G.R. No.

115324             February 19, 2003

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner,

vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated June 25, 1991 in CA-G.R. CV
No. 11791 and of its Resolution2 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 month’s time. Private respondent asked Sanchez to bring Doronilla to
their house so that they could discuss Sanchez’s request.3

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

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10-1567 had been withdrawn by Doronilla, and that only P90,000.00 remained therein.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

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

Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the return of his
client’s money. Doronilla issued another check for P212,000.00 in private respondent’s favor but the check was again
dishonored for insufficiency of funds.7

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

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

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

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

(c) the amount of P40,000.00 for attorney’s fees; and

(d) the costs of the suit.

SO ORDERED.8

Petitioner appealed the trial court’s decision to the Court of Appeals. In its Decision dated June 25, 1991, the
appellate court affirmed in toto the decision of the RTC. 9 It likewise denied with finality petitioner’s motion for
reconsideration in its Resolution dated May 5, 1994.10

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

I.

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

II.

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

III.

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

IV.

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

V.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT
THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS
FOR THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR
MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEY’S FEES AND THE
COSTS OF SUIT.11
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September 25,
1995. The Court then required private respondent to submit a rejoinder to the reply. However, said rejoinder was filed
only on April 21, 1997, due to petitioner’s delay in furnishing private respondent with copy of the reply 12 and several
substitutions of counsel on the part of private respondent.13 On January 17, 2001, the Court resolved to give due
course to the petition and required the parties to submit their respective memoranda. 14 Petitioner filed its
memorandum on April 16, 2001 while private respondent submitted his memorandum on March 22, 2001.

Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all
the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money, a
consumable thing; and second, the transaction was onerous as Doronilla was obliged to pay interest, as evidenced
by the check issued by Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent
deposited in Sterela’s 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 respondent’s
P200,000.00 because it is not privy to the transaction between the latter and Doronilla.16

It argues further that petitioner’s Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing Doronilla to
withdraw from the savings account of Sterela since the latter was the sole proprietor of said company. Petitioner
asserts that Doronilla’s May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a
savings account for Sterela, did not contain any authorization for these two to withdraw from said account. Hence, the
authority to withdraw therefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who
alone had legal title to the savings account. 17 Petitioner points out that no evidence other than the testimonies of
private respondent and Mrs. Vives was presented during trial to prove that private respondent deposited his
P200,000.00 in Sterela’s account for purposes of its incorporation. 18 Hence, petitioner should not be held liable for
allowing Doronilla to withdraw from Sterela’s savings account.1a\^/phi1.net

Petitioner also asserts that the Court of Appeals erred in affirming the trial court’s 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 Sterela’s savings account.19

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

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

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

There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed with this
Court. The Court has repeatedly held that it is not its function to analyze and weigh all over again the evidence
presented by the parties during trial. 24 The Court’s jurisdiction is in principle limited to reviewing errors of law that
might have been committed by the Court of Appeals. 25 Moreover, factual findings of courts, when adopted and
confirmed by the Court of Appeals, are final and conclusive on this Court unless these findings are not supported by
the evidence on record.26 There is no showing of any misapprehension of facts on the part of the Court of Appeals in
the case at bar that would require this Court to review and overturn the factual findings of that court, especially since
the conclusions of fact of the Court of Appeals and the trial court are not only consistent but are also amply supported
by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between private respondent and
Doronilla was a commodatum and not a mutuum. A circumspect examination of the records reveals that the
transaction between them was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of
loans in this wise:

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

Commodatum is essentially gratuitous.

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

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

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

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

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

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

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

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

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

Petitioner’s rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for Savings
Account No. 10-1567 expressly states that—
"2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly
authenticated, and neither a deposit nor a withdrawal will be permitted except upon the production of the depositor
savings bank book in which will be entered by the Bank the amount deposited or withdrawn."30

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

XXX

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

To begin with, the deposit was made in defendant’s Buendia branch precisely because Atienza was a key officer
therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in his bank, the Manila
Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendant’s branch in Makati for "it will be
easier for them to get a certification". In fact before he was introduced to plaintiff, Doronilla had already prepared a
letter addressed to the Buendia branch manager authorizing Angeles B. Sanchez and company to open a savings
account for Sterela in the amount of P200,000.00, as "per coordination with Mr. Rufo Atienza, Assistant Manager of
the Bank x x x" (Exh. 1). This is a clear manifestation that the other defendants had been in consultation with Atienza
from the inception of the scheme. Significantly, there were testimonies and admission that Atienza is the brother-in-
law of a certain Romeo Mirasol, a friend and business associate of Doronilla.1awphi1.nét

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

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

Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted practice that
whenever a withdrawal is made in a savings deposit, the bank requires the presentation of the passbook. In this case,
such recognized practice was dispensed with. The transfer from the savings account to the current account was
without the submission of the passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a
certification signed by Estrella Dumagpi that a duplicate passbook was issued to Sterela because the original
passbook had been surrendered to the Makati branch in view of a loan accommodation assigning the savings
account (Exh. C). Atienza, who undoubtedly had a hand in the execution of this certification, was aware that the
contents of the same are not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one who
gave it to her. Besides, as assistant manager of the branch and the bank official servicing the savings and current
accounts in question, he also was aware that the original passbook was never surrendered. He was also cognizant
that Estrella Dumagpi was not among those authorized to withdraw so her certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that Atienza’s active participation
in the perpetration of the fraud and deception that caused the loss. The records indicate that this account was opened
three days later after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that Atienza was
mindful and posted regarding the opening of the current account considering that Doronilla was all the while in
"coordination" with him. That it was he who facilitated the approval of the authority to debit the savings account to
cover any overdrawings in the current account (Exh. 2) is not hard to comprehend.

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

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

There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that Atienza was
acting within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in withdrawing funds
from Sterela’s Savings Account No. 10-1567, in which account private respondent’s money was deposited, and in
transferring the money withdrawn to Sterela’s Current Account with petitioner. Atienza’s acts of helping Doronilla, a
customer of the petitioner, were obviously done in furtherance of petitioner’s interests 34 even though in the process,
Atienza violated some of petitioner’s rules such as those stipulated in its savings account passbook. 35 It was
established that the transfer of funds from Sterela’s savings account to its current account could not have been
accomplished by Doronilla without the invaluable assistance of Atienza, and that it was their connivance which was
the cause of private respondent’s loss.

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

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

SO ORDERED.
G.R. No. 118375             October 3, 2003

CELESTINA T. NAGUIAT, petitioner,

vs.
COURT OF APPEALS and AURORA QUEAÑO, respondents.

DECISION

TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth Division of the
respondent Court of Appeals promulgated on 21 December 19941, which affirmed in toto the decision handed down
by the Regional Trial Court (RTC) of Pasay City.2

The case arose when on 11 August 1981, private respondent Aurora Queaño (Queaño) filed a complaint before the
Pasay City RTC for cancellation of a Real Estate Mortgage she had entered into with petitioner Celestina Naguiat
(Naguiat). The RTC rendered a decision, declaring the questioned Real Estate Mortgage void, which Naguiat
appealed to the Court of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat instituted the present
petition.1ªvvphi1.nét

The operative facts follow:

Queaño applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (P200,000.00), which
Naguiat granted. On 11 August 1980, Naguiat indorsed to Queaño Associated Bank Check No. 090990 (dated 11
August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00), 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 Ninety Five Thousand Pesos (P95,000.00). The
proceeds of these checks were to constitute the loan granted by Naguiat to Queaño.3

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. 4 On the same day, the
mortgage deed was notarized, and Queaño issued to Naguiat a promissory note for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00), 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 TWO
HUNDRED THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat.

Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of funds. On the
following day, 12 September 1980, 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 (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 with the Sheriff of Rizal Province, who then
scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale, Queaño filed the case
before the Pasay City RTC,8 seeking the annulment of the mortgage deed. The trial court eventually stopped the
auction sale.9

On 8 March 1991, the 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. 10 Naguiat appealed
the decision before the Court of Appeals, making no less than eleven assignments of error. The Court of Appeals
promulgated the decision now assailed before us that affirmed in toto the RTC decision. Hence, the present petition.

Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of whether Queaño had
actually received the loan proceeds which were supposed to be covered by the two checks Naguiat had issued or
indorsed. Naguiat claims that being a notarial instrument or public document, the mortgage deed enjoys the
presumption that the recitals therein are true. Naguiat also questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of the admissions of third persons.11

The resolution of the issues presented before this Court by Naguiat involves the determination of facts, a function
which this Court does not exercise in an appeal by certiorari. Under Rule 45 which governs appeal by certiorari, only
questions of law may be raised12 as the Supreme Court is not a trier of facts. 13 The resolution of factual issues is the
function of lower courts, whose findings on these matters are received with respect and are in fact generally binding
on the Supreme Court.14 A question of law which the Court may pass upon must not involve an examination of the
probative value of the evidence presented by the litigants. 15 There is a question of law in a given case when the doubt
or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts.16

Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of the lower
courts.17 But Naguiat’s case does not fall under any of the exceptions. In any event, both the decisions of the
appellate and trial courts are supported by the evidence on record and the applicable laws.

Against the common finding of the courts below, Naguiat vigorously insists that Queaño received the loan proceeds.
Capitalizing on the status of the mortgage deed as a public document, she cites the rule that a public document
enjoys the presumption of validity and truthfulness of its contents. The Court of Appeals, however, is correct in ruling
that the presumption of truthfulness of the recitals in a public document was defeated by the clear and convincing
evidence in this case that pointed to the absence of consideration. 18 This Court has held that the presumption of
truthfulness engendered by notarized documents is rebuttable, yielding as it does to clear and convincing evidence to
the contrary, as in this case.19

On the other hand, absolutely 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

Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the ground that
they could not bind her following the res inter alia acta alteri nocere non debet rule. The Court of Appeals rejected the
argument, holding that since Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls
under a recognized exception to the rule.22 Still, Naguiat insists that Ruebenfeldt was not her agent.

Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt is supported by
ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was not a stranger or an unauthorized
person. Naguiat instructed Ruebenfeldt to withhold from Queaño the checks she issued or indorsed to Queaño,
pending delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the loan application
of Queaño’s friend, Marilou Farralese, and it was in connection with that transaction that Queaño came to know
Naguiat.23 It was also Ruebenfeldt who accompanied Queaño in her meeting with Naguiat and on that occasion, on
her own and without Queaño asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00 payable to
Naguiat, to cover for Queaño’s alleged liability to Naguiat under the loan agreement.24

The Court of Appeals recognized the existence of an "agency by estoppel 25 citing Article 1873 of the Civil Code. 26
Apparently, it considered that at the very least, as a consequence of the interaction between Naguiat and
Ruebenfeldt, Queaño got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaño’s impression. In that situation, the rule is clear. One who clothes another with apparent authority as
his agent, and holds him out to the public as such, cannot be permitted to deny the authority of such person to act as
his agent, to the prejudice of innocent third parties dealing with such person in good faith, and in the honest belief that
he is what he appears to be. 27 The Court of Appeals is correct in invoking the said rule on agency by
estoppel.1awphi1.nét

More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the face of
the fact that the checks issued or indorsed to Queaño were never encashed or deposited to her account of Naguiat.

All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did not remit and the
borrower did not receive the proceeds of the loan. That being the case, it follows that the mortgage which is
supposed to secure the loan is null and void. The consideration of the mortgage contract is the same as that of the
principal contract from which it receives life, and without which it cannot exist as an independent contract.28 A
mortgage contract being a mere accessory contract, its validity would depend on the validity of the loan secured by
it.29

WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.

SO ORDERED.
G.R. No. 168736             April 19, 2006

SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO, Petitioners,

vs.
SPOUSES RENATO CUYCO and FILIPINA CUYCO, Respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the Decision1 of the Court of Appeals (CA) in CA G.R. CV No. 62352
dated November 5, 2003 which modified the Decision 2 of the Regional Trial Court (RTC) of Quezon City, Branch 105
in Civil Case No. Q-97-32130 dated January 27, 1999, as well as the Resolution 3 dated June 28, 2005 denying the
motion for reconsideration thereof.

The facts of the case are as follows:

Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of P1,500,000.00 from respondents,
spouses Renato and Filipina Cuyco, payable within one year at 18% interest per annum, and secured by a Real
Estate Mortgage4 over a parcel of land with improvements thereon situated in Cubao, Quezon City covered by TCT
No. RT-43723 (188321).5

Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of P1,250,000.00,
broken down as follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00 on July 1, 1992; (3) P500,000.00 on
September 5, 1992; (4) P200,000.00 on October 29, 1992; and (5) P250,000.00 on January 13, 1993.6

Petitioners made payments amounting to P291,700.00,7 but failed to settle their outstanding loan obligations. Thus,
on September 10, 1997, respondents filed a complaint 8 for foreclosure of mortgage with the RTC of Quezon City,
which was docketed as Civil Case No. Q-97-32130. They alleged that petitioners’ loans were secured by the real
estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14, inclusive of the 18%
interest compounded monthly; and that petitioners’ refusal to settle the same entitles the respondents to foreclose the
real estate mortgage.

Petitioners filed a motion to dismiss 9 on the ground that the complaint states no cause of action which was denied by
the RTC10 for lack of merit.

In their answer,11 petitioners admitted their loan obligations but argued that only the original loan of P1,500,000.00
was secured by the real estate mortgage at 18% per annum and that there was no agreement that the same will be
compounded monthly.

On January 27, 1999, the RTC rendered judgment12 in favor of the respondents, the dispositive portion of which
reads:

WHEREFORE, in the light of the foregoing, the Court renders judgment on the Complaint in favor of the plaintiffs and
hereby orders the defendants to pay to the Court or to the plaintiffs the amounts of P6,332,019.84, plus interest until
fully paid, P25,000.00 as attorney’s fees, and costs of suit, within a period of one hundred and twenty (120) days from
the entry of judgment, and in case of default of such payment and upon proper motion, the property shall be ordered
sold at public auction to satisfy the judgment. Further, defendants[’] counterclaim is dismissed.

SO ORDERED.13

Petitioners appealed to the CA reiterating their previous claim that only the amount of P1,500,000.00 was secured by
the real estate mortgage.14 They also contended that the RTC erred in ordering the foreclosure of the real estate
mortgage to satisfy the total indebtedness of P6,532,019.84, as of January 10, 1999, plus interest until fully paid, and
in imposing legal interest of 12% per annum on the stipulated interest of 18% from the filing of the case until fully
paid.15

On November 5, 2003, the CA partially granted the petition and modified the RTC decision insofar as the amount of
the loan obligations secured by the real estate mortgage. It held that by express intention of the parties, the real
estate mortgage secured the original P1,500,000.00 loan and the subsequent loans of P150,000.00 and P500,000.00
obtained on July 1, 1992 and September 5, 1992, respectively. As regards the loans obtained on May 31, 1992,
October 29, 1992 and January 13, 1993 in the amounts of P150,000.00, P200,000.00 and P250,000.00, respectively,
the appellate tribunal held that the parties never intended the same to be secured by the real estate mortgage. The
Court of Appeals also found that the trial court properly imposed 12% legal interest on the stipulated interest from the
date of filing of the complaint. The dispositive portion of the Decision reads:

WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed decision of the Regional Trial Court of
Quezon City, Branch 105, in Civil Case No. Q-97-32130 is hereby MODIFIED to read:

"WHEREFORE, in the light of the foregoing, the Court renders judgment on the Complaint in favor of the plaintiffs
and hereby orders the defendants to pay to the Court or to the plaintiffs the amount of P2,149,113.92[,] representing
the total outstanding principal loan of the said defendants, plus the stipulated interest at the rate of 18% per annum
accruing thereon until fully paid, within a period of one hundred and twenty days from the entry of judgment, and in
case of default of such payment and upon motion, the property, subject of the real estate mortgage contract, shall be
ordered sold at public auction in satisfaction of the mortgage debts.1avvphil.net

Defendants are further, ordered to pay the plaintiffs the following:

1. the legal interest at the rate of 12% per annum on the stipulated interest of 18% per annum, computed
from the filing of the complaint until fully paid;

2. the sum of P25,000.00 as and for attorney’s fees; and

3. the costs of suit."

SO ORDERED.16

Hence, the instant petition for review on the sole issue:

WHETHER OR NOT PETITIONERS MUST PAY RESPONDENTS LEGAL INTEREST OF 12% PER ANNUM ON
THE STIPULATED INTEREST OF 18% PER ANNUM, COMPUTED FROM THE FILING OF THE COMPLAINT
UNTIL FULL PAID.17

Petitioners contend that the imposition of the 12% legal interest per annum on the stipulated interest of 18% per
annum computed from the filing of the complaint until fully paid was not provided in the real estate mortgage contract,
thus, the same has no legal basis.

We are not persuaded.

While a contract is the law between the parties,18 it is also settled that an existing law enters into and forms part of a
valid contract without the need for the parties expressly making reference to it. 19 Thus, the lower courts correctly
applied Article 2212 of the Civil Code as the basis for the imposition of the legal interest on the stipulated interest
due. It reads:

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

The foregoing provision has been incorporated in the comprehensive summary of existing rules on the computation of
legal interest enunciated by the Court in Eastern Shipping Lines, Inc. v. Court of Appeals,20 to wit:
 1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

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

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

In the case at bar, the evidence shows that petitioners obtained several loans from the respondent, some of which as
held by the CA were secured by real estate mortgage and earned an interest of 18% per annum. Upon default
thereof, respondents demanded payment from the petitioners by filing an action for foreclosure of the real estate
mortgage. Clearly, the case falls under the rule stated in paragraph 1.

Applying the rules in the computation of interest, the principal amount of loans subject of the real estate mortgage
must earn the stipulated interest of 18% per annum, which interest, as long as unpaid, also earns legal interest of
12% per annum, computed from the date of the filing of the complaint on September 10, 1997 until finality of the
Court’s Decision. Such interest is not due to stipulation but due to the mandate of the law 21 as embodied in Article
2212 of the Civil Code. From such date of finality, the total amount due shall earn interest of 12% per annum until
satisfied.22

Certainly, the computed interest from the filing of the complaint on September 10, 1997 would no longer be true upon
the finality of this Court’s decision. In accordance with the rules laid down in Eastern Shipping Lines, Inc. v. Court of
Appeals, we derive the following formula23 for the RTC’s guidance:

TOTAL AMOUNT DUE = [principal + interest + interest on interest] - partial payments made

Interest = principal x 18 % per annum x no. of years from due date until finality of judgment

Interest on interest = Interest computed as of the filing of the complaint (September 10, 1997) x 12% x no. of
years until finality of judgment

Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid.

In Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation,24 this Court held that the total
amount due on the contracts of loan may be easily determined by the trial court through a simple mathematical
computation based on the formula specified above. Mathematics is an exact science, the application of which needs
no further proof from the parties.

As regards what loans were secured by the real estate mortgage, respondents contended that all five additional loans
were intended by the parties to be secured by the real estate mortgage. Thus, the CA erred in ruling that only two of
the five additional loans were secured by the real estate mortgage when the documents evidencing said loans would
show at least three loans were secured by the real estate mortgage, namely: (1) P150,000.00 obtained on May 31,
1992; (2) P150,000.00 obtained on July 1, 1992; and (3) P500,000.00 obtained on September 5, 1992.25
In their Reply, petitioners alleged that their petition only raised the sole issue of interest on the interest due, thus, by
not filing their own petition for review, respondents waived their privilege to bring matters for the Court’s review that
do not deal with the sole issue raised.

Procedurally, the appellate court in deciding the case shall consider only the assigned errors, however, it is equally
settled that the Court is clothed with ample authority to review matters not assigned as errors in an appeal, if it finds
that their consideration is necessary to arrive at a just disposition of the case.26

Moreover, as an exception to the rule that findings of facts of the CA are conclusive and binding on the Court, 27 an
independent evaluation of facts may be done by it when the findings of facts are conflicting,28 as in this case.

The RTC held that all the additional loans were secured by the real estate mortgage, thus:

There is, therefore, a preponderance of evidence to show that the parties agreed that the additional loans would be
against the mortgaged property. It is of no moment that the Deed of Mortgage (Exh. B) was not amended and
thereafter annotated at the back of the title (Exh. C) because under Article 2125 of the Civil Code, if the instrument of
mortgage is not recorded, the mortgage is nevertheless binding between the parties. It is extremely difficult for the
court to perceive that the plaintiffs required the defendants to execute a mortgage on the first loan and thereafter fail
to do so on the succeeding loans. Such contrary behavior is unlikely.29

The CA modified the RTC decision holding that:

However, the real estate mortgage contract was supplemented by the express intention of the mortgagors
(defendants-appellants) to secure the subsequent loans they obtained from the mortgagees (plaintiffs-appellees), on
01 July 1992, in the amount of P150,000.00, and on 05 September 1992, in the amount of P500,000.00. The
mortgagors’ (defendants-appellants) intention to secure a larger amount than that stated in the real estate mortgage
contract was unmistakable in the acknowledgment receipts they issued on the said loans. The acknowledgment
receipts read:

"July 1, [1]992

"Received from Mr. & Mrs. Renato Q. Cuyco PCIB Ck # 498243 in the amount of P150,000.00 July 1/92 as additional
loan against mortgaged property TCT No. RT-43723 (188321) Q.C.

(SGD) Adelina S. Cuyco"

"Sept. 05/92

"Received from Mr. R. Cuyco the amount of P500,000.00 (five hundred thousand) PCIB Ck # 468657 as additional
loan from mortgage property TCT RT-43723.

(SGD) Adelina S. Cuyco"

In such case, the specific amount mentioned in the real estate mortgage contract no longer controls. By express
intention of the mortgagors (defendants-appellants) the real estate mortgage contract, as supplemented, secures the
P1,500,000.00 loan obtained on 25 November 1991; the P150,000.00 loan obtained on 01 July 1992; and the
P500,000.00 loan obtained on 05 September 1992. All these loans are subject to stipulated interest of 18% per
annum provided in the real estate mortgage contract.

With respect to the other subsequent loans of the defendants-appellants in the amount of P150,000.00, obtained on
31 May 1992; in the amount of P200,000.00, obtained on 29 October 1992; and, in the amount of P250,000.00,
obtained on 13 January 1993, nothing in the records remotely suggests that the mortgagor (defendants-appellants),
likewise, intended the said loans to be secured by the real estate mortgage contract. Consequently, we rule that the
trial court did err in declaring said loans to be secured by the real estate mortgage contract.30

As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. 31 However, the
amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand
as security if from the four corners of the instrument the intent to secure future and other indebtedness can be
gathered. This stipulation is valid and binding between the parties and is known in American Jurisprudence as the
"blanket mortgage clause," also known as a "dragnet clause." 32

A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional
funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs,
costs of extra legal services, recording fees, et cetera.33

While a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be
sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly
within the terms of the mortgage contract.34

The pertinent provisions of the November 26, 1991 real estate mortgage reads:

That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of ONE MILLION FIVE THOUSAND PESOS
(sic) (1,500,000.00) Philippine Currency, receipt whereof is hereby acknowledged and confessed, payable within a
period of one year, with interest at the rate of eighteen percent (18%) per annum;

That for and in consideration of said indebtedness, the MORTGAGOR does hereby convey and deliver by way of
MORTGAGE unto said MORTGAGEE, the latter’s heirs and assigns, the following realty together with all the
improvements thereon and situated at Cubao, Quezon City, and described as follows:

xxxx

PROVIDED HOWEVER, that should the MORTGAGOR duly pay or cause to be paid unto the MORTGAGEE or his
heirs and assigns, the said indebtedness of ONE MILLION FIVE HUNDRED THOUSAND PESOS (1,500,000.00),
Philippine Currency, together with the agreed interest thereon, within the agreed term of one year on a monthly basis
then this MORTGAGE shall be discharged, and rendered of no force and effect, otherwise it shall subsist and be
subject to foreclosure in the manner and form provided by law.

It is clear from a perusal of the aforequoted real estate mortgage that there is no stipulation that the mortgaged realty
shall also secure future loans and advancements. Thus, what applies is the general rule above stated.

Even if the parties intended the additional loans of P150,000.00 obtained on May 30, 1992, P150,000.00 obtained on
July 1, 1992, and P500,00.00 obtained on September 5, 1992 to be secured by the same real estate mortgage, as
shown in the acknowledgement receipts, it is not sufficient in law to bind the realty for it was not made substantially in
the form prescribed by law.

In order to constitute a legal mortgage, it must be executed in a public document, besides being recorded. A provision
in a private document, although denominating the agreement as one of mortgage, cannot be considered as it is not
susceptible of inscription in the property registry. A mortgage in legal form is not constituted by a private document,
even if such mortgage be accompanied with delivery of possession of the mortgage property.35 Besides, by express
provisions of Section 127 of Act No. 496, a mortgage affecting land, whether registered under said Act or not
registered at all, is not deemed to be sufficient in law nor may it be effective to encumber or bind the land unless
made substantially in the form therein prescribed. It is required, among other things, that the document be signed by
the mortgagor executing the same, in the presence of two witnesses, and acknowledged as his free act and deed
before a notary public. A mortgage constituted by means of a private document obviously does not comply with such
legal requirements.36

What the parties could have done in order to bind the realty for the additional loans was to execute a new real estate
mortgage or to amend the old mortgage conformably with the form prescribed by the law. Failing to do so, the realty
cannot be bound by such additional loans, which may be recovered by the respondents in an ordinary action for
collection of sums of money.

Lastly, the CA held that to discharge the real estate mortgage, payment only of the principal and the stipulated
interest of 18% per annum is sufficient as the mortgage document does not contain a stipulation that the legal interest
on the stipulated interest due, attorney’s fees, and costs of suit must be paid first before the same may be
discharged.37
We do not agree.

Section 2, Rule 68 of the Rules of Court provides:

SEC. 2. Judgment on foreclosure for payment or sale. — If upon the trial in such action the court shall find the
facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage
debt or obligation, including interest and other charges as approved by the court, and costs, and shall render
judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee within a
period of not less than ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment, and
that in default of such payment the property shall be sold at public auction to satisfy the judgment. (Emphasis added)

Indeed, the above provision of the Rules of Court provides that the mortgaged property may be charged not only for
the mortgage debt or obligation but also for the interest, other charges and costs approved by the court. Thus, to
discharge the real estate mortgage, petitioners must pay the respondents (1) the total amount due, as computed in
accordance with the formula indicated above, that is, the principal loan of P1,500,000.00, the stipulated interest of
18%, the interest on the stipulated interest due of 12% computed from the filing of the complaint until finality of the
decision less partial payments made, (2) the 12% legal interest on the total amount due from finality until fully
satisfied, (3) the reasonable attorney’s fees of P25,000.00 and (4) the costs of suit, within the period specified by the
Rules. Should the petitioners default in the payment thereof, the property shall be sold at public auction to satisfy the
judgment.

WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA G.R. CV No. 62352 dated
November 5, 2003, which modified the Decision of the Regional Trial Court of Quezon City, Branch 105, in Civil Case
No. Q-97-32130, is AFFIRMED with the MODIFICATIONS that petitioners are ordered to pay the respondents (1)
the total amount due, as computed by the RTC in accordance with the formula specified above, (2) the legal interest
of 12% per annum on the total amount due from such finality until fully paid, (3) the reasonable amount of P25,000.00
as attorney’s fees, and (4) the costs of suit, within a period of not less than 90 days nor more than 120 days from the
entry of judgment, and in case of default of such payment the property shall be sold at public auction to satisfy the
judgment.

SO ORDERED.
G.R. No. 175490               September 17, 2009

ILEANA DR. MACALINAO, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.

DECISION

VELASCO, JR., J.:

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside
the June 30, 2006 Decision1 of the Court of Appeals (CA) and its November 21, 2006 Resolution2 denying petitioner’s
motion for reconsideration.

The Facts

Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities of
respondent Bank of the Philippine Islands (BPI). 3 Petitioner Macalinao made some purchases through the use of the
said credit card and defaulted in paying for said purchases. She subsequently received a letter dated January 5, 2004
from respondent BPI, demanding payment of the amount of one hundred forty-one thousand five hundred eighteen
pesos and thirty-four centavos (PhP 141,518.34), as follows:

Previous Purchases Penalty Finance

Statement Date Balance Due
Balance (Payments) Interest Charges

10/27/2002 94,843.70   559.72 3,061.99 98,456.41

11/27/2002 98,465.41 (15,000) 0 2,885.61 86,351.02

12/31/2002 86,351.02 30,308.80 259.05 2,806.41 119,752.28

1/27/2003 119,752.28   618.23 3,891.07 124,234.58

2/27/2003 124,234.58   990.93 4,037.62 129,263.13

3/27/2003 129,263.13 (18,000.00) 298.72 3,616.05 115,177.90

4/27/2003 115,177.90   644.26 3,743.28 119,565.44

5/27/2003 119,565.44 (10,000.00) 402.95 3,571.71 113,540.10

6/29/2003 113,540.10 8,362.50 (7,000.00) 323.57 3,607.32 118,833.49

7/27/2003 118,833.49   608.07 3,862.09 123,375.65

8/27/2003 123,375.65   1,050.20 4,009.71 128,435.56

9/28/2003 128,435.56   1,435.51 4,174.16 134,045.23

10/28/2003          

11/28/2003          

12/28/2003          

1/27/2004 141,518.34   8,491.10 4,599.34 154,608.78

Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard, the charges
or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts
shall bear interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% per month.
Particularly:

8. PAYMENT OF CHARGES – BCC shall furnish the Cardholder a monthly Statement of Account (SOA) and the
Cardholder agrees that all charges made through the use of the CARD shall be paid by the Cardholder as stated in
the SOA on or before the last day for payment, which is twenty (20) days from the date of the said SOA, and such
payment due date may be changed to an earlier date if the Cardholder’s account is considered overdue and/or with
balances in excess of the approved credit limit, or to such other date as may be deemed proper by the CARD issuer
with notice to the Cardholder on the same monthly SOA. If the last day fall on a Saturday, Sunday or a holiday, the
last day for the payment automatically becomes the last working day prior to said payment date. However,
notwithstanding the absence or lack of proof of service of the SOA of the Cardholder, the latter shall pay any and all
charges made through the use of the CARD within thirty (30) days from date or dates thereof. Failure of the
Cardholder to pay the charges made through the CARD within the payment period as stated in the SOA or within
thirty (30) days from actual date or dates of purchase whichever occur earlier, shall render him in default without the
necessity of demand from BCC, which the Cardholder expressly waives. The charges or balance thereof remaining
unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of
3% per month for BPI Express Credit, BPI Gold Mastercard and an additional penalty fee equivalent to another 3% of
the amount due for every month or a fraction of a month’s delay. PROVIDED that if there occurs any change on the
prevailing market rates, BCC shall have the option to adjust the rate of interest and/or penalty fee due on the
outstanding obligation with prior notice to the cardholder. The Cardholder hereby authorizes BCC to correspondingly
increase the rate of such interest [in] the event of changes in the prevailing market rates, and to charge additional
service fees as may be deemed necessary in order to maintain its service to the Cardholder. A CARD with
outstanding balance unpaid after thirty (30) days from original billing statement date shall automatically be
suspended, and those with accounts unpaid after ninety (90) days from said original billing/statement date shall
automatically be cancel (sic), without prejudice to BCC’s right to suspend or cancel any card anytime and for
whatever reason. In case of default in his obligation as provided herein, Cardholder shall surrender his/her card to
BCC and in addition to the interest and penalty charges aforementioned , pay the following liquidated damages
and/or fees (a) a collection fee of 25% of the amount due if the account is referred to a collection agency or attorney;
(b) service fee for every dishonored check issued by the cardholder in payment of his account without prejudice,
however, to BCC’s right of considering Cardholder’s account, and (c) a final fee equivalent to 25% of the unpaid
balance, exclusive of litigation expenses and judicial cost, if the payment of the account is enforced though court
action. Venue of all civil suits to enforce this Agreement or any other suit directly or indirectly arising from the
relationship between the parties as established herein, whether arising from crimes, negligence or breach thereof,
shall be in the process of courts of the City of Makati or in other courts at the option of BCC. 4 (Emphasis
supplied.)1avvphi1

For failure of petitioner Macalinao to settle her obligations, respondent BPI filed with the Metropolitan Trial Court
(MeTC) of Makati City a complaint for a sum of money against her and her husband, Danilo SJ. Macalinao. This was
raffled to Branch 66 of the MeTC and was docketed as Civil Case No. 84462 entitled Bank of the Philippine Islands
vs. Spouses Ileana Dr. Macalinao and Danilo SJ. Macalinao.5

In said complaint, respondent BPI prayed for the payment of the amount of one hundred fifty-four thousand six
hundred eight pesos and seventy-eight centavos (PhP 154,608.78) plus 3.25% finance charges and late payment
charges equivalent to 6% of the amount due from February 29, 2004 and an amount equivalent to 25% of the total
amount due as attorney’s fees, and of the cost of suit.6

After the summons and a copy of the complaint were served upon petitioner Macalinao and her husband, they failed
to file their Answer.7 Thus, respondent BPI moved that judgment be rendered in accordance with Section 6 of the
Rule on Summary Procedure.8 This was granted in an Order dated June 16, 2004. 9 Thereafter, respondent BPI
submitted its documentary evidence.101avvphi1

In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and ordered petitioner Macalinao
and her husband to pay the amount of PhP 141,518.34 plus interest and penalty charges of 2% per month, to wit:

WHEREFORE, finding merit in the allegations of the complaint supported by documentary evidence, judgment is
hereby rendered in favor of the plaintiff, Bank of the Philippine Islands and against defendant-spouses Ileana DR
Macalinao and Danilo SJ Macalinao by ordering the latter to pay the former jointly and severally the following:
 1. The amount of PESOS: ONE HUNDRED FORTY ONE THOUSAND FIVE HUNDRED EIGHTEEN AND
34/100 (P141,518.34) plus interest and penalty charges of 2% per month from January 05, 2004 until fully
paid;

2. P10,000.00 as and by way of attorney’s fees; and

3. Cost of suit.

SO ORDERED.11

Only petitioner Macalinao and her husband appealed to the Regional Trial Court (RTC) of Makati City, their recourse
docketed as Civil Case No. 04-1153. In its Decision dated October 14, 2004, the RTC affirmed in toto the decision of
the MeTC and held:

In any event, the sum of P141,518.34 adjudged by the trial court appeared to be the result of a recomputation at the
reduced rate of 2% per month. Note that the total amount sought by the plaintiff-appellee was P154,608.75 exclusive
of finance charge of 3.25% per month and late payment charge of 6% per month.

WHEREFORE, the appealed decision is hereby affirmed in toto.

No pronouncement as to costs.

SO ORDERED.12

Unconvinced, petitioner Macalinao filed a petition for review with the CA, which was docketed as CA-G.R. SP No.
92031. The CA affirmed with modification the Decision of the RTC:

WHEREFORE, the appealed decision is AFFIRMED but MODIFIED with respect to the total amount due and interest
rate. Accordingly, petitioners are jointly and severally ordered to pay respondent Bank of the Philippine Islands the
following:

1. The amount of One Hundred Twenty Six Thousand Seven Hundred Six Pesos and Seventy Centavos
plus interest and penalty charges of 3% per month from January 5, 2004 until fully paid;

2. P10,000.00 as and by way of attorney’s fees; and

3. Cost of Suit.

SO ORDERED.13

Although sued jointly with her husband, petitioner Macalinao was the only one who filed the petition before the CA
since her husband already passed away on October 18, 2005.14

In its assailed decision, the CA held that the amount of PhP 141,518.34 (the amount sought to be satisfied in the
demand letter of respondent BPI) is clearly not the result of the re-computation at the reduced interest rate as
previous higher interest rates were already incorporated in the said amount. Thus, the said amount should not be
made as basis in computing the total obligation of petitioner Macalinao. Further, the CA also emphasized that
respondent BPI should not compound the interest in the instant case absent a stipulation to that effect. The CA also
held, however, that the MeTC erred in modifying the amount of interest rate from 3% monthly to only 2% considering
that petitioner Macalinao freely availed herself of the credit card facility offered by respondent BPI to the general
public. It explained that contracts of adhesion are not invalid per se and are not entirely prohibited.

Petitioner Macalinao’s motion for reconsideration was denied by the CA in its Resolution dated November 21, 2006.
Hence, petitioner Macalinao is now before this Court with the following assigned errors:

I.
THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BE UPHELD SINCE THE STIPULATED
RATE OF INTEREST WAS UNCONSCIONABLE AND INIQUITOUS, AND THUS ILLEGAL.

II.

THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCED RATE OF INTEREST FROM 2% TO 3%,
CONTRARY TO THE TENOR OF ITS OWN DECISION.

III.

THE COURT A QUO, INSTEAD OF PROCEEDING WITH A RECOMPUTATION, SHOULD HAVE DISMISSED THE
CASE FOR FAILURE OF RESPONDENT BPI TO PROVE THE CORRECT AMOUNT OF PETITIONER’S
OBLIGATION, OR IN THE ALTERNATIVE, REMANDED THE CASE TO THE LOWER COURT FOR RESPONDENT
BPI TO PRESENT PROOF OF THE CORRECT AMOUNT THEREOF.

Our Ruling

The petition is partly meritorious.

The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum Should Be Reduced to 2% Per
Month or 24% Per Annum

In its Complaint, respondent BPI originally imposed the interest and penalty charges at the rate of 9.25% per month
or 111% per annum. This was declared as unconscionable by the lower courts for being clearly excessive, and was
thus reduced to 2% per month or 24% per annum. On appeal, the CA modified the rate of interest and penalty charge
and increased them to 3% per month or 36% per annum based on the Terms and Conditions Governing the Issuance
and Use of the BPI Credit Card, which governs the transaction between petitioner Macalinao and respondent BPI.

In the instant petition, Macalinao claims that the interest rate and penalty charge of 3% per month imposed by the CA
is iniquitous as the same translates to 36% per annum or thrice the legal rate of interest. 15 On the other hand,
respondent BPI asserts that said interest rate and penalty charge are reasonable as the same are based on the
Terms and Conditions Governing the Issuance and Use of the BPI Credit Card.16

We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month should be
equitably reduced to 2% per month or 24% per annum.

Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation
on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has considered
the interest rate of 36% per annum as excessive and unconscionable. We held in Chua vs. Timan:17

The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans must be equitably reduced to
1% per month or 12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that
stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took
effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans,
regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their
assets. (Emphasis supplied.)

Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may
reduce the interest rate as reason and equity demand.18

The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the
Issuance and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional
penalty charge of 3% per month. Pertinently, Article 1229 of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if
it is iniquitous or unconscionable.

In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances
of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.19

In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent BPI, as
indicated in her Billing Statements.20 Further, the stipulated penalty charge of 3% per month or 36% per annum, in
addition to regular interests, is indeed iniquitous and unconscionable.

Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5%
monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month
or 24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.

There Is No Basis for the Dismissal of the Case,

Much Less a Remand of the Same for Further Reception of Evidence

Petitioner Macalinao claims that the basis of the re-computation of the CA, that is, the amount of PhP 94,843.70
stated on the October 27, 2002 Statement of Account, was not the amount of the principal obligation. Thus, this
allegedly necessitates a re-examination of the evidence presented by the parties. For this reason, petitioner
Macalinao further contends that the dismissal of the case or its remand to the lower court would be a more
appropriate disposition of the case.

Such contention is untenable. Based on the records, the summons and a copy of the complaint were served upon
petitioner Macalinao and her husband on May 4, 2004. Nevertheless, they failed to file their Answer despite such
service. Thus, respondent BPI moved that judgment be rendered accordingly.21 Consequently, a decision was
rendered by the MeTC on the basis of the evidence submitted by respondent BPI. This is in consonance with Sec. 6
of the Revised Rule on Summary Procedure, which states:

Sec. 6. Effect of failure to answer. — Should the defendant fail to answer the complaint within the period above
provided, the court, motu proprio, or on motion of the plaintiff, shall render judgment as may be warranted by the facts
alleged in the complaint and limited to what is prayed for therein: Provided, however, that the court may in its
discretion reduce the amount of damages and attorney’s fees claimed for being excessive or otherwise
unconscionable. This is without prejudice to the applicability of Section 3(c), Rule 10 of the Rules of Court, if there are
two or more defendants. (As amended by the 1997 Rules of Civil Procedure; emphasis supplied.)

Considering the foregoing rule, respondent BPI should not be made to suffer for petitioner Macalinao’s failure to file
an answer and concomitantly, to allow the latter to submit additional evidence by dismissing or remanding the case
for further reception of evidence. Significantly, petitioner Macalinao herself admitted the existence of her obligation to
respondent BPI, albeit with reservation as to the principal amount. Thus, a dismissal of the case would cause great
injustice to respondent BPI. Similarly, a remand of the case for further reception of evidence would unduly prolong the
proceedings of the instant case and render inutile the proceedings conducted before the lower courts.

Significantly, the CA correctly used the beginning balance of PhP 94,843.70 as basis for the re-computation of the
interest considering that this was the first amount which appeared on the Statement of Account of petitioner
Macalinao. There is no other amount on which the re-computation could be based, as can be gathered from the
evidence on record. Furthermore, barring a showing that the factual findings complained of are totally devoid of
support in the record or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings
must stand, for this Court is not expected or required to examine or contrast the evidence submitted by the parties.22

In view of the ruling that only 1% monthly interest and 1% penalty charge can be applied to the beginning balance of
PhP 94,843.70, this Court finds the following computation more appropriate:

Statement Previous Purchases Balance Interest Penalty Total Amount Due

Date Balance (Payments) (1%) Charge for the Month
 (1%)

10/27/2002 94,843.70   94,843.70 948.44 948.44 96,740.58

11/27/2002 94,843.70 (15,000) 79,843.70 798.44 798.44 81,440.58

12/31/2002 79,843.70 30,308.80 110,152.50 1,101.53 1,101.53 112,355.56

1/27/2003 110,152.50   110,152.50 1,101.53 1,101.53 112,355.56

2/27/2003 110,152.50   110,152.50 1,101.53 1,101.53 112,355.56

3/27/2003 110,152.50 (18,000.00) 92,152.50 921.53 921.53 93,995.56

4/27/2003 92,152.50   92,152.50 921.53 921.53 93,995.56

5/27/2003 92,152.50 (10,000.00) 82,152.50 821.53 821.53 83,795.56

8,362.50
6/29/2003 82,152.50 83,515.00 835.15 835.15 85,185.30
(7,000.00)

7/27/2003 83,515.00   83,515.00 835.15 835.15 85,185.30

8/27/2003 83,515.00   83,515.00 835.15 835.15 85,185.30

9/28/2003 83,515.00   83,515.00 835.15 835.15 85,185.30

10/28/2003 83,515.00   83,515.00 835.15 835.15 85,185.30

11/28/2003 83,515.00   83,515.00 835.15 835.15 85,185.30

12/28/2003 83,515.00   83,515.00 835.15 835.15 85,185.30

1/27/2004 83,515.00   83,515.00 835.15 835.15 85,185.30

TOTAL     83,515.00 14,397.26 14,397.26 112,309.52

WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated June 30, 2006 in CA-G.R. SP No. 92031
is hereby MODIFIED with respect to the total amount due, interest rate, and penalty charge. Accordingly, petitioner
Macalinao is ordered to pay respondent BPI the following:

(1) The amount of one hundred twelve thousand three hundred nine pesos and fifty-two centavos (PhP
112,309.52) plus interest and penalty charges of 2% per month from January 5, 2004 until fully paid;

(2) PhP 10,000 as and by way of attorney’s fees; and

(3) Cost of suit.

SO ORDERED.