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https://www.homeworkping.com/Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-59519 July 20, 1982

ADELA FRANCISCO, petitioner, vs.HON. ALFREDO M. GORGONIO, as Presiding Judge of the Court of First Instance of Rizal, Branch XXXV, Caloocan City, Deputy Sheriff Danilo P. Norberto, and Spouses ChingSiao and Lim O. Chu, respondents.

Napoleon M. Malimas for petitioner.

Antonio P. Coronel for respondents.

BARREDO, J.:

Petition for certiorari seeking the setting aside of the orders of respondent court of August 15, 1980, November 7, 1980, March 2, 1981, October 27, 1981 and December 16, 1981, particularly insofar as said orders require petitioner to pay interest at the rates stated therein in addition to the amount of P150,000.00 which has already been paid to private respondents.

The case below stemmed from a contract of lease entered into on July 5, 1977 between Zenaida F. Boiser "representing her parents, spouses Luis F. Francisco and Adela Blas Francisco" (p. 26, Record) 1 of a piece of land one hundred thirty-five square meters, more or less, situated at No. 691 (Old) Rizal Avenue Extension, Caloocan City, with the following pertinent provisions:

1. That the amount of ONE HUNDRED FIFTY THOUSAND PESOS (Pl50,000.00), Philippine Currency, shall be deposited by the Lessee in favor of the Lessor upon signing of this agreement;

2. That out of the deposit of P150,000.00, the amount of P30,000.00 equivalent to twenty per cent (20%) of said deposit shall represent the goodwill of the store space;

3. That the monthly rental shall be THREE THOUSAND SEVEN HUNDRED FIFTY PESOS (P3,750.00), Philippine Currency, and the amount of P2,500.00 shall be deducted against the aforesaid deposit and the amount of P1,250.00 shall be in postdated monthly checks for 12 months. It is understood and agreed that the monthly rental aforesaid shall begin upon final occupancy of said store space by the Lessee;

4. That the proposed building shall be constructed and to be finished by the Lessor within 6 months from execution of this agreement:

5. That the terms of the lease contract shall be ten (10) years from execution hereof, to be renewed for a 5-year period upon agreement of both parties, subject however for a reasonable increase of monthly rental after five (5) years from execution hereof;

6. That in case the parties hereof will not agree as to the conditions and terms to be set up in the final contract of lease, then the Lessor agrees to return and refund the amount of P150,000.00 as deposit in full with legal interest to the Lessee and this agreement shall be considered null and void and without force and effect, if however, it is the Lessee who will back out from this agreement, then the amount of P30,000.00 shall be forfeited.

On May 30, 1978, private respondents filed a complaint, Civil Case No. C-6935, precisely the case below, against Zenaida F. Boiser, as attorney-in-fact of the spouses Luis F. Francisco and Adela Francisco, alleging that in spite of their having paid the P120,000.00 advanced rentals and P30,000.00 goodwill stipulated in the agreement, and the promise of said defendant to deliver to them the leased premises within six months from the signing of the contract, she failed to do so without any legal justification, and instead was about to turn over possession thereof to Ginza Telamart, and, therefore, prayed thus:

WHEREFORE, in view of all the foregoing it is most respectfully prayed as a preliminary matter that a writ 6f preliminary prohibitory injunction be issued by this court pending the final termination of this case ordering defendant to desist from awarding the leased premises to another and that after due hearing judgment be rendered:

1. Making preliminary prohibitory injunction final and permanent;

2. That plaintiff be entitled to the described leased portion of the building and ordering defendant to deliver the same;

3. Ordering defendant to pay an amount reasonably assessed by the Honorable Court for moral damages;

4. Ordering the defendant to pay actual damage as may be proven, plus legal interest;

5. And further ordering defendant to pay the sum of P15,000.00 as and for attorney's fees.

Plaintiffs herein further pray for such other reliefs and remedies just and equitable in the premises. (Pp. 24-25, Record)

After being summoned, on June 29, 1978, defendant Boiser (who was the only one served with summons) filed her answer alleging and praying:

10. That the agreement to lease was subject to the following conditions:

(a) theresolutory condition contained in paragraph 6 thereof quoted in paragraph 2 of this answer;

(b) the specific area of the building to be constructed was still to be agreed upon and it was not provided in the agreement what specific area of the building was to be leased by plaintiff;

11. That plaintiff and defendant could not agree on the specific area of the new building to be leased, the choice of which was made difficult by the fact that the frontage as required by the city government; consequently, defendant opted to consider the agreement null and void and of no force and effect; that defendant tendered payment to plaintiff before the complaint was filed of the sum of P150,000.00 with interest at the legal rate as provided in paragraph 6 of the agreement, which tender of payment was refused by the plaintiff;

12. That defendant is ready, willing and able to refund or reimburse the amount of P150,000.00 with interest at the legal rate as provided in paragraph 6 of the agreement;

And as counterclaim, defendant respectfully alleges:

13. That defendant reiterates the foregoing allegations to form integral part of this counterclaim;

14. That defendant is lawfully entitled to consider the agreement null and void and of no force and effect and to make a consignation of the amount of P150,000.00 with interest at the legal rate under paragraph 6 of the agreement and to be released from any further liability thereon;

15. That due to the unfounded suit filed by plaintiff, defendant has been compelled to litigate to protect her interest and avail of the services of counsel at an agreed fee of P5,000.00.

WHEREFORE, it is respectfully prayed:

1. That the prayer for a writ of preliminary injunction contained in the complaint be denied and the temporary restraining order be set aside;

2. After trial, that judgment be rendered dismissing the complaint for lack of merit;

3. On the counterclaim, that the Agreement dated July 5, 1977 between plaintiff and defendant be declared null and void and of no force and effect pursuant to paragraph 6 thereof, that the consignation of the amount of P150,000.00 with interest at the legal rate from July 5, 1977 until its deposit in court be accepted by the court; and that defendant be declared released from any further liability or obligation under the said Agreement;

4. Likewise on the counterclaim, that plaintiff be ordered to pay defendant attorney's fees in the amount of P5,000.00, such expenses of litigation as may be proven, and to pay the costs, if any.

Defendant respectfully prays for such other relief as the court may deem just and proper in the premises. (Pp. 29-31, Record)

Evidently, the court a quo must have issued the restraining order prayed for in private respondent's complaint, for on July 24, 1978, defendant Boiser filed a motion praying:

1. That the restraining order contained in the order of June 26, 1978 be lifted and set aside; and

2. That plaintiff be allowed to deposit with the clerk of court, or with such other depository as the court may determine, the sum of Pl50,000.00 subject to the disposition of the court in its judgment. (Page 33, Record.)

Acting on the foregoing motion, on August 10, 1978 Judge Alberto Q. Ubay, who was then still the judge in charge of the case, issued the following order:

O R D E R

The "Omnibus Motion" filed by defendant, thru counsel, on July 25, 1978, is hereby GRANTED, it appearing from the records of this case and from the testimony of plaintiff ChingSiao that when on June 26, 1978 the Court issued a restraining order requiting defendant "to desist and refrain from awarding the leased premises to Ginza Telamart", the premises in question had already been leased to the said Ginza Telamart and has been actually occupied by it, contrary to the allegation and contention of the herein plaintiffs. Hence, the continuance of said restraining order is no longer justified.

As regards the consignment of the sum of P150,000.00, the Court believes that no valid reason has been advanced by plaintiffs why the same should not be accepted or granted, subject to the outcome of this case on the merits and subject to the orders of this Court.

WHEREFORE, the restraining order issued by the Court dated June 26, 1978, is hereby lifted and set aside; and the defendant Zenaida F. Boiser is hereby authorized to deposit with the Clerk of Court the sum of P150,000.00 subject to the disposition of the Court, as may be provided in the decision to be rendered in this case.

SO ORDERED. (Page, 35, Record.)

However, on August 22, 1978, the following motion appears to have been filed by defendant:

NOW COMES defendant, by undersigned counsel, and to the Court respectfully moves for a partial reconsideration of the Order of August 10, 1978 insofar as said Order states that:

... the defendant Zenaida F. Boiser is hereby authorized to deposit with the Clerk of Court the sum of P150,000.00 subject to the disposition of the court, as may be provided in the decision to be rendered in this case.

on the following grounds:

1. That as early as July 18, 1978, Adela B. Francisco, one of defendant's principals (who is also defendant's mother) had deposited with the Associated Citizen's Bank, Sangandaan Branch, the amount of P150,000.00 intended to be refunded to plaintiffs, as provided in paragraph 6 of the Agreement of July 5, 1977 (Annex "A" of the Complaint);

2. That the said deposit earns interest of l4% per annum;

3. That the said Adela Blas Francisco, as signified by her conformity to this motion, is willing to keep the said deposit and make it subject to the disposition of this court, as may be provided in the decision to be rendered in this case:

4. That no prejudice would be caused to plaintiffs under the foregoing arrangement; on the other hand, it will earn for the parties interest at 14% per annum until disposed of under the judgment of this court;

5. That as evidence of the deposit alleged in paragraph 1 hereof, there is attached to this motion a xerox copy of a certificate of time deposit issued by the Associated Citizens Bank, Sangandaan Branch, as Annex "A" hereof.

WHEREFORE, it is respectfully prayed that the portion of the Order dated August 10, 1978 quoted in the opening paragraph of this motion be amended to read as follows:

... that the defendant Zenaida F. Boiser is hereby authorized to deposit in the name of Adela B. Francisco, one of the principals in entering into contract with plaintiffs, the sum

of P150,000.00 with the Associated Citizens Bank, Sangandaan Branch, subject to the disposition of the court, as may be provided in the decision to be rendered in this case.

Quezon City for Caloocan City, August 22, 1978.

(SGD.) ANACLETO S. MAGNO Attorney for the Defendant 113 Mendez, Baesa Quezon City

WITH MY CONFORMITY: ADELA B. FRANCISCO (Pp. 38-39, Record.)

Consequently, Judge Ubay ordered on September 13, 1978 that:

O R D E R

Acting on the "Motion for Reconsideration", dated August 22, 1978 and filed by counsel for defendants, the Court, after a careful consideration of the grounds stated therein, as well as the arguments advanced by counsel for plaintiff, is of the opinion that the said motion should be, as it is hereby, GRANTED.

WHEREFORE, the Order of this Court dated August 10, 1978 is hereby amended to read as follows:

that the defendant Zenaida F. Boiser is hereby authorized to deposit in the name of Adela S. Francisco, one of her principals, in entering into contract with the Associated Citizens Bank, Sangandaan Branch, subject to the disposition of the Court, as may be provided in the decision to be rendered in this case, amount shall be made without an order from the Court. (sic)

SO ORDERED. (Page 41, Record.)

Apparently, as a counter-move, respondents filed on June 10, 1980, a Motion to Withdraw Deposit, asking the court that:

WHEREFORE, premises considered, it is respectfully so prayed that Lim O. Chu be snowed to withdraw the P150,000.00 previously deposited in bank upon order of this Honorable Court, plus legal rate of interest (14% per anum) from July 5, 1977, the date of the contract, Annex "A" of complaint. (Page 43, Record.)

Acting on this motion, on August 15, 1980, the now respondent judge who had replaced Judge Ubay, after the latter retired, issued an order pertinently ordering that:

Considering the foregoing antecedents and subsequent developments in this case and in the broad interest of justice and equity, this Court hereby grants said motion of the plaintiffs to withdraw from the Associated Citizens Bank, Caloocan City Branch, the amount of P150,000.00 plus the legal interests accruing thereon deposited in the name of the defendant Adela B. Francisco by way of refund to plaintiffs spouses ChingSiao and Lim O. Chu and hereby orders the said bank and defendant ZenaidaBoiser and/or Adela B. Francisco in whose name said amount had been deposited to comply with this Order, directing ZenaidaBoiser and/or Adela Francisco to withdraw from said bank the amount of P150,000.00, together with all the interests due thereon, and further to turn over said amount to the plaintiffs spouses within five (5) days from receipt of this Order.

Meanwhile and brushing aside legal technicalities raised by the parties, this Court will hold in abeyance resolution on other matters raised in the pleadings of the parties (Motion to Withdraw Deposit and Opposition to Withdrawal of Rentals) until such further steps that may be henceforth be taken by the parties-litigants in this case in the prosecution of their respective side of this case. (Pp. 45-46, Record.)

This order was followed by another dated November 7, 1980, portions of which read:

The delivery of the principal amount of P150,000.00 to the plaintiffs now being a fait accompli what remains now to be resolved by this Court is the amount of the interest to be paid the plaintiffs. The defendants maintain that it should be the legal rate of six (6%) percent per annum while the plaintiffs claim their legal rate of interest should be twelve percent (12 %) per annum.

Before resolving this issue, this Court finds it illuminating that the subject amount of P150,000.00 as admitted by the Associated Citizens Bank through their counsel, Atty. Teresita L. Nuguid in her Manifestation filed with this Court on September 3, 1980, was deposited by defendant Adela B. Francisco thru her attorney-in-fact, Zenaida F. Boiser in the form of time deposit (Account No. 7270, ACB). Hence, this Court can take judicial notice of the fact that as time deposit said amount of P150,000.00 earned aggregate interest far above the legal rates of 12% and 14% per annum allowed by law. Furthermore, as can be seen from Annex "A" of said Manifestation of the Associated Citizens Bank, defendant Adela B. Francisco made an assignment of said time deposit in favor of Engr. Laureano R. Arcadio and no doubt the said ban profited from the interest by reason of the time deposit far and above said legal rates.

Said interest derived by the defendants by virtue of said time deposit is of no moment in this case and what is controlling as heretofore stated is the agreement not contrary to law, morals and public policy between the parties which in this case is and should be the legal rate of interest which is twelve percent (12%) per annum computed from the date of the aforesaid Agreement executed on July 5, 1977 and to deny the plaintiffs that the rate of interest due them (12%) would amount to allowing a party to enrich himself at the expense of the other. It cannot also be said that defendants- depositor suffered losses by reason of making such time deposit because the difference between the legal rates of interest and the aggregate interests in time deposits is substantial.

WHEREFORE, premises considered, the defendants Adela B. Francisco and/or Zenaida F. Boiser, is hereby ordered:

1. to pay the plaintiffs the legal rate of interest of twelve percent (12%) per annum on the deposit of P150,000.00 computed from July 5, 1977 (date when Agreement was executed) up to September 13, 1978 when the money was deposited with the Associated Citizens Bank on Time Deposit pursuant to the Order of then Presiding Judge, the Hon. Alberto Q. Ubay; and

2. to pay the plaintiffs the legal rate of interest of twelve percent (12%) per annum on the deposit of P150,000.00 from September 13, 1978 (date when money was deposited with the Bank) up to August 29, 1980, when the said deposited money was refunded to the plaintiffs. (Pp. 48-50, Record.)

And on March 2, 1981, again respondent judge ordered:

Before this Court is plaintiffs' Motion for Execution of the Order dated November 7, 1980, to which the defendants file their opposition with Motion for Reconsideration on January 29, 1981, and as a rejoinder the plaintiffs filed their Opposition to Defendants' Motion for Reconsideration on February 13, 1981.

Brushing aside all legal technicalities and niceties of the law raised by the respective counsels in their respective pleadings, this Court has to resolve the issue as to the proper rate of legal interest due to the plaintiffs and to reckon the period from which said interest should run in consonance with the antecedent facts and circumstances of this case in the broad interest of justice and equity.

This Court observes that the parties in the prosecution of their respective claims are motivated with a desire to get the maximum of what is due him on the one hand and the desire of the other to give the least or minimum of what he is bound to pay. At first blush considering that the bone of contention revolves in the determination of the proper rate of interest and the period to be covered, the issue seems inconsequential but considering the amount involved which is to the tune of P150,000.00 the respective positions taken by the parties in the instant case is quite understandable. Hence, this Court will resolve the issue on the basis

of the time-honored legal dictum that "no one shall enrich himself at the expense of another" in conjunction with the facts and circumstances of this case in the broad interest of justice and equity.

Premises considered, this Court hereby reconsiders its Order dated November 7, 1980 and hereby orders the defendants Adela B. Francisco and/or Zenaida F. Boiser:

1. To pay the plaintiffs the legal rate of interest of nine (9%) percent per annum on the deposit of P 150,000.00 computed from July 5, 1977 (date of execution of Agreement) up to September 13, 1978 when the money was deposited with the Associated Citizens Bank on Time Deposit pursuant to the Order of then Presiding Judge of this Court, Hon. Alberto Q. Ubay; and

2. To pay the plaintiffs the legal rate of interest of twelve (12%) percent per annum on the deposit of P150,000.00 from September 13, 1978 (date when money was deposited with the Bank) up to August 29, 1980 (date of refund of the money to the plaintiffs). (Pp. 51-53, Record)

On July 31, 1981, petitioner filed a motion to quash the writ of execution issued pursuant to the above order, contending that she was not properly made a party to the case, since the defendant was her daughter Zenaida F. Boiser. On October 27, 1981, respondent judge denied said motion holding that said movant had by certain actuations related to the case vitually submitted her person to its jurisdiction although she was not properly made a party thereto. On October 16, 1981, respondent denied petitioner's motion for reconsideration, hence the instant petition before Us.

From a reading of the pleadings of both parties and looking at the case as a whole, We feel that somehow both counsel have centered, even with vehemence, on two points, which could be off-tangent, namely: (1) petitioner insists that the lower court had not acquired jurisdiction over her person and (2) respondents, for their part, maintain that they should be paid interest.

As far as petitioner is concerned, she evidently overlooks the fact that the record reveals that she gave her express conformity to the motion of defendant Boiser dated August 22, 1978, We have quoted earlier. Although technically, her contention is correct that she is not a party to the case below, she voluntarily formally manifested to the court "her conformity to this motion (of defendant Boiser) (and) is willing to keep the said deposit (made by her on July 18, 1978 in her own name in the Associated Citizens Bank, Sangandaan Branch) and make it subject to the disposition of this court, as may be provided in the decision to be rendered in this case." Under this circumstance, her being a party or not in the case has become immaterial. The fact is that she bound herself to an obligation with the court and the respondents, albeit, in this connection, it is very clear that her obligation is premised on the "decision to be rendered in this case" exclusively. And that decision has not materialized, hence she has nothing to answer for.

On the other hand, the insistence of respondents to recover interests on the P150,000.00, can hardly have any legal basis, as things developed when they first demanded from defendant Boiser compliance with the agreement. According to the answer filed by said defendant, it is alleged therein, and this allegation has not been denied by respondents, "that defendant tendered payment to the plaintiff before the complaint was filed (on May 30, 1978) of the sum of P150,000.00 with interest at the legal rate as provided in paragraph 6 of the agreement, which tender of payment was refused by the plaintiffs." On this score, We hold to be well taken the following posture of defendant Boiser, which, of course, benefits equally her mother:

DAMAGES CANNOT BE AWARDED WITHOUT PRIOR DETERMINATION OF THE MERITS OF THE CASE. IN ANY EVENT, DEFENDANT BOISER HAVING TENDERED THE AMOUNT, DAMAGES CANNOT BE ADJUDGED AGAINST HER

The award for interests in an action for the recovery of a sum of money partakes of a nature of an award for damages. Thus, Article 2209 of the Civil Code provides:

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

Clearly, the indemnity for interest on a monetary obligation attaches only when the obligor incurs delay, that is, when he is in default, it being a fundamental principle of law that:

Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. (Art. 1169, Civil Code.)

In the case at bar, it is not disputed that no demands, judicial or extrajudicial, were made by private respondents on defendant Boiser for the return of the amount of P150,000.00. There could not have been any because of the nature of the action filed by private respondents, which is for specific performance. Hence, there is no delay of the latter's obligation, assuming that she be eventually required in the decision of the Court to return the same. Upon the contrary, it was private respondents who were in moraaccipiende from the time defendant Boiser tendered and consigned the amount in Court.

Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept, the debtor shall be released from the responsibility by the consignation of the thing or sum done.(Art. 1256, Civil Code).

Tender and consignation having been properly made by defendant Boiser, she should therefore be released from paying the interests on the sum so deposited.

In Gregorio Araneta, Inc. vs. Tuazon de Paterno, et al., 91 Phil. 786, it was held that tender of payment alone suspends the running of the interest on the obligation. Thus—

The matter of the suspension of the running of interest on the loan is governed by principles which regard reality rather than technicality, substance rather than form. Good faith of the offeror or ability to make good the offer should in simple justice excuse the debtor from paying interest after the offer was rejected. A debtor cannot be consider delinquent who offered checks backed by sufficient deposit or ready to pay cash it the creditor chose that means of payment. Technical defects of the offer cannot be adduced to destroy its effects when the objection to accept the payment was based on entirely different grounds. Thus, although the defective consignation made by the debtor did not discharge the mortgage debt, the running of interest on the loan is suspended by the offer and tender of payment. (Pp. 17-18, Record.)

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of petitioner absolving her from the payment of the interests claimed by respondents beyond the date when defendant Boiser made her tender, not-only because the decision on the merits contemplated in her obligation aforementioned and on which her conformity to defendant Boiser's motion of August 22, 1978 was based has not materialized because respondents opted to get their money back instead of insisting on being given possession of the premises; which was the original nature of their action, 2 but also because, in consequence of Boiser's tender to return the P150,000.00 prior to the filing of the respondents' complaint, and the refusal of the latter to accept the same, no obligation to pay any interest could attach after the tender was made. In other words, defendant Boiser and/or petitioner should pay 12% interest only from January 5, 1978, that is, six months after the signing of the contract 3 up to, at the latest, May 30, 1978, when the respondents' complaint was filed, roughly a little less than four months.

No costs.

Concepcion, Jr., Guerrero, Abad Santos, De Castro and Escolin, JJ., concur.

Separate Opinions

AQUINO, J., dissenting:

I dissent. Lim O. Chu, as lessee, deposited on July 5, 1977 with Adela Blas Francisco, the lessor, through her daughter, Zenaida Francisco Boiser, the sum of P150,000 to cover the rentals and goodwill for the lease to Lim O. Chu of Adela B. Francisco's 135- square-meter lot located at 691 Rizal Avenue Extension, Caloocan City.

It was stipulated that if the lease is not consummated Adela B. Francisc would return to Lim O. Chu the P150,000 "� in full with legal interest". The lease was not consummated. Adela did not deliver possession of the lot to Lim O. Chu.

On June 1, 1978 Lim O. Chu sued Zenaida F. Boiser, as attorney- in-fact of her parents, for specific performance and damages. In her answer dated June 29, 1978 Zenaida alleged that before Lim O. Chu filed his complaint she tendered to him the sum of P150,000 with legal rate of interest but he refused to accept the amount.

Zenaida prayed that the lease be declared void and that the consignation of the sum of P150,000 with legal rate of interest from July 5, 1977 "until its deposit in court be accepted by the court" (p. 31, Rollo).

Thus, at the beginning, Lim O. Chu was insisting on specific performance while Zenaida F. Boiser wanted to rescind the lease and return the P150,000 to Lim O. Chu with legal rate of interest as agreed upon between them in paragraph 6 of the lease contract.

It should be recalled that the said amount was paid to Zenaida's mother, Adela Blas Francisco, on July 5, 1977 but it was only on July 18,1978 or after she was sued by Lim O. Chu that the said amount was deposited in the Sangandaan Branch of the Associated Citizens Bank with interest at 14% per annum. On September 13, 1978, the said amount was placed on time deposit.

The trial court in its order of September 13, 1978 granted the motion of Zenaida F. Boiser and her mother Adela B. Francisco that the said amount remain on time deposit in the bank (instead of being consigned in court) subject to the outcome of the case.

In the meantime, Lim O. Chu had changed his mind about specific performance and became interested in getting hold of the P150,000. About twenty months after the trial court had authorized the deposit of that amount in the bank, or on June 10, 1980, Lim O. Chu filed a motion for the withdrawal of that amount from the bank plus 14% interest a year from July 5, 1977.

The trial court in its order of August 15, 1980 granted the motion and allowed Lim O. Chu to withdraw the P150,000 from the bank "plus legal interests accruing thereon" and directed Zenaida and her mother within five days from notice "to withdraw from said bank the amount of P150,000, together with all the interests due thereon" and "to turn over the said amount to" Lim O. Chu.

That sum of P150,000 was paid to Lim O. Chu by Zenaida on August 29, 1980 but without the accrued interests. She did not comply fully with the trial court's order of August 15, 1980. Thus, a controversy arose as to the amount of interests that should be paid to Lim O. Chu.

In its order of November 7, 1980, the trial court ordered Adela B. Francisco and Zenaida to pay Lim O. Chu 12% interest a year on the said amount from July 5, 1977 up to August 29, 1980 when it was returned to Lim O. Chu. Zenaida F. Boiser and her mother filed a motion for the reconsideration of that order.

The trial court in its order of March 2, 1981 modified its prior order. It held that Adela and Zenaida should pay Lim O. Chu 9% interest a year on the P150,000 from July 5, 1977 up to September 13, 1978, when the said amount was placed on time deposit, and 12% interest a year from September 13, 1978 up to August 29, 1980 when the amount was returned to Lim O. Chu. That order of March 2,1981 became final and executory.

I vote for the enforcement of that order. It is dictated by elementary justice and is in consonance with the agreement of the parties. Mrs. Boiser and her mother had an along manifested a desire to pay the legal rate of interest on the amount of P150,000 which, having been deposited in the bank, actually earned interest.

Separate Opinions

AQUINO, J., dissenting:

I dissent. Lim O. Chu, as lessee, deposited on July 5, 1977 with Adela Blas Francisco, the lessor, through her daughter, Zenaida Francisco Boiser, the sum of P150,000 to cover the rentals and goodwill for the lease to Lim O. Chu of Adela B. Francisco's 135- square-meter lot located at 691 Rizal Avenue Extension, Caloocan City.

It was stipulated that if the lease is not consummated Adela B. Francisco would return to Lim O. Chu the P150,000 " in full with legal interest". The lease was not consummated. Adela did not deliver possession of the lot to Lim O. Chu.

On June 1, 1978 Lim O. Chu sued Zenaida F. Boiser, as attorney- in-fact of her parents, for specific performance and damages. In her answer dated June 29, 1978 Zenaida alleged that before Lim O. Chu filed his complaint she tendered to him the sum of P150,000 with legal rate of interest but he refused to accept the amount.

Zenaida prayed that the lease be declared void and that the consignation of the sum of P150,000 with legal rate of interest from July 5, 1977 "until its deposit in court be accepted by the court" (p. 31, Rollo).

Thus, at the beginning, Lim O. Chu was insisting on specific performance while Zenaida F. Boiser wanted to rescind the lease and return the P150,000 to Lim O. Chu with legal rate of interest as agreed upon between them in paragraph 6 of the lease contract.

It should be recalled that the said amount was paid to Zenaida's mother, Adela Blas Francisco, on July 5, 1977 but it was only on July 18,1978 or after she was sued by Lim O. Chu that the said amount was deposited in the Sangandaan Branch of the Associated Citizens Bank with interest at 14% per annum. On September 13, 1978, the said amount was placed on time deposit.

The trial court in its order of September 13, 1978 granted the motion of Zenaida F. Boiser and her mother Adela B. Francisco that the said amount remain on time deposit in the bank (instead of being consigned in court) subject to the outcome of the case.

In the meantime, Lim O. Chu had changed his mind about specific performance and became interested in getting hold of the P150,000. About twenty months after the trial court had authorized the deposit of that amount in the bank, or on June 10, 1980, Lim O. Chu filed a motion for the withdrawal of that amount from the bank plus 14% interest a year from July 5, 1977.

The trial court in its order of August 15, 1980 granted the motion and allowed Lim O. Chu to withdraw the P150,000 from the bank "plus legal interests accruing thereon" and directed Zenaida and her mother within five days from notice "to withdraw from said bank the amount of P150,000, together with all the interests due thereon" and "to turn over the said amount to" Lim O. Chu.

That sum of P150,000 was paid to Lim O. Chu by Zenaida on August 29, 1980 but without the accrued interests. She did not comply fully with the trial court's order of August 15, 1980. Thus, a controversy arose as to the amount of interests that should be paid to Lim O. Chu.

In its order of November 7, 1980, the trial court ordered Adela B. Francisco and Zenaida to pay Lim O. Chu 12% interest a year on the said amount from July 5, 1977 up to August 29, 1980 when it was returned to Lim O. Chu. Zenaida F. Boiser and her mother filed a motion for the reconsideration of that order.

The trial court in its order of March 2, 1981 modified its prior order. It held that Adela and Zenaida should pay Lim O. Chu 9% interest a year on the P150,000 from July 5, 1977 up to September 13, 1978, when the said amount was placed on time deposit,

and 12% interest a year from September 13, 1978 up to August 29, 1980 when the amount was returned to Lim O. Chu. That order of March 2,1981 became final and executory.

I vote for the enforcement of that order. It is dictated by elementary justice and is in consonance with the agreement of the parties. Mrs. Boiser and her mother had an along manifested a desire to pay the legal rate of interest on the amount of P150,000 which, having been deposited in the bank, actually earned interest.

Footnotes

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 101163 January 11, 1993

STATE INVESTMENT HOUSE, INC., petitioner,

vs.

COURT OF APPEALS and NORA B. MOULIC, respondents.

Escober, Alon& Associates for petitioner.

Martin D. Pantaleon for private respondents.

BELLOSILLO, J.:

The liability to a holder in due course of the drawer of checks issued to another merely as security, and the right of a real estate mortgagee after extrajudicial foreclosure to recover the balance of the obligation, are the issues in this Petition for Review of the Decision of respondent Court of Appeals.

Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, two (2) post-dated Equitable Banking Corporation checks in the amount of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August 1979 and the other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner State Investment House. Inc. (STATE).

MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. The checks, however, could no longer be retrieved as they had already been negotiated. Consequently, before their maturity dates, MOULIC withdrew her funds from the drawee bank.

Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20 December 1979, STATE allegedly notified MOULIC of the dishonor of the checks and requested that it be paid in cash instead, although MOULIC avers that no such notice was given her.

On 6 October 1983, STATE sued to recover the value of the checks plus attorney's fees and expenses of litigation.

In her Answer, MOULIC contends that she incurred no obligation on the checks because the jewelry was never sold and the checks were negotiated without her knowledge and consent. She also instituted a Third-Party Complaint against Corazon Victoriano, who later assumed full responsibility for the checks.

On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint, and ordered STATE to pay MOULIC P3,000.00 for attorney's fees.

STATE elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed the trial court on the ground that the Notice of Dishonor to MOULIC was made beyond the period prescribed by the Negotiable Instruments Law and that even if STATE did serve such notice on MOULIC within the reglementary period it would be of no consequence as the checks should never have been presented for payment. The sale of the jewelry was never effected; the checks, therefore, ceased to serve their purpose as security for the jewelry.

We are not persuaded.

The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at the pre-trial, the parties agreed to limit the issue to whether or not STATE was a holder of the checks in due course. 1

In this regard, Sec. 52 of the Negotiable Instruments Law provides —

Sec. 52. What constitutes a holder in due course. — A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it was previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d)

That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable instrument is a holder in due course. 2 Consequently, the burden of proving that STATE is not a holder in due course lies in the person who disputes the presumption. In this regard, MOULIC failed.

The evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their due dates; 3 (c) petitioner took these checks in good faith and for value, albeit at a discounted price; and, (d) petitioner was never informed nor made aware that these checks were merely issued to payee as security and not for value.

Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from any defect of title of prior parties, and from defenses available to prior parties among themselves; STATE may, therefore, enforce full payment of the checks. 4

MOULIC cannot set up against STATE the defense that there was failure or absence of consideration. MOULIC can only invoke this defense against STATE if it was privy to the purpose for which they were issued and therefore is not a holder in due course.

That the post-dated checks were merely issued as security is not a ground for the discharge of the instrument as against a holder in due course. For the only grounds are those outlined in Sec. 119 of the Negotiable Instruments Law:

Sec. 119. Instrument; how discharged. — A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.

Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of the instrument. But, the intentional cancellation contemplated under paragraph (c) is that cancellation effected by destroying the instrument either by tearing it up, 5 burning it, 6 or writing the word "cancelled" on the instrument. The act of destroying the instrument must also be made by the holder of the instrument intentionally. Since MOULIC failed to get back possession of the post-dated checks, the intentional cancellation of the said checks is altogether impossible.

On the other hand, the acts which will discharge a simple contract for the payment of money under paragraph (d) are determined by other existing legislations since Sec. 119 does not specify what these acts are, e.g., Art. 1231 of the Civil Code 7 which enumerates the modes of extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant case as Sec. 119 contemplates of a situation where the holder of the instrument is the creditor while its drawer is the debtor. In the present action, the payee, Corazon Victoriano, was no longer MOULIC's creditor at the time the jewelry was returned.

Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her checks to a holder in due course.

Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The need for such notice is not absolute; there are exceptions under Sec. 114 of the Negotiable Instruments Law:

Sec. 114. When notice need not be given to drawer. — Notice of dishonor is not required to be given to the drawer in the following cases: (a) Where the drawer and the drawee are the same person; (b) When the drawee is a fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment: (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer had countermanded payment.

Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when she returned the jewelry. She simply withdrew her funds from her drawee bank and transferred them to another to protect herself. After withdrawing her funds, she could not have expected her checks to be honored. In other words, she was responsible for the dishonor of her checks, hence, there was no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon proper proceedings taken, has not been accepted or has not been paid, and that the party notified is expected to pay it. 8

In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single case. 9

The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is drawn. 10 Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to STATE, a holder in due course of the checks.

Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the drawee bank to meet her obligation on the checks, 11 so that Notice of Dishonor would be futile.

The Court of Appeals also held that allowing recovery on the checks would constitute unjust enrichment on the part of STATE Investment House, Inc. This is error.

The record shows that Mr. RomelitoCaoili, an Account Assistant, testified that the obligation of Corazon Victoriano and her husband at the time their property mortgaged to STATE was extrajudicially foreclosed amounted to P1.9 million; the bid price at public auction was only P1 million. 12 Thus, the value of the property foreclosed was not even enough to pay the debt in full.

Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. 13 The step thus taken by the mortgagee-bank in resorting to an extra-judicial foreclosure was merely to find a proceeding for the sale of the property and its action cannot be taken to mean a waiver of its right to demand payment for the whole debt. 14 For, while Act 3135, as amended, does not discuss the mortgagee's right to recover such deficiency, it does not contain any provision either, expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature intends to foreclose the right of a creditor to sue for any deficiency resulting from foreclosure of a security given to guarantee an obligation, it so expressly provides. For instance, with respect to pledges, Art. 2115 of the Civil Code 15 does not allow the creditor to recover the deficiency from the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold on installment basis, in the event of foreclosure, the vendor "shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary will be void". 16

It is clear then that in the absence of a similar provision in Act No. 3135, as amended, it cannot be concluded that the creditor loses his right recognized by the Rules of Court to take action for the recovery of any unpaid balance on the principal obligation simply because he has chosen to extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given him by the mortgagor in the contract of mortgage. 17

The filing of the Complaint and the Third-Party Complaint to enforce the checks against MOULIC and the VICTORIANO spouses, respectively, is just another means of recovering the unpaid balance of the debt of the VICTORIANOs.

In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due course, STATE, without prejudice to any action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants who had already been declared as in default.

WHEREFORE, the petition is GRANTED. The decision appealed from is REVERSED and a new one entered declaring private respondent NORA B. MOULIC liable to petitioner STATE INVESTMENT HOUSE, INC., for the value of EBC Checks Nos. 30089658 and 30089660 in the total amount of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without prejudice to any action for recompense she may pursue against the VICTORIANOs as Third-Party Defendants.

Costs against private respondent.

SO ORDERED.

Cruz and Griño-Aquino, JJ., concur.

Padilla, J., took no part.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,

vs.

HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

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

Zapa Law Office for private respondent.

VITUG, J.:

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

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

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

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading

No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38.

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

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

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

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

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

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

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

From the evidence the court found the following:

The issues are:

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

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

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

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

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

15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

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

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

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

3. Costs.

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

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

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

The Court of Appeals thus affirmed in toto the judgment of the court

a quo.

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

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

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

The petition is, in part, granted.

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

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

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

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

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

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

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

The early case of Malayan Insurance Co., Inc., vs. Manila Port

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

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

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

38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

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

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

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

xxx xxx xxx

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

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular

No. 416, providing thus —

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

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

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

xxx xxx xxx

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

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

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

In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered,

inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)

. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.

p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)

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

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and

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

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

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

six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

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

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

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

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

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

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14 decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for

their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared:

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

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)

and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v. Intermediate Appellate Court (1988).

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

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

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

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

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

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

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

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

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

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated

03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof.

SO ORDERED.

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

Mendoza, J., took no part.

Digest

Eastern Shipping vs CA

GR No. 97412, 12 July 1994

234 SCRA 78

FACTS

Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured with a marine policy. Upon arrival in Manila unto the custody of metro Port Service, which excepted to one drum, said to be in bad order and which damage was unknown the Mercantile Insurance Company. Allied Brokerage Corporation received the shipment from Metro, one drum opened and without seal. Allied delivered the shipment to the consignee’s warehouse. The latter excepted to one drum which contained spillages while the rest of the contents was adulterated/fake. As consequence of the loss, the insurance company paid the consignee, so that it became subrogated to all the rights of action of consignee against the defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance company filed before the trial court. The trial court ruled in favor of plaintiff an ordered defendants to pay the former with present legal interest of 12% per annum from the date of the filing of the complaint. On appeal by defendants, the appellate court denied the same and affirmed in toto the decision of the trial court.

ISSUE

(1) Whether the applicable rate of legal interest is 12% or 6%.

(2) Whether the payment of legal interest on the award for loss or damage is to be computed from the time the complaint is filed from the date the decision appealed from is rendered.

HELD

(1) The Court held that the legal interest is 6% computed from the decision of the court a quo. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damaes awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.

When the judgment of the court awarding a sum of money becomes final and executor, the rate of legal interest shall be 12% per annum from such finality until satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of money.

The interest due shall be 12% PA to be computed fro default, J or EJD.

(2) From the date the judgment is made. Where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or EJ but when such certainty cannot be so reasonably established at the time the demand is made, the interest shll begin to run only from the date of judgment of the court is made.

(3) The Court held that it should be computed from the decision rendered by the court a quo.

SECOND DIVISION

[G.R. No. 84884 : December 3, 1990.]

EULALIO M. RUIZ and ILUMINADA RUIZ, Petitioners, vs. HON. DOROTEO N. CANEBA, THE CITY SHERIFF OF MANILA AND/OR HIS DEPUTIES, ZENAIDA SANGALANG and ADOLFO CRUZ, Respondents.

D E C I S I O N

PARAS, J.:

This is a petition for Certiorari and prohibition with preliminary injunction and/or restraining order of the Order of the respondent judge 1 dated July 27, 1988 in Civil Case No. 84-24032 entitled "Eulalio M. Ruiz and Iluminada M. Ruiz vs. Zenaida S. Sangalang and Adolfo Cruz" amending the May 15, 1986 decision of Judge Antonio M. Martinez (now Justice of the Court of Appeals). The facts of the case are as follows:

Private respondents ZenaidaSangalang and Adolfo Cruz are common-law spouses and owners in common of a 2-storey house and lots described in Transfer Certificate of Title (TCT) No. 56053 of the Registry of Deeds of Caloocan City but registered only in the name of ZenaidaSangalang.

Petitioners, the spouses Eulalio M. Ruiz and Iluminada M. Ruiz are the lessees of Door No. 1 of the aforesaid two storey house divided into 2 doors, for a monthly rental of P650.00.:- nad

Sometime on November 19, 1982, Eulalio Ruiz and ZenaidaSangalang executed an agreement where it was provided that Ruiz will buy the house and lot for the sum of P175,000.00 under the following terms and conditions:

"That I, EULALIO M. RUIZ, of legal age, Filipino, married to Iluminada M. Ruiz, with residence and postal address at 399 Gen. Luna, Caloocan City, Metro Manila, Philippines, am a tenant of MISS ZENAIDA S. SANGALANG and I agree to purchase the above mentioned parcel of land from MISS ZENAIDA S. SANGALANG for the total amount of ONE HUNDRED AND SEVENTY FIVE THOUSAND PESOS (175,000.00), Philippine Currency, to be paid as follows: SIXTY FIVE THOUSAND PESOS (P65,000.00) down payment and will assume the amount of balance of THIRTY ONE THOUSAND FIVE HUNDRED PESOS (P31,500.00) with the BANK OF THE PHILIPPINE ISLAND, Marulas Branch, Metro Manila; that after payment of said balance mortgage, a balance of seventy eight thousand five hundred pesos (P78,500.00) will be payable on or before December 31, 1983; my failure to comply with the above conditions of payment, the said property above described will be open for sale and all partial payments will be refunded by Miss Zenaida S. Sangalang". (Rollo, p. 45)

It was also stipulated that the Ruiz spouses will continue paying the monthly rental of P650.00 until the amount of P175,000.00 shall have been fully satisfied.

There is no dispute that the following payments were made by Ruiz: P65,000.00 to Sangalang as down payment and P21,119.62 to the Bank on the assumed mortgage. There is disagreement however as to the amount paid to Sangalang on the balance of P78,500.00. Sangalang maintains that she received only P33,793.00 while Ruiz insists that they paid P53,073.00.

Thus, the Ruiz spouses filed a complaint on April 24, 1984 for specific performance with damages against ZenaidaSangalang and Adolfo Cruz. (Ibid, p. 14)

In any event, the trial court found that the Ruiz spouses failed to pay in full the balance of P78,500.00 on or before December 31, 1983 as stipulated and even on the extended period of March 22, 1984. Hence, the Ruiz spouses are not entitled to their prayer for specific performance with damages. In the same breath, the trial court decided that it is only fair that ZenaidaSangalang return/refund to the Ruiz spouses the payment made by the latter. Further, it ruled that the Ruiz spouses shall continue to pay the agreed amount of rental in the amount of P650.00 until the property is surrendered to Sangalang (RTC decision, May 15, 1986, p. 7; Rollo, p. 48).: nad

More specifically, the dispositive portion of the decision reads:

"Wherefore, in view of all the foregoing, we hereby rule as follows:

"1. Ordering the plaintiffs to pay defendant ZenaidaSangalang the amount of P20,000.00 moral damages;

"2. Ordering plaintiffs to pay defendant Sangalang, attorney's fees in the amount of P15,000.00; and to pay the costs of suit; and

"3. Defendant ZenaidaSangalang is hereby ordered to return the payments made by the plaintiffs pursuant to the Agreement.

SO ORDERED". (Rollo, p. 48)

The Ruiz spouses appealed the decision to the Court of Appeals but the same was dismissed for failure to pay the docket fee. (Rollo, p. 162) On May 29, 1987, an entry of judgment was made by the Court of Appeals.

On motion of the private respondents, respondent Judge issued an order for the issuance of a writ of execution. (Ibid., p. 59)

The Clerk of Court, in his capacity as ex-oficio city sheriff, caused the execution of the 1st and 2nd paragraphs of the dispositive portion of the May 15, 1986 decision without including in the writ, the execution of the 3rd par. thereof in favor of the Ruizes. A notice of levy as well as a notice of garnishment were both issued to the petitioners. (Rollo, p. 51)

On September 2, 1987, the Ruiz spouses filed an "Ex-parte Motion for Execution of Decision Now Partly Executed," praying that a writ of execution be issued for par. 3 of the said dispositive portion and that the sheriff be ordered to make full execution of the decision by "off-setting" and/or setting-off par. 3 as against pars. 1 and 2 thereof. (Ibid, p. 92)

An order was issued by the respondent judge on September 8, 1987 the dispositive portion of which reads as follows::nad

"WHEREFORE, in view of the fact that a writ of execution has already been issued and the same was enforced only with respect to paragraphs 1 and 2 of the dispositive portion of the decision dated May 15, 1986, let a writ of execution be issued with respect to paragraph 3 of the said dispositive portion of the decision.

"SO ORDERED" (Rollo, p. 59)

The aforequoted order was reiterated by the respondent judge in his order dated December 11, 1987 (Ibid., p. 60) after an omnibus motion was filed by the petitioners on September 8, 1987. (Ibid., p. 53)

As expected, the parties could not agree on the execution of the decision, as regards par. 3 thereof; that is the amount to be returned by Sangalang to the Ruiz spouses. Sangalang and Adolfo Cruz on May 7, 1988 moved to amend said decision of May 15, 1986 which they alleged to have clear disparities and evident ambiguities between the body of said decision and the dispositive portion.

Thus, while the trial court is fully aware that a decision once final and executory can no longer be amended or corrected, it opted, for the purpose of finally settling the claims of the parties and thereby avoid multiplicity of suits, to amend the decision in question, on July 27, 1988, the dispositive portion of which reads:

"WHEREFORE, Order is hereby issued directing:

"1. the cancellation of lispendens annotated at the back of the title of the subject property by the Register of Deeds of Caloocan City;

"2. the plaintiffs to pay the defendant the sum of P1,500.00 monthly from May 15, 1986, the effective date of the decision up to the date they vacate door No. 2;

"3. the return of payments made by the plaintiffs to defendant ZenaidaSangalang which shall be without prejudice to off-setting of rental payments from November 1982; and

"4. the writ of possession be issued on the property, subject matter of the rescission of the contract.

"SO ORDERED" (Rollo, p. 64)

Sangalang and Cruz filed a Motion for Execution on the above-quoted order on September 1, 1988 (Ibid., p. 65) but before the day of the hearing of said motion, the Ruiz spouses filed an "Urgent Motion to Cancel Hearing of Motion." (Ibid., p. 127)

On September 15, 1988, the Ruizes filed the present petition.

In the resolution of the 2nd Division of this Court dated January 10, 1990, the petition was given due course (Rollo, p. 152-A). Petitioners' memorandum was filed on April 11, 1990 (Ibid., p. 192) while respondents' memorandum was filed on March 30, 1990 (Ibid., p. 171).

The petition is impressed with merit.

The principal issue to be resolved in the instant petition is: whether or not there is an ambiguity in the dispositive portion of the May 15, 1986 decision sufficient to warrant the questioned order of the respondent court amending subject final and executory judgment.:-cralaw

There is no question that the Ruizes failed to comply with the agreement and rescission of the contract is in order. The parties are also agreed that the Ruizes must return the physical possession of the property to Sangalang while the latter is obliged to return all partial payments made on the property to the Ruizes in accordance with the agreement. But the bone of contention in this case is the exact amount to be returned by Sangalang to the Ruiz spouses which was not spelled out by the trial court. The Ruizes claim that they are entitled to a refund of P124,192.62 plus 24% interest compounded annually, the alleged legal rate under Central Bank Circular, or a total amount of P169,414.95.

Sangalang, on the other hand, countered that she received only the amount of P120,092.62 or a difference of P4,100.00 from that claimed by the Ruizes, let alone the computation of interest. Furthermore, Sangalang insists that she is entitled to a P1,500.00 a month rental for Door No. 2 of said house which the Ruizes occupied after the execution of the agreement (Rollo, p. 166) instead of confining themselves to Door No. 1 which they used to occupy and for which they have originally been paying rentals.: nad

A careful study of the decision of the trial court of May 15, 1986 shows that aside from the fact that the refund ordered to be made by Sangalang was not specified in exact numbers, there appears to be no ambiguity in the decision to such an extent as to warrant an amendment of the dispositive portion.

From the total amount of P139,192.62 claimed by the Ruiz spouses to have been actually paid to Sangalang, only the amount of P15,000.00 in the form of dishonored checks have been discounted by the trial court leaving a balance of P124,192.62; more specifically shown as follows:

Downpayment on Nov. 19, 1982 P 65,000.00

Payment to the Bank of P.I. P 21,119.62

Payment made to Zenaida

Sangalang P53,073.00 less

P15,000.00 total sum of two

(2) dishonored checks P 38,073.00

—————

Total Payments Made P124,192.62

Decision, p. 2 & 3.

Hence, it is evident that this is the amount that Sangalang was ordered to return to the Ruizes pursuant to par. 3 of the said dispositive portion.

The only set-off specified by the trial court in the assailed May 15, 1986 decision were the lost profits suffered by Sangalang because of the annotation of the notice of lispendens on her title by the Ruiz spouses which were considered compensated by the increase in value of the property due to the repair made by the latter. Moreover, it appearing that there was in fact a part execution of pars. 1 and 2 of the dispositive portion of the 1986 decision against the Ruizes, it is but proper that the amount to be paid by Sangalang is the total payments made by the petitioners in the amount of P124,192.62.

Anent the Ruizes' claim of interest as aforementioned, it has been held in the case of Santulan v. Fule, 133 SCRA 762 (1984) that where the court judgment which did not provide for interest is already final, there is no reason to add interest in the judgment.

Interest was not demanded by the Ruizes when the case was pending before the lower court, hence, there is no reason for this Court to grant such claim. As ruled by this Court, such claim is groundless since the decision and orders sought to be enforced do not direct the payment of interest and have long become final (Canonizado v. Ordoñez-Benitez, 149 SCRA 555 [1987]).

Finally, as to Sangalang's claim for P1,500.00 as monthly rental for Door No. 2, the records show that such claim was never raised in the trial court. The issue of additional rentals was brought up by Sangalang only when the motion for execution of par. 3 of the dispositive portion of the decision was filed by the Ruiz spouses (Rollo, p. 189). It is a basic rule that an issue which was not raised in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process (Matienzo v. Servidad, 107 SCRA 276 [1981]; De la Santa v. CA, 140 SCRA 44, [1985]; Dihiansan v. CA, 157 SCRA 434 [1987]; Auchuelo v. CA, 147 SCRA 434 [1987]; Dulos Realty and Dev't. Corp. v. CA, 157 SCRA 425 [1988]; Ramos v. IAC, GR No. 78282, July 5, 1989; Filipino Merchants vs. CA GR No. 85141, Nov. 28, 1989). Consequently, Sangalang's claim cannot be granted.:-cralaw

Hence, since the May 15, 1986 decision has long become final and executory and in fact has been partly executed, the respondent judge had lost its jurisdiction thereon (Marcopper Mining Corp. vs. Briones, G.R. 77210, Sept. 19, 1988; Baclayon et al. v. CA, G.R. No. 89132, Feb. 26, 1990). He has exceeded his authority, considering that the trial court has no authority to modify or vary the terms and conditions of a final and executory judgment (Vda. de Nabong v. Sadang, 167 SCRA 232 [1988]; Commercial Credit Corporation vs. CA, 169 SCRA 1 [1989]; Christian Literature Crusade v. NLRC, 171 SCRA 712 [1989]). What remains in his authority in relation thereto is purely the ministerial enforcement or execution of the judgment. (Christian Lit. Crusade, supra; Baclayan vs. CA, supra.) Therefore, for having substantially affected the final and executory judgment such Order of the respondent judge dated July 27, 1988 is null and void for lack of jurisdiction, including the entire proceedings held for the purpose (Marcopper Mining vs. Briones, supra).

PREMISES CONSIDERED, (a) the instant petition for Certiorari and prohibition is hereby GRANTED; (b) the Order of the respondent judge dated July 27, 1988 is hereby DECLARED null and void ab initio; (c) respondent Sangalang is hereby required to PAY petitioners-spouses Ruizes the amount of P124,192.62; (d) petitioners Ruizes are hereby required to VACATE the property in question and PAY P650.00 monthly as rental as agreed upon and as required by the May 15, 1986 decision until they vacate the premises and (e) the Register of Deeds of Caloocan City is hereby required to CANCEL the lispendens annotated on the title of subject property.

SO ORDERED.

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

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 97873 August 12, 1993

PILIPINAS BANK, petitioner,

vs.

THE HONORABLE COURT OF APPEALS, and LILIA R. ECHAUS, respondents.

Gella, Reyes, Danguilan and Associates for the petitioner.

Manuel L. Melotindos for the respondents.

QUIASON, J.:

This is a petition for certiorari under Rule 45 of the Revised Rules of Court to review the Resolution of the Court of Appeals in CA-G.R. CV No. 06017 promulgated on March 14, 1991. The Resolution was rendered in response to private respondent's motion for clarification of the decision of the Court of Appeals in CA-G.R. No. 06017. The matters sought to be clarified arose in the course of the execution of the decision of the Regional Trial Court, Branch 71, Antipolo, Rizal in Civil Case No. 239-A, as modified by the decision of the Court of Appeals in CA-G.R. CV No. 06017.

In Civil Case No. 239-A, private respondent filed a complaint against petitioner and its president, Constantino Bautista, for collection of a sum of money. The complaint alleged: (1) that petitioner and Greatland Realty Corporation (Greatland) executed a "Dacion en Pago," wherein Greatland conveyed to petitioner several parcels of land in consideration of the sum of P7,776,335.69; (2) that Greatland assigned P2,300,000.00 out of the total consideration of the Dacion en Pago, in favor of private respondent; and (3) that notwithstanding her demand for payment, petitioner in bad faith, refused and failed to pay the said amount assigned to her.

Petitioner, while admitting the execution of the Dacion en Pago, claimed: (1) that its former president had no authority to enter into such agreement; (2) that it never ratified the same; and (3) that assuming arguendo that the agreement was binding, the conditions stipulated therein were never fulfilled.

Dismissing petitioner's defense as unmeritorious, the trial court ruled in favor of private respondent. The trial court ordered petitioner and its co-defendant, jointly and severally, to pay private respondent as follows:

1) P2,300,000.00 the total amount assigned by Greatland in her favor out of the P2,300,000.00 liability of defendant Pilipinas to Greatland plus legal interest from the dates of assignments until fully paid;

2) P3,217,707.00 representing the total actual damages suffered by the plaintiff plus legal interest until fully paid;

3) P1,000,000.00 in moral damages to partially assuage the extreme moral sufferings of plaintiff inflicted upon her person considering the bad faith on the part of the defendants and their failure to act with justice, and to give what is lawfully due her and observe honesty and good faith;

4) P100,000.00 exemplary and nominal damages to vindicate plaintiff's violated rights;

5) Attorney's fees equivalent to 15% of the total award in favor of the plaintiff;

6) Costs of suit (Rollo, p. 78).

On March 22, 1985, petitioner appealed the decision of the trial court to the Court of Appeals, which docketed the appeal as CA-G.R. No. 06017. On the same day, private respondent filed a motion for Immediate Execution Pending Appeal. The trial court granted the motion for execution pending appeal in an Order dated April 3, 1985. Petitioner challenged the Order dated April 3, 1985 before the Court of Appeals in CA-G.R. No. SP No. 05909.

On October 30, 1986, the Court of Appeals modified the Order dated April 3, 1985, by limiting the execution pending appeal against petitioner to P5,517.707.00 and deferring the execution of the award for moral, exemplary and nominal damages to await the final judgment of the main case in CA-G.R. No. 06017. On June 17, 1987, the Supreme Court in G.R. No. L-76506 affirmed the Order dated October 30, 1986 of the Court of Appeals.

On July 1, 1988, the trial court granted the new motion for execution pending appeal filed by private respondent pursuant to the Resolution of the Supreme Court dated June 17, 1987, upon the filing of the required bond. Petitioner complied with the writ of execution pending appeal by issuing two manager's checks in the total amount of P5,517,707.00 (one for P4,965,936.30 payable to private respondent and another for P551,770.70 payable to the Clerk of Court, RTC, Antipolo, Rizal).

The check payable to private respondent was encashed on July 15, 1988.

On June 28, 1990, the Court of Appeals rendered a decision in CA-G.R. No. CV-06017, which modified the judgment of the trial court as follows:

1. The defendant-appellant Pilipinas Bank, formerly known as Filipinas Manufacturers Bank is ordered to pay the plaintiff-appellee the following:

(a) The sum of Two Million Three Hundred Thousand (2,300,000,00) Pesos, representing the total amount assigned by Greatland to her, with interest at the legal rate starting July 24, 1981, date when demand was first made (Exh. "F" and "G");

(b) The sum of One Hundred Thousand (P100,000.00) Pesos in moral damages, to assuage moral sufferings and embarrassment of plaintiff-appellee as a consequence of appellant-bank's unwarranted acts;

(c) The sum of Twenty Five Thousand (P25,000.00) Pesos, as exemplary damages to serve as an example or correction for the public good;

(d) The sum equivalent to ten (10) percent of the principal claim awarded, representing attorney's fees; and

2. Constantino Bautista is absolved of personal liability (Rollo, pp. 31-32).

Petitioner filed a motion for extension of time to file a Petition for Review on Certiorari with the Supreme Court, which however was withdrawn on July 23,1990. Private respondent, on her part, filed a motion for reconsideration of the decision of the Court of Appeals in CA-G.R. No. 06017, which likewise was withdrawn on August 13, 1990.

Hence, the decision of the Court of Appeals rendered in CA-G.R. No. 06017 became final and executory.

On September 4, 1990, petitioner filed a motion in the trial court praying that private respondent and Standard Insurance Co. (which furnished the bond required in the advance execution of the decision of the trial court) to refund to her the excess payment of P1,898,623.67 with interests at 6% (Rollo, pp. 83-84).

It must be recalled that while private respondent was able to collect P5,517,707.00 from petitioner pursuant to the writ of advance execution allowed in CA-G.R. No. SP No. 05909, the final judgment in the main case (CA-G.R. No. 06017) awarded to private respondent damages in the total amount of only P2,655,000.00 (P2,300,000.00 representing the amount assigned by Greatland to private respondent, P100,000.00 as moral damages; P25,000.00 as exemplary damages and attorney's fees equivalent to 10% of the P2,300,000.00), together "with interest on the amount of P2,300,000.00 at the legal rate starting July 24, 1981, date when demand was first made (Exh. "F" and "G")."

Private respondent opposed the motion of petitioner with respect to the rate of interest to be charged on the amount of P2,300,000.00. According to private respondent, the legal interest on the principal amount of P2,300,000.00 due her should be 12% per annum pursuant to CB Circular No. 416 and not 6% per annum as computed by petitioner.

On October 12, 1990, the trial court, while ordering the refund to petitioner of the excess payment, fixed the interest rate due on the amount of P2,300.000.00 at 12% per annum as proposed by private respondent, instead of 6% per annum as proposed by petitioner.

On October 16, 1990, petitioner moved to reconsider the Order dated October 12, 1990 of the trail court, which however could not be acted upon because on October 23, 1990, private respondent filed a Motion for Clarification with the Court of Appeals in CA-G.R. CV No. 06017, regarding the following matters:

a) The "legal rate" of interest on the principal award of P2,300,000.00 from July 24, 1981 (as per decision) up to July 14, 1988 (date of actual payment made by defendant-appellant to plaintiff-appellee per execution pending appeal);

b) The imposition of such "legal rate" of interest on the accrued interest' from July 24, 1981 up to July 14, 1988;

c) The amount of the costs of suit will include premium on surety bond;

d) The discharged of the surety bond whether total or partial, depending on the computation of the interest;

e) The award of attorney's fees equivalent to 10% of the principal award, whether this should totally go to plaintiff-appellee's former counsel or to be shared on the basis of quantum meruit with the undersigned counsel; and

f) Aside from this final award of 10% attorney's fees chargeable against defendant-appellant, whether or not former counsel of plaintiff-appellee can still collect from her the balance of 15% out of the 25% attorney's fees under Exh. "N" (Rollo, p.32).

In its Resolution promulgated on March 14, 1991, the Court of Appeals clarified that:

a) The legal rate of interest on the principal award of P2,300,000.00 should be 12% per annum in accordance with Circular No. 416 dated July 29, 1974 of the Central Bank.

b) The computation of compounding interest annually has no basis, therefore, not allowed in the instant case;

c) The payment of premium on the bond in the sum of P259,813.50 as cost, being without legal and factual basis, is denied;

d) The surety bond posted by plaintiff-appellee may be released after satisfaction of the decision; and

e) Payment/distribution of attorney's fees may/shall be litigated in a separate proceeding if the parties cannot settle their differences amicably.

SO ORDERED (Rollo, p. 35-36).

In this appeal, petitioner claims that the Court of Appeals erred:

(1) In ruling that the legal rate of interest on the amount of P2,300,000.00 adjudged to be paid by petitioner to private respondent is 12% per annum.

(2) In not holding that the refund to which petitioner is entitled should earn interest at the rate of 12% per annum.

(3) In not holding that the surety bond should only be released after actual refund (Rollo, p. 18).

The Court of Appeals was of the theory that the action in Civil Case No. 239-A filed by private respondent against petitioner "involves forbearance of money, as the principal award to plaintiff-appellee (private respondent) in the amount of P2,300.000.00 was the overdue debt of defendant-appellant to her since July 1981. The case is, in effect, a simple collection of the money due to plaintiff-appellee, as the unpaid creditor from the defendant bank, the debtor" (Resolution, p.3; Rollo, p. 33). Applying Central Bank Circular No. 416, the Court of Appeals held that the applicable rate of interest is 12% per annum.

Petitioner argues that the applicable law is Article 2209 of the Civil Code, not the Central Bank Circular No. 416. Said Article 2209 provides:

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

Presidential Decree No. 116 authorized the Monetary Board to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits and amended the Usury Law (Act No. 2655) for that purpose.

As amended, the Usury Law now provides:

Sec. The rate of interest for the loan or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that purpose in accordance with the authority hereby granted.

Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to charge such rate or rates whenever warranted by prevailing economic and social conditions: Provided, That such changes shall not be made oftener that once every twelve months.

In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum rates for consumer loans or renewals thereof as well as such loans made by pawnshops, finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform.

Acting on the authority vested on it by the Usury Law, as amended by P.D. No. 116, the Monetary Board of Central Bank issued Central Bank Circular No. 416, which provides:

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

Note that Circular No. 416, fixing the rate of interest at 12% per annum, deals with (1) loans; (2) forbearance of any money, goods or credit; and

(3) judgments.

In Reformina v. Tomol, Jr., 139 SCRA 260 [1985], the Court held that the judgments spoken of and referred to in Circular No. 416 are "judgments in litigation involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not, within the ambit of the authority granted to the Central Bank."

Reformina was affirmed in Philippines Virginia Tobacco Administration v. Tensuan, 188 SCRA 628 [1990], which emphasized that the "judgments" contemplated in Circular No. 417 "are judgments involving said loans or forbearance only and not in judgments in litigation that have nothing to do with loans . . . ."

We held that Circular No. 416 does not apply to judgments involving damages (Reformina v. Tomol, Jr., supra; Philippine Virginia Tobacco Administration v. Tensuan, supra) and compensation in expropriation proceedings (National Power Corporation v. Angas, 208 SCRA 542 [1992]). We also held that payment of unliquidated cash advances to an employee by his employer (Villarica v. Court of Appeals, 123 SCRA 259 [1983]) and the return of money paid by a buyer of a leasehold right but which contract was voided due to the fault of the seller (Buisier v. Court of Appeals, 154 SCRA 438 [1987]).

What then is the nature of the judgment ordering petitioner to pay private respondent the amount of P2,300,000.00?

The said amount was a portion of the P7,776,335.69 which petitioner was obligated to pay Greatland as consideration for the sale of several parcels of land by Greatland to petitioner. The amount of P2,300,000.00 was assigned by Greatland in favor of private respondent. The said obligation therefore arose from a contract of purchase and sale and not from a contract of loan or mutuum. Hence, what is applicable is the rate of 6% per annum as provided in Article 2209 of the Civil Code of the Philippines and not the rate of 12% per annum as provided in Circular No. 416.

Petitioner next contends that, consistent with its thesis that Circular No. 416 applies only to judgments involving the payment of loans or forbearance of money, goods and credit, the Court of Appeals should have ordered private respondent to pay interest at the rate of 12% on the overpayment collected by her pursuant to the advance execution of the judgment.

Again, we sustain petitioner's contention as correct.

Private respondent was paid in advance the amount of P5,517,707.00 by petitioner to the order for the execution pending appeal of the judgment of the trial court. On appeal, the Court of Appeals reduced the total damages to P3,619,083.33, leaving a balance of P1,898,623.67 to be refunded by private respondent to petitioner. In an execution pending appeal, funds are advanced by the losing party to the prevailing party with the implied obligation of the latter to repay former, in case the appellate court cancels or reduces the monetary award.

Under Section 5 of Rule 39 of the Revised Rules of Court where "the judgment executed is reversed totally or partially on appeal, the trial court, on motion, after the case is remanded to it, may issue such orders of restitution, as equity and justice may warrant under the circumstances." It was to guarantee the restitution contemplated by Section 5 of Rule 39 of the Revised Rules of Court that private respondent was required by the trial court to post a bond before the writ of advance execution was issued.

In the case before us, the excess amount ordered to refunded by private respondent falls within the ruling in Viloria and Buiser that Circular No. 416 applies to cases where money is transferred from one person to another and the obligation to return the same or a portion thereof is subsequently adjudged.

Finally, petitioner questions as vague the ruling of the Court of Appeals that the surety bond given to secure the advance execution may be discharged "upon the finality and satisfaction of the decision." We believe that this ruling of the Court of Appeals is clear enough in ordering that the surety bond shall be released only after private respondent has fully refunded the overpayment to petitioner.

WHEREFORE, the petition is GRANTED. The Resolution of the Court of Appeals appealed from is MODIFIED in that (1) the amount of P2,300,000.00 adjudged to be paid by petitioner to private respondent shall earn interest of 6% per annum and (2) the amount of P1,898,623.67 to be refunded by private respondent to petitioner shall earn interest of 12% per annum. Costs against private respondent.

SO ORDERED.

Cruz, Griño-Aquino, Davide, Jr. and Bellosillo, JJ., concur.

(Digest)

PILIPINAS BANK v. CA and FLORENCIO REYES

1994 / Puno / Petition for review of a CA decision

The cause > Different categories > Proximate

Florencio Reyes issued postdated checks to Winner Industrial Corporation (20k~) and Vincent Tui (11k~) as payments for the purchased shoe materials and rubber shoes. To cover the face value of the checks, Reyes requested PCIB Money Shop’s manager to effect the withdrawal of 32k from his savings account and have it deposited with his current account with Pilipinas Bank. Roberto Santos was requested to make the deposit.

In depositing in the name of Reyes, Santos inquired from the teller Reyes’ current account number to complete the deposit slip he was accomplishing. He was informed that it was “815” so that was the number he placed on the slip. Noting that the account

number coincided with the name “Florencio,” Efren Alagasi [Pilipinas Bank Current Account Bookkeeper] thought it was for Florencio Amador, so he posted the deposit in the account of Amador.

The check in favor of Winner was presented for payment. Since Reyes’ ledger indicated that his account only had 4k~ balance, the check was dishonored. This check was redeposited 4 days later but it was dishonored again. This also happened with the check issued in Tui’s favor. Tui returned the check to Reyes and demanded a cash payment of its face value.

Furious over the incident, Reyes proceeded to Pilipinas Bank and urged an immediate verification of his account. It was then that the bank noticed the error. The 32k posted in Amador’s account was transferred to Reyes’ account upon being cleared by the former that he did not effect a deposit of 32k. The bank then honored the check.

RTC ordered Pilipinas Bank to pay damages to Reyes, and the CA affirmed the RTC.

PROXIMATE CAUSE OF INJURY: ALAGASI’S NEGLIGENCE IN ERRONEOUSLY POSTING REYES’ CASH DEPOSIT IN THE NAME OF ANOTHER DEPOSITOR HAVING THE SAME FIRST NAME

For NCC 2179 to apply, it must be established that Reyes’ own negligence was the immediate and proximate cause of his injury.

Proximate cause – any cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the result complained of and without which would not have occurred and from which it ought to have been foreseen or reasonably anticipated by a person of ordinary case that the injury complained of or some similar injury, would result therefrom as a natural and probable consequence.

Alagasi failed to exercise degree of care required in the performance of his duties

He posted the cash deposit in Amador’s account from the assumption that the name Florencio appearing on the ledger without going through the full name, is the same Florencio stated in the deposit slip

He should have continuously gone beyond mere assumption and proceeded with clear certainty, considering the amount involved and the repercussions it would create --> checks issued by Reyes were dishonored because his ledger indicated an insufficient balance

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-19190 November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.

VENANCIO CONCEPCION, defendant-appellant.

Recaredo Ma. Calvo for appellant.

Attorney-General Villa-Real for appellee.

MALCOLM, J.:

By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This special authorization was essential in view of the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power of the local manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain cases, could be increased to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with the interest, were taken up and paid by July 17, 1919.

"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of the company.

On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member of the board of directors of this bank, was charged in the Court of First Instance of Cagayan with a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs.

Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly, grant loans to any of the members of the board of directors of the bank nor to agents of the branch banks." Section 49 of the same Act provides: "Any person who shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by both such fine and imprisonment." These two sections were in effect in 1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.

Counsel for the defense assign ten errors as having been committed by the trial court. These errors they have argued adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-General Villa-Real, in an exceptionally accurate and comprehensive brief, answers the proposition of appellant one by one.

The question presented are reduced to their simplest elements in the opinion which follows:

I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, a "loan" within the meaning of section 35 of Act No. 2747?

Counsel argue that the documents of record do not prove that authority to make a loan was given, but only show the concession of a credit. In this statement of fact, counsel is correct, for the exhibits in question speak of a "credito" (credit) and not of a " prestamo" (loan).

The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"

II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"?

Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what is commonly known as a "discount."

In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said section referred to loans alone, and placed no restriction upon discount transactions. It becomes material, therefore, to discover the distinction between a "loan" and a "discount," and to ascertain if the instant transaction comes under the first or the latter denomination.

Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live, transaction. But in its last analysis, to discount a paper is only a mode of loaning money, with, however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on single-name paper.

Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet the conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because (1) interest was not deducted from the face of the notes, but was paid when the notes fell due; and (2) they were single-name and not double-name paper.

The facts of the instant case having relation to this phase of the argument are not essentially different from the facts in the Binalbagan Estate case. Just as there it was declared that the operations constituted a loan and not a discount, so should we here lay down the same ruling.

III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of section 35 of Act No. 2747?

Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In this connection, it should be recalled that the wife of the defendant held one-half of the capital of this partnership.

In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of safety against temptation for a director of the bank. The prohibition against indirect loans is a recognition of the familiar maxim that no man may serve two masters — that where personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband is financially interested in the success or failure of his wife's business venture, a loan to partnership of which the wife of a director is a member, falls within the prohibition.

Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a partnership of which the wife of a director of a bank is a member, is an indirect loan to such director.

That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact that in this instance the defendant was tempted to mingle his personal and family affairs with his official duties, and to permit the loan P300,000 to a partnership of no established reputation and without asking for collateral security.

In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court of Maryland said:

What then was the purpose of the law when it declared that no director or officer should borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this section he shall be punished by fine and imprisonment?" We say to protect the stockholders, depositors and creditors of the bank, against the temptation to which the directors and officers might be exposed, and the power which as such they must necessarily possess in the control and management of the bank, and the legislature unwilling to rely upon the implied understanding that in assuming this relation they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty, declared in express terms that they should not borrow, etc., of the bank.

In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it was said:

We are of opinion the statute forbade the loan to his copartnership firm as well as to himself directly. The loan was made indirectly to him through his firm.

IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of section 35 of Act No. 2747 in relation with section 49 of the same Act, when these portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information and the rendition of the judgment?

As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35 of the same Act, provides a punishment for any person who shall violate any of the provisions of the Act. It is contended, however, by the appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938 has served to take away the basis for criminal prosecution.

This same question has been previously submitted and has received an answer adverse to such contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and KwongFok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and it must again be the holding, that where an Act of the Legislature which penalizes an offense, such repeals a former Act which penalized the same offense, such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and sentenced offenders charged with violations of the old law.

V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, in violation of section 35 of Act No. 2747, penalized by this law?

Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section 49 of said Act provides a punishment not on the bank when it violates any provisions of the law, but on a person violating any provisions of the same, and imposing imprisonment as a part of the penalty, the prohibition contained in said section 35 is without penal sanction.lawph!l.net

The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the board of directors, and to each director separately and individually. (People vs. Concepcion, supra.)

VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal defense?

Counsel argue that if defendant committed the acts of which he was convicted, it was because he was misled by rulings coming from the Insular Auditor. It is furthermore stated that since the loans made to the copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been suffered by the Philippine National Bank.

Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has violated, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account of public policy and public interest, constitutes the crime. And, in this instance, as previously demonstrated, the acts of the President of the Philippine National Bank do not fall within the purview of the rulings of the Insular Auditor, even conceding that such rulings have controlling effect.

Morse, in his work, Banks and Banking, section 125, says:

It is fraud for directors to secure by means of their trust, and advantage not common to the other stockholders. The law will not allow private profit from a trust, and will not listen to any proof of honest intent.

JUDGMENT

On a review of the evidence of record, with reference to the decision of the trial court, and the errors assigned by the appellant, and with reference to previous decisions of this court on the same subject, we are irresistibly led to the conclusion that no reversible error was committed in the trial of this case, and that the defendant has been proved guilty beyond a reasonable

doubt of the crime charged in the information. The penalty imposed by the trial judge falls within the limits of the punitive provisions of the law.

Judgment is affirmed, with the costs of this instance against the appellant. So ordered.

Araullo, C. J., Johnson, Street, Avanceña, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

(Digest)

People v. Concepcion

G.R. No. 19190 (November 29, 1922)

FACTS:

Defendant authorized an extension of credit in favor of Concepcion, a co-partnership. Defendant’s wife was a director of this co-partnership. Defendant was found guilty of violating Sec. 35 of Act No. 2747 which says that “The National Bank shall not, directly or indirectly, grant loans to any of the members of the Board of Directors of the bank nor to agents of the branch banks.” This Section was in effect in 1919 but was repealed in Act No. 2938 approved on January 30, 1921.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.

JOSE V. BAGTAS, defendant,

FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitioner-appellant.

D. T. Reyes, Liaison and Associates for petitioner-appellant.

Office of the Solicitor General for plaintiff-appellee.

PADILLA, J.:

The Court of Appeals certified this case to this Court because only questions of law are raised.

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for another period of one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General. On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an action against him praying that he be ordered to return the three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests, and costs; and that other just and equitable relief be granted in (civil No. 12818).

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the Auditor General did not object, he could not return the animals nor pay their value and prayed for the dismissal of the complaint.

After hearing, on 30 July 1956 the trial court render judgment —

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of this complaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda FelicidadIntal, and praying that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this Court as stated at the beginning of this opinion.

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of execution the appellee prays "that another writ of execution in the sum of P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already had been returned to and received by the appellee.

The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953 upon the surrounding barrios of Hacienda FelicidadIntal, Baggao, Cagayan, where the animal was kept, and that as such death was due to force majeure she is relieved from the duty of returning the bull or paying its value to the appellee. The contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant contends that the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous.1 If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum —

. . . is liable for loss of the things, even if it should be through a fortuitous event:

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

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.

The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of its value being a money claim should be presented or filed in the intestate proceedings of the defendant who died on 23 October 1951, is not altogether without merit. However, the claim that his civil personality having ceased to exist the trial court lost jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court provides that —

After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. . . .

and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which provides that —

Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of such death . . . and to give the name and residence of the executory administrator, guardian, or other legal representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied, whether the same be due, not due, or contingent, for funeral expenses and expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said deceased," is not a notice to the court and the appellee who were to be notified of the defendant's death in accordance with the above-quoted rule, and there was no reason for such failure to notify, because the attorney who appeared for the defendant was the same who represented the administratrix in the special proceedings instituted for the administration and settlement of his estate. The appellee or its attorney or representative could not be expected to know of the death of the defendant or of the administration proceedings of his estate instituted in another court that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as required by the rule.

As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it was killed while in the custody of the administratrix of his estate. This is the amount prayed for by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court.

ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.

Barrera, J., concurs in the result.

(Digest)

Credit Transactions Case Digest: Republic V. Bagtas (1962)

G.R. No. L-17474 October 25, 1962

Laws Applicable: Commodatum

Lessons Applicable:

FACTS:

May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of 1 year for breeding purposes subject to a breeding fee of 10% of the book value of the bulls

May 7, 1949: Jose requested for a renewal for another year for the three bulls but only one bull was approved while the others are to be returned

March 25, 1950: He wrote to the Director of Animal Industry that he would pay the value of the 3 bulls

October 17, 1950: he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General.

October 19, 1950: Director of Animal Industry advised him that either the 3 bulls are to be returned or their book value without deductions should be paid not later than October 31, 1950 which he was not able to do

December 20, 1950: An action at the CFI was commenced against Jose praying that he be ordered to return the 3 bulls or to pay their book value of P3,241.45 and the unpaid breeding fee of P199.62, both with interests, and costs

July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines, he could not return the animals nor pay their value and prayed for the dismissal of the complaint.

RTC: granted the action

December 1958: granted an ex-parte motion for the appointment of a special sheriff to serve the writ outside Manila

December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died on October 23, 1951 and administratrix of his estate, was notified

January 7, 1959: she file a motion that the 2 bulls where returned by his son on June 26, 1952 evidenced by recipt and the 3rd bull died from gunshot wound inflicted during a Huk raid and prayed that the writ of execution be quashed and that a writ of preliminary injunction be issued.

ISSUE: W/N the contract is commodatum and NOT a lease and the estate should be liable for the loss due to force majeure due to delay.

HELD: YES. writ of execution appealed from is set aside, without pronouncement as to costs

If contract was commodatum then Bureau of Animal Industry 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 if he keeps it longer than the period stipulated

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 because it was killed while in the custody of the administratrix of his estate

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the CFI, the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court.

ISSUE:

W/N Defendant can be convicted of violating Sections of Act No. 2747, which were repealed by Act No. 2938.

HELD:

In the interpretation and construction, the primary rule is to ascertain and give effect to the intention of the Legislature. Section 49 in relation to Sec. 25 of Act No. 2747 provides a punishment for any person who shall violate any provisions of the Act. Defendant contends that the repeal of these Sections by Act No. 2938 has served to take away basis for criminal prosecution. The Court holds that where an act of the Legislature which penalizes an offense repeals a former act which penalized the same offense, such repeal does not have the effect of thereafter depriving the Courts of jurisdiction to try, convict and sentence offenders charged with violations of the old law.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-46240 November 3, 1939

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,

vs.

BECK, defendant-appellee.

Mauricio Carlos for appellants.

Felipe Buencamino, Jr. for appellee.

IMPERIAL, J.:

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

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilarstreet, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts, subject to the condition

that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were found. On November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. On November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied with his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and whether she is entitled to the costs of litigation.lawphi1.net

The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to her.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

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

The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). The defendant was the one who breached the contract of commodatum, and without any reason he refused to return and deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just and equitable that he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise defrayed.

The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances. So ordered.

Avanceña, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 80294-95 September 21, 1988

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,

vs.

COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.

Valdez, Ereso, Polido& Associates for petitioner.

Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.

Jaime G. de Leon for the Heirs of EgmidioOctaviano.

Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:

The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long time ago can properly be considered res judicata by respondent Court of Appeals in the present two cases between petitioner and two private respondents.

Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:

WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar Apostolic of the Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the Heirs of EgmidioOctaviano (Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is hereby denied. Said defendant is ordered to pay costs. (p. 36, Rollo)

Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the two cases affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in question; that the two lots were possessed by the predecessors-in-interest of private respondents under claim of ownership in good faith from 1906 to 1951; that petitioner had been in possession of the same lots as bailee in commodatum up to 1951, when petitioner repudiated the trust and when it applied for registration in 1962; that petitioner had just been in possession as owner for eleven years, hence there is no possibility of acquisitive prescription which requires 10 years possession with just title and 30 years of possession without; that the principle of res judicata on these findings by the Court of Appeals will bar a reopening of these questions of facts; and that those facts may no longer be altered.

Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.

The facts and background of these cases as narrated by the trail court are as follows —

... The documents and records presented reveal that the whole controversy started when the defendant Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the Court of First Instance of Baguio Benguet on September 5, 1962 an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of EgmidioOctaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on the merits, the land registration court promulgated its Decision, dated November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.

The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of EgmidioOctaviano (plaintiffs in the herein Civil Case No. 3607) appealed the decision of the land registration court to the then Court of Appeals, docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered its decision, dated May 9, 1977, reversing the decision of the land registration court and dismissing the VICAR's application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the land registration case (and two sets of plaintiffs in the two cases now at bar), the first lot being presently occupied by the convent and the second by the women's dormitory and the sister's convent.

On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the Court of Appeals to order the registration of Lot 3 in the names of the Heirs of EgmidioOctaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their motion for reconsideration praying that both Lots 2 and 3 be ordered registered in the names of the Heirs of Juan Valdez and Pacita Valdez. On August 12,1977, the Court of Appeals denied the motion for reconsideration filed by the Heirs of Juan

Valdez on the ground that there was "no sufficient merit to justify reconsideration one way or the other ...," and likewise denied that of the Heirs of EgmidioOctaviano.

Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals dismissing his (its) application for registration of Lots 2 and 3, docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic of the Mountain Province vs. Court of Appeals and Heirs of EgmidioOctaviano.'

From the denial by the Court of Appeals of their motion for reconsideration the Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the Supreme Court a petition for review, docketed as G.R. No. L-46872, entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of EgmidioOctaviano and Annable O. Valdez.

On January 13, 1978, the Supreme Court denied in a minute resolution both petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the finality of both Supreme Court resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano filed with the then Court of First Instance of Baguio, Branch II, a Motion For Execution of Judgment praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by Hon. Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the Court of Appeals decision in CA-G.R. No. 38870 did not grant the Heirs of Octaviano any affirmative relief.

On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R, entitled Heirs of EgmidioOctaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its decision dated May 16, 1979, the Court of Appeals dismissed the petition.

It was at that stage that the instant cases were filed. The Heirs of EgmidioOctaviano filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No. 3655 (429) on September 24, 1979, likewise for recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.).

In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of EgmidioOctaviano presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership of the land in question (Lot 3) by their predecessor-in-interest, EgmidioOctaviano (Exh. C ); his written demand (Exh. B—B-4 ) to defendant Vicar for the return of the land to them; and the reasonable rentals for the use of the land at P10,000.00 per month. On the other hand, defendant Vicar presented the Register of Deeds for the Province of Benguet, Atty. NicanorSison, who testified that the land in question is not covered by any title in the name of EgmidioOctaviano or any of the plaintiffs (Exh. 8). The defendant dispensed with the testimony of Mons.WilliamBrasseur when the plaintiffs admitted that the witness if called to the witness stand, would testify that defendant Vicar has been in possession of Lot 3, for seventy-five (75) years continuously and peacefully and has constructed permanent structures thereon.

In Civil Case No. 3655, the parties admitting that the material facts are not in dispute, submitted the case on the sole issue of whether or not the decisions of the Court of Appeals and the Supreme Court touching on the ownership of Lot 2, which in effect declared the plaintiffs the owners of the land constitute res judicata.

In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting up the defense of ownership and/or long and continuous possession of the two lots in question since this is barred by prior judgment of the Court of Appeals in CA-G.R. No. 038830-R under the principle of res judicata. Plaintiffs contend that the question of possession and ownership have already been determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh. 1,

Minute Resolution of the Supreme Court). On his part, defendant Vicar maintains that the principle of res judicata would not prevent them from litigating the issues of long possession and ownership because the dispositive portion of the prior judgment in CA-G.R. No. 038830-R merely dismissed their application for registration and titling of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the decision, and not its body, is the controlling pronouncement of the Court of Appeals. 2

The alleged errors committed by respondent Court of Appeals according to petitioner are as follows:

1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;

2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;

3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND OCTAVIANO;

4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;

5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE 1906;

6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;

7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME COURT;

8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;

9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;

10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3

The petition is bereft of merit.

Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149, when it clearly held that it was in agreement with the findings of the trial court that the Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2 and 3, declared that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not positively declare private respondents as owners of the land, neither was it declared that they were not owners of the land, but it held that the predecessors of private respondents were possessors of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the trust by declaring the properties in its name for taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30 years. 4

On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's ruling that said findings are res judicata between the parties. They can no longer be altered by presentation of evidence because those issues were resolved with finality a long time ago. To ignore the principle of res judicata would be to open the door to endless litigations by continuous determination of issues without end.

An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R. No. 38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to register the lands in question under its ownership, on its evaluation of evidence and conclusion of facts.

The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive prescription because of the absence of just title. The appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by purchase from EgmidioOctaviano by petitioner Vicar because there was absolutely no documentary evidence to support the same and the alleged purchases were never mentioned in the application for registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of private respondents, not petitioner Vicar, were in possession of the questioned lots since 1906.

There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots 2 and 3, because the buildings standing thereon were only constructed after liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was appointed only in 1947, the church was constructed only in 1951 and the new convent only 2 years before the trial in 1963.

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of

commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its findings of fact have become incontestible. This Court declined to review said decision, thereby in effect, affirming it. It has become final and executory a long time ago.

Respondent appellate court did not commit any reversible error, much less grave abuse of discretion, when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the principle of res judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that decision may no longer be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals is AFFIRMED, with costs against petitioner.

SO ORDERED.

Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.

(Digest)

CATHOLIC VICAR APOSTOLIC v. CA

G.R. No. L-80294-95 September 21, 1988

Gancayco, J.

Doctrine:

The bailees' failure to return the subject matter of commodatum to the bailor does not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum.

Facts:

Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an application for registration of title over Lots 1, 2, 3, and 4, said Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. The Heirs of Juan Valdez and the Heirs of EgmidioOctaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto since their predecessors' house was borrowed by petitioner Vicar after the church and the convent were destroyed.. After trial on the merits, the land registration court promulgated its Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.

The Heirs of Juan Valdez appealed the decision of the land registration court to the then Court of Appeals, The Court of Appeals reversed the decision. Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals dismissing his application for registration of Lots 2 and 3.

Issue:

Whether or not the failure to return the subject matter of commodatum constitutes an adverse possession on the part of the owner

Held:

No. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum.

Petitioner repudiated the trust by declaring the properties in its name for taxation purposes.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 91494 July 14, 1995

THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner,

vs.

THE HONORABLE COURT OF APPEALS, GEORGE AND GEORGE TRADE, INC., GEORGE KING TIM PUA and PUA KE SENG, respondents.

QUIASON, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court of the Decision of the Court of Appeals in CA-G.R. CV No. 00922.

I

The factual antecedents, as found by the trial court and adopted by the Court of Appeals, are as follows:

On April 22, 1977, defendant George King Tim Pua, in his personal capacity, applied for, and was granted, by plaintiff bank a loan for the sum of P500,000.00 for which he executed a promissory note (Exhibit 1) for the same amount, payable on August 22, 1977.

On April 29, 1977, defendant George King Tim Pua, in his personal capacity applied for, and was granted, by the plaintiff bank a loan for the sum of P400,000.00, for which he executed a promissory note (Exhibit 1-A) for the same amount, payable on August 29, 1979.

On May 6, 1977, defendant George King Tim Pua, in his personal capacity, gain secured a loan from the plaintiff for the sum of P400,000.00, for which he executed a promissory note (Exhibit 1-B) for the same amount, payable on September 5, 1977.

On February 21, 1977, defendant George King Tim Pua, in his personal capacity, applied for, and was granted, by the plaintiff bank three (3) separate loans in the amounts of P220,000.00, P450,000.00 and P65,000.00, for which he executed three separate promissory notes (Exhibits 1-C to 1-E), payable on May 23, 1977.

On January 23, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, obtained a loan of P300,000.00 from the plaintiff, for which defendant George King Tim Pua executed a promissory note (Exhibit A) on behalf of defendant corporation, with defendants George King Tim Pua and PuaKeSeng as co-makers, which loan bears an interest of 13.23% per annum and is payable on June 22, 1979.

On April 19, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, applied for, and was granted, another loan of P200,000.00 from the plaintiff bank, for which defendant George King Tim Pua executed a promissory note (Exhibit B) on behalf of defendant corporation, with defendants George King Tim Pua and PuaKeSeng as co-makers, which loan bears an interest of 14% per annum and is payable on May 21, 1979.

On August 2, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, once more secured a loan for P150,000.00, for which defendant George King Tim Pua executed a promissory note (Exhibit C) on behalf of defendant

corporation, with defendants George King Tim Pua and PuaKeSeng as co-makers, which loan bears an interest of 14% per annum and is payable on September 17, 1979.

The three promissory notes (Exhibits A, B and C) covering loans in the corporate account of defendant George and George Trade Inc. provides (sic) also that in case of default of payment, the defendants agree to pay interest at an increased rate of 14% per annum on the amount due, compounded monthly, until fully paid, as well as an additional sum equivalent to 10% of the total amount due as and for attorney's fees in addition to expenses and costs of suit, such amount to bear interest at the rate of 1% per month until paid.

Under the two promissory notes (Exhibits B and C), the defendants further bound themselves to pay a penalty at the rate of 3% per annum on the amount due until fully paid.

In order to secure the payment of defendant George King Tim Pua's obligation with the plaintiff, he assigned unto the latter the proceeds of a fire insurance policy issued by the Kerr Insurance Company in the amount of P2,908,485.00

The proceeds of the insurance policy were subsequently paid to the plaintiff which applied the same to the personal account of defendant George King Tim Pua. The personal account of defendant George King Tim Pua was fully satisfied through the remittances of the fire insurance proceeds (Rollo, pp. 53-55).

According to petitioner bank, after it had deducted from the insurance proceeds the entirety of respondent George King Tim Pua's personal account, there remained of the insurance proceeds the amount of P383,302.42. It then proceeded to apply said amount to the unpaid loans of respondent George and George Trade, Inc. which amounted to P671,772.22 as of September 7, 1979, thus leaving a balance of P288,469.80 of the loans.

Petitioner instituted on April 7, 1980 an action (Civil Case No. 130915) against private respondents before the then Court of First Instance of Manila for the recovery of the unpaid balances on the three promissory notes, including attorney's fees equivalent to 10% of the amount recoverable.

In their Answer with Special and Affirmative Defenses and Counterclaim, private respondents claimed that the loans had been extinguished by way of payment through the assignment by respondent George King Tim Pua of the fire insurance proceeds and that it was in fact petitioner which owed them by reason of its failure to return to the latter the balance of said insurance proceeds.

No amicable settlement having been reached between the parties, trial ensued. On November 4, 1982, the trial court rendered judgment, finding for petitioner. The dispositive portion of the decision reads:

PREMISES CONSIDERED, judgment is hereby rendered ordering defendants George and George Trade, Inc., George King Tim Pua and PuaKeSeng, jointly and severally, to pay plaintiff, The Consolidated Bank and Trust Corporation (Solidbank) the sum of P228,469.80, with interest thereon at the legal rate from March 28, 1980, until the same is fully paid, and attorney's fees in the sum of P25,000.00, with costs of suit.

For lack of merit, the counterclaim filed by the defendants is dismissed (Rollo, p. 174).

On appeal by private respondents, the Court of Appeals reversed the decision of the trial court, decreeing as follows:

WHEREFORE, the decision appealed from herein is REVERSED, and plaintiff-appellee Consolidated Bank and Trust Corporation (Solidbank) is instead ordered to pay appellant George King Tim Pua the amount of P466,182.39, with legal interest thereon per annum from September 8, 1979 until said amount is fully paid, plus P10,000.00 attorney's fees and the costs of this suit (Rollo, p. 14).

Failing to secure a reconsideration of said decision, petitioner is now before the Court on a petition for review on certiorari.

Simply stated, the issue in this petition is whether private respondents are indebted to petitioners in the amount of P288,469.80 as held by the then Court of First Instance of Manila or whether said private respondents are entitled to reimbursement from petitioner in the amount of P466,182.39 as decreed by the Court of Appeals?

The issues raised are factual. As a general rule, the findings of the Court of Appeals upon factual questions are conclusive and ought not to be disturbed. There are, however, exceptions to the rule. One of the exceptions is when the findings of fact of the Court of Appeals are contrary to those of the trial court (Massive Construction, Inc. v. Intermediate Appellate Court, 223 SCRA 1 [1993]).

In the instant case, the findings of fact of the Court of Appeals are contrary to the findings of the trial court. Under such circumstance, this Court may review the findings of fact of the Court of Appeals and may scrutinize the evidence on record.

The records show that respondent George King Tim Pua had two sets of accounts with petitioner bank: his personal account and his account for George and George Trade, Inc. For his personal account, he obtained from petitioner on different dates six separate loans with different due dates, viz:

Loan I

—

22-Apr-77

—

500,000.00

Payable August 22, 1977

Loan II

—

29-Apr-77

—

400,000.00

Payable August 29, 1977

Loan III

—

5/6/77

—

400000.00

Payable September 5, 1977

Loan IV

—

(a) 2/21/1977

—

220,000.00

(b)

—

450,000.00

(c)

—

65,000.00

—

—————

Payable on May 3, 1977

—

735,000.00

T O T A L

2,035,000.00

============

All of these loans bore a 14% rate of interest, which was to be compounded monthly, in case of failure on the part of respondent George King Tim Pua to pay on maturity. In which case, he further undertook to pay an additional sum equivalent to 10% of the total amount due but in no case less than P200.00 as attorney's fees. The maturity dates of the loans were extended up to either December 1 or December 5, 1977 and all interests were paid up to March 5, 1978.

Under the account of George and George Trade, Inc., respondent George King Tim Pua, together with his co-maker, respondent PuaKeSeng, obtained the following loans:

Loan A

—

23-Jan-79

—

300,000.00

Payable June 22, 1979

Loan B

—

19-Apr-79

—

200,000.00

Payable May 21, 1979

Loan C

—

8/2/79

—

150,000.00

Payable Sept. 17, 1979

——————

T O T A L

P

650,000.00

============

The first loan bore an annual interest of 13.23%, which was to be increased to 14% in case of failure to pay on due date, compounded monthly, until fully paid. An additional amount equivalent to 10% of the total amount but not less than P200.00 was to be imposed in case of failure to pay on due date as attorney's fees. The second and third loans bore an interest rate of 14% per annum and carried a penalty of 3% per annum on the amount due in case of failure to pay on the date of maturity. An additional sum equivalent to 10% of the total amount due, but not less than P200.00, was to be imposed as and for attorney's fees. Interest were paid on the loans up to their date of maturity.

The records further show that payments were made as follows:

September 12, 1978

P

230,000.00

October 28, 1978

149,000.00

November 28, 1978

100,000.00

June 8, 1979

525,000.00

September 6, 1979

2,383,485.00

——————

TOTAL PAYMENTS

P

3,387,985.00

===========

Based on the foregoing figures, the accounts of respondents George King Tim Pua and George and George Trade, Inc. with petitioner Bank should stand as of September 6, 1979, thus:

GEORGE KING TIM PUA

Loan I (Promissory Note No. 55658) — P 500,000.00

14% interest, compounded monthly

Interest paid up to March 5, 1978

Add:

Interest, March 6 to Sept. 12, 1978 37,219.46

——————

Total P 537,219.46

Less: Payment September 12, 1978 230,000.00

——————

Balance, September 12, 1978 P 307,219.46

Add:

Interest September 13 to Oct. 28, 1978

14%, compounded monthly 5,492.63

——————

Total P 312,712.09

Less: Payment, October 28, 1978 149,500.00

——————

Balance, October 28, 1978 P 163,212.09

Add:

Interest October 29 to Nov. 28, 1978

14%, compounded monthly 1,904.68

——————

Total P 165,116.77

Less: Payment November 28, 1978 100,000.00

——————

Balance, November 28, 1978 P 65,116.77

Add:

Interest November 29, 1978 to June 8,

1979, 14%, compounded monthly 4,962.35

——————

Total P 70,079.12

Loan II (Promissory Note No. 55828) — P 400,000.00

14% Interest, compounded monthly

Interest paid up to March 5, 1978

Add:

Interest March 6, 1978 to June 8, 1979 76,587.34

——————

Total P 476,587.34

LOANS I and II, as of June 8, 1979

Loan I P 70,079.12

Loan II 476,587.34

P 546,666.46

Less: Payment, June 8, 1979 525,000.00

———————

Balance, June 8, 1979 P 21,666.46

Loan III (Promissory Note No. 55991) — P 400,000.00

14% Interest, compounded monthly

Interest paid up to March 7, 1978

Add:

Interest March 8, 1978 to Sept. 6, 1979 92,634.60

———————

Total P 492,634.60

Loan IV (Promissory Note No. 54221) — P 220,000.00

(Promissory Note No. 54222) — 450,000.00

(Promissory Note No. 54223) — 65,000.00

P 735,000.00

14% Interest, compounded monthly

Interest paid up to March 7, 1978

Add:

Interest March 8, 1978 to Sept. 6, 1979 170,216.17

———————

Total P 905,216.17

LOANS II, III and IV, as of Sept. 6, 1979

Loan II P 21,666.46

Loan III 492,634.60

Loan IV 905,216.17 P 1,419,517.23

Less: Payment, September 6, 1979 2,383,485.00

———————

BALANCE OF INSURANCE PROCEEDS P 963,967.77

GEORGE AND GEORGE TRADE, INC

Loan A (Promissory Note No. 790591) — P 300,000.00

14% Interest, compounded monthly

Interest paid up to June 22, 1979

Add:

Interest from June 23, 1979 to

Sept. 6, 1979 8,691.63

———————

Total P 308,691.63

Balance of Insurance Proceeds

after payment of Loan A P 655,276.14

Loan B (Promissory Note No. 792805) — P 200,000.00

14% Interest per annum

Interest paid up to May 21, 1979

Add:

Interest from May 22, 1979 to

Sept. 6, 1979 8,208.22

Penalty of 3% per annum 1,831.07

———————

Total P 210,039.29

Balance of Insurance Proceeds

after payment of Loan B P 445,236.85

Loan C (Promissory Note No. 794730) — P 150,000.00

14% Interest per annum

Interest paid up to Sept. 17, 1979

Balance of Insurance Proceeds

after payment of all loans P 295,236.85

Less: Trust Receipts Obligations 291,620.00

———————

Amount Refundable to

Respondent George King Tim Pua P 3,616.85

============

The 14% interest rate charged by petitioner was within the limits set by Section 3 of the Usury Law, as amended.

The charging of compounded interest has been held as proper as long as the payment thereof has been agreed upon by the parties. In Mambulao Lumber Company v. Philippine National Bank, 22 SCRA 359 (1968), we ruled that the parties may, by stipulation, capitalize the interest due and unpaid, which as added principal shall earn new interest. In the instant case, private respondents agreed to the payment of 14% interest per annum, compounded monthly, should they fail to pay the principal loan on the date of maturity.

As to handling charges, banks are authorized under Central Bank Circular

No. 504 to collect such charges on loans over P500,000.00 with a maturity of 730 days or less at the rate of 2% per annum, on the principal or the outstanding balance thereof, whichever is lower; 1.75% on loans over P500,000.00 but not over P1,000,000.00; 1.50% on loans over P1,000,000.00 but not over 2,000,000.00, etc. Section 7 of the same Circular, however, provides that all banks and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the provisions of Republic Act No. 3765 otherwise known as the "Truth in Lending Act" and shall make the true and effective cost of borrowing an integral part of every loan contract. The promissory notes signed by private respondents do not contain any stipulation on the payment of handling charges. Petitioner bank cannot, therefore, charge private respondents such handling charges.

The payment of penalty is sanctioned by law, although the penalty may be reduced by the courts if it is iniquitous or unconscionable (Equitable Banking Corporation v. Liwanag, 32 SCRA 293 [1970]). The payment of penalty was provided for under the terms and conditions of the promissory notes for Loans B and C of George and George Trade, Inc. The penalty actually imposed, being only 3% per annum of the unpaid balance of the principal of said Loan B, is considered reasonable and proper.

The same cannot, however, be said of the payment being insisted upon by petitioner of the attorney's fees stipulated in all the promissory notes, consisting of 10% of the total amount due and payable. A stipulation regarding the payment of attorney's fees is neither illegal nor immoral and is enforceable as the law between the parties as long as such stipulation does not contravene law, good morals, good customs, public order or public policy (Social Security Commission v. Almeda, 168 SCRA 474 [1988]; Reparations Commission v. Visayan Packing Corporation, 193 SCRA 531 [1991]). As stated in the promissory notes, respondent George King Tim Pua agreed to pay attorney's fees only "in addition to expenses and costs of suit." In other words, petitioner is entitled to collect from respondent George King Tim Pua the attorney's fees agreed upon only in case it was compelled to litigate with third persons or to incur expenses to protect its interest (China Airlines, Ltd. v. Intermediate Appellate Court, 169 SCRA 226 [1989]; Songcuan v. Intermediate Appellate Court, 191 SCRA 28 [1990]). These conditions are not obtaining in the case at bench. There was no need for petitioner to litigate to protect its interest inasmuch as private respondents had fully paid their obligations months before it filed the complaint for recovery of sum of money. Neither has it been shown by competent proof that petitioner had to engage the services of a lawyer or incur expenses in collecting the fire insurance proceeds from Kerr and Company.

The "Tentative Computation" to which respondent George King Tim Pua allegedly affixed his initials to the item "Attorney's Fees, 10%" cannot be taken as amending the stipulation contained in the promissory notes on the payment of attorney's fees. The failure of said Tentative Computation to express the true intent and agreement of the parties thereto was put in issue in the Amended Answer with Special and Affirmative Defenses and Counterclaim filed by private respondents before the trial court. The corresponding testimony of respondent George King Tim Pua that he did not understand the import of this item in the Tentative Computation remains unrebutted.

The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case. However, the discretion of the court to award attorney's fees under Article 2208 of the Civil Code of the Philippines demands factual, legal and equitable justification, without which the award is a conclusion without a premise and improperly left to speculation and conjecture. It becomes a violation of the proscription against the imposition of a penalty on the right to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court, 188 SCRA 170 [1990]). The reason for the award must be stated in the text of the court's decision. If it is stated only in the dispositive portion of the decision, the same shall be disallowed. As to the award of attorney's fees being an exception rather than the rule, it is necessary for the court to make findings of fact and law that would bring the case within the exception and justify the grant of the award (Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989]).

In this case, the Court of Appeals strictly followed the above-stated standard set by this Court. The award of P10,000.00 as attorney's fees to private respondents was reasonable and justified as they were compelled to litigate and incur expenses to protect their interest.

WHEREFORE, the Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the amount which petitioner is ordered to reimburse respondent George King Tim Pua is reduced to THREE THOUSAND SIX HUNDRED SIXTEEN & 65/100 PESOS (P3,616.65), with legal interest thereon from September 8, 1979 until said amount is fully paid. No pronouncement as to costs.

SO ORDERED.

Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

(Digest)

L.C. Diaz and Company (LC Diaz), an accounting firm, has a savings account with Consolidated Bank and Trust Corporation (now called Solidbank Corporation).

On August 14, 1991, the firm’s messenger, a certain Ismael Calapre, deposited an amount with the bank but due to a long line and the fact that he still needs to deposit a certain amount in another bank, the messenger left the firm’s passbook with a teller of Solidbank. But when the messenger returned, the passbook is already missing. Apparently, the teller returned the passbook to someone else.

On August 15, 1991, LC Diaz made a formal request ordering Solidbank not to honor any transaction concerning their account with them until the firm is able to acquire a new passbook. It appears however that in the afternoon of August 14, 1991, the amount of P300,000.00 was already withdrawn from the firm’s account.

LC Diaz demanded Solidbank to refund the said amount which the bank refused. LC Diaz then sued Solidbank.

In its defense, Solidbank contends that under their banking rules, they are authorized to honor withdrawals if presented with the passbook; that when the P300k was withdrawn, the passbook was presented. Further, the withdrawer presented a withdrawal slip which bore the signatures of the representatives of LC Diaz.

The RTC ruled in favor of Solidbank. It found LC Diaz to be negligent in handling its passbook. The loss of the P300k was not the result of Solidbank’s negligence.

On appeal, the Court of Appeals reversed the decision of the RTC. The CA used the rules on quasi-delict (Article 2176 of the Civil Code).

ISSUE: Whether or not the relations between Solidbank and LC Diaz, the depositor, is governed by quasi-delict in determining the liability of Solidbank.

HELD: No. Solidbank is liable for the loss of the P300k but it’s liability is grounded on culpa contractual.

The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan (Article 1980, Civil Code). There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.

Under their contract, it is the duty of LC Diaz to secure its passbook. However, this duty is also applicable to Solidbank when it gains possession of said passbook which it did when the messenger left it to the bank’s possession through the bank’s teller.

The act of the teller returning the passbook to someone else other than Calapre, the firm’s authorized messenger, is a clear breach of contract. Such negligence binds the bank under the principle of respondeat superior or command responsibility.

No contract of trust between bank and depositor

The Supreme Court emphasized that the contractual relation between the bank and the depositor is that of a simple loan. This is despite the wording of Section 2 of Republic Act 8791 (The General Banking Law of 2000) which states that the State recognizes the “fiduciary nature of banking that requires high standards of integrity and performance.” That “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.”

This fiduciary relationship means that the bank’s obligation to observe “high standards of integrity and performance” is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.

However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust.

In short, the General Banking Act simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan. The General Banking Law in no way modified Article 1980 of the Civil Code.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. Nos. L-43697 and L-442200 March 31, 1938

In re Liquidation of the Mercantile Bank of China,

GOPOCO GROCERY (GOPOCO), ET AL., claimants-appellants,

vs.

PACIFIC COAST BISCUIT CO., ET AL., oppositors-appellees.

A.M. Zarate for appellants Gopoco Grocery et al.

Laurel, Del Rosario and Sabido for appellant Tiong-Chui Gion.

Ross, Lawrence and Selph for appellees Pacific Coast Biscuit Co. et al.

Eusebio Orense and Carmelino G. Alvendia for appellees Chinese Grocers Asso. et al.

Marcelo Nubla for appellees Ang Cheng Lian et al.

DIAZ, J.:

On petition of the Bank Commissioner who alleged to have found, after an investigation, that the Mercantile Bank of China could not continue operating as such without running the risk of suffering losses and prejudice its depositors and customers; and that with the requisite approval of the corresponding authorities, he had taken charge of all the assets thereof; the Court of First Instance of Manila declared the said bank in liquidation; approved all the acts theretofore executed by the commissioner; prohibited the officers and agents of the bank from interfering with said commissioner in the possession of the assets thereof, its documents, deed, vouchers, books of account, papers, memorandum, notes, bond, bonds and accounts, obligations or securities and its real and personal properties; required its creditors and all those who had any claim against it, to present the same in writing before the commissioner within ninety days; and ordered the publication, as was in fact done, of the order containing all these provisions, for the two consecutive weeks in two news-papers of general circulation in the City of Manila, at the expenses of the aforesaid bank. After these publications, and within the period of ninety days, the following creditors, among others, presented their presented their claims:

Tiong Chui Gion, Gopoco Grocery, Tan Locko, Woo & Lo & Co., Sy Guan Huat and La Bella Tondeña.

I. The claim of Tiong Chui Gion is for the sum of P10,285.27. He alleged that he deposited said sum in the bank under liquidation on current account.

II. The claim of Gopoco Grocery (Gopoco) is for the sum of P4,932.48 plus P460. It described its claim as follows:

Balance due on open account subject to check P4,927.95

Interest on c/a 4,53

4,932.48

Surety deposit 460.00

III. The claim of Tan Locko is for the sum of P7,624.20, and he describes it in turn as follows:

Balance due on open account subject to check L-759 P7,610.44

Savings account No. 156 (foreign) with Mercantile Bank of China L-1611 Amoy $15,000,00 Interest on said Savings Account No. 156 8.22

Interest on checking a/c 10.54

7,624.20

IV. The claim of Woo & Lo & Co. is for the sum of P6,972.88 and is set out in its written claim appearing in the record on appeal as follows:

Balance due on open subject to check L-845 P6,961.01

Interest on checking a/c 11.37

6,972.83

V. The claim of Sy Guan Huat is for the sum of P6,232.88 and the described it as follows:

Balance due on open account subject to check L-718 P6,224.34

Interest on checking a/c 8.54

6,232.88

VI. The claim of La Bella Tondeña is for the sum of P1,912.79, also described as follows:

Balance due on open account subject to check P1910.59

Interest on account2.20

1,912.79

To better resolve not only these claims but also the many others which were presented against the bank, the lower court, on July 15, 1932, appointed Fulgencio Borromeo as commissioner and referee to receive the evidence which the interested parties may desire to present; and the commissioner and referee thus named, after qualifying for the office and receiving the evidence presented to him, resolved the aforesaid six claims by recommending that the same be considered as an ordinary credit only, and not as a preferred credit as the interested parties wanted, because they were at the same time debtors of the bank.

The evidence adduced and the very admissions of the said interested parties in fact show that (a) the claimant Tiong Chui Gion, while he was a creditor of the Mercantile Bank of China in the sum of P10,285.27 which he deposited on current account, was also a debtor not only in the sum of P633.76 but also in the sum of P664.77, the amount of a draft which he accepted, plus interest thereon and the protest fees paid therefor; (b) the claimant Gopoco Grocery (Gopoco) had a current account in the bank in the sum of P5,392.48, but it is indebted to it, in Turn, in the sum of $2,334.80, the amount of certain drafts which it had accepted; (c) the claimant Tan Locko had a deposit of P7,624.20, but he owed $1,378.90, the amount of a draft which he also accepted; (d) the claimant Woo & Lo & Co. had a deposit of P6,972.88, but it was indebted in the sum of $3,464.84, the amount also of certain drafts accepted by it; (e) the claimants Sy Guan Huat and Sy Kia had a deposit of P6,232.88, but they owed the sum of $3,107.37, for two drafts accepted by them and already due; and (f) the claimant La Bella Tondeña had, in turn, a deposit of P1,912.79, but it was, in turn, indebted in the sum of $565.40 including interest and other expenses, the amount of two drafts drawn upon and accepted by it.

The lower court approved all the recommendations of The commissioner and referee as to claims of the six appellants as follows; (1) To approve the claim of Tiong Chui Gion (P10,285.27) but only as an ordinary credit, minus the amount of the draft for P664.77; (2) to approve the claim of Gopoco Grocery (Gopoco) but also as an ordinary credit only (P5,387.95 according to the referee), minus its obligation amounting to $2,334.80 or P4,669.60; (3) to approve the claim of Tan Locko but as an ordinary credit only (P7,610.44 according to the referee), deducting therefrom his obligation amounting to $1,378.90 or P2,757.80; to approve the claim of Woo & Lo & Co. but only as an ordinary credit (P6,961.01 according to the referee). after deducting its obligation to the bank, amounting to $3,464.84 or P6,929.68; (5) to approve the claim of Sy Guan Huat but only as an ordinary credit (P6,224.34 according to the referee), after deducting his obligation amounting to $3,107.37) or P6,214.74; and, finally, (6) to approve the claim of la Bella Tondeña but also as an ordinary credit only (1,917.50 according to the referee), after deducting it obligation amounting to $565.40 or P1,130.80; but he expressly refused to authorize the payment of the interest by reason of impossibility upon the ground set out in the decision. Not agreeable to the decision of the lower court, each of the interested parties appealed therefrom and thereafter filed their respective briefs.

Tiong Chui Gion argues in his brief filed in case in G. R. No. 442200, that the lower court erred:

1. In holding that his deposit of P10,285.27 in the Mercantile Bank of China, constitutes an ordinary credit only and not a preferred credit.

2. In holding as preferred credits the drafts and checks issued by the bank under liquidation in payment of the drafts remitted to it for collection from merchants residing in the country, by foreign entities or banks; and in not holding that the deposits on current account in said bank should enjoy preference over said drafts and checks; and

3. In holding that the amount of P633.76 (which should be understood as P664.77), which the claimant owes to the bank under liquidation, be deducted from his current account deposit therein, amounting to P10,285.27, upon the distribution of the assets of the bank among its various creditors, instead of holding that, after deducting the aforesaid sum of P633.76 (should be P664.77) from his aforesaid deposit, there be turned over to him the balance together with the dividends or shares then corresponding to him, on the basis of said amount.

The other five claimants, that is, Gopoco Grocery Tan Locko, Woo & Lo & Co., Sy Guan Huat and La Bella Tondeña, in turn argue in the brief they jointly filed in case G. R. No. 43697, that the lower court erred:

1. In not first deducting from their respective deposits in the bank under liquidation, whose payment they claim, their respective obligation thereto.

2. In not holding that their claims constitute a preferred credit.

3. In holding that the drafts and checks issued by the bank under liquidation in payment of the drafts remitted to it by foreign entitles and banks for collection from the certain merchant residing in the country, are preferred credits; and in not holding that the deposits made by each of them enjoy preference over said drafts and checks, and

4. In denying their motion for a new trial base on the proposition that the appealed decision is not in accordance with law and is contrary to the evidence adduced at the trial.

The questions raised by the appellant in case G. R. No. 44200 and by appellants in case G.R. 43697 being identical in nature, we believe it practical and proper to resolve said questions jointly in one decision. Before proceeding, however, it is convenient to note that the commissioner and referee, classifying the various claims presented against the bank, placed under one group those partaking of the same nature, the classification having resulted in six groups.

In the first group he included all the claims for current account, savings and fixed deposits.

In the second group he included the claims for checks or drafts sold by the bank under liquidation and not paid by the agents or banks in whose favor they had been issued.

In the third group he included the claims checks or drafts issued by the bank under liquidation in payment or reimbursement of the drafts or goods remitted to it for collection, from resident merchants and entitles, by foreign banks and entities.

In the fourth group he included the claims for drafts or securities to be collected from resident merchants and entities to be collected from resident merchants and entities which were pending collection on the date payments were suspended.

In the fifth group he included the claims of certain depositors or creditors of the bank who were at the same time debtors thereof; and he considered of this class the claims of the appellants in these two cases, and

In the sixth group he included the other claims different in nature from the of the aforesaid five claims.

I. Now, then, should the appellants' deposits on current account in the bank now under liquidation be considered preferred credits, and not otherwise, or should they be considered ordinary credits only? The appellants contend that they are preferred credits only? The appellants contend that they are preferred credits because they are deposits in contemplation of law, and as such should be returned with the corresponding interest thereon. In support thereof they cite Manresa (11 Manresa, Civil Code, page 663), and what has been insinuated in the case of Rogers vs. Smith, Bell & Co. (10 Phil., 319), citing the said commentator who maintains that, notwithstanding the provisions of articles 1767 and 1768 and others of the aforesaid Code, from which it is inferred that the so-called irregular deposits no longer exist, the fact is that said deposits still exist. And they contend and argue that what they had in the bank should be considered as of this character. But it happens that they themselves admit that the bank owes them interest which should have been paid to them before it was declared in a state of liquidation. This fact undoubtedly destroys the character which they nullifies their contention that the same be considered as irregular deposits, because the payment of interest only takes place in the case of loans. On the other hand, as we stated with respect to the claim of Tan Tiong Tick (In re Liquidation of Mercantile Bank of China, G.R. No. 43682), the provisions of the Code of Commerce, and not those of the Civil Code, are applicable to cases of the nature of those at bar, which have to do with parties who are both merchants. (Articles 303 and 309, Code of Commerce.) We there said, and it is not amiss to repeat now, that the so-called current account and savings deposits have lost their character of deposits, properly so-called and are convertible into simple commercial loans because, in cases of such deposits, the bank has made use thereof in the ordinary course of its transactions as an institution engaged in the banking business, not because it so wishes, but precisely because of the authority deemed to have been granted to it by the appellants to enable them to collect the interest which they had been and they are now collecting, and by virtue further of the authority granted to it by section 125 of the Corporation Law (Act No. 1459), as amended by Acts Nos. 2003 and 3610 and section 9 of the Banking Law (Act No. 3154), without considering of course the provisions of article 1768 of the Civil Code. Wherefore, it is held that the deposits on current account of the appellants in the bank under liquidation, with the right on their right on their part to collect interest, have not created and could not create a juridical relation between them except that of creditors and debtor, they being the creditors and the bank the debtor.

What has so far been said resolves adversely the contention of the appellants, the question raised in the first and second assigned errors Tiong Chui Gion in case G. R. No. 44200, and the appellants' second and third assigned errors in case G. R. No. 43697.

II. As to the third and first errors attributed to lower court by Tiong Chui Gion in his case, and by the other appellants in theirs, respectively, it should be stated that the question of set-off raised by them cannot be resolved a like question in the said case, G. R. No. 43682, entitled "In re Liquidation of Mercantile Bank of China. Tan Tiong Tick, claimant." It is proper that set-offs be made, inasmuch as the appellants and the bank being reciprocally debtors and creditors, the same is only just and according to law (art. 1195, Civil Code), particularly as none of the appellants falls within the exceptions mentioned in section 58 of the Insolvency Law (Act No. 1956), reading:

SEC. 58. In all cases of mutual debts and mutual credits between the parties, the account between them shall be stated, and one debt set off against the other, and the balance only shall be allowed and paid. But no set-off or counterclaim shall be allowed of a claim in its nature not provable against the estate: Provided, That no set-off on counterclaim shall be allowed in favor of any debtor to the insolvent of a claim purchased by or transferred to such debtor within thirty days immediately preceding the filing, or after the filing of the petition by or against the insolvent.

It has been said with much basis by Morse, in his work on Bank and Banking (6th ed., vol. 1, pages 776 and 784) that:

The rules of law as to the right of set-off between the bank and its depositors are not different from those applicable to other parties. (Page 776.)

Where the bank itself stops payment and becomes insolvent, the customer may avail himself in set-off against his indebtedness to the bank of any indebtedness of the bank to himself, as, for example, the balance due him on his deposit account. (Page 784.)

But if set-offs are proper in these cases, when and how should they be made, considering that the appellants ask for the payment of interest? Are they by any chance entitled to interest? If they are, when and until what time should they be paid the same?

The question of whether they are entitled to interest should be resolved in the same way that we resolved the case of the claimant Tan Tiong Tick in the said case, G. R. No. 43682. The circumstances in these two cases are certainly the same as those in the said case with reference to the said question. The Mercantile Bank of China owes to each of the appellants the interest claimed by them, corresponding to the year ending December 4, 1931, the date it was declared in a state of liquidation, but not which the appellants claim should be earned by their deposits after said date and until the full amounts thereof are paid to them. And with respect to the question of set-off, this should be deemed made, of course, as of the date when the Mercantile Bank of China was declared in a state of liquidation, that is, on December 4, 1931, for then there was already a reciprocal concurrence of debts, with respect to said bank and the appellants. (Arts. 1195 and 1196 of the Civil Code; 8 Manresa, 4th ed., p. 361.)

III. With respect to the fourth assigned error of the appellants in case G. R. No. 43697, we hold, in view of the considerations set out in resolving the other assignments of errors, that the lower court properly denied the motion for new trial of said appellants.

In view of the foregoing, we modify the appealed judgments by holding that the deposits claimed by the appellants, and declared by the lower court to be ordinary credits are for the following amounts: P10,285.27 of Tiong Chui Gion; P5,387.95 of Gopoco Grocery (Gopoco); P7,610.44 of Tan Locko; P6961.01 of Woo & Lo & Co.; P6,224.34 of Sy Guan Huat; and P1,917.50 of La Bella Tondeña, plus their corresponding interest up to December 4, 1931; that their obligations to the bank under liquidation which should be set off against said deposits, are respectively for the following amounts: P664.77 of Tiong Chui Gion; P4,669.60 of Gopoco Grocery (Gopoco); P2,757.80 of Tan Locko; P6,929.68 of Woo & Lo & Co.; P6,214.74 of SyHuat; and P1,130.80 of La Bella Todeña; and we order that the set-offs in question be made in the manner stated in this decision, that is, as of the date already indicated, December 4, 1931. In all other respects, we affirm the aforesaid judgments, without special pronouncement as to costs. So ordered.

Avanceña, C.J., Villa-Real, Abad Santos, Imperial and Horrilleno, JJ., concur.