THIRD DIVISION

[ G.R. No. 130348, September 03, 2007 ]

MIGUEL SORIANO, JR. AND JULIETA SORIANO, PETITIONERS,
VS.
ANTERO SORIANO AND VIRGINIA SORIANO, RESPONDENTS.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, as amended, petitioner spouses Miguel Soriano,
Jr. and Julieta Soriano seek: (1) the reversal of the 18 August 1997 Decision of the Court of Appeals, in CA-G.R. SP No.
44365; (2) the dismissal of the complaint for ejectment filed by herein respondents; and (3) the issuance of a temporary
restraining order enjoining the Metropolitan Trial Court (MeTC) and herein respondents, and all persons acting in behalf of
the latter, from conducting proceedings relative to the writs of execution and demolition issued in Civil Cases No. 3856 and
No. 94-0001 until final resolution of the present petition.
The assailed Court of Appeals decision affirmed in toto an earlier Decision of the Regional Trial Court (RTC), Branch 255,
Las Pias, dated 3 April 1997, in two consolidated cases, Civil Cases No. 96-0148 and No. 96-0148(A), affirming in toto the
Joint Decision of the MeTC, Branch 79, Las Pias, dated 15 April 1996, in Civil Cases No. 3856 and No. 94-0001.
The case filed before the MeTC involved a Complaint for Ejectment filed by respondents, spouses Antero Soriano and
Virginia Soriano, before the MeTC, Branch 79, Las Pias, on 24 February 1994. In said complaint, respondents prayed for
the following relief against petitioners, spouses Miguel Soriano, Jr. and Julieta Soriano:
1] To vacate the premises covered by TCT NO. S33221 of the Register of Deeds of the Province of Rizal.
2] Ordering the defendants to pay the plaintiffs for the use of the premises, from January 1994 up to the dates defendants
vacates (sic) the premises, the amount of Two Thousand Six Hundred Sixty Two Pesos (P2,662.00) per month plus 12% per
annum with an increment of 10% every three (3) years beginning 1994.
3] Payment of attorney's fees in the amount of Ten Thousand Pesos (P10,000.00) and Three Thousand Pesos (P3,000.00)
per appearance.
Essentially, the facts are:
On 5 October 1981, respondents, spouses Antero Soriano and Virginia Soriano, and petitioners, spouses Miguel Soriano, Jr.
and Julieta Soriano, as lessors and lessees respectively, entered into a 20-year period Contract of Lease over a 420 square
meter parcel of land situated at Pamplona, Las Pias, Metro Manila. The leased property was intended as the site of a
building still to be constructed at that time, "to be used exclusively by the LESSEE in that area."
Part of the terms and conditions of said contract was a provision against the sublease or assignment by the lessees of the
subject property to third persons absent the written consent of the lessors, viz:
The LESSEE shall not sublease or assign the leased area or any portion thereof, without first securing the written consent of
the LESSOR;
Alleging violation of the aforequoted condition, on 24 February 1994, respondents filed a complaint for ejectment against
petitioners before the MeTC, Branch 79, Las Pias, docketed as Civil Case No. 3856. In the complaint, respondents averred
that:

7] That sometime December 1993, the defendants (sic) spouses were surprised to learn that the lessees, under the guise of
being the owner, were subleasing the same to third persons.
8] That plaintiffs secured a copy of the "Contract of Lease" entered into by the defendants and a certain Marilou P. Del
Castillo x x x.
9] That upon further investigation, the plaintiffs were further surprised to learn that the premises were likewise being leased
to a Beauty Parlor, Photography Shop, Auto Supply Dealer and a Money Changer.
10] That the subleasing of the premises was made by the lessees sans the implied or express consent of the Lessors.
xxxx
12] That on December 1993, plaintiffs sent to the defendants a "Notice to Vacate" x x x.
13] That up to the present time, the defendants has (sic) not yet vacated the premises.
As proof of the above-quoted allegations, respondents offered in evidence the following: 1) a copy of a contract of lease
executed by and between Miguel Soriano, Jr. and Marilou P. Del Castillo on 3 July 1993; 2) the affidavit of Marilou P. Del
Castillo essentially corroborating the averments in the complaint respecting the Contract of Lease between her and
petitioners; 3) various affidavits of third parties with whom petitioners allegedly subleased various portions of the subject
property; and 4) a Questioned Document Report by the National Bureau of Investigation (NBI) stating that the signature of
Marilou P. Del Castillo on the Joint Venture Agreement presented by respondents was a forgery.
On the other hand, petitioners denied violating the subject contract of lease they signed with respondents and contradicted
the existence of the alleged sublease agreement with one Marilou P. Del Castillo, as well as those with various other third
persons. Petitioners, instead, maintain that what existed between them and the third parties, including Marilou P. Del
Castillo, were joint venture agreements; and that the Contract of Lease between Marilou P. Del Castillo and petitioners was a
falsified document considering that the signatures of petitioner Julieta Soriano, the witnesses and of the Notary Public were
all claimed to be forgeries. Petitioners then presented the supposed Joint Venture Agreement entered into by and between
them and Marilou P. Del Castillo.
In the interregnum, before the complaint for ejectment could be resolved by the MeTC, petitioners filed a petition for
consignation of rental fees for the period of January to June 1994 with the MeTC. The claim for consignation, docketed as
Civil Case No. 94-0001, was grounded on the contention that respondents refused to encash the checks paid to them for the
rent of the subject property.
The MeTC consolidated the two civil actions, they being closely related.
On 15 April 1996, the MeTC promulgated a Joint Decision on the consolidated cases. The trial court found in favor of
respondents. The dispositive of the consolidated ruling reads:
WHEREFORE, judgment is rendered in favor of the plaintiffs and against defendants ordering the latter and all persons
claiming rights under them to vacate the premises in question and surrender possession thereof to the former; to pay plaintiff
the sum of P2,662.00 a month from January, 1994 and monthly thereafter until the subject premises is actually vacated; to
pay plaintiff P10,000.00 as reasonable attorney's fees and cost of suit.
The consignation case is ordered dismissed together with the counterclaim without pronouncement as to costs.
Based on the arguments and evidence presented by the parties, the MeTC found that the contract that existed between
petitioners and Marilou P. Del Castillo was a sub-lease contract and not a joint venture agreement. Much weight was given
by said trial court on the following documentary evidence: 1) affidavit of Marilou P. Del Castillo stating that the contract she
entered into with Julieta Soriano was a sublease agreement, especially as said affidavit was corroborated by the affidavits of

two other witnesses; and 2) the Questioned Document Report No. 843-1094 issued by the NBI stating that the signature of
Marilou P. Del Castillo on the Joint Venture Agreement presented by petitioners was a forgery. It ratiocinated that:
It is this court (sic) considered view that the defendants failed to overcome the presumption of validity of contract. They
having the one who put in issue the genuineness and due execution of the sub contract of lease have the burden of proof to
prove otherwise. On the part of the plaintiffs, they have proven at the very least, that the Joint Venture Agreement has a
semblance of forgery.
Defendant's negative assertion of facts cannot be given more weight than that of plaintiffs' positive stand. What the court has
in mind in setting the clarificatory hearing is to illicit from Marilou del Castillo which contract did she enter into with Julieta
Soriano, face to face with the defendants and plaintiffs. This way the Court would be in a position to observe the demeanor
of all the parties concern (sic) as well as the intended witness herself. It was however unfortunate that it did not materialize.
Anent the issue of consignation, the MeTC held that there was no valid tender of payment, viz:
In the consignation case, it appears from the evidence of defendants that it was sometime in the third week of December,
1993 that they tendered to the plaintiffs checks representing rentals from January to June, 1994. Clearly, when the
defendants tender payment as a prerequisite of consignation, the rentals are not yet due. Valid tender of payment therefore
is wanting.
On appeal to the RTC, the assailed joint decision was affirmed in toto in a decision promulgated on 3 April 1997. In
acknowledging that the contract of lease between petitioners and respondents was indeed violated, the RTC gave premium
to the letter of one Ma. Lourdes R. Acebedo, Executive Vice-President of Acebedo Optical Co., Inc. dated 22 October 1993.
According to the RTC, the letter-proposal embodies the provisions of a lease agreement for a period of one month as well as
the conformity of petitioner Julieta Soriano. The subject letter is hereunder quoted in full:
October 22, 1993
Ms. JULIET[A] B. SORIANO
House of Abraham Bldg.
281 Real Street, Pamplona
Las Pias, Metro Manila
Dear Ms. Soriano:
This is to formalize the discussion arranged by our Messrs. Ernesto Victa and Ramil Mendoza for us to use the front space
of your establishment in connection with our Project: Oplan Silip Mata from October 23 to November 23, 1993. That upon
your conforme of this proposal letter we are to pay the amount of three thousand five hundred (P3,500.00) pesos Philippine
Currency for the use of the space. Furthermore (sic) we will pay you the sum of twenty (P20.00) pesos per day for electric
consumption.
We hope you will find the foregoing proposal acceptable by signifying your conforme on the space provided below. We thank
you for your accommodation for this project.
Very truly yours,
ACEBEDO OPTICAL CO., INC.
By: (Sgd.)

MA. LOURDES R. ACEBEDO

Executive Vice-President
Conforme:
(Sgd.)
JULIET[A] B. SORIANO
For the court, the existence of the letter bolsters the claim of respondents that portions of the subject property were indeed
subleased to third parties without their concurrence, in definite violation of the provisions of the contract of lease.
On 7 April 1997, petitioners, through their counsel, the law firm Rico & Associates, received their copy of the decision of the
RTC.
On 17 April 1997, or ten days later, petitioners moved for the reconsideration of the RTC decision.
On 6 May 1997, the RTC denied petitioners' motion for reconsideration.
On 28 May 1997, petitioners received a copy of the aforesaid denial. On the other hand, petitioners' counsel received a copy
of the same on 2 June 1997.
On 6 June 1997, from the adverse decision of the RTC, petitioners' counsel went on to file a motion for extension of time to
file petition for review before the Court of Appeals. On 18 June 1997, petitioners filed the petition for review docketed as CAG.R. SP No. 44365.
Meanwhile, on 20 June 1997, acting on respondents' Motion for Execution of Judgment dated 7 April 1997, the RTC
rendered an Order, the full text of which is quoted hereunder:
It appears in the record that the defendants were served with a copy of the decision of this Court on April 7, 1997. The
running of the period to appeal, however, was interrupted when the defendants filed their motion for reconsideration on April
17, 1997. So that from April 7, 1997 up to the filing of the motion for reconsideration on April 17, 1997, ten (10) days have
already been consumed, and there are but five (5) days remaining within which to perfect appeal or [file] petition for review.
The order dated May 6, 1997, denying defendant's (sic) motion for reconsideration, was received by the defendants, through
their collaborating counsel, Atty. Miguel Soriano, on May 28, 1997. So that if the defendants received the order on the said
date, they have but up to June 2, 1997 to interpose a petition. As no appeal or petition for review was perfected up to this
date, as admitted by Atty. Soriano in open court on said date (in the afternoon), then the decision of this Court has already
become final and executory.
WHEREFORE, and in view of the foregoing, the motion for execution of judgment dated April 7, 1997, filed by the plaintiffs,
is hereby granted.
By authority of the ruling in Salientes vs. Intermediate Appellate Court (246 SCRA 150) and other related cases already
decided, whereby execution of decisions in ejectment cases falls within the jurisdiction of the inferior court, and not the
appellate court, let the record of this case be remanded to the Metropolitan Trial Court, Branch 79, Las Pias City, for
execution of the judgment
On 18 August 1997, the appellate court rendered a Decision denying the petition, the dispositive portion of which states that:
WHEREFORE, foregoing considered, the petition for review is hereby DENIED for lack of merit and the appealed decision is
hereby AFFIRMED in toto.

The Motion for Extension of Time to Reply filed by petitioners and the ex-parte (sic) motion for deposit of monthly rental are
hereby DENIED for being moot and academic.
The injunction granted is hereby permanently lifted.
Cost against petitioners.
The Court of Appeals denied petitioners' recourse on two grounds: 1) for being filed out of time, that is:
Petitioners did not file their petition for review within the reglementary period. Petitioners filed a motion for extension to file
Petition for Review. But this said motion was filed only on June 6, 1997, when the 15-days reglementary period has expired
(citation omitted).
and 2) for lack of merit considering that:
The existence of this contract of lease of petitioners with Marilou del Castillo is in clear violation of the contract of lease of
petitioners and private respondents.
The Issues
Hence, the present course of action, by which petitioners fundamentally seek to reverse the ruling of the Court of Appeals on
the following grounds:
I.
THE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT THE PETITION WAS FILED OUT OF TIME AS
PETITIONERS WERE BOUND BY THE SERVICE OF THE ORDER OF THE RTC DENYING PETITIONERS' MOTION FOR
RECONSIDERATION UPON PETITIONER (ATTY. MIGUEL SORIANO), AND NOT UPON THE UNDERSIGNED LAW FIRM
WHICH HAS FILED A FORMAL ENTRY OF APPEARANCE AS COUNSEL FOR PETITIONERS IN THE PROCEEDINGS A
QUO;
II.
THE COURT OF APPEALS SERIOUSLY MISAPPRECIATTED AND IMPROPERLY GAVE CREDENCE TO THE
"CONTRACT OF LEASE" DATED 3 JULY 1993 WHICH WAS INTRODUCED IN EVIDENCE, BUT SIGNIFICANTLY
ADMITTED TO BE A FORGERY, BY PRIVATE RESPONDENTS; [and]
III.
THE COURT OF APPEALS TOTALLY IGNORED AND COMPLETELY DISREGARDED THE CLEAR AND CONVINCING
EVIDENCE ON RECORD PROVING BEYOND PERADVENTURE THAT PETITIONERS DID NOT VIOLATE THEIR
CONTRACT OF LEASE DATED 5 OCTOBER 1981 WITH PRIVATE RESPONDENTS, IN THAT, WHAT WAS ACTUALLY
ENTERED INTO BETWEEN PETITIONERS AND MARILOU DEL CASTILLO WAS A JOINT VENTURE AGREEMENT.
The Court's Ruling
A cursory reading of the petition promptly discloses that at the core of the controversy are merely two issues. One involves a
procedural matter, that is, whether or not the petition filed before the Court of Appeals was done in due time; and the other
entails an issue of substance anent the existence of a contract of (sub)lease between petitioners and Marilou P. Del Castillo
in violation of the contract of lease between petitioners and respondents.
Anent the first issue, the appellate court rationalized its finding that the petition filed before it was filed beyond the
reglementary period within which to file a petition for review by stating thus:

Rico & Associates Law Office, counsel of petitioners, claimed that it received the copy of the order denying the motion for
reconsideration only on June 2, 1997.
Records show however, that petitioner Atty. Miguel Soriano received a copy of the order of denial on May 28, 1997. x x x.
xxxx
In this case, petitioner Atty. Miguel Soriano appeared as counsel for petitioners.
xxxx
The five (5) days remaining period to appeal should therefore be counted from May 28, 1997, when petitioner Atty. Soriano
received a copy of the Order of Denial and not on June 2, 1997, when Rico & Associated Law Office received its notice.
Petitioners naturally dispute the foregoing findings. They counter that the above is "clearly based on a deliberate
misapprehension of the true facts." Petitioners argue that as early as November 1995, before the MeTC, the law firm Rico &
Associates Law Office had already entered its appearance as their counsel of record; that as stated therein, the address of
said law firm is 4th Floor, Cattleya Condominium, 235 Salcedo St., Legaspi Village, Makati City; that petitioner Atty. Miguel
Soriano "never filed a formal appearance as counsel" for himself and his wife, Julieta Soriano, "much less used his
residence address (No. 79 Sterling Avenue, Sterling Life Avenue, Pamplona, Las Pias, Metro Manila) as his forwarding
address for purposes of court notices"; that, assuming for the sake of argument, even if petitioner Atty. Miguel Soriano did
enter his provisional appearance as counsel for himself and his wife by appearing in some court proceedings and signing
pleadings, still, he did so for Rico & Associates Law Office with office address at Rm. 407 Cattleya Condominium, 235
Salcedo St., Legaspi Village, Makati City; and that, "all court notices, except the order of denial of petitioners' Motion for
Reconsideration, were never sent to petitioner Atty. Miguel Soriano at his residence address." Thus, petitioners construe
that, "it is therefore highly anomalous why the RTC sent its Order dated 6 May 1997 to petitioner Atty. Miguel Soriano at his
residence address."
Respondents insist, however, that the date of receipt of the RTC's order denying petitioners motion for reconsideration
should be considered 28 May 1997, the date of receipt thereof by petitioner Atty. Miguel Soriano, because the latter has
entered his appearance as collaborating counsel in the subject case and signed several pleadings filed before the MeTC.
Respondents further contend that, "notice to him is effective notice to the attorney of record"; and, thus, petitioner Atty.
Miguel Soriano "cannot escape his own representations to serve his insidious purposes."
As to the procedural issue, we hold that the petition before the Court of Appeals was timely filed.
In practice, service means the delivery or communication of a pleading, notice or some other paper in a case, to the
opposite party so as to charge him with receipt of it and subject him to its legal effect. The purpose of the rules on service is
to make sure that the party being served with the pleading, order or judgment is duly informed of the same so that he can
take steps to protect his interests; i.e., enable a party to file an appeal or apply for other appropriate reliefs before the
decision becomes final. Pursuant to Section 2, Rule 13 of the 1997 Rules of Civil Procedure, as amended, service of court
processes, inter alia, is made in the following manner, to wit:
SEC. 2. Filing and service, defined. Filing is the act of presenting the pleading or other paper to the clerk of court.
Service is the act of providing a party with a copy of the pleading or paper concerned. If any party has appeared by counsel,
service upon him shall be made upon his counsel or one of them, unless service upon the party himself is ordered by the
court. Where one counsel appears for several parties, he shall only be entitled to one copy of any paper served upon him by
the opposite side.
As mentioned above, the general rule is, where a party appears by attorney in an action or proceeding in a court of record,
all notices required to be given therein must be given to the attorney of record; and service of the court's order upon any
person other than the counsel of record is not legally effective and binding upon the party, nor may it start the corresponding
reglementary period for the subsequent procedural steps that may be taken by the attorney. Notice should be made upon

the counsel of record at his exact given address, to which notice of all kinds emanating from the court should be sent in the
absence of a proper and adequate notice to the court of a change of address.
Said differently, when a party is represented by counsel of record, service of orders and notices must be made upon said
attorney; and notice to the client and to any other lawyer, not the counsel of record, is not notice in law.
In the case at bar, the fact that petitioner Atty. Miguel Soriano, Jr. may have appeared as counsel for himself and his wife in
the proceedings before the MeTC, or signed some pleadings filed before the court, is of no moment. Firstly, despite the
allegation of respondents, nothing in the record shows that petitioner Atty. Miguel Soriano, Jr. formally entered his
appearance as collaborating counsel for himself and co-petitioner Julieta Soriano. Secondly, though some pleadings filed for
petitioners bear the signature of petitioner Atty. Miguel Soriano, Jr. as author thereof, still, such pleadings equally display that
the authorship was in behalf of the law firm Rico & Associates Law Office and its address 4th Floor, Cattleya
Condominium, 235 Salcedo St., Legaspi Village, Makati City - as stated on record, the law firm which appears to be the
formal counsel of petitioners. Further, it does not appear that there was any substitution of counsel, or that service upon
petitioner Atty. Miguel Soriano, Jr. had been specifically ordered by the RTC. Interestingly, though, as professed by
petitioners, the order of denial of the motion for reconsideration of the decision of the RTC was the only court process sent to
petitioner Atty. Miguel Soriano, Jr. This would show that it was petitioners' counsel of record, Rico & Associates Law Office,
that, as a rule, received correspondence, notices and processes respecting the subject case. Accordingly, the counsel of
record of petitioners, Rico & Associates Law Office, is presumed to be still and the only one authorized to receive court
processes, inter alia. Notice of the denial of petitioners' motion for reconsideration of the RTC's decision, served upon the
Rico & Associates Law Office, was the formal notice to petitioners. For all legal intents and purposes, the service of that
notice was the trigger that started the running of the remaining five-day reglementary period within which to file the petition
to the appellate court or, at the very least, a motion for extension of time to file said pleading.
Considering the prior disquisition, therefore, petitioners are deemed to have received a copy of the subject denial by the
RTC of their motion for reconsideration on 2 June 1997 when their counsel of record, Rico & Associates Law Office,
received the same. The remaining five-day period within which to file the petition with the appellate court should have been
counted from that date. The last day, therefore, was 7 June 1997. Clearly, the petition interposed before the Court of Appeals
on 6 June 1997 was filed in due time. Otherwise, to consider the operative date of receipt of the RTC Order denying
petitioners' motion for reconsideration to be 28 May 1997 -- when said order was received by petitioner Atty. Miguel Soriano,
Jr., who albeit appeared as a collaborating counsel as well -- is to violate Section 2 of Rule 13 of the Rules of Court. As
amended, that provision states that when party is represented by counsel, service of process must be made on counsel and
not on the party.
Time and again, we have stressed that the rules of procedure are used only to help secure and not override substantial
justice. If a stringent application of the rules would hinder rather than serve the demands of substantial justice, the former
must yield to the latter.
Apropos the substantial issue involved in the case at bar, petitioners contend that that the appellate court erred in holding
that they subleased a portion of the subject property to Marilou P. Del Castillo in gross violation of the contract of lease
executed between petitioners and respondents. They argue that the finding of the Court of Appeals that there exists a
contract of (sub)lease between petitioners and Marilou P. Del Castillo is founded on a falsified contract of (sub)lease, as the
signature of the witnesses and notary public therein were forgeries; thus, the contract of (sub)lease being a falsehood, the
complaint of respondents is groundless. Moreover, petitioners maintain that what really exists between them and Marilou P.
Del Castillo is a joint venture agreement which in no way violates the provision concerning subleasing.
Respondents argue against the above and stress that the signatures were, indeed, falsified, and that it was petitioner Julieta
Soriano who was behind such deception.
In its assailed decision, the Court Appeals explained that:
The signatures of the witnesses and the notary public in the contract of lease entered into by petitioners and Marilou Del
Castillo are indeed false. But by offering this document with the false signatures of the witnesses and notary public, it cannot
be concluded that private respondents resorted to falsehood.

As explained by private respondents, the document was prepared by petitioners.

Marilou del Castillo also explained that when petitioners delivered to her the contract of lease, the witnesses had already
signed the same and after signing, petitioner Julieta Soriano signed the name of notary public Noberto Malit, Sr. and sealed
the document with the notarial seal of Norberto Malit. Marilou del Castillo claimed that petitioner Julieta Soriano signs (sic)
for Norberto Malit because the latter is a law partner of petitioner Atty. Miguel Soriano.
We give credence to this testimony of Marilou del Castillo. It is a common knowledge and practice that it is the lessor who
prepares the contract which would govern the lease of the lessee. The lessee usually signs.
This is especially true in this case because petitioner Atty. Miguel Soriano, the lessor is a lawyer who knows the "knowhows" on the preparation of the contract of lease.
Being the lessor of the leased premises (between petitioners and Marilou del Castillo) and being a lawyer at the same time,
it would indeed be possible, basing it from usual experience, that petitioners were the ones who prepared their contract of
lease with Marilou del Castillo.
As such, private respondents cannot be said to have resorted to falsehood. Private respondents merely offered as evidence
the document prepared by petitioners. The same could not be considered as fraud in the presentation of their cause.
Further, the appellate court elucidated that, though containing false signatures, nevertheless, the state of affairs "will not
warrant a ruling that there was no valid contract of lease between petitioners and Marilou Del Castillo," for the reason that
said forgeries do "not affect the existence of a valid contract. The law requires only the consent of contracting parties x x x
Consents (sic) of the witness or that of the notary public are (sic) not needed for the perfection of (a) contract."
On the whole, the petition is devoid of merit.
At the outset, in imputing as error the appellate court's appreciation of the genuineness of two supposed contracts executed
by petitioners and Marilou P. Del Castillo, i.e., the Contract of (Sub)Lease vis--vis the Joint Venture Agreement, petitioners
are plainly bringing into play questions of fact and the appreciation of evidence already made by no less than three courts of
law below. In a manner of speaking, petitioners would have us review once again the factual determinations of the MeTC, as
affirmed by not one court, but two higher courts already the RTC and the Court of Appeals. It has been consistently held
that under Section 1, Rule 45 of the Rules of Court, as amended, in an appeal to this Court by way of a petition for review on
certiorari, only questions of law must be raised by the petitioner; that is, our jurisdiction in a petition for review on certiorari is
limited to reviewing and correcting only errors of law, not of fact, the only power of the Court being to determine if the legal
conclusions drawn from the findings of fact are correct. The Court is not expected or required to examine or refute the oral
and documentary evidence submitted by the parties.
Of course, this Court may be minded to review the factual findings of the Court of Appeals, but only in the presence of any of
the following circumstances: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the interference is
manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no citation of specific evidence on which the
factual findings are based; (7) the findings of fact are contradicted by the presence of evidence on record; (8) the findings of
the Court of Appeals are contrary to those of the trial court; (9) the Court of Appeals manifestly overlooked certain relevant
and undisputed facts that, if properly considered, would justify a different conclusion; (10) the findings of the Court of
Appeals are beyond the issues of the case; and (11) such findings are contrary to the admissions of both parties.
Alas, we find none of the exceptions to be present in the case at bar; therefore, we see no reason to depart from the general
rule. The findings of fact of the three courts are fully substantiated by the evidence extant on record.
The foregoing discussion notwithstanding, we have reviewed the records of the case at bar and find no reversible error
committed by the Court of Appeals concerning the merits of the present petition. Without need to go into the fundamentals of
the mendacity surrounding the signature of the witnesses and the notary public found on the subject contract of (sub)lease,
the resolution of the present controversy is uncomplicated. It boils down to the consent of petitioner Julieta Soriano and
Marilou P. Del Castillo as evidenced by the legitimate signatures thereon. It has been proved adequately to this Court that

there exists a valid contract of (sub)lease between petitioners and Marilou P. Del Castillo. The concurrence of the fact that
the latter acknowledges having signed the contract along with petitioner Julieta Soriano, and of the fact that the signatures of
the witnesses and notary public are forgeries, do not negate the presence of a valid contract of (sub)lease. The signatures of
the witnesses and the notary public are considered necessary simply to make the contract binding on third parties. It would
have been a different matter had petitioners alleged and offered evidence to show that the signatures of petitioner Julieta
Soriano and Marilou P. Del Castillo, parties to the contract of (sub)lease, were forgeries as well which would mean that
parties to the assailed contract did not give their consent. Absence of consent between the parties means that there was no
contract of (sub)lease; hence, petitioners would not be deemed to have violated the prohibition on sublease, which was
barred by the contract of lease between them and respondents.
In fine, as correctly held by no less than three courts, there exists a contract of (sub)lease between petitioners and a third
party, which is in clear violation of the prohibition contained in the contract of lease entered into by petitioners and
respondents.
WHEREFORE, premises considered, the instant petition is DENIED. The assailed 18 August 1997 Decision of the Court of
Appeals in CA-G.R. SP No. 44365, is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
Ynares-Santiago, (Chairperson), Austria-Martinez, Nachura, and Reyes, JJ., concur.
****************************
Re definition of Breach of Contract
FIRST DIVISION
[ G.R. No. 161319, January 23, 2007 ]
SPS. EDGAR AND DINAH OMENGAN, PETITIONERS,
VS.
PHILIPPPINE NATIONAL BANK, HENRY M. MONTALVO AND MANUEL S. ACIERTO,* RESPONDENTS.
DECISION
CORONA, J.:
This petition for review on certiorari seeks a review and reversal of the Court of Appeals (CA) decision and resolution in CAG.R. CV No. 71302.
In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch approved petitioners-spouses application for a
revolving credit line of P3 million. The loan was secured by two residential lots in Tabuk, Kalinga-Apayao covered by
Transfer Certificate of Title (TCT) Nos. 12954 and 12112. The certificates of title, issued by the Registry of Deeds of the
Province of Kalinga-Apayao, were in the name of Edgar Omengan married to Dinah Omengan.
The first P2.5 million was released by Branch Manager Henry Montalvo on three separate dates. The release of the final half
million was, however, withheld by Montalvo because of a letter allegedly sent by Edgars sisters. It read:
7 November 1996
The Manager

Philippine National Bank

Tabuk Branch
Poblacion, Tabuk
Kalinga
Sir:
This refers to the land at Appas, Tabuk in the name of our brother, Edgar Omengan, which was mortgaged to [the] Bank in
the amount of Three Million Pesos (P3,000,000.00), the sum of [P2.5 Million] had already been released and received by our
brother, Edgar.
In this connection, it is requested that the remaining unreleased balance of [half a million pesos] be held in abeyance
pending an understanding by the rest of the brothers and sisters of Edgar. Please be informed that the property mortgaged,
while in the name of Edgar Omengan, is owned in co-ownership by all the children of the late Roberto and Elnora Omengan.
The lawyer who drafted the document registering the subject property under Edgars name can attest to this fact. We had a
prior understanding with Edgar in allowing him to make use of the property as collateral, but he refuses to comply with such
arrangement. Hence, this letter. (emphasis ours)
Very truly yours,
(Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao
(Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver
Montalvo was eventually replaced as branch manager by Manuel Acierto who released the remaining half million pesos to
petitioners on May 2, 1997. Acierto also recommended the approval of a P2 million increase in their credit line to the
Cagayan Valley Business Center Credit Committee in Santiago City.
The credit committee approved the increase of petitioners credit line (from P3 million to P5 million), provided Edgars sisters
gave their conformity. Acierto informed petitioners of the conditional approval of their credit line.
But petitioners failed to secure the consent of Edgars sisters; hence, PNB put on hold the release of the additional P2
million.
On October 7, 1998, Edgar Omengan demanded the release of the P2 million. He claimed that the condition for its release
was not part of his credit line agreement with PNB because it was added without his consent. PNB denied his request.
On March 3, 1999, petitioners filed a complaint for breach of contract and damages against PNB with the Regional Trial
Court (RTC), Branch 25 in Tabuk, Kalinga. After trial, the court decided in favor of petitioners.
Accordingly, judgment is hereby rendered finding in favor of [petitioners.] [PNB is ordered]:
1) To release without delay in favor of [petitioners] the amount of P2,000,000.00 to complete the P5,000,000.00 credit line
agreement;
2) To pay [petitioners] the amount of P2,760,000.00 representing the losses and/or expected income of the [petitioners] for
three years;
3) To pay lawful interest, until the amount aforementioned on paragraphs 1 and 2 above are fully paid; and

4) To pay the costs.

SO ORDERED.
The CA, however, on June 18, 2003, reversed and set aside the RTC decision dated April 21, 2001.
Petitioners now contend that the CA erred when it did not sustain the finding of breach of contract by the RTC.
The existence of breach of contract is a factual matter not usually reviewed in a petition filed under Rule 45. But since the
RTC and the CA had contradictory findings, we are constrained to rule on this issue.
Was there a breach of contract? There was none.
Breach of contract is defined as follows:
[It] is the failure without legal reason to comply with the terms of a contract. It is also defined as the [f]ailure, without legal
excuse, to perform any promise which forms the whole or part of the contract.
In this case, the parties agreed on a P3 million credit line. This sum was completely released to petitioners who
subsequently applied for an increase in their credit line. This was conditionally approved by PNBs credit committee. For all
intents and purposes, petitioners sought an additional loan.
The condition attached to the increase in credit line requiring petitioners to acquire the conformity of Edgars sisters was
never acknowledged and accepted by petitioners. Thus, as to the additional loan, no meeting of the minds actually occurred
and no breach of contract could be attributed to PNB. There was no perfected contract over the increase in credit line.
[T]he business of a bank is one affected with public interest, for which reason the bank should guard against loss due to
negligence or bad faith. In approving the loan of an applicant, the bank concerns itself with proper [information] regarding its
debtors. Any investigation previously conducted on the property offered by petitioners as collateral did not preclude PNB
from considering new information on the same property as security for a subsequent loan. The credit and property
investigation for the original loan of P3 million did not oblige PNB to grant and release any additional loan. At the time the
original P3 million credit line was approved, the title to the property appeared to pertain exclusively to petitioners. By the time
the application for an increase was considered, however, PNB already had reason to suspect petitioners claim of exclusive
ownership.
A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an innocent mortgagee is
not expected to conduct an exhaustive investigation on the history of the mortgagors title. This rule is strictly applied to
banking institutions. xxx
Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, as
their business is one affected with public interest. xxx Thus, this Court clarified that the rule that persons dealing with
registered lands can rely solely on the certificate of title does not apply to banks. (emphasis supplied)
Here, PNB had acquired information sufficient to induce a reasonably prudent person to inquire into the status of the title
over the subject property. Instead of defending their position, petitioners merely insisted that reliance on the face of the
certificate of title (in their name) was sufficient. This principle, as already mentioned, was not applicable to financial
institutions like PNB.
In truth, petitioners had every chance to turn the situation in their favor if, as they said, they really owned the subject
property alone, to the exclusion of any other owner(s). Unfortunately, all they offered were bare denials of the co-ownership
claimed by Edgars sisters.
PNB exercised reasonable prudence in requiring the above-mentioned condition for the release of the additional loan. If the
condition proved unacceptable to petitioners, the parties could have discussed other terms instead of making an obstinate

and outright demand for the release of the additional amount. If the alleged co-ownership in fact had no leg to stand on,
petitioners could have introduced evidence other than a simple denial of its existence.
Since PNB did not breach any contract and since it exercised the degree of diligence expected of it, it cannot be held liable
for damages.
WHEREFORE, the decision and resolution of the Court of Appeals in CA-G.R. CV No. 71302 are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
****************************
DBP vs Perez
SECOND DIVISION
[ G.R. No. 148541, November 11, 2004 ]
DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER,
VS.
BONITA O. PEREZ AND ALFREDO PEREZ, RESPONDENTS.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari seeking to reverse and set aside the Decision of the Court of Appeals (CA) dated
February 28, 2001, and to reinstate the Decision of the Regional Trial Court (RTC), Makati City, Branch 145, in Civil Case
No. 12057, as modified by trial courts Order dated June 11, 1993.
The Antecedents
On April 28, 1978, petitioner Development Bank of the Philippines (DBP) sent a letter to respondent Bonita Perez, informing
the latter of the approval of an industrial loan amounting to P214,000.00 for the acquisition of machinery and equipment and
for working capital, and an additional industrial loan amounting to P21,000.00 to cover unforeseen price escalation.
On May 18, 1978, the respondents were made to sign four promissory notes covering the total amount of the loan,
P235,000.00. Three promissory notes for P24,000.00, P48,000.00, and P142,000.00, respectively, were executed, totaling
P214,000.00. These promissory notes were all due on August 31, 1988. A fourth promissory note due on September 19,
1988 was, likewise, executed to cover the additional loan of P21,000.00. The promissory notes were to be paid in equal
quarterly amortizations and were secured by a mortgage contract covering real and personal properties.
On September 6, 1978, the petitioner sent a letter to the respondents informing them of the terms for the payment of the
P214,000.00 industrial loan. On November 8, 1978, the petitioner sent another letter to the respondents informing them
about the terms and conditions of their additional P21,000.00 industrial loan.
Due to the respondents' failure to comply with their amortization payments, the petitioner decided to foreclose the mortgages
that secured the obligation. However, in a Letter dated October 7, 1981, Mrs. Perez requested for a restructuring of their
account due to difficulties they were encountering in collecting receivables.

On April 1, 1982, the petitioner informed the respondents that it had approved the restructuring of their accounts. The loan
was restructured, and on May 6, 1982, the respondents signed another promissory note in the amount of P231,000.00 at
eighteen percent (18%) interest per annum, payable quarterly at P12,553.27, over a period of ten years. The promissory
note stated in part:
PROMISSORY NOTE
P231,000.00 Makati, Metro Manila, May 6, 1982
On or before May 7, 1992, for value received, I/we, jointly and severally, promise to pay the DEVELOPMENT BANK OF THE
PHILIPPINES, or order at its office at Makati, Metro Manila, Philippines, the sum of TWO HUNDRED THIRTY-ONE
THOUSAND PESOS (P231,000.00), Philippine Currency, with interest at the rate of EIGHTEEN per centum (18%) per
annum. Before the date of maturity, we hereby bind ourselves to make partial payments, the first payment to be made on
August 7, 1982 and the subsequent payments on the 7th day of every three (3) months thereafter, and each of all such
payments shall be TWELVE THOUSAND FIVE HUNDRED FIFTY-THREE and 27/100 PESOS (P12,553.27) which shall
cover amortizations on the principal and interest at the above-mentioned rate.
This loan shall be subject to penalty charges and additional interest as follows:
On loan with amortizations or portions thereof in arrears irrespective of age.
Additional interest at the basic loan interest rate per annum computed on total amortizations past due irrespective of age.
PLUS
Penalty charge of 8% per annum computed on total amortizations in arrears irrespective of age.
The DBP further reserves the right to increase, with notice to the mortgagor, the rate of interest on the loan as well as all
other fees and charges on loans and advances pursuant to such policy as it may adopt from time to time during the period of
the loan; Provided that the rate of interest on the loan shall be reduced in the event that the applicable maximum rate of
interest is reduced by law or by the Monetary Board; Provided, further, that the adjustment in the rate of interest shall take
effect on or after the effectivity of the increase or decrease in the maximum rate of interest.
In case of non-payment of the amount of this note or any portion of it on demand, when due, or any other amount or
amounts due on account of this note, the entire obligation shall become due and demandable, and if, for the enforcement of
the payment thereof, the DEVELOPMENT BANK OF THE PHILIPPINES, is constrained to entrust the case to its attorneys,
I/we, jointly and severally, bind myself/ourselves to pay for attorney's fees, as provided for in the mortgage contract, in
addition to the legal fees and other incidental expenses. In the event of foreclosure of the mortgage securing this note, I/we
further bind myself/ourselves, jointly and severally, to pay the deficiency , if any.
SIGNED IN THE PRESENCE OF:
illegible SGD. SGD.
illegible BONITA ANG ORDIALES ALFREDO PEREZ
(Bonita O. Perez)
This Promissory Note supersedes the Promissory Note dated May 18, 1978 and stands secured by a mortgage contract
executed by the above parties on the same date, subject to the following terms and conditions.
As stated in the promissory note, the first amortization was due on August 7, 1982, and the succeeding amortizations, every
quarter thereafter. However, the respondents made their first payment amounting to P15,000.00 only on April 20, 1983 or

after the lapse of three quarters. Their second payment, which should have been paid on November 7, 1982, was made on
December 2, 1983 and only in the amount of P5,000.00. The third payment was then made at the time when the ninth
quarterly amortization should have been paid. After this, the respondents completely stopped paying. The total payments
they made after the restructure of the loan amounted to P35,000.00 only.
This failure to meet the quarterly amortization of the loan prompted the petitioner to institute foreclosure proceedings on the
mortgages. The sale of the properties covered by the mortgage contract was scheduled on October 30, 1985.
On October 24, 1985, the respondents filed a Complaint for the nullification of the new promissory note with damages and
preliminary prohibitory injunction. The complaint alleged that the petitioner restructured the respondents obligation in bad
faith by requiring them to sign another promissory note for P231,000.00 without considering the total payments made on the
loan amounting to P224,383.43. The respondents claimed that the petitioner failed to explain to them how it had arrived at
the amount of the restructured loan. The respondents also alleged that the petitioner failed to furnish them with a disclosure
statement as required by Rep. Act No. 3765, also known as the Truth in Lending Act, prior to the consummation of the
transaction. They averred that the interest imposed on the said transaction was usurious. They, likewise, alleged that the
new promissory note constituted a novation of the previous obligations.
In its answer, the petitioner denied the allegations and averred that the claim for violation of the disclosure requirement
under Rep. Act No. 3765 was not within the jurisdiction of the RTC and was barred by prescription. By way of compulsory
counterclaim, the petitioner prayed that the respondents be ordered to pay their obligation, plus exemplary damages and
costs. During trial, the petitioner presented a Statement of Account dated September 14, 1990, showing that the total
amount of the obligation as of September 15, 1990 was P1,384,465.71.
On October 25, 1985, the trial court ordered the petitioner to desist from holding the public auction of the respondents
properties. The trial court issued an Order on April 25, 1986 to maintain the status quo.
In its Decision dated May 10, 1993, the court a quo upheld the validity of the new promissory note and ordered the
respondents to pay their obligation. The dispositive portion reads:
WHEREFORE, judgment is rendered dismissing the complaint for failure of plaintiffs to prove their causes of action by clear
preponderance of evidence, with costs against them.
The order issued on April 25, 1986, ordering the defendant Bank to maintain the status quo and suspending the auction
sale, is hereby set aside.
Defendant Bank's counterclaim is hereby granted, and plaintiffs are hereby ordered to pay the former the sum of One Million
Three Hundred Eighty-four Thousand Four Hundred Sixty-five Pesos and Seventy-one Centavos (P1,384,465.71),
representing the latter's obligation as of September 15, 1990, with interest thereon at the legal rate of twelve (12%) percent
per annum pursuant to Sec. 2 of CB Circular No. 905; (Sagrador vs. Valderrama, supra), from September 15, 1990 up to full
payment of said sum. The other counterclaim for exemplary damages is hereby dismissed.
SO ORDERED.
Upon the petitioners motion for reconsideration, the trial court issued an order amending the dispositive portion of its
decision by changing the rate of interest to eighteen percent (18%) per annum.
Dissatisfied, the respondents appealed to the CA. On February 28, 2001, the CA rendered a decision, the dispositive portion
of which reads:
WHEREFORE, premises considered, the Decision dated May 10, 1993, docketed as Civil Case No. 12057 by the Regional
Trial Court of Makati, Branch 145, is hereby MODIFIED in the sense that the amount of P1,384,465.71 as of September
1990 is SET ASIDE and the formula mandated by Central Bank Circular No. 158 should be applied by the trial court in
computing the total obligation and liability of appellants. All the other parts of the assailed decision are AFFIRMED in toto.

SO ORDERED.
The CA found that the respondents did not voluntarily sign the restructured promissory note as they were only forced to sign
it for fear of having their mortgaged property foreclosed by the bank. It ruled that the restructured promissory note which was
prepared by the petitioner alone was a contract of adhesion which violates the rule on mutuality of contracts.
Nonetheless, the CA held that the trial court should have used the formula prescribed by paragraph 3, Sec. 2(i), Central
Bank (CB) Circular No. 158, Rules and Regulations Implementing Rep. Act No. 3765, in computing the total obligation of the
respondents considering that Sec. 3(a) thereof provides that it applies to any loans, mortgages, deeds of trust, advances
and discounts. The CA also held that since the loan is secured by a mortgage contract, the eighteen percent (18%) interest
rate was excessive and usurious under CB Circular No. 817. According to the appellate court, CB Circular No. 905, series of
1982, simply suspended the effectivity of the Usury Law; it did not authorize either party to unilaterally raise the interest
without the other party's consent. Finally, the CA concluded that there was neither basis nor explanation as to how the
measly amount of P214,000.00 in 1972, restructured to P231,000.00 in 1982, ballooned to P1,384,465.71 as of September
15, 1990.
Both parties moved to reconsider the said decision. The CA denied the said motions in a Resolution dated May 31, 2001.
The Present Petition
The petitioner raises the following grounds in the instant petition:
Whether or not the Honorable Court of Appeals had decided this instant case in a way not in accord with the spirit and intent
of Republic Act No. 3765, otherwise known as the Truth in Lending Act, when it declared that "the trial court should have
applied the formula provided by Central Bank Circular No. 158, series of 1963, as provided above to arrive at the total
obligations of appellants less the amounts paid by appellants as evidenced by the vouchers and receipts attached to the
records;"
Whether or not the conclusion of the Honorable Court of Appeals stating that the private respondents did not voluntarily sign
the restructured promissory note is entirely grounded on speculations and/or surmises or conjectures;
Whether or not the Honorable Court of Appeals failed to notice certain relevant facts which if it had been considered would
change its finding that the restructured promissory note was prepared by the appellee Bank alone;
Whether or not the Honorable Court of Appeals failed to notice certain relevant facts which if it had been considered would
change its finding that the amount of P1,384,465.71 as of September 15, 1990 has neither basis at all nor any explanation
how this amount came to existence;
Whether or not the conclusion of the Honorable Court of Appeals stating that petitioner DBP failed to follow Central Bank
Circular No. 158 is grounded entirely on speculation and surmises or conjecture. And whether or not this finding is
contradicted by another finding of the same court; and
Whether or not this Honorable Court of Appeals committed grave abuse of discretion when it ruled that pursuant to Central
Bank Circular No. 817 the 18% interest per annum agreed upon by the parties in the restructured promissory note is
usurious, and that the same should be reduced to 12% being the legal rate of interest.
In a nutshell, the issues in this case are as follows: (1) whether the new promissory note is voidable for not having been
voluntarily signed by the respondents and for being a contract of adhesion; (2) whether the interest rate agreed upon by the
parties in the new promissory note is usurious; (3) whether Central Bank Circular No. 158 should be applied in computing
the total obligations of the respondents; and (4) the amount of the total obligation of the respondents.
The petition is partly meritorious.

Anent the first issue, the petitioner points out that the respondents admitted to having signed the new promissory note. It
avers that there was no evidence on record showing that the signing of the new promissory note was attended by mistake,
violence, intimidation, undue influence, or fraud. The petitioner posits that the respondents claim of having been forced to
sign the restructured note for fear of having their mortgaged property foreclosed cannot serve as legal basis to conclude that
the respondents did not voluntarily sign the new promissory note. The petitioner maintains that a perusal of the evidence
would reveal that the new promissory note was the result of the mutual agreement of the parties and, as such, is not a
contract of adhesion.
On the other hand, the respondents argue that this is a question of fact which is not subject to review by this Court.
According to the respondents, the fact that the restructured loan proved disadvantageous to them belies the petitioners
claim that they voluntarily signed the new promissory note.
We agree with the petitioner.
In petitions for review on certiorari as a mode of appeal under Rule 45 of the Rules of Court, the petitioner can raise only
questions of law the Supreme Court is not the proper venue to consider a factual issue as it is not a trier of facts. A
departure from the general rule may be warranted where the findings of fact of the Court of Appeals are contrary to the
findings and conclusions of the trial court, or when the same is unsupported by the evidence on record.
In the instant case, there was no evidence showing that the respondents signed the new promissory note through mistake,
violence, intimidation, undue influence, or fraud. The respondents merely alleged that they were forced to restructure their
loan for fear of having their mortgaged properties foreclosed. However, it is axiomatic that this would not amount to vitiated
consent. The last paragraph of Article 1335 of the New Civil Code specifically states that a threat to enforce ones claim
through competent authority, if the claim is just or legal, does not vitiate consent. Foreclosure of mortgaged properties in
case of default in payment of a debtor is a legal remedy afforded by law to a creditor. Hence, a threat to foreclose the
mortgage would not, per se, vitiate consent.
The CA noted that the petitioner prepared the new promissory note on its own and that the only participation of the
respondents was to sign the same. The CA concluded, therefore, that the new promissory note was a contract of adhesion.
A contract of adhesion is so-called because its terms are prepared by only one party while the other party merely affixes his
signature signifying his adhesion thereto. While we accede to the appellate courts conclusion that the new promissory note
was in the nature of a contract of adhesion, we cannot fathom how this can further the respondents case. In discussing the
consequences of a contract of adhesion, we held in Rizal Commercial Banking Corporation v. Court of Appeals:
It bears stressing that a contract of adhesion is just as binding as ordinary contracts. It is true that we have, on occasion,
struck down such contracts as void when the weaker party is imposed upon in dealing with the dominant bargaining party
and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing.
Nevertheless, contracts of adhesion are not invalid per se; they are not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his consent.
On the second issue, the CA held that under CB Circular No. 817, if the loan is secured by a registered real estate, the
interest of eighteen percent (18%) is usurious. The petitioner, however, argues that usury has become legally inexistent with
the promulgation of CB Circular No. 905. It contends that the interest rate should be eighteen percent (18%), the interest
rate they agreed upon. For their part, the respondents argue that the Central Bank engaged in self-legislation in enacting CB
Circular No. 905.
We agree with the ruling of the CA. It is elementary that the laws in force at the time the contract was made generally govern
the effectivity of its provision. We note that the new promissory note was executed on May 6, 1982, prior to the effectivity of
CB Circular No. 905 on January 1, 1983. At that time, The Usury Law, Act No. 2655, as amended by Presidential Decree No.
116, was still in force and effect.
Under the Usury Law, no person shall receive a rate of interest, including commissions, premiums, fines and penalties,
higher than twelve percent (12%) per annum or the maximum rate prescribed by the Monetary Board for a loan secured by a
mortgage upon real estate the title to which is duly registered.

In this case, by specific provision in the new promissory note, the restructured loan continued to be secured by the same
mortgage contract executed on May 18, 1978 which covered real and personal properties of the respondents. We, therefore,
find the eighteen percent (18%) interest rate plus the additional interest and penalty charges of eighteen percent (18%) and
eight percent (8%), respectively, to be highly usurious.
In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid
principal debt still stands and remains valid, but the stipulation as to the usurious interest is void. Consequently, the debt is
to be considered without stipulation as to the interest. In the absence of an express stipulation as to the rate of interest, the
legal rate at twelve percent (12%) per annum shall be imposed.
Neither is the contention of the respondents that the Central Bank engaged in self-legislation correct. As we held in First
Metro Investment Corporation v. Este Del Sol Mountain Reserve, Inc.:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter's
effectivity. The illegality of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a law. Only a law
can repeal another law. Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed.
On the third issue, the petitioner argues that CB Circular No. 158 does not prescribe a formula in computing a debtor's
monetary obligation, but merely provides for the formula in computing the simple annual rate. It contends that the amount of
the debtor's obligation must be computed in accordance with the interest rate, charges, and manner of computation agreed
upon by the parties.
We agree. The total obligation of the respondents must be computed according to the terms and conditions agreed upon.
The formula provided under paragraph 3, Sec. 2(i), CB Circular No. 158 cannot be used in computing the total obligation of
the respondents because it merely applies to the computation of the simple annual rate. Simple annual rate is the uniform
percentage which represents the ratio, on an annual basis, between the finance charges and the amount to be financed. It is
one of the items required to be disclosed under the Truth in Lending Act pursuant to the States policy to protect its citizens
from lack of awareness of the true cost of credit.
Finally, we find that the records are insufficient to enable us to determine the total amount of the respondents obligation. It is
not even clear how much the respondents have already paid on the restructured loans and when such payments were
made. The receipts presented in evidence by the respondents only showed that they paid P15,000.00 on April 20, 1983 and
P5,000.00 on December 2, 1983. On the other hand, Mr. Roberto Balarao, who is assigned to the Traffic and Processing
Department of the petitioner, testified that a third payment was made, but failed to state the amount. Another witness,
Carmen Chamen, an account officer of the petitioner, testified that after the restructuring of the account, the total payment
made was P35,000.00.
Moreover, considering our previous conclusion that the interest rates prescribed under the new promissory note are
usurious, the statement of account presented by the petitioner is no longer pertinent. It must be stressed that such statement
of account was arrived at based on the usurious interest rates. Hence, the total amount of the obligation must necessarily be
recomputed.
IN LIGHT OF ALL THE FOREGOING, the assailed Decision dated February 28, 2001 of the Court of Appeals and Order
dated June 11, 1993 of the Regional Trial Court, Makati City, Branch 145, are AFFIRMED WITH MODIFICATION. The case
is hereby REMANDED to the trial court for determination of the total amount of the respondents' obligation according to the
reduced interest rate of twelve percent (12%) per annum.
SO ORDERED.

PCID vs CA

THIRD DIVISION
[ G.R. No. 97785, March 29, 1996 ]
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, PETITIONER,
VS.
COURT OF APPEALS AND RORY W. LIM, RESPONDENTS.
DECISION
FRANCISCO, J.:
This is a petition for review on certiorari seeking the reversal of the Decision of the Court of Appeals in CA-G.R. No. 18843
promulgated on July 30, 1990, and the Resolution dated March 11, 1991, affirming with modification the judgment of the
Regional Trial Court of Gingoog City which held petitioner Philippine Commercial International Bank (PCIB) liable for
damages resulting from its breach of contract with private respondent Rory W. Lim.
Disputed herein is the validity of the stipulation embodied in the standard application form/receipt furnished by petitioner for
the purchase of a telegraphic transfer which relieves it of any liability resulting from loss caused by errors or delays in the
course of the discharge of its services.
The antecedent facts are as follows:
On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB Check No. JJJ 24212467 in the
amount of P200,000.00 for the purpose of obtaining a telegraphic transfer from petitioner PCIB in the same amount. The
money was to be transferred to Equitable Banking Corporation, Cagayan de Oro Branch, and credited to private
respondents account at the said bank. Upon purchase of the telegraphic transfer, petitioner issued the corresponding
receipt dated March 13, 1986 [T/T No. 284] which contained the assailed provision, to wit:
"AGREEMENT
xxx xxx xxx
In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any responsibility on the part
of the BANK, or its correspondents, for any loss occasioned by errors, or delays in the transmission of message by
telegraph or cable companies or by the correspondents or agencies, necessarily employed by this BANK in the transfer of
this money, all risks for which are assumed by the undersigned."
Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and delivered eight (8) Equitable Bank
checks to his suppliers in different amounts as payment for the merchandise that he obtained from them. When the checks
were presented for payment, five of them bounced for insufficiency of funds, while the remaining three were held overnight
for lack of funds upon presentment. Consequent to the dishonor of these checks, Equitable Bank charged and collected the
total amount of P1, 100.00 from private respondent. The dishonor of the checks came to private respondents attention only
on April 2, 1986, when Equitable Bank notified him of the penalty charges and after receiving letters from his suppliers that
his credit was being cut-off due to the dishonor of the checks he issued.
Upon verification by private respondent with the Gingoog Branch Office of petitioner PCIB, it was confirmed that his
telegraphic transfer (T/T No. 284) for the sum of P200,000.00 had not yet been remitted to Equitable Bank, Cagayan de Oro
branch. In fact, petitioner PCIB made the corresponding transfer of funds only on April 3, 1986, twenty one (21) days after
the purchase of the telegraphic transfer on March 13,1986.
Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for the resulting damage that he
suffered due to petitioners failure to make the timely transfer of funds which led to the dishonor of his checks. In a letter

dated April 23, 1986, PCIBs Branch Manager Rodolfo Villarmia acknowledged their failure to transmit the telegraphic
transfer on time as a result of their mistake in using the control number twice and the petitioner banks failure to request
confirmation and act positively on the disposition of the said telegraphic transfer.
Nevertheless, petitioner refused to heed private respondents demand prompting the latter to file a complaint for damages
with the Regional Trial Court of Gingoog City on January 16, 1987. In his complaint, private respondent alleged that as a
result of petitioners total disregard and gross violation of its contractual obligation to remit and deliver the sum of Two
Hundred Thousand Pesos (P200,000.00) covered by T/T No. 284 to Equitable Banking Corporation, Cagayan de Oro
Branch, private respondents checks were dishonored for insufficient funds thereby causing his business and credit standing
to suffer considerably for which petitioner should be ordered to pay damages.
Answering the complaint, petitioner denied any liability to private respondent and interposed as special and affirmative
defense the lack of privity between it and private respondent as it was not private respondent himself who purchased the
telegraphic transfer from petitioner. Additionally, petitioner pointed out that private respondent is nevertheless bound by the
stipulation in the telegraphic transfer application/form receipt which provides:
"x x x. In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any responsibility on
the part of the BANK, or its correspondents, for any loss occasioned by errors or delays in the transmission of message by
telegraph or cable companies or by correspondents or agencies, necessarily employed by this BANK in the transfer of this
money, all risks for which are assumed by the undersigned."
According to petitioner, they utilized the services of RCPI-Gingoog City to transmit the message regarding private
respondents telegraphic transfer because their telex machine was out of order at that time. But as it turned out, it was only
on April 3, 1986 that petitioners Cagayan de Oro Branch had received information about the said telegraphic transfer.
In its decision dated July 27, 1988 the Regional Trial Court of Gingoog City held petitioner liable for breach of contract and
struck down the aforecited provision found in petitioners telegraphic transfer application form/receipt exempting it from any
liability and declared the same to be invalid and unenforceable. As found by the trial court, the provision amounted to a
contract of adhesion wherein the objectionable portion was unilaterally inserted by petitioner in all its application forms
without giving any opportunity to the applicants to question the same and express their conformity thereto.Thus, the trial
court adjudged petitioner liable to private respondent for the following amounts:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant, ordering the latter to pay the
former as follows:
P960,000.00 as moral damages;
P50,000.00 as exemplary damages;
P40,000.00 as attorneys fees; and
P1,100.00 as reimbursement for the surcharges paid by plaintiff to the Equitable Banking Corporation, plus costs, all with
legal interest of 6% per annum from the date of this judgment until the same shall have been paid in full."
Upon appeal by petitioner to the Court of Appeals, respondent court affirmed with modifications the judgment of the trial
court and ordered as follows:
"WHEREFORE, premises considered, judgment is hereby rendered affirming the appealed decision with modification, as
follows:
The defendant-appellant is ordered to pay to the plaintiff-appellee the following:
1. The sum of Four Hundred Thousand (P400,000.00) Pesos as/for moral damages;

2. The sum of Forty Thousand (P40,000.00) Pesos as exemplary damage to serve as an example for the public good;
3. The sum of Thirty Thousand (P30,000.00) Pesos representing attorneys fees;
4. The sum of One Thousand One Hundred (P1,100.00) Pesos as actual damage, and
5. To pay the costs.
SO ORDERED."
A motion for reconsideration was filed by petitioner but respondent Court of Appeals denied the same.
Still unconvinced, petitioner elevated the case to this Court through the instant petition for review on certiorari invoking the
validity of the assailed provision found in the application form/receipt exempting it from any liability in case of loss resulting
from errors or delays in the transfer of funds.
Petitioner mainly argues that even assuming that the disputed provision is a contract of adhesion, such fact alone does not
make it invalid because this type of contract is not absolutely prohibited. Moreover, the terms thereof are expressed clearly,
leaving no room for doubt, and both contracting parties understood and had full knowledge of the same.
Private respondent however contends that the agreement providing non-liability on petitioners part in case of loss caused by
errors or delays despite its recklessness and negligence is void for being contrary to public policy and interest.
A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other
party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the
other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of
the opportunity to bargain on equal footing. Nevertheless, these types of contracts have been declared as binding as
ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. It is equally
important to stress, though, that the Court is not precluded from ruling out blind adherence to their terms if the attendant
facts and circumstances show that they should be ignored for being obviously too one-sided.
On previous occasions, it has been declared that a contract of adhesion may be struck down as void and unenforceable, for
being subversive to public policy, only when the weaker party is imposed upon in dealing with the dominant bargaining party
and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing.
And when it has been shown that the complainant is knowledgeable enough to have understood the terms and conditions of
the contract, or one whose stature is such that he is expected to be more prudent and cautious with respect to his
transactions, such party cannot later on be heard to complain for being ignorant or having been forced into merely
consenting to the contract.
The factual backdrop of the instant case, however, militates against applying the aforestated pronouncements. That
petitioner failed to discharge its obligation to transmit private respondents telegraphic transfer on time in accordance with
their agreement is already a settled matter as the same is no longer disputed in this petition. Neither is the finding of
respondent Court of Appeals that petitioner acted fraudulently and in bad faith in the performance of its obligation, being
contested by petitioner. Perforce, we are bound by these factual considerations.
Having established that petitioner acted fraudulently and in bad faith, we find it implausible to absolve petitioner from its
wrongful acts on account of the assailed provision exempting it from any liability. In Geraldez vs. Court of Appeals, it was
unequivocally declared that notwithstanding the enforceability of a contractual limitation, responsibility arising from a
fraudulent act cannot be exculpated because the same is contrary to public policy. Indeed, Article 21 of the Civil Code is
quite explicit in providing that "[a]ny person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage." Freedom of contract is subject to the
limitation that the agreement must not be against public policy and any agreement or contract made in violation of this rule is
not binding and will not be enforced.

The prohibition against this type of contractual stipulation is moreover treated by law as void which may not be ratified or
waived by a contracting party. Article 1409 of the Civil Code states:
"ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
xxx xxx xxx
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived."
Undoubtedly, the services being offered by a banking institution like petitioner are imbued with public interest. The use of
telegraphic transfers have now become commonplace among businessmen because it facilitates commercial transactions.
Any attempt to completely exempt one of the contracting parties from any liability in case of loss notwithstanding its bad faith
to public policy. Resultingly, there being no dispute that petitioner acted fraudulently and in bad faith, the award of moral and
exemplary damages were proper.
But notwithstanding petitioners liability for the resulting loss and damage to private respondent, we find the amount of moral
damages adjudged by respondent court in the sum of P400,000.00 exorbitant. Bearing in mind that moral damages are
awarded, not to penalize the wrongdoer, but rather to compensate the claimant for the injuries that he may have suffered, we
believe that an award of Two Hundred Thousand Pesos (P200,000.00) is reasonable under the circumstances.
WHEREFORE, subject to the foregoing modification reducing the amount awarded as moral damages to the sum of Two
Hundred Thousand Pesos (P200,000.00), the appealed decision is hereby AFFIRMED.
SO ORDERED.