CREDIT TRANSACTIONS: LOAN
CASE DIGEST
G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC. vs. DEVELOPMENT
BANK OF THE PHILIPPINES
Facts:
 Plaintiff Saura applied to the Rehabilitation Finance
Corporation (RFC), before its conversion into DBP, for
an industrial loan of P500,000.00.
 RFC passed Resolution No. 145 (1st) 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.
 Saura, Inc. was officially notified of the resolution.
 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 (2nd) designating of the members of its Board of
Governors to reexamine all the aspects of the approved
loan.
 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.
 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.
 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, it was decided to reduce the
loan from P500,000.00 to P300,000.00. This was
Resolution No. 3989 (3rd).
 Then, F.R. Halling, representing China Engineers Ltd.,
jointly and severally with the other RFC, stated that his
company no longer wants the loan and therefore
considered the same as cancelled as far as it was
concerned. A follow-up letter 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registration of the mortgage be withdrawn.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.
 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.".
 RFC passed Resolution No. 9083 (4th), restoring the
loan to the original amount of P500,000.00, "it
1
appearing that China Engineers, Ltd. is now willing to
sign the promissory notes jointly with the borrower-
corporation," but with the proviso 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 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."
 RFC stated, in a letter to Saura, that “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
regard to the additional requirement concerning the
certification of DANR, RFC stated “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.”Saura, Inc. did not pursue the matter and
requested RFC to cancel the mortgage.
 RFC executed the corresponding deed of cancellation
and delivered it to Ramon F. Saura himself as president
of Saura, Inc.
 The cancellation was requested to make way for the
registration of a mortgage contract, over the same
property in favor of the Prudential Bank and Trust Co.,
under which contract Saura, Inc. had to pay its
obligation on the trust receipt.
 It appears further that for failure to pay the said
obligation the Prudential Bank and Trust Co. sued
Saura, Inc.
 Almost 9 years after the mortgage in favor of RFC was
cancelled, Saura, Inc. filed a 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.
 CREDIT TRANSACTIONS: LOAN
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 RTC: in for the plaintiff. There was a perfected contract
between the parties and that the defendant was guilty of
breach thereof.
Issue: (1) WON there was a perfected contract of loan
between the parties.
(2) WON RFC is liable to Saura Inc. for a breach of its
obligation
Held: Yes. There was 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 perfected 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.
(2) No. 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. It was in line with such assumption that when
RFC, by Resolution No. 9083 approved and 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. Evidently Saura, Inc. realized that it could not
meet the conditions required by RFC, and so wrote its letter,
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.
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.
The action thus taken by both parties was in the nature of
mutual desistance — what Manresa terms "mutuo disenso" —
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.
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.
2
G.R. No. L-17474 October 25, 1962
REPUBLIC OF THE PHILIPPINES vs. JOSE V. BAGTAS
Facts:
 Jose V. Bagtas borrowed from the Republic of the
Philippines, through the Bureau of Animal Industry,
three bulls, for a period of one year for breeding
purposes subject to a government charge of breeding
fee of 10% of the book value of the bulls.
 Upon the expiration of the contract, the borrower asked
for a renewal for another period of one year.
 However, the Secretary of Agriculture and Natural
Resources approved a renewal thereof of only one bull
for another year and requested the return of the other
two.
 Jose V. Bagtas wrote to the Director of Animal Industry
that he would pay the value of the three bulls. He wants
to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General.
 Director of Animal Industry advised him that the book
value of the three bulls could not be reduced and that
they either be returned or their book value paid not
later than 31 October 1950.
 Jose V. Bagtas failed to pay the book value of the three
bulls or to return them.
 So, the Republic of the Philippines commenced an action
against Bagtas praying that he be ordered to return the
three bulls loaned to him or to pay their book value in
the total sum of P3,241.45 and the unpaid breeding fee
in the sum of P199.62, both with interests in the CFI.
 CFI – in favor of Plaintiff Republic
 Jose Bagtas died, Felicidad M. Bagtas, his widow and as
administratrix of his estate filed motion alleging that on
the two bull Sindhi and Bhagnari were returned to the
Bureau Animal of Industry and that the third bull, the
Sahiniwal, died from gunshot wound inflicted during a
Huk raid.
 She prayed that the writ of execution be quashed and
that a writ of preliminary injunction be issued.
Issue: WON Bagtas is liable for the three bulls
Held: He is only liable for one bull and not for the other two. It is
true that Jose M. Bagtas, Jr., son of the appellant by the late
defendant, returned the Sindhi and Bhagnari bulls to Roman
Remorin, Superintendent of the NVB Station, Bureau of Animal
Industry, Bayombong, Nueva Vizcaya, as evidenced by a
memorandum receipt signed by the latter (Exhibit 2). She cannot
be held liable for the two bulls which already had been returned
to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally
killed during a raid by the Huk, and that as such death was due to
force majeure she is relieved from the duty of returning the bull
or paying its value to the appellee.
The contention is without merit.
The loan by the appellee to the late defendant Jose V. Bagtas of
the three bulls for breeding purposes was subject to the payment
 CREDIT TRANSACTIONS: LOAN
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by the borrower of breeding fee of 10% of the book value of the
bulls. The appellant contends that the contract was commodatum
and that, for that reason, as the appellee retained ownership or
title to the bull it should suffer its loss due to force majeure. A
contract of commodatum is essentially gratuitous. If the breeding
fee be considered a compensation, then the contract would be a
lease of the bull.
Under article 1671 of the Civil Code, the lessee would be subject
to the responsibilities of a possessor in bad faith, because she had
continued possession of the bull after the expiry of the contract.
And even if the contract be commodatum, still the appellant is
liable, because article 1942 of the Civil Code provides that a
bailee in a contract of commodatum —
. . . is liable for loss of the things, even if it should be through a
fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May
1949. The loan of one bull was renewed for another period of one
year to end on 8 May 1950. But the appellant kept and used the
bull until November 1953 when during a Huk raid it was killed by
stray bullets. Furthermore, when lent and delivered to the
deceased husband of the appellant the bulls had each an
appraised book value, to with: the Sindhi, at P1,176.46, the
Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not
stipulated that in case of loss of the bull due to fortuitous event
the late husband of the appellant would be exempt from liability.
As the appellant already had returned the two bulls to the
appellee, the estate of the late defendant is only liable for the sum
of P859.63, the value of the bull which has not been returned to
the appellee, because it was killed while in the custody of the
administratrix of his estate.
BPI INVESTMENT CORPORATION vs. HON. COURT OF
APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION
Facts:
 Frank Roa obtained a loan at an interest rate of 16
1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of
petitioner BPIIC, for the construction of a house on his
lot in New Alabang Village, Muntinlupa.
 Said house and lot were mortgaged to AIDC to secure
the loan.
 Roa sold the house and lot to private respondents ALS
and Antonio Litonjua for P850,000. They paid P350,000
in cash and assumed the P500,000 balance of Roas
indebtedness with AIDC.
 However, AIDC was not willing to extend the old
interest rate to ALS and proposed to grant them a new
loan of P500,000 to be applied to Roa’s debt and
3
secured by the same property, at an interest rate of 20%
per annum and service fee of 1% per annum on the
outstanding principal balance payable within ten years
in equal monthly amortization of P9,996.58 and penalty
interest at the rate of 21% per annum per day from the
date the amortization became due and payable.
 Then, ALS executed a mortgage deed containing the
above stipulations with the provision that payment of
the monthly amortization shall commence on May 1,
1981.
 ALS and Litonjua updated Roa’s arrearages by paying
BPIIC the sum of P190,601.35. This reduced Roa’s
principal balance to P457,204.90 which, in turn, was
liquidated when BPIIC applied thereto the proceeds of
private respondents loan of P500,000.
 BPIIC instituted foreclosure proceedings against ALS on
the ground that they failed to pay the mortgage
indebtedness which from May 1, 1981 to June 30, 1984,
amounted to P475,585.31.
 ALS and Litonjua filed Civil Case No. 52093 against
BPIIC.
 RTC: in favor of ALS Management and Development
Corporation and Antonio K. Litonjua. The amount of
loan granted by BPI to ALS and Litonjua was only in the
principal sum of P464,351.77, with interest at 20% plus
service charge of 1% per annum, payable on equal
monthly and successive amortizations at P9,283.83 for
ten (10) years or one hundred twenty (120) months.
 CA: Affirmed. It ruled that a simple loan is perfected
only upon the delivery of the object of the contract. The
contract of loan between BPIIC and ALS & Litonjua was
perfected only on September 13, 1982, the date when
BPIIC released the purported balance of the P500,000
loan after deducting therefrom the value of Roas
indebtedness. Thus, payment of the monthly
amortization should commence only a month after the
said date, as can be inferred from the stipulations in the
contract. Evidence showed that private respondents had
an overpayment, because as of June 1984, they already
paid a total amount of P201,791.96. Therefore, there
was no basis for BPIIC to extrajudicially foreclose the
mortgage and cause the publication in newspapers
concerning private respondents delinquency in the
payment of their loan.
 MR – denied.
Issues: (1) WON the ruling in Bonnevie v. CA is applicable to
the case.
(2) WON BPI should be held liable for moral and
exemplary damages and attorney’s fees.
Held: (1) NO. Petitioner misapplied Bonnevie. Petitioner
claims that a contract of loan is a consensual contract, and a loan
contract is perfected at the time the contract of mortgage is
executed conformably with the ruling in Bonnevie v. Court of
Appeals.
A loan contract is not a consensual contract but a real contract. It
is perfected only upon the delivery of the object of the contract.
The contract in Bonnevie declared by this Court as a perfected
consensual contract falls under the first clause of Article 1934,
 CREDIT TRANSACTIONS: LOAN
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Civil Code. It is an accepted promise to deliver something by way
of simple loan.
In the present case, the loan contract between BPI, on the one
hand, and ALS and Litonjua, on the other, was perfected only on
September 13, 1982, the date of the second release of the loan.
Following the intentions of the parties on the commencement of
the monthly amortization, as found by the Court of Appeals,
private respondents obligation to pay commenced only on
October 13, 1982, a month after the perfection of the contract.
We also agree with private respondents that a contract of loan
involves a reciprocal obligation, wherein the obligation or
promise of each party is the consideration for that of the other.
As averred by private respondents, the promise of BPIIC to
extend and deliver the loan is upon the consideration that ALS
and Litonjua shall pay the monthly amortization commencing on
May 1, 1981, one month after the supposed release of the loan. It
is a basic principle in reciprocal obligations that neither party
incurs in delay, if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him.
Only when a party has performed his part of the contract can he
demand that the other party also fulfills his own obligation and if
the latter fails, default sets in. Consequently, petitioner could only
demand for the payment of the monthly amortization after
September 13, 1982 for it was only then when it complied with
its obligation under the loan contract. Therefore, in computing
the amount due as of the date when BPIIC extrajudicially caused
the foreclosure of the mortgage, the starting date is October 13,
1982 and not May 1, 1981.
(2) No moral and exemplary damages were awarded.
Only, nominal damages and attorney’s fees. In Social Security
System vs. Court of Appeals, 120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate damages.
As concluded by the Court of Appeals the negligence of the
appellant is not so gross as to warrant moral and temperate
damages, except that, said Court reduced those damages by only
P5,000.00 instead of eliminating them. Neither can we agree with
the findings of both the Trial Court and respondent Court that the
SSS had acted maliciously or in bad faith. The SSS was of the
belief that it was acting in the legitimate exercise of its right
under the mortgage contract in the face of irregular payments
made by private respondents and placed reliance on the
automatic acceleration clause in the contract. The filing alone of
the foreclosure application should not be a ground for an award
of moral damages in the same way that a clearly unfounded civil
action is not among the grounds for moral damages.
As admitted by ASL themselves, they were irregular in their
payment of monthly amortization. Conformably with our ruling
in SSS, we can not properly declare BPIIC in bad faith.
Consequently, we should rule out the award of moral and
exemplary damages.
However, in our view, BPIIC was negligent in relying merely on
the entries found in the deed of mortgage, without checking and
correspondingly adjusting its records on the amount actually
released to private respondents and the date when it was
released. Such negligence resulted in damage to private
respondents, for which an award of nominal damages should be
4
given in recognition of their rights which were violated by BPIIC.
For this purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because
private respondents were compelled to litigate, we sustain the
award of P50,000 in favor of private respondents as attorneys
fees.
CELESTINA T. NAGUIAT vs. COURT OF APPEALS and AURORA
QUEAÑO
Facts:
 Queaño applied with Naguiat for a loan in the amount of
200K, which Naguiat granted.
 Naguiat indorsed to Queaño - Associated Bank Check
No. 090990 (dated 11 August 1980) for the amount
95K, which was earlier issued to Naguiat by the
Corporate Resources Financing Corporation. She also
issued her own Filmanbank Check No. 065314, to the
order of Queaño, also dated 11 August 1980 and for the
amount of 95K. The proceeds of these checks were to
constitute the loan granted by Naguiat to Queaño.
 To secure the loan, Queaño executed a Deed of Real
Estate Mortgage dated 11 August 1980 in favor of
Naguiat, and surrendered to the latter the owner’s
duplicates of the titles covering the mortgaged
properties.
 The mortgage deed was notarized, and Queaño issued to
Naguiat a promissory note for the amount of 200K, with
interest at 12% per annum, payable on 11 September
1980.5
 Queaño also issued a Security Bank and Trust Company
check, postdated 11 September 1980, for the amount of
200K and payable to the order of Naguiat.
 Upon presentment on its maturity date, the Security
Bank check was dishonored for insufficiency of funds.
 Queaño requested Security Bank to stop payment of her
postdated check, but the bank rejected the request
pursuant to its policy not to honor such requests if the
check is drawn against insufficient funds.6
 On 16 October 1980, Queaño received a letter from
Naguiat’s lawyer, demanding settlement of the loan.
Shortly thereafter, Queaño and one Ruby Ruebenfeldt
met with Naguiat. At the meeting, Queaño told Naguiat
that she did not receive the proceeds of the loan, adding
that the checks were retained by Ruebenfeldt, who
purportedly was Naguiat’s agent.7
 Naguiat applied for the extrajudicial foreclosure of the
mortgage
 Queaño filed the case seeking the annulment of the
mortgage deed. The trial court eventually stopped the
auction sale.9
 RTC rendered judgment, declaring the Deed of Real
Estate Mortgage null and void, and ordering Naguiat to
return to Queaño the owner’s duplicates of her titles to
the mortgaged lots.
 CA affirmed RTC.
 CREDIT TRANSACTIONS: LOAN
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Issue: WON issuance of the check resulted in the perfection of a
contract of loan
Held: No. No evidence was submitted by Naguiat that the checks
she issued or endorsed were actually encashed or deposited. The
mere issuance of the checks did not result in the perfection of the
contract of loan. For the Civil Code provides that the delivery of
bills of exchange and mercantile documents such as checks shall
produce the effect of payment only when they have been
cashed.20 It is only after the checks have produced the effect of
payment that the contract of loan may be deemed perfected. Art.
1934 of the Civil Code 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."
A loan contract is a real contract, not consensual, and, as such, is
perfected only upon the delivery of the object of the contract.21 In
this case, the objects of the contract are the loan proceeds which
Queaño would enjoy only upon the encashment of the checks
signed or indorsed by Naguiat. If indeed the checks were
encashed or deposited, Naguiat would have certainly presented
the corresponding documentary evidence, such as the returned
checks and the pertinent bank records. Since Naguiat presented
no such proof, it follows that the checks were not encashed or
credited to Queaño’s account.1awphi1.nét
WHEREFORE, the petition is denied and the assailed decision is
affirmed. Costs against petitioner.
CAROLYN M. GARCIA vs. RICA MARIE S. THIO
Facts:
 Thio received from Garcia a crossed
check[4] dated 02/24/95 in the amount of US$100,000
payable to the order of a certain Marilou Santiago.[5]
 Thereafter, Garcia received from Thio every month the
amount of US$3,000[6] and P76,500[7] on July
26,[8] August 26, September 26 and October 26, 1995.
 Garcia received from petitioner another crossed
check in the amount of 500K also payable to the order
of Marilou Santiago.[10]
 Garcia received from respondent the amount of P20,000
every month on August 5, September 5, October 5
and November 5, 1995.[11]
 According to Garcia, Thio failed to pay the principal
amounts of the loans (US$100,000 and P500,000) when
they fell due.
 Thus, Garcia filed a complaint for sum of money and
damages
 Petitioner alleged that on 02/24/95 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
5
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]
 Thio denied that she contracted the two loans with
petitioner and countered that it was Marilou Santiago to
whom petitioner lent the money. She claimed she was
merely asked by petitioner to give the crossed checks
to Santiago.[17] She issued the checks for P76,000
and P20,000 not as payment of interest but to
accommodate petitioners request that respondent use
her own checks instead of Santiagos.[18]
 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%
 CA reversed the decision of the RTC and ruled that there
was no contract of loan between the parties:
[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]. The
checks received by [respondent], being crossed,
may not be encashed but only deposited in the bank
by the payee thereof, that is, by Marilou Santiago
herself.
It must be noted that crossing a
check has the following effects: (a) the check
may not be encashed but only deposited in the
bank; (b) the check may be negotiated only
onceto one who has an account with the bank;
(c) and the act of crossing the check serves as
warning to the holder that the check has been
issued for a definite purpose so that he must
inquire if he has received the check pursuant
to that purpose, otherwise, he is not a holder
in due course.
Issue: WON there is a contract of loan bet. Thio and Garcia
Held: Yes. 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.
 CREDIT TRANSACTIONS: LOAN
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Issue: who borrowed money from petitioner respondent
or Santiago?
Held: We agree with petitioner. Petitioner insists that it was upon
respondents instruction that both checks were made payable
to Santiago.[27] She maintains that it was also upon respondents
instruction that both checks were delivered to her (respondent)
so that she could, in turn, deliver the same
to Santiago.[28] Furthermore, she argues that once respondent
received the checks, the latter had possession and control of them
such that she had the choice to either forward them to Santiago
(who was already her debtor), to retain them or to return them to
petitioner.[29]
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: (summarized:)
(1) Respondent admitted that petitioner did not
personally know Santiago and already had transactions
with Santiago at that time.[32]
(2) Leticia Ruiz, a friend of both petitioner and
respondent testified that respondents plan was for petitioner to
lend her money at a monthly interest rate of 3%, after which
respondent would lend the same amount to Santiago at a higher
rate of 5% and realize a profit of 2%.[33] This explained why
respondent instructed petitioner to make the checks payable
to Santiago. Respondent has not shown any reason why Ruiz
testimony should not be believed.
(3) Respondent admitted issuing her own checks in the
amount of P76,000 each (peso equivalent of US$3,000) for eight
months to cover the monthly interest. For the P500,000 loan, she
also issued her own checks in the amount of P20,000 each for
four months.[34] According to respondent, she merely
accommodated petitioners request for her to issue her own
checks to cover the interest payments since petitioner was not
personally acquainted with Santiago.[35] She claimed, however,
that Santiago would replace the checks with cash.[36] Her
explanation is simply incredible. It is difficult to believe that
respondent would put herself in a position where she would be
compelled to pay interest, from her own funds, for loans she
allegedly did not contract.
(4) in the petition for insolvency sworn to and filed by
Santiago, it was respondent, not petitioner, who was listed as one
of her (Santiagos) creditors.[38]
(5) 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.
Thio is not liable for the 3% and 4% monthly interest
for the US$100,000 and P500,000 loans respectively. There was
no written proof of the interest payable except for
6
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.
PRODUCERS BANK OF THE PHILIPPINES (now FIRST
INTERNATIONAL BANK), petitioner, vs. HON. COURT
OF APPEALS AND FRANKLIN VIVES, respondents.
This is a petition for review on certiorari of the
Decision[1] of the Court of Appeals dated June 25, 1991 in CA-G.R.
CV No. 11791 and of its Resolution[2] dated May 5, 1994, denying
the motion for reconsideration of said decision filed by petitioner
Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was
asked by his neighbor and friend Angeles Sanchez to help her
friend and townmate, Col. Arturo Doronilla, in incorporating his
business, the Sterela Marketing and Services (Sterela for
brevity). Specifically, Sanchez asked private respondent to
deposit in a bank a certain amount of money in the bank account
of Sterela for purposes of its incorporation. She assured private
respondent that he could withdraw his money from said account
within a months time. Private respondent asked Sanchez to bring
Doronilla to their house so that they could discuss Sanchezs
request.[3]
Facts:
 Vives (creditor) was asked by Sanchez to help Doronilla
(debtor) in their business (Strela) Thereafter, Vives
issued a check in the amount of 200k in favor of Sterela.
 Vives instructed his wife, Inocencia to accompany
Doronilla and Sanchez in opening a savings account in
the name of Sterela in the a branch of Producers Bank of
the Philippines.
 Only Sanchez, Mrs. Vives and Dumagpi went to the bank
to deposit the check. They had with them an
authorization letter from Doronilla authorizing Sanchez
and her companions, in coordination with Mr. Rufo
Atienza, to open an account for Sterela Marketing
Services.
 In opening the account, the authorized signatories were
Inocencia Vives and/or Angeles Sanchez. A passbook for
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Savings Account No. 10-1567 was thereafter issued to
Mrs. Vives.[4]
 Vives learned that Sterela was no longer holding office
in the address previously given to him. He and his wife
went to the Bank to verify if their money was still
intact. The bank manager referred them to Mr. Rufo
Atienza, the assistant manager, who informed them that
part of the money in Savings Account No. 10-1567 had
been withdrawn by Doronilla, and that only 90k
remained therein.
 Mrs. Vives could not withdraw said remaining amount
because it had to answer for some postdated checks
issued by Doronilla.
 According to Atienza, after Mrs. Vives and Sanchez
opened Savings Account No. 10-1567, Doronilla opened
Current Account No. 10-0320 for Sterela and authorized
the Bank to debit Savings Account No. 10-1567 for the
amounts necessary to cover overdrawings in Current
Account No. 10-0320. In opening said current account,
Sterela, through Doronilla, obtained a loan
of P175,000.00 from the Bank.
 To cover payment thereof, Doronilla issued three
postdated checks, all of which were dishonored. Atienza
also said that Doronilla could assign or withdraw the
money in Savings Account No. 10-1567 because he was
the sole proprietor of Sterela.[5]
 Vives tried to contact Doronilla through Sanchez.
 On June 29, 1979, he received a letter from Doronilla,
assuring him that his money was intact and would be
returned to him.
 On August 13, 1979, Doronilla issued a postdated check
for Two Hundred Twelve Thousand Pesos
(P212,000.00) in favor of private respondent.
 However, upon presentment by Vives t to the drawee
bank, the check was dishonored. Doronilla requested
Vives to present the same check on September 15, 1979
but when the latter presented the check, it was again
dishonored.[6]
 Vives referred the matter to a lawyer, who made a
written demand upon Doronilla for the return of his
clients money. Doronilla issued another check
for P212,000.00 in private respondents favor but the
check was again dishonored for insufficiency of funds.[7]
 Vives instituted an action for recovery of sum of money
in RTC against Doronilla, Sanchez, Dumagpi and
petitioner. He also filed criminal actions against
Doronilla, Sanchez and Dumagpi in the RTC.
 Sanchez died while the case was pending before the
trial court.
 RTC- judgment is hereby rendered sentencing
defendants Arturo J. Doronila, Estrella Dumagpi and
Producers Bank of the Philippines to pay plaintiff
Franklin Vives jointly and severally
 CA affirmed in toto the decision of the RTC.
o Petitioner contends that the transaction between
private respondent and Doronilla is a simple loan
(mutuum) since all the elements of a mutuum are
present: what was delivered by private respondent to
Doronilla was money, a consumable thing; and second,
the transaction was onerous as Doronilla was obliged to
pay interest, as evidenced by the check issued by
Doronilla in the amount of 212K, or 12K more than
7
what private respondent deposited in Sterelas bank
account.[15] Moreover, the fact that private respondent
sued his good friend Sanchez for his failure to recover
his money from Doronilla shows that the transaction
was not merely gratuitous but had a business angle to
it. Hence, petitioner argues that it cannot be held liable
for the return of private respondents P200,000.00
because it is not privy to the transaction between the
latter and Doronilla.[16]
o Producers Bank also asserts that the CA erred in
affirming the trial courts decision since the findings of
fact therein were not accord with the evidence
presented by petitioner during trial to prove that the
transaction between private respondent and Doronilla
was a mutuum, and that it committed no wrong in
allowing Doronilla to withdraw from Sterelas savings
account.[19]
o Private respondent, on the other hand, argues that the
transaction between him and Doronilla is not
a mutuum but an accommodation,[21] since he did not
actually part with the ownership of his P200,000.00 and
in fact asked his wife to deposit said amount in the
account of Sterela so that a certification can be issued to
the effect that Sterela had sufficient funds for purposes
of its incorporation but at the same time, he retained
some degree of control over his money through his wife
who was made a signatory to the savings account and in
whose possession the savings account passbook was
given.[22]
Issue: WON the transaction was a commodatum or mutuum
Held: Commodatum. No error was committed by the Court of
Appeals when it ruled that the transaction between private
respondent and Doronilla was a commodatum and not
a mutuum. A circumspect examination of the records reveals that
the transaction between them was a commodatum. Article 1933
of the Civil Code distinguishes between the two kinds of loans in
this wise:
By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the
same for a certain time and return it, in which case the contract is
called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and
quality shall be paid, in which case the contract is simply called a
loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay
interest.
In commodatum, the bailor retains the ownership of the thing
loaned, while in simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of
the contract is a consumable thing, such as money, the contract
would be a mutuum. However, there are some instances where
a commodatum may have for its object a consumable
thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the
purpose of the contract is not the consumption of the object, as
when it is merely for exhibition.
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Thus, if consumable goods are loaned only for purposes of
exhibition, or when the intention of the parties is to lend
consumable goods and to have the very same goods returned at
the end of the period agreed upon, the loan is a commodatum and
not a mutuum.
The rule is that the intention of the parties thereto shall be
accorded primordial consideration in determining the actual
character of a contract.[27] In case of doubt, the contemporaneous
and subsequent acts of the parties shall be considered in such
determination.[28]
PAJUYO vs. CA
G.R. No. 146364
Petitioner: Colito T. Pajuyo
Respondent: Court of Appeals and Eddie Guevarra (private
respondent)
Promulgation: June 3, 2004
Ponente: Carpio, J.
Facts:
 June 1979: Petitioner Colito T. Pajuyo (Pajuyo) paid
P400 to Pedro Perez for the rights over a lot. Pajuyo
then constructed a house made of light materials on the
lot. Pajuyo and his family lived in the house from 1979
to 7 December 1985.
 December 8, 1985: Pajuyo and private respondent
Eddie Guevarra (Guevarra) executed a Kasunduan or
agreement.
 Pajuyo, as owner of the house, allowed
Guevarra to live in the house for free provided
Guevarra would maintain the cleanliness and
orderliness of the house. Guevarra promised
that he would voluntarily vacate the premises
on Pajuyos demand.
 September 1994: Pajuyo informed Guevarra of his
need of the house and demanded that Guevarra vacate
the house. Guevarra refused.
 Pajuyo filed an ejectment case against Guevarra with
the MTC.
 Guevarra claimed that Pajuyo had no valid title or right
of possession over the lot where the house stands
because the lot is within the 150 hectares set aside by
Proclamation No. 137 for socialized housing. Guevarra
pointed out that from December 1985 to September
1994, Pajuyo did not show up or communicate with
him. Guevarra insisted that neither he nor Pajuyo has
valid title to the lot.
 MTC: In favor of Pajuyo.
 Reason: agreement between Pajuyo and
Guevarra is the house and not the lot. Pajuyo is
the owner of the house, and he allowed
Guevarra to use the house only by tolerance.
Thus, Guevarras refusal to vacate the house on
Pajuyos demand made Guevarras continued
possession of the house illegal.
 RTC: Affirmed the MTC decision. (In favor of Pajuyo)
8
 Reason: Landlord and tenant relationship
between Pajuyo and Guevarra was established
by the Kasunduan. Its terms bound Guevarra
to return possession of the house on demand.
 In an ejectment case, the only issue for
resolution is material or physical possession,
not ownership.
 CA: Reversed RTC decision. (In favor of Guevarra)
o CA declared that Pajuyo and Guevarra are
squatters. Pajuyo and Guevarra illegally
occupied the contested lot which the
government owned.
o Perez, the person from whom Pajuyo acquired
his rights, was also a squatter. Perez had no
right or title over the lot because it is public
land. The assignment of rights between Perez
and Pajuyo, and the Kasunduan between
Pajuyo and Guevarra, did not have any legal
effect. Pajuyo and Guevarra are in pari delicto
or in equal fault. The court will leave them
where they are.
o CA reversed the MTC and RTC rulings, which
held that the Kasunduan between Pajuyo and
Guevarra created a legal tie akin to that of a
landlord and tenant relationship. It ruled that
the Kasunduan is not a lease contract but a
commodatum because the agreement is not
for a price certain.
o Since Pajuyo admitted that he resurfaced only
in 1994 to claim the property, the appellate
court held that Guevarra has a better right
over the property under Proclamation No. 137
which was issued on 7 September 1987. At
that time, Guevarra was in physical possession
of the property. Under Article VI of the Code of
Policies Beneficiary Selection and Disposition
of Homelots and Structures in the National
Housing Project (the Code), the actual
occupant or caretaker of the lot shall have first
priority as beneficiary of the project. CA
concluded that Guevarra is first in the
hierarchy of priority.
 Pajuyo filed MR. Pointing out that Guevarra’s Petition
for Review was filed of time and it was Guevarra’s
counsel who signed certification against forum-
shopping.
 Denied.
Issue: (Ang daming issue, meron pang procedural and other
substantive. Credits lang sinama ko.)
1. W/N principle of in pari delicto is applicable in
ejectment cases.
2. W/N the Kasunduan entered by the parties was a
Commodatum instead of a Contract of Lease.
Held:
1. No, principle of pari delicto is not applicable to
ejectment cases. CA erroneously applied the principle. Articles
1411 and 1412 of the NCC embody the principle of pari delicto.
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The law will not aid either party to an illegal agreement. It leaves
the parties where it finds them. The application of the pari delicto
principle is not absolute, as there are exceptions to its
application. One of these exceptions is where the application of
the pari delicto rule would violate well-established public policy.
Application of the principle of pari delicto to a case of ejectment
between squatters is fraught with danger. To shut out relief to
squatters on the ground of pari delicto would openly invite
mayhem and lawlessness. A squatter would oust another
squatter from possession of the lot that the latter had illegally
occupied, emboldened by the knowledge that the courts would
leave them where they are. Nothing would then stand in the way
of the ousted squatter from re-claiming his prior possession at all
cost. Petty warfare over possession of properties is precisely
what ejectment cases or actions for recovery of possession seek
to prevent. Even the owner who has title over the disputed
property cannot take the law into his own hands to regain
possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to
the ejectment suit are squatters. The determination of priority
and superiority of possession is a serious and urgent matter that
cannot be left to the squatters to decide. To do so would make
squatters receive better treatment under the law. The law
restrains property owners from taking the law into their own
hands. However, the principle of pari delicto as applied by CA
would give squatters free rein to dispossess fellow squatters or
violently retake possession of properties usurped from them.
Courts should not leave squatters to their own devices in cases
involving recovery of possession.
2. No, the Kasunduan was not a Commodatum. In a
contract of commodatum, one of the parties delivers to
another something not consumable so that the latter may
use the same for a certain time and return it. An essential
feature of commodatum is that it is gratuitous. Another feature
of commodatum is that the use of the thing belonging to another
is for a certain period. Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which the
commodatum is constituted. If the bailor should have urgent
need of the thing, he may demand its return for temporary use. If
the use of the thing is merely tolerated by the bailor, he can
demand the return of the thing at will, in which case the
contractual relation is called a precarium. Under the Civil Code,
precarium is a kind of commodatum.
The Kasunduan reveals that the accommodation accorded by
Pajuyo to Guevarra was not essentially gratuitous. While the
Kasunduan did not require Guevarra to pay rent, it obligated him
to maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from a
commodatum. The effects of the Kasunduan are also different
from that of a commodatum. Case law on ejectment has treated
relationship based on tolerance as one that is akin to a landlord-
tenant relationship where the withdrawal of permission would
result in the termination of the lease. The tenants withholding of
the property would then be unlawful. This is settled
jurisprudence.
Even assuming that the relationship between Pajuyo and
Guevarra is one of commodatum, Guevarra as bailee would still
9
have the duty to turn over possession of the property to Pajuyo,
the bailor. The obligation to deliver or to return the thing
received attaches to contracts for safekeeping, or contracts of
commission, administration and commodatum. These contracts
certainly involve the obligation to deliver or return the thing
received.
Guevarra turned his back on the Kasunduan on the sole ground
that like him, Pajuyo is also a squatter. Squatters, Guevarra
pointed out, cannot enter into a contract involving the land they
illegally occupy thereby making the contract void. Guevarra
should know that there must be honor even between squatters.
Guevarra freely entered into the Kasunduan. Guevarra cannot
now impugn the Kasunduan after he had benefited from it. The
Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who
between Pajuyo and Guevarra has a right to physical possession
of the contested property. The Kasunduan is the undeniable
evidence of Guevarras recognition of Pajuyos better right of
physical possession. Guevarra is clearly a possessor in bad faith.
The absence of a contract would not yield a different result, as
there would still be an implied promise to vacate.
Pajuyo did not profit from his arrangement with Guevarra
because Guevarra stayed in the property without paying any rent.
There is also no proof that Pajuyo is a professional squatter who
rents out usurped properties to other squatters. Moreover, it is
for the proper government agency to decide who between Pajuyo
and Guevarra qualifies for socialized housing. The only issue that
we are addressing is physical possession.
Prior possession is not always a condition sine qua non in
ejectment. This is one of the distinctions between forcible entry
and unlawful detainer. In forcible entry, the plaintiff is deprived
of physical possession of his land or building by means of force,
intimidation, threat, strategy or stealth. Thus, he must allege and
prove prior possession. But in unlawful detainer, the defendant
unlawfully withholds possession after the expiration or
termination of his right to possess under any contract, express or
implied. In such a case, prior physical possession is not required.
Pajuyos withdrawal of his permission to Guevarra terminated the
Kasunduan. Guevarras transient right to possess the property
ended as well. Moreover, it was Pajuyo who was in actual
possession of the property because Guevarra had to seek Pajuyos
permission to temporarily hold the property and Guevarra had to
follow the conditions set by Pajuyo in the Kasunduan. Control
over the property still rested with Pajuyo and this is evidence of
actual possession.
Pajuyos absence did not affect his actual possession of the
disputed property. Possession in the eyes of the law does not
mean that a man has to have his feet on every square meter of the
ground before he is deemed in possession. One may acquire
possession not only by physical occupation, but also by the fact
that a thing is subject to the action of ones will. Actual or physical
occupation is not always necessary.
Thus, Pajuyo is entitled to physical possession of the disputed
property.
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BPI FAMILY BANK vs. FRANCO and CA
G.R. No. 123498
Petitioner: BPI Family Bank
Respondent: Amado Franco and Court of Appeals
Promulgation: November 23, 2007
Ponente: Nachura, J.
Facts:
 This is an ostensible fraud perpetrated on the petitioner
BPI Family Bank (BPI-FB) allegedly by respondent
Amado Franco (Franco) in conspiracy with other
individuals, some of whom opened and maintained
separate accounts with BPI-FB, San Francisco del Monte
(SFDM) branch, in a series of transactions.
 August 15, 1989: Tevesteco Arrastre-Stevedoring Co.,
Inc. (Tevesteco) opened a savings and current account
with BPI-FB. Soon thereafter, First Metro Investment
Corporation (FMIC) also opened a time deposit account
with the same branch of BPI-FB with a deposit of
P100,000,000.00, to mature one year thence.
 August 31, 1989: Franco opened three accounts,
namely, a current, savings, and time deposit, with BPI-
FB.
o The current and savings accounts were funded
with an initial deposit of P500,000.00 each.
o Time deposit account had P1,000,000.00 with
a maturity date of August 31, 1990.
 The total amount of P2,000,000.00 used to open these
accounts is traceable to a check issued by Tevesteco
allegedly in consideration of Francos introduction of
Eladio Teves, who was looking for a conduit bank to
facilitate Tevestecos business transactions, to Jaime
Sebastian, who was then BPI-FB SFDMs Branch
Manager.
 In turn, the funding for the P2,000,000.00 check was
part of the P80,000,000.00 debited by BPI-FB from
FMICs time deposit account and credited to Tevestecos
current account pursuant to an Authority to Debit
purportedly signed by FMICs officers.
 It appears, however, that the signatures of FMICs
officers on the Authority to Debit were forged.
 September 4, 1989: Antonio Ong, upon being shown
the Authority to Debit, personally declared his signature
therein to be a forgery. Unfortunately, Tevesteco had
already effected several withdrawals from its current
account (to which had been credited the
P80,000,000.00 covered by the forged Authority to
Debit) amounting to P37,455,410.54, including the
P2,000,000.00 paid to Franco.
 September 8, 1989:Impelled by the need to protect its
interests in light of FMICs forgery claim, BPI-FB, thru its
Senior Vice-President, Severino Coronacion, instructed
Jesus Arangorin to debit Francos savings and current
accounts for the amounts remaining therein. However,
Francos time deposit account could not be debited due
to the capacity limitations of BPI-FBs computer.
10
 In the meantime, two checks drawn by Franco against
his BPI-FB current account were dishonored upon
presentment for payment, and stamped with a notation
account under garnishment.
 Apparently, Francos current account was garnished by
Makati RTC in civil case (Makati Case), which had been
filed by BPI-FB against Franco et al. to recover the
P37,455,410.54 representing Tevestecos total
withdrawals from its account.
 Notably, the dishonored checks were issued by Franco
and presented for payment at BPI-FB prior to Francos
receipt of notice that his accounts were under
garnishment. In fact, at the time the Notice of
Garnishment was served on BPI-FB, Franco had yet to
be impleaded in the Makati case where the writ of
attachment was issued.
 Upon receipt the complaint, Franco filed a Motion to
Discharge Attachment.
o Granted on May 16, 1990.
 The Order Lifting the Order of Attachment was served
on BPI-FB on even date, with Franco demanding the
release to him of the funds in his savings and current
accounts.
 Jesus Arangorin, BPI-FBs new manager, could not
forthwith comply with the demand as the funds, as
previously stated, had already been debited because of
FMICs forgery claim. As such, BPI-FBs computer at the
SFDM Branch indicated that the current account record
was not on file.
 With respect to Francos savings account, it appears that
Franco agreed to an arrangement, as a favor to
Sebastian, whereby P400,000.00 from his savings
account was temporarily transferred to Domingo
Quiaoits savings account, subject to its immediate
return upon issuance of a certificate of deposit which
Quiaoit needed in connection with his visa application
at the Taiwan Embassy. As part of the arrangement,
Sebastian retained custody of Quiaoits savings account
passbook to ensure that no withdrawal would be
effected therefrom, and to preserve Francos deposits.
 May 17, 1990: Franco pre-terminated his time deposit
account. BPI-FB deducted the amount of P63,189.00
from the remaining balance of the time deposit account
representing advance interest paid to him.
 These transactions spawned a number of cases, some of
which we had already resolved.
 FMIC filed a complaint against BPI-FB for the recovery
of the amount of P80,000,000.00 debited from its
account.
o The case eventually reached this Court, and in
BPI Family Savings Bank, Inc. v. First Metro
Investment Corporation, Court upheld the
finding of the courts below that BPI-FB failed
to exercise the degree of diligence required by
the nature of its obligation to treat the
accounts of its depositors with meticulous
care. Thus, BPI-FB was found liable to FMIC for
the debited amount in its time deposit.
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 In a related case, Edgardo Buenaventura, Myrna Lizardo
and Yolanda Tica (Buenaventura, et al.), recipients of a
P500,000.00 check proceeding from the P80,000,000.00
mistakenly credited to Tevesteco, likewise filed suit.
Buenaventura et al., as in the case of Franco, were also
prevented from effecting withdrawals from their
current account with BPI-FB.
o Case was docketed as BPI Family Bank v.
Buenaventura, Coourt ruled that BPI-FB had
no right to freeze Buenaventura, et al.s
accounts and adjudged BPI-FB liable therefor,
in addition to damages.
 BPI-FB filed separate civil and criminal cases against
those believed to be the perpetrators of the multi-
million peso scam.
o Criminal case: Franco, along with the other
accused, except for Manuel Bienvenida who
was still at large, were acquitted of the crime
of Estafa.
o Civil case: remains under litigation and the
respective rights and liabilities of the parties
have yet to be adjudicated.
 June 4, 1990: In light of BPI-FBs refusal to heed
Francos demands to unfreeze his accounts and release
his deposits, Franco filed on with the Manila RTC the
subject suit praying:
o the interest on the remaining balance of his
current account;
o balance on his savings account, plus interest
thereon;
o advance interest paid to him which had been
deducted when he pre-terminated his time
deposit account; and
o payment of actual, moral and exemplary
damages, attorneys fees.
 RTC: In favor of Franco.
Issue: (Check other issues) W/N Franco had a better right to
the deposits in the subject accounts which are part of the
proceeds of a forged Authority to Debit.
Held: Yes, Franco had a better right. BPI-FB urges us that
the legal consequence of FMICs forgery claim is that the money
transferred by BPI-FB to Tevesteco is its own, and considering
that it was able to recover possession of the same when the
money was redeposited by Franco, it had the right to set up its
ownership thereon and freeze Francos accounts.
BPI-FB contends that its position is not unlike that of an owner of
personal property who regains possession after it is stolen. To
bolster its position, BPI-FB cites Article 559 of the Civil Code,
which provides:
Article 559. The possession of movable
property acquired in good faith is equivalent
to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived
thereof, may recover it from the person in
possession of the same.
11
If the possessor of a movable lost or of which
the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the
owner cannot obtain its return without
reimbursing the price paid therefor.
BPI-FBs argument is unsound. To begin with, the movable
property mentioned in Article 559 of the Civil Code pertains to a
specific or determinate thing. A determinate or specific thing is
one that is individualized and can be identified or distinguished
from others of the same kind.
In this case, the deposit in Francos accounts consists of money
which, albeit characterized as a movable, is generic and fungible.
The quality of being fungible depends upon the possibility of the
property, because of its nature or the will of the parties, being
substituted by others of the same kind, not having a distinct
individuality.
Significantly, while Article 559 permits an owner who has lost or
has been unlawfully deprived of a movable to recover the exact
same thing from the current possessor, BPI-FB simply claims
ownership of the equivalent amount of money, i.e., the value
thereof, which it had mistakenly debited from FMICs account and
credited to Tevestecos, and subsequently traced to Francos
account. In fact, this is what BPI-FB did in filing the Makati Case
against Franco, et al. It staked its claim on the money itself which
passed from one account to another, commencing with the forged
Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar
ownership, and this characteristic is all the more manifest in the
instant case which involves money in a banking transaction gone
awry. Its primary function is to pass from hand to hand as a
medium of exchange, without other evidence of its title. Money,
which had passed through various transactions in the general
course of banking business, even if of traceable origin, is no
exception.
Thus, inasmuch as what is involved is not a specific or
determinate personal property, Article 559, is inapplicable to the
instant case.
There is no doubt that BPI-FB owns the deposited monies in the
accounts of Franco, but not as a legal consequence of its
unauthorized transfer of FMICs deposits to Tevestecos account.
BPI-FB conveniently forgets that the deposit of money in banks
is governed by the Civil Code provisions on simple loan or
mutuum. As there is a debtor-creditor relationship between a
bank and its depositor, BPI-FB ultimately acquired ownership
of Francos deposits, but such ownership is coupled with a
corresponding obligation to pay him an equal amount on
demand. Although BPI-FB owns the deposits in Francos accounts,
it cannot prevent him from demanding payment of BPI-FBs
obligation by drawing checks against his current account, or
asking for the release of the funds in his savings account. Thus,
when Franco issued checks drawn against his current account, he
had every right as creditor to expect that those checks would be
honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to
freeze the accounts of Franco based on its mere suspicion that the
funds therein were proceeds of the multi-million peso scam
 CREDIT TRANSACTIONS: LOAN
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Franco was allegedly involved in. To grant BPI-FB, or any bank
for that matter, the right to take whatever action it pleases on
deposits which it supposes are derived from shady transactions,
would open the floodgates of public distrust in the banking
industry.
Our pronouncement in Simex International (Manila), Inc. v. Court
of Appeals continues to resonate, thus:
The banking system is an indispensable
institution in the modern world and plays a
vital role in the economic life of every civilized
nation. Whether as mere passive entities for
the safekeeping and saving of money or as
active instruments of business and commerce,
banks have become an ubiquitous presence
among the people, who have come to regard
them with respect and even gratitude and,
most of all, confidence. Thus, even the humble
wage-earner has not hesitated to entrust his
lifes savings to the bank of his choice, knowing
that they will be safe in its custody and will
even earn some interest for him. The ordinary
person, with equal faith, usually maintains a
modest checking account for security and
convenience in the settling of his monthly bills
and the payment of ordinary expenses. x x x.
In every case, the depositor expects the bank
to treat his account with the utmost fidelity,
whether such account consists only of a few
hundred pesos or of millions. The bank must
record every single transaction accurately,
down to the last centavo, and as promptly as
possible. This has to be done if the account is
to reflect at any given time the amount of
money the depositor can dispose of as he sees
fit, confident that the bank will deliver it as
and to whomever directs. A blunder on the
part of the bank, such as the dishonor of the
check without good reason, can cause the
depositor not a little embarrassment if not
also financial loss and perhaps even civil and
criminal litigation.
The point is that as a business affected with
public interest and because of the nature of its
functions, the bank is under obligation to treat
the accounts of its depositors with meticulous
care, always having in mind the fiduciary
nature of their relationship. x x x.
BPI-FB, as the trustee in the fiduciary relationship, is duty bound
to know the signatures of its customers. Having failed to detect
the forgery in the Authority to Debit and in the process
inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB
cannot now shift liability thereon to Franco and the other payees
of checks issued by Tevesteco, or prevent withdrawals from their
respective accounts without the appropriate court writ or a
favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving
into the authenticity of the signature in the Authority to Debit,
effected the transfer of P80,000,000.00 from FMICs to Tevestecos
12
account, when FMICs account was a time deposit and it had
already paid advance interest to FMIC. Considering that there is
as yet no indubitable evidence establishing Francos participation
in the forgery, he remains an innocent party. As between him and
BPI-FB, the latter, which made possible the present predicament,
must bear the resulting loss or inconvenience.
AMEX CASE
Pantaleon, together with his wife (Julialinda), daughter (Regina),
and son (Adrian Roberto), went on a guided European tour. The
tour group arrived in Amsterdam. Due to their late arrival, they
postponed the tour of the city for the following day.
The next day, the group began their sightseeing at around 8:50
a.m. with a trip to the Coster Diamond House (Coster). To have
enough time to have a tour in Amsterdam before their departure
scheduled on that day, the tour group planned to leave Coster
by 9:30 a.m. at the latest.
While at Coster, Mrs. Pantaleon decided to purchase some
diamond pieces worth a total of US$13,826.00. Pantaleon
presented his American Express credit card to the sales clerk to
pay for this purchase at around 9:15 a.m. The sales clerk swiped
the credit card and asked Pantaleon to sign the charge slip, which
was then electronically referred to AMEXs Amsterdam office
at 9:20 a.m.
At around 9:40 a.m., Coster had not received approval from AMEX
for the purchase so Pantaleon asked the store clerk to cancel the
sale. The store manager convinced Pantaleon to wait a few more
minutes. The store manager informed Pantaleon that AMEX was
asking for bank references; Pantaleon responded by giving the
names of his Philippine depository banks.
At around 10 a.m., or 45 minutes after Pantaleon presented his
credit card, AMEX still had not approved the purchase. Since the
city tour could not begin until the Pantaleons were onboard the
tour bus, Coster decided to release at around 10:05 a.m. the
purchased items to Pantaleon even without AMEXs approval.
When the Pantaleons finally returned to the tour bus, they found
their travel companions visibly irritated. This irritation
intensified when the tour guide announced that they would have
to cancel the tour because of lack of time as they all had to be
in Calais,Belgium by 3 p.m. to catch the ferry to London.
It appears that at 10:38 a.m., AMEXs Manila office finally
transmitted the Approval Code to AMEXs Amsterdam office. It
took AMEX a total of 78 minutes to approve Pantaleons purchase
and to transmit the approval to the jewelry store.
The Pantaleon family proceeded to the United States. Again,
Pantaleon experienced delay in securing approval for purchases
using his American Express credit card on two separate when he
wanted to purchase golf equipment in the amount of US$1,475.00
at the Richard Metz Golf Studio in New York; and when he
wanted to purchase childrens shoes worth US$87.00 at the
Quiency Market in Boston on November 3, 1991.
Upon return to Manila, Pantaleon sent AMEX a letter demanding
an apology for the humiliation and inconvenience he and his
 CREDIT TRANSACTIONS: LOAN
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family experienced due to the delays in obtaining approval for his
credit card purchases.
AMEX responded by explaining that the delay in Amsterdam was
due to the fact that the purchase was at variance with Pantaleons
established charge pattern.
Dissatisfied with this explanation, Pantaleon filed an action for
damages against the credit card company with the Makati City
Regional Trial Court (RTC).
RTC Ruling - found AMEX guilty of delay.
CA - reversed the awards. The delay was not attended by bad
faith, malice or gross negligence. AMEX exercised diligent efforts
to effect the approval of Pantaleons purchases.
SC- (May 8, 2009 decision) AMEX was guilty of mora solvendi, or
debtors default. AMEX failed to timely act on Pantaleons
purchases. Based on the testimony of AMEXs credit authorizer
Edgardo Jaurique, the approval time for credit card charges
would be three to four seconds under regular circumstances. In
Pantaleons case, it took AMEX 78 minutes to approve
the Amsterdam purchase.
AMEX contention: (filed an MR) While it normally takes seconds
to approve charge purchases, Pantaleon experienced delay
in Amsterdam because his transaction was not a normal one.
Pantaleon sought to charge in a single transaction jewelry items
purchased from Coster in the total amount of US$13,826.00
or P383,746.16. While the total amount of Pantaleons previous
purchases using his AMEX credit card did exceed US$13,826.00,
these purchases were made in a span of more than 10 years, not
in a single transaction.
This was the biggest single transaction that Pantaleon ever made
using his AMEX credit card, the transaction necessarily required
the credit authorizer to carefully review Pantaleons credit history
and bank references. It did this not only to ensure Pantaleons
protection (to minimize the possibility that a third party was
fraudulently using his credit card), but also to protect itself from
the risk that Pantaleon might not be able to pay for his purchases
on credit. This careful review is also in keeping with the
extraordinary degree of diligence required of banks in handling
its transactions. The proximate cause of Pantaleons humiliation
and embarrassment was his own decision to proceed with the
purchase despite his awareness that the tour group was waiting
for him and his wife. Pantaleon could have prevented the
humiliation had he cancelled the sale when he noticed that the
credit approval for the Coster purchase was unusually delayed.
Pantaleon's contention: A just cause for delay does not relieve the
debtor in delay from the consequences of delay; thus, even if
AMEX had a justifiable reason for the delay, this reason would not
relieve it from the liability arising from its failure to timely act on
Pantaleons purchase. Evil motive or design is not always
necessary to support a finding of bad faith; gross negligence or
wanton disregard of contractual obligations is sufficient basis for
the award of moral and exemplary damages.
Issue: 1. Whether or not the Use of credit card is a mere offer to
enter into loan agreements
13
2. AMEX guilty of culpable delay in complying with its obligation
to act with timely dispatch on Pantaleons purchases
3. Whether or not AMEX has obligation to act on the offer within a
specific period of time
4.,Whether or not AMEX was in good faith.
Discussion: A credit card is defined as any card, plate, coupon
book, or other credit device existing for the purpose of obtaining
money, goods, property, labor or services or anything of value on
credit.
Nature of Credit Card Transactions: The issuer bank establishes
an account on behalf of the person to whom the card is issued,
and the two parties enter into an agreement which governs their
relationship. This agreement provides that the bank will pay for
cardholders account the amount of merchandise or services
purchased through the use of the credit card and will also make
cash loans available to the cardholder. It also states that the
cardholder shall be liable to the bank for advances and payments
made by the bank and that the cardholders obligation to pay the
bank shall not be affected or impaired by any dispute, claim, or
demand by the cardholder with respect to any merchandise or
service purchased.
Simply put, every credit card transaction involves three
contracts, namely: (a) the sales contract between the credit card
holder and the merchant or the business establishment which
accepted the credit card; (b) the loan agreement between the
credit card issuer and the credit card holder; and lastly, (c)
the promise to paybetween the credit card issuer and the
merchant or business establishment.
When a credit card company gives the holder the privilege of
charging items at establishments associated with the issuer when
does this relationship begin? The issuance of a credit card is but
an offer to extend a line of open account credit. It is unilateral and
supported by no consideration. The offer may be withdrawn at
any time, without prior notice, for any reason or, indeed, for no
reason at all, and its withdrawal breaches no duty for there is no
duty to continue it and violates no rights.
Under this view, each credit card transaction is considered a
separate offer and acceptance.
Relationship between the credit card issuer and the credit card
holder as a contractual one that is governed by the terms and
conditions found in the contract. A card membership agreement
is a contract of adhesion as its terms are prepared solely by the
credit card issuer, with the cardholder merely affixing his
signature signifying his adhesion to these terms. This
circumstance, however, does not render the agreement void;
contracts of adhesion are as binding as ordinary contracts, the
reason being that the party who adheres to the contract is free to
reject it entirely. The only effect is that the terms of the contract
are construed strictly against the party who drafted it.
Ruling:
1. Yes. From the loan agreement perspective, the contractual
relationship begins to exist only upon the meeting of the
offer and acceptance of the parties involved. In more concrete
terms, when cardholders use their credit cards to pay for their
purchases, they merely offer to enter into loan agreements with
the credit card company. Only after the latter approves the
purchase requests that the parties enter into binding loan
 CREDIT TRANSACTIONS: LOAN
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contracts, in keeping with Article 1319 of the Civil Code, which
provides:
Article 1319. Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.
This view finds support in the reservation found in the card
membership agreement itself, particularly paragraph 10, which
clearly states that AMEX reserve[s] the right to deny
authorization for any requested Charge. By so providing, AMEX
made its position clear that it has no obligation to approve any
and all charge requests made by its card holders.
2. No. AMEX was not guilty of culpable delay. Snce AMEX has no
obligation to approve the purchase requests of its credit
cardholders, Pantaleon cannot claim that AMEX defaulted in its
obligation. Article 1169 of the Civil Code provides the three
requisites for a finding of default are: (a) that the obligation is
demandable and liquidated; (b) the debtor delays performance;
and (c) the creditor judicially or extrajudicially requires the
debtors performance.
The first requisite is no longer met because AMEX, by the express
terms of the credit card agreement, is not obligated to approve
Pantaleons purchase request. Without a demandable obligation,
there can be no finding of default.
Pantaleon failed to make the demand required by Article 1169 of
the Civil Code. Before the credit card issuer accepts this offer, no
obligation relating to the loan agreement exists between them. A
demand presupposes the existence of an obligation between the
parties.
Every time that Pantaleon used his AMEX credit card to pay for
his purchases, what the stores transmitted to AMEX were his
offers to execute loan contracts. These obviously could not be
classified as the demand required by law to make the debtor in
default.
3. No. Amex has no obligation. Pantaleon impresses upon us the
existence of this obligation by emphasizing two points: (a) his
card has no pre-set spending limit; and (b) in his twelve years of
using his AMEX card, AMEX had always approved his charges in a
matter of seconds. Pantaleons assertions failed to convince the
court.
AMEXs credit authorizer, Edgardo Jaurigue, explained that
having no pre-set spending limit in a credit card simply means
that the charges made by the cardholder are approved based on
his ability to pay. Every time Pantaleon charges a purchase on his
credit card, the credit card company still has to determine
whether it will allow this charge, based on his past credit history.
This right to review a card holders credit history, although not
specifically set out in the card membership agreement, is a
necessary implication of AMEXs right to deny authorization for
any requested charge.
As for Pantaleons previous experiences with AMEX (i.e., that in
the past 12 years, AMEX has always approved his charge requests
in three or four seconds), this record does not establish that
Pantaleon had a legally enforceable obligation to expect AMEX to
act on his charge requests within a matter of seconds. Pantaleon
failed to present any evidence to support his assertion. Even if
Pantaleon did prove that AMEX, as a matter of practice or custom,
acted on its customers purchase requests in a matter of seconds,
this would still not be enough to establish a legally demandable
14
right; as a general rule, a practice or custom is not a source of a
legally demandable or enforceable right.
There is no provision in this agreement that obligates AMEX to
act on all cardholder purchase requests within a specifically
defined period of time. The State does not require credit card
companies to act upon its cardholders purchase requests within a
specific period of time.
BSP Circular No. 398 provides that before issuing credit cards,
banks and/or their subsidiary credit card companies must
exercise proper diligence by ascertaining that applicants possess
good credit standing and are financially capable of fulfilling their
credit commitments. The general intent is to foster fair and sound
consumer credit practices.
4. Yes, AMEX was in good faith. The court found no evidence to
suggest that it acted with deliberate intent to cause Pantaleon
any loss or injury, or acted in a manner that was contrary to
morals, good customs or public policy. We give credence to
AMEXs claim that its review procedure was done to ensure
Pantaleons own protection as a cardholder and to prevent the
possibility that the credit card was being fraudulently used by a
third person.
We cite in this regard Article 19, in conjunction with Article 21, of
the Civil Code, which provide:
Article 19. Every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his
due and observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to
another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage.
While Article 19 enumerates the standards of conduct, Article 21
provides the remedy for the person injured by the willful act, an
action for damages.
It is but natural for AMEX to want to ensure that it will extend
credit only to people who will have sufficient means to pay for
their purchases. AMEX, after all, is running a business, not a
charity, and it would simply be ludicrous to suggest that it would
not want to earn profit for its services. Thus, so long as AMEX
exercises its rights, performs its obligations, and generally acts
with good faith, with no intent to cause harm, even if it may
occasionally inconvenience others, it cannot be held liable for
damages.
It would certainly be unjust to penalize AMEX for merely
exercising its right to review Pantaleons credit history
meticulously.
Pantaleon is the proximate cause for this embarrassment and
humiliation. Although Pantaleon tried to cancel the sale at 9:40
a.m. because he did not want to cause any inconvenience to the
tour group. However, when Costers sale manager asked him to
wait a few more minutes for the credit card approval, he agreed,
despite the knowledge that he had already caused a 10-minute
delay and that the city tour could not start without them.
The basic rule when travelling in a tour group is that you must
never be a cause of any delay because the schedule is very
strict. When Pantaleon made up his mind to push through with
his purchase, he must have known that the group would become
annoyed and irritated with him. This was the natural, foreseeable
consequence of his decision to make them all wait.
 CREDIT TRANSACTIONS: LOAN
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Pantaleon was not entitled to damages. The malicious intent was
ever established here. In the absence of any other damages, the
award of exemplary damages clearly lacks legal basis.
G.R. No. 189871 August 13, 2013
DARIO NACAR, PETITIONER,
vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR.,RESPONDENTS.
Facts:
Petioner Dario Nacar filed a complaint for constructive dismissal
before the Arbitration Branch of the NLRC against respondents
Gallery Frames (GF) and/or Felipe Bordey.
The Labor Arbiter rendered a Decision in favor of petitioner and
found that he was dismissed from employment without a valid or
just cause. Thus, petitioner was awarded backwages and
separation pay in lieu of reinstatement in the amount of
₱158,919.92(respondents must pay jointly and severally) . It was
clear from the records that complainant was never afforded due
process before he was terminated. The court granted
complainant’s prayer for the payments of separation pay in lieu
of reinstatement to his former position, considering the strained
relationship between the parties, and his apparent reluctance to
be reinstated, computed only up to promulgation of decision.
Petitioner filed a Motion for Correct Computation, praying that
his backwages be computed from the date of his dismissal on
January 24, 1997 up to the finality of the Resolution of the
Supreme Court on May 27, 2002. Upon recomputation, the
Computation and Examination Unit of the NLRC arrived at an
updated amount in the sum of ₱471,320.31.
A Writ of Executionwas issued by the Labor Arbiter ordering the
Sheriff to collect from respondents the said. Respondents filed a
Motion to Quash Writ of Execution, arguing, among other things,
that since the Labor Arbiter awarded separation pay of
₱62,986.56 and limited backwages of ₱95,933.33 no more
recomputation is required to be made of the said awards. They
claimed that after the decision becomes final and executory, the
same cannot be altered or amended anymore.
The records of the case were again forwarded to the Computation
and Examination Unit for recomputation, where the judgment
award of petitioner was reassessed to be in the total amount of
only ₱147,560.19.
Petitioner then filed a Manifestation and Motion praying for the
re-computation of the monetary award to include the appropriate
interests.
The Labor Arbiter issued an Order granting the motion, but only
up to the amount of ₱11,459.73. The Labor Arbiter reasoned that
it is the October 15, 1998 Decision that should be enforced
considering that it was the one that became final and executory.
However, the Labor Arbiter reasoned that since the decision
states that the separation pay and backwages are computed only
up to the promulgation of the said decision, it is the amount of
₱158,919.92 that should be executed. Thus, since petitioner
15
already received ₱147,560.19, he is only entitled to the balance of
₱11,459.73.
Petitioner maintains that considering that the October 15, 1998
decision of the Labor Arbiter did not become final and executory
until the April 17, 2002 Resolution of the Supreme Court in G.R.
No. 151332 was entered in the Book of Entries on May 27, 2002.
Further, petitioner posits that he is also entitled to the payment
of interest from the finality of the decision until full payment by
the respondents.
Respondents insist that since the decision clearly stated that the
separation pay and backwages are "computed only up to [the]
promulgation of this decision," and considering that petitioner no
longer appealed the decision, petitioner is only entitled to the
award as computed by the Labor Arbiter in the total amount of
₱158,919.92. Respondents added that it was only during the
execution proceedings that the petitioner questioned the award,
long after the decision had become final and executory.
Issue: Whether or not Labor Arbiter did not err in its ruling.
Held: No.
Section 3, Rule VIII of the then NLRC Rules of Procedure which
requires that a computation be made. This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards
and at all events, as far as practicable, shall embody in any such
decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up
to the finality of the labor arbiter's decision.
A re-computation is necessary as it essentially considered the
labor arbiter's original decision in accordance with its basic
component parts as we discussed above. To reiterate, the first
part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards
or monetary consequences of the illegal dismissal, computed as
of the time of the labor arbiter's original decision.
The recomputation of the consequences of illegal dismissal upon
execution of the decision does not constitute an alteration or
amendment of the final decision being implemented. The illegal
dismissal ruling stands; only the computation of monetary
consequences of this dismissal is affected, and this is not a
violation of the principle of immutability of final judgments.
DISCUSSION ON INTEREST
Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its
Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of
stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the
absence of an express contract as to such rate of interest, shall be
six percent (6%) per annum. (12% before July 1, 2013.)
In the absence of an express stipulation as to the rate of interest
that would govern the parties, the rate of legal interest for loans
or forbearance of any money, goods or credits and the rate
allowed in judgments shall no longer be twelve percent (12%)
per annum but will now be six percent (6%) per annum effective
July 1, 2013.
 CREDIT TRANSACTIONS: LOAN
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To recapitulate and for future guidance, the guidelines laid down

in the case of Eastern Shipping Lines42 are accordingly modified
to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining
the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept
of actual and compensatory damages, the rate of interest, as well
as the accrual thereof, is imposed, as follows:
When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

When an obligation, not constituting a loan or forbearance of

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

When the judgment of the court awarding a sum of money

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

Respondents are Ordered to Pay petitioner:

(1) backwages computed from the time petitioner was illegally
up to May 27, 2002, when the Resolution of this Court became
final and executory;
(2) separation pay computed to May 27, 2002 at the rate of one
month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total
monetary awards, computed from May 27, 2002 to June 30, 2013
and six percent (6%) per annum from July 1, 2013 until their full
satisfaction.

16