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 ofcommodatum 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:

(2) If he keeps it longer than the period stipulated . . .

(3) 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.

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.

 IMPERIAL, J.:

The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the other furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs.

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936, 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 described in the third paragraph of the stipulation of facts, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were found. On             November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may call

for the furniture in the ground floor of the house. On the 7th of the same month, 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 the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. On             November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration and new trial. 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.lawphi1.net

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 latters 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 eletric 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.

As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the defendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver some of the furniture, the value thereof should be latter determined by the trial Court through evidence which the parties may desire to present.

The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). 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 expenses and other judicial costs which the plaintiff would not have otherwise defrayed.

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 described in paragraph 3 of the stipulation of facts Exhibit A. 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. So ordered.

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.

IMPERIAL, J.:

The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the other furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs.

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936, 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 described in the third paragraph of the stipulation of facts, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were found. On             November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same month, 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 the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. On             November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration and new trial. 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.lawphi1.net

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 latters 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 eletric 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.

As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the defendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver some of the furniture, the value thereof should be latter determined by the trial Court through evidence which the parties may desire to present.

The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). 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 expenses and other judicial costs which the plaintiff would not have otherwise defrayed.

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 described in paragraph 3 of the stipulation of facts Exhibit A. 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. So ordered.

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner, vs.HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

 VITUG, J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same

was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of

defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when —

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum,thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed,inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." And as was held by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman, 38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of Property." After trial, the lower court decreed:

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

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

xxx xxx xxx

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

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus —

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text) —

should have, instead, been applied. This Court 6 ruled:

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

xxx xxx xxx

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

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

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court 8 modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co., Inc. (one of the petitioners) . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per annum imposed on the total amount of the monetary award was in contravention of law." The Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory

damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate"from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.

The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof.

SO ORDERED.

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and of its Resolution[2] dated May 5, 1994, denying the motion for reconsideration of said decision filed by petitioner Producers Bank of the Philippines.

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and Services (Sterela for brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its incorporation. She assured private respondent that he could withdraw his money from said account within a months time. Private respondent asked Sanchez to bring Doronilla to their house so that they could discuss Sanchezs request.[3]

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronillas private secretary, met and discussed the matter. Thereafter, relying on the assurances and representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines.  However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter from Doronilla authorizing Sanchez and her companions, in coordination with Mr. Rufo Atienza, to open an account for Sterela Marketing Services in the amount of P200,000.00. In opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.[4]

Subsequently, private respondent learned that Sterela was no longer holding office in the address previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still intact.  The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed them that part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that only P90,000.00 remained therein. He likewise told them that Mrs. Vives could not withdraw said remaining amount because it had to answer for some postdated checks issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover overdrawings in Current Account No. 10-0320. In opening said current account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole proprietor of Sterela.[5]

Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a letter from Doronilla, assuring him that his money was intact and would be returned to him.  On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private respondent.However, upon presentment thereof by private respondent to the drawee bank, the check was dishonored. Doronilla requested private respondent to present the same check on September 15, 1979 but when the latter presented the check, it was again dishonored.[6]

Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the return of his clients money. Doronilla issued another check forP212,000.00 in private respondents favor but the check was again dishonored for insufficiency of funds.[7]

Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while the case was pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case No. 44485, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and severally

(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from the filing of the complaint until the same is fully paid;

(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;

(c) the amount of P40,000.00 for attorneys fees; and

(d) the costs of the suit.

SO ORDERED.[8]

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June 25, 1991, the appellate court affirmed in toto the decision of the RTC.[9] It likewise denied with finality petitioners motion for reconsideration in its Resolution dated May 5, 1994.[10]

On June 30, 1994, petitioner filed the present petition, arguing that

I.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;

II.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;

III.

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;

IV.

THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;

V.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.[11]

Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September 25, 1995. The Court then required private respondent to submit a rejoinder to the reply. However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in furnishing private respondent with copy of the reply [12] and several substitutions of counsel on the part of private respondent.[13] On January 17, 2001, the Court resolved to give due course to the petition and required the parties to submit their respective memoranda. [14] Petitioner filed its memorandum on April 16, 2001 while private respondent submitted his memorandum on March 22, 2001.

Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent deposited in Sterelas bank account.[15] Moreover, the fact that private respondent sued his good friend Sanchez for his failure to recover his money from Doronilla shows that the transaction was not merely gratuitous but had a business angle to it.  Hence, petitioner argues that it cannot be held liable for the return of private respondents P200,000.00 because it is not privy to the transaction between the latter and Doronilla.[16]

It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing Doronilla to withdraw from the savings account of Sterela since the latter was the sole proprietor of said company.  Petitioner asserts that Doronillas May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a savings account for Sterela, did not contain any authorization for these two to withdraw from said account. Hence, the authority to withdraw therefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the savings account.[17] Petitioner points out that no evidence other than the testimonies of private respondent and

Mrs. Vives was presented during trial to prove that private respondent deposited his P200,000.00 in Sterelas account for purposes of its incorporation.[18] Hence, petitioner should not be held liable for allowing Doronilla to withdraw from Sterelas savings account.

Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since the findings of fact therein were not accord with the evidence presented by petitioner during trial to prove that the transaction between private respondent and Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to withdraw from Sterelas savings account.[19]

Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the actual damages suffered by private respondent, and neither may it be held liable for moral and exemplary damages as well as attorneys fees.[20]

Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a mutuum but an accommodation,[21] since he did not actually part with the ownership of his P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be issued to the effect that Sterela had sufficient funds for purposes of its incorporation but at the same time, he retained some degree of control over his money through his wife who was made a signatory to the savings account and in whose possession the savings account passbook was given.[22]

He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is liable for the return of his money. He insists that Atienza, petitioners assistant manager, connived with Doronilla in defrauding private respondent since it was Atienza who facilitated the opening of Sterelas current account three days after Mrs. Vives and Sanchez opened a savings account with petitioner for said company, as well as the approval of the authority to debit Sterelas savings account to cover any overdrawings in its current account.[23]

There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed with this Court. The Court has repeatedly held that it is not its function to analyze and weigh all over again the evidence presented by the parties during trial.[24] The Courts jurisdiction is in principle limited to reviewing errors of law that might have been committed by the Court of Appeals.[25] Moreover, factual findings of courts, when adopted and confirmed by the Court of Appeals, are final and conclusive on this Court unless these findings are not supported by the evidence on record. [26] There is no showing of any misapprehension of facts on the part of the Court of Appeals in the case at bar that would require this Court to review and overturn the factual findings of that court, especially since the conclusions of fact of the Court of Appeals and the trial court are not only consistent but are also amply supported by the evidence on record.

No error was committed by the Court of Appeals when it ruled that the transaction between private respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of the records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:

By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money, the contract would be a mutuum. However, there are some instances where a commodatum may have for its object a consumable thing. Article 1936 of the Civil Code provides:

Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is a commodatum and not a mutuum.

The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual character of a contract.[27] In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered in such determination.[28]

As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of making it appear that said firm had sufficient capitalization for incorporation, with the promise that the amount shall be returned within thirty (30) days.[29] Private respondent merely accommodated Doronilla by lending his money without consideration, as a favor to his good friend Sanchez. It was however clear to the parties to the transaction that the money would not be removed from Sterelas savings account and would be returned to private respondent after thirty (30) days.

Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterelas account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not convert the transaction from a commodatum into a mutuum because such was not the intent of the parties and because the additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states that [t]he bailee in commodatum acquires the use of the thing loaned but not its fruits. Hence, it was only proper for Doronilla to remit to private respondent the interest accruing to the latters money deposited with petitioner.

Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private respondents money because it was not privy to the transaction between Doronilla and private respondent.  The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the question of petitioners liability for the return of private respondents money because the factual circumstances of the case clearly show that petitioner, through its employee Mr. Atienza, was partly responsible for the loss of private respondents money and is liable for its restitution.

Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for Savings Account No. 10-1567 expressly states that

2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly authenticated, and neither a deposit nor a withdrawal will be permitted except upon the production of the depositor savings bank book in which will be entered by the Bank the amount deposited or withdrawn.[30]

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without presenting the passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals and the trial court found that Atienza allowed said withdrawals because he was party to Doronillas scheme of defrauding private respondent:

X X X

But the scheme could not have been executed successfully without the knowledge, help and cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of the defendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the commission of the fraud but he likewise helped in devising the means by which it can be done in such manner as to make it appear that the transaction was in accordance with banking procedure.

To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key officer therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendants branch in Makati for it will be easier for them to get a certification. In fact before he was introduced to plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager authorizing Angeles B. Sanchez and company to open a savings account for Sterela in the amount of P200,000.00, as per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x x x (Exh. 1). This is a clear manifestation that the other defendants had been in consultation with Atienza from the inception of the

scheme. Significantly, there were testimonies and admission that Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and business associate of Doronilla.

Then there is the matter of the ownership of the fund. Because of the coordination between Doronilla and Atienza, the latter knew before hand that the money deposited did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that the money belonged to her and her husband and the deposit was merely to accommodate Doronilla. Atienza even declared that the money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose that the only ones empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual banking procedure that withdrawals of savings deposits could only be made by persons whose authorized signatures are in the signature cards on file with the bank. He, however, said that this procedure was not followed here because Sterela was owned by Doronilla. He explained that Doronilla had the full authority to withdraw by virtue of such ownership. The Court is not inclined to agree with Atienza. In the first place, he was all the time aware that the money came from Vives and did not belong to Sterela. He was also told by Mrs. Vives that they were only accommodating Doronilla so that a certification can be issued to the effect that Sterela had a deposit of so much amount to be sued in the incorporation of the firm. In the second place, the signature of Doronilla was not authorized in so far as that account is concerned inasmuch as he had not signed the signature card provided by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had given Doronilla the authority to withdraw.

Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted practice that whenever a withdrawal is made in a savings deposit, the bank requires the presentation of the passbook. In this case, such recognized practice was dispensed with. The transfer from the savings account to the current account was without the submission of the passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi that a duplicate passbook was issued to Sterela because the original passbook had been surrendered to the Makati branch in view of a loan accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly had a hand in the execution of this certification, was aware that the contents of the same are not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it to her. Besides, as assistant manager of the branch and the bank official servicing the savings and current accounts in question, he also was aware that the original passbook was never surrendered. He was also cognizant that Estrella Dumagpi was not among those authorized to withdraw so her certification had no effect whatsoever.

The circumstance surrounding the opening of the current account also demonstrate that Atienzas active participation in the perpetration of the fraud and deception that caused the loss. The records indicate that this account was opened three days later after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that Atienza was mindful and posted regarding the opening of the current account considering that Doronilla was all the while in coordination with him. That it was he who facilitated the approval of the authority to debit the savings account to cover any overdrawings in the current account (Exh. 2) is not hard to comprehend.

Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x.[31]

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused by their employees acting within the scope of their assigned tasks. To hold the employer liable under this provision, it must be shown that an employer-employee relationship exists, and that the employee was acting within the scope of his assigned task when the act complained of was committed. [32] Case law in the United States of America has it that a corporation that entrusts a general duty to its employee is responsible to the injured party for damages flowing from the employees wrongful act done in the course of his general authority, even though in doing such act, the employee may have failed in its duty to the employer and disobeyed the latters instructions.[33]

There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that Atienza was acting within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in which account private respondents money was deposited, and in transferring the money withdrawn to Sterelas Current Account with petitioner.  Atienzas acts of helping Doronilla, a customer of the petitioner, were obviously done in furtherance of petitioners interests [34] even though in the process, Atienza violated some of petitioners rules such as those stipulated in its savings account passbook. [35] It was established

that the transfer of funds from Sterelas savings account to its current account could not have been accomplished by Doronilla without the invaluable assistance of Atienza, and that it was their connivance which was the cause of private respondents loss.

The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla and Dumagpi for the return of the P200,000.00 since it is clear that petitioner failed to prove that it exercised due diligence to prevent the unauthorized withdrawals from Sterelas savings account, and that it was not negligent in the selection and supervision of Atienza. Accordingly, no error was committed by the appellate court in the award of actual, moral and exemplary damages, attorneys fees and costs of suit to private respondent.

WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals are AFFIRMED.

SO ORDERED.

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIEGUEVARRA, respondents.

D E C I S I O N

CARPIO, J.

The Case

Before us is a petition for review[1] of the 21 June 2000 Decision[2] and 14 December 2000 Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November 1996 decision[3] of the Regional Trial Court of Quezon City, Branch 81,[4] affirming the 15 December 1995 decision[5] of the Metropolitan Trial Court of Quezon City, Branch 31.[6]

The Antecedents

In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez for the rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra) executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that he would voluntarily vacate the premises on Pajuyos demand.

In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the house. Guevarra refused.

Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31 (MTC).

In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the house stands because the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot.

On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the MTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant, ordering the latter to:

A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right under him;

B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable compensation for the use of the premises starting from the last demand;

C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and

D) pay the cost of suit.

SO ORDERED.[7]

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 (RTC).

On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from, being in accord with the law and evidence presented, and the same is hereby affirmed en toto.

SO ORDERED.[8]

Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996 to file his appeal with the Court of Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra filed with the Supreme Court a Motion for Extension of Time to File Appeal by Certiorari Based on Rule 42 (motion for extension).Guevarra theorized that his appeal raised pure questions of law. The Receiving Clerk of the Supreme Court received the motion for extension on 13 December 1996 or one day before the right to appeal expired.

On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.

On 8 January 1997, the First Division of the Supreme Court issued a Resolution [9] referring the motion for extension to the Court of Appeals which has concurrent jurisdiction over the case. The case presented no special and important matter for the Supreme Court to take cognizance of at the first instance.

On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution [10] granting the motion for extension conditioned on the timeliness of the filing of the motion.

On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for review. On 11 April 1997, Pajuyo filed his Comment.

On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision.  The dispositive portion of the decision reads:

WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the ejectment case filed against defendant-appellant is without factual and legal basis.

SO ORDERED.[11]

Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals should have dismissed outright Guevarras petition for review because it was filed out of time. Moreover, it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping.

On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for reconsideration. The dispositive portion of the resolution reads:

WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.

SO ORDERED.[12]

The   Ruling of the MTC

The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the lot.  Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made Guevarras continued possession of the house illegal.

The Ruling of the RTC

The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return possession of the house on demand.

The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised National Government Center Housing Project Code of Policies and other pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras rights under these laws. The RTC declared that in an ejectment case, the only issue for resolution is material or physical possession, not ownership.

The Ruling of the Court of Appeals

The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally occupied the contested lot which the government owned.

Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title over the lot because it is public land. The assignment of rights between Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave them where they are.

The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord and tenant relationship.  The Court of Appeals ruled that the Kasunduan is not a lease contract but a commodatum because the agreement is not for a price certain.

Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that Guevarra has a better right over the property under Proclamation No. 137. President Corazon C. Aquino (President Aquino) issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical possession of the property. Under Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and Structures in the National Housing Project (the Code), the actual occupant or caretaker of the lot shall have first priority as beneficiary of the project. The Court of Appeals concluded that Guevarra is first in the hierarchy of priority.

In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that Guevarra filed his motion for extension beyond the period to appeal.

The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court was stamped 13 December 1996 at 4:09 PM by the Supreme Courts Receiving Clerk. The Court of Appeals concluded that the motion for extension bore a date, contrary to Pajuyos claim that the motion for extension was undated.Guevarra filed the motion for extension on time on 13 December 1996 since he filed the motion one day before the expiration of the reglementary period on 14 December 1996. Thus, the motion for extension properly complied with the condition imposed by the Court of Appeals in its 28 January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to file the petition for review was deemed granted because of such compliance.

The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the petition for review because it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping.  The Court of Appeals pointed out that Pajuyo did not raise this issue in his Comment. The Court of Appeals held that Pajuyo could not now seek the dismissal of the case after he had extensively argued on the merits of the case. This technicality, the appellate court opined, was clearly an afterthought.

The Issues

Pajuyo raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:

1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirty days to file petition for review at the time when there was no more period to extend as the decision of the Regional Trial Court had already become final and executory.

2) in giving due course, instead of dismissing, private respondents Petition for Review even though the certification against forum-shopping was signed only by counsel instead of by petitioner himself.

3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum, instead of a Contract of Lease as found by the Metropolitan Trial Court and in holding that the ejectment case filed against defendant-appellant is without legal and factual basis.

4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-96-26943 and in holding that the parties are in pari delicto being both squatters, therefore, illegal occupants of the contested parcel of land.

5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National Government Center Housing Project instead of deciding the same under the Kasunduan voluntarily executed by the parties, the terms and conditions of which are the laws between themselves.[13]

The Ruling of the Court

The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive issues Pajuyo is submitting for resolution.

Procedural Issues

Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review because the RTC decision had already become final and executory when the appellate court acted on Guevarras motion for extension to file the petition. Pajuyo points out that Guevarra had only one day before the expiry of his period to appeal the RTC decision. Instead of filing the petition for review with the Court of Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to file a petition for review. This Court merely referred the motion to the Court of Appeals. Pajuyo believes that the filing of the motion for extension with this Court did not toll the running of the period to perfect the appeal. Hence, when the Court of Appeals received the motion, the period to appeal had already expired.

We are not persuaded.

Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the Court of Appeals by petition for review in cases involving questions of fact or mixed questions of fact and law. [14] Decisions of the regional trial courts involving pure questions of law are appealable directly to this Court by petition for review. [15]These modes of appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.

Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his motion for extension to file petition for review before this Court on 14 December 1996. On 3 January 1997, Guevarra then filed his petition for review with this Court. A perusal of Guevarras petition for review gives the impression that the issues he raised were pure questions of law. There is a question of law when the doubt or difference is on what the law is on a certain state of facts.[16] There is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.[17]

In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for review raised these questions: (1) Do ejectment cases pertain only to possession of a structure, and not the lot on which the structure stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid case for ejectment?(3) Should a Presidential Proclamation governing the lot on which a squatters structure stands be considered in an ejectment suit filed by the owner of the structure?

These questions call for the evaluation of the rights of the parties under the law on ejectment and the Presidential Proclamation. At first glance, the questions Guevarra raised appeared purely legal. However, some factual questions still have to be resolved because they have a bearing on the legal questions raised in the petition for review.These factual matters refer to the metes and bounds of the disputed property and the application of Guevarra as beneficiary of Proclamation No. 137.

The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana v. Second Special Cases Division of the Intermediate Appellate Court,[18] we declared that the Court of Appeals could grant extension of time in appeals by petition for review. In Liboro v. Court of Appeals,[19] we clarified that the prohibition against granting an extension of time applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply in a petition for review where the pleading needs verification. A petition for review, unlike an ordinary appeal, requires preparation and research to present a persuasive position.[20] The drafting of the petition for review entails more time and effort than filing a notice of appeal. [21] Hence, the Court of Appeals may allow an extension of time to file a petition for review.

In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,[22] we held that Liboros clarification of Lacsamana is consistent with the Revised Internal Rules of the Court of Appeals and Supreme Court Circular No. 1-91. They all allow an extension of time for filing petitions for review with the Court of Appeals. The extension, however, should be limited to only fifteen days save in exceptionally meritorious cases where the Court of Appeals may grant a longer period.

A judgment becomes final and executory by operation of law. Finality of judgment becomes a fact on the lapse of the reglementary period to appeal if no appeal is perfected.[23] The RTC decision could not have gained finality because the Court of Appeals granted the 30-day extension to Guevarra.

The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for extension. The Court of Appeals gave due course to the motion for extension because it complied with the condition set by the appellate court in its resolution dated 28 January 1997. The resolution stated that the Court of Appeals would only give due course to the motion for extension if filed on time. The motion for extension met this condition.

The material dates to consider in determining the timeliness of the filing of the motion for extension are (1) the date of receipt of the judgment or final order or resolution subject of the petition, and (2) the date of filing of the motion for extension.[24] It is the date of the filing of the motion or pleading, and not the date of execution, that determines the timeliness of the filing of that motion or pleading. Thus, even if the motion for extension bears no date, the date of filing stamped on it is the reckoning point for determining the timeliness of its filing.

Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion for extension before this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk on the motion for extension. Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the reglementary period to appeal.

Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds, Pajuyo did not ask the appellate court to deny the motion for extension and dismiss the petition for review at the earliest opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was only when the Court of Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues against Guevarras petition for review.

A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the merits, is estopped from attacking the jurisdiction of the court. [25]Estoppel sets in not because the judgment of the court is a valid and conclusive adjudication, but because the practice of attacking the courts jurisdiction after voluntarily submitting to it is against public policy.[26]

In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the verification, claiming that the counsels verification is insufficient since it is based only on mere information.

A partys failure to sign the certification against forum shopping is different from the partys failure to sign personally the verification. The certificate of non-forum shopping must be signed by the party, and not by counsel. [27] The certification of counsel renders the petition defective.[28]

On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional requisite. [29] It is intended simply to secure an assurance that what are alleged in the pleading are true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith. [30] The party need not sign the verification. A partys representative, lawyer or any person who personally knows the truth of the facts alleged in the pleading may sign the verification.[31]

We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the early stage of the proceedings.  Pajuyo raised this procedural issue too late in the proceedings.

Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue of Possession

Settled is the rule that the defendants claim of ownership of the disputed property will not divest the inferior court of its jurisdiction over the ejectment case.[32] Even if the pleadings raise the issue of ownership, the court may pass on such issue to determine only the question of possession, especially if the ownership is inseparably linked with the possession.[33] The adjudication on the issue of ownership is only provisional and will not bar an action between the same parties involving title to the land.[34] This doctrine is a necessary consequence of the nature of the two summary actions of ejectment, forcible entry and unlawful detainer, where the only issue for adjudication is the physical or material possession over the real property.[35]

In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the contested property and that they are mere squatters. Will the defense that the parties to the ejectment case are not the owners of the disputed lot allow the courts to renounce their jurisdiction over the case? The Court of Appeals believed so and held that it would just leave the parties where they are since they are in pari delicto.

We do not agree with the Court of Appeals.

Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession.  The parties cannot present evidence to prove ownership or right to legal possession except to prove the nature of the possession when necessary to resolve the issue of physical possession. [36] The same is true when the defendant asserts the absence of title over the property. The absence of title over the contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case.

The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical possession of the premises, that is, to the possession de factoand not to the possession de jure.[37] It does not even matter if a partys title to the property is questionable,[38] or when both parties intruded into public land and their applications to own the land have yet to be approved by the proper government agency.[39] Regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be thrown out by a strong hand, violence or terror. [40] Neither is the unlawful withholding of property allowed. Courts will always uphold respect for prior possession.

Thus, a party who can prove prior possession can recover such possession even against the owner himself.[41] Whatever may be the character of his possession, if he has in his favor prior possession in time, he has the security that entitles him to remain on the property until a person with a better right lawfully ejects him. [42] To repeat, the only issue that the court has to settle in an ejectment suit is the right to physical possession.

In Pitargue v. Sorilla,[43] the government owned the land in dispute. The government did not authorize either the plaintiff or the defendant in the case of forcible entry case to occupy the land.  The plaintiff had prior possession and had already introduced improvements on the public land. The plaintiff had a pending application for the land with the Bureau of Lands when the defendant ousted him from possession. The plaintiff filed the action of forcible entry against the defendant. The government was not a party in the case of forcible entry.

The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the application of the plaintiff was still pending, title remained with the government, and the Bureau of Public Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that courts have jurisdiction to entertain ejectment suits even before the resolution of the application. The plaintiff, by priority of his application and of his entry, acquired prior physical possession over the public land applied for as against other private claimants. That prior physical possession enjoys legal protection against other private claimants because only a court can take away such physical possession in an ejectment case.

While the Court did not brand the plaintiff and the defendant in Pitargue[44] as squatters, strictly speaking, their entry into the disputed land was illegal. Both the plaintiff and defendant entered the public land without the owners permission. Title to the land remained with the government because it had not awarded to anyone ownership of the contested public land. Both the plaintiff and the defendant were in effect squatting on government property.  Yet, we

upheld the courts jurisdiction to resolve the issue of possession even if the plaintiff and the defendant in the ejectment case did not have any title over the contested land.

Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public need to preserve the basic policy behind the summary actions of forcible entry and unlawful detainer. The underlying philosophy behind ejectment suits is to prevent breach of the peace and criminal disorder and to compel the party out of possession to respect and resort to the law alone to obtain what he claims is his. [45] The party deprived of possession must not take the law into his own hands.[46]Ejectment proceedings are summary in nature so the authorities can settle speedily actions to recover possession because of the overriding need to quell social disturbances.[47]

We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession. We made the following pronouncements in Pitargue:

The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory actions involving these public lands before final award is made by the Lands Department, and before title is given any of the conflicting claimants? It is one of utmost importance, as there are public lands everywhere and there are thousands of settlers, especially in newly opened regions. It also involves a matter of policy, as it requires the determination of the respective authorities and functions of two coordinate branches of the Government in connection with public land conflicts.

Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in this country before the American occupation, or in the new, we have a possessory action, the aim and purpose of which is the recovery of the physical possession of real property, irrespective of the question as to who has the title thereto. Under the Spanish Civil Code we had the accion interdictal, a summary proceeding which could be brought within one year from dispossession (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil Procedure (Act No. 190 of the Philippine Commission) we implanted the common law action of forcible entry (section 80 of Act No. 190), the object of which has been stated by this Court to be to prevent breaches of the peace and criminal disorder which would ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those persons who, believing themselves entitled to the possession of property, resort to force to gain possession rather than to some appropriate action in the court to assert their claims. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public Land Act (Act No. 926) the action of forcible entry was already available in the courts of the country. So the question to be resolved is, Did the Legislature intend, when it vested the power and authority to alienate and dispose of the public lands in the Lands Department, to exclude the courts from entertaining the possessory action of forcible entry between rival claimants or occupants of any land before award thereof to any of the parties? Did Congress intend that the lands applied for, or all public lands for that matter, be removed from the jurisdiction of the judicial Branch of the Government, so that any troubles arising therefrom, or any breaches of the peace or disorders caused by rival claimants, could be inquired into only by the Lands Department to the exclusion of the courts? The answer to this question seems to us evident. The Lands Department does not have the means to police public lands; neither does it have the means to prevent disorders arising therefrom, or contain breaches of the peace among settlers; or to pass promptly upon conflicts of possession. Then its power is clearly limited to disposition and alienation, and while it may decide conflicts of possession in order to make proper award, the settlement of conflicts of possession which is recognized in the court herein has another ultimate purpose, i.e., the protection of actual possessors and occupants with a view to the prevention of breaches of the peace. The power to dispose and alienate could not have been intended to include the power to prevent or settle disorders or breaches of the peace among rival settlers or claimants prior to the final award. As to this, therefore, the corresponding branches of the Government must continue to exercise power and jurisdiction within the limits of their respective functions. The vesting of the Lands Department with authority to administer, dispose, and alienate public lands, therefore, must not be understood as depriving the other branches of the Government of the exercise of the respective functions or powers thereon, such as the authority to stop disorders and quell breaches of the peace by the police, the authority on the part of the courts to take jurisdiction over possessory actions arising therefrom not involving, directly or indirectly, alienation and disposition.

Our attention has been called to a principle enunciated in American courts to the effect that courts have no jurisdiction to determine the rights of claimants to public lands, and that until the disposition of the land has passed from the control of the Federal Government, the courts will not interfere with the administration of matters concerning the same. (50 C. J. 1093-1094.) We have no quarrel with this principle. The determination of the respective rights of rival claimants to public lands is different from the determination of who has the actual physical possession or occupation with a view to protecting

the same and preventing disorder and breaches of the peace. A judgment of the court ordering restitution of the possession of a parcel of land to the actual occupant, who has been deprived thereof by another through the use of force or in any other illegal manner, can never be prejudicial interference with the disposition or alienation of public lands. On the other hand, if courts were deprived of jurisdiction of cases involving conflicts of possession, that threat of judicial action against breaches of the peace committed on public lands would be eliminated, and a state of lawlessness would probably be produced between applicants, occupants or squatters, where force or might, not right or justice, would rule.

It must be borne in mind that the action that would be used to solve conflicts of possession between rivals or conflicting applicants or claimants would be no other than that of forcible entry. This action, both in England and the United States and in our jurisdiction, is a summary and expeditious remedy whereby one in peaceful and quiet possession may recover the possession of which he has been deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach of the peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of physical possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action of forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove the nature of the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of the imagination can conclusion be arrived at that the use of the remedy in the courts of justice would constitute an interference with the alienation, disposition, and control of public lands. To limit ourselves to the case at bar can it be pretended at all that its result would in any way interfere with the manner of the alienation or disposition of the land contested? On the contrary, it would facilitate adjudication, for the question of priority of possession having been decided in a final manner by the courts, said question need no longer waste the time of the land officers making the adjudication or award. (Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to this case.

Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari delicto. We explained the principle of pari delicto in these words:

The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari delicto potior est conditio defedentis. The law will not aid either party to an illegal agreement. It leaves the parties where it finds them.[49]

The application of the pari delicto principle is not absolute, as there are exceptions to its application. One of these exceptions is where the application of the pari delictorule would violate well-established public policy.[50]

In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of forcible entry and unlawful detainer. We held that:

It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be turned out by strong hand, violence or terror. In affording this remedy of restitution the object of the statute is to prevent breaches of the peace and criminal disorder which would ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those persons who, believing themselves entitled to the possession of property, resort to force to gain possession rather than to some appropriate action in the courts to assert their claims. This is the philosophy at the foundation of all these actions of forcible entry and detainer which are designed to compel the party out of possession to respect and resort to the law alone to obtain what he claims is his.[52]

Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught with danger. To shut out relief to squatters on the ground of pari delicto would openly invite mayhem and lawlessness. A squatter would oust another squatter from possession of the lot that the latter had illegally occupied, emboldened by the knowledge that the courts would leave them where they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior possession at all cost.

Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of possession seek to prevent.[53] Even the owner who has title over the disputed property cannot take the law into his own hands to regain possession of his property. The owner must go to court.

Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The determination of priority and superiority of possession is a serious and urgent matter that cannot be left to the squatters to decide.  To do so would make squatters receive better treatment under the law. The law restrains property owners from taking the law into their own hands. However, the principle of pari delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow squatters or violently retake possession of properties usurped from them. Courts should not leave squatters to their own devices in cases involving recovery of possession.

Possession is the only Issue for Resolution in an Ejectment Case

The case for review before the Court of Appeals was a simple case of ejectment.  The Court of Appeals refused to rule on the issue of physical possession. Nevertheless, the appellate court held that the pivotal issue in this case is who between Pajuyo and Guevarra has the priority right as beneficiary of the contested land under Proclamation No. 137.[54] According to the Court of Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of the Code declares that the actual occupant or caretaker is the one qualified to apply for socialized housing.

The ruling of the Court of Appeals has no factual and legal basis.

First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the land that it declared open for disposition to  bona fide residents.

The records do not show that the contested lot is within the land specified by Proclamation No. 137. Guevarra had the burden to prove that the disputed lot is within the coverage of Proclamation No. 137. He failed to do so.

Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.

There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137.  Pajuyo allowed Guevarra to occupy the disputed property in 1985. President Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the property in September 1994.

During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo was reclaiming possession of the property, Guevarra did not take any step to comply with the requirements of Proclamation No. 137.

Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra has a pending application over the lot, courts should still assume jurisdiction and resolve the issue of possession. However, the jurisdiction of the courts would be limited to the issue of physical possession only.

In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions involving public land to determine the issue of physical possession. The determination of the respective rights of rival claimants to public land is, however, distinct from the determination of who has the actual physical possession or who has a better right of physical possession.[56] The administrative disposition and alienation of public lands should be threshed out in the proper government agency.[57]

The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should not preempt the decision of the administrative agency mandated by law to determine the qualifications of applicants for the acquisition of public lands. Instead, courts should expeditiously resolve the issue of physical possession in ejectment cases to prevent disorder and breaches of peace.[58]

Pajuyo is Entitled to Physical Possession of the Disputed Property

Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it.  Guevarra expressly admitted the existence and due execution of theKasunduan. The Kasunduan reads:

Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng walang bayad. Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.

Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.

Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but Guevarra was under obligation to maintain the premises in good condition. Guevarra promised to vacate the premises on Pajuyos demand but Guevarra broke his promise and refused to heed Pajuyos demand to vacate.

These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person from another of the possession of real property to which the latter is entitled after the expiration or termination of the formers right to hold possession under a contract, express or implied.[59]

Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant is necessarily bound by an implied promise that he will vacate on demand, failing which, an action for unlawful detainer will lie.[60] The defendants refusal to comply with the demand makes his continued possession of the property unlawful. [61] The status of the defendant in such a case is similar to that of a lessee or tenant whose term of lease has expired but whose occupancy continues by tolerance of the owner.[62]

This principle should apply with greater force in cases where a contract embodies the permission or tolerance to use the property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent but only to maintain the house and lot in good condition. Guevarra expressly vowed in the Kasunduanthat he would vacate the property on demand. Guevarras refusal to comply with Pajuyos demand to vacate made Guevarras continued possession of the property unlawful.

We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.

In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it.[63] An essential feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain period. [64] Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted.[65] If the bailor should have urgent need of the thing, he may demand its return for temporary use.[66] If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual relation is called a precarium.[67] Under the Civil Code, precarium is a kind of commodatum.[68]

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The imposition of this obligation makes the Kasunduan a contract different from a commodatum. The effectsof the Kasunduan are also different from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of permission would result in the termination of the lease.[69] The tenants withholding of the property would then be unlawful. This is settled jurisprudence.

Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor.  The obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of commission, administration andcommodatum.[70] These contracts certainly involve the obligation to deliver or return the thing received.[71]

Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that the contract is void.

Guevarra should know that there must be honor even between squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical possession of the contested property. The Kasunduanis the undeniable evidence of Guevarras recognition of Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a different result, as there would still be an implied promise to vacate.

Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act. [72] Guevarra bases his argument on the preferential right given to the actual occupant or caretaker under Proclamation No. 137 on socialized housing.

We are not convinced.

Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without paying any rent. There is also no proof that Pajuyo is a professional squatter who rents out usurped properties to other squatters. Moreover, it is for the proper government agency to decide who between Pajuyo and Guevarra qualifies for socialized housing. The only issue that we are addressing is physical possession.

Prior possession is not always a condition sine qua non in ejectment.[73] This is one of the distinctions between forcible entry and unlawful detainer.[74] In forcible entry, the plaintiff is deprived of physical possession of his land or building by means of force, intimidation, threat, strategy or stealth. Thus, he must allege and prove prior possession.[75] But in unlawful detainer, the defendant unlawfully withholds possession after the expiration or termination of his right to possess under any contract, express or implied. In such a case, prior physical possession is not required.[76]

Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to possess the property ended as well. Moreover, it was Pajuyo who was in actual possession of the property because Guevarra had to seek Pajuyos permission to temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control over the property still rested with Pajuyo and this is evidence of actual possession.

Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the law does not mean that a man has to have his feet on every square meter of the ground before he is deemed in possession. [77] One may acquire possession not only by physical occupation, but also by the fact that a thing is subject to the action of ones will.[78] Actual or physical occupation is not always necessary.[79]

Ruling on Possession Does not Bind Title to the Land in Dispute

We are aware of our pronouncement in cases where we declared that squatters and intruders who clandestinely enter into titled government property cannot, by such act, acquire any legal right to said property. [80] We made this declaration because the person who had title or who had the right to legal possession over the disputed property was a party in the ejectment suit and that party instituted the case against squatters or usurpers.

In this case, the owner of the land, which is the government, is not a party to the ejectment case. This case is between squatters. Had the government participated in this case, the courts could have evicted the contending squatters, Pajuyo and Guevarra.

Since the party that has title or a better right over the property is not impleaded in this case, we cannot evict on our own the parties. Such a ruling would discourage squatters from seeking the aid of the courts in settling the issue of physical possession. Stripping both the plaintiff and the defendant of possession just because they are squatters would have the same dangerous implications as the application of the principle of pari delicto. Squatters would then rather settle the issue of physical possession among themselves than seek relief from the courts if the plaintiff and defendant in the ejectment case would both stand to lose possession of the disputed property. This would subvert the policy underlying actions for recovery of possession.

Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the property until a person who has title or a better right lawfully ejects him.Guevarra is certainly not that person. The ruling in this case, however, does not preclude Pajuyo and Guevarra from introducing evidence and presenting arguments before the proper administrative agency to establish any right to which they may be entitled under the law.[81]

In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of physical possession does not affect title to the property nor constitute a binding and conclusive adjudication on the merits on the issue of ownership.[82] The owner can still go to court to recover lawfully the property from the person who holds the property without legal title. Our ruling here does not diminish the power of government agencies, including local governments, to condemn, abate, remove or demolish illegal or unauthorized structures in accordance with existing laws.

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of damages are awarded only in the instances enumerated in Article 2208 of the Civil Code.[83] Thus, the award of attorneys fees is the exception rather than the rule.[84] Attorneys fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.[85] We therefore delete the attorneys fees awarded to Pajuyo.

We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not dispute this factual finding of the two courts. We find the amount reasonable compensation to Pajuyo. The P300 monthly rental is counted from the last demand to vacate, which was on 16 February 1995.

WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is deleted. No costs.

SO ORDERED.

BPI FAMILY BANK,Petitioner,- versus - 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) Decision [1] in CA-G.R. CV No. 43424 which affirmed with modification the judgment [2] 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 P100,000,000.00, 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 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 Francos introduction of Eladio Teves,[7] who was looking for a conduit bank to facilitate Tevestecos business transactions, to Jaime Sebastian, who was then BPI-FB SFDMs 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 FMICs time deposit account and credited to Tevestecos current account pursuant to an Authority to Debit purportedly signed by FMICs officers. It appears, however, that the signatures of FMICs 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 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 FMICs forgery claim, BPI-FB, thru

its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin [10] to debit Francos savings and current accounts for the amounts remaining therein.[11] However, Francos time deposit account could not be debited due to the capacity limitations of BPI-FBs computer.[12]

 In the meantime, two checks[13] drawn by Franco against his BPI-FB current account were dishonored upon presentment for payment, and stamped with a notation account under garnishment. Apparently, Francos 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 Tevestecos total withdrawals from its account.

 Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Francos

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. 

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 Makaticase.[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-FBs new manager, could not forthwith comply with the demand as the funds, as previously stated, had already been debited because of FMICs forgery claim. As such, BPI-FBs computer at the SFDM Branch indicated that the current account record was not on file. With respect to Francos savings account, it appears that Franco agreed to an arrangement, as a favor to Sebastian, whereby P400,000.00 from his savings account was temporarily transferred to Domingo Quiaoits 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 Quiaoits savings account passbook to ensure that no withdrawal would be effected therefrom, and to preserve Francos deposits. On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of P63,189.00 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 P80,000,000.00 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 P65,332,321.99 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 P500,000.00 check proceeding from theP80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit. Buenaventura et al., as in the case of Franco, were also prevented from effecting withdrawals [20] 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 case[24] remains under litigation and the respective rights and liabilities of the parties have yet to be adjudicated. Consequently, in light of BPI-FBs refusal to heed Francos 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 balance [25] of his current account which was eventually released to him on October 31, 1991; (2) the balance[26] on his savings account, plus interest thereon; (3) the advance interest[27] 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 attorneys 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 Francos accounts. BPI-FB asseverated that the claimed consideration of P2,000,000.00 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 Francos 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. P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from May 18, 1990 to October 31, 1991; 2. P498,973.23 representing the balance on [Francos] savings account as of May 18, 1990, together with the interest thereon in accordance with the banks guidelines on the payment therefor; 3. P30,000.00 by way of attorneys fees; and 4. P10,000.00 as nominal damages. The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor. Costs against [BPI-FB]. 

SO ORDERED.[28]

  

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

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification ordering [BPI-FB] to pay [Franco] P63,189.00 representing the interest deducted from the time deposit of plaintiff-appellant. P200,000.00 as moral damages and P100,000.00 as exemplary damages, deleting the award of nominal damages (in view of the award of moral and exemplary damages) and increasing the award of attorneys fees from P30,000.00 to P75,000.00. 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 P400,000.00 deposit in Quiaoits savings account; (4) the dishonor of Francos checks was not legally in order; (5) BPI-FB is liable for interest on Francos time deposit, and for moral and exemplary damages; and (6) BPI-FBs 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 Francos accounts and preclude him from withdrawing his deposits. However, contrary to the appellate courts 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 Francos accounts, BPI-FB urges us that the legal consequence of FMICs 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 Francos 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 Xs 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-FBs 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 Francos 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 FMICs account and credited to Tevestecos, and subsequently traced to Francos 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-FBs 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 FMICs deposits to Tevestecos 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 Francos 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 Francos accounts, it cannot prevent him from demanding payment of BPI-FBs 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 Appeals[38] 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 lifes 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 ofP80,000,000.00 from FMICs to Tevestecos account, when FMICs account was a time deposit and it had already paid advance interest to FMIC. Considering that there is as yet no indubitable evidence establishing Francos 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 Francos current account, BPI-FB argues that its non-

compliance with the Makati RTCs 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

RTCs order to pay interests on Francos current account arose from BPI-FBs 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 Francos 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-FBs non-

compliance with the Order Lifting the Order of Attachment. However, such authority does not preclude the Manila RTC from ruling on BPI-FBs 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 Quiaoits 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 Sebastians request to temporarily transfer P400,000.00 from Francos savings account to Quiaoits 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 Francos belated allegation relative to this particular arrangement.  It insists that the

transaction with Quiaoit was not specifically alleged in Francos 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.

 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-FBs argument that this case is not the right forum for Franco to recover the  P400,000.00 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, Francos action for the recovery of his deposits appropriately covers the deposits in Quiaoits account. Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Francos checks respectively dated September 11 and 18, 1989 was legally in order in view of the Makati RTCs 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 Francos accounts under garnishment. The argument is specious. In this argument, we perceive BPI-FBs 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 onSeptember 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 Francos accounts without even awaiting service of the Makati RTCs 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 CAs finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted from Francos 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 ofP10,000.00. However, we retain the CAs award of P75,000.00 as attorneys fees.In granting Francos 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 Francos deposits were under garnishment; (3) misrepresented that Francos current account was not on file; and (4) refused to return the P400,000.00 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, 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. 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 attorneys fees for having been compelled to go to court in order to assert his right.  Thus, we affirm the CAs grant of P75,000.00 as attorneys fees. Attorneys 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 RTCs Order Lifting the Order of Attachment and Quiaoits unwavering assertion that the P400,000.00 was part of Francos 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 P75,000.00 as attorneys 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-FBs counter-claim, we uphold the Manila RTCs ruling, as affirmed by the CA, that BPI-FB is not entitled to recoverP3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a result of Francos 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 MODIFICATIONthat the award of unearned interest on the time deposit and of moral and exemplary damages is DELETED. No pronouncement as to costs.SO ORDERED.

 

G.R. Nos. 173654-765             August 28, 2008

PEOPLE OF THE PHILIPPINES, petitioner, vs.TERESITA PUIG and ROMEO PORRAS, respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the Philippines, represented by the Office of the Solicitor General, praying for the reversal of the Orders dated 30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against respondents Teresita Puig and Romeo Porras, and denying petitioner’s Motion for Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.

The following are the factual antecedents:

On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed before Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-3054 to 05-3165.

The allegations in the Informations1 filed before the RTC were uniform and pro-forma, except for the amounts, date and time of commission, to wit:

INFORMATION

That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, above-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank and with intent of gain, did then and there willfully, unlawfully and feloniously take, steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency, to the damage and prejudice of the said bank in the aforesaid amount.

After perusing the Informations in these cases, the trial court did not find the existence of probable cause that would have necessitated the issuance of a warrant of arrest based on the following grounds:

(1) the element of ‘taking without the consent of the owners’ was missing on the ground that it is the depositors-clients, and not the Bank, which filed the complaint in these cases, who are the owners of the money allegedly taken by respondents and hence, are the real parties-in-interest; and

(2) the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between the respondents and the offended party that would have created a high degree of confidence between them which the respondents could have abused."

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would be violative of the right of the respondents under Section 14(2), Article III of the 1987 Constitution which states that in all criminal prosecutions, the accused shall enjoy the right to be informed of the nature and cause of the accusation against him. Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30 January 2006 and refused to issue a warrant of arrest against Puig and Porras.

A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.

On 9 June 2006, an Order3 denying petitioner’s Motion for Reconsideration was issued by the RTC, finding as follows:

Accordingly, the prosecution’s Motion for Reconsideration should be, as it hereby, DENIED. The Order dated January 30, 2006 STANDS in all respects.

Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole legal issue of:

WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE.

Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006 and 9 June 2006 issued by the trial court, and that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.

Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loans." Corollary thereto, Article 1953 of the same Code provides that "a person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality." Thus, it posits that the depositors who place their money with the bank are considered creditors of the bank. The bank acquires ownership of the money deposited by its clients, making the money taken by respondents as belonging to the bank.

Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft, citing that a perusal of the Informations will show that they specifically allege that the respondents were the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and that they took various amounts of money with grave abuse of confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the bank.

Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a Petition for Review on Certiorari via Rule 45 is the wrong mode of appeal because a finding of probable cause for the issuance of a warrant of arrest presupposes evaluation of facts and circumstances, which is not proper under said Rule.

Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the principal party to file a Petition for Review on Certiorari, considering that the incident was indorsed by the DOJ.

We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and, therefore, because of this defect, there is no basis for the existence of probable cause which will justify the issuance of the warrant of arrest. Petitioner assails the dismissal contending that the Informations for Qualified Theft sufficiently state facts which constitute (a) the qualifying circumstance of grave abuse of confidence; and (b) the element of taking, with intent to gain and without the consent of the owner, which is the Bank.

In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the allegations in the Information inadequate. He ruled that the Information failed to state facts constituting the qualifying circumstance of grave abuse of confidence and the element of taking without the consent of the owner, since the owner of the money is not the Bank, but the depositors therein. He also cites People v. Koc Song,4 in which this Court held:

There must be allegation in the information and proof of a relation, by reason of dependence, guardianship or vigilance, between the respondents and the offended party that has created a high degree of confidence between them, which the respondents abused.

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause simply on the insufficiency of the allegations in the Informations concerning the facts constitutive of the elements of the offense charged. This, therefore, makes the issue of sufficiency of the allegations in the Informations the focal point of discussion.

Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as follows, viz:

ART. 310. Qualified Theft. – The crime of theft shall be punished by the penalties next higher by two degrees than those respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of another’s property without violence or intimidation against persons or force upon things. The elements of the crime under this Article are:

1. Intent to gain;

2. Unlawful taking;

3. Personal property belonging to another;

4. Absence of violence or intimidation against persons or force upon things.

To fall under the crime of Qualified Theft, the following elements must concur:

1. Taking of personal property;

2. That the said property belongs to another;

3. That the said taking be done with intent to gain;

4. That it be done without the owner’s consent;

5. That it be accomplished without the use of violence or intimidation against persons, nor of force upon things;

6. That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the information must state the acts or omissions complained of as constitutive of the offense.

On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is enlightening:

Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the qualifying and aggravating circumstances must be stated in ordinary and concise language and not necessarily in the language used in the statute but in terms sufficient to enable a person of common understanding to know what offense is being charged as well as its qualifying and aggravating circumstances and for the court to pronounce judgment.

It is evident that the Information need not use the exact language of the statute in alleging the acts or omissions complained of as constituting the offense. The test is whether it enables a person of common understanding to know the charge against him, and the court to render judgment properly.5

The portion of the Information relevant to this discussion reads:

A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan,

Iloilo, without the knowledge and/or consent of the management of the Bank x x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of the monies deposited therein enjoy the confidence reposed in them by their employer. Banks, on the other hand, where

monies are deposited, are considered the owners thereof. This is very clear not only from the express provisions of the law, but from established jurisprudence. The relationship between banks and depositors has been held to be that of creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows:

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

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning loan.

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the Bank of the money deposits therein, and the duties being performed by its employees who have custody of the money or have come into possession of it. The Court has consistently considered the allegations in the Information that such employees acted with grave abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it as owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration, we cite Roque v. People,6 where the accused teller was convicted for Qualified Theft based on this Information:

That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of Pampanga, Philippines and within the jurisdiction of his Honorable Court, the above-named accused ASUNCION GALANG ROQUE, being then employed as teller of the Basa Air Base Savings and Loan Association Inc. (BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga, and as such was authorized and reposed with the responsibility to receive and collect capital contributions from its member/contributors of said corporation, and having collected and received in her capacity as teller of the BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with grave abuse of confidence and without the knowledge and consent of said corporation, did then and there willfully, unlawfully and feloniously take, steal and carry away the amount of P10,000.00, Philippine currency, by making it appear that a certain depositor by the name of Antonio Salazar withdrew from his Savings Account No. 1359, when in truth and in fact said Antonio Salazar did not withdr[a]w the said amount of P10,000.00 to the damage and prejudice of BABSLA in the total amount of P10,000.00, Philippine currency.

In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of confidence, and the bank places money in the teller’s possession due to the confidence reposed on the teller, the felony of qualified theft would be committed.7

Also in People v. Sison,8 the Branch Operations Officer was convicted of the crime of Qualified Theft based on the Information as herein cited:

That in or about and during the period compressed between January 24, 1992 and February 13, 1992, both dates inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and feloniously, with intent of gain and without the knowledge and consent of the owner thereof, take, steal and carry away the following, to wit:

Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its Branch Manager, HELEN U. FARGAS, to the damage and prejudice of the said owner in the aforesaid amount of P6,000,000.00, Philippine Currency.

That in the commission of the said offense, herein accused acted with grave abuse of confidence and unfaithfulness, he being the Branch Operation Officer of the said complainant and as such he had free access to the place where the said amount of money was kept.

The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and Industrial Bank (PCIB), is Qualified Theft. Appellant could not have committed the crime had he not been holding the position of Luneta Branch Operation Officer which gave him not only sole access to the bank vault xxx. The management of the PCIB reposed its trust and confidence in the appellant as its Luneta Branch Operation Officer, and it was this trust and confidence which he exploited to enrich himself to the damage and prejudice of PCIB x x x.9

From another end, People v. Locson,10 in addition to People v. Sison, described the nature of possession by the Bank. The money in this case was in the possession of the defendant as receiving teller of the bank, and the possession of the defendant was the possession of the Bank. The Court held therein that when the defendant, with grave abuse of confidence, removed the money and appropriated it to his own use without the consent of the Bank, there was taking as contemplated in the crime of Qualified Theft.11

Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the respondents; that the crime was committed with grave abuse of confidence, with intent to gain and without the knowledge and consent of the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, "of a relation by reason of dependence, guardianship or vigilance, between the respondents and the offended party that has created a high degree of confidence between them, which respondents abused,"12 and without employing the word "owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency of allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is even no reason to quibble on the allegation in the Informations that they acted with grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence by accused herein is even more precise, as this is exactly the requirement of the law in qualifying the crime of Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed in them, occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential elements constituting the crime of Qualified Theft.

On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling in Mobilia Products, Inc. v. Hajime Umezawa13 is instructive. The Court thus enunciated:

In a criminal case in which the offended party is the State, the interest of the private complainant or the offended party is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an acquittal, a reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as the criminal aspect thereof is concerned and may be made only by the public prosecutor; or in the case of an appeal, by the State only, through the OSG. x x x.

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in appeals by certiorari under Rule 45 of the Rules of Court, only errors of law may be raised,14 and herein petitioner certainly raised a question of law.

As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the records of the preliminary investigation conducted will show that, indeed, probable cause exists for the indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the judge shall issue a warrant of arrest only upon a finding of probable cause after personally evaluating the resolution of the prosecutor and its supporting evidence. Soliven v. Makasiar,15 as reiterated inAllado v. Driokno,16 explained that probable cause for the issuance of a warrant of arrest is the existence of such facts and circumstances that would lead a reasonably discreet and prudent person to believe that an offense has been committed by the person sought to be arrested.17 The records reasonably indicate that the respondents may have, indeed, committed the offense charged.

Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case may be, to relieve the respondents from the pain of going through a trial once it is ascertained that no probable cause exists to form a sufficient belief as to the guilt of the respondents, conversely, it is also equally imperative upon the judge to proceed with the case upon a showing that there is a prima facie case against the respondents.

WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET ASIDE. Let the corresponding Warrants of Arrest issue against herein respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive, with reasonable dispatch. No pronouncement as to costs.

SO ORDERED.

G.R. No. 155223             April 4, 2007

BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact, MARIE F. FUJITA, Petitioner, vs.FLORA SAN DIEGO-SISON, Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias represented by her Attorney-in-fact, Marie Regine F. Fujita (petitioner) seeking to annul the Decision1 dated June 18, 2002 and the Resolution2 dated September 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.

Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang, Muntinlupa, Metro Manila, which she acquired from Island Masters Realty and Development Corporation (IMRDC) by virtue of a Deed of Sale dated Nov. 16, 1990.3 The property is covered by TCT No. 168173 of the Register of Deeds of Makati in the name of IMRDC.4

On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison (respondent), as the SECOND PARTY, entered into a Memorandum of Agreement5 over the property with the following terms:

NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00) receipt of which is hereby acknowledged by the FIRST PARTY from the SECOND PARTY, the parties have agreed as follows:

1. That the SECOND PARTY has a period of Six (6) months from the date of the execution of this contract within which to notify the FIRST PARTY of her intention to purchase the aforementioned parcel of land together within (sic) the improvements thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND PESOS (P6,400,000.00). Upon notice to the FIRST PARTY of the SECOND PARTY’s intention to purchase the same, the latter has a period of another six months within which to pay the remaining balance of P3.4 million.

2. That prior to the six months period given to the SECOND PARTY within which to decide whether or not to purchase the above-mentioned property, the FIRST PARTY may still offer the said property to other persons who may be interested to buy the same provided that the amount of P3,000,000.00 given to the FIRST PARTY BY THE SECOND PARTY shall be paid to the latter including interest based on prevailing compounded bank interest plus the amount of the sale in excess of P7,000,000.00 should the property be sold at a price more than P7 million.

3. That in case the FIRST PARTY has no other buyer within the first six months from the execution of this contract, no interest shall be charged by the SECOND PARTY on the P3 million however, in the event that on the sixth month the SECOND PARTY would decide not to purchase the aforementioned property, the FIRST PARTY has a period of another six months within which to pay the sum of P3 million pesos provided that the said amount shall earn compounded bank interest for the last six months only. Under this circumstance, the amount of P3 million given by the SECOND PARTY shall be treated as [a] loan and the property shall be considered as the security for the mortgage which can be enforced in accordance with law.

x x x x.6

Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated check dated February 28, 1990, instead of 1991, which rendered said check stale.7 Petitioner then gave respondent TCT No. 168173 in the name of IMRDC and the Deed of Absolute Sale over the property between petitioner and IMRDC.

Respondent decided not to purchase the property and notified petitioner through a letter8 dated March 20, 1991, which petitioner received only on June 11, 1991,9 reminding petitioner of their agreement that the amount of two million pesos

which petitioner received from respondent should be considered as a loan payable within six months. Petitioner subsequently failed to pay respondent the amount of two million pesos.

On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a complaint10 for sum of money with preliminary attachment against petitioner. The case was docketed as Civil Case No. 93-65367 and raffled to Branch 30. Respondent alleged the foregoing facts and in addition thereto averred that petitioner tried to deprive her of the security for the loan by making a false report11 of the loss of her owner’s copy of TCT No. 168173 to the Tagig Police Station on June 3, 1991, executing an affidavit of loss and by filing a petition12 for the issuance of a new owner’s duplicate copy of said title with the RTC of Makati, Branch 142; that the petition was granted in an Order13 dated August 31, 1991; that said Order was subsequently set aside in an Order dated April 10, 199214 where the RTC Makati granted respondent’s petition for relief from judgment due to the fact that respondent is in possession of the owner’s duplicate copy of TCT No. 168173, and ordered the provincial public prosecutor to conduct an investigation of petitioner for perjury and false testimony. Respondent prayed for the ex-parte issuance of a writ of preliminary attachment and payment of two million pesos with interest at 36% per annum from December 7, 1991, P100,000.00 moral, corrective and exemplary damages and P200,000.00 for attorney’s fees.

In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a writ of preliminary attachment upon the filing of a bond in the amount of two million pesos.15

Petitioner filed an Amended Answer16 alleging that the Memorandum of Agreement was conceived and arranged by her lawyer, Atty. Carmelita Lozada, who is also respondent’s lawyer; that she was asked to sign the agreement without being given the chance to read the same; that the title to the property and the Deed of Sale between her and the IMRDC were entrusted to Atty. Lozada for safekeeping and were never turned over to respondent as there was no consummated sale yet; that out of the two million pesos cash paid, Atty. Lozada took the one million pesos which has not been returned, thus petitioner had filed a civil case against her; that she was never informed of respondent’s decision not to purchase the property within the six month period fixed in the agreement; that when she demanded the return of TCT No. 168173 and the Deed of Sale between her and the IMRDC from Atty. Lozada, the latter gave her these documents in a brown envelope on May 5, 1991 which her secretary placed in her attache case; that the envelope together with her other personal things were lost when her car was forcibly opened the following day; that she sought the help of Atty. Lozada who advised her to secure a police report, to execute an affidavit of loss and to get the services of another lawyer to file a petition for the issuance of an owner’s duplicate copy; that the petition for the issuance of a new owner’s duplicate copy was filed on her behalf without her knowledge and neither did she sign the petition nor testify in court as falsely claimed for she was abroad; that she was a victim of the manipulations of Atty. Lozada and respondent as shown by the filing of criminal charges for perjury and false testimony against her; that no interest could be due as there was no valid mortgage over the property as the principal obligation is vitiated with fraud and deception. She prayed for the dismissal of the complaint, counter-claim for damages and attorney’s fees.

Trial on the merits ensued. On January 31, 1996, the RTC issued a decision,17 the dispositive portion of which reads:

WHEREFORE, judgment is hereby RENDERED:

1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at the rate of thirty two (32%) per cent per annum beginning December 7, 1991 until fully paid.

2) Ordering defendant to pay plaintiff the sum of P70,000.00 representing premiums paid by plaintiff on the attachment bond with legal interest thereon counted from the date of this decision until fully paid.

3) Ordering defendant to pay plaintiff the sum of P100,000.00 by way of moral, corrective and exemplary damages.

4) Ordering defendant to pay plaintiff attorney’s fees of P100,000.00 plus cost of litigation.18

The RTC found that petitioner was under obligation to pay respondent the amount of two million pesos with compounded interest pursuant to their Memorandum of Agreement; that the fraudulent scheme employed by petitioner to deprive respondent of her only security to her loaned money when petitioner executed an affidavit of loss and instituted a petition

for the issuance of an owner’s duplicate title knowing the same was in respondent’s possession, entitled respondent to moral damages; and that petitioner’s bare denial cannot be accorded credence because her testimony and that of her witness did not appear to be credible.

The RTC further found that petitioner admitted that she received from respondent the two million pesos in cash but the fact that petitioner gave the one million pesos to Atty. Lozada was without respondent’s knowledge thus it is not binding on respondent; that respondent had also proven that in 1993, she initially paid the sum ofP30,000.00 as premium for the issuance of the attachment bond, P20,000.00 for its renewal in 1994, andP20,000.00 for the renewal in 1995, thus plaintiff should be reimbursed considering that she was compelled to go to court and ask for a writ of preliminary attachment to protect her rights under the agreement.

Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the RTC decision with modification, the dispositive portion of which reads:

WHEREFORE, premises considered, the decision appealed from is MODIFIED in the sense that the rate of interest is reduced from 32% to 25% per annum, effective June 7, 1991 until fully paid.19

The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her commission and partly as a loan; respondent did not replace the mistakenly dated check of one million pesos because she had decided not to buy the property and petitioner knew of her decision as early as April 1991; the award of moral damages was warranted since even granting petitioner had no hand in the filing of the petition for the issuance of an owner’s copy, she executed an affidavit of loss of TCT No. 168173 when she knew all along that said title was in respondent’s possession; petitioner’s claim that she thought the title was lost when the brown envelope given to her by Atty. Lozada was stolen from her car was hollow; that such deceitful conduct caused respondent serious anxiety and emotional distress.

The CA concluded that there was no basis for petitioner to say that the interest should be charged for six months only and no more; that a loan always bears interest otherwise it is not a loan; that interest should commence on June 7, 199120 with compounded bank interest prevailing at the time the two million was considered as a loan which was in June 1991; that the bank interest rate for loans secured by a real estate mortgage in 1991 ranged from 25% to 32% per annum as certified to by Prudential Bank,21 that in fairness to petitioner, the rate to be charged should be 25% only.

Petitioner’s motion for reconsideration was denied by the CA in a Resolution dated September 11, 2002.

Hence the instant Petition for Review on Certiorari filed by petitioner raising the following issues:

(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO SIX (6) MONTHS AS CONTAINED IN THE MEMORANDUM OF AGREEMENT.

(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.

(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES IS PROPER EVEN IF NOT MENTIONED IN THE TEXT OF THE DECISION.22

Petitioner contends that the interest, whether at 32% per annum awarded by the trial court or at 25% per annum as modified by the CA which should run from June 7, 1991 until fully paid, is contrary to the parties’ Memorandum of Agreement; that the agreement provides that if respondent would decide not to purchase the property, petitioner has the period of another six months to pay the loan with compounded bank interest for the last six months only; that the CA’s ruling that a loan always bears interest otherwise it is not a loan is contrary to Art. 1956 of the New Civil Code which provides that no interest shall be due unless it has been expressly stipulated in writing.

We are not persuaded.

While the CA’s conclusion, that a loan always bears interest otherwise it is not a loan, is flawed since a simple loan may be gratuitous or with a stipulation to pay interest,23 we find no error committed by the CA in awarding a 25% interest per annum on the two-million peso loan even beyond the second six months stipulated period.

The Memorandum of Agreement executed between the petitioner and respondent on December 7, 1990 is the law between the parties. In resolving an issue based upon a contract, we must first examine the contract itself, especially the provisions thereof which are relevant to the controversy.24 The general rule is that if the terms of an agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail.25 It is further required that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.26

In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement. We agree with and adopt the CA’s interpretation of the phrase in this wise:

Their agreement speaks of two (2) periods of six months each. The first six-month period was given to plaintiff-appellee (respondent) to make up her mind whether or not to purchase defendant-appellant’s (petitioner's) property. The second six-month period was given to defendant-appellant to pay the P2 million loan in the event that plaintiff-appellee decided not to buy the subject property in which case interest will be charged "for the last six months only", referring to the second six-month period. This means that no interest will be charged for the first six-month period while appellee was making up her mind whether to buy the property, but only for the second period of six months after appellee had decided not to buy the property. This is the meaning of the phrase "for the last six months only". Certainly, there is nothing in their agreement that suggests that interest will be charged for six months only even if it takes defendant-appellant an eternity to pay the loan.27

The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e., referring to the second six-month period, does not mean that interest will no longer be charged after the second six-month period since such stipulation was made on the logical and reasonable expectation that such amount would be paid within the date stipulated. Considering that petitioner failed to pay the amount given which under the Memorandum of Agreement shall be considered as a loan, the monetary interest for the last six months continued to accrue until actual payment of the loaned amount.

The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount.28 It has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of the creditor.29

Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and per the certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32% per annum. The CA reduced the interest rate to 25% instead of the 32% awarded by the trial court which petitioner no longer assailed.1awphi1.nét

In Bautista v. Pilar Development Corp.,30 we upheld the validity of a 21% per annum interest on a P142,326.43 loan. In Garcia v. Court of Appeals,31 we sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan. Thus, the interest rate of 25% per annum awarded by the CA to a P2 million loan is fair and reasonable.

Petitioner next claims that moral damages were awarded on the erroneous finding that she used a fraudulent scheme to deprive respondent of her security for the loan; that such finding is baseless since petitioner was acquitted in the case for perjury and false testimony filed by respondent against her.

We are not persuaded.

Article 31 of the Civil Code provides that when the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter.32

While petitioner was acquitted in the false testimony and perjury cases filed by respondent against her, those actions are entirely distinct from the collection of sum of money with damages filed by respondent against petitioner.

We agree with the findings of the trial court and the CA that petitioner’s act of trying to deprive respondent of the security of her loan by executing an affidavit of loss of the title and instituting a petition for the issuance of a new owner’s duplicate copy of TCT No. 168173 entitles respondent to moral damages.1a\^/phi1.net Moral damages may be awarded in culpa contractual or breach of contract cases when the defendant acted fraudulently or in bad faith. 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.33

The Memorandum of Agreement provides that in the event that respondent opts not to buy the property, the money given by respondent to petitioner shall be treated as a loan and the property shall be considered as the security for the mortgage. It was testified to by respondent that after they executed the agreement on December 7, 1990, petitioner gave her the owner’s copy of the title to the property, the Deed of Sale between petitioner and IMRDC, the certificate of occupancy, and the certificate of the Secretary of the IMRDC who signed the Deed of Sale.34 However, notwithstanding that all those documents were in respondent’s possession, petitioner executed an affidavit of loss that the owner’s copy of the title and the Deed of Sale were lost.

Although petitioner testified that her execution of the affidavit of loss was due to the fact that she was of the belief that since she had demanded from Atty. Lozada the return of the title, she thought that the brown envelope with markings which Atty. Lozada gave her on May 5, 1991 already contained the title and the Deed of Sale as those documents were in the same brown envelope which she gave to Atty. Lozada prior to the transaction with respondent.35 Such statement remained a bare statement. It was not proven at all since Atty. Lozada had not taken the stand to corroborate her claim. In fact, even petitioner’s own witness, Benilda Ynfante (Ynfante), was not able to establish petitioner's claim that the title was returned by Atty. Lozada in view of Ynfante's testimony that after the brown envelope was given to petitioner, the latter passed it on to her and she placed it in petitioner’s attaché case36 and did not bother to look at the envelope.37

It is clear therefrom that petitioner’s execution of the affidavit of loss became the basis of the filing of the petition with the RTC for the issuance of new owner’s duplicate copy of TCT No. 168173. Petitioner’s actuation would have deprived respondent of the security for her loan were it not for respondent’s timely filing of a petition for relief whereby the RTC set aside its previous order granting the issuance of new title. Thus, the award of moral damages is in order.

The entitlement to moral damages having been established, the award of exemplary damages is proper.38Exemplary damages may be imposed upon petitioner by way of example or correction for the public good.39 The RTC awarded the amount of P100,000.00 as moral and exemplary damages. While the award of moral and exemplary damages in an aggregate amount may not be the usual way of awarding said damages,40 no error has been committed by CA. There is no question that respondent is entitled to moral and exemplary damages.

Petitioner argues that the CA erred in awarding attorney’s fees because the trial court’s decision did not explain the findings of facts and law to justify the award of attorney’s fees as the same was mentioned only in the dispositive portion of the RTC decision.

We agree.

Article 220841 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be granted.42 Attorney's fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.43 The award of attorney's fees is the exception rather than the general rule. As such, it is necessary for the trial court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. The matter of attorney's fees cannot be mentioned only in the dispositive portion of the decision.44 They must be clearly explained and justified by the trial court in the body of its decision. On appeal, the CA is precluded from supplementing the bases for awarding attorney’s fees when the trial court failed to discuss in its Decision the reasons for awarding the same. Consequently, the award of attorney's fees should be deleted.

WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution dated September 11, 2002 of the Court of Appeals in CA-G.R. CV No. 52839 are AFFIRMED with MODIFICATION that the award of attorney’s fees is DELETED.

No pronouncement as to costs.

SO ORDERED.

[G.R. No. 122079. June 27, 1997]SPOUSES ANTONIO E.A. CONCEPCION and MANUELA S. CONCEPCION, petitioners, vs. HON. COURT

OF APPEALS, HOME SAVINGS BANK AND TRUST COMPANY, and as nominal party-defendants, THE SHERIFF ASSIGNED TO SAN JUAN, METRO MANILA, and who conducted the auction sale and the REGISTER OF DEEDS or his representative of San Juan, Metro Manila, and ASAJE REALTY CORPORATION, respondents.

D E C I S I O NVITUG, J.:

The spouses Antonio E.A. Concepcion and Manuela S. Concepcion assail, via the instant petition for review on certiorari, the decision,[1] dated 15 September 1995, of the Court of Appeals, affirming with modification the judgment of the Regional Trial Court ("RTC"), [2] Branch 157, of Pasig City,[3] that dismissed the complaint of herein petitioners against private respondents.

The facts, hereunder narrated, are culled from the findings of the appellate court.

On 17 January 1979, the Home Savings Bank and Trust Company (now Insular Life Savings and Trust Company) granted to the Concepcions a loan amounting toP1,400,000.00. The Concepcions, in turn, executed in favor of the bank a promissory note and a real estate mortgage over their property located at 11 Albany St., Greenhills, San Juan, Metro Manila. The loan was payable in equal quarterly amortizations for a period of fifteen (15) years and carried an interest rate of sixteen percent (16%) perannum. The promissory note provided that the Concepcions had authorized -

"x x x the Bank to correspondingly increase the interest rate presently stipulated in this transaction without advance notice to me/us in the event the Central Bank of the Philippines raises its rediscount rate to member banks, and/or the interest rate on savings and time deposit, and/or the interest rate on such loans and/or advances."[4]

In accordance with the above provision, the bank unilaterally increased the interest rate from 16% to 21% effective 17 February 1980; from 21% to 30% effective 17 October 1984; and from 30% to 38% effective 17 November 1984, increasing the quarterly amortizations from P67,830.00 to, respectively, P77,619.72, P104,661.10, andP123,797.05 for the periods aforestated. The Concepcions paid, under protest, the increased amortizations of P77,619.72 and P104,661.10 until January 1985 but thereafter failed to pay the quarterly amortization of P123,797.05 (starting due date of 17 April 1985).

In a letter, dated 15 July 1985, the bank's President made a demand on the Concepcions for the payment of the arrearages. The Concepcions failed to pay, constraining the bank's counsel to send a final demand letter, dated 26 August 1985, for the payment of P393,878.81, covering the spouses' due account for three quarterly payments plus interest, penalty, and service charges. Still, no payment was received.

On 14 April 1986, the bank finally filed with the Office of the Provincial Sheriff of Pasig City a petition for extrajudicial foreclosure of the real estate mortgage executed by the Concepcions. A notice of sale was issued on 15 May 1986, setting the public auction sale on 11 June 1986. The notice was published in the newspaper "Mabuhay." A copy of the notice was sent to the Concepcions at 59 Whitefield St., White Plains Subdivision, Quezon City and/or at 11 Albany St., Greenhills Subdivision, San Juan, Metro Manila. The public auction sale went on as scheduled with the bank emerging as the highest bidder. A Certificate of Sale was issued in favor of the bank.

The Concepcions were unable to exercise their right of redemption within the one-year period provided under Act No. 3135. The bank thus consolidated its title over the property and, after the cancellation of the title in the name of the Concepcions, a new transfer certificate of title (No. 090-R) was issued in the name of Home Savings Bank and Trust Company.

On 31 July 1987, the bank executed a Deed of Absolute Sale in favor of Asaje Realty Corporation and a new certificate of title was issued in the latter's name.

Meanwhile, on 29 July 1987, the Concepcions filed an action against Home Savings Bank and Trust Company, the Sheriff of San Juan, Metro Manila, and the Register of Deeds of San Juan, Metro Manila, for the cancellation of the foreclosure sale, the declaration of nullity of the consolidation of title in favor of the bank, and the declaration of nullity of the unilateral increases of the interest rates on their loan. The spouses likewise claimed damages against the defendants. The Concepcions, having learned of the sale of the property to

Asaje Realty Corporation, filed an amended complaint impleading the realty corporation and so praying as well for the cancellation of the sale executed between said corporation and the bank and the cancellation of the certificate of title issued in the name of Asaje.

On 31 August 1992, the trial court found for the defendants and ruled:

"In view of all the foregoing premises, this Court finally concludes that the plaintiffs have no cause of action either against defendant Home Savings Bank & Trust Company or defendant Asaje Realty Corporation; and under the circumstances of this case, it deems it just and equitable that attorney's fees and expenses of litigation should be recovered by said defendants.

"WHEREFORE, judgment is hereby rendered dismissing the amended complaint of plaintiffs Spouses Antonio E.A. Concepcion and Manuela S. Concepcion against the defendants for lack of merit, and ordering the said plaintiffs to pay attorney's fees and expenses of litigation in the sum of P30,000.00 to defendant Home Savings Bank & Trust Company and in the amount ofP25,000.00 to defendant Asaje Realty Corporation, in addition to their respective costs of suit.

"SO ORDERED."[5]

The Concepcions went to the Court of Appeals.

On 15 September 1995, the appellate court affirmed the trial court's decision, with modification, as follows:

"Under the facts and circumstances of the case at bench, the award of attorney's fees, expenses of litigation and costs of suit in favor of defendant-appellee should be deleted. It is not a sound policy to place a penalty on the right to litigate, nor should counsel's fees be awarded everytime a party wins a suit (Arenas vs. Court of Appeals, 169 SCRA 558).

"WHEREFORE, the appealed judgment is AFFIRMED with the modification that the award of attorneys fees, litigation expenses and costs of suit in favor of defendant-appellees are deleted from the dispositive portion.

"SO ORDERED."[6]

The Concepcions forthwith filed with this Court a petition for review on certiorari, contending that they have been denied their contractually stipulated right to be personally notified of the foreclosure proceedings on the mortgaged property.

There is some merit in the petition.

The three common types of forced sales arising from a failure to pay a mortgage debt include (a) an extrajudicial foreclosure sale, governed by Act No. 3135; (b) a judicial foreclosure sale, regulated by Rule 68 of the Rules of Court; and (c) an ordinary execution sale, covered by Rule 39 of the Rules of Court.[7] Each mode, peculiarly, has its own requirements.

In an extrajudicial foreclosure, such as here, Section 3 of Act No. 3135[8] is the law applicable;[9] the provision reads:

"Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city."

The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication of the same in a newspaper of general circulation.[10] Personal notice to the mortgagor is not necessary.[11] Nevertheless, the parties to the mortgage contract are not precluded from exacting additional requirements.

In the case at bar, the mortgage contract stipulated that -

"All correspondence relative to this Mortgage, including demand letters, summons, subpoenas, or notifications of any judicial or extrajudicial actions shall be sent to the Mortgagor at the address given above or at the address that may

hereafter be given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the Mortgagor for all legal purposes, and fact that any communication is not actually received by the Mortgagor, or that it has been returned unclaimed to the Mortgagee, or that no person was found at the address given, or that the address is fictitious or cannot be located, shall not excuse or relieve Mortgagor from the effects of such notice."[12]

The stipulation, not being contrary to law, morals, good customs, public order or public policy, is the law between the contracting parties and should be faithfully complied with.[13]

Private respondent bank maintains that the stipulation that "all correspondence relative to (the) Mortgage x x x shall be sent to the Mortgagor at the address given above or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee"[14] gives the mortgagee an alternative to send its correspondence either at the old or the new address given.[15] This stand is illogical. It could not have been the intendment of the parties to defeat the very purpose of the provision referred to which is obviously to apprise the mortgagors of the bank's action that might affect the property and to accord to them an opportunity to safeguard their rights. The Court finds the bank's failure to comply with its agreement with petitioners an inexcusable breach of the mortgagee's covenant. Neither petitioners' subsequent opportunity to redeem the property nor their failed negotiations with the bank for a new schedule of payments,[16] can be a valid justification for the breach.

The foregoing notwithstanding, petitioners may no longer seek the reconveyance of the property from private respondent Asaje Realty Corporation, the latter having been, evidently, an innocent purchaser in good faith.[17] The realty corporation purchased the property when the title was already in the name of the bank. It was under no obligation to investigate the title of the bank or to look beyond what clearly appeared to be on the face of the certificate.[18]

Private respondent bank, however, can still be held to account for the bid price of Asaje Realty Corporation over and above, if any, the amount due the bank on the basis of the original interest rate, the unilateral increases made by the bank having been correctly invalidated by the Court of Appeals.

The validity of "escalation" or "escalator" clauses in contracts, in general, was upheld by the Supreme Court in Banco Filipino Savings and Mortgage Bank vs. Hon. Navarro and Del Valle.[19] Hence:

"Some contracts contain what is known as an `escalator clause,' which is defined as one in which the contract fixes a base price but contains a provision that in the event of specified cost increases, the seller or contractor may raise the price up to a fixed percentage of the base. Attacks on such a clause have usually been based on the claim that, because of the open price-provision, the contract was too indefinite to be enforceable and did not evidence an actual meeting of the minds of the parties, or that the arrangement left the price to be determined arbitrarily by one party so that the contract lacked mutuality. In most instances, however, these attacks have been unsuccessful.

"The Court further finds as a matter of law that the cost of living index adjustment, or escalator clause, is not substantively unconscionable.

"Cost of living index adjustment clauses are widely used in commercial contracts in an effort to maintain fiscal stability and to retain `real dollar' value to the price terms of long term contracts.The provision is a common one, and has been universally upheld and enforced. Indeed, the Federal government has recognized the efficacy of escalator clauses in tying Social Security benefits to the cost of living index, 42 U.S.C.s 415(i). Pension benefits and labor contracts negotiated by most of the major labor unions are other examples. That inflation, expected or otherwise, will cause a particular bargain to be more costly in terms of total dollars than originally contemplated can be of little solace to the plaintiffs."[20]

In Philippine National Bank vs. Court of Appeals,[21] the Court further elucidated, as follows:

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

"Similarly, contract changes 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

contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.

"We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to unilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held -

"`x x x (T)he unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the mutuality of contracts ordained in Article 1308 of the Civil Code:

"`ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.'

"In order that obligations arising from contracts may have the force or law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void x x x. Hence, even assuming that the x x x loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative `to take it or leave it' x x x. Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. (Citations omitted.)"[22]

Even if we were to consider that petitioners were bound by their agreement allowing an increase in the interest rate despite the lack of advance notice to them, the escalation should still be subject, as so contractually stipulated, to a corresponding increase by the Central Bank of its rediscount rate to member banks, or of the interest rate on savings and time deposit, or of the interest rate on such loans and advances. The notices sent to petitioners merely read:

Letter of 19 July 1984:

"Please be informed that the Bank has increased the interest rate of your existing loan from 21 to 30% per annum beginning October 17, 1984. This increase of interest rate is in accordance with the provision of Section 2 of Presidential Decree No. 1684[23] amending Act No. 2655. This provision of the decree is reiterated under paragraph 1 of your Promissory Note. Yourquarterly amortization has been increased to P104,661.10.

"We trust that you will be guided accordingly."[24]

Letter of 14 November 1984:

"On account of the prevailing business and economic condition, we are compelled to increase the interest rate of your existing loan from 30% to 38% per annum effective November 17, 1984. This increase is in accordance with your agreement (escalation clause) in your promissory note/s.

"In view of this increase in the interest rate of your loan, your Quarterly amortization correspondingly increased to P123,797.05 commencing on April 17, 1985.

"We trust that you will understand our position and please be guided accordingly."[25]

Given the circumstances, the Court sees no cogent reasons to fault the appellate court in its finding that there are no sufficient valid justifications aptly shown for the unilateral increases by private respondent bank of the interest rates on the loan.

WHEREFORE, the decision of the appellate court is AFFIRMED subject to the MODIFICATION that private respondent Home Savings Bank and Trust Company shall pay to petitioners the excess, if any, of the

bid price it received from Asaje Realty Corporation for the foreclosed property in question over and above the unpaid balance of the loan computed at the original interest rate. This case is REMANDED to the trial court for the above determination. No costs.

SO ORDERED.

G.R. No. 173227               January 20, 2009

SEBASTIAN SIGA-AN, Petitioner, vs.ALICIA VILLANUEVA, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a Petition1 for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision,2 dated 16 December 2005, and Resolution,3 dated 19 June 2006 of the Court of Appeals in CA-G.R. CV No. 71814, which affirmed in toto the Decision,4 dated 26 January 2001, of the Las Pinas City Regional Trial Court, Branch 255, in Civil Case No. LP-98-0068.

The facts gathered from the records are as follows:

On 30 March 1998, respondent Alicia Villanueva filed a complaint5 for sum of money against petitioner Sebastian Siga-an before the Las Pinas City Regional Trial Court (RTC), Branch 255, docketed as Civil Case No. LP-98-0068. Respondent alleged that she was a businesswoman engaged in supplying office materials and equipments to the Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner was a military officer and comptroller of the PNO from 1991 to 1996.

Respondent claimed that sometime in 1992, petitioner approached her inside the PNO and offered to loan her the amount of P540,000.00. Since she needed capital for her business transactions with the PNO, she accepted petitioner’s proposal. The loan agreement was not reduced in writing. Also, there was no stipulation as to the payment of interest for the loan.6

On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan. On 31 October 1993, she issued another check in the amount of P200,000.00 to petitioner as payment of the remaining balance of the loan. Petitioner told her that since she paid a total amount of P700,000.00 for theP540,000.00 worth of loan, the excess amount of P160,000.00 would be applied as interest for the loan. Not satisfied with the amount applied as interest, petitioner pestered her to pay additional interest. Petitioner threatened to block or disapprove her transactions with the PNO if she would not comply with his demand. As all her transactions with the PNO were subject to the approval of petitioner as comptroller of the PNO, and fearing that petitioner might block or unduly influence the payment of her vouchers in the PNO, she conceded. Thus, she paid additional amounts in cash and checks as interests for the loan. She asked petitioner for receipt for the payments but petitioner told her that it was not necessary as there was mutual trust and confidence between them. According to her computation, the total amount she paid to petitioner for the loan and interest accumulated to P1,200,000.00.7

Thereafter, respondent consulted a lawyer regarding the propriety of paying interest on the loan despite absence of agreement to that effect. Her lawyer told her that petitioner could not validly collect interest on the loan because there was no agreement between her and petitioner regarding payment of interest. Since she paid petitioner a total amount of P1,200,000.00 for the P540,000.00 worth of loan, and upon being advised by her lawyer that she made overpayment to petitioner, she sent a demand letter to petitioner asking for the return of the excess amount of P660,000.00. Petitioner, despite receipt of the demand letter, ignored her claim for reimbursement.8

Respondent prayed that the RTC render judgment ordering petitioner to pay respondent (1) P660,000.00 plus legal interest from the time of demand; (2) P300,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4) an amount equivalent to 25% of P660,000.00 as attorney’s fees.9

In his answer10 to the complaint, petitioner denied that he offered a loan to respondent. He averred that in 1992, respondent approached and asked him if he could grant her a loan, as she needed money to finance her business venture with the PNO. At first, he was reluctant to deal with respondent, because the latter had a spotty record as a supplier of the PNO. However, since respondent was an acquaintance of his officemate, he agreed to grant her a loan. Respondent paid the loan in full.11

Subsequently, respondent again asked him to give her a loan. As respondent had been able to pay the previous loan in full, he agreed to grant her another loan. Later, respondent requested him to restructure the payment of the loan because she could not give full payment on the due date. He acceded to her request. Thereafter, respondent pleaded for another restructuring of the payment of the loan. This time he rejected her plea. Thus, respondent proposed to execute a promissory note wherein she would acknowledge her obligation to him, inclusive of interest, and that she would issue several postdated checks to guarantee the payment of her obligation. Upon his approval of respondent’s request for restructuring of the loan, respondent executed a promissory note dated 12 September 1994 wherein she admitted having borrowed an amount of P1,240,000.00, inclusive of interest, from petitioner and that she would pay said amount in March 1995. Respondent also issued to him six postdated checks amounting to P1,240,000.00 as guarantee of compliance with her obligation. Subsequently, he presented the six checks for encashment but only one check was honored. He demanded that respondent settle her obligation, but the latter failed to do so. Hence, he filed criminal cases for Violation of the Bouncing Checks Law (Batas Pambansa Blg. 22) against respondent. The cases were assigned to the Metropolitan Trial Court of Makati City, Branch 65 (MeTC).12

Petitioner insisted that there was no overpayment because respondent admitted in the latter’s promissory note that her monetary obligation as of 12 September 1994 amounted to P1,240,000.00 inclusive of interests. He argued that respondent was already estopped from complaining that she should not have paid any interest, because she was given several times to settle her obligation but failed to do so. He maintained that to rule in favor of respondent is tantamount to concluding that the loan was given interest-free. Based on the foregoing averments, he asked the RTC to dismiss respondent’s complaint.

After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent made an overpayment of her loan obligation to petitioner and that the latter should refund the excess amount to the former. It ratiocinated that respondent’s obligation was only to pay the loaned amount of P540,000.00, and that the alleged interests due should not be included in the computation of respondent’s total monetary debt because there was no agreement between them regarding payment of interest. It concluded that since respondent made an excess payment to petitioner in the amount of P660,000.00 through mistake, petitioner should return the said amount to respondent pursuant to the principle of solutio indebiti.13

The RTC also ruled that petitioner should pay moral damages for the sleepless nights and wounded feelings experienced by respondent. Further, petitioner should pay exemplary damages by way of example or correction for the public good, plus attorney’s fees and costs of suit.

The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing evidence and in the light of the provisions of law and jurisprudence on the matter, judgment is hereby rendered in favor of the plaintiff and against the defendant as follows:

(1) Ordering defendant to pay plaintiff the amount of P660,000.00 plus legal interest of 12% per annum computed from 3 March 1998 until the amount is paid in full;

(2) Ordering defendant to pay plaintiff the amount of P300,000.00 as moral damages;

(3) Ordering defendant to pay plaintiff the amount of P50,000.00 as exemplary damages;

(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of P660,000.00 as attorney’s fees; and

(5) Ordering defendant to pay the costs of suit.14

Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate court promulgated its Decision affirming in toto the RTC Decision, thus:

WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED and the assailed decision [is] AFFIRMED in toto.15

Petitioner filed a motion for reconsideration of the appellate court’s decision but this was denied.16 Hence, petitioner lodged the instant petition before us assigning the following errors:

I.

THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS DUE TO PETITIONER;

II.

THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF SOLUTIO INDEBITI.17

Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest.18 The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded.19

Article 1956 of the Civil Code, which refers to monetary interest,20 specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law.21

It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither was there convincing proof of written agreement between the two regarding the payment of interest. Respondent testified that although she accepted petitioner’s offer of loan amounting to P540,000.00, there was, nonetheless, no verbal or written agreement for her to pay interest on the loan.22

Petitioner presented a handwritten promissory note dated 12 September 199423 wherein respondent purportedly admitted owing petitioner "capital and interest." Respondent, however, explained that it was petitioner who made a promissory note and she was told to copy it in her own handwriting; that all her transactions with the PNO were subject to the approval of petitioner as comptroller of the PNO; that petitioner threatened to disapprove her transactions with the PNO if she would not pay interest; that being unaware of the law on interest and fearing that petitioner would make good of his threats if she would not obey his instruction to copy the promissory note, she copied the promissory note in her own handwriting; and that such was the same promissory note presented by petitioner as alleged proof of their written agreement on interest.24 Petitioner did not rebut the foregoing testimony. It is evident that respondent did not really consent to the payment of interest for the loan and that she was merely tricked and coerced by petitioner to pay interest. Hence, it cannot be gainfully said that such promissory note pertains to an express stipulation of interest or written agreement of interest on the loan between petitioner and respondent.

Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found that he and respondent agreed on the payment of 7% rate of interest on the loan; that the agreed 7% rate of interest was duly admitted by respondent in her testimony in the Batas Pambansa Blg. 22 cases he filed against respondent; that despite such judicial admission by respondent, the RTC and the Court of Appeals, citing Article 1956 of the Civil Code,

still held that no interest was due him since the agreement on interest was not reduced in writing; that the application of Article 1956 of the Civil Code should not be absolute, and an exception to the application of such provision should be made when the borrower admits that a specific rate of interest was agreed upon as in the present case; and that it would be unfair to allow respondent to pay only the loan when the latter very well knew and even admitted in the Batas Pambansa Blg. 22 cases that there was an agreed 7% rate of interest on the loan.25

We have carefully examined the RTC Decision and found that the RTC did not make a ruling therein that petitioner and respondent agreed on the payment of interest at the rate of 7% for the loan. The RTC clearly stated that although petitioner and respondent entered into a valid oral contract of loan amounting toP540,000.00, they, nonetheless, never intended the payment of interest thereon.26 While the Court of Appeals mentioned in its Decision that it concurred in the RTC’s ruling that petitioner and respondent agreed on a certain rate of interest as regards the loan, we consider this as merely an inadvertence because, as earlier elucidated, both the RTC and the Court of Appeals ruled that petitioner is not entitled to the payment of interest on the loan. The rule is that factual findings of the trial court deserve great weight and respect especially when affirmed by the appellate court.27 We found no compelling reason to disturb the ruling of both courts.

Petitioner’s reliance on respondent’s alleged admission in the Batas Pambansa Blg. 22 cases that they had agreed on the payment of interest at the rate of 7% deserves scant consideration. In the said case, respondent merely testified that after paying the total amount of loan, petitioner ordered her to pay interest.28 Respondent did not categorically declare in the same case that she and respondent made an express stipulation in writing as regards payment of interest at the rate of 7%. As earlier discussed, monetary interest is due only if there was anexpress stipulation in writing for the payment of interest.

There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point.

All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of money. In other words, the two instances apply only to compensatory interest and not to monetary interest.29 The case at bar involves petitioner’s claim for monetary interest.

Further, said compensatory interest is not chargeable in the instant case because it was not duly proven that respondent defaulted in paying the loan. Also, as earlier found, no interest was due on the loan because there was no written agreement as regards payment of interest.

Apropos the second assigned error, petitioner argues that the principle of solutio indebiti does not apply to the instant case. Thus, he cannot be compelled to return the alleged excess amount paid by respondent as interest.30

Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor relationship is created under a quasi-contract whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake, and the person who has no right to receive such payment becomes obligated to return the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense of another.31 The principle of solutio indebitiapplies where (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made

through mistake, and not through liberality or some other cause.32 We have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest.33

It was duly established that respondent paid interest to petitioner. Respondent was under no duty to make such payment because there was no express stipulation in writing to that effect. There was no binding relation between petitioner and respondent as regards the payment of interest. The payment was clearly a mistake. Since petitioner received something when there was no right to demand it, he has an obligation to return it.

We shall now determine the propriety of the monetary award and damages imposed by the RTC and the Court of Appeals.

Records show that respondent received a loan amounting to P540,000.00 from petitioner.34 Respondent issued two checks with a total worth of P700,000.00 in favor of petitioner as payment of the loan.35 These checks were subsequently encashed by petitioner.36 Obviously, there was an excess of P160,000.00 in the payment for the loan. Petitioner claims that the excess of P160,000.00 serves as interest on the loan to which he was entitled. Aside from issuing the said two checks, respondent also paid cash in the total amount of P175,000.00 to petitioner as interest.37 Although no receipts reflecting the same were presented because petitioner refused to issue such to respondent, petitioner, nonetheless, admitted in his Reply-Affidavit38 in the Batas Pambansa Blg. 22 cases that respondent paid him a total amount of P175,000.00 cash in addition to the two checks. Section 26 Rule 130 of the Rules of Evidence provides that the declaration of a party as to a relevant fact may be given in evidence against him. Aside from the amounts of P160,000.00 and P175,000.00 paid as interest, no other proof of additional payment as interest was presented by respondent. Since we have previously found that petitioner is not entitled to payment of interest and that the principle of solutio indebiti applies to the instant case, petitioner should return to respondent the excess amount of P160,000.00 and P175,000.00 or the total amount ofP335,000.00. Accordingly, the reimbursable amount to respondent fixed by the RTC and the Court of Appeals should be reduced from P660,000.00 to P335,000.00.

As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa Blg. 22 against respondent. In the said cases, the MeTC found respondent guilty of violating Batas Pambansa Blg. 22 for issuing five dishonored checks to petitioner. Nonetheless, respondent’s conviction therein does not affect our ruling in the instant case. The two checks, subject matter of this case, totaling P700,000.00 which respondent claimed as payment of the P540,000.00 worth of loan, were not among the five checks found to be dishonored or bounced in the five criminal cases. Further, the MeTC found that respondent made an overpayment of the loan by reason of the interest which the latter paid to petitioner.39

Article 2217 of the Civil Code provides that moral damages may be recovered if the party underwent physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury. Respondent testified that she experienced sleepless nights and wounded feelings when petitioner refused to return the amount paid as interest despite her repeated demands. Hence, the award of moral damages is justified. However, its corresponding amount of P300,000.00, as fixed by the RTC and the Court of Appeals, is exorbitant and should be equitably reduced. Article 2216 of the Civil Code instructs that assessment of damages is left to the discretion of the court according to the circumstances of each case. This discretion is limited by the principle that the amount awarded should not be palpably excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court.40 To our mind, the amount of P150,000.00 as moral damages is fair, reasonable, and proportionate to the injury suffered by respondent.

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages may be imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he pestered respondent to pay interest and threatened to block her transactions with the PNO if she would not pay interest. This forced respondent to pay interest despite lack of agreement thereto. Thus, the award of exemplary damages is appropriate. The amount of P50,000.00 imposed as exemplary damages by the RTC and the Court is fitting so as to deter petitioner and other lenders from committing similar and other serious wrongdoings.41

Jurisprudence instructs that in awarding attorney’s fees, the trial court must state the factual, legal or equitable justification for awarding the same.42 In the case under consideration, the RTC stated in its Decision that the award of attorney’s fees equivalent to 25% of the amount paid as interest by respondent to petitioner is reasonable and moderate considering the extent of work rendered by respondent’s lawyer in the instant case and the fact that it dragged on for several years.43 Further, respondent testified that she agreed to compensate her lawyer handling the instant case such amount.44 The award, therefore, of attorney’s fees and its amount equivalent to 25% of the amount paid as interest by respondent to petitioner is proper.

Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the amount refundable to respondent computed from 3 March 1998 until its full payment. This is erroneous.

We held in Eastern Shipping Lines, Inc. v. Court of Appeals,45 that 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 rate of 6% per annum. We further declared that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether it is a loan/forbearance of money or not, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed equivalent to a forbearance of credit.

In the present case, petitioner’s obligation arose from a quasi-contract of solutio indebiti and not from a loan or forbearance of money. Thus, an interest of 6% per annum should be imposed on the amount to be refunded as well as on the damages awarded and on the attorney’s fees, to be computed from the time of the extra-judicial demand on 3 March 1998,46 up to the finality of this Decision. In addition, the interest shall become 12% per annum from the finality of this Decision up to its satisfaction.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated 16 December 2005, is hereby AFFIRMED with the following MODIFICATIONS: (1) the amount of P660,000.00 as refundable amount of interest is reduced to THREE HUNDRED THIRTY FIVE THOUSAND PESOS (P335,000.00); (2) the amount ofP300,000.00 imposed as moral damages is reduced to ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00); (3) an interest of 6% per annum is imposed on the P335,000.00, on the damages awarded and on the attorney’s fees to be computed from the time of the extra-judicial demand on 3 March 1998 up to the finality of this Decision; and (4) an interest of 12% per annum is also imposed from the finality of this Decision up to its satisfaction. Costs against petitioner.

SO ORDERED.

HERMOJINA ESTORES,  Petitioner,  

         - versus -           SPOUSES ARTURO and  LAURA SUPANGAN,  

Respondents.   

D E C I S I O N 

DEL CASTILLO, J.: 

The only issue posed before us is the propriety of the imposition of interest and attorneys fees. Assailed in this Petition for Review[1] filed under Rule 45 of the Rules of Court is the May 12, 2006 Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 83123, the dispositive portion of which reads: 

WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum, computed from September 27, 2000 until its full payment before finality of the judgment. If the adjudged principal and the interest (or any part thereof) remain unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%) per annum, computed from the time the judgment becomes final and executory until it is fully satisfied. The award of attorneys fees is hereby reduced to P100,000.00. Costs against the defendants-appellants. SO ORDERED.[3]

Also assailed is the August 31, 2006 Resolution[4] denying the motion for reconsideration. Factual Antecedents On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan entered into a Conditional Deed of Sale[5] whereby petitioner offered to sell, and respondent-spouses offered to buy, a parcel of land covered by Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum of P4.7 million. The parties likewise stipulated, among others, to wit: 

x x x x 1. Vendor will secure approved clearance from DAR requirements of which are (sic):

a) Letter requestb) Titlec) Tax Declarationd) Affidavit of Aggregate Landholding Vendor/Vendeee) Certification from the Provl. Assessors as to Landholdings of Vendor/Vendeef) Affidavit of Non-Tenancyg) Deed of Absolute Sale

 x x x x 4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of the documents. x x x x 

6. Regarding the house located within the perimeter of the subject [lot] owned by spouses [Magbago], said house shall be moved outside the perimeter of this subject property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts the responsibility of seeing to it that such agreement is carried out before full payment of the sale is made by vendee.

 7. If and after the vendor has completed all necessary documents for registration of the title and the vendee fails to

complete payment as per agreement, a forfeiture fee of 25% or downpayment, shall be applied. However, if the vendor fails to complete necessary documents within thirty days without any sufficient reason, or without informing the vendee of its status, vendee has the right to demand return of full amount of down payment.

 x x x x 9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall be informed

immediately of its approval by the LRC. 10. The vendor assures the vendee of a peaceful transfer of ownership. x x x x [6]

  After almost seven years from the time of the execution of the contract and notwithstanding payment of P3.5 million on the

part of respondent-spouses, petitioner still failed to comply with her obligation as expressly provided in paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter[7] dated September 27, 2000, respondent-spouses demanded the return of the amount of P3.5 million within 15 days from receipt of the letter. In reply,[8] petitioner acknowledged receipt of the P3.5 million and promised to return the same within 120 days. Respondent-spouses were amenable to the proposal provided an interest of 12% compounded annually shall be imposed on the P3.5 million.[9]When petitioner still failed to return the amount despite demand, respondent-spouses were constrained to file a Complaint[10] for sum of money before the Regional Trial Court (RTC) of Malabon against herein petitioner as well as Roberto U. Arias (Arias) who allegedly acted as petitioners agent. The case was docketed as Civil Case No. 3201-MN and raffled off to Branch 170. In their complaint, respondent-spouses prayed that petitioner and Arias be ordered to:

 1.              Pay the principal amount of P3,500,000.00 plus interest of 12% compounded annually starting

October 1, 1993 or an estimated amount of P8,558,591.65; 2.              Pay the following items of damages:

 a)              Moral damages in the amount of P100,000.00;

b)             Actual damages in the amount of P100,000.00;

c)              Exemplary damages in the amount of P100,000.00;

d)            [Attorneys] fee in the amount of P50,000.00 plus 20% of recoverable amount from the [petitioner].

e)              [C]ost of suit.[11]

  

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

 In its Pre-Trial Order[15] dated June 29, 2001, the RTC noted that the parties agreed that the principal amount of 3.5 million

pesos should be returned to the [respondent-spouses] by the [petitioner] and the issue remaining [is] whether x x x [respondent-spouses] are entitled to legal interest thereon, damages and attorneys fees.[16]

 Trial ensued thereafter. After the presentation of the respondent-spouses evidence, the trial court set the presentation of Arias

and petitioners evidence on September 3, 2003.[17] However, despite several postponements, petitioner and Arias failed to appear

hence they were deemed to have waived the presentation of their evidence.Consequently, the case was deemed submitted for decision.[18]

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

 The dispositive portion of the RTC Decision reads:

 WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent-spouses]

and ordering the [petitioner and Roberto Arias] to jointly and severally: 1.              Pay [respondent-spouses] the principal amount of Three Million Five Hundred Thousand pesos

(P3,500,000.00) with an interest of 6% compounded annually starting October 1, 1993 and attorneys fee in the amount of Fifty Thousand pesos (P50,000.00) plus 20% of the recoverable amount from the defendants and cost of the suit.

 The Compulsory Counter Claim is hereby dismissed for lack of factual evidence.

 SO ORDERED.[22]

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

 On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the RTC finding the imposition of 6%

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

The dispositive portion of the CA Decision reads: 

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

  

Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of the CA. Hence, this petition raising the sole issue of whether the imposition of interest and attorneys fees is proper. Petitioners Arguments 

Petitioner insists that she is not bound to pay interest on the P3.5 million because the Conditional Deed of Sale only provided for the return of the downpayment in case of failure to comply with her obligations. Petitioner also argues that the award of attorneys fees in favor of the respondent-spouses is unwarranted because it cannot be said that the latter won over the former since the CA even sustained her contention that the imposition of 12% interest compounded annually is totally uncalled for. Respondent-spouses Arguments Respondent-spouses aver that it is only fair that interest be imposed on the amount they paid considering that petitioner failed to return the amount upon demand and had been using the P3.5 million for her benefit. Moreover, it is undisputed that petitioner failed to perform her obligations to relocate the house outside the perimeter of the subject property and to complete the necessary documents. As regards the attorneys fees, they claim that they are entitled to the same because they were forced to litigate when petitioner unjustly withheld the amount. Besides, the amount awarded by the CA is even smaller compared to the filing fees they paid. 

Our Ruling 

The petition lacks merit. Interest may be imposed even in the absence of stipulation in the contract.  

We sustain the ruling of both the RTC and the CA that it is proper to impose interest notwithstanding the absence of stipulation in the contract. Article 2210 of the Civil Code expressly provides that [i]nterest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. In this case, there is no question that petitioner is legally obligated to return the P3.5 million because of her failure to fulfill the obligation under the Conditional Deed of Sale, despite demand. She has in fact admitted that the conditions were not fulfilled and that she was willing to return the full amount of P3.5 million but has not actually done so. Petitioner enjoyed the use of the money from the time it was given to her[30] until now. Thus, she is already in default of her obligation from the date of demand, i.e., on September 27, 2000.

 The interest at the rate of 12% is applicable in the instant case.  

Anent the interest rate, the general rule is that the applicable rate of interest shall be computed in accordance with the stipulation of the parties.[31] Absent any stipulation, the applicable rate of interest shall be 12% per annum when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).[32] In this case, the parties did not stipulate as to the applicable rate of interest. The only question remaining therefore is whether the 6% as provided under Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due.

 The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract provides

that the seller (petitioner) must return the payment made by the buyer (respondent-spouses) if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller (petitioner) has admitted this. Notwithstanding demand by the buyer (respondent-spouses), the seller (petitioner) has failed to return the money and

 should be considered in default from the time that demand was made on September 27, 2000.

 Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be

considered as a forbearance of money which required payment of interest at the rate of 12%? We believe so. In Crismina Garments, Inc. v. Court of Appeals,[33] forbearance was defined as a contractual obligation of lender or creditor

to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable. This definition describes a loan where a debtor is given a period within which to pay a loan or debt. In such case, forbearance of money, goods or credits will have no distinct definition from a loan. We believe however, that the phrase forbearance of money, goods or credits is meant to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in the Civil Code.[34] Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. In this case, the respondent-spouses parted with their money even before the conditions

were fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment of the conditions. They were deprived of the use of their money for the period pending fulfillment of the conditions and when those conditions were breached, they are entitled not only to the return of the principal amount paid, but also to compensation for the use of their money. And the compensation for the use of their money, absent any stipulation, should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is similar to a loan.

 Petitioners unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to forbearance of

money which can be considered as an involuntary loan. Thus, the applicable rate of interest is 12% per annum. In Eastern Shipping Lines, Inc. v. Court of Appeals,[35]cited in Crismina Garments, Inc. v. Court of Appeals,[36] the Court suggested the following guidelines:

 I.                When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or

quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages.

 II.           With regard particularly to an award of interest in the concept of actual and compensatory

damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 

1.              When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

 2.              When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

 3.              When the judgment of the court awarding a sum of money becomes final and executory,

the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.[37]

  Eastern Shipping Lines, Inc. v. Court of Appeals[38]and its predecessor case, Reformina v. Tongol[39] both involved torts cases

and hence, there was no forbearance of money, goods, or credits. Further, the amount claimed (i.e., damages) could not be established with reasonable certainty at the time the claim was made. Hence, we arrived at a different ruling in those cases.

 Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then the interest rate of

12% should be reckoned from said date of demand until the principal amount and the interest thereon is fully satisfied. 

The award of attorneys fees is warranted.  Under Article 2208 of the Civil Code, attorneys fees may be recovered:  

x x x x

 (2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur

expenses to protect his interest; x x x x (11)          In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation

should be recovered. In all cases, the attorneys fees and expenses of litigation must be reasonable.Considering the circumstances of the instant case, we find respondent-spouses entitled to recover attorneys fees. There is no

doubt that they were forced to litigate to protect their interest, i.e., to recover their money. However, we find the amount of P50,000.00 more appropriate in line with the policy enunciated in Article 2208 of the Civil Code that the award of attorneys fees must always be reasonable.

 WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court of Appeals in CA-G.R. CV

No. 83123 is AFFIRMED withMODIFICATIONS that the rate of interest shall be twelve percent (12%) per annum, computed from September 27, 2000 until fully satisfied. The award of attorneys fees is further reduced to P50,000.00.

 SO ORDEREDG.R. No. 187678               April 10, 2013

SPOUSES IGNACIO F. JUICO and ALICE P. JUICO, Petitioners, vs.CHINA BANKING CORPORATION, Respondent.

D E C I S I O N

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the February 20, 2009 Decision1 and April 27, 2009 Resolution2 of the Court of Appeals (CA) in CA G.R. CV No. 80338. The CA affirmed the April 14, 2003 Decision3 of the Regional Trial Court (RTC) of Makati City, Branch 147.

The factual antecedents:

Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China Banking Corporation (respondent) as evidenced by two Promissory Notes both dated October 6, 1998 and numbered 507-001051-34and 507-001052-0,5 for the sums of !!6,216,000 and P4, 139,000, respectively. The loan was secured by a Real Estate Mortgage (REM) over petitioners’ property located at 49 Greensville St., White Plains, Quezon City covered by Transfer Certificate of Title (TCT) No. RT-103568 (167394) PR-412086 of the Register of Deeds of Quezon City.

When petitioners failed to pay the monthly amortizations due, respondent demanded the full payment of the outstanding balance with accrued monthly interests. On September 5, 2000, petitioners received respondent’s last demand letter7 dated August 29, 2000.

As of February 23, 2001, the amount due on the two promissory notes totaled P19,201,776.63 representing the principal, interests, penalties and attorney’s fees. On the same day, the mortgaged property was sold at public auction, with respondent as highest bidder for the amount of P10,300,000.

On May 8, 2001, petitioners received8 a demand letter9 dated May 2, 2001 from respondent for the payment ofP8,901,776.63, the amount of deficiency after applying the proceeds of the foreclosure sale to the mortgage debt. As its demand remained unheeded, respondent filed a collection suit in the trial court. In its Complaint,10respondent prayed that judgment be rendered ordering the petitioners to pay jointly and severally: (1)P8,901,776.63 representing the amount of deficiency, plus interests at the legal rate, from February 23, 2001 until fully paid; (2) an additional amount equivalent to

1/10 of 1% per day of the total amount, until fully paid, as penalty; (3) an amount equivalent to 10% of the foregoing amounts as attorney’s fees; and (4) expenses of litigation and costs of suit.

In their Answer,11 petitioners admitted the existence of the debt but interposed, by way of special and affirmative defense, that the complaint states no cause of action considering that the principal of the loan was already paid when the mortgaged property was extrajudicially foreclosed and sold for P10,300,000. Petitioners contended that should they be held liable for any deficiency, it should be only for P55,000 representing the difference between the total outstanding obligation of P10,355,000 and the bid price of P10,300,000. Petitioners also argued that even assuming there is a cause of action, such deficiency cannot be enforced by respondent because it consists only of the penalty and/or compounded interest on the accrued interest which is generally not favored under the Civil Code. By way of counterclaim, petitioners prayed that respondent be ordered to pay P100,000 in attorney’s fees and costs of suit.

At the trial, respondent presented Ms. Annabelle Cokai Yu, its Senior Loans Assistant, as witness. She testified that she handled the account of petitioners and assisted them in processing their loan application. She called them monthly to inform them of the prevailing rates to be used in computing interest due on their loan. As of the date of the public auction, petitioners’ outstanding balance was P19,201,776.6312 based on the following statement of account which she prepared:

STATEMENT OF ACCOUNTAs of FEBRUARY 23, 2001

IGNACIO F. JUICO

PN# 507-0010520 due on 04-07-2004

1âwphi1

Principal balance of PN# 5070010520. . . . . . . . . . . . . . 4,139,000.00

Interest on P4,139,000.00 fr. 04-Nov-99

04-Nov-2000 366 days @ 15.00%. . . . . . . . . . . . . . . . . 622,550.96

Interest on P4,139,000.00 fr. 04-Nov-2000

04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 83,346.99

Interest on P4,139,000.00 fr. 04-Dec-2000

04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . . 75,579.27

Interest on P4,139,000.00 fr. 04-Jan-2001

04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 68,548.64

Interest on P4,139,000.00 fr. 04-Feb-2001

23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 38,781.86

Penalty charge @ 1/10 of 1% of the total amount due(P4,139,000.00 from 11-04-99 to 02-23-2001 @

1,974,303.00

1/10 of 1% per day). . . . . . . . . . . . . . . . .

Sub-total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002,110.73

PN# 507-0010513 due on 04-07-2004Principal balance of PN# 5070010513. . . . . . . . . . . . . . 6,216,000.00

Interest on P6,216,000.00 fr. 06-Oct-9904-Nov-2000 395 days @ 15.00%. . . . . . . . . . . . . . . . . 1,009,035.62

Interest on P6,216,000.00 fr. 04-Nov-200004-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 125,171.51

Interest on P6,216,000.00 fr. 04-Dec-200004-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . . 113,505.86

Interest on P6,216,000.00 fr. 04-Jan-200104-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 102,947.18

Interest on P6,216,000.00 fr. 04-Feb-200123-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 58,243.07

Penalty charge @ 1/10 of 1% of the total amount due(P6,216,000.00 from 10-06-99 to 02-23-2001 @1/10 of 1% per day). . . . . . . . . . . . . . . . . 3,145,296.00

Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,770,199.23

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,772,309.96

Less: A/P applied to balance of principal (55,000.00)

Less: Accounts payable L & D (261,149.39) 17,456,160.57

Add: 10% Attorney’s Fee 1,745,616.06

Total amount due 19,201,776.63

Less: Bid Price 10,300,000.00

TOTAL DEFICIENCY AMOUNT AS OFFEB. 23, 2001 8,901,776.63 13

Petitioners thereafter received a demand letter14 dated May 2, 2001 from respondent’s counsel for the deficiency amount of P8,901,776.63. Ms. Yu further testified that based on the Statement of Account15 dated March 15, 2002 which she prepared, the outstanding balance of petitioners was P15,190,961.48.16

On cross-examination, Ms. Yu reiterated that the interest rate changes every month based on the prevailing market rate and she notified petitioners of the prevailing rate by calling them monthly before their account becomes past due. When asked if there was any written authority from petitioners for respondent to increase the interest rate unilaterally, she answered that petitioners signed a promissory note indicating that they agreed to pay interest at the prevailing rate.17

Petitioner Ignacio F. Juico testified that prior to the release of the loan, he was required to sign a blank promissory note and was informed that the interest rate on the loan will be based on prevailing market rates. Every month, respondent

informs him by telephone of the prevailing interest rate. At first, he was able to pay his monthly amortizations but when he started to incur delay in his payments due to the financial crisis, respondent pressured him to pay in full, including charges and interests for the delay. His property was eventually foreclosed and was sold at public auction.18

On cross-examination, petitioner testified that he is a Doctor of Medicine and also engaged in the business of distributing medical supplies. He admitted having read the promissory notes and that he is aware of his obligation under them before he signed the same.19

In its decision, the RTC ruled in favor of respondent. The fallo of the RTC decision reads:

WHEREFORE, premises considered, the Complaint is hereby sustained, and Judgment is rendered ordering herein defendants to pay jointly and severally to plaintiff, the following:

1. P8,901,776.63 representing the amount of the deficiency owing to the plaintiff, plus interest thereon at the legal rate after February 23, 2001;

2. An amount equivalent to 10% of the total amount due as and for attorney’s fees, there being stipulation therefor in the promissory notes;

3. Costs of suit.

SO ORDERED.20

The trial court agreed with respondent that when the mortgaged property was sold at public auction on February 23, 2001 for P10,300,000 there remained a balance of P8,901,776.63 since before foreclosure, the total amount due on the two promissory notes aggregated to P19,201,776.63 inclusive of principal, interests, penalties and attorney’s fees. It ruled that the amount realized at the auction sale was applied to the interest, conformably with Article 1253 of the Civil Code which provides that if the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. This being the case, petitioners’ principal obligation subsists but at a reduced amount of P8,901,776.63.

The trial court further held that Ignacio’s claim that he signed the promissory notes in blank cannot negate or mitigate his liability since he admitted reading the promissory notes before signing them. It also ruled that considering the substantial amount involved, it is unbelievable that petitioners threw all caution to the wind and simply signed the documents without reading and understanding the contents thereof. It noted that the promissory notes, including the terms and conditions, are pro forma and what appears to have been left in blank were the promissory note number, date of the instrument, due date, amount of loan, and condition that interest will be at the prevailing rates. All of these details, the trial court added, were within the knowledge of the petitioners.

When the case was elevated to the CA, the latter affirmed the trial court’s decision. The CA recognized respondent’s right to claim the deficiency from the debtor where the proceeds of the sale in an extrajudicial foreclosure of mortgage are insufficient to cover the amount of the debt. Also, it found as valid the stipulation in the promissory notes that interest will be based on the prevailing rate. It noted that the parties agreed on the interest rate which was not unilaterally imposed by the bank but was the rate offered daily by all commercial banks as approved by the Monetary Board. Having signed the promissory notes, the CA ruled that petitioners are bound by the stipulations contained therein.

Petitioners are now before this Court raising the sole issue of whether the interest rates imposed upon them by respondent are valid. Petitioners contend that the interest rates imposed by respondent are not valid as they were not by virtue of any law or Bangko Sentral ng Pilipinas (BSP) regulation or any regulation that was passed by an appropriate government entity. They insist that the interest rates were unilaterally imposed by the bank and thus violate the principle of mutuality of contracts. They argue that the escalation clause in the promissory notes does not give respondent the unbridled authority to increase the interest rate unilaterally. Any change must be mutually agreed upon.

Respondent, for its part, points out that petitioners failed to show that their case falls under any of the exceptions wherein findings of fact of the CA may be reviewed by this Court. It contends that an inquiry as to whether the interest rates

imposed on the loans of petitioners were supported by appropriate regulations from a government agency or the Central Bank requires a reevaluation of the evidence on records. Thus, the Court would in effect, be confronted with a factual and not a legal issue.

The appeal is partly meritorious.

The principle of mutuality of contracts is expressed in Article 1308 of the Civil Code, which provides:

Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Article 1956 of the Civil Code likewise ordains that "no interest shall be due unless it has been expressly stipulated in writing."

The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid.21

Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by the contracting parties. This Court has long recognized that there is nothing inherently wrong with escalation clauses which are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts.22 Hence, such stipulations are not void per se.23

Nevertheless, an escalation clause "which grants the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement" is void. A stipulation of such nature violates the principle of mutuality of contracts.24 Thus, this Court has previously nullified the unilateral determination and imposition by creditor banks of increases in the rate of interest provided in loan contracts.25

In Banco Filipino Savings & Mortgage Bank v. Navarro,26 the escalation clause stated: "I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event a law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan." While escalation clauses in general are considered valid, we ruled that Banco Filipino may not increase the interest on respondent borrower’s loan, pursuant to Circular No. 494 issued by the Monetary Board on January 2, 1976, because said circular is not a law although it has the force and effect of law and the escalation clause has no provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board" (de-escalation clause).

Subsequently, in Insular Bank of Asia and America v. Spouses Salazar27 we reiterated that escalation clauses are valid stipulations but their enforceability are subject to certain conditions. The increase of interest rate from 19% to 21% per annum made by petitioner bank was disallowed because it did not comply with the guidelines adopted by the Monetary Board to govern interest rate adjustments by banks and non-banks performing quasi-banking functions.

In the 1991 case of Philippine National Bank v. Court of Appeals,28 the promissory notes authorized PNB to increase the stipulated interest per annum "within the limits allowed by law at any time depending on whatever policy PNB may adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board." This Court declared the increases (from 18% to 32%, then to 41% and then to 48%) unilaterally imposed by PNB to be in violation of the principle of mutuality essential in contracts.29

A similar ruling was made in a 1994 case30 also involving PNB where the credit agreement provided that "PNB reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future: Provided, that the interest rate on this accommodation shall be correspondingly decreased in the event that the applicable maximum interest is reduced by law or by the Monetary Board x x x".

Again, in 1996, the Court invalidated escalation clauses authorizing PNB to raise the stipulated interest rate at any time without notice, within the limits allowed by law. The Court observed that there was no attempt made by PNB to secure the conformity of respondent borrower to the successive increases in the interest rate. The borrower’s assent to the increases cannot be implied from their lack of response to the letters sent by PNB, informing them of the increases.31

In the more recent case of Philippine Savings Bank v. Castillo,32 we sustained the CA in declaring as unreasonable the following escalation clause: "The rate of interest and/or bank charges herein stipulated, during the terms of this promissory note, its extensions, renewals or other modifications, may be increased, decreased or otherwise changed from time to time within the rate of interest and charges allowed under present or future law(s) and/or government regulation(s) as the PSBank may prescribe for its debtors." Clearly, the increase or decrease of interest rates under such clause hinges solely on the discretion of petitioner as it does not require the conformity of the maker before a new interest rate could be enforced. We also said that respondents’ assent to the modifications in the interest rates cannot be implied from their lack of response to the memos sent by petitioner, informing them of the amendments, nor from the letters requesting for reduction of the rates. Thus:

… the validity of the escalation clause did not give petitioner the unbridled right to unilaterally adjust interest rates. The adjustment should have still been subjected to the mutual agreement of the contracting parties. In light of the absence of consent on the part of respondents to the modifications in the interest rates, the adjusted rates cannot bind them notwithstanding the inclusion of a de-escalation clause in the loan agreement.33

It is now settled that an escalation clause is void where the creditor unilaterally determines and imposes an increase in the stipulated rate of interest without the express conformity of the debtor. Such unbridled right given to creditors to adjust the interest independently and upwardly would completely take away from the debtors the right to assent to an important modification in their agreement and would also negate the element of mutuality in their contracts.34 While a ceiling on interest rates under the Usury Law was already lifted under Central Bank Circular No. 905, nothing therein "grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets."35

The two promissory notes signed by petitioners provide:

I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as the case may be, the interest rate/service charge presently stipulated in this note without any advance notice to me/us in the event a law or Central Bank regulation is passed or promulgated by the Central Bank of the Philippines or appropriate government entities, increasing or decreasing such interest rate or service charge.36

Such escalation clause is similar to that involved in the case of Floirendo, Jr. v. Metropolitan Bank and Trust Company37 where this Court ruled:

The provision in the promissory note authorizing respondent bank to increase, decrease or otherwise change from time to time the rate of interest and/or bank charges "without advance notice" to petitioner, "in the event of change in the interest rate prescribed by law or the Monetary Board of the Central Bank of the Philippines," does not give respondent bank unrestrained freedom to charge any rate other than that which was agreed upon. Here, the monthly upward/downward adjustment of interest rate is left to the will of respondent bank alone. It violates the essence of mutuality of the contract.38

More recently in Solidbank Corporation v. Permanent Homes, Incorporated,39 we upheld as valid an escalation clause which required a written notice to and conformity by the borrower to the increased interest rate. Thus:

The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983. These circulars removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which courts are bound to take into account. Although interest rates are no longer subject to a ceiling, the lender still does not have an unbridled license to impose increased interest rates. The lender and the borrower should agree on the imposed rate, and such imposed rate should be in writing.

The three promissory notes between Solidbank and Permanent all contain the following provisions:

"5. We/I irrevocably authorize Solidbank to increase or decrease at any time the interest rate agreed in this Note or Loan on the basis of, among others, prevailing rates in the local or international capital markets. For this purpose, We/I authorize Solidbank to debit any deposit or placement account with Solidbank belonging to any one of us. The adjustment of the interest rate shall be effective from the date indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the notice was sent.

6. Should We/I disagree to the interest rate adjustment, We/I shall prepay all amounts due under this Note or Loan within thirty (30) days from the receipt by anyone of us of the written notice. Otherwise, We/I shall be deemed to have given our consent to the interest rate adjustment."

The stipulations on interest rate repricing are valid because (1) the parties mutually agreed on said stipulations; (2) repricing takes effect only upon Solidbank’s written notice to Permanent of the new interest rate; and (3) Permanent has the option to prepay its loan if Permanent and Solidbank do not agree on the new interest rate. The phrases "irrevocably authorize," "at any time" and "adjustment of the interest rate shall be effective from the date indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the notice was sent," emphasize that Permanent should receive a written notice from Solidbank as a condition for the adjustment of the interest rates. (Emphasis supplied.)

In this case, the trial and appellate courts, in upholding the validity of the escalation clause, underscored the fact that there was actually no fixed rate of interest stipulated in the promissory notes as this was made dependent on prevailing rates in the market. The subject promissory notes contained the following condition written after the first paragraph:

With one year grace period on principal and thereafter payable in 54 equal monthly instalments to start on the second year. Interest at the prevailing rates payable quarterly in arrears.40

In Polotan, Sr. v. CA (Eleventh Div.),41 petitioner cardholder assailed the trial and appellate courts in ruling for the validity of the escalation clause in the Cardholder’s Agreement. On petitioner’s contention that the interest rate was unilaterally imposed and based on the standards and rate formulated solely by respondent credit card company, we held:

The contractual provision in question states 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." This could not be considered an escalation clause for the reason that it neither states an increase nor a decrease in interest rate. Said clause simply states that the interest rate should be based on the prevailing market rate.

Interpreting it differently, while said clause does not expressly stipulate a reduction in interest rate, it nevertheless provides a leeway for the interest rate to be reduced in case the prevailing market rates dictate its reduction.

Admittedly, the second paragraph of the questioned proviso which provides that "the Cardholder hereby authorizes Security Diners to correspondingly increase the rate of such interest in the event of changes in prevailing market rates x x x" is an escalation clause. However, it cannot be said to be dependent solely on the will of private respondent as it is also dependent on the prevailing market rates.

Escalation clauses are not basically wrong or legally objectionable as long as they are not solely potestative but based on reasonable and valid grounds. Obviously, the fluctuation in the market rates is beyond the control of private respondent.42 (Emphasis supplied.)

In interpreting a contract, its provisions should not be read in isolation but in relation to each other and in their entirety so as to render them effective, having in mind the intention of the parties and the purpose to be achieved. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.43

Here, the escalation clause in the promissory notes authorizing the respondent to adjust the rate of interest on the basis of a law or regulation issued by the Central Bank of the Philippines, should be read together with the statement after the first

paragraph where no rate of interest was fixed as it would be based on prevailing market rates. While the latter is not strictly an escalation clause, its clear import was that interest rates would vary as determined by prevailing market rates. Evidently, the parties intended the interest on petitioners’ loan, including any upward or downward adjustment, to be determined by the prevailing market rates and not dictated by respondent’s policy. It may also be mentioned that since the deregulation of bank rates in 1983, the Central Bank has shifted to a market-oriented interest rate policy.44

There is no indication that petitioners were coerced into agreeing with the foregoing provisions of the promissory notes. In fact, petitioner Ignacio, a physician engaged in the medical supply business, admitted having understood his obligations before signing them. At no time did petitioners protest the new rates imposed on their loan even when their property was foreclosed by respondent.

This notwithstanding, we hold that the escalation clause is still void because it grants respondent the power to impose an increased rate of interest without a written notice to petitioners and their written consent. Respondent’s monthly telephone calls to petitioners advising them of the prevailing interest rates would not suffice. A detailed billing statement based on the new imposed interest with corresponding computation of the total debt should have been provided by the respondent to enable petitioners to make an informed decision. An appropriate form must also be signed by the petitioners to indicate their conformity to the new rates. Compliance with these requisites is essential to preserve the mutuality of contracts. For indeed, one-sided impositions do not have the force of law between the parties, because such impositions are not based on the parties’ essential equality.45

Modifications in the rate of interest for loans pursuant to an escalation clause must be the result of an agreement between the parties. Unless such important change in the contract terms is mutually agreed upon, it has no binding effect.46 In the absence of consent on the part of the petitioners to the modifications in the interest rates, the adjusted rates cannot bind them. Hence, we consider as invalid the interest rates in excess of 15%, the rate charged for the first year.

Based on the August 29, 2000 demand letter of China Bank, petitioners’ total principal obligation under the two promissory notes which they failed to settle is P10,355,000. However, due to China Bank’s unilateral increases in the interest rates from 15% to as high as 24.50% and penalty charge of 1/10 of 1% per day or 36.5% per annum for the period November 4, 1999 to February 23, 2001, petitioners’ balance ballooned to P19,201,776.63. Note that the original amount of principal loan almost doubled in only 16 months. The Court also finds the penalty charges imposed excessive and arbitrary, hence the same is hereby reduced to 1% per month or 12% per annum.1âwphi1

Petitioners’ Statement of Account, as of February 23, 2001, the date of the foreclosure proceedings, should thus be modified as follows:

Principal P10,355,000.00

Interest at 15% per annumP10,355,000 x .15 x 477 days/365 days 2,029,863.70

Penalty at 12% per annum 1,623 ,890. 96

P10,355,000 x .12 x 477days/365 days

Sub-Total 14,008,754.66

Less: A/P applied to balance of principal (55,000.00)

Less: Accounts payable L & D (261,149.39)

13,692,605.27

Add: Attorney's Fees 1,369,260.53

Total Amount Due 15,061,865.79

Less: Bid Price 10,300,000.00

TOTAL DEFICIENCY AMOUNT4,761,865.79

WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The February 20, 2009 · Decision and April 27, 2009 Resolution of the Court of Appeals in CA G.R. CV No. 80338 are hereby MODIFIED. Petitioners Spouses Ignacio F. Juico and Alice P. Juico are hereby ORDERED to pay jointly and severally respondent China Banking Corporation P4, 7 61 ,865. 79 representing the amount of deficiency inclusive of interest, penalty charge and attorney's fees. Said amount shall bear interest at 12% per annum, reckoned from the time of the filing of the complaint until its full satisfaction.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 189871               August 13, 2013

DARIO NACAR, PETITIONER, vs.GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.

D E C I S I O N

PERALTA, J.:

This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioner’s motion for reconsideration.

The factual antecedents are undisputed.

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National Labor Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that he was dismissed from employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of reinstatement in the amount of P158,919.92. The dispositive portion of the decision, reads:

With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant was dismissed from employment for a just or valid cause. All the more, it is clear from the records that complainant was never afforded due process before he was terminated. As such, we are perforce constrained to grant complainant’s prayer for the payments of separation pay in lieu of reinstatement to his former position, considering the strained relationship between the parties, and his apparent reluctance to be reinstated, computed only up to promulgation of this decision as follows:

SEPARATION PAY

Date Hired = August 1990

Rate = P198/day

Date of Decision = Aug. 18, 1998

Length of Service = 8 yrs. & 1 month

P198.00 x 26 days x 8 months = P41,184.00

BACKWAGES

Date Dismissed = January 24, 1997

Rate per day = P196.00

Date of Decisions = Aug. 18, 1998

a) 1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos. = P62,986.56

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day = P62,986.00

P198.00 x 26 days x 6.4 mos. = P32,947.20

T O T A L = P95.933.76

x x x x

WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal and are therefore, ordered:

To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and 56/100 (P62,986.56) Pesos representing his separation pay;

To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and 36/100 (P95,933.36) representing his backwages; and

All other claims are hereby dismissed for lack of merit.

SO ORDERED.4

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution5 dated February 29, 2000. Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but it was denied.6

Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA issued a Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise denied in a Resolution dated May 8, 2001.7

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error on the part of the CA, this Court denied the petition in the Resolution dated April 17, 2002.8

An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27, 2002.9 The case was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was consequently scheduled, but respondents failed to appear.10

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed from the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme Court on May 27, 2002.11 Upon recomputation, the Computation and Examination Unit of the NLRC arrived at an updated amount in the sum of P471,320.31.12

On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect from respondents the total amount of P471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among other things, that since the Labor Arbiter awarded separation pay of P62,986.56 and limited backwages ofP95,933.36, no more recomputation is required to be made of the said awards. They claimed that after the decision becomes final and executory, the same cannot be altered or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution17 granting the appeal in favor of the respondents and ordered the recomputation of the judgment award.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and executory. Consequently, another pre-execution conference was held, but respondents failed to appear on time. Meanwhile, petitioner moved that an Alias Writ of Execution be issued to enforce the earlier recomputed judgment award in the sum of P471,320.31.18

The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the judgment award of petitioner was reassessed to be in the total amount of only P147,560.19.

Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his backwages and separation pay.

On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was due to petitioner in the amount of P147,560.19, which petitioner eventually received.

Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the appropriate interests.19

On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount ofP11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced considering that it was the one that became final and executory. However, the Labor Arbiter reasoned that since the decision states that the separation pay and backwages are computed only up to the promulgation of the said decision, it is the amount of P158,919.92 that should be executed. Thus, since petitioner already receivedP147,560.19, he is only entitled to the balance of P11,459.73.

Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22 dated September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Resolution23dated January 31, 2007.

Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.

On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that since petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a belated correction thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce the said judgment. Consequently, it can no longer be modified in any respect, except to correct clerical errors or mistakes.

Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated October 9, 2009.

Hence, the petition assigning the lone error:

I

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION.26

Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiter’s decision, the same is not final until reinstatement is made or until finality of the decision, in case of an award of separation pay. Petitioner maintains that considering that the October 15, 1998 decision of the Labor Arbiter did not become final and executory until the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27, 2002, the reckoning point for the computation of the backwages and separation pay should be on May 27, 2002 and not when the decision of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that he is also entitled to the payment of interest from the finality of the decision until full payment by the respondents.

On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by the October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made of said awards. Respondents insist that since the decision clearly stated that the separation pay and backwages are "computed only up to [the] promulgation of this decision," and considering that petitioner no longer appealed the decision, petitioner is only entitled to the award as computed by the Labor Arbiter in the total amount ofP158,919.92. Respondents added that it was only during the execution proceedings that the petitioner questioned the award, long after the decision had become final and executory. Respondents contend that to allow the further recomputation of the backwages to be awarded to petitioner at this point of the proceedings would substantially vary the decision of the Labor Arbiter as it violates the rule on immutability of judgments.

The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division),27 wherein the issue submitted to the Court for resolution was the propriety of the computation of the awards made, and whether this violated the principle of immutability of judgment. Like in the present case, it was a distinct feature of the judgment of the Labor Arbiter in the above-cited case that the decision already provided for the computation of the payable separation pay and backwages due and did not further order the computation of the monetary awards up to the time of the finality of the judgment. Also in Session Delights, the dismissed employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:

In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's original computation of the awards made, pegged as of the time the decision was rendered and confirmed with modification by a final CA decision, is legally proper. The question is posed, given that the petitioner did not immediately pay the awards stated in the original labor arbiter's decision; it delayed payment because it continued with the litigation until final judgment at the CA level.

A source of misunderstanding in implementing the final decision in this case proceeds from the way the original labor arbiter framed his decision. The decision consists essentially of two parts.

The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is the finding of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement, backwages, attorney's fees, and legal interests.

The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows that it was time-bound as can be seen from the figures used in the computation. This part, being merely a computation of what the first part of the decision established and declared, can, by its nature, be re-computed. This is the part, too, that the petitioner now posits should no longer be re-computed because the computation is already in the labor arbiter's decision that the CA had affirmed. The public and private respondents, on the other hand, posit that a re-computation is necessary because the relief in an illegal dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or up to the finality of the decision, if separation pay is to be given in lieu reinstatement.

That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also made a computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which requires that a computation be made. This Section in part states:

[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall embody in any such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision. As we noted above, this implication is apparent from the terms of the computation itself, and no question would have arisen had the parties terminated the case and implemented the decision at that point.

However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of illegality as well as on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in turn, affirmed the labor arbiter's decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdictional grounds.

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the payment of 13th month pay and indemnity, lapsed to finality and was subsequently returned to the labor arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor arbiter's decision, the implementing labor arbiter ordered the award re-computed; he apparently read the figures originally ordered to be paid to be the computation due had the case been terminated and implemented at the labor arbiter's level. Thus, the labor arbiter re-computed the award to include the separation pay and the backwages due up to the finality of the CA decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's approved computation went beyond the finality of the CA decision (July 29, 2003) and included as well the payment for awards the final CA decision had deleted - specifically, the proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision now questioned in the present petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the labor arbiter's original decision in accordance with its basic component parts as we discussed above. To reiterate, the first part contains the finding of illegality and its monetary consequences; the second part is the computation of the awards or monetary consequences of the illegal dismissal, computed as of the time of the labor arbiter's original decision.28

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the petitioner, no essential change is made by a recomputation as this step is a necessary consequence that flows from the nature of the illegality of dismissal declared by the Labor Arbiter in that decision.29 A recomputation (or an original computation, if no previous computation has been made) is a part of the law – specifically, Article 279 of the Labor Code and the established jurisprudence on this provision – that is read into the decision. By the nature of an illegal dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor Code. The

recomputation 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.30

That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk that it ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of reinstatement is allowed. When that happens, the finality of the illegal dismissal decision becomes the reckoning point instead of the reinstatement that the law decrees. In allowing separation pay, the final decision effectively declares that the employment relationship ended so that separation pay and backwages are to be computed up to that point.31

Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,32 the Court laid down the guidelines regarding the manner of computing legal interest, to wit:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.33

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which reads:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections 4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.

This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but will now be six

percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable.

Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries."

Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said judgments shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.1awp++i1

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines42 are accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.1âwphi1

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.

WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are Ordered to Pay petitioner:

(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and executory;

(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of service; and

(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and due to petitioner in accordance with this Decision.

SO ORDERED.