Naguiat vs. Court of Appeals, G.R. No.

118375, October 3, 2003

Facts:
The case involves Celestina T. Naguiat as the petitioner and Aurora QueaAo as the
respondent. The events leading to the case began on August 11, 1980, when QueaAo
applied for a loan of Two Hundred Thousand Pesos (P200,000.00) from Naguiat, who
granted the loan. On the same day, Naguiat issued two checks: Associated Bank Check
No. 090990 for Ninety-Five Thousand Pesos (P95,000.00) and Filmanbank Check No.
065314 for another Ninety-Five Thousand Pesos (P95,000.00). These checks were
intended to constitute the loan proceeds. To secure the loan, QueaAo executed a Deed
of Real Estate Mortgage in favor of Naguiat, surrendering the owner's duplicates of the
titles to the mortgaged properties. A promissory note for the total loan amount was also
issued by QueaAo, with an interest rate of 12% per annum, due on September 11,
1980. However, when the Security Bank check for P200,000.00 was presented on its
maturity date, it was dishonored due to insufficient funds. Following this, QueaAo
requested a stop payment on the check, which the bank denied based on its policy.

On October 16, 1980, Naguiat's lawyer sent a demand letter for loan settlement.
QueaAo claimed she did not receive the loan proceeds, alleging that the checks were
retained by Ruby Ruebenfeldt, who was purportedly Naguiat's agent. Subsequently,
Naguiat initiated extrajudicial foreclosure proceedings on the mortgage, scheduling a
sale for August 14, 1981. In response, QueaAo filed a complaint with the Regional Trial
Court (RTC) of Pasay City on August 11, 1981, seeking the annulment of the mortgage
deed. The RTC ruled in favor of QueaAo on March 8, 1991, declaring the mortgage void
and ordering the return of the titles. Naguiat appealed this decision to the Court of
Appeals, which affirmed the RTC's ruling. Naguiat then filed a petition for review on
certiorari with the Supreme Court.

Issue:
Did Aurora QueaAo actually receive the loan proceeds from Celestina Naguiat?
Is the Deed of Real Estate Mortgage valid despite the claims of non-receipt of the loan
proceeds?
Are the representations made by Ruby Ruebenfeldt admissible against Naguiat?
Ruling:
The Supreme Court denied the petition and affirmed the decision of the Court of
Appeals, which upheld the RTC's ruling that the Deed of Real Estate Mortgage was null
and void due to the absence of consideration, as QueaAo did not receive the loan
proceeds.

Ratio:
The Court emphasized that the resolution of factual issues is primarily the function of
lower courts, and their findings are generally binding unless there are compelling
reasons to disturb them. In this case, the Court found no evidence that the checks
issued by Naguiat were encashed or deposited by QueaAo, which is essential for the
perfection of the loan contract. The Court reiterated that a loan contract is a real
contract, perfected only upon the delivery of the loan proceeds. The mere issuance of
checks does not equate to the delivery of the loan. Furthermore, the Court ruled that the
presumption of truthfulness associated with notarized documents can be rebutted by
clear and convincing evidence, which was present in this case. The Court also upheld
the admissibility of Ruebenfeldt's representations, as she was deemed an agent of
Naguiat, thus falling under the exception to the rule against third-party admissions.
Ultimately, the Court concluded that since the loan was never delivered, the mortgage,
being an accessory contract, was also void.

Colito T. Pajuyo v. Court of Appeals, G.R. No. 146364, June 3, 2004

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (aGuevarraa)

executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra
to live in the house for free provided Guevarra would maintain the cleanliness and
orderliness of the house. Guevarra promised that he would voluntarily vacate the
premises on Pajuyoas demand. In September 1994, Pajuyo informed Guevarra of his
need of the house and demanded that Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of
Quezon City, Branch 31 (aMTCa). In his Answer, Guevarra claimed that Pajuyo had no
valid title or right of possession over the lot where the house stands because the lot is
within the 150 hectares set aside by Proclamation No. 137 for socialized housing.
Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not
show up or communicate with him. Guevarra insisted that neither he nor Pajuyo has
valid title to the lot.
The Court of Appeals reversed the MTC and RTC rulings, which held that the
Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord
and tenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease
contract but a commodatum because the agreement is not for a price certain.
Did the Court of Appeals err in ruling that the Kasunduan was a commodatum
rather than a lease contract?
We do not subscribe to the Court of Appealsa theory that the Kasunduan is one of
commodatum.

In a contract of commodatum, one of the parties delivers to another something not

consumable so that the latter may use the same for a certain time and return it.63]

An essential feature of commodatum is that it is gratuitous.

Another feature of commodatum is that the use of the thing belonging to another is for a certain
period. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the
period stipulated, or after accomplishment of the use for which the commodatum is constituted.

If the bailor should have urgent need of the thing, he may demand its return for temporary use.

If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at
will, in which case the contractual relation is called a precarium.67 Under the Civil Code,
precarium is a kind of commodatum.68

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was
not essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it
obligated him to maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from a commodatum. The effects of
the Kasunduan are also different from that of a commodatum. Case law on ejectment has
treated relationship based on tolerance as one that is akin to a landlord-tenant relationship
where the withdrawal of permission would result in the termination of the lease. The tenant as
withholding of the property would then be unlawful. This is settled jurisprudence.

Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum,
Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo,
the bailor. The obligation to deliver or to return the thing received attaches to contracts for
safekeeping, or contracts of commission, administration and commodatum. These contracts
certainly involve the obligation to deliver or return the thing received.71
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a
squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they
illegally occupy. Guevarra insists that the contract is void.

Guevarra should know that there must be honor even between squatters. Guevarra freely
entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.

Heirs of Juanita Padilla v. Magdua, 630 SCRA 573 (2010)

Facts:
The case involves the petitioners, the Heirs of Juanita Padilla, represented by Claudio
Padilla, against the respondent, Dominador Magdua. Juanita Padilla owned a parcel of
land located in San Roque, Tanauan, Leyte, which she passed on to her heirs upon her
death on March 23, 1989. Following her death, the petitioners, as her legal heirs, sought
to partition the land. They communicated their intentions to their eldest brother, Ricardo
Bahia. However, they were taken aback when they received a letter from Ricardo dated
June 5, 1998, in which he claimed the land for himself, thereby infringing upon the rights
of his co-heirs. It was later revealed that Juanita had executed a notarized Affidavit of
Transfer of Real Property in favor of Ricardo on June 4, 1966, which purportedly made
him the sole owner of the land. Notably, the land was not registered under the Torrens
system.

On October 26, 2001, the petitioners filed a case in the Regional Trial Court (RTC) of
Tacloban City, Branch 34, seeking recovery of ownership, possession, partition, and
damages. They aimed to declare void the sale of the land made by Ricardo's daughters,
Josephine Bahia and Virginia Bahia-Abas, to Dominador Magdua, which occurred
during Ricardo's lifetime. The petitioners alleged that Ricardo had misrepresented the
situation, transferring the land to himself without the consent of his co-heirs. They also
questioned the authenticity of Juanita's signature on the Affidavit, citing a written
instrument dated May 15, 1978, in which Juanita stated her intention to leave the land to
her children.

Initially, Dominador filed a motion to dismiss the case, arguing lack of jurisdiction due to
the assessed value of the land being below the RTC's threshold. The RTC dismissed
the case on February 20, 2006, citing lack of jurisdiction. However, upon
reconsideration, the RTC acknowledged its jurisdiction but later dismissed the case on
September 8, 2006, on the grounds of prescription, stating that the action was filed
more than 30 years after the Affidavit was executed. The RTC maintained this dismissal
in a subsequent order dated February 13, 2007, leading to the petitioners' appeal.

Issue:
The main issue in this case is whether the action filed by the petitioners is barred by
prescription.

Ruling:
The Supreme Court ruled in favor of the petitioners, reversing and setting aside the
orders of the RTC dated September 8, 2006, and February 13, 2007. The Court found
that the action was not barred by prescription and directed the RTC to try the case on its
merits.

Ratio:
The Supreme Court's decision hinged on the interpretation of the Affidavit executed by
Juanita in favor of Ricardo. The Court noted that the RTC's reliance on the Affidavit to
dismiss the case on the grounds of prescription was speculative and insufficient. The
Court emphasized that the prescriptive period for the petitioners began only when they
received notice of Ricardo's repudiation of their claims on June 5, 1998, not from the
date of the Affidavit in 1966. Since the petitioners filed their action on October 26, 2001,
only three years had elapsed, which is well within the statutory period for filing such
claims.

Furthermore, the Court highlighted that co-owners cannot acquire the share of another
co-owner through prescription unless there is clear evidence of repudiation of co-
ownership. The Court found that the petitioners had sufficiently demonstrated that
Ricardo's actions constituted a repudiation of their claims, thus allowing the prescriptive
period to commence only from the date of notification. The Court also ruled that the
RTC had jurisdiction over the case, as the principal action sought was not merely for
recovery of ownership but also involved the annulment of the deed of sale, which is
incapable of pecuniary estimation.

In conclusion, the Supreme Court determined that the RTC had erred in its dismissal
based on prescription and that the case should be tried on its merits to ascertain the
rightful ownership of the land.
U.S. v. Ibañez, 19 Phil 559, 560 (1911)
In Criminal Case No. M-111, respondent Rosalinda M. Amin charges petitioners Yam
Chee Kiong and Yam Yap Kieng with estafa through misappropriation of the amount of
P50,000.00. But the complaint states on its face that said petitioners received the
amount from respondent Rosalinda M. Amin "as a loan." Moreover, the complaint in
Civil Case No. N-5, an independent action for the collection of the same amount filed by
respondent Rosalinda M. Amin with the Court of First Instance of Sulu on September
11, 1975, likewise states that the P50,000.00 was a "simple business loan" which
earned interest and was originally demandable six (6) months from July 12, 1973.

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

Can a debtor be held liable for the crime of estafa solely based on the refusal to pay or
denial of indebtedness when the relationship with the creditor is purely that of debtor
and creditor?
In U.S. vs. Ibañez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a
person to refuse to nay his debt or to deny its existence.
We are of the opinion and so decide that when the relation is purely that of debtor and
creditor, the debtor can not be held liable for the crime of estafa, under said article, by
merely refusing to pay or by denying the indebtedness.

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

The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.
Art. 1933. — By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time
and return it, in which case the contract is called a commodatum; or money or
other consumable thing upon the condition that the same amount of the same
kind and quality shall be paid, in which case the contract is simply called a loan
or mutuum.

Commodatum is essentially gratuitous.

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

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

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

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

The Metropolitan Bank and Trust Company v. Rosales, G.R. No. 183204, January
13, 2014

Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid upon
demand by the depositor.

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio
Ivan Aguirre, filed before the Office of the Prosecutor of Manila a criminal case for
Estafa through False Pretences, Misrepresentation, Deceit, and Use of Falsified
Documents, docketed as I.S. No. 03I-25014,18 against respondent Rosales.19
Petitioner accused respondent Rosales and an unidentified woman as the ones
responsible for the unauthorized and fraudulent withdrawal of US$75,000.00 from Liu
Chiu Fangas dollar account with petitioneras Escolta Branch.20 Petitioner alleged that
on February 5, 2003, its branch in Escolta received from the PLRA a Withdrawal
Clearance for the dollar account of Liu Chiu Fang;21 that in the afternoon of the same
day, respondent Rosales went to petitioneras Escolta Branch to inform its Branch Head,
Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her dollar
deposits in cash;22 that Gutierrez told respondent Rosales to come back the following
day because the bank did not have enough dollars;23 that on February 6, 2003,
respondent Rosales accompanied an unidentified impostor of Liu Chiu Fang to the
bank;24 that the impostor was able to withdraw Liu Chiu Fangas dollar deposit in the
amount of US$75,000.00;25 that on March 3, 2003, respondents opened a dollar
account with petitioner; and that the bank later discovered that the serial numbers of the
dollar notes deposited by respondents in the amount of US$11,800.00 were the same
as those withdrawn by the impostor.26

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of
Manila a Complaint44 for Breach of Obligation and Contract with Damages, docketed
as Civil Case No. 04110895 and raffled to Branch 21, against petitioner. Respondents
alleged that they attempted several times to withdraw their deposits but were unable to
because petitioner had placed their accounts under aHold Outa status.45 No
explanation, however, was given by petitioner as to why it issued the aHold Outa
order.46 Thus, they prayed that the aHold Outa order be lifted and that they be allowed
to withdraw their deposits.47 They likewise prayed for actual, moral, and exemplary
damages, as well as attorneyas fees.48

On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for
damages for breach of contract.56 The RTC ruled that it is the duty of petitioner to
release the deposit to respondents as the act of withdrawal of a bank deposit is an act
of demand by the creditor.57 The RTC also said that the recourse of petitioner is
against its negligent employees and not against respondents

RULING
Petitioneras reliance on the aHold Outa clause in the Application and Agreement for
Deposit Account is misplaced.
The aHold Outa clause applies only if there is a valid and existing obligation arising from
any of the sources of obligation enumerated in Article 115779of the Civil Code, to wit:
law, contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to
show that respondents have an obligation to it under any law, contract, quasi-contract,
delict, or quasi-delict. And although a criminal case was filed by petitioner against
respondent Rosales, this is not enough reason for petitioner to issue a aHold Outa order
as the case is still pending and no final judgment of conviction has been rendered
against respondent Rosales. In fact, it is significant to note that at the time petitioner
issued the aHold Outa order, the criminal complaint had not yet been filed. Thus,
considering that respondent Rosales is not liable under any of the five sources of
obligation, there was no legal basis for petitioner to issue the aHold Outa order.
Accordingly, we agree with the findings of the RTC and the CA that the aHold Outa
clause does not apply in the instant case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it
unjustifiably refused to release respondentsa deposit despite demand. Having breached
its contract with respondents, petitioner is liable for damages.

Bank Deposits as Simple Loans: Bank deposits are in the nature of a mutuum
(simple loan) and must be paid upon demand by the depositor.

"Hold Out" Clause Limitations: The clause applies only if there is a valid obligation
arising from law, contract, quasi-contract, delict, or quasi-delict. In this case, no such
obligation existed.

Gullas v. Philippine National Bank, 62 SCRA 519

Facts:
The case involves Paulino Gullas as the plaintiff and appellant against the Philippine
National Bank as the defendant and appellant. The events leading to the case began on
August 2, 1933, when the Treasurer of the United States for the United States Veterans
Bureau issued a warrant for $361, payable to Francisco Sabectoria Bacos. Paulino
Gullas and Pedro Lopez endorsed this check, which was subsequently cashed by the
Philippine National Bank. However, the treasury warrant was later dishonored by the
Insular Treasurer. At that time, Gullas had an outstanding balance of P509 in his
account with the bank. He had issued several checks against this balance, which could
not be honored when the funds were sequestered by the bank due to the dishonor of
the treasury warrant.

On August 20, 1933, Gullas left for Manila, and the bank sent notices of dishonor to
him, which could not be delivered as he was away. On August 21, 1933, the bank
informed Gullas and Lopez that the treasury warrant had been returned and that they
had applied Gullas's outstanding balance of P509 to partially cover the dishonored
check. Upon returning to Cebu on August 31, 1933, Gullas received notice of the
dishonor and promptly paid the unpaid balance of the treasury warrant. This situation
caused Gullas significant inconvenience, as several checks, including one for his
insurance, were not honored, leading to public embarrassment due to the media
coverage of the incident.

The case was brought before the Court of First Instance of Cebu, which ruled that the
Philippine National Bank was to return the sum of P509 to Gullas with legal interest and
costs, while Gullas was awarded damages of approximately P10,000. The bank was
absolved from the amended complaint. Both parties appealed the decision, leading to
the current case.

The main issues are two, namely, (1) as to the right of the Philippine National Bank to
apply a deposit to the debt of a depositor to the bank, and (2) as to the amount of
damages, if any, which should be awarded Gullas,

Ruling:
The Philippine National Bank had the right to apply Gullas's deposit to cover the debt,
but the action taken was prejudicial to Gullas due to the lack of notice. The court
established that the relationship between a depositor and a bank is one of creditor and
debtor, allowing the bank to exercise a right of set-off against the depositor's account for
any debts owed. However, the court emphasized that the bank's action to apply Gullas's
funds without prior notice was improper, particularly since Gullas was merely an
indorser of the dishonored check and had issued checks in good faith. The court noted
that the bank's failure to notify Gullas before applying his funds hindered his ability to
protect his interests, leading to financial disturbances and embarrassment.

Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994,
234 SCRA 78
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 plaintiffs
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 consignees 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.)

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 vessels Agents Bad Order Tally
Sheet No. 86427. The report further states that when defendant Allied Brokerage
withdrew the shipment from defendant arrastre operators 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 carriers 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 Shippings 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:

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);
Dissatisfied, defendants recourse to US.
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 -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 RESPONDENTS CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The appellate court ruled that legal interest should be computed from the date of filing
the complaint, which is consistent with previous rulings that establish the starting point
for interest on unliquidated claims.
The court emphasized that interest on unliquidated claims cannot be recovered until the
amount is established with reasonable certainty, which typically occurs at the time of
judgment.
Applicable Rate of Interest
The third issue concerns the applicable rate of interest, debating whether it should be
twelve percent (12%) or six percent (6%).
The court clarified that the twelve percent interest rate, as prescribed by Central Bank
Circular No. 416, applies only to loans or forbearance of money, goods, or credits, and
not to damages arising from breaches of obligation.
In this case, the court determined that the appropriate interest rate for the damages
awarded is six percent (6%) per annum, as the claim does not involve a loan or
forbearance but rather a claim for damages.
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

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

2. 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.

The Monetary Board, in its Resolution No. 796 dated 16 May 2013,
approved the following revisions governing the rate of interest in the
absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per
annum.

Section 2. In view of the above, Subsection X305.136 of the Manual of

Regulations for Banks and Sections 4305Q.1,37 4305S.338 and 4303P.139
 of the Manual of Regulations for Non-Bank Financial Institutions are hereby
amended accordingly.

This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the
rate of interest that would govern the parties, the rate of legal interest for
loans or forbearance of any money, goods or credits and the rate allowed
in judgments shall no longer be twelve percent (12%) per annum - as
reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of
the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and
4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions,
before its amendment by BSP-MB Circular No. 799 - but will now be six
percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the new
rate of six percent (6%) per annum shall be the prevailing rate of interest
when applicable.
Nacar vs. Gallery Frames
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration
Branch of the National Labor Relations Commission (NLRC) against respondents
Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-
00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and
found that he was dismissed from employment without a valid or just cause. Thus,
petitioner was awarded backwages and separation pay in lieu of reinstatement in the
amount of P158,919.92.

To pay jointly and severally the complainant the amount of sixty-two thousand nine
hundred eighty-six pesos and 56/100 (P62,986.56) Pesos representing his separation
pay;
To pay jointly and severally the complainant the amount of nine (sic) five thousand nine
hundred thirty-three and 36/100 (P95,933.36) representing his backwages;

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that
his backwages be computed from the date of his dismissal on January 24, 1997 up to
the finality of the Resolution of the Supreme Court on May 27, 2002.11 Upon
recomputation, the Computation and Examination Unit of the NLRC arrived at an
updated amount in the sum of P471,320.31.12
On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering
the Sheriff to collect from respondents the total amount of P471,320.31. Respondents
filed a Motion to Quash Writ of Execution, arguing, among other things, that since the
Labor Arbiter awarded separation pay of P62,986.56 and limited backwages of
P95,933.36, no more recomputation is required to be made of the said awards. They
claimed that after the decision becomes final and executory, the same cannot be altered
or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an Order15
denying the motion. Thus, an Alias Writ of Execution16 was issued on January 14,
2003.
The records of the case were again forwarded to the Computation and Examination Unit
for recomputation, where the judgment award of petitioner was reassessed to be in the
total amount of only P147,560.19.

Petitioner then moved that a writ of execution be issued ordering respondents to pay
him the original amount as determined by the Labor Arbiter in his Decision dated
October 15, 1998, pending the final computation of his backwages and separation pay.

On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the
judgment award that was due to petitioner in the amount of P147,560.19, which
petitioner eventually received.

Petitioner then filed a Manifestation and Motion praying for the re-computation of the
monetary award to include the appropriate interests.
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up
to the amount of P11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998
Decision that should be enforced considering that it was the one that became final and
executory. However, the Labor Arbiter reasoned that since the decision states that the
separation pay and backwages are computed only up to the promulgation of the said
decision, it is the amount of P158,919.92 that should be executed. Thus, since
petitioner already received P147,560.19, he is only entitled to the balance of
P11,459.73.
RULING
The Supreme Court emphasized that the principle of immutability of judgments does not
preclude the recomputation of monetary awards in cases of illegal dismissal. The Court
clarified that the Labor Arbiter's decision, which found Nacar's dismissal illegal,
established the basis for the monetary awards, but the specific amounts awarded were
time-bound and could be recomputed to reflect the actual entitlements up to the finality
of the decision. The Court referenced Article 279 of the Labor Code, which stipulates
that the consequences of illegal dismissal include backwages and separation pay until
the finality of the decision.

The Court also addressed the issue of interest, stating that legal interest should be
applied at a rate of 12% per annum from the finality of the decision until June 30, 2013,
and 6% per annum thereafter, in accordance with the Bangko Sentral ng Pilipinas'
revised guidelines. The Court's ruling underscored the importance of ensuring that the
monetary awards reflect the true entitlements of the dismissed employee, thereby
upholding the principles of justice and fair compensation.
The Court emphasized that the legal interest should be computed from the finality of the
decision until full satisfaction of the monetary awards.

Lara's Gift & Decors, Inc. v. Midtown Industrial Sales, Inc., G.R. No. 225433,
September 20, 2022
As recalled from the facts of the Petition,4 Lara's Gifts & Decors, Inc. (Lara's Gifts)
purchased from Midtown Industrial Sales, Inc. (Midtown) various industrial and
construction materials, from January to December 2007, in the total amount of
P1,263,104.22.

The purchases were on a 60-day credit term, subject to the condition that 24% per
annum would be charged on all accounts overdue. Lara's Gifts issued post-dated
checks to pay for its purchases. However, these checks were later dishonored due to
"insufficiency of funds" or "account closed." Midtown informed Lara's Gifts of the
bounced checks and demanded the settlement of its accounts, through a demand letter
dated January 21, 2008. However, Lara's Gifts still failed to pay. Thus, on February 5,
2008, Midtown filed a Complaint for Sum of Money with Prayer for Attachment.5

Lara's Gifts admitted its purchases, but claimed that most of the deliveries were
substandard and of poor quality. As such, the finished products, using those raw
materials, were rejected by U.S. buyers. Lara's Gifts added that clue to the economic
recession, some of the orders made by its U.S. buyers were cancelled. Also, on
February 19, 2008, a fire razed its factory destroying its equipment, machineries, and
inventories.
On January 27, 2014, the Regional Trial Court, Branch 128, Caloocan City rendered a
decision6 in favor of Midtown. It found insufficient evidence to prove Lara's Gifts' claim
that the products were substandard. On the other hand, it found the amount claimed by
Midtown to be supported by the sales invoices and checks. It also found the 24%
interest not unconscionable.
On appeal, the Court of Appeals upheld the Regional Trial Court's decision7 which
prompted Lara's Gifts to file a Petition for Review8 before this Court.

In an August 28, 2019 Decision,9 this Court denied Lara's Gifts' Petition, and affirmed
the Court of Appeals' Decision with modification as to damages. This Court held that: (1)
petitioner's general denial amounts to an admission of the genuineness and due
execution of the sales invoices; (2) petitioner failed to prove its claim that the materials
delivered did not comply with the specifications or were substandard or of poor quality;
and (3) the 24% stipulated interest is valid and binding on petitioner, which is reckoned
from date of extrajudicial demand on January 22, 2008 until full payment.
This Court further applied legal interest on the 24% interest, at the rate of: (i) 12%,
reckoned from date of judicial demand on February 5, 2008 until June 30, 2013; and (ii)
6%, from July 1, 2013 until full payment.
Petitioner filed a Motion for Reconsideration.11 It argues that: the 24% interest stated in
the sales invoices is null and void for being excessive, unconscionable, and
exorbitant,15 and was unilaterally imposed by respondent without petitioner's
consent;16 and (5) the imposition of legal interest on the 24% compensatory interest is
excessive.17

In upholding the validity of the 24% per annum interest, we ruled:

In the present case, petitioner, which has been doing business since 1990 and has
been purchasing various materials from respondent since 2004, cannot claim to have
been misled into agreeing to the 24% interest rate which was expressly stated in the
sales invoices. Besides, this Court has already ruled in several cases that an interest
rate of 24% per annum agreed upon between the parties is valid and binding and not
excessive and unconscionable. Thus, the stipulated 24% interest per annum is binding
on petitioner