Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No. L-24968 April 27, 1972SAURA 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.:pIn Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that 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 an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in the resolution were the following:1. That the proceeds of the loan shall be utilized exclusively for the following purposes:For construction of factory building P250,000.00For payment of the balance of purchaseprice of machinery and equipment 240,900.00For working capital 9,100.00T O T A L P500,000.004. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of the factory buildings 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 a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, 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 the resolution, "to reexamine all the aspects of this approved loan ... with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with the reexamination of the project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement 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 the corresponding deed of mortgage, which was duly registered on the following April 17.It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board 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 loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn.In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. 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 as they 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 of the 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 the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," but with the following proviso:That in view of observations made of the shortage and high cost of imported raw materials, the Department of Agriculture and Natural Resources shall certify to the following:1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory."The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the certification by the Department of Agriculture 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 raw materials." This point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture 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 Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate aKenafmill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials, principalkenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grown raw materials notablykenafwhich is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to the availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenafwill not be available 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 in sufficient 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 182,413.91c) For raw materials and labor 67,586.091) 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 under consideration of P500,000. As stated in our letter of December 22, 1954, the releases of the loan, if revived, are proposed to be made from time to time, subject to availability of funds towards the end that the sack factory shall be placed in actual operating status. We shall be able to act on your request for revised purpose and manner of releases upon re-appraisal of the securities offered for the loan.With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials needed are available in the immediate vicinity and that there is prospect of increased production thereof to provide adequately the requirements of the factory, we wish to reiterate that the basis of the original approval is to develop the manufacture of sacks on the basis of the locally available raw materials. Your statement that you will have to rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory, would not be in line with our principle in approving the loan.With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank 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 at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff 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 perfected contract between the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 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 the commodatum or simple loan itself shall not be perferted until the delivery 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 the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principallykenaf. There is no serious dispute about this. It was in line with such assumption 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, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased 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 the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely "that the proceeds of the loan shall be utilizedexclusivelyfor the following purposes: for construction of factory building P250,000.00; for payment of the balance of purchase price of machinery and equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the 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 in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.When RFC turned down the request in its letter of January 25, 1955 the negotiations which 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 of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature cf mutual desistance what Manresa terms "mutuo disenso"1 which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.2The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of 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 loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance and 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.WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee.Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.Makasiar, J., took no part.

IWhether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was validly and legally executed.IIWhether the extrajudicial foreclosure of the said mortgage was validly and legally effected.IIIWhether petitioners had a right to redeem the foreclosed property.IVGranting that petitioners had such a right, whether respondent was justified in refusing their offers to repurchase the property.As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They primarily attack the validity of the mortgage executed by the Lozano spouses in favor of respondent Bank. Next, they attack the validity of the extrajudicial foreclosure and finally, appeal to justice and equity. In attacking the validity of the deed of mortgage, they contended that when it was executed on December 6, 1966, there was yet no principal obligation to secure as the loan of P75,000.00 was not received by the Lozano spouses "So much so that in the absence of a principal obligation, there is want of consideration in the accessory contract, which consequently impairs its validity and fatally affects its very existence." (Petitioners' Brief, par. 1, p. 7).This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed was executed for and on condition of the loan granted to the Lozano spouses. The fact that the latter did not collect from the respondent Bank the consideration of the mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract, the herein contract of loan was perfected at the same time the contract of mortgage was executed. The promissory note executed on December 12, 1966 is only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time of its execution.Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the original loan, using as security the same property which the Lozano spouses had already sold to petitioners, rendered the mortgage null and void,This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged properties, without the written consent of the mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged property is sold, the vendee shall assume the mortgage in the terms and conditions under which it is constituted. These provisions are expressly made part and parcel of the Deed of Sale with Assumption of Mortgage.Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of mortgage. Coupled with the fact that the sale/assignment was not registered so that the title remained in the name of the Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses could rightfully and validly mortgage the property. Respondent Bank had every right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another argument for the respondent Bank is that a mortgage follows the property whoever the possessor may be and subjects the fulfillment of the obligation for whose security it was constituted. Finally, it can also be said that petitioners voluntarily assumed the mortgage when they entered into the Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from impugning its validity whether on the original loan or renewals thereof.Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following grounds:a) petitioners were never notified of the foreclosure sale.b) The notice of auction sale was not posted for the period required by law.c) publication of the notice of auction sale in the Luzon Weekly Courier was not in accordance with law.The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not aware of the same and hence, it may not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to any notice because as of May 14, 1968, he had transferred and assigned all his rights and interests over the property in favor of intervenor Raoul Bonnevie and respondent Bank not likewise informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice. Most importantly, Act No. 3135 does not require personal notice on the mortgagor. The requirement on notice is that:Section 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or cityIn the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July 14, 1968 and notices of the sale were posted for not less than twenty days in at least three (3) public places in the Municipality where the property is located. Petitioners were thus placed on constructive notice.The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case involved a judicial foreclosure and the sale to the vendee of the mortgaged property was duly registered making the mortgaged privy to the sale.As regards the claim that the period of publication of the notice of auction sale was not in accordance with law, namely: once a week for at least three consecutive weeks, the Court of Appeals ruled that the publication of notice on June 30, July 7 and July 14, 1968 satisfies the publication requirement under Act No. 3135 notwithstanding the fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely requires that such notice shall be published once a week for at least three consecutive weeks." Such phrase, as interpreted by thisCourt in Basa vs. Mercado,61 Phil. 632, does not mean that notice should be published for three full weeks.The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance with law as said newspaper is not of general circulation must likewise be disregarded. The affidavit of publication, executed by the Publisher, business/advertising manager of the Luzon Weekly Courier, stares that it is "a newspaper of general circulation in ... Rizal, and that the Notice of Sheriff's sale was published in said paper on June 30, July 7 and July 14, 1968. This constitutes prima facie evidence of compliance with the requisite publication. Sadang vs. GSIS, 18 SCRA 491).To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local news and general information; that it has a bona fide subscription list of paying subscribers; that it is published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the largest circulation so long as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they do read the Luzon Weekly Courier is no proof that said newspaper is not a newspaper of general circulation in the province of Rizal.Whether or not the notice of auction sale was posted for the period required by law is a question of fact. It can no longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126). Nevertheless, the records show that copies of said notice were posted in three conspicuous places in the municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig Municipal Market and Pasig Municipal Hall. In the same manner, copies of said notice were also posted in the place where the property was located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and on Benitez Street. The following statement of Atty. Santiago Pastor, head of the legal department of respondent bank, namely:Q How many days were the notices posted in these two places, if you know?A We posted them only once in one day. (TSN, p. 45, July 25, 1973)is not a sufficient countervailing evidence to prove that there was no compliance with the posting requirement in the absence of proof or even of allegation that the notices were removed before the expiration of the twenty- day period. A single act of posting (which may even extend beyond the period required by law) satisfies the requirement of law. The burden of proving that the posting requirement was not complied with is now shifted to the one who alleges non-compliance.On the question of whether or not the petitioners had a right to redeem the property, We hold that the Court of Appeals did not err in ruling that they had no right to redeem. No consent having been secured from respondent Bank to the sale with assumption of mortgage by petitioners, the latter were not validly substituted as debtors. In fact, their rights were never recorded and hence, respondent Bank is charged with the obligation to recognize the right of redemption only of the Lozano spouses. But even granting that as purchaser or assignee of the property, as the case may be, the petitioners had acquired a right to redeem the property, petitioners failed to exercise said right within the period granted by law. Thru certificate of sale in favor of appellee was registered on September 2, 1968 and the one year redemption period expired on September 3, 1969. It was not until September 29, 1969 that petitioner Honesto Bonnevie first wrote respondent and offered to redeem the property. Moreover, on September 29, 1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.On the question of whether or not respondent Court of Appeals erred in holding that respondent Bank did not act in bad faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to respondent Bank dated December 8, 1966 advising the latter that Honesto Bonnevie was authorized to make payments for the amount secured by the mortgage on the subject property, to receive acknowledgment of payments, obtain the Release of the Mortgage after full payment of the obligation and to take delivery of the title of said property. On the assumption that the letter was received by respondent Bank, a careful reading of the same shows that the plaintiff was merely authorized to do acts mentioned therein and does not mention that petitioner is the new owner of the property nor request that all correspondence and notice should be sent to him.The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the maturity of said loan up to said date and accordingly on June 10, 1968 when defendant applied for the foreclosure of the mortgage, the loan was not yet due and demandable, is totally incorrect and misleading. The undeniable fact is that the loan matured on December 26, 1967. On June 10, 1968, when respondent Bank applied for foreclosure, the loan was already six months overdue. Petitioners' payment of interest on July 12, 1968 does not thereby make the earlier act of respondent Bank inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may be effected, not only the payment of the accrued interest is necessary but also the payment of interest for the proposed period of renewal as well. Besides, whether or not a loan may be renewed does not solely depend on the debtor but more so on the discretion of the bank. Respondent Bank may not be, therefore, charged of bad faith.WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby AFFIRMED. Costs against petitioners.SO ORDERED.Aquino, J., concur.Makasiar (Chairman), Abad Santos and Escolin, JJ., concurs in the result.Concepcion J J., took no part.De Castro, J., is on leave.Footnotes1 Third Division, Reyes, L.B., J.,ponente; Busran and Nocon, JJ., concurring.2 4. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner encumber the mortgaged properties without the written consent of MORTGAGEE. If in spite of this stipulation, a mortgaged property is sold, the Vendee shall assume the mortgaged in the terms and conditions under which it is constituted, it being understood that the assumption of the Vendee (does) not release the Vendor of his obligation to the MORTGAGEE; on the contrary, both the Vendor and the Vendee shall be jointly and severally liable for said mortgage obligation. ...SECOND DIVISION[G.R. No. 133632.February 15, 2002]BPI INVESTMENT CORPORATION,petitioner, vs. HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATION,respondents.D E C I S I O NQUISUMBING,J.:This petition forcertiorariassails the decision datedFebruary 28, 1997, of the Court of Appeals and its resolution datedApril 21, 1998, in CA-G.R. CV No. 38887.The appellate court affirmed the 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 of preliminary injunction by the private respondents against said petitioner.The trial court had held that private respondents were not in default in the payment of their monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature and made in bad faith.It awarded private respondents the amount ofP300,000 for moral damages,P50,000 for exemplary damages, andP50,000 for attorneys fees and expenses for litigation. 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 and Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on his lot inNewAlabangVillage, Muntinlupa.Said house and lot were mortgaged to AIDC to secure the loan.Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua forP850,000. They paidP350,000 in cash and assumed theP500,000 balance of Roas indebtedness with AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and proposed to grant them a new loan ofP500,000 to be applied 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 in equal monthly amortization ofP9,996.58 and penalty interest at the rate of 21% per annum per day from the date the amortization became due and payable.Consequently, in March 1981, private respondents executed a mortgage deed containing the above stipulations with the provision that payment of the monthly amortization shall commence onMay 1, 1981.OnAugust 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum ofP190,601.35. This reduced Roas principal balance toP457,204.90 which, in turn, was liquidated when BPIIC applied thereto the proceeds ofprivate respondents loan ofP500,000.OnSeptember 13, 1982, BPIIC released to private respondentsP7,146.87, 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 ground that they failed to pay the mortgage indebtedness which fromMay 1, 1981toJune 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 onAugust 13, 1984.OnFebruary 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among others, that they were not in arrears in their payment, but in fact made an overpayment as ofJune 30, 1984.They maintained that they should not be made to pay amortization before the actual release of theP500,000 loan in August and September 1982. Further, out of theP500,000 loan, only the total amount ofP464,351.77 was released to private respondents. Hence, applying the effects of legal compensation, the balance ofP35,648.23 should be applied to the initial monthly amortization for the loan.OnAugust 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 Development Corporation 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 of P464,351.77, with interest at 20% plus service charge of 1% per annum, payable on equal monthly 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 is correspondingly reformed as aforestated.The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their publication in a newspaper of general circulation as defaulting debtors, and therefore orders BPI 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 was dismissed for non-payment of docket fees.OnFebruary 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads:WHEREFORE,finding no error in the appealed decision the same is hereby AFFIRMEDintoto.SO ORDERED.[3]In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of the object of the contract.The contract of loan between BPIIC and ALS & Litonjua was perfected only onSeptember 13, 1982, the date when BPIIC released the purported balance of theP500,000 loan after deducting therefrom the value of Roas indebtedness. Thus, payment of the monthly amortization should commence only a month after the said date, as can be inferred from the stipulations in the contract. This, despite the express agreement of the parties that payment shall commence onMay 1, 1981.From October 1982 to June 1984, the total amortization due was onlyP194,960.43. Evidence showed that private respondents had an overpayment, because as of June 1984, they already paid a total amount ofP201,791.96.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 CONSENSUAL CONTRACT 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 AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE LAID DOWN INSOCIAL 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 a simple loan is perfected upon the delivery of the object of the contract, the loan contract in this case was perfected only onSeptember 13, 1982.Petitioner claims that a contract of loan is a consensual contract, and a loan contract is perfected at the time the contract of mortgage is executed conformably with our ruling inBonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan contract was perfected onMarch 31, 1981, the date when the mortgage deed was executed, hence, the amortization and interests on the loan should be computed from said date.Petitioner also argues that while the documents showed that the loan was released only on August 1982, the loan was actually released onMarch 31, 1981, when BPIIC issued a cancellation of mortgage of Frank Roas loan.This finds support in the registration onMarch 31, 1981of the Deed of Absolute Sale executed by Roa in favor of ALS, transferring the title of the property to ALS, and ALS executing the Mortgage Deed in favor of BPIIC.Moreover, petitioner claims, the delay in the release of the loan should be attributed to private respondents.As BPIIC only agreed to extend aP500,000 loan, private respondents were required to reduce Frank Roas loan below said amount.According to petitioner, private respondents were only able to do so in August 1982.In their comment, private respondents assert that based on Article 1934 of the Civil Code,[4]a simple 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 onMarch 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,Bonneviemust be construed to mean that the contract to extend the loan was perfected onMarch 31, 1981but the contract of loan itself was only perfected upon the delivery of the full loan to private respondents onSeptember 13, 1982.Private respondents further maintain that even granting,arguendo,that the loan contract was perfected onMarch 31, 1981, and their payment did not start a month thereafter, still no default took place.According to private respondents, a perfected loan agreement imposes reciprocal obligations, 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 to deliver the money.In reciprocal obligations, neither party incurs in delay if the other does not comply 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 onMay 1, 1981, as it was only onSeptember 13, 1982when petitioner fully complied with its obligation under the loan contract.We agree with private respondents. A loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract.[5]Petitioner misappliedBonnevie.The contract inBonneviedeclared by this Court as a perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple loan.InSaura Import and Export Co. Inc. vs. Development Bank of the Philippines,44 SCRA 445, petitioner applied for a loan ofP500,000 with respondent bank. The latter approved the application through a board resolution. Thereafter, the corresponding mortgage was executed and registered.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 consensual contract 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 it damages.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 of the object of the contract for its perfection and which gives rise to obligations only on the part of the 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 onSeptember 13, 1982, the date of the second release of the loan.Following the intentions of the parties on the commencement of the monthly amortization, as found by the Court of Appeals, private respondents obligation to pay commenced only on October 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.[8]As averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization commencing onMay 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 to comply in a proper manner with what is incumbent upon him.[9]Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for the payment of the monthly amortization afterSeptember 13, 1982for it was only then when it complied with its obligation under the loan contract.Therefore, in computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date isOctober 13, 1982and notMay 1, 1981.Other points raised by petitioner in connection with the first issue, such as the date of actual release of the loan and whether private respondents were the cause of the delay in the release of the loan, are factual.Since petitioner has not shown that the instant case is one of the exceptions to the basic rule that only questions of law can be raised in a petition for review under Rule 45 of the Rules of Court,[10]factual matters need not tarry us now.On these points we are bound by the findings of the appellate and trial courts.On thesecond issue, petitioner claims that it should not be held liable for moral and exemplary damages for it did not act maliciously when it initiated the foreclosure proceedings.It merely exercised its right under the mortgage contract because private respondents were irregular in their monthly amortization.It invoked our ruling inSocial 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 of Appeals the negligence of the appellant is not so gross as to warrant moral and temperate damages, except that, said Court reduced those damages by only P5,000.00 instead of eliminating them. Neither can we agree with the findings of both the Trial Court and respondent Court that the SSS had acted maliciously or in bad faith. The SSS was of the belief that it was acting 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 an award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral damages.Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages because it insisted on the payment of amortization on the loan even before it was released.Further, it did not make the corresponding deduction in the monthly amortization to conform 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 of monthly amortization.Conformably with our ruling inSSS,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 of mortgage, 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 in damage to private respondents, for which an award of nominal damages should be given in recognition of their rights which were violated by BPIIC.[12]For this purpose, the amount ofP25,000 is sufficient.Lastly, as inSSSwhere we awarded attorneys fees because private respondents were compelled to litigate, we sustain the award ofP50,000 in favor of private respondents as attorneys fees.WHEREFORE, the decision datedFebruary 28, 1997, of the Court of Appeals and its resolution datedApril 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages.The award of moral and exemplary damages in favor of private respondents is DELETED, but the award to them of attorneys fees in the amount ofP50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private respondentsP25,000 as nominal damages. Costs against petitioner.SO ORDERED.Bellosillo, (Chairman), Mendoza, Buena,andDe Leon, Jr., JJ.,concur.

SECOND DIVISION[G.R. No. 118375.October 3, 2003]CELESTINA T. NAGUIAT,petitioner, vs.COURT OF APPEALS and AURORA QUEAO,respondents.D E C I S I O NTINGA,J.:Before us is a Petition for Review onCertiorariunder Rule 45, assailing the decision of the Sixteenth Division of the respondent Court of Appeals promulgated on 21 December 1994[1], which affirmedin totothe decision handed down by the Regional Trial Court (RTC) of Pasay City.[2]The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a complaint before the Pasay City RTC for cancellation of aReal Estate Mortgageshe had entered into with petitioner Celestina Naguiat (Naguiat).The RTC rendered a decision, declaring the questionedReal Estate Mortgagevoid, which Naguiat appealed to the Court of Appeals.After the Court of Appeals upheld the RTC decision, Naguiat instituted the present petition.The operative facts follow:Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by the Corporate Resources Financing Corporation. She also issued her own Filmanbank Check No. 065314, to the order of Queao, also dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos (P95,000.00).The proceeds of these checks were to constitute the loan granted by Naguiat to Queao.[3]To secure the loan, Queao executed aDeed of Real Estate Mortgagedated 11 August 1980 in favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the mortgaged properties.[4]On the same day, the mortgage deed was notarized, and Queao issued to Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest at 12% per annum, payable on 11 September 1980.[5]Queao also issued a Security Bank and Trust Company check, postdated 11 September 1980, for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat.Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of funds.On the following day, 12 September 1980, Queao requested Security Bank to stop payment of her postdated check, but the bank rejected the request pursuant to its policy not to honor such requests if the check is drawn against insufficient funds.[6]On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of the loan.Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat.At the meeting, Queao told Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who purportedly was Naguiats agent.[7]Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14 August 1981.Three days before the scheduled sale, Queao filed the case before the Pasay City RTC,[8]seeking the annulment of the mortgage deed.The trial court eventually stopped the auction sale.[9]On 8 March 1991, the RTC rendered judgment, declaring theDeed of Real Estate Mortgagenull and void, and ordering Naguiat to return to Queao the owners duplicates of her titles to the mortgaged lots.[10]Naguiat appealed the decision before the Court of Appeals, making no less than eleven assignments of error.The Court of Appeals promulgated the decision now assailed before us that affirmedin totothe RTC decision.Hence, the present petition.Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of whether Queao had actually received the loan proceeds which were supposed to be covered by the two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public document, the mortgage deed enjoys the presumption that the recitals therein are true.Naguiat also questions the admissibility of various representations and pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of the admissions of third persons.[11]The resolution of the issues presented before this Court by Naguiat involves the determination of facts, a function which this Court does not exercise in an appeal bycertiorari.Under Rule 45 which governs appeal by certiorari, only questions of law may be raised[12]as the Supreme Court is not a trier of facts.[13]The resolution of factual issues is the function of lower courts, whose findings on these matters are received with respect and are in fact generally binding on the Supreme Court.[14]A question of law which the Court may pass upon must not involve an examination of the probative value of the evidence presented by the litigants.[15]There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts.[16]Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of the lower courts.[17]But Naguiats case does not fall under any of the exceptions.In any event, both the decisions of the appellate and trial courts are supported by the evidence on record and the applicable laws.Against the common finding of the courts below, Naguiat vigorously insists that Queao received the loan proceeds.Capitalizing on the status of the mortgage deed as a public document, she cites the rule that a public document enjoys the presumption of validity and truthfulness of its contents.The Court of Appeals, however, is correct in ruling that the presumption of truthfulness of the recitals in a public document was defeated by the clear and convincing evidence in this case that pointed to the absence of consideration.[18]This Court has held that the presumption of truthfulness engendered by notarized documents is rebuttable, yielding as it does to clear and convincing evidence to the contrary, as in this case.[19]On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued or endorsed were actually encashed or deposited.The mere issuance of the checks did not result in the perfection of the contract of loan.For the Civil Code provides that the delivery of bills of exchange and mercantile documents such as checks shall produce the effect of payment only when they have been cashed.[20]It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected.Art. 1934 of the Civil Code provides:An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of the contract.[21]In this case, the objects of the contract are the loan proceeds which Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat.If indeed the checks were encashed or deposited, Naguiat would have certainly presented the corresponding documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat presented no such proof, it follows that the checks were not encashed or credited to Queaos account.Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the ground that they could not bind her following theres inter alia acta alteri nocere non debetrule.The Court of Appeals rejected the argument, holding that since Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls under a recognized exception to the rule.[22]Still, Naguiat insists that Ruebenfeldt was not her agent.Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt is supported by ample evidence.As correctly pointed out by the Court of Appeals, Ruebenfeldt was not a stranger or an unauthorized person.Naguiat instructed Ruebenfeldt to withhold from Queao the checks she issued or indorsed to Queao, pending delivery by the latter of additional collateral.Ruebenfeldt served as agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it was in connection with that transaction that Queao came to know Naguiat.[23]It was also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on that occasion, on her own and without Queao asking for it, Reubenfeldt actually drew a check for the sum ofP220,000.00 payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement.[24]The Court of Appeals recognized the existence of an agency by estoppel[25]citing Article 1873 of the Civil Code.[26]Apparently, it considered that at the very least, as a consequence of the interaction between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaos impression.In that situation, the rule is clear.One who clothes another with apparent authority as his agent, and holds him out to the public as such, cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith, and in the honest belief that he is what he appears to be.[27]The Court of Appeals is correct in invoking the said rule on agency by estoppel.More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to Queao were never encashed or deposited to her account of Naguiat.All told, we find no compelling reason to disturb the finding of the courtsa quothat the lender did not remit and the borrower did not receive the proceeds of the loan. That being the case, it follows that the mortgage which is supposed to secure the loan is null and void. The consideration of the mortgage contract is the same as that of the principal contract from which it receives life, and without which it cannot exist as an independent contract.[28]A mortgage contract being a mere accessory contract, its validity would depend on the validity of the loan secured by it.[29]WHEREFORE, the petition is denied and the assailed decision is affirmed.Costs against petitioner.SO ORDERED.Bellosillo, (Chairman), Quisumbing, Austria-Martinez,andCallejo, Sr., JJ.,concur.

Republic of the PhilippinesSUPREME COURTManilaFIRST DIVISIONG.R. No. 154878 March 16, 2007CAROLYN M. GARCIA,Petitioner,vs.RICA MARIE S. THIO,Respondent.D E C I S I O NCORONA, J.:Assailed in this petition for review on certiorari1are the June 19, 2002 decision2and August 20, 2002 resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago.5Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,0006andP76,5007on July 26,8August 26, September 26 and October 26, 1995.In June 1995, respondent received from petitioner another crossed check9dated June 29, 1995 in the amount ofP500,000, also payable to the order of Marilou Santiago.10Consequently, petitioner received from respondent the amount ofP20,000 every month on August 5, September 5, October 5 and November 5, 1995.11According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 andP500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 andP500,000, with interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual damages.12Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.13The amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount ofP500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.14The amount of this loan was covered by the second check. For both loans, no promissory note was executed since petitioner and respondent were close friends at the time.15Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands.161awphi1.ntRespondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed checks to Santiago.17She issued the checks forP76,000 andP20,000 not as payment of interest but to accommodate petitioners request that respondent use her own checks instead of Santiagos.18In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.19It found that respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% andP500,000 at a monthly interest of 4%:20WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995 until fully paid;2.P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.3.P100,000.00 as and for attorneys fees; and4.P50,000.00 as and for actual damages.For lack of merit, [respondents] counterclaim is perforce dismissed.With costs against [respondent].IT IS SO ORDERED.21On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties:A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her.There is nothing in the record that shows that [respondent] received money from [petitioner].What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount ofP500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner].The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only onceto one who has an account with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course.Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the former and [petitioner].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)22Hence this petition.23As 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 thatthere werenocontracts of loan between petitioner and respondent) and the RTC (which held thatthere werecontracts of loan) are contradictory.24The 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.25This 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 simpleloan 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.26It 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.27She 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.28Furthermore, 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.29We agree with petitioner. Delivery is the act by which theresor substance thereof is placed within the actual or constructive possession or control of another.30Although 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.31It 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 with Santiago at that time.32Second, 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%.33This 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 ofP76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For theP500,000 loan, she also issued her own checks in the amount ofP20,000 each for four months.34According to respondent, she merely accommodated petitioners request for her to issue her own checks to cover the interest payments since petitioner was not personally acquainted with Santiago.35She claimed, however, that Santiago would replace the checks with cash.36Her 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.37Fourth, 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.38Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39The presumption is that "evidence willfully suppressed would be adverse if produced."40Respondent 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 andP500,000 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 andP500,000 loans respectively. There was no written proof of the interest payable except for theverbalagreement 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 judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.41Hence, respondent is liable for the payment of legal interestperannumto be computed from November 21, 1995, the date when she received petitioners demand letter.42From 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.43The award of actual damages in the amount ofP50,000 andP100,000 attorneys fees is deleted since the RTC decision did not explain the factual bases for these damages.WHEREFORE, the petition is herebyGRANTEDand the June 19, 2002 decision and August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 areREVERSEDandSET ASIDE. The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 isAFFIRMEDwith theMODIFICATIONthat respondent is directed to pay petitioner the amounts of US$100,000 andP500,000 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%perannumuntil fully paid. The award of actual damages and attorneys fees is deleted.SO ORDERED.Republic of thePhilippinesSupreme CourtManilaSPECIAL SECOND DIVISIONPOLOS. PANTALEON,Petitioner,-versus-AMERICAN EXPRESS INTERNATIONAL, INC.,Respondent.G.R. No. 174269Present:CARPIO MORALES,J.,Acting Chairperson,VELASCO, JR.,LEONARDO-DE CASTRO,BRION, and*BERSAMIN,JJ.Promulgated:August 25, 2010

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BRION,J.:We resolve the motion for reconsideration filed by respondent American Express International, Inc. (AMEX) datedJune 8, 2009,[1]seeking to reverse our Decision datedMay 8, 2009where 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 and exemplary damages, as well as attorneys fees and costs of litigation.[2]FACTUAL ANTECEDENTSThe established antecedents of the case are narrated below.AMEX is a resident foreign corporation engaged in the business of providing credit services through 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. OnOctober 25, 1991, the tour group arrived inAmsterdam. 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 around8:50 a.m.with a trip to the Coster Diamond House (Coster).To have enough time for take a guided city tour ofAmsterdambefore their departure scheduled on that day,the tour group planned to leave Coster by9:30 a.m.at the latest.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 for this purchase.He did this at around9:15 a.m.The sales clerk swiped the credit card and asked Pantaleon to sign the charge slip, which was then electronically referred to AMEXsAmsterdamoffice at9:20 a.m.[5]At around9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon asked 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 asking for 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 not approved the purchase. Since the city tour could not begin until the Pantaleons were onboard the tour bus, Coster decided to release at around10:05 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 visibly irritated.This irritation intensified when the tour guide announced that they would have to cancel the tour because of lack of time as they all had to be inCalais,Belgiumby3 p.m.to catch the ferry toLondon.[6]From the records, it appears that after Pantaleons purchase was transmitted for approval to AMEXsAmsterdamoffice at9:20 a.m.; was referred to AMEXsManilaoffice at9:33 a.m.; and was approved by theManilaoffice at10:19 a.m.At10:38 a.m., AMEXsManilaoffice finally transmitted the Approval Code to AMEXsAmsterdamoffice.In all,it took AMEX a total of 78 minutes to approve Pantaleons purchase and to transmit the approval to the jewelry store.[7]After the trip toEurope, the Pantaleon family proceeded to theUnited States. Again, Pantaleon experienced delay in securing approval for purchases using his American Express credit card on two separate occasions.He experienced the first delay when he wanted to purchase golf equipment in the amount of US$1,475.00 at the Richard Metz Golf Studio inNew YorkonOctober 30, 1991.Another delay occurred when he wanted to purchase childrens shoes worth US$87.00 at the Quiency Market inBostononNovember 3, 1991.Upon return toManila, Pantaleon sent AMEXa letter demanding an apology for the humiliation and inconvenience he and his family experienced due to the delays in obtaining approval for his credit card purchases. AMEX responded by explaining that the delay in Amsterdam was due to the amount involved the charged purchase of US$13,826.00 deviated fromPantaleons 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).OnAugust 5, 1996, the RTC found AMEX guilty of delay, and awarded PantaleonP500,000.00 as 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.[8]While the CA recognized that delay in the nature ofmora accipiendior creditors default attended AMEXs approval of Pantaleons purchases, it disagreed with the RTCs finding that AMEX had breached its contract, noting that the delay was not attended by bad faith, malice or gross negligence.The appellate court found that AMEX exercised 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 charge pattern.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 liable for any form of damages.Pantaleon questioned this decisionviaa petition for review oncertiorariwith this Court.In ourMay 8, 2009decision, we reversed the appellate courts decision and held that AMEX was guilty ofmora 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 on Pantaleons purchases.Based onthe testimony of AMEXs credit authorizer Edgardo Jaurique, the approval time for credit card charges would be three to four seconds under regular circumstances.In Pantaleons case, it took AMEX 78 minutes to approve theAmsterdampurchase.We attributed this delay to AMEXsManilacredit authorizer, Edgardo Jaurique, who had to go over Pantaleons past credit history, his payment record and his credit and bank references before he approved the purchase.Finding this delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral and exemplary damages, as well as attorneys fees and costs of litigation.THE MOTION FOR RECONSIDERATIONIn 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 Pantaleons purchases. While AMEX admits that it normally takes seconds to approve charge purchases, it emphasizes that Pantaleon experienced delay inAmsterdambecause his transaction was not a normal one.To recall, Pantaleon sought to charge in asingle transactionjewelry items purchased from Coster in the total amount of US$13,826.00 orP383,746.16. While the total amount of Pantaleons previous purchases using his AMEX credit card did exceed US$13,826.00, AMEX points out that these purchases were made in a span of more than 10 years, not in a single transaction.Because this was the biggest single transaction that Pantaleon ever made using his AMEX credit card, 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 only to ensure Pantaleons protection (to minimize the possibility that a third party was fraudulently using 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 by legitimate 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 embarrassment was his own decision to proceed with the purchase despite his awareness that the tour group was waiting for him and his wife. Pantaleon could have prevented the humiliation had he cancelled the sale when he noticed that the credit approval for the Coster purchase was unusually delayed.In his Comment datedFebruary 24, 2010, Pantaleon maintains that AMEX was guilty ofmora solvendi, 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 of delay; thus, even if AMEX had a justifiable reason for the delay, this reason would not relieve it from 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 its obligation 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 finding of malice, Pantaleon argues that evil motive or design is not always necessary to support a finding of bad faith; gross negligence or wanton disregard of contractual obligations is sufficient basis for the award of moral and exemplary damages.OUR RULINGWeGRANT the motionfor reconsideration.Brief historical backgroundA credit card is defined as any card, plate, coupon book, or other credit device existing for the purpose of obtaining money, goods, property, labor or services or anything of value on credit.[9]It traces its roots to thecharge card first introduced by the Diners Club inNew York Cityin 1950.[10]American Express followed suit by introducing its own charge card to the American market in1958.[11]In thePhilippines, the now defunct Pacific Bank was responsible for bringing the first credit card into the country in the 1970s.[12]However, it was only in the early 2000s that credit card use gained wide acceptance in the country, as evidenced by the surge in the number of credit card holders then.[13]Nature of Credit Card TransactionsTo better understand the dynamics involved in credit card transactions, we turn to theUnited Statescase ofHarris Trust & Savings Bank v. McCray[14]which explains:The bank credit card system involves a tripartite relationship between the issuer bank, the cardholder, and merchants participating in the system. The issuer bank establishes an account on behalf of the person to whom the card is issued, and the two parties enter into an agreement which 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 credit card and will also make cash loans available to the cardholder. It also states that the cardholder shall be liable 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 by the 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 merchant performs his undertakings such as checking the list of revoked cards before accepting the card. xxx.These slips are forwarded to the member bank which originally issued the card. The cardholder receives a statement from the bank periodically and may then decide whether to make payment to the bank in full within a specified period, free of interest, or to defer payment and ultimately incur an interest charge.We adopted a similar view inCIR v. American Express International, Inc. (Philippine branch),[15]where 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 xxxor other credit device existing for the purpose of obtainingxxxgoods xxx or servicesxxxon 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 card enables 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 to obtain 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 that arise from the credit sales. Instead, they merely record their receivables from the credit card company 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, but it does not redeem the drafts at full price. The agreement between them usually provides for discounts to be taken by the company upon its redemption of the drafts. At the end of each month, it then bills its credit card holders for their respective drafts redeemed during the previous month. 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) thesales contractbetween the credit card holder and the merchant or the business establishment which accepted the credit card; (b) theloan agreementbetween the credit card issuer and the credit card holder; and lastly, (c) thepromise to paybetween the credit card issuer and the merchant or business establishment.[16]Credit card issuer cardholder relationshipWhen a credit card company gives the holder the privilege of charging items at establishments associated with the issuer,[17]a necessary question in a legal analysis is when does this relationship begin?There are two diverging views on the matter.InCity Stores Co. v. Henderson,[18]anotherU.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 its withdrawal breaches no duty for there is no duty to continueit and violates no rights.Thus, under this view, each credit card transaction is considered a separate offer and acceptance.Novack v. Cities Service Oil Co.[19]echoed this view, with the court ruling that the mere issuance of a credit card did not create a contractual relationship with the cardholder.On the other end of the spectrum isGray v. American Express Company[20]which recognized the card membership agreement itself as a binding contract between the credit card issuer and the card holder. Unlike in theNovackand theCity Storescases, however, the cardholder inGraypaid an annual fee for the privilege of being an American Express cardholder.In our jurisdiction, we generally adhere to theGrayruling, recognizing the relationship between the credit card issuer and the credit card holder as a contractual one that is governed by the terms and conditions found in the card membership agreement.[21]This contract provides the rights and liabilities of a credit card company to its cardholders and vice versa.We note that a card membership agreement is a contract of adhesionas its terms are prepared solely by the credit card issuer, with the cardholder merely affixing his signature signifying his adhesion to these terms.[22]This circumstance, however, does not render the agreement void; we have 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.[23]The only effect is that the terms of the contract are construed strictly against the party who drafted it.[24]On AMEXs obligations to PantaleonWe begin by identifying the two privileges that Pantaleon assumes he is entitled to with the issuance of his AMEX credit card, and on which he anchors his claims. First, Pantaleon presumes that since his credit card has no pre-set spending limit, AMEX has the obligation to approve all his charge requests. Conversely, even if AMEX has no such obligation, at the very least it is obliged to act on his charge requests within a specific period of time.i.Use of credit card a mere offer to enter into loan agreementsAlthough we recognize the existence of a relationship between the credit card issuer and the credit card holder upon the acceptance by the cardholder of the terms of the card membership agreement (customarily signified by the act of the cardholder in signing the back of the credit card),we have to distinguish this contractual relationship from the creditor-debtor relationship which only arisesafterthe credit card issuer has approved the cardholders purchase request.The first relates merely to an agreement providing for credit facility to the cardholder.The latter involves the actual credit on loan agreement involvingthree contracts, namely: thesales contractbetweenthe credit card holder and the merchant or the business establishment which accepted the credit card; theloan agreementbetween the credit card issuer and the credit card holder; and thepromise to paybetween the credit card issuer and the merchant or business establishment.From the loan agreement perspective, the contractual relationship begins to exist only upon the meeting of the offer[25]and acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan agreements with the credit card company. Only after the latter approves the purchase requests that the parties enter into binding loan contracts,in keeping with Article 1319 of the Civil Code, which provides:Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The off