G.R. No. L-50550-52 October 31, 1979

CHEE KIONG YAM, AMPANG MAH, ANITA YAM JOSE Y.C. YAM AND RICHARD YAM, petitioners, vs.HON. NABDAR J. MALIK, Municipal Judge of Jolo, Sulu (Branch I), THE PEOPLE OF THE PHILIPPINES, ROSALINDA AMIN, TAN CHU KAO and LT. COL. AGOSTO SAJOR respondents.

Tomas P. Matic, Jr. for petitioners.

Jose E. Fernandez for private respondent.

Office of the Solicitor General for respondent the People of the Philippines.

 

ABAD SANTOS, J.:

This is a petition for certiorari, prohibition, and mandamus with preliminary injunction. Petitioners alleged that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted without jurisdiction, in excess of jurisdiction and with grave abuse of discretion when:

(a) he held in the preliminary investigation of the charges of estafa filed by respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners that there was a prima facie case against the latter;

(b) he issued warrants of arrest against petitioners after making the above determination; and

(c) he undertook to conduct trial on the merits of the charges which were docketed in his court as Criminal Cases No. M-111, M-183 and M-208.

Respondent judge is said to have acted without jurisdiction, in excess of jurisdiction and with grave abuse of discretion because the facts recited in the complaints did not constitute the crime of estafa, and assuming they did, they were not within the jurisdiction of the respondent judge.

In a resolution dated May 23, 1979, we required respondents to comment in the petition and issued a temporary restraining order against the respondent judge from further proceeding with Criminal Cases Nos. M-111, M-183 and M-208 or from enforcing the warrants of arrest he had issued in connection with said cases.

Comments by the respondent judge and the private respondents pray for the dismissal of the petition but the Solicitor General has manifested that the People of the Philippines have no objection to the grant of the reliefs prayed for, except the damages. We considered the comments as answers and gave due course to the petition.

The position of the Solicitor General is well taken. We have to grant the petition in order to prevent manifest injustice and the exercise of palpable excess of authority.

In Criminal Case No. M-111, respondent Rosalinda M. Amin charges petitioners Yam Chee Kiong and Yam Yap Kieng with estafa through misappropriation of the amount of P50,000.00. But the complaint states on its face that said petitioners received the amount from respondent Rosalinda M. Amin "as a loan." Moreover, the complaint in Civil Case No. N-5, an independent action for the collection of the same amount filed by respondent Rosalinda M. Amin with the Court of First Instance of Sulu on September 11, 1975, likewise states that the P50,000.00 was a "simple business loan" which earned interest and was originally demandable six (6) months from July 12, 1973. (Annex E of the petition.)

In Criminal Case No. M-183, respondent Tan Chu Kao charges petitioners Yam Chee Kiong, Jose Y.C. Yam, Ampang Mah and Anita Yam, alias Yong Tay, with estafa through misappropriation of the amount of P30,000.00. Likewise, the complaint states on its face that the P30,000.00 was "a simple loan." So does the complaint in Civil Case No. N-8 filed by respondent Tan Chu Kao on April 6, 1976 with the Court of First Instance of Sulu for the collection of the same amount. (Annex D of the petition.).

In Criminal Case No. M-208, respondent Augusto Sajor charges petitioners Jose Y.C. Yam, Anita Yam alias Yong Tai Mah, Chee Kiong Yam and Richard Yam, with estafa through misappropriation of the amount of P20,000.00. Unlike the complaints in the other two cases, the complaint in Criminal Case No. M-208 does not state that the amount was received as loan. However, in a sworn statement dated September 29, 1976, submitted to respondent judge to support the complaint, respondent Augusto Sajor states that the amount was a "loan." (Annex G of the petition.).

We agree with the petitioners that the facts alleged in the three criminal complaints do not constitute estafa through misappropriation.

Estafa through misappropriation is committed according to Article 315, paragraph 1, subparagraph (b), of the Revised Penal Code as follows:

Art. 315. Swindling (Estafa). — Any person who shall defraud another by any of the means mentioned herein below shall be punished by:

xxx xxx xxx

1. With unfaithfulness or abuse of confidence namely:

xxx xxx xxx

b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property.

In order that a person can be convicted under the abovequoted provision, it must be proven that he has the obligation to deliver or return the same money, goods or personal property that he received. Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they received from private respondents. This is so because as clearly stated in criminal complaints, the related civil complaints and the supporting sworn statements, the sums of money that petitioners received were loans.

The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.

Art. 1933. — By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

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

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

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

It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to commodatum, the borrower acquires ownership of the money, goods or personal property borrowed. Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof.

In U.S. vs. Ibañez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a person to refuse to nay his debt or to deny its existence.

We are of the opinion and so decide that when the relation is purely that of debtor and creditor, the debtor can not be held liable for the crime of estafa, under said article, by merely refusing to pay or by denying the indebtedness.

It appears that respondent judge failed to appreciate the distinction between the two types of loan, mutuum and commodatum, when he performed the questioned acts, He mistook the transaction between petitioners and respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor to be commodatum wherein the borrower does not acquire ownership over the thing borrowed and has the duty to return the same thing to the lender.

Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which the Municipal Court of Jolo is, has jurisdiction over criminal cases where the penalty provided

by law does not exceed prision correccional or imprisonment for not more than six (6) years, or fine not exceeding P6,000.00 or both, The amounts allegedly misappropriated by petitioners range from P20,000.00 to P50,000.00. The penalty for misappropriation of this magnitude exceeds prision correccional or 6 year imprisonment. (Article 315, Revised Penal Code), Assuming then that the acts recited in the complaints constitute the crime of estafa, the Municipal Court of Jolo has no jurisdiction to try them on the merits. The alleged offenses are under the jurisdiction of the Court of First Instance.

Respondents People of the Philippines being the sovereign authority can not be sued for damages. They are immune from such type of suit.

With respect to the other respondents, this Court is not the proper forum for the consideration of the claim for damages against them.

WHEREFORE, the petition is hereby granted; the temporary restraining order previously issued is hereby made permanent; the criminal complaints against petitioners are hereby declared null and void; respondent judge is hereby ordered to dismiss said criminal cases and to recall the warrants of arrest he had issued in connection therewith. Moreover, respondent judge is hereby rebuked for manifest ignorance of elementary law. Let a copy of this decision be included in his personal life. Costs against private respondents.

SO ORDERED.

Barredo, Antonio and Santos, JJ., concur.

Concepcion Jr. ,J., is on leave.

 

 

Separate Opinions

 

AQUINO, J., concurring:

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

 

G.R. No. L-24968 April 27, 1972

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs.DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.

Jesus A. Avanceña and Hilario G. Orsolino for defendant-appellant.

 

MAKALINTAL, J.:p

In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.

In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.

Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.

On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in the resolution were the following:

1. That the proceeds of the loan shall be utilized exclusively for the following purposes:

For construction of factory building P250,000.00

For payment of the balance of purchase

price of machinery and equipment 240,900.00

For working capital 9,100.00

T O T A L P500,000.00

4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;

5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of the factory buildings progresses, to be certified to by an appraiser of this Corporation;"

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.

In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the aspects of this approved loan ... with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."

On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with the reexamination of the project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145.

On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17.

It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:

RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura

Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn.

In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned."

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you.".

On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," but with the following proviso:

That in view of observations made of the shortage and high cost of imported raw materials, the Department of Agriculture and Natural Resources shall certify to the following:

1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and

2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory."

The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the certification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials." This point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the Saura Import and

Export Co., Inc. to finance, manage and operate a Kenafmill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."

This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to the availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably even next year;" (2) requesting "assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made as follows:

a) For the payment of the receipt for jute mill machineries with the Prudential Bank &

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equip-ment per attached list to enable the jutemill to operate 182,413.91

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the open-ing of the letter of credit for raw jutefor $25,000.00.

2) P25,000.00 to be released upon arrivalof raw jute.

3) P17,586.09 to be released as soon as themill is ready to operate.

On January 25, 1955 RFC sent to Saura, Inc. the following reply:

Dear Sirs:

This is with reference to your letter of January 21, 1955, regarding the release of your loan under consideration of P500,000. As stated in our letter of December 22, 1954, the

releases of the loan, if revived, are proposed to be made from time to time, subject to availability of funds towards the end that the sack factory shall be placed in actual operating status. We shall be able to act on your request for revised purpose and manner of releases upon re-appraisal of the securities offered for the loan.

With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials needed are available in the immediate vicinity and that there is prospect of increased production thereof to provide adequately the requirements of the factory, we wish to reiterate that the basis of the original approval is to develop the manufacture of sacks on the basis of the locally available raw materials. Your statement that you will have to rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory, would not be in line with our principle in approving the loan.

With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.

It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.

We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides:

ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract.

There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely — "that the proceeds of the loan shall be utilizedexclusively for the following purposes: for construction of factory building — P250,000.00; for payment of the balance of purchase price of machinery and equipment — P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature cf mutual desistance — what Manresa terms "mutuo disenso"  1 — which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.  2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances

demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance — and that on the initiative of the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the respective briefs of the parties.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee.

Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.

Makasiar, J., took no part.

 

G.R. No. 175139               April 18, 2012

HERMOJINA ESTORES, Petitioner, vs.SPOUSES ARTURO and LAURA SUPANGAN, Respondents.

D E C I S I O N

DEL CASTILLO, J.:

The only issue posed before us is the propriety of the imposition of interest and attorney’s fees.

Assailed in this Petition for Review1 filed under Rule 45 of the Rules of Court is the May 12, 2006 Decision2 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 attorney’s fees is hereby reduced to P100,000.00. Costs against the defendants-appellants.

SO ORDERED.3

Also assailed is the August 31, 2006 Resolution4 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 Sale5 whereby petitioner offered to sell, and respondent-spouses offered to buy, a parcel of land covered by Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum ofP4.7 million. The parties likewise stipulated, among others, to wit:

x x x x

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

a) Letter request

b) Title

c) Tax Declaration

d) Affidavit of Aggregate Landholding – Vendor/Vendee

e) Certification from the Prov’l. Assessor’s as to Landholdings of Vendor/Vendee

f) Affidavit of Non-Tenancy

g) Deed of Absolute Sale

x x x x

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

x x x x

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

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

x x x x

9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall be informed immediately of its approval by the LRC.

10. The vendor assures the vendee of a peaceful transfer of ownership.

x x x x 6

After almost seven years from the time of the execution of the contract and notwithstanding payment of P3.5 million on the part of respondent-spouses, petitioner still failed to comply with her obligation as expressly provided in paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter7 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,8petitioner 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 Complaint10 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 petitioner’s 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) [Attorney’s] 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 Order15 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 attorney’s fees."16

Trial ensued thereafter. After the presentation of the respondent-spouses’ evidence, the trial court set the presentation of Arias and petitioner’s 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 Decision19 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 attorney’s 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 attorney’s 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 RTC’s 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 attorney’s fees, the CA found the award by the trial court (P50,000.00 plus 20% of the recoverable amount) excessive27 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 attorney’s 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 attorney’s fees is proper.

Petitioner’s 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 attorney’s 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 attorney’s 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 her30 until now. Thus, she is already in default of her obligation from the date of demand, i.e., on September 27, 2000.

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

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

The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract provides that the seller (petitioner) must return the payment made by the buyer (respondent-spouses) if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller (petitioner) has admitted this. Notwithstanding demand by the buyer (respondent-spouses), the seller (petitioner) has failed to return the money and

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

Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be considered as a forbearance of money which required payment of interest at the rate of 12%? We believe so.

In Crismina Garments, Inc. v. Court of Appeals,33 "forbearance" was defined as a "contractual obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debtthen due and payable." This definition describes a loan where a debtor is given a period within which to pay a loan or debt. In such case, "forbearance of money, goods or credits" will have no distinct definition from a loan. We believe however, that the phrase "forbearance of money, goods or credits" is meant to have a separate meaning from a loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in the Civil Code.34 Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. In this case, the respondent-spouses parted with their money even before the conditions were fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment of the conditions. They were deprived of the use of their money for the period pending fulfillment of the conditions and when those conditions were breached, they are entitled not only to the return of the principal amount paid, but also to compensation for the use of their money. And the compensation for the use of their money, absent any stipulation, should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is similar to a loan.

Petitioner’s 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,35cited 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 Appeals38and its predecessor case, Reformina v. Tongol39 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. 1âwphi1

The award of attorney’s fees is warranted.

Under Article 2208 of the Civil Code, attorney’s fees may be recovered:

x x x x

(2) When the defendant’s 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 attorney’s fees and expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

Considering the circumstances of the instant case, we find respondent-spouses entitled to recover attorney’s 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 attorney’s fees must always be reasonable.

WHEREFORE, the Petition for Review is DENIED. The May 12, 2006 Decision of the Court of Appeals in CA-G.R. CV No. 83123 is AFFIRMED with MODIFICATIONS that the rate of interest shall be twelve percent (12%) per annum, computed from September 27, 2000 until fully satisfied. The award of attorney’s fees is further reduced toP50,000.00.

SO ORDERED.

MARIANO C. DEL CASTILLOAssociate Justice

WE CONCUR:

RENATO C. CORONAChief JusticeChairperson

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

LUCAS P. BERSAMINAssociate Justice

MARTIN S. VILLARAMA, JR.Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONAChief Justice

G.R. No. 84719 January 25, 1991

YONG CHAN KIM, petitioner, vs.PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO, Presiding Judge, RTC, 6th Judicial Region, Branch 28 Iloilo City and Court of Appeals (13th Division) respondents.

Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.

Hector P. Teodosio for private respondent.

 

PADILLA, J.:p

This petition seeks the review on certiorari of the following:

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

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

The antecedent facts are as follows:

Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department of the Southeast Asian Fisheries Development Center (SEAFDEC) with head station at Tigbauan, Province of Iloilo. As Head of the Economics Unit of the Research Division, he

conducted prawn surveys which required him to travel to various selected provinces in the country where there are potentials for prawn culture.

On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to different places in Luzon from 16 June to 21 July 1982, a period of thirty five (35) days. Under this travel order, he received P6,438.00 as cash advance to defray his travel expenses.

Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him to travel from the Head Station at Tigbauan, Iloilo to Roxas City from 30 June to 4 July 1982, a period of five (5) days. For this travel order, petitioner received a cash advance of P495.00.

On 14 January 1983, petitioner presented both travel orders for liquidation, submitting Travel Expense Reports to the Accounting Section. When the Travel Expense Reports were audited, it was discovered that there was an overlap of four (4) days (30 June to 3 July 1982) in the two (2) travel orders for which petitioner collected per diems twice. In sum, the total amount in the form of per diems and allowances charged and collected by petitioner under Travel Order No. 2222, when he did not actually and physically travel as represented by his liquidation papers, was P1,230.00.

Petitioner was required to comment on the internal auditor's report regarding the alleged anomalous claim for per diems. In his reply, petitioner denied the alleged anomaly, claiming that he made make-up trips to compensate for the trips he failed to undertake under T.O. 2222 because he was recalled to the head office and given another assignment.

In September 1983, two (2) complaints for Estafa were filed against the petitioner before the Municipal Circuit Trial Court at Guimbal, Iloilo, docketed as Criminal Case Nos. 628 and 631.

After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a decision, the dispositive part of which reads as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the accused, Yong Chan Kim, guilty beyond reasonable doubt for the crime of Estafa penalized under paragraph l(b) of Article 315, Revised Penal Code. Records disclose there is no aggravating circumstance proven by the prosecution. Neither there is any mitigating circumstance proven by the accused. Considering the amount subject of the present complaint, the imposable penalty should be in the medium period ofarresto mayor in its maximum period to prision correccional in its minimum period in accordance with Article 315, No. 3, Revised Penal Code. Consonantly, the Court hereby sentences the accused to suffer an imprisonment ranging from four (4) months as the minimum to one (1) year and six (6) months as the maximum in accordance with the Indeterminate Sentence Law and to reimburse the amount of P1,230.00 to SEAFDEC.

The surety bond of the accused shall remain valid until final judgment in accordance herewith.

Costs against the accused. 5

Criminal Case No. 631 was subsequently dismissed for failure to prosecute.

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

The decision of the Regional Trial Court was received by petitioner on 10 August 1987. On 11 August 1987, petitioner, thru counsel, filed a notice of appeal with the Regional Trial Court which ordered the elevation of the records of the case to the then Intermediate Appellate Court on the following day, 12 August 1987. The records of the case were received by the Intermediate Appellate Court on 8 October 1987, and the appeal was docketed as CA-G.R. No. 05035.

On 30 October 1987, petitioner filed with the appellate court a petition for review. As earlier stated, on 29 April 1988, the Court of Appeals dismissed the petition for having been filed out of time. Petitioner's motion for reconsideration was denied for lack of merit.

Hence, the present recourse.

On 19 October 1988, the Court resolved to require the respondents to comment on the petition for review. The Solicitor General filed his Comment on 20 January 1989, after several grants of extensions of time to file the same.

In his Comment, the Solicitor General prayed for the dismissal of the instant petition on the ground that, as provided for under Section 22, Batas Pambansa 129, Section 22 of the Interim Rules and Guidelines, and Section 3, Rule 123 of the 1985 Rules of Criminal Procedure, the petitioner should have filed a petition for review with the then Intermediate Appellate Court instead of a notice of appeal with the Regional Trial Court, in perfecting his appeal from the RTC to the Intermediate Appellate Court, since the RTC judge was rendered in the exercise of its appellate jurisdiction over municipal trial courts. The failure of petitioner to file the proper petition rendered the decision of the Regional Trial Court final and executory, according to the Solicitor General.

Petitioner's counsel submitted a Reply (erroneously termed Comment) 7 wherein she contended that the peculiar circumstances of a case, such as this, should be considered in order that the principle barring a petitioner's right of review can be made flexible in the interest of justice and equity.

In our Resolution of 29 May 1989, we resolved to deny the petition for failure of petitioner to sufficiently show that the Court of Appeals had committed any reversible error in its questioned judgment which had dismissed petitioner's petition for review for having been filed out of time. 8

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

On 10 August 1990, we resolved to set aside our resolution dismissing this case and gave due course to the petition. In the said resolution, we stated:

In several cases decided by this Court, it had set aside technicalities in the Rules in order to give way to justice and equity. In the present case, we note that the petitioner, in filing his Notice of Appeal the very next day after receiving the decision of the court a quo lost no time in showing his intention to appeal, although the procedure taken was not correct. The Court can overlook the wrong pleading filed, if strict compliance with the rules would mean sacrificing justice to technicality. The imminence of a person being deprived unjustly of his liberty due to procedural lapse of counsel is a strong and compelling reason to warrant suspension of the Rules. Hence, we shall consider the petition for review filed in the Court of Appeals as a Supplement to the Notice of Appeal. As the Court declared in a recent decision, '. . . there is nothing sacred about the procedure of pleadings. This Court may go beyond the pleadings when the interest of justice so warrants. It has the prerogative to suspend its rules for the same purpose. . . . Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. [Alonzo v. Villamor, et al., 16 Phil. 315]

Conscience cannot rest in allowing a man to go straight to jail, closing the door to his every entreaty for a full opportunity to be heard, even as he has made a prima facie showing of a meritorious cause, simply because he had chosen an appeal route, to be sure, recognized by law but made inapplicable to his case, under altered rules of procedure. While the Court of Appeals can not be faulted and, in fact, it has to be lauded for correctly applying the rules of procedure in appeals to the Court of Appeals from decisions of the RTC rendered in the exercise of its appellate jurisdiction, yet, this Court, as the ultimate bulwark of human rights and individual liberty, will not allow substantial justice to be sacrified at the altar of procedural rigor. 10

In the same resolution, the parties were required to file their respective memoranda, and in compliance with said resolution, petitioner filed his memorandum on 25 October 1989, while private respondent SEAFDEC filed its required memorandum on 10 April 1990. On the other hand, the Solicitor General filed on 13 March 1990 a Recommendation for Acquittal in lieu of the required memorandum.

Two (2) issues are raised by petitioner to wit:

I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL CIRCUIT TRIAL COURT (GUIMBAL, ILOILO) AND THE REGIONAL TRIAL COURT, BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE FACTS AND EVIDENCE OR CONTRARY TO LAW AND THAT THE TWO COURTS A

QUO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION OR HAVE ACTED WITHOUT OR IN EXCESS OF JURISDICTION.

II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF APPEALS IS CONTRARY TO LAW, ESTABLISHED JURISPRUDENCE, EQUITY AND DUE PROCESS.

The second issue has been resolved in our Resolution dated 10 August 1990, when we granted petitioner's second motion for reconsideration. We shall now proceed to the first issue.

We find merit in the petition.

It is undisputed that petitioner received a cash advance from private respondent SEAFDEC to defray his travel expenses under T.O. 2222. It is likewise admitted that within the period covered by T.O. 2222, petitioner was recalled to the head station in Iloilo and given another assignment which was covered by T.O. 2268. The dispute arose when petitioner allegedly failed to return P1,230.00 out of the cash advance which he received under T.O. 2222. For the alleged failure of petitioner to return the amount of P1,230.00, he was charged with the crime of Estafa under Article 315, par. 1(b) of the Revised Penal Code, which reads as follows:

Art. 315. Swindling (Estafa). Any person who shall defraud another by any of the means mentioned herein below shall be punished by:

xxx xxx xxx

1. With unfaithfulness or abuse of confidence, namely:

(a) xxx xxx xxx

(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of; or to return, the same, even though such obligation be fatally or partially guaranteed by a bond; or by denying having received such money, goods, or other property.

In order that a person can be convicted under the abovequoted provision, it must be proven that he had the obligation to deliver or return the same money, good or personal property that he had received. 11

Was petitioner under obligation to return the same money (cash advance) which he had received? We belive not. Executive Order No. 10, dated 12 February 1980 provides as follows:

B. Cash Advance for Travel

xxx xxx xxx

4. All cash advances must be liquidated within 30 days after date of projected return of the person. Otherwise, corresponding salary deduction shall be made immediately following the expiration day.

Liquidation simply means the settling of an indebtedness. An employee, such as herein petitioner, who liquidates a cash advance is in fact paying back his debt in the form of a loan of money advanced to him by his employer, asper diems and allowances. Similarly, as stated in the assailed decision of the lower court, "if the amount of the cash advance he received is less than the amount he spent for actual travel . . . he has the right to demand reimbursement from his employer the amount he spent coming from his personal funds. 12 In other words, the money advanced by either party is actually a loan to the other. Hence, petitioner was under no legal obligation to return the same cash or money, i.e., the bills or coins, which he received from the private respondent. 13

Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

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

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

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

The ruling of the trial judge that ownership of the cash advanced to the petitioner by private respondent was not transferred to the latter is erroneous. Ownership of the money was transferred to the petitioner. Even the prosecution witness, Virgilio Hierro, testified thus:

Q When you gave cash advance to the accused in this Travel Order No. 2222 subject to liquidation, who owns the funds, accused or SEAFDEC? How do you consider the funds in the possession of the accused at the time when there is an actual transfer of cash? . . .

A The one drawing cash advance already owns the money but subject to liquidation. If he will not liquidate, be is obliged to return the amount.

Q xxx xxx xxxSo why do you treat the itinerary of travel temporary when in fact as of that time the accused owned already the cash advance. You said the cash advance given to the accused is his own money. In other words, at the time you departed with the money it belongs already to the accused?

A Yes, but subject for liquidation. He will be only entitled for that credence if he liquidates.

Q If other words, it is a transfer of ownership subject to a suspensive condition that he liquidates the amount of cash advance upon return to station and completion of the travel?

A Yes, sir.

(pp. 26-28, tsn, May 8, 1985). 14

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

Additionally, it has been the policy of private respondent that all cash advances not liquidated are to be deducted correspondingly from the salary of the employee concerned. The evidence shows that the corresponding salary deduction was made in the case of petitioner vis-a-vis the cash advance in question.

WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court in Guimbal, Iloilo in Criminal Case No. 628, finding petitioner guilty of estafa under Article 315, par. 1 (b) of the Revised Penal Code and the affirming decision of the Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated on 30 July 1987 are both hereby SET ASIDE. Petitioner is ACQUITTED of criminal charge filed against him.

SO ORDERED.

Melencio-Herrera, Paras, Sarmiento and Regalado JJ., concur.

G.R. No. 138677               February 12, 2002

TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs.HON. COURT OF APPEALS & SECURITY BANK & TRUST COMPANY, respondents.

D E C I S I O N

VITUG, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the decision and resolutions of the Court of Appeals in CA-G.R. CV No. 34594, entitled "Security Bank and Trust Co. vs. Tolomeo Ligutan, et al."

Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory note binding themselves, jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. In addition, petitioners agreed to pay 10% of the total amount due by way of attorney’s fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The obligation matured on 8 September 1981; the bank, however, granted an extension but only up until 29 December 1981.

Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982, amounted to P114,416.10. On 30 September 1982, the bank sent a final demand letter to petitioners informing them that they had five days within which to make full payment. Since petitioners still defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court of Makati, Branch 143, a complaint for recovery of the due amount.

After petitioners had filed a joint answer to the complaint, the bank presented its evidence and, on 27 March 1985, rested its case. Petitioners, instead of introducing their own evidence, had the hearing of the case reset on two consecutive occasions. In view of the absence of petitioners and their counsel on 28 August 1985, the third hearing date, the bank moved, and the trial court resolved, to consider the case submitted for decision.

Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the order of the trial court declaring them as having waived their right to present evidence and prayed that they be allowed to prove their case. The court a quo denied the motion in an order, dated 5 September 1988, and on 20 October 1989, it rendered its decision,1 the dispositive portion of which read:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the latter to pay, jointly and severally, to the plaintiff, as follows:

"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge and 5% per month penalty charge, commencing on 20 May 1982 until fully paid;

"2. To pay the further sum equivalent to 10% of the total amount of indebtedness for and as attorney’s fees; and

"3. To pay the costs of the suit."2

Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the trial court of their motion to present evidence and assailing the imposition of the 2% service charge, the 5% per month penalty charge and 10% attorney's fees. In its decision3 of 7 March 1996, the appellate court affirmed the judgment of the trial court except on the matter of the 2% service charge which was deleted pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision of the appellate court, both parties filed their respective motions for reconsideration.4 Petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable. The bank, on the other hand, asked that the payment of interest and penalty be commenced not from the date of filing of complaint but from the time of default as so stipulated in the contract of the parties.

On 28 October 1998, the Court of Appeals resolved the two motions thusly:

"We find merit in plaintiff-appellee’s claim that the principal sum of P114,416.00 with interest thereon must commence not on the date of filing of the complaint as we have previously held in our decision but on the date when the obligation became due.

"Default generally begins from the moment the creditor demands the performance of the obligation. However, demand is not necessary to render the obligor in default when the obligation or the law so provides.

"In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the obligation on its maturity date 'without necessity of demand.' They also agreed to pay the interest in case of non-payment from the date of default.

"x x x           x x x          x x x

"While we maintain that defendants-appellants must be bound by the contract which they acknowledged and signed, we take cognizance of their plea for the application of the provisions of Article 1229 x x x.

"Considering that defendants-appellants partially complied with their obligation under the promissory note by the reduction of the original amount of P120,000.00 to P114,416.00 and in order that they will finally settle their obligation, it is our view and we so hold that in the interest of justice and public policy, a penalty of 3% per month or 36% per annum would suffice.

"x x x           x x x          x x x

"WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The defendants-appellants Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-appellee Security Bank and Trust Company the following:

"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and 3% per month penalty charge commencing May 20, 1982 until fully paid;

"2. The sum equivalent to 10% of the total amount of the indebtedness as and for attorney’s fees."5

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

Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case to this Court on 9 July 1999 via a petition for review on certiorari under Rule 45 of the Rules of Court, submitting thusly -

"I. The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners’ loan obligation are still manifestly exorbitant, iniquitous and unconscionable.

"II. The respondent Court of Appeals gravely erred in not reducing to a reasonable level the ten (10%) percent award of attorney’s fees which is highly and grossly excessive, unreasonable and unconscionable.

"III. The respondent Court of Appeals gravely erred in not admitting petitioners’ newly discovered evidence which could not have been timely produced during the trial of this case.

"IV. The respondent Court of Appeals seriously erred in not holding that there was a novation of the cause of action of private respondent’s complaint in the instant case due to the subsequent execution of the real estate mortgage during the pendency of this case and the subsequent foreclosure of the mortgage."8

Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be deleted by petitioners was even insufficient to fully cover and compensate for the cost of money brought about by the radical devaluation and decrease in the purchasing power of the peso, particularly vis-a-vis the U.S. dollar, taking into account the time frame of its occurrence. The Bank would stress that only the amount of P5,584.00 had been remitted out of the entire loan of P120,000.00.9

A penalty clause, expressly recognized by law,10 is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation11 and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach.12 Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.13

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

The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty interest from 5% a month to 3% a month which petitioner still disputes. Given the circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation, the Court sees no cogent ground to modify the ruling of the appellate court..

Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that has not been raised and ventilated before the courts below. In any event, the interest stipulation, on its face, does not appear as being that excessive. The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded.18 What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the

interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank's existence.19

Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's fees for being grossly excessive, exorbitant and unconscionable vis-a-vis the time spent and the extent of services rendered by counsel for the bank and the nature of the case. Bearing in mind that the rate of attorney’s fees has been agreed to by the parties and intended to answer not only for litigation expenses but also for collection efforts as well, the Court, like the appellate court, deems the award of 10% attorney’s fees to be reasonable.

Neither can the appellate court be held to have erred in rejecting petitioners' call for a new trial or to admit newly discovered evidence. As the appellate court so held in its resolution of 14 May 1999 -

"Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of a judgment or final resolution by the same party shall be entertained. Considering that the instant motion is already a second motion for reconsideration, the same must therefore be denied.

"Furthermore, it would appear from the records available to this court that the newly-discovered evidence being invoked by defendants-appellants have actually been existent when the case was brought on appeal to this court as well as when the first motion for reconsideration was filed. 1âwphi1 Hence, it is quite surprising why defendants-appellants raised the alleged newly-discovered evidence only at this stage when they could have done so in the earlier pleadings filed before this court.

"The propriety or acceptability of such a second motion for reconsideration is not contingent upon the averment of 'new' grounds to assail the judgment, i.e., grounds other than those theretofore presented and rejected. Otherwise, attainment of finality of a judgment might be stayed off indefinitely, depending on the party’s ingenuousness or cleverness in conceiving and formulating 'additional flaws' or 'newly discovered errors' therein, or thinking up some injury or prejudice to the rights of the movant for reconsideration."20

At any rate, the subsequent execution of the real estate mortgage as security for the existing loan would not have resulted in the extinguishment of the original contract of loan because of novation. Petitioners acknowledge that the real estate mortgage contract does not contain any express stipulation by the parties intending it to supersede the existing loan agreement between the petitioners and the bank.21 Respondent bank has correctly postulated that the mortgage is but an accessory contract to secure the loan in the promissory note.

Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the parties to the new contract; third, the extinguishment of the obligation; and fourth, the validity of the new one.22 In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on every point incompatible with each other.23 An obligation to pay a sum of money is not extinctively novated by a new instrument which merely changes the terms of payment or adding compatible covenants or where the old contract is merely

supplemented by the new one.24When not expressed, incompatibility is required so as to ensure that the parties have indeed intended such novation despite their failure to express it in categorical terms. The incompatibility, to be sure, should take place in any of the essential elements of the obligation, i.e., (1) the juridical relation or tie, such as from a merecommodatum to lease of things, or from negotiorum gestio to agency, or from a mortgage to antichresis,25 or from a sale to one of loan;26 (2) the object or principal conditions, such as a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor27 or the subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement should be complete by itself; certain terms and conditions may be carried, expressly or by implication, over to the new obligation.

WHEREFORE, the petition is DENIED.

SO ORDERED.

Melo, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio, JJ., concur.

G.R. No. 97412 July 12, 1994

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

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

Zapa Law Office for private respondent.

 

VITUG, J.:

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

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

This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants'

custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages.

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

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

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

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

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

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

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

Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the

handling/delivery of the cargo to consignee in the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

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

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

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

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

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

remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

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

1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract);

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

3. Costs.

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

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

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

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

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

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

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

The petition is, in part, granted.

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

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

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

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

the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee.

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

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

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

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

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

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

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

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

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

xxx xxx xxx

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

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

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

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

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

xxx xxx xxx

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

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

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

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

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

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

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1)

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

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

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

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

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

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said:

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

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

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 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.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.

Mendoza, J., took no part.

G.R. No. 126620            April 17, 2002

PRODUCERS BANK OF THE PHILIPPINES, petitioner, vs.HONORABLE COURT OF APPEALS, ASIA TRUST DEVELOPMENT BANK, RAINELDA A. ANDREWS, SAMSON FLORES, ALFONSO LEONG, JR., RHODORA D. LANDRITO, JOSEPH CHUA, RAMON YU, EDUARDO G. ESCOBAR, MILAGROS B. NAYVE, ELIZABETH C. GARCIA, ALBERTO LIMJOCO, SR., GLORIA E. MENPIN and ESPERANZA FLORENDO, respondents.

CARPIO, J.:

The Case

In this Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner Producer’s Bank of the Philippines ("petitioner" for brevity) assails the September 19, 1996 Resolution1 of the Court of Appeals in CA-G.R. CV No. 50016 which dismissed petitioner’s appeal for being filed out of time. The Court of Appeals decreed thus:

"WHEREFORE, finding the Motion to Dismiss Appeal to be meritorious, the same is granted. The appeal is DISMISSED.

SO ORDERED."2

The Antecedent Facts

On March 29, 1988, petitioner through its former counsel, Atty. Antonio M. Pery, filed a Complaint to recover the sum of P11,420,000.00 from Asia Trust Development Bank ("Asiatrust" for brevity) and the Central Bank of the Philippines ("CBP" for brevity) before the

Regional Trial Court of Makati, Branch 147 ("RTC" for brevity). Thereafter, petitioner filed an amended complaint, impleading additional defendants.3

Petitioner sought to recover the proceeds of several treasury bills amounting to P11,420,000.00. According to petitioner, said proceeds were fraudulently credited to the demand deposit account of Asiatrust with the CBP and withdrawn by Milagros B. Nayve, Elizabeth C. Garcia and Alberto Limjoco, Sr.

It appears that petitioner owned several treasury bills. On the respective maturity dates of these bills, petitioner caused these bills to be delivered to the CBP. The bills were initially received by Manuel B. Ala, petitioner’s rediscounting clerk together with a letter of transmittal and a receipt for the bills addressed to the CBP. Mr. Ala turned over the bills together with the accompanying documents to Rogelio Carrera for delivery to the CBP. Alberto Limjoco, Sr., Elizabeth C. Garcia and Milagros B. Nayve4 came into possession of these bills which they in turn delivered to Rainelda A. Andrews and Rhodora B. Landrito5. Petitioner alleged that Andrews and Landrito failed to ascertain the lawful ownership of the bills, and caused their transmittal and delivery to the CBP, through a letter signed by Eduardo G. Escobar and Alfonso Leong, Jr..6 The proceeds of the bills were credited to the account of Asiatrust which approved the manager’s check applications and facilitated payment to the bearers of the bills. Petitioner discovered that the proceeds of the bills were not credited to its demand deposit account with the CBP. Upon such discovery, petitioner informed the CBP which furnished petitioner with a copy of the acknowledgment from Asiatrust of receipt of the bills and that the proceeds were credited to the account of Asiatrust. Petitioner claimed that Rainelda A. Andrews, Samson Flores, Alfonso Leong, Jr., Rhodora D. Landrito, Joseph Chua, Ramon Yu and Eduardo G. Escobar were negligent in the performance of their duties and responsibilities as officers of Asiatrust as they failed to exercise reasonable care and caution to determine the true ownership of the bills before allowing the proceeds to be paid to Milagros B. Nayve, Elizabeth C. Garcia and Alberto Limjoco, Sr. Petitioner sought to hold Asiatrust solidarily liable with the other defendants for the payment of the value of the treasury bills and for damages. Subsequently, the complaint was dismissed as against the CBP on motion of petitioner on the ground that the latter had lifted petitioner’s conservatorship and allowed the return of the management and assets to petitioner’s Board of Directors. The CBP’s lifting of the conservatorship was conditioned upon petitioner’s dropping of all its cases pending against the CBP.

The defendants filed their respective Answers, after which the issues were joined and trial on the merits ensued.

On August 30, 1993, the law firm of Quisumbing, Torres and Evangelista ("QTE" for brevity) entered its appearance for petitioner in substitution of Atty. Antonio M. Pery.

Petitioner’s handling counsel, Atty. Alvin Agustin T. Ignacio ("Atty. Ignacio" for brevity) of QTE arrived late during the hearing held on May 17, 1995. On motion of Asiatrust’s counsel, the RTC issued an Order on the same day dismissing the case for lack of interest to prosecute.

On June 9, 1995, Atty. Ignacio filed a motion to reconsider the Order dated May 17, 1995, explaining that his late arrival at the hearing was due to the unexpected heavy traffic at

Roxas Boulevard in front of Baclaran Church. He also offered his apologies to the RTC for his unintended tardiness. QTE received a copy of the Order dated August 1, 1995 denying the motion for reconsideration on August 11, 1995. At that time, Atty. Ignacio was indisposed for allegedly suffering from "fatigue and stress". It was only on August 25, 1995 that Atty. Ignacio found out that the Order denying the motion for reconsideration was received by the law firm on August 11, 1995. He filed a Notice of Appeal on August 25, 1995.

On November 13, 1995, Asiatrust, et al. filed a Motion to Dismiss Appeal with the Court of Appeals. On March 8, 1996, QTE filed its Comment to the Motion to Dismiss Appeal.

In the Resolution dated September 19, 1996, the Court of Appeals granted the motion to dismiss petitioner’s appeal.

Ruling of the Court of Appeals

In granting the motion to dismiss appeal, the Court of Appeals held in part:

"xxx. We hold that the failure of plaintiff-appellant to file the Notice of Appeal on time was inexcusable negligence. These are the reasons:

One. In paragraph 7.28 of the Comment (to the Motion to Dismiss), plaintiff-appellant states that –

"On 11 August 1995 at 3:00 pm., plaintiff-appellant received a copy of the Order dated 1 August 1995 denying its motion for reconsideration of the dismissed order."

Since, the last day for plaintiff-appellant to file the Notice of Appeal was August 12, 1995, why did it not file the Notice of Appeal right away considering that its preparation and mailing could not take two hours? If counsel for plaintiff-appellant did not take advantage of the two remaining office hours on August 11, 1995, why did it not file the Notice of Appeal at anytime, the following day, August 12? In failing to do that, the law firm counsel was guilty of gross and inexcusable negligence.

TWO. If the counsel for plaintiff-appellant did not know that the last day to file the Notice of Appeal was on August 12, 1995, why did it not ask the handling lawyer about it? There was no impediment to do that because the handling lawyer was not comatose. The counsel was inexcusably negligent for failing to make that inquiry.

THREE. The handling lawyer knew that if the Motion for Reconsideration would be denied – as in fact it was – he would have only a day after receipt of the order of denial to file a notice of appeal. Why did he not forewarn his law firm about such fact so that even in his absence, the latter could file said notice? Assuming that the handling lawyer was really sick, his ailment which was allegedly just "fatigue and stress" was not at all serious much less incapacitating. In fact he was not even hospitalized for he was just advised to rest for at least two weeks. With all the communication facilities in Metro-Manila, there was no reason for said counsel –

even if sick – not to have gotten in touch with his law firm to check on the result of his Motion for Reconsideration. It was, therefore, inexcusable negligence for him to have failed doing that which an ordinarily prudent lawyer would have done.

The inexcusable negligence of plaintiff-appellant’s counsel is made more glaring by the fact that the Notice of Appeal was late not only by 2 or 4 days but all of 13 days. 1âwphi1.nêt

We are not unaware of the rule that technicality should not smother the right of a litigant to a day in court. But the Supreme Court instructs us that strict adherence to reglementary periods fixed in the Rules of Court is necessary to ensure the efficient and orderly disposition of cases (Panes v. Court of Appeals, 120 SCRA 509). We cannot also close Our eyes to the rule that perfecting an appeal within the period permitted by law is not only mandatory but jurisdictional and the failure to perfect the appeal on time renders the judgment of the court final and executory. (Bank of America, Gerochi, Jr. 230 SCRA 9; Philippine Commercial International Bank v. Court of Appeals, 229 SCRA 560). Well rooted is the principle that once a decision becomes final the appellate court is without jurisdiction to entertain the appeal (Sumbillo v. IAC, 165 SCRA 232; Hensy Zoilo Llido v. Marquez, 166 SCRA 61)."

Hence, the instant petition.

The Issue

Petitioner now comes before us with the following assignment of error:

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE ACTS OF PETITIONER’S PREVIOUS COUNSEL, QUISUMBING, TORRES AND EVANGELISTA, SHOULD BIND THE PETITIONER, DESPITE THE FINDINGS IN ITS RESOLUTION THAT THE LAW FIRM COUNSEL WAS GROSSLY AND INEXCUSABLY NEGLIGENT.

The threshold issue in this petition for review on certiorari is whether the Court of Appeals erred in dismissing an appeal that was filed 13 days late despite its own findings that petitioner’s counsel was grossly negligent.

Petitioner argues that a client should not be bound by counsel’s gross and inexcusable negligence. Petitioner admits that its handling counsel, Atty. Ignacio of QTE, committed two blunders: first, he failed to arrive on time during one of the hearings allegedly due to the traffic at Roxas Boulevard in front of Baclaran Church; second, he failed to file the notice of appeal within the reglementary period due to "fatigue and stress". Petitioner further admits that Atty. Ignacio offered a "flimsy excuse" for his tardiness and an "out of this world excuse" for his failure to file the notice of appeal on time. Petitioner, however, submits that such gross negligence and mistake of counsel should not bind the client in line with the case of Legarda vs. Court of Appeals.7 Petitioner enumerates the similarities between the Legarda case and its own, as follows:

"First, like the petitioner in the Legarda case, petitioner herein was not negligent in choosing a counsel to represent them in the case. The former engaged the services of former law school dean, Dean Antonio Coronel, while the latter engaged the service of the well known and reputable law firm, Quisumbing, Torres and Evangelista which is associated with Baker and McKenzie of the United States, as counsels to their respective cases.

In fact, the diligence of petitioner can be shown by the fact that it even replaced it’s first counsel, Atty. Antonio Pery in favor of Quisumbing, Torres and Evangelista, hoping that by hiring the services of that law firm the case would be handled better and would have a better chance of winning. Unfortunately, such hope was dampened by the gross negligence and blunders committed by the law firm.

Second, just like in the case of Legarda, the previous counsel of the petitioner committed two blunders. In the case of the former, counsel failed to file an answer in the trial court and failed to timely appeal the case to the appellate courts, while in the latter case, counsel caused the dismissal of the case by arriving late at the trial date and also by failing to timely perfect an appeal to the Court of Appeals.

Third, in both cases the Court of Appeals has found that both counsels committed negligence. The only difference would be that in the case of Legarda, the Court of Appeals only held that there was only pure and simple negligence on the part of Dean Antonio Coronel, while in the case at bar, the Court of Appeals found that there was gross and inexcusable negligence on the part of Quisumbing, Torres and Evangelista Law Firm.

Thus, the Court of Appeals committed an error in stating that: "The plaintiff appellant has to bite the bullet for it cannot shake itself of the inexcusable negligence of its counsel" (Alabanza. vs. Intermediate Appellate Court, 204 SCRA 304), because of it’s own findings that there was a gross and inexcusable negligence on the part of the previous counsel. The applicable decision of the Supreme Court to the case at bar should be the case of Legarda vs. Court of Appeals. (195 SCRA 418)."

The Court’s Ruling

The petition is bereft of merit. We uphold the dismissal of the appeal by the Court of Appeals.

The general rule is that a client is bound by the acts, even mistakes, of his counsel in the realm of procedural technique. The exception to this rule is when the negligence of counsel is so gross, reckless and inexcusable that the client is deprived of his day in court. In which case, the remedy then is to reopen the case and allow the party who was denied his day in court to adduce his evidence.8 However, a thorough review of the instant case reveals that petitioner cannot seek refuge or obtain reprieve under these principles.

Legarda case is not applicable

Petitioner’s reliance on the Legarda case which was promulgated on March 18, 1991 is clearly misplaced. In said case, the Court declared that petitioner’s counsel, Atty. Antonio Coronel, a well-known practicing lawyer and dean of a law school, committed not just ordinary or simple negligence, but reckless and gross negligence which deprived his client of her property without due process of law. According to the Legarda decision-

"xxx, the negligence of the then counsel for petitioner when he failed to file the proper motion to dismiss or to draw a compromise agreement if it was true that they agreed on a settlement of the case; or in simply filing an answer; and that after having been furnished a copy of the decision by the court he failed to appeal therefrom or to file a petition for relief from the order declaring petitioner in default."9

was so gross and inexcusable that it should not bind his client. The Court declared that the counsel’s acts or omissions "consigned (the client) to penury" because "her lawyer appeared to have abandoned her case not once but repeatedly." The Court noted that counsel’s "lack of devotion to duty is so gross and palpable that this Court must come to the aid of his distraught client." Thus, the Court held as null and void the decisions of the trial and appellate courts against Atty. Coronel’s client and ordered, among other things, the reconveyance of the property in her favor.

However, the decision in said case was not yet final in 1991. The private respondent therein filed a timely motion for reconsideration. In granting the motion for reconsideration, the Court en banc held:

"Under the Gancayco ruling, the order of reconveyance was premised on the alleged gross negligence of Legarda’s counsel which should not be allowed to bind her as she was deprived of her property `without due process of law.’

It is, however, basic that as long as a party was given the opportunity to defend her interests in due course, she cannot be said to have been denied due process of law, for this opportunity to be heard is the very essence of due process. The chronology of events shows that the case took its regular course in the trial and appellate courts but Legarda’s counsel failed to act as any ordinary counsel should have acted, his negligence every step of the way amounting to "abandonment, " in the words of the Gancayco decision. Yet, it cannot be denied that the proceedings which led to the filing of this case were not attended by any irregularity. The judgment by default was valid, so was the ensuing sale at public auction. If Cabrera was adjudged highest bidder in said auction sale, it was not through any machination on his part. All of his actuations that led to the final registration of the title in his name were aboveboard, untainted by any irregularity."

x x x

Neither Cathay nor Cabrera10 should be made to suffer for the gross negligence of Legarda’s counsel. If she may be said to be "innocent" because she was ignorant of the acts of negligence of her counsel, with more reason are respondents truly "innocent." As between two parties who may lose due to the negligence or incompetence of the counsel of one, the party who was responsible for making it

happen should suffer the consequences. This reflects the basic common law maxim, so succinctly stated by Justice J.B.L. Reyes, that ". . . (B)etween two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss." In this case, it was not respondents, but Legarda, who misjudged and hired the services of the lawyer who practically abandoned her case and who continued to retain him even after his proven apathy and negligence.

The Gancayco decision makes much of the fact that Legarda is now "consigned to penury" and, therefore, this Court "must come to the aid of the distraught client." It must be remembered that this Court renders decisions, not on the basis of emotions but on its sound judgment, applying the relevant, appropriate law. Much as it may pity Legarda, or any losing litigant for that matter, it cannot play the role of a "knight in shining armor" coming to the aid of someone, who through her weakness, ignorance or misjudgment may have been bested in a legal joust which complied with all the rules of legal proceedings."

In sum, the court did not relieve the client from the consequences of her counsel’s negligence and mistakes considering that she was given an opportunity to defend her interests in due course. Certainly, it cannot be said that she was denied due process. Consequently, the Legarda case does not support petitioner’s cause.

No Denial of Due Process

Contrary to petitioner’s stance, the Legarda case supports the view that petitioner was not denied its day in court. The Constitution mandates that "(n)o person shall be deprived of life, liberty, or property without due process of law x x x ."11 The right to due process of law has been interpreted to mean as follows:

"The essence of due process is to be found in the reasonable opportunity to be heard and submit any evidence one may have in support of one’s defense. `To be heard' does not mean only verbal arguments in court; one may be heard also through pleadings. Where opportunity to be heard, either through oral arguments or pleadings, is accorded, there is no denial of due process." 12  (Emphasis supplied)

Verily, so long as a party is given the opportunity to advocate her cause or defend her interest in due course, it cannot be said that there was denial of due process. In petitioner’s case as in the Legarda case, the chronology of events shows that the case took its regular course in the trial court.

On December 8, 1992, petitioner presented its first witness, Mr. Manuel B. Ala, the Accounting Clerk of its Accounting Department. He was cross-examined by CBP, Nayve and Garcia on February 10, 1993. On March 1, 1993, petitioner presented its second witness, Ms. Josie Fernandez, the Security Custodian of its Treasury Bills. On July 5, 1993, petitioner presented its third witness, Atty. Leopoldo Cotaco, head of its Department of Security and Internal Affairs. At this hearing, only counsels of Nayve and Garcia were present. The counsels of CBP and Asiatrust were absent. On August 25, 1993, the direct testimony of Atty. Leopoldo Cotaco was terminated. On August 30, 1993, QTE entered its appearance in substitution of Atty. Antonio M. Pery. On September 8, 1993, QTE moved for

the postponement of the cross-examination of Atty. Cotaco since it had only recently entered its appearance. On September 16, 1993, petitioner moved to dismiss the complaint against CBP on the ground that the latter had lifted the conservatorship and allowed the return of the management and assets to petitioner’s Board of Directors. The motion was granted in an Order dated September 28, 1993. The hearings on November 17 and 24, 1993 were postponed upon petitioner’s motion since former counsel, Atty. Antonio M. Pery, refused to turn over the records and files of the case due to a dispute over legal fees. The hearings were reset to February 21 and March 9 and 16, 1994. On February 18, 1994, petitioner again moved that the hearing scheduled on February 21, 1994 be reset for the same reason. The hearings on March 9 and 16, 1994 were likewise postponed due to former counsel’s adamant refusal to turn over the files. The hearings were reset to May 18 and 25, 1994. By May 18, 1994, petitioner’s former counsel still refused to turn over the files of the case, prompting petitioner to request for another postponement. The hearings were reset to July 6, 20 and August 15, 1994. The hearing scheduled on July 6, 1994 was postponed on the ground that there was no proof of service of the notice of hearing to counsels for the defendants. The hearing scheduled on July 20, 1994 was postponed by Asiatrust on the ground that its counsel was not available for said hearing. The hearings were reset to August 31 and September 19, 1994. The hearing scheduled on August 15, 1994 was cancelled. The hearing on August 31, 1994 was reset to September 19, 1995 because there was no proof of service of the notice of hearing on counsels. The hearing on September 19, 1994 was also reset to November 21, 1994 for lack of proof that the contending counsels received the notice of hearing for said date. On November 16, 1994, Asiatrust filed an urgent motion to postpone the hearing on November 21, 1994, due to unavailability of its counsel. Consequently, the hearings were reset to January 30 and February 15, 1995. However, the hearing on said dates were cancelled since the presiding judge was indisposed, and reset to May 17, 1995. As mentioned earlier, petitioner’s handling lawyer, Atty. Ignacio of QTE arrived late during the hearing on May 17, 1995 allegedly due to the unexpectedly heavy traffic on Roxas Boulevard in front of Baclaran Church. On motion of Asiatrust’s counsel, the trial court issued the Order dismissing the case for lack of interest to prosecute.

Upon said dismissal, petitioner’s counsel filed a timely motion for reconsideration. The same was denied by the trial court. However, it must be emphasized that petitioner was not left without any relief. Upon the denial thereof, the situation could have been easily remedied by filling a notice of appeal within the reglementary period13considering that a dismissal for failure to prosecute is an adjudication on the merits.14 As correctly pointed out by Asiatrust, all that is required is a singled-paged, pro forma notice of appeal, the accomplishment of which does not require a high degree of legal skill. Despite this, counsel failed to file its notice of appeal on time and the proffered excuse that he was suffering from "stress and fatigue" while highly unacceptable, does not amount to gross, palpable, pervasive and reckless negligence so as to deprive counsel’s client its day in court. As the proceedings in the trial court all the way up to the appellate court would show, petitioner was not deprived of due process.

Indeed, by failing to file its appeal within the reglementary period, it could not be successfully argued that petitioner was deprived of its day in court.

Time and again it has been held that the right to appeal is not a natural right or a part of due process, it is merely a statutory privilege, and may be exercised only in the manner and in accordance with the provisions of the law.15The party who seeks to avail of the same must comply with the requirements of the rules.16 Failing to do so, the right to appeal is lost.17

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

Neither could petitioner plead leniency in the application of the rules considering that the period to appeal is prescribed not only by the Rules of Court but also by statute, particularly Sec. 39 of Batas Pambansa Blg. 129 which provides –

Sec. 39. Appeals. – The period for appeal from final orders, resolutions, awards, judgments, or decisions of any court in all cases shall be fifteen (15) days counted from the notice of the final order, resolution, award, judgment, or decision appealed from: Provided, however, That habeas corpus, the period for appeal shall be forty-eight (48) hours from the notice of the judgment appealed from x x x x

Clearly, the perfection of an appeal in the manner and within the period prescribed by law is not only mandatory but jurisdictional, and failure to perfect an appeal has the effect of rendering the judgment final and executory. Public policy and sound practice demand that judgments of courts should become final and irrevocable at some definite date fixed by law."19

Counsel for petitioner committed simple negligence

We also find that the negligence of the law firm engaged by the petitioner to litigate its cause was not gross butsimple negligence. Petitioner capitalizes on the following "blunders" of the law firm to establish gross negligence: (1) arriving late during the hearing on May 17, 1995 and (2) filing the notice of appeal thirteen (13) days late. Tardiness is plain and simple negligence. On the other hand, counsel’s failure to file the notice of appeal within the reglementary period did not deprive petitioner of due process of law. 1âwphi1.nêt

We also do not miss the fact that petitioners were represented by a law firm which meant that any of its members could lawfully act as their counsel during the trial."20 As such, "[w]hen a client employs the services of a law firm, he does not employ the services of the lawyer who is assigned to personally handle the case. Rather, he employs the entire law firm. In the event that the counsel appearing for the client resigns, the firm is bound to provide a replacement."21 Petitioner cannot now complain of counsel’s errors. It has been held that "[l]itigants, represented by counsel, should not expect that all they need to do is sit back, relax and await the outcome of their case. x x x22." Especially in this case, where petitioner has a legal department to monitor its pending cases and to liaise with its retained

counsel. To agree with petitioner’s stance would enable every party to render inutile any adverse order or decision through the simple expedient of alleging gross negligence on the part of its counsel. The Court will not countenance such a farce which contradicts long-settled doctrines of trial and procedure.23

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

In sum, this is not a case where the negligence of counsel is one that is so gross, palpable, pervasive and reckless which is the type of negligence that deprives a party of his or her day in court. For this reason, the Court need no longer concern itself with the merits of petitioner’s causes of action nor consider the propriety of the dismissal of the case by the trial court for lack of interest to prosecute. The Court is bound by the trial court’s judgment which had become final and executory due to the simple negligence of the petitioner’s counsel in allowing the reglementary period to lapse without perfecting the appeal.

WHEREFORE, there being no reversible error committed by the Court of Appeals, the petition for review on certiorari is DENIED and the assailed Resolution dated September 19, 1996 dismissing the appeal is AFFIRMED.

SO ORDERED.

Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.Melo, J., Abroad, on official leave.

G.R. No. 154878             March 16, 2007

CAROLYN M. GARCIA, Petitioner, vs.RICA MARIE S. THIO, Respondent.

D E C I S I O N

CORONA, J.:

Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002 resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.

Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago.5 Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in

1995) the amount of US$3,0006 and P76,5007 on July 26,8 August 26, September 26 and October 26, 1995.

In June 1995, respondent received from petitioner another crossed check9 dated June 29, 1995 in the amount ofP500,000, also payable to the order of Marilou Santiago.10 Consequently, petitioner received from respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.11

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

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.13 The amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.14 The amount of this loan was covered by the second check. For both loans, no promissory note was executed since petitioner and respondent were close friends at the time.15 Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands.16

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Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed checks to Santiago.17 She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate petitioner’s request that respondent use her own checks instead of Santiago’s.18

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

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:

1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995 until fully paid;

2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.

3. P100,000.00 as and for attorney’s fees; and

4. P50,000.00 as and for actual damages.

For lack of merit, [respondent’s] counterclaim is perforce dismissed.

With costs against [respondent].

IT IS SO ORDERED.21

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties:

A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her. There is nothing in the record that shows that [respondent] received money from [petitioner]. What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner]. The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.

It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once—to one who has an account with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course.

Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the former and [petitioner].

With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that existed between the parties. x x x (emphasis supplied)22

Hence this petition.23

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

The petition is impressed with merit.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount.26

It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question to be answered is: who borrowed money from petitioner — respondent or Santiago?

Petitioner insists that it was upon respondent’s instruction that both checks were made payable to Santiago.27 She maintains that it was also upon respondent’s instruction that both checks were delivered to her (respondent) so that she could, in turn, deliver the same to Santiago.28 Furthermore, she argues that once respondent received the checks, the latter had possession and control of them such that she had the choice to either forward them to Santiago (who was already her debtor), to retain them or to return them to petitioner.29

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another.30 Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago.

Several factors support this conclusion.

First, respondent admitted that petitioner did not personally know Santiago.31 It was highly improbable that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on the other hand, already had transactions with Santiago at that time.32

Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties’ list of witnesses) testified that respondent’s plan was for petitioner to lend her money at a monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of 2%.33 This explained why respondent instructed petitioner to make the checks payable to Santiago. Respondent has not shown any reason why Ruiz’ testimony should not be believed.

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four months.34 According to respondent, she merely accommodated petitioner’s request for her to issue her own checks to cover the interest payments since petitioner was not personally acquainted with Santiago.35 She claimed, however, that Santiago would replace the checks with cash.36 Her explanation is simply incredible. It is difficult to believe

that respondent would put herself in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract. We declared in one case that:

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself such as the common experience of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony except its conformity to our knowledge, observation, and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical cognizance.37

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

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39 The presumption is that "evidence willfully suppressed would be adverse if produced."40 Respondent was not able to overturn this presumption.

We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent liable for the principal amounts of the loans.

We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000 andP500,000 loans respectively. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in writing."

Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code. It is well-settled that:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.41

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

The award of actual damages in the amount of P50,000 and P100,000 attorney’s fees is deleted since the RTC decision did not explain the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577

are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total amount due as of the date of finality will earn interest of 12% per annum until fully paid. The award of actual damages and attorney’s fees is deleted.

SO ORDERED.

RENATO C. CORONAAssociate Justice

WE CONCUR:

REYNATO S. PUNOChief JusticeChairperson

ANGELINA SANDOVAL-GUTIERREZAssociate Justice

ADOLFO S. AZCUNAAsscociate Justice

CANCIO C. GARCIAAssociate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice