Nego Consolidated - III and IV

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SECOND DIVISION

[G.R. No. 85419. March 9, 1993.]

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,vs. SIMA WEI and/or LEE KIAN HUAT, MARYCHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC

CORPORATION and PRODUCERS BANK OF

THE PHILIPPINES, defendants-respondents.

Yngson & Associatesfor petitioner.

Henry A. Reyes & Associatesfor Samso Tung & Asian Industrial PlasticCorporation.

Eduardo G. Castelofor Sima Wei.

Monsod, Tamargo & Associatesfor Producers Bank.

Rafael S. Santayanafor Mary Cheng Uy.

SYLLABUS

1.REMEDIAL LAW; CAUSE OF ACTION; DEFINITION AND ESSENTIAL ELEMENTS. A cause of action is defined as an act or omission of one party in violation ofthe legal right or rights of another. The essential elements are: (1) legal right ofthe plaintiff; (2) correlative obligation of the defendant; and (3) an act oromission of the defendant in violation of said legal right.

2.ID.; APPEAL; PARTY CANNOT CHANGE HIS THEORY ON APPEAL; REASON. In the original complaint, petitioner Bank, as plaintiff, sued

respondent Sima Weion the promissory note, and the alternative defendants,including Sima Wei, on the two checks. On appeal from the orders of dismissal ofthe Regional Trial Court, petitioner Bank alleged that its cause of action was notbased on collecting the sum of money evidenced by the negotiable instrumentsstated but on quasi-delict a claim for damages on the ground of fraudulentacts and evident bad faith of the alternative respondents. This was clearly anattempt by the petitioner Bank to change not only the theory of its case but the


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basis of his cause of action. It is well-settled that a party cannot change histheory on appeal, as this would in effect deprive the other party of his day incourt.

3.NEGOTIABLE INSTRUMENTS LAW; CHECKS; MUST BE DELIVERED TO THE

PAYEE TO GIVE EFFECT THERETO.

A negotiable instrument, of which a checkis, is not only a written evidence of a contract right but is also a species ofproperty. Just as a deed to a piece of land must be delivered in order to conveytitle to the grantee, so must a negotiable instrument be delivered to the payee inorder to evidence its existence as a binding contract. Section 16 of theNegotiable Instruments Law, which governs checks, provides in part: "Everycontract on a negotiable instrument is incomplete and revocable until delivery ofthe instrument for the purpose of giving effect thereto. . . ." The payee of anegotiable instrument acquires no interest with respect thereto until its delivery

to him. Delivery of an instrument means transfer of possession, actual orconstructive, from one person to another. Without the initial delivery of theinstrument from the drawer to the payee, there can be no liability on theinstrument. Moreover, such delivery must be intended to give effect to theinstrument.

D E C I S I O N

CAMPOS, JR., Jp

:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank forbrevity) filed a complaint for a sum of money againstrespondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung,

Asian Industrial Plastic Corporation (Plastic Corporation for short) and theProducers Bank of the Philippines, on two causes of action:

(1)To enforce payment of the balance of P1,032,450.02 on a promissorynote executed by respondent Sima Wei on June 9, 1983; and

(2)To enforce payment of two checks executed by Sima Wei, payable topetitioner, and drawn against the China Banking Corporation, to pay thebalance due on the promissory note.

Except for Lee Kian Huat, defendants filed their separate Motions toDismiss alleging a common ground that the complaint states no cause ofaction. The trial court granted the defendants' Motions to Dismiss. The Court


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of Appeals affirmed this decision, * to which the petitioner Bank, represented byits Legal Liquidator, filed this Petition for Review by Certiorari, assigning thefollowing as the alleged errors of the Court of Appeals.1

(1)THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-

PETITIONER HAS NO CAUSE OF ACTION AGAINST DEFENDANTS-RESPONDENTS HEREIN. LibLex

(2)THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13,RULE 3 OF THE REVISED RULES OF COURT ON ALTERNATIVEDEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-RESPONDENTS.

The antecedent facts of this case are as follows:

In consideration for a loan extended by petitioner Bank to

respondent Sima Wei, the latter executed and delivered to the former apromissory note, engaging to pay the petitioner Bank or order the amount ofP1,820,000.00 on or before June 24, 1983 with interest at 32% perannum. Sima Wei made partial payments on the note, leaving a balance ofP1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checkspayable to petitioner Bank drawn against China Banking Corporation, bearingrespectively the serial numbers 384934, for the amount of P550,000.00 and384935, for the amount of P500,000.00. The said checks were allegedlyissued in full settlement of the drawer's account evidenced by the promissorynote. These two checks were not delivered to the petitioner-payee or to any

of its authorized representatives. For reasons not shown, these checks cameinto the possession of respondent Lee Kian Huat, who deposited the checkswithout the petitioner-payee's indorsement (forged or otherwise) to theaccount of respondent Plastic Corporation, at the Balintawak branch,Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of theBalintawak Branch of Producers Bank, relying on the assurance of respondentSamson Tung, President of Plastic Corporation, that the transaction was legaland regular, instructed the cashier of Producers Bank to accept the checks fordeposit and to credit them to the account of said Plastic Corporation, inspiteof the fact that the checks were crossed and payable to petitioner Bank andbore no indorsement of the latter. Hence, petitioner filed the complaint asaforestated.

The main issue before Us is whether petitioner Bank has a cause ofaction against any or all of the defendants, in the alternative or otherwise.

A cause of action is defined as an act or omission of one party inviolation of the legal right or rights of another. The essential elements are:
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(1) legal right of the plaintiff; (2) correlative obligation of the defendant; and(3) an act or omission of the defendant in violation of said legal right.2

The normal parties to a check are the drawer, the payee and thedrawee bank. Courts have long recognized the business custom of using

printed checks where blanks are provided for the date of issuance, the nameof the payee, the amount payable and the drawer's signature. All the drawerhas to do when he wishes to issue a check is to properly fill up the blanks andsign it. However, the mere fact that he has done these does not give rise toany liability on his part, until and unless the check is delivered to the payee orhis representative. A negotiable instrument, of which a check is, is not only awritten evidence of a contract right but is also a species of property. Just as adeed to a piece of land must be delivered in order to convey title to thegrantee, so must a negotiable instrument be delivered to the payee in orderto evidence its existence as a binding contract. Section 16 of the Negotiable

Instruments Law, which governs checks, provides in part:

"Every contract on a negotiable instrument is incomplete andrevocable until delivery of the instrument for the purpose of giving effectthereto. . . ."

Thus, the payee of a negotiable instrument acquires no interest withrespect thereto until its delivery to him.3Delivery of an instrument meanstransfer of possession, actual or constructive, from one person toanother. 4 Without the initial delivery of the instrument from the drawer to thepayee, there can be no liability on the instrument. Moreover, such delivery

must be intended to give effect to the instrument.LexLib

The allegations of the petitioner in the original complaint show that thetwo (2) China Bank checks, numbered 384934 and 384935, were notdelivered to the payee, the petitioner herein. Without the delivery of saidchecks to petitioner-payee, the former did not acquire any right or interesttherein and cannot therefore assert any cause of action, founded on saidchecks, whether against the drawer Sima Wei or against theProducers Bank or any of the other respondents.

In the original complaint, petitioner Bank, as plaintiff, suedrespondent Sima Wei on the promissory note, and the alternative defendants,including SimaWei, on the two checks. On appeal from the orders of dismissalof the Regional Trial Court, petitioner Bank alleged that its cause of actionwas not based on collecting the sum of money evidenced by the negotiableinstruments stated but on quasi- delict a claim for damages on the groundof fraudulent acts and evident bad faith of the alternative respondents. Thiswas clearly an attempt by the petitioner Bank to change not only the theory
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of its case but the basis of his cause of action. It is well-settled that a partycannot change his theory on appeal, as this would in effect deprive the otherparty of his day in court.5

Notwithstanding the above, it does not necessarily follow that the

drawer Sima Wei is freed from liability to petitioner Bank under the loanevidenced by the promissory note agreed to by her. Her allegation that shehas paid the balance of her loan with the two checks payable topetitioner Bank has no merit for, as We have earlier explained, these checkswere never delivered to petitioner Bank. And even granting, withoutadmitting, that there was delivery to petitioner Bank, the delivery of checks inpayment of an obligation does not constitute payment unless they are cashedor their value is impaired through the fault of the creditor. 6 None of theseexceptions were alleged by respondent Sima Wei.

Therefore, unless respondent Sima Wei proves that she has been

relieved from liability on the promissory note by some other cause,petitioner Bank has a right of action against her for the balance due thereon.

However, insofar as the other respondents are concerned,petitioner Bank has no privity with them. Since petitioner Bank never receivedthe checks on which it based its action against said respondents, it neverowned them (the checks) nor did it acquire any interest therein. Thus,anything which the respondents may have done with respect to said checkscould not have prejudiced petitioner Bank. It had no right or interest in the

checks which could have been violated by said respondents.Petitioner Bank has therefore no cause of action against said respondents, inthe alternative or otherwise. If at all, it is Sima Wei, the drawer, who wouldhave a cause of action against her co-respondents, if the allegations in thecomplaint are found to be true.

With respect to the second assignment of error raised bypetitioner Bank regarding the applicability of Section 13, Rule 3 of the Rulesof Court, We find it unnecessary to discuss the same in view of Our findingthat the petitioner Bank did not acquire any right or interest in the checks due

to lack of delivery. It therefore has no cause of action against therespondents, in the alternative or otherwise.

In the light of the foregoing, the judgment of the Court of Appealsdismissing the petitioner's complaint is AFFIRMED insofar as the second causeof action is concerned. On the first cause of action, the case is REMANDED tothe trial court for a trial on the merits, consistent with this decision, in orderto determine whether respondent Sima Wei is liable to
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the Development Bank of Rizal for any amount under the promissory noteallegedly signed by her. cdphil

SO ORDERED.

Narvasa, C.J., Padilla, Regaladoand Nocon, JJ., concur.

Footnotes

*CA G.R. CV No. 11980 dated October 12, 1988. Penned by Associate JusticeVenancio D. Aldecoa, Jr. with Associate Justices Ricardo P. Tensuan and LuisL. Victor, concurring.

1.Petition, p. 7; Rollo, p. 20.

2.Caseas vs. Rosales, et al., 19 SCRA 462 (1967); Remitere, et al. vs. Vda. de Yulo,et al., 16 SCRA 251 (1966).

3.In re Martens' Estate, 226 Iowa 162, 283 N.W. 885 (1939); Shriver vs. Danby, 113A 612 (1921).

4.Negotiable Instruments Law, Sec. 191, par. 6.

5.Ganzon vs. Court of Appeals, 161 SCRA 646 (1988). See also 1 M. MORAN,COMMENTS ON THE RULES OF COURT 715 (1957 ed.), citing San Agustin vs.Barrios, 68 Phil. 475 (1939), Toribio vs. Decasa, 55 Phil. 461 (1930),

American Express Co. vs. Natividad, 46 Phil. 207 (1924), Agoncillo vs. Javier,38 Phil. 424 (1918).

6CIVIL CODE, Art. 1249, par. 2.

FIRST DIVISION

[G.R. Nos. L-25836-37. January 31, 1981.]

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,vs. JOSE M. ARUEGO, defendant-appellant.

Sumulong, Sumulongand Libongcofor plaintiff-appellee.

Aruego, Benitez-Mamarilfor defendant-appellant.

SYNOPSIS


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Plaintiff bank instituted an action against defendant Jose M. Aruego for recoveryof money it had paid on various drafts drawn against it and signed by defendantas follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO". The complaint wasdismissed upon motion of defendant filed on the last day for filing his answer.The court, however, reconsidered its dismissal order and defendant received theorder setting it aside at 5:00 o'clock in the afternoon on March 11, 1960, he filedhis answer on March 12, 1960 interposing as defenses that he signed the draftsin a representative capacity, that he signed only as accommodation party, andthat the drafts were really no bills of exchange. Declared in default for havingfiled his answer one day late, defendant moved to set the order aside allegingthat it could not have been possible for him to file his answer on March 11, 1960,and that he had good and substantial defenses. The court denied the motion andrendered judgment by default. Defendant appealed from both the orders denyinghis motions to set aside the default order and the judgment by default, which

appeals were consolidated and certified to the Supreme Court by the Court ofAppeals.

The Supreme Court affirmed the appealed judgment holding that although it hasbeen shown that defendant's failure to answer on time is excusable, his defensesare nil and ineffective.

SYLLABUS

1.REMEDIAL LAW; JUDGMENTS RELIEF THEREFROM; REQUISITES. To entitlea party to relief from judgment taken against him, through his mistake,inadvertence, supervise or excusable neglect, he must show to the court that hehas a meritorious defense. In other words, in order to set aside the order ofdefault, the defendant must not only show that his failure to answer was due tofraud, accident, mistake or excusable negligence but also that he has ameritorious defense.

2.ID.; ID.; ID.; ID.; FAILURE TO FILE ANSWER EXCUSABLE IN CASE AT BAR. The failure of the defendant to file his answer on the last day for pleading is

excusable where the order setting aside the dismissal of the complaint wasreceived at 5:00 o'clock in the afternoon of such last day for pleading, and it wastherefore impossible for him to have filed his answer on that same day becausethe courts then held office only up to 5:00 o'clock in the afternoon; and wherethe defendant immediately filed his answer on the following day.

3.ID.; ID.; ID.; ID.; CASE AT BAR FAILS TO SHOW MERITORIOUS DEFENSE. Where the defense interposed by the defendant who has been declared in


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default is not meritorious, his petition for relief from judgment should be denied;for, to grant the defendant's prayer will result in a new trial which will serve nopurpose and will just waste the time of the courts as well as the parties becausethe defense is nil or ineffective.

4.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; BILLS OF EXCHANGE;PERSONS SIGNING IN REPRESENTATIVE CAPACITY SHOULD DISCLOSEPRINCIPAL. Where an inspection of the drafts accepted by the defendantshows that nowhere has he disclosed that he was signing as a representative ofthePhilippine Education Foundation Company, and he merely signed as follows:"JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO", he is personally liable for thedrafts accepted by him and he may not interpose as a defense that he signedthe drafts merely as an agent of the Philippines Education Foundation Companyof which he is president.

5.ID.; ID.; ID.; ACCOMMODATION PARTY DIFFERENTIATED FROMDRAWEE/ACCEPTOR; CASE AT BAR. An accommodation party is one who hassigned the instrument as maker, drawer, acceptor, indorser, without receivingvalue thereof and for the purpose of lending his name to some other person.Such person is liable on the instrument to a holder for value, notwithstandingsuch holder, at the time of the taking of the instrument knew him to be only anaccommodation party. In lending his name to the party accommodated, theaccommodation party is in effect a surety for the latter. He lends his name toenable the accommodated party to obtain credit or to raise money. He receives

no part of the consideration for the instrument but assumes liability to the otherparties thereto because he wants to accommodate another. In the instant case,the defendant signed as a drawee/acceptor. Under the Negotiable InstrumentsLaw, a drawee is primarily liable. Thus, if the defendant who is a lawyer, reallyintended to be secondarily liable only, he should not have signed as anacceptor/drawee. In doing so, he became primarily and personally liable for thedrafts.

6.ID.; ID.; ID.; NATURE OF ACCEPTANCE NOT DETERMINATE AS TO WHETHERCOMMERCIAL PAPER IS BILL OF EXCHANGE OR NOT. Under the Negotiable

Instruments Law, a bill of exchange is an unconditional order in writingaddressed by one person to another, signed by the person giving it, requiring theperson to whom it is addressed to party on demand or at a fixed or determinablefuture time a sum certain in money to order or to bearer. As long as acommercial paper conforms with the definition of a bill of exchange, that paper isconsidered a bill of exchange. The nature of acceptance is important only indetermination of whether a commercial paper is a bill of exchange or not. Thus,


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in the case at bar, defendant's contentions that the drafts signed by him werenot really bills of exchange but mere pieces of evidence of indebtedness becausepayments were made before acceptance, is not meritorious.

D E C I S I O N

FERNANDEZ, Jp:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from the orderof the Court of First Instance of Manila, Branch XIII, in Civil Case No. 42066denying his motion to set aside the order declaring him in default,1and from theorder of said court in the same case denying his motion to set aside the

judgment rendered after he was declared in default.2These two appeals of thedefendant were docketed as CA-G.R. No. 27734-R and CA-G.R. No. 27940-R,respectively.

Upon motion of the defendant on July 25, 1960,3he was allowed by the Courtof Appeals to file one consolidated record on appeal of CA-G.R. No. 27734-R andCA-G.R. No. 27940-R.4

In a resolution promulgated on March 1, 1966, the Court of Appeals, FirstDivision, certified the consolidated appeal to the Supreme Court on the ground

that only questions of law are involved.5

On December 1, 1959, the Philippine Bank of Commerce instituted against JoseM. Aruego Civil Case No. 42066 for the recovery of the total sum of aboutP35,000.00 with daily interest thereon from November 17, 1959 until fully paidand commission equivalent to 3/8% for every thirty (30) days or fraction thereofplus attorney's fees equivalent to 10% of the total amount due and costs. 6Thecomplaint filed by the Philippine Bank of Commerce contains twenty-two (22)causes of action referring to twenty-two (22) transactions entered into by thesaid Bank and Aruego on different dates covering the period from August 28,

1950 to March 14, 1951.7The sum sought to be recovered represents the cost ofthe printing of "World Current Events," a periodical published by the defendant.To facilitate the payment of the printing the defendant obtained a creditaccommodation from the plaintiff. Thus, for every printing of the "World CurrentEvents," the printer, Encal Press and Photo-Engraving, collected the cost ofprinting by drawing a draft against the plaintiff, said draft being sent later to thedefendant for acceptance. As an added security for the payment of the amounts
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advanced to Encal Press and Photo-Engraving, the plaintiff bank also requireddefendant Aruego to execute a trust receipt in favor of said bank wherein saiddefendant undertook to hold in trust for plaintiff the periodicals and to sell thesame with the promise to turn over to the plaintiff the proceeds of the sale ofsaid publication to answer for the payment of all obligations arising from thedraft.8

Aruego received a copy of the complaint together with the summons onDecember 2, 1959.9On December 14, 1959 the defendant filed an urgentmotion for extension of time to plead, and set the hearing on December 16,1959.10At the hearing, the court denied defendant's motion for extension.Whereupon, the defendant filed a motion to dismiss the complaint on December17, 1959 on the ground that the complaint states no cause of action because: LibLex

a)When the various bills of exchange were presented to the defendantas drawee for acceptance, the amounts thereof had already been paidby the plaintiff in the drawer (Encal Press and Photo-Engraving), withoutknowledge or consent of the defendant drawee.

b)In the case of a bill of exchange, like those involved in the case at bar,the defendant drawee is an accommodating party only for the drawer(Encal Press and Photo-Engraving) and will be liable in the event thatthe accommodating party (drawer) fails to pay its obligation to theplaintiff.11

The complaint was dismissed in an order dated December 22, 1959, copy ofwhich was received by the defendant on December 24, 1959. 12

On January 13, 1960, the plaintiff filed a motion for reconsideration. 13On March7, 1960, acting upon the motion for reconsideration filed by the plaintiff, the trialcourt set aside its order dismissing the complaint and set the case for hearing onMarch 15, 1960 at 8:00 in the morning.14A copy of the order setting aside theorder of dismissal was received by the defendant on March 11, 1960 at 5:00o'clock in the afternoon according to the affidavit of the deputy sheriff of Manila,Mamerto de la Cruz. On the following day, March 12, 1960, the defendant filed a

motion to postpone the trial of the case on the ground that there having been noanswer as yet, the issues had not yet been joined.15On the same date, thedefendant filed his answer to the complaint interposing the following defenses;That he signed the document upon which the plaintiff sues in his capacity asPresident of the Philippine Education Foundation; that his liability is onlysecondary; and that he believed that he was signing only as an accommodationparty.16
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On March 15, 1960, the plaintiff filed an ex partemotion to declare thedefendant in default on the ground that the defendant should have filed hisanswer on March 11, 1960. He contends that by filing his answer on March 12,

1960, defendant was one day late.17On March 19, 1960 the trial court declaredthe defendant in default.18The defendant learned of the order declaring him indefault on March 21, 1960. On March 22, 1960 the defendant filed a motion toset aside the order of default alleging that although the order of the court datedMarch 7, 1960 was received on March 11, 1960 at 5:00 in the afternoon, it couldnot have been reasonably expected of the defendant to file his answer on thelast day of the reglementary period, March 11, 1960, within office hours,especially because the order of the court dated March 7, 1960 was brought tothe attention of counsel only in the early hours of March 12, 1960. The

defendant also alleged that he has a good and substantial defense. Attached tothe motion are the affidavits of deputy sheriff Mamerto de la Cruz that he servedthe order of the court dated March 7, 1960 on March 11, 1960, at 5:00 o'clock inthe afternoon and the affidavit of the defendant Aruego that he has a good andsubstantial defense.19The trial court denied the defendant's motion on March25, 1960.20On May 6, 1960, the trial court rendered judgment sentencing thedefendant to pay to the plaintiff the sum of P35,444.35 representing the totalamount of his obligation to the said plaintiff under the twenty-two (22) causes ofaction alleged in the complaint as of November 15, 1957 and the sum ofP10,000.00 as attorney's fees.21

On May 9, 1960 the defendant filed a notice of appeal from the order datedMarch 25, 1961 denying his motion to set aside the order declaring him indefault, an appeal bond in the amount of P60.00, and his record on appeal. Theplaintiff filed his opposition to the approval of defendant's record on appeal onMay 13, 1960. The following day, May 14, 1960, the lower court dismisseddefendant's appeal from the order dated March 25, 1960 denying his motion toset aside the order of default.22On May 19, 1960, the defendant filed a motionfor reconsideration of the trial court's order dismissing his appeal. 23Theplaintiff, on May 20, 1960, opposed the defendant's motion for reconsideration of

the order dismissing appeal.24On May 21, 1960, the trial court reconsidered itsprevious order dismissing the appeal and approved the defendant's record onappeal.25On May 30, 1960, the defendant received a copy of a notice from theClerk of Court dated May 26, 1960, informing the defendant that the record onappeal filed by the defendant was forwarded to the Clerk of the Court of

Appeals.26
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On June 1, 1960 Aruego filed a motion to set aside the judgment rendered afterhe was declared in default reiterating the same ground previously advanced byhim in his motion for relief from the order of default. 27Upon opposition of theplaintiff filed on June 3, 1960,28the trial court denied the defendant's motion toset aside the judgment by default in an order of June 11, 1960.29On June 20,1960, the defendant filed his notice of appeal from the order of the courtdenying his motion to set aside the judgment by default, his appeal bond, andhis record on appeal. The defendant's record on appeal was approved by the trialcourt on June 25, 1960.30Thus, the defendant had two appeals with the Courtof Appeals; (1) Appeal from the order of the lower court denying his motion toset aside the order of default docketed as CA-G.R. No. 27734-R; (2) Appeal fromthe order denying his motion to set aside the judgment by default docketed asCA-G.R. No. 27940-R.

In his brief, the defendant-appellant assigned the following errors:

"I

THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WASIN DEFAULT.

"II

THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TODECLARE DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE

WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRSTDISPOSING OF SAID ANSWER IN AN APPROPRIATE ACTION.

"III

THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FORRELIEF OF ORDER OF DEFAULT AND FROM JUDGMENT BY DEFAULT

AGAINST DEFENDANT."31

It has been held that to entitle a party to relief from a judgment taken againsthim through his mistake, inadvertence, surprise or excusable neglect, he mustshow to the court that he has a meritorious defense.32In other words, in orderto set aside the order of default, the defendant must not only show that hisfailure to answer was due to fraud, accident, mistake or excusable negligencebut also that he has a meritorious defense.

The record discloses that Aruego received a copy of the complaint together withthe summons on December 2, 1960; that on December 17, 1960, the last day for
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filing his answer, Aruego filed a motion to dismiss; that on December 22, 1960the lower court dismissed the complaint; that on January 23, 1960, the plaintifffiled a motion for reconsideration and on March 7, 1960, acting upon the motionfor reconsideration, the trial court issued an order setting aside the order ofdismissal; that a copy of the order was received by the defendant on March 11,1960 at 5:00 o'clock in the afternoon as shown in the affidavit of the deputysheriff; and that on the following day, March 12, 1960, the defendant filed hisanswer to the complaint. LexLib

The failure then of the defendant to file his answer on the last day for pleading isexcusable. The order setting aside the dismissal of the complaint was received at5:00 o'clock in the afternoon. It was therefore impossible for him to have filedhis answer on that same day because the courts then held office only up to 5:00o'clock in the afternoon. Moreover, the defendant immediately filed his answer

on the following day.

However, while the defendant successfully proved that his failure to answer wasdue to excusable negligence, he has failed to show that he has a meritoriousdefense.

The defendant does not have a good and substantial defense.Defendant Aruego's defenses consist of the following:

a)The defendant signed the bills of exchange referred to in the plaintiff'scomplaint in a representative capacity, as the then President ofthe Philippine Education Foundation Company, publisher of "World CurrentEvents and Decision Law Journal," printed by Encal Press and Photo-Engraving,drawer of the said bills of exchange in favor of the plaintiff bank;

b)The defendant signed these bills of exchange not as principal obligor, but asaccommodation or additional party obligor, to add to the security of saidplaintiffbank. The reason for this statement is that unlike real bills of exchange,where payment of the face value is advanced to the drawer only uponacceptance of the same by the drawee, in the case in question, payment for the

supposed bills of exchange were made before acceptance; so that in effect,although these documents are labelled bills of exchange, legally they are not billsof exchange but mere instruments evidencing indebtedness of the drawee whoreceived the face value thereof, with the defendant as only additional security ofthe same.33
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The first defense of the defendant is that he signed the supposed bills ofexchange as an agent of the Philippine Education Foundation Company where heis president. Section 20 of the Negotiable Instruments Law provides that "Wherethe instrument contains or a person adds to his signature words indicating thathe signs for or on behalf of a principal or in a representative capacity, he is notliable on the instrument if he was duly authorized; but the mere addition ofwords describing him as an agent or as filling a representative character, withoutdisclosing his principal, does not exempt him from personal liability."

An inspection of the drafts accepted by the defendant shows that nowhere hashe disclosed that he was signing as representative of the Philippine EducationFoundation Company.34He merely signed as follows: "JOSE ARUEGO (Acceptor)(SGD) JOSE ARUEGO." For failure to disclose his principal, Aruego is personallyliable for the drafts he accepted.

The defendant also contends that he signed the drafts only as anaccommodation party and as such, should be made liable only after a showingthat the drawer is incapable of paying. This contention is also without merit.

An accommodation party is one who has signed the instrument as maker,drawer, acceptor, indorser, without receiving value therefor and for the purposeof lending his name to some other person. Such person is liable on theinstrument to a holder for value, notwithstanding such holder, at the time of thetaking of the instrument knew him to be only an accommodation party. 35In

lending his name to the accommodated party, the accommodation party is ineffect a surety for the latter. He lends his name to enable the accommodatedparty to obtain credit or to raise money. He receives no part of the considerationfor the instrument but assumes liability to the other parties thereto because hewants to accommodate another. In the instant case, the defendant signed as adrawee/acceptor. Under the Negotiable Instruments Law, a drawee is primarilyliable. Thus, if the defendant who is a lawyer, really intended to be secondarilyliable only, he should not have signed as an acceptor/drawee. In doing so, hebecame primarily and personally liable for the drafts.

The defendant also contends that the drafts signed by him were not really bills ofexchange but mere pieces of evidence of indebtedness because payments weremade before acceptance. This is also without merit. Under the NegotiableInstruments Law, a bill of exchange is an unconditional order in writingaddressed by one person to another, signed by the person giving it, requiring theperson to whom it is addressed to pay on demand or at a fixed or determinablefuture time a sum certain in money to order or to bearer. 36As long as a
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commercial paper conforms with the definition of a bill of exchange, that paper isconsidered a bill of exchange. The nature of acceptance is important only in thedetermination of the kind of liabilities of the parties involved, but not in thedetermination of whether a commercial paper is a bill of exchange or not. cdll

It is evident then that the defendant's appeal can not prosper. To grant thedefendant's prayer will result in a new trial which will serve no purpose and will

just waste the time of the courts as well as of the parties because the defense isnil or ineffective.37

WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court ofFirst Instance of Manila denying the petition for relief from the judgmentrendered in said case is hereby affirmed, without pronouncement as to costs.

SO ORDERED.

Teehankee, Makasiar, Guerreroand Melencio-Herrera, JJ., concur.

THIRD DIVISION

[G.R. No. 116320. November 29, 1999.]

ADALIA FRANCISCO, petitioner, vs. COURT OF APPEALS,HERBY COMMERCIAL & CONSTRUCTION CORPORATION

AND JAIME C. ONG,respondents.

Enrique Agana & Associatesfor petitioner.

Nelson A. Loyolafor private respondents.

SYNOPSIS

A Land Development and Construction Contract was entered into on June 23,1977 by A. Francisco Realty & Development Corporation (AFRDC), representedby its president, herein petitioner, and respondent HERBY Commercial &Construction Corporation (HCCC), represented by its President and GeneralManager respondent Jaime C. Ong, pursuant to a housing project at San Jose delMonte, financed by the GSIS. Under the contract, HCCC agreed to undertake the
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construction of 35 housing units and the development of 35 hectares of land.The GSIS and AFRDC put up an Executive Committee Account with the InsularBank of Asia in America (IBAA) from which checks would be issued and co-signed by petitioner and GSIS Vice-President, Armando Diaz.

After examination of the records of the GSIS, Ong discovered that Diaz andpetitioner had executed and signed seven checks of various dates and amounts,drawn against IBAA and payable to HCCC for completed and delivered workunder the contract. Petitioner forged the signature of Ong without his knowledgeor consent, to make it appear as if he had indorsed said checks and that, afterindorsing the checks for a second time by signing her name at the back of thechecks, she deposited said checks in her savings account with the IBAA. Ongfiled a complaint charging petitioner with estafa thru falsification of commercialdocuments. Petitioner, on the other hand, denied having forged respondent

Ong's signature on the checks, claiming that Ong himself indorsed the checksand delivered the same to her in payment of the loans which he extended torespondent HCCC. As a means of repayment, respondent Ong allegedly issued aCertification authorizing petitioner to collect respondent HCCC's receivables fromthe GSIS. Petitioner's claim was given credence, hence, the complaint wasdismissed. Thereafter, private respondents filed a case against petitioner andIBAA for the recovery of the total value of the seven checks and for damages,attorney's fees, expenses of litigation and costs. After trial on the merits, the trialcourt rendered its decision in favor of private respondents. On appeal, the Courtof Appeals affirmed the trial court's ruling. Hence, this petition for review

on certiorari.

The Supreme Court affirmed the decision of the trial court with modification as toaward of damages. The Court concurred with the lower court's finding thatpetitioner forged the signature of private respondent on the checks. Petitioner'sdefense must fail. The Negotiable Instruments Law provides that where anyperson is under obligation to indorse in a representative capacity, he mayindorse in such terms as to negative personal liability. An agent, when sosigning, should indicate that he is merely signing in behalf of the principal andmust disclose the name of his principal; otherwise he shall be held personally

liable. Even assuming that petitioner was authorized by HCCC to sign privaterespondent's name, still, she did not indorse the instrument in accordance withlaw. Instead of signing private respondent's name, petitioner should have signedher own name and expressly indicated that she was signing as an agent ofHCCC. Thus, the certification cannot be used by petitioner to validate her act offorgery.


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SYLLABUS

1.REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF TRIAL COURTS, WHENSUPPORTED BY SUBSTANTIAL EVIDENCE, DESERVE TO BE RESPECTED AND

AFFIRMED. As regards the forgery, we concur with the lower courts' findingthat Francisco forged the signature of Ong on the checks to make it appear as ifOng had indorsed said checks and that, after indorsing the checks for a secondtime by signing her name at the back of the checks, Francisco deposited saidchecks in her savings account with IBAA. The forgery was satisfactorilyestablished in the trial court upon the strength of the findings of the NBIhandwriting expert. Other than petitioner's self-serving denials, there is nothingin the records to rebut the NBI's findings. Well-entrenched is the rule thatfindings of trial courts which are factual in nature, especially when affirmed bythe Court of Appeals, deserve to be respected and affirmed by the Supreme

Court, provided it is supported by substantial evidence on record, as it is in thecase at bench.

2.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; TO NEGATIVEPERSONAL LIABILITY, AN AGENT, WHEN SIGNING IN A REPRESENTATIVECAPACITY, MUST DISCLOSE THE NAME OF HIS PRINCIPAL. Petitioner claimsthat she was, in any event, authorized to sign Ong's name on the checks byvirtue of the Certification executed by Ong in her favor giving her the authorityto collect all the receivables of HCCC from the GSIS, including the questionedchecks. Petitioner's alternative defense must similarly fail. The Negotiable

Instruments Law provides that where any person is under obligation to indorse ina representative capacity, he may indorse in such terms as to negative personalliability. An agent, when so signing, should indicate that he is merely signing inbehalf of the principal and must disclose the name of his principal; otherwise heshall be held personally liable. Even assuming that Francisco was authorized byHCCC to sign Ong's name, still, Francisco did not indorse the instrument inaccordance with law. Instead of signing Ong's name, Francisco should havesigned her own name and expressly indicated that she was signing as an agentof HCCC. Thus, the Certification cannot be used by Francisco to validate her actof forgery.

3.CIVIL LAW; DAMAGES; COMPENSATORY DAMAGES; AWARD THEREOF,AFFIRMED IN CASE AT BAR. Every person who, contrary to law, wilfully ornegligently causes damage to another, shall indemnify the latter for the same.Due to her forgery of Ong's signature which enabled her to deposit the checks inher own account, Francisco deprived HCCC of the money due it from the GSISpursuant to the Land Development and Construction Contract. Thus, we affirm


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respondent court's award of compensatory damages in the amount ofP370,475.00, but with a modification as to the interest rate which shall be sixpercent (6%) per annum, to be computed from the date of the filing of thecomplaint since the amount of damages was alleged in the complaint; however,the rate of interest shall be twelve percent (12%) per annum from the time the

judgment in this case becomes final and executory until its satisfaction and thebasis for the computation of this twelve percent (12%) rate of interest shall bethe amount of P370,475.00. This is in accordance with the doctrine enunciatedin Eastern Shipping Lines, Inc. vs. Court of Appeals, et al., which was reiteratedin Philippine National Bank vs. Court of Appeals, Philippine Airlines, Inc. vs. Courtof Appealsand in Keng Hua Paper Products Co., Inc. vs. Court of Appeals.

4.ID.; ID.; EXEMPLARY DAMAGES; IMPOSED BY WAY OF EXAMPLE ORCORRECTION FOR PUBLIC GOOD. We also sustain the award of exemplary

damages in the amount of P50,000.00. Under Article 2229 of the Civil Code,exemplary damages are imposed by way of example or correction for the publicgood, in addition to the moral, temperate, liquidated or compensatory damages.Considering petitioner's fraudulent act, we hold that an award of P50,000.00would be adequate, fair and reasonable.

5.ID.; ID.; ATTORNEY'S FEES AND LITIGATION EXPENSES; AWARDED IN CASEAT BAR. The grant of exemplary damages justifies the award of attorney'sfees in the amount of P50,000.00, and the award of P5,000.00 for litigationexpenses.

6.ID.; ID.; MORAL DAMAGES; WHEN MAY BE GRANTED. The appellate court'saward of P50,000.00 in moral damages is warranted. Under Article 2217 of theCivil Code, moral damages may be granted upon proof of physical suffering,mental anguish, fright, serious anxiety, besmirched reputation, woundedfeelings, moral shock, social humiliation and similar injury. Ong testified that hesuffered sleepless nights, embarrassment, humiliation and anxiety upondiscovering that the checks due his company were forged by petitioner and thatpetitioner had filed baseless criminal complaints against him before the fiscal'soffice of Quezon City which disrupted HCCC's business operations.

D E C I S I O N

GONZAGA-REYES, Jp:


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Assailed in this petition for review on certiorariis the decision1of the Court ofAppeals affirming the decision2rendered by Branch 168 of the Regional TrialCourt of Pasig in Civil Case No. 35231 in favor of private respondents. cdrep

The controversy before this Court finds its origins in a Land Development and

Construction Contract which was entered into on June 23, 1977 by A. FranciscoRealty & Development Corporation (AFRDC), of which petitioner Adalia Francisco(Francisco) is the president, and private respondent Herby Commercial &Construction Corporation (HCCC), represented by its President and GeneralManager private respondent Jaime C. Ong (Ong), pursuant to a housing projectof AFRDC at San Jose del Monte, Bulacan, financed by the Government ServiceInsurance System (GSIS). Under the contract, HCCC agreed to undertake theconstruction of 35 housing units and the development of 35 hectares of land.The payment of HCCC for its services was on a turn-key basis, that is, HCCC was

to be paid on the basis of the completed houses and developed lands deliveredto and accepted by AFRDC and the GSIS. To facilitate payment, AFRDC executeda Deed of Assignment in favor of HCCC to enable the latter to collect paymentsdirectly from the GSIS. Furthermore, the GSIS and AFRDC put up an ExecutiveCommittee Account with the Insular Bank of Asia & America (IBAA) in theamount of P4,000,000.00 from which checks would be issued and co-signed bypetitioner Francisco and the GSIS Vice-President Armando Diaz (Diaz).

On February 10, 1978, HCCC filed a complaint3with the Regional Trial Court ofQuezon City against Francisco, AFRDC and the GSIS for the collection of the

unpaid balance under the Land Development and Construction Contract in theamount of P515,493.89 for completed and delivered housing units and landdevelopment. However, the parties eventually arrived at an amicable settlementof their differences, which was embodied in a Memorandum Agreement executedby HCCC and AFRDC on July 21, 1978. Under the agreement, the partiesstipulated that HCCC had turned over 83 housing units which have beenaccepted and paid for by the GSIS. The GSIS acknowledged that it still owedHCCC P520,177.50 representing incomplete construction of housing units,

incomplete land development and 5% retention, which amount will bedischarged when the defects and deficiencies are finally completed by HCCC. Itwas also provided that HCCC was indebted to AFRDC in the amount ofP180,234.91 which the former agreed would be paid out of the proceeds fromthe 40 housing units still to be turned over by HCCC or from any amount due toHCCC from the GSIS. Consequently, the trial court dismissed the case upon thefiling by the parties of a joint motion to dismiss.
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Sometime in 1979, after an examination of the records of the GSIS, Ongdiscovered that Diaz and Francisco had executed and signed seven checks4, ofvarious dates and amounts, drawn against the IBAA and payable to HCCC forcompleted and delivered work under the contract. Ong, however, claims thatthese checks were never delivered to HCCC. Upon inquiry with Diaz, Ong learnedthat the GSIS gave Francisco custody of the checks since she promised that shewould deliver the same to HCCC. Instead, Francisco forged the signature of Ong,without his knowledge or consent, at the dorsal portion of the said checks tomake it appear that HCCC had indorsed the checks; Francisco then indorsed thechecks for a second time by signing her name at the back of the checks anddeposited the checks in her IBAA savings account. IBAA credited Francisco'saccount with the amount of the checks and the latter withdrew the amount socredited.

On June 7, 1979, Ong filed complaints with the office of the city fiscal of QuezonCity, charging Francisco with estafa thru falsification of commercial documents.Francisco denied having forged Ong's signature on the checks, claiming that Onghimself indorsed the seven checks in behalf of HCCC and delivered the same toFrancisco in payment of the loans extended by Francisco to HCCC. According toFrancisco, she agreed to grant HCCC the loans in the total amount ofP585,000.00 and covered by eighteen promissory notes in order to obviate therisk of the non-completion of the project. As a means of repayment, Ongallegedly issued a Certification authorizing Francisco to collect HCCC's receivablesfrom the GSIS. Assistant City Fiscal Ramon M. Gerona gave credence to

Francisco's claims and accordingly, dismissed the complaints, which dismissalwas affirmed by the Minister of Justice in a resolution issued on June 5, 1981.

The present case was brought by private respondents on November 19, 1979against Francisco and IBAA for the recovery of P370,475.00, representing thetotal value of the seven checks, and for damages, attorney's fees, expenses oflitigation and costs. After trial on the merits, the trial court rendered its decisionin favor of private respondents, the dispositive portion of which provides LLpr

WHEREFORE, premises considered, judgment is hereby rendered in

favor of the plaintiff's and against the defendants INSULAR BANK OFASIA & AMERICA and ATTY. ADALIA FRANCISCO, to jointly andseverally pay the plaintiffs the amount of P370.475.00 plus interestthereon at the rate of 12% per annumfrom the date of the filing of thecomplaint until the full amount is paid; moral damages to plaintiff JaimeOng in the sum of P50,000.00; exemplary damages of P50,000.00;litigation expenses of P5,000.00; and attorney's fees of P50,000.00.
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With respect to the cross-claim of the defendant IBAA against its co-defendant Atty. Adalia Francisco, the latter is ordered to reimburse theformer for the sums that the Bank shall pay to the plaintiff on the forgedchecks including the interests paid thereon.

Further, the defendants are ordered to pay the costs.

Based upon the findings of handwriting experts from the National Bureau ofInvestigation (NBI), the trial court held that Francisco had indeed forged thesignature of Ong to make it appear that he had indorsed the checks. Also, thecourt ruled that there were no loans extended, reasoning that it wasunbelievable that HCCC was experiencing financial difficulties so as to compel itto obtain the loans from AFRDC in view of the fact that the GSIS had issuedchecks in favor of HCCC at about the same time that the alleged advances weremade. The trial court stated that it was plausible that Francisco concealed the

fact of issuance of the checks from private respondents in order to make itappear as if she were accommodating private respondents, when in truth shewas lending HCCC its own money.

With regards to the Memorandum Agreement entered into between AFRDC andHCCC in Civil Case No. Q-24628, the trial court held that the same did not makeany mention of the forged checks since private respondents were as of yetunaware of their existence, that fact having been effectively concealed byFrancisco, until private respondents acquired knowledge of Francisco's misdeedsin 1979.

IBAA was held liable to private respondents for having honored the checksdespite such obvious irregularities as the lack of initials to validate the alterationsmade on the check, the absence of the signature of a co-signatory in thecorporate checks of HCCC and the deposit of the checks on a secondindorsement in the savings account of Francisco. However, the trial court allowedIBAA recourse against Francisco, who was ordered to reimburse the IBAA for anysums it shall have to pay to private respondents.5

Both Francisco and IBAA appealed the trial court's decision, but the Court of

Appeals dismissed IBAA's appeal for its failure to file its brief within the 45-dayextension granted by the appellate court. IBAA's motion for reconsideration andpetition for review on certiorarifiled with this Court were also similarly denied.On November 21, 1989, IBAA and HCCC entered into a Compromise Agreementwhich was approved by the trial court, wherein HCCC acknowledged receipt ofthe amount of P370,475.00 in full satisfaction of its claims against IBAA, withoutprejudice to the right of the latter to pursue its claims against Francisco.
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On June 29, 1992, the Court of Appeals affirmed the trial court's ruling, hencethis petition for review on certiorarifiled by petitioner, assigning the followingerrors to the appealed decision

1.The respondent Court of Appeals erred in concluding that private

respondents did not owe Petitioner the sum covered by the PromissoryNotes Exh. 2-2-A-2-P (FRANCISCO). Such conclusion was based mainlyon conjectures, surmises and speculation contrary to the unrebuttedpleadings and evidence presented by petitioner.

2.The respondent Court of Appeals erred in holding that Petitionerfalsified the signature of private respondent ONG on the checks inquestion without any authority therefor which is patently contradictoryto the unrebutted pleading and evidence that petitioner was expresslyauthorized by respondent HERBY thru ONG to collect all receivables of

HERBY from GSIS to pay the loans extended to them. (Exhibit 3).

3.That respondent Court of Appeals erred in holding that the sevenchecks in question were not taken up in the liquidation and reconciliationof all outstanding account between AFRDC and HERBY as acknowledgedby the parties in Memorandum Agreement (Exh. 5) is a pure conjecture,surmise and speculation contrary to the unrebutted evidence presentedby petitioners. It is an inference made which is manifestly mistaken.

4.The respondent Court of Appeals erred in affirming the decision of thelower court and dismissing the appeal.6

The pivotal issue in this case is whether or not Francisco forged the signature ofOng on the seven checks. In this connection, we uphold the lower courts' findingthat the subject matter of the present case, specifically the seven checks, drawnby GSIS and AFRDC, dated between October to November 1977, in the totalamount of P370,475.00 and payable to HCCC, was not included in theMemorandum Agreement executed by HCCC and AFRDC in Civil Case No. Q-24628. As observed by the trial court, aside from there being absolutely nomention of the checks in the said agreement, the amounts represented by saidchecks could not have been included in the Memorandum Agreement executed in

1978 because private respondents only discovered Francisco's acts of forgery in1979. The lower courts found that Francisco was able to easily conceal fromprivate respondents even the fact of the issuance of the checks since she was aco-signatory thereof. 7 We also note that Francisco had custody of the checks,as proven by the check vouchers bearing, her uncontested signature, 8by whichshe, in effect, acknowledged having received the checks intended for HCCC. This
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contradicts Francisco's claims that the checks were issued to Ong who deliveredthem to Francisco already indorsed.9

As regards the forgery, we concur with the lower courts' finding that Franciscoforged the signature of Ong on the checks to make it appear as if Ong had

indorsed said checks and that, after indorsing the checks for a second time bysigning her name at the back of the checks, Francisco deposited said checks inher savings account with IBAA. The forgery was satisfactorily established in thetrial court upon the strength of the findings of the NBI handwritingexpert.10Other than petitioner's self-serving denials, there is nothing in therecords to rebut the NBI's findings. Well-entrenched is the rule that findings oftrial courts which are factual in nature, especially when affirmed by the Court of

Appeals, deserve to be respected and affirmed by the Supreme Court, provided itis supported by substantial evidence on record,11as it is in the case at bench.

Petitioner claims that she was, in any event, authorized to sign Ong's name onthe checks by virtue of the Certification executed by Ong in her favor giving herthe authority to collect all the receivables of HCCC from the GSIS, including thequestioned checks.12Petitioner's alternative defense must similarly fail. TheNegotiable Instruments Law provides that where any person is under obligationto indorse in a representative capacity, he may indorse in such terms as tonegative personal liability.13An agent, when so signing, should indicate that he

is merely signing in behalf of the principal and must disclose the name of hisprincipal; otherwise he shall be held personally liable.14Even assuming thatFrancisco was authorized by HCCC to sign Ong's name, still, Francisco did notindorse the instrument in accordance with law. Instead of signing Ong's name,Francisco should have signed her own name and expressly indicated that shewas signing as an agent of HCCC. Thus, the Certification cannot be used byFrancisco to validate her act of forgery. dctai

Every person who, contrary to law, wilfully or negligently causes damage toanother, shall indemnify the latter for the same.15Due to her forgery of Ong's

signature which enabled her to deposit the checks in her own account, Franciscodeprived HCCC of the money due it from the GSIS pursuant to the LandDevelopment and Construction Contract. Thus, we affirm respondent court'saward of compensatory damages in the amount of P370,475.00, but with amodification as to the interest rate which shall be six percent (6%) per annum,to be computed from the date of the filing of the complaint since the amount ofdamages was alleged in the complaint;16however, the rate of interest shall be
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twelve percent (12%) per annumfrom the time the judgment in this casebecomes final and executory until its satisfaction and the basis for thecomputation of this twelve percent (12%) rate of interest shall be the amount ofP370,475.00. This is in accordance with the doctrine enunciated in EasternShipping Lines, Inc. vs. Court of Appeals, et al.,17which was reiteratedin Philippine National Bank vs. Court of Appeals,18Philippine Airlines,Inc. vs. Court of Appeals19and in Keng Hua Paper Products Co., Inc. vs. Courtof Appeals,20which provides that

1.When an obligation is breached, and it consists in the payment of a sum ofmoney, i.e., a loan or forbearance of money, the interest due should be thatwhich may have been stipulated in writing. Furthermore, the interest due shallitself earn legal interest from the time it is judicially demanded. In the absence ofstipulation, the rate of interest shall be 12% per annumto be computed from

default, i.e., from judicial or extrajudicial demand under and subject to theprovisions of Article 1169 of the Civil Code.

2.When an obligation, not constituting a loan or forbearance of money, isbreached, an interest on the amount of damages awarded may be imposed atthe discretion of the court at the rate of six percent (6%) per annum. Nointerest, however, shall be adjudged on unliquidated claims or damages exceptwhen or until the demand can be established with reasonable certainty.

Accordingly, where the demand is established with reasonable certainty, theinterest shall begin to run from the time the claim is made judicially or

extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be soreasonably established at the time the demand is made, the interest shall beginto run only from the date the judgment of the court is made (at which time thequantification of damages may be deemed to have been reasonablyascertained). The actual base for the computation of legal interest shall, in anycase, be on the amount finally adjudged.

3.When the judgment of the court awarding a sum of money becomes final andexecutory, the rate of legal interest, whether the case falls under paragraph 1 orparagraph 2, above, shall be twelve percent (12%) per annumfrom such finality

until its satisfaction, this interim period being deemed to be by then anequivalent to a forbearance of credit.

We also sustain the award of exemplary damages in the amount of P50,000.00.Under Article 2229 of the Civil Code, exemplary damages are imposed by way ofexample or correction for the public good, in addition to the moral, temperate,liquidated or compensatory damages. Considering petitioner's fraudulent act, we
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Documents

Nego Consolidated - III and IV