect
in the rented jukebox.
 To be sure, it is not shown when the rented phonograph supposedly developed trouble; presumably it
was early in July, 1961, since the defendants' first letter of complaint was written on July 17. But if, as
defendants admit, they began operating their own jukebox "sometime in July, 1961" (presumably on July
24, 1961 when they removed the rented jukebox from where it was installed), then the defendants'
pretense that they decided to buy their own jukebox only after the rented one had failed to function
properly becomes highly improbable.
  The jukebox which they ordered from the United States could not have arrived in so short a time as to
enable them to operate it on July 24.

 We are rather inclined to believe that the decision to buy a jukebox was made because the defendants
found it more profitable to operate one themselves. Their letter of July 17, 1961, in which they demanded
the removal of the rented jukebox from their premises, with the warning that they would not be
"responsible anymore" for it, and their other letter of July 27 of like tenor, betray the haste with which
they wanted to get out of their contractual obligations to the plaintiff.
 We note that they did not even ask the plaintiff to service the rented jukebox; they asked the plaintiff to
remove the jukebox or they would charge rental for the use of the space occupied by it.
 The conviction cannot be avoided that the jukebox which the defendants had ordered from the United
States had arrived and the latter thereafter conjured up a reason for operating it without being charged
with violation of the lease contract.
 The defendants' pretenses cannot excuse their culpable violation of the lease contract; their conduct fully
justifies the award of liquidated damages to the plaintiff.

 ACCORDINGLY, the judgment a quo is reversed, and the contract of lease between the plaintiff and the
defendant Soledad Natividad is hereby rescinded in favor of the plaintiff.
o The defendants are ordered to return to the plaintiff the automatic phonograph subject of the
contract, and to pay the plaintiff liquidated damages in the total amount of P5,850, plus 6 per
cent interest from the date of the filing of the complaint until the amount shall have been fully
paid, and attorney's fees

Chavez v. Gonzales G. R. No. 27454 April 30, 1974)

ROSENDO O. CHAVES – Plaintiff

FRUCTUOSO GONZALES – Defendant

FACTS:
 The plaintiff delivered to the defendant, who is a typewriter repairer, a portable typewriter for routine
cleaning and servicing.
 The defendant was not able to finish the job after some time despite repeated reminders made by the
plaintiff.
 In October, 1963, the defendant asked from the plaintiff P6.00 for the purchase of spare parts.
 After getting exasperated with the delay of the repair of the typewriter, the plaintiff went to the house of
the defendant and asked for the return of the typewriter.
 On reaching home, the plaintiff examined the typewriter returned to him by the defendant and found out
that the same was in shambles, with the interior cover and some parts and screws missing.
 Days after, the plaintiff sent a letter to the defendant formally demanding the return of the missing parts,
the interior cover and the sum of P6.00.
 The following day, the defendant returned to the plaintiff some of the missing parts, the interior cover
and the P6.00.
 In August 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job
cost him a total of P89.85.
 In August 1965, the plaintiff commenced an action demanding from the defendant the payment of P90.00
as actual and compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and
P500.00 as attorney’s fees.
 But the court awarded him only P31.10 out of his total claim of P690 00 for actual, temperate and moral
damages and attorney’s fees.
ISSUE: WON defendant is liable under Article 1167 and 1170 of the NCC?
RULING: YES
 It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not
repair the typewriter but returned it "in shambles", according to the appealed decision.
 For such contravention, as appellant contends, he is liable under Article 1167 of the Civil Code for the cost
of executing the obligation in a proper manner.
 The cost of the execution of the obligation in this case should be the cost of the labor or service expended
in the repair of the typewriter, which is in the amount of P58.75 because the obligation or contract was to
repair it.
 In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the
missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but
failed or neglected, to return it in the same condition it was when he received it.
 Hence, the defendant-appellee is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with
interest at the legal rate from the filing of the complaint.

NOTES:
Re Period

 The inferences derivable from these findings of fact are that the appellant and the appellee had a
perfected contract for cleaning and servicing a typewriter.
 That they intended that the defendant was to finish it at some future time although such time was not
specified; and that such time had passed without the work having been accomplished, far the defendant
returned the typewriter cannibalized and unrepaired, which in itself is a breach of his obligation, without
demanding that he should be given more time to finish the job, or compensation for the work he had
already done.
 The time for compliance having evidently expired, and there being a breach of contract by non-
performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the
performance of the contract before filing his complaint in this case.
 The fixing of a period would thus be a mere formality and would serve no purpose than to delay

Re Damages & Atty’s Fees

 Appellant’s claims for moral and temperate damages and attorney’s fees were, however, correctly
rejected by the trial court, for these were not alleged in his complaint.

F.

Abella v. Abella, G.R. No.195166, July 8, 2015

Facts:
 Case Background
o The assailed September 30, 2010 Decision of the Court of Appeals reversed and set aside the
December 28, 2005 Decision of the Regional Trial Court, Branch 8, Kalibo, Aklan in Civil Case No.
6627.
o It directed petitioners to pay respondents P148,500.00 (plus interest), which was the amount
respondents supposedly overpaid.
o The assailed January 4, 2011 Resolution of the Court of Appeals denied petitioners’ Motion for
Reconsideration.
o The Regional Trial Court’s December 28, 2005 Decision ordered respondents to pay petitioners
the supposedly unpaid loan balance of P300,000.00 plus the allegedly stipulated interest rate of
30% per annum, as well as litigation expenses and attorney’s fees.
  On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of money and
damages with prayer for preliminary attachment against respondents Spouses Romeo and Annie Abella
before the Regional Trial Court, Branch 8, Kalibo, Aklan.
 The case was docketed as Civil Case No. 6627.
 In their Complaint, petitioners alleged that respondents obtained a loan from them in the amount of
P500,000.00.
 The loan was evidenced by an acknowledgment receipt dated March 22, 1999 and was payable within one
(1) year.
 Petitioners added that respondents were able to pay a total of P200,000.00—P100,000.00 paid on two
separate occasions—leaving an unpaid balance of P300,000.00.
 In their Answer (with counterclaim and motion to dismiss), respondents alleged that the amount involved
did not pertain to a loan they obtained from petitioners but was part of the capital for a joint venture
involving the lending of money.
 Specifically, respondents claimed that they were approached by petitioners, who proposed that if
respondents were to “undertake the management of whatever money [petitioners] would give them,
[petitioners] would get 2.5% a month with a 2.5% service fee to [respondents].”
 The 2.5% that each party would be receiving represented their sharing of the 5% interest that the joint
venture was supposedly going to charge against its debtors.
 Respondents further alleged that the one year averred by petitioners was not a deadline for payment but
the term within which they were to return the money placed by petitioners should the joint venture prove
to be not lucrative.
 Moreover, they claimed that the entire amount of P500,000.00 was disposed of in accordance with their
agreed terms and conditions and that petitioners terminated the joint venture, prompting them to collect
from the joint venture’s borrowers.
 They were, however, able to collect only to the extent of P200,000.00; hence, the P300,000.00 balance
remained unpaid.
 In the Decision dated December 28, 2005, the Regional Trial Court ruled in favor of petitioners.
o It noted that the terms of the acknowledgment receipt executed by respondents clearly showed
that: (a) respondents were indebted to the extent of P500,000.00; (b) this indebtedness was to
be paid within one (1) year; and (c) the indebtedness was subject to interest.
o Thus, the trial court concluded that respondents obtained a simple loan, although they later
invested its proceeds in a lending enterprise.
o The Regional Trial Court adjudged respondents solidarity liable to petitioners.
o In the Order dated March 13, 2006,the Regional Trial Court denied respondents’ Motion for
Reconsideration.
 On respondents’ appeal, the Court of Appeals ruled that while respondents had indeed entered into a
simple loan with petitioners, respondents were no longer liable to pay the outstanding amount of
P300,000.00.
 The Court of Appeals reasoned that the loan could not have earned interest, whether as contractually
stipulated interest or as interest in the concept of actual or compensatory damages.
 As to the loan’s not having earned stipulated interest, the Court of Appeals anchored its ruling on Article
1956 of the Civil Code, which requires interest to be stipulated in writing for it to be due.
 The Court of Appeals noted that while the acknowledgement receipt showed that interest was to be
charged, no particular interest rate was specified.
 Thus, at the time respondents were making interest payments of 2.5% per month, these interest
payments were invalid for not being properly stipulated by the parties.
 In the Resolution dated January 4, 2011, the Court of Appeals denied petitioners’ Motion for
Reconsideration.

Issue:
Whether or not the Court of Appeals erred in completely striking off interest despite the parties’ written
agreement stipulating it, as well as in ordering them to reimburse and pay interest to respondents.
Ruling:
 YES.
 As noted by the Court of Appeals and the Regional Trial Court, respondents entered into a simple loan or
mutuum, rather than a joint venture, with petitioners.
 Respondents’ claims, as articulated in their testimonies before the trial court, cannot prevail over the
clear terms of the document attesting to the relation of the parties.
 “If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.”
 Articles 1933 and 1953 of the Civil Code provide the guideposts that determine if a contractual relation is
one of simple loan or mutuum:
o Art. 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case
the contract is called a commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall be paid, in which case the contract is
simply called a loan or mutuum.
 Commodatum is essentially gratuitous.
 Simple loan may be gratuitous or with a stipulation to pay interest.
 In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower.
 Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality. (Emphasis
supplied)
 On March 22, 1999, respondents executed an acknowledgment receipt to petitioners, which states:

Batan, Aklan

March 22, 1999

This is to acknowledge receipt of the Amount of Five Hundred Thousand (P500,000.00) Pesos
from Mrs. Alma R. Abella, payable within one (1) year from date hereof with interest.

Annie C. Abella (sgd.) Romeo M. Abella (sgd.)(Emphasis supplied)

 The text of the acknowledgment receipt is uncomplicated and straightforward.

 It attests to: first, respondents’ receipt of the sum of P500,000.00 from petitioner Alma Abella; second,
respondents’ duty to pay tack this amount within one (1) year from March 22, 1999; and third,
respondents’ duty to pay interest.
 Consistent with what typifies a simple loan, petitioners delivered to respondents with the corresponding
condition that respondents shall pay the same amount to petitioners within one (1) year.
 Although we have settled the nature of the contractual relation between petitioners and respondents,
controversy persists over respondents’ duty to pay conventional interest, i.e., interest as the cost of
borrowing money.
 Article 1956 of the Civil Code spells out the basic rule that “[n]o interest shall be due unless it has been
expressly stipulated in writing.”
 On the matter of interest, the text of the acknowledgment receipt is simple, plain, and unequivocal.
 It attests to the contracting parties’ intent to subject to interest the loan extended by petitioners to
respondents.
 The controversy, however, stems from the acknowledgment receipt’s failure to state the exact rate of
interest.
 Jurisprudence is clear about the applicable interest rate if a written instrument fails to specify a rate.
 In Spouses Toring v. Spouses Olan, this court clarified the effect of Article 1956 of the Civil Code and noted
that the legal rate of interest (then at 12%) is to apply: “In a loan or forbearance of money, according to
the Civil Code, the interest due should be that stipulated in writing, and in the absence thereof, the rate
shall be 12% per annum.”
 Spouses Toring cites and restates (practically verbatim) what this court settled in Security Bank and Trust
Company v. Regional Trial Court of Makati, Branch 61: “In a loan or forbearance of money, the interest
due should be that stipulated in writing, and in the absence thereof the rate shall be 12% per annum.”
 Security Bank also refers to Eastern Shipping Lines, Inc. v. Court of Appeals, which, in turn, stated:
o When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing.
o Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded.
o 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. (Emphasis supplied)
 The rule is not only definite; it is cast in mandatory language.
 From Eastern Shipping to Security Bank to Spouses Toring, jurisprudence has repeatedly used the word
“shall,” a term that has long been settled to denote something imperative or operating to impose a duty.
 Thus, the rule leaves no room for alternatives or otherwise does not allow for discretion.
 It requires the application of the legal rate of interest.
 Our intervening Decision in Nacar v. Gallery Frames recognized that the legal rate of interest has been
reduced to 6% per annum:
o Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution
No. 796 dated May 16, 2013, approved the amendment of Section 2 of Circular No. 905, Series of
1982 and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the
pertinent portion of which reads:
o The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:
o Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall
be six percent (6%) per annum.
o Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions are hereby amended accordingly.
o This Circular shall take effect on 1 July 2013.

 Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and
the rate allowed in judgments shall no longer be twelve percent (12%) per annum — as reflected in the
case of Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations for Banks and Sections
4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its
amendment by BSP-MB Circular No. 799 — but will now be six percent (6%) per annum effective July 1,
2013.
 It should be noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively.
 Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013.
 Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when
applicable. (Emphasis supplied, citations omitted)
 Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013 and Nacar retain the
definite and mandatory framing of the rule articulated in Eastern Shipping, Security Bank, and Spouses
Toring. Nacar even restates Eastern Shipping:
o To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows:
o When the obligation is breached, and it consists in the payment of a sum of money, i.e., a Joan or
forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code. (Emphasis supplied, citations omitted)
 Thus, it remains that where interest was stipulated in writing by the debtor and creditor in a simple loan
or mutuum, but no exact interest rate was mentioned, the legal rate of interest shall apply.
 At present, this is 6% per annum, subject to Nacar‘s qualification on prospective application.
 Applying this, the loan obtained by respondents from petitioners is deemed subjected to conventional
interest at the rate of 12% per annum, the legal rate of interest at the time the parties executed their
agreement.
 Moreover, should conventional interest still be due as of July 1, 2013, the rate of 12% per annum shall
persist as the rate of conventional interest.
 This is so because interest in this respect is used as a surrogate for the parties’ intent, as expressed as of
the time of the execution of their contract.
 In this sense, the legal rate of interest is an affirmation of the contracting parties’ intent; that is, by their
contract’s silence on a specific rate, the then prevailing legal rate of interest shall be the cost of borrowing
money.
 This rate, which by their contract the parties have settled on, is deemed to persist regardless of shifts in
the legal rate of interest.
 Stated otherwise, the legal rate of interest, when applied as conventional interest, shall always be the
legal rate at the time the agreement was executed and shall not be susceptible to shifts in rate.
 Petitioners, however, insist on conventional interest at the rate of 2.5% per month or 30% per annum.
 They argue that the acknowledgment receipt fails to show the complete and accurate intention of the
contracting parties.
 They rely on Article 1371 of the Civil Code, which provides that the contemporaneous and subsequent
acts of the contracting parties shall be considered should there be a need to ascertain their intent.
 In addition, they claim that this case falls under the exceptions to the Parol Evidence Rule, as spelled out
in Rule 130, Section 9 of the Revised Rules on Evidence.
 It is a basic precept in legal interpretation and construction that a rule or provision that treats a subject
with specificity prevails over a rule or provision that treats a subject in general terms.
 The rule spelled out in Security Bank and Spouses Toring is anchored on Article 1956 of the Civil Code and
specifically governs simple loans or mutuum.
 Mutuum is a type of nominate contract that is specifically recognized by the Civil Code and for which the
Civil Code provides a specific set of governing rules: Articles 1953 to 1961.
 In contrast, Article 1137 is among the Civil Code provisions generally dealing with contracts.
 As this case particularly involves a simple loan, the specific rule spelled out in Security Bank and Spouses
Toring finds preferential application as against Article 1371.
 Contrary to petitioners’ assertions, there is no room for entertaining extraneous (or parol) evidence.
 Even if it can be shown that the parties have agreed to monthly interest at the rate of 2.5%, this is
unconscionable.
 As emphasized in Castro v. Tan,the willingness of the parties to enter into a relation involving an
unconscionable interest rate is inconsequential to the validity of the stipulated rate.
 The legal rate of interest is the presumptive reasonable compensation for borrowed money.
 While parties are free to deviate from this, any deviation must be reasonable and fair.
  Any deviation that is far-removed is suspect. Thus, in cases where stipulated interest is more than twice
the prevailing legal rate of interest, it is for the creditor to prove that this rate is required by prevailing
market conditions.
 Here, petitioners have articulated no such justification.
 In sum, Article 1956 of the Civil Code, read in light of established jurisprudence, prevents the application
of any interest rate other than that specifically provided for by the parties in their loan document or, in
lieu of it, the legal rate.
 Here, as the contracting parties failed to make a specific stipulation, the legal rate must apply.
 Moreover, the rate that petitioners adverted to is unconscionable.
 The conventional interest due on the principal amount loaned by respondents from petitioners is held to
be 12% per annum.
 Apart from respondents’ liability for conventional interest at the rate of 12% per annum, outstanding
conventional interest—if any is due from respondents—shall itself earn legal interest from the time
judicial demand was made by petitioners, i.e., on July 31, 2002, when they filed their Complaint.
 This is consistent with Article 2212 of the Civil Code, which provides: Art. 2212. Interest due shall earn
legal interest from the time it is judicially demanded, although the obligation may be silent upon this
point.
 So, too, Nacar states that “the interest due shall itself earn legal interest from the time it is judicially
demanded.”
 Consistent with Nacar, as well as with our ruling in Rivera v. Spouses Chua, the interest due on
conventional interest shall be at the rate of 12% per annum from July 31, 2002 to June 30, 2013.
 Thereafter, or starting July 1, 2013, this shall be at the rate of 6% per annum.
 Proceeding from these premises, we find that respondents made an overpayment in the amount of
P3,379.17.
 As respondents made an overpayment, the principle of solutio indebiti as provided by Article 2154 of the
Civil Codeapplies. Article 2154 reads:
o Article 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.

Social Security System v. Moonwalk Development, G.R. No. 73345, April 7, 1993

Even if there is a period agreed upon, demand is necessary because the fulfillment of the period merely makes the
obligation merely demandable.

FACTS:
 On October 6, 1971, plaintiff SSS approved the application of defendant Moonwalk for an interim loan in
the amount of P30 million for the purpose of developing and constructing a housing project in the
provinces of Rizal and Cavite
 Out of the approved loan of P30 million, the sum of P9,595,000 was released to defendant Moonwalk as
of November 28, 1973
 A third Amended Deed of First Mortgage was executed on December 18, 1973, providing for
restructuring of the payment of the released amount of P9,595,000
 On July 23, 1974, after considering additional releases in the amount of P2,659,700 made to defendant
Moonwalk, defendant Moonwalk delivered to the plaintiff a promissory note for P12,254,700, signed by
Eusebio T. Ramos, and the said Rosita U. Alberto and Rosita U. Alberto
 Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of P12,254,700.00
released to it
 The last payment made by Moonwalk in the amount of P15,004,905.74 were based on the Statement of
Account prepared by plaintiff SSS for defendant
o After settlement of the account, plaintiff issued to defendant Moonwalk the Release of
Mortgage for Moonwalk’s mortgaged properties in Cavite and Rizal
  In letters to defendant Moonwalk, and followed up by another letter, plaintiff alleged that it committed
an honest mistake in releasing the defendant.
o Defendant’s counsel told plaintiff that it had completely paid its obligations to SSS
 On February 20, 1980, SSS filed a complaint in the CFI of Rizal against Moonwalk alleging that the former
had committed an error in failing to compute the 12% interest due on delayed payments on the loan of
Moonwalk—resulting in a chain of errors in the application of payments made by Moonwalk and, in an
unpaid balance on the principal loan agreement in the amount of P7,053.77 and, also in not reflecting in
its statement of account an unpaid balance on the said penalties for delayed payments in the amount of
P7,517,178.21 as of October 10, 1979.
 The trial court dismissed the complaint on the ground that the obligation was already extinguished by the
payment by Moonwalk of its indebtedness to SSS and by the latter’s act of cancelling the real estate
mortgages executed in its favor by defendant Moonwalk.
 MR dismissed. On appeal, it held that Moonwalk’s obligation was extinguished and affirmed the trial
court.
 Hence, this petition.

ISSUE: Is the penalty demandable even after the extinguishment of the principal obligation?

RULING:
 No. Since the obligation has been fully complied with and extinguished, the penal clause has lost its raison
d’ entre.
 A penal clause is an accessory undertaking to assume greater liability in case of breach.
 It has a double function:
(1) To provide for liquidated damages, and
(2) To strengthen the coercive force of the obligation by the threat of greater responsibility in the
event of breach.
 From the foregoing, it is clear that a penal clause is intended to prevent the obligor from defaulting in the
performance of his obligation.
 Thus, if there should be default, the penalty may be enforced.

When does delay arise?

 Under the Civil Code, delay begins from the time the obligee judicially or extrajudicially demands from
the obligor the performance of the obligation. [Article 1169, NCC]
 There are only three instances when demand is not necessary to render the obligor in default.
 These are the following:
(1) When the obligation or the law expressly so declares;
(2) When from the nature and the circumstances of the obligation it appears that the designation of
the time when the thing is to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or
(3) When the demand would be useless, as when the obligor has rendered it beyond his power to
perform.

Application
 This case does not fall within any of the established exceptions.
 Hence, despite the provision in the promissory note that “all amortization payments shall be made every
first five (5) days of the calendar month until the principal and interest on the loan or any portion thereof
actually released has been fully paid,” the petitioner is not excused from making a demand.
 It has been established that at the time of payment of the full obligation, private respondent Moonwalk
has long been delinquent in meeting its monthly arrears and in paying the full amount of the loan itself as
the obligation matured sometime in January, 1977
 But mere delinquency in payment does not necessarily mean delay in the legal concept.
  To be in default “xxx is different from mere delay in the grammatical sense, because it involves the
beginning of a special condition or status which has its own peculiar effects or results.”
 In order that the debtor may be in default it is necessary that the following requisites be present:
(1) That the obligation be demandable and already liquidated;
(2) That the debtor delays performance; and
(3) That the creditor requires the performance judicially and extrajudicially.
 Default generally begins from the moment the creditor demands the performance of the obligation.

 In this case, nowhere did it appear that SSS demanded from Moonwalk the payment of its monthly
amortizations.
 Neither did it show that petitioner demanded the payment of the stipulated penalty upon the failure of
Moonwalk to meet its monthly amortization.
 What the complaint itself showed was that SSS tried to enforce the obligation sometime in September,
1977 by foreclosing the real estate mortgages executed by Moonwalk in favor of SSS.
 But this foreclosure did not push through upon Moonwalk’s requests and promises to pay in full.
 The next demand for payment happened on October 1, 1979 when SSS issued a Statement of Account to
Moonwalk.
 And in accordance with said statement, Moonwalk paid its loan in full.
 Therefore, what is clear is that Moonwalk was never in default because SSS never compelled
performance.
o Though it tried to foreclose the mortgages, SSS itself desisted from doing so upon the entreaties
of Moonwalk.
o If the Statement of Account could properly be considered as demand for payment, the demand
was complied with on time.
 Hence, no delay occurred and there was, therefore, no occasion when the penalty became demandable
and enforceable.
 Since there was no default in the performance of the main obligation—payment of the loan— SSS was
never entitled to recover any penalty, not at the time it made the Statement of Account and certainly,
not after the extinguishment of the principal obligation because then, all the more that SSS had no
reason to ask for the penalties.
 Thus, there could never be any occasion for waiver or even mistake in the application for payment
because there was nothing for SSS to waive as its right to enforce the penalty did not arise.

Rivera v Chua, G.R. No. 184458, January 14, 2015

Doctrine: However, demand is not necessary if the obligation expressly states that
after the period lapses, default will commence

 Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing the
CA’s decision which affirmed with modification the separate rulings of the Manila City trial courts, the Regional
Trial Court and the Metropolitan Trial Court (MeTC), a case for collection of a sum of money due a promissory
note.
 While all three (3) lower courts upheld the validity and authenticity of the promissory note as duly signed by
the obligor, Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the appellate court modified the trial
courts’ consistent awards: (1) the stipulated interest rate of sixty percent (60%) reduced to twelve percent
(12%) per annum computed from the date of judicial or extrajudicial demand, and (2) reinstatement of the
award of attorney’s fees also in a reduced amount of P50,000.00.
 In G.R. No. 184458, Rivera persists in his contention that there was no valid promissory note and questions
the entire ruling of the lower courts. On the other hand, petitioners in G.R. No. 184472, Spouses Salvador
and Violeta Chua (Spouses Chua), take exception to the appellate court’s reduction of the stipulated interest
rate of sixty percent (60%) to twelve percent (12%) per annum.
FACTS:
 The parties were friends of long standing having known each other since 1973: Rivera and Salvador are
kumpadres, the former is the godfather of the Spouses Chua’s son.
 On 24 February 1995, Rivera obtained a loan from the Spouses Chua for the amount of 120,000.00
 Promissory Note. FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR
C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency
(P120,000.00) on December 31, 1995.
 It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE
PERCENT (5%) interest monthly from the date of default until the entire obligation is fully paid for.
 Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent
to twenty percent (20%) of the total amount due and payable as and for attorney’s fees which in no case
shall be less than P5,000.00 and to pay in addition the cost of suit and other incidental litigation expense.
 Any action which may arise in connection with this note shall be brought in the proper Court of
the City of Manila. Dated Manila, February 24, 1995 (SGD.) RODRIGO RIVERA4
 In October 1998, almost three years from the date of payment stipulated in the promissory note, Rivera, as
partial payment for the loan, issued and delivered to the Spouses Chua, as payee, a check numbered
012467, dated 30 December 1998, drawn against Rivera’s current account with the Philippine Commercial
International Bank (PCIB) in the amount of P25,000.00.
 On 21 December 1998, the Spouses Chua received another check presumably issued by Rivera, likewise drawn
against Rivera’s PCIB current account, numbered 013224, duly signed and dated, but blank as to payee and
amount.
 Ostensibly, as per understanding by the parties, PCIB Check No. 013224 was issued in the amount of
P133,454.00 with “cash” as payee. Purportedly, both checks were simply partial payment for Rivera’s loan in
the principal amount of P120,000.00.
 Upon presentment for payment, the two checks were dishonored for the reason “account closed.”
 As of 31 May 1999, the amount due the Spouses Chua was pegged at P366,000.00 covering the principal of
P120,000.00 plus five percent (5%) interest per month from 1 January 1996 to 31 May 1999.
 The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail. Because of
Rivera’s unjustified refusal to pay, the Spouses Chua were constrained to file a suit on 11 June 1999. The
case was raffled before the MeTC, Branch 30, Manila and docketed as Civil Case No. 163661.
 In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never executed the subject
Promissory Note; (2) in all instances when he obtained a loan from the Spouses Chua, the loans were always
covered by a security; (3) at the time of the filing of the complaint, he still had an existing indebtedness to the
Spouses Chua, secured by a real estate mortgage, but not yet in default; (4) PCIB Check No. 132224 signed by
him which he delivered to the Spouses Chua on 21 December 1998, should have been issued in the amount of
only P1,300.00, representing the amount he received from the Spouses Chua’s saleslady; (5) contrary to the
supposed agreement, the Spouses Chua presented the check for payment in the amount of P133,454.00; and
(6) there was no demand for payment of the amount of P120,000.00 prior to the encashment of PCIB Check
No. 0132224.
 In the main, Rivera claimed forgery of the subject Promissory Note and denied his indebtedness thereunder.
 The MeTC summarized the testimonies of both parties’ respective witnesses:
 The spouses Chua’s] evidence include[s] documentary evidence and oral evidence (consisting of the
testimonies of [the spouses] Chua and NBI Senior Documents Examiner Antonio Magbojos).
 Witness Magbojos enumerated his credentials as follows: joined the NBI (1987); NBI document examiner
(1989); NBI Senior Document Examiner (1994 to the date he testified); registered criminologist; graduate of
18th Basic Training Course [i]n Questioned Document Examination conducted by the NBI; twice attended a
seminar on US Dollar Counterfeit Detection conducted by the US Embassy in Manila; attended a seminar on
 Effective Methodology in Teaching and Instructional design conducted by the NBI Academy; seminar lecturer
on Questioned Documents, Signature Verification and/or Detection; had examined more than a hundred
thousand questioned documents at the time he testified.
 Upon METC’s order, Mr. Magbojos examined the purported signature of [Rivera] appearing in the Promissory
Note and compared the signature thereon with the specimen signatures of [Rivera] appearing on several
documents.
 After a thorough study, examination, and comparison of the signature on the questioned document
(Promissory Note) and the specimen signatures on the documents submitted to him, he concluded that the
questioned signature appearing in the Promissory Note and the specimen signatures of [Rivera] appearing
on the other documents submitted were written by one and the same person.
 In connection with his findings, Magbojos prepared Questioned Documents Report No. 712-1000 dated 8
January 2001, with the following conclusion: “The questioned and the standard specimen signatures
RODGRIGO RIVERA were written by one and the same person.”
 After trial, the MeTC ruled in favor of the Spouses Chua.
 On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the MeTC, but deleted the
award of attorney’s fees to the Spouses Chua.
 Both trial courts found the Promissory Note as authentic and validly bore the signature of Rivera.
 Undaunted, Rivera appealed to the Court of Appeals which affirmed Rivera’s liability under the Promissory
Note, reduced the imposition of interest on the loan from 60% to 12% per annum, and reinstated the award of
attorney’s fees in favor of the Spouses Chua.
 Hence, these consolidated petitions for review on certiorari of Rivera.

ISSUE RELATED TO SIR ESTO’s:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT DEMAND IS NO LONGER
NECESSARY AND IN APPLYING THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS LAW.
RULING:
 No. The CA correctly ruled that demand is no longer necessary.
 Rivera next argues that even assuming the validity of the Promissory Note, demand was still necessary in order
to charge him liable thereunder. Rivera argues that it was grave error on the part of the appellate court to
apply Section 70 of the Negotiable Instruments Law (NIL).
 We agree that the subject promissory note is not a negotiable instrument and the provisions of the NIL do
not apply to this case.
 Section 1 of the NIL requires the concurrence of the following elements to be a negotiable instrument:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory note is:
SECTION 184. Promissory Note, Defined. – A negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is
drawn to the maker’s own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses Chua, and not to
order or to bearer, or to the order of the Spouses Chua as payees.
 However, even if Rivera’s Promissory Note is not a negotiable instrument and therefore outside the
coverage of Section 70 of the NIL which provides that presentment for payment is not necessary to charge
 the person liable on the instrument, Rivera is still liable under the terms of the Promissory Note that he
issued.
 The Promissory Note is unequivocal about the date when the obligation falls due and becomes demandable
—31 December 1995. As of 1 January 1996, Rivera had already incurred in delay when he failed to pay the
amount of P120,000.00 due to the Spouses Chua on 31 December 1995 under the Promissory Note.
 Article 1169 of the Civil Code explicitly provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
 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. From the moment one of the parties fulfills his
obligation, delay by the other begins. (Emphasis supplied)
 There are four instances when demand is not necessary to constitute the debtor in default: (1) when there is
an express stipulation to that effect; (2) where the law so provides; (3) when the period is the controlling
motive or the principal inducement for the creation of the obligation; and (4) where demand would be
useless. In the first two paragraphs, it is not sufficient that the law or obligation fixes a date for performance; it
must further state expressly that after the period lapses, default will commence.
 We refer to the clause in the Promissory Note containing the stipulation of interest
 It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One Hundred Twenty
Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest
monthly from the date of default until the entire obligation is fully paid for
 which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the “date of default” until the
entire obligation is fully paid for. The parties evidently agreed that the maturity of the obligation at a date
certain, 31 December 1995, will give rise to the obligation to pay interest. The Promissory Note expressly
provided that after 31 December 1995, default commences and the stipulation on payment of interest starts.
 The date of default under the Promissory Note is 1 January 1996, the day following 31 December 1995, the
due date of the obligation. On that date, Rivera became liable for the stipulated interest which the
Promissory Note says is equivalent to 5% a month.
 In sum, until 31 December 1995, demand was not necessary before Rivera could be held liable for the
principal amount of P120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became liable to pay
the Spouses Chua damages, in the form of stipulated interest.
 The liability for damages of those who default, including those who are guilty of delay, in the performance of
their obligations is laid down on Article 117024 of the Civil Code.
 Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity for damages
when the obligor incurs in delay:
 Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.
(Emphasis supplied)
 Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of money; (2) the
debtor, Rivera, incurred in delay when he failed to pay on or before 31 December 1995; and (3) the Promissory
Note provides for an indemnity for damages upon default of Rivera which is the payment of a 5% monthly
interest from the date of default.
 We do not consider the stipulation on payment of interest in this case as a penal clause although Rivera, as
obligor, assumed to pay additional 5% monthly interest on the principal amount of P120,000.00 upon default.
 Article 1226 of the Civil Code provides:
 Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the
fulfillment of the obligation.
 The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.
 The penal clause is generally undertaken to insure performance and works as either, or both, punishment and
reparation. It is an exception to the general rules on recovery of losses and damages. As an exception to the
general rule, a penal clause must be specifically set forth in the obligation.25chanRoblesvirtualLawlibrary
 In high relief, the stipulation in the Promissory Note is designated as payment of interest, not as a penal
clause, and is simply an indemnity for damages incurred by the Spouses Chua because Rivera defaulted in the
payment of the amount of P120,000.00. The measure of damages for the Rivera’s delay is limited to the
interest stipulated in the Promissory Note. In apt instances, in default of stipulation, the interest is that
provided by law.
 In this instance, the parties stipulated that in case of default, Rivera will pay interest at the rate of 5% a month
or 60% per annum. On this score, the appellate court ruled:
 It bears emphasizing that the undertaking based on the note clearly states the date of payment to be 31
December 1995. Given this circumstance, demand by the creditor is no longer necessary in order that delay
may exist since the contract itself already expressly so declares. The mere failure of [Spouses Chua] to
immediately demand or collect payment of the value of the note does not exonerate [Rivera] from his liability
therefrom. Verily, the trial court committed no reversible error when it imposed interest from 1 January 1996
on the ratiocination that [Spouses Chua] were relieved from making demand under Article 1169 of the Civil
Code.
 As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in addition to legal
interests and attorney’s fees is, indeed, highly iniquitous and unreasonable. Stipulated interest rates are illegal
if they are unconscionable and the Court is allowed to temper interest rates when necessary. Since the
interest rate agreed upon is void, the parties are considered to have no stipulation regarding the interest rate,
thus, the rate of interest should be 12% per annum computed from the date of judicial or extrajudicial
demand.
 The appellate court found the 5% a month or 60% per annum interest rate, on top of the legal interest and
attorney’s fees, steep, tantamount to it being illegal, iniquitous and unconscionable.
 Significantly, the issue on payment of interest has been squarely disposed of in G.R. No. 184472 denying the
petition of the Spouses Chua for failure to sufficiently show any reversible error in the ruling of the appellate
court, specifically the reduction of the interest rate imposed on Rivera’s indebtedness under the Promissory
Note. Ultimately, the denial of the petition in G.R. No. 184472 is res judicata in its concept of “bar by prior
judgment” on whether the Court of Appeals correctly reduced the interest rate stipulated in the Promissory
Note.
 Res judicata applies in the concept of “bar by prior judgment” if the following requisites concur: (1) the former
judgment or order must be final; (2) the judgment or order must be on the merits; (3) the decision must have
been rendered by a court having jurisdiction over the subject matter and the parties; and (4) there must be,
between the first and the second action, identity of parties, of subject matter and of causes of action.

ISSUE 1:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE RULING OF THE RTC AND
MeTC THAT THERE WAS A VALID PROMISSORY NOTE EXECUTED BY [RIVERA].
RULING:
 No.
 Rivera failed to adduce clear and convincing evidence that the signature on the promissory note is a forgery.
The fact of forgery cannot be presumed but must be proved by clear, positive and convincing evidence. Mere
variance of signatures cannot be considered as conclusive proof that the same was forged. Save for the denial
of Rivera that the signature on the note was not his, there is nothing in the records to support his claim of
forgery. And while it is true that resort to experts is not mandatory or indispensable to the examination of
alleged forged documents, the opinions of handwriting experts are nevertheless helpful in the court’s
determination of a document’s authenticity.
 To be sure, a bare denial will not suffice to overcome the positive value of the promissory note and the
testimony of the NBI witness. In fact, even a perfunctory comparison of the signatures offered in evidence
would lead to the conclusion that the signatures were made by one and the same person.
 It is a basic rule in civil cases that the party having the burden of proof must establish his case by
preponderance of evidence, which simply means “evidence which is of greater weight, or more convincing
than that which is offered in opposition to it.”
 Evaluating the evidence on record, we are convinced that [the Spouses Chua] have established a prima facie
case in their favor, hence, the burden of evidence has shifted to [Rivera] to prove his allegation of forgery.
Unfortunately for [Rivera], he failed to substantiate his defense.
 Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by
the appellate court, are accorded the highest degree of respect and are considered conclusive between the
parties. A review of such findings by this Court is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court are grounded entirely on speculation, surmises or
conjectures; (2) when a lower court's inference from its factual findings is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of the
appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if properly
considered, will justify a different conclusion; (5) when there is a misappreciation of facts; (6) when the
findings of fact are conclusions without mention of the specific evidence on which they are based, are
premised on the absence of evidence, or are contradicted by evidence on record.16 None of these exceptions
obtains in this instance. There is no reason to depart from the separate factual findings of the three (3) lower
courts on the validity of Rivera’s signature reflected in the Promissory Note.
 Indeed, Rivera had the burden of proving the material allegations which he sets up in his Answer to the
plaintiff’s claim or cause of action, upon which issue is joined, whether they relate to the whole case or only to
certain issues in the case.

Application:
 In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the testimony of a handwriting
expert from the NBI. While it is true that resort to experts is not mandatory or indispensable to the
examination or the comparison of handwriting, the trial courts in this case, on its own, using the handwriting
expert testimony only as an aid, found the disputed document valid.
 Hence, the MeTC ruled that:
 [Rivera] executed the Promissory Note after consideration of the following: categorical
statement of [respondent] Salvador that [Rivera] signed the Promissory Note before him, in his ([Rivera’s])
house; the conclusion of NBI Senior Documents Examiner that the questioned signature (appearing on the
Promissory Note) and standard specimen signatures “Rodrigo Rivera” “were written by one and the same
person”; actual view at the hearing of the enlarged photographs of the questioned signature and the
standard specimen signatures.
 Specifically, Rivera insists that: “[i]f that promissory note indeed exists, it is beyond logic for a
money lender to extend another loan on May 4, 1998 secured by a real estate mortgage, when he was
already in default and has not been paying any interest for a loan incurred in February 1995.”
 We disagree.
 It is likewise likely that precisely because of the long standing friendship of the parties as “kumpadres,” Rivera
was allowed another loan, albeit this time secured by a real estate mortgage, which will cover Rivera’s loan
should Rivera fail to pay.
 There is nothing inconsistent with the Spouses Chua’s two (2) and successive loan accommodations to Rivera:
one, secured by a real estate mortgage and the other, secured by only a Promissory Note.
 Also completely plausible is that given the relationship between the parties, Rivera was allowed a substantial
amount of time before the Spouses Chua demanded payment of the obligation due under the Promissory
Note.
 In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery and a discordant defense
to assail the authenticity and validity of the Promissory Note. Although the burden of proof rested on the
Spouses Chua having instituted the civil case and after they established a prima facie case against Rivera, the
burden of evidence shifted to the latter to establish his defense.
 Consequently, Rivera failed to discharge the burden of evidence, refute the existence of the Promissory Note
duly signed by him and subsequently, that he did not fail to pay his obligation thereunder.
 On the whole, there was no question left on where the respective evidence of the parties preponderated—in
favor of plaintiffs, the Spouses Chua.

OTHER NOTES:
 In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of parties and subject matter
raising specifically errors in the Decision of the Court of Appeals. Where the Court of Appeals’ disposition on
the propriety of the reduction of the interest rate was raised by the Spouses Chua in G.R. No. 184472, our
ruling thereon affirming the Court of Appeals is a “bar by prior judgment.”
 At the time interest accrued from 1 January 1996, the date of default under the Promissory Note, the then
prevailing rate of legal interest was 12% per annum under Central Bank (CB) Circular No. 416 in cases involving
the loan or forbearance of money.29 Thus, the legal interest accruing from the Promissory Note is 12% per
annum from the date of default on 1 January 1996.
 However, the 12% per annum rate of legal interest is only applicable until 30 June 2013, before the advent and
effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013 reducing the rate of legal
interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery Frames,30 BSP Circular No. 799 is
prospectively applied from 1 July 2013. In short, the applicable rate of legal interest from 1 January 1996, the
date when Rivera defaulted, to date when this Decision becomes final and executor is divided into two periods
reflecting two rates of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013; and (2) 6% per
annum FROM 1 July 2013 to date when this Decision becomes final and executory.
 As for the legal interest accruing from 11 June 1999, when judicial demand was made, to the date when this
Decision becomes final and executory, such is likewise divided into two periods: (1) 12% per annum from 11
June 1999, the date of judicial demand to 30 June 2013; and (2) 6% per annum from 1 July 2013 to date
when this Decision becomes final and executor.31 We base this imposition of interest on interest due
earning legal interest on Article 2212 of the Civil Code which provides that “interest due shall earn legal
interest from the time it is judicially demanded, although the obligation may be silent on this point.”
 From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to the Spouses Chua could
already be determined with reasonable certainty given the wording of the Promissory Note.
 II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
 When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
 absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
 When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
 When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
 And, in addition to the above, judgments that have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein. (Emphasis supplied)
 On the reinstatement of the award of attorney’s fees based on the stipulation in the Promissory Note, we
agree with the reduction thereof but not the ratiocination of the appellate court that the attorney’s fees are in
the nature of liquidated damages or penalty. The interest imposed in the Promissory Note already answers as
liquidated damages for Rivera’s default in paying his obligation. We award attorney’s fees, albeit in a reduced
amount, in recognition that the Spouses Chua were compelled to litigate and incurred expenses to protect
their interests. Thus, the award of P50,000.00 as attorney’s fees is proper.
 For clarity and to obviate confusion, we chart the breakdown of the total amount owed by Rivera to the
Spouses Chua:

Face value of the Promissory Note

Stipulated Interest A & B
Interest due earning legal interest A & B
Attorney’s fees
Total Amount
February 24, 1995 to December 31, 1995
A. January 1, 1996 to June 30, 201
B. July 1 2013 to date when this Decision becomes final and executory
A. June 11, 1999 (date of judicial demand) to June 30, 2013
B. July 1, 2013 to date when this Decision becomes final and executory
Wholesale amount
P120,000.00
A. 12 % per annum on the principal amount of P120,000.00
B. 6% per annum on the principal amount of P120,000.00
A. 12% per annum on the total amount of column 2
B. 6% per annum on the total amount of column 235
P50,000.00
Total amount of Columns 1-4
 The total amount owing to the Spouses Chua set forth in this Decision shall further earn legal interest at the
rate of 6% per annum computed from its finality until full payment thereof, the interim period being deemed
to be a forbearance of credit.
State Investment House v. Court of Appeals [delay on the part of the creditor/mora accipiendi]
G.R. No. 90676, June 19, 1991

FACTS:
 On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain shares of stock to
petitioner State Investment House, Inc. ("State") in order to secure a loan of P120,000.00 designated as
Account No. IF-82-0631-AA. 
 On 5 April 1982, respondent spouses Aquino pledged certain shares of stock to petitioner State
Investment House, Inc. ("State") in order to secure a loan of P120,000.00
 When Account No. IF-82-0631-AA fell due, respondent spouses paid the same partly with their own funds
and partly from the proceeds of another loan which they obtained also from petitioner State designated
as Account No. IF-82-0904-AA.
o This new loan was secured by the same pledge agreement executed in relation to Account No. IF-
820631-AA.
 When the new loan matured, State demanded payment.
 Respondents expressed willingness to pay, requesting that upon payment, the shares of stock pledged be
released.
 Petitioner State denied the request on the ground that the loan which it had extended to the spouses Jose
and Marcelina Aquino (Account No. IF-82-1379- AA) had remained unpaid.
 On 29 June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of Notarial Sale stating that
upon request of State and by virtue of the pledge agreement, he would sell at public auction the shares of
stock pledged to State.
 This prompted respondents to file a case before the Regional Trial Court of Quezon City alleging that:
o the intended foreclosure sale was illegal because from the time the obligation under Account
No. IF-82-0904-AA became due, they had been able and willing to pay the same, but petitioner
had insisted that respondents pay even the loan account of Jose and Marcelina Aquino which
had not been secured by the pledge.
o Their failure to pay their loan (Account No. IF-82-0904-AA) was excused because the petitioner
State itself had prevented the satisfaction of the obligation.
 The trial court initially dismissed the complaint. However, a motion for reconsideration which the trial
court granted and ruled that State to immediately release the pledge and to deliver to respondents the
share of stock upon payment of the loan under Code No. 82-0904-AA.
 On appeal, the Court of Appeals affirmed in toto the new decision of the trial court
 Upon payment of the loan under Code No. IF-0904-AA, the shares of stock should be released. The
decisions of the Court of Appeals and of Judge Fortun became final and executory.
 During execution proceedings, Respondent spouses then filed a motion with the trial court to clarify the
Fortun decision praying that an order issue clarifying the phrase "upon payment of plaintiffs' loan" to
mean upon payment of plaintiff' loan in the principal amount of P110,000.00 alone, "without interest,
penalties and other charges."
 Respondent spouses then filed a motion with the trial court to clarify the Fortun decision praying that an
order issue clarifying the phrase "upon payment of plaintiffs' loan" to mean upon payment of plaintiff'
loan in the principal amount of P110,000.00 alone, "without interest, penalties and other charges."
 Petitioner State appealed Judge Tirona's decision to the Court of Appeals; the appeal was dismissed.

ISSUE: Whether or not spouses Aquino is liable to pay interest on the loan despite the delay inurred by the
creditor, State?
RULING:
 Yes, spouses Aquino are still liable to pay interest.

 Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility  by the consignation of the thing or sum due.
 Consignation alone shall produce the same effect in the following cases:

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

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

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

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

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

 Where the creditor unjustly refuses to accept payment, the debtor desirous of being released from his
obligation must comply with two (2) conditions:

o (a) tender of payment; and

o (b) consignation of the sum due.

 Tender of payment must be accompanied or followed by consignation in order that the effects of
payment may be produced.

 Thus, in Llamas v. Abaya, the Supreme Court stressed that a written tender of payment alone, without
consignation in court of the sum due, does not suspend the accruing of regular or monetary interest.

 In the instant case, respondent spouses Aquino, while they are properly regarded as having made a
written tender of payment to petitioner State, failed to consign in court the amount due at the time of
the maturity of Account No. IF-820904-AA.

 It follows that their obligation to pay principal-cum-regular or monetary interest under the terms and
conditions of Account No. IF-82-0904-AA was not extinguished by such tender of payment alone.

 For the respondent spouses to continue in possession of the principal of the loan amounting to
P110,000.00 and to continue to use the same after maturity of the loan without payment of regular or
monetary interest, would constitute unjust enrichment on the part of the respondent spouses at the
expense of petitioner State even though the spouses had not been guilty of mora.

 It is precisely this unjust enrichment which Article 1256 of the Civil Code prevents by requiring, in
addition to tender of payment, the consignation of the amount due in court which amount would
thereafter be deposited by the Clerk of Court in a bank and earn interest to which the creditor would be
entitled.

G.

Legaspi Oil v. Court of Appeals, G.R. No. 96505, July 1,1993

Facts:
 It appears that defendant-appellant [now private respondent Bernard Oseraos] acting through his
authorized agents, had several transactions with appellee Legaspi Oil Co. for the sale of copra to the
 latter. The price at which appellant sells the copra varies from time to time, depending on the prevailing
market price when the contract is entered into.

 One of his authorized agents, Jose Llover, had previous transactions with appellee for the sale and
delivery of copra. The records show that he concluded a sale for 70 tons of copra at P95.00 per 100 kilos
on May 27, 1975 and another sale for 30 tons of P102.00 per 100 kilos on September 23, 1975.
Subsequently, on November 6, 1975, another designated agent signed a contract in behalf of appellant for
the sale of 100 tons of copra at P79.00 per 100 kilos with the delivery terms of 25 days effective
December 15, 1975. At this point, it must be noted that the price of copra had been fluctuating (going up
and down), indicating its unsteady position in the market.

 February 16, 1976, appellant's agent Jose Llover signed contract No. 3804 for the sale of 100 tons of copra
at P82.00 per 100 kilos with delivery terms of 20 days effective March 8, 1976. As compared to appellant's
transaction on November 6, 1975, the current price agreed upon is slightly higher than the last contract.
In all these contracts though, the selling price had always been stated as "total price" rather than per 100
kilos. However, the parties had understood the same to be per 100 kilos in their previous transactions.

 After the period to deliver had lapsed, appellant sold only 46,334 kilos of copra thus leaving a balance of
53,666 kilos as per running account card.
 Accordingly, demands were made upon appellant to deliver the balance with a final warning embodied in
a letter dated October 6, 1976, that failure to deliver will mean cancellation of the contract, the balance to
be purchased at open market and the price differential to be charged against appellant.
 On October 22, 1976, since there was still no compliance, appellee exercised its option under the contract
and purchased the undelivered balance from the open market at the prevailing price of P168.00 per 100
kilos, or a price differential of P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against appellant.

 On November 3, 1976, petitioner filed a complaint against private respondent for breach of a contract and
for damages.
 After trial, the then CFI of Albay in Civil Case No. 5529 rendered a decision holding herein private
respondent (then defendant) Oseraos liable for damages in the amount of P48,152.76, attorney's fees
(P2,000), and litigation costs.
 Oseraos appealed to respondent Court which thereafter rendered a reversal decision on March 23, 1990,
ordering the dismissal of the complaint.
 Hence, the instant petition for review on certiorari.

ISSUE: WON private respondent Oseraos is guilty and thus liable for damages arising from fraud or bad faith in
deliberately breaching the contract of sale entered into by the parties?
RULING: Yes.

 After a review of the case, we believe and thus hold, that private respondent is guilty of fraud in the
performance of his obligation under the sales contract whereunder he bound himself to deliver to
petitioner 100 metric tons of copra within twenty (20) days from March 8, 1976.
 However within the delivery period, Oseraos delivered only 46,334 kilograms of copra to petitioner,
leaving an undelivered balance of 53,666 kilograms.
 Petitioner made repeated demands upon private respondent to comply with his contractual undertaking
to deliver the balance of 53,666 kilograms but private respondent elected to ignore the same. In a letter
dated October 6, 1976, petitioner made a final demand with a warning that, should private respondent
fail to complete delivery of the balance of 53,666 kilograms of copra, petitioner would purchase the
balance at the open market and charge the price differential to private respondent. Still private
respondent failed to fulfill his contractual obligation to deliver the remaining 53,666 kilograms of copra.
  On October 22, 1976, since there was still no compliance by private respondent, petitioner exercised its
right under the contract and purchased 53,666 kilograms of copra, the undelivered balance, at the open
market at the then prevailing price of P168.00 per 100 kilograms, a price differential of P86.00 per 100
kilograms or a total price differential of P46,152.76.

 Under the foregoing undisputed circumstances, the actuality of private respondent's fraud cannot be
gainsaid.

 In general, fraud may be defined as the voluntary execution of a wrongful act, or a wilfull omission,
knowing and intending the effects which naturally and necessarily arise from such act or omission;
 The fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the
normal fulfillment of obligation; it is distinguished from negligence by the presence of deliberate intent,
which is lacking in the latter (Tolentino's  Civil Code of the Philippines, Vol. IV, p. 110).
o The conduct of private respondent clearly manifests his deliberate fraudulent intent to evade his
contractual obligation for the price of copra had in the meantime more than doubled from
P82.00 to P168 per 100 kilograms.
o Under Article 1170 of the Civil Code of the Philippines, those who in the performance of their
obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.
 Pursuant to said article, private respondent is liable for damages.

 As aforementioned, on account of private respondent's deliberate breach of his contractual obligation,

petitioner was compelled to buy the balance of 53,666 kilos of copra in the open market at the then
prevailing price of P168 per 100 kilograms thereby paying P46,152.76 more than he would have paid had
private respondent completed delivery of the copra as agreed upon.
o Thus, private respondent is liable to pay respondent the amount of P46,152.76 as damages.

 In case of fraud, bad faith, malice, or wanton attitude, the guilty party is liable for all damages which may
be reasonably attributed to the non performance of the obligation (Magat vs. Medialdea).

G.A. Machineries v. Yaptinchay, G.R. No. L- 30965, November 29, 1983

FACTS:

 Sometime early in January 1962 appellant GAMI, thru a duly authorized agent, offered to sell a brand-new
Fordson Diesel Engine to appellee Horacio Yaptinchay, owner of the freight hauling business styled 'Hi-
Way Express'.
 Relying on the representations of appellant's representative that the engine offered for sale was brand
new, appellee agreed to purchase the same at the price of P7,590.00.
 Pursuant to the contract of sale thus entered into, appellant delivered to appellee, one (1) Fordson Diesel
Engine assembly, Model 6-D, with subject to the standard warranties, particularly the representation,
relied upon by appellee, that the same was brand new. Said engine was installed by appellant in Unit No.
6 of the HiWay Express.
 Within the week after its delivery, however, the engine in question started to have a series of
malfunctions which necessitated successive trips to appellant's repair shop.
 Thereafter, the malfunctioning persisted and, on inspection, appellee's mechanic noticed a worn out
screw which made appellee suspicious about the age of the engine.
 This prompted appellee, thru his lawyer, to write appellant a letter, protesting that the engine was not
brand-new as represented.
  He then sought the assistance of the PC Criminal Investigation Service to check on the authenticity of the
serial number of the engine, with due notice to appellant.
 Verification tests revealed that the original motor number of the engine was tampered.
 Convinced that a fraudulent misrepresentation as to the character of the engine had been perpetrated
upon him, appellee made demands from appellant for indemnification for damages and eventually
instituted the present suit.

ISSUE: WON GAMI committed a breach of contract against Yaptinchay?

RULING: YES
 We agree with the Court of Appeals that:

"Indeed, it would be too much to say that the successive malfunctions of the engine, the
defects and other discrepancies therein that cropped up so soon after its delivery, the
numerous trips it had to appellant's repair shop, the demonstrable tampering with its serial
number, and its ultimate breakdown despite appellant's attempts to put it into good working
order could be attributed to mere coincidence. If all these mean anything at all, it can only
be that the engine aforesaid was not really brand new.

 The misrepresentation of the quality of the subject Fordson diesel engine is tantamount to fraud or bad
faith.

NOTES:

Re Actual Damages

 The next question refers to the award of actual damages in the amount of P54,000.48. This amount
covers the probable income which the respondent failed to realize because of the breach of contract. Is
the award of damages in the form of lucro cessante justified?
 Article 2200 of the Civil Code entitles the respondent to recover as compensatory damages not only the
value of the loss suffered but also prospective profits while Article 2201 entitles the respondent to
recover all damages which may be attributed to the non-performance of the obligation.
 However, in order to recover this kind of damages, the plaintiff must prove his case – “The benefit to be
derived from a contract which one of the parties has absolutely failed to perform is of necessity to some
extent, a matter of speculation, but the injured party is not to be denied all remedy for that reason alone.
He must produce the best evidence of which his case is susceptible and if that evidence warrants the
inference that he has been damaged by the loss of profits which he might with reasonable certainty have
anticipated but for the defendant's wrongful act, he is entitled to recover."
 Applying the foregoing test to the instant case, we find the evidence of the respondent insufficient to be
considered within the purview of "best evidence."
 The bare assertion of the respondent that he lost about P54,000.00 and the accompanying documentary
evidence presented to prove the amount lost are inadequate if not speculative.

H.

National Power Corporation v. Court of Appeals, G.R. No. 103442, May 21,1993

Facts:
 Doctrine:
o If a person’s negligence concurs with an act of God, the whole event is humanized and the
person causing damage to another cannot exempt himself from liability.
  National Power Corporation (NPC) maintains a hydroelectric plant in the Angat River, Benjamin Chavez
was the plant supervisor.
 Meanwhile Rayo et al were residents of Norzagaray, Bulacan.
 On the evening of October 26, 1978, NPC allegedly caused the inundation of a town in Norzagaray when it
released water through the spillways of the Angat Dam at the height of typhoon “Kading” as the Dam’s
water level went beyond the maximum limit.
 The flooding resulted to the drowning of the members of the household of Rayo, together with their
animals; their properties were also washed away.
 The release of water was made despite NPC’s knowledge of the impending typhoon, as early as October
24 and its monitoring of the water level.
 Rayo et al filed four separate complaints for damages against NPC.
 In its answer, NPC argued that the damage caused to Rayo was due to a fortuitous event, among others.
 The CFI absolved NPC for lack of sufficient and credible evidence.
 The CA reversed, holding NPC and Chavez jointly and severally liable to Rayo et al.
 The SC affirmed, NPC liable.

Issue:
What was the proximate cause of the damage suffered by Rayo et al?

Ruling:
 NPC’S NEGLIGENCE.
 Note: Circumstances leading to the conclusion of NPC’s negligence (CA Decision):
o The unholiness of the hour, the extent of the opening of the spillways, and the magnitude of the
water released, the inundation even of areas 1 km away from the Angat river bank.
 Note: Factual findings of NPC’s negligence appreciated by SC
o NPC was duly warned of the typhoon as its coming was published in headlines of a newspaper of
national circulation.
o There were also radio announcements regarding the same.
o Yet NPC maintained a water level beyond maximum despite its knowledge of the safe level.
o From October 24, until the Dam’s water release on the evening of October 26, the water level
was maintained at maximum with very little opening of the spillways.
o Furthermore, the “early warning notice” given by NPC were also found insufficient: 1) it did not
prepare or warn the residents of the volume of water to be released, they should have been
advised to evacuate, and 2) it was not given to the proper municipal officials for dissemination,
but rather to a policeman.
Ratio:
 On the merits, the SC held that NPC cannot invoke the force majeure or the act of God doctrine to exempt
itself from liability since it was not entirely free from fault – one of the requisites for the application of
Art. 1174 CC, to wit:
a. The cause of the breach of the obligation must be independent of the will of the debtor
b. The event must be either unforeseeable or unavoidable
c. The event must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and
d. The debtor must be free from any participation in, or aggravation of the injury to the creditor.
 If upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided
for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability.
 The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned
exclusively by the violence of nature and all human agencies are to be excluded from creating or entering
into the cause of the mischief.
  When the effect, the cause of which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or neglect, or failure to act, the whole
occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of God.

Nikko Hotel v. Reyes, G.R. No. 154259, February 28, 2005

Happening of a fortuitous event releases the obligor from compliance with the obligation, unless otherwise
specified by law or as stipulated by the parties (e.g. marine insurance) or assumption of risk.

FACTS:
 Respondent Roberto Reyes, more popularly known by the screen name “Amay Bisaya,” alleged that at
around 6:00 o’clock in the evening of October 13, 1994, while he was having coffee at the lobby of Hotel
Nikko, he was spotted by his friend of several years, Dr. Violeta Filart, who then approached him.
 Mrs. Filart invited him to join her in a party at the hotel’s penthouse in celebration of the natal day of the
hotel’s manager, Mr. Masakazu Tsuruoka.
 Mr. Reyes asked if she could vouch for him for which she replied: “of course.”
 Mr. Reyes then went up with the party of Dr. Filart carrying the basket of fruits which was the latter’s
present for the celebrant
 At the penthouse, they first had their picture taken with the celebrant after which Mr. Reyes sat with the
party of Dr. Filart.
 After a couple of hours, when the buffet dinner was ready, Mr. Reyes lined-up at the buffet table but, to
his great shock, shame and embarrassment, he was stopped by petitioner herein, Ruby Lim, who claimed
to speak for Hotel Nikko as Executive Secretary thereof.
 In a loud voice and within the presence and hearing of the other guests who were making a queue at the
buffet table, Ruby Lim told him to leave the party.
 Mr. Reyes tried to explain that he was invited by Dr. Filart.
 However, Dr. Filart, who was within hearing distance completely ignored him thus adding to his shame
and humiliation.
 Not long after, while he was still recovering from the traumatic experience, a Makati policeman
approached and asked him to step out of the hotel.
o Like a common criminal, he was escorted out of the party by the policeman
 Ruby Lim, for her part, admitted having asked Mr. Reyes to leave the party but not under the
ignominious circumstance painted by the latter.
 Dr. Violeta Filart also gave her version of the story to the effect that she never invited Mr. Reyes to the
party.
 The trial court gave more credence to the testimony of Ms. Lim that she was discreet in asking Mr. Reyes
to leave the party.
o It likewise ratiocinated that Mr. Reyes assumed the risk of being thrown out of the party, as he
was uninvited.
 On appeal, CA reversed the trial court’s ruling as it found more commanding of belief the testimony of Mr.
Reyes that Ms. Lim ordered him to leave in a loud voice within hearing distance of several guests.
 On MR, CA affirmed its earlier decision. Hence, this petition.
o Petitioners Lim and Hotel Nikko contend that pursuant to the doctrine of volenti non fit injuria,
they cannot be made liable for damages as respondent Reyes assumed the risk of being asked to
leave (and being embarrassed and humiliated in the process) as he was a “gate-crasher.”

Preliminary Issue: Is the doctrine of volenti non fit injuria applicable in this case?
Ruling:
 No.
  The doctrine of volenti non fit injuria (“to which a person assents is not esteemed in law as injury”) refers
to self-inflicted injury or to the consent to injury which precludes the recovery of damages by one who
has knowingly and voluntarily exposed himself to danger, even if he is not negligent in doing so.
 However, this doctrine does not find application to the case at bar because even if respondent Reyes
assumed the risk of being asked to leave the party, petitioners, under Articles 19 and 21 of the New Civil
Code, were still under obligation to treat him fairly in order not to expose him to unnecessary ridicule and
shame.

ISSUE: Whether Ruby Lim acted abusively in asking respondent Reyes to leave the party where he was not invited,
thereby becoming liable under Articles 19 and 21 of the Civil Code.

RULING:
 No.
 Article 19, known to contain what is commonly referred to as the principle of abuse of rights, is not a
panacea for all human hurts and social grievances.
 When “a right is exercised in a manner which does not conform with the norms enshrined in Article 19
and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be
responsible.”
 The object of this article, therefore, is to set certain standards which must be observed not only in the
exercise of one’s rights but also in the performance of one’s duties
 Its elements are the following:
(1) There is a legal right or duty;
(2) Which is exercised in bad faith;
(3) For the sole intent of prejudicing or injuring another
 When Article 19 is violated, an action for damages is proper under Articles 20 or 21 of the Civil Code.
 Article 20 pertains to damages arising from a violation of law, which does not obtain herein as Ms. Lim
was perfectly within her right to ask Mr. Reyes to leave.
 Article 21 refers to acts contra bonus mores and has the following elements:
(1) There is an act which is legal;
(2) But which is contrary to morals, good custom, public order, or public policy; and
(3) It is done with intent to injure.
 A common theme runs through Articles 19 and 21, and that is, the act complained of must be intentional.

Application
 In this case, Mr. Reyes has not shown that Ms. Lim was driven by animosity against him.
 Parenthetically, the manner by which Ms. Lim asked Mr. Reyes to leave was likewise acceptable and
humane under the circumstances.
 Without proof of any ill-motive on her part, Ms. Lim’s act of by-passing Mrs. Filart cannot amount to
abusive conduct especially because she did inquire from Mrs. Filart’s companion who told her that Mrs.
Filart did not invite Mr. Reyes.
o If at all, Ms. Lim is guilty only of bad judgment, which if done with good intentions, cannot
amount to bad faith.

 In this case, we are dealing with a formal party in a posh, five-star hotel, for-invitation-only, thrown for
the hotel’s former Manager, a Japanese national.
 Then came a person who was clearly uninvited (by the celebrant) and who could not just disappear into
the crowd as his face is known by many, being an actor.
 While he was already spotted by the organizer of the party, Ms. Lim, the very person who generated the
guest list, it did not yet appear that the celebrant was aware of his presence
 Ms. Lim, mindful of the celebrant’s instruction to keep the party intimate, would naturally want to get rid
of the “gate-crasher” in the most hush-hush manner in order not to call attention to a glitch in an
otherwise seamless affair and, in the process, risk the displeasure of the celebrant, her former boss.
  To unnecessarily call attention to the presence of Mr. Reyes would certainly reflect badly on Ms. Lim’s
ability to follow the instructions of the celebrant to invite only his close friends and some of the hotel’s
personnel.
 Mr. Reyes, upon whom the burden rests to prove that indeed Ms. Lim loudly and rudely ordered him to
leave, could not offer any satisfactory explanation why Ms. Lim would do that and risk ruining a formal
and intimate affair.
 On the contrary, Mr. Reyes, on cross-examination, had unwittingly sealed his fate by admitting that when
Ms. Lim talked to him, she was very close.
 In the absence of any proof of motive on the part of Ms. Lim to humiliate Mr. Reyes and expose him to
ridicule and shame, it is highly unlikely that she would shout at him from a very close distance.
 Ms. Lim having been in the hotel business for twenty years wherein being polite and discreet are virtues
to be emulated, the testimony of Mr. Reyes that she acted to the contrary does not inspire belief and is
indeed incredible.
 Hence, Ms. Lim, not having abused her right to ask Mr. Reyes to leave the party to which he was not
invited, cannot be made liable to pay for damages under Articles 19 and 21 of the Civil Code.
 Necessarily, neither can her employer, Hotel Nikko, be held liable as its liability springs from that of its
employee.

 All told, and as far as Ms. Lim and Hotel Nikko are concerned, any damage which Mr. Reyes might have
suffered through Ms. Lim’s exercise of a legitimate right done within the bounds of propriety and good
faith, must be his to bear alone.

I.

Medel v. Court of Appeals, G.R. No. 131622, November 27, 1998

Doctrine: Usurious transaction Art. 1175

Facts:
 The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of Court,
seeking to set aside the decision of the Court of Appeals,1 and its resolution denying reconsideration, the
dispositive portion of which decision reads as follows:
 WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby-
ordered to pay the plaintiff: the sum of P500,000.00, plus 5.5% per month interest and 2% service
charge per annum effective July 23, 1986, plus 1% per month of the total amount due and demandable
as penalty charges effective August 23, 1986, until the entire amount is fully paid.
 The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the imposition of
costs against the defendants. SO ORDERED.
 The Court required the respondents to comment on the petition, which was filed on April 3, 1998,5 and the
petitioners to reply thereto, which was filed on May 29, 1998. We now resolve to give due course to the
petition and decide the case.
 The FACTS of the case, as found by the Court of Appeals in its decision, which are considered binding and
conclusive on the parties herein, as the appeal is limited to questions of law, are as follows:
 On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan
from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the
name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months. Veronica gave only
the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one month at
6% per month. Servando and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable
on January 7, 1986.
 On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the amount of
P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to evidence
the loan, maturing on Janaury 19, 1986. They received only P84,000.00, out of the proceeds of the loan.
 On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
 On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of
P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to Leticia
Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to
execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of
P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275.000.00, was given to them
out of the proceeds of the loan.
 Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
 On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their
previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of
P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. They executed
a promissory note, reading as follows:
 Baliwag, Bulacan July 23, 1986 Maturity Date Augsut 23, 1986 P500,000.00
 FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES doing
business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G.
Gonzales, Jr., of Baliwag, Bulacan, the sum of PESOS . . . FIVE HUNDRED THOUSAND . . . (P500,000.00)
Philippine Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2% service charge per
annum from date hereof until fully paid according to the amortization schedule contained herein. (Emphasis
supplied)
 Payment will be made in full at the maturity date.
 Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together with
all interest accrued shall immediately be due and payable and I/WE hereby agree to pay an additional amount
equivalent to one per cent (1%) per month of the amount due and demandable as penalty charges in the form
of liquidated damages until fully paid; and the further sum of TWENTY FIVE PER CENT (25%) thereof in full,
without deductions as Attorney's Fee whether actually incurred or not, of the total amount due and
demandable, exclusive of costs and judicial or extra judicial expenses. (Emphasis supplied).
 I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central
Bank of the Philippines, the holder shall have the option to apply and collect the increased interest charges
without notice although the original interest have already been collected wholly or partially unless the
contrary is required by law.
 It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation
under this agreement is based on the present value of the peso, and if there be any change in the value
thereof, due to extraordinary inflation or deflation, or any other cause or reason, then the peso-obligation
herein contracted shall be adjusted in accordance with the value of the peso then prevailing at the time of the
complete fulfillment of the obligation.
 Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note
or extension of payments, reserving rights against each and all indorsers and all parties to this note.
 IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under
the provisions of Section 12, Rule 39, of the Revised Rules of Court.
 On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and
penalties, evidenced by the above-quoted promissory note.
 On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional
Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan
including interests and other charges.
 In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he
did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed
from the plaintiffs the sum of P500,000.00, and actually received the amount and benefited therefrom; that
the loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that he (Servando
Franco) signed the promissory note only as a witness.
 In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel alleged that the loan was
the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real
estate situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with additional
service charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for attorney's fees
of 25% of the amount due is unconscionable, illegal and excessive, and that substantial payments made were
applied to interest, penalties and other charges.
 After due trial, the lower court declared that the due execution and genuineness of the four promissory
notes had been duly proved, and ruled that although the Usury Law had been repealed, the interest charged
by the plaintiffs on the loans was unconscionable and "revolting to the conscience".
 Hence, the trial court applied "the provision of the New [Civil] Code" that the "legal rate of interest for loan or
forbearance of money, goods or credit is 12% per annum."
 Accordingly, on December 9, 1991, the trial court rendered judgment.
 In due time, both plaintiffs and defendants appealed to the Court of Appeals.
 In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid loans
of the defendants, is the law that governs the parties. They further argued that Circular No. 416 of the Central
Bank prescribing the rate of interest for loans or forbearance of money, goods or credit at 12% per annum,
applies only in the absence of a stipulation on interest rate, but not when the parties agreed thereon.
 The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having
become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 905, the lender
and borrower could agree on any interest that may be charged on the loan". The Court of Appeals further held
that "the imposition of 'an additional amount equivalent to 1% per month of the amount due and demandable
as penalty charges in the form of liquidated damages until fully paid' was allowed by law".
 Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision reversing that of the Regional
Trial Court, disposing as follows:
 WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby
ordered to pay the plaintiffs the sum of P500,000.00, plus 5.5% per month interest and 2% service charge
per annum effective July 23, 1986, plus 1% per month of the total amount due and demandable as penalty
charges effective August 24, 1986, until the entire amount is fully paid.
 The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the imposition
of costs against the defendants. SO ORDERED.
 On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision but was
denied.
 Hence, defendants interposed the present recourse via petition for review on certiorari.

ISSUE:
 WHETHER THE INTEREST RATE STIPULATED UPON IS VALID such that the stipulated rate of interest at 5.5% per
month on the loan in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious.
 In other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905,
adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684
RULING:
 We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is
excessive, iniquitous, unconscionable and exorbitant.
 However, we can not consider the rate "usurious" because this Court has consistently held that Circular No.
905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings
prescribed by the Usury Law and that the Usury Law is now "legally inexistent".
 In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB
Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's
effectivity."
 Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law can repeal another law."
 In the recent case of Florendo vs. Court of Appeals 18, the Court reiterated the ruling that "by virtue of CB
Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon."
 Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the
promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not
against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or unconscionable.
 Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the
trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty
charge as liquidated damages may be more reasonable.
 WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on
March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and
AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos,
Bulacan, in Civil Case No. 134-M-90, involving the same parties.

Kinds of Obligations

Pay v.Palanca (Obligations that are demandable at once) G.R. No. L- 29900, June 28, 1974

FACTS:
 The parties in this case agreed to submit the matter for resolution on the basis of their pleadings and
annexes and their respective memoranda submitted

 Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3, 1963.

 The claim of the petitioner is based on a promissory note dated January 30, 1952, whereby the late Justo
Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay the amount of
P26,900.00, with interest thereon at the rate of 12% per annum.

 The promissory note, dated January 30, 1962, is worded thus: " `For value received from time to time
since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at his office at the China Banking
Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with interest thereon at
the rate of 12% per annum upon receipt by either of the undersigned of cash payment from the Estate of
the late Don Carlos Palanca or upon demand'. . . . As stated, this promissory note is signed by Rosa
Gonzales Vda. de Carlos Palanca and Justo Palanca."

o Then came this paragraph: "The Court has inquired whether any cash payment has been received
by either of the signers of this promissory note from the Estate of the late Carlos Palanca.

 George Pay is now before this Court, asking that Segundina Chua vda. de Palanca, surviving spouse of the
late Justo Palanca be appointed as administratrix.
 o The idea is that once said property is brought under administration, George Pay, as creditor, can
file his claim against the administratrix."

o It then stated that the petition could not prosper as there was a refusal on the part of Segundina
Chua Vda. de Palanca to be appointed as administratrix; that the property sought to be
administered no longer belonged to the debtor, the late Justo Palanca; and that the rights of
petitioner-creditor had already prescribed.

ISSUE: Whether or not the debt payable on demand, after the lapse of more than 10 years, has already
prescribed?
RULING:
 Yes, after the lapse of more than 10 years, a debt payable on demand executed in a written instrument
has already prescribed.
 From the manner in which the promissory note was executed, it would appear that petitioner was
hopeful that the satisfaction of his credit could he realized either through the debtor sued receiving cash
payment from the estate of the late Carlos Palanca presumptively as one of the heirs, or, as expressed
therein, "upon demand."

 There is nothing in the record that would indicate whether or not the first alternative was fulfilled.

 What is undeniable is that on August 26, 1967, more than fifteen years after the execution of the
promissory note on January 30, 1952, this petition was filed.

 The defense interposed was prescription. Its merit is rather obvious. Article 1179 of the Civil Code
provides: "Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once."

 As far back as Floriano v. Delgado,5 a 1908 decision, it has been applied according to its express language.
The well-known Spanish commentator, Manresa, on this point, states: "Dejando con acierto, el caracter
mas teorico y grafico del acto, o sea la perfeccion de este, se fija, para determinar el concepto de la
obligacion pura, en el distinctive de esta, y que es consecuencia de aquel: la exigibilidad immediata."6

 The obligation being due and demandable, it would appear that the filing of the suit after fifteen years
was much too late.

 For again, according to the Civil Code, which is based on Section 43 of Act No. 190, the prescriptive period
for a written contract is that of ten years. 

 This is another instance where this Court has consistently adhered to the express language of the
applicable norm.

 There is no necessity therefore of passing upon the other legal questions as to whether or not it did
suffice for the petition to fail just because the surviving spouse refuses to be made administratrix, or just
because the estate was left with no other property.

 The action, therefore, of the creditor has definitely prescribed."

Borromeo v. Court of Appeals, G.R. No. L- 22962, September 28, 1972

<Nangutang sa amigo case>

Facts:

 The point pressed on us by private respondents, in this petition for review of a decision of the CA in the
interpretation of a stipulation which admittedly is not free from ambiguity, there being a mention of a
waiver of the defense of prescription, is not calculated to elicit undue judicial sympathy.
 For if accorded acceptance, a creditor, now represented by his heirs, who, following the warm and
generous impulse of friendship, came to the rescue of a debtor from a serious predicament of his own
making would be barred from recovering the money loaned. Thus the promptings of charity,
unfortunately not often persuasive enough, would be discredited. It is unfortunate then that respondent
CA did not see it that way. For its decision to be upheld would be to subject the law to such a scathing
indictment.

 Before the year 1933, defendant Jose A. Villamor was a distributor of lumber belonging to Mr. Miller who
was the agent of the Insular Lumber Company in Cebu City.
 Defendant being a friend and former classmate of plaintiff Canuto O. Borromeo used to borrow from the
latter certain amounts from time to time. On one occasion with some pressing obligation to settle with
Mr. Miller, defendant borrowed from plaintiff a large sum of money for which he mortgaged his land and
house in Cebu City.

 Mr. Miller filed civil action against the defendant and attached his properties including those mortgaged
to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered because not
properly drawn up.
 Plaintiff then pressed the defendant for settlement of his obligation, but defendant instead offered to
execute a document promising to pay his indebtedness even after the lapse of ten years.
 Liquidation was made and defendant was found to be indebted to plaintiff in the sum of P7,220.00, for
which defendant signed a promissory note therefor on November 29, 1933 with interest at the rate of
12% per annum, agreeing to pay 'as soon as I have money'.
o The note further stipulates that defendant 'hereby relinquish, renounce, or otherwise waive my
rights to the prescriptions established by our Code of Civil Procedure for the collection or
recovery of the above sum of P7,220.00. ... at any time even after the lapse of ten years from the
date of this instrument'.
 After the execution of the document, plaintiff limited himself to verbally requesting defendant to settle his
indebtedness from time to time. Plaintiff did not file any complaint against the defendant within ten years
from the execution of the document as there was no property registered in defendant's name, who
furthermore assured him that he could collect even after the lapse of ten years.
 After the last war, plaintiff made various oral demands, but defendants failed to settle his account, —
hence the present complaint for collection."

 It was then noted in the decision that the CFI of Cebu did sentence the original defendant, the deceased
Jose A. Villamor, to pay Canuto O. Borromeo, now represented by petitioners, the sum of P7,220.00
within ninety days from the date of the receipt of such decision with interest at the rate of 12% per
annum from the expiration of such ninety-day period.
 That was the judgment reversed by the CA in its decision of March 7, 1964, now the subject of this
petition for review. The legal basis was the lack of validity of the stipulation amounting to a waiver in line
with the principle "that a person cannot renounce future prescription."
ISSUE: WON the CA erred in reversing the decision of the CFI on the ground of lack of validity of the stipulation
amounting to a waiver in line with the principle "that a person cannot renounce future prescription”?
RULING: Yes.

 The facts rightly understood argue for the reversal of the decision arrived at by respondent CA.
 Even before the event that gave rise to the loan in question, the debtor, the late Jose A. Villamor, being a
friend and a former classmate, used to borrow from time to time various sums of money from the
creditor, the late Canuto O. Borromeo. Then faced with the need to settle a pressing obligation with a
certain Miller, he did borrow from the latter sometime in 1933 what respondent Court called "a large sum
of money for which he mortgaged his land and house in Cebu City.”

 Mention was then made of the late Borromeo in his lifetime seeking the satisfaction of the sum due with
Villamor unable to pay but executing a document promising "to pay his indebtedness even after the lapse
of ten years."
o It is with such a background that the words employed in the instrument of November 29, 1933
should be viewed.
 There is nothing implausible in the view that such language renouncing the debtor's right to the
prescription established by the Code of Civil Procedure should be given the meaning, as noted in the
preceding sentence of the decision of the respondent Court, that the debtor could be trusted to pay even
after the termination of the ten-year prescriptive period.
 For as was also made clear therein, there had been since then verbal requests on the part of the creditor
made to the debtor for the settlement of such a loan. Nor was the CA unaware that such indeed was
within the contemplation of the parties as shown by this sentence in its decision: "Plaintiff did not file any
complaint against the defendant within ten years from the execution of the document as there was no
property registered in defendant's name who furthermore assured him that he could collect even after
the lapse of ten years."

 2. There is much to be said then for the contention of petitioners that the reference to the prescriptive
period is susceptible to the construction that only after the lapse thereof could the demand be made for
the payment of the obligation.
 Whatever be the obscurity occasioned by the words is illumined when the light arising from the
relationship of close friendship between the parties as well as the unsuccessful effort to execute a
mortgage, taken in connection with the various oral demands made, is thrown on them.
 It is a fundamental principle in the interpretation of contracts that while ordinarily the literal sense of the
words employed is to be followed, such is not the case where they "appear to be contrary to the evident
intention of the contracting parties," which "intention shall prevail."

 Such a codal provision has been given full force and effect since the leading case of Reyes v. Limjap, a
1910 decision. Justice Torres had occasion to reiterate such a principle when he spoke for the Court in  De
la Vega v. Ballilos thus:
o "The contract entered into by the contracting parties which has produced between them rights
and obligations is in fact one of antichresis, for article 1281 of the Civil Code prescribes among
other things that if the words should appear to conflict with the evident intent of the contracting
parties, the intent shall prevail."
 In Abella v. Gonzaga, this Court through the then Justice Villamor, gave force to such a codal provision
when he made clear that the inevitable conclusion arrived at was "that although in the contract Exhibit A
the usual words 'lease,' 'lessee,' and 'lessor' were employed, that is no obstacle to holding, as we do
hereby hold, that said contract was a sale on installments, for such was the evident intention of the
parties in entering into said contract.
 Only lately in Nielson and Company v. Lepanto Consolidated Mining Company, this Court, with Justice
Zaldivar, as  ponente, after stressing the primordial rule that in the construction and interpretation of a
document, the intention of the parties must be sought, went on to state:
o "This is the basic rule in the interpretation of contracts because all other rules are but ancillary to
the ascertainment of the meaning intended by the parties. And once this intention has been
ascertained it becomes an integral part of the contract as though it had been originally expressed
therein in unequivocal terms ... ." 
 While not directly in point, what was said by Justice Labrador in Tumaneng v. Abad 16 is relevant:
o "There is no question that the terms of the contract are not clear on the period of redemption.
But the intent of the parties thereto is the law between them, and it must be ascertained and
enforced." 17 
 Nor is it to be forgotten, following what was first announced in Velasquez v. Teodoro 18 that
o "previous, simultaneous and subsequent acts of the parties are properly cognizable indicia of
their true intention."

 There is another fundamental rule in the interpretation of contracts specifically referred to in  Kasilag v.
Rodriguez, as "not less important" than other principles which "is to the effect that the terms, clauses
and conditions contrary to law, morals and public order should be separated from the valid and legal
contract when such separation can be made because they are independent of the valid contract which
expresses the will of the contracting parties.

 Manresa, commenting on article 1255 of the Civil Code and stating the rule of separation just mentioned,
gives his views as follows:
o 'On the supposition that the various pacts, clauses, or conditions are valid, no difficulty is
presented; but should they be void, the question is as to what extent they may produce the
nullity of the principal obligation. Under the view that such features of the obligation are added
to it and do not go to its essence, a criterion based upon the stability of juridical relations should
tend to consider the nullity as confined to the clause or pact suffering therefrom, except in cases
where the latter, by an established connection or by manifest intention of the parties, is
inseparable from the principal obligation, and is a condition, juridically speaking, of that the
nullity of which it would also occasion.' ...
 The same view prevails in the Anglo-American law as condensed in the following words:
o 'Where an agreement founded on a legal consideration contains several promises, or a promise
to do several things, and a part only of the things to be done are illegal, the promises which can
be separated, or the promise, so far as it can be separated, from the illegality, may be valid. The
rule is that a lawful promise made for a lawful consideration is not invalid merely because an
unlawful promise was made at the same time and for the same consideration, and this rule
applies, although the invalidity is due to violation of a statutory provision, unless the statute
expressly or by necessary implication declares the entire contract void. ..."

 Nor is it to be forgotten that as early as Compania Agricola Ultramar v. Reyes, 23 decided in 1904, the
then Chief Justice Arellano explicitly declared: "It is true that contracts are not what the parties may see
fit to call them, but what they really are as determined by the principles of law."
 Such a doctrine has been subsequently adhered to since then. As was rephrased by Justice Recto
in Aquino v.
Deala:
o "The validity of these agreements, however, is one thing, while the juridical qualification of the
contract resulting therefrom is very distinctively another."
 In a recent decision, Shell Company of the Phils., Ltd. vs. Firemen's Insurance Co. of Newark, 27 this court,
through Justice Padilla, reaffirmed the doctrine thus:
o "To determine the nature of a contract courts do not have or are not bound to rely upon the
name or title given it by the contracting parties, should there be a controversy as to what they
really had intended to enter into, but the way the contracting parties do or perform their
respective obligations, stipulated or agreed upon may be shown and inquired into, and should
such performance conflict with the name or title given the contract by the parties, the former
must prevail over the latter."

 Is it not rather evident that since even the denomination of the entire contract itself is not conclusively
determined by what the parties call it but by the law, a stipulation found therein should likewise be
impressed with the characterization the law places upon it?

 What emerges in the light of all the principles set forth above is that the first ten years after November
29, 1933 should not be counted in determining when the action of creditor, now represented by
petitioners, could be filed.
 From the joint record on appeal, it is undoubted that the complaint was filed on January 7, 1953. If the
first ten-year period was to be excluded, the creditor had until November 29, 1953 to start judicial
proceedings.
 After deducting the first ten-year period which expired on November 29, 1943, there was the additional
period of still another ten years. Nor could there be any legal objection to the complaint by the creditor
Borromeo of January 7, 1953 embodying not merely the fixing of the period within which the debtor
Villamor was to pay but likewise the collection of the amount that until then was not paid.
 An action combining both features did receive the imprimatur of the approval of this Court.

 As was clearly set forth in Tiglao v. The Manila Railroad Company:

o "There is something to defendant's contention that in previous cases this Court has held that the
duration of the term should be fixed in a separate action for that express purpose. But we think
the lower court has given good reasons for not adhering to technicalities in its desire to do
substantial justice."

 The justification became even more apparent in the latter portion of the opinion of Justice Alex Reyes for
this Court:
o "We may add that defendant does not claim that if a separate action were instituted to fix the
duration of the term of its obligation, it could present better proofs than those already adduced
in the present case. Such separate action would, therefore, be a mere formality and would serve
no purpose other than to delay."
 There is no legal obstacle then to the action for collection filed by the creditor. Moreover, the judgment of
the lower court, reversed by the respondent Court of Appeals, ordering the payment of the amount due is
in accordance with law.

 There is something more to be said about the stress in the Tiglao decision on the sound reasons for not
adhering to technicalities in this Court's desire to do substantial justice.
 The then Justice, now Chief Justice, Concepcion expressed a similar thought in emphasizing that in the
determination of the rights of the contracting parties "the interest of justice and equity be not
ignored." 33 This is a principle that dates back to the earliest years of this Court.
 The then Chief Justice Bengzon in Arrieta v. Bellos, invoked equity. Mention has been made of "practical
and substantial justice," "[no] sacrifice of the substantial rights of a litigant in the altar of sophisticated
technicalities with impairment of the sacred principles of justice," "to afford substantial justice"  and "what
equity demands." There has been disapproval when the result reached is "neither fair, nor equitable."
 What is to be avoided is an interpretation that "may work injustice rather than promote justice."
 What appears to be most obvious is that the decision of respondent Court of Appeals under review
offended most grievously against the above fundamental postulate that underlies all systems of law.
 WHEREFORE, the decision of respondent CA is reversed, thus giving full force and effect to the decision of
the lower court of November 15, 1956.