G.R. No.

L-50550-52 October 31, 1979

CHEE KIONG YAM, AMPANG MAH, ANITA YAM JOSE Y.C. YAM AND RICHARD
YAM, petitioners,
vs.
HON. NABDAR J. MALIK, Municipal Judge of Jolo, Sulu (Branch I), THE PEOPLE OF
THE PHILIPPINES, ROSALINDA AMIN, TAN CHU KAO and LT. COL. AGOSTO
SAJOR respondents.
Tomas P. Matic, Jr. for petitioners.
Jose E. Fernandez for private respondent.
Office of the Solicitor General for respondent the People of the Philippines.

ABAD SANTOS, J .:
This is a petition for certiorari, prohibition, and mandamus with preliminary injunction.
Petitioners alleged that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted
without jurisdiction, in excess of jurisdiction and with grave abuse of discretion when:
(a) he held in the preliminary investigation of the charges of estafa filed by respondents
Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners that there was a prima
facie case against the latter;
(b) he issued warrants of arrest against petitioners after making the above determination;
and
(c) he undertook to conduct trial on the merits of the charges which were docketed in his
court as Criminal Cases No. M-111, M-183 and M-208.
Respondent judge is said to have acted without jurisdiction, in excess of jurisdiction and
with grave abuse of discretion because the facts recited in the complaints did not constitute
the crime of estafa, and assuming they did, they were not within the jurisdiction of the
respondent judge.
In a resolution dated May 23, 1979, we required respondents to comment in the petition and
issued a temporary restraining order against the respondent judge from further proceeding
with Criminal Cases Nos. M-111, M-183 and M-208 or from enforcing the warrants of arrest
he had issued in connection with said cases.
Comments by the respondent judge and the private respondents pray for the dismissal of
the petition but the Solicitor General has manifested that the People of the Philippines have
no objection to the grant of the reliefs prayed for, except the damages. We considered the
comments as answers and gave due course to the petition.
The position of the Solicitor General is well taken. We have to grant the petition in order to
prevent manifest injustice and the exercise of palpable excess of authority.
In Criminal Case No. M-111, respondent Rosalinda M. Amin charges petitioners Yam Chee
Kiong and Yam Yap Kieng with estafa through misappropriation of the amount of
P50,000.00. But the complaint states on its face that said petitioners received the amount
from respondent Rosalinda M. Amin "as a loan." Moreover, the complaint in Civil Case No.
N-5, an independent action for the collection of the same amount filed by respondent
Rosalinda M. Amin with the Court of First Instance of Sulu on September 11, 1975, likewise
states that the P50,000.00 was a "simple business loan" which earned interest and was
originally demandable six (6) months from July 12, 1973. (Annex E of the petition.)
In Criminal Case No. M-183, respondent Tan Chu Kao charges petitioners Yam Chee
Kiong, Jose Y.C. Yam, Ampang Mah and Anita Yam, alias Yong Tay, with estafa through
misappropriation of the amount of P30,000.00. Likewise, the complaint states on its face
that the P30,000.00 was "a simple loan." So does the complaint in Civil Case No. N-8 filed
by respondent Tan Chu Kao on April 6, 1976 with the Court of First Instance of Sulu for the
collection of the same amount. (Annex D of the petition.).
In Criminal Case No. M-208, respondent Augusto Sajor charges petitioners Jose Y.C. Yam,
Anita Yam alias Yong Tai Mah, Chee Kiong Yam and Richard Yam, with estafa through
misappropriation of the amount of P20,000.00. Unlike the complaints in the other two cases,
the complaint in Criminal Case No. M-208 does not state that the amount was received as
loan. However, in a sworn statement dated September 29, 1976, submitted to respondent
judge to support the complaint, respondent Augusto Sajor states that the amount was a
"loan." (Annex G of the petition.).
We agree with the petitioners that the facts alleged in the three criminal complaints do not
constitute estafa through misappropriation.
Estafa through misappropriation is committed according to Article 315, paragraph 1,
subparagraph (b), of the Revised Penal Code as follows:
Art. 315. Swindling (Estafa). Any person who shall defraud another by any
of the means mentioned herein below shall be punished by:
xxx xxx xxx
1. With unfaithfulness or abuse of confidence namely:
xxx xxx xxx
b) By misappropriating or converting, to the prejudice of another, money,
goods, or any other personal property received by the offender in trust or on
commission, or for administration, or under any other obligation involving the
duty to make delivery of or to return the same, even though such obligation
be totally or partially guaranteed by a bond; or by denying having received
such money, goods, or other property.
In order that a person can be convicted under the abovequoted provision, it must be proven
that he has the obligation to deliver or return the same money, goods or personal property
that he received. Petitioners had no such obligation to return the same money, i.e., the bills
or coins, which they received from private respondents. This is so because as clearly stated
in criminal complaints, the related civil complaints and the supporting sworn statements, the
sums of money that petitioners received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.
Art. 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a commodatum;
or money or other consumable thing upon the condition that the same amount
of the same kind and quality shall be paid, in which case the contract is
simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in
simple loam ownership passes to the borrower.
Art. 1953. A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor an
equal amount of the same kind and quality.
It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as
contrasted to commodatum, the borrower acquires ownership of the money, goods or
personal property borrowed. Being the owner, the borrower can dispose of the thing
borrowed (Article 248, Civil Code) and his act will not be considered misappropriation
thereof.
In U.S. vs. Ibaez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a person
to refuse to nay his debt or to deny its existence.
We are of the opinion and so decide that when the relation is purely that of
debtor and creditor, the debtor can not be held liable for the crime of estafa,
under said article, by merely refusing to pay or by denying the indebtedness.
It appears that respondent judge failed to appreciate the distinction between the two types
of loan, mutuum and commodatum, when he performed the questioned acts, He mistook
the transaction between petitioners and respondents Rosalinda Amin, Tan Chu Kao and
Augusto Sajor to be commodatum wherein the borrower does not acquire ownership over
the thing borrowed and has the duty to return the same thing to the lender.
Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which the
Municipal Court of Jolo is, has jurisdiction over criminal cases where the penalty provided
by law does not exceed prision correccional or imprisonment for not more than six (6) years,
or fine not exceeding P6,000.00 or both, The amounts allegedly misappropriated by
petitioners range from P20,000.00 to P50,000.00. The penalty for misappropriation of this
magnitude exceeds prision correccional or 6 year imprisonment. (Article 315, Revised Penal
Code), Assuming then that the acts recited in the complaints constitute the crime of estafa,
the Municipal Court of Jolo has no jurisdiction to try them on the merits. The alleged
offenses are under the jurisdiction of the Court of First Instance.
Respondents People of the Philippines being the sovereign authority can not be sued for
damages. They are immune from such type of suit.
With respect to the other respondents, this Court is not the proper forum for the
consideration of the claim for damages against them.
WHEREFORE, the petition is hereby granted; the temporary restraining order previously
issued is hereby made permanent; the criminal complaints against petitioners are hereby
declared null and void; respondent judge is hereby ordered to dismiss said criminal cases
and to recall the warrants of arrest he had issued in connection therewith. Moreover,
respondent judge is hereby rebuked for manifest ignorance of elementary law. Let a copy of
this decision be included in his personal life. Costs against private respondents.
SO ORDERED.
Barredo, Antonio and Santos, JJ., concur.
Concepcion Jr. ,J., is on leave.


Separate Opinions

AQUINO, J ., concurring:
The claim for damages in this certiorari, mandamus and prohibition case is not warranted
under section 3, Rule 65 of the Rules of Court.




G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J .:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on
June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay
actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the
amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed
and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation
Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of
P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building
(for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of
the jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been
purchased by Saura on the strength of a letter of credit extended by the Prudential Bank
and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without
first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory building to be constructed,
the land site thereof, and the machinery and equipment to be installed. Among the other
terms spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following
purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria
Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the
borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation,
subject to availability of funds, and as the construction of the factory buildings progresses,
to be certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before,
however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter
to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having
China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock
subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes,
Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such
subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of
the other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954,
designating of the members of its Board of Governors, for certain reasons stated in the
resolution, "to reexamine all the aspects of this approved loan ... with special reference as
to the advisability of financing this particular project based on present conditions obtaining
in the operations of jute mills, and to submit his findings thereon at the next meeting of the
Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to
act as co-signer for the loan, and asked that the necessary documents be prepared in
accordance with the terms and conditions specified in Resolution No. 145. In connection
with the reexamination of the project to be financed with the loan applied for, as stated in
Resolution No. 736, the parties named their respective committees of engineers and
technical men to meet with each other and undertake the necessary studies, although in
appointing its own committee Saura, Inc. made the observation that the same "should not
be taken as an acquiescence on (its) part to novate, or accept new conditions to, the
agreement already) entered into," referring to its acceptance of the terms and conditions
mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R.
Halling, representing China Engineers, Ltd., as one of the co-signers; and the
corresponding deed of mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the
reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC
Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc.,
was present, it was decided to reduce the loan from P500,000.00 to P300,000.00.
Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under
Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736,
c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura
Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the
manufacture of jute sacks in Davao, with special reference as to the advisability of financing
this particular project based on present conditions obtaining in the operation of jute mills,
and after having heard Ramon E. Saura and after extensive discussion on the subject the
Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura
Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to
P100,000 may be authorized as may be necessary from time to time to place the factory in
actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not
inconsistent herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory
note for China Engineers Ltd. jointly and severally with the other RFC that his company no
longer to of the loan and therefore considered the same as cancelled as far as it was
concerned. A follow-up letter dated July 2 requested RFC that the registration of the
mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be
granted. The request was denied by RFC, which added in its letter-reply that it was
"constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ...
from the China Engineers Ltd., expressing their desire to consider the loan insofar as they
are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed
RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the
note if RFC releases to us the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original
amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the
promissory notes jointly with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of imported
raw materials, the Department of Agriculture and Natural Resources shall
certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide
adequately for the requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December
22, 1954, wherein it was explained that the certification by the Department of Agriculture
and Natural Resources was required "as the intention of the original approval (of the loan) is
to develop the manufacture of sacks on the basis of locally available raw materials." This
point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc.
does not deny that the factory he was building in Davao was for the manufacture of bags
from local raw materials. The cover page of its brochure (Exh. M) describes the project as a
"Joint venture by and between the Mindanao Industry Corporation and the Saura Import
and Export Co., Inc. to finance, manage and operate a Kenafmill plant, to manufacture
copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw
materials, principal kenaf." The explanatory note on page 1 of the same brochure states
that, the venture "is the first serious attempt in this country to use 100% locally grown raw
materials notably kenaf which is presently grown commercially in theIsland of Mindanao
where the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan application
in the first place, and to require, in its Resolution No. 9083, a certification from the
Department of Agriculture and Natural Resources as to the availability of local raw materials
to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the
defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a
special study made by the Bureau of Forestry "kenaf will not be available in sufficient
quantity this year or probably even next year;" (2) requesting "assurances (from RFC) that
my company and associates will be able to bring in sufficient jute materials as may be
necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be
made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955,
regarding the release of your loan under consideration of
P500,000. As stated in our letter of December 22, 1954, the
releases of the loan, if revived, are proposed to be made from
time to time, subject to availability of funds towards the end that
the sack factory shall be placed in actual operating status. We
shall be able to act on your request for revised purpose and
manner of releases upon re-appraisal of the securities offered
for the loan.
With respect to our requirement that the Department of
Agriculture and Natural Resources certify that the raw materials
needed are available in the immediate vicinity and that there is
prospect of increased production thereof to provide adequately
the requirements of the factory, we wish to reiterate that the
basis of the original approval is to develop the manufacture of
sacks on the basis of the locally available raw materials. Your
statement that you will have to rely on the importation of jute
and your request that we give you assurance that your
company will be able to bring in sufficient jute materials as may
be necessary for the operation of your factory, would not be in
line with our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the
matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955
RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura
himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a
mortgage contract, executed on August 6, 1954, over the same property in favor of the
Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of
the same year within which to pay its obligation on the trust receipt heretofore mentioned. It
appears further that for failure to pay the said obligation the Prudential Bank and Trust Co.
sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the
request of Saura, Inc., the latter commenced the present suit for damages, alleging failure
of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the
proceeds of the loan applied for and approved, thereby preventing the plaintiff from
completing or paying contractual commitments it had entered into, in connection with its jute
mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract
between the parties and that the defendant was guilty of breach thereof. The defendant
pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had
prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected
contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms
thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article
1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perferted until the delivery of
the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for
a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. But this fact alone falls short of resolving the basic
claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to
recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the
assumption that the factory to be constructed would utilize locally grown raw materials,
principally kenaf. There is no serious dispute about this. It was in line with such assumption
that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan
to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw
materials needed by the borrower-corporation to carry out its operation are available in the
immediate vicinity; and (2) that there is prospect of increased production thereof to provide
adequately for the requirements of the factory." The imposition of those conditions was by
no means a deviation from the terms of the agreement, but rather a step in its
implementation. There was nothing in said conditions that contradicted the terms laid down
in RFC Resolution No. 145, passed on January 7, 1954, namely "that the proceeds of
the loan shall be utilizedexclusively for the following purposes: for construction of factory
building P250,000.00; for payment of the balance of purchase price of machinery and
equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized
that it could not meet the conditions required by RFC, and so wrote its letter of January 21,
1955, stating that local jute "will not be able in sufficient quantity this year or probably next
year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for
raw materials and labor." This was a deviation from the terms laid down in Resolution No.
145 and embodied in the mortgage contract, implying as it did a diversion of part of the
proceeds of the loan to purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which
had been going on for the implementation of the agreement reached an impasse. Saura,
Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so
and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage
be cancelled, which was done on June 15, 1955. The action thus taken by both parties was
in the nature cf mutual desistance what Manresa terms "mutuo disenso"
1
which is a
mode of extinguishing obligations. It is a concept that derives from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.
2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against
any alleged breach of contract by RFC, or even point out that the latter's stand was legally
unjustified. Its request for cancellation of the mortgage carried no reservation of whatever
rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even
applied with DBP for another loan to finance a rice and corn project, which application was
disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at
its own request, that Saura, Inc. brought this action for damages.All these circumstances
demonstrate beyond doubt that the said agreement had been extinguished by mutual
desistance and that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other
issues raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with
costs against the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ.,
concur.
Makasiar, J., took no part.


G.R. No. 175139 April 18, 2012
HERMOJINA ESTORES, Petitioner,
vs.
SPOUSES ARTURO and LAURA SUPANGAN, Respondents.
D E C I S I O N
DEL CASTILLO, J .:
The only issue posed before us is the propriety of the imposition of interest and attorneys
fees.
Assailed in this Petition for Review
1
filed under Rule 45 of the Rules of Court is the May 12,
2006 Decision
2
of the Court of Appeals (CA) in CA-G.R. CV No. 83123, the dispositive
portion of which reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six
percent (6%) per annum, computed from September 27, 2000 until its full payment before
finality of the judgment. If the adjudged principal and the interest (or any part thereof)
remain unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per
annum, computed from the time the judgment becomes final and executory until it is fully
satisfied. The award of attorneys fees is hereby reduced to P100,000.00. Costs against the
defendants-appellants.
SO ORDERED.
3

Also assailed is the August 31, 2006 Resolution
4
denying the motion for reconsideration.
Factual Antecedents
On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and
Laura Supangan entered into a Conditional Deed of Sale
5
whereby petitioner offered to sell,
and respondent-spouses offered to buy, a parcel of land covered by Transfer Certificate of
Title No. TCT No. 98720 located at Naic, Cavite for the sum ofP4.7 million. The parties
likewise stipulated, among others, to wit:
x x x x
1. Vendor will secure approved clearance from DAR requirements of which are (sic):
a) Letter request
b) Title
c) Tax Declaration
d) Affidavit of Aggregate Landholding Vendor/Vendee
e) Certification from the Provl. Assessors as to Landholdings of
Vendor/Vendee
f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale
x x x x
4. Vendee shall be informed as to the status of DAR clearance within 10 days upon
signing of the documents.
x x x x
6. Regarding the house located within the perimeter of the subject [lot] owned by
spouses [Magbago], said house shall be moved outside the perimeter of this subject
property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts the
responsibility of seeing to it that such agreement is carried out before full payment of
the sale is made by vendee.
7. If and after the vendor has completed all necessary documents for registration of
the title and the vendee fails to complete payment as per agreement, a forfeiture fee
of 25% or downpayment, shall be applied. However, if the vendor fails to complete
necessary documents within thirty days without any sufficient reason, or without
informing the vendee of its status, vendee has the right to demand return of full
amount of down payment.
x x x x
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.)
Vendee shall be informed immediately of its approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of ownership.
x x x x
6

After almost seven years from the time of the execution of the contract and notwithstanding
payment of P3.5 million on the part of respondent-spouses, petitioner still failed to comply
with her obligation as expressly provided in paragraphs 4, 6, 7, 9 and 10 of the contract.
Hence, in a letter
7
dated September 27, 2000, respondent-spouses demanded the return of
the amount of P3.5 million within 15 days from receipt of the letter. In reply,
8
petitioner
acknowledged receipt of the P3.5 million and promised to return the same within 120 days.
Respondent-spouses were amenable to the proposal provided an interest of 12%
compounded annually shall be imposed on the P3.5 million.
9
When petitioner still failed to
return the amount despite demand, respondent-spouses were constrained to file a
Complaint
10
for sum of money before the Regional Trial Court (RTC) of Malabon against
herein petitioner as well as Roberto U. Arias (Arias) who allegedly acted as petitioners
agent. The case was docketed as Civil Case No. 3201-MN and raffled off to Branch 170. In
their complaint, respondent-spouses prayed that petitioner and Arias be ordered to:
1. Pay the principal amount of P3,500,000.00 plus interest of 12% compounded
annually starting October 1, 1993 or an estimated amount of P8,558,591.65;
2. Pay the following items of damages:
a) Moral damages in the amount of P100,000.00;
b) Actual damages in the amount of P100,000.00;
c) Exemplary damages in the amount of P100,000.00;
d) [Attorneys] fee in the amount of P50,000.00 plus 20% of recoverable
amount from the [petitioner].
e) [C]ost of suit.
11

In their Answer with Counterclaim,
12
petitioner and Arias averred that they are willing to
return the principal amount of P3.5 million but without any interest as the same was not
agreed upon. In their Pre-Trial Brief,
13
they reiterated that the only remaining issue between
the parties is the imposition of interest. They argued that since the Conditional Deed of Sale
provided only for the return of the downpayment in case of breach, they cannot be held
liable to pay legal interest as well.
14

In its Pre-Trial Order
15
dated June 29, 2001, the RTC noted that "the parties agreed that the
principal amount of 3.5 million pesos should be returned to the [respondent-spouses] by the
[petitioner] and the issue remaining [is] whether x x x [respondent-spouses] are entitled to
legal interest thereon, damages and attorneys fees."
16

Trial ensued thereafter. After the presentation of the respondent-spouses evidence, the trial
court set the presentation of Arias and petitioners evidence on September 3,
2003.
17
However, despite several postponements, petitioner and Arias failed to appear
hence they were deemed to have waived the presentation of their evidence. Consequently,
the case was deemed submitted for decision.
18

Ruling of the Regional Trial Court
On May 7, 2004, the RTC rendered its Decision
19
finding respondent-spouses entitled to
interest but only at the rate of 6% per annum and not 12% as prayed by them.
20
It also
found respondent-spouses entitled to attorneys fees as they were compelled to litigate to
protect their interest.
21

The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
[respondent-spouses] and ordering the [petitioner and Roberto Arias] to jointly and
severally:
1. Pay [respondent-spouses] the principal amount of Three Million Five Hundred Thousand
pesos (P3,500,000.00) with an interest of 6% compounded annually starting October 1,
1993 and attorneys fee in the amount of Fifty Thousand pesos (P50,000.00) plus 20% of
the recoverable amount from the defendants and cost of the suit.
The Compulsory Counter Claim is hereby dismissed for lack of factual evidence.
SO ORDERED.
22

Ruling of the Court of Appeals
Aggrieved, petitioner and Arias filed their notice of appeal.
23
The CA noted that the only
issue submitted for its resolution is "whether it is proper to impose interest for an obligation
that does not involve a loan or forbearance of money in the absence of stipulation of the
parties."
24

On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the RTC
finding the imposition of 6% interest proper.
25
However, the same shall start to run only from
September 27, 2000 when respondent-spouses formally demanded the return of their
money and not from October 1993 when the contract was executed as held by the RTC.
The CA also modified the RTCs ruling as regards the liability of Arias. It held that Arias
could not be held solidarily liable with petitioner because he merely acted as agent of the
latter. Moreover, there was no showing that he expressly bound himself to be personally
liable or that he exceeded the limits of his authority. More importantly, there was even no
showing that Arias was authorized to act as agent of petitioner.
26
Anent the award of
attorneys fees, the CA found the award by the trial court (P50,000.00 plus 20% of the
recoverable amount) excessive
27
and thus reduced the same to P100,000.00.
28

The dispositive portion of the CA Decision reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six
percent (6%) per annum, computed from September 27, 2000 until its full payment before
finality of the judgment. If the adjudged principal and the interest (or any part thereof)
remain[s] unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per
annum, computed from the time the judgment becomes final and executory until it is fully
satisfied. The award of attorneys fees is hereby reduced to P100,000.00. Costs against the
[petitioner].
SO ORDERED.
29

Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of
the CA.
Hence, this petition raising the sole issue of whether the imposition of interest and
attorneys fees is proper.
Petitioners Arguments
Petitioner insists that she is not bound to pay interest on the P3.5 million because the
Conditional Deed of Sale only provided for the return of the downpayment in case of failure
to comply with her obligations. Petitioner also argues that the award of attorneys fees in
favor of the respondent-spouses is unwarranted because it cannot be said that the latter
won over the former since the CA even sustained her contention that the imposition of 12%
interest compounded annually is totally uncalled for.
Respondent-spouses Arguments
Respondent-spouses aver that it is only fair that interest be imposed on the amount they
paid considering that petitioner failed to return the amount upon demand and had been
using the P3.5 million for her benefit. Moreover, it is undisputed that petitioner failed to
perform her obligations to relocate the house outside the perimeter of the subject property
and to complete the necessary documents. As regards the attorneys fees, they claim that
they are entitled to the same because they were forced to litigate when petitioner unjustly
withheld the amount. Besides, the amount awarded by the CA is even smaller compared to
the filing fees they paid.
Our Ruling
The petition lacks merit.
Interest may be imposed even in the absence of stipulation in the contract.
We sustain the ruling of both the RTC and the CA that it is proper to impose interest
notwithstanding the absence of stipulation in the contract. Article 2210 of the Civil Code
expressly provides that "[i]nterest may, in the discretion of the court, be allowed upon
damages awarded for breach of contract." In this case, there is no question that petitioner is
legally obligated to return the P3.5 million because of her failure to fulfill the obligation under
the Conditional Deed of Sale, despite demand. She has in fact admitted that the conditions
were not fulfilled and that she was willing to return the full amount of P3.5 million but has not
actually done so. Petitioner enjoyed the use of the money from the time it was given to
her
30
until now. Thus, she is already in default of her obligation from the date of demand,
i.e., on September 27, 2000.
The interest at the rate of 12% is applicable in the instant case.
Anent the interest rate, the general rule is that the applicable rate of interest "shall be
computed in accordance with the stipulation of the parties."
31
Absent any stipulation, the
applicable rate of interest shall be 12% per annum "when the obligation arises out of a loan
or a forbearance of money, goods or credits. In other cases, it shall be six percent
(6%)."
32
In this case, the parties did not stipulate as to the applicable rate of interest. The
only question remaining therefore is whether the 6% as provided under Article 2209 of the
Civil Code, or 12% under Central Bank Circular No. 416, is due.
The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale.
However, the contract provides that the seller (petitioner) must return the payment made by
the buyer (respondent-spouses) if the conditions are not fulfilled. There is no question that
they have in fact, not been fulfilled as the seller (petitioner) has admitted this.
Notwithstanding demand by the buyer (respondent-spouses), the seller (petitioner) has
failed to return the money and
should be considered in default from the time that demand was made on September 27,
2000.
Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing
the return of the money be considered as a forbearance of money which required payment
of interest at the rate of 12%? We believe so.
In Crismina Garments, Inc. v. Court of Appeals,
33
"forbearance" was defined as a
"contractual obligation of lender or creditor to refrain during a given period of time, from
requiring the borrower or debtor to repay a loan or debtthen due and payable." This
definition describes a loan where a debtor is given a period within which to pay a loan or
debt. In such case, "forbearance of money, goods or credits" will have no distinct definition
from a loan. We believe however, that the phrase "forbearance of money, goods or credits"
is meant to have a separate meaning from a loan, otherwise there would have been no
need to add that phrase as a loan is already sufficiently defined in the Civil
Code.
34
Forbearance of money, goods or credits should therefore refer to arrangements
other than loan agreements, where a person acquiesces to the temporary use of his money,
goods or credits pending happening of certain events or fulfillment of certain conditions. In
this case, the respondent-spouses parted with their money even before the conditions were
fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to use
their money pending fulfillment of the conditions. They were deprived of the use of their
money for the period pending fulfillment of the conditions and when those conditions were
breached, they are entitled not only to the return of the principal amount paid, but also to
compensation for the use of their money. And the compensation for the use of their money,
absent any stipulation, should be the same rate of legal interest applicable to a loan since
the use or deprivation of funds is similar to a loan.
Petitioners unwarranted withholding of the money which rightfully pertains to respondent-
spouses amounts to forbearance of money which can be considered as an involuntary loan.
Thus, the applicable rate of interest is 12% per annum. In Eastern Shipping Lines, Inc. v.
Court of Appeals,
35
cited in Crismina Garments, Inc. v. Court of Appeals,
36
the Court
suggested the following guidelines:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on Damages of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to
run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
37

Eastern Shipping Lines, Inc. v. Court of Appeals
38
and its predecessor case, Reformina v.
Tongol
39
both involved torts cases and hence, there was no forbearance of money, goods,
or credits. Further, the amount claimed (i.e., damages) could not be established with
reasonable certainty at the time the claim was made. Hence, we arrived at a different ruling
in those cases.
Since the date of demand which is September 27, 2000 was satisfactorily established
during trial, then the interest rate of 12% should be reckoned from said date of demand until
the principal amount and the interest thereon is fully satisfied.1wphi 1
The award of attorneys fees is warranted.
Under Article 2208 of the Civil Code, attorneys fees may be recovered:
x x x x
(2) When the defendants act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;
x x x x
(11) In any other case where the court deems it just and equitable that attorneys
fees and expenses of litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be reasonable.
Considering the circumstances of the instant case, we find respondent-spouses entitled to
recover attorneys fees. There is no doubt that they were forced to litigate to protect their
interest, i.e., to recover their money. However, we find the amount of P50,000.00 more
appropriate in line with the policy enunciated in Article 2208 of the Civil Code that the award
of attorneys fees must always be reasonable.
WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court
of Appeals in CA-G.R. CV No. 83123 is AFFIRMED with MODIFICATIONS that the rate of
interest shall be twelve percent (12%) per annum, computed from September 27, 2000 until
fully satisfied. The award of attorneys fees is further reduced toP50,000.00.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE
CASTRO
Associate Justice
LUCAS P. BERSAMIN
Associate Justice
MARTIN S. VILLARAMA, JR.
Associate Justice
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice


G.R. No. 84719 January 25, 1991
YONG CHAN KIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO, Presiding Judge, RTC, 6th
Judicial Region, Branch 28 Iloilo City and Court of Appeals (13th
Division) respondents.
Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.
Hector P. Teodosio for private respondent.

PADILLA, J .:p
This petition seeks the review on certiorari of the following:
1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court (Guimbal-
Igbaras-Tigbauan-Tubungan) in Guimbal, Iloilo, in Criminal Case No. 628,
1
and the affirming
decision of the Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated
on 30 July 1987;
2

2. The decision of the Court of Appeals, dated 29 April 1988,
3
dismissing petitioner's
appeal/petition for review for having been filed out of time, and the resolution, dated 19 August 1988,
denying petitioner's motion for reconsideration.
4

The antecedent facts are as follows:
Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department
of the Southeast Asian Fisheries Development Center (SEAFDEC) with head station at
Tigbauan, Province of Iloilo. As Head of the Economics Unit of the Research Division, he
conducted prawn surveys which required him to travel to various selected provinces in the
country where there are potentials for prawn culture.
On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to
different places in Luzon from 16 June to 21 July 1982, a period of thirty five (35) days.
Under this travel order, he received P6,438.00 as cash advance to defray his travel
expenses.
Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him
to travel from the Head Station at Tigbauan, Iloilo to Roxas City from 30 June to 4 July
1982, a period of five (5) days. For this travel order, petitioner received a cash advance of
P495.00.
On 14 January 1983, petitioner presented both travel orders for liquidation, submitting
Travel Expense Reports to the Accounting Section. When the Travel Expense Reports were
audited, it was discovered that there was an overlap of four (4) days (30 June to 3 July
1982) in the two (2) travel orders for which petitioner collected per diems twice. In sum, the
total amount in the form of per diems and allowances charged and collected by petitioner
under Travel Order No. 2222, when he did not actually and physically travel as represented
by his liquidation papers, was P1,230.00.
Petitioner was required to comment on the internal auditor's report regarding the alleged
anomalous claim for per diems. In his reply, petitioner denied the alleged anomaly, claiming
that he made make-up trips to compensate for the trips he failed to undertake under T.O.
2222 because he was recalled to the head office and given another assignment.
In September 1983, two (2) complaints for Estafa were filed against the petitioner before the
Municipal Circuit Trial Court at Guimbal, Iloilo, docketed as Criminal Case Nos. 628 and
631.
After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a decision,
the dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the
accused, Yong Chan Kim, guilty beyond reasonable doubt for the crime of
Estafa penalized under paragraph l(b) of Article 315, Revised Penal Code.
Records disclose there is no aggravating circumstance proven by the
prosecution. Neither there is any mitigating circumstance proven by the
accused. Considering the amount subject of the present complaint, the
imposable penalty should be in the medium period ofarresto mayor in its
maximum period to prision correccional in its minimum period in accordance
with Article 315, No. 3, Revised Penal Code. Consonantly, the Court hereby
sentences the accused to suffer an imprisonment ranging from four (4)
months as the minimum to one (1) year and six (6) months as the maximum
in accordance with the Indeterminate Sentence Law and to reimburse the
amount of P1,230.00 to SEAFDEC.
The surety bond of the accused shall remain valid until final judgment in
accordance herewith.
Costs against the accused.
5

Criminal Case No. 631 was subsequently dismissed for failure to prosecute.
Petitioner appealed from the decision of the Municipal Circuit Trial Court in Criminal Case
No. 628. On 30 July 1987, the Regional Trial Court in Iloilo City in Criminal Case No. 20958
affirmed in toto the trial court's decision.
6

The decision of the Regional Trial Court was received by petitioner on 10 August 1987. On
11 August 1987, petitioner, thru counsel, filed a notice of appeal with the Regional Trial
Court which ordered the elevation of the records of the case to the then Intermediate
Appellate Court on the following day, 12 August 1987. The records of the case were
received by the Intermediate Appellate Court on 8 October 1987, and the appeal was
docketed as CA-G.R. No. 05035.
On 30 October 1987, petitioner filed with the appellate court a petition for review. As earlier
stated, on 29 April 1988, the Court of Appeals dismissed the petition for having been filed
out of time. Petitioner's motion for reconsideration was denied for lack of merit.
Hence, the present recourse.
On 19 October 1988, the Court resolved to require the respondents to comment on the
petition for review. The Solicitor General filed his Comment on 20 January 1989, after
several grants of extensions of time to file the same.
In his Comment, the Solicitor General prayed for the dismissal of the instant petition on the
ground that, as provided for under Section 22, Batas Pambansa 129, Section 22 of the
Interim Rules and Guidelines, and Section 3, Rule 123 of the 1985 Rules of Criminal
Procedure, the petitioner should have filed a petition for review with the then Intermediate
Appellate Court instead of a notice of appeal with the Regional Trial Court, in perfecting his
appeal from the RTC to the Intermediate Appellate Court, since the RTC judge was
rendered in the exercise of its appellate jurisdiction over municipal trial courts. The failure of
petitioner to file the proper petition rendered the decision of the Regional Trial Court final
and executory, according to the Solicitor General.
Petitioner's counsel submitted a Reply (erroneously termed Comment)
7
wherein she
contended that the peculiar circumstances of a case, such as this, should be considered in order that the
principle barring a petitioner's right of review can be made flexible in the interest of justice and equity.
In our Resolution of 29 May 1989, we resolved to deny the petition for failure of petitioner to
sufficiently show that the Court of Appeals had committed any reversible error in its
questioned judgment which had dismissed petitioner's petition for review for having been
filed out of time.
8

Petitioner filed a motion for reconsideration maintaining that his petition for review did not
limit itself to the issue upon which the appellate court's decision of 29 April 1988 was based,
but rather it delved into the substance and merits of the case.
9

On 10 August 1990, we resolved to set aside our resolution dismissing this case and gave
due course to the petition. In the said resolution, we stated:
In several cases decided by this Court, it had set aside technicalities in the
Rules in order to give way to justice and equity. In the present case, we note
that the petitioner, in filing his Notice of Appeal the very next day after
receiving the decision of the court a quo lost no time in showing his intention
to appeal, although the procedure taken was not correct. The Court can
overlook the wrong pleading filed, if strict compliance with the rules would
mean sacrificing justice to technicality. The imminence of a person being
deprived unjustly of his liberty due to procedural lapse of counsel is a strong
and compelling reason to warrant suspension of the Rules. Hence, we shall
consider the petition for review filed in the Court of Appeals as a Supplement
to the Notice of Appeal. As the Court declared in a recent decision, '. . . there
is nothing sacred about the procedure of pleadings. This Court may go
beyond the pleadings when the interest of justice so warrants. It has the
prerogative to suspend its rules for the same purpose. . . . Technicality, when
it deserts its proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant consideration from courts.
[Alonzo v. Villamor, et al., 16 Phil. 315]
Conscience cannot rest in allowing a man to go straight to jail, closing the
door to his every entreaty for a full opportunity to be heard, even as he has
made a prima facie showing of a meritorious cause, simply because he had
chosen an appeal route, to be sure, recognized by law but made inapplicable
to his case, under altered rules of procedure. While the Court of Appeals can
not be faulted and, in fact, it has to be lauded for correctly applying the rules
of procedure in appeals to the Court of Appeals from decisions of the RTC
rendered in the exercise of its appellate jurisdiction, yet, this Court, as the
ultimate bulwark of human rights and individual liberty, will not allow
substantial justice to be sacrified at the altar of procedural rigor.
10

In the same resolution, the parties were required to file their respective memoranda,
and in compliance with said resolution, petitioner filed his memorandum on 25
October 1989, while private respondent SEAFDEC filed its required memorandum
on 10 April 1990. On the other hand, the Solicitor General filed on 13 March 1990 a
Recommendation for Acquittal in lieu of the required memorandum.
Two (2) issues are raised by petitioner to wit:
I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL CIRCUIT
TRIAL COURT (GUIMBAL, ILOILO) AND THE REGIONAL TRIAL COURT,
BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE FACTS AND
EVIDENCE OR CONTRARY TO LAW AND THAT THE TWO COURTS A
QUO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OF JURISDICTION OR HAVE ACTED WITHOUT OR IN EXCESS
OF JURISDICTION.
II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF
APPEALS IS CONTRARY TO LAW, ESTABLISHED JURISPRUDENCE,
EQUITY AND DUE PROCESS.
The second issue has been resolved in our Resolution dated 10 August 1990, when we
granted petitioner's second motion for reconsideration. We shall now proceed to the first
issue.
We find merit in the petition.
It is undisputed that petitioner received a cash advance from private respondent SEAFDEC
to defray his travel expenses under T.O. 2222. It is likewise admitted that within the period
covered by T.O. 2222, petitioner was recalled to the head station in Iloilo and given another
assignment which was covered by T.O. 2268. The dispute arose when petitioner allegedly
failed to return P1,230.00 out of the cash advance which he received under T.O. 2222. For
the alleged failure of petitioner to return the amount of P1,230.00, he was charged with the
crime of Estafa under Article 315, par. 1(b) of the Revised Penal Code, which reads as
follows:
Art. 315. Swindling (Estafa). Any person who shall defraud another by any of
the means mentioned herein below shall be punished by:
xxx xxx xxx
1. With unfaithfulness or abuse of confidence, namely:
(a) xxx xxx xxx
(b) By misappropriating or converting, to the prejudice of another, money,
goods, or any other personal property received by the offender in trust or on
commission, or for administration, or under any other obligation involving the
duty to make delivery of; or to return, the same, even though such obligation
be fatally or partially guaranteed by a bond; or by denying having received
such money, goods, or other property.
In order that a person can be convicted under the abovequoted provision, it must be proven
that he had the obligation to deliver or return the same money, good or personal property
that he had received.
11

Was petitioner under obligation to return the same money (cash advance) which he had
received? We belive not. Executive Order No. 10, dated 12 February 1980 provides as
follows:
B. Cash Advance for Travel
xxx xxx xxx
4. All cash advances must be liquidated within 30 days after date of projected
return of the person. Otherwise, corresponding salary deduction shall be
made immediately following the expiration day.
Liquidation simply means the settling of an indebtedness. An employee, such as herein
petitioner, who liquidates a cash advance is in fact paying back his debt in the form of a
loan of money advanced to him by his employer, asper diems and allowances. Similarly, as
stated in the assailed decision of the lower court, "if the amount of the cash advance he
received is less than the amount he spent for actual travel . . . he has the right to demand
reimbursement from his employer the amount he spent coming from his personal funds.
12
In
other words, the money advanced by either party is actually a loan to the other. Hence, petitioner was
under no legal obligation to return the same cash or money, i.e., the bills or coins, which he received from
the private respondent.
13

Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.
Art. 1933. By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain
time and return it, in which case the contract is called a commodatum; or
money or other consumable thing, upon the condition that the same amount
of the same kind and quality shall be paid, in which case the contract is
simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower.
Art. 1953. A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor an
equal amount of the same kind and quality.
The ruling of the trial judge that ownership of the cash advanced to the petitioner by private
respondent was not transferred to the latter is erroneous. Ownership of the money was
transferred to the petitioner. Even the prosecution witness, Virgilio Hierro, testified thus:
Q When you gave cash advance to the accused in this Travel
Order No. 2222 subject to liquidation, who owns the funds,
accused or SEAFDEC? How do you consider the funds in the
possession of the accused at the time when there is an actual
transfer of cash? . . .
A The one drawing cash advance already owns the money but
subject to liquidation. If he will not liquidate, be is obliged to
return the amount.
Q xxx xxx xxx
So why do you treat the itinerary of travel temporary when in fact as of that time the accused
owned already the cash advance. You said the cash advance given to the accused is his own
money. In other words, at the time you departed with the money it belongs already to the
accused?
A Yes, but subject for liquidation. He will be only entitled for
that credence if he liquidates.
Q If other words, it is a transfer of ownership subject to a
suspensive condition that he liquidates the amount of cash
advance upon return to station and completion of the travel?
A Yes, sir.
(pp. 26-28, tsn, May 8, 1985).
14

Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary
relationship was created. Absent this fiduciary relationship between petitioner and private
respondent, which is an essential element of the crime of estafa by misappropriation or
conversion, petitioner could not have committed estafa.
15

Additionally, it has been the policy of private respondent that all cash advances not
liquidated are to be deducted correspondingly from the salary of the employee concerned.
The evidence shows that the corresponding salary deduction was made in the case of
petitioner vis-a-vis the cash advance in question.
WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit Trial
Court in Guimbal, Iloilo in Criminal Case No. 628, finding petitioner guilty of estafa under
Article 315, par. 1 (b) of the Revised Penal Code and the affirming decision of the Regional
Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated on 30 July
1987 are both hereby SET ASIDE. Petitioner is ACQUITTED of criminal charge filed against
him.
SO ORDERED.
Melencio-Herrera, Paras, Sarmiento and Regalado JJ., concur.




G.R. No. 138677 February 12, 2002
TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners,
vs.
HON. COURT OF APPEALS & SECURITY BANK & TRUST COMPANY, respondents.
D E C I S I O N
VITUG, J .:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court,
assailing the decision and resolutions of the Court of Appeals in CA-G.R. CV No. 34594,
entitled "Security Bank and Trust Co. vs. Tolomeo Ligutan, et al."
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in
the amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners
executed a promissory note binding themselves, jointly and severally, to pay the sum
borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5%
every month on the outstanding principal and interest in case of default. In addition,
petitioners agreed to pay 10% of the total amount due by way of attorneys fees if the matter
were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The
obligation matured on 8 September 1981; the bank, however, granted an extension but only
up until 29 December 1981.
Despite several demands from the bank, petitioners failed to settle the debt which, as of 20
May 1982, amounted to P114,416.10. On 30 September 1982, the bank sent a final
demand letter to petitioners informing them that they had five days within which to make full
payment. Since petitioners still defaulted on their obligation, the bank filed on 3 November
1982, with the Regional Trial Court of Makati, Branch 143, a complaint for recovery of the
due amount.
After petitioners had filed a joint answer to the complaint, the bank presented its evidence
and, on 27 March 1985, rested its case. Petitioners, instead of introducing their own
evidence, had the hearing of the case reset on two consecutive occasions. In view of the
absence of petitioners and their counsel on 28 August 1985, the third hearing date, the
bank moved, and the trial court resolved, to consider the case submitted for decision.
Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the
order of the trial court declaring them as having waived their right to present evidence and
prayed that they be allowed to prove their case. The court a quo denied the motion in an
order, dated 5 September 1988, and on 20 October 1989, it rendered its decision,
1
the
dispositive portion of which read:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, ordering the latter to pay, jointly and severally, to the plaintiff, as follows:
"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum,
2% service charge and 5% per month penalty charge, commencing on 20 May 1982
until fully paid;
"2. To pay the further sum equivalent to 10% of the total amount of indebtedness for
and as attorneys fees; and
"3. To pay the costs of the suit."
2

Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the
trial court of their motion to present evidence and assailing the imposition of the 2% service
charge, the 5% per month penalty charge and 10% attorney's fees. In its decision
3
of 7
March 1996, the appellate court affirmed the judgment of the trial court except on the matter
of the 2% service charge which was deleted pursuant to Central Bank Circular No. 783. Not
fully satisfied with the decision of the appellate court, both parties filed their respective
motions for reconsideration.
4
Petitioners prayed for the reduction of the 5% stipulated
penalty for being unconscionable. The bank, on the other hand, asked that the payment of
interest and penalty be commenced not from the date of filing of complaint but from the time
of default as so stipulated in the contract of the parties.
On 28 October 1998, the Court of Appeals resolved the two motions thusly:
"We find merit in plaintiff-appellees claim that the principal sum of P114,416.00 with interest
thereon must commence not on the date of filing of the complaint as we have previously
held in our decision but on the date when the obligation became due.
"Default generally begins from the moment the creditor demands the performance of the
obligation. However, demand is not necessary to render the obligor in default when the
obligation or the law so provides.
"In the case at bar, defendants-appellants executed a promissory note where they
undertook to pay the obligation on its maturity date 'without necessity of demand.' They also
agreed to pay the interest in case of non-payment from the date of default.
"x x x x x x x x x
"While we maintain that defendants-appellants must be bound by the contract which they
acknowledged and signed, we take cognizance of their plea for the application of the
provisions of Article 1229 x x x.
"Considering that defendants-appellants partially complied with their obligation under the
promissory note by the reduction of the original amount of P120,000.00 to P114,416.00 and
in order that they will finally settle their obligation, it is our view and we so hold that in the
interest of justice and public policy, a penalty of 3% per month or 36% per annum would
suffice.
"x x x x x x x x x
"WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The
defendants-appellants Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay
the plaintiff-appellee Security Bank and Trust Company the following:
"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum
and 3% per month penalty charge commencing May 20, 1982 until fully paid;
"2. The sum equivalent to 10% of the total amount of the indebtedness as and for
attorneys fees."
5

On 16 November 1998, petitioners filed an omnibus motion for reconsideration and to admit
newly discovered evidence,
6
alleging that while the case was pending before the trial court,
petitioner Tolomeo Ligutan and his wife Bienvenida Ligutan executed a real estate
mortgage on 18 January 1984 to secure the existing indebtedness of petitioners Ligutan
and dela Llana with the bank. Petitioners contended that the execution of the real estate
mortgage had the effect of novating the contract between them and the bank. Petitioners
further averred that the mortgage was extrajudicially foreclosed on 26 August 1986, that
they were not informed about it, and the bank did not credit them with the proceeds of the
sale. The appellate court denied the omnibus motion for reconsideration and to admit newly
discovered evidence, ratiocinating that such a second motion for reconsideration cannot be
entertained under Section 2, Rule 52, of the 1997 Rules of Civil Procedure. Furthermore,
the appellate court said, the newly-discovered evidence being invoked by petitioners had
actually been known to them when the case was brought on appeal and when the first
motion for reconsideration was filed.
7

Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their
case to this Court on 9 July 1999 via a petition for review on certiorari under Rule 45 of the
Rules of Court, submitting thusly -
"I. The respondent Court of Appeals seriously erred in not holding that the 15.189%
interest and the penalty of three (3%) percent per month or thirty-six (36%) percent
per annum imposed by private respondent bank on petitioners loan obligation are
still manifestly exorbitant, iniquitous and unconscionable.
"II. The respondent Court of Appeals gravely erred in not reducing to a reasonable
level the ten (10%) percent award of attorneys fees which is highly and grossly
excessive, unreasonable and unconscionable.
"III. The respondent Court of Appeals gravely erred in not admitting petitioners
newly discovered evidence which could not have been timely produced during the
trial of this case.
"IV. The respondent Court of Appeals seriously erred in not holding that there was a
novation of the cause of action of private respondents complaint in the instant case
due to the subsequent execution of the real estate mortgage during the pendency of
this case and the subsequent foreclosure of the mortgage."
8

Respondent bank, which did not take an appeal, would, however, have it that the penalty
sought to be deleted by petitioners was even insufficient to fully cover and compensate for
the cost of money brought about by the radical devaluation and decrease in the purchasing
power of the peso, particularly vis-a-vis the U.S. dollar, taking into account the time frame of
its occurrence. The Bank would stress that only the amount of P5,584.00 had been remitted
out of the entire loan of P120,000.00.
9

A penalty clause, expressly recognized by law,
10
is an accessory undertaking to assume
greater liability on the part of an obligor in case of breach of an obligation. It functions to
strengthen the coercive force of the obligation
11
and to provide, in effect, for what could be
the liquidated damages resulting from such a breach. The obligor would then be bound to
pay the stipulated indemnity without the necessity of proof on the existence and on the
measure of damages caused by the breach.
12
Although a court may not at liberty ignore the
freedom of the parties to agree on such terms and conditions as they see fit that contravene
neither law nor morals, good customs, public order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or
if the principal obligation has been partly or irregularly complied with.
13

The question of whether a penalty is reasonable or iniquitous can be partly subjective and
partly objective. Its resolution would depend on such factors as, but not necessarily
confined to, the type, extent and purpose of the penalty, the nature of the obligation, the
mode of breach and its consequences, the supervening realities, the standing and
relationship of the parties, and the like, the application of which, by and large, is addressed
to the sound discretion of the court. In Rizal Commercial Banking Corp. vs. Court of
Appeals,
14
just an example, the Court has tempered the penalty charges after taking into
account the debtors pitiful situation and its offer to settle the entire obligation with the
creditor bank. The stipulated penalty might likewise be reduced when a partial or irregular
performance is made by the debtor.
15
The stipulated penalty might even be deleted such as
when there has been substantial performance in good faith by the obligor,
16
when the
penalty clause itself suffers from fatal infirmity, or when exceptional circumstances so exist
as to warrant it.
17

The Court of Appeals, exercising its good judgment in the instant case, has reduced the
penalty interest from 5% a month to 3% a month which petitioner still disputes. Given the
circumstances, not to mention the repeated acts of breach by petitioners of their contractual
obligation, the Court sees no cogent ground to modify the ruling of the appellate court..
Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question
its reasonableness and prays that the Court reduce the amount. This contention is a fresh
issue that has not been raised and ventilated before the courts below. In any event, the
interest stipulation, on its face, does not appear as being that excessive. The essence or
rationale for the payment of interest, quite often referred to as cost of money, is not exactly
the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily
preclusive of interest, if there is an agreement to that effect, the two being distinct concepts
which may separately be demanded.
18
What may justify a court in not allowing the creditor
to impose full surcharges and penalties, despite an express stipulation therefor in a valid
agreement, may not equally justify the non-payment or reduction of interest. Indeed, the
interest prescribed in loan financing arrangements is a fundamental part of the banking
business and the core of a bank's existence.
19

Petitioners next assail the award of 10% of the total amount of indebtedness by way of
attorney's fees for being grossly excessive, exorbitant and unconscionable vis-a-vis the time
spent and the extent of services rendered by counsel for the bank and the nature of the
case. Bearing in mind that the rate of attorneys fees has been agreed to by the parties and
intended to answer not only for litigation expenses but also for collection efforts as well, the
Court, like the appellate court, deems the award of 10% attorneys fees to be reasonable.
Neither can the appellate court be held to have erred in rejecting petitioners' call for a new
trial or to admit newly discovered evidence. As the appellate court so held in its resolution of
14 May 1999 -
"Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for
reconsideration of a judgment or final resolution by the same party shall be entertained.
Considering that the instant motion is already a second motion for reconsideration, the
same must therefore be denied.
"Furthermore, it would appear from the records available to this court that the newly-
discovered evidence being invoked by defendants-appellants have actually been existent
when the case was brought on appeal to this court as well as when the first motion for
reconsideration was filed.1wphi 1 Hence, it is quite surprising why defendants-appellants raised
the alleged newly-discovered evidence only at this stage when they could have done so in
the earlier pleadings filed before this court.
"The propriety or acceptability of such a second motion for reconsideration is not contingent
upon the averment of 'new' grounds to assail the judgment, i.e., grounds other than those
theretofore presented and rejected. Otherwise, attainment of finality of a judgment might be
stayed off indefinitely, depending on the partys ingenuousness or cleverness in conceiving
and formulating 'additional flaws' or 'newly discovered errors' therein, or thinking up some
injury or prejudice to the rights of the movant for reconsideration."
20

At any rate, the subsequent execution of the real estate mortgage as security for the
existing loan would not have resulted in the extinguishment of the original contract of loan
because of novation. Petitioners acknowledge that the real estate mortgage contract does
not contain any express stipulation by the parties intending it to supersede the existing loan
agreement between the petitioners and the bank.
21
Respondent bank has correctly
postulated that the mortgage is but an accessory contract to secure the loan in the
promissory note.
Extinctive novation requires, first, a previous valid obligation; second, the agreement of all
the parties to the new contract; third, the extinguishment of the obligation; and fourth, the
validity of the new one.
22
In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the
old and the new obligation be on every point incompatible with each other.
23
An obligation to
pay a sum of money is not extinctively novated by a new instrument which merely changes
the terms of payment or adding compatible covenants or where the old contract is merely
supplemented by the new one.
24
When not expressed, incompatibility is required so as to
ensure that the parties have indeed intended such novation despite their failure to express it
in categorical terms. The incompatibility, to be sure, should take place in any of the
essential elements of the obligation, i.e., (1) the juridical relation or tie, such as from a
merecommodatum to lease of things, or from negotiorum gestio to agency, or from a
mortgage to antichresis,
25
or from a sale to one of loan;
26
(2) the object or principal
conditions, such as a change of the nature of the prestation; or (3) the subjects, such as the
substitution of a debtor
27
or the subrogation of the creditor. Extinctive novation does not
necessarily imply that the new agreement should be complete by itself; certain terms and
conditions may be carried, expressly or by implication, over to the new obligation.
WHEREFORE, the petition is DENIED.
SO ORDERED.
Melo, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio, JJ., concur.
G.R. No. 97412 July 12, 1994


EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,
INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.

VITUG, J .:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage
sustained on a shipment of goods can be a solidary, or joint and several, liability of the
common carrier, the arrastre operator and the customs broker; (b) whether the payment of
legal interest on an award for loss or damage is to be computed from the time the complaint
is filed or from the date the decision appealed from is rendered; and (c) whether the
applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and
undisputed facts that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and
broker-forwarder for damages sustained by a shipment while in defendants'
custody, filed by the insurer-subrogee who paid the consignee the value of
such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by
defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine
Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was
discharged unto the custody of defendant Metro Port Service, Inc. The latter
excepted to one drum, said to be in bad order, which damage was unknown
to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the
shipment from defendant Metro Port Service, Inc., one drum opened and
without seal (per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made
deliveries of the shipment to the consignee's warehouse. The latter excepted
to one drum which contained spillages, while the rest of the contents was
adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and
negligence of defendants. Claims were presented against defendants who
failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the
consignee P19,032.95 under the aforestated marine insurance policy, so that
it became subrogated to all the rights of action of said consignee against
defendants (per "Form of Subrogation", "Release" and Philbanking check,
Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate
court said:
Defendants filed their respective answers, traversing the material allegations
of the complaint contending that: As for defendant Eastern Shipping it alleged
that the shipment was discharged in good order from the vessel unto the
custody of Metro Port Service so that any damage/losses incurred after the
shipment was incurred after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that although subject
shipment was discharged unto its custody, portion of the same was already in
bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause
of action against it, not having negligent or at fault for the shipment was
already in damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition shipment
was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while
in the custody of defendants (in whose respective custody, if
determinable);
3. Whether or not defendant(s) should be held liable for the
losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34;
Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment
sustained losses/damages. The two drums were shipped in
good order and condition, as clearly shown by the Bill of Lading
and Commercial Invoice which do not indicate any damages
drum that was shipped (Exhs. B and C). But when on
December 12, 1981 the shipment was delivered to defendant
Metro Port Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the
losses/damages were sustained while in the respective and/or
successive custody and possession of defendants carrier
(Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo
Survey Report (Exh. G), with its "Additional Survey Notes", are
considered. In the latter notes, it is stated that when the
shipment was "landed on vessel" to dock of Pier # 15, South
Harbor, Manila on December 12, 1981, it was observed that
"one (1) fiber drum (was) in damaged condition, covered by the
vessel's Agent's Bad Order Tally Sheet No. 86427." The report
further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator's custody on
January 7, 1982, one drum was found opened without seal,
cello bag partly torn but contents intact. Net unrecovered
spillages was
15 kgs. The report went on to state that when the drums
reached the consignee, one drum was found with
adulterated/faked contents. It is obvious, therefore, that these
losses/damages occurred before the shipment reached the
consignee while under the successive custodies of defendants.
Under Art. 1737 of the New Civil Code, the common carrier's
duty to observe extraordinary diligence in the vigilance of
goods remains in full force and effect even if the goods are
temporarily unloaded and stored in transit in the warehouse of
the carrier at the place of destination, until the consignee has
been advised and has had reasonable opportunity to remove or
dispose of the goods (Art. 1738, NCC). Defendant Eastern
Shipping's own exhibit, the "Turn-Over Survey of Bad Order
Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981
one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby
rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of
12% per annum from October 1, 1982, the date of filing of this
complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF
value of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the extent of the
actual invoice value of each package, crate box or container in
no case to exceed P5,000.00 each, pursuant to Section 6.01 of
the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim
of defendant/cross-claimant Allied Brokerage
Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion
drawn therefrom is correct. As there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants, and
therefore they are liable to the appellee, as subrogee for the amount it paid to
the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave
abuse of discretion on the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE
WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE
CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE
RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING
OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE
TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY
UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are
not all that novel. Indeed, we do have a fairly good number of previous decisions this Court
can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of,
and received by, the carrier for transportation until delivered to, or until the lapse of a
reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-
1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar
Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in
damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735,
Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port
Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases
when such presumption of fault is not observed but these cases, enumerated in Article
1734
1
of the Civil Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of
properly delivering the goods to the consignee has, too, been passed upon by the Court.
In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained,
in holding the carrier and the arrastre operator liable in solidum,thus:
The legal relationship between the consignee and the arrastre operator is
akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad
Co., 19 SCRA 5 [1967]. The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is
the duty of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and
the CARRIER are therefore charged with the obligation to deliver the goods in
good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily liable solidarily with the carrier,
or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant
petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not
having been able to rebut the presumption of fault, is, in any event, to be held liable in this
particular case. A factual finding of both the court a quo and the appellate court, we take
note, is that "there is sufficient evidence that the shipment sustained damage while in the
successive possession of appellants" (the herein petitioner among them). Accordingly, the
liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable
regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than
just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,
2
decided
3
on 15 May 1969, involved a suit for recovery of money arising out of short deliveries
and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred
in its complaint that the total amount of its claim for the value of the undelivered goods amounted to
P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the
stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed
upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and
Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest
thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The
appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court
ruled:
Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the date
of demand, judicial or extrajudicial. The trial court opted for judicial demand
as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot
be recovered upon unliquidated claims or damages, except when the demand
can be established with reasonable certainty." And as was held by this Court
in Rivera vs. Perez,
4
L-6998, February 29, 1956, if the suit were for
damages, "unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25
Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis
supplied)
The case of Reformina vs. Tomol,
5
rendered on 11 October 1985, was for "Recovery of Damages
for Injury to Person and Loss of Property." After trial, the lower court decreed:
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:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of
P131,084.00 which is the value of the boat F B Pacita III 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. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages
awarded but sustained the trial court in adjudging legal interest from the filing of the
complaint until fully paid. When the appellate court's decision became final, the case
was remanded to the lower court for execution, and this was when the trial court
issued its assailed resolution which applied the 6% interest per annum prescribed in
Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners
contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as
amended, 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%) percent per
annum. This Circular shall take effect immediately. (Emphasis found in the
text)
should have, instead, been applied. This Court
6
ruled:
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.
xxx xxx xxx
Coming to the case at bar, 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 rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,
7
promulgated on
28 July 1986. The case was for damages occasioned by an injury to person and loss of property. The trial
court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of
P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on
the Reformina v. Tomol case, this Court
8
modified the interest award from 12% to 6% interest per annum
but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,
9
the trial court, in an action for the recovery of damages
arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29,
1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the
amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken
to this Court for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this case, we
deem it reasonable to render a decision imposing, as We do hereby impose,
upon the defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception to attorney's
fees) occasioned by the loss of the building (including interest charges and
lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00)
Pesos as and for attorney's fees, the total sum being payable upon the finality
of this decision. Upon failure to pay on such finality, twelve (12%) per cent
interest per annum shall be imposed upon aforementioned amounts from
finality until paid. Solidary costs against the defendant and third-party
defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the
interest of twelve (12%) per cent per annum imposed on the total amount of the
monetary award was in contravention of law." The Court
10
ruled out the applicability of
the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it
explained:
There should be no dispute that the imposition of 12% interest pursuant to
Central Bank Circular No. 416 . . . is applicable only in the following: (1)
loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments
involving loans or forbearance of any money, goods or credits. (Philippine
Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is
neither a loan or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the finality of the
judgment. It is delay in the payment of such final judgment, that will cause the
imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is
imposed on the total sum, from the filing of the complaint until paid; in other
words, as part of the judgment for damages. Clearly, they are not applicable
to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate
Court
11
was a petition for review on certiorari from the decision, dated 27 February 1985, of the then
Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial
court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the
amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00
as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of
suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent
to recover damages, held the award, however, for moral damages by the trial court, later sustained by the
IAC, to be inconceivably large. The Court
12
thus set aside the decision of the appellate court and
rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred
Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz
13
which
arose from a breach of employment contract. For having been illegally dismissed, the petitioner was
awarded by the trial court moral and exemplary damages without, however, providing any legal interest
thereon. When the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of
Negros Oriental dated October 31, 1972 is affirmed in all respects, with the
modification that defendants-appellants, except defendant-appellant Merton
Munn, are ordered to pay, jointly and severally, the amounts stated in the
dispositive portion of the decision, including the sum of P1,400.00 in concept
of compensatory damages, with interest at the legal rate from the date of the
filing of the complaint until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of
execution issued by the trial court directed that only compensatory damages should
earn interest at 6% per annum from the date of the filing of the complaint. Ascribing
grave abuse of discretion on the part of the trial judge, a petition
for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of
interest "at the legal rate" from the time of the filing of the complaint. . . Said
circular [Central Bank Circular No. 416] does not apply to actions based on a
breach of employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be
computed from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power
Corporation vs. Angas,
14
decided on 08 May 1992, involved the expropriation of certain parcels of
land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the
petitioner to pay the private respondents certain sums of money as just compensation for their lands so
expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per
annum under the Civil Code, the Court
15
declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money,
goods or credits but expropriation of certain parcels of land for a public
purpose, the payment of which is without stipulation regarding interest, and
the interest adjudged by the trial court is in the nature of indemnity for
damages. The legal interest required to be paid on the amount of just
compensation for the properties expropriated is manifestly in the form of
indemnity for damages for the delay in the payment thereof. Therefore, since
the kind of interest involved in the joint judgment of the lower court sought to
be enforced in this case is interest by way of damages, and not by way of
earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can
perhaps be classified into two groups according to the similarity of the issues involved and
the corresponding rulings rendered by the court. The "first group" would consist of the cases
of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan
Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the
Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily
discernible in these cases that there has been a consistent holding that the Central Bank
Circular imposing the 12% interest per annum applies only to loans or forbearance
16
of
money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or
credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment
of indemnities in the concept of damage arising from the breach or a delay in the performance of
obligations in general. Observe, too, that in these cases, a common time frame in the computation of the
6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged
amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12%
interest per annum,
17
depending on whether or not the amount involved is a loan or forbearance, on
the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which
remained consistent in holding that the running of the legal interest should be from the time of the filing of
the complaint until fully paid, the "second group" varied on the commencement of the running of the legal
interest.
Malayan held that the amount awarded should bear legal interest from the date of the
decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and
not known until definitely ascertained, assessed and determined by the courts after proof,'
then, interest 'should be from the date of the decision.'" American Express International
v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be
"computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that
12% interest per annum should be imposed from the finality of the decision until the
judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called
for different applications, guided by the rule that the courts are vested with discretion,
depending on the equities of each case, on the award of interest. Nonetheless, it may not
be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb
for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts
or quasi-delicts
18
is breached, the contravenor can be held liable for damages.
19
The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.
20

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing.
21
Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded.
22
In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169
23
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court
24
at the rate of 6% per annum.
25
No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
26
Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with
the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount
due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon finality of this decision until the
payment thereof.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero,
Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.
Mendoza, J., took no part.



G.R. No. 126620 April 17, 2002
PRODUCERS BANK OF THE PHILIPPINES, petitioner,
vs.
HONORABLE COURT OF APPEALS, ASIA TRUST DEVELOPMENT BANK, RAINELDA
A. ANDREWS, SAMSON FLORES, ALFONSO LEONG, JR., RHODORA D. LANDRITO,
JOSEPH CHUA, RAMON YU, EDUARDO G. ESCOBAR, MILAGROS B. NAYVE,
ELIZABETH C. GARCIA, ALBERTO LIMJOCO, SR., GLORIA E. MENPIN and
ESPERANZA FLORENDO, respondents.
CARPIO, J .:
The Case
In this Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
petitioner Producers Bank of the Philippines ("petitioner" for brevity) assails the September
19, 1996 Resolution
1
of the Court of Appeals in CA-G.R. CV No. 50016 which dismissed
petitioners appeal for being filed out of time. The Court of Appeals decreed thus:
"WHEREFORE, finding the Motion to Dismiss Appeal to be meritorious, the same is
granted. The appeal is DISMISSED.
SO ORDERED."
2

The Antecedent Facts
On March 29, 1988, petitioner through its former counsel, Atty. Antonio M. Pery, filed a
Complaint to recover the sum of P11,420,000.00 from Asia Trust Development Bank
("Asiatrust" for brevity) and the Central Bank of the Philippines ("CBP" for brevity) before the
Regional Trial Court of Makati, Branch 147 ("RTC" for brevity). Thereafter, petitioner filed an
amended complaint, impleading additional defendants.
3

Petitioner sought to recover the proceeds of several treasury bills amounting
to P11,420,000.00. According to petitioner, said proceeds were fraudulently credited to the
demand deposit account of Asiatrust with the CBP and withdrawn by Milagros B. Nayve,
Elizabeth C. Garcia and Alberto Limjoco, Sr.
It appears that petitioner owned several treasury bills. On the respective maturity dates of
these bills, petitioner caused these bills to be delivered to the CBP. The bills were initially
received by Manuel B. Ala, petitioners rediscounting clerk together with a letter of
transmittal and a receipt for the bills addressed to the CBP. Mr. Ala turned over the bills
together with the accompanying documents to Rogelio Carrera for delivery to the CBP.
Alberto Limjoco, Sr., Elizabeth C. Garcia and Milagros B. Nayve
4
came into possession of
these bills which they in turn delivered to Rainelda A. Andrews and Rhodora B. Landrito
5
.
Petitioner alleged that Andrews and Landrito failed to ascertain the lawful ownership of the
bills, and caused their transmittal and delivery to the CBP, through a letter signed by
Eduardo G. Escobar and Alfonso Leong, Jr..
6
The proceeds of the bills were credited to the
account of Asiatrust which approved the managers check applications and facilitated
payment to the bearers of the bills. Petitioner discovered that the proceeds of the bills were
not credited to its demand deposit account with the CBP. Upon such discovery, petitioner
informed the CBP which furnished petitioner with a copy of the acknowledgment from
Asiatrust of receipt of the bills and that the proceeds were credited to the account of
Asiatrust. Petitioner claimed that Rainelda A. Andrews, Samson Flores, Alfonso Leong, Jr.,
Rhodora D. Landrito, Joseph Chua, Ramon Yu and Eduardo G. Escobar were negligent in
the performance of their duties and responsibilities as officers of Asiatrust as they failed to
exercise reasonable care and caution to determine the true ownership of the bills before
allowing the proceeds to be paid to Milagros B. Nayve, Elizabeth C. Garcia and Alberto
Limjoco, Sr. Petitioner sought to hold Asiatrust solidarily liable with the other defendants for
the payment of the value of the treasury bills and for damages. Subsequently, the complaint
was dismissed as against the CBP on motion of petitioner on the ground that the latter had
lifted petitioners conservatorship and allowed the return of the management and assets to
petitioners Board of Directors. The CBPs lifting of the conservatorship was conditioned
upon petitioners dropping of all its cases pending against the CBP.
The defendants filed their respective Answers, after which the issues were joined and trial
on the merits ensued.
On August 30, 1993, the law firm of Quisumbing, Torres and Evangelista ("QTE" for brevity)
entered its appearance for petitioner in substitution of Atty. Antonio M. Pery.
Petitioners handling counsel, Atty. Alvin Agustin T. Ignacio ("Atty. Ignacio" for brevity) of
QTE arrived late during the hearing held on May 17, 1995. On motion of Asiatrusts counsel,
the RTC issued an Order on the same day dismissing the case for lack of interest to
prosecute.
On June 9, 1995, Atty. Ignacio filed a motion to reconsider the Order dated May 17, 1995,
explaining that his late arrival at the hearing was due to the unexpected heavy traffic at
Roxas Boulevard in front of Baclaran Church. He also offered his apologies to the RTC for
his unintended tardiness. QTE received a copy of the Order dated August 1, 1995 denying
the motion for reconsideration on August 11, 1995. At that time, Atty. Ignacio was
indisposed for allegedly suffering from "fatigue and stress". It was only on August 25, 1995
that Atty. Ignacio found out that the Order denying the motion for reconsideration was
received by the law firm on August 11, 1995. He filed a Notice of Appeal on August 25,
1995.
On November 13, 1995, Asiatrust, et al. filed a Motion to Dismiss Appeal with the Court of
Appeals. On March 8, 1996, QTE filed its Comment to the Motion to Dismiss Appeal.
In the Resolution dated September 19, 1996, the Court of Appeals granted the motion to
dismiss petitioners appeal.
Ruling of the Court of Appeals
In granting the motion to dismiss appeal, the Court of Appeals held in part:
"xxx. We hold that the failure of plaintiff-appellant to file the Notice of Appeal on time
was inexcusable negligence. These are the reasons:
One. In paragraph 7.28 of the Comment (to the Motion to Dismiss), plaintiff-appellant
states that
"On 11 August 1995 at 3:00 pm., plaintiff-appellant received a copy of the
Order dated 1 August 1995 denying its motion for reconsideration of the
dismissed order."
Since, the last day for plaintiff-appellant to file the Notice of Appeal was August 12,
1995, why did it not file the Notice of Appeal right away considering that its
preparation and mailing could not take two hours? If counsel for plaintiff-appellant
did not take advantage of the two remaining office hours on August 11, 1995, why
did it not file the Notice of Appeal at anytime, the following day, August 12? In failing
to do that, the law firm counsel was guilty of gross and inexcusable negligence.
TWO. If the counsel for plaintiff-appellant did not know that the last day to file the
Notice of Appeal was on August 12, 1995, why did it not ask the handling lawyer
about it? There was no impediment to do that because the handling lawyer was not
comatose. The counsel was inexcusably negligent for failing to make that inquiry.
THREE. The handling lawyer knew that if the Motion for Reconsideration would be
denied as in fact it was he would have only a day after receipt of the order of
denial to file a notice of appeal. Why did he not forewarn his law firm about such fact
so that even in his absence, the latter could file said notice? Assuming that the
handling lawyer was really sick, his ailment which was allegedly just "fatigue and
stress" was not at all serious much less incapacitating. In fact he was not even
hospitalized for he was just advised to rest for at least two weeks. With all the
communication facilities in Metro-Manila, there was no reason for said counsel
even if sick not to have gotten in touch with his law firm to check on the result of
his Motion for Reconsideration. It was, therefore, inexcusable negligence for him to
have failed doing that which an ordinarily prudent lawyer would have done.
The inexcusable negligence of plaintiff-appellants counsel is made more glaring by
the fact that the Notice of Appeal was late not only by 2 or 4 days but all of 13 days.1wphi 1. nt
We are not unaware of the rule that technicality should not smother the right of a
litigant to a day in court. But the Supreme Court instructs us that strict adherence to
reglementary periods fixed in the Rules of Court is necessary to ensure the efficient
and orderly disposition of cases (Panes v. Court of Appeals, 120 SCRA 509). We
cannot also close Our eyes to the rule that perfecting an appeal within the period
permitted by law is not only mandatory but jurisdictional and the failure to perfect the
appeal on time renders the judgment of the court final and executory. (Bank of
America, Gerochi, Jr. 230 SCRA 9; Philippine Commercial International Bank v.
Court of Appeals, 229 SCRA 560). Well rooted is the principle that once a decision
becomes final the appellate court is without jurisdiction to entertain the
appeal (Sumbillo v. IAC, 165 SCRA 232; Hensy Zoilo Llido v. Marquez, 166 SCRA
61)."
Hence, the instant petition.
The Issue
Petitioner now comes before us with the following assignment of error:
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE ACTS
OF PETITIONERS PREVIOUS COUNSEL, QUISUMBING, TORRES AND
EVANGELISTA, SHOULD BIND THE PETITIONER, DESPITE THE FINDINGS IN
ITS RESOLUTION THAT THE LAW FIRM COUNSEL WAS GROSSLY AND
INEXCUSABLY NEGLIGENT.
The threshold issue in this petition for review on certiorari is whether the Court of Appeals
erred in dismissing an appeal that was filed 13 days late despite its own findings that
petitioners counsel was grossly negligent.
Petitioner argues that a client should not be bound by counsels gross and inexcusable
negligence. Petitioner admits that its handling counsel, Atty. Ignacio of QTE, committed two
blunders: first, he failed to arrive on time during one of the hearings allegedly due to the
traffic at Roxas Boulevard in front of Baclaran Church; second, he failed to file the notice of
appeal within the reglementary period due to "fatigue and stress". Petitioner further admits
that Atty. Ignacio offered a "flimsy excuse" for his tardiness and an "out of this world
excuse" for his failure to file the notice of appeal on time. Petitioner, however, submits that
such gross negligence and mistake of counsel should not bind the client in line with the
case of Legarda vs. Court of Appeals.
7
Petitioner enumerates the similarities between
the Legarda case and its own, as follows:
"First, like the petitioner in the Legarda case, petitioner herein was not negligent in
choosing a counsel to represent them in the case. The former engaged the services
of former law school dean, Dean Antonio Coronel, while the latter engaged the
service of the well known and reputable law firm, Quisumbing, Torres and
Evangelista which is associated with Baker and McKenzie of the United States, as
counsels to their respective cases.
In fact, the diligence of petitioner can be shown by the fact that it even replaced its
first counsel, Atty. Antonio Pery in favor of Quisumbing, Torres and Evangelista,
hoping that by hiring the services of that law firm the case would be handled better
and would have a better chance of winning. Unfortunately, such hope was
dampened by the gross negligence and blunders committed by the law firm.
Second, just like in the case of Legarda, the previous counsel of the petitioner
committed two blunders. In the case of the former, counsel failed to file an answer in
the trial court and failed to timely appeal the case to the appellate courts, while in the
latter case, counsel caused the dismissal of the case by arriving late at the trial date
and also by failing to timely perfect an appeal to the Court of Appeals.
Third, in both cases the Court of Appeals has found that both counsels committed
negligence. The only difference would be that in the case of Legarda, the Court of
Appeals only held that there was only pure and simple negligence on the part of
Dean Antonio Coronel, while in the case at bar, the Court of Appeals found that
there was gross and inexcusable negligence on the part of Quisumbing, Torres
and Evangelista Law Firm.
Thus, the Court of Appeals committed an error in stating that: "The plaintiff appellant
has to bite the bullet for it cannot shake itself of the inexcusable negligence of its
counsel" (Alabanza. vs. Intermediate Appellate Court, 204 SCRA 304), because
of its own findings that there was a gross and inexcusable negligence on the part of
the previous counsel. The applicable decision of the Supreme Court to the case at
bar should be the case of Legarda vs. Court of Appeals. (195 SCRA 418)."
The Courts Ruling
The petition is bereft of merit. We uphold the dismissal of the appeal by the Court of
Appeals.
The general rule is that a client is bound by the acts, even mistakes, of his counsel in the
realm of procedural technique. The exception to this rule is when the negligence of counsel
is so gross, reckless and inexcusable that the client is deprived of his day in court. In which
case, the remedy then is to reopen the case and allow the party who was denied his day in
court to adduce his evidence.
8
However, a thorough review of the instant case reveals that
petitioner cannot seek refuge or obtain reprieve under these principles.
Legarda case is not applicable
Petitioners reliance on the Legarda case which was promulgated on March 18, 1991 is
clearly misplaced. In said case, the Court declared that petitioners counsel, Atty. Antonio
Coronel, a well-known practicing lawyer and dean of a law school, committed not just
ordinary or simple negligence, but reckless and gross negligence which deprived his client
of her property without due process of law. According to the Legarda decision-
"xxx, the negligence of the then counsel for petitioner when he failed to file the
proper motion to dismiss or to draw a compromise agreement if it was true that they
agreed on a settlement of the case; or in simply filing an answer; and that after
having been furnished a copy of the decision by the court he failed to appeal
therefrom or to file a petition for relief from the order declaring petitioner in default."
9

was so gross and inexcusable that it should not bind his client. The Court declared that the
counsels acts or omissions "consigned (the client) to penury" because "her lawyer
appeared to have abandoned her case not once but repeatedly." The Court noted that
counsels "lack of devotion to duty is so gross and palpable that this Court must come to the
aid of his distraught client." Thus, the Court held as null and void the decisions of the trial
and appellate courts against Atty. Coronels client and ordered, among other things, the
reconveyance of the property in her favor.
However, the decision in said case was not yet final in 1991. The private respondent therein
filed a timely motion for reconsideration. In granting the motion for reconsideration, the
Court en banc held:
"Under the Gancayco ruling, the order of reconveyance was premised on the alleged
gross negligence of Legardas counsel which should not be allowed to bind her as
she was deprived of her property `without due process of law.
It is, however, basic that as long as a party was given the opportunity to defend her
interests in due course, she cannot be said to have been denied due process of law,
for this opportunity to be heard is the very essence of due process. The chronology
of events shows that the case took its regular course in the trial and appellate courts
but Legardas counsel failed to act as any ordinary counsel should have acted, his
negligence every step of the way amounting to "abandonment, " in the words of
the Gancayco decision. Yet, it cannot be denied that the proceedings which led to
the filing of this case were not attended by any irregularity. The judgment by default
was valid, so was the ensuing sale at public auction. If Cabrera was adjudged
highest bidder in said auction sale, it was not through any machination on his part.
All of his actuations that led to the final registration of the title in his name were
aboveboard, untainted by any irregularity."
x x x
Neither Cathay nor Cabrera
10
should be made to suffer for the gross negligence of
Legardas counsel. If she may be said to be "innocent" because she was ignorant of
the acts of negligence of her counsel, with more reason are respondents truly
"innocent." As between two parties who may lose due to the negligence or
incompetence of the counsel of one, the party who was responsible for making it
happen should suffer the consequences. This reflects the basic common law maxim,
so succinctly stated by Justice J.B.L. Reyes, that ". . . (B)etween two innocent
parties, the one who made it possible for the wrong to be done should be the one to
bear the resulting loss." In this case, it was not respondents, but Legarda, who
misjudged and hired the services of the lawyer who practically abandoned her case
and who continued to retain him even after his proven apathy and negligence.
The Gancayco decision makes much of the fact that Legarda is now "consigned to
penury" and, therefore, this Court "must come to the aid of the distraught client." It
must be remembered that this Court renders decisions, not on the basis of emotions
but on its sound judgment, applying the relevant, appropriate law. Much as it may
pity Legarda, or any losing litigant for that matter, it cannot play the role of a "knight
in shining armor" coming to the aid of someone, who through her weakness,
ignorance or misjudgment may have been bested in a legal joust which complied
with all the rules of legal proceedings."
In sum, the court did not relieve the client from the consequences of her counsels
negligence and mistakes considering that she was given an opportunity to defend her
interests in due course. Certainly, it cannot be said that she was denied due process.
Consequently, the Legarda case does not support petitioners cause.
No Denial of Due Process
Contrary to petitioners stance, the Legarda case supports the view that petitioner was not
denied its day in court. The Constitution mandates that "(n)o person shall be deprived of
life, liberty, or property without due process of law x x x ."
11
The right to due process of law
has been interpreted to mean as follows:
"The essence of due process is to be found in the reasonable opportunity to be
heard and submit any evidence one may have in support of ones defense. `To be
heard' does not mean only verbal arguments in court; one may be heard also
through pleadings. Where opportunity to be heard, either through oral arguments or
pleadings, is accorded, there is no denial of due process."
12
(Emphasis supplied)
Verily, so long as a party is given the opportunity to advocate her cause or defend her
interest in due course, it cannot be said that there was denial of due process. In petitioners
case as in the Legarda case, the chronology of events shows that the case took its regular
course in the trial court.
On December 8, 1992, petitioner presented its first witness, Mr. Manuel B. Ala, the
Accounting Clerk of its Accounting Department. He was cross-examined by CBP, Nayve
and Garcia on February 10, 1993. On March 1, 1993, petitioner presented its second
witness, Ms. Josie Fernandez, the Security Custodian of its Treasury Bills. On July 5, 1993,
petitioner presented its third witness, Atty. Leopoldo Cotaco, head of its Department of
Security and Internal Affairs. At this hearing, only counsels of Nayve and Garcia were
present. The counsels of CBP and Asiatrust were absent. On August 25, 1993, the direct
testimony of Atty. Leopoldo Cotaco was terminated. On August 30, 1993, QTE entered its
appearance in substitution of Atty. Antonio M. Pery. On September 8, 1993, QTE moved for
the postponement of the cross-examination of Atty. Cotaco since it had only recently
entered its appearance. On September 16, 1993, petitioner moved to dismiss the complaint
against CBP on the ground that the latter had lifted the conservatorship and allowed the
return of the management and assets to petitioners Board of Directors. The motion was
granted in an Order dated September 28, 1993. The hearings on November 17 and 24,
1993 were postponed upon petitioners motion since former counsel, Atty. Antonio M. Pery,
refused to turn over the records and files of the case due to a dispute over legal fees. The
hearings were reset to February 21 and March 9 and 16, 1994. On February 18, 1994,
petitioner again moved that the hearing scheduled on February 21, 1994 be reset for the
same reason. The hearings on March 9 and 16, 1994 were likewise postponed due to
former counsels adamant refusal to turn over the files. The hearings were reset to May 18
and 25, 1994. By May 18, 1994, petitioners former counsel still refused to turn over the files
of the case, prompting petitioner to request for another postponement. The hearings were
reset to July 6, 20 and August 15, 1994. The hearing scheduled on July 6, 1994 was
postponed on the ground that there was no proof of service of the notice of hearing to
counsels for the defendants. The hearing scheduled on July 20, 1994 was postponed by
Asiatrust on the ground that its counsel was not available for said hearing. The hearings
were reset to August 31 and September 19, 1994. The hearing scheduled on August 15,
1994 was cancelled. The hearing on August 31, 1994 was reset to September 19, 1995
because there was no proof of service of the notice of hearing on counsels. The hearing on
September 19, 1994 was also reset to November 21, 1994 for lack of proof that the
contending counsels received the notice of hearing for said date. On November 16, 1994,
Asiatrust filed an urgent motion to postpone the hearing on November 21, 1994, due to
unavailability of its counsel. Consequently, the hearings were reset to January 30 and
February 15, 1995. However, the hearing on said dates were cancelled since the presiding
judge was indisposed, and reset to May 17, 1995. As mentioned earlier, petitioners
handling lawyer, Atty. Ignacio of QTE arrived late during the hearing on May 17, 1995
allegedly due to the unexpectedly heavy traffic on Roxas Boulevard in front of Baclaran
Church. On motion of Asiatrusts counsel, the trial court issued the Order dismissing the
case for lack of interest to prosecute.
Upon said dismissal, petitioners counsel filed a timely motion for reconsideration. The same
was denied by the trial court. However, it must be emphasized that petitioner was not left
without any relief. Upon the denial thereof, the situation could have been easily remedied by
filling a notice of appeal within the reglementary period
13
considering that a dismissal for
failure to prosecute is an adjudication on the merits.
14
As correctly pointed out by Asiatrust,
all that is required is a singled-paged, pro forma notice of appeal, the accomplishment of
which does not require a high degree of legal skill. Despite this, counsel failed to file its
notice of appeal on time and the proffered excuse that he was suffering from "stress and
fatigue" while highly unacceptable, does not amount to gross, palpable, pervasive and
reckless negligence so as to deprive counsels client its day in court. As the proceedings in
the trial court all the way up to the appellate court would show, petitioner was not deprived
of due process.
Indeed, by failing to file its appeal within the reglementary period, it could not be
successfully argued that petitioner was deprived of its day in court.
Time and again it has been held that the right to appeal is not a natural right or a part of due
process, it is merely a statutory privilege, and may be exercised only in the manner and in
accordance with the provisions of the law.
15
The party who seeks to avail of the same must
comply with the requirements of the rules.
16
Failing to do so, the right to appeal is lost.
17

The Court has had several occasions to hold that "rules of procedure, especially those
prescribing the time within which certain acts must be done, have oft been held as
absolutely indispensable to the prevention of needless delays and to the orderly and speedy
discharge of business. The reason for rules of this nature is because the dispatch of
business by courts would be impossible, and intolerable delays would result, without rules
governing practice. Such rules are a necessary incident to the proper, efficient and orderly
discharge of judicial functions. Thus, we have held that the failure to perfect an appeal
within the prescribed reglementary period is not a mere technicality, but jurisdictional.
18

Neither could petitioner plead leniency in the application of the rules considering that the
period to appeal is prescribed not only by the Rules of Court but also by statute, particularly
Sec. 39 of Batas Pambansa Blg. 129 which provides
Sec. 39. Appeals. The period for appeal from final orders, resolutions, awards,
judgments, or decisions of any court in all cases shall be fifteen (15) days counted
from the notice of the final order, resolution, award, judgment, or decision appealed
from: Provided, however, That habeas corpus, the period for appeal shall be forty-
eight (48) hours from the notice of the judgment appealed from x x x x
Clearly, the perfection of an appeal in the manner and within the period prescribed by law is
not only mandatory but jurisdictional, and failure to perfect an appeal has the effect of
rendering the judgment final and executory. Public policy and sound practice demand that
judgments of courts should become final and irrevocable at some definite date fixed by
law."
19

Counsel for petitioner committed simple negligence
We also find that the negligence of the law firm engaged by the petitioner to litigate its
cause was not gross butsimple negligence. Petitioner capitalizes on the following "blunders"
of the law firm to establish gross negligence: (1) arriving late during the hearing on May 17,
1995 and (2) filing the notice of appeal thirteen (13) days late. Tardiness is plain and simple
negligence. On the other hand, counsels failure to file the notice of appeal within the
reglementary period did not deprive petitioner of due process of law.1wphi1. nt
We also do not miss the fact that petitioners were represented by a law firm which meant
that any of its members could lawfully act as their counsel during the trial."
20
As such,
"[w]hen a client employs the services of a law firm, he does not employ the services of the
lawyer who is assigned to personally handle the case. Rather, he employs the entire law
firm. In the event that the counsel appearing for the client resigns, the firm is bound to
provide a replacement."
21
Petitioner cannot now complain of counsels errors. It has been
held that "[l]itigants, represented by counsel, should not expect that all they need to do is sit
back, relax and await the outcome of their case. x x x
22
." Especially in this case, where
petitioner has a legal department to monitor its pending cases and to liaise with its retained
counsel. To agree with petitioners stance would enable every party to render inutile any
adverse order or decision through the simple expedient of alleging gross negligence on the
part of its counsel. The Court will not countenance such a farce which contradicts long-
settled doctrines of trial and procedure.
23

Hence, there is no justifiable reason to exempt petitioner from the general rule that clients
should suffer the consequences of the negligence, mistake or lack of competence of the
counsel whom they themselves hired and had the full authority to fire at any time and
replace with another even without any justifiable reason.
24

In sum, this is not a case where the negligence of counsel is one that is so gross, palpable,
pervasive and reckless which is the type of negligence that deprives a party of his or her
day in court. For this reason, the Court need no longer concern itself with the merits of
petitioners causes of action nor consider the propriety of the dismissal of the case by the
trial court for lack of interest to prosecute. The Court is bound by the trial courts judgment
which had become final and executory due to the simple negligence of the petitioners
counsel in allowing the reglementary period to lapse without perfecting the appeal.
WHEREFORE, there being no reversible error committed by the Court of Appeals, the
petition for review on certiorari is DENIED and the assailed Resolution dated September 19,
1996 dismissing the appeal is AFFIRMED.
SO ORDERED.
Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.
Melo, J., Abroad, on official leave.

G.R. No. 154878 March 16, 2007
CAROLYN M. GARCIA, Petitioner,
vs.
RICA MARIE S. THIO, Respondent.
D E C I S I O N
CORONA, J .:
Assailed in this petition for review on certiorari
1
are the June 19, 2002 decision
2
and August
20, 2002 resolution
3
of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside
the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner
Carolyn M. Garcia a crossed check
4
dated February 24, 1995 in the amount of US$100,000
payable to the order of a certain Marilou Santiago.
5
Thereafter, petitioner received from
respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in
1995) the amount of US$3,000
6
and P76,500
7
on July 26,
8
August 26, September 26 and
October 26, 1995.
In June 1995, respondent received from petitioner another crossed check
9
dated June 29,
1995 in the amount ofP500,000, also payable to the order of Marilou
Santiago.
10
Consequently, petitioner received from respondent the amount of P20,000 every
month on August 5, September 5, October 5 and November 5, 1995.
11

According to petitioner, respondent failed to pay the principal amounts of the loans
(US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner
filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58
against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3%
a month from October 26, 1995 and P500,000, with interest thereon at 4% a month from
November 5, 1995, plus attorneys fees and actual damages.
12

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of
US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on
October 26, 1995.
13
The amount of this loan was covered by the first check. On June 29,
1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of
4%, the maturity date of which was on November 5, 1995.
14
The amount of this loan was
covered by the second check. For both loans, no promissory note was executed since
petitioner and respondent were close friends at the time.
15
Respondent paid the stipulated
monthly interest for both loans but on their maturity dates, she failed to pay the principal
amounts despite repeated demands.
16
1awphi1.nt
Respondent denied that she contracted the two loans with petitioner and countered that it
was Marilou Santiago to whom petitioner lent the money. She claimed she was merely
asked by petitioner to give the crossed checks to Santiago.
17
She issued the checks
for P76,000 and P20,000 not as payment of interest but to accommodate petitioners
request that respondent use her own checks instead of Santiagos.
18

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.
19
It found that
respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of
3% and P500,000 at a monthly interest of 4%:
20

WHEREFORE, finding preponderance of evidence to sustain the instant complaint,
judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the
former the amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from
October 26, 1995 until fully paid;
2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until
fully paid.
3. P100,000.00 as and for attorneys fees; and
4. P50,000.00 as and for actual damages.
For lack of merit, [respondents] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED.
21

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of
loan between the parties:
A perusal of the record of the case shows that [petitioner] failed to substantiate her claim
that [respondent] indeed borrowed money from her. There is nothing in the record that
shows that [respondent] received money from [petitioner]. What is evident is the fact
that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the
sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed]
check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of
Marilou Santiago, both of which were issued by [petitioner]. The checks received by
[respondent], being crossed, may not be encashed but only deposited in the bank by
the payee thereof, that is, by Marilou Santiago herself.
It must be noted that crossing a check has the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only onceto
one who has an account with the bank; (c) and the act of crossing the check serves as
warning to the holder that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder
in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and
delivery to the payee in contemplation of law since the latter is not the person who could
take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title
thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the
checks because she was merely facilitating the transactions between the former and
[petitioner].
With the foregoing circumstances, it may be fairly inferred that there were really no
contracts of loan that existed between the parties. x x x (emphasis supplied)
22

Hence this petition.
23

As a rule, only questions of law may be raised in a petition for review on certiorari under
Rule 45 of the Rules of Court. However, this case falls under one of the exceptions, i.e.,
when the factual findings of the CA (which held that there were no contracts of loan
between petitioner and respondent) and the RTC (which held that there werecontracts of
loan) are contradictory.
24

The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the delivery of
the object of the contract.
25
This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding
upon the parties, but the commodatum or simple loan itself shall not be perfected until
the delivery of the object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the
debtor when the checks were encashed) the debtor acquires ownership of such money or
loan proceeds and is bound to pay the creditor an equal amount.
26

It is undisputed that the checks were delivered to respondent. However, these checks were
crossed and payable not to the order of respondent but to the order of a certain Marilou
Santiago. Thus the main question to be answered is: who borrowed money from petitioner
respondent or Santiago?
Petitioner insists that it was upon respondents instruction that both checks were made
payable to Santiago.
27
She maintains that it was also upon respondents instruction that
both checks were delivered to her (respondent) so that she could, in turn, deliver the same
to Santiago.
28
Furthermore, she argues that once respondent received the checks, the latter
had possession and control of them such that she had the choice to either forward them to
Santiago (who was already her debtor), to retain them or to return them to petitioner.
29

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed
within the actual or constructive possession or control of another.
30
Although respondent did
not physically receive the proceeds of the checks, these instruments were placed in her
control and possession under an arrangement whereby she actually re-lent the amounts to
Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago.
31
It was highly
improbable that petitioner would grant two loans to a complete stranger without requiring as
much as promissory notes or any written acknowledgment of the debt considering that the
amounts involved were quite big. Respondent, on the other hand, already had transactions
with Santiago at that time.
32

Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared
in both parties list of witnesses) testified that respondents plan was for petitioner to lend
her money at a monthly interest rate of 3%, after which respondent would lend the same
amount to Santiago at a higher rate of 5% and realize a profit of 2%.
33
This explained why
respondent instructed petitioner to make the checks payable to Santiago. Respondent has
not shown any reason why Ruiz testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount
of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly
interest. For the P500,000 loan, she also issued her own checks in the amount of P20,000
each for four months.
34
According to respondent, she merely accommodated petitioners
request for her to issue her own checks to cover the interest payments since petitioner was
not personally acquainted with Santiago.
35
She claimed, however, that Santiago would
replace the checks with cash.
36
Her explanation is simply incredible. It is difficult to believe
that respondent would put herself in a position where she would be compelled to pay
interest, from her own funds, for loans she allegedly did not contract. We declared in one
case that:
In the assessment of the testimonies of witnesses, this Court is guided by the rule that for
evidence to be believed, it must not only proceed from the mouth of a credible witness, but
must be credible in itself such as the common experience of mankind can approve as
probable under the circumstances. We have no test of the truth of human testimony except
its conformity to our knowledge, observation, and experience. Whatever is repugnant to
these belongs to the miraculous, and is outside of juridical cognizance.
37

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not
petitioner, who was listed as one of her (Santiagos) creditors.
38

Last, respondent inexplicably never presented Santiago as a witness to corroborate her
story.
39
The presumption is that "evidence willfully suppressed would be adverse if
produced."
40
Respondent was not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow
the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling
of the RTC making respondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for
the US$100,000 andP500,000 loans respectively. There was no written proof of the interest
payable except for the verbal agreement that the loans would earn 3% and 4% interest per
month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has
been expressly stipulated in writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest
pursuant to Article 2209 of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
41

Hence, respondent is liable for the payment of legal interest per annum to be computed
from November 21, 1995, the date when she received petitioners demand letter.
42
From the
finality of the decision until it is fully paid, the amount due shall earn interest at
12% per annum, the interim period being deemed equivalent to a forbearance of credit.
43

The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is
deleted since the RTC decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and
August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577
are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial
Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is
directed to pay petitioner the amounts of US$100,000 and P500,000 at
12% per annum interest from November 21, 1995 until the finality of the decision. The total
amount due as of the date of finality will earn interest of 12% per annum until fully paid. The
award of actual damages and attorneys fees is deleted.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
ADOLFO S. AZCUNA
Asscociate Justice
CANCIO C. GARCIA
Associate Justice
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above decision had been reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice