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Corona, J. | March 16, 2007
Digest by: Mike Del Mundo

Garcia and Thio were friends. Garcia alleged that in two instances, Thio borrowed money from her, first sometime in
February 1995 in the amount of $100k (w/ 3% interest), and second in June 1995 in the amount of P500k (w/ 4%
interest). In both instances, Garcia allegedly gave the money through crossed checks payable to the order of Marilou
Santiago. Due to their friendship, no promissory note was issued in both instances According to Garcia, Thio was
able to pay the monthly interest for both amounts, but failed to pay the principal amounts when they fell due,
prompting her to file a complaint for sum of money and damages.

Thio denied contracting the loans and claimed that Marilou Santiago was the real debtor, and she was just asked to
give the checks to Santiago, and that she used her (Thio) checks for the payment of interest to accommodate
Garcia’s request not to use Santiago’s checks.

RTC ruled in favor of Garcia, but the CA reversed, holding that Thio received no money from Garcia since the checks
given by the latter were crossed and thus could not be encashed but only deposited in Santiago’s account.

Effects of crossing a check: 1) may only be deposited, not encashed; 2) the check may be negotiated only once—to
one who has an account with the bank; 3) the check is issued for a particular purpose, such that if the holder did not
receive such check for the said purpose, he is not the proper holder of the check.

Issue: WON a contract of loan existed between Garcia and Thio - yes
A loan is perfected upon the delivery of the object of the contract. In this case, the object is the proceeds of the

A loan existed between the parties notwithstanding the fact that the checks were named after someone else
(Santiago). Delivery is the act by which the res or substance thereof is placed within the actual or constructive
possession or control of another. 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.

To bolster its conclusion that a loan existed between the parties, the Court noted that as admitted by Thio, Garcia did
not personally know Santiago, thus it was unlikely that Garcia would grant the loans without a promissory note. A
witness also testified that Thio’s plan was to borrow from Garcia at 3% interest and lend the same amount to
Santiago at 5% interest, in order to realize a 2% profit. It was also unlikely that Thio would pay the interest for a loan
that she did not contract. Lastly, Santiago’s petition for insolvency identified Thio as the creditor, not Garcia.

Court noted that Thio should’ve presented Santiago to reinforce her defense.

But while the Court affirmed the existence of the loans, it held that Thio was not laible for stipulated interest as there
was no written proof that such was agreed upon. Article 1956 of the Civil Code provides that "[n]o interest shall be
due unless it has been expressly stipulated in writing." Although she is liable for legal interest at the rate of 12% from
the date she received Garcia’s demand letter.