Producers Bank of the Phil. V. CA, 397 SCRA 651 (2003).
asked his wife to deposit said amount in the account of Sterela so that a certification can be issued to the effect that
Facts;
Franklin Vives was asked by his neighbor and friend Angeles Sanchez to help her friend and townmate,
Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and Services (“Sterela” for brevity).   ISSUE:  WON THE TRANSACTION BETWEEN THE DORONILLA AND RESPONDENT VIVES WAS
Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of money in the bank account
of Sterela.  She assured private respondent that he could withdraw his money from said account within a month’s
time.
After discussing the matter with Sanchez and Doronilla Franklin Vives issued a check in the amount of
200,000 in favor or Sterela. Vives instructed his wife and two to open a savings account on Producers Bank of
the Phil. Mrs. Vivies, Sanchez and a certain Estrella Dumagpi, secretary of Doronilla, went to the bank to open an
account on with Mrs. Vives and Sanchez as signatories. A passbook was then issued to Mrs. Vives.
Franklin Vives learned that Sterela was no longer holding office in the address previously given to him.
Alarmed, he and his wife went to the Bank to verify if their money was still intact. They were informed that part
of the money in Savings Account of Sterela had been withdrawn by Doronilla, and that only P90,000.00 remained
therein. It is likewise told them that Mrs. Vives could not withdraw said remaining amount because it had to
answer for some postdated checks issued by Doronilla.
According to the bank after Mrs. Vives and Sanchez opened the Savings Account No. 10-1567,
Doronilla opened Current another savings account for Sterela and authorized the Bank to debit Savings Account
No. 10-1567 for the amounts necessary to cover overdrawings in Current Account No. 10-0320. In opening said
current account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment
thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that Doronilla
could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole proprietor of
Sterela.
They tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a letter from
Doronilla, assuring him that his money was intact and would be returned to him. Doronilla issued a postdated
check for P212,000.00 in favor of Franklin Vives. However, upon presentment thereof by private respondent to
the drawee bank, the check was dishonored. Doronilla requested private respondent to present the same check on
September 15, 1979 but when the latter presented the check, it was again dishonored.
Franklin Vives referred the matter to a lawyer, who made a written demand upon Doronilla for the
return of his clients money. Doronilla issued another check for P212,000.00 in his favor but the check was again
dishonored for insufficiency of funds
Franklin Vives filed an action for recovery of sum of money in the RTC Pasig against Doronilla,
Sanchez, Dumagpi and Producers Bank of the Phil .
RTC ruled against defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the
Philippines. They appealed to the CA. The CA affirmed the decision of the RTC. It likewise denied with finality
petitioners motion for reconsideration.
Petitioner contends that the transaction between private respondent and Doronilla is a simple loan
(mutuum) since all the elements of a mutuum are present: first, what was delivered by private respondent to
Doronilla was money, a consumable thing; and second, the transaction was onerous as Doronilla was obliged to
pay interest, as evidenced by the check issued by Doronilla in the amount of ₱212,000.00, or ₱12,000 more than
what private respondent deposited in Sterela’s bank account.
Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a
mutuum but an accommodation,21 since he did not actually part with the ownership of his ₱200,000.00 and in fact
Sterela had sufficient funds for purposes of its incorporation but at the same time, he retained some degree of
control over his money through his wife who was made a signatory to the savings account and in whose
possession the savings account passbook was given.
ONE OF SIMPLE LOAN.
HELD: NO.
A circumspect examination of the records reveals that the transaction between them was a commodatum.  Article
1933 of the Civil Code distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter
may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or
other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to
the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money,
the contract would be a mutuum.  However, there are some instances where a commodatum may have for its
object a consumable thing.  Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the
object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to
lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is
a commodatum and not a mutuum.
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private
respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of making it
appear that said firm had sufficient capitalization for incorporation, with the promise that the amount shall be
returned within thirty (30) days. Private respondent merely accommodated Doronilla by lending his money
without consideration, as a favor to his good friend Sanchez.It was however clear to the parties to the transaction
that the money would not be removed from Sterelas savings account and would be returned to private respondent
after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in
Sterelas account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not
convert the transaction from a commodatum into a mutuum because such was not the intent of the parties and
because the additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the
Civil Code expressly states that [t]he bailee in commodatum acquires the use of the thing loaned but not its fruits.
Hence, it was only proper for Doronilla to remit to private respondent the interest accruing to the latters money
deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private
respondents money because it was not privy to the transaction between Doronilla and private respondent. The
nature of said transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the question of
petitioners liability for the return of private respondents money because the factual circumstances of the case
clearly show that petitioner, through its employee Mr. Atienza, was partly responsible for the loss of private Yes. Solidbank is liable for breach of contract due to negligence, or culpa contractual.
respondents money and is liable for its restitution.
Consolidated Bank and Trust Corp. v. CA, 410 SCRA 562, 574 (2003). The contract between the bank and its depositor is governed by the provisions of the Civil Code on
simple loan. Article 1980 of the Civil Code expressly provides that “x x x savings x x x deposits of money in
FACT: banks and similar institutions shall be governed by the provisions concerning simple loan.” There is a debtor-
creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor.
Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private
The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit
respondent L.C. Diaz and Company, CPA’s, is a professional partnership engaged in the practice of accounting.
agreement between the bank and the depositor is the contract that determines the rights and obligations of the
In March 1976, L.C. Diaz opened a savings account with Solidbank. On 14 August 1991, L.C. Diaz parties.
through its cashier, Mercedes Macaraya, filled up a savings (cash) deposit slip for P990 and a savings (checks)
The law imposes on banks high standards in view of the fiduciary nature of banking. The bank is under
deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre, to deposit the money with
obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature
Solidbank. Macaraya also gave Calapre the Solidbank passbook.
of their relationship
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The
This fiduciary relationship means that the bank’s obligation to observe “high standards of integrity and
teller acknowledged the receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips.
performance” is deemed written into every deposit agreement between a bank and its depositor. The fiduciary
Teller No. 6 stamped the deposit slips with the words “DUPLICATE” and “SAVING TELLER 6 SOLIDBANK
nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.
HEAD OFFICE.” Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with
Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or
Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to
contract, and absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791
Solidbank to retrieve the passbook, Teller No. 6 informed him that “somebody got the passbook.” Calapre went
prescribes the statutory diligence required from banks – that banks must observe “high standards of integrity and
back to L.C. Diaz and reported the incident to Macaraya.
performance” in servicing their depositors.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the
and Calapre went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the
bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to
words “DUPLICATE” and “SAVING TELLER 6 SOLIDBANK HEAD OFFICE” on the duplicate copy of the
pay the depositor is failure to pay a simple loan, and not a breach of trust. The law simply imposes on the bank a
deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook
higher standard of integrity and performance in complying with its obligations under the contract of simple loan,
but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the
beyond those required of non-bank debtors under a similar contract of simple loan.
passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then standing
beside Macaraya. The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do
not accept deposits to enrich depositors but to earn money for themselves.
The following day L.C. Diaz learned of the unauthorized withdrawal the day before (14 August 1991) of
P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized
signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the
withdrawal slip. A certain Noel Tamayo received the P300,000.

L.C. Diaz demanded from Solidbank the return of its money. Solidbank refused. L.C. Diaz filed a
Complaint for Recovery of a Sum of Money against Solidbank.

The trial court absolved Solidbank. L.C. Diaz appealed to the CA. CA reversed the decision of the trial
court. The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good
father of a family. The business and functions of banks are affected with public interest. Banks are obligated to
treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their
relationship with their clients. The Court of Appeals found Solidbank remiss in its duty, violating its fiduciary
relationship with L.C. Diaz. CA denied the motion for reconsideration of Solidbank. But it modified its decision
by deleting the award of exemplary damages and attorney’s fees. Hence this petition.

ISSUE:

Whether or not

RULING:

Prudential Bank v. CA, 328 SCRA 264.
Facts:
Leticia Tupasi-Valenzuela accounts in the Prudential Bank, with automatic transfer of funds from the
savings account to the current account she deposited in her savings account Check No. 666B (104561 of even
date) the amount of P35,271.60, drawn against the Philippine Commercial International Bank (PCIB). She had a
balance of P35,993.48 in her savings account and P776.93 in her current account, or total deposits of P36,770.41,
with petitioner.
Thereafter, Leticia Tupasi-Valenzuela issued Prudential Bank Check No. 983395 in the amount of
P11,500.00 post-dated in favor of one Belen Legaspi as payment for jewelry she purchased. Legaspi, who was in
jewelry trade, endorsed the check to one Philip Lhuillier, a businessman also in the jewelry business. When
Lhuillier deposited the check in his account with the PCIB, Pasay Branch, it was dishonored for being drawn
against insufficient funds. Lhuillier's secretary informed the secretary of Legaspi of the dishonor. The latter told
the former to redeposit the check, Legaspi's secretary tried to contact private respondent but to no avail.
Upon her return from the province Leticia Tupasi-Valenzuela was surprised to learn of the dishonor of
the check. She went to the Prudential Bank to inquire why her check was dishonored. She approached one Albert
Angeles Reyes, the officer in charge of current account, and requested him for the ledger of her current account.
Private respondent discovered a debit of P300.00 penalty for the dishonor of her Prudential Check No. 983395.
She asked why her check was dishonored when there were sufficient funds in her account as reflected in her
passbook. Reyes told her that there was no need to review the passbook because the bank ledger was the best proof
that she did not have sufficient funds.
Later, it was found out that the check in the amount of P35,271.60 deposited by private respondent was
credited in her savings account only on June 24, 1988, or after a period of 23 days. Thus the P11,500.00 check was
redeposited by Lhuillier on June 24, 1988, and properly cleared on June 27, 1988.
Because of this incident, the bank tried to mollify private respondent by explaining to Legaspi and
Lhuillier that the bank was at fault.
Leticia Tupasi-Valenzuela files suit for damages before the RTC of Valenzuela who dismissed the
complaint she appealed to the Court of Appeals who rendered a decision in her favor, setting aside the trial court's
decision and ordering herein petitioner to pay private respondent the sum of P100,000.00 by way of moral
damages; P50,000.00 exemplary damages; P50,000.00 for and as attorney's fees; and to pay the costs.
Issue:
Can damages be awarded to private respondent on account of the bank’s negligence ?
Ruling:
Firstly, petitioner questions the award of moral damages. It claims that private respondent did not suffer
any damage upon the dishonor of the check. Petitioner avers it acted in good faith. It was an honest mistake on its
part, according to petitioner, when misposting of private respondent's deposit on June 1, 1988, happened. Further,
petitioner contends that private respondent may not "claim" damages because the petitioner's manager and other
employees had profusely apologized to private respondent for the error. They offered to make restitution and
apology to the payee of the check, Legaspi, as well as the alleged endorsee, Lhuillier. Regrettably, it was private
respondent who declined the offer and allegedly said, that there was nothing more to it, and that the matter had
been put to rest.5
Admittedly, as found by both the respondent appellate court and the trial court, petitioner bank had committed a
mistake.1âwphi1.nêt It misposted private respondent's check deposit to another account and delayed the posting of
the same to the proper account of the private respondent. The mistake resulted to the dishonor of the private
respondent's check. The trial court found "that the misposting of plaintiff's check deposit to another account and
the delayed posting of the same to the account of the plaintiff is a clear proof of lack of supervision on the part of
the defendant bank."6 Similarly, the appellate court also found that "while it may be true that the bank's negligence
in dishonoring the properly funded check of appellant might not have been attended with malice and bad faith, as
appellee [bank] submits, nevertheless, it is the result of lack of due care and caution expected of an employee of a
firm engaged in so sensitive and accurately demanding task as banking." 7
In Simex International (Manila), Inc. vs. Court of Appeals, 183 SCRA 360, 367 (1990), and Bank of Philippine
Islands vs. IAC, et al., 206 SCRA 408, 412-413 (1992), this Court had occasion to stress the fiduciary nature of the
relationship between a bank and its depositors and the extent of diligence expected of the former in handling the
accounts entrusted to its care, thus:
In every case, 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. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he directs. A blunder on the part of bank, such
as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not
also financial loss and perhaps even civil and criminal litigation.
The paint 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 recent case of Philippine National Bank vs. Court of Appeals,8 we held that "a bank is under obligation to
treat the accounts of its depositors with meticulous care whether such account consists only of a few hundred
pesos or of millions of pesos. Responsibility arising from negligence in the performance of every kind of
obligation is demandable. While petitioner's negligence in this case may not have been attended with malice and
bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation". Hence we ruled that the
offended party in said case was entitled to recover reasonable moral damages.
Even if malice or bad faith was not sufficiently proved in the instant case, the fact remains that petitioner has
committed a serious mistake. It dishonored the check issued by the private respondent who turned out to have
sufficient funds with petitioner. The bank's negligence was the result of lack of due care and caution required of
managers and employees of a firm engaged in so sensitive and demanding business as banking. Accordingly, the
award of moral damages by the respondent Court of Appeals could not be said to be in error nor in grave abuse of
its discretion.
 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.
Yong Chan Kim v. People, 193 SCRA 344.

FACTS- Commodatum is essentially gratuitous.

Yong Chan Kim was employed as Researcher at the Aquaculture Department of Southeast Asian
Fisheries Development Center (SEAFDEC) with head station at Tigbauan, Province of Iloilo. He was also Head of Simple loan may be gratuitous or with a stipulation to pay interest.
the Economics Unit of the Research division conducting prawn surveys and this required petitioner to travel to
various selected provinces for potential prawn culture.- In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership
On June 15, 1982, he was issued Travel Order No. 2222 which covered his travels to different places in passes to the borrower.
Luzon from June 16 to July 21 1982(35 days in total) and received the amount of P6,438.00 as cash advance to
defray his travel expenses. Art. 1953.— A person who receives a loan of money or any other fungible thing acquires the ownership
Within the same period, petitioner was issued another travel order no. 2268 requiring him to travel from thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
the Head Station at Tigbauan, Iloilo to Roxas City from 30June to 4 July 1982(5 days). For this travel order,
petitioner received a cash advance of P495.00. The ruling of the trial judge that ownership of the cash advanced to the petitioner by private respondent was not
On 14 January 1983, petitioner presented both travel orders for liquidation, submitting Travel Expense
Reports to the Accounting Section. When the Travel Expense Reports were audited, it was discovered that there
Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary relationship was created.
was an overlap of four (4) days (30 June to 3 July 1982) in the two (2) travel orders for which petitioner collected
Absent this fiduciary relationship between petitioner and private respondent, which is an essential element of the
per diems twice. In sum, the total amount in the form of per diems and allowances charged and collected by
crime of estafa by misappropriation or conversion, petitioner could not have committed estafa. 15
petitioner under Travel Order No. 2222, when he did not actually and physically travel as represented by his
liquidation papers, was P1,230.00.
Yong Chan Kim was required to comment on the said reporting regarding the alleged anomalous claim Additionally, it has been the policy of private respondent that all cash advances not liquidated are to be deducted
correspondingly from the salary of the employee concerned. The evidence shows that the corresponding salary
for per diems and in his reply, he denied the anomaly , claiming that he made make-up trips to compensate for the
deduction was made in the case of petitioner vis-a-vis the cash advance in question.
trips he failed to undertake under T.O. 2222 because he was recalled to the head office and given another
assignment.-
Two criminal cases for estafa were filed under Art. 315 of the RPC namely Criminal Cases No. 628 and
631 were then filed to the MTC. Criminal case No. 631 was subsequently dismissed for failure to prosecute. In
Criminal Cases No. 628 Yong Chan Kim was found guilty of Estafa he filed an appeal to Intermediate Appellate
Court, which approved the decision of the lower court.

ISSUE:
WON Petitioner is under the obligation to return the cash advance which he had received

RULING
Cash Advance for Travel

4. All cash advances must be liquidated within 30 days after date of projected return of the person.
Otherwise, corresponding salary deduction shall be made immediately following the expiration day.
Liquidation simply means the settling of an indebtedness. An employee, such as herein petitioner, who liquidates a
cash advance is in fact paying back his debt in the form of a loan of money advanced to him by his employer,
as per diems and allowances. Similarly, as stated in the assailed decision of the lower court, "if the amount of the
cash advance he received is less than the amount he spent for actual travel . . . he has the right to demand
reimbursement from his employer the amount he spent coming from his personal funds. 12 In other words, the
money advanced by either party is actually a loan to the other. Hence, petitioner was under no legal obligation to
return the same cash or money, i.e., the bills or coins, which he received from the private respondent. 13

Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.

Sesbreñno v. CA, 240 SCRA 606, 6014 (1995).
Facts:
Fifty-two employees sued the Province of Cebu and then Governor Rene Espina for reinstatement and
backwages Raul H. Sesbreño, replaced the employees' former counsel Atty. Catalino Pacquiao,
Thirty-two of the fifty-two employees signed two documents whereby the former agreed to pay
petitioner 30% as attorney's fees and 20% as expenses to be taken from their back salaries.
Trial court rendered a decision ordering the Province of Cebu to reinstate the petitioning employees and
pay them back salaries. A compromise agreement was entered into by the parties whereby the former employees
waived their right to reinstatement among others. Likewise, pursuant to said compromise agreement, the Province
of Cebu released P2,300,000.00 to the petitioning employees through petitioner as "Partial Satisfaction of
Judgment." The amount represented back salaries, terminal leave pay and gratuity pay due to the employees.
Ten employees, herein private respondents, filed manifestations before the trial court asserting that they
agreed to pay petitioner 40% to be taken only from their back salaries.
The lower court issued two orders, with which petitioner complied, requiring him to release P10,000.00
to each of the ten private respondents and to retain 40% of the back salaries pertaining to the latter out of the
P2,300,000.00 released to him they also fixed petitioner's attorney's fees at 40% of back salaries, terminal leave,
gratuity pay and retirement benefits and 20% as expenses, or a total of 60% of all monies paid to the employees.
Raul H. Sesbreño files a motion for reconsideration which was the trial court modified the attorney's lien
was inadvertently placed as 60% when it should have been only 50% petitioner appealed to the Court of Appeals
claiming additional fees for legal services before the Supreme Court, reimbursement for expenses and a clear
statement that the fee be likewise taken from retirement pay awarded to his clients. Unfortunately, the respondent
appellate court did not agree with him as the generous award was further reduced. 
Hence this petition for review
Issue:
W/N Attorney's fees amounting to 50% of all monies awarded to his clients as contingent fees should be
upheld for being consistent with prevailing case law and the contract of professional services between the parties
Ruling:
Fifty per cent of all monies which private respondents may receive from the provincial government,
according to the Court of Appeals, is excessive and unconscionable, not to say, contrary to the contract of
professional services.After considering the facts and the nature of the case, as well as the length of time and effort
exerted by the petitioner, respondent court reduced the amount of attorney's fees due him.
It is a settled rule that what a lawyer may charge and receive as attorney's fees is always subject to
judicial control. A lawyer is primarily an officer of the court charged with the duty of assisting the court in
administering impartial justice between the parties. When he takes his oath, he submits himself to the authority of
the court and subjects his professional fees to judicial control. 
As stated by the Court in the case of Sumaong v. Judge:
A lawyer is not merely the defender of his client's cause and a trustee of his client in respect of
the client's cause of action and assets; he is also, and first and foremost, an officer of the court
and participates in the fundamental function of administering justice in society. It follows that
a lawyer's compensation for professional services rendered are subject to the supervision of the
court, not just to guarantee that the fees he charges and receives remain reasonable and
commensurate with the services rendered, but also to maintain the dignity and integrity of the
legal profession to which he belongs. Upon taking his attorney 's oath as an officer of the
court, a lawyer submits himself to the authority of the courts to regulate his right to
professional fees. 1
In the case at bench, the parties entered into a contingent fee contract. The Agreement provides:
WE, the undersigned petitioners in the case of POLICRONIO BELACHO, ET AL., VS. RENE
ESPINA ET AL., hereby agree to pay Atty. Sesbreño, our lawyer, the following to be taken
from our back salaries:
30% as attorney's fees
20% as expenses
That we enter into agreement in order to be paid our back salaries as early as possible and so
that we may be reinstated as early as possible.
A stipulation on a lawyer's compensation in a written contract for professional services ordinarily controls the
amount of fees that the contracting lawyer may be allowed, unless the court finds such stipulated amount
unreasonable unconscionable. 
A contingent fee arrangement is valid in this jurisdiction and is generally recognized as valid and binding but must
be laid down in an express contract.  The amount of contingent fees agreed upon by the parties is subject to the
stipulation that counsel will be paid for his legal services only if the suit or litigation prospers. A much higher
compensation is allowed as contingent fees in consideration of the risk that the lawyer may get nothing if the suit
fails.
Contingent fee contracts are under the supervision and close scrutiny of the court in order that clients may be
protected from unjust charges.  Its validity depends in large measure on the reasonableness of the stipulated fees
under the circumstances of each case. 
When the courts find that the stipulated amount is excessive or the contract is unreasonable or unconscionable, or
found to have been marred by fraud, mistake, undue influence or suppression of facts on the part of the attorney,
public policy demands that said contract be disregarded to protect the client from unreasonable exaction.
Stipulated attorney's fees are unconscionable whenever the amount is by far so disproportionate compared to the
value of the services rendered as to amount to fraud perpetrated upon the client. This means to say that the amount
of the fee contracted for, standing alone and unexplained would be sufficient to show that an unfair advantage had
been taken of the client, or that a legal fraud had been perpetrated on him. 
The decree of unconscionability or unreasonableness of a stipulated amount in a contingent fee contract, will not
however, preclude recovery. It merely justifies the court's fixing a reasonable amount for the lawyer's services.
Courts may always ascertain, if the attorney's fees are found to be excessive, what is reasonable under the
circumstances. Quantum meruit, meaning "as much as he deserves," is used as the basis for determining the
lawyer's professional fees in the absence of a contract. Factors such as the time spent and extent of services
rendered; novelty and difficulty of the questions involved; importance of the subject matter; skill demanded;
probability of losing other employment as a result of acceptance of the proffered case; customary charges for
similar services; amount involved in the controversy and the benefits resulting to the client; certainty of
compensation; character of employment; and professional standing of the lawyer, are considered in determining
his fees.

There is nothing irregular about the respondent court's finding that the 50% fee of petitioner is unconscionable As
aptly put by the court:

It effectively deprives the appellees of a meaningful victory of the suit they have passionately
pursued. Balancing the allocation of the monetary award, 50% of all monies to the lawyer and
the other 50% to be allocated among all his 52 clients, is too lop-sided in favor of the lawyer.
The ratio makes the practice of law a commercial venture, rather than a noble profession.

. . . Also, the 52 employees who are the plaintiffs in the aforementioned civil case were
dismissed from employment, their means of livelihood. All 52 hired claimant-appellant as
counsel so that they could be reinstated and their source of income restored. It would, verily be
ironic if the counsel whom they had hired to help would appropriate for himself 50% or even
60% of the total amount collectible by these employees. Here is an instance where the courts
should intervene. 20

Considering the nature of the case, which is a labor case, the amount recovered and petitioner's participation in the
case, an award of 50% of back salaries of his 52 clients indeed strikes us as excessive. Under the circumstances, a
fee of 20% of back salaries would be a fair settlement in this case. In any event, this award pertains only to the ten
private respondents herein. Petitioner has already been compensated in the amount of 50% of all monies received,
by the rest of his clients in the case \

Republic of the Phil. V. Unimex Micro-Electronics GmBH, G.R Nos. 166309-10, March 9, 2007,
Facts:
Unimex filed a motion to intervene in the seizure proceedings which was granted by the Collector.
Ruling of the Collector: default order and the forfeiture of the goods are already final and executory.Unimex filed
a petition for review in the Court of Tax Appeals (CTA).
CTA Ruling: In 1992, Reversed the forfeiture decree and ordered the release of the subject shipment to
Unimex subject to the payment of customs duties.
WHEREFORE, the decree of forfeiture of [petitioner] Commissioner of Customs is hereby reversed and
the subject shipment is hereby ordered released to [respondent] subject to the condition that the correct
duties,taxes, fees and other charges thereon be paid to the Bureau of Customs based on the
actual quality and condition of the shipments at the time of the filing of the corresponding import entry in
compliance with this decision and further subject to the presentation of Central Bank Release Certificate
Unfortunately, the respondent failed to secure a writ of execution to enforce the CTA decision
In 2001, Unimex filed with the CTA a petition for the revival of the 1992 decision and prayed for the
immediate release of its shipment or, in the alternative, payment of the shipment’s value plus
damages. During the presentation of evidence, the BOC informed the court that the subject shipment could no
longer be found at its warehouses.
CTARuling: Ordered the BOC Commissioner to pay respondent the commercial value of the goods
based onthe prevailing exchange rate at the time of their importation
WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED.
Accordingly,[petitioner] is ORDERED to PAY [respondent] the amount of P8,675,200.22 representing the
commercial value of the shipment at the time of importation subject, however, to the payment of the proper taxes,
duties, fee and other charges thereon. The payment shall be taken from the sale or sales of the goods or properties
seizor forfeited by the Bureau of Customs. Both parties filed their respective MRs which were both denied by the
CTA. Hence, both filed separate petitions in the CA which were consolidated.
CA Ruling: Dismissed the BOC Commissioner's appeal and granted respondent's.
WHEREFORE, the appealed Decision, dated 19 September 2002, is hereby AFFIRMED
WITHMODIFICATION in that the Bureau of Customs is adjudged liable to Unimex for the value of the subject
shipmentin the amount of $466,885.54. The Bureau of Customs' liability may be paid in Philippine currency,
computed atthe exchange rate prevailing at the time of actual payment with legal interest thereon at the rate of 6%
per annum from 19 September 2002 up to its finality. Upon finality of this Decision, the rate of legal interest shall
be 12% perannum until the value of the subject shipment is fully paid.Both parties again filed their respective MRs
of the CA’s decision
.CA Ruling: Denied the BOC Commissioner's MR and granted respondent's
WHEREFORE, the appealed Decision, dated 19 September 2002, is hereby AFFIRMED
WITH MODIFICATION in that the Bureau of Customs is adjudged liable to Unimex for the value of the subject
shipment in the amount of Euro 669,982.565. The Bureau of Custom's liability [may be] paid in the Philippine
currency , computed at the exchange rate prevailing at the time of actual payment with legal interests thereon at
the rate of6% per annum from 15 June 1987 up to the finality of this Decision. In lieu of the 6% interest, the rate
of legal interest shall be 12% per annum upon finality of this Decision until the value of the subject shipment is
fully paid.Republic represented by BOC Commissioner filed an appeal by certiorari under Rule 45 in the SC.
Issue:
WON, Legal Interest may be imposed for use of money or as compensatory damage
Ruling:
Petitioner argues that the CA erred in imposing the 6% p.a. legal interest. According to petitioner, the
obligation to pay legal interest only arises by virtue of a contract or on account of damages due to delay or failure
to pay the principal on which the interest is exacted. It added that since the June 15, 1992 CTA decision did not
involve a monetary award but merely the release of the goods to respondent, there was no
basis for the computation and/or imposition of the 6% p.a. legal interest.
Interest may be paid either as compensation for the use of money (monetary interest) referred to in Article 1956 of
the New Civil Code or as damages (compensatory interest) under Article 2209 above cited. As clearly provided in
[Article 2209], interest is demandable if: a) there is monetary obligation and b) debtor incurs delay.
This case does not involve a monetary obligation to be covered by Article 2209. There is no dispute that this case
was originally filed questioning the seizure of the shipment by the Bureau of Customs. Our decision subject of this
action for revival [of judgment] did not refer to any monetary obligation by [petitioner] towards the [respondent].
In fact, if there was any monetary obligation mentioned, it referred to the obligation of [respondent] to pay the
correct taxes, duties, fees and other charges before the release of the goods can be had. In one case, the Supreme
Court held:
"In a comprehensive sense, the term "debt" embraces not merely money due by contract, but whatever one is
bound to render to another, either for contract or the requirement of the law, such as tax where the law imposes
personal liability therefor."
Therefore, the government was never a debtor to the petitioner in order that [Article] 2209 could apply. Nor was it
in default for there was no monetary obligation to pay in the first place. There is default when  after demand is
made either judicially or extrajudicially. In other words, for interest to be demandable under Article 2209, there
should be a monetary obligation and the debtor was in default…
In the instant case, [petitioner] was never under monetary obligation to [respondent], no demand can be made
either judicially or extrajudicially. Parallel thereto, there could be no default… 26
No doubt, the present case does not fall within the first situation. Neither can it be considered as one involving
interest based on damages under the second situation.
More importantly, interest is not chargeable against petitioner except when it has expressly stipulated to pay it or
when interest is allowed by the legislature or in eminent domain cases where damages sustained by the owner take
the form of interest at the legal rate. 27 Consequently, the CA’s imposition of the 12% p.a. legal interest upon the
finality of the decision of this case until the value of the goods is fully paid (as forbearance of credit) is likewise
bereft of any legal anchor.
Considering the nature of the case, which is a labor case, the amount recovered and petitioner's participation in the
case, an award of 50% of back salaries of his 52 clients indeed strikes us as excessive. Under the circumstances, a
fee of 20% of back salaries would be a fair settlement in this case. In any event, this award pertains only to the ten
private respondents herein. Petitioner has already been compensated in the amount of 50% of all monies received,
by the rest of his clients in the case below. WHEREFORE, in view of the foregoing, the petition is DENIED and
the appealed decision AFFIRMED.
Cuaton v. Salud, 421 SCRA 278, 282 (2004).
Facts:
In 1993, Rebecca Salud and her husband Rolando Salud filed a suit for foreclosure of real estate
mortgage with damages against Mansueto Cuaton and his mother Conchita Cuaton.
The trial court declared the mortgage, as void because it was executed by Mansueto Cuaton in favor of
Rebecca Salud without expressly stating that he was merely acting as a representative of Conchita Cuaton, in
whose name the mortgaged lot was title and ordered Mansueto Cuaton to pay Rebecca Salud the loan secured by
the mortgage in the amount of One Million Pesos plus a total of P610,000.00 representing interests of 10% and 8%
per month for the period February 1992 to August 1992.
Both parties filed their respective notices of appeal the Court of Appeals affirmed the judgment of the
trial court.
The petitioner, Mansueto Cuaton, filed a motion for partial reconsideration with respect to the award of
interest in the amount of P610,000.00, arguing that it was iniquitous and exorbitant. This was denied by the Court
of Appeals on May 7, 2003. The instant petition revolves around the sole issue of whether the 8% and 10%
monthly interest rates imposed on the one-million-peso loan obligation of the petitioner to the respondent are
valid.
The petitioner argues that the imposition of the high-interest rates is contrary to public policy and
constitutes excessive interest.
ISSUE:
Whether the 8% and 10% monthly interest rates imposed on the one-million-peso loan obligation of
petitioner to respondent Rebecca Salud are valid.
RULING:
In Ruiz v. Court of Appeals we declared that the Usury Law was suspended by Central Bank Circular
No. 905, s. 1982, effective on January 1, 1983, and that parties to a loan agreement have been given wide latitude
to agree on any interest rate. However, nothing in the said Circular grants lenders  carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. The
stipulated interest rates are illegal if they are unconscionable.
Thus, in Medel v. Court of Appeals, and Spouses Solangon v. Salazar,the Court annulled a stipulated
5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest
on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In both cases,
the interest rates were reduced to 12% per annum.
In the present case, the 10% and 8% interest rates per month on the one-million-peso loan of petitioner
are even higher than those previously invalidated by the Court in the above cases. Accordingly, the reduction of
said rates to 12% per annum is fair and reasonable.
Stipulations authorizing iniquitous or unconscionable interests are contrary to morals (‘contra bonos mores’), if
not against the law.12 Under Article 1409 of the Civil Code, these contracts are inexistent and void from the
beginning. They cannot be ratified nor the right to set up their illegality as a defense be waived. 13
Moreover, the contention regarding the excessive interest rates cannot be considered as an issue presented for the
first time on appeal. The records show that petitioner raised the validity of the 10% monthly interest in his answer
filed with the trial court. 14 To deprive him of his right to assail the imposition of excessive interests would be to
sacrifice justice to technicality. Furthermore, an appellate court is clothed with ample authority to review rulings
even if they are not assigned as errors. This is especially so if the court finds that their consideration is necessary
in arriving at a just decision of the case before it. We have consistently held that an unassigned error closely
related to an error properly assigned, or upon which a determination of the question raised by the error properly
assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an
error.15 Since respondents pointed out the matter of interest in their Appellants’ Brief 16 before the Court of
Appeals, the fairness of the imposition thereof was opened to further evaluation. The Court therefore is
empowered to review the same.
The case of Eastern Shipping Lines, Inc. v. Court of Appeals,17 laid down the following guidelines on the
imposition of interest, to wit:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil
Code.
xxx     xxx     xxx
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
Applying the foregoing rules, the interest of 12% per annum imposed by the Court (in lieu of the invalidated 10%
and 8% per month interest rates) on the one-million-peso loan should be computed from the date of the execution
of the loan on October 31, 1991 until finality of this decision. After the judgment becomes final and executory
until the obligation is satisfied, the amount due shall further earn interest at 12% per year.
WHEREFORE, in view of all the foregoing, the instant petition is GRANTED. The August 31, 2001
Decision of the Court of Appeals in CA-G.R. CV No. 54715, which affirmed the Decision of the Regional Trial
Court of General Santos City, Branch 35, in SPL. Civil Case No. 359, is MODIFIED. The interest rates of 10%
and 8% per month imposed by the trial court is reduced to 12% per annum, computed from the date of the
execution of the loan on October 31, 1991 until finality of this decision. After the judgment becomes final and
executory until the obligation is satisfied, the amount due shall further earn interest at 12% per year.

Carpo v. Chua, 471 SCRA 471, 481
Facts:
The case involves a loan of P175,000.00 obtained by the petitioners from Eleanor Chua and Elma Dy Ng with
a 6% monthly interest rate and secured by a mortgage on their residential property covered by Transfer Certificate of
Title (TCT) No. 23180. The petitioners failed to pay the loan, and the mortgage was foreclosed, and the property was
sold at a public auction, with the respondents as the winning bidders. Despite the issuance of a certificate of sale and a
new TCT in the name of the respondents, the petitioners continued to occupy the property, prompting the respondents to
file a petition for a writ of possession.
The RTC issued an order for the issuance of a writ of possession, but the enforcement was suspended due to
the petitioners' complaint for the annulment of the real estate mortgage and foreclosure proceedings. The RTC later
dismissed the complaint on the ground of laches, prompting the petitioners to file a petition for review.
Meanwhile, the Court of Appeals annulled and set aside the RTC orders in the writ of possession case, stating
that the issuance of the writ was ministerial when the title over the property had been consolidated in the mortgagee
In G.R. No. 150773, petitioners claim that following the Court's ruling in Medel v. Court of Appeals the rate
of interest stipulate in the principal loan agreement is clearly null and void. Consequently, they also argue that the nullity
of the agreed interest rate affects the validity of the real estate mortgage. Notably, while petitioners were silent in their
petition on the issues of prescription and laches on which the RTC grounded the dismissal of the complaint, they
belatedly raised the matters in their Memorandum.
In G.R. No. 153599 that the RTC did not commit any grave abuse of discretion when it issued the orders dated
3 August 1999 and 6 January 2000, and that these orders could not have been 'the proper subjects of a petition for
certiorari and mandamus' . More accurately, the justiciable issues before us are whether the Court of Appeals could
properly entertain the petition for certiorari from the timeliness aspect, and whether the appellate court correctly
concluded that the writ of possession could no longer be stayed
ISSUE:
Whether the rate of interest of 6% per month or 72% per annum is so excessive, iniquitous, unconscionable and
exorbitant that it should have been declared null and void.
RULING:
In Medel, the Court found that the interest stipulated at 5.5% per month or 66% per annum was so iniquitous
or unconscionable as to render the stipulation void.
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 Court shall reduce equitably liquidated damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable  January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that when a contract is found to be tainted with
In a long line of cases, this Court has invalidated similar stipulations on interest rates for being excessive,
iniquitous, unconscionable and exorbitant. In Solangon v. Salazar,  we annulled the stipulation of 6% per month or 72%
per annum interest on a P60,000.00 loan. In Imperial v. Jaucian, we reduced the interest rate from 16% to 1.167% per
month or 14% per annum. In Ruiz v. Court of Appeals, we equitably reduced the agreed 3% per month or 36% per
annum interest to 1% per month or 12% per annum interest. The 10% and 8% interest rates per month on
a P1,000,000.00 loan were reduced to 12% per annum in Cuaton v. Salud.   Recently, this Court, in Arrofo v. Quino,
reduced the 7% interest per month on a P15,000.00 loan amounting to 84% interest per annum to 18% per annum.
There is no need to unsettle the principle affirmed in Medel and like cases. From that perspective, it is
apparent that the stipulated interest in the subject loan is excessive, iniquitous, unconscionable and exorbitant. Pursuant
to the freedom of contract principle embodied in Article 1306 of the Civil Code, contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy. In the ordinary course, the codal provision may be invoked to annul the
excessive stipulated interest
In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set in the
above-cited cases, this stipulation is similarly invalid. However, the RTC refused to apply the principle cited and
employed in Medel on the ground that Medel did not pertain to the annulment of a real estate mortgage, as it was a case
for annulment of the loan contract itself. The question thus sensibly arises whether the invalidity of the stipulation on
interest carries with it the invalidity of the principal obligation.
The question is crucial to the present petition even if the subject thereof is not the annulment of the loan
contract but that of the mortgage contract. The consideration of the mortgage contract is the same as that of the principal
contract from which it receives life, and without which it cannot exist as an independent contract. Being a mere accessory
contract, the validity of the mortgage contract would depend on the validity of the loan secured by it.
Notably in Medel, the Court did not invalidate the entire loan obligation despite the inequitability of the
stipulated interest, but instead reduced the rate of interest to the more reasonable rate of 12% per annum. The same
remedial approach to the wrongful interest rates involved was employed or affirmed by the Court
in Solangon, Imperial, Ruiz, Cuaton, and Arrofo.
The Court's ultimate affirmation in the cases cited of the validity of the principal loan obligation side by side
with the invalidation of the interest rates thereupon is congruent with the rule that a usurious loan transaction is not a
complete nullity but defective only with respect to the agreed interest.
We are aware that the Court of Appeals, on certain occasions, had ruled that a usurious loan is wholly null and
void both as to the loan and as to the usurious interest. However, this Court adopted the contrary rule, as
comprehensively discussed in Briones v. Cammayo: 
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event, the debtor in
a usurious contract of loan should pay the creditor the amount which he justly owes him, citing in support of this ruling
its previous decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44
Phil. 739.
Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that the standing jurisprudence
of this Court on the question under consideration was clearly to the effect that the Usury Law, by its letter and spirit, did
not deprive the lender of his right to recover from the borrower the money actually loaned to and enjoyed by the latter.
This Court went further to say that the Usury Law did not provide for the forfeiture of the capital in favor of the debtor in
usurious contracts, and that while the forfeiture might appear to be convenient as a drastic measure to eradicate the evil of
usury, the legal question involved should not be resolved on the basis of convenience.
Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs. Perez, L-19554,
usury "the only right of the respondent (creditor) . . . was merely to collect the amount of the loan, plus interest due
thereon."
 The view has been expressed, however, that the ruling thus consistently adhered to should now be abandoned
because Article 1957 of the new Civil Code ' a subsequent law ' provides that contracts and stipulations, under any cloak
or device whatever, intended to circumvent the laws against usury, shall be void, and that in such cases "the borrower
may recover in accordance with the laws on usury." From this the conclusion is drawn that the whole contract is void and
that, therefore, the creditor has no right to recover ' not even his capital.
The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and the view referred to in the
preceding paragraph is adequately answered, in Angel Jose, etc. vs. Chelda Enterprises, et al. (L-25704, April 24, 1968).
On the question of whether a creditor in a usurious contract may or may not recover the principal of the loan, and, in the
affirmative, whether or not he may also recover interest thereon at the legal rate, We said the following:.
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest, may the
creditor recover the principal of the loan? (2) Should attorney's fees be awarded in plaintiff's favor?"
  Great reliance is made by appellants on Art. 1411 of the New Civil Code . . . .
Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of pari delicto
expressed in Article 1411, supra, applies, so that neither party can bring action against each other. Said rule, however,
appellants add, is modified as to the borrower, by express provision of the law (Art. 1413, New Civil Code), allowing the
borrower to recover interest paid in excess of the interest allowed by the Usury Law. As to the lender, no exception is
made to the rule; hence, he cannot recover on the contract. So ' they continue ' the New Civil Code provisions must be
upheld as against the Usury Law, under which a loan with usurious interest is not totally void, because of Article 1961 of
the New Civil Code, that: "Usurious contracts shall be governed by the Usury Law and other special laws, so far as they
are not inconsistent with this Code."
We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of the
Old Civil Code. Therefore, said provision is no warrant for departing from previous interpretation that, as provided in the
Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally void only as to the interest.
. . . [a]ppellants fail to consider that a contract of loan with usurious interest consists of principal and accessory
stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest thereon.
And said two stipulations are divisible in the sense that the former can still stand without the latter. Article 1273, Civil
Code, attests to this: "The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of
the latter shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to payment of interest likewise renders a nullity the legal
terms as to payments of the principal debt. Article 1420 of the New Civil Code provides in this regard: "In case of a
divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the
cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the
stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal.
 The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action. And in
case of such demand, and the debtor incurs in delay, the debt earns interest from the date of the demand (in this case from
the filing of the complaint). Such interest is not due to stipulation, for there was none, the same being void. Rather, it is
due to the general provision of law that in obligations to pay money, where the debtor incurs in delay, he has to pay
interest by way of damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to pay
the principal debt with interest thereon at the legal rate, from the date of filing of the complaint." 
The Court's wholehearted affirmation of the rule that the principal obligation subsists despite the nullity of the stipulated
interest is evinced by its subsequent rulings, cited above, in all of which the main obligation was upheld and the
offending interest rate merely corrected. Hence, it is clear and settled that the principal loan obligation still stands and
remains valid. By the same token, since the mortgage contract derives its vitality from the validity of the principal
obligation, the invalid stipulation on interest rate is similarly insufficient to render void the ancillary mortgage contract
It should be noted that had the Court declared the loan and mortgage agreements void for being contrary to public policy,
no prescriptive period could have run. Such benefit is obviously not available to petitioners.
Yet the RTC pronounced that the complaint was barred by the four-year prescriptive period provided in Article 1391 of
the Civil Code, which governs voidable contracts. This conclusion was derived from the allegation in the complaint that
the consent of petitioners was vitiated through undue influence. While the RTC correctly acknowledged the rule of
prescription for voidable contracts, it erred in applying the rule in this case. We are hard put to conclude in this case that
there was any undue influence in the first place.
There is ultimately no showing that petitioners' consent to the loan and mortgage agreements was vitiated by undue
influence. The financial condition of petitioners may have motivated them to contract with respondents, but undue
influence cannot be attributed to respondents simply because they had lent money. Article 1391, in relation to Article
1390 of the Civil Code, grants the aggrieved party the right to obtain the annulment of contract on account of factors
which vitiate consent. Article 1337 defines the concept of undue influence, as follows:
There is undue influence when a person takes improper advantage of his power over the will of another, depriving the
latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family,
spiritual and other relations between the parties or the fact that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in financial distress.
While petitioners were allegedly financially distressed, it must be proven that there is deprivation of their free agency. In
other words, for undue influence to be present, the influence exerted must have so overpowered or subjugated the mind
of a contracting party as to destroy his free agency, making him express the will of another rather than his own.   The
alleged lingering financial woes of petitioners per se cannot be equated with the presence of undue influence.
The RTC had likewise concluded that petitioners were barred by laches from assailing the validity of the real estate
mortgage. We wholeheartedly agree. If indeed petitioners unwillingly gave their consent to the agreement, they should
have raised this issue as early as in the foreclosure proceedings. It was only when the writ of possession was issued did
petitioners challenge the stipulations in the loan contract in their action for annulment of mortgage. Evidently, petitioners
slept on their rights. The Court of Appeals succinctly made the following observations:
In all these proceedings starting from the foreclosure, followed by the issuance of a provisional certificate of sale; then
the definite certificate of sale; then the issuance of TCT No. 29338 in favor of the defendants and finally the petition for
the issuance of the writ of possession in favor of the defendants, there is no showing that plaintiffs questioned the validity
of these proceedings. It was only after the issuance of the writ of possession in favor of the defendants, that plaintiffs
allegedly tendered to the defendants the amount of P260,000.00 which the defendants refused. In all these proceedings,
why did plaintiffs sleep on their rights? 
Clearly then, with the absence of undue influence, petitioners have no cause of action. Even assuming undue influence
vitiated their consent to the loan contract, their action would already be barred by prescription when they filed it.
Moreover, petitioners had clearly slept on their rights as they failed to timely assail the validity of the mortgage
agreement. The denial of the petition in G.R. No. 150773 is warranted.

Bulos, Jr. v. Yasuma, G.R No. 164159, July 17, 2007.
Facts:
Honorio Bulos with Dr. Ramon R. Lim and Atty. Bede S. Tabalingcos obtained a loan from Koji
Yasuma for P2,500,000 in October 1988 evidenced by a promissory note.The promissory note they signed
provided for a 4% interest rate for three months or until January 10, 1989. It stated that if the borrower failed to
pay on time, the loan would be considered extended monthly at the same rate of interest until the principal was
fully paid. In case the promissory note was brought to court, the borrowers agreed to pay an additional amount
equivalent to 10% of the principal plus attorney’s fees. As collateral, the petitioner and Dr. Lim executed real
estate mortgages on their respective properties
On December 16, 1988, Honorio Bulos assumed the loan obligation of Dr. Lim, with the latter's consent,
but without obtaining the respondent's consent to the deed of assumption. When the loan became due on January
10, 1989, the petitioner, Dr. Lim, and Atty. Tabalingcos failed to pay the loan despite respondent’s demands.
Respondent requested Atty. Tabalingcos, his legal adviser, to foreclose the mortgages, but he failed to do so.
Instead, Atty. Tabalingcos proposed that the petitioner sell certain properties in Parañaque City to the respondent
to cover their obligation. Respondent agreed to this, and a deed of sale was executed on February 24, 1989.
After the sale, the parties agreed that there was still a balance of P2,240,000 owed to the respondent. The
petitioner assumed the P1,500,000 obligation of Dr. Lim in a certification dated February 27, 1989, with the
transfer of shares of stocks of the Rural Bank of Parañaque to the respondent to offset the obligation. The
petitioner offered the shares of stocks, but the respondent refused to accept them and demanded an outright
payment. Atty. Tabalingcos then issued a check in the amount of P2,240,000, but it was dishonored. Respondent
then sent a demand letter to each borrower, but to no avail, prompting him to file a Complaint for. Sum of Money
with Damages with the RTC.
Aggrieved by the aforesaid Decision of the trial court, the petitioner, Dr. Lim and Atty. Tabalingcos
appealed to the Court of Appeals. However, Atty. Tabalingcos did not file his appellant’s brief. On 5 January
2004, the Court of Appeals rendered a Decision affirming in toto the Decision of the trial court. The petitioner
moved for its reconsideration, but it was denied in a Resolution dated 11 June 2004 issued by the appellate court.
ISSUE:
Whether or not the imposition of 21% interest on ₱2,240,000.00 and 20% of the said amount as
attorney’s fees has no legal and factual basis
RULING:
In the face of all of the above, this Court nevertheless sustains the assertion of the petitioner that the
imposition of 21% interest on the outstanding loan obligation of ₱2,240,000.00 has no legal and factual bases.
According to the promissory note executed by Dr. Lim, and agreed to by all the parties, in case of the
borrower’s failure to pay the loan obligation within the stipulated period, the extended period shall be considered
running monthly under the same terms and rate of interest, which is 4% per month, until the principal has been
fully paid. Thus, the remaining balance of ₱2,240,000.00 is still subject to the interest rate of 4% per month 24 or
48% per annum. To our mind such rate of interest is highly unconscionable and inordinate.
In the case of Ruiz v. Court of Appeals, citing the cases of Medel v. Court of Appeals,Garcia v. Court of
Appeals,Spouses Bautista v. Pilar Development Corporation 28 and the recent case of Spouses Solangon v.
Salazar,his Court considered the 3% interest per month or 36% interest per annum as excessive and
unconscionable. Thereby, the Court, in the said case, equitably reduced the rate of interest to 1% interest per
month or 12% interest per annum. The Court also held that while the Usury Law has been suspended by Central
Bank Circular No. 905, s. 1982, effective on 1 January 1983, and parties to a loan agreement have been given wide
latitude to agree on any interest rate, still stipulated interest rates are illegal if they are unconscionable. Nothing in
the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their assets.Surely, it is more consonant with justice that the rate of
interest in the present case, which is 4% per month or 48% per annum, be reduced equitably. We find, that the
reduction of the interest rate by the trial court, pegged at 21% per annum, was not proper.
In Eastern Shipping Lines, Inc. v. Court of Appeals, 31 the Court formulated the following rules of thumb to guide
the lower courts in the imposition of the proper interest on the amounts due, to wit:
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:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.32 [Emphasis supplied].
The agreed interest rate of 4% per month or 48% per annum is unconscionable and must be mitigated Following
established jurisprudence, the legal interest rate of 12% should apply, computed from the date of judicial demand,
that is, 7 April 1990. The aforequoted paragraph 3 of the guidelines is also appropriate herein, and a 12% interest
per annum is imposed on petitioner’s monetary liability to respondent from the date of the finality of this Decision
until it is fully paid.
As regards the argument of the petitioner that the award of attorney’s fees equivalent to 20% of ₱2,240,000.00 is
excessive, this Court finds the same specious. The lower courts found that by reason of the acts of the petitioner
and his cohorts, the respondent had to secure the services of counsel in order to preserve and protect his rights. If
not for the refusal of the petitioner to settle his obligation, the respondent would not have incurred expenses in
filing a case which dragged on for more than a decade in order to recover the loan which he extended to the
petitioner, Dr. Lim and Atty. Tabalingcos. Hence, the award of 20% of ₱2,240,000.00 as attorney’s fees is only
reasonable. Conspicuously, there appears to be a variation as to the percentage of attorney’s fees awarded in the
dispositive portion and in the body of the RTC decision. In the dispositive portion of the RTC decision, the
attorney’s fees awarded was 20% of ₱2,240,000.00; while in the body of the same decision, the rate referred to
10% of ₱2,240,000.00.
The general rule is that, where there is conflict between the dispositive portion or the fallo and the body of a
decision, the fallo controls. This rule rests on the theory that the fallo is the final order while the opinion in the
body is merely a statement ordering nothing. However, where the inevitable conclusion from the body of the
decision is so clear as to show that there was a mistake in the dispositive portion, the body of the decision
prevails.34 In his complaint before the RTC, the respondent prayed for 20% of ₱2,240,000.00 as attorney’s fees. In
the body of the RTC decision, the trial court awarded outright respondent’s prayer for attorney’s fees without any
discussion that it found the 20% respondent prayed for as excessive and that it was reducing the percentage of the
attorney’s fees to 10%. This court is more inclined to believe that the 10% attorney’s fees in the body of the RTC
decision is merely a typographical error. Consequently, the general rule applies to this case, and the 20%
attorney’s fees ordered paid by the fallo of the RTC decision controls.
Dario Nakar v. Galery Frames, et al., G.R. No. 189871, August 13, 2013.
Facts:
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the
National Labor Relations Commission (NLRC) against respondents Gallery Frames. The Labor Arbiter rendered a
Decision in favor of petitioner and found that he was dismissed from employment without a valid or just cause.
Thus, Dario Nacarwas awarded backwages and separation pay in lieu of reinstatement in the amount of
P158,919.92
Gallery Frames appealed to the NLRC, but it was dismissed for lack of merit in the Accordingly, the NLRC
sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but it was denied.
Dissatisfied, they filed a Petition for Review on Certiorari before the CA the CA issued a Resolution dismissing
the petition. Respondents filed a Motion for Reconsideration, but it was likewise denied . They then sought relief
before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error on the part of the CA, this
Court denied the petition in the Resolution An Entry of Judgment was later issued certifying that the resolution
became final and executory
Dario Nacar then filed a Motion for Correct Computation, praying that his backwages be computed from the date
of his dismissal up to the finality of the Resolution of the Supreme Court.Upon recomputation, the Computation
and Examination Unit of the NLRC arrived at an updated amount in the sum of ₱471,320.31.
On December 2, 2002, a Writ of Execution was issued by the Labor Arbiter ordering the Sheriff to collect from
respondents the total amount of ₱471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing,
among other things, that since the Labor Arbiter awarded separation pay of ₱62,986.56 and limited backwages of
₱95,933.36, no more recomputation is required to be made of the said awards. They claimed that after the decision
becomes final and executory, the same cannot be altered or amended anymore.On January 13, 2003, the Labor
Arbiter issued an Order denying the motion. Thus, an Alias Writ of Execution was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution granting the appeal in
favor of the respondents and ordered the recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and
executory. Consequently, another pre-execution conference was held, but respondents failed to appear on time.
Meanwhile, petitioner moved that an Alias Writ of Execution be issued to enforce the earlier recomputed
judgment award in the sum of ₱471,320.31.
The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where
the judgment award of petitioner was reassessed to be in the total amount of only ₱147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as
determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his
backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was
due to petitioner in the amount of ₱147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include
the appropriate interests.
On May 10, 2005, the Labor Arbiter issued an Order granting the motion, but only up to the amount of
₱11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced
considering that it was the one that became final and executory. However, the Labor Arbiter reasoned that since
the decision states that the separation pay and backwages are computed only up to the promulgation of the said
decision, it is the amount of ₱158,919.92 that should be executed. Thus, since petitioner already received
₱147,560.19, he is only entitled to the balance of ₱11,459.73.
Petitioner then appealed before the NLRC,  which appeal was denied by the NLRC in its Resolution dated
September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the
Resolution dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision denying the petition. The CA opined that since petitioner no
longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a
belated correction thereof is no longer allowed. The CA stated that there is nothing left to be done except to
enforce the said judgment. Consequently, it can no longer be modified in any respect, except to correct clerical
errors or mistakes.
Issue:
Ruling :
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:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. 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.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.33
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 34 of Circular No. 905, Series of 1982 and, accordingly,
issued Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which reads:
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:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 36 of the Manual of Regulations for Banks and Sections
4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby
amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping
Lines40 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.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce
Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such
as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It
even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines 42 are
accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of recoverable damages.1âwphi1
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.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R.
SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are
Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May
27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per
year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27,
2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded
and due to petitioner in accordance with this Decision.

Sia vs CA, 222 (SCRA) 24 (1993)
Facts:
The petitioner instituted an action for damages arising out of the destruction or loss of the stamp
collection of the plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been rented from
the private respondent bank pursuant to a contract denominated as a Lease Agreement.
The said safety deposit box leased by the plaintiff was at the bottom or at the lowest level of the
safety deposit boxes of the defendant bank at its aforesaid Binondo Branch. During the floods that took
place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped into the safety
deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps collection.
decision in the case of CA Agro-Industrial Development Corp. vs. Court of Appeals, this Court explicitly
rejected the contention that a contract for the use of a safety deposit box is a contract of lease, nor did we fully
subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code provision on
deposit;it is a special kind of deposit wherein Section 72 of the General Banking Act [R.A. 337, as amended] is
held applicable in this case which pertinently provides that in addition to the operations specifically
authorized elsewhere in this Act, banking institutions other than building and loan associations may receive in
custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects.
Note that the primary function is still found within the parameters of a contract ofdeposit,i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety
deposit boxes is not independent from, but related to or in conjunction with this principal function.Pursuant
to Article 1306 of the Civil Code, the parties to a contract of deposit may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy. Accordingly, the depositary would be liable if, in performing its
obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement
[Art. 1170,id.]. In the absence of any stipulation prescribing the degree of diligence required, that of a
good father of a family is to be observed [Art. 1173,id.]. Hence, any stipulation exempting the depositary
from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay
would be void for being contrary to law and public policy

The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis
of the "Rules and Regulations Governing the Lease of Safe Deposit Boxes" particularly paragraphs 9 and 13,
which reads

:"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to prevent
the opening of the safe by any person other than the Renter, his authorized agent or legal representative;

"13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the
control of the same. The Bank has no interest whatsoever in said contents, except as herein provided, and it
assumes absolutely no liability in connection therewith.

"The defendant bank also contended that its contract with the plaintiff over safety deposit box No.
54 was one of lease and notof deposit and, therefore, governed by the lease agreement which should be the
applicable law; that the destruction of the plaintiff's stamps collection was due to a calamity beyond obligation
on its part to notify the plaintiff about the floodwaters thatinundated its premises at Binondo branch which
allegedly seeped into the safety deposit box leased to the plaintiff.

RTC favored private respondent. On appeal, CA favored the defendant bank and ruled that the contract
entered into by the parties regardingSafe Deposit Box No. 54 was not a contract of deposit.

ISSUE:

WON the contract over Safety Deposit Box No. 54 is one of lease and not of deposit.

HELD:

It is a special kind of deposit.

SBTC's theory that the "Lease Agreement " covering Safe Deposit Box No. 54 is just that —a
contract of lease —and not a contract of deposit, and that paragraphs 9 and 13 thereof, which expressly limit the
bank's liability as follows are valid and bindingupon the partiesis NOT TENABLE. In accordance with the