Guaranty and Suretyship (Articles 2047-2084) Chapter 1.

Nature and Extent 

of Guaranty (Arts. 2047-2084)  
 
Piczon vs. Piczon Facts: Sosing-Lobos & Co. obtained loan from Piczon Co. 
Esteban Piczon (president of a borrowing firm) bound himself as guarantor 
and agreed to the use of the loan as surety cash deposit for the 
registration with the SEC. Consuelo Piczon (lending firm) brought action to 
recover the amount loaned. Court ruled in favor of Consuelo Piczon and 
ordered Esteban Piczon and Sosing-Lobos to pay him as guarantor the 
amount of the loan + interest.  
 
AGREEMENT OF LOAN 
KNOW YE ALL MEN BY THESE PRESENTS: 
That I, ESTEBAN PICZON, of legal age, married, Filipino, and resident of 
and with postal address in the municipality of Catbalogan, Province of 
Samar, Philippines, in my capacity as the President of the corporation 
known as the "SOSING-LOBOS and CO., INC.," as controlling stockholder, 
and at the same time as guarantor for the same, do by these presents 
contract a loan of Twelve Thousand Five Hundred Pesos (P12,500.00), 
Philippine Currency, the receipt of which is hereby acknowledged, from the 
"Piczon and Co., Inc." another corporation, the main o ces of the two 
corporations being in Catbalogan, Samar, for which I undertake, bind and 
agree to use the loan as surety cash deposit for registration with the 
Securities and Exchange Commission of the incorporation papers relative 
to the "Sosing-Lobos and Co., Inc.," and to return or pay the same amount 
with Twelve Per Cent (12%) interest per annum, commencing from the date 
of execution hereof, to the "Piczon and Co., Inc., as soon as the said 
incorporation papers are duly registered and the Certificate of 
Incorporation issued by the aforesaid Commission. 
 
IN WITNESS WHEREOF, I hereunto signed my name in Catbalogan, Samar, 
Philippines, this 28th day of September, 1956. 
(Sgd.) ESTEBAN PICZON 
 
 
Issue: WON Esteban Piczon is a surety or a guarantor?  
 
Held: Under the terms of the contract Esteban Piczon expressly bound 
himself only as guarantor. A guaranty must express, and it would be 
violative of the law to consider a party to be bound as surety when the very 
word used in the agreement is guarantor. Palmares vs. CA (288 SCRA 422) 
 
“Under the terms of the contract, Annex A, Esteban Piczon expressly bound 
himself only as guarantor, and there are no circumstances in the record 
from which it can be deduced that his liability could be that of a surety. A 
guaranty must be express, (Article 2055, Civil Code) and it would be 
violative of the law to consider a party to be bound as a surety when the 
very word used in the agreement is "guarantor."” 
2/7/2021 BPI vs Court of Appeals, 538 SCRA 184, GR No. 123498, November 23, 2007 | CASE EATER

BPI vs Court of Appeals, 538 SCRA 184, GR No.

123498, November 23, 2007

Posted by Pius Morados on January 12, 2012

(Negotiable Instruments – Money as a medium of exchange)

Facts: Franco opened 3 accounts with BPI with the total amount of P2,000,000.00. The said amount
used to open these accounts is traceable to a check issued by Tevesteco. The funding for the
P2,000,000.00 check was part of the P80,000,000.00 debited by BPI from FMIC’s account (with a
deposit of P100,000,000.00) and credited to Tevesteco’s account pursuant to an Authority to Debit
which was allegedly forged as claimed by FMIC.

Tevesteco effected several withdrawals already from its account amounting to P37,455,410.54
including the P2,000,000.00 paid to Franco.

Franco issued two checks which were dishonoured upon presentment for payment due to
garnishment of his account filed by BPI.

BPI claimed that it had a be er right to the amounts which consisted of part of the money allegedly
fraudulently withdrawn from it by Tevesteco and ending up in Franco’s account. BPI urges us that
the legal consequence of FMIC’s forgery claim is that the money transferred by BPI to Tevesteco is
its own, and considering that it was able to recover possession of the same when the money was
redeposited by Franco, it had the right to set up its ownership thereon and freeze Franco’s
accounts.

Issue: WON the bank has a be er right to the deposits in Franco’s account.

Held: No. Significantly, while Article 559 permits an owner who has lost or has been unlawfully
deprived of a movable to recover the exact same thing from the current possessor, BPI simply
claims ownership of the equivalent amount of money, i.e., the value thereof, which it had
mistakenly debited from FMIC’s account and credited to Tevesteco’s, and subsequently traced to
Franco’s account.

Money bears no earmarks of peculiar ownership, and this characteristic is all the more manifest in
the instant case which involves money in a banking transaction gone awry. Its primary function is
to pass from hand to hand as a medium of exchange, without other evidence of its title. Money,
which had been passed through various transactions in the general course of banking business,
even if of traceable origin, is no exception.

https://piusmorados.wordpress.com/2012/01/12/bpi-vs-court-of-appeals-538-scra-184-gr-no-123498-november-23-2007/ 1/1
SPS DELOS SANTOS VS METROBANK (GR NO. G.R. NO. 153852

OCTOBER 24, 2012)

Sps Delos Santos vs Metropolitan Bank & Trust Company

G.R. No. 153852 October 24, 2012

Facts: From December 9, 1996 until March 20, 1998, the petitioners took out several loans totaling
P12,000,000.00 from Metrobank, Davao City Branch, the proceeds of which they would use in constructing
a hotel on their 305-square-meter parcel of land located in Davao City and covered by Transfer Certificate
of Title No. I-218079 of the Registry of Deeds of Davao City. They executed various promissory notes
covering the loans, and constituted a mortgage over their parcel of land to secure the performance of their
obligation. The stipulated interest rates were 15.75% per annum for the long term loans (maturing on
December 9, 2006) and 22.204% per annum for a short term loan of P4,400,000.00 (maturing on March 12,
1999). The interest rates were fixed for the first year, subject to escalation or de-escalation in certain
events without advance notice to them. The loan agreements further stipulated that the entire amount of
the loans would become due and demandable upon default in the payment of any installment, interest or
other charges. On December 27, 1999, Metrobank sought the extrajudicial foreclosure of the real estate
mortgage after the petitioners defaulted in their installment payments. The petitioners were notified of the
foreclosure and of the forced sale being scheduled on March 7, 2000. The notice of the sale stated that the
total amount of the obligation was P16,414,801.36 as of October 26, 1999. On April 4, 2000, prior to the
scheduled foreclosure sale (i.e., the original date of March 7, 2000 having been meanwhile reset to April 6,
2000), the petitioners filed in the RTC a complaint (later amended) for damages, fixing of interest rate, and
application of excess payments (with prayer for a writ of preliminary injunction). They alleged therein that
Metrobank had no right to foreclose the mortgage because they were not in default of their obligations;
that Metrobank had imposed interest rates (i.e., 15.75% per annum for two long-term loans and 22.204%
per annum for the short term loan) on three of their loans that were different from the rate of 14.75% per
annum agreed upon; that Metrobank had increased the interest rates on some of their loans without any
basis by invoking the escalation clause written in the loan agreement; that they had paid P2,561,557.87
instead of only P1,802,867.00 based on the stipulated interest rates, resulting in their excess payment of
P758,690.87 as interest, which should then be applied to their accrued obligation; that they had requested
the reduction of the escalated interest rates on several occasions because of its damaging effect on their
hotel business, but Metrobank had denied their request; and that they were not yet in default because the
long-term loans would become due and demandable on December 9, 2006 yet and they had been paying
interest on the short-term loan in advance.

Issue: Whether or not injunction may issue pending extrajudicial foreclosure.

Held: Yes. No writ of preliminary injunction to enjoin an impending extrajudicial foreclosure sale should
issue except upon a clear showing of a violation of the mortgagors’ unmistakable right to the injunction.

Injunction will not protect contingent, abstract or future rights whose existence is doubtful or disputed.
Indeed, there must exist an actual right, because injunction will not be issued to protect a right not in esse
and which may never arise, or to restrain an act which does not give rise to a cause of action. At any rate,
an application for injunctive relief is strictly construed against the pleader.

Nor do we discern any substantial controversy that had any real bearing on Metrobank’s right to foreclose
the mortgage. The mere possibility that the RTC would rule in the end in the petitioners’ favor by lowering
the interest rates and directing the application of the excess payments to the accrued principal and interest
did not diminish the fact that when Metrobank filed its application for extrajudicial foreclosure they were
already in default as to their obligations and that their short-term loan of P4,400,000.00 had already
matured. Under such circumstances, their application for the writ of preliminary injunction could not but
be viewed as a futile attempt to deter or delay the forced sale of their property.

Escalation clauses are valid and do not contravene public policy. These clauses are common in credit
agreements as means of maintaining fiscal stability and retaining the value of money on long-term
contracts. To avoid any resulting one sided situation that escalation clauses may bring, we required in
Banco Filipino the inclusion in the parties’ agreement of a de-escalation clause that would authorize a
reduction in the interest rates corresponding to downward changes made by law or by the Monetary
Board.

The validity of escalation clauses notwithstanding, we cautioned that these clauses do not give creditors
the unbridled right to adjust interest rates unilaterally. As we said in the same Banco Filipino case, any
increase in the rate of interest made pursuant to an escalation clause must be the result of an agreement
between the parties. The minds of all the parties must meet on the proposed modification as this
modification affects an important aspect of the agreement. There can be no contract in the true sense in
the absence of the element of an agreement, i.e., the parties’ mutual consent. Thus, any change must be
mutually agreed upon, otherwise, the change carries no binding effect. A stipulation on the validity or
compliance with the contract that is left solely to the will of one of the parties is void; the stipulation goes
against the principle of mutuality of contract under Article 1308 of the Civil Code.

As with all equitable remedies, injunction must be issued only at the instance of a party who possesses
sufficient interest in or title to the right or the property sought to be protected. It is proper only when the
applicant appears to be entitled to the relief demanded in the complaint, which must aver the existence of
the right and the violation of the right, or whose averments must in the minimum constitute a prima facie
showing of a right to the final relief sought. Accordingly, the conditions for the issuance of the injunctive
writ are: (a) that the right to be protected exists prima facie; (b) that the act sought to be enjoined is
violative of that right; and (c) that there is an urgent and paramount necessity for the writ to prevent
serious damage. An injunction will not issue to protect a right not in esse, or a right which is merely
contingent and may never arise; or to restrain an act which does not give rise to a cause of action; or to
prevent the perpetration of an act prohibited by statute. Indeed, a right, to be protected by injunction,
means a right clearly founded on or granted by law or is enforceable as a matter of law.
G.R. No. L-17474 October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V.
Bagtas, petitioner-appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant. Office of the Solicitor General for
plaintiff-appellee.

PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau
of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of
P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949
for breeding purposes subject to a government charge of breeding fee of 10% of the book value
of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal
for another period of one year. However, the Secretary of Agriculture and Natural Resources
approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and
requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of
Animal Industry that he would pay the value of the three bulls. On 17 October 1950 he reiterated
his desire to buy them at a value with a deduction of yearly depreciation to be approved by the
Auditor General. On 19 October 1950 the Director of Animal Industry advised him that the book
value of the three bulls could not be reduced and that they either be returned or their book value
paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls
or to return them. So, on 20 December 1950 in the Court of First Instance of Manila the Republic
of the Philippines commenced an action against him praying that he be ordered to return the three
bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid
breeding fee in the sum of P199.62, both with interests, and costs; and that other just and
equitable relief be granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that
because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of
Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural
Resources and the President of the Philippines from the refusal by the Director of Animal Industry
to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date
of acquisition, to which depreciation the Auditor General did not object, he could not return the
animals nor pay their value and prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment —
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls
plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate
from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on
18 October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion
filed by the plaintiff on November 1958 for the appointment of a special sheriff to serve the writ
outside Manila. Of this order appointing a special sheriff, on 6 December 1958, Felicidad M.
Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as
administratrix of his estate, was notified. On 7 January 1959 she file a motion alleging that on 26
June 1952 the two bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry and
that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted
during a Huk raid on Hacienda Felicidad Intal, and praying that the writ of execution be quashed
and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to
her motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February, the Court
denied her motion. Hence, this appeal certified by the Court of Appeals to this Court as stated at
the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant,
returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station,
Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt
signed by the latter (Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's
motion to quash the writ of execution the appellee prays "that another writ of execution in the sum
of P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be
held liable for the two bulls which already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in
November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan,
where the animal was kept, and that as such death was due to force majeure she is relieved from
the duty of returning the bull or paying its value to the appellee. The contention is without merit.
The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding
purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another
year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of
the book value of the bulls. The appellant contends that the contract was commodatum and that,
for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due
to force majeure. A contract of commodatum is essentially gratuitous.1 If the breeding fee be
considered a compensation, then the contract would be a lease of the bull. Under article 1671 of
the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith,
because she had continued possession of the bull after the expiry of the contract. And even if the
contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code
provides that a bailee in a contract of commodatum —
• . . . is liable for loss of the things, even if it should be through a fortuitous event:
• If he keeps it longer than the period stipulated . . .
• If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was
renewed for another period of one year to end on 8 May 1950. But the appellant kept and used
the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore,
when lent and delivered to the deceased husband of the appellant the bulls had each an appraised
book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at
P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late
husband of the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull or
the payment of its value being a money claim should be presented or filed in the intestate
proceedings of the defendant who died on 23 October 1951, is not altogether without merit.
However, the claim that his civil personality having ceased to exist the trial court lost jurisdiction
over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court
provides that —
After a party dies and the claim is not thereby extinguished, the court shall order, upon proper
notice, the legal representative of the deceased to appear and to be substituted for the deceased,
within a period of thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16
of Rule 3 which provides that —
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court
promptly of such death . . . and to give the name and residence of the executory administrator,
guardian, or other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas
had been issue letters of administration of the estate of the late Jose Bagtas and that "all persons
having claims for monopoly against the deceased Jose V. Bagtas, arising from contract express
or implied, whether the same be due, not due, or contingent, for funeral expenses and expenses
of the last sickness of the said decedent, and judgment for monopoly against him, to file said
claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6)
months from the date of the first publication of this order, serving a copy thereof upon the
aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said
deceased," is not a notice to the court and the appellee who were to be notified of the defendant's
death in accordance with the above-quoted rule, and there was no reason for such failure to notify,
because the attorney who appeared for the defendant was the same who represented the
administratrix in the special proceedings instituted for the administration and settlement of his
estate. The appellee or its attorney or representative could not be expected to know of the death
of the defendant or of the administration proceedings of his estate instituted in another court that
if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death
as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant
is only liable for the sum of P859.63, the value of the bull which has not been returned to the
appellee, because it was killed while in the custody of the administratrix of his estate. This is the
amount prayed for by the appellee in its objection on 31 January 1959 to the motion filed on 7
January 1959 by the appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V.
Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment
rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be
presented to the probate court for payment by the appellant, the administratrix appointed by the
court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to
costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala
and Makalintal, JJ., concur. Barrera, J., concurs in the result.

G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES vs. JOSE V. BAGTAS, FELICIDAD M. BAGTAS, Administratrix of the Intestate
Estate left by the late Jose V. Bagtas

Laws Applicable: Commodatum

FACTS:

• May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines through the
Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of
P1,320.56 and a Sahiniwal, of P744.46, for a period of 1 year for breeding purposes subject to a
breeding fee of 10% of the book value of the bulls
• May 7, 1949: Jose requested for a renewal for another year for the three bulls but only
one bull was approved while the others are to be returned
• March 25, 1950: He wrote to the Director of Animal Industry that he would pay the value
of the 3 bulls
• October 17, 1950: he reiterated his desire to buy them at a value with a deduction of
yearly depreciation to be approved by the Auditor General.
• October 19, 1950: Director of Animal Industry advised him that either the 3 bulls are to
be returned or their book value without deductions should be paid not later than October 31,
1950 which he was not able to do
• December 20, 1950: An action at the CFI was commenced against Jose praying that he be
ordered to return the 3 bulls or to pay their book value of P3,241.45 and the unpaid breeding fee
of P199.62, both with interests, and costs
• July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that
because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of
Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural
Resources and the President of the Philippines, he could not return the animals nor pay their value
and prayed for the dismissal of the complaint.
• RTC: granted the action
• December 1958: granted an ex-parte motion for the appointment of a special sheriff to
serve the writ outside Manila
• December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died on October
23, 1951 and administratrix of his estate, was notified
• January 7, 1959: she file a motion that the 2 bulls where returned by his son on June 26,
1952 evidenced by receipt and the 3rd bull died from gunshot wound inflicted during a Huk raid
and prayed that the writ of execution be quashed and that a writ of preliminary injunction be
issued.

ISSUE: W/N the contract is commodatum and NOT a lease and the estate should be liable for the loss due
to force majeure due to delay.

HELD: YES. writ of execution appealed from is set aside, without pronouncement as to costs
• If contract was commodatum then Bureau of Animal Industry retained ownership or title
to the bull it should suffer its loss due to force majeure. A contract of commodatum is essentially
gratuitous. If the breeding fee be considered a compensation, then the contract would be a lease
of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities
of a possessor in bad faith, because she had continued possession of the bull after the expiry of
the contract. And even if the contract be commodatum, still the appellant is liable if he keeps it
longer than the period stipulated

• the estate of the late defendant is only liable for the sum of P859.63, the value of the bull
which has not been returned because it was killed while in the custody of the administratrix of his
estate

• Special proceedings for the administration and settlement of the estate of the deceased
Jose V. Bagtas having been instituted in the CFI, the money judgment rendered in favor of the
appellee cannot be enforced by means of a writ of execution but must be presented to the
probate court for payment by the appellant, the administratrix appointed by the court.
DARIO NACAR, PETITIONER, vs. GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
FACTS
1. On January 24, 1997, Dario Nacar got dismissed by his employer, Gallery Frames. He filed a
complaint; the Labor Arbiter ruled that petitioner was dismissed without just cause.
2. A computation for the separation pay and back wages were made it amounted to Php
158,919.92. The respondent sought appeal to the NLRC, CA and Supreme Court, but they were all
dismissed, thus the judgment became final on April 17, 2002.
3. During the execution of the final judgment, the petitioner filed a motion for the
re-computation of the damages. The amount previously computed includes the separation pay
and back wages up to the time of his dismissal.
4. The petitioner argued that the damages should cover the period until the date of final
judgment. A re- computation was made and the damages was increased to 471,320.31.
Respondent prayed for the quashal of such motion on the ground that the judgment made by the
SC is already final and the amount should not be further altered.
5. Petitioner also filed another motion asking the court to order the respondent to pay the
appropriate legal interest of the damages from the date of final judgment until full payment.

ISSUES/HELD
(1) Whether or not a subsequent correction of the damages awarded during the final judgment
of the Supreme Court violates the rule on immutability of judgments. - NO
(2) Whether or not the re-computation made by the Labor Arbiter is correct. - YES
(3) Whether or not appropriate interests may be claimed by the petitioner. YES

RATIO

ISSUE #1 The final decision made by the Supreme Court to award the petitioner with damages
with regards to the dismissal without justifiable cause can be divided into two important parts.
One is the finding that an illegal dismissal was indeed made. And the other is the computation of
damages. According to a previous case of Session Delights Ice Cream and Fast Foods v. Court of
Appeals, the Supreme Court held that the second part of the decision - being merely a
computation of what the first part of the decision established and declared - can, by its nature,
be re-computed.
The re-computation of the consequences of illegal dismissal upon execution of the decision does
not constitute an alteration or amendment of the final decision being implemented. The illegal
dismissal ruling stands; only the computation of monetary consequences of this dismissal is
affected, and this is not a violation of the principle of immutability of final judgments.

ISSUE #2 - The Supreme Court believes that the amount of 471,320.31 as damages is correct.
According to Article 279 of the Labor Code, reliefs in case of illegal dismissal continue to add up
until its full satisfaction. The original computation clearly includes damages only up to the finality
of the labor arbiter's decision. Therefore, the Supreme Court approves the decision confirming
that a re-computation is necessary. The labor arbiter re-computed the award to include the
separation pay and the back wages due up to the finality of the decision that fully terminated the
case on the merits.
ISSUE #3 - The Supreme Court ruled that the petitioner shall be entitled to interest.
In the case of Eastern Shipping Lines, Inc. v. Court of Appeals, among the guidelines laid down by
the Supreme Court regarding the manner of computing legal interest is - when the judgment of
the court awarding a sum of money becomes final and executory, the rate of legal interest shall
be 12% per annum from such finality until its satisfaction. In addition to this, the Bangko Sentral
ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013 declared
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 an express contract as to such rate of interest, shall be
six percent (6%) per annum. Consequently, the twelve percent (12%) per annum legal interest
shall apply until June 30, 2013. Afterwards, the new rate of six percent (6%) per annum shall be
the prevailing rate of interest when applicable.

The respondent was ordered to pay interest of twelve percent (12%) per annum of the total
monetary awards, computed from May 27, 2002 to June 30, 2013 and six percent (6%) per
annum from July 1, 2013 until their full satisfaction.
V. DEPOSIT: Articles 1962-2009 of the NCC and its annotations

Topic: Voluntary Deposit (Obligations of Depositary and Depositor)

CA Agro- Industrial Development Corp. vs. CA ; G.R. No. 90027 March

3, 1993; 219 SCRA 426

Case Digest:
FACTS:
CA Agro-Industrial Development Corp. (CA Agro) purchased two (2) parcels of land from the spouses
Ramon and Paula Pugao (Pugaos). CA Agro paid a downpayment and issued three (3) post-dated
checks covering the balance of the price. It was contracted that the titles to the lots shall be transferred
to CA Agro upon full payment of the purchase price and that the owner's copies of the certificates of
titles thereto shall be deposited in a safety deposit box of any bank. The same could be withdrawn
only upon the joint signatures of a representative of CA Agro and the Pugaos upon full payment of the
purchase price.

Forthwith, CA Agro and the Pugaos rented Safety Deposit Box of Security Bank and Trust Company
(Bank). For this purpose, they both signed a contract of lease containing the following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the possession nor
control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it
assumes absolutely no liability in connection therewith.

After the execution of the contract, two (2) renter's keys were given to the renters one to CA Agro and
the other to the Pugaos. A guard key remained in the possession of the Bank. The safety deposit box
has two (2) keyholes, one for the guard key and the other for the renter's key, and can be opened only
with the use of both keys.

Thereafter, a certain Mrs. Margarita Ramos (Ramos) offered to buy from CA Agro the two (2) lots at a
price that will yield a profit for the latter. Accordingly, Ramos demanded the execution of a deed of
sale which necessarily entailed the production of the certificates of title. In view thereof, CA Agro,
accompanied by the Pugaos, then proceeded to the bank to open the safety deposit box and get the
certificates of title. However, when opened in the presence of the Bank's representative, the box
yielded no such certificates. As a result, Ramos withdrew her offer to buy the lots.

As a consequence, CA Agro failed to realize the expected profit, thus, it filed a complaint for damages
against the Bank. The Bank in its answer with a counterclaim invoked paragraphs 13 and 14 of the
contract of lease for its defense.

In due course, the trial court rendered a decision against CA Agro on the ground that the provisions
of the contract of lease are binding on the parties, and that under said paragraphs, the Bank has no
liability for the loss of the certificates of title.
On Appeal, the Court of Appeals affirmed the appealed decision principally on the theory that the
contract executed by CA Agro and the Bank is in the nature of a contract of lease by virtue of which
CA Agro and its co-renter were given control over the safety deposit box and its contents while the
Bank retained no right to open the said box because it had neither the possession nor control over it
and its contents, thus, the contract is governed by Article 1643 in relation to Article 1975 of the Civil
Code.

Hence, CA Agro elevated the case to the Supreme Court under Rule 45 of the Rules of Court
maintaining that regardless of nomenclature, the contract for the rent of the safety deposit box is
actually a contract of deposit governed by Title XII, Book IV of the Civil Code.

ISSUE: Whether the contractual relation between a commercial bank and another party in a contract
of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee
or one of lessor and lessee.

HELD:

Petition PARTIALLY GRANTED

The contractual relation between a commercial bank and another party in a contract of rent of
a safety deposit box with respect to its contents placed by the latter is one of a bailor and
bailee, the bailment being for hire and mutual benefit, and it is not an ordinary deposit but
special kind of deposit.

The contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in
Article 1643 of the Civil Code. It cannot be characterized as an ordinary contract of lease under Article
1643 because the full and absolute possession and control of the safety deposit box was not given to
the joint renters. However, the Court does not fully subscribe to the view that the same is a contract
of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the contract in
this case is a special kind of deposit.

Neither could Article 1975 be invoked as an argument against the deposit theory. Obviously, the first
paragraph of such provision cannot apply to a depositary of certificates, bonds, securities or
instruments which earn interest if such documents are kept in a rented safety deposit box.
The prevailing rule in American Jurisprudence is that the relation between a bank renting out safe-
deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee,
the bailment being for hire and mutual benefit. While, in the context of our laws, particularly Section
72(a) of the General Banking Act (now Section 52) which authorizes banking institutions to rent out
safety deposit boxes, it is clear that the prevailing rule in the United States has been adopted.

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions
other than building and loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes
for the safeguarding of such effects.

xxx xxx xxx

 The banks shall perform the services permitted under subsections (a), (b) and (c) of this
section as depositories or as agents. . . .

Nevertheless, the primary function is still found within the parameters of a contract of deposit, and, in
relation to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order or public policy. Thus, the depositary's responsibility for the safekeeping
of the objects deposited in this case is governed by Title I, Book IV of the Civil Code. Accordingly, the
depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay
or contravention of the tenor of the agreement, and in the absence of any stipulation prescribing the
degree of diligence required, that of a good father of a family is to be observed. Corollary, any
stipulation exempting the depositary from any liability arising from the loss of the thing deposited on
account of fraud, negligence or delay would be void for being contrary to law and public policy.

Furthermore, it is not correct to assert that the Bank has neither the possession nor control of the
contents of the box since in fact; the safety deposit box itself is located in its premises and is under its
absolute control. Moreover, the Bank keeps the guard key to the said box and renters cannot open
their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly
then, to the extent above stated, conditions 13 and 14 in the contract in question are void and
ineffective.

However, the Court reached the same conclusion which the Court of Appeals arrived at but on grounds
quite different from those relied upon by the latter. The Bank's exoneration cannot be based on or
proceed from a characterization of the impugned contract as a contract of lease, but rather on the fact
that no competent proof was presented to show that Bank was aware of the agreement between CA
Agro and the Pugaos to the effect that the certificates of title were withdrawable from the safety deposit
box only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss
of the certificates of title was due to the fraud or negligence of the Bank.

Since both CA Agro and the Pugaos agreed that each should have one (1) renter's key, it was obvious
that either of them could ask the Bank for access to the safety deposit box and, with the use of such
key and the Bank's own guard key, could open the said box, without the other renter being present.
Since, however, CA Agro cannot be blamed for the filing of the complaint and no bad faith on its part
had been established, the trial court erred in condemning the CA Agro to pay the Bank attorney's fees.
To this extent, the Decision of Court of Appeals was modified.
Full Case:

G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,

vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.

Dolorfino & Dominguez Law Offices for petitioner.

Danilo B. Banares for private respondent.

DAVIDE, JR., J.:

Is the contractual relation between a commercial bank and another party in a contract of rent of a
safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of
lessor and lessee?

This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula
Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of land
for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the
balance was covered by three (3) postdated checks. Among the terms and conditions of the agreement
embodied in a Memorandum of True and Actual Agreement of Sale of Land were that the titles to the
lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's
copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434,
shall be deposited in a safety deposit box of any bank. The same could be withdrawn only upon the
joint signatures of a representative of the petitioner and the Pugaos upon full payment of the purchase
price. Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of
private respondent Security Bank and Trust Company, a domestic banking corporation hereinafter
referred to as the respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2")
which contains, inter alia, the following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith.1

After the execution of the contract, two (2) renter's keys were given to the renters — one to Aguirre
(for the petitioner) and the other to the Pugaos. A guard key remained in the possession of the
respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other
for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the
certificates of title were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price
of P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit of
P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos demanded
the execution of a deed of sale which necessarily entailed the production of the certificates of title. In
view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank on 4
October 1979 to open the safety deposit box and get the certificates of title. However, when opened
in the presence of the Bank's representative, the box yielded no such certificates. Because of the delay
in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a
consequence thereof, the petitioner allegedly failed to realize the expected profit of P280,500.00.
Hence, the latter filed on 1 September 1980 a complaint 2 for damages against the respondent Bank
with the Court of First Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the
same as Civil Case No. 38382.

In its Answer with Counterclaim,3 respondent Bank alleged that the petitioner has no cause of action
because of paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the
items or articles contained in the box could not give rise to an action against it. It then interposed a
counterclaim for exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner
subsequently filed an answer to the counterclaim.4

In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of
Pasig, Metro Manila, rendered a decision5 adverse to the petitioner on 8 December 1986, the
dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing

plaintiff's complaint.

On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay

defendant the amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees.

With costs against plaintiff.6

The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of
the contract of lease, the Bank has no liability for the loss of the certificates of title. The court declared
that the said provisions are binding on the parties.

Its motion for reconsideration7 having been denied, petitioner appealed from the adverse decision to
the respondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner
urged the respondent Court to reverse the challenged decision because the trial court erred in (a)
absolving the respondent Bank from liability from the loss, (b) not declaring as null and void, for being
contrary to law, public order and public policy, the provisions in the contract for lease of the safety
deposit box absolving the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as
well as under American jurisprudence, the liability of the Bank is settled and (d) awarding attorney's
fees to the Bank and denying the petitioner's prayer for nominal and exemplary damages and
attorney's fees.8

In its Decision promulgated on 4 July 1989,9 respondent Court affirmed the appealed decision
principally on the theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank
is in the nature of a contract of lease by virtue of which the petitioner and its co-renter were given
control over the safety deposit box and its contents while the Bank retained no right to open the said
box because it had neither the possession nor control over it and its contents. As such, the contract is
governed by Article 1643 of the Civil Code 10 which provides:
 Art. 1643. In the lease of things, one of the parties binds himself to give to another the
enjoyment or use of a thing for a price certain, and for a period which may be definite
or indefinite. However, no lease for more than ninety-nine years shall be valid.

It invoked Tolentino vs. Gonzales 11 — which held that the owner of the property loses his
control over the property leased during the period of the contract — and Article 1975 of the
Civil Code which provides:

Art. 1975. The depositary holding certificates, bonds, securities or instruments which
earn interest shall be bound to collect the latter when it becomes due, and to take such
steps as may be necessary in order that the securities may preserve their value and
the rights corresponding to them according to law.

The above provision shall not apply to contracts for the rent of safety deposit boxes.

and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain
the contents of the box. The stipulation absolving the defendant-appellee from liability is in
accordance with the nature of the contract of lease and cannot be regarded as contrary to law,
public order and public policy." 12 The appellate court was quick to add, however, that under
the contract of lease of the safety deposit box, respondent Bank is not completely free from
liability as it may still be made answerable in case unauthorized persons enter into the vault
area or when the rented box is forced open. Thus, as expressly provided for in stipulation
number 8 of the contract in question:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to
any rented safe and beyond this, the Bank will not be responsible for the contents of
any safe rented from it. 13

Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August
1989, 15 petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and
set aside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial
court (a) did not properly and legally apply the correct law in this case, (b) acted with grave abuse of
discretion or in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary
to, or is a departure from precedents adhered to and affirmed by decisions of this Court and precepts
in American jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its
motion to reconsider the trial court's decision, the brief submitted to the respondent Court and the
motion to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of
nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of
deposit governed by Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates
of title pursuant to Article 1972 of the said Code which provides:

Art. 1972. The depositary is obliged to keep the thing safely and to return it, when
required, to the depositor, or to his heirs and successors, or to the person who may
have been designated in the contract. His responsibility, with regard to the safekeeping
and the loss of the thing, shall be governed by the provisions of Title I of this Book.

If the deposit is gratuitous, this fact shall be taken into account in determining the
degree of care that the depositary must observe.

Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to

expound on the prevailing rule in the United States, to wit:
 The prevailing rule appears to be that where a safe-deposit company leases a safe-
deposit box or safe and the lessee takes possession of the box or safe and places
therein his securities or other valuables, the relation of bailee and bail or is created
between the parties to the transaction as to such securities or other valuables; the fact
that the
safe-deposit company does not know, and that it is not expected that it shall know, the
character or description of the property which is deposited in such safe-deposit box or
safe does not change that relation. That access to the contents of the safe-deposit box
can be had only by the use of a key retained by the lessee ( whether it is the sole key
or one to be used in connection with one retained by the lessor) does not operate to
alter the foregoing rule. The argument that there is not, in such a case, a delivery of
exclusive possession and control to the deposit company, and that therefore the
situation is entirely different from that of ordinary bailment, has been generally rejected
by the courts, usually on the ground that as possession must be either in the depositor
or in the company, it should reasonably be considered as in the latter rather than in
the former, since the company is, by the nature of the contract, given absolute control
of access to the property, and the depositor cannot gain access thereto without the
consent and active participation of the company. . . . (citations omitted).

and a segment from Words and Phrases 18 which states that a contract for the rental of a bank
safety deposit box in consideration of a fixed amount at stated periods is a bailment for hire.

Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and
public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil
Code which provides that parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy.

After the respondent Bank filed its comment, this Court gave due course to the petition and required
the parties to simultaneously submit their respective Memoranda.

The petition is partly meritorious.

We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not
an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully
subscribe to its view that the same is a contract of deposit that is to be strictly governed by the
provisions in the Civil Code on deposit; 19 the contract in the case at bar is a special kind of deposit. It
cannot be characterized as an ordinary contract of lease under Article 1643 because the full and
absolute possession and control of the safety deposit box was not given to the joint renters — the
petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this
key, neither of the renters could open the box. On the other hand, the respondent Bank could not
likewise open the box without the renter's key. In this case, the said key had a duplicate which was
made so that both renters could have access to the box.

Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article
1975, also relied upon by the respondent Court, be invoked as an argument against the deposit theory.
Obviously, the first paragraph of such provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such documents are kept in a rented safety deposit
box. It is clear that the depositary cannot open the box without the renter being present.

We observe, however, that the deposit theory itself does not altogether find unanimous support even
in American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that
the relation between a bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire and mutual benefit. 21 This
is just the prevailing view because:

There is, however, some support for the view that the relationship in question might be
more properly characterized as that of landlord and tenant, or lessor and lessee. It has
also been suggested that it should be characterized as that of licensor and licensee.
The relation between a bank, safe-deposit company, or storage company, and the
renter of a safe-deposit box therein, is often described as contractual, express or
implied, oral or written, in whole or in part. But there is apparently no jurisdiction in
which any rule other than that applicable to bailments governs questions of the liability
and rights of the parties in respect of loss of the contents of safe-deposit
boxes. 22 (citations omitted)

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is
clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of
the General Banking Act 23 pertinently provides:

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the
following services:

(a) Receive in custody funds, documents, and valuable objects, and

rent safety deposit boxes for the safeguarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of
this section as depositories or as agents. . . . 24 (emphasis supplied)

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out
of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function. A contract of deposit may be entered into orally or in writing 25 and, pursuant to Article 1306
of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good customs, public
order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in
the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be
liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the
tenor of the agreement. 26 In the absence of any stipulation prescribing the degree of diligence
required, that of a good father of a family is to be observed. 27 Hence, any stipulation exempting the
depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence
or delay would be void for being contrary to law and public policy. In the instant case, petitioner
maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which
read:

13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith. 28
 are void as they are contrary to law and public policy. We find Ourselves in agreement with
this proposition for indeed, said provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt
the latter from any liability except as contemplated in condition 8 thereof which limits its duty
to exercise reasonable diligence only with respect to who shall be admitted to any rented safe,
to wit:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to
any rented safe and beyond this, the Bank will not be responsible for the contents of
any safe rented from it. 29

Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of
the Bank. It is not correct to assert that the Bank has neither the possession nor control of the
contents of the box since in fact, the safety deposit box itself is located in its premises and is
under its absolute control; moreover, the respondent Bank keeps the guard key to the said
box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates
by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing
conditions in the contract in question are void and ineffective. It has been said:

With respect to property deposited in a safe-deposit box by a customer of a safe-

deposit company, the parties, since the relation is a contractual one, may by special
contract define their respective duties or provide for increasing or limiting the liability
of the deposit company, provided such contract is not in violation of law or public policy.
It must clearly appear that there actually was such a special contract, however, in order
to vary the ordinary obligations implied by law from the relationship of the parties;
liability of the deposit company will not be enlarged or restricted by words of doubtful
meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its
own fraud or negligence or that of its agents or servants, and if a provision of the
contract may be construed as an attempt to do so, it will be held ineffective for the
purpose. Although it has been held that the lessor of a safe-deposit box cannot limit
its liability for loss of the contents thereof through its own negligence, the view has
been taken that such a lessor may limits its liability to some extent by agreement or
stipulation. 30 (citations omitted)

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition
should be dismissed, but on grounds quite different from those relied upon by the Court of Appeals.
In the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of
Appeals, be based on or proceed from a characterization of the impugned contract as a contract of
lease, but rather on the fact that no competent proof was presented to show that respondent Bank
was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates
of title were withdrawable from the safety deposit box only upon both parties' joint signatures, and that
no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or
negligence of the respondent Bank. This in turn flows from this Court's determination that the contract
involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have
one (1) renter's key, it was obvious that either of them could ask the Bank for access to the safety
deposit box and, with the use of such key and the Bank's own guard key, could open the said box,
without the other renter being present.

Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its
part had been established, the trial court erred in condemning the petitioner to pay the respondent
Bank attorney's fees. To this extent, the Decision (dispositive portion) of public respondent Court of
Appeals must be modified.

WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees
from the 4 July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As
modified, and subject to the pronouncement We made above on the nature of the relationship between
the parties in a contract of lease of safety deposit boxes, the dispositive portion of the said Decision is
hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit.

No pronouncement as to costs.

SO ORDERED.

Feliciano, Bidin, Romero and Melo, JJ., concur.

Gutierrez, Jr., J., is on leave.

Gopoco Grocery v. Pacific Coast Biscuit Co.

G.R. Nos. L-43697 and L-442200, March 31, 1938

Mercantile Bank of China was declared in liquidation as it could not continue operating as such without
running the risk of suffering losses and prejudice its depositors and customers. Creditors Gopoco
Grocery, et. al. alleged that they deposited sum of money in the bank under liquidation on current
account.

To resolve these claims, Fulgencio Borromeo was appointed by the lower court as commissioner and
referee to receive the evidence which the interested parties may desire to present. Borromeo resolved
the claims by recommending that the same be considered as an ordinary credit only, and not as a
preferred credit as Gopoco Grocery, Et Al wanted, because they were at the same time debtors of the
bank. The lower court upheld Borromeo’s recommendations.

Gopoco Grocery, et. al. contended that their claims are preferred credits because they are deposits in
contemplation of law, and as such, should be returned with the corresponding interest thereon.

ISSUE: WON the lower court erred in not holding petitioners’ claims as preferred credits?

RULING:
NO, deposits on current account in the bank now under liquidation are considered ordinary

credits only.

Gopoco Grocery, et. al., themselves, admit that the bank owes them interest which should have been
paid to them before it was declared in a state of liquidation. This fact undoubtedly destroys the
character which they nullifies their contention that the same be considered as irregular deposits,
because the payment of interest only takes place in the case of loans.

The so-called current account and savings deposits have lost their character of deposits and are
convertible into simple commercial loans because, in cases of such deposits, the bank has made use
thereof in the ordinary course of its transactions as an institution engaged in the banking business, not
because it so wishes, but precisely because of the authority deemed to have been granted to it by
Gopoco Grocery, Et Al to enable them to collect the interest which they had been and they are now
collecting, and by virtue further of the authority granted to it by Corporation Law and Banking Law.

Wherefore, deposits on current account of Gopoco Grocery, Et Al in the bank under liquidation, with the
right on their part to collect interest, have not created and could not create a juridical relation between
them except that of creditors and debtor, they being the creditors and the bank the debtor.
BPI Family Bank v. Franco
Facts:
An ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB) allegedly by
respondent Amado Franco in conspiracy with other individuals, some of whom opened and
maintained separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a series
of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. opened a savings and current
account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment Corporation
(FMIC) also opened a time deposit account with the same branch of BPI-FB with a deposit of
P100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current, savings, and
time deposit, with BPI-FB. The current and savings accounts were respectively funded with an
initial deposit of P500,000.00 each, while the time deposit account had P1,000,000.00 with a
maturity date of August 31, 1990. The total amount of P2,000,000.00 used to open these accounts
is traceable to a check issued by Tevesteco allegedly in consideration of Franco's introduction of
Eladio Teves, who was looking for a conduit bank to facilitate Tevesteco's business transactions,
to Jaime Sebastian, who was then BPI-FB SFDM's Branch Manager. In turn, the funding for the
P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from FMIC's time deposit
account and credited to Tevesteco's current account pursuant to an Authority to Debit purportedly
signed by FMIC's officers.

It appears, however, that the signatures of FMIC's officers on the Authority to Debit were forged.
On September 4, 1989, Antonio Ong, upon being shown the Authority to Debit, personally
declared his signature therein to be a forgery. Unfortunately, Tevesteco had already effected
several withdrawals from its current account (to which had been credited the P80,000,000.00
covered by the forged Authority to Debit) amounting to P37,455,410.54, including the
P2,000,000.00 paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMIC's forgery
claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin to
debit Franco's savings and current accounts for the amounts remaining therein. However, Franco's
time deposit account could not be debited due to the capacity limitations of BPI-FB's computer.

In the meantime, two checks drawn by Franco against his BPI-FB current account were dishonored
upon presentment for payment, and stamped with a notation "account under garnishment."
Apparently, Franco's current account was garnished by virtue of an Order of Attachment issued by
the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which
had been filed by BPI-FB against Franco et al.,[14] to recover the P37,455,410.54 representing
Tevesteco's total withdrawals from its account.

Issue:
Whether or not Franco had a better right in the deposits in the subject accounts which are part of
the proceeds of a forged Authority to Debit

Held:
BPI-FB cannot unilaterally freeze Franco's accounts and preclude him from withdrawing his
deposits. However, contrary to the appellate court's ruling, the Court held that Franco is not entitled
to unearned interest on the time deposit as well as to moral and exemplary damages.

BPI-FB urges the Court that the legal consequence of FMIC's forgery claim is that the money
transferred by BPI-FB to Tevesteco is its own, and considering that it was able to recover
possession of the same when the money was redeposited by Franco, it had the right to set up its
ownership thereon and freeze Franco's accounts.

To bolster its position, BPI-FB cites Article 559 of the Civil Code, which provides:
Article 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover
it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired
it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price
paid therefor.
BPI-FB's argument is unsound. To begin with, the movable property mentioned in Article 559 of
the Civil Code pertains to a specific or determinate thing. A determinate or specific thing is one
that is individualized and can be identified or distinguished from others of the same kind.

In this case, the deposit in Franco's accounts consists of money which, albeit characterized as a
movable, is generic and fungible.The quality of being fungible depends upon the possibility of the
property, because of its nature or the will of the parties, being substituted by others of the same
kind, not having a distinct individuality.

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of
a movable to recover the exact same thing from the current possessor, BPI-FB simply claims
ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly
debited from FMIC's account and credited to Tevesteco's, and subsequently traced to Franco's
account. In fact, this is what BPI-FB did in filing the Makati Case against Franco, et al. It staked
its claim on the money itself which passed from one account to another, commencing with the
forged Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership, and this characteristic
is all the more manifest in the instant case which involves money in a banking transaction gone
awry. Its primary function is to pass from hand to hand as a medium of exchange, without other
evidence of its title. Money, which had passed through various transactions in the general course
of banking business, even if of traceable origin, is no exception.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-46240 November 3, 1939

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,

vs.
BECK, defendant-appellee.

Mauricio Carlos for appellants.

Felipe Buencamino, Jr. for appellee.

Doctrine: In a contract of commodatum the ownership is retained by the

person who loaned it and must be returned to them as stipulated in their
agreement. (Arts. 1933, 1946-1958)

Petition: Plaintiff brought an action to compel Beck to return the furniture. CFI
ordered that Beck return the heaters and lamps, that plaintiff may call for the other
furniture from the sheriff at her own expense, and that the fees which the Sheriff may
charge for the deposit of the furniture be paid pro rata (proportionally) by both parties.
Plaintiffs appealed the ruling.

Facts:
Defendant Beck was a tenant of the plaintiff and as such occupied the latter's house
(M. H. del Pilar street, No. 1175). Upon the novation of the contract of lease between
the plaintiff and the defendant, the former gratuitously granted to the latter the use of
the furniture, subject to the condition that the defendant would return them to the
plaintiff upon the latter's demand.
The plaintiff sold the property to the Lopezes and notified the defendant of the
conveyance, giving him 60 days to vacate the premises under one of the clauses of
the contract of lease. Thereafter the plaintiff required the defendant to return ALL
THE FURNITURE transferred to him for them in the house where they were found.
The defendant wrote to the plaintiff reiterating that she may call for the furniture in
the ground floor of the house. The defendant wrote another letter to the plaintiff
informing her that he could not give up the three gas heaters and the four electric
lamps because he would use them until 15th day of the month when the lease is due
to expire. The plaintiff refused to get the furniture because the defendant
Page 1 of 3
had declined to make delivery of all of them. Upon the expiration of the lease
and before vacating the house, the defendant deposited with the Sheriff all the
furniture belonging to the plaintiff.
Petitioner’s Contention: The trial court incorrectly applied the law, in holding that
they (plaintiff) violated the contract by not calling for all the furniture, when the
defendant placed them at their disposal.

Issue: Whether or not the defendant complied with his obligation to return the
furniture upon the plaintiff's demand. (NO)
To dispose of the case, it is only necessary to decide whether the defendant complied
with his obligation to return the furniture upon the plaintiff's demand; whether the
latter is bound to bear the deposit fees thereof, and whether she is entitled to the
costs of litigation.

Ruling:
The contract entered into between the parties is one of commadatum, because under
it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving
for herself the ownership thereof; by this contract the defendant bound himself to
return the furniture to the plaintiff, upon the latter’s demand (clause 7 of the
contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code).
The obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should return all of them to the plaintiff at
the latter's residence or house. The defendant did not comply with this
obligation when he merely placed them at the disposal of the plaintiff,
retaining for his benefit the three gas heaters and the four electric lamps. The
provisions of article 1169 of the Civil Code cited by counsel for the parties are not
squarely applicable.
The trial court, therefore, erred when it came to the legal conclusion that the plaintiff
failed to comply with her obligation to get the furniture when they were offered to
her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff,
upon the latter's demand, the Court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture at the defendant's behest. The latter, as
bailee, was not entitled to place the furniture on deposit; nor was the plaintiff
under a duty to accept the offer to return the furniture, because the defendant
wanted to retain the three gas heaters and the four electric lamps.
The costs in both instances should be borne by the defendant
The defendant was the one who breached the contract of commodatum, and without
any reason he refused to return and deliver all the furniture upon the plaintiff's
demand. In these circumstances, it is just and equitable that he pay the legal
Page 2 of 3
expenses and other judicial costs which the plaintiff would not have otherwise
defrayed.

SC Decision: The appealed judgment is modified and the defendant is ordered to

return and deliver to the plaintiff, in the residence to return and deliver to the plaintiff,
in the residence or house of the latter, all the furniture. The expenses which may be
occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for
the account of the defendant. The defendant shall pay the costs in both instances.

Page 3 of 3
IPPOLITO v. HOSPITALITY
MANAGEMENT ASSOCIATES
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Court of Appeals of South Carolina.

Joseph IPPOLITO and Marie Ippolito, Respondents, v. HOSPITALITY
MANAGEMENT ASSOCIATES and Holiday Inns, Inc., Appellants.

No. 3586.

Decided: January 06, 2003

I. Keith McCarty and Lindsay K. Smith-Yancey, both of Charleston, for Appellants. M.

Anderson Griffith, of Aiken, for Respondent.

This is an action in tort for loss of baggage and jewelry by Joseph and Marie Ippolito
against Hospitality Management Associates and Holiday Inns, Inc. (collectively
“Innkeeper”). The jury awarded the Ippolitos $210,000. After the trial, Innkeeper
moved for judgment notwithstanding the verdict and new trial nisi remittitur, arguing that
its compliance with the South Carolina Innkeeper's Statute either shielded it from liability
or limited its liability. Innkeeper also moved for a new trial absolute, contending the
trial judge erroneously admitted evidence of past criminal incidents at the hotel. The
trial judge denied all three motions, and Innkeeper appeals. We affirm.

FACTS

While traveling from Florida to Connecticut, Mr. and Mrs. Ipppolito stopped in
Walterboro, South Carolina and paid for a room at a Holiday Inn. At the hotel, Mr.
Ippolito signed a registration card on which was written, “The management is not
responsible for any valuables not secured in safety deposit boxes provided at the front
office.” In addition to the language on the registration card, notice that the hotel had
safety deposit boxes available for guests' valuables was also printed on the pouch that
enclosed the key-card to the Ippolitos' room.

After bringing their luggage to the room, the Ippolitos walked to a nearby restaurant, and
they returned approximately forty minutes later. Upon their return, they noticed that
pieces of their luggage, which contained jewelry valued at over $500,000 and
approximately $8,000 in cash, were missing.

The Ippolitos sued Innkeeper, alleging their property loss resulted from “․ the
negligence, gross negligence, reckless, willful, wanton and careless action ․” of
Innkeeper, including “․ failing to post proper notices as required under South Carolina
law.” In its answer, Innkeeper generally denied the allegations and argued, inter alia,
that its liability was limited or eliminated because it complied with South Carolina's
“Innkeepers' Statute,” which limits an innkeeper's liability for guests' loss of property
where the Innkeeper provides “conspicuous notice” that safety deposit boxes are
available for the guests' use.

At trial, Mrs. Ippolito testified that, prior to the disappearance of their belongings, she
looked around the hotel room for notice of the availability of hotel safety deposit boxes
for her valuables, but saw no such notice. Mr. Ippolito also testified he did not see any
notice of the availability of safety deposit boxes posted in the room;  however, he
admitted that if such notice was posted, he may have overlooked it. Despite not
seeing a notice in the room, Mr. Ippolito testified he was aware that Innkeeper provided
safety deposit boxes, but he chose not to request a box from the Innkeeper because
“[he] felt that the less anybody knew what [he] had[,] the better.”  1

Innkeeper provided testimony from several of its former and current employees
regarding its security procedures and its dedication to adhering to those procedures,
particularly for providing guests with notice of the availability of safety deposit boxes.
Officer Arthur McTeer Sadler, who investigated the incident, also testified on
Innkeeper's behalf, claiming that although he made no mention of it in his incident
report, he saw a notice posted on the back of the hotel room door indicating Innkeeper
had safety deposit boxes available. A security expert also testified, saying Innkeeper's
level of security at the time of the incident exceeded the industry standard.

On cross-examination of the security expert, the trial judge overruled Innkeeper's

objection and allowed opposing counsel to ask whether the expert knew about past
security problems at Innkeeper's hotel in which Innkeeper's employees spied on guests
through peepholes. The expert replied that he was not aware of those prior incidents.

At the end of the trial, Innkeeper moved for a directed verdict on the grounds that (1) it
complied with the South Carolina “Innkeepers' Statute,” and (2) it did not fall under an
exception to the liability protection afforded by the statute because there was no
evidence Innkeeper acted willfully or wantonly. The trial judge granted Innkeeper's
motion on willfulness, but denied Innkeeper's motion regarding compliance with the
statute.

The jury awarded the Ippolitos $350,000 in actual damages. However, the jury found
that the Ippolitos were forty percent comparatively negligent, and reduced the award to
$210,000. Innkeeper promptly moved for a judgment notwithstanding the verdict
(JNOV), new trial absolute, and new trial nisi remittitur. The trial judge denied all three
motions, and this appeal follows.

ISSUES
I. Did the trial judge err in denying the JNOV motion because Innkeeper complied
with the statute, thus relieving it from liability for property missing from the Ippolitos'
hotel room?

II. Did the trial judge err in denying Innkeeper's new trial nisi remittitur motion where
no evidence of willful conduct existed?

III. Did the trial judge err in denying Innkeeper's motion for a new trial absolute where
the judge admitted evidence of past criminal incidents at the hotel that Innkeeper
contends were irrelevant to the Ippolitos' civil action?

LAW/ANALYSIS

Initially, we note this is a matter of first impression in South Carolina. Although our
Innkeeper's Statute has been in place for over a century, until now, no appellate court in
our state has interpreted the statute's meaning. S.C.Code Ann. § 45-1-40 (1976).

The first portion of the South Carolina Innkeeper's Statute states that Innkeepers who
post a conspicuous notice in guests' rooms requiring guests to lock their doors, leave
their keys at the office, and deposit money and jewels in the Innkeeper's safety deposit
box are not liable for the loss of any baggage, money, or jewels left in the room. Id.
Specifically, the statute states:

Whenever an innkeeper shall post and keep posted in a conspicuous manner in the
room occupied by any guest a notice requiring such guest to bolt the door of his room,
or leaving his room to lock the door and leave the keys at the office, and also to deposit
such money and jewels as are not ordinarily carried upon the person in the office safe,
and the guest shall neglect to comply with the requirements of such notice, the
innkeeper shall not be liable for the loss of any baggage of such guest which may be
lost or stolen from his room or for the loss of any money or jewels not deposited in the
safe.

Id. (emphasis added).

The statute further states that regardless of this exemption from liability provision, even
innkeepers who meet the posting requirement will be liable for up to $500 for lost or
stolen baggage from the room and up to $2,000 for lost or stolen money and jewelry
from the safe if the innkeeper's negligence contributed to the guest's loss. This part of
the statute reads as follows:

Provided, however, that notwithstanding the provisions of this section, any innkeeper
who by his own negligence contributes to the loss or damage to baggage or personal
property, other than money or jewelry, from guest rooms, or to the loss or damage to
money or jewelry from his safe, may be liable to the guest for the actual value of such
baggage or personal property or five hundred dollars, whichever is less, or the actual
value of such money or jewelry or two thousand dollars, whichever is less.
Id. Accordingly, if an innkeeper fails to post notice, this section is not applicable, and the
innkeeper's liability is not limited. Likewise, even if an innkeeper is negligent, so long
as the innkeeper properly posts notice, the innkeeper will not be liable for any money or
jewelry left in the guest's room. Only when guests abide by the properly posted notice
and the innkeeper's negligence contributes to the loss of guest's baggage, jewelry, or
money does the innkeeper have this limited liability.

Finally, the statute includes the following language providing no protection from liability
when an Innkeeper's willful or wanton conduct contributes to the guest's property loss,
even where the Innkeeper complies with the statute's notice requirements:

Provided, however, that, notwithstanding the provisions of this section, any innkeeper
who by his own willfulness contributes to the loss or damage to the personal property of
a guest shall not have his liability limited in any manner by the provisions of this section.

Id.

I. JNOV Motion

Innkeeper first argues the trial court erred in denying its JNOV motion because it
complied with the statute's notice requirements, thereby limiting its liability for property
missing from the Ippolitos' hotel room. We disagree.

In ruling on a JNOV motion, the trial court must view the evidence and inferences that
reasonably can be drawn therefrom in the light most favorable to the party opposing the
motion. Steinke v. South Carolina Dep't of Labor, Licensing and Regulation, 336 S.C.
373, 386, 520 S.E.2d 142, 148 (1999). The trial court must deny the motion when the
evidence yields more than one inference or its inference is in doubt. Id. Here, the
Ippolitos testified that neither of them saw any conspicuously posted notice in their room
indicating that the hotel had safety deposit boxes available in which they could store
their valuables. Although testimony from Officer Sadler, as well as several of
Innkeeper's current and former employees, contradicts this evidence, the existence of
conflicting evidence precludes us from finding as a matter of law that Innkeeper
complied with the statute.

II. New Trial Nisi Remittitur Motion

Innkeeper argues the trial court erred in denying its motion for a new trial nisi remittitur,
arguing the Ippolitos failed to prove their loss resulted from its willful conduct and that its
liability should accordingly be reduced to conform with the statute's limits. However,
we need not reach this issue because the finder of fact implicitly found that Innkeeper
failed to comply with the statute's notice requirements. Thus, Innkeeper cannot avail
itself of the statute's protection from liability, regardless of whether its actions
contributed to the Ippolitos' loss.

III. New Trial Absolute Motion

 Finally, Innkeeper argues the circuit court erred in denying its motion for a new trial
absolute, where the court admitted evidence of past criminal incidents at the hotel that
Innkeeper contends were irrelevant to the Ippolitos' civil action. We disagree.

The admission and rejection of testimony is largely within the trial judge's sound
discretion and will not be disturbed on appeal absent appellant's showing that the trial
court abused its discretion or its decision was controlled by an error of law. Reiland v.
Southland Equip. Serv., Inc., 330 S.C. 617, 634, 500 S.E.2d 145, 154 (Ct.App.1998).
Here, Innkeeper presented evidence concerning the quality of its security practices to
refute allegations of negligence. Significantly, its security expert testified that he found
the level of security at the hotel to be “extremely good.” On cross-examination, the
Ippolitos sought to question Booth, the security expert, about his knowledge of peephole
incidents at the hotel, arguing the past incidents were relevant to the soundness of
Innkeeper's security standards and practices. The trial court allowed the testimony.
The Ippolitos asked Booth two questions regarding whether he learned about the
peephole incidents during his investigation of the incident. Booth answered that he did
not.

Because we find the Innkeeper offered evidence concerning the quality of its security,
we cannot say as a matter of law that the trial court erred in admitting evidence
contradicting this testimony. We find no evidence in the record indicating that Innkeeper
suffered any prejudice from the Ippolitos' two questions concerning Booth's knowledge
of the peephole incidents or his negative responses. See Recco Tape & Label Co. v.
Barfield, 312 S.C. 214, 216, 439 S.E.2d 838, 840 (1994) (stating that to warrant reversal
based on admission of evidence, an appellant “must show both the error of the ruling of
law and resulting prejudice.”) Accordingly, we find the trial court did not err in denying
Innkeeper's motion for a new trial absolute. See Folkens v. Hunt, 300 S.C. 251, 254-
55, 387 S.E.2d 265, 267 (1990) (stating that an appellate court will uphold a trial judge's
order granting or denying a new trial unless it is “wholly unsupported by the evidence, or
the conclusion reached was controlled by an error of law”).

For the foregoing reasons, the trial court's decision is

AFFIRMED.

FOOTNOTES

1. In arguing its post trial motions, Innkeeper urged the court to consider Mr.
Ippolito's actual knowledge of the availability of safety deposit boxes. However, to fall
within the protections of the Innkeeper's Statute, the notice innkeepers post must inform
guests that they are required to place their jewels and money in the innkeeper's safe.
S.C.Code Ann. § 45-1-40 (1976). Here, Mr. Ippolito only admitted to knowing that
Innkeeper had a safe available;  he did not admit to knowing he was required to place
his money and jewelry in that safe.

HEARN, C.J.:
 SILOS v. PNB

DOCTRINE:
Escalation clauses providing for unilateral increases made by one party violates
the principle of mutuality of contracts. Although these provisions are deemed
part of the contract, there cannot be a unilateral increase by one party
because there must still be assent by the other party. In a loan contract, since
interest rates are an essential part, any changes to it must be mutually assented
to by both parties.

FACTS:
Spouses Silos secured a credit line with PNB involving a Credit Agreement and a
mortgage to secure such an agreement. The spouses also issued several
promissory notes to cover their payment. In all documents, there were
escalation clauses/provisions allowing PNB to increase or reduce interest rates
unilaterally. These were found to be violative of the principle of the mutuality of
contracts.

ISSUE: WON the interest rate provision in the Credit Agreement and the
Amendment to Credit Agreement is null and void for giving PNB the sole power
to fix the rates [YES]

HELD: The provision giving PNB the sole unilateral determination to fix the interest
is void.

Spouses: The provision relegates to PNB the sole power to 
fix the rates based
on arbitrary criteria and the promissory notes were left blank for PNB to
unilaterally fill = violates the principle of mutuality of contracts.

PNB: Since the Credit Agreement and promissory notes contained both an
escalation clause and a de-escalation clause, the bank did not violate the
principle of mutuality; plus, the parties mutually agreed, as shown by the
continuous payment without protest by the spouses.

Spouses: Principle of estoppel doesn’t apply because no estoppel can proceed

from an illegal act 
 PNB: Spouses are estopped because they failed to
question the imposed rates and they continued to pay without opposition.

In a number of decided cases, the Court struck down provisions in credit

documents issued by PNB to, or required of, its borrowers which allow the bank
to increase or decrease interest rates “within the limits allowed by law at any
time depending on whatever policy it may adopt in the future”

a) PNB v. CA (1991): stipulation and similar ones were declared in violation of

Art. 1308 NCC.
b) PNB v. CA (1994): again invalidated
 Bank relied on the escalation clause, which is 
authorized by Sec. 2 of
PD 1684, which amended 
Act No. 2655 (“The Usury Law”)
 Sec. 1 of PD 1684 also empowered the Monetary 
Board to prescribe
maximum rates of interest for loans and certain forbearances and the
Central Bank Circular (issued by the Monetary Board) provides that the
rate of interest shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law
 Court here held that while PD 1684 and CB Circular No. 905 allowed
 contracting parties to stipulate freely regarding adjustments in the
interest rate, the law and circular did not authorize either party to
unilaterally raise the interest rate without the other’s consent 

 There can be no contract in the true sense in the absence of the
element of agreement or of mutual assent of the parties
 Contract changes must be made with the consent of the contracting
parties, especially when it affects an important aspect of the
agreement; rate of interest is always a vital component of loan
contracts
 Cannot countenance PNB’s posturing that the escalation clause gives
it unbridled right to unilaterally upwardly adjust the interest because it
would take away the respondents’ right to assent to an important
modification in their agreement and would negate the element of
mutuality of contracts
c) Sps. Almeda v. CA (1996): court invalidated the same provisions as in the
instant case’s Credit Agreement
 Here, PNB unilaterally altered the terms of its 
contract by increasing
the interest rates on the loan 
without the prior assent of the
petitioners
 Escalation clauses are not basically wrong or legally objectionable so
long as they are not solely potestative but based on reasonable and
valid 
grounds 

d) PNB v. CA (1996):
 The Court in Banco Filipino Savings & Mortgage 
Bank v. Navarro said
that there must be a de- escalation clause to mitigate the one-
sidedness of the escalation clause because of concern for the
unequal status of borrowers vis-à-vis the banks and any increase in the
rate of interest made pursuant to an escalation clause must be the
result of agreement between the parties 

 Court, citing a PNB v. CA case, declared that increases unilaterally
imposed by PNB are in violation of the principle of mutuality as
embodied in Art. 1308, NCC 

 Court cited another PNB v. CA case which stated that while the Usury
Law ceiling on rates was lifted, nothing could be read as granting the
bank carte blanche authority to raise interest rates to levels which
would either enslave its borrowers or lead to a hemorrhaging of their
assets; Court found that there was no attempt by PNB there to secure
the conformity of the borrowers, and the assent to the increases
CANNOT be implied from the lack of response to the letters of PNB
informing them of increases
e) e) New Sampaguita Builders Construction, Inc. v. PNB (2004): court said
that excessive interests, penalties and other charges not revealed in
disclosure statements issued by banks, even if stipulated in the promissory
notes, cannot be given effect under the Truth in Lending Act 

f) PNB v. Sps. Rocamora (2009): above pronouncements were reiterated to
debunk PNB’s repeated reliance on its invalidated contract stipulations
 PNB’s argument that the spouses failure to contest the increased
interest rates amounted to implied acceptance increase should fail
 All the cases, including the present one, involve identical or 
similar
provisions 

 SC: These stipulations must be once more invalidated, as 
was done
in previous cases. The common denominator in these cases is the lack
of agreement of the parties to the imposed interest rates

 - Lack of consent: spouses signed the promissory notes 
in blank
(credible testimony by Lydia)

- PNB Branch Manager even admitted that interest rates 
were
fixed solely by its Treasury Department, and the factors considered
do not include factors which affect PNB’s borrowers
- PNB’s method of fixing interest rates is arbitrary based on one-
sided, indeterminate, and subjective criteria 

 SC: any modification in the contract, such as the interest rates, must
be made with the consent of the contracting parties. The minds of all
the parties must meet as to the proposed modification, especially
when it affects an important aspect of the agreement. In the case of
loan agreements, the rate of interest is a principal condition, if not the
most important component. Thus, any modification thereof must be
mutually agreed upon; otherwise, it has no binding effect.

- The stipulations here don’t even provide that the parties will agree
upon the interest rate – they are worded in such a way that the
borrower shall agree to whatever interest rate PNB fixes (ABSURD)
 SC: with the present credit agreement, the element of consent or
agreement by the borrower is now completely lacking, which makes
respondent’s unlawful act all the more reprehensible.
 SC: petitioners are correct in arguing that estoppel should not apply to
them, for “estoppel cannot be predicated on an illegal act.

- Since PNB violated the Truth in Lending Act (RA 3765), which was
enacted to protect citizens from a lack of awareness of the true
cost of credit to the user by using a full disclosure of such cost
- By requiring the spouses to sign the documents and notes in blank,
and then unilaterally filling them up later on, PNB violated the Truth
in Lending Act, and was remiss in its disclosure obligations
- BUT the 1-year period to file a case prescribed already

 SC: Cannot subscribe to PNB’s argument that in every repricing, the
spouses are given the right to question the interest rates = if only one
questions PNB’s practice, the rest will still be victim to the questionable
practice and the Court cannot condone this

 Since the escalation clause is annulled, the principal amount of the
loan is subject to the original or stipulated rate of interest, and upon
maturity, the amount due shall be subject to legal interest at the rate
of 12% per annum

- Interests to be applied first to the payment of the stipulated or
legal and unpaid interest, and later, to the capital or principal

- Because only the interest rates are found to be improper, the
obligation to pay interest subsists, fixed at the legal rate of 12% per
annum (only until June 30, 2013). Starting July 1, 2013, it shall be 6%
per annum, pursuant to Nacar v. Gallery Frames and Monetary
Board Circular No. 799

DISPOSITIVE: Petition granted. CA Decision ANNULLED and SET ASIDE

ii. Loan (B. Commodatum) Obligations of Bailor and Bailee
(EXTINGUISHMENT)
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 80294-95 September 21, 1988

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,

vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.

Valdez, Ereso, Polido & Associates for petitioner.

Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.

Jaime G. de Leon for the Heirs of Egmidio Octaviano.

Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:

The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long time ago can properly be
considered res judicata by respondent Court of Appeals in the present two cases between petitioner and two private respondents.

Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division
of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R.
No. 05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the
Decision of the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and
Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as
follows:

WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar

Apostolic of the Mountain Province to return and surrender Lot 2 of Plan Psu-194357
to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other set of
plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or
insufficiency of evidence, the plaintiffs' claim or damages is hereby denied. Said
defendant is ordered to pay costs. (p. 36, Rollo)

Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's
conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in
the two cases affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in question;
that the two lots were possessed by the predecessors-in-interest of private respondents under claim
of ownership in good faith from 1906 to 1951; that petitioner had been in possession of the same lots
as bailee in commodatum up to 1951, when petitioner repudiated the trust and when it applied for
registration in 1962; that petitioner had just been in possession as owner for eleven years, hence there
is no possibility of acquisitive prescription which requires 10 years possession with just title and 30
years of possession without; that the principle of res judicata on these findings by the Court of Appeals
will bar a reopening of these questions of facts; and that those facts may no longer be altered.

Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two
aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.

The facts and background of these cases as narrated by the trail court are as follows —

... The documents and records presented reveal that the whole
controversy started when the defendant Catholic Vicar Apostolic of the
Mountain Province (VICAR for brevity) filed with the Court of First
Instance of Baguio Benguet on September 5, 1962 an application for
registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at
Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said
Lots being the sites of the Catholic Church building, convents, high
school building, school gymnasium, school dormitories, social hall,
stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the
Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos.
2 and 3, respectively, asserting ownership and title thereto. After trial
on the merits, the land registration court promulgated its Decision,
dated November 17, 1965, confirming the registrable title of VICAR to
Lots 1, 2, 3, and 4.

The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655)
and the Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case
No. 3607) appealed the decision of the land registration court to the
then Court of Appeals, docketed as CA-G.R. No. 38830-R. The Court
of Appeals rendered its decision, dated May 9, 1977, reversing the
decision of the land registration court and dismissing the VICAR's
application as to Lots 2 and 3, the lots claimed by the two sets of
oppositors in the land registration case (and two sets of plaintiffs in the
two cases now at bar), the first lot being presently occupied by the
convent and the second by the women's dormitory and the sister's
convent.

On May 9, 1977, the Heirs of Octaviano filed a motion for

reconsideration praying the Court of Appeals to order the registration
of Lot 3 in the names of the Heirs of Egmidio Octaviano, and on May
17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their motion
for reconsideration praying that both Lots 2 and 3 be ordered
registered in the names of the Heirs of Juan Valdez and Pacita Valdez.
On August 12,1977, the Court of Appeals denied the motion for
reconsideration filed by the Heirs of Juan Valdez on the ground that
there was "no sufficient merit to justify reconsideration one way or the
other ...," and likewise denied that of the Heirs of Egmidio Octaviano.

Thereupon, the VICAR filed with the Supreme Court a petition for
review on certiorari of the decision of the Court of Appeals dismissing
his (its) application for registration of Lots 2 and 3, docketed as G.R.
No. L-46832, entitled 'Catholic Vicar Apostolic of the Mountain
Province vs. Court of Appeals and Heirs of Egmidio Octaviano.'

From the denial by the Court of Appeals of their motion for

reconsideration the Heirs of Juan Valdez and Pacita Valdez, on
September 8, 1977, filed with the Supreme Court a petition for review,
docketed as G.R. No. L-46872, entitled, Heirs of Juan Valdez and
Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio Octaviano
and Annable O. Valdez.

On January 13, 1978, the Supreme Court denied in a minute resolution

both petitions (of VICAR on the one hand and the Heirs of Juan Valdez
and Pacita Valdez on the other) for lack of merit. Upon the finality of
both Supreme Court resolutions in G.R. No. L-46832 and G.R. No. L-
46872, the Heirs of Octaviano filed with the then Court of First Instance
of Baguio, Branch II, a Motion For Execution of Judgment praying that
the Heirs of Octaviano be placed in possession of Lot 3. The Court,
presided over by Hon. Salvador J. Valdez, on December 7, 1978,
denied the motion on the ground that the Court of Appeals decision in
CA-G.R. No. 38870 did not grant the Heirs of Octaviano any affirmative
relief.

On February 7, 1979, the Heirs of Octaviano filed with the Court of

Appeals a petitioner for certiorari and mandamus, docketed as CA-
G.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs. Hon.
Salvador J. Valdez, Jr. and Vicar. In its decision dated May 16, 1979,
the Court of Appeals dismissed the petition.
 It was at that stage that the instant cases were filed. The Heirs of
Egmidio Octaviano filed Civil Case No. 3607 (419) on July 24, 1979,
for recovery of possession of Lot 3; and the Heirs of Juan Valdez filed
Civil Case No. 3655 (429) on September 24, 1979, likewise for
recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.).

In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano
presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership
of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano
(Exh. C ); his written demand (Exh. B—B-4 ) to defendant Vicar for the return of the
land to them; and the reasonable rentals for the use of the land at P10,000.00 per
month. On the other hand, defendant Vicar presented the Register of Deeds for the
Province of Benguet, Atty. Nicanor Sison, who testified that the land in question is not
covered by any title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8).
The defendant dispensed with the testimony of Mons.William Brasseur when the
plaintiffs admitted that the witness if called to the witness stand, would testify that
defendant Vicar has been in possession of Lot 3, for seventy-five (75) years
continuously and peacefully and has constructed permanent structures thereon.

In Civil Case No. 3655, the parties admitting that the material facts are not in dispute,
submitted the case on the sole issue of whether or not the decisions of the Court of
Appeals and the Supreme Court touching on the ownership of Lot 2, which in effect
declared the plaintiffs the owners of the land constitute res judicata.

In these two cases , the plaintiffs argue that the defendant Vicar is barred from setting
up the defense of ownership and/or long and continuous possession of the two lots in
question since this is barred by prior judgment of the Court of Appeals in CA-G.R. No.
038830-R under the principle of res judicata. Plaintiffs contend that the question of
possession and ownership have already been determined by the Court of Appeals
(Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh.
1, Minute Resolution of the Supreme Court). On his part, defendant Vicar maintains
that the principle of res judicata would not prevent them from litigating the issues of
long possession and ownership because the dispositive portion of the prior judgment
in CA-G.R. No. 038830-R merely dismissed their application for registration and titling
of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the
decision, and not its body, is the controlling pronouncement of the Court of Appeals. 2

The alleged errors committed by respondent Court of Appeals according to petitioner are as follows:

1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;

2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE
ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;

3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM

VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS
WERE VALDEZ AND OCTAVIANO;

4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO

WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;

5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS
AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT
APPLICATIONS SINCE 1906;

6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST
TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF THE
CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;

7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO.
038830 WAS AFFIRMED BY THE SUPREME COURT;

8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON

OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP
IN GOOD FAITH FROM 1906 TO 1951;

9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3

MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;

10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH
WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY THE FINALITY
AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3

The petition is bereft of merit.

Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149,
when it clearly held that it was in agreement with the findings of the trial court that the Decision of the
Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2
and 3, declared that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not positively
declare private respondents as owners of the land, neither was it declared that they were not owners
of the land, but it held that the predecessors of private respondents were possessors of Lots 2 and 3,
with claim of ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower in
commodatum up to 1951, when it repudiated the trust by declaring the properties in its name for
taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in
possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires
possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30
years. 4

On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-
G.R. No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's ruling that
said findings are res judicata between the parties. They can no longer be altered by presentation of
evidence because those issues were resolved with finality a long time ago. To ignore the principle
of res judicata would be to open the door to endless litigations by continuous determination of issues
without end.

An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R. No.
38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to register
the lands in question under its ownership, on its evaluation of evidence and conclusion of facts.

The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for
acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession
for ordinary acquisitive prescription because of the absence of just title. The appellate court did not
believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3
was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the alleged purchases were never
mentioned in the application for registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both
Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of
private respondents, not petitioner Vicar, were in possession of the questioned lots since 1906.

There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots
2 and 3, because the buildings standing thereon were only constructed after liberation in 1945.
Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The improvements oil Lots
1, 2, 3, 4 were paid for by the Bishop but said Bishop was appointed only in 1947, the church was
constructed only in 1951 and the new convent only 2 years before the trial in 1963.

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot
from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner
Vicar after the church and the convent were destroyed. They never asked for the return of the house,
but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee.
The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way
of ordinary acquisitive prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were
possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee
in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R.
Its findings of fact have become incontestible. This Court declined to review said decision, thereby in
effect, affirming it. It has become final and executory a long time ago.

Respondent appellate court did not commit any reversible error, much less grave abuse of discretion,
when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the
principle of res judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No.
05149. The facts as supported by evidence established in that decision may no longer be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit,
the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of
Appeals is AFFIRMED, with costs against petitioner.

SO ORDERED.

Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.

Footnotes

1 Associate Justices Conrado T. Limcaoco, Jose C. Campos, Jr. and Gloria C.

Paras.

2 Decision in CA-G.R. No. CV Nos. 05148 and 05149 dated August 31, 1987; pp. 11
2-117, Rollo.

3 Pp. 5-15, Petition; pp. 6-17, Rollo.

4 Arts. 1134 and 1129, Civil Code.

5 Presiding Justice Magno S. Gatmaitan, Associate Justices Pacifico P. de Castro

and Samuel Reyes.

6 Land Reg. No. N-91, LRC Rec. No. N-22991 of the then C.F.I. of Baguio City.
ii. Loan (B. Commodatum) Obligations of Bailor and Bailee (EXTINGUISHMENT)

CATHOLIC VICAR VS. CA

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents
G.R. No. 80294-95 September 21, 1988

Nature: Review on certiorari

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

GANCAYCO, J.

Facts:

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

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

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

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

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

Issue:

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

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

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

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

Petitioner repudiated the trust by declaring the properties in its name for taxation purposes.

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

Catholic Vicar Apostolic v. CA

Facts: filed with the Court of First Instance of Baguio Benguet on
September 5, 1962 an application for registration of title over Lots 1, 2,
3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad,
Benguet. the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano
filed their Answer/Opposition on Lots Nos. 2 and 3, respectively,
asserting ownership and title thereto. After trial on the merits, the land
registration court promulgated its Decision, dated November 17, 1965,
confirming the registrable title of VICAR to Lots 1, 2, 3, and 4. the
Respondent appealed the decision of the land registration court to the
then Court of Appeals, reversing the decision of the land registration
court and dismissing the VICAR’s application as to Lots 2 and 3, the lots
claimed by the two sets of oppositors in the land registration case. for
The Court of Appeals found that petitioner did not meet the
requirement of 30 years possession for acquisitive prescription over Lots
2 and 3. Neither did it satisfy the requirement of 10 years possession for
ordinary acquisitive prescription because of the absence of just title. The
appellate court did not believe the findings of the trial court that Lot 2
was acquired from Juan Valdez by purchase and Lot 3 was acquired also
by purchase from Egmidio Octaviano by petitioner Vicar because there
was absolutely no documentary evidence to support the same and the
alleged purchases were never mentioned in the application for
registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by

Valdez and Octaviano. Both Valdez and Octaviano had Free Patent
Application for those lots since 1906. The predecessors of private
respondents, not petitioner Vicar, were in possession of the questioned
lots since 1906.

There is evidence that petitioner Vicar occupied Lots 1 and 4, which are
not in question, but not Lots 2 and 3, because the buildings standing
thereon were only constructed after liberation in 1945. Petitioner Vicar
only declared Lots 2 and 3 for taxation purposes in 1951. The
improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said
Bishop was appointed only in 1947, the church was constructed only in
1951 and the new convent only 2 years before the trial in 1963.

When petitioner Vicar was notified of the oppositor’s claims, the parish
priest offered to buy the lot from Fructuoso Valdez. Lots 2 and 3 were
surveyed by request of petitioner Vicar only in 1962.

Issue:
Whether the ownership of a property maybe transfer to the bailee
(refers to the person who temporarily has possession of the property)
for failure of the bailor (refers to the original property owner) to
demand for the return of it.

Held:
No, The bailees’ failure to return the subject matter of commodatum to
the bailor did not mean adverse possession on the part of the borrower.
The bailee held in trust the property subject matter of commodatum.
The adverse claim of petitioner came only in 1951 when it declared the
lots for taxation purposes. The action of petitioner Vicar by such adverse
claim could not ripen into title by way of ordinary acquisitive
prescription because of the absence of just title. The Court of Appeals
found that the predecessors-in-interest and private respondents were
possessors under claim of ownership in good faith from 1906; that
petitioner Vicar was only a bailee in commodatum; and that the adverse
claim and repudiation of trust came only in 1951.

Catholic Vicar Apostolic v. CA

Facts:
Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the Court of
First Instance of Baguio Benguet on September 5, 1962 an application for registration of title over
Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed
as LRC N-91, said Lots being the sites of the Catholic Church building, convents, high school
building, school gymnasium, school dormitories, social hall, stonewalls, etc. On March 22, 1963
the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on
Lots Nos. 2 and 3, respectively, asserting ownership and title thereto.

Issue:
Whether or not there is an error in finding that petitioner had been in possession of lots 2 and 3
merely as bailee borrower in commodatum, a gratuitous loan for use

Held:
The Court of Appeals found that petitioner did not meet the requirement of 30 years possession
for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years
possession for ordinary acquisitive prescription because of the absence of just title. The appellate
court did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by
purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar
because there was absolutely no documentary evidence to support the same and the alleged
purchases were never mentioned in the application for registration.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not
Lots 2 and 3, because the buildings standing thereon were only constructed after liberation in 1945.
Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The improvements oil
Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was appointed only in 1947, the church
was constructed only in 1951 and the new convent only 2 years before the trial in 1963.

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the
lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner
Vicar after the church and the convent were destroyed. They never asked for the return of the
house, but when they allowed its free use, they became bailors in commodatum and the petitioner
the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not
mean adverse possession on the part of the borrower. The bailee held in trust the property subject
matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the
lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen
into title by way of ordinary acquisitive prescription because of the absence of just title.

Catholic Vicar Apostolic of Mountain

Province v. CA
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE v. COURT OF APPEALS, HEIRS
OF EGMIDIO OCTAVIANO AND JUAN VALDEZ
G.R. No. 80294-95 September 21, 1988
Gancayco, J.

FACTS:
The Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the
Court of First Instance of Baguio Benguet an application for registration of title over Lots 1,
2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, said Lots
being the sites of the Catholic Church building, convents, high school building, school
gymnasium, school dormitories, social hall, stonewalls, etc.

The Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition
on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on the
merits, the land registration court promulgated its Decision confirming the registrable title
of VICAR to Lots 1, 2, 3, and 4. The Court of Appeals rendered its decision reversing the
decision of the land registration court and dismissing the VICAR’s application as to Lots 2
and 3, the lots claimed by the two sets of oppositors in the land registration case (and two
sets of plaintiffs in the two cases now at bar), the first lot being presently occupied by the
convent and the second by the women’s dormitory and the sister’s convent.

The plaintiffs argue that the defendant Vicar is barred from setting up the defense of
ownership and/or long and continuous possession of the two lots in question since this is
barred by prior judgment of the Court of Appeals under the principle of res judicata.
Plaintiffs contend that the question of possession and ownership have already been
determined by the Court of Appeals and affirmed by the Supreme Court.
Defendant Vicar maintains that the principle of res judicata would not prevent them from
litigating the issues of long possession and ownership because the dispositive portion of the
prior merely dismissed their application for registration and titling of lots 2 and 3.
Defendant Vicar contends that only the dispositive portion of the decision, and not its body,
is the controlling pronouncement of the Court of Appeals

ISSUE:
May the decision of the Court of Appeals promulgated a long time ago can properly be
considered res judicata by respondent Court of Appeals in the present two cases between
petitioner and two private respondents?

HELD:
Yes. Petitioner was in possession as borrower in commodatum up to 1951, when it
repudiated the trust by declaring the properties in its name for taxation purposes. When
petitioner applied for registration of Lots 2 and 3 in 1962, it had been in possession in the
concept of an owner only for eleven years. Ordinary acquisitive prescription requires
possession for ten years, but always with just title. Extraordinary acquisitive prescription
requires 30 years.

Petitioner did not meet the requirement of 30 years possession for acquisitive prescription
over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary
acquisitive prescription because of the absence of just title. The appellate court did not
believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase
and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar
because there was absolutely no documentary evidence to support the same and the
alleged purchases were never mentioned in the application for registration.

Respondent appellate court did not commit any reversible error, much less grave abuse of
discretion, when it held that the Decision of the Court of Appeals is governing, under the
principle of res judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R.
No. 05149. The facts as supported by evidence established in that decision may no longer
be altered.
Consolidated Bank vs CA
GR No. 114286, 19 April 2001, 356 SCRA 671

FACTS:
On July 13, 1982, Continental Cement Corporation (Continental Cement) and its
President, Gregory Lim, obtained from Consolidated Bank and Trust Corporation (CBTC)
Letter of Credit in the amount of P1,068,150.00 which was used to purchase fuel oil from
Petrophil Corporation. On the same date, Continental Cement paid a marginal deposit of
P320,445.00 to CBTC. In relation to the same transaction, a trust receipt for the amount
of P1,001,520.93 was executed by Continental Cement. CBTC filed a complaint for sum
of money claiming that Continental Cement and Lim failed to turn over the goods covered
by the trust receipt or the proceeds. In its answer, Continental Cement argued that the
transaction was a simple loan and not a trust receipt transaction.

ISSUE:
Whether or not the transaction involved is a simple loan

HELD:
YES. In Colinares v. Court of Appeals, it was found that inasmuch as the debtor received
the goods subject of the trust receipt before the trust receipt itself was entered into, the
transaction was a simple loan and not a trust receipt agreement. Prior to the date of
execution of the trust receipt, ownership over the goods was already transferred to the
debtor. This situation is inconsistent with what normally obtains in a pure trust receipt
transaction, wherein the goods belong in ownership to the bank and are only released to
the importer in trust after the loan is granted. In this case, the delivery to Continental
Cement of the goods subject to the trust receipt occurred long before the trust receipt
itself was executed.

Furthermore, Continental Cement is not an importer, which acquired the bunker fuel oil
for re-sale; it needed the oil for its own operations. More importantly, at no time did title
over the oil pass to CBTC, but directly to Continental Cement to which the oil was directly
delivered long before the trust receipt was executed. Continental Cement was required
to sign the trust receipt simply to facilitate collection by CBTC of the loan it had extended
to the former.
 Republic of the Philippines
SUPREME COURT
Baguio City

FIRST DIVISION

G.R. No. 114286 April 19, 2001

THE COSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner

vs.
THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and
SPOUSE, respondents.

YNARES-SANTIAGO, J.:

The instant petition for review seeks to partially set aside the July 26, 1993 Decision1 of respondent
Court of Appeals in CA-GR. CV No. 29950, insofar as it orders petitioner to reimburse respondent
Continental Cement Corporation the amount of P490, 228.90 with interest thereon at the legal rate
from July 26, 1988 until fully paid. The petition also seeks to set aside the March 8, 1994
Resolution2 of respondent Court of Appeals denying its Motion for Reconsideration.

The facts are as follows:

On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent

Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner Consolidated
Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of P 1,068,150.00 On the
same date, respondent Corporation paid a marginal deposit of P320,445.00 to petitioner. The letter
of credit was used to purchase around five hundred thousand liters of bunker fuel oil from Petrophil
Corporation, which the latter delivered directly to respondent Corporation in its Bulacan plant. In
relation to the same transaction, a trust receipt for the amount of P 1,001,520.93 was executed by
respondent Corporation, with respondent Lim as signatory.

Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds
thereof, petitioner filed a complaint for sum of money with application for preliminary
attachment3 before the Regional Trial Court of Manila. In answer to the complaint, respondents
averred that the transaction between them was a simple loan and not a trust receipt transaction, and
that the amount claimed by petitioner did not take into account payments already made by them.
Respondent Lim also denied any personal liability in the subject transactions. In a Supplemental
Answer, respondents prayed for reimbursement of alleged overpayment to petitioner of the amount
of P490,228.90.

At the pre-trial conference, the parties agreed on the following issues:

1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction;

2) Whether or not the interest rates charged against the defendants by the plaintiff are proper
under the letter of credit, trust receipt and under existing rules or regulations of the Central
Bank;

3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the
defendant corporation on July 13, 1982 as payment for the latter’s account; and

4) Whether or not the defendants are personally liable under the transaction sued for in this
case.4

On September 17, 1990, the trial court rendered its Decision, 5 dismissing the Complaint and ordering
petitioner to pay respondents the following amounts under their counterclaim: P490,228.90
representing overpayment of respondent Corporation, with interest thereon at the legal rate from July
26, 1988 until fully paid; P10,000.00 as attorney's fees; and costs.

Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the
award of attorney's fees in favor of respondents and, instead, ordering respondent Corporation to
pay petitioner P37,469.22 as and for attorney's fees and litigation expenses.

Hence, the instant petition raising the following issues:

 1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY
OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE WAS
OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE AMOUNT
OF P490,228.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN THE
DECISION AND THE ERRONEOUS APPLICATION OF PAYMENTS WHICH IS IN
VIOLATION OF THE NEW CIVIL CODE.

2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT

BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH BANKING
PRACTICE.

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING

OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE
RULES AND REGULATIONS OF THE CENTRAL BANK.

4. WHETHER OR NO THE RESPONDENT APPELLATE COUR GRIEVOUSLY ERRED IN

NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT
TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE
RESPONDENTS AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR.

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED

IN NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST
RECEIPT TRANSACTION.6

The petition must be denied.

On the first issue respecting the fact of overpayment found by both the lower court and respondent
Court of Appeals, we stress the time-honored rule that findings of fact by the Court of Appeals
especially if they affirm factual findings of the trial court will not be disturbed by this Court, unless
these findings are not supported by evidence.7

Petitioner decries the lack of computation by the lower court as basis for its ruling that there was an
overpayment made. While such a computation may not have appeared in the Decision itself, we note
that the trial court's finding of overpayment is supported by evidence presented before it. At any rate,
we painstakingly reviewed and computed the payments together with the interest and penalty
charges due thereon and found that the amount of overpayment made by respondent Bank to
petitioner, i.e., P263,070.13, was more than what was ordered reimbursed by the lower court.
However, since respondents did not file an appeal in this case, the amount ordered reimbursed by
the lower court should stand.

Moreover, petitioner's contention that the marginal deposit made by respondent Corporation should
not be deducted outright from the amount of the letter of credit is untenable. Petitioner argues that
the marginal deposit should be considered only after computing the principal plus accrued interest
and other charges. However, to sustain petitioner on this score would be to countenance a clear
case of unjust enrichment, for while a marginal deposit earns no interest in favour of the debtor-
depositor, the bank is not only able to use the same for its own purposes, interest-free, but is also
able to earn interest on the money loaned to respondent Corporation. Indeed, it would be onerous to
compute interest and other charges on the face value of the letter of credit which the petitioner
issued, without first crediting or setting off the marginal deposit which the respondent Corporation
paid to it. Compensation is proper and should take effect by operation of law because the requisites
in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent
amount.8

Hence, the interests and other charges on the subject letter of credit should be computed only on the
balance of P681,075.93, which was the portion actually loaned by the bank to respondent
Corporation.

Neither do we find error when the lower court and the Court of Appeals set aside as invalid the
floating rate of interest exhorted by petitioner to be applicable. The pertinent provision in the trust
receipt agreement of the parties fixing the interest rate states:

I, WE jointly and severally agree to any increase or decrease in the interest rate which may
occur after July 1, 1981, when the Central Bank floated the interest rate, and to pay
additionally the penalty of 1% per month until the amount/s or instalments/s due and unpaid
under the trust receipt on the reverse side hereof is/are fully paid.9
We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being no
reference rate set either by it or by the Central Bank, leaving the determination thereof at the sole
will and control of petitioner.
1âwphi1. nêt

While it may be acceptable, for practical reasons given the fluctuating economic conditions, for
banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon
prevailing market conditions, there should always be a reference rate upon which to peg such
variable interest rates. An example of such a valid variable interest rate was found in Polotan, Sr. v.
Court of Appeals. 10 In that case, the contractual provision stating that "if there occurs any change in
the prevailing market rates, the new interest rate shall be the guiding rate in computing the
interest due on the outstanding obligation without need of serving notice to the Cardholder other
than the required posting on the monthly statement served to the Cardholder"11 was considered valid.
The aforequoted provision was upheld notwithstanding that it may partake of the nature of an
escalation clause, because at the same time it provides for the decrease in the interest rate in case
the prevailing market rates dictate its reduction. In other words, unlike the stipulation subject of the
instant case, the interest rate involved in the Polotan case is designed to be based on the prevailing
market rate. On the other hand, a stipulation ostensibly signifying an agreement to "any increase or
decrease in the interest rate," without more, cannot be accepted by this Court as valid for it leaves
solely to the creditor the determination of what interest rate to charge against an outstanding loan.

Petitioner has also failed to convince us that its transaction with respondent Corporation is really a
trust receipt transaction instead of merely a simple loan, as found by the lower court and the Court of
Appeals.

The recent case of Colinares v. Court of Appeals 12 appears to be foursquare with the facts obtaining
in the case at bar. There, we found that inasmuch as the debtor received the goods subject of the
trust receipt before the trust receipt itself was entered into, the transaction in question was a simple
loan and not a trust receipt agreement. Prior to the date of execution of the trust receipt, ownership
over the goods was already transferred to the debtor. This situation is inconsistent with what
normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the
bank and are only released to the importer in trust after the loan is granted.

In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the
trust receipt occurred long before the trust receipt itself was executed. More specifically, delivery of
the bunker fuel oil to respondent Corporation's Bulacan plant commenced on July 7, 1982 and was
completed by July 19, 1982.13 Further, the oil was used up by respondent Corporation in its normal
operations by August, 1982.14 On the other hand, the subject trust receipt was only executed nearly
two months after full delivery of the oil was made to respondent Corporation, or on September 2,
1982.

The danger in characterizing a simple loan as a trust receipt transaction was explained
in Colinares, to wit:

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes
the dishonesty and abuse of confidence in the handling of money or goods to the prejudice
of another regardless of whether the latter is the owner. Here, it is crystal clear that on the
part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of
money to the prejudice of PBC. Petitioners continually endeavored to meet their obligations,
as shown by several receipts issued by PBC acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the money for
their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as
a state of mind was not proved to be present in Petitioners' situation. Petitioners employed no
artifice in dealing with PBC and never did they evade payment of their obligation nor attempt
to abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt. They are contractors who
obtained the fungible goods for their construction project. At no time did title over the
construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre.
This impresses upon the trust receipt in question vagueness and ambiguity, which should not
be the basis for criminal prosecution in the event of violation of its provisions.

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans
and place them under the threats of criminal prosecution should they be unable to pay it may
be unjust and inequitable if not reprehensible. Such agreements are contracts of adhesion
 which borrowers have no option but to sign lest their loan be disapproved. The resort to this
scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to
misinterpretation, as had happened in this case. Eventually, PBC showed its true colors and
admitted that it was only after collection of the money, as manifested by its Affidavit of
Desistance.

Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with petitioner.
Neither has it been shown that it has evaded payment of its obligations. Indeed, it continually
endeavored to meet the same, as shown by the various receipts issued by petitioner acknowledging
payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal
amount of only P681,075.93 negates any badge of dishonesty , abuse of confidence or mishandling
of funds on the part of respondent Corporation, which are the gravamen of a trust receipt violation.
Furthermore, Respondent Corporation is not an importer, which acquired the bunker fuel oil for re-
sale; it needed the oil for its own operations. More importantly, at no time did title over the oil pass to
petitioner, but directly to respondent Corporation to which the oil was directly delivered long before the
trust receipt was executed. The fact that ownership of the oil belonged to respondent Corporation,
through its President, Gregory Lim, was acknowledged by petitioner's own account officer on the
witness stand, to wit:

Q -After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the
defendants thereby paying the value of the bunker fuel oil what transpired next after that?

A -Upon purchase of the bunker fuel oil and upon the requests of the defendant possession
of the bunker fuel oil were transferred to them.

Q -You mentioned them to whom are you referring to?

A -To the Continental Cement Corp. upon the execution of the trust receipt acknowledging
the ownership of the bunker fuel oil this should be acceptable for whatever disposition he
may make.

Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom?

A - By the Continental Cement Corp.

Q – So by your statement who really owns the bunker fuel oil?

A TTY. RACHON:

Objection already answered,

COURT:

Give time to the other counsel to object.

A TTY. RACHON :

He has testified that ownership was acknowledged in favor of Continental Cement Corp. so
that question has already been answered.

A TTY. BANAGA:

That is why I made a follow up question asking ownership of the bunker fuel oil.

COURT:

Proceed.

A TTY .BANAGA:

Q - Who owns the bunker fuel oil after purchase from Petrophil Corp. ?

A - Gregory Lim.15
By all indications, then, it is apparent that there was really no trust receipt transaction that took place.
Evidently, respondent Corporation was required to sign the trust receipt simply to facilitate collection
by petitioner of the loan it had extended to the former.

Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be personally
liable under the subject trust receipt. Petitioner's argument that respondent Corporation and
respondent Lim and his spouse are one and the same cannot be sustained. The transactions sued
upon were clearly entered into by respondent Lim in his capacity as Executive Vice President of
respondent Corporation. We stress the hornbook law that corporate personality is a shield against
personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and his spouse cannot
be made personally liable since respondent Lim entered into and signed the contract clearly in his
official capacity as Executive Vice President. The personality of the corporation is separate and distinct
from the persons composing it.16

WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision
of the Court of Appeals dated July 26, 1993 in CA-G.R. CY No.29950 is AFFIRMED.

SO ORDERED.

Davide Jr., Puno, Pardo, Pardo, JJ., concur.

CASE DIGEST:

People of the Philippines vs. Concepcion - G.R. No. L- 19190, November 29, 1922 (en banc case)

TOPIC: Loan in General – Characteristics

DOCTRINE: The concession of a “credit” necessarily involves the granting of “loans” up to the limit of the
amount fixed in the “credit.”

FACTS:

Sometime in May 1919, the President of Philippine National Bank, Mr. Venancio Concepcion, authorized
an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000 through the
manager of the Aparri branch. Pursuant to this authorization, credit aggregating P300,000, was granted
the firm of "Puno y Concepcion, S. en C.,".

"Puno y Concepcion, S. en C." was a co-partnership capitalized at P100,000 with half being owned by the
wife of Mr. Venancio Concepcion.

Venancio Concepcion, as President of the Philippine National Bank and as member of the board of
directors, was charged in the Court of First Instance of Cagayan with a violation of section 35 of Act No.
2747. He was found guilty and was sentenced to imprisonment for one year and six months, to pay a
fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs.

Section 35 of Act No. 2747, effective on February 20, 1918, reads as follows: "The National Bank shall
not, directly or indirectly, grant loans to any of the members of the board of directors of the bank nor to
agents of the branch banks."

Thus, this appeal.

ISSUE:

I. Was the granting of a credit of P300,000 to the co-partnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, a "loan" within the meaning of section
35 of Act No. 2747?

II. Was the granting of a credit of P300,000 to the co-partnership "Puno y Concepcion, S. en C.," by
Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"?

III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning
of section 35 of Act No. 2747?

RULING:

I. YES. The "credit" of an individual means his ability to borrow money by virtue of the confidence or
trust reposed by a lender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490;
Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the receipt by the other party of
a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or without
interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily
involves the granting of "loans" up to the limit of the amount fixed in the "credit."

II. It was a LOAN.

To distinguish discount from loan, it follows that discounts are favored by bankers because of their
liquid nature, growing, as they do, out of an actual, live, transaction. To discount a paper is only a mode
of loaning money, with, however, these distinctions: (1) In a discount, interest is deducted in advance,
while in a loan, interest is taken at the expiration of a credit; (2) a discount is always on double-name
paper; a loan is generally on single-name paper.

The demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper but were
mere evidences of indebtedness, because (1) interest was not deducted from the face of the notes, but
was paid when the notes fell due; and (2) they were single-name and not double-name paper.

III. YES. In the interpretation and construction of statutes, the primary rule is to ascertain and give effect
to the intention of the Legislature. The prohibition against indirect loans is a recognition of the familiar
maxim that no man may serve two masters — that where personal interest clashes with fidelity to duty
the latter almost always suffers. A loan to partnership of which the wife of a director is a member, falls
within the prohibition and is thus, an indirect loan to such director.

Definition of terms:

Double-name paper - One on which two signatures appear with both parties liable for payment.
(Webster’s 3rd New Int. Dictionary)

Single name paper - A promissory note with no indorsement other than the signature of the maker.

FULL CASE:

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-19190 November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
VENANCIO CONCEPCION, defendant-appellant.

Recaredo Ma. Calvo for appellant.

Attorney-General Villa-Real for appellee.
MALCOLM, J.:

By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine
National Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10,
1919, and May 7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C."
in the amount of P300,000. This special authorization was essential in view of the memorandum
order of President Concepcion dated May 17, 1918, limiting the discretional power of the local
manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in
certain cases, could be increased to P10,000. Pursuant to this authorization, credit aggregating
P300,000, was granted the firm of "Puno y Concepcion, S. en C.," the only security required
consisting of six demand notes. The notes, together with the interest, were taken up and paid by July
17, 1919.

"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion

contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente
Puno, P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000.
Member Miguel S. Concepcion was the administrator of the company.

On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as
member of the board of directors of this bank, was charged in the Court of First Instance of Cagayan
with a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V.
Filamor, Judge of First Instance, and was sentenced to imprisonment for one year and six months,
to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs.

Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must
hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly,
grant loans to any of the members of the board of directors of the bank nor to agents of the branch
banks." Section 49 of the same Act provides: "Any person who shall violate any of the provisions of
this Act shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to
exceed five years, or by both such fine and imprisonment." These two sections were in effect in 1919
when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January
30, 1921.

Counsel for the defense assign ten errors as having been committed by the trial court. These errors
they have argued adroitly and exhaustively in their printed brief, and again in oral argument.
Attorney-General Villa-Real, in an exceptionally accurate and comprehensive brief, answers the
proposition of appellant one by one.

The question presented are reduced to their simplest elements in the opinion which follows:

I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, a "loan" within the meaning of
section 35 of Act No. 2747?

Counsel argue that the documents of record do not prove that authority to make a loan was given,
but only show the concession of a credit. In this statement of fact, counsel is correct, for the exhibits
in question speak of a "credito" (credit) and not of a " prestamo" (loan).
The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust
reposed by a lender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490;
Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the receipt by the other
party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned,
with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit"
necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"

II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by
Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"?

Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not
prohibit what is commonly known as a "discount."

In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the
Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to
loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said
section referred to loans alone, and placed no restriction upon discount transactions. It becomes
material, therefore, to discover the distinction between a "loan" and a "discount," and to ascertain if
the instant transaction comes under the first or the latter denomination.

Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an
actual, live, transaction. But in its last analysis, to discount a paper is only a mode of loaning money,
with, however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan,
interest is taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan
is generally on single-name paper.

Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not
discounts, yet the conclusion is inevitable that the demand notes signed by the firm "Puno y
Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because
(1) interest was not deducted from the face of the notes, but was paid when the notes fell due; and
(2) they were single-name and not double-name paper.

The facts of the instant case having relation to this phase of the argument are not essentially
different from the facts in the Binalbagan Estate case. Just as there it was declared that the
operations constituted a loan and not a discount, so should we here lay down the same ruling.

III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the
meaning of section 35 of Act No. 2747?

Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect
loan." In this connection, it should be recalled that the wife of the defendant held one-half of the
capital of this partnership.

In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to
the intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a
wall of safety against temptation for a director of the bank. The prohibition against indirect loans is a
recognition of the familiar maxim that no man may serve two masters — that where personal interest
clashes with fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband
is financially interested in the success or failure of his wife's business venture, a loan to partnership
of which the wife of a director is a member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar relationship called a conjugal
partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan,
therefore, to a partnership of which the wife of a director of a bank is a member, is an indirect loan to
such director.

That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the
acknowledged fact that in this instance the defendant was tempted to mingle his personal and family
affairs with his official duties, and to permit the loan P300,000 to a partnership of no established
reputation and without asking for collateral security.

In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the
Supreme Court of Maryland said:

What then was the purpose of the law when it declared that no director or officer should
borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of directly or
indirectly violating this section he shall be punished by fine and imprisonment?" We say to
protect the stockholders, depositors and creditors of the bank, against the temptation to
which the directors and officers might be exposed, and the power which as such they must
necessarily possess in the control and management of the bank, and the legislature unwilling
to rely upon the implied understanding that in assuming this relation they would not acquire
any interest hostile or adverse to the most exact and faithful discharge of duty, declared in
express terms that they should not borrow, etc., of the bank.

In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate
decision, it was said:

We are of opinion the statute forbade the loan to his copartnership firm as well as to himself
directly. The loan was made indirectly to him through his firm.

IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a
violation of section 35 of Act No. 2747 in relation with section 49 of the same Act, when these
portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information and
the rendition of the judgment?

As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section
35 of the same Act, provides a punishment for any person who shall violate any of the provisions of
the Act. It is contended, however, by the appellant, that the repeal of these sections of Act No. 2747
by Act No. 2938 has served to take away the basis for criminal prosecution.

This same question has been previously submitted and has received an answer adverse to such
contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs.
Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States ([1910],
218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and it must again be the
holding, that where an Act of the Legislature which penalizes an offense, such repeals a former Act
which penalized the same offense, such repeal does not have the effect of thereafter depriving the
courts of jurisdiction to try, convict, and sentenced offenders charged with violations of the old law.

V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, in violation of section 35 of Act No.
2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and
since section 49 of said Act provides a punishment not on the bank when it violates any provisions of
the law, but on a person violating any provisions of the same, and imposing imprisonment as a part
of the penalty, the prohibition contained in said section 35 is without penal sanction. lawph!l.net

The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the
board of directors, and to each director separately and individually. (People vs. Concepcion, supra.)

VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank,
in extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a
legal defense?

Counsel argue that if defendant committed the acts of which he was convicted, it was because he
was misled by rulings coming from the Insular Auditor. It is furthermore stated that since the loans
made to the copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been
suffered by the Philippine National Bank.

Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant
has violated, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on
account of public policy and public interest, constitutes the crime. And, in this instance, as previously
demonstrated, the acts of the President of the Philippine National Bank do not fall within the purview
of the rulings of the Insular Auditor, even conceding that such rulings have controlling effect.

Morse, in his work, Banks and Banking, section 125, says:

It is fraud for directors to secure by means of their trust, and advantage not common to the
other stockholders. The law will not allow private profit from a trust, and will not listen to any
proof of honest intent.

JUDGMENT

On a review of the evidence of record, with reference to the decision of the trial court, and the errors
assigned by the appellant, and with reference to previous decisions of this court on the same
subject, we are irresistibly led to the conclusion that no reversible error was committed in the trial of
this case, and that the defendant has been proved guilty beyond a reasonable doubt of the crime
charged in the information. The penalty imposed by the trial judge falls within the limits of the
punitive provisions of the law.

Judgment is affirmed, with the costs of this instance against the appellant. So ordered.

Araullo, C. J., Johnson, Street, Avanceña, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.
Consolidated Bank vs CA
GR No. 114286, 19 April 2001, 356 SCRA 671

FACTS:
On July 13, 1982, Continental Cement Corporation (Continental Cement) and its
President, Gregory Lim, obtained from Consolidated Bank and Trust Corporation
(CBTC) Letter of Credit in the amount of P1,068,150.00 which was used to purchase
fuel oil from Petrophil Corporation. On the same date, Continental Cement paid a
marginal deposit of P320,445.00 to CBTC. In relation to the same transaction, a trust
receipt for the amount of P1,001,520.93 was executed by Continental Cement. CBTC
filed a complaint for sum of money claiming that Continental Cement and Lim failed to
turn over the goods covered by the trust receipt or the proceeds. In its answer,
Continental Cement argued that the transaction was a simple loan and not a trust
receipt transaction.

ISSUE:
Whether or not the transaction involved is a simple loan

HELD:
YES. In Colinares v. Court of Appeals, it was found that inasmuch as the debtor
received the goods subject of the trust receipt before the trust receipt itself was entered
into, the transaction was a simple loan and not a trust receipt agreement. Prior to the
date of execution of the trust receipt, ownership over the goods was already transferred
to the debtor. This situation is inconsistent with what normally obtains in a pure trust
receipt transaction, wherein the goods belong in ownership to the bank and are only
released to the importer in trust after the loan is granted. In this case, the delivery to
Continental Cement of the goods subject to the trust receipt occurred long before the
trust receipt itself was executed.

Furthermore, Continental Cement is not an importer, which acquired the bunker fuel oil
for re-sale; it needed the oil for its own operations. More importantly, at no time did title
over the oil pass to CBTC, but directly to Continental Cement to which the oil was
directly delivered long before the trust receipt was executed. Continental Cement was
required to sign the trust receipt simply to facilitate collection by CBTC of the loan it had
extended to the former.
2/7/2021 G.R. No. 123498

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Constitution Statutes Executive Issuances Judicial Issuances Other Issuances Jurisprudence International Legal Resources AUSL Exclusive

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 123498 November 23, 2007

BPI FAMILY BANK, Petitioner,

vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.

DECISION

NACHURA, J.:

Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity. We reiterate
this exhortation in the case at bench.

Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA) Decision1 in CA-
G.R. CV No. 43424 which affirmed with modification the judgment2 of the Regional Trial Court, Branch 55, Manila
(Manila RTC), in Civil Case No. 90-53295.

This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB) allegedly by
respondent Amado Franco (Franco) in conspiracy with other individuals,3 some of whom opened and maintained
separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a series of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account
with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment Corporation (FMIC) also opened a time
deposit account with the same branch of BPI-FB with a deposit of ₱100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,4 savings,5 and time deposit,6
with BPI-FB. The current and savings accounts were respectively funded with an initial deposit of ₱500,000.00
each, while the time deposit account had ₱1,000,000.00 with a maturity date of August 31, 1990. The total amount
of ₱2,000,000.00 used to open these accounts is traceable to a check issued by Tevesteco allegedly in
consideration of Franco’s introduction of Eladio Teves,7 who was looking for a conduit bank to facilitate Tevesteco’s
business transactions, to Jaime Sebastian, who was then BPI-FB SFDM’s Branch Manager. In turn, the funding for
the ₱2,000,000.00 check was part of the ₱80,000,000.00 debited by BPI-FB from FMIC’s time deposit account and
credited to Tevesteco’s current account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.

It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged.8 On September 4,
1989, Antonio Ong,9 upon being shown the Authority to Debit, personally declared his signature therein to be a
forgery. Unfortunately, Tevesteco had already effected several withdrawals from its current account (to which had
been credited the ₱80,000,000.00 covered by the forged Authority to Debit) amounting to ₱37,455,410.54, including
the ₱2,000,000.00 paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMIC’s forgery claim, BPI-FB, thru its
Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin10 to debit Franco’s savings and current
accounts for the amounts remaining therein.11 However, Franco’s time deposit account could not be debited due to
the capacity limitations of BPI-FB’s computer.12

In the meantime, two checks13 drawn by Franco against his BPI-FB current account were dishonored upon
presentment for payment, and stamped with a notation "account under garnishment." Apparently, Franco’s current
account was garnished by virtue of an Order of Attachment issued by the Regional Trial Court of Makati (Makati
RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-FB against Franco et al.,14 to recover
the ₱37,455,410.54 representing Tevesteco’s total withdrawals from its account.

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Franco’s
receipt of notice that his accounts were under garnishment.15 In fact, at the time the Notice of Garnishment dated
September 27, 1989 was served on BPI-FB, Franco had yet to be impleaded in the Makati case where the writ of
attachment was issued.

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It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil Case No. 89-
4996, that Franco was impleaded in the Makati case.16 Immediately, upon receipt of such copy, Franco filed a
Motion to Discharge Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the Order of
Attachment was served on BPI-FB on even date, with Franco demanding the release to him of the funds in his
savings and current accounts. Jesus Arangorin, BPI-FB’s new manager, could not forthwith comply with the demand
as the funds, as previously stated, had already been debited because of FMIC’s forgery claim. As such, BPI-FB’s
computer at the SFDM Branch indicated that the current account record was "not on file."

With respect to Franco’s savings account, it appears that Franco agreed to an arrangement, as a favor to Sebastian,
whereby ₱400,000.00 from his savings account was temporarily transferred to Domingo Quiaoit’s savings account,
subject to its immediate return upon issuance of a certificate of deposit which Quiaoit needed in connection with his
visa application at the Taiwan Embassy. As part of the arrangement, Sebastian retained custody of Quiaoit’s savings
account passbook to ensure that no withdrawal would be effected therefrom, and to preserve Franco’s deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of ₱63,189.00 from
the remaining balance of the time deposit account representing advance interest paid to him.

These transactions spawned a number of cases, some of which we had already resolved.

FMIC filed a complaint against BPI-FB for the recovery of the amount of ₱80,000,000.00 debited from its account.17
The case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment
Corporation,18 we upheld the finding of the courts below that BPI-FB failed to exercise the degree of diligence
required by the nature of its obligation to treat the accounts of its depositors with meticulous care. Thus, BPI-FB was
found liable to FMIC for the debited amount in its time deposit. It was ordered to pay ₱65,332,321.99 plus interest at
17% per annum from August 29, 1989 until fully restored. In turn, the 17% shall itself earn interest at 12% from
October 4, 1989 until fully paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),19 recipients of a
₱500,000.00 check proceeding from the ₱80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit.
Buenaventura et al., as in the case of Franco, were also prevented from effecting withdrawals20 from their current
account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise, when the case was elevated to this
Court docketed as BPI Family Bank v. Buenaventura,21 we ruled that BPI-FB had no right to freeze Buenaventura,
et al.’s accounts and adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multi-
million peso scam.22 In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida who
was still at large, were acquitted of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the
Revised Penal Code.23 However, the civil case24 remains under litigation and the respective rights and liabilities of
the parties have yet to be adjudicated.

Consequently, in light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and release his
deposits therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco
prayed for the following reliefs: (1) the interest on the remaining balance25 of his current account which was
eventually released to him on October 31, 1991; (2) the balance26 on his savings account, plus interest thereon; (3)
the advance interest27 paid to him which had been deducted when he pre-terminated his time deposit account; and
(4) the payment of actual, moral and exemplary damages, as well as attorney’s fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to
release his deposits, claiming that it had a better right to the amounts which consisted of part of the money allegedly
fraudulently withdrawn from it by Tevesteco and ending up in Franco’s accounts. BPI-FB asseverated that the
claimed consideration of ₱2,000,000.00 for the introduction facilitated by Franco between George Daantos and
Eladio Teves, on the one hand, and Jaime Sebastian, on the other, spoke volumes of Franco’s participation in the
fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and against [BPI-FB],
ordering the latter to pay to the former the following sums:

1. ₱76,500.00 representing the legal rate of interest on the amount of ₱450,000.00 from May 18, 1990 to
October 31, 1991;

2. ₱498,973.23 representing the balance on [Franco’s] savings account as of May 18, 1990, together with the
interest thereon in accordance with the bank’s guidelines on the payment therefor;

3. ₱30,000.00 by way of attorney’s fees; and

4. ₱10,000.00 as nominal damages.

The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.

Costs against [BPI-FB].

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SO ORDERED.28

Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his appeal
to the Manila RTC’s denial of his claim for moral and exemplary damages, and the diminutive award of attorney’s
fees. In affirming with modification the lower court’s decision, the appellate court decreed, to wit:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification ordering [BPI-
FB] to pay [Franco] ₱63,189.00 representing the interest deducted from the time deposit of plaintiff-appellant.
₱200,000.00 as moral damages and ₱100,000.00 as exemplary damages, deleting the award of nominal damages
(in view of the award of moral and exemplary damages) and increasing the award of attorney’s fees from
₱30,000.00 to ₱75,000.00.

Cost against [BPI-FB].

SO ORDERED.29

In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the deposits in
the subject accounts which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to interest
on his current account; (3) Franco can recover the ₱400,000.00 deposit in Quiaoit’s savings account; (4) the
dishonor of Franco’s checks was not legally in order; (5) BPI-FB is liable for interest on Franco’s time deposit, and
for moral and exemplary damages; and (6) BPI-FB’s counter-claim has no factual and legal anchor.

The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze Franco’s
accounts and preclude him from withdrawing his deposits. However, contrary to the appellate court’s ruling, we hold
that Franco is not entitled to unearned interest on the time deposit as well as to moral and exemplary damages.

First. On the issue of who has a better right to the deposits in Franco’s accounts, BPI-FB urges us that the legal
consequence of FMIC’s forgery claim is that the money transferred by BPI-FB to Tevesteco is its own, and
considering that it was able to recover possession of the same when the money was redeposited by Franco, it had
the right to set up its ownership thereon and freeze Franco’s accounts.

BPI-FB contends that its position is not unlike that of an owner of personal property who regains possession after it
is stolen, and to illustrate this point, BPI-FB gives the following example: where X’s television set is stolen by Y who
thereafter sells it to Z, and where Z unwittingly entrusts possession of the TV set to X, the latter would have the right
to keep possession of the property and preclude Z from recovering possession thereof. To bolster its position, BPI-
FB cites Article 559 of the Civil Code, which provides:

Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of
the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith
at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

BPI-FB’s argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil Code
pertains to a specific or determinate thing.30 A determinate or specific thing is one that is individualized and can be
identified or distinguished from others of the same kind.31

In this case, the deposit in Franco’s accounts consists of money which, albeit characterized as a movable, is generic
and fungible.32 The quality of being fungible depends upon the possibility of the property, because of its nature or
the will of the parties, being substituted by others of the same kind, not having a distinct individuality.33

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a movable to
recover the exact same thing from the current possessor, BPI-FB simply claims ownership of the equivalent amount
of money, i.e., the value thereof, which it had mistakenly debited from FMIC’s account and credited to Tevesteco’s,
and subsequently traced to Franco’s account. In fact, this is what BPI-FB did in filing the Makati Case against
Franco, et al. It staked its claim on the money itself which passed from one account to another, commencing with
the forged Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership,34 and this characteristic is all the more
manifest in the instant case which involves money in a banking transaction gone awry. Its primary function is to pass
from hand to hand as a medium of exchange, without other evidence of its title.35 Money, which had passed through
various transactions in the general course of banking business, even if of traceable origin, is no exception.

Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FB’s illustrative example,
ostensibly based on Article 559, is inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal
consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB conveniently forgets
that the deposit of money in banks is governed by the Civil Code provisions on simple loan or mutuum.36 As there is
a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately acquired ownership of Franco’s
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deposits, but such ownership is coupled with a corresponding obligation to pay him an equal amount on demand.37
Although BPI-FB owns the deposits in Franco’s accounts, it cannot prevent him from demanding payment of BPI-
FB’s obligation by drawing checks against his current account, or asking for the release of the funds in his savings
account. Thus, when Franco issued checks drawn against his current account, he had every right as creditor to
expect that those checks would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its mere
suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To
grant BPI-FB, or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes
are derived from shady transactions, would open the floodgates of public distrust in the banking industry.

Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals38 continues to resonate, thus:

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of
every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-
earner has not hesitated to entrust his life’s savings to the bank of his choice, knowing that they will be safe in its
custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest
checking account for security and convenience in the settling of his monthly bills and the payment of ordinary
expenses. x x x.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down
to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the
amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to
whomever directs. A blunder on the part of the bank, such as the dishonor of the check without good reason, can
cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. x x x.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its
customers. Having failed to detect the forgery in the Authority to Debit and in the process inadvertently facilitate the
FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees of checks issued
by Tevesteco, or prevent withdrawals from their respective accounts without the appropriate court writ or a favorable
final judgment.

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the Authority to
Debit, effected the transfer of ₱80,000,000.00 from FMIC’s to Tevesteco’s account, when FMIC’s account was a
time deposit and it had already paid advance interest to FMIC. Considering that there is as yet no indubitable
evidence establishing Franco’s participation in the forgery, he remains an innocent party. As between him and BPI-
FB, the latter, which made possible the present predicament, must bear the resulting loss or inconvenience.

Second. With respect to its liability for interest on Franco’s current account, BPI-FB argues that its non-compliance
with the Makati RTC’s Order Lifting the Order of Attachment and the legal consequences thereof, is a matter that
ought to be taken up in that court.

The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The Manila
RTC’s order to pay interests on Franco’s current account arose from BPI-FB’s unjustified refusal to comply with its
obligation to pay Franco pursuant to their contract of mutuum. In other words, from the time BPI-FB refused
Franco’s demand for the release of the deposits in his current account, specifically, from May 17, 1990, interest at
the rate of 12% began to accrue thereon.39

Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FB’s non-
compliance with the Order Lifting the Order of Attachment. However, such authority does not preclude the Manila
RTC from ruling on BPI-FB’s liability to Franco for payment of interest based on its continued and unjustified refusal
to perform a contractual obligation upon demand. After all, this was the core issue raised by Franco in his complaint
before the Manila RTC.

Third. As to the award to Franco of the deposits in Quiaoit’s account, we find no reason to depart from the factual
findings of both the Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned by Franco
who simply accommodated Jaime Sebastian’s request to temporarily transfer ₱400,000.00 from Franco’s savings
account to Quiaoit’s account.40 His testimony cannot be characterized as hearsay as the records reveal that he had
personal knowledge of the arrangement made between Franco, Sebastian and himself.41

BPI-FB makes capital of Franco’s belated allegation relative to this particular arrangement. It insists that the
transaction with Quiaoit was not specifically alleged in Franco’s complaint before the Manila RTC. However, it
appears that BPI-FB had impliedly consented to the trial of this issue given its extensive cross-examination of
Quiaoit.

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Section 5, Rule 10 of the Rules of Court provides:

Section 5. Amendment to conform to or authorize presentation of evidence.— When issues not raised by the
pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they
had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after
judgment; but failure to amend does not affect the result of the trial of these issues. If evidence is objected to at the
trial on the ground that it is now within the issues made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial
justice will be subserved thereby. The court may grant a continuance to enable the amendment to be made.
(Emphasis supplied)

In all, BPI-FB’s argument that this case is not the right forum for Franco to recover the ₱400,000.00 begs the issue.
To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the funds in his account, and
pointed to Franco as the actual owner thereof. Clearly, Franco’s action for the recovery of his deposits appropriately
covers the deposits in Quiaoit’s account.

Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Franco’s checks
respectively dated September 11 and 18, 1989 was legally in order in view of the Makati RTC’s supplemental writ of
attachment issued on September 14, 1989. It posits that as the party that applied for the writ of attachment before
the Makati RTC, it need not be served with the Notice of Garnishment before it could place Franco’s accounts under
garnishment.

The argument is specious. In this argument, we perceive BPI-FB’s clever but transparent ploy to circumvent Section
4,42 Rule 13 of the Rules of Court. It should be noted that the strict requirement on service of court papers upon the
parties affected is designed to comply with the elementary requisites of due process. Franco was entitled, as a
matter of right, to notice, if the requirements of due process are to be observed. Yet, he received a copy of the
Notice of Garnishment only on September 27, 1989, several days after the two checks he issued were dishonored
by BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze Franco’s accounts without
even awaiting service of the Makati RTC’s Notice of Garnishment on Franco.

Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made without including
in the main suit the owner of the property attached by virtue thereof. Section 5, Rule 13 of the Rules of Court
specifically provides that "no levy or attachment pursuant to the writ issued x x x shall be enforced unless it is
preceded, or contemporaneously accompanied, by service of summons, together with a copy of the complaint, the
application for attachment, on the defendant within the Philippines."

Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire jurisdiction
over the person of Franco when BPI-FB garnished his accounts.43 Effectively, therefore, the Makati RTC had no
authority yet to bind the deposits of Franco through the writ of attachment, and consequently, there was no legal
basis for BPI-FB to dishonor the checks issued by Franco.

Fifth. Anent the CA’s finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted
from Franco’s time deposit account, and for moral as well as exemplary damages, we find it proper to reinstate the
ruling of the trial court, and allow only the recovery of nominal damages in the amount of ₱10,000.00. However, we
retain the CA’s award of ₱75,000.00 as attorney’s fees.

In granting Franco’s prayer for interest on his time deposit account and for moral and exemplary damages, the CA
attributed bad faith to BPI-FB because it (1) completely disregarded its obligation to Franco; (2) misleadingly
claimed that Franco’s deposits were under garnishment; (3) misrepresented that Franco’s current account was not
on file; and (4) refused to return the ₱400,000.00 despite the fact that the ostensible owner, Quiaoit, wanted the
amount returned to Franco.

In this regard, we are guided by Article 2201 of the Civil Code which provides:

Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable
shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties
have foreseen or could have reasonable foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation. (Emphasis supplied.)

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of malevolence or ill
will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and should not be held liable for all
damages now being imputed to it for its breach of obligation. For the same reason, it is not liable for the unearned
interest on the time deposit.

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it partakes of the nature of fraud.44 We have held that it is a breach of a
known duty through some motive of interest or ill will.45 In the instant case, we cannot attribute to BPI-FB fraud or
even a motive of self-enrichment. As the trial court found, there was no denial whatsoever by BPI-FB of the
existence of the accounts. The computer-generated document which indicated that the current account was "not on
file" resulted from the prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the garnishment,

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or even the outright refusal to honor any transaction thereon was resorted to solely for the purpose of holding on to
the funds as a security for its intended court action,46 and with no other goal but to ensure the integrity of the
accounts.

We have had occasion to hold that in the absence of fraud or bad faith,47 moral damages cannot be awarded; and
that the adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err,
but error alone is not a ground for granting such damages.48

An award of moral damages contemplates the existence of the following requisites: (1) there must be an injury
clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or
omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury
sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of
the Civil Code.49

Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code,50 upon which to
base his claim for moral damages. 1âwphi1

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of the Civil
Code for breach of contract.51

We also deny the claim for exemplary damages. Franco should show that he is entitled to moral, temperate, or
compensatory damages before the court may even consider the question of whether exemplary damages should be
awarded to him.52 As there is no basis for the award of moral damages, neither can exemplary damages be
granted.

While it is a sound policy not to set a premium on the right to litigate,53 we, however, find that Franco is entitled to
reasonable attorney’s fees for having been compelled to go to court in order to assert his right. Thus, we affirm the
CA’s grant of ₱75,000.00 as attorney’s fees.

Attorney’s fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest,54 or
when the court deems it just and equitable.55 In the case at bench, BPI-FB refused to unfreeze the deposits of
Franco despite the Makati RTC’s Order Lifting the Order of Attachment and Quiaoit’s unwavering assertion that the
₱400,000.00 was part of Franco’s savings account. This refusal constrained Franco to incur expenses and litigate
for almost two (2) decades in order to protect his interests and recover his deposits. Therefore, this Court deems it
just and equitable to grant Franco ₱75,000.00 as attorney’s fees. The award is reasonable in view of the complexity
of the issues and the time it has taken for this case to be resolved.56

Sixth. As for the dismissal of BPI-FB’s counter-claim, we uphold the Manila RTC’s ruling, as affirmed by the CA, that
BPI-FB is not entitled to recover ₱3,800,000.00 as actual damages. BPI-FB’s alleged loss of profit as a result of
Franco’s suit is, as already pointed out, of its own making. Accordingly, the denial of its counter-claim is in order.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November 29, 1995 is
AFFIRMED with the MODIFICATION that the award of unearned interest on the time deposit and of moral and
exemplary damages is DELETED.

No pronouncement as to costs.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

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CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, 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 Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

1 Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices Cancio C. Garcia (retired
Associate Justice of the Supreme Court) and Portia Alino Hormachuelos, concurring; rollo, pp. 40-55.

2 CA rollo, pp. 70-79.

3 Antonio T. Ong, Manuel Bienvenida, Jr., Milagros Nayve, Jaime Sebastian, Ador de Asis, and Eladio Teves.
Rollo, pp. 160-207. RTC, Quezon City, Branch 85, Decision in Crim. Case No. Q91-22386.

4 Account No. 840-107483-7.

5 Account No. 1668238-1.

6 Account No. 08523412.

7 President of Tevesteco.

8 BPI-FB’s Memorandum, rollo, pp. 104-105.

9 Executive Vice-President of FMIC.

10 The new BPI-FB SFDM branch manager who replaced Jaime Sebastian.

11 BPI-FB’s Memorandum, rollo, p. 105.

12 Id.

13 Respectively dated September 11 and 18, 1989. The first check dated August 31, 1989 Franco issued in
the amount of ₱50,000.00 was honored by BPI-FB.

14 Supra note 3. The names of other defendants in Crim. Case No. Q91-22386.

15 Franco received the Notice of Garnishment on September 27, 1989, but the 2 checks he had issued were
presented for payment at BPI-FB on September 20 & 21, 1989, respectively.

16 Franco’s Memorandum, rollo, p. 137.

17 Docketed as Civil Case No. 89-5280 and entitled "First Metro Investment Corporation v. BPI Family Bank."

18 G.R. No. 132390, May 21, 2004, 429 SCRA 30.

19 Officers of the International Baptist Church and International Baptist Academy in Malabon, Metro Manila.

20 The checks issued by Buenaventura et al. were dishonored upon presentment for payment.

21 G.R. No. 148196, September 30, 2005, 471 SCRA 431.

22 Supra note 3.

23 Rollo, pp. 160-208.

24 The Makati Case for recovery of the ₱37,455,410.54 representing Tevesteco’s total withdrawals wherein
Franco was belatedly impleaded, and a Writ of Garnishment was issued on Franco’s accounts.

25 ₱450,000.00.

26 The reflected amount of ₱98,973.23 plus ₱400,000.00 representing what was transferred to Quiaoit’s
account under their arrangement

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27 ₱63,189.00.

28 CA rollo, p. 79.

29 Rollo, p. 54.

30 See Article 1460, paragraph 1 of the Civil Code. A thing is determinate when it is particularly designated or
physically segregated from all others of the same class.

31 Tolentino, Civil Code of the Philippines Commentaries and Jurisprudence, Vol. IV, 1985, p. 90.

32 See Article 418 of the Civil Code, taken from Article 337 of the Old Civil Code which used the words
"fungible or non-fungible."

33 Tolentino, Civil Code of the Philippines Commentaries and Jurisprudence, Vol. II, 1983, p. 26.

34 United States v. Sotelo, 28 Phil. 147, 158 (1914).

35 Id.

36 Article 1980 of the Civil Code: Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan. See Article 1933 of the Civil Code.

37 Article 1953 of the Civil Code: A person who receives a loan of money or any other fungible thing acquires
the ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality.

38 G.R. No. 88013, March 19, 1990, 183 SCRA 360, 366-367.

39 See Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95.

40 TSN, July 30, 1991, p. 5.

41 Id. at 5-11.

42 SEC. 4. Papers required to be filed and served.— Every judgment, resolution, order, pleading subsequent
to the complaint, written motion, notice, appearance, demand, offer of judgment or similar papers shall be
filed with the court, and served upon the parties affected.

43 See Sievert v. Court of Appeals, G.R. No. L-84034, December 22, 1988, 168 SCRA 692, 696.

44 Board of Liquidators v. Heirs of Maximo Kalaw, et al., 127 Phil. 399, 421 (1967).

45 Lopez, et al. v. Pan American World Airways, 123 Phil. 256, 264-265 (1966).

46 CA rollo, p. 74.

47 Suario v. Bank of the Philippine Islands, G.R. No. 50459, August 25, 1989, 176 SCRA 688, 696; citing
Guita v. Court of Appeals, 139 SCRA 576, 580 (1985).

48 Bank of the Philippine Islands v. Casa Montessori Internationale, G.R. No. 149454, May 28, 2004, 430
SCRA 261, 293-294.

49 United Coconut Planters Bank v. Ramos, 461 Phil. 277, 298 (2003); citing Cathay Pacific Airways, Ltd. v.
Spouses Vazquez, 447 Phil. 306 (2003).

50 Art. 2219. Moral damages may be recovered in the following and analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape, or other lascivious acts;

(4) Adultery or concubinage;

(5) Illegal or arbitrary detention or arrest;

(6) Illegal search;

(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;

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(9) Acts mentioned in Article 309;

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may
also recover moral damages.

The spouse, descendants, ascendants, and brother and sisters may bring the action mentioned in No.
9 of this article, in the order named.

51 Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should
find that, under the circumstances, such damages are justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or in bad faith.

52 Article 2234 of the Civil Code.

Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must show
that he is entitled to moral, temperate or compensatory damages before the court may consider the
question of whether or not exemplary damages should be awarded. In case liquidated damages have
been agreed upon, although no proof of loss is necessary in order that such liquidated damages may
be recovered, nevertheless, before the court may consider the question of granting exemplary in
addition to the liquidated damages, the plaintiff must show that he would be entitled to moral,
temperate or compensatory damages were it not for the stipulation for liquidated damages.

53 Bank of the Philippine Islands v. Casa Montessori Internationale, supra note 48, at 296.

54 CIVIL CODE, Art. 2208, par. (2).

55 CIVIL CODE, Art. 2208, par. (11).

56 Ching Sen Ben v. Court of Appeals, 373 Phil. 544, 555 (1999).

The Lawphil Project - Arellano Law Foundation

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G.R. No. L-20240 December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
JOSE GRIJALDO, defendant-appellant.

Office of the Solicitor General for plaintiff-appellee.

Isabelo P. Samson for defendant-appellant.

ZALDIVAR, J.:

In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan, Ltd. in
Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These
loans are evidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as
follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on August 9,
1943,P300.00; on August 13, 1943, P200.00, all notes without due dates, but because the loans were due one year
after they were incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the
standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros Occidental.

By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading with
the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the
Government of the United States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets,
including the loans in question, were subsequently transferred to the Republic of the Philippines by the Government
of the United States under Transfer Agreement dated July 20, 1954. These assets were among the properties that
were placed under the administration of the Board of Liquidators created under Executive Order No. 372, dated
November 24, 1950, and in accordance with Republic Acts Nos. 8 and 477 and other pertinent laws.

On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the Board of
Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in question. The
record shows that the appellant had actually received the written demand for payment, but he failed to pay.

The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale of values
as of the time that the loans were incurred in 1943, was P889.64; and the interest due thereon at the rate of 6% per
annum compounded quarterly, computed as of December 31, 1959 was P2,377.23.

On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros
Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace Of Hinigaran, after
hearing, dismissed the case on the ground that the action had prescribed. The appellee appealed to the Court of
First Instance of Negros Occidental and on March 26, 1962 the court a quo rendered a decision ordering the
appellant to pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per
annum compounded quarterly from the date of the filing of the complaint until full payment was made. The appellant
was also ordered to pay the sum equivalent to 10% of the amount due as attorney's fees and costs.

The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose Grijaldo died.
Upon motion by the Solicitor General this Court, in a resolution of May 13, 1963, required Manuel Lagtapon, Jacinto
Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to appear and be
substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court.

In the present appeal the appellant contends: (1) that the appellee has no cause of action against the appellant; (2)
that if the appellee has a cause of action at all, that action had prescribed; and (3) that the lower court erred in
ordering the appellant to pay the amount of P2,377.23.

In discussing the first point of contention, the appellant maintains that the appellee has no privity of contract with the
appellant. It is claimed that the transaction is between the Taiwan Bank, Ltd. and the appellant, so that the appellee,
Republic of the Philippines, could not legally bring action against the appellant for the enforcement of the obligation
involved in said transaction. This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original
creditor and the transaction between the appellant and the Bank of Taiwan was a private contract of loan. However,
pursuant to the Trading with the Enemy Act, as amended, and Executive Order No. 9095 of the United States; and
under Vesting Order No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., an entity which
was declared to be under the jurisdiction of the enemy country (Japan), were vested in the United States
Government and the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and
vested in the Republic of the Philippines. The successive transfer of the rights over the loans in question from
the Bank of Taiwan, Ltd. to the United States Government, and from the United States Government to the
government of the Republic of the Philippines, made the Republic of the Philippines the successor of the rights, title
and interest in said loans, thereby creating a privity of contract between the appellee and the appellant. In defining
the word "privy" this Court, in a case, said:

The word "privy" denotes the idea of succession ... hence an assignee of a credit, and one subrogated to it,
etc. will be privies; in short, he who by succession is placed in the position of one of those who contracted
the judicial relation and executed the private document and appears to be substituting him in the personal
rights and obligation is a privy (Alpurto vs. Perez, 38 Phil. 785, 790).

The United States of America acting as a belligerent sovereign power seized the assets of the Bank of Taiwan, Ltd.
which belonged to an enemy country. The confiscation of the assets of the Bank of Taiwan, Ltd. being an
involuntary act of war, and sanctioned by international law, the United States succeeded to the rights and interests
of said Bank of Taiwan, Ltd. over the assets of said bank. As successor in interest in, and transferee of, the property
rights of the United States of America over the loans in question, the Republic of the Philippines had thereby
become a privy to the original contracts of loan between the Bank of Taiwan, Ltd. and the appellant. It follows,
therefore, that the Republic of the Philippines has a legal right to bring the present action against the appellant
Jose Grijaldo.

The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that because
the loans were secured by a chattel mortgage on the standing crops on a land owned by him and these crops were
lost or destroyed through enemy action his obligation to pay the loans was thereby extinguished. This argument is
untenable. The terms of the promissory notes and the chattel mortgage that the appellant executed in favor of the
Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the appellant under the five promissory
notes was not to deliver a determinate thing namely, the crops to be harvested from his land, or the value of the
crops that would be harvested from his land. Rather, his obligation was to pay a generic thing — the amount of
money representing the total sum of the five loans, with interest. The transaction between the appellant and the
Bank of Taiwan, Ltd. was a series of five contracts of simple loan of sums of money. "By a contract of (simple) loan,
one of the parties delivers to another ... money or other consumable thing upon the condition that the same amount
of the same kind and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five
promissory notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of money —
a clear case of an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides:

In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation.

The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of
appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish his
obligation to pay, because the account could still be paid from other sources aside from the mortgaged crops.

In his second point of contention, the appellant maintains that the action of the appellee had prescribed. The
appellant points out that the loans became due on June 1, 1944; and when the complaint was filed on January
17,1961 a period of more than 16 years had already elapsed — far beyond the period of ten years when an action
based on a written contract should be brought to court.

This contention of the appellant has no merit. Firstly, it should be considered that the complaint in the present case
was brought by the Republic of the Philippines not as a nominal party but in the exercise of its sovereign functions,
to protect the interests of the State over a public property. Under paragraph 4 of Article 1108 of the Civil Code
prescription, both acquisitive and extinctive, does not run against the State. This Court has held that the
statute of limitations does not run against the right of action of the Government of the Philippines (Government of
the Philippine Islands vs. Monte de Piedad, etc., 35 Phil. 738-751).Secondly, the running of the period of
prescription of the action to collect the loan from the appellant was interrupted by the moratorium laws
(Executive Orders No. 25, dated November 18, 1944; Executive Order No. 32. dated March 10, 1945; and Republic
Act No. 342, approved on July 26, 1948). The loan in question, as evidenced by the five promissory notes, were
incurred in the year 1943, or during the period of Japanese occupation of the Philippines. This case is squarely
covered by Executive Order No. 25, which became effective on November 18, 1944, providing for the suspension of
payments of debts incurred after December 31, 1941. The period of prescription was, therefore, suspended
beginning November 18, 1944. This Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953, 93 Phil. 68),
declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and Executive Orders Nos. 25 and 32, are
unconstitutional; but in that case this Court ruled that the moratorium laws had suspended the prescriptive period
until May 18, 1953. This ruling was categorically reiterated in the decision in the case of Manila Motors vs. Flores, L-
9396, August 16, 1956. It follows, therefore, that the prescriptive period in the case now before US was suspended
from November 18,1944, when Executive Orders Nos. 25 and 32 were declared unconstitutional by this Court.
Computed accordingly, the prescriptive period was suspended for 8 years and 6 months. By the appellant's own
admission, the cause of action on the five promissory notes in question arose on June 1, 1944. The complaint in the
present case was filed on January 17, 1961, or after a period of 16 years, 6 months and 16 days when the cause of
action arose. If the prescriptive period was not interrupted by the moratorium laws, the action would have prescribed
already; but, as We have stated, the prescriptive period was suspended by the moratorium laws for a period of 8
years and 6 months. If we deduct the period of suspension (8 years and 6 months) from the period that elapsed
from the time the cause of action arose to the time when the complaint was filed (16 years, 6 months and 16 days)
there remains a period of 8 years and 16 days. In other words, the prescriptive period ran for only 8 years and 16
days. There still remained a period of one year, 11 months and 14 days of the prescriptive period when the
complaint was filed.

In his third point of contention the appellant maintains that the lower court erred in ordering him to pay the amount of
P2,377.23. It is claimed by the appellant that it was error on the part of the lower court to apply the Ballantyne Scale
of values in evaluating the Japanese war notes as of June 1943 when the loans were incurred, because what
should be done is to evaluate the loans on the basis of the Ballantyne Scale as of the time the loans became due,
and that was in June 1944. This contention of the appellant is also without merit.

The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of December 31, 1959, plus
interest rate of 6% per annum compounded quarterly from the date of the filing of the complaint. The sum total of the
five loans obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed
under the Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in Japanese war notes in June 1943 is
equivalent to P889.64 in genuine Philippine currency which was considered the aggregate amount due as principal
of the five loans, and the amount of P2,377.23 as of December 31, 1959 was arrived at after computing the interest
on the principal sum of P889.64 compounded quarterly from the time the obligations were incurred in 1943.

It is the stand of the appellee that the Ballantyne scale of values should be applied as of the time the obligation was
incurred, and that was in June 1943. This stand of the appellee was upheld by the lower court; and the decision of
the lower court is supported by the ruling of this Court in the case of Hilado vs. De la Costa (G.R. No. L-150, April
30, 1949; 46 O.G. 5472), which states:

... Contracts stipulating for payments presumably in Japanese war notes may be enforced in our Courts after
the liberation to the extent of the just obligation of the contracting parties and, as said notes have become
worthless, in order that justice may be done and the party entitled to be paid can recover their actual value in
Philippine Currency, what the debtor or defendant bank should return or pay is the value of the Japanese
military notes in relation to the peso in Philippine Currency obtaining on the date when and at the place
where the obligation was incurred unless the parties had agreed otherwise. ... . (italics supplied)

IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against the appellant. Inasmuch
as the appellant Jose Grijaldo died during the pendency of this appeal, his estate must answer in the execution of
the judgment in the present case.

Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo, Reyes, J.B.L., Makalintal and Bengzon, J.P.,
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 17341 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 decided3 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 Court6 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 Court8 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
Court10 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 Court11 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. Ruiz13 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 Court15 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 forbearance16 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-delicts18 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 116923 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 court24 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.

#Footnotes

1 Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.

2 28 SCRA 65.

3 Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio Dizon,
Querube Makalintal, Calixto Zaldivar, Enrique Fernando, Francisco Capistrano, Claudio Teehankee
and Antonio Barredo, Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on
official leave.

4 The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-6998,
29 February 1956," 98 Phil. 516.

5 139 SCRA 260, 265.

6 Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes Concepcion, Jr., Vicente
Abad Santos, Ameurfina Melencio-Herrera, Venicio Escolin, Lorenzo Relova, Hugo Gutierrez, Jr.,
Buenaventura de la Fuente, Nestor Alampay and Lino Patajo. Justice Ramon Aquino concurred in
the result. Justice Efren Plana filed a concurring and dissenting opinion, concurred in by Justice
Claudio Teehankee while Chief Justice Felix Makasiar concurred with the separate opinion of
Justice Plana.

7 143 SCRA 158.

8 Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by Justices Pedro Yap,
Ameurfina Melencio-Herrera, Isagani A. Cruz and Edgardo Paras.

9 160 SCRA 334.

10 Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo Fernan, Teodoro
Padilla, Abdulwahid Bidin, and Irene Cortes. Justice Hugo Gutierrez, Jr., took no part because he
was the ponente in the Court of Appeals.

11 167 SCRA 209.

12 Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan, Justices Andres
Narvasa, Isagani A. Cruz, Emilio Gancayco, Teodoro Padilla, Abdulwahid Bidin, Abraham
Sarmiento, Irene Cortes, Carolina Griño-Aquino, Leo Medialdea and Florenz Regalado. Justices
Ameurfina Melencio-Herrera and Hugo Gutierrez, Jr., took no part because they did not participate in
the deliberations. Justices Edgardo Paras and Florentino Feliciano also took no part.

13 170 SCRA 461.

14 208 SCRA 542.

15 Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina Melencio-Herrera,
Teodoro Padilla, Florenz Regalado and Rodolfo Nocon.

16 Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth,
22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within the context of usury law,
as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring
borrower or debtor to repay loan or debt then due and payable.

17 In the case of Malayan Insurance, the application of the 6% and 12% interest per annum has no
bearing considering that this case was decided upon before the issuance of Circular No. 416 by the
Central Bank.

18 Art. 1157. Obligations arise from.

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Qausi-delicts."

19 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.

20 Art. 2195. The provisions of this Title (on Damages) shall be respectively applicable to all
obligations mentioned in article 1157.

21 Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.

22 Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although
the obligation may be silent upon this point.

23 Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.

"However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was
a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.

"In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins."

24 Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for
breach of contract.
Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be
adjudicated in the discretion of the court.

25 Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per
cent per annum.

26 Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the
demand can be established with reasonable certainty.