CATHOLIC VICAR VS.

CA

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner, 

COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents
G.R. No. 80294-95 September 21, 1988

Nature: Review on certiorari
Keywords: Recovery of possession, commodatum, adverse possession
Summary: -
- Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an application for
registration of title over Lots 1, 2, 3, and 4, said Lots being the sites of the Catholic Church
building, convents, high school building, school gymnasium, school dormitories, social hall,
stonewalls, etc.
- The Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on
Lots Nos. 2 and 3, respectively, asserting ownership and title thereto since their predecessors’
house was borrowed by petitioner Vicar after the church and the convent were destroyed..
- After trial on the merits, the land registration court promulgated its Decision confirming the
registrable title of VICAR to Lots 1, 2, 3, and 4. The Heirs of Juan Valdez appealed the decision
of the land registration court to the then Court of Appeals, The Court of Appeals reversed the
decision. Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari
of the decision of the Court of Appeals dismissing his application for registration of Lots 2 and 3.

GANCAYCO, J.

Facts:

-  1962: Catholic Vicar Apostolic of the Mountain Province (Vicar), petitioner, filed with the court an
application for the registration of title over lots 1, 2, 3 and 4 situated in Poblacion Central, Benguet, said
lots being used as sites of the Catholic Church, building, convents, high school building, school
gymnasium, dormitories, social hall and stonewalls.

- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano claimed that they have ownership over
lots 1, 2 and 3. (2 separate civil cases)

- 1965: The land registration court confirmed the registrable title of Vicar to lots 1 , 2, 3 and 4. Upon
appeal by the private respondents (heirs), the decision of the lower court was reversed. Title for lots 2
and 3 were cancelled.

- VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of
Appeals dismissing his  application for registration of Lots 2 and 3.

- During trial, the Heirs of Octaviano presented one (1) witness, who testified on the alleged ownership
of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano; his written
demand to Vicar for the return of the land to them; and the reasonable rentals for the use of the land at
P10,000 per month. On the other hand, Vicar presented the Register of Deeds for the Province of
Benguet, Atty. Sison, who testified that the land in question is not covered by any title in the name of
Egmidio Octaviano or any of the heirs. Vicar dispensed with the testimony of Mons. Brasseur when the
heirs admitted that the witness if called to the witness stand, would testify that Vicar has been in
possession of Lot 3, for 75 years continuously and peacefully and has constructed permanent
structures thereon.

Issue:
1. WON Vicar had been in possession of lots 2 and 3 merely as bailee borrower in commodatum, a
gratuitous loan for use.

2. Whether or not the failure to return the subject matter of commodatum constitutes an adverse
possession on the part of the owner

Held:
1. YES. Private respondents were able to prove that their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the
house, but when they allowed its free use, they became bailors in commodatum and the petitioner the
bailee.

2. No. The bailees’ failure to return the subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum.

Petitioner repudiated the trust by declaring the properties in its name for taxation purposes.
Ratio: The Court of Appeals found that petitioner Vicar did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement
of 10 years possession for ordinary acquisitive prescription because of the absence of just
title. The appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan
Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner
Vicar because there was absolutely no documentary evidence to support the same and the
alleged purchases were never mentioned in the application for registration.
Ruling: WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of
merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of
Appeals is AFFIRMED, with costs against petitioner

REPUBLIC VS BAGTAS 
[G.R. No. L-17474  October 25, 1962] 
PADILLA, J.

FACTS:
 Jose Bagtas borrowed from the Bureau of Animal Industry three bulls for a period of one year
for breeding purposes subject to a government charge of breeding fee of 10% of the book value of
the books.
 Upon the expiration of the contract, Bagtas asked for a renewal for another one year,
however, the Secretary of Agriculture and Natural Resources approved only the renewal for one bull
and other two bulls be returned.
 Bagtas then wrote a letter to the Director of  Animal Industry that he would pay the value of
the three bulls with a deduction of yearly depreciation. The Director advised him that the value
cannot be depreciated and asked Bagtas to either return the bulls or pay their book value.
 Bagtas neither paid nor returned the bulls. The Republic then commenced an action against
Bagtas ordering him to return the bulls or pay their book value.
 After hearing, the trial Court ruled in favor of the Republic, as such, the Republic moved ex
parte for a writ of execution which the court granted.
 Felicidad Bagtas, the surviving spouse and administrator of Bagtas’ estate, returned the two
bulls and filed a motion to quash the writ of execution since one bull cannot be returned for it was
killed by gunshot during a Huk raid. The Court denied her motion hence, this appeal certified by the
Court of Appeals because only questions of law are raised.

ISSUE: WON the contract was commodatum;thus, Bagtas be held liable for its loss due to force
majeure. 

RULING:
 A contract of commodatum is essentially gratuitous. Supreme Court held that Bagtas was
liable for the loss of the bull even though it was caused by a fortuitous event.
 If the contract was one of lease, then the 10% breeding charge is compensation (rent) for the
use of the bull and Bagtas, as lessee, is subject to the responsibilities of a possessor. He is also in
bad faith because he continued to possess the bull even though the term of the contract has already
expired.
 If the contract was one of commodatum, he is still liable because:
(1) he kept the bull longer than the period stipulated; and
(2) the thing loaned has been delivered with appraisal of its value (10%). No stipulation that in case
of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from
liability.
 The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was
renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the
bull until November 1953 when during a Huk raid it was killed by stray bullets. 
 Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had
each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the
Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the
late husband of the appellant would be exempt from liability.

Case Digest: G.R. No. 173227. January 20, 2009

Sebastian Siga-an, petitioner, vs. Alicia Villanueva, respondent.

Facts:
- Respondent filed a complaint for sum of money against petitioner. Respondent claimed that
petitioner approached her inside the PNO and offered to loan her the amount of P540,000.00 of
which the loan agreement was not reduced in writing and there was no stipulation as to the
payment of interest for the loan.
- Respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan.  She
then issued another check in the amount of P200,000.00 to petitioner as payment of the
remaining balance of the loan of which the excess amount of P160,000.00 would be applied as
interest for the loan. 
- Not satisfied with the amount applied as interest, petitioner pestered her to pay additional
interest and threatened to block or disapprove her transactions with the PNO if she would not
comply with his demand. Thus, she paid additional amounts in cash and checks as interests for
the loan.  She asked petitioner for receipt for the payments but was told that it was not
necessary as there was mutual trust and confidence between them. According to her
computation, the total amount she paid to petitioner for the loan and interest accumulated
to P1,200,000.00.

The RTC rendered a Decision holding that respondent made an overpayment of her loan
obligation to petitioner and that the latter should refund the excess amount to the former.  It
ratiocinated that respondent’s obligation was only to pay the loaned amount of P540,000.00, and
 that the alleged interests due should not be included in the computation of respondent’s total
monetary debt because there was no agreement between them regarding payment of interest
- It concluded that since respondent made an excess payment to petitioner in the amount
of P660,000.00 through mistake, petitioner should return the said amount to respondent
pursuant to the principle of solutio indebiti. Also, petitioner should pay moral damages for the
sleepless nights and wounded feelings experienced by respondent.  Further, petitioner should
pay exemplary damages by way of example or correction for the public good, plus attorney’s
fees and costs of suit. 

Issue: (1) Whether or not interest was due to petitioner; and (2)  whether the principle of solutio
indebiti applies to the case at bar. 

Ruling: (1) No. Compensatory interest is not chargeable in the instant case because it was not
duly proven that respondent defaulted in paying the loan and no interest was due on the loan
because there was no written agreement as regards payment of interest. Article 1956 of the Civil
Code, which refers to monetary interest, specifically mandates that no interest shall be due
unless it has been expressly stipulated in writing. 
- As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if:
- (1) there was an express stipulation for the payment of interest; and
- (2) the agreement for the payment of interest was reduced in writing.  The concurrence of the
two conditions is required for the payment of monetary interest.  Thus, we have held that
collection of interest without any stipulation therefor in writing is prohibited by law.   

(2) Petitioner cannot be compelled to return the alleged excess amount paid by respondent as
interest. Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there
has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall
be applied.  Article 2154 of the Civil Code explains the principle of solutio indebiti.  Said provision
provides that if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.  In such a case, a creditor-debtor
relationship is created under a quasi-contract whereby the payor becomes the creditor who then
has the right to demand the return of payment made by mistake, and the person who has no
right to receive such payment becomes obligated to return the same.  The quasi-contract
of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at
the expense of another.  The principle of solutio indebiti applies where (1) a payment is made
when there exists no binding relation between the payor, who has no duty to pay, and the
person who received the payment; and (2) the payment is made through mistake, and not
through liberality or some other cause.  We have held that the principle of solutio indebiti applies
in case of erroneous payment of undue interest.  

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary
damages may be imposed if the defendant acted in an oppressive manner.  Petitioner acted
oppressively when he pestered respondent to pay interest and threatened to block her
transactions with the PNO if she would not pay interest.  This forced respondent to pay interest
despite lack of agreement thereto.  Thus, the award of exemplary damages is appropriate so as
to deter petitioner and other lenders from committing similar and other serious wrongdoings.
GUINGONA VS CITY FISCAL

G.R. No. L-60033 April 4, 1984

TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners, 
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N.
LOTA and CLEMENT DAVID, respondents.
Nature: Petition for prohibition and injunction with a prayer for the immediate issuance of restraining
order and/or writ of preliminary injunction seeking  to prohibit the public respondent which is the City
Fiscal of Manila  from proceeding with the preliminary investigation, in which they were charged by
private respondent Clement David
Keywords: Bank deposits are loans, mutuum, estafa, criminal charge, civil case, thrift bank, NSLA
Summary: 
- From March 1979 to March 1981, Clement David made several investments with the National
Savings and Loan Association (NSLA). On March 21, 1981, the Bangko Sentral placed the bank
under receivership.
- Upon David’s request, petitioners Guingona and Martin issued a joint promissory note, absorbing
the obligations of the bank.
- On July 17, 1981, they divided the indebtedness.
- David filed a complaint for estafa and violation of Central Bank Circular No. 364 and related
regulations regarding foreign exchange transactions before the Office of the City Fiscal of
Manila.
- Petitioners filed the herein petition for prohibition and injunction with a prayer for immediate
issuance of restraining order and/or writ of preliminary injunction to enjoin the public respondents
to proceed with the preliminary investigation on the ground that the petitioners’ obligation is civil
in nature.

MAKASIAR, Actg. C.J.

Facts: David invested several deposits with the Nation Savings and Loan Association [NSLA]. He
said that he was induced into making said investments by an Australian national who was a close
associate of the petitioners [NSLA officials]. On March 1981, NSLA was placed under receivership
by the Central Bank, so David filed claims for his and his sister’s investments.

On June 1981, Guingona and Martin, upon David’s request, assumed the bank’s obligation to David by
executing a joint promissory note. On July 1981, David received a report that only a portion of his
investments was entered in the NSLA records.

On December 1981, David filed I.S. No. 81-31938 in the Office of the City Fiscal, which case was
assigned to Asst. City Fiscal Lota for preliminary investigation. David charged petitioners with estafa
and violation of Central Bank Circular No. 364 and related regulations on foreign exchange
transactions.

Petitioners moved to dismiss the charges against them for lack of jurisdiction because David's claims
allegedly comprised a purely civil obligation, but the motion was denied. After the presentation of
David's principal witness, petitioners filed this petition for prohibition and injunction because:

a. The production of various documents showed that the transactions between David and NSLA were
simple loans (civil obligations which were novated when Guingona and Martin assumed them)

b. David's principal witness testified that the duplicate originals of the instruments of indebtedness were
all on file with NSLA.

A TRO was issued ordering the respondents to refrain from proceeding with the preliminary
investigation in I.S. No. 81-31938.

Petitioners’ liability is civil in nature, so respondents have no jurisdiction over the estafa charge. TRO
CORRECTLY ISSUED.
Issue:
1. Whether the contract between NSLA and David is a contract of depositor or a contract of loan, which
answer determines whether the City Fiscal has the jurisdiction to file a case for estafa
2. Whether there was a violation of Central Bank Circular No. 364

Held:
1.  When David invested his money on time and savings deposits with NSLA, the contract that was
perfected was a contract of simple loan or mutuum and not a contract of deposit.  Hence, the
relationship between David and NSLA is that of creditor and debtor, consequently, the ownership
of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can
make use of the amount deposited for its banking operations, such as to pay interests on deposits and
to pay withdrawals..

While the Bank has the obligation to return the amount deposited, it has no obligation to return or
deliver the same money that was deposited . NSLA’s failure to return the amount deposited will
not constitute estafa through misappropriation punishable under Article 315, par. L (b) of the
Revised Penal Code, but it will only give rise to civil liability over which the public respondents
have no jurisdiction.

Considering that petitioners’ liability is purely civil in nature and that there is no clear showing that they
engaged in foreign exchange transactions, public respondents acted without jurisdiction when they
investigated the charges against the petitioners. Public respondents should be restrained from further
proceeding with the criminal case for to allow the case to continue would work great injustice to
petitioners and would render meaningless the proper administration of justice.

Even granting that NSLA’s failure to pay the time and savings deposits would constitute a violation of
RPC 315, paragraph 1(b), any incipient criminal liability was deemed avoided. When NSLA was
placed under receivership, Guingona and Martin assumed the obligation to David, thereby
resulting in the novation of the original contractual obligation. The original trust relation between
NSLA and David was converted into an ordinary debtor-creditor relation between the petitioners and
David. While it is true that novation does not extinguish criminal liability, it may prevent the rise of
criminal liability as long as it occurs prior to the filing of the criminal information in court.

2. Petitioner Guingona merely accommodated the request of the Nation Savings and loan Association
in order to clear the bank draft through his dollar account because the bank did not have a dollar
account. Immediately after the bank draft was cleared, petitioner Guingona authorized Nation Savings
and Loan Association to withdraw the same in order to be utilized by the bank for its operations. It is
safe to assume that the U.S. dollars were converted first into Philippine pesos before they were
accepted and deposited in Nation Savings and Loan Association, because the bank is presumed to
have followed the ordinary course of the business which is to accept deposits in Philippine currency
only, and that the transaction was regular and fair, in the absence of a clear and convincing evidence to
the contrary.

In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no
clear showing that they engaged in foreign exchange transactions, We hold that the public respondents
acted without jurisdiction when they investigated the charges against the petitioners. Consequently,
public respondents should be restrained from further proceeding with the criminal case for to allow the
case to continue, even if the petitioners could have appealed to the Ministry of Justice, would work
great injustice to petitioners and would render meaningless the proper administration of justice

Ruling: WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING

ORDER PREVIOUSLY ISSUED IS MADE PERMANENT.
Note:
GENERAL RULE: Criminal prosecution may not be blocked by court prohibition or injunction.
EXCEPTIONS
1. For the orderly administration of justice
2. To prevent the use of the strong arm of the law in an oppressive and vindictive manner
3. To avoid multiplicity of actions
4. To afford adequate protection to constitutional rights
5. In proper cases, because the statute relied upon is unconstitutional or was held invalid

REYNALDO P. FLOIRENDO v. METROPOLITAN BANK, GR NO. 148325, 2007-09-03

Facts:
Reynaldo P. Floirendo, Jr., petitioner, is the president and chairman of the Board of Directors of Reymill
Realty Corporation, a domestic corporation engaged in real estate business. On March 20, 1996, he
obtained a loan of P1,000,000.00 from the Metropolitan Bank and Trust Company, Cagayan de Oro
City Branch, respondent, to infuse additional working capital for his company. As security for the loan,
petitioner executed a real estate mortgage in favor of respondent bank over his four (4) parcels of land,
all situated at Barangay Carmen, Cagayan de Oro City.
The loan was renewed for another year secured by the same real estate mortgage. Petitioner signed a
promissory note dated March 14, 1997 fixing the rate of interest at "15.446% per annum for the first 30
days, subject to upward/downward adjustment every 30 days... thereafter"; and a penalty charge of
18% per annum "based on any unpaid principal to be computed from date of default until payment of
the obligation."
On July 11, 1997, respondent bank started imposing higher interest rates on petitioner's loan which
varied through the months, in fact, as high as 30.244% in October 1997. As a result, petitioner could no
longer pay the high interest rates charged by respondent bank. Thus, he... negotiated for the renewal of
his loan. Respondent bank agreed provided petitioner would pay the arrears in interest amounting to
the total sum of P163,138.33. Despite payment by petitioner, respondent bank, instead of renewing the
loan, filed with the Office of the Clerk of
Court and Provincial Sheriff, RTC, Cagayan de Oro City a petition for foreclosure of mortgage which
was granted. On August 17, 1998, the auction sale was set.
Issues:
issue of the validity of the foreclosure of the real estate mortgage... whether the mortgage contract and
the promissory note express the true agreement between the parties herein.
Ruling:
We hold that the increases of interest rate unilaterally imposed by respondent bank without petitioner's
assent are violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code[3]
which provides:
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them.
The provision in the promissory note authorizing respondent bank to increase, decrease or otherwise
change from time to time the rate of interest and/or bank charges "without advance notice" to petitioner,
"in the event of change in the interest rate prescribed by law or the
Monetary Board of the Central Bank of the Philippines," does not give respondent bank unrestrained
freedom to charge any rate other than that which was agreed upon. Here, the monthly
upward/downward adjustment of interest rate is left to the will of respondent bank alone.
 It violates the essence of mutuality of the contract.
In sum, we find that the requisites for reformation of the mortgage contract and promissory note are
present in this case. There has been meeting of minds of the parties upon these documents. However,
these documents do not express the parties' true agreement on interest rates.
And the failure of these documents to express their agreement on interest rates was due to respondent
bank's inequitable conduct.

PNB vs Noah’s Ark Sugar Refinery (gr 107243)

PHILIPPINE NATIONAL BANK v. NOAH'S ARK SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY
T. GO, WILSON T. GO G.R. No. 107243, SECOND DIVISION, September 1, 1993, NARVASA, J If the
quedans were negotiable in form and duly indorsed to PNB (the creditor), the delivery of the quedans to
PNB makes the PNB the owner of the property covered by said quedans and on deposit with Noah, the
warehouseman. PNB's right to enforce the obligation of Noah as a warehouseman, to deliver the sugar
stock to PNB as holder of the quedans, does not depend on the outcome of the thirdparty complaint
because the validity of the negotiation transferring title to the goods to PNB as holder of the quedans is
not affected by an act of RNS Merchandising and St. Therese Merchandising, in breach of trust, fraud
or conversion against Noah'sArk.

FACTS
- Noah's Ark Sugar Refinery issued on several dates warehouse receipts (quedans). Being
negotiable, the receipts covering sugar deposited by RNS Merchandising was negotiated and
indorsed to Luis Ramos.
- Those covering sugar deposited by St. Therese Merchandising, RNS Merchandising and Rosa
Sy were indorsed and negotiated to Cresensia and Zoleta.
- The two indorsees used the quedans as security for loans obtained by them from the PNB.
Since both of them defaulted, PNB demanded Noah’s Ark to deliver the sugar covered by the
quedans. However, the latter refused to comply.
- Noah and its co-defendants claimed that they are still the legal owners of the quedans and the
sugar represented thereon because:
1. The P63M check issued by Rosa Ng Sy of RNS and Teresita Ng of St. Therese
Merchandising for the quedans were dishonored by reason of "payment stopped" and" drawn
against insufficient funds.
2. Since the vendees and first indorsers of quedans did not acquire ownership, the subsequent
indorsers and PNB did not acquire a better right of ownership than the original vendees/first
indorsers.
3. That quedans are not negotiable instruments within the purview of the Warehouse Receipts
Law but simply an internal guarantee of defendants in the sale of their stocks of sugar.
- While Rosa Ng Sy and Teresita Ng claims that the transaction between them and Noah was
"bogus and simulated complex banking schemes and financial maneuvers and that it was to
avoid payment of taxes considering that Noah is under sequestration by the PCGG. PNB filed
with the RTC a verified complaint for "Specific Performance with Damages and Applicationfor
Writ of Attachment" against Noah's Ark, Alberto T. Looyuko, Jimmy T. Go, and Wilson T. Go,
thelast three being identified as "the Sole Proprietor, Managing Partner and Executive Vice
President ofNoah, respectively. RTC denied the application for preliminary attachment.
- After Noah’s Ark filed its answer with counterclaim, PNB filed a motion for summary judgment,
which was denied. PNB filed a petition for certiorari with the CA. CA nullified RTC order and
ordered "summary judgment be rendered in favor of the PNB on the basis that "questions of law
 should be resolved after and not before, the questions of fact.Noah moved for reconsideration,
but their motion was denied by the CA. RTC rendered judgment, but not in accordance with the
decision of theCA since it dismissed PNB’scomplaint for lack of cause of action.
-
ISSUES
1. Whether or not PNB as indorsee/ pledgee of quedans was entitled to delivery of sugar stocks from
the warehouseman, Noah's Ark.
2.Whether or not the non-payment of the purchase price for the quedans by the original vendees
rendered invalid the negotiation by vendees/first indorsers to indorsers and the subsequent negotiation
of Ramos and Zoleta to PNB.

RULING 1. Yes. PNB is entitled to the delivery of the sugar covered by the quedans. PNB whose
debtor was the owner of the quedan shall be entitled to such aid from the court of appropriate
jurisdiction attaching such document or in satisfying the claim by means as is allowed by law or in
equity in regard to property which cannot be readily attached or levied upon by ordinary process. If the
quedans were negotiable in form and duly indorsed to PNB (the creditor), the delivery of the quedans to
PNB makes the PNB the owner of the property covered by said quedans and on deposit with Noah, the
warehouseman. PNB's right to enforce the obligation of Noah as a warehouseman, to deliver the sugar
stock to PNB as holder of the quedans, does not depend on the outcome of the third-party complaint
because the validity of the negotiation transferring title to the goods to PNB as holder of the quedans is
not affected by an act of RNS Merchandising and St. Therese Merchandising, in breach of trust, fraud
or conversion against Noah's Ark.

2. No. The non-payment of the purchase price does not render the subsequent negotiation invalid. The
validity of the negotiation in favor of PNB cannot be impaired even if the negotiation between Noah and
its first vendees was in breach of faith on the part of the vendees or by the fact that Noah was deprived
of the possession of the same by fraud, mistake or conversion if PNB paid value in good faith without
notice of such breach of duty, fraud, mistake or conversion. (Article 1518, New Civil Code)

PHILIPPINE NATIONAL BANK v. PRES. JUDGE BENITO C. SE, GR No. 119231, 1996-04-18
Facts:
In accordance with Act No. 2137, the Warehouse Receipts Law, Noah's Ark Sugar Refinery issued on
several dates, the following Warehouse Receipts (Quedans):
(a) March 1, 1989, Receipt No. 18062, covering sugar deposited by Rosa Sy;
(b) March 7, 1989, Receipt No. 18080, covering... sugar deposited by RNS Merchandising (Rosa Ng
Sy);
(c) March 21, 1989, Receipt No. 18081, covering sugar deposited by St. Therese Merchandising;
(d)March 31, 1989, Receipt No. 18086, covering sugar deposited by St. Therese Merchandising; and
(e) April 1, 1989, Receipt No. 18087,... covering sugar deposited by RNS Merchandising.
Subsequently, Warehouse Receipts Nos. 18080 and 18081 were negotiated and endorsed to Luis T.
Ramos; and Receipts Nos. 18086, 18087 and 18062 were negotiated and endorsed to Cresencia K.
Zoleta. Ramos and Zoleta then used the quedans as security for two loan agreements - one for
P15.6 million and the other for P23.5 million - obtained by them from the Philippine National Bank. The
aforementioned quedans were endorsed by them to the Philippine National Bank.
Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon maturity on January 9, 1990.
Consequently, on March 16, 1990, the Philippine National Bank wrote to Noah's Ark Sugar Refinery
demanding delivery of the sugar stocks covered by the quedans endorsed to it by
Zoleta and Ramos. Noah's Ark Sugar Refinery refused to comply with the demand alleging ownership
thereof... the Philippine National Bank filed with the Regional Trial Court of Manila a verified complaint
for "Specific Performance with Damages and Application for
Writ of Attachment
On January 31, 1991, the Philippine National Bank filed a Motion for Summary Judgment
On May 2, 1991, the Regional Trial Court issued an order denying the Motion for Summary Judgment.
the Philippine National Bank filed a Petition for Certiorari with the Court of Appeals
On December 13, 1991, the Court of Appeals nullified and set aside the orders of May 2 and July 4,
1990 of the Regional Trial Court and ordered the trial court to render summary judgment in favor of the
PNB. On June 18, 1992, the trial court rendered judgment dismissing... plaintiffs complaint against
private respondents for lack of cause of action and likewise dismissed private respondents'
counterclaim against PNB and of the Third-Party Complaint and the Third-Party Defendant's
Counterclaim. On September 4, 1992, the trial court denied PNB's
Motion for Reconsideration.
Private respondents thereupon filed before the trial court an Omnibus Motion seeking among others the
deferment of the proceedings until private respondents are heard on their claim for warehouseman's
lien.
Issues:
Can the warehouseman enforce... his warehouseman's lien before delivering the sugar stocks as
ordered by the Court of Appeals or need he file a separate action to enforce payment of storage fees?
Ruling:
Petitioner's submission is on a technicality, that is, that private respondents have lost their right to
recover warehouseman's lien on the sugar stocks covered by the five (5) Warehouse Receipts for the
reason that they failed to set up said claim in their Answer before the... trial court... private respondents
maintain that they could not have claimed the right to a warehouseman' s lien in their Answer to the
complaint before the trial court as it would have been inconsistent with their stand that they claim
ownership of the stocks covered by the... quedans since the checks issued for payment thereof were
dishonored. If they were still the owners, it would have been absurd for them to ask payment for
storage fees and preservation expenses.
Of considerable relevance is the pertinent stipulation in the subject Warehouse Receipts which
provides for respondent Noah's Ark's right to impose and collect warehouseman's lien:
"Storage of the refined sugar quantities mentioned herein shall be free up to one (1) week from the date
of the quedans covering said sugar and thereafter, storage fees shall be charged in accordance with
the Refining Contract under which the refined sugar covered... by this Quedan was produced. "[6]
Accordingly, petitioner PNB is legally bound to stand by the express terms and conditions on the face of
the Warehouse Receipts as to the payment of storage fees.
Even in the absence of such a... provision, law and equity dictate the payment of the warehouseman' s
lien pursuant to Sections 27 and 31 of the Warehouse Receipts Law (R.A. 2137), to wit:
SECTION 27. What claims are included in the warehouseman's lien. - Subject to the provisions of
section thirty, a warehouseman shall have lien on goods deposited or on the proceeds thereof in his
hands, for all lawful charges for storage and preservation of the... goods; also for all lawful claims for
money advanced, interest, insurance, transportation, labor, weighing coopering and other charges and
expenses in relation to such goods; also for all reasonable charges and expenses for notice, and
advertisement of sale, and for sale of the... goods where default has been made in satisfying the
warehouseman's lien.
SECTION 31. Warehouseman need not deliver until lien is satisfied. - A warehouseman having a lien
valid against the person demanding the goods may refuse to deliver the goods to him until the lien is
satisfied."
Considering that petitioner does not deny the existence, validity and genuineness of the Warehouse
Receipts on which it anchors its claim for payment against private respondents, it cannot disclaim
liability for the payment of the storage fees stipulated therein. As contracts,... the receipts must be
respected by authority of Article 1159 of the Civil Code, to wit:
"ART. 1159. Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith."
Principles:
While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be
effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in
accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon
goods by surrendering possession thereof. In other words, the lien may be lost... where the
warehouseman surrenders the possession of the goods without requiring payment of his lien, because
a warehouseman's lien is possessory in nature.

PHILIPPINE NATIONAL BANK, VS. HON. MARCELINO L. SAYO, JR., IN HIS CAPACITY AS
PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF MANILA (BRANCH 45) G.R. No.
129918, FIRST DIVISION, July 9, 1998, DAVIDE, JR., J The warehouseman is entitled to the
warehouseman’s lien that attaches to the goods that may be invoked against anyone who claims a right
of possession thereon. In this case, the lien was lost when the respondents refused to deliver the
goods, which were not anchored to a valid excuse (i.e. non satisfaction of warehousemean’s lien) but
on an adverse claim of ownership. HOWEVER, the loss of Warehouseman’s lien does not necessarily
mean the extinguishment of the obligation to pay the Warehouseman’s fees and charges, which
continues to be a personal liability of the owners, PNB in this case.

FACTS: In accordance with the Warehouse Receipts Law, Noah's Ark Sugar Refinery issued on
several dates Warehouse Receipts (quedans) covering sugar deposited by Rosa Sy, RNS
Merchandising, and St. Therese Merchandising. The receipts are substantially in the form, and contain
the terms, prescribed for negotiable warehouse receipts by Section 2 of the law. Subsequently,
Warehouse Receipts were negotiated and endorsed to Luis T. Ramos and to Cresencia K. Zoleta.
Ramos and Zoleta then used the quedans as security for two loan agreements — one for P15.6 million
and the other for P23.5 million — obtained by them from the PNB. They endorsed the aforementioned
quedans to PNB. After the decision in G.R. No. 119231 (PNB v. Se) became final and executory,
various incidents took place before the trial court. Noah’s Ark and its officers filed a Motion for
Execution of Defendants’ Lien as Warehouseman pursuant to SC’s decision which was opposed by
PNB. The RTC, this time presided Hon. Marcelino L. Sayo Jr., granted the Motion for Execution. PNB
was immediately served with a Writ of Execution for the amount of P662,548,611.50. PNB thus filed an
Urgent Motion seeking the deferment of the enforcement of the Writ of Execution. Nevertheless, the
Sheriff levied on execution several properties of PNB. The said bank also filed a MR with Urgent Prayer
for Quashal of Writ of Execution. After several exchanges of motions, Judge Sayo denied with finality
for lack of merit the motions filed by PNB.

ISSUE: Whether or not the loss of warehouseman’s lien extinguishes the obligation of PNB to pay
storage fees and charges.

RULING: No. The warehouseman is entitled to the warehouseman’s lien that attaches to the goods that
may be invoked against anyone who claims a right of possession thereon. In this case, the lien was lost
when the respondents refused to deliver the goods, which were not anchored to a valid excuse (i.e non
satisfaction of warehousemean’s lien) but on an adverse claim of ownership. HOWEVER, the loss of
Warehouseman’s lien does not necessarily mean the extinguishment of the obligation to pay the
Warehouseman’s fees and charges, which continues to be a personal liability of the owners, PNB in
this case. However, such fees and charges have ceased to accrue from the date of the rejection by
Noah’s Ark to heed the lawful demand for the release of the goods. While PNB is entitled to the stocks
of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the
storage fees.

Makati Shangri-La v. Harper (G.R. No. 189998, August 29, 2012, 679 SCRA 445)

Fact:
In the first week of November 1999, Christian Harper came to Manila on a business trip. He checked in
at the Shangri-La Hotel. In the early morning of that date, however, he was murdered inside his hotel
room by an unidentified malefactor.

Due to a call from the bank of Christian Harper for suspicious usage of his credit card. Harper’s family
in Norway must tried to called him at his hotel room to inform him about the attempt to use his
American Express card. Not getting any response from the room, his family requested the Duty
Manager of the Shangri-La Hotel, to check on Harper’s room. He and a security personnel went to the
Room and were shocked to discover Harper’s lifeless body on the bed.
On August 30, 2002, respondents commenced this suit in the RTC to recover various damages from
petitioner for damages. The RTC rendered judgment finding the defendant hotel to be remiss in its
duties and thus liable for the death of Christian Harper.

Petitioner appealed to the CA which affirmed the judgment of the RTC. Hence this case.

Issue: Whether the Petitioner was liable due to its own negligence for the death of Harper?

Held: Yes, As the action is predicated on negligence, the relevant law is Article 2176 of the Civil Code,
which states that “Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there was no pre-
existing contractual relation between the parties, is called quasi-delict and is governed by the provisions
of this chapter.”

Negligence is defined as the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do. The Supreme Court likewise ruled that
negligence is want of care required by the circumstances. It is a relative or comparative, not an
absolute, term and its application depends upon the situation of the parties and the degree of care and
vigilance which the circumstances reasonably require. In determining whether or not there is
negligence on the part of the parties in a given situation, jurisprudence has laid down the following test:
Did defendant, in doing the alleged negligent act, use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, the person is guilty of
negligence. The law, in effect, adopts the standard supposed to be supplied by the imaginary conduct
of the discreet pater familias of the Roman law.

The test of negligence is objective. WE measure the act or omission of the tortfeasor with a perspective
as that of an ordinary reasonable person who is similarly situated. The test, as applied to the extant
case, is whether or not defendant-appellant, under the attendant circumstances, used that reasonable
care and caution which an ordinary reasonable person would have used in the same situation.

YHT Realty v. CA (G.R. No. 126780, February 17, 2005, 451 SCRA 638)

Fact:
Private Respondent was an Australian businessman-philanthropist who stayed in a Suites owned by
the Petitioner. The Private Respondent rented a safety deposit box with the said Suite. In Renting the
box, he was asked to sign a waiver “Undertaking For The Use of Safety Deposit Box” which
exonerating the Hotel, its Management and Employees from liability in case of loss of the item in the
box. The companion of the respondent Tan, while the latter was sleeping with the assistance of the
staff of the Hotel, was allowed to open the depositary box of Respondent. When the respondent
opened the box, he Notice in a number of occasion that the Money he placed in the box was either
missing or lacking. When he confronted the Management of the hotel, the latter advised that it was his
companion Tan who opened the box.

The respondent went to the RTC and filed a complaint against the Petitioner. In the RTC, the Petitioner
contented that the waiver signed by the Respondent exonerate them from liabilities. the RTC found the
Management of the Hotel negligent for allowing a third person to open the box which the Respondent
rented from them. The RTC found the Hotel and its staff liable for the actual and Moral damages that
the Respondent lost.

Petitioner went to CA to contest the decision. However, the CA agreed with the decision of the RTC
and dismissed the petition. Hence, the Petitioner elevated the issue to the SC.

Issue:
1. Whether the Petitioner Committed Gross Negligence for the stolen property of the Private
Respondent?
2. Whether the “Undertaking For The Use of Safety Deposit Box” executed by the Private Respondent
to exonerate the hotel prom liability is null and void?

Held:

1. The evidence reveals that two keys are required to open the safety deposit boxes of Tropicana. One
key is assigned to the guest while the other remains in the possession of the management. If the guest
desires to open his safety deposit box, he must request the management for the other key to open the
same. In other words, the guest alone cannot open the safety deposit box without the assistance of the
management or its employees. With more reason that access to the safety deposit box should be
denied if the one requesting for the opening of the safety deposit box is a stranger. Thus, in case of
loss of any item deposited in the safety deposit box, it is inevitable to conclude that the management
had at least a hand in the consummation of the taking, unless the reason for the loss is force majeure.
Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty
of negligence, are liable for damages. As to who shall bear the burden of paying damages, Article
2180, paragraph (4) of the same Code provides that the owners and managers of an establishment or
enterprise are likewise responsible for damages caused by their employees in the service of the
branches in which the latter are employed or on the occasion of their functions. Also, this Court has
ruled that if an employee is found negligent, it is presumed that the employer was negligent in selecting
and/or supervising him for it is hard for the victim to prove the negligence of such employer. Thus, given
the fact that the loss of McLoughlin’s money was consummated through the negligence of Tropicana’s
employees in allowing Tan to open the safety deposit box without the guest’s consent, both the
assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be
held solidarily liable pursuant to Article 2193.

2. Yes, Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the
effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper
and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is
suppressed or diminished shall be void.Article 2003 was incorporated in the New Civil Code as an
expression of public policy precisely to apply to situations such as that presented in this case. The hotel
business like the common carrier’s business is imbued with public interest. Catering to the public,
hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons and
belongings. The twin duty constitutes the essence of the business. The law in turn does not allow such
duty to the public to be negated or diluted by any contrary stipulation in so-called “undertakings” that
ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature.Paragraphs
(2) and (4) of the “undertaking” manifestly contravene Article 2003 of the New Civil Code for they allow
Tropicana to be released from liability arising from any loss in the contents and/or use of the safety
deposit box for any cause whatsoever. Evidently, the undertaking was intended to bar any claim
against Tropicana for any loss of the contents of the safety deposit box whether or not negligence was
incurred by Tropicana or its employees. The New Civil Code is explicit that the responsibility of the
hotel-keeper shall extend to loss of, or injury to, the personal property of the guests even if caused by
servants or employees of the keepers of hotels or inns as well as by strangers, except as it may
proceed from any force majeure. It is the loss through force majeure that may spare the hotel-keeper
from liability. In the case at bar, there is no showing that the act of the thief or robber was done with the
use of arms or through an irresistible force to qualify the same as force majeure.

E. Subject Matter
Republic v. CA, 146 SCRA 15 (1986)
Republic vs CA 146 scra 15
FACTS: The Heirs of Domingo Baloy, (private respondents), applied for a registration of title for their
land. Their claim is based on their possessory information title acquired by Domingo Baloy through the
Spanish Mortgage Law, coupled with their continuous, adverse and public possession of the land in
question. The Director of Lands opposed the registration alleging that such land became public land
through the operation of Act 627 of the Philippine Commission. On Nov 26, 1902, pursuant to the
executive order of the President of U.S., the area was declared within the US Naval Reservation.
The CFI denied respondents' application for registration. CA, reversed the decision. Petitioners herein
filed their Motion for Reconsideration, said Motion of Recommendation was denied, hence this petition
for review on certiorari.
ISSUE: Whether or not private respondents' rights by virtue of their possessory information title was lost
by prescription.
RULING: No. A communication which contains an official statement of the position of the Republic of
the Philippines with regard to the status of the land in question recognizes the fact that Domingo Baloy
and/or his heirs have been in continuous possession of said land since 1894 as attested by an
"Informacion Possessoria" Title, which was granted by the Spanish Government. Hence, the disputed
property is private land and this possession was interrupted only by the occupation of the land by the
U.S. Navy in 1945. The heirs of the late Domingo P. Baloy, are now in actual possession, and this has
been so since the abandonment by the U.S. Navy.
The occupancy of the U.S. Navy was not in the concept of owner. It holds of the character of a
commodatum. It cannot affect the title of Domingo Baloy. One's ownership of a thing may be lost by
prescription by reason of another's possession if such possession be under claim of ownership, not
where the possession is only intended to be temporary, as in the case of the U.S. Navy's occupation of
the land concerned, in which case the owner is not divested of his title, although it cannot be exercised
in the meantime.

F. Rights & Obligations of Bailor & Bailee (Lender & Borrower)

• Reformina v. Tomol, 139 SCRA 260 (1985)
CREDIT TRANSACTIONS: INTEREST

G.R. No. L-59096 October 11, 1985

PACITA F. REFORMINA and HEIRS OF FRANCISCO REFORMINA, petitioners, 

vs.
THE HONORABLE VALERIANO P. TOMOL, JR., as Judge of the Court of First Instance, Branch
XI, CEBU CITY, SHELL REFINING COMPANY (PHILS.), INC., and MICHAEL,
INCORPORATED, respondents.

FACTS

This is a a Petition for Review on certiorari of the Resolution of CFI-Cebu Judge Tomol for an action for
Recovery of Damages for injury to Person and Loss of Property.

On June 7, 1972, judgment was rendered by the Court of First instance of Cebu in Civil Case No. R-
11279, 2 the dispositive portion of which reads—

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
against the defendants and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and
severally the following persons:

(g) Plaintiffs Pacita and Francisco Reformina the sum of P131,084.00 which is the value of the boat F
B Pacita Ill together with its accessories, fishing gear and equipment minus P80,000.00 which is the
value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss
suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already
the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint
until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party
plaintiffs.

On appeal to the then Court of Appeals, the trial court's judgment was modified to reads as follows—
WHEREFORE. the judgment appealed from is modified such that defendants-appellants Shell Refining
Co. (Phils.), Inc. and Michael, Incorporated are hereby ordered to pay ... The two (2) defendants-
appellants are also directed to pay P100,000.00 with legal interests from the filing of the complaint until
paid as compensatory and moral damages and P41,000.00 compensation for the value of the lost boat
with legal interest from the filing of the complaint until fully paid to Pacita F.Reformina and the heirs
of Francisco Reformina. The liability of the two defendants for an the awards is solidary.

Petitioners' motion for the reconsideration of the questioned Resolution having been denied, they now
come before Us through the instant petition praying for the setting aside of the said Resolution and for a
declaration that the judgment in their favor should bear legal interest at the rate of twelve (12%) percent
per annum pursuant to Central Bank Circular No. 416 dated July 29, 1974.

ISSUEHow much, by way of legal interest, should a judgment debtor pay the judgment creditor?

WON legal interest meant 6% as provided for under Article 2209 of the Civil Code .
What kind of judgment is covered under USURY Law?
RULING

Article 2209 of the Civil Code is applicable in case at bar. It must be noted that the decision herein
sought to be executed is one rendered in an Action for Damages for injury to persons and loss of
property and does not involve any loan, much less forbearances of any money, goods or credits. As
correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the
New Civil Code which reads—

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 interest
agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.

The above provision remains untouched despite the grant of authority to the Central Bank by Act No.
2655, as amended. To make Central Bank Circular No. 416 applicable to any case other than those
specifically provided for by the Usury Law will make the same of doubtful constitutionality since the
Monetary Board will be exercising legislative functions which was beyond the intendment of P.D. No.
116.

Central Bank Circular No. 416 which provides —

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, otherwise known as
the "Usury Law" the Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed
that 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 express contract as to such rate of interest, shall be
twelve (12%) per cent per annum. This Circular shall take effect immediately. (Italics supplied)

The judgments spoken of and referred to are Judgments in litigations involving loans or forbearance of
any 'money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor
involving loans or forbearance of any money, goods or credits does not fall within the coverage of the
said law for it is not within the ambit of the authority granted to the Central Bank.

• Banco Filipino v. Navarro, 152 SCRA 346 (1987)

 G.R. No. L-46591 July 28,

1987

BANCO FILIPINO SAVINGS and MORTGAGE BANK, petitioner,

vs.
HON. MIGUEL NAVARRO, Presiding Judge, Court of First Instance of Manila, Branch XXXI
and FLORANTE DEL VALLE, respondents.

DOCTRINE: CIRCULAR No. 494, although it has the effect of law, is not a law.

As a matter of law, the escalation clause is not substantively unconscionable. These are widely used
in commercial contracts in an effort to maintain fiscal stability and to retain the real dollar value to the
price terms of long term contracts.

In an Escalation Clause that authorizes an automatic increase in interest rates in the event that a law
is enacted which allows such increases, a Central Bank Circular is not included as law. Although
having the force and effect of law, is not strictly a statute or law. Also, for an escalation clause to be
valid, it must include a de-escalation clause.

Facts
On May 20, 1975, respondent Florante del Valle obtained a loan secured by a real estate
mortgage from petitioner Banco Filipino in the sum of P41,300.00, payable and to be amortized within
fifteen (15) years at twelve (12%) per cent interest annually. Hence, the LOAN still had more than
730 days to run by January 2, 1976, the date when CIRCULAR No. 494 was issued by the Central
Bank.

Stamped on the promissory note evidencing the loan is an Escalation Clause, which read that
Valle authorized Banco Filipino to increase the interest rate stipulated without advance notice in the
event law should be enacted increasing the lawful rates of interest that may be charged on this
particular kind of loan.

The Escalation Clause is based upon Central Bank CIRCULAR No. 494 issued on January 2,
1976, the pertinent portion of which reads:

3. The maximum rate of interest, including commissions, premiums, fees and

other charges on loans with maturity of more than seven hundred thirty (730) days, by
banking institutions, including thrift banks and rural banks, or by financial intermediaries
authorized to engage in quasi-banking functions shall be nineteen percent (19%) per
annum.

7. Except as provided in this Circular and Circular No. 493, loans or renewals
thereof shall continue to be governed by the Usury Law, as amended."

On the strength of CIRCULAR No. 494, Banco Filipino gave notice to del Valle on June 30,
1976 of the increase of interest rate on the LOAN from 12% to 17% per annum effective on March 1,
1976.
 In a reply letter to del Valle, Central Bank Director Mercedes Paredes clarified that as a rule,
should a bank increase the interest rates on loans already existing as of January 2, 1976, pertinent
loan contracts/documents must contain escalation clauses expressly authorizing lending bank or non-
bank performing quasi-banking functions to increase the rate of interest stipulated in the contract, in
the event that any law OR Central Bank regulation is promulgated increasing the maximum interest
rate for loans.

Thus, del Valle file a suit against Banco Filipino for “Declaratory Relief”, contending that
Circular No. 494 is NOT THE LAW contemplated in the Escalation Clause of her promissory note
since said Circular is a Central Bank regulation.

In its judgment, respondent Court nullified the Escalation Clause and ordered BANCO
FILIPINO to desist from enforcing the increased rate of interest on the del Valle’s loan. It reasoned
out that P.D. No. 116 does not expressly grant the Central Bank authority to maximize interest rates
with retroactive effect and that BANCO FILIPINO cannot legally impose a higher rate of interest
before the expiration of the 15- year period in which the loan is to be paid other than the 12% per
annum in force at the time of the execution of the loan.

ISSUE:

Whether or not BANCO FILIPINO can increase the interest rate on the LOAN from 12% to
17% per annum under the Escalation Clause?

RULING:

NO.
It is clear from the stipulation between the parties that the interest rate may be increased "in
the event a law should be enacted increasing the lawful rate of interest that may be charged on this
particular kind of loan." The Escalation Clause was dependent on an increase of rate made by "law"
alone. However, CIRCULAR No. 494, although it has the effect of law, is not a law but an
Administrative Regulation.

The distinction between a law and an Administrative Regulation is recognized by

P.D. No. 1684 which provides that from March 17, 1980, escalation clauses to be valid should
specifically provide:

(1) that there can be an increase in interest if increased by law or by the Monetary Board; and

(2) it must include a provision for reduction of the stipulated interest "in the event that the
applicable maximum rate of interest is reduced by law or by the Monetary Board." (De-escalation
Clause)

While P.D. No. 1684 is not to be given retroactive effect, the absence of a de- escalation
clause in the Escalation Clause in question provides another reason why it should not be given effect
because of its one-sidedness in favor of the lender.

The Escalation Clause specifically stipulated that the increase in interest rate was to be
"on this particular kind of loan, " meaning one secured by registered real estate mortgage.

Yet, CIRCULAR No. 494 makes no distinction as to the types of loans that it is applicable to,
unlike Circular No. 586 dated January 1, 1978 and Circular No. 705 dated December 1, 1979, which
fix the effective rate of interest on loan transactions with maturities of more than 730 days to not
exceeding 19% per annum (Circular No. 586) and not exceeding 21% per annum (Circular No. 705)
"on both secured and unsecured loans as defined by the Usury Law, as amended."

In the absence of any indication in CIRCULAR No. 494 as to which particular type of loan
was meant by the Monetary Board, the more equitable construction is to limit CIRCULAR No. 494 to
loans guaranteed by securities other than mortgage upon registered realty.

• PNB v. IAC and Maglasang, 183 SCRA 133 (1990)

G.R. No. 75223 March 14, 1990
PHILIPPINE NATIONAL BANK, petitioner
vs.
The HON. INTERMEDIATE APPELLATE COURT and SPOUSES FERMIN MAGLASANG and
ANTONIA SEDIGO, respondents.
PNB V. IAC
G.R. No. 75223
March 14, 1990

FACTS

The petitioner extended financial assistance to the private respondents in the form of loans, the total
amount of which is P82,682.39 as embodied in the promissory notes that the latter have executed, the
payment of which to come from the proceeds of sugar sales of the private respondents. The promissory
notes bore 12% interest per annum plus 1% interest as penalty charge in case of default in the
payments. In 1969, the private respondents mortgaged several real estate properties in favor of the
petitioner as security of their loans. When the price of sugar went down in 1977, the private
respondents incurred deficits in the payment of their loans. On December 1, 1979, the Monetary Board
of the Central Bank, by virtue of PD No. 116, issued CB Circular No. 705 increasing the ceiling on the
rate of interest on both secured and unsecured loans up to no more than 21% per annum. In view of
this development, the PNB Board of Directors revised its lending interest rates on the medium and
long-term loans effective June 1, 1980, per PNB board resolution dated May 26, 1980. When the
private respondents defaulted in the payments of their loans, the petitioner demanded not only the
settlement of their outstanding obligation but also the payment of the new interest rate of 21% per
annum beginning June 1, 1980 per the PNB board resolution. For failure of the private respondents to
settle their obligation, then in the amount of P84,743.34, the petitioner foreclosed the mortgage. Since
the proceeds of the auction sale, P63,000.00 was not enough to satisfy private respondents'
outstanding obligation, the petitioner filed an action for deficiency judgment with the CFI of Leyte
against the private respondents.

RTC: Ordering the defendants to pay the plaintiff the amount of P21,743.34; said amount shall earn
interest at 21 % per annum and 3% penalty charge starting November 27, 1981, until the whole
obligation is fully paid;

CA: Ordering the defendants to pay the plaintiff the amount of P12, 551.16 which shall earn interest at
12% per annum and 1% penalty charge starting November 27, 1981 until fully paid.
Petitioner argues that pursuant to Presidential Decree No. 116, the Monetary Board issued Central
Bank Circular No. 705 on December 1, 1979, prescribing the maximum rate of interest on loan
transactions with maturities of more than seven hundred thirty (730) days and shall not exceed twenty-
one percent (21%) per annum. Hence, the upward revision of interest rate as stipulated in the
Promissory Notes and Amendment of Real Estate Mortgage dated February 12, 1975, is in accordance
with Presidential Decree No. 116 promulgated on January 29, 1973 and Central Bank Circular No. 705
issued on December 1, 1979, and the imposition of 21% rate of interest on the loan obligations of
private respondents is within the limits prescribed by law.

ISSUE

WON the revised rate of interest imposed on the loans of the private respondents is legal.

RULING

NO. Escalation Clause is a valid provision in the loan agreement provided that: (1) the increased rate
imposed or charged does not exceed the ceiling fixed by law or the Monetary Board; (2) the increase is
made effective not earlier than the effectivity of the law or regulation authorizing such an increase; and
(3) the remaining maturities of the loans are more than 730 days as of the effectivity of the law or
regulation authorizing such an increase. Furthermore, an Escalation Clause to be valid, it must include
a de-escalation clause. There is no question that PNB board resolution contains such de-escalation
clause. However, Central Bank Circular No. 705, authorizing the increase from 12% to 21% was issued
on December 1, 1979. The promissory notes executed by the private respondents show that they are
all payable on demand but the records do not show when payment was demanded. Even granting that
it was demanded on the effectivity of law, it is obvious that the period of 730 days has not yet elapsed
at the date the mortgaged properties were sold at the public auction on November 27, 1981.
Accordingly, as of December 1, 1979, the remaining maturity days of the loans were less than 730
days. Hence, the increased rate imposed or charged is not valid.

• PNB v. CA and Padilla, 196b SCRA 536 (1991)

PHILIPPINE NATIONAL BANK petitioner, vs, THE HON. COURT OF "PEALS and AMBROSIO
PADILLA, respondents.
GR# 88880.  April 30, 1991. GRIRO-AQUINO, J.:

FACTS: Private respondent (PR) Ambrosio Padilla, applied for and was granted a credit line of 321.8
million, by petitioner PNB. This was for a term of 2 years at 18% interest per annum and was secured
by real estate mortgage and 2 promissory notes executed in favor of Petitioner by PR. The credit
agreement and the promissory notes, in effect, provide that PR agrees to be bound by “increases to the
interest rate stipulated, provided it is within the limits provided for by law”.
Conflict in this case arose when Petitioner unilaterally increased the interest rate from 18% to: (1) 32%
[July 1984]; (2) 41% [October 1984]; and (3) 48% [November 1984], or 3 times within the span of a
single year. This was done despite the numerous letters of request made by PR that the interest rate be
increased only to 21% or 24%.
PR filed a complaint against Petitioner with the RTC. The latter dismissed the case for lack of merit.
Appeal by PR to CA resulted in his favor. Hence the petition for certiorari under Rule 45 of ROC filed by
PNB with SC.
ISSUE: Despite the removal of the Usury Law ceiling on interest, may the bank validly increase the
stipulated interest rate on loans contracted with third persons as often as necessary and against the
protest of such persons.
HELD: NO
RATIO: Although under Sec. 2 of PD 116, the Monetary Board is authorized to prescribe the maximum
rate of interest for loans and to change such rates whenever warranted by prevailing economic and
social conditions, by express provision, it may not do so “oftener than once every 12 months”. If the
Monetary Board cannot, much less can PNB, effect increases on the interest rates more than once a
year.
Based on the credit agreement and promissory notes executed between the parties, although PR did
agree to increase on the interest rates allowed by law, no law was passed warranting Petitioner to
effect increase on the interest rates on the existing loan of PR for the months of July to November of
1984. Neither there being any document executed and delivered by PR to effect such increase.
For escalation clauses to be valid and warrant the increase of the interest rates on loans, there must
be: (1) increase was made by law or by the Monetary Board; (2) stipulation must include a clause for
the reduction of the stipulated interest rate in the event that the maximum interest is lowered by law or
by the Monetary board. In this case, PNB merely relied on its own Board Resolutions, which are not
laws nor resolutions of the Monetary Board.
Despite the suspension of the Usury Law, imposing a ceiling on interest rates, this does not authorize
banks to unilaterally and successively increase interest rates in violation of Sec. 2 PD 116.
Increases unilaterally effected by PNB was in violation of the Mutuality of Contracts under Art. 1308.
This provides that the validity and compliance of the parties to the contract cannot be left to the will of
one of the contracting parties. Increases made are therefore void.
Increase on the stipulated interest rates made by PNB also contravenes Art. 1956. It provides that, “no
interest shall be due unless it has been expressly stipulated in writing”. PR never agreed in writing to
pay interest imposed by PNB in excess of 24% per annum. Interest rate imposed by PNB, as correctly
found by CA, is indubitably excessive.

• PNB v. CA and Fernandez, 238 SCRA 80 (1994)

Philippine National Bank v CA, Remedios Jayme-Fernandez, and Amado Fernandez GR
107569, 8 November 1994; Second Division, Puno, J.

Facts:

(1) Remedios and Amado are owners of a NACIDA-registered enterprise. On 7 April 1982 they
obtained a loan in the amount of PhP 50,000.00 from PNB. The interest for the loan was
initially pegged at 12% per annum.

(2) Their contract also includes, among others, a clause which allows PNB to raise the rate of
interest depending on the bank's future policies. On several occasions during the term of
the contract, PNB imposed subsequent raises to the applicable rate ranging from the
original 12% up to 42%. Moreover, PNB imposed a penalty of six percent per annum.

Issue:

Whether or not a creditor may raise the rate of interest based solely on a certain clause in
the contract and without the consent of the debtor as to the amount and rate of such
increase

Ruling:

No, a creditor cannot raise the rate of interest based solely on a certain clause in the
contract and without the consent of the debtor as to the amount and rate of such increase.

Ratio:
 (1) It is basic that there can be no contract in the true sense in the absence of the element of
agreement, or of mutual assent of the parties. If this assent is wanting on the part of the
one who contracts, his act has no more efficacy than if it had been done under duress or
by a person of unsound mind.

(2) Similarly, any change in the contract must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed modification, especially
when it affects an important aspect of the agreement.

(3) In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture. Thus, any change must be mutually
agreed upon, otherwise, it is bereft of any binding effect. In the case at hand, the escalation
clause in the contract gives PNB an unbridled right to unilaterally and upwardly adjust the
interest on the loan of Remedios and Amado. Such unbridled right would completely take
away from them the right to assent to an im- portant modification in their agreement.
Furthermore, it would negate the element of mutuality in contracts.

• Florendo v. CA, 265 SCRA 678 (1996)

Florendo vs CA and Landbank of the Philippines

GR NO. 101771 December 17, 1996

Facts:

Florendo was an employee of Landbank of the Philippines (LBP) from May 17, 1976 until August
16, 1984 when she voluntarily resigned. Before her resignation, she applied for a housing loan
payable in 25 years from LBP ’s Provident Fund. Both parties executed a
Housing Loan Agreement and constituted a Real Estate
Mortgage and Promissory Note.

After almost a year from her resignation, LBP increased the interest rate on the loan from 95 per annu
m to 17% . LBP informed Florendo and the latter protested the increase. LBP kept on demanding
Florendo to pay the increased interest or the new monthly installments based on the increased
interest rate. Florendo maintained that such increase is unjustified and unlawful. Nevertheless,
Florendo just disregarded the increased rate and continued to pay the obligation under the original
contract.

Issue:

WON the LBP have a valid and legal basis to impose an increased interest rate on the housing loan.

Ruling:

The increased rate imposed or charged is not valid.

In Banco Filipino , this Court, x x x, disallowed the bank from increasing the interest rate on the
subject loan from 12% to 17% despite an escalation clause in the loan agreement authorizing the
bank to “correspondingly increase the interest rate stipulated in this contract without advance notice
to me/us in the event the law should be enacted increasing the lawful rates of interest that may
be charged on this particular kind of loan. ”
In the case at bar, the loan was perfected on J uly 20, 1983. PD No. 116 became effective on J
anuary 29, 1973. x x x xxx x x x In the light of the CB issuances
in force at that time, respondent bank was fully aware that it could have imposed an
interest higher than 9% per annum rate for the housing loans of its employees, but it did not. In the
subject loan, the respondent bank knowingly agreed that the interest rate on the petitioner ’s loans
shall remain at 9% unless a CB issuance is passed authorizing an increase (or decrease) in the
rate on such employee loans and the Provident F und Board of Trustees acts
accordingly . Thus, as far as the parties were concerned, all other onerous factors, such as
employee resignations, which could have been used to trigger the application of the escalation
clause were considered barred or waived.

x x x (I)t will not be amiss to point out that the unilateral determination and imposition of increased
interest r ates by the herein respondent bank is obviously violative of the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code.

Let it be clear that this Court understands respondent ’s bank’s position that the concessional
interest rate was really intended as a means to remunerate its employees and thus an escalation
clause due to resignation would have been a valid stipulation. But no such stipulation was in fact
made, and thus escalation provision could not be legally applied and enforced against herein
petitioners.

G. Modes of Extinguishment
III. Deposit
Arts. 1962-2009 NCC
Act No. 2137, Warehouse Receipts Law
Act No. 3893, Bonded Warehouse Act
PD NO. 115, Trust Receipts Law
A. Definition
BPI v. IAC, 164 SCRA 630 (1988)
Title Bank of the Philippine Islands vs. Intermediate Appellate Court
164 SCRA 630, 19 August 1988
Ponente CORTES, J.:
Doctrine A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of returning the same
Facts The original parties to this case were Zshornack and COMTRUST. In 1980, BPI
absorbed COMTRUST through a corporate merger, and was substituted as party
to the case. On December 8, 1975, Zshornack entrusted to COMTRUST, thru
Garcia, US $3,000.00 cash popularly known as greenbacks for safekeeping, and
that the agreement was embodied in a document. Despite demands, the bank
refused to return the money. COMTRUST averred that the US$3,000 was credited
to Zshornack's peso current account at prevailing conversion rates.

Contentions Petitione Responde

r nt
BPI argues that the contract The bank alleges that Garcia exceeded his
embodied in the document is the powers when he entered into the transaction.
contract of deposit as defined in Hence, it is claimed, the bank cannot be
Article 1962, NCC, which banks do liable under the contract, and the obligation is
not enter into purely personal to Garcia.
Issue W/N the nature of contract entered into by the parties was a contract of depos
SC Ruling The document which embodies the contract states that the US$3,000.00 was
received by the bank for safekeeping. The subsequent acts of the parties also
show that the intent of the parties was really for the bank to safely keep the dollars
and to return it to Zshornack at a later time, Thus, Zshornack demanded the return
of the money. The above arrangement is that contract defined under Article 1962,
New Civil Code, which reads:

Art. 1962. A deposit is constituted from the moment a person receives a

thing belonging to another, with the obligation of safely keeping it and of
returning the same. If the safekeeping of the thing delivered is not the
principal purpose of the contract, there is no deposit but some other
contract.

Note that the object of the contract between Zshornack and COMTRUST was
foreign exchange. Hence, the transaction was covered by Central Bank Circular
No. 20, Restrictions on Gold and Foreign Exchange Transactions, promulgated on
December 9, 1949, which was in force at the time the parties entered into the
transaction involved in this case.

The document and the subsequent acts of the parties show that they intended the
bank to safekeep the foreign exchange, and return it later to Zshornack, who
alleged in his
 complaint that he is a Philippine resident. The parties did not intend to sell the US
dollars to the Central Bank within one business day from receipt. Otherwise, the
CONTRACT OF DEPOSITUM would never have been entered into at all.

WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is

ordered to restore to the dollar savings account of private respondent the amount
of US$1,000.00 as of October 27, 1975 to earn interest at the rate fixed by the
bank for dollar savings deposits. Petitioner is further ordered to pay private
respondent the amount of P8,000.00 as damages. The other causes of action of
private respondent are ordered dismissed.

B. Kinds of Deposit
Cases:
• The Metropolitan Bank and Trust Co. v. Rosales, G.R. No. 183204, January 13, 2014
Metropolitan Bank and Trust Company v Ana

Grace Rosales

GR No. 183204, 13 Jan 2014

Del Castillo, J.:

FACTS:

In 2000, respondent Ana Grace Rosales, an owner of a travel agency, and her mother Yo
Yuk To opened a Joint Peso Account10 with petitioner bank. In May 2002, respondent
Rosales accompanied her client Liu Chiu Fang, a Taiwanese National applying for a retiree’s
visa from the Philippine Leisure and Retirement Authority (PLRA), to petitioner’s branch in
Escolta to open a savings account.

On 31 July 2003, petitioner issued a "Hold Out" order against respondents’ accounts. On 3
Sept 2003, petitioner filed a criminal case for Estafa through False Pretences,
Misrepresentation, Deceit and Use of Falsified Documents against the respondent. It was
alleged that the respondents are the one responsible for the unauthorized withdrawal fo
$75,000 from Liu Chiu Fang’s account. Petitioner alleged that on 5 Feb 2003, it received
from the PLRA a Withdrawal Clearance for the account of Liu Chiu Fang, that in the
afternoon of the same day, respondents went to inform the branch head Gutierrez that Liu
Chiu Fang was going to withdraw her deposits in cash. Gutierrez told respondents to come
back the following day for the bank did not have enough dollars. On 6 Feb, respondents
accompanied an unidentified impostor to the bank with enabled them to withdraw Liu Chiu
Fang’s dollar deposit.

On 3 Mar 2003, respondents opened a Joint Dollar Account with petitioner bank with an
initial deposit of $14,000. The bank later discovered that the serial numbers of the dollar
notes deposited by respondents were the same as those withdrawn by the impostor.

On 10 Sept 2004, respondents filed before the RTC of Manila a Complaint for Breach of
 Obligation and Contract with Damages, against petitioner.
Respondents alleged that they attempted several times to withdraw their deposits but were
unable to because petitioner had placed their accounts under "Hold Out" status. No
explanation, however, was given by petitioner as to why it issued the "Hold Out" order.
Petitioner alleged that respondents have no cause of action because it has a valid reason
for issuing the "Hold Out" order. It averred that due to the fraudulent scheme of respondent
Rosales, it was compelled to reimburse Liu Chiu Fang the amount of US$75,000.0050 and
to file a criminal complaint for Estafa against respondent Rosales.

ISSUE:

Whether or not the Metrobank breached its contract with respondents Rosales.

HELD:

Yes. The Court held that Metrobank’s reliance on the “Hold Out” clause in the
Application and Agreement for Deposit Account is misplaced. Bank deposits, which are in
the nature of a simple loan or mutuum, must be paid upon demand by the depositor.

The “Hold Out” clause applies only if there is a valid and existing obligation arising
from any of the sources of obligation enumerated in Article 1157 of the Civil Code, to wit:
law, contracts, quasi-contracts, delict, and quasi- delict. In this case, petitioner failed to
show that respondents have an obligation to it under any law, contract, quasi-contract,
delict, or quasi-delict. And although a criminal case was filed by petitioner against
respondent Rosales, this is not enough reason for petitioner to issue a “Hold Out” order as
the case is still pending and no final judgment of conviction has been rendered against
respondent Rosales.

In fact, it is significant to note that at the time petitioner issued the “Hold Out” order,
the criminal complaint had not yet been filed. Thus, considering that respondent Rosales is
not liable under any of the five sources of obligation, there was no legal basis for petitioner
to issue the “Hold Out” order. Accordingly, we agree with the findings of the RTC and the
CA that the “Hold Out” clause does not apply in the instant case.

In view of the foregoing, the Court found that petitioner is guilty of breach of
contract when it unjustifiably refused to release respondents’ deposit despite demand.
Having breached its contract with respondents, petitioner is liable for damages.

• People v. Jose C. Go, et. al., G.R. No. 191015, August 6, 2014
• Bank of Philippine Islands v. CA, G.R. No. 136202, January 25, 2007
Related topic: Sec. 49, NIL (Delivery without endorsement of an order instrument)

FACTS:
Salazar had in her possession three crossed checks with an aggregate amount of
P267,
692.50. These checks were payable to the order of JRT Construction and Trading which
was the name of Templonuevo’s business. Despite lack of knowledge and endorsement of
Templonuevo, Salazar was able to deposit the checks in her personal savings account with
BPI and encash the same. The three checks were deposited in three different occasions
over the span of eight months. A year after the last encashment, Templonuevo protested
the purportedly unauthorized encashments and demanded from BPI the aggregate amount
of the checks.
BPI complied with Templonuevo’s demand. Since the money could no longer be
debited from the account of Salazar where she deposited the checks, they froze her other
account with them. Later on, BPI issued a cashier’s check in favor of Templonuevo for the
aggregate amount and debited P267, 707.70 from Salazar’s account representing the
aggregate amount and the bank charges for the cashier’s check.
Salazar filed a complaint against BPI. Trial court ruled in favor of her which was
affirmed
by CA.
Hence, this petition.

ISSUE:

Does  a  collecting  bank,  over  the  objections  of  its  depositor,  have the  authority  to 
withdraw  unilaterally  from  such  depositor’s  account  the amount it had previously paid
upon certain unendorsed order instruments deposited by the depositor to another account that
she later closed?
 
HELD:
In the present case, the records do not support the finding made by the CA and the trial court
that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of
ownership of the checks. This fact is crucial as Salazar’s entitlement to the value of the
instruments is based on the assumption that she is a transferee within the contemplation of
Section 49 of the Negotiable Instruments Law.
 
Transferees in this situation do not enjoy the presumption of ownership in favor  of  holders 
since  they  are  neither  payees  nor  indorsees  of  such instruments.  The  weight  of 
authority  is  that  the  mere  possession  of  a negotiable  instrument  does  not  in  itself 
conclusively  establish  either  the right of the possessor to receive payment, or of the right of
one who has made payment to be discharged from liability. Thus, something more than mere 
possession  by  persons  who  are  not  payees  or  indorsers  of  the
instrument  is  necessary  to  authorize  payment  to  them  in  the  absence  of any  other 
facts  from  which  the  authority  to  receive  payment  may  be inferred.
 
Even if the delay in the demand for reimbursement is taken in conjunction with  Salazar’s 
possession  of  the  checks,  it  cannot  be  said  that  the presumption of ownership in
Templonuevo’s favor as the designated payee therein was sufficiently overcome. This is
consistent with the principle that if  instruments  payable  to  named  payees  or  to  their 
order  have  not  been indorsed in blank, only such payees or their indorsees can be holders
and entitled       to       receive       payment       in       their       own       right.
 
The  presumption  that  a  negotiable  instrument  was  given  for  a  sufficient consideration 
will  not  inure  to  the  benefit  of  Salazar  because  the  term “given” does not pertain merely
to a transfer of physical possession of the instrument. The phrase “given or indorsed” in the
context of a negotiable instrument  refers  to  the  manner  in  which  such  instrument  may 
be negotiated. 
 
It is an exception to the general rule for a payee of an order instrument to transfer   the  
instrument   without   indorsement.   Precisely   because   the situation  is  abnormal,  it  is 
but  fair  to  the  maker  and  to  prior  holders  to require  possessors  to  prove  without  the 
aid  of  an  initial  presumption  in
their  favor,  that  they  came  into  possession  by  virtue  of  a  legitimate transaction  with 
the  last  holder.  Salazar  failed  to  discharge  this  burden, and  the  return  of  the  check 
proceeds  to  Templonuevo  was  therefore warranted under the circumstances despite the
fact that Templonuevo may
not have clearly demonstrated that he never authorized Salazar to deposit the  checks  or  to 
encash  the  same.  Noteworthy  also  is  the  fact  that petitioner  stamped  on  the  back  of 
the  checks  the  words:  "All  prior endorsements  and/or  lack  of  endorsements 
guaranteed,"  thereby  making the  assurance  that  it  had  ascertained  the  genuineness  of 
all  prior endorsements.   Having   assumed   the   liability   of   a   general   indorser,
petitioner’s   liability   to   the   designated   payee   cannot   be   denied.
 
Consequently,  petitioner,  as  the  collecting  bank,  had  the  right  to  debit Salazar’s account
for  the value of the checks it previously credited in her favor.  However,  the  issue  of 
whether  it  acted  judiciously  is  an  entirely different matter.  As businesses affected with
public interest, and because
of  the  nature  of  their  functions,  banks  are  under  obligation  to  treat  the accounts  of 
their  depositors  with  meticulous  care,  always  having  in  mind the  fiduciary  nature  of 
their  relationship.    In  this  regard,  petitioner  was clearly  remiss  in  its  duty  to  private 
respondent  Salazar  as  its  depositor.
 
To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious
lack of indorsement thereon, petitioner permitted the encashment of these checks three times
on three separate occasions. This negates  petitioner’s  claim  that  it  merely  made  a 
mistake  in  crediting  the value of the checks to Salazar’s account and instead bolsters the
conclusion of the CA that petitioner recognized Salazar’s claim of ownership of checks and 
acted  deliberately  in  paying  the  same,  contrary  to  ordinary  banking
policy and practice. It must be emphasized that the law imposes a duty of diligence on the
collecting bank to scrutinize checks deposited with it, for the purpose of determining their
genuineness and regularity. The collecting bank, being primarily engaged in banking, holds
itself out to the public as the  expert  on  this  field,  and  the  law  thus  holds  it  to  a  high 
standard  of conduct.    The  taking  and  collection  of  a  check  without  the  proper
indorsement   amount   to   a   conversion   of   the   check   by   the   bank.
 
More  importantly,  however,  solely  upon  the  prompting  of  Templonuevo, and  with  full 
knowledge  of  the  brewing  dispute  between  Salazar  and Templonuevo, petitioner debited
the account held in the name of the sole proprietorship  of  Salazar  without  even  serving 
due  notice  upon  her.  This ran contrary to petitioner’s assurances to private respondent
Salazar that the  account  would  remain  untouched,  pending  the  resolution  of  the
controversy between her and Templonuevo. For the above reasons, the Court finds no reason
to disturb the award of damages  granted by  the  CA  against  petitioner.  This  whole 
incident  would have  been  avoided  had  petitioner  adhered  to  the  standard  of  diligence
expected of one engaged in the banking business. A depositor has the right to  recover 
reasonable  moral  damages  even  if  the  bank’s  negligence  may not  have  been  attended 
with  malice  and  bad  faith,  if  the  former  suffered mental anguish, serious anxiety,
embarrassment and humiliation
• PNB v. Noah’s Ark Sugar Refinery, G.R. No. 107243, September 1, 1993, 226 SCRA 36
G.R. No. 107243 September 1, 1993
PHILIPPINE NATIONAL BANK vs.NOAH'S ARK SUGAR REFINERY, ALBERTO T.
LOOYUKO, JIMMY T. GO, WILSON T. GO
NARVASA, C.J.:
cvflores

Short Version:
Facts:
Noah issued quedans to its vendees who in turn negotiated it to PNB. When PNB tried to
demand the sugar covered by the quedans, Noah refused because the check its vendees
issued for the quedans were dishonoured.

Held:
Noah should deliver the quedans to PNB. The fact that Noah was not paid does not make the
negotiation to PNB invalid since PNB paid value in good faith.

Facts:
 In accordance with the Warehouse Receipts Law, Noah's Ark Sugar Refinery (Noah)
issued on several dates warehouse receipts (quedans) to Rosa Sy, RNS Merchandising
(Rosa Ng Sy) and St. Therese Merchandising
 RNS and St Therese Merchandising negotiated and indorsed its quedans to Luis T.
Ramos and Cresencia Zoleta
 Zoleta and Ramos then used the quedans as security for loans obtained by them from
PNB in the amounts of P23.5 million and P15.6 million, respectively. These quedans they
indorsed to the bank.
 Both Zoleta and Ramos failed to pay their loans upon maturity
 PNB wrote to Noah demanding delivery of the sugar covered by the quedans
 Noah's Ark refused to comply with the demand
 PNB filed with the RTC a verified complaint for "Specific Performance with Damages and
Application for Writ of Attachment" against Noah's Ark, Alberto T. Looyuko, Jimmy T. Go,
and Wilson T. Go, the last three being identified as "the Sole Proprietor, Managing Partner
and Executive Vice President of Noah, respectively."
 RTC denied the application for preliminary attachment
 Noah and its co-defendants claimed that they are still the legal owners of the quedans
and the sugar represented thereon because:
— the P63M check issued by Rosa Ng Sy of RNS and Teresita Ng of St. Therese
Merchandising for the quedans were dishonoured by reason of "payment
stopped" and "drawn against insufficient funds
— Since the vendees and first indorsers of quedans did not acquire ownership, the
subsequent indorsers and PNB did not acquire a better right of ownership than
the original vendees/first indorsers.
— That quedans are not negotiable instruments within the purview of the
Warehouse Receipts Law but simply an internal guarantee of defendants in the
sale of their stocks of sugar.
 Noah also asked that the quedans be delivered or returned to them
 Rosa Ng Sy and Teresita Ng claims that the transaction between them and Noah was
"bogus and simulated complex banking schemes and financial maneuvers and that it was
to avoid payment of taxes considering that Noah is under sequestration by the PCGG
 PNB filed a "Motion for Summary Judgment and prayed for the delivery of the sugar stocks
covered by the Warehouse Receipts/Quedans which are now in the PNB’s possession as
holder for value and in due course; or alternatively, for payment of actual damages of
P39.1M to pay plaintiff attorney's fees, litigation expenses and judicial costs estimated at
no less than P1M and such other reliefs just and equitable under the premises.
 RTC denied the motion for summary judgment on the ground:
— that there exists conflicting claims among the parties relative to the ownership of
the sugar quedans as to whether or not the quedans falls within the coverage of
the Warehouse Receipt Law and whether or not the transaction between PNB
and third party defendants (Sy ans Ng) is governed by contract of pledge that
would require PNB’s compliance with Art. 2112, Civil Code as regards the
disposition of the quedans
 PNB filed a petition for certiorari with the CA
 CA nullified RTC order and ordered that "summary judgment be rendered in favor of the
PNB
 CA ruled that "questions of law should be resolved after and not before, the questions of
fact.
 Noah moved for reconsideration, but their motion was denied by the CA
 RTC rendered judgment, but not in accordance with the decision of the CA since it
dismissed PNB’s complaint for lack of cause of action

Issue:
1. Whether the non-payment of the purchase price for the quedans by the original vendees
rendered invalid the negotiation by vendees/first indorsers to indorsers and the
subsequent negotiation of Ramos and Zoleta to PNB.
2. Whether or not PNB as indorsee/ pledgee of quedans was entitled to delivery of sugar
stocks from the warehouseman, Noah's Ark."

Ruling:
1. The non-payment of the purchase price does not render the subsequent negotiation
invalid. The validity of the negotiation in favour of PNB cannot be impaired even if the
negotiation between Noah and its first vendees was in breach of faith on the part of the
vendees or by the fact that Noah was deprived of the possession of the same by fraud,
mistake or conversion if PNB paid value in good faith without notice of such breach of
duty, fraud, mistake or conversion. (Article 1518, New Civil Code).
2. PNB is entitled to the delivery of the sugar covered by the quedans. PNB whose debtor
was the owner of the quedan shall be entitled to such aid from the court of appropriate
jurisdiction attaching such document or in satisfying the claim by means as is allowed by
law or in equity in regard to property which cannot be readily attached or levied upon by
ordinary process. (See Art. 1520, New Civil Code). If the quedans were negotiable in form
and duly indorsed to PNB (the creditor), the delivery of the quedans to PNB makes the
PNB the owner of the property covered by said quedans and on deposit with Noah, the
warehouseman. PNB's right to enforce the obligation of Noah as a warehouseman, to
deliver the sugar stock to PNB as holder of the quedans, does not depend on the outcome
of the third-party complaint because the validity of the negotiation transferring title to the
goods to PNB as holder of the quedans is not affected by an act of RNS Merchandising
and St. Therese Merchandising, in breach of trust, fraud or conversion against Noah's Ark.

SC also held that the quedans were negotiable documents and had been duly negotiated to
the PNB which acquired the rights set out in Article 1513 of the Civil Code:
 1. Such title to the goods as the person negotiating the documents to him had or had
ability to convey to a purchaser in good faith for value and also such title to the goods
as the person to whose order the goods were to be delivered by the terms of the
document had or had ability to convey to a purchaser in good faith for value; and
2. The direct obligation of the bailee issuing the document to hold possession of the
goods for him according to the terms of the document as fully as if such bailee had
contracted directly with him.

PNB v. Se, G.R. No. 119231, April 18, 1996, 256 SCRA 380
TOPIC Warehouse Law
CASE NO. G.R. No. 119231 (April 18, 1996)
CASE NAME PNB v Se
MEMBER Dane

DOCTRINE
 While the PNB is entitled to the stocks of sugar as the endorse of the quedans,
delivery to it shall be effected only upon payment of the storage fees. Imperative is
the right of the warehouseman to demand payment of his lien at this juncture,
because, in accordance with Section 29 of the Warehouse Receipts Law, the
warehouseman loses his lien upon goods by surrendering possession thereof. In
other words, the lien may be lost where the warehouseman surrenders the
possession of the goods without requiring payment of his lien, because a
warehouseman's lien is possessory in nature.

RECIT-READY DIGEST
Noah’s Ark Sugar Refinery endorsed 5 warehouses receipts to Rosa Sy and St.
Therese Merchandising. 2 Warehouse Receipts were negotiated and endorsed to Luis
Ramos, and 3 Warehouse Receipts were negotiated and endorsed to Cresencia Zoleta.
Ramos and Zoleta then used the quedans as security for 2 loan agreements from PNB.
However they failed to pay the loan, prompting PNB to demand from Noah’s Ark the
release of the sugar stocks subject to the warehouse receipts. Noah’s Ark claimed that it
previously sold the sugar stocks to Ramos and Zoleta but the latter two failed to pay the
same; thus it argues that it is the rightful owner of the sugar stocks and not PNB.
PNB sued Noah’s Ark for specific performance. The Supreme Court initially ruled that
PNB is the owner of the sugar stocks. Noah’s Ark subsequently filed with the RTC a
motion for an enforcement of a warehouseman’s lien over the sugar stocks. PNB
opposed such motion, arguing that Noah’s Ark no longer could impose such lien on the
goods.

SC decided that Noah’s ark could impose the warehouseman lien. Noah’s Ark cannot
legally be deprived of their right to enforce their claim for warehouseman’ss lien,
for reasonable storage fees and preservation expenses. Pursuant to Section 31,
the goods under storage may not be delivered until said lien is satisfied. While the
PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall
be effected only upon payment of the storage fees. Hence, PNB ordered to pay the
storage costs before Noah’s Ark could be compelled to release the sugar stocks.
FACTS
 In accordance with Act No. 2137, the Warehouse Receipts Law, Noah's Ark Sugar
Refinery issued 5 Warehouse Receipts (Quedans):
o March 1, 1989, Receipt No. 18062, covering sugar deposited by Rosa Sy;
o March 7, 1989, Receipt No. 18080, covering sugar deposited by RNS
Merchandising (Rosa Ng Sy);
o March 21, 1989, Receipt No. 18081, covering sugar deposited by St. Therese
Merchandising;
o March 31, 1989, Receipt No. 18086, covering sugar deposited by St. Therese
Merchandising; and
o April 1, 1989, Receipt No. 18087, covering sugar deposited by RNS
Merchandising.
 The receipts are substantially in the form, and contains the terms, prescribed for
negotiable warehouse receipts by Section 2 of the law.
 2 Warehouse Receipts were negotiated and endorsed to Luis Ramos, and 3
Warehouse Receipts were negotiated and endorsed to Cresencia Zoleta. Ramos
and Zoleta then used the quedans as security for 2 loan agreements from PNB –
one for P15.6M and the other for P23.5M.
 Ramos and Zoleta failed to pay the loans on maturity despite demand. PNB then
demanded from Noah’s Ark the delivery of the sugar stocks covered by the 5
quedans endorsed to it by Ramos and Zoleta.
 Noah’s Ark refused to comply with the demands alleging that it is the owner of the
sugar stocks.
Consequently, PNB filed for specific performance against Noah’s Ark and the latter’s
executive officers.
 Noah’s Ark and its officers filed a Counterclaim against PNB and a third-party
complaint against Ramos and Zoleta.
 Noah’s Ark claimed:
o Noah’s Ark agreed to sell to Rosa Ng Sy of RNS Merchandising and Teresita
Ng of St. Therese Merchandising the total volume of sugar indicated in the
quedans stored at Noah 's Ark Sugar Refinery for a total consideration of
P63,000,000.00, . . . The corresponding payments in the form of checks issued
by the vendees in favor of defendants were subsequently dishonored by the
drawee banks by reason of 'payment stopped' and 'drawn against insufficient
funds,' . . . Upon proper notification to said vendees and plaintiff in due course,
defendants refused to deliver to vendees therein the quantity of sugar covered by
the subject quedans.
o Considering that the vendees and first endorsers of subject quedans did not
acquire ownership thereof, the subsequent endorsers and plaintiff itself did not
acquire a better right of ownership than the original vendees/first endorsers.
 Sy and Ng, on the other hand, argued that the transaction between them and Noah’s
Ark was simulated and that it was a complex financial maneuver.
 PNB filed with the RTC a complaint for Specific Performance with Damages and an
application for Writ of Attachment against Noah’s ark and several others.
 Noah’s Ark and its co-defendants claim that they are the owners of the subject
quedans and the sugar represented therein.
 Supreme Court, by way of a Petition for Review on Certiorari under Rule 45,
rendered judgment rendering jointly and severally private Noah’s Ark liable to deliver
to PNB sugar stocks covered by the receipts, or to pay damages in the amount of
P39.1 million with legal interest.
 Noah’s Ark filed Omnibus motion seeking to defer proceedings until they are heard
 on their claim for warehouseman’s lien. RTC grants motion and found that there
exists in favor of the defendants a valid warehouseman’s lien under Section 27 of
RA 2137 and accordingly, execution of judgment is ordered stayed and precluded
until full amount of defendant’s lien on the sugar stocks covered by the receipts have
been satisfied conformably with the provisions of Sec 31 of RA 2137.
 PNB filed a petition to seek the nullification of the orders of respondent judge.

 TO BE CLEAR:
o PNB’s submission is on a technicality, that is, that private respondents have lost
their right to recover warehouseman's lien on the sugar stocks covered by the
five (5) Warehouse Receipts for the reason that they failed to set up said claim in
their Answer before the trial court and that private respondents did not appeal
from the decision in this regard.
o Noah’s Ark maintain that they could not have claimed the right to a
warehouseman's lien in their Answer to the complaint before the trial court as it
would have been inconsistent with their stand that they claim ownership of the
stocks covered by the quedans since the checks issued for payment thereof
were dishonored.

ISSUE/S and HELD

Can Noah’s Ark impose warehouseman’s lien? YES

RATIO
Noah’s Ark can impose warehouseman’s lien.
 “We in effect further affirmed the finding that Noah's Ark is a warehouseman which
was obliged to deliver the sugar stocks covered by the Warehouse Receipts pledged
by Cresencia K. Zoleta and Luis T. Ramos to the petitioner pursuant to the pertinent
provisions of Republic Act 2137.”
 SECTION 31. Warehouseman need not deliver until lien is satisfied. - A
warehouseman having a lien valid against the person demanding the goods may
refuse to deliver the goods to him until the lien is satisfied.
 After being declared not the owner, but the warehouseman, by the CA, affirmed by
this court, Noah’s Ark cannot legally be deprived of their right to enforce their
claim for warehouseman’s lien, for reasonable storage fees and preservation
expenses. Pursuant to Section 31, the goods under storage may not be
delivered until said lien is satisfied.
 Considering that PNB does not deny the existence, validity and genuineness of the
Warehouse Receipts on which it anchors its claim for payment against Noah’s Ark, it
cannot disclaim liability for the payment of the storage fees stipulated therein.

 While the PNB is entitled to the stocks of sugar as the endorsee of the quedans,
delivery to it shall be effected only upon payment of the storage fees.
 PNB is in estoppel in disclaiming liability for the payment of storage fees due the
private respondents as warehouseman while claiming to be entitled to the sugar
stocks covered by the subject Warehouse Receipts on the basis of which it anchors
its claim for payment or delivery of the sugar stocks. The unconditional presentment
of the receipts by the petitioner for payment against private respondents on the
strength of the provisions of the Warehouse Receipts Law (R.A. 2137) carried with it
the admission of the existence and validity of the terms, conditions and stipulations
 written on the face of the Warehouse Receipts, including the unqualified recognition
of the payment of warehouseman’s lien for storage fees and preservation expenses.
 Imperative is the right of the warehouseman to demand payment of his lien at this
juncture, because, in accordance with Section 29 of the Warehouse Receipts Law,
the warehouseman loses his lien upon goods by surrendering possession thereof. In
other words, the lien may be lost where the warehouseman surrenders the
possession of the goods without requiring payment of his lien, because a
warehouseman’s lien is possessory in nature.

DISPOSTIVE PORTION
Wherefore, the petition should be, as it is, hereby dismissed for lack of merit. The
questioned orders issued by public respondent judge are affirmed.

PNB vs. HON. MARCELINO L. SAYO, JR, NOAH'S G.R. No. G.R. No. 129918
ARK SUGAR
REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO
and WILSON T. GO
Date July 9, 1998 Ponente DAVIDE, JR.
TOPIC IN SYLLABUS: Warehouse Receipts Law
SUMMARY: Noah's Ark Sugar Refinery issued Warehouse Receipts (Quedans) covering sugar
deposited by Sy, RNS Merchandising, and St. Therese Merchandising. These Warehouse Receipts
were negotiated and endorsed to Ramos and to Zoleta. Ramos and Zoleta then used the quedans as
security for loan from the PNB. The quedans were endorsed by them to PNB. Ramos and Zoleta
failed to pay their loans upon maturity. Hence, PNB wrote to Noah's Ark demanding delivery of the
sugar stocks covered by the quedans endorsed to it by Zoleta and Ramos. Noah's Ark Sugar
Refinery refused to comply with the demand alleging ownership thereof. SC held that private
respondents may enforce their warehouseman’s lien and that PNB
is liable for storage fees.
PNB v. Sayo, G.R. No. 129918, July 9, 1998, 292 SCRA 202

PROCEDURAL ANTECEDENTS:
In this special civil action for certiorari, actually the third dispute between the same private
parties to have reached this Court, petitioner asks us to annul the orders issued by the
Regional Trial Court, Manila, Branch 45.

FACTS:
In accordance with the Warehouse Receipts Law, Noah's Ark Sugar Refinery issued on
several dates Warehouse Receipts (Quedans) covering sugar deposited by Rosa Sy, RNS
Merchandising, and St. Therese Merchandising. The receipts are substantially in the form,
and contains the terms, prescribed for negotiable warehouse receipts by Section 2 of the
law.

Subsequently, Warehouse Receipts were negotiated and endorsed to Luis T. Ramos and
to Cresencia K. Zoleta. Ramos and Zoleta then used the quedans as security for two loan
agreements — one for P15.6 million and the other for P23.5 million — obtained by them
from the PNB. The aforementioned quedans were endorsed by them to PNB.

Ramos and Zoleta failed to pay their loans upon maturity. Hence, PNB wrote to Noah's Ark
Sugar Refinery demanding delivery of the sugar stocks covered by the quedans endorsed
to it by Zoleta and Ramos. Noah's Ark Sugar Refinery refused to comply with the demand
alleging ownership thereof. It alleged that the owner of Noah’s Ark, Looyuko, entered into
an agreement with RNS and St. Therese Merchandising to sell the sugar indicated in the
warehouse receipts stored in Noah for an amount of P63,000,000. Checks were issued but
they were dishonored for being drawn against insufficient funds. PNB filed with the RTC of
Manila a verified complaint for "Specific Performance with Damages and Application for
Writ of Attachment" against Noah's Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go
and Wilson T. Go, the last three being identified as the sole proprietor, managing partner,
and Executive Vice President of Noah's Ark, respectively. RTC dismissed said complaint.
MR denied.

On appeal to the SC via petition for review on certiorari, the Supreme Court ordered
Noah’s Ark and its owner, Looyuko, to deliver to PNB the sugar stocks covered by the
warehouse receipts in controversy. However, Noah’s Ark filed an Omnibus Motion seeking
deferment of the judgment until it was heard on its warehouseman’s lien. RTC granted the
order and evidence was received in support thereof. RTC adjudged that there existed a
valid lien in favor of Noah’s Ark, and accordingly, execution of the judgment against Noah’s
Ark should be stayed until the full amount of Noah’s lien shall have been satisfied. PNB
then filed certiorari proceedings before the Supreme Court. The SC held that while PNB
was entitled to the sugar stocks as endorsee of the receipts, delivery to it shall only be
effected upon payment of the storage fees. The Supreme Court further ruled that
imperative is the right of the warehouseman to demand payment of his lien because he
loses his lien upon goods by surrendering possession thereof.RTC Judge Sayo, Jr.
allowed a writ of execution in favor of Noah to collect on its warehouseman’s lien against
PNB. Hence, this certiorari proceeding before the Supreme Court.

ISSUES:
1. WON private respondents may enforce their warehouseman’s lien. YES.
2. WON PNB is liable for storage fees. YES.

RULING:
1. Under the Special Circumstances in This Case, Private Respondents May Enforce
Their Warehouseman's Lien.
The remedies available to a warehouseman, such as private respondents, to enforce his
warehouseman's lien are:
(1) To refuse to deliver the goods until his lien is satisfied, pursuant to Section 31 of the
Warehouse Receipt Law;
(2) To sell the goods and apply the proceeds thereof to the value of the lien pursuant to
Sections 33 and 34 of the Warehouse Receipts Law; and
(3) By other means allowed by law to a creditor against his debtor, for the collection from
the depositor of all charges and advances which the depositor expressly or impliedly
contracted with the warehouseman to pay under Section 32 of the Warehouse Receipt
Law; or such other remedies allowed by law for the enforcement of a lien against personal
property under Section 35 of said law. The third remedy is sought judicially by suing for
the unpaid charges.
CAB: Initially, private respondents availed of the first remedy. While the most appropriate
remedy for private respondents was an action for collection, SC already recognized their
right to have such charges and fees determined. The import of SC’s holding was that
private respondents were likewise entitled to a judgment on their warehouse charges and
fees, and the eventual satisfaction thereof, thereby avoiding having to file another action
to recover these charges and fees, which would only have
further delayed the resolution of the respective claims of the parties, and as a corollary
thereto, the indefinite deferment of the execution of the judgment. Thus we note that
petitioner, in fact, already acquiesced to the scheduled dates previously set for the hearing
on private respondents' warehouseman's charges. But, it would be premature to execute
the order fixing the warehouseman's charges and fees.

2. Petitioner is Liable for Storage Fees.

Petitioner insisted that it was a mere pledgee as the quedans were used to secure two loans
it granted.
The SC agreed with this and held that the indorsement and delivery of the receipts by
Ramos and Zoleta to PNB was not to convey title to or ownership of the goods but to
secure the loans by way of pledge. The indorsement of the receipts to perfect the pledge
merely constituted a symbolical or constructive delivery of the possession of the thing thus
encumbered. The creditor, in a contract of real security, like pledge, cannot appropriate
without foreclosure the things given by way of pledge. Any stipulation to the contrary is null
and void for being pactum commissorio. The law requires foreclosure in order to allow a
transfer of title of the goods given by way of security from its pledgor, and before any such
foreclosure, the pledgor, not the pledgee, is theowner of the goods. However, the SC held
that the warehouseman nevertheless is entitled to his lien that attaches to the goods
invokable against anyone who claims a right of possession thereon.

The SC held that where a valid demand by the lawful holder of the receipts for the delivery
of the goods is refused by the warehouseman, despite the absence of a lawful excuse
provided by the law itself, the warehouseman’s lien is thereafter concomitantly lost. As to
what the law deems a valid demand, Section 8 of the Warehouse Receipts Law
enumerates what must accompany a demand; while as regards the reasons which a
warehouseman may invoke to legally refuse to effect delivery of the goods covered by the
quedans, these are:
(1) That the holder of the receipt does not satisfy the conditions prescribed in Section 8 of
the Act. (See Sec. 8, Act No. 2137)
(2) That the warehouseman has legal title in himself on the goods, such title or right being
derived directly or indirectly from a transfer made by the depositor at the time of or
subsequent to the deposit for storage, or from the warehouseman's lien. (Sec. 16, Act No.
2137)
(3) That the warehouseman has legally set up the title or right of third persons as lawful
defense for non-delivery of the goods
(4) That the warehouseman having a lien valid against the person demanding the goods
refuses to deliver the goods to him until the lien is satisfied. (Sec. 31 Act No. 2137)
(5) That the failure was not due to any fault on the part of the warehouseman, as by
showing that, prior to demand for delivery and refusal, the goods were stolen or destroyed
by fire, flood, etc., without any negligence on his part, unless he has contracted so as to
be liable in such case, or that the goods have been taken by the mistake of a third person
without the knowledge or implied assent of the warehouseman, or some other justifiable
ground for non-delivery.

The SC explained that regrettably, the factual settings do not sufficiently indicate whether
the demand to obtain possession of the goods complied with Sec. 8. The presumption,
nevertheless, would be that the law was complied with. On the other hand, it would appear
that the refusal of Noah’s Ark to deliver the goods was not anchored on a valid excuse, i.e.,
non-satisfaction of the lien over the goods, but on an adverse claim of ownership. Under
the circumstances, this hardly qualified as a valid, legal excuse. The loss of the lien,
however, does not necessarily mean the extinguishment of the obligation to pay the
warehousing fees and charges which continues to be a personal liability of the owners, i.e.,
the pledgors, not the pledgee, in this case. But even as to the owners-pledgors, the
warehouseman fees and charges have ceased to accrue from the date of the rejection by
Noah to heed the lawful demand by PNB for the release of the goods. Hence, the time from
which the fees and charges should be made payable is from the time Noah’s Ark refused to
heed PNB’s demand for delivery of the sugar stocks and in no event beyond the value of
the credit in favor of the pledgee since it is basic that, in foreclosures, the buyer does not
assume the obligations of the pledgor to his other creditors even while such buyer acquires
title over the goods less any existing preferred lien thereover.

Pantaleon v. American Express International, Inc., G.R. No. 174269, May 8, 2009 and
August26, 2010
G.R. No. 174269, May 8, 2009
POLO S. PANTALEON,
Petitioner, vs.
AMERICAN EXPRESS INTERNATIONAL, INC.,
Respondent. TINGA, J.:

FACTS:
Petitioner Pantaleon encountered series of delay on the part of respondent with
regard to the
approval of his credit card purchases (AMEX card) during his family trip in Amsterdam
and some other transactions in USA. Due to the inconvenience, humiliation and
embarrassment he and his family suffered, Pantaleon sent a letter demanding an
apology from respondent.
AMEX replied that the delay in Amsterdam was due to the amount involved – the
charged purchase of US$13,826.00 deviated from Pantaleon’s established charge
purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action for
damages against the credit card company with the Makati City Regional Trial Court.

RTC: In favor of Pantaleon. Found AMEX guilty of delay.

CA: Reversed. Pettioner is not entitled to damages for there was no breach of
obligations on the part of respondent.

On May 8, 2009, the SC reversed CA’s decision and rendered decision in favor of
Pantaleon. Found A,EX guilty of mora solvendi (debtor’s fault). The approval time for
credit card charges would be 3-4 seconds under regular circumstances. In Pantaleon’s
case, it took AMEX 78 minutes to approve the Amsterdam purchase.
Hence, this Motion for Reconsideration.

ISSUE: WON AMEX had committed a breach of its obligations to Pantaleon.

HELD: NO.
Nature of Credit Card:
A credit card is defined as "any card, plate, coupon book, or other credit device existing
for the purpose of obtaining money, goods, property, labor or services or anything of
value on credit."

The bank credit card system involves a tripartite relationship between the issuer bank,
the cardholder, and merchants participating in the system. The issuer bank establishes
 an account on behalf of the person to whom the card is issued, and the two parties
enter into an agreement which governs their relationship. This agreement provides that
the bank will pay for cardholder’s account the amount of merchandise or services
purchased through the use of the credit card and will also make cash loans available to
the cardholder.

Relationship of Credit card issuer – cardholder relationship:

 US – no contractual relationship; It is unilateral and supported by no consideration.
The offer may be withdrawn at any time, without prior notice, for any reason or,
indeed, for no reason at all, and its withdrawal breaches no duty – for there is no
duty to continue it – and violates no rights.
 Philippines – contractual; contract of adhesion; governed by the terms and
conditions found in the card membership agreement.

Is it a creditor-debtor relationship?
 Contract of adhesion
Mere agreement which provides for credit Only arises after the credit card issuer has
facility to the cardholder.
CR-DR Relationship
approved the cardholder’s purchase
request.
Involves the actual credit on loan
agreement
involving three contracts, namely:
1. The sales contract between the credit
card holder and the merchant or the
business establishment which accepted
the credit card;
2. The loan agreement between the credit
card issuer and the credit card holder;
and
3. The promise to pay between the credit
card issuer and the merchant or
business
establishment.

 From the loan agreement perspective, the contractual relationship begins to

exist only upon the meeting of the offer and acceptance of the parties
involved.
 The use of credit cards to pay for their purchases is merely an offer to
enter into loan agreements with the credit card company.

 Only after the latter approves the purchase requests that the parties enter
into binding loan contracts. Article 1319:
Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.

Is AMEX guilty of culpable delay? – NO. (YES DAPAT HAHAHA)

Since AMEX has no obligation to approve the purchase requests of its credit
cardholders, Pantaleon cannot claim that AMEX defaulted in its obligation.
Requisites of default (Art. 1169):
(a) That the obligation is demandable and liquidated;
(b) The debtor delays performance; and
(c) The creditor judicially or extrajudicially requires the debtor’s performance.
In the case at bar:
The first requisite is no longer met because AMEX, by the express terms of the
credit card agreement, is not obligated to approve Pantaleon’s purchase request.
Without a demandable obligation, there can be no finding of default.

Moreover, a demand presupposes the existence of an obligation between the

parties. Pantaleon’s act of "insisting on and waiting for the charge purchases to

39
 be approved by AMEX" is not the demand contemplated by Art. 1169.

Note: Only issues pertaining to loans are included.

• Far East Bank and Trust Company v. Court of Appeals, G.R. No. 108164,
February 23, 1995
FAR EAST BANK AND TRUSTC OMPANY V. C.A.& LUISA. LUNA
G.R. No. 108164 February 23, 1995

FACTS: Private respondent Luis A. Luna applied for, and was accorded, a Fareast card issued
by petitioner FEBTC.

***Upon his request, the bank also issued a supplemental card to private respondent
Clarita S. Luna.

Clarita informed FEBTC that she lost her credit card. In order to replace the lost card, Clarita
submitted an affidavit of loss. In cases of this nature, the bank’s internal security procedures
and policy would be to record the lost card, along with the principal card, as a“Hot Card”
or “Cancelled Card” in its master file.

Luis then tendered a despedida lunch for a close friend. When he presented his Fareastcard
to pay for the lunch, the card was not honored, forcing him to pay in cash the bill. Naturally,
Luis felt embarrassed by this incident.

Private respondent Luis Luna, through counsel, demanded from FEBTC the payment of
damages. Adrian V. Festejo, avice-president of the bank, expressed the bank’s apologies,
admitting that they have failed to inform Luis about its security policy.

Private respondents then filed a complaint for damages in the RTC, which rendered a decision
ordering FEBTC to pay private respondents moral damages(300,000.00), exemplary
damages(50,000.00), and attorney-s fees (20,000,00).

ISSUE: Whether or not private respondents are entitled of moral damages.

HELD: No. In culpa contractual, moral damages may be recovered where the defendant is
shown to have acted in bad faith or with malice in the breach of the contract.

Concededly, the bank was negligent for failing to inform Luis of his own card’s cancellation.
Nothing in the findings of the trial court and the appellate court can sufficiently indicate any
deliberate intent on the part of FEBTC to cause harm to private respondents. The failure to
inform Luis is not considered to be so gross that it would amount to malice or bad faith.
Malice or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliguity; it is different from the negative idea of negligence in that
malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill-
will.

40
Article 21 of the Code contemplates a conscious act to cause harm. In relation to a
breach of contract, its application can be warranted only when the defendant’s disregard of his
contractual obligation is so deliberate as to approximate a degree of misconduct certainly no
less worse than fraud or bad faith. Most importantly, Article 21 is a mere declaration of a
general principle in human relations that clearly must, in any case, give way to the specific
provision of Article 2224 of the Civil Code authorizing the grant of moral damages in culpa
contractual solely when the breach is due to fraud or bad faith.

ARTICLE 21. Any person who wilfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy shall compensate the latter for the
damage.

The decision is modified by deleting the award of moral and exemplary damages to private
respondents in its stead, petitioner is ordered to pay nominal damages(5,000.00) sanctioned
under Article 2221 of the Civil Code.

• Equitable Banking Corp. v. Caldron, G.R. No. 156168, December 14, 2004
EQUITABLE BANKING CORPORATION, petitioner, vs. JOSE T.
CALDERON, Respondent. G. R. No. 156168 - December 14,
2004
Facts

Jose T. Calderon, a prominent businessman applied and was issued an Equitable

International Visa card which can be used for both peso and dollar transactions
within and outside the Philippines. In the dollar transactions, Calderon is required to
maintain a dollar account with a minimum deposit of $3,000.00, the balance of dollar
account shall serve as the credit limit. In April 1986, Calderon with business friends
and associates, went to Hongkong for business and pleasure trips. On 30 April 1986,
Calderon accompanied by his friend, went to Gucci Department Store and purchased
several Gucci items (t-shirts, jackets, a pair of shoes, etc.). The cost of his total
purchase amounted to HK$4,030.00 or equivalent to US$523.00. Instead of paying
the said items in cash, he used his Visa card to effect payment thereof on credit. He
then presented and gave his credit card to the saleslady who informed him that his
Visa card was blacklisted.
Upon his return to the Philippines, and claiming that he suffered much torment and
embarrassment on account of EBCs wrongful act of blacklisting/suspending his VISA
credit card, Calderon filed with the Regional Trial Court at Makati City a complaint for
damages against EBC. RTC concluded that defendant bank was negligent if not in
bad faith, in suspending, or blacklisting plaintiffs credit card without notice or basis,
and thus liable for actual and moral damages. The Court of Appeals affirmed the
decision but reduced the award of moral damages and deletes the rest of awards.
Issue
Whether or not the Court of Appeals erred in holding that the respondent is entitled to

41
moral damages notwithstanding its finding that petitioners actions have not been
attended with any malice or bad faith.

Ruling

Yes. EBC is not liable to the respondent for damages.

In holding petitioner liable for moral damages, the CA justified the award on its
assessment that EBC was negligent in not informing Calderon that his credit card was
already suspended. The card was suspended due to purchases made in excess of the
credit limit and payment of credit beyond due date. It may be true that the respondent
has paid his due to the petitioner, the respondent, however, did not verify the status of
his card before departing for Hongkong, much less requested petitioner to reinstate
the same.
In Philippine Telegraph & Telephone Corporation vs. Court of Appeals, it held that an
award of moral damages would require, evidence of besmirched reputation, or
physical, mental or psychological suffering sustained by the claimant, a culpable act or
omission factually established, proof that the wrongful act or omission of the
defendant is the proximate cause of the damages sustained by the claimant and that
the case is predicated on any of the instances expressed or envisioned by Articles
2219 and 2220 of the Civil Code.
Even on the aspect of negligence, petitioner could not have been properly adjudged
liable for moral damages. Unquestionably, respondent suffered damages as a result
of the dishonor of his card. In BPI Express Card Corporation vs. Court of Appeals, it
was stated that there can be damage without injury in those instances in which the
loss or harm was not the result of a violation of a legal duty and that the law affords no
remedy for these damages. These situations are often called damnum absque injuria.
The petitioner bank was not negligent since the contract agreed upon by the petitioner
and respondent includes the provision on automatic suspension without notice
embodied in the same Credit Card Agreement, which is clear and unambiguous, and
was agreed by respondent. Therefore, there was no violation of legal right in this
case.
EQUITABLE BANKING CORPORATION v. CALDERON
2004 Dec 14 G. R. No. 156168
Facts:
Jose Calderon, a prominent businessman, applied and was issued an Equitable
International Visa card which can be used for both peso and dollar transactions within
and outside the Philippines. In its dollar transactions, respondent is required to maintain
a dollar account with a minimum deposit of $3, 000.00, the balance shall serve as a
credit limit. In one of his trips to Hongkong, together with a friend, he went to a Gucci
Department Store where he tried to purchase several Gucci items (which amounted to
HK$4,030.00 or equivalent to US$523.00) using his Visa card. The saleslady informed

42
him in front of his friend and other shoppers that the transaction failed because his Visa
card was blacklisted. Upon his return to the Philippines, Calderon filed a complaint for
damages claiming he suffered much torment and embarrassment on account of EBC’s
wrongful act of blacklisting/suspending his Visa card while at the Gucci Store in
Hongkong. The trial court ruled in favor of Caldeon. On appeal, the CA affirmed the
ruling of the lower court but reducing the moral damages awarded by the latter and
justified that EBC was negligent in not informing Calderon that his credit card was
already suspended even before he left for Hongkong, ratiocinating that petitioner’s right
to automatically suspend a cardholder’s privileges without notice should not have been
indiscriminately used in the case of respondent because the latter has already paid his
past obligations and has an existing dollar deposit in an amount more than the required
minimum for credit card at the time he made his purchases in Hongkong.
Issue:
Whether or not the Court of Appeals erred in holding that the respondent is
entitled to moral damages notwithstanding its finding that petitioner’s actions have not
been attended with any malice or bad faith?
Ruling:
In law, moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and
similar injury. However, to be entitled to the award thereof, it is not enough that one
merely suffered sleepless nights, mental anguish or serious anxiety as a result of the
actuations of the other party.
Conditions to be met in order that moral damages may be recovered:
1) Evidence of besmirched reputation, or physical, mental or psychological
suffering sustained by the claimant;
2) A culpable act or omission factually established;
3) Proof that the wrongful act or omission of the defendant is the proximate
cause of the damages sustained by the claimant; and
4) That the case is predicated on any of the instances expressed or envisioned
by Articles 2219 and 2220 of the Civil Code. (Philippine Telegraph &
Telephone Corporation vs. Court of Appeals)
Particularly, in culpa contractual or breach of contract, moral damages are
recoverable only if the defendant has acted fraudulently or in bad faith, or is found
guilty of gross negligence amounting to bad faith, or in wanton disregard of his
contractual obligations. Verily, the breach must be wanton, reckless, malicious or in
bad faith, oppressive or abusive.
In the present case, the CA ruled, and rightly so, that no malice or bad faith
attended petitioner’s dishonor of respondent’s credit card. For, as found no less by the
same court, petitioner was justified in doing so under the provisions of its Credit Card
Agreement with respondent, paragraph 3 of which states:

43
 xxx the CARDHOLDER agrees not to exceed his/her approved
credit limit, otherwise, all charges incurred including charges incurred
through the use of the extension CARD/S, if any in excess of credit limit
shall become due and demandable and the credit privileges shall be
automatically suspended without notice to the CARDHOLDER in
accordance with Section 11 hereof.
We are thus at a loss to understand why, despite its very own finding of absence
of bad faith or malice on the part of the petitioner, the CA nonetheless adjudged it liable
for moral damages to respondent.
Calderon’s card privileges for dollar transactions were suspended because of his
past due and demandable obligations. He made a deposit of US$14,000.00 in his dollar
account but did not bother to request the petitioner for the reinstatement of his credit
card privileges for dollar transactions, thus the same remained under suspension. On
account of this, and with the express provision on automatic suspension without notice
under paragraph 3 of the parties’ Credit Card Agreement, there is simply no basis for
holding petitioner negligent for not notifying respondent of the suspended status of his
credit card privileges. And, certainly, respondent could not have justifiably assumed that
petitioner must have reinstated his card by reason alone of his having deposited
US$14,000.00 a day before he left for Hongkong. As issuer of the card, petitioner has
the option to decide whether to reinstate or altogether terminate a credit card previously
suspended on considerations which the petitioner deemed proper, not the least of which
are the cardholder’s payment record, capacity to pay and compliance with any
additional requirements imposed by it.
Even on the aspect of negligence, therefore, petitioner could not have been
properly adjudged liable for moral damages.
Unquestionably, respondent suffered damages as a result of the dishonor of his
card. There is, however, a material distinction between damages and injury. To quote
from the decision in BPI Express Card Corporation vs. Court of Appeals:
Injury is the illegal invasion of a legal right; damage is the loss, hurt or harm which
results from the injury; and damages are the recompense or compensation awarded for
the damage suffered. Thus, there can be damage without injury in those instances in
which the loss or harm was not the result of a violation of a legal duty. In such cases
the consequences must be borne by the injured person alone, the law affords no
remedy for damages resulting from an act which does not amount to a legal injury or
wrong. These situations are often called damnum absque injuria.
In other words, in order that a plaintiff may maintain an action for the injuries of
which he complains, he must establish that such injuries resulted from a breach of duty
which the defendant owed to the plaintiff- a concurrence of injury to the plaintiff and
legal responsibility by the person causing it. The underlying basis for the award of tort
damages is the premise that an individual was injured in contemplation of law. Thus,
there must first be a breach of some duty and the imposition of liability for that breach
before damages may be awarded; and the breach of such duty should be the proximate
cause of the injury.

44
 In the situation in which respondent finds himself, his is a case of damnum
absque injuria.
On a final note, x x x “moral damages are in the category of an award designed
to compensate the claim for actual injury suffered and not to impose a penalty on the
wrongdoer.”

• Aznar v. Citibank, G.R. No. 164273, March 28, 2007

28. G.R. No. 164273, March 28, 2007
EMMANUEL B. AZNAR v. CITIBANK, N.A., (Philippines),

Facts: Aznar made an advance deposit amounting to ₱485,000.00 to

its Citibank Preferred Master Credit Card to increase his ordinary credit
limit of
₱150,000 to use the card in his Asian tour with his family. When in
Indonesia, the credit card was dishonored by a travel agency and was
declared over the limit. The agency even mentioned that Aznar might be a
swindler. Upon their return in the Philippines, Aznar filed a complaint for
damages alleging that Citibank fraudulently and with gross negligence
blacklisted his Mastercard causing him injuries.
Aznar presented a print-out of a computer-generated report from the
travel agency showing that his card was declared over limit. He argued that
the Rules on Electronic Evidence provides that print-outs are also originals for
purposes of the Best Evidence Rule. He also claimed that his testimony
constituted other evidence showing integrity and reliability of the print-out as
required by the Rules on Electronic Evidence.

On the other hand, Citibank presented Warning Cancellation Bulletins

showing that the card was not placed in a hot list or not blacklisted during
the travel dates of Aznar.

Issue: Whether or not the print-out of the computer-generated document was

properly authenticated by Aznar to be admissible before the court.

Held: No, the document cannot be considered admissible as its

authenticity and due execution were not sufficiently established.

In this case, Aznar did not actually see the document executed or written,
neither was he able to provide evidence on the genuineness of the signature
or handwriting of the person who handed to him said computer print-out.

The integrity and reliability of the document was not proved since Aznar
failed to demonstrate how the information reflected on the print-out was
generated and how the said information could be relied upon as true.

45
Facts:

Emmanuel B. Aznar (Aznar), is a holder of a Preferred Master Credit Card

(Mastercard) issued by Citibank with a credit limit of P150,000.00. As he and his wife,
Zoraida, planned to take their two grandchildren, Melissa and Richard Beane, on an
Asian tour, Aznar made a total advance deposit of P485,000.00 with Citibank with the
intention of increasing his credit limit to P635,000.00.

Aznar claims that when he presented his Mastercard in some establishments in

Malaysia, Singapore and Indonesia, Ingtan Tour and Travel Agency in Indonesia (to
purchase tickets to Bali) but the was not honoured for the reason that his card was
blacklisted by Citibank. Such dishonor forced him to buy the tickets in cash. He further
claims that his humiliation caused by the denial of his card was aggravated when
Ingtan Agency spoke of swindlers trying to use blacklisted cards.

On August 26, 1994, Aznar filed a complaint for damages against Citibank, docketed
as Civil Case No. CEB-16474 and raffled to RTC Branch 20, Cebu City, claiming that
Citibank fraudulently or with gross negligence blacklisted his Mastercard which forced
him, his wife and grandchildren to abort important tour destinations and prevented
them from buying certain items in their tour. To prove that Citibank blacklisted his
Mastercard, Aznar presented a computer print-out, denominated as ON-LINE
AUTHORIZATIONS FOREIGN ACCOUNT ACTIVITY REPORT, issued to him by
Ingtan Agency (Exh. "G") with the signature of one Victrina Elnado Nubi (Nubi) which
shows that his card in question was "DECL OVERLIMIT" or declared over the limit.

As a defence, Citibank’s Credit Card Department Head, Dennis Flores, presented

Warning Cancellation Bulletins which contained the list of its cancelled cards covering
the period of Aznar’s trip.

On May 29, 1998, RTC Branch 20, Cebu City, through Judge Ferdinand J. Marcos,
rendered its decision dismissing Aznar’s complaint for lack of merit. The trial court
held that as between the computer print-out presented by Aznar and the Warning
Cancellation Bulletins presented by Citibank, the latter had more weight as their due
execution and authenticity were duly established by Citibank. Aznar filed a motion for
reconsideration this time through Judge Jesus S. De la Peña of Branch 10 of Cebu
City, the court issued an Order granting Aznar’s motion. Thus, Citibank filed an appeal
with the CA and its counsel filed an administrative case against Judge De la Peña for
grave misconduct, gross ignorance of the law and incompetence, claiming among
others that said judge rendered his decision without having read the transcripts. On
January 30, 2004, the CA rendered its Decision granting Citibank’s appeal. Aznar filed
a motion for reconsideration which the CA dismissed in its Resolution dated May 26,
2004. Hence, this petition.

Issue:

Whether or not Exh. "G" qualifies as electronic evidence following the Rules on

46
Electronic Evidence which provides that print-outs are also originals for purposes of
the Best Evidence Rule hence, should not be excluded as evidence.

Held:

As correctly pointed out by the RTC and the CA, however, such exhibit cannot be
considered admissible as its authenticity and due execution were not sufficiently
established by petitioner.

The prevailing rule at the time of the promulgation of the RTC Decision is Section 20
of Rule 132 of the Rules of Court. It provides that whenever any private document
offered as authentic is received in evidence, its due execution and authenticity must
be proved either by (a) anyone who saw the document executed or written; or (b) by
evidence of the genuineness of the signature or handwriting of the maker.

Aznar, who testified on the authenticity of Exh. "G," did not actually see the document
executed or written, neither was he able to provide evidence on the genuineness of
the signature or handwriting of Nubi, who handed to him said computer print-out.

Even if examined under the Rules on Electronic Evidence, which took effect on
August 1, 2001, and which is being invoked by Aznar in this case, the authentication
of Exh. "G" would still be found wanting.
Pertinent sections of Rule 5 read:

Section 1. Burden of proving authenticity. – The person seeking to introduce an

electronic document in any legal proceeding has the burden of proving its authenticity
in the manner provided in this Rule.
Section 2. Manner of authentication. – Before any private electronic document offered
as authentic is received in evidence, its authenticity must be proved by any of the
following means:
(a) by evidence that it had been digitally signed by the person purported to have
signed the same;
(b) by evidence that other appropriate security procedures or devices as may be
authorized by the Supreme Court or by law for authentication of electronic documents
were applied to the document; or
(c) by other evidence showing its integrity and reliability to the satisfaction of the
judge.

Aznar claims that his testimony complies with par. (c), i.e., it constitutes the "other
evidence showing integrity and reliability of Exh. "G" to the satisfaction of the judge."
The Court is not convinced. Aznar’s testimony that the person from Ingtan Agency
merely handed him the computer print-out and that he thereafter asked said person to
sign the same cannot be considered as sufficient to show said print-out’s integrity and
reliability. As correctly pointed out by Judge Marcos in his May 29, 1998 Decision,
Exh. "G" does not show on its face that it was issued by Ingtan Agency as Aznar
merely mentioned in passing how he was able to secure the print-out from the

47
agency; Aznar also failed to show the specific business address of the source of the
computer print-out because while the name of Ingtan Agency was mentioned by
Aznar, its business address was not reflected in the print-out.

Indeed, Aznar failed to demonstrate how the information reflected on the print-out was
generated and how the said information could be relied upon as true.

• Bankard, Inc. v. Feliciano, G.R. No. 141761, July 28, 2006

DAMAGES :

Bankard Inc. v Dr. Antonio Novak Feliciano

G.R. No. 141761, July 28, 2006

PUNO, J.:

FACTS: Dr. Antonio Feliciano is the holder of PCIBank Mastercard and an extension
card was issued to his wife, Mrs. Marietta N. Feliciano. On June 19, 1995, respondent
used his PCIBank Mastercard to pay a breakfast bill in Canada but the card was
dishonored for payment. He found out that according to the bank, he failed to pay his
last billing which he denied. He called his secretary in the Philippines to verify the
payment. The following day, respondent met with Dr. Bumanlag to reimburse her for the
cost of the breakfast the previous day. Thereafter, Dr. Bumanlag accompanied the
respondent to a prestigious mall in Toronto, where the latter bought several dressing
items. Respondent presented the same card for payment which was dishonored to the
embarrassment of Feliciano. Worse, the manager of the department store confiscated
the card in front of Dr. Bumanlag and other shoppers. On October 5, 1995, respondent
filed a case against the bank. On July 22, 1997, the trial court decided the case in favor
of respondent. Although the claim for actual damages was disallowed for lack of proof,
petitioner was ordered to pay:(1) P1,000,000.00 as moral damages, (2)P200,000.00 as
exemplary damages, and (3) P100,000.00 for attorney’s fees and costs of suit.
Petitioner was likewise ordered to restore respondent’s good name with the merchant
establishment in Canada which confiscated his Mastercard, and to return the card with
apologies to respondent. Petitioner filed a petition for review with the Court of Appeals
which affirmed the lower court’s decision.

ISSUE: WON Bankard is liable to Dr. Feliciano for damages

HELD: YES. Petitioner alleged that it suspended the privileges of respondent's credit
card only after it received the fraud alert from Indonesia, and after its fraud analyst, Mr.
Lopez, tried to contact both the respondent and his wife at his clinic and at home. At first
blush, bad faith or malice appears not to be attributable to petitioner. However, we find
that its efforts at personally contacting respondent regarding the suspension of his credit
card fall short of the degree of diligence required by the circumstances. Petitioner
claims that it suspended respondent's card to protect him from fraudulent transactions.
While petitioner's motive has to be lauded, we find it lamentable that petitioner was not

48
equally zealous in protecting respondent from potentially embarrassing and humiliating
situations that may arise from the unsuspecting use of his suspended PCIBank
Mastercard. Considering the widespread use of access devices in commercial and other
transactions, petitioner and other issuers of credit cards should not only guard against
fraudulent uses of credit cards but should also be protective of genuine uses thereof by
the true cardholders. In the case at bar, the duty is much more demanding for the
evidence shows that respondent is a credit cardholder for more than ten (10) years in
good standing, and has not been shown to have violated any of the provisions of his
credit card agreement with petitioner. Considering the attendant circumstances, we find
petitioner to have been grossly negligent in suspending respondent's credit card. To
reiterate, moral damages may be awarded in a breach of contract when the defendant
acted fraudulently or in bad faith, or is guilty of gross negligence amounting to bad faith.

• Acol v. Philippine Commercial Credit Card, Inc., G.R. No. 135149, July 25, 2006
ACOL VS. PCCCI
GR NO 135149
JULY 25, 2006

FACTS:
Petitioner Manuel Acol is a holder of a credit card that he applied from the
respondent. On April 18, 1987, he discovered the loss of his credit card and
immediately reported the incident to the respondent’s office o n the following day (April
19). He again reiterated the loss on 20th and immediately complied with the necessary
requirements involving the loss and submitted the same. On the 21t, the respondent
then issued a special cancellation bulletin informing its accredited establishments of the
loss of the cards of enumerated holders. Unfortunately, it turned out that somebody
used the petitioner’s card on the 19th and 20th to purchase items amounting to
P76,067.28. The Petitioner informed the respondent that he would only be paying for
the purchase made on the 19th by the virtue of provision #1of the terms and conditions
of the credit card. It provided that the holders are responsible for all charges until its
expiration or its return to the card user or until a reasonable time after receipt by the
card user of written notice of loss of the card and its actual inclusion in the cancellation
bulletin.

ISSUE:
Whether or not the provision in the contract was valid and binding to the
petitioner

RULING:
The provision is invalid because it is repugnant to public policy. The stipulation
requires 2 conditions for petitioner to be relieved of responsibility from unauthorized
charges: (1) receipt by the card issuer of a written notice of the loss and (2) the
notification to the issuer accredited establishments regarding the loss. Such is contrary
to public policy. Prompt notice by the cardholder to the credit card company should be
enough to relieve the former or liability occasioned by unauthorized use of the

49
stolen/lost card. As the petitioner points out, the effectivity of the cancellation rests
beyond the control of the card holder. Even if the petitioner has done everything to give
the respondent the required notice, the lifting of the liabilities from the unauthorized
transactions still rests on the respondents’ promptness (which may consume an
indefinite time) to notify the card holders. Should the respondents fail to act promptly,
then such provision would necessarily mean that the subsequent transactions of the
lost/stolen card would be charged at the petitioner’s expense, even if he has already
notified the bank. Article 1306 of the Civil Code prohibits contracting parties from
establishing stipulations contrary to public policy. Thus, the Supreme Court in this case
has struck the invalid provision down.

• Louh, Jr. v. Bank of Philippine Islands, G.R. No. 225562, March 8, 2017
Facts: The herein respondent, Bank of the Philippine Islands (BPI), issued a credit card
in William’s name, with Irene as the extension card holder. Pursuant to the terms and
conditions of the cards’ issuance, 3.5% finance charge and 6% late payment charge
shall be imposed monthly upon unpaid credit availments.

The Spouses Louh made purchases from the use of the credit cards and paid regularly
based on the amounts indicated in the Statement of Accounts. However, they were
remiss in their obligations starting October 14, 2009 prompting BPI to send written
demand letters. By September 14, 2010, they owed BPI the total amount of
₱533,836.27. Despite repeated verbal and written demands, the Spouses Louh failed to
pay BPI. BPI filed before the Regional Trial Court of Makati City a Complaint for
Collection of a Sum of Money.

On July 24, 2012, the RTC issued an Order declaring the Spouses Louh in default and
setting BPI’s ex-parte presentation of evidence on August 7, 2012. The Branch Clerk of
Court thereafter submitted a Commissioner’s Report

On November 29, 2012, the RTC rendered a Decision which ordered the Spouses Louh
to solidarily pay BPI (1) P533,836.27 plus 12% finance and 12% late payment annual
charges starting from August 7, 2010 until full payment, and (2) 25% of the amount due
as attorney’s fees, plus ₱l,000.00 per court hearing and ₱8,064.00 as filing or docket
fees; and (3) costs of suit.17

The RTC explained that BPI had adduced preponderant evidence proving that the
Spouses Louh had in fact availed of credit accommodations from the use of the cards.
However, the RTC found the 3.5% finance and 6% late payment monthly
chargesimposed by BPI as iniquitous and unconscionable. Hence, both charges were
reduced to 1 % monthly. Anent the award of attorney’s fees equivalent to 25% of the
amount due, the RTC found the same to be within the terms of the parties’ agreement.

Aggrieved, the spouses before the Court alleged the computations did not show the
specific amounts pertaining to the principal, interests and penalties. They point out that

50
since their credit limit was only ₱326,000.00, it is evident that the amount of
₱533,836.27 demanded by BPI included unconscionable charges. 

Issue: Whether or not the interest rate imposed and attorney’s fee awarded are
unconscionable and can be equitable reduced by the Court.

Ruling: The Supreme Court ruled in the negative. Be that as it may, the Court finds
excessive the principal amount and attorney’s fees awarded by the RTC and CA. A
modification of the reckoning date relative to the computation of the charges is in order
too.

In Macalinao, where BPI charged the credit cardholder of 3.25% interest and 6%
penalty per month, and 25% of the total amount due as attorney’s fees, the Court
unequivocally declared that:

This is not the first time that this Court has considered the interest rate of 36% per
annum as excessive and unconscionable. We held in Chua vs. Timan:

The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans
must be equitably reduced to 1% per month or 12% per annum. We need not unsettle·
the principle we had affirmed in a plethora of cases that stipulated interest rates of 3%
per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the law. While C.B.
Circular No. 905-82, which took effect on January 1, 1983, effectively removed the
ceiling on interest rates for both secured and unsecured loans, regardless of maturity,
nothing in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers or
lead to a hemorrhaging of their assets. x x x

Since the stipulation on the interest rate is void, it is as if there was no express contract
thereon. Hence, courts may reduce the interest rate as reason and equity demand.

The same is true with respect to the penalty charge. x x x Pertinently, Article 1229 of the
Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable. x x xx

x x x [T]he stipulated penalty charge of 3% per month or 36% per annum, in addition to
regular interests, is indeed iniquitous and unconscionable.

51
Thus, in Macalinao, the Court reduced both the interest and penalty charges to 12%
each, and the attorney’s fees to ₱l0,000.00.

In MCMP Construction Corp. v. Monark Equipment Corp., the creditor cumulatively

charged the debtor 60% annually as interest, penalty and collection fees, and 25% of
the total amount due as attorney’s fees. The Court similarly found the rates as
exorbitant and unconscionable; hence, directed the reduction of the annual interest to
12%, penalty and collection charges to 6%, and attorney’s fees to 5%. The Court
explained that attorney’s fees are in the nature of liquidated damages, which under
Article 2227 of the New Civil Code, “shall be equitably reduced if they are iniquitos or
unconscionable.”

The Court reduces the attorney’s fees to five percent (5%) of the total amount due from
the Spouses Louh pursuant to MCMP43 and Article 2227 of the New Civil Code.

• Bankard, Inc. v. Alarte, G.R. No. 202573, April 19, 2017

Facts:

Petitioner Bankard, Inc. (Bankard, now RCBC Bankard Services Corporation) is a duly
constituted domestic corporation doing business as a credit card provider, extending
credit accommodations to its member-cardholders for the purchase of goods and
services obtained from Bankard-accredited business establishments, to be paid later on
by the member-cardholders following billing.

In 2007, petitioner filed a collection case against respondent Luz P. Alarte before the
Metropolitan Trial Court of Pasig City (MeTC). In its Complaint, petitioner alleged that
respondent applied for and was granted credit accommodations under Bankard
myDream JCB Card.No. 3562-8688-5155-1006; that respondent, using the said
Bankard myDream JCB credit card, availed herself of credit acconunodations by
"purchasing various products"; that per Statement of Account dated July 9, 2006,
respondent's credit availments amounted to a total of ₱67,944.82, inclusive of unbilled
monthly installments, charges and penalties or at least the minimum amount due under
the credit card; and that respondent failed and refuses to pay her obligations despite her
receipt of a written demand.

Thus, it prayed that respondent be ordered to pay the amount of ₱67,944.82, with
interest, attorney's fees equivalent to 25% of the sum due, and costs of suit. On July 15,
2009, the MeTC issued its Decision dismissing the case for lack of preponderance of
evidence or lack or "greater weight of the credible evidence. Petitioner appealed before
the Regional Trial Court (RTC) which, in a May 6, 2010 Decision, affirmed the MeTC
based on the same ground.

Petitioner filed a Petition for Review before the Court of Appeals, but the same was
denied and dismissed for lack of preponderance of evidence. Petitioner moved to
reconsider, but in a July 4, 2012 Resolution, the CA held its ground.
52
Issue:

Whether or not the petitioner, Bankard Inc. presented sufficient evidence to support its
pecuniary claim against respondent Luz P. Alarte.

Ruling:

No, the petitioner, Bankard Inc. did not present sufficient evidence to support its
pecuniary claim against respondent Luz P. Alarte. Upon perusal of the July 9, 2006
Statement of Account sent to respondent would indeed show that it does not contain the
particulars of purchase transactions into by the latter; it merely contains the information
of the previous statement balance, late and interest charges, amounting to ₱67,944.82

However, the Court held that the manner in which the statement of account is worded
indicates that it is a running balance, a continuing and mounting bill of charges
consisting of a combined principal amount with finance and penalty charges imposed,
which respondent appears to have failed to pay in the past. This is shown by the fact
that respondent has failed to pay a past bill amounting to ₱64,615.64 - the "previous
statement balance" in the very first line of the above-quoted statement of account.

This could mean that there really were no immediate purchase transactions made by
respondent for the month that needed to be specified in the July 9, 2006 Statement of
Account; that instead, she simply repeatedly failed and continues to fail to pay her credit
card debt arising out of past credit card purchase transactions to petitioner, which thus
resulted in a mounting pile of charges imposed upon her outstanding account as
reflected in a statement or bill of charges or accounts regularly sent to her.

Moreover, the fault of Petitioner appears to lie in the fact that its Complaint was not well-
prepared, and its cause is not well-argued; for this reason, the courts below
misunderstood both. The Court cannot completely blame the MeTC, RTC, and CA for
their failure to understand or realize the fact that a monthly credit card statement of
account does not always necessarily involve purchases or transactions made
immediately prior to the issuance of such statement.

While the Court believes that petitioner's claim may be well-founded, it is not enough as
to allow judgment in its favor on the basis of extant evidence. It must prove the validity
of its claim; this it may do by amending its Complaint and adducing additional evidence
of respondent's credit history and proving the loan transactions between them.

Therefore, the Petition is PARTIALLY GRANTED. The September 28, 2011 Decision
and July 4, 2012 Resolution of the Court of Appeals are REVERSED and SET ASIDE.
Further, Metropolitan Trial Court of Pasig City, Branch 72 is ORDERED to conduct
further proceedings in accordance with the foregoing disquisition of the Court and allow

53
petitioner Bankard, Inc. to amend its Complaint and/or present additional evidence to
prove its case.

54