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

THE PEOPLE OF THE PHILIPPINE ISLANDS,p laintiff-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 s igned 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.


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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 L egislature 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 bythe 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 f ine 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 Kwong Fok 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 apersonviolating 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:


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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.


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With the foregoing circumstances, it may be fairly inferred that there were really no contracts of

loan that existed between the parties. x x x (emphasis supplied)22

Hence this petition.23

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45

of the Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual

findings of the CA (which held that there wereno contracts of loan between petitioner and

respondent) and the RTC (which held that there werecontracts of loan) are contradictory.24

The petition is impressed with merit.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the

object of the contract.25

This is evident in Art. 1934 of the Civil Code which provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding

upon the parties, but the commodatum or simple loan itself shall not be perfected until the

delivery of the object of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the

debtor when the checks were encashed) the debtor acquires ownership of such money or loan

proceeds and is bound to pay the creditor an equal amount.

26

It is undisputed that the checks were delivered to respondent. However, these checks were

crossed and payable not to the order of respondent but to the order of a certain Marilou

Santiago. Thus the main question to be answered is: who borrowed money from petitioner

respondent or Santiago?

Petitioner insists that it was upon respondents instruction that both checks were made payable

to Santiago.27

She maintains that it was also upon respondents instruction that both checks

were delivered to her (respondent) so that she could, in turn, deliver the same to Santiago.28

Furthermore, she argues that once respondent received the checks, the latter had possession

and control of them such that she had the choice to either forward them to Santiago (who was

already her debtor), to retain them or to return them to petitioner.

29

We agree with petitioner. Delivery is the act by which the resor substance thereof is placed

within the actual or constructive possession or control of another.30

Although respondent did

not physically receive the proceeds of the checks, these instruments were placed in her control

and possession under an arrangement whereby she actually re-lent the amounts to Santiago.

Several factors support this conclusion.

First, respondent admitted that petitioner did not personally know Santiago.31

It was highly

improbable that petitioner would grant two loans to a complete stranger without requiring as

much as promissory notes or any written acknowledgment of the debt considering that the

amounts involved were quite big. Respondent, on the other hand, already had transactions withSantiago at that time.

32

Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in

both parties list of witnesses) testified that respondents plan was for petitioner to lend her

money at a monthly interest rate of 3%, after which respondent would lend the same amount to

Santiago at a higher rate of 5% and realize a profit of 2%.33

This explained why respondent

instructed petitioner to make the checks payable to Santiago. Respondent has not shown any

reason why Ruiz testimony should not be believed.

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of

P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For

the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four

months.34According to respondent, she merely accommodated petitioners request for her toissue her own checks to cover the interest payments since petitioner was not personally

acquainted with Santiago.35

She claimed, however, that Santiago would replace the checks with

cash.36

Her explanation is simply incredible. It is difficult to believe that respondent would put

herself in a position where she would be compelled to pay interest, from her own funds, for

loans she allegedly did not contract. We declared in one case that:

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for

evidence to be believed, it must not only proceed from the mouth of a credible witness, but

must be credible in itself such as the common experience of mankind can approve as probable

under the circumstances. We have no test of the truth of human testimony except its

conformity to our knowledge, observation, and experience. Whatever is repugnant to these

belongs to the miraculous, and is outside of juridical cognizance.

37

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not

petitioner, who was listed as one of her (Santiagos) creditors.38

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39

The presumption is that "evidence willfully suppressed would be adverse if produced."40

Respondent was not able to overturn this presumption.

We hold that the CA committed reversible error when it ruled that respondent did not borrow

the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of

the RTC making respondent liable for the principal amounts of the loans.

We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the

US$100,000 and P500,000 loans respectively. There was no written proof of the interest

payable except for the verbalagreement that the loans would earn 3% and 4% interest per

month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been

expressly stipulated in writing."

Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant

to Article 2209 of the Civil Code. It is well-settled that:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan

or forbearance of money, the interest due should be that which may have been stipulated in

writing. Furthermore, the interest due shall itself earn legal interest from the time it is judiciallydemanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
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computed from default, i.e., from judicial or extrajudicial demand under and subject to the

provisions of Article 1169 of the Civil Code.41

Hence, respondent is liable for the payment of legal interestperannumto be computed from

November 21, 1995, the date when she received petitioners demand letter.42

From the finality

of the decision until it is fully paid, the amount due shall earn interest at 12% perannum, the

interim period being deemed equivalent to a forbearance of credit.43

The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted

since the RTC decision did not explain the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTEDand the June 19, 2002 decision and August 20,

2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED andSET ASIDE.

The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED

with the MODIFICATIONthat respondent is directed to pay petitioner the amounts of

US$100,000 and P500,000 at 12%perannuminterest from November 21, 1995 until the finality

of the decision. The total amount due as of the date of finality will earn interest of 12%per

annum until fully paid. The award of actual damages and attorneys fees is deleted.

SO ORDERED.
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G.R. No. L-24968 April 27, 1972

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,vs.DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.

Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J .:p

In Civil Case No. 55908 of the Court of Fi rst Instance of Manila, judgment was renderedon June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) topay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. inthe amount of P383,343.68, plus interest at the legal rate from the date the complaintwas filed and attorney's fees in the amount of P5,000.00. The present appeal is fromthat judgment.

In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the

Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for anindustrial loan of P500,000.00, to be used as follows: P250,000.00 for the constructionof a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balanceof the purchase price of the jute mill machinery and equipment; and P9,100.00 asadditional working capital.

Parenthetically, it may be mentioned that the jute mill machinery had already beenpurchased by Saura on the strength of a letter of credit extended by the Prudential Bankand Trust Co., and arrived in Davao City in July 1953; and that to secure its releasewithout first paying the draft, Saura, Inc. executed a trust receipt in favor of the saidbank.

On January 7, 1954 RFC passed Resolution No. 145 approving the loan application forP500,000.00, to be secured by a f irst mortgage on the factory building to be constructed,the land site thereof, and the machinery and equipment to be installed. Among the otherterms spelled out in the resolution were the following:

1. That the proceeds of the loan shall be utilized exclusively for thefollowing purposes:

For construction of factory building P250,000.00

For payment of the balance of purchase

price of machinery and equipment 240,900.00

For working capital 9,100.00

T O T A L P500,000.00

4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and GregoriaEstabillo and China Engineers, Ltd. shall sign the promissory notes jointly with theborrower-corporation;

5. That release shall be made at the discretion of the Rehabilitation FinanceCorporation, subject to availability of funds, and as the construction of the factorybuildings progresses, to be certified to by an appraiser of this Corporation;"

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before,however, evidently having otherwise been informed of its approval, Saura, Inc. wrote aletter to RFC, requesting a modification of the terms laid down by i t, namely: that in lieuof having China Engineers, Ltd. (which was willing to assume liability only to the extentof its stock subscription with Saura, Inc.) sign as co-maker on the correspondingpromissory notes, Saura, Inc. would put up a bond for P123,500.00, an amountequivalent to such subscription; and that Maria S. Roca would be substituted forInocencia Arellano as one of the other co-makers, having acquired the latter's shares inSaura, Inc.

In view of such request RFC approved Resolution No. 736 on February 4, 1954,designating of the members of its Board of Governors, for certain reasons stated in theresolution, "to reexamine all the aspects of this approved loan ... with special reference

as to the advisability of financing this particular project based on present conditionsobtaining in the operations of jute mills, and to submit his findings thereon at the nextmeeting of the Board."

On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreedto act as co-signer for the loan, and asked that the necessary documents be prepared inaccordance with the terms and conditions specified in Resolution No. 145. In connectionwith the reexamination of the project to be financed with the loan applied for, as stated inResolution No. 736, the parties named their respective committees of engineers andtechnical men to meet with each other and undertake the necessary studies, although inappointing its own committee Saura, Inc. made the observation that the same "shouldnot be taken as an acquiescence on (its) part to novate, or accept new conditions to, theagreement already) entered into," referring to its acceptance of the terms and conditions

mentioned in Resolution No. 145.

On April 13, 1954 the loan documents were executed: the promissory note, with F.R.Halling, representing China Engineers, Ltd., as one of the co-signers; and thecorresponding deed of mortgage, which was duly registered on the following April 17.

It appears, however, that despite the formal execution of the loan agreement thereexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFCBoard of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc.,was present, it was decided to reduce the loan from P500,000.00 to P300,000.00.Resolution No. 3989 was approved as follows:

RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc.under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res.No. 736, c.s., authorizing the re-examination of all the various aspects of the loangranted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of


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financing the manufacture of jute sacks in Davao, with special reference as to theadvisability of financing this particular project based on present conditions obtaining inthe operation of jute mills, and after having heard Ramon E. Saura and after extensivediscussion on the subject the Board, upon recommendation of the Chairman,RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED fromP500,000 to P300,000 and that releases up to P100,000 may be authorized as may benecessary from time to time to place the factory in actual operation: PROVIDED that allterms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remainin full force and effect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissorynote for China Engineers Ltd. jointly and severally with the other RFC that his companyno longer to of the loan and therefore considered the same as cancelled as far as it wasconcerned. A follow-up letter dated July 2 requested RFC that the registration of themortgage be withdrawn.

In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 begranted. The request was denied by RFC, which added in its letter-reply that it was"constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification... from the China Engineers Ltd., expressing their desire to consider the loan insofar asthey are concerned."

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed

RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer ofthe note if RFC releases to us the P500,000.00 originally approved by you.".

On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to theoriginal amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing tosign the promissory notes jointly with the borrower-corporation," but with the followingproviso:

That in view of observations made of the shortage and high cost ofimported raw materials, the Department of Agriculture and NaturalResources shall certify to the following:

1. That the raw materials needed by the borrower-corporation to carryout its operation are available in the immediate vicinity; and

2. That there is prospect of increased production thereof to provideadequately for the requirements of the factory."

The action thus taken was communicated to Saura, Inc. in a letter of RFC datedDecember 22, 1954, wherein it was explained that the certification by the Department ofAgriculture and Natural Resources was required "as the intention of the original approval(of the loan) is to develop the manufacture of sacks on the basis of locally available rawmaterials." This point is important, and sheds light on the subsequent actuations of theparties. Saura, Inc. does not deny that the factory he was building in Davao was for themanufacture of bags from local raw materials. The cover page of its brochure (Exh. M)

describes the project as a "Joint venture by and between the Mindanao IndustryCorporation and the Saura Import and Export Co., Inc. to finance, manage and operatea Kenafmill plant, to manufacture copra and corn bags, runners, floor mattings, carpets,draperies; out of 100% local raw materials, principal kenaf." The explanatory note on

page 1 of the same brochure states that, the venture "is the first serious attempt in thiscountry to use 100% locally grown raw materials notably kenafwhich is presently growncommercially in theIsland of Mindanao where the proposed jutemill is located ..."

This fact, according to defendant DBP, is what moved RFC to approve the loanapplication in the first place, and to require, in its Resolution No. 9083, a certificationfrom the Department of Agriculture and Natural Resources as to the availability of localraw materials to provide adequately for the requirements of the factory. Saura, Inc. itselfconfirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) statingthat according to a special study made by the Bureau of Forestry "kenafwill not beavailable in sufficient quantity this year or probably even next year;" (2) requesting"assurances (from RFC) that my company and associates will be able to bring insufficient jute materials as may be necessary for the full operation of the jute mill ;" and(3) asking that releases of the loan be made as follows:

a) For the payment of the receipt for jute millmachineries with the Prudential Bank &

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equip-ment per attached list to enable the jutemill to operate 182,413.91

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the open-ing of the letter of credit for raw jutefor $25,000.00.

2) P25,000.00 to be released upon arrivalof raw jute.

3) P17,586.09 to be released as soon as themill is ready to operate.

On January 25, 1955 RFC sent to Saura, Inc. the following reply:

Dear Sirs:

This is with reference to your letter of January 21,1955, regarding the release of your loan underconsideration of P500,000. As stated in our letter ofDecember 22, 1954, the releases of the loan, ifrevived, are proposed to be made from time to time,

subject to availability of funds towards the end thatthe sack factory shall be placed in actual operatingstatus. We shall be able to act on your request for


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revised purpose and manner of releases upon re-appraisal of the securities offered for the loan.

With respect to our requirement that the Departmentof Agriculture and Natural Resources certify that theraw materials needed are available in the immediatevicinity and that there is prospect of increasedproduction thereof to provide adequately therequirements of the factory, we wish to reiterate thatthe basis of the original approval is to develop themanufacture of sacks on the basis of the locallyavailable raw materials. Your statement that you willhave to rely on the importation of jute and yourrequest that we give you assurance that yourcompany will be able to bring in sufficient jutematerials as may be necessary for the operation ofyour factory, would not be in line with our principle inapproving the loan.

With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursuethe matter further. Instead, it requested RFC to cancel the mortgage, and so, on June17, 1955 RFC executed the corresponding deed of cancellation and delivered it toRamon F. Saura himself as president of Saura, Inc.

It appears that the cancellation was requested to make way for the registration of amortgage contract, executed on August 6, 1954, over the same property in favor of thePrudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31of the same year within which to pay its obligation on the t rust receipt heretoforementioned. It appears further that for failure to pay the said obligation the PrudentialBank and Trust Co. sued Saura, Inc. on May 15, 1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled atthe request of Saura, Inc., the latter commenced the present suit for damages, allegingfailure of RFC (as predecessor of the defendant DBP) to comply with its obligation torelease the proceeds of the loan applied for and approved, thereby preventing theplaintiff from completing or paying contractual commitments it had entered into, in

connection with its jute mill project.

The trial court rendered judgment for the plaintiff, ruling that there was a perfectedcontract between the parties and that the defendant was guilty of breach thereof. Thedefendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause ofaction had prescribed, or that its claim had been waived or abandoned; (2) that therewas no perfected contract; and (3) that assuming there was, the plaintiff itself did notcomply with the terms thereof.

We hold that there was indeed a perfected consensual contract, as recognized in Article1934 of the Civil Code, which provides:

ART. 1954. An accepted promise to deliver something, by way of

commodatum or simple loan is binding upon the parties, but thecommodatum or simple loan itself shall not be perferted until thedelivery of the object of the contract.

There was undoubtedly offer and acceptance in this case: the application of Saura, Inc.for a loan of P500,000.00 was approved by resolution of the defendant, and thecorresponding mortgage was executed and registered. But this fact alone falls short ofresolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff istherefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on theassumption that the factory to be constructed would utilize locally grown raw materials,principally kenaf. There is no serious dispute about this. It was in line with suchassumption that when RFC, by Resolution No. 9083 approved on December 17, 1954,restored the loan to the original amount of P500,000.00. it imposed two conditions, towit: "(1) that the raw materials needed by the borrower-corporation to carry out itsoperation are available in the immediate vicinity; and (2) that there is prospect ofincreased production thereof to provide adequately for the requirements of the factory."The imposition of those conditions was by no means a deviation from the terms of theagreement, but rather a step in its implementation. There was nothing in said conditionsthat contradicted the terms laid down in RFC Resolution No. 145, passed on January 7,1954, namely"that the proceeds of the loan shall be utilized exclusivelyfor thefollowing purposes: for construction of factory building P250,000.00; for payment ofthe balance of purchase price of machinery and equipment P240,900.00; for workingcapitalP9,100.00." Evidently Saura, Inc. realized that it could not meet the conditionsrequired by RFC, and so wrote its letter of January 21, 1955, stating that local jute "wil lnot be able in sufficient quantity this year or probably next year," and asking that out ofthe loan agreed upon the sum of P67,586.09 be released "for raw materials and labor."

This was a deviation from the terms laid down in Resolution No. 145 and embodied inthe mortgage contract, implying as it did a diversion of part of the proceeds of the loan topurposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 the negotiationswhich had been going on for the implementation of the agreement reached an impasse.Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead ofdoing so and insisting that the loan be released as agreed upon, Saura, Inc. asked thatthe mortgage be cancelled, which was done on June 15, 1955. The action thus taken byboth parties was in the nature cf mutual desistancewhat Manresa terms "mutuodisenso"1which is a mode of extinguishing obligations. It is a concept that derivesfrom the principle that since mutual agreement can create a contract, mutualdisagreement by the parties can cause its extinguishment.2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protestagainst any alleged breach of contract by RFC, or even point out that the latter's standwas legally unjustified. Its request for cancellation of the mortgage carried no reservationof whatever rights it believed it might have against RFC for the latter's non-compliance.In 1962 it even applied with DBP for another loan to finance a rice and corn project,which application was disapproved. It was only in 1964, nine years after the loanagreement had been cancelled at its own request, that Saura, Inc. brought this action fordamages.All these circumstances demonstrate beyond doubt that the said agreementhad been extinguished by mutual desistanceand that on the initiative of the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to consider and resolve the

other issues raised in the respective briefs of the parties.


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G.R. No. 133632 February 15, 2002

BPI INVESTMENT CORPORATION,petitioner,vs.

HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENTCORPORATION,respondents.

D E C I S I O N

QUISUMBING, J.:

This petition for certiorariassails the decision dated February 28, 1997, of the Court of Appeals

and its resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmedthe judgment of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831,for foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against

private respondents ALS Management and Development Corporation and Antonio K. Litonjua,1

consolidated with (b) Civil Case No. 52093, for damages with prayer for the issuance of a writ ofpreliminary injunction by the private respondents against said petitioner.

The trial court had held that private respondents were not in default in the payment of theirmonthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC was prematureand made in bad faith. It awarded private respondents the amount of P300,000 for moraldamages, P50,000 for exemplary damages, and P50,000 for attorneys fees and expenses forlitigation. It likewise dismissed the foreclosure suit for being premature.

The facts are as follows:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment andDevelopment Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of ahouse on his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged toAIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondentsALS and Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed the P500,000

balance of Roas indebtedness with AIDC. The latter, however, was not willing to extend the oldinterest rate to private respondents and proposed to grant them a new loan of P500,000 to beapplied to Roas debt and secured by the same property, at an interest rate of 20% per annum and

service fee of 1% per annum on the outstanding principal balance payable within ten years inequal monthly amortization of P9,996.58 and penalty interest at the rate of 21% per annum perday from the date the amortization became due and payable.

Consequently, in March 1981, private respondents executed a mortgage deed containing theabove stipulations with the provision that payment of the monthly amortization shall commenceon May 1, 1981.

On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum ofP190,601.35. This reduced Roas principal balance to P457,204.90 which, in turn, was liquidatedwhen BPIIC applied thereto the proceeds of private respondents loan of P500,000.

On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what

was left of their loan after full payment of Roas loan.

In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the groundthat they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984,amounted to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos(P475,585.31). A notice of sheriffs sale was published on August 13, 1984.

On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. Theyalleged, among others, that they were not in arrears in their payment, but in fact made anoverpayment as of June 30, 1984. They maintained that they should not be made to payamortization before the actual release of the P500,000 loan in August and September 1982.

Further, out of the P500,000 loan, only the total amount of P464,351.77 was released to privaterespondents. Hence, applying the effects of legal compensation, the balance of P35,648.23 should

be applied to the initial monthly amortization for the loan.

On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093,thus:

WHEREFORE, judgment is hereby rendered in favor of ALS Management and DevelopmentCorporation and Antonio K. Litonjua and against BPI Investment Corporation, holding that the

amount of loan granted by BPI to ALS and Litonjua was only in the principal sum ofP464,351.77, with interest at 20% plus service charge of 1% per annum, payable on equalmonthly and successive amortizations at P9,283.83 for ten (10) years or one hundred twenty(120) months. The amortization schedule attached as Annex "A" to the "Deed of Mortgage" iscorrespondingly reformed as aforestated.

The Court further finds that ALS and Litonjua suffered compensable damages when BPI causedtheir publication in a newspaper of general circulation as defaulting debtors, and therefore ordersBPI to pay ALS and Litonjua the following sums:

a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

c) P50,000.00 as and for attorneys fees and expenses of litigation.

The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.

Costs against BPI.

SO ORDERED.2

Both parties appealed to the Court of Appeals. However, private respondents appeal wasdismissed for non-payment of docket fees.

On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portionreads:

WHEREFORE,finding no error in the appealed decision the same is hereby AFFIRMED in

toto.

SO ORDERED.3
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In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon thedelivery of the object of the contract. The contract of loan between BPIIC and ALS & Litonjuawas perfected only on September 13, 1982, the date when BPIIC released the purported balanceof the P500,000 loan after deducting therefrom the value of Roas indebtedness. Thus, paymentof the monthly amortization should commence only a month after the said date, as can be inferredfrom the stipulations in the contract. This, despite the express agreement of the parties that

payment shall commence on May 1, 1981. From October 1982 to June 1984, the totalamortization due was only P194,960.43. Evidence showed that private respondents had anoverpayment, because as of June 1984, they already paid a total amount of P201,791.96.Therefore, there was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the

publication in newspapers concerning private respondents delinquency in the payment of their

loan. This fact constituted sufficient ground for moral damages in favor of private respondents.

The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition,where BPIIC submits for resolution the following issues:

I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUALCONTRACT IN THE LIGHT OF THE RULE LAID DOWN INBONNEVIE VS.COURT OF APPEALS, 125 SCRA 122.

II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL ANDEXEMPLARY DAMAGES AND ATTORNEYS FEES IN THE FACE OF

IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE LAID

DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.

On the first issue, petitioner contends that the Court of Appeals erred in ruling that because asimple loan is perfected upon the delivery of the object of the contract, the loan contract in thiscase was perfected only on September 13, 1982. Petitioner claims that a contract of loan is aconsensual contract, and a loan contract is perfected at the time the contract of mortgage is

executed conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In thepresent case, the loan contract was perfected on March 31, 1981, the date when the mortgagedeed was executed, hence, the amortization and interests on the loan should be computed fromsaid date.

Petitioner also argues that while the documents showed that the loan was released only on August1982, the loan was actually released on March 31, 1981, when BPIIC issued a cancellation of

mortgage of Frank Roas loan. This finds support in the registration on March 31, 1981 of theDeed of Absolute Sale executed by Roa in favor of ALS, transferring the title of the property toALS, and ALS executing the Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, thedelay in the release of the loan should be attributed to private respondents. As BPIIC only agreedto extend a P500,000 loan, private respondents were required to reduce Frank Roas loan belowsaid amount. According to petitioner, private respondents were only able to do so in August1982.

In their comment, private respondents assert that based on Article 1934 of the Civil Code,4asimple loan is perfected upon the delivery of the object of the contract, hence a real contract. In

this case, even though the loan contract was signed on March 31, 1981, it was perfected only onSeptember 13, 1982, when the full loan was released to private respondents. They submit that

petitioner misreadBonnevie. To give meaning to Article 1934, according to private respondents,

Bonnevie must be construed to mean that the contract to extend the loan was perfected on March31, 1981 but the contract of loan itself was only perfected upon the delivery of the full loan to

private respondents on September 13, 1982.

Private respondents further maintain that even granting, arguendo, that the loan contract wasperfected on March 31, 1981, and their payment did not start a month thereafter, still no defaulttook place. According to private respondents, a perfected loan agreement imposes reciprocalobligations, where the obligation or promise of each party is the consideration of the other party.In this case, the consideration for BPIIC in entering into the loan contract is the promise of

private respondents to pay the monthly amortization. For the latter, it is the promise of BPIIC todeliver the money. In reciprocal obligations, neither party incurs in delay if the other does notcomply or is not ready to comply in a proper manner with what is incumbent upon him.Therefore, private respondents conclude, they did not incur in delay when they did not commence

paying the monthly amortization on May 1, 1981, as it was only on September 13, 1982 whenpetitioner fully complied with its obligation under the loan contract.

We agree with private respondents. A loan contract is not a consensual contract but a realcontract. It is perfected only upon the delivery of the object of the contract.5Petitioner misapplied

Bonnevie. The contract inBonnevie declared by this Court as a perfected consensual contract fallsunder the first clause of Article 1934, Civil Code. It is an accepted promise to deliver something

by way of simple loan.

In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,petitioner applied for a loan of P500,000 with respondent bank. The latter approved the

application through a board resolution. Thereafter, the corresponding mortgage was executed andregistered. However, because of acts attributable to petitioner, the loan was not released. Later,

petitioner instituted an action for damages. We recognized in this case, a perfected consensualcontract which under normal circumstances could have made the bank liable for not releasing the

loan. However, since the fault was attributable to petitioner therein, the court did not award itdamages.

A perfected consensual contract, as shown above, can give rise to an action for damages.However, said contract does not constitute the real contract of loan which requires the delivery ofthe object of the contract for its perfection and which gives rise to obligations only on the part ofthe borrower.6

In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on

the other, was perfected only on September 13, 1982, the date of the second release of the loan.Following the intentions of the parties on the commencement of the monthly amortization, asfound by the Court of Appeals, private respondents obligation to pay commenced only onOctober 13, 1982, a month after the perfection of the contract.7

We also agree with private respondents that a contract of loan involves a reciprocal obligation,wherein the obligation or promise of each party is the consideration for that of the other.8Asaverred by private respondents, the promise of BPIIC to extend and deliver the loan is upon theconsideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1,1981, one month after the supposed release of the loan. It is a basic principle in reciprocal

obligations that neither party incurs in delay, if the other does not comply or is not ready tocomply in a proper manner with what is incumbent upon him.9Only when a party has performedhis part of the contract can he demand that the other party also fulfills his own obligation and ifthe latter fails, default sets in. Consequently, petitioner could only demand for the payment of the

monthly amortization after September 13, 1982 for it was only then when it complied with itsobligation under the loan contract. Therefore, in computing the amount due as of the date whenBPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13,1982 and not May 1, 1981.
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Other points raised by petitioner in connection with the first issue, such as the date of actualrelease of the loan and whether private respondents were the cause of the delay in the release ofthe loan, are factual. Since petitioner has not shown that the instant case is one of the exceptionsto the basic rule that only questions of law can be raised in a petition for review under Rule 45 ofthe Rules of Court,10factual matters need not tarry us now. On these points we are bound by thefindings of the appellate and trial courts.

On thesecond issue, petitioner claims that it should not be held liable for moral and exemplarydamages for it did not act maliciously when it initi ated the foreclosure proceedings. It merely

exercised its right under the mortgage contract because private respondents were irregular in theirmonthly amortization.1wphi1It invoked our ruling in Social Security System vs. Court of

Appeals, 120 SCRA 707, where we said:

Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court ofAppeals "the negligence of the appellant is not so gross as to warrant moral and temperatedamages," except that, said Court reduced those damages by only P5,000.00 instead ofeliminating them. Neither can we agree with the findings of both the Trial Court and respondentCourt that the SSS had acted maliciously or in bad faith. The SSS was of the belief that it wasacting in the legitimate exercise of its right under the mortgage contract in the face of irregular

payments made by private respondents and placed reliance on the automatic acceleration clause

in the contract. The filing alone of the foreclosure application should not be a ground for anaward of moral damages in the same way that a clearly unfounded civil action is not among thegrounds for moral damages.

Private respondents counter that BPIIC was guilty of bad faith and should be liable for saiddamages because it insisted on the payment of amortization on the loan even before it wasreleased. Further, it did not make the corresponding deduction in the monthly amortization toconform to the actual amount of loan released, and it immediately initiated foreclosure

proceedings when private respondents failed to make timely payment.

But as admitted by private respondents themselves, they were irregular in their payment ofmonthly amortization. Conformably with our ruling in SSS, we can not properly declare BPIIC in

bad faith. Consequently, we should rule out the award of moral and exemplary damages.11

However, in our view, BPIIC was negligent in relying merely on the entries found in the deed ofmortgage, without checking and correspondingly adjusting its records on the amount actually

released to private respondents and the date when it was released. Such negligence resulted indamage to private respondents, for which an award of nominal damages should be given inrecognition of their rights which were violated by BPIIC.12For this purpose, the amount ofP25,000 is sufficient.

Lastly, as in SSS where we awarded attorneys fees because private respondents we re compelledto litigate, we sustain the award of P50,000 in favor of private respondents as attorneys fees.

WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and it s resolutiondated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. Theaward of moral and exemplary damages in favor of private respondents is DELETED, but theaward to them of attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioneris ORDERED to pay private respondents P25,000 as nominal damages. Costs against petitioner.

SO ORDERED.
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G.R. No. 174269 August 25, 2010

POLO S. PANTALEON,Petitioner,vs.AMERICAN EXPRESS INTERNATIONAL, INC.,Respondent.

R E S O L U T I O N

BRION, J.:

We resolve the motion for reconsideration filed by respondent American Express International,Inc. (AMEX) dated June 8, 2009,1seeking to reverse our Decision dated May 8, 2009 where we

ruled that AMEX was guilty of culpable delay in fulfilling its obligation to its cardholder petitioner Polo Pantaleon. Based on this conclusion, we held AMEX liable for moral andexemplary damages, as well as attorneys fees and costs of litigation.2

FACTUAL ANTECEDENTS

The established antecedents of the case are narrated below.

AMEX is a resident foreign corporation engaged in the business of providing credit servicesthrough the operation of a charge card system. Pantaleon has been an AMEX cardholder since

1980.3

In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son(Adrian Roberto), went on a guided European tour. On October 25, 1991, the tour group arrivedin Amsterdam. Due to their late arrival, they postponed the tour of the city for the following day.4

The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the CosterDiamond House (Coster). To have enough time for take a guided city tour of Amsterdam beforetheir departure scheduled on that day, the tour group planned to leave Coster by 9:30 a.m. at thelatest.

While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of

US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk to pay forthis purchase. He did this at around 9:15 a.m. The sales clerk swiped the credit card and askedPantaleon to sign the charge slip, which was then electronically referred to AMEXs Amsterdamoffice at 9:20 a.m.5

At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleonasked the store clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait

a few more minutes. Subsequently, the store manager informed Pantaleon that AMEX was askingfor bank references; Pantaleon responded by giving the names of his Philippine depository banks.

At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had notapproved the purchase. Since the city tour could not begin until the Pantaleons were onboard thetour bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon even

without AMEXs approval.

When the Pantaleons finally returned to the tour bus, they found their travel companions visiblyirritated. This irritation intensified when the tour guide announced that they would have to cancelthe tour because of lack of time as they all had to be in Calais, Belgium by 3 p.m. to catch theferry to London.6

From the records, it appears that after Pantaleons purchase was transmitted for approval toAMEXs Amsterdam office at 9:20 a.m.; was referred to AMEXs Manila office at 9:33 a.m.; andwas approved by the Manila office at 10:19 a.m. At 10:38 a.m., AMEXs Manila office finallytransmitted the Approval Code to AMEXs Amsterdam office. In all, it took AMEX a total of 78minutes to approve Pantaleons purchase and to transmit the approval to the jewelry store .7

After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleonexperienced delay in securing approval for purchases using his American Express credit card ontwo separate occasions. He experienced the first delay when he wanted to purchase golfequipment in the amount of US$1,475.00 at the Richard Metz Golf Studio in New York onOctober 30, 1991. Another delay occurred when he wanted to purchase childrens shoes worthUS$87.00 at the Quiency Market in Boston on November 3, 1991.

Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliationand inconvenience he and his family experienced due to the delays in obtaining approval for hiscredit card purchases. AMEX responded by explaining that the delay in Amsterdam was due tothe amount involvedthe charged purchase of US$13,826.00 deviated from Pantaleons

established charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action

for damages against the credit card company with the Makati City Regional Trial Court (RTC).

On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon P500,000.00as moral damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, andP85,233.01 as litigation expenses.

On appeal, the CA reversed the awards.8While the CA recognized that delay in the nature ofmora accipiendi or creditors default attended AMEXs approval of Pantaleons purchases, it

disagreed with the RTCs finding that AMEX had breached its contract, noting that the delay wasnot attended by bad faith, malice or gross negligence. The appellate court found that AMEXexercised diligent efforts to effect the approval of Pantaleons purchases; the purchase at Coster

posed particularly a problem because it was at variance with Pantaleons established chargepattern. As there was no proof that AMEX breached its contract, or that it acted in a wanton,

fraudulent or malevolent manner, the appellate court ruled that AMEX could not be held liablefor any form of damages.

Pantaleon questioned this decision via a petition for review on certiorari with this Court.

In our May 8, 2009 decision, we reversed the appellate courts decision and held that AMEX wasguilty of mora solvendi, or debtors default. AMEX, as debtor, had an obligation as the credit

provider to act on Pantaleons purchase requests, whether to approve or disapprove them, with

"timely dispatch." Based on the evidence on record, we found that AMEX failed to timely act onPantaleons purchases.

Based one ly, tual obligations. 271,ct; moral damages le. uitable that attorney'workers;plaitniff'the testimony of AMEXs credit authorizer Edgardo Jaurique, the approval time for credit cardcharges would be three to four seconds under regular circumstances. In Pantaleons case, it tookAMEX 78 minutes to approve the Amsterdam purchase. We attributed this delay to AMEXsManila credit authorizer, Edgardo Jaurique, who had to go over Pantaleons past credit history,
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his payment record and his credit and bank references before he approved the purchase. Findingthis delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral andexemplary damages, as well as attorneys fees and costs of litigation.

THE MOTION FOR RECONSIDERATION

In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX guilty

of culpable delay in complying with its obligation to act with timely dispatch on Pantaleonspurchases. While AMEX admits that it normally takes seconds to approve charge purchases, itemphasizes that Pantaleon experienced delay in Amsterdam because his transaction was not a

normal one. To recall, Pantaleon sought to charge in a single transactionjewelry itemspurchased from Coster in the total amount of US$13,826.00 or P383,746.16. While the totalamount of Pantaleons previous purchases using his AMEX credit card did exceedUS$13,826.00, AMEX points out that these purchases were made in a span of more than 10years, not in a single transaction.

Because this was the biggest single transaction that Pantaleon ever made using his AMEX creditcard, AMEX argues that the transaction necessarily required the credit authorizer to carefully

review Pantaleons credit history and bank references. AMEX maintains that it did this not onlyto ensure Pantaleons protection (to minimize the possibility that a third party was fraudulentlyusing his credit card), but also to protect itself from the risk that Pantaleon might not be able to

pay for his purchases on credit. This careful review, according to AMEX, is also in keeping with

the extraordinary degree of diligence required of banks in handling its transactions. AMEX

concluded that in these lights, the thorough review of Pantaleons credit record was motivated bylegitimate concerns and could not be evidence of any ill will, fraud, or negligence by AMEX.

AMEX further points out that the proximate cause of Pantaleons humiliation and embarrassmentwas his own decision to proceed with the purchase despite his awareness that the tour group waswaiting for him and his wife. Pantaleon could have prevented the humiliation had he cancelledthe sale when he noticed that the credit approval for the Coster purchase was unusually delayed.

In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty of morasolvendi, or delay on the part of the debtor, in complying with its obligation to him. Based on

jurisprudence, a just cause for delay does not relieve the debtor in delay from the consequences ofdelay; thus, even if AMEX had a justifiable reason for the delay, this reason would not relieve itfrom the liability arising from its failure to timely act on Pantaleons purchase.

In response to AMEXs assertion that the delay was in keeping with its duty to perform itsobligation with extraordinary diligence, Pantaleon claims that this duty includes the timely or

prompt performance of its obligation.

As to AMEXs contention that moral or exemplary damages cannot be awarded absent a findingof malice, Pantaleon argues that evil motive or design is not always necessary to support afinding of bad faith; gross negligence or wanton disregard of contractual obligations is sufficient

basis for the award of moral and exemplary damages.

OUR RULING

We GRANT the motion for reconsideration.

Brief historical background

A credit card is defined as "any card, plate, coupon book, or other credit device existing for thepurpose of obtaining money, goods, property, labor or services or anything of value on credit."9Ittraces its roots to the charge card first introduced by the Diners Club in New York City in 1950.10American Express followed suit by introducing its own charge card to the American market in1958.11

In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit cardinto the country in the 1970s.12However, it was only in the early 2000s that credit card usegained wide acceptance in the country, as evidenced by the surge in the number of credit cardholders then.13

Nature of Credit Card Transactions

To better understand the dynamics involved in credit card transactions, we turn to the UnitedStates case of Harris Trust & Savings Bank v. McCray14which explains:

The bank credit card system involves a tripartite relationship between the issuer bank, thecardholder, and merchants participating in the system. The i ssuer bank establishes an account on

behalf of the person to whom the card is issued, and the two parties enter into an agreementwhich governs their relationship. This agreement provides that the bank will pay for cardholders

account the amount of merchandise or services purchased through the use of the credi t card andwill also make cash loans available to the cardholder. It also states that the cardholder shall beliable to the bank for advances and payments made by the bank and that the cardholders

obligation to pay the bank shall not be affected or impaired by any dispute, claim, or demand bythe cardholder with respect to any merchandise or service purchased.

The merchants participating in the system agree to honor the banks credit cards. The bank

irrevocably agrees to honor and pay the sales slips presented by the merchant if the merchantperforms his undertakings such as checking the list of revoked cards before accepting the card. xx x.

These slips are forwarded to the member bank which originally issued the card. The cardholderreceives a statement from the bank periodically and may then decide whether to make payment tothe bank in full within a specified period, free of interest, or to defer payment and ultimatelyincur an interest charge.

We adopted a similar view in CIR v. American Express International, Inc. (Philippine branch),15where we also recognized that credit card issuers are not limited to banks. We said:

Under RA 8484, the credit card that is issued by banks in general, or by non-banks in particular,refers to "any card x x x or other credit device existing for the purpose of obtaining x x x goods xx x or services x x x on credit;" and is being used "usually on a revolving basis." This means that

the consumer-credit arrangement that exists between the issuer and the holder of the credit cardenables the latter to procure goods or services "on a continuing basis as long as the outstanding

balance does not exceed a specified limit." The card holder is, therefore, given "the power toobtain present control of goods or service on a promise to pay for them in the future."

Business establishments may extend credit sales through the use of the credit card facilities of a

non-bank credit card company to avoid the risk of uncollectible accounts from their customers.Under this system, the establishments do not deposit in their bank accounts the credit card drafts
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that arise from the credit sales. Instead, they merely record their receivables from the credit cardcompany and periodically send the drafts evidencing those receivables to the latter.

The credit card company, in turn, sends checks as payment to these business establishments, butit does not redeem the drafts at full price. The agreement between them usually provides fordiscounts to be taken by the company upon its redemption of the drafts. At the end of eachmonth, it then bills its credit card holders for their respective drafts redeemed during the previousmonth. If the holders fail to pay the amounts owed, the company sustains the loss.

Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract

between the credit card holder and the merchant or the business establishment which accepted thecredit card; (b) the loan agreement between the credit card issuer and the credit card holder; andlastly, (c) the promise to pay between the credit card issuer and the merchant or businessestablishment.16

Credit card issuercardholder relationship

When a credit card company gives the holder the privilege of charging items at establishmentsassociated with the issuer,17a necessary question in a legal analysis iswhen does thisrelationship begin? There are two diverging views on the matter. In City Stores Co. v.Henderson,18another U.S. decision, held that:

The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral

and supported by no consideration. The offer may be withdrawn at any time, without prior notice,for any reason or, indeed, for no reason at all, and it s withdrawal breaches no dutyfor there isno duty to continue itand violates no rights.

Thus, under this view, each credit card transaction is considered a separate o ffer and acceptance.

Novack v. Cities Service Oil Co.19echoed this view, with the court ruling that the mere issuanceof a credit card did not create a contractual relationship with the cardholder.

On the other end of the spectrum is Gray v. American Express Company20which recognized thecard membership agreement itself as a binding contract between the credit card issuer and the

card holder. Unlike in the Novack and the City Stores cases, however, the cardholder in Gray

paid an annual fee for the privilege of being an American Express cardholder.

In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship betweenthe credit card issuer and the credit card holder as a contractual one that is governed by the termsand conditions found in the card membership agreement.21This contract provides the rights andliabilities of a credit card company to its cardholders and vice versa.

We note that a card membership agreement is a contract of adhesion as its terms are preparedsolely by the credit card issuer, with the cardholder merely affixing his signature signifying hisadhesion to these terms.22This circumstance, however, does not render the agreement void; wehave uniformly held that contracts of adhesion are "as binding as ordinary contracts, the reason

being that the party who adheres to the contract is free to reject it entirely."23The only effect isthat the terms of the contract are construed strictly against the party who drafted it

credit 1st set

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