G.R. No.

L-3435 April 28, 1951

CLARA TAMBUNTING DE LEGARDA, ET AL., plaintiffs-appellants,

vs.
VICTORIA DESBARATS MIAILHE, substituting WILLIAM J. B. BURKE, defendant-appellee.

Jose S. Sarte and M. H. de Joya for appellant Vicente L. Legarda.

Salvador Barrios for appellant Pacifica Price de Barrios.
Eduardo D. Gutierrez for appellant Augusto Tambunting.
Feliciano Jover Ledesma and Ross, Selph, Carrascoso and Janda for appellee.

BAUTISTA ANGELO, J.:

This is an appeal from a judgment of the Court of First Instance of Manila rendered on August 5, 1949, dismissing the
complaint and ordering plaintiff Clara Tambunting de Legarda to pay to the defendant the sum of P70,000, with interest
thereon at the rate of 3 per cent per annum, from January 1, 1942, up to the date of full payment thereof, plus the sum of
P2,500 as costs of suit and attorney's fees, within 120 days from the date of notice, and ordering the sale of the property
mortgaged in accordance with law in the event of failure of said plaintiff to pay the amount of the judgment within the period
above mentioned.

The background of this case, which originated during the Japanese occupation, is correctly stated in the judgment of the
lower court, as follows:

On June 3, 1944, plaintiffs filed a complaint against the original defendant William J. B. Burke, alleging defendant's
unjustified refusal to accept payment in discharge of a mortgage indebtedness in his favor, and praying that the
latter be ordered (1) to receive the sum of P75,920.83 deposited by plaintiff Clara Tambunting de Legarda, the
mortgagor, on the same date with the clerk of this court in payment of the mortgage indebtedness of said plaintiff to
defendant herein, (2) to execute the corresponding deed of release of mortgage, and (30 to pay damages in the
sum of P1,000.

The gist of defendant's answer dated the 19th of July, 1944, is that plaintiffs have no cause of action for the reason
that at the instance of plaintiff Clara Tambunting de Legarda an agreement was had on May 26, 1944, whereunder
defendant condoned the interests due and to become due on the mortgage indebtedness till the termination of the
war, in consideration of the undertaking of said plaintiff (with the consent of her husband Vicente L. Legarda, the
other plaintiff) to pay her obligation to defendant upon such termination of the war; and that the war then had not
yet terminated.

Upon the issues raised, after due hearing, decision was rendered by this Court through the then Judge, Honorable
Jose Gutierrez David (now Appellate Court Justice), ordering defendant to accept the sum of P75,920.83
deposited by plaintiff Clara Tambunting de Legarda in the office of the clerk of court; to execute forthwith a deed of
release of mortgage covering the property in question; to pay plaintiff the sum of P120.40 representing the cost of
the certification of the check deposited in the court and consignation, together with the clerk's commission for the
deposit of the money in court and the costs of the suit.

Defendant, on or about January 14, 1945, presented a motion to set aside the foregoing decision and for a new
trial. Before this court could act on this motion, liberation came.

On October 23, 1945, petition was filed on behalf of plaintiffs for the reconstitution of the record of this case.

On October 23, 1945, defendant filed a supplements al answer alleging that the payment (by way of consignation
in Japanese military notes made by plaintiff Clara Tambunting de Legarda in satisfaction of the mortgage obligation
in question, which was originally contracted on the 17th of February, 1926, was null and void, and did not
discharge the said obligation; and that, as plaintiffs well knew, defendant did not plead the foregoing facts in his
original answer because had he done so "he and his attorneys would have been taken by the Japanese military
police to Fort Santiago where they would have been tortured and most probably killed. The supplemental answer
contains a counter-claim whereunder defendant sought the foreclosure of the real estate mortgage on the property
in question. Basis of the counter-claim are the averments that the original mortgage executed by plaintiff Clara
Tambunting de Legarda with the consent of her husband, plaintiff Vicente de Legarda with the consent of her
 husband, plaintiff Vicente L. Legarda, was for the sum of P75,000; that said mortgage was renewed from time to
time until on March 16, 1940, at plaintiff Clara Tambunting de Legarda's request, defendant entered into another
agreement with whereunder the latter granted said plaintiff a fourth extension of three years for the payment of the
remaining balance of P70,000, and further reduced the interest rate from 9 per cent to 7 per cent per annum; that
in the said agreement of March 16, 1940, defendant was granted an option to demand the payment of the principal
and interests either in Philippine currency or in English currency at the rate of two shillings ( .O2/Od.) for one
peso, Philippine currency; that in May, 1944, plaintiff Clara Tambunting de Legarda attempted to pay her obligation
to defendant in Japanese military notes; that to defendant, as plaintiffs well knew, was not disposed and did wish to
receive payment in worthless Japanese military notes; that to prevent his being reported to the Japanese military
police in Fort Santiago, defendant agreed to condone the interests then due on the obligation from December 1,
1941, until the termination of the war, with the understanding that payment should not be effected until the end of
the war; that plaintiff Clara Tambunting de Legarda violated her agreement with defendant, sought to force
payment by depositing the amount in Japanese military note in court, and thereafter filed the complaint
herein; that notwithstanding demand made on October 16, 1945, plaintiff failed to pay the principal of P70,000,
together with interests thereon at the rate of 7 per cent per annum which defendant claims upon the allegation that
plaintiff having violated her agreement defendant was relieved from his undertaking to condone the interest.

In the order of December 24, 1945, declaring that the record of this case was reconstituted for all legal purposes,
the then Judge presiding this court, Honorable Jose Guttierez David, denied the admission of the foregoing
supplemental answer.

Appeal was taken by defendant from the above order of the 24th of December 1945.

The Honorable Supreme court in its decision on appeal (Clara Tambuting de Legarda and Vicente L. Legarda,
plaintiffs-appellees vs. Antonio Carrascoso, Jr., substituting William J. B. Burke, defendant-appellant, GRL-331)
declared that the supplemental answer heretofore adverted to should have been allowed and consequently
directed that a new trial be had. . . .

The record was returned to this court.

On March 31, 1949, a motion consisting of two parts was filed on behalf of defendant. The first prayed for the
substitution of Victoria Desbarats Miailhe as party defendant for the reason that William J. B. Burke died in the City
of Manila on July 23, 1946, and his claim against plaintiffs was adjudicated to the said Victoria Debarats Miailhe as
heir of the said William J. B. Burke. The second sought the admission of a amended supplemental answer. In the
main the amended supplemental answer is a reproduction of the original supplemental answer filed on October 23,
1945, with the significant change that instead of demanding payment from plaintiffs Clara Tambunting de Legarda,
defendant now seeks payment in pounds sterling, English currency. By order of this court of April 2, 1949, the
petition for substitution was granted and the amended supplemental answer was admitted into the record of this
case.

The issue raised in the counterclaim in the amended supplemental answer were met in the plaintiffs' reply dated
April 4 1949, which substantially denies the allegation that Burke was not disposed and did not wish to receive
payments in Japanese military notes and refused payment to avoid being reported to the Japanese military police.
The reply alleges that the demand made by the new defendant Victoria Desbarats Miailhe is unavailing because it
was presented too late, that is, after the present case had long been subjudice and the obligation to be collected
was already extinguished.

On August 5, 1949, the Court, presided over by Judge Conrado Sanchez, rendered judgment for the defendant as stated in
the early part of this decision. From this judgment, plaintiffs appealed.

The principal question of fact which is presented for our determination in this appeal is whether the agreement had by the
plaintiffs and William J. B. Burke during the Japanese occupation was that the rate of the annual interest of the indebtedness
was merely reduced to 3 per cent, as claimed by plaintiffs, or whether said agreement was in the sense that the defendant
condoned the interests then due and which might hereafter become due on said obligation with the understanding that
plaintiff Clara Tambunting de Legarda would pay her obligation upon the termination of the war.

On this point, Judge Jose Guttierez David, who originally decided this case, gave weight and credence to the evidence
presented in behalf of the plaintiffs, disregarding entirely the evidence submitted in behalf of the defendant, and concluded
that the alleged agreement was never entered into, as evidenced by the letters plaintiff Clara Tambunting de Legarda sent to
defendant William J. B. Burke, not only tendering the payment of her obligation, but also giving notice that she will deposit
same in court as required by law to protect her interests. The court also gave credence to the claim of the plaintiffs that
defendant Burke agreed to reduce the rate of interest from 7 per cent to 3 1/2 per cent per annum from January 1, 1942, in
the conference they had sometime in February or March, 1942. Judge Conrado Sanchez, who took over the court after the
case was returned following the revocation by this court of the order denying the supplemental answer of the defendant,
adopted in full said findings of fact of Judge Guttierez David.

We have carefully examined the evidence, testimonial as well as documentary, submitted by both parties in this case with a
view to an enlightened determination of this important question of fact which may be considered as the crux of this case, and
we have not been able to see eye to eye on this matter with the two Judges who decided this case in the lower court. As a
rule, the determination of a question of fact depends largely on the credibility of witnesses unless some documentary
evidence is available, which clearly substantiates the issue and whose genuineness and probative value is not disputed. In
this case, most of the evidence presented is testimonial, with only some corroborating letters, and on the basis of this
evidence the preponderance in our opinion militates in favor of the defendant. And we say so because, on one hand, only
Vicente Legarda testified for the plaintiffs, whereas Antonio Carrascoso and William J. B. Burke testified for the defendant.
True, their testimony is contradictory, but in our opinion the testimony of witnesses Carrascoso and Burke deserve more
weight and credence. Of course these three witnesses are well known in our community and their character for probity has
never been assailed, But we are more inclined to accept the view of Carrascoso and Burke because it is more consonant
with fairness and the history of the transaction. It appears that the indebtedness in question was granted to Clara
Tambunting de Legarda as far back as February 1926, with the obligation to pay it within five (5) years but which period has
been extended from time to time with the gradual reduction of the rate of interest up to January 1942, when, as intimated by
the plaintiff, a further reduction of the interest to 3 1/2 per cent per annum was granted by the defendant. During this long
period of time the plaintiffs enjoyed the use of the money, with a continued reduction of the rate of interest, and defendant
had lavished upon her his unusual liberality when he extended to her his help and relief whenever she so requested as the
exigencies of her financial situation warranted. The life of this indebtedness would not have been so prolonged as to be
overtaken by war were it not for the desire of the defendant to help the mortgagor in her hour of need, Yet Vicente Legarda
went out of his way to propose that his wife Clara Tambunting be exempted from paying all the interests due from January 1,
1942, up to the termination of the war, which caused the defendant to utter some unkind words and to be resentful.
Nevertheless, through the mediation of Attorney Carrascoso, plaintiffs at last became reasonable and agreed not to pay the
obligation until the termination of the war provided that all interests due and which might become due be condoned. It is not
strange nor unnatural that should happen, considering the background of the loan. And there is nothing incredible in it
considering the letter written by Burke to Clara Tambunting wherein the same understanding was reiterated (Exhibit "B").
Doctor Burke would not have stated in his letter that there was such an understanding if it was not true, considering the fact
that he was so sick then and had practically one leg in the grave. We find no reason to discredit this statement of Burke
which find full corroboration in the testimony of Attorney Corrascoso.

Granting, however, for the sake of argument that such an agreement is not true and was set up by the defendant as a mere
defense to justify his refusal to accept payment of the mortgage indebtedness in Japanese military notes, the next question
to be determined is whether or not the consignation made by the plaintiffs during the Japanese time had the effect of
relieving Clara Tambunting de Legarda from the payment of her mortgage obligation in contemplation of law.

There is no dispute that on June 3, 1944, Clara Tambunting de Legarda deposited in court the sum of P75,920.83 for the
purpose of satisfying the full amount then due on her obligation. But it is likewise true that the money deposited was in
certified check, representing Japanese Military notes, which notes defendant Burke refuse to receive as payment a few days
before the consignation.

The offer of payment or consignation to be effective must comply with some legal requirements. On this point our Civil Code
contains the following provisions:

A debt shall not be deemed paid unless there has been a complete delivery of the thing or a performance of the
undertaking which constitute the subject-matter of the obligation. (Art. 1157, Civil Code.).

The debtor of one thing cannot oblige his creditor to receive another, even though it should be of equal or greater
value than that due.

In obligations to do, one undertaking cannot be substituted by another against the will of the creditor. (Art. 1166,
Civil Code.).
 Payment of debts of money shall be made in the specie stipulated and, should it not be possible to deliver such
specie, in silver or gold coin legally current in the Philippines. (Art. 1170, Civil Code.)

As formerly stated, in the mortgage renewal executed by plaintiffs and defendant on March 16, 1940, defendant was given
the option to demand payment of the obligation either in Philippine currency, or in English currency. And this option has to be
exercised "al tiempo del vencimiento de esta obligacion," (Exhibit "5"), or on February 17, 1943.

But defendant claims that on that date he could not very well refuse to accept the worthless Japanese Military notes
tendered to him, nor insist on the payment of English currency, for he then entertained the fear that, had he done so, he
would have been reported to the Japanese authorities, taken to Fort Santiago, and killed. But could the defendant then insist
on the payment of English currency even if he could do so without exposing himself to bodily peril under the stipulation just
mentioned?

Our answer is in the negative. As we have stated before, the option to demand payment of the indebtedness has to be
exercised upon maturity of the obligation, which is February 17, 1943. On this date, the only currency available is the
Philippine currency, or the Japanese Military notes, because all other currencies, including the English, were outlawed by a
proclamation issued by the Japanese Imperial Commander on January 3, 1942. This means that the right of election ceased
to exist on that date because it had become legally impossible. And this is so because in alternative obligations there is no
right to choose undertakings that are impossible or illegal (Civil Code, art. 1132, par. 2). In other words, the obligation on the
part of the debtor to pay the mortgage indebtedness has since then ceased to be alternative. (Articles 1134 & 1136(1) of the
Civil Code.)

It appears, therefore, that the tender of payment made by the plaintiff in Japanese Military notes was a valid tender because
it was the only currency permissible at the time, and the same was made in accordance with the agreement because
payment in Japanese Military notes during the occupation is tantamount to payment in the Philippine currency. (Haw
Pia vs. China Banking Corporation, 45 Off. Gaz., Supp.[9] 229; Phil. Trust vs. Araneta, 46 Off. Gaz., 4254; Allison D.
Gibbs vs. Eulogio Rodriguez, 47 Off. Gaz., 186.) But the consignation of the sum of P75,920.83 in Japanese currency made
by the plaintiffs with clerk of court does not have any legal effect because it was made in certified check, "does not meet the
requirements of a legal tender."

In her sole assigned error the plaintiff contends that the Court erred in holding that the consignation of the check
with the clerk of court was in valid and that it did not have the effect of paying her obligation. The court correctly
held that the consignation was unvailing and that it did not produced any legal effect because the defendant did not
accept it and it was not in the form of money or legal tender. Article 1170 of the Civil Code provides that payment of
debts of money shall be made in the specie stipulated and, should it not be possible to deliver such specie, in
silver or gold coin legally current; and provides further, that the delivery of promissory notes payable to order, or
drafts or other commercial paper, shall produced the effects of payment only when realized or when, by the fault of
the creditor, the privileges inherent in their negotiable character have been lost. Under this legal provision the
defendant was under a duty to accept the check because it is known that it does not constitute legal tender, and
the consignation having been refused, it did not produce any legal effect and could not be considered as payment
made by the plaintiff of the repurchase price. In Belisario vs. Natividad (1934, 60 Phil., 156) it was held that the
creditor is not bound to accept the check in satisfaction of his demand because a check even if good when offered,
does not meet the requirements of a legal tender. (Villanueva vs. Santos, 39 Off. Gaz., 681-682). (Emphasis
supplied.)

It is not necessary, in our opinion, to examine all the questions raised by appellant in his brief, in view of our
conclusion on the question of the validity of the consignation made in court.

Under article 1127 of the Civil Code, "Consignation should not be efficacious unless made strictly in accordance
with the provision governing payment." And Article 1170 provides that, "payment of debts of money shall be made
in the specie stipulated and, should it not be possible to deliver such specie, in silver or gold coin which is legal-
tender in the Philippines." Under this provisions, a consignation by check is not binding upon the creditor
(Meliciano vs. Natividad, 60 Phil., 156), unless accepted by him (Gutierrez vs. Carpio, 53 Phil., 334, 336), and in
the instant case, there has been no such acceptance. In one case it was held by this court that where a person
entitled to make a repurchase of some property, deposits with the court, by way of consignation, a check for the re-
purchase price, the vendee is not under a duty to accept the check and may refuse the consignation which cannot
produce the effect of payment. (Villanueva vs. Santos, 39 Off. Gaz., March 8, 1941, p. 681).
 True that the consignation in the instant case was made by means of a manager's check. But a manager's check
is, like an ordinary check, not legal-tender in the Philippines. Even treasury certificates are not legal-tender except
for the payment of taxes and public debts, under sec. 1626 of Act No. 2711 as amended by Act No. 3058. In the
United States, "the general rule is that an offer of a bank check for the amount due is not a good tender and this is
true even though the check is certified" (62 C. J., p. 668), except "where no objection is made on the ground" (62
C. J., p. 668). Again it is said that, "on the same principle a check is not good legal-tender as against an objection
duly made, whether the check is certified or not . . ." 40 Am. Jur., p. 764; Cuaycong vs. Rius, (47 Off. Gaz., 6125).

To recapitulate, we may state that, even if the claim of the plaintiff that Clara Tambunting de Legarda did not enter into any
agreement with the defendant William J. B. Burke regarding payment of her obligation, subject to condonation of interest,
after the termination of the war, is correct, and even if the tender of payment by Clara Tambunting of her obligation was
made in Philippine currency in pursuance of the mortgage contract, yet the consignation made in Court can not have any
legal effect for the simple reason that it was made by means of a certified check, which is not a legal tender within the
meaning of the law. It is obvious, therefore, that such consignation did not have the effect of relieving her from her obligation
to the defendant.

As regards the other issues, we find correct the findings and conclusions reached by the lower court on the matter.

Wherefore, the decision appealed from is hereby affirmed in toto, with costs against the appellants.

[G.R. No. 32226. December 29, 1930.]

ESTANISLAO REYES, Plaintiff-Appellant, v. SEBASTIANA MARTINEZ ET AL., Defendants-Appellants.

Ramon Diokno and Sumulong, Lavides & Mabanag, for Plaintiff-Appellant.

Sebastian C. Pamatmat and Araneta & Zaragoza, for Defendants-Appellants.

SYLLABUS

1. CONTRACT; ELECTION BETWEEN ALTERNATIVE BENEFITS; ELECTION ONCE MADE IS BINDING. For a
valuable consideration the defendants undertook to cause to be conveyed to the plaintiff a parcel of land containing one
thousand coconut trees belonging to certain heirs who were not yet of age, or in lieu thereof, if the plaintiff should prefer, to
convey to him other land of equal value belonging to the defendants. The plaintiff thereafter elected to take the parcel first
indicated, and in subsequent litigation between the parties over a different matter it was taken for granted that this parcel
would go to the plaintiff. Held, in the action in which this question was first controverted, that the plaintiff was bound by his
election and that he could not now reject said parcel and elect to take other land under the alternative conceded in the
contract. Inasmuch also as the defendants had not yet procured title to be made to the plaintiff, a term was fixed within which
they might cause such title to be transferred to the plaintiff, failing in which they should become liable in damages to the
plaintiff for the value of the parcel which he had elected to take. An election once made is binding on the person who makes
it, and he will not thereafter be permitted to renounce his choice and take an alternative which was at first open to him.

DECISION

STREET, J.:

This action was instituted on March 18, 1927, in the Court of First Instance of the Province of Laguna by Estanislao Reyes
against the Martinez heirs upon four several causes of action in which the plaintiff seeks, first, to recover five parcels of land,
containing approximately one thousand coconut trees, said parcels being fully described in paragraph IX of the complaint,
and to obtain a declaration of ownership in his own favor as against the defendants with respect to said parcels; secondly, to
recover from the defendants the sum of P9,377.50, being the alleged proceeds of some 1,860 coconut trees which, prior to
July 31, 1926, had been applied to the benefit of said defendants; thirdly, to recover from the defendants the sum of
P43,000, as the alleged value of the proceeds of the lands involved in the receivership in the case of Martinez v. Grao, G.
R. No. 27685, to which the plaintiff supposes himself to be entitled, but which have gone, so he claims, to the benefit of the
defendants in said receivership; and fourthly, to recover the sum of P10,000 from the defendants as damages resulting from
their improper meddling in the administration of the receivership property. In connection with this complaint the plaintiff
obtained, several months after the litigation was begun, an attachment against the defendants upon a judgment credit for
P8,000 awarded to them in the case of Martinez v. Grao (51 Phil., 287), with the result that the execution of said money
judgment against the plaintiff has been suspended since the record in said case was returned to the trial court. In reply to the
complaint the defendants filed an answer and cross-complaint in which the defendants sought to recover damages and
interest upon their claim against the plaintiff. Upon hearing the cause, the trial court absolved the defendants from the
complaint and also absolved the plaintiff from the cross-complaint of the defendants, without express pronouncement as to
costs. From this judgment both parties appealed.

A necessary preliminary to an intelligent understanding of the present litigation is found in the statement of facts and
discussion contained in Martinez v. Grao (51 Phil., 287), a case which, it was hoped, would be the conclusion of a long
drawn-out litigation prosecuted by the Martinez heirs, in the first place, against Clemencia Grao, and in the second place,
against Estanislao Reyes, the latter of whom had, for several years, been acting as receiver of the properties involved in
said litigation. It will be noted that the case referred to was decided on December 24, 1927, while the present action was
instituted more than nine months prior thereto.

From the general history of the litigation it will be collected that the plaintiff in the present case has been laboring along for
several years in an unsuccessful legal battle with the defendants, springing from his claim to be the owner of the property
involved in the receivership. Upon examination of the pleadings in the present case it is very evident that the trial court was
correct in holding that the second, third, and fourth causes of action relate to matters which were either expressly
adjudicated against Reyes in the litigation mentioned, or which were so involved in the controversy that he is concluded as
to said matters by the decision that was made in that case. The matter stated in the first cause of action requires more
careful consideration.

This cause of action is founded upon the contract, the substance of which is sketched at pages 288-289 of the opinion of
this court in Martinez v. Grao (51 Phil., 287), and the claim put forth by the plaintiff in respect thereto is to have the five
parcels mentioned in paragraph IX of the complaint adjudged to him in lieu of another parcel formerly supposed to contain
one thousand trees and described in paragraph 8 of the contract of March 5, 1921, between him and certain of the Martinez
heirs. By this contract Reyes was to be given the parcel described in clause 8, but in a proviso to said clause, the parties
contracting with Reyes agreed to assure to him certain other land containing an equivalent number of trees in case he
should so elect. The prior history of the litigation shows that the herein plaintiff elected to take and hold the parcel described
in clause 8, and his right thereto has all along been recognized in the dispositions made by the court with respect to said
land. In our decision in Martinez v. Grao (51 Phil., 287, 301), it was a basal assumption that Reyes would obtain the
thousand trees referred to; and we are of the opinion that, from various steps taken in the prior litigation, Reyes must be
taken to have elected to take that particular parcel and he is now estopped from asserting a contrary election to take the five
parcels of land described in paragraph IX of his complaint.

But the fact is now brought out more clearly that the title to this parcel is in the heirs of Inocente Martinez and it does not
appear that they have transferred said title to Reyes. It results therefore that Reyes now has a claim for damages against
the parties signatory to the contract of March 5, 1921, for the value of the aforesaid property. Furthermore, we are able to
state from the facts revealed in the course of the litigation that the value of said thousand trees should be about P8,000. We
therefore reach the conclusion that Reyes should either have the land originally set apart for him under clauses 4 and 8 of
the contract, or, in case his right thereto should fail, he should not be required to pay the judgment for P8,000 which was
awarded to the Martinez heirs in Martinez v. Grao (51 Phil., 287, 302). This end will accordingly be effected in the manner
set forth in the following paragraph, containing the dispositive part of this decision.

The Martinez heirs, defendants in this action, will be allowed a period of three months, extendible, if necessary, for a
reasonable term in the discretion of the trial court, within which to procure the execution of a sufficient deed conveying to the
plaintiff, Estanislao Reyes, the particular parcel of land described in paragraph 8 of the contract of March 5, 1921; and until
such deed shall be executed and delivered, or tendered, to Reyes, the judgment against Reyes in favor of the Martinez heirs
for the sum of P8,000, shall stand temporarily enjoined. And in the event that the said Martinez heirs should fail to procure
said conveyance to be made within the term conceded to them, the judgment in their favor for said P8,000 shall be
permanently enjoined.

In view of the conclusion reached in Martinez v. Grao (51 Phil., 287), as well as in view of the solution reached in the case
now before us, the claim of the defendants, as appellants, to the interest on the sum of P8,000 from July 31, 1926, cannot
be conceded, as the judgment itself bears interest at the lawful rate from the date the same was rendered.

So ordered, without express pronouncement as to costs.

G.R. No. L-6220 May 7, 1954

MARTINA QUIZANA, plaintiff-appellee,

vs.
GAUDENCIO REDUGERIO and JOSEFA POSTRADO, defendants-appellants.

Samson and Amante for appellants.

Sabino Palomares for appellee.
LABRADOR, J.:

This is an appeal to this Court from a decision rendered by the Court of First Instance of Marinduque, wherein the
defendants-appellants are ordered to pay the plaintiff-appellee the sum of P550, with interest from the time of the filing of the
complaint, and from an order of the same court denying a motion of the defendants-appellants for the reconsideration of the
judgment on the ground that they were deprived of their day in court.

The action was originally instituted in the justice of the peace court of Sta. Cruz, Marinduque, and the same is based on an
actionable document attached to the complaint, signed by the defendants-appellants on October 4, 1948, and containing the
following pertinent provisions:

Na alang-alang sa aming mahigpit na pangangailangan ay kaming magasawa ay lumapit kay Ginang Martina
Quizana, balo, at naninirahan sa Hupi, Sta. Cruz, Marinduque, at kami ay umutang sa kanya ng halagang Limang
Daan at Limang Pung Piso (P550.00), Salaping umiiral dito sa Filipinas na aming tinanggap na husto at walang
kulang sa kanya sa condicion na ang halagang aming inutang ay ibabalik o babayaran namin sa kanya sa
katapusan ng buwan ng Enero, taong 1949.

Pinagkasunduan din naming magasawa sa sakaling hindi kami makabayad sa taning na panahon ay aming
ipifrenda o isasangla sa kanya ang isa naming palagay na niogan sa lugar nang Cororocho, barrio ng Balogo,
municipio ng Santa Cruz, lalawigang Marinduque, Kapuluang Filipinas at ito ay nalilibot ng mga kahanganang
sumusunod:

Sa Norte, Dalmacio Constantino; sa este, Catalina Reforma; sa sur, Dionisio Ariola; at sa Oeste, Reodoro
Ricamora, no natatala sa gobierno sa ilalim ng Declaracion No. ______ na nasa pangalan ko, Josefa Postrado.

The defendants-appellants admit the execution of the document, but claim, as special defense, that since the 31st of
January, 1949, they offered to pledge the land specified in the agreement and transfer possession thereof to the plaintiff-
appellee, but that the latter refused said offer. Judgement having been rendered by the justice of the peace court of Sta.
Cruz, the defendants-appellants appealed to the Court of First Instance. In that court they reiterated the defenses that they
presented in the justice of the peace court. The case was set for hearing in the Court of First Instance on August 16, 1951.
As early as July 30 counsel for the defendants-appellants presented an "Urgent Motion for Continuance," alleging that on the
day set for the hearing (August 16, 1951), they would appear in the hearing of two criminal cases previously set for trial
before they received notice of the hearing on the aforesaid date. The motion was submitted on August 2, and was set for
hearing on August 4. This motion was not acted upon until the day of the trial. On the date of the trial the court denied the
defendants-appellants' motion for continuance, and after hearing the evidence for the plaintiff, in the absence of the
defendants-appellants and their counsel, rendered the decision appealed from. Defendants-appellants upon receiving copy
of the decision, filed a motion for reconsideration, praying that the decision be set aside on the ground that sufficient time in
advance was given to the court to pass upon their motion for continuance, but that the same was not passed upon. This
motion for reconsideration was denied.

The main question raised in this appeal is the nature and effect of the actionable document mentioned above. The trial court
evidently ignored the second part of defendants-appellants' written obligation, and enforced its last first part, which fixed
payment on January 31, 1949. The plaintiff-appellee, for his part, claims that this part of the written obligation is not binding
upon him for the reason that he did not sign the agreement, and that even if it were so, the defendants-appellants did not
execute the document as agreed upon, but, according to their answer, demanded the plaintiff-appellee to do so. This last
contention of the plaintiff-appellee is due to a loose language in the answer filed with the Court of First Instance. But upon
careful scrutiny, it will be seen that what the defendants-appellants wanted to allege is that they themselves had offered to
execute the document of mortgage and deliver the same to the plaintiff-appellee, but that the latter refused to have it
executed unless, an additional security was furnished. Thus the answer reads:

5. That immediately after the due date of the loan Annex "A" of the complaint, the defendants made efforts to
execute the necessary documents of mortgage and to deliver the same to the plaintiff, in compliance with the
terms and conditions thereof, but the plaintiff refused to execute the proper documents and insisted on another
portion of defendants' as additional security for the said loan; (emphasis ours.)

In our opinion it is not true that defendants-appellants had not offered to execute the deed of mortgage.
The other reasons adduced by the plaintiff-appellee for claiming that the agreement was not binding upon him also deserves
scant consideration. When plaintiff-appellee received the document, without any objection on his part to the paragraph
thereof in which the obligors offered to deliver a mortgage on a property of theirs in case they failed to pay the debt on the
day stipulated, he thereby accepted the said condition of the agreement. The acceptance by him of the written obligation
without objection and protest, and the fact that he kept it and based his action thereon, are concrete and positive proof that
he agreed and contested to all its terms, including the paragraph on the constitution of the mortgage.

The decisive question at issue, therefore, is whether the second part of the written obligation, in which the obligors agreed
and promised to deliver a mortgage over the parcel of land described therein, upon their failure to pay the debt on a date
specified in the proceeding paragraph, is valid and binding and effective upon the plaintiff-appellee, the creditor. This second
part of the obligation in question is what is known in law as a facultative obligation, defined in article 1206 of Civil Code of
the Philippines, which provides:

ART. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution,
the obligation is called facultative.

xxx xxx xxx

This is a new provision and is not found in the old Spanish Civil Code, which was the one in force at the time of the
execution of the agreement.

There is nothing in the agreement which would argue against its enforcement. it is not contrary to law or public morals or
public policy, and notwithstanding the absence of any legal provision at the time it was entered into government it, as the
parties had freely and voluntarily entered into it, there is no ground or reason why it should not be given effect. It is a new
right which should be declared effective at once, in consonance with the provisions of article 2253 of the Civil Code of the
Philippines, thus:

ART. 2253. . . . But if a right should be declared for the first time in this Code, it shall be effective at once, even
though the act or event which gives rise thereto may have been done or may have occurred under the prior
legislation, provided said new right does not prejudice or impair any vested or acquired right, of the same origin.

In view of our favorable resolution on the important question raised by the defendants-appellants on this appeal, it becomes
unnecessary to consider the other question of procedure raised by them.

For the foregoing considerations, the judgment appealed from is hereby reversed, and in accordance with the provisions of
the written obligation, the case is hereby remanded to the Court of First Instance, in which court the defendants-appellants
shall present a duly executed deed of mortgage over the property described in the written obligation, with a period of
payment to be agreed upon by the parties with the approval of the court. Without costs.

Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, and Concepcion, JJ., concur.

Third Division

MARSMAN DRYSDALE LAND, INC., G.R. No. 183374

Petitioner,
Present:

- versus - CARPIO,*
CARPIO MORALES, Chairperson,
PHILIPPINE GEOANALYTICS, INC. AND GOTESCO BRION,
PROPERTIES, INC., ABAD,** and
Respondents. VILLARAMA, JR., JJ.
x--------------------------------------------x
GOTESCO PROPERTIES, INC.,
Petitioner,

G.R. No. 183376

- versus -

MARSMAN DRYSDALE LAND, INC. AND PHILIPPINE

 GEOANALYTICS, INC.,
Respondents.
Promulgated:
June 29, 2010

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO MORALES, J.:

On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties, Inc. (Gotesco)

entered into a Joint Venture Agreement (JVA) for the construction and development of an office building on a land owned by

Marsman Drysdale in Makati City.[1]

The JVA contained the following pertinent provisions:

SECTION 4. CAPITAL OF THE JV

It is the desire of the Parties herein to implement this Agreement by investing in the PROJECT
on a FIFTY (50%) PERCENT- FIFTY (50%) PERCENT basis.

4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall contribute the Property.

The total appraised value of the Property is PESOS: FOUR HUNDRED TWENTY MILLION
(P420,000,000.00).

For this purpose, [Marsman Drysdale] shall deliver the Property in a buildable condition within ninety (90)
days from signing of this Agreement barring any unforeseen circumstances over which [Marsman
Drysdale] has no control. Buildable condition shall mean that the old building/structure which stands on
the Property is demolished and taken to ground level.

4.2. Contribution of [Gotesco]- [Gotesco] shall contribute the amount of PESOS: FOUR HUNDRED
TWENTY MILLION (P420,000,000.00) in cash which shall be payable as follows:

4.2.1. The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon signing of this
Agreement.

4.2.2. The balance of PESOS: THREE HUNDRED SEVENTY MILLION (P370,000,000.00)

shall be paid based on progress billings, relative to the development and construction
of the Building, but shall in no case exceed ten (10) months from delivery of the
Property in a Buildable condition as defined in section 4.1.

A joint account shall be opened and maintained by both Parties for handling of said
balance, among other Project concerns.

4.3. Funding and Financing

4.3.1 Construction funding for the Project shall be obtained from the cash
contribution of [Gotesco].
4.3.2 Subsequent funding shall be obtained from the pre-selling of units in the Building or,
when necessary, from loans from various banks or financial institutions. [Gotesco]
shall arrange the required funding from such banks or financial institutions, under
such terms and conditions which will provide financing rates favorable to the Parties.

4.3.3 [Marsman Drysdale] shall not be obligated to fund the Project as its
contribution is limited to the Property.
 4.3.4 If the cost of the Project exceeds the cash contribution of [Gotesco], the proceeds
obtained from the pre-selling of units and proceeds from loans, the Parties shall agree
on other sources and terms of funding such excess as soon as practicable.

4.3.5 x x x x.

4.3.6 x x x x.

4.3.7 x x x x.

4.3.8 All funds advanced by a Party (or by third parties in substitution for advances from
a Party) shall be repaid by the JV.

4.3.9 If any Party agrees to make an advance to the Project but fails to do so (in
whole or in part) the other party may advance the shortfall and the Party in
default shall indemnify the Party making the substitute advance on demand for
all of its losses, costs and expenses incurred in so doing. (emphasis supplied;
underscoring in the original)

Via Technical Services Contract (TSC) dated July 14, 1997, [2] the joint venture engaged the services of Philippine

Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory testing, seismic study and geotechnical

engineering for the project. PGI, was, however, able to drill only four of five boreholes needed to conduct its subsurface soil

exploration and laboratory testing, justifying its failure to drill the remaining borehole to the failure on the part of the joint

venture partners to clear the area where the drilling was to be made. [3] PGI was able to complete its seismic study though.

PGI then billed the joint venture on November 24, 1997 for P284,553.50 representing the cost of partial

subsurface soil exploration; and on January 15, 1998 for P250,800 representing the cost of the completed seismic study.[4]

Despite repeated demands from PGI,[5] the joint venture failed to pay its obligations.

Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut short and the planned

building project was eventually shelved.[6]

PGI subsequently filed on November 11, 1999 a complaint for collection of sum of money and damages at the

Regional Trial Court (RTC) of Quezon City against Marsman Drysdale and Gotesco.

In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the responsibility of paying PGI to

Gotesco which, under the JVA, was solely liable for the monetary expenses of the project. [7]

Gotesco, on the other hand, countered that PGI has no cause of action against it as PGI had yet to complete the

services enumerated in the contract; and that Marsman Drysdale failed to clear the property of debris which prevented PGI

from completing its work.[8]

 By Decision of June 2, 2004,[9] Branch 226 of the Quezon City RTC rendered judgment in favor of PGI, disposing

as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of plaintiff
[PGI].

The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay plaintiff, jointly:

(1) the sum of P535,353.50 with legal interest from the date of this decision until fully
paid;

(2) the sum of P200,000.00 as exemplary damages;

(3) the sum of P200,000.00 as and for attorneys fees; and

(4) costs of suit.

The cross-claim of defendant [Marsman Drysdale] against defendant [Gotesco] is hereby

GRANTED as follows:

a) Defendant [Gotesco] is ordered to reimburse co-defendant [Marsman Drysdale] in

the amount of P535,353.[50] in accordance with the [JVA].

b) Defendant [Gotesco] is further ordered to pay co-defendant [Marsman Drysdale]

the sum of P100,000.00 as and for attorneys fees.

SO ORDERED. (underscoring in the original; emphasis supplied)

Marsman Drysdale moved for partial reconsideration, contending that it should not have been held jointly liable

with Gotesco on PGIs claim as well as on the awards of exemplary damages and attorneys fees. The motion was, by

Resolution of October 28, 2005, denied.

Both Marsman Drysdale and Gotesco appealed to the Court of Appeals which, by Decision of January 28, 2008,
[10]
affirmed with modification the decision of the trial court. Thus the appellate court disposed:

WHEREFORE, premises considered, the instant appeal is PARTLY GRANTED. The assailed
Decision dated June 2, 2004 and the Resolution dated October 28, 2005 of the RTC of Quezon City,
Branch 226, in Civil Case No. Q99-39248 are hereby AFFIRMED with MODIFICATION deleting the
award of exemplary damages in favor of [PGI] and the P100,000.00 attorneys fees in favor of [Marsman
Drysdale] and ordering defendant-appellant [Gotesco] to REIMBURSE [Marsman Drysdale] 50% of the
aggregate sum due [PGI], instead of the lump sum P535,353.00 awarded by the RTC. The rest of the
Decision stands.

SO ORDERED. (capitalization and emphasis in the original; underscoring supplied)

In partly affirming the trial courts decision, the appellate court ratiocinated that notwithstanding the terms of the

JVA, the joint venture cannot avoid payment of PGIs claim since [the JVA] could not affect third persons like [PGI] because

of the basic civil law principle of relativity of contracts which provides that contracts can only bind the parties who entered

into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge

thereof.[11]
 Their motions for partial reconsideration having been denied, [12] Marsman Drysdale and Gotesco filed separate

petitions for review with the Court which were docketed as G.R. Nos. 183374 and 183376, respectively. By Resolution of

September 8, 2008, the Court consolidated the petitions.

In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court in

A. ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY AFTER CONCEDING THAT

[GOTESCO] SHOULD ULTIMATELY BE SOLELY LIABLE TO [PGI].

B. AWARDING ATTORNEYS FEES IN FAVOR OF [PGI]

C. IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH THE REQUIREMENT OF
SATISFACTORY PERFORMANCE OF ITS PRESTATION WHICH, PURSUANT TO THE TECHNICAL
SERVICES CONTRACT, IS THE CONDITION SINE QUA NON TO COMPENSATION.

D. DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN DRYSDALES]

ENTITLEMENT TO AN AWARD OF ATTORNEYS FEES.[13]

On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate court committed error when it

ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE WORK PERFORMED

BY [PGI] AND P100,000.00 [AS] ATTORNEYS FEES [AND] TO REIMBURSE [MARSMAN
DRYSDALE] 50% OF P535,353.50 AND PAY [MARSMAN DRYSDALE] P100,000.00 AS
ATTORNEYS FEES. [14]

On the issue of whether PGI was indeed entitled to the payment of services it rendered, the Court sees no

imperative to re-examine the congruent findings of the trial and appellate courts thereon. Undoubtedly, the exercise

involves an examination of facts which is normally beyond the ambit of the Courts functions under a petition for review, for

it is well-settled that this Court is not a trier of facts. While this judicial tenet admits of exceptions, such as when

the findings of facts of the appellate court are contrary to those of the trial courts, or when the judgment is based on a

misapprehension of facts, or when the findings of facts are contradicted by the evidence on record, [15] these extenuating

grounds find no application in the present petitions.

AT ALL EVENTS, the Court is convinced that PGI had more than sufficiently established its claims against the

joint venture. In fact, Marsman Drysdale had long recognized PGIs contractual claims when it (PGI) received a Certificate

of Payment[16] from the joint ventures project manager[17] which was endorsed to Gotesco for processing and payment.[18]

The core issue to be resolved then is which between joint venturers Marsman Drysdale and Gotesco bears the

liability to pay PGI its unpaid claims.

To Marsman Drysdale, it is Gotesco since, under the JVA, construction funding for the project was to be obtained

from Gotescos cash contribution, as its (Marsman Drysdales) participation in the venture was limited to the land.
 Gotesco maintains, however, that it has no liability to pay PGI since it was due to the fault of Marsman Drysdale

that PGI was unable to complete its undertaking.

The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.

PGI executed a technical service contract with the joint venture and was never a party to the JVA. While the JVA

clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as well as the

funding and financing mechanism for the project, the same cannot be used to defeat the lawful claim of PGI against the

two joint venturers-partners.

The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial owner of the project,
[19]
and all billing invoices indicated the consortium therein as the client.

As the appellate court held, Articles 1207 and 1208 of the Civil Code, which respectively read:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the
same obligation does not imply that each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with the prestations. There is a solidary
liability only when the obligation expressly so states, or when the law or nature of the obligation requires
solidarity.

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding
article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as
many equal shares as there are creditors or debtors, the credits or debts being considered distinct
from one another, subject to the Rules of Court governing the multiplicity of suits. (emphasis and
underscoring supplied),

presume that the obligation owing to PGI is joint between Marsman Drysdale and Gotesco.

The only time that the JVA may be made to apply in the present petitions is when the liability of the joint venturers

to each other would set in.

A joint venture being a form of partnership, it is to be governed by the laws on partnership. [20] Article 1797 of the

Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement . If only
the share of each partner in the profits has been agreed upon, the share of each in
the losses shall be in the same proportion.

In the absence of stipulation, the share of each in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses.As for the
profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital. (emphasis and underscoring supplied)
 In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the project. [21] They did

not provide for the splitting of losses, however. Applying the above-quoted provision of Article 1797 then, the same ratio

applies in splitting the P535,353.50 obligation-loss of the joint venture.

The appellate courts decision must be modified, however. Marsman Drysdale and Gotesco being jointly liable,

there is no need for Gotesco to reimburse Marsman Drysdale for 50% of the aggregate sum due to PGI.

Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to the law on

partnership on division of losses but would partake of a clear case of unjust enrichment at Gotescos expense. The grant by

the lower courts of Marsman Drysdale cross-claim against Gotesco was thus erroneous.

Marsman Drysdales supplication for the award of attorneys fees in its favor must be denied. It cannot claim that it

was compelled to litigate or that the civil action or proceeding against it was clearly unfounded, for the JVA provided that, in

the event a party advances funds for the project, the joint venture shall repay the advancing party. [22]

Marsman Drysdale was thus not precluded from advancing funds to pay for PGIs contracted services to abate

any legal action against the joint venture itself. It was in fact hardline insistence on Gotesco having sole responsibility to

pay for the obligation, despite the fact that PGIs services redounded to the benefit of the joint venture, that spawned the

legal action against it and Gotesco.

Finally, an interest of 12% per annum on the outstanding obligation must be imposed from the time of

demand[23] as the delay in payment makes the obligation one of forbearance of money, conformably with this Courts ruling

in Eastern Shipping Lines, Inc. v. Court of Appeals.[24] Marsman Drysdale and Gotesco should bear legal interest on their

respective obligations.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with

MODIFICATION in that the order for Gotesco to reimburse Marsman Drysdale is DELETED, and interest of 12% per annum

on the respective obligations of Marsman Drysdale and Gotesco is imposed, computed from the last demand or on January

5, 1999 up to the finality of the Decision.

If the adjudged amount and the interest remain unpaid thereafter, the interest rate shall be 12% per annum

computed from the time the judgment becomes final and executory until it is fully satisfied. The appealed decision is, in all

other respects, affirmed.

Costs against petitioners Marsman Drysdale and Gotesco.

SO ORDERED.
 [G.R. No. 109648. November 22, 2001]

PH CREDIT CORPORATION, petitioner, vs. COURT OF APPEALS and CARLOS M. FARRALES, respondents.

DECISION

PANGANIBAN, J.:

When there is a conflict between the dispositive portion or fallo of a decision and the opinion of the court contained in
the text or body of the judgment, the former prevails over the latter. An order of execution is based on the disposition, not on
the body, of the decision.

The Case

Before us is a Petition for Review under Rule 45 [1] of the Rules of Court, assailing the October 28, 1992 Decision[2] and
the April 6, 1993 Resolution [3] of the Court of Appeals (CA) in CA-GR SP Nos. 23324 and 25714. The dispositive portion of
the said Decision reads as follows:

WHEREFORE, judgment is hereby rendered DISMISSING: a) CA-G.R. SP No. 23324, for being moot and academic, and b)
CA-G.R. SP No. 25714, for lack of merit.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The facts of the case are summarized by the Court of Appeals in this wise:

These two cases have been consolidated because they involve the same parties and/or related questions of [f]act and/or
law.

xxxxxxxxx

I. CA-G.R. SP NO. 23324

PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales, Thomas H. Van Sebille and Federico C. Lim, for
[a] sum of money. The case was docketed as Civil Case No. 83-17751 before the Regional Trial Court, Branch 51,
Manila. After service of summons upon the defendants, they failed to file their answer within the reglementary period, hence
they were declared in default. PH Credit Corp., was then allowed to present its evidence ex-parte.

On January 31, 1984, a decision was rendered, the dispositive portion of which reads as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff PH Credit Corporation and against defendants Pacific Lloyd
Corporation, Thomas H. Van Sebille, Carlos M. Farrales, and Federico C. Lim, ordering the latter to pay the former, the
following:

A) The sum of P118, 814.49 with interest of 18% per annum, starting December 20, 1982 until fully paid;

B) Surcharge of 16% per annum from December 20, 1982;

C) Penalty Charge of 2% per month from December 20, 1982, computed on interest and principal compounded;

D) Attorneys fees in an amount equivalent to 25% of the total sum due; and

E) Costs of suit.
SO ORDERED.

After the aforesaid decision has become final and executory, a Writ of Execution was issued and consequently implemented
by the assigned Deputy Sheriff. Personal and real properties of defendant Carlos M. Farrales were levied and sold at public
auction wherein PH Credit Corp. was the highest bidder. The personal properties were sold on August 2, 1984
at P18,900.00 while the real properties were sold on June 21, 1989 for P1,294,726.00.

On July 27, 1990, a motion for the issuance of a writ of possession was filed and on October 12, 1990, the same was
granted. The writ of possession itself was issued on October 26, 1990. Said order and writ of possession are now the
subject of this petition.

Petitioner claims that she, as a third-party claimant with the court below, filed an Urgent Motion for Reconsideration and/or to
Suspend the Order dated October 12, 1990, but without acting there[on], respondent Judge issued the writ of possession on
October 26, 1990. She claims that the actuations of respondent Judge was tainted with grave abuse of discretion.

We deem it unnecessary to pass upon the issue raised in view of the supervening event which had rendered the same moot
and academic.

It appears that on January 31, 1991, respondent Judge issued an order considering the assailed Order dated October 12,
1990 as well as the writ of possession issued on October 26, 1990 as of no force and effect.

The purpose of the petition is precisely to have the aforesaid order and writ of possession declared null and void, but the
same had already been declared of no force and effect by the respondent Judge. It is a well-settled rule that courts will not
determine a moot question or abstract proposition nor express an opinion in a case in which no practical relief can be
granted.

II. CA-G.R. SP NO. 25714

Petitioner claims that the respondent Judges Order dated January 31, 1991 was tainted with grave abuse of discretion
based on the following grounds:

1. Respondent Judge refused to consider as waived private respondents objection that his obligation in the January 31,
1984 decision was merely joint and not solidary with the defendants therein. According to petitioner, private respondent
assailed the levy on execution twice in 1984 and once in 1985 but not once did the latter even mention therein that his
obligation was joint for failure of the dispositive portion of the decision to indicate that it was solidary. Thus, private
respondent must be deemed to have waived that objection, petitioner concludes.

2. The redemption period after the auction sale of the properties had long lapsed so much [so] that the purchaser therein
became the absolute owner thereof. Thus, respondent Judge allegedly abused his discretion in setting aside the auction
sale after the redemption period had expired.

3. Respondent Judge erred in applying the presumption of a joint obligation in the face of the conclusion of fact and law
contained in the decision showing that the obligation is solidary.[5] (Citations omitted)

Ruling of the Court of Appeals

The Court of Appeals affirmed the trial courts ruling declaring null and void (a) the auction sale of Respondent Ferrales
real property and (b) the Writ of Possession issued in consequence thereof. It held that, pursuant to the January 31, 1984
Decision of the trial court, the liability of Farrales was merely joint and not solidary. Consequently, there was no legal basis
for levying and selling Farrales real and personal properties in order to satisfy the whole obligation.

Hence, this Petition.[6]

The Issues

In its Memorandum,[7] petitioner submits the following issues for our consideration:
 I

Whether or not the Court of Appeals disregarded the basic policy of avoiding multiplicity of motions.

II

Whether or not the Court of Appeals erred when it disregarded the body of the decision and concluded that the
obligation was merely a joint obligation due to the failure of the dispositive portion of the decision dated 31 January
1984 to state that the obligation was joint and solidary.

III

Whether or not the Court of Appeals disregarded the policy of upholding executions. [8]

The Courts Ruling

The Petition is devoid of merit.

First Issue: Omnibus Motion Rule

Petitioner contends that because private respondent did not question the joint and solidary nature of his liability in his
(a) Motion to Quash Levy Execution [9] dated August 23, 1984, (b) Urgent Motion to Order Sheriff to Suspend Sale on
Execution[10]dated December 3, 1984, and (c) Motion to Declare Certificate of Sale Null and Void [11]dated January 9, 1985, he
cannot now raise it as an objection.Petitioner argues that the Omnibus Motion Rule bars private respondents belated
objection. We do not agree.

The Omnibus Motion Rule is found in Section 8 of Rule 15 of the Rules of Court, which we quote:

Subject to the provisions of section 1 of Rule 9, a motion attacking a pleading, order, judgment, or proceeding shall include
all objections then available, and all objections not so included shall be deemed waived. (8a)

As an aid to the proper understanding of this case, we should at the outset point out that the objections of private
respondent contained in his Omnibus Motion[12]dated November 5, 1990 were directed at the proceedings and the orders
issued after the auction sale of his real property covered by TCT No. 82531. In his Omnibus Motion, he asked for the recall
and quashal of the Writ of Possession issued on October 26, 1990; the annulment of the June 21, 1989 auction sale of the
said real property and the recomputation of his liability to petitioner.

However, the three (3) Motions that petitioner referred to above were clearly directed against the execution of private
respondents personal properties. A perusal of these Motions will show that at the time, his objections were directed at the
acts of execution against his personal properties.

In his Motion to Quash Levy Execution, [13] private respondent pointed to the properties of herein moving defendant x x
x located at his residence at No. 17, Bunker Hill St., New Manila, Quezon City, per the Notice of Levy and Sale, [14] and asked
for the quashal and setting aside of such Notice. He was thus referring to the levy on his personal properties. By the same
token, in his Urgent Motion to Order Sheriff to Suspend Sale on Execution, [15] he referred to a copy of a sheriffs notice of sale
dated November 22, 1984,[16] which in turn alluded to the sale of his levied personal properties. Similarly, in his Motion to
Declare Certificate of Sale Null and Void, [17] he once again assailed the sale at public auction of his personal properties. It is
thus clear that up to that point, he was questioning the levy and sale of his personal properties. He could not have known at
the time that he would be made to answer for the entire liability, which he and his co-respondents were adjudged to pay
petitioner by reason of the trial courts judgment of January 31, 1984.

After private respondent realized that he was being made to answer on the entire liability as a solidary debtor, he filed
his Omnibus Motion questioning the Writ of Possession and all incident orders and proceedings relevant thereto. This
realization dawned on him, because his real property was levied and sold despite the previous sale of his personal
property. Only at this point was he in a position to assert his objections to the auction sale of his real property and to put up
the defense of joint liability among all the respondents.
 The Rules of Court requires that all available objections to a judgment or proceeding must be set up in an Omnibus
Motion assailing it; otherwise, they are deemed waived. In the case at bar, the objection of private respondent to
his solidary liability became available to him, only after his real property was sold at public auction. At the time his personal
properties were levied and sold, it was not evident to him that he was being held solely liable for the monetary judgment
rendered against him and his co-respondents. That was why his objections then did not include those he asserted when
his solidary liability became evident.

Prior to his Omnibus Motion, he was not yet being made to pay for the entire obligation. Thus, his objection to his
being made solidarily liable with the other respondents was not yet available to him at the time he filed the Motions referred
to by petitioner. Not being available, these objections could not have been deemed waived when he filed his three earlier
Motions, which pertained to matters different from those covered by his Omnibus Motion.

True, the Omnibus Motion Rule requires the movant to raise all available exceptions in a single opportunity to avoid
multiple piecemeal objections. [18] But to apply that statutory norm, the objections must have been available to the party at the
time the Motion was filed.

Second Issue: Basis of Private Respondents Liability

Petitioner argues that the CA erred in disregarding the text of the January 31, 1984 Decision of the trial court. In
concluding that the obligation was merely joint, the CA was allegedly mistaken in relying on the failure of the dispositive
portion of the Decision to state that the obligation was solidary.

We are not impressed. A solidary obligation is one in which each of the debtors is liable for the entire obligation, and
each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. On the other
hand, a joint obligation is one in which each debtors is liable only for a proportionate part of the debt, and the creditor is
entitled to demand only a proportionate part of the credit from each debtor. [19] The well-entrenched rule is that solidary
obligations cannot be inferred lightly. They must be positively and clearly expressed. [20] A liability is solidary only when the
obligation expressly so states, when the law so provides or when the nature of the obligation so requires. [21] Article 1207 of
the Civil Code explains the nature of solidary obligations in this wise:

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply
that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with
the prestations. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.

In the dispositive portion of the January 31, 1984 Decision of the trial court, the word solidary neither appears nor can
it be inferred therefrom. The fallo merely stated that the following respondents were liable: Pacific Lloyd Corporation,
Thomas H. Van Sebille, Carlos M. Farrales and Federico C. Lim. Under the circumstances, the liability is joint, as provided
by the Civil Code, which we quote:

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers[,] the contrary
does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or
debtors x x x.[22]

We should stress that respondents obligation is based on the judgment rendered by the trial court. The dispositive
portion or the fallo is its decisive resolution and is thus the subject of execution. The other parts of the decision may be
resorted to in order to determine the ratio decidendi for the disposition. Where there is a conflict between the dispositive part
and the opinion of the court contained in the text or body of the decision, the former must prevail over the latter on the theory
that the dispositive portion is the final order, while the opinion is merely a statement ordering nothing. [23] Hence the execution
must conform with that which is ordained or decreed in the dispositive portion of the decision.

Petitioner maintains that the Court of Appeals improperly and incorrectly disregarded the body of the trial courts
Decision, which clearly stated as follows:

To support the Promissory Note, a Continuing Suretyship Agreement was executed by the defendants, Federico C. Lim,
Carlos M. Farrales and Thomas H. Van Sebille, in favor of the plaintiff corporation, to the effect that if Pacific Lloyd
Corporation cannot pay the amount loaned by plaintiff to said corporation, then Federico C. Lim, Carlos M. Farrales and
Thomas H. Van Sebille will hold themselves jointly and severally together with defendant Pacific Lloyd Corporation to answer
for the payment of said obligation.[24]

As early as 1934 in Oriental Commercial Co. v. Abeto and Mabanag,[25] this Court has already answered such
argument in this wise:

It is of no consequence that, under the written contract of suretyship executed by the parties, the obligation contracted by the
sureties was joint and several in character. The final judgment, which superseded the action brought for the enforcement of
said contract, declared the obligation to be merely joint, and the same cannot be executed otherwise. [26]

The same reasoning was recently adopted by this Court in Industrial Management International Development Corp. v.
NLRC,[27] promulgated on May 11, 2000.

Doctrinally, the basis of execution is the January 31, 1984 Decision rendered by the trial court, not the written contract
of suretyship executed by the parties. As correctly observed by the trial judge:

x x x [W]hat was stated in the body of the decision of January 31, 1984 [was] only part of the narration of facts made by the
Judge[,] and the dispositive portion is to prevail.[28]

The only exception when the body of a decision prevails over the fallo is when the inevitable conclusion from the
former is that there was a glaring error in the latter, in which case the body of the decision will prevail. [29] In this instance,
there was no clear declaration in the body of the January 31, 1984 Decision to warrant a conclusion that there was an error
in the fallo. Nowhere in the former can we find a definite declaration of the trial court that, indeed, respondents liability was
solidary. If petitioner had doubted this point, it should have filed a motion for reconsideration before the finality of the
Decision of the trial court.

Third Issue: The Policy of Upholding Executions

Petitioner argues that the issue of whether or not the judgment debt should be construed as joint or solidary can only
affect the determination of the existence or absence of an excess in the proceeds of the sale. [30] He further maintains that
private respondents interests are protected anyway even if all his properties are sold, because any excess in the proceeds
of the sale over the judgment and accruing costs must be delivered to the judgment debtor.[31]

We cannot accept these arguments. What can be sold on execution is limited by the Rules of Court, as follows:

When there is more property of the judgment obligor than is sufficient to satisfy the judgment and lawful fees, he (sheriff)
must sell only so much of the personal or real property as is sufficient to satisfy the judgment and lawful fees. [32]

A writ of execution is void when issued for a sum greater than that which is warranted by the judgment or for the
original amount it states despite partial payment thereof. The exact amount due cannot be left to the determination of the
sheriff.[33]

Petitioner finally insists that it is futile for private respondent to contest the sale in execution conducted in the case at
bar because of the general policy of the law to sustain execution sales. [34]

Simple logic dictates that a general policy to sustain execution sales does not guarantee that they will be upheld at
every instance. Petitioner itself quotes grounds for setting aside such sales: a resulting injury or prejudice, fraud, mistake or
irregularity.[35]

Being made to pay for an obligation in its entirety when ones liability is merely for a portion is a sufficient ground to
contest an execution sale. It would be the height of inequity if we allow judgment obligors to shoulder entire monetary
judgments when their legal liabilities are limited only to their proportionate shares in the entire obligation.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as to costs.

SO ORDERED.
G.R. No. 147791 September 8, 2006

CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES, petitioner,

vs.
REBECCA G. ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX SURETY & INSURANCE INC., BATANGAS
LAGUNA TAYABAS BUS CO., and WILFREDO DATINGUINOO, respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review assails the March 29, 2001 Decision1 of the Court of Appeals in CA-G.R. CV No. 46896, which
affirmed with modification the February 9, 1993 Decision 2 of the Regional Trial Court of Manila, Branch 13, in Civil Case No.
R-82-2137, finding Batangas Laguna Tayabas Bus Co. (BLTB) and Construction Development Corporation of the Philippines
(CDCP) liable for damages.

The antecedent facts are as follows:

On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter, Rachel E. Fletcher, boarded in San Pablo
City, a BLTB bus bound for Pasay City. However, they never reached their destination because their bus was rammed from
behind by a tractor-truck of CDCP in the South Expressway. The strong impact pushed forward their seats and pinned their
knees to the seats in front of them. They regained consciousness only when rescuers created a hole in the bus and
extricated their legs from under the seats. They were brought to the Makati Medical Center where the doctors diagnosed
their injuries to be as follows:

Medical Certificate of Rebecca Estrella

Fracture, left tibia mid 3rd

Lacerated wound, chin
Contusions with abrasions, left lower leg
Fracture, 6th and 7th ribs, right3

Medical Certificate of Rachel Fletcher

Extensive lacerated wounds, right leg posterior aspect popliteal area

and antero-lateral aspect mid lower leg with severance of muscles.
Partial amputation BK left leg with severance of gastro-soleus and
antero-lateral compartment of lower leg.
Fracture, open comminuted, both tibial4

Thereafter, respondents filed a Complaint5 for damages against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo
Datinguinoo before the Regional Trial Court of Manila, Branch 13. They alleged (1) that Payunan, Jr. and Datinguinoo, who
were the drivers of CDCP and BLTB buses, respectively, were negligent and did not obey traffic laws; (2) that BLTB and
CDCP did not exercise the diligence of a good father of a family in the selection and supervision of their employees; (3) that
BLTB allowed its bus to operate knowing that it lacked proper maintenance thus exposing its passengers to grave danger;
(4) that they suffered actual damages amounting to P250,000.00 for Estrella and P300,000.00 for Fletcher; (5) that they
suffered physical discomfort, serious anxiety, fright and mental anguish, besmirched reputation and wounded feelings, moral
shock, and lifelong social humiliation; (6) that defendants failed to act with justice, give respondents their due, observe
honesty and good faith which entitles them to claim for exemplary damage; and (7) that they are entitled to a reasonable
amount of attorney's fees and litigation expenses.

CDCP filed its Answer6 which was later amended to include a third-party complaint against Philippine Phoenix Surety and
Insurance, Inc. (Phoenix).7

On February 9, 1993, the trial court rendered a decision finding CDCP and BLTB and their employees liable for damages,
the dispositive portion of which, states:

WHEREFORE, judgment is rendered:

 In the Complaint

1. In favor of the plaintiffs and against the defendants BLTB, Wilfredo Datinguinoo, Construction and Development
Corporation of the Philippines (now PNCC) and Espiridion Payunan, Jr., ordering said defendants, jointly and
severally to pay the plaintiffs the sum of P79,254.43 as actual damages and to pay the sum of P10,000.00 as
attorney's fees or a total of P89,254.43;

2. In addition, defendant Construction and Development Corporation of the Philippines and defendant Espiridion
Payunan, Jr., shall pay the plaintiffs the amount of Fifty Thousand (P50,000.00) Pesos to plaintiff Rachel Fletcher
and Twenty Five Thousand (P25,000.00) Pesos to plaintiff Rebecca Estrella;

3. On the counterclaim of BLTB Co. and Wilfredo Datinguinoo

Dismissing the counterclaim;

4. On the crossclaim against Construction and Development Corporation of the Philippines (now PNCC) and
Espiridion Payunan, Jr.

Dismissing the crossclaim;

5. On the counterclaim of Construction and Development Corporation of the Philippines (now PNCC)

Dismissing the counterclaim;

6. On the crossclaim against BLTB

Dismissing the crossclaim;

7. On the Third Party Complaint by Construction and Development Corporation of the Philippines against
Philippine Phoenix Surety and Insurance, Incorporated

Dismissing the Third Party Complaint.

SO ORDERED.8

The trial court held that BLTB, as a common carrier, was bound to observe extraordinary diligence in the vigilance over the
safety of its passengers. It must carry the passengers safely as far as human care and foresight provide, using the utmost
diligence of very cautious persons, with a due regard for all the circumstances. Thus, where a passenger dies or is injured,
the carrier is presumed to have been at fault or has acted negligently. BLTB's inability to carry respondents to their
destination gave rise to an action for breach of contract of carriage while its failure to rebut the presumption of negligence
made it liable to respondents for the breach.9

Regarding CDCP, the trial court found that the tractor-truck it owned bumped the BLTB bus from behind. Evidence showed
that CDCP's driver was reckless and driving very fast at the time of the incident. The gross negligence of its driver raised the
presumption that CDCP was negligent either in the selection or in the supervision of its employees which it failed to rebut
thus making it and its driver liable to respondents.10

Unsatisfied with the award of damages and attorney's fees by the trial court, respondents moved that the decision be
reconsidered but was denied. Respondents elevated the case11 to the Court of Appeals which affirmed the decision of the
trial court but modified the amount of damages, the dispositive portion of which provides:

WHEREFORE, the assailed decision dated October 7, 1993 of the Regional Trial Court, Branch 13, Manila is
hereby AFFIRMED with the following MODIFICATION:

1. The interest of six (6) percent per annum on the actual damages of P79,354.43 should commence to run from
the time the judicial demand was made or from the filing of the complaint on February 4, 1980;

2. Thirty (30) percent of the total amount recovered is hereby awarded as attorney's fees;
 3. Defendants-appellants Construction and Development Corporation of the Philippines (now PNCC) and
Espiridion Payunan, Jr. are ordered to pay plaintiff-appellants Rebecca Estrella and Rachel Fletcher the amount of
Twenty Thousand (P20,000.00) each as exemplary damages and P80,000.00 by way of moral damages to Rachel
Fletcher.

SO ORDERED.12

The Court of Appeals held that the actual or compensatory damage sought by respondents for the injuries they sustained in
the form of hospital bills were already liquidated and were ascertained. Accordingly, the 6% interest per annum should
commence to run from the time the judicial demand was made or from the filing of the complaint and not from the date of
judgment. The Court of Appeals also awarded attorney's fees equivalent to 30% of the total amount recovered based on the
retainer agreement of the parties. The appellate court also held that respondents are entitled to exemplary and moral
damages. Finally, it affirmed the ruling of the trial court that the claim of CDCP against Phoenix had already prescribed.

Hence, this petition raising the following issues:

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENTS BLTB
AND/OR ITS DRIVER WILFREDO DATINGUINOO SOLELY LIABLE FOR THE DAMAGES SUSTAINED BY
HEREIN RESPONDENTS FLETCHER AND ESTRELLA.

II

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN AWARDING EXCESSIVE OR

UNFOUNDED DAMAGES, ATTORNEY'S FEES AND LEGAL INTEREST TO RESPONDENTS FLETCHER AND
ESTRELLA.

III

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENT PHOENIX
LIABLE UNDER ITS INSURANCE POLICY ON THE GROUND OF PRESCRIPTION.

The issues for resolution are as follows: (1) whether BLTB and its driver Wilfredo Datinguinoo are solely liable for the
damages sustained by respondents; (2) whether the damages, attorney's fees and legal interest awarded by the CA are
excessive and unfounded; (3) whether CDCP can recover under its insurance policy from Phoenix.

Petitioner contends that since it was made solidarily liable with BLTB for actual damages and attorney's fees in paragraph 1
of the trial court's decision, then it should no longer be held liable to pay the amounts stated in paragraph 2 of the same
decision. Petitioner claims that the liability for actual damages and attorney's fees is based on culpa contractual, thus, only
BLTB should be held liable. As regards paragraph 2 of the trial court's decision, petitioner claims that it is ambiguous and
arbitrary because the dispositive portion did not state the basis and nature of such award.

Respondents, on the other hand, argue that petitioner is also at fault, hence, it was properly joined as a party. There may be
an action arising out of one incident where questions of fact are common to all. Thus, the cause of action based on culpa
aquiliana in the civil suit they filed against it was valid.

The petition lacks merit.

The case filed by respondents against petitioner is an action for culpa aquiliana or quasi-delict under Article 2176 of the Civil
Code.13 In this regard, Article 2180 provides that the obligation imposed by Article 2176 is demandable for the acts or
omissions of those persons for whom one is responsible. Consequently, an action based on quasi-delict may be instituted
against the employer for an employee's act or omission. The liability for the negligent conduct of the subordinate
is direct and primary, but is subject to the defense of due diligence in the selection and supervision of the employee. 14 In the
instant case, the trial court found that petitioner failed to prove that it exercised the diligence of a good father of a family in
the selection and supervision of Payunan, Jr.
The trial court and the Court of Appeals found petitioner solidarily liable with BLTB for the actual damages suffered by
respondents because of the injuries they sustained. It was established that Payunan, Jr. was driving recklessly because of
the skid marks as shown in the sketch of the police investigator.

It is well-settled in Fabre, Jr. v. Court of Appeals,15 that the owner of the other vehicle which collided with a common carrier is
solidarily liable to the injured passenger of the same. We held, thus:

The same rule of liability was applied in situations where the negligence of the driver of the bus on which plaintiff
was riding concurred with the negligence of a third party who was the driver of another vehicle, thus causing an
accident. In Anuran v. Buo, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila
Transit Corporation v. Court of Appeals, the bus company, its driver, the operator of the other vehicle and the
driver of the vehicle were jointly and severally held liable to the injured passenger or the latter's heirs. The
basis of this allocation of liability was explained in Viluan v. Court of Appeals, thus:

Nor should it make any difference that the liability of petitioner [bus owner] springs from contract while
that of respondents [owner and driver of other vehicle] arises from quasi-delict. As early as 1913, we
already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the negligence of
the driver of the bus on which he was riding and of the driver of another vehicle, the drivers as well as the owners
of the two vehicles are jointly and severally liable for damages. x x x

xxxx

As in the case of BLTB, private respondents in this case and her co-plaintiffs did not stake out their claim against
the carrier and the driver exclusively on one theory, much less on that of breach of contract alone. After all, it was
permitted for them to allege alternative causes of action and join as many parties as may be liable on such
causes of action so long as private respondent and her co-plaintiffs do not recover twice for the same
injury. What is clear from the cases is the intent of the plaintiff there to recover from both the carrier and the driver,
thus justifying the holding that the carrier and the driver were jointly and severally liable because their separate and
distinct acts concurred to produce the same injury.16(Emphasis supplied)

In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or "joint and several"
obligation, the relationship between the active and the passive subjects is so close that each of them must comply with or
demand the fulfillment of the whole obligation. In Lafarge Cement v. Continental Cement Corporation,17we reiterated that
joint tort feasors are jointly and severally liable for the tort which they commit. Citing Worcester v. Ocampo,18 we held that:

x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the present
action is tort. They fail to recognize the universal doctrine that each joint tort feasor is not only individually liable for
the tort in which he participates, but is also jointly liable with his tort feasors. x x x

It may be stated as a general rule that joint tort feasors are all the persons who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is
done, if done for their benefit. They are each liable as principals, to the same extent and in the same manner as if
they had performed the wrongful act themselves. x x x

Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of
them or any number less than all. Each is liable for the whole damages caused by all, and all together are jointly
liable for the whole damage. It is no defense for one sued alone, that the others who participated in the wrongful
act are not joined with him as defendants; nor is it any excuse for him that his participation in the tort was
insignificant as compared to that of the others. x x x

Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except among
themselves. They cannot insist upon an apportionment, for the purpose of each paying an aliquot part. They are
jointly and severally liable for the whole amount. x x x

A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim which might
exist against the others. There can be but satisfaction. The release of one of the joint tort feasors by agreement
generally operates to discharge all. x x x

Of course the court during trial may find that some of the alleged tort feasors are liable and that others are not
liable. The courts may release some for lack of evidence while condemning others of the alleged tort feasors. And
this is true even though they are charged jointly and severally.19
Petitioner's claim that paragraph 2 of the dispositive portion of the trial court's decision is ambiguous and arbitrary and also
entitles respondents to recover twice is without basis. In the body of the trial court's decision, it was clearly stated that
petitioner and its driver Payunan, Jr., are jointly and solidarily liable for moral damages in the amount of P50,000.00 to
respondent Fletcher and P25,000.00 to respondent Estrella.20 Moreover, there could be no double recovery because the
award in paragraph 2 is for moral damages while the award in paragraph 1 is for actual damages and attorney's fees.

Petitioner next claims that the damages, attorney's fees, and legal interest awarded by the Court of Appeals are excessive.

Moral damages may be recovered in quasi-delicts causing physical injuries. 21 The award of moral damages in favor of
Fletcher and Estrella in the amount of P80,000.00 must be reduced since prevailing jurisprudence fixed the same at
P50,000.00.22 While moral damages are not intended to enrich the plaintiff at the expense of the defendant, the award
should nonetheless be commensurate to the suffering inflicted.23

The Court of Appeals correctly awarded respondents exemplary damages in the amount of P20,000.00 each. Exemplary
damages may be awarded in addition to moral and compensatory damages. 24 Article 2231 of the Civil Code also states that
in quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence. 25 In this case, petitioner's
driver was driving recklessly at the time its truck rammed the BLTB bus. Petitioner, who has direct and primary liability for the
negligent conduct of its subordinates, was also found negligent in the selection and supervision of its employees. In Del
Rosario v. Court of Appeals,26 we held, thus:

ART. 2229 of the Civil Code also provides that such damages may be imposed, by way of example or correction
for the public good. While exemplary damages cannot be recovered as a matter of right, they need not be proved,
although plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded. Exemplary Damages are
imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative
incentive to curb socially deleterious actions.

Regarding attorney's fees, we held in Traders Royal Bank Employees Union-Independent v. National Labor Relations
Commission,27 that:

There are two commonly accepted concepts of attorney's fees, the so-called ordinary and extraordinary. In its
ordinary concept, an attorney's fee is the reasonable compensation paid to a lawyer by his client for the legal
services he has rendered to the latter. The basis of this compensation is the fact of his employment by and his
agreement with the client.

In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by the court to be paid
by the losing party in a litigation. The basis of this is any of the cases provided by law where such award can be
made, such as those authorized in Article 2208, Civil Code, and is payable not to the lawyer but to the client,
unless they have agreed that the award shall pertain to the lawyer as additional compensation or as part
thereof.28 (Emphasis supplied)

In the instant case, the Court of Appeals correctly awarded attorney's fees and other expenses of litigation as they may be
recovered as actual or compensatory damages when exemplary damages are awarded; when the defendant acted in gross
and evident bad faith in refusing to satisfy the plaintiff's valid, just and demandable claim; and in any other case where the
court deems it just and equitable that attorney's fees and expenses of litigation should be recovered. 29

Regarding the imposition of legal interest at the rate of 6% from the time of the filing of the complaint, we held in Eastern
Shipping Lines, Inc. v. Court of Appeals,30 that when an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for payment of interest in the concept of
actual and compensatory damages,31 subject to the following rules, to wit

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

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

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.32 (Emphasis supplied)

Accordingly, the legal interest of 6% shall begin to run on February 9, 1993 when the trial court rendered judgment and not
on February 4, 1980 when the complaint was filed. This is because at the time of the filing of the complaint, the amount of
the damages to which plaintiffs may be entitled remains unliquidated and unknown, until it is definitely ascertained, assessed
and determined by the court and only upon presentation of proof thereon. 33 From the time the judgment becomes final and
executory, the interest rate shall be 12% until its satisfaction.

Anent the last issue of whether petitioner can recover under its insurance policy from Phoenix, we affirm the findings of both
the trial court and the Court of Appeals, thus:

As regards the liability of Phoenix, the court a quo correctly ruled that defendant-appellant CDCP's claim against
Phoenix already prescribed pursuant to Section 384 of P.D. 612, as amended, which provides:

Any person having any claim upon the policy issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company concerned a written notice of claim setting forth
the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice
of claim must be filed within six months from date of the accident, otherwise, the claim shall be deemed
waived. Action or suit for recovery of damage due to loss or injury must be brought in proper cases, with
the Commissioner or Courts within one year from denial of the claim, otherwise, the claimant's right of
action shall prescribe. (As amended by PD 1814, BP 874.)34

The law is clear and leaves no room for interpretation. A written notice of claim must be filed within six months from the date
of the accident. Since petitioner never made any claim within six months from the date of the accident, its claim has already
prescribed.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 46896 dated March
29, 2001, which modified the Decision of the Regional Trial Court of Manila, Branch 13, in Civil Case No. R-82-2137,
is AFFIRMED with the MODIFICATIONS that petitioner is held jointly and severally liable to pay (1) actual damages in the
amount of P79,354.43; (2) moral damages in the amount of P50,000.00 each for Rachel Fletcher and Rebecca Estrella; (3)
exemplary damages in the amount of P20,000.00 each for Rebecca Estrella and Rachel Fletcher; and (4) thirty percent
(30%) of the total amount recovered as attorney's fees. The total amount adjudged shall earn interest at the rate of 6% per
annum from the date of judgment of the trial court until finality of this judgment. From the time this Decision becomes final
and executory and the judgment amount remains unsatisfied, the same shall earn interest at the rate of 12% per annum until
its satisfaction.

SO ORDERED.

FIRST DIVISION

REPUBLIC GLASS CORPORATION G.R. No. 144413

and GERVEL, INC.,
Petitioners, Present:
Davide, Jr., C.J., Chairman,
Quisumbing,
Ynares-Santiago, - versus - Carpio, and
Azcuna, JJ.

Promulgated:
LAWRENCE C. QUA,
Respondent. July 30, 2004
x-----------------------------------------------------------------------------------------x

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review [1] assailing the 6 March 2000 Decision [2] and the 26 July 2000 Resolution of the Court

of Appeals in CA-G.R. CV No. 54737. The Court of Appeals set aside the Order [3] of 3 May 1996 of the Regional Trial Court

of Makati, Branch 63 (RTC-Branch 63), in Civil Case No. 88-2643 and reinstated the Decision [4] of 12 January 1996 in

respondents favor.

The Facts

Petitioners Republic Glass Corporation (RGC) and Gervel, Inc. (Gervel) together with respondent Lawrence C. Qua (Qua)

were stockholders of Ladtek, Inc. (Ladtek). Ladtek obtained loans from Metropolitan Bank and Trust Company (Metrobank)

[5]
and Private Development Corporation of the Philippines [6] (PDCP) with RGC, Gervel and Qua as sureties. Among

themselves, RGC, Gervel and Qua executed Agreements for Contribution, Indemnity and Pledge of Shares of Stocks

(Agreements).[7]

The Agreements all state that in case of default in the payment of Ladteks loans, the parties would reimburse each other the

proportionate share of any sum that any might pay to the creditors. [8] Thus, a common provision appears in the Agreements:

RGC, GERVEL and QUA each covenant that each will respectively reimburse the party made to pay the
Lenders to the extent and subject to the limitations set forth herein, all sums of money which the party
made to pay the Lenders shall pay or become liable to pay by reason of any of the foregoing, and will
make such payments within five (5) days from the date that the party made to pay the Lenders gives
written notice to the parties hereto that it shall have become liable therefor and has advised the Lenders
of its willingness to pay whether or not it shall have already paid out such sum or any part thereof to the
Lenders or to the persons entitled thereto. (Emphasis supplied)
Under the same Agreements, Qua pledged 1,892,360 common shares of stock of General Milling Corporation (GMC) in

favor of RGC and Gervel. The pledged shares of stock served as security for the payment of any sum which RGC and

Gervel may be held liable under the Agreements.

Ladtek defaulted on its loan obligations to Metrobank and PDCP. Hence, Metrobank filed a collection case against

Ladtek, RGC, Gervel and Qua docketed as Civil Case No. 8364 (Collection Case No. 8364) which was raffled to the

Regional Trial Court of Makati, Branch 149 (RTC-Branch 149). During the pendency of Collection Case No. 8364, RGC and

Gervel paid Metrobank P7 million. Later, Metrobank executed a waiver and quitclaim dated 7 September 1988 in favor of

RGC and Gervel. Based on this waiver and quitclaim, [9] Metrobank, RGC and Gervel filed on 16 September 1988 a joint

motion to dismiss Collection Case No. 8364 against RGC and Gervel. Accordingly, RTC-Branch 149 dismissed the case

against RGC and Gervel, leaving Ladtek and Qua as defendants.[10]

In a letter dated 7 November 1988, RGC and Gervels counsel, Atty. Antonio C. Pastelero, demanded that Qua

pay P3,860,646, or 42.22% of P8,730,543.55,[11] as reimbursement of the total amount RGC and Gervel paid to Metrobank

and PDCP. Qua refused to reimburse the amount to RGC and Gervel. Subsequently, RGC and Gervel furnished Qua with

notices of foreclosure of Quas pledged shares.

Qua filed a complaint for injunction and damages with application for a temporary restraining order, docketed as

Civil Case No. 88-2643 (Foreclosure Case No. 88-2643), with RTC-Branch 63 to prevent RGC and Gervel from foreclosing

the pledged shares. Although it issued a temporary restraining order on 9 December 1988, RTC-Branch 63 denied on 2

January 1989 Quas Urgent Petition to Suspend Foreclosure Sale. RGC and Gervel eventually foreclosed all the pledged

shares of stock at public auction. Thus, Quas application for the issuance of a preliminary injunction became moot. [12]

Trial in Foreclosure Case No. 88-2643 ensued. RGC and Gervel offered Quas Motion to Dismiss [13] in Collection

Case No. 8364 as basis for the foreclosure of Quas pledged shares. Quas Motion to Dismiss states:

8. The foregoing facts show that the payment of defendants Republic Glass Corporation
and Gervel, Inc. was for the entire obligation covered by the Continuing Surety Agreements
which were Annexes B and C of the Complaint, and that the same naturally redound[ed] to the
benefit of defendant Qua herein, as provided for by law, specifically Article 1217 of the Civil
Code, which states that:

xxx

10. It is very clear that the payment of defendants Republic Glass Corporation and Gervel, Inc. was much
more than the amount stipulated in the Continuing Surety Agreement which is the basis for the
action against them and defendant Qua, which was just SIX MILLION TWO HUNDRED
 [THOUSAND] PESOS (P6,200,000.00), hence, logically the said alleged obligation must now
be considered as fully paid and extinguished.

RGC and Gervel likewise offered as evidence in Foreclosure Case No. 88-2643 the Order dismissing Collection

Case No. 8364,[14] which RTC-Branch 149 subsequently reversed on Metrobanks motion for reconsideration. Thus, RTC-

Branch 149 reinstated Collection Case No. 8364 against Qua.

On 12 January 1996, RTC-Branch 63 rendered a Decision in Foreclosure Case No. 88-2643 (12 January 1996

Decision) ordering RGC and Gervel to return the foreclosed shares of stock to Qua. The dispositive portion of the 12

January 1996 Decision reads:

WHEREFORE, premises considered, this Court hereby renders judgment ordering defendants
jointly and severally liable to return to plaintiff the 1,892,360 shares of common stock of General Milling
Corporation which they foreclosed on December 9, 1988, or should the return of these shares be no
longer possible then to pay to plaintiff the amount of P3,860,646.00 with interest at 6% per annum from
December 9, 1988 until fully paid and to pay plaintiff P100,000.00 as and for attorneys fees. The costs
will be for defendants account.

SO ORDERED.[15]

However, on RGC and Gervels Motion for Reconsideration, RTC-Branch 63 issued its Order of 3 May 1996 (3 May

1996 Order) reconsidering and setting aside the 12 January 1996 Decision. The 3 May 1996 Order states:

After a thorough review of the records of the case, and an evaluation of the evidence adduced
by the parties as well as their contentions, the issues to be resolved boil down to the following:

1. Whether or not the parties obligation to reimburse, under the Indemnity Agreements
was premised on the payment by any of them of the entire obligation;

2. Whether or not there is basis to plaintiffs apprehension that he would be made to

pay twice for the single obligation; and

3. Whether or not plaintiff was benefited by the payments made by defendants.

Regarding the first issue, a closer scrutiny of the pertinent provisions of the Indemnity
Agreements executed by the parties would not reveal any significant indication that the parties liabilities
are indeed premised on the payment by any of them of the entire obligation. These agreements clearly
provide that the parties obligation to reimburse accrues upon mere advice that one of them has paid or
will so pay the obligation. It is not specified whether the payment is for the entire obligation or not.

Accordingly, the Court stands corrected in this regard. The obvious conclusion that can be
seen now is that payment of the entire obligation is not a condition sine qua non for the paying
party to demand reimbursement. The parties have expressly contracted that each will reimburse
whoever is made to pay the obligation whether entirely or just a portion thereof.

On the second issue, plaintiffs apprehension that he would be made to pay twice for the single
obligation is unfounded. Under the above-mentioned Indemnity Agreements, in the event that the
creditors are able to collect from him, he has the right to ask defendants to pay their proportionate share,
in the same way defendants had collected from the plaintiff, by foreclosing his pledged shares of stock,
 his proportionate share, after they had made payments. From all indications, the provisions of the
Indemnity Agreements have remained binding between the parties.

On the third issue, there is merit to defendants assertion that plaintiff has benefited from the
payments made by defendants. As alleged by defendants, and this has not been denied by plaintiff,
in Civil Case No. 8364 filed before Branch 149 of this Court, where the creditors were enforcing
the parties liabilities as sureties, plaintiff succeeded in having the case dismissed by arguing that
defendants payments [were] for the entire obligation, hence, the obligation should be considered
fully paid and extinguished. With the dismissal of the case, the indications are that the creditors are no
longer running after plaintiff to enforce his liabilities as surety of Ladtek.

Whether or not the surety agreements signed by the parties and the creditors were novated is
not material in this controversy. The fact is that there was payment of the obligation.Hence, the Indemnity
Agreements govern.

In the final analysis, defendants payments gave rise to plaintiffs obligation to reimburse the
former. Having failed to do so, upon demand, defendants were justified in foreclosing the pledged shares
of stocks.

xxx

WHEREFORE, premises considered, the decision dated January 12, 1996 is reconsidered and
set aside. The above-entitled complaint against defendants is DISMISSED.

Likewise, defendants counterclaim is also dismissed.

SO ORDERED.[16] (Emphasis supplied)

Qua filed a motion for reconsideration of the 3 May 1996 Order which RTC-Branch 63 denied.

Aggrieved, Qua appealed to the Court of Appeals. During the pendency of the appeal, Qua filed a

Manifestation[17] with the Court of Appeals attaching the Decision [18]of 21 November 1996 rendered in Collection Case No.

8364. The dispositive portion of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendants Ladtek,
Inc. and Lawrence C. Qua:

1. To pay, jointly and severally, the plaintiff the amount of P44,552,738.34 as of

October 31, 1987 plus the stipulated interest of 30.73% per annum and penalty charges of 12% per
annum from November 1, 1987 until the whole amount is fully paid, less P7,000,000.00 paid by
defendants Republic Glass Corporation and Gervel, Inc., but the liability of defendant Lawrence C.
Qua should be limited only to P5,000,000.00 and P1,200,000.00, the amount stated in the
Continuing Suretyship dated June 15, 1983, Exh. D and Continuing Suretyship dated December
14, 1981, Exh. D-1, respectively, plus the stipulated interest and expenses incurred by the plaintiff.

2. To pay, jointly and severally, the plaintiff an amount equivalent to ten (10%)
percent of the total amount due as and by way of attorneys fees;

3. To pay the cost of suit.

The Counterclaims of the defendants Ladtek, Inc. and Lawrence C. Qua against the plaintiff are
hereby dismissed.

Likewise, the cross-claims of the defendants are dismissed.

SO ORDERED.[19] (Emphasis supplied)

On 6 March 2000, the Court of Appeals rendered the questioned Decision setting aside the 3 May 1996 Order of RTC-

Branch 63 and reinstating the 12 January 1996 Decision ordering RGC and Gervel to return the foreclosed shares of stock

to Qua.[20]

Hence, this petition.

The Ruling of the Court of Appeals

In reversing the 3 May 1996 Order and reinstating the 12 January 1996 Decision, the appellate court quoted the RTC-

Branch 63s 12 January 1996 Decision:

The liability of each party under the indemnity agreements therefore is premised on the payment by any
of them of the entire obligation. Without such payment, there would be no corresponding share to
reimburse. Payment of the entire obligation naturally redounds to the benefit of the other solidary debtors
who must then reimburse the paying co-debtors to the extent of his corresponding share.
In the case at bar, Republic Glass and Gervel made partial payments only, and so they did not extinguish
the entire obligation. But Republic Glass and Gervel nevertheless obtained quitclaims in their favor and
so they ceased to be solidarily liable with plaintiff for the balance of the debt (Exhs. D, E, and I). Plaintiff
thus became solely liable for the unpaid portion of the debt even as he is being held liable for
reimbursement on the said portion.

What happened therefore, was that Metrobank and PDCP in effect enforced the Suretyship Agreements
jointly as against plaintiff and defendants. Consequently, the solidary obligation under the Suretyship
Agreements was novated by the substantial modification of its principal conditions. xxx The resulting
change was from one with three solidary debtors to one in which Lawrence Qua became the sole solidary
co-debtor of Ladtek.

Defendants cannot simply pay off a portion of the debt and then absolve themselves from any further
liability when the obligation has not been totally extinguished.

xxx

In the final reckoning, this Court finds that the foreclosure and sale of the shares pledged by plaintiff was
totally unjustified and without basis because the obligation secured by the underlying pledge had been
extinguished by novation. xxx[21]

The Court of Appeals further held that there was an implied novation or substantial incompatibility in the suretys mode or

manner of payment from one for the entire obligation to one merely of proportionate share. The appellate court ruled that

RGC and Gervels payment to the creditors only amounted to their proportionate shares of the obligation, considering the

following evidence:
The letter of the Republic to the appellant, Exhibit G, dated June 25, 1987, which mentioned the letter
from PDCP confirming its willingness to release the joint and solidary obligation of the Republic and
 Gervel subject to some terms and conditions, one of which is the appellants acceptable repayment plan
of his pro-rata share; and the letter of PDCP to the Republic, Exhibit H, mentioning full payment of the
pro rata share of the Republic and Gervel, and the need of the appellant to submit an acceptable
repayment plan covering his pro-rata share, the release from solidary liability by PDCP, Exhibit J,
mentioning full payment by the Republic and Gervel of their pro rata share in the loan, as solidary
obligors, subject however to the terms and conditions of the hold out agreement; and the non-payment in
full of the loan, subject of the May 10, 1984 Promissory Note, except the 7 million payment by both
Republic and Gervel, as mentioned in the Decision (Case No. 8364, Metrobank vs. Ladtek, et
al). Precisely, Ladtek and the appellant, in said Decision were directed to pay Metrobank the balance
of P9,560,798, supposedly due and unpaid.

Thus, the payment did not extinguish the entire obligation and did not benefit Qua. Accordingly, RGC and Gervel cannot

demand reimbursement. The Court of Appeals also held that Qua even became solely answerable for the unpaid balance of

the obligations by virtue of the quitclaims executed by Metrobank and PDCP in favor of RGC and Gervel. RGC and Gervel

ceased to be solidarily liable for Ladteks loan obligations.[22]

The Issues

RGC and Gervel raise the following issues for resolution:

I.
WHETHER THE PRINCIPLE OF ESTOPPEL APPLIES TO QUAS JUDICIAL STATEMENTS THAT RGC
AND GERVEL PAID THE ENTIRE OBLIGATION.

II.
WHETHER PAYMENT OF THE ENTIRE OBLIGATION IS A CONDITION SINE QUA NON FOR RGC
AND GERVEL TO DEMAND REIMBURSEMENT FROM QUA UNDER THE INDEMNITY AGREEMENTS
EXECUTED BY THEM AFTER RGC AND GERVEL PAID METROBANK UNDER THE SURETY
AGREEMENT.

III.
ASSUMING ARGUENDO THAT THERE WAS NOVATION OF THE SURETY AGREEMENTS SIGNED
BY THE PARTIES AND THE CREDITORS, WHETHER THE NOVATION IS MATERIAL IN THIS CASE. [23]

The Courts Ruling

We deny the petition.

Whether Qua was in estoppel

RGC and Gervel contend that Qua is in estoppel for making conflicting statements in two different and separate cases. Qua

cannot now claim that the payment made to Metrobank was not for the entire obligation because of his Motion to Dismiss

Collection Case No. 8364 where he stated that RGC and Gervels payment was for the entireobligation.

The essential elements of estoppel in pais are considered in relation to the party to be estopped, and to the party

invoking the estoppel in his favor. On the party to be estopped, such party (1) commits conduct amounting to false

representation or concealment of material facts or at least calculated to convey the impression that the facts are inconsistent

with those which the party subsequently attempts to assert; (2) has the intent, or at least expectation that his conduct shall at

least influence the other party; and (3) has knowledge, actual or constructive, of the real facts. On the party claiming the

estoppel, such party (1) has lack of knowledge and of the means of knowledge of the truth on the facts in question; (2) has

relied, in good faith, on the conduct or statements of the party to be estopped; (3) has acted or refrained from acting based

on such conduct or statements as to change the position or status of the party claiming the estoppel, to his injury, detriment

or prejudice.[24]

In this case, the essential elements of estoppel are inexistent.

While Quas statements in Collection Case No. 8364 conflict with his statements in Foreclosure Case No. 88-2643,

RGC and Gervel miserably failed to show that Qua, in making those statements, intended to falsely represent or conceal the

material facts. Both parties undeniably know the real facts.

Nothing in the records shows that RGC and Gervel relied on Quas statements in Collection Case No. 8364 such

that they changed their position or status, to their injury, detriment or prejudice. RGC and Gervel repeatedly point out that it

was the presiding judge[25] in Collection Case No. 8364 who relied on Quas statements in Collection Case No. 8364. RGC

and Gervel claim that Qua deliberately led the Presiding Judge to believe that their payment to Metrobank was for the entire

obligation. As a result, the presiding judge ordered the dismissal of Collection Case No. 8364 against Qua. [26]

RGC and Gervel further invoke Section 4 of Rule 129 of the Rules of Court to support their stance:
 Sec. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the
proceedings in the same case, does not require proof. The admission may be contradicted only by
showing that it was made through palpable mistake or that no such admission was made.

A party may make judicial admissions in (a) the pleadings filed by the parties, (b) during the trial either by verbal or written

manifestations or stipulations, or (c) in other stages of the judicial proceeding. [27]

The elements of judicial admissions are absent in this case. Qua made conflicting statements in Collection Case

No. 8364 and in Foreclosure Case No. 88-2643, and not in the same case as required in Section 4 of Rule 129. To

constitute judicial admission, the admission must be made in the same case in which it is offered. If made in another case or

in another court, the fact of such admission must be proved as in the case of any other fact, although if made in a judicial

proceeding it is entitled to greater weight.[28]

RGC and Gervel introduced Quas Motion to Dismiss and the Order dismissing Collection Case No. 8364 to prove

Quas claim that the payment was for the entire obligation. Qua does not deny making such statement but explained that he

honestly believed and pleaded in the lower court and in CA-G.R. CV No. 58550 that the entire debt was fully extinguished

when the petitioners paid P7 million to Metrobank.[29]

We find Quas explanation substantiated by the evidence on record. As stated in the Agreements, Ladteks original

loan from Metrobank was only P6.2 million. Therefore, Qua reasonably believed that RGC and Gervels P7 million payment

to Metrobank pertained to the entire obligation. However, subsequent facts indisputably show that RGC and Gervels

payment was not for the entire obligation. RTC-Branch 149 reinstated Collection Case No. 8364 against Qua and ruled in

Metrobanks favor, ordering Qua to pay P6.2 million.

Whether payment of the entire obligation is an

essential condition for reimbursement

RGC and Gervel assail the Court of Appeals ruling that the parties liabilities under the Agreements depend on

the full payment of the obligation. RGC and Gervel insist that it is not an essential condition that the entire obligation must
first be paid before they can seek reimbursement from Qua. RGC and Gervel contend that Qua should pay 42.22% of any

amount which they paid or would pay Metrobank and PDCP.

RGC and Gervels contention is partly meritorious.

Payment of the entire obligation by one or some of the solidary debtors results in a corresponding obligation of the

other debtors to reimburse the paying debtor.[30]However, we agree with RGC and Gervels contention that in this case

payment of the entire obligation is not an essential condition before they can seek reimbursement from Qua. The words of

the Agreements are clear.

RGC, GERVEL and QUA each covenant that each will respectively reimburse the party made to
pay the Lenders to the extent and subject to the limitations set forth herein, all sums of money which
the party made to pay the Lenders shall pay or become liable to pay by reason of any of the
foregoing, and will make such payments within five (5) days from the date that the party made to pay the
Lenders gives written notice to the parties hereto that it shall have become liable therefor and has
advised the Lenders of its willingness to pay whether or not it shall have already paid out such
sum or any part thereof to the Lenders or to the persons entitled thereto. (Emphasis supplied)

The Agreements are contracts of indemnity not only against actual loss but against liability as well. In Associated

Insurance & Surety Co., Inc. v. Chua,[31] we distinguished between a contract of indemnity against loss and a contract of

indemnity against liability, thus:[32]

The agreement here sued upon is not only one of indemnity against loss but of indemnity against
liability. While the first does not render the indemnitor liable until the person to be indemnified makes
payment or sustains loss, the second becomes operative as soon as the liability of the person
indemnified arises irrespective of whether or not he has suffered actual loss. (Emphasis supplied)

Therefore, whether the solidary debtor has paid the creditor, the other solidary debtors should indemnify the former once his

liability becomes absolute. However, in this case, the liability of RGC, Gervel and Qua became absolute simultaneously

when Ladtek defaulted in its loan payment. As a result, RGC, Gervel and Qua all became directly liable at the same time to

Metrobank and PDCP. Thus, RGC and Gervel cannot automatically claim for indemnity from Qua because Qua himself is

liable directly to Metrobank and PDCP.

If we allow RGC and Gervel to collect from Qua his proportionate share, then Qua would pay much more than his

stipulated liability under the Agreements. In addition to the P3,860,646 claimed by RGC and Gervel, Qua would have to pay

his liability of P6.2 million to Metrobank and more than P1 million to PDCP. Since Qua would surely exceed his proportionate

share, he would then recover from RGC and Gervel the excess payment. This situation is absurd and circuitous.
 Contrary to RGC and Gervels claim, payment of any amount will not automatically result in reimbursement. If a

solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so far as his

payment exceeded his share in the obligation. [33] This is precisely because if a solidary debtor pays an amount equal to his

proportionate share in the obligation, then he in effect pays only what is due from him. If the debtor pays less than his share

in the obligation, he cannot demand reimbursement because his payment is less than his actual debt.

To determine whether RGC and Gervel have a right to reimbursement, it is indispensable to ascertain the total

obligation of the parties. At this point, it becomes necessary to consider the decision in Collection Case No. 8364 on the

parties obligation to Metrobank. To repeat, Metrobank filed Collection Case No. 8364 against Ladtek, RGC, Gervel and Qua

to collect Ladteks unpaid loan.

RGC and Gervel assail the Court of Appeals consideration of the decision in Collection Case No. 8364 [34] because

Qua did not offer the decision in evidence during the trial in Foreclosure Case No. 88-2643 subject of this petition. RTC-

Branch 62[35] rendered the decision in Collection Case No. 8364 on 21 November 1996 while Qua filed his Notice of Appeal

of the 3 May 1996 Order on 19 June 1996. Qua could not have possibly offered in evidence the decision in Collection Case

No. 8364 because RTC-Branch 62 rendered the decision only after Qua elevated the present case to the Court of Appeals.

Hence, Qua submitted the decision in Collection Case No. 8364 during the pendency of the appeal of Foreclosure Case No.

88-2643 in the Court of Appeals.

As found by RTC-Branch 62, RGC, Gervel and Quas total obligation was P14,200,854.37 as of 31 October 1987.
[36]
During the pendency of Collection Case No. 8364, RGC and Gervel paid Metrobank P7 million. Because of the payment,

Metrobank executed a quitclaim[37] in favor of RGC and Gervel. By virtue of Metrobanks quitclaim, RTC-Branch 62 dismissed

Collection Case No. 8364 against RGC and Gervel, leaving Ladtek and Qua as defendants. Considering that RGC and

Gervel paid only P7 million out of the total obligation of P14,200,854.37, which payment was less than RGC and Gervels

combined shares in the obligation,[38] it was clearly partial payment. Moreover, if it were full payment, then the obligation

would have been extinguished. Metrobank would have also released Qua from his obligation.

RGC and Gervel also made partial payment to PDCP. Proof of this is the Release from Solidary Liability that PDCP

executed in RGC and Gervels favor which stated that their payment of P1,730,543.55 served as full payment of their

corresponding proportionate share in Ladteks foreign currency loan. [39] Moreover, PDCP filed a collection case against Qua

alone, docketed as Civil Case No. 2259, in the Regional Trial Court of Makati, Branch 150. [40]
 Since they only made partial payments, RGC and Gervel should clearly and convincingly show that their payments

to Metrobank and PDCP exceeded their proportionate shares in the obligations before they can seek reimbursement from

Qua. This RGC and Gervel failed to do. RGC and Gervel, in fact, never claimed that their payments exceeded their shares in

the obligations. Consequently, RGC and Gervel cannot validly seek reimbursement from Qua.

Whether there was novation of the Agreements

RGC and Gervel contend that there was no novation of the Agreements. RGC and Gervel further contend that any novation

of the Agreements is immaterial to this case. RGC and Gervel disagreed with the Court of Appeals on the effect of the

implied novation which supposedly transpired in this case. The Court of Appeals found that there was an implied novation or

substantial incompatibility in the mode or manner of payment by the surety from the entire obligation, to one merely of

proportionate share. RGC and Gervel claim that if it is true that an implied novation occurred, then the effect would be to

release respondent (Qua) as the entire obligation is considered extinguished by operation of law. Thus, Qua should now

reimburse RGC and Gervel his proportionate share under the surety agreements.

Novation extinguishes an obligation by (1) changing its object or principal conditions; (2) substituting the person of

the debtor; and (3) subrogating a third person in the rights of the creditor. Article 1292 of the Civil Code clearly provides that

in order that an obligation may be extinguished by another which substitutes the same, it should be declared in unequivocal

terms, or that the old and new obligations be on every point incompatible with each other. [41] Novation may either be

extinctive or modificatory.Novation is extinctive when an old obligation is terminated by the creation of a new obligation that

takes the place of the former. Novation is merely modificatory when the old obligation subsists to the extent it remains

compatible with the amendatory agreement.[42]

We find that there was no novation of the Agreements. The parties did not constitute a new obligation to substitute

the Agreements. The terms and conditions of the Agreements remain the same. There was also no showing of complete

incompatibility in the manner of payment of the parties obligations. Contrary to the Court of Appeals ruling, the mode or

manner of payment by the parties did not change from one for the entire obligation to one merely of proportionate

share. The creditors, namely Metrobank and PDCP, merely proceeded against RGC and Gervel for their proportionate

shares only.[43] This preference is within the creditors discretion which did not necessarily affect the nature of the obligations

as well as the terms and conditions of the Agreements. A creditor may choose to proceed only against some and not all of
the solidary debtors. The creditor may also choose to collect part of the debt from some of the solidary debtors, and the

remaining debt from the other solidary debtors.

In sum, RGC and Gervel have no legal basis to seek reimbursement from Qua. Consequently, RGC and Gervel

cannot validly foreclose the pledge of Quas GMC shares of stock which secured his obligation to reimburse. [44] Therefore,

the foreclosure of the pledged shares of stock has no leg to stand on.

WHEREFORE, we DENY the petition. The Decision dated 6 March 2000 of the Court of Appeals in CA-G.R. CV No. 54737

is AFFIRMED. Costs against petitioners.

SO ORDERED.
[G.R. No. 101723. May 11, 2000]

INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP. (INIMACO), petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, (Fourth Division) Cebu City, and ENRIQUE SULIT, SOCORRO MAHINAY, ESMERALDO
PEGARIDO, TITA BACUSMO, GINO NIERE, VIRGINIA BACUS, ROBERTO NEMENZO, DARIO GO, and ROBERTO
ALEGARBES, respondents.

DECISION

BUENA, J.:

This is a petition for certiorari assailing the Resolution dated September 4, 1991 issued by the National Labor Relations
Commission in RAB-VII-0711-84 on the alleged ground that it committed a grave abuse of discretion amounting to lack of
jurisdiction in upholding the Alias Writ of Execution issued by the Labor Arbiter which deviated from the dispositive portion of
the Decision dated March 10, 1987, thereby holding that the liability of the six respondents in the case below is solidary
despite the absence of the word "solidary" in the dispositive portion of the Decision, when their liability should merely be
joint. S-jcj

The factual antecedents are undisputed: Supr-eme

In September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo Pegarido, Tita Bacusmo, Gino Niere,
Virginia Bacus, Roberto Nemenzo, Dariogo, and Roberto Alegarbes filed a complaint with the Department of Labor and
Employment, Regional Arbitration Branch No. VII in Cebu City against Filipinas Carbon Mining Corporation, Gerardo Sicat,
Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner Industrial Management Development Corporation
(INIMACO), for payment of separation pay and unpaid wages. Sc-jj

In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B. Tumamak held that:

"RESPONSIVE, to all the foregoing, judgment is hereby entered, ordering respondents Filipinas Carbon
and Mining Corp. Gerardo Sicat, Antonio Gonzales/Industrial Management Development Corp.
(INIMACO), Chiu Chin Gin and Lo Kuan Chin, to pay complainants Enrique Sulit, the total award of
P82,800.00; ESMERALDO PEGARIDO the full award of P19,565.00; Roberto Nemenzo the total sum of
P29,623.60 and DARIO GO the total award of P6,599.71, or the total aggregate award of ONE
HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND 31/100
(P138,588.31) to be deposited with this Commission within ten (10) days from receipt of this Decision for
appropriate disposition. All other claims are hereby Dismiss (sic) for lack of merit. Jjs-c

"SO ORDERED.

"Cebu City, Philippines.

 "10 March 1987."0[1]

No appeal was filed within the reglementary period thus, the above Decision became final and executory. On June 16, 1987,
the Labor Arbiter issued a writ of execution but it was returned unsatisfied. On August 26, 1987, the Labor Arbiter issued an
Alias Writ of Execution which ordered thus: Ed-pm-is

"NOW THEREFORE, by virtue of the powers vested in me by law, you are hereby commanded to
proceed to the premises of respondents Antonio Gonzales/Industrial Management Development
Corporation (INIMACO) situated at Barangay Lahug, Cebu City, in front of La Curacha
Restaurant, and/or to Filipinas Carbon and Mining corporation and Gerardo Sicat at 4th Floor Universal
RE-Bldg. 106 Paseo de Roxas, Legaspi Village, Makati Metro Manila and at Philippine National Bank,
Escolta, Manila respectively, and collect the aggregate award of ONE HUNDRED THIRTY-EIGHT
THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND THIRTY ONE CENTAVOS (P138,588.31)
and thereafter turn over said amount to complainants ENRIQUE SULIT, ESMERALDO PEGARIDO,
ROBERTO NEMENZO AND DARIO GO or to this Office for appropriate disposition. Should you fail to
collect the said sum in cash, you are hereby authorized to cause the satisfaction of the same on the
movable or immovable property(s) of respondents not exempt from execution. You are to return this writ
sixty (6) (sic) days from your receipt hereof, together with your corresponding report.

"You may collect your legal expenses from the respondents as provided for by law.

"SO ORDERED."[2]

On September 3, 1987, petitioner filed a "Motion to Quash Alias Writ of Execution and Set Aside Decision," [3] alleging among
others that the alias writ of execution altered and changed the tenor of the decision by changing the liability of therein
respondents from joint to solidary, by the insertion of the words "AND/OR" between "Antonio Gonzales/Industrial
Management Development Corporation and Filipinas Carbon and Mining Corporation, et al." However, in an order dated
September 14, 1987, the Labor Arbiter denied the motion. Mis-oedp

On October 2, 1987, petitioner appealed[4] the Labor Arbiters Order dated September 14, 1987 to the respondent
NLRC. Mis-edp

The respondent NLRC dismissed the appeal in a Decision[5] dated August 31, 1988, the pertinent portions of which read:

"In matters affecting labor rights and labor justice, we have always adopted the liberal approach which
favors the exercise of labor rights and which is beneficial to labor as a means to give full meaning and
import to the constitutional mandate to afford protection to labor. Considering the factual circumstances in
this case, there is no doubt in our mind that the respondents herein are called upon to pay, jointly and
severally, the claims of the complainants as was the latters prayers. Inasmuch as respondents herein
never controverted the claims of the complainants below, there is no reason why complainants prayer
should not be granted. Further, in line with the powers granted to the Commission under Article 218 (c) of
the Labor code, to waive any error, defect or irregularity whether in substance or in form in a proceeding
before Us, We hold that the Writ of Execution be given due course in all respects." Ed-p

On July 31, 1989, petitioner filed a "Motion To Compel Sheriff To Accept Payment Of P23,198.05 Representing One Sixth
Pro Rata Share of Respondent INIMACO As Full and Final Satisfaction of Judgment As to Said Respondent." [6] The private
respondents opposed the motion. In an Order[7] dated August 15, 1989, the Labor Arbiter denied the motion ruling thus:

"WHEREFORE, responsive to the foregoing respondent INIMACOs Motions are hereby DENIED. The
Sheriff of this Office is order (sic) to accept INIMACOs tender payment (sic) of the sum of P23,198.05, as
partial satisfaction of the judgment and to proceed with the enforcement of the Alias Writ of Execution of
the levied properties, now issued by this Office, for the full and final satisfaction of the monetary award
granted in the instant case.

"SO ORDERED." Ed-psc

Petitioner appealed the above Order of the Labor Arbiter but this was again dismissed by the respondent NLRC in its
Resolution[8] dated September 4, 1991 which held that:
 "The arguments of respondent on the finality of the dispositive portion of the decision in this case is
beside the point. What is important is that the Commission has ruled that the Writ of Execution issued by
the Labor Arbiter in this case is proper. It is not really correct to say that said Writ of Execution varied the
terms of the judgment. At most, considering the nature of labor proceedings there was, an ambiguity in
said dispositive portion which was subsequently clarified by the Labor Arbiter and the Commission in the
incidents which were initiated by INIMACO itself. By sheer technicality and unfounded assertions,
INIMACO would now reopen the issue which was already resolved against it. It is not in keeping with the
established rules of practice and procedure to allow this attempt of INIMACO to delay the final disposition
of this case.

"WHEREFORE, in view of all the foregoing, this appeal is DISMISSED and the Order appealed from is
hereby AFFIRMED. Sce-dp

"With double costs against appellant."

Dissatisfied with the foregoing, petitioner filed the instant case, alleging that the respondent NLRC committed grave abuse of
discretion in affirming the Order of the Labor Arbiter dated August 15, 1989, which declared the liability of petitioner to be
solidary.

The only issue in this petition is whether petitioners liability pursuant to the Decision of the Labor Arbiter dated March 10,
1987, is solidary or not. Calrs-pped

Upon careful examination of the pleadings filed by the parties, the Court finds that petitioner INIMACOs liability is not
solidary but merely joint and that the respondent NLRC acted with grave abuse of discretion in upholding the Labor Arbiters
Alias Writ of Execution and subsequent Orders to the effect that petitioners liability is solidary.

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation.[9] In a joint obligation each obligor answers only for a part of the whole liability and to
each obligee belongs only a part of the correlative rights.[10]

Well-entrenched is the rule that solidary obligation cannot lightly be inferred. [11] There is a solidary liability only when the
obligation expressly so states, when the law so provides or when the nature of the obligation so requires. [12]

In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The said fallo expressly states the
following respondents therein as liable, namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat, Antonio Gonzales,
Industrial Management Development Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be
inferred therefrom that the liability of the six (6) respondents in the case below is solidary, thus their liability should merely be
joint.

Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment that the
defendants are liable to pay jointly and severally a certain sum of money, none of them may be compelled to satisfy in full
said judgment. In Oriental Commercial Co. vs. Abeto and Mabanag [13] this Court held:

"It is of no consequence that, under the contract of suretyship executed by the parties, the obligation
contracted by the sureties was joint and several in character. The final judgment, which superseded the
action for the enforcement of said contract, declared the obligation to be merely joint, and the same
cannot be executed otherwise."[14]

Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive portion that the liability of
respondents therein is solidary, the correction -- which is substantial -- can no longer be allowed in this case because the
judgment has already become final and executory. Scc-alr

It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part
of a decision or order is the controlling factor as to settlement of rights of the parties. [15] Once a decision or order becomes
final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. [16] It
thereby becomes immutable and unalterable and any amendment or alteration which substantially affects a final and
executory judgment is null and void for lack of jurisdiction, including the entire proceedings held for that purpose. [17] An order
of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity.[18]
None of the parties in the case before the Labor Arbiter appealed the Decision dated March 10, 1987, hence the same
became final and executory. It was, therefore, removed from the jurisdiction of the Labor Arbiter or the NLRC to further alter
or amend it. Thus, the proceedings held for the purpose of amending or altering the dispositive portion of the said decision
are null and void for lack of jurisdiction. Also, the Alias Writ of Execution is null and void because it varied the tenor of the
judgment in that it sought to enforce the final judgment against "Antonio Gonzales/Industrial Management Development
Corp. (INIMACO) and/or Filipinas Carbon and Mining Corp. and Gerardo Sicat," which makes the liability solidary. Ca-lrsc

WHEREFORE, the petition is hereby GRANTED. The Resolution dated September 4, 1991 of the respondent National
Labor Relations is hereby declared NULL and VOID. The liability of the respondents in RAB-VII-0711-84 pursuant to the
Decision of the Labor Arbiter dated March 10, 1987 should be, as it is hereby, considered joint and petitioners payment
which has been accepted considered as full satisfaction of its liability, without prejudice to the enforcement of the award,
against the other five (5) respondents in the said case. Sppedsc

SO ORDERED.

G.R. No. 104408 June 21, 1993

METRO MANILA TRANSIT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS AND NENITA CUSTODIA, respondents.

Office of the Government Corporate Counsel for petitioner.

Renato P. Decena and Restituto Abjero for private respondent.

REGALADO, J.:

This appeal calls for a review of the legal validity and sufficiency of petitioner's invocation of due diligence in the selection
and supervision of employees as its defense against liability resulting from a vehicular collision. With the facility by which
such a defense can be contrived and our country having reputedly the highest traffic accident rate in its geographical region,
it is indeed high time for us to once again address this matter which poses not only a litigation issue for the courts but affects
the very safety of our streets.

The facts of the case at bar are recounted for us by respondent court, thus

At about six o'clock in the morning of August 28, 1979, plaintiff-appellant Nenita Custodio boarded as a
paying passenger a public utility jeepney with plate No. D7 305 PUJ Pilipinas 1979, then driven by
defendant Agudo Calebag and owned by his co-defendant Victorino Lamayo, bound for her work at
Dynetics Incorporated located in Bicutan, Taguig, Metro Manila, where she then worked as a machine
operator earning P16.25 a day. While the passenger jeepney was travelling at (a) fast clip along DBP
Avenue, Bicutan, Taguig, Metro Manila another fast moving vehicle, a Metro Manila Transit Corp. (MMTC,
for short) bus bearing plate no. 3Z 307 PUB (Philippines) "79 driven by defendant Godofredo C.
Leonardo was negotiating Honeydew Road, Bicutan, Taguig, Metro Manila bound for its terminal at
Bicutan. As both vehicles approached the intersection of DBP Avenue and Honeydew Road they failed to
slow down and slacken their speed; neither did they blow their horns to warn approaching vehicles. As a
consequence, a collision between them occurred, the passenger jeepney ramming the left side portion of
the MMTC bus. The collision impact caused plaintiff-appellant Nenita Custodio to hit the front windshield
of the passenger jeepney and (she) was thrown out therefrom, falling onto the pavement unconscious
with serious physical injuries. She was brought to the Medical City Hospital where she regained
consciousness only after one (1) week. Thereat, she was confined for twenty-four (24) days, and as a
consequence, she was unable to work for three and one half months (31/2). 1

A complaint for damages 2 was filed by herein private respondent, who being then a minor was assisted by her parents,
against all of therein named defendants following their refusal to pay the expenses incurred by the former as a result of the
collision.
Said defendants denied all the material allegations in the complaint and pointed an accusing finger at each other as being
the party at fault. Further, herein petitioner Metro Manila Transit Corporation (MMTC), a government-owned corporation and
one of the defendants in the court a quo, along with its driver, Godofredo Leonardo, contrarily averred in its answer with
cross-claim and counterclaim 3 that the MMTC bus was driven in a prudent and careful manner by driver Leonardo and that it
was the passenger jeepney which was driven recklessly considering that it hit the left middle portion of the MMTC bus, and
that it was defendant Lamayo, the owner of the jeepney and employer of driver Calebag, who failed to exercise due
diligence in the selection and supervision of employees and should thus be held solidarily liable for damages caused to the
MMTC bus through the fault and negligence of its employees.

Defendant Victorino Lamayo, for his part, alleged in his answer with cross-claim and counterclaim 4 that the damages
suffered by therein plaintiff should be borne by defendants MMTC and its driver, Godofredo Leonardo, because the latter's
negligence was the sole and proximate cause of the accident and that MMTC failed to exercise due diligence in the
selection and supervision of its employees.

By order of the trial court, defendant Calebag was declared in default for failure to file an answer. 5 Thereafter, as no
amicable settlement was reached during the pre-trial conference, 6 trial on the merits ensued with the opposing parties
presenting their respective witnesses and documentary evidence.

Herein private respondent Nenita Custodia, along with her parents, were presented as witnesses for the prosecution. In
addition, Dr. Edgardo del Mundo, the attending physician, testified on the cause, nature and extent of the injuries she
sustained as a result of the vehicular mishap. 7 On the other hand, defendant MMTC presented as witnesses Godofredo
Leonardo, Christian Bautista and Milagros Garbo. Defendant Lamayo, however, failed to present any witness.

Milagros Garbo testified that, as a training officer of MMTC, she was in charge of the selection of the company's bus drivers,
conducting for this purpose a series of training programs and examinations. According to her, new applicants for job
openings at MMTC are preliminarily required to submit certain documents such as National Bureau of Investigation (NBI)
clearance, birth or residence certificate, ID pictures, certificate or diploma of highest educational attainment, professional
driver's license, and work experience certification. Re-entry applicants, aside from the foregoing requirements, are
additionally supposed to submit company clearance for shortages and damages and revenue performance for the preceding
year. Upon satisfactory compliance with said requisites, applicants are recommended for and subjected to a Preliminary
interview, followed by a record check to find out whether they are included in the list of undesirable employees given by
other companies.

Thereafter, she continued, if an applicant is found to be acceptable, a final interview by the Chief Supervisor is scheduled
and followed by a training program which consists of seminars and actual driving and Psycho-physical tests and X-ray
examinations. The seminars, which last for a total of eighteen (18) days, include familiarization with assigned routes, existing
traffic rules and regulations, Constabulary Highway Patrol Group (CHPG) seminar on defensive driving, preventive
maintenance, proper vehicle handling, interpersonal relationship ,and administrative rules on discipline and on-the-job
training. Upon completion of all the seminars and tests, a final clearance is issued, an employment contract is executed and
the driver is ready to report for duty. 8

MMTC's Transport Supervisor, Christian Bautista, testified that it was his duty to monitor the daily operation of buses in the
field, to countercheck the dispatcher on duty prior to the operation of the buses in the morning and to see to it that the bus
crew follow written guidelines of the company, which include seeing to it that its employees are in proper uniform, briefed in
traffic rules and regulations before the start of duty, fit to drive and, in general, follow other rules and regulations of the
Bureau of Land Transportation as well as of the company. 9

The reorganized trial court, in its decision of August 1, 1989, 10 found both drivers of the colliding vehicles concurrently
negligent for non-observance of appropriate traffic rules and regulations and for failure to take the usual precautions when
approaching an intersection. As joint tortfeasors, both drivers, as well as defendant Lamayo, were held solidarily liable for
damages sustained by plaintiff Custodio. Defendant MMTC, on the bases of the evidence presented was, however, absolved
from liability for the accident on the ground that it was not only careful and diligent in choosing and screening applicants for
job openings but was also strict and diligent in supervising its employees by seeing to it that its employees were in proper
uniforms, briefed in traffic rules and regulations before the start of duty, and that it checked its employees to determine
whether or not they were positive for alcohol and followed other rules and regulations and guidelines of the Bureau of Land
Transportation and of the company.

The trial court accordingly ruled:

 WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered dismissing the complaint
against the Metro Manila Transit Corporation and ordering defendants Agudo P. Calebag, Victorino
Lamayo and Godofredo C. Leonardo to pay plaintiffs, jointly and severally, the following:

a) the sum of P10,000.00 by way of medical expenses;

b) the sum of P5,000.00 by way of expenses of litigation;

c) the sum of P15,000.00 by way of moral damages;

d) the sum of P2,672.00 by way of loss of earnings;

e) the sum of P5,000.00 by way of exemplary damages;

f) the sum of P6,000.00 by way of attorney's fees; and

g) costs of suit.

SO ORDERED. 11

Plaintiff's motion to have that portion of the trial court's decision absolving MMTC from liability reconsidered 12having been
denied for lack of merit, 13 an appeal was filed by her with respondent appellate court. After consideration of the appropriate
pleadings on appeal and finding the appeal meritorious, the Court of Appeals modified the trial court's decision by holding
MMTC solidarily liable with the other defendants for the damages awarded by the trial court because of their concurrent
negligence, concluding that while there is no hard and fast rule as to what constitutes sufficient evidence to prove that an
employer has exercised the due diligence required of it in the selection and supervision of its employees, based on the
quantum of evidence adduced the said appellate court was not disposed to say that MMTC had exercised the diligence
required of a good father of a family in the selection and supervision of its driver, Godofredo Leonardo. 14

The Court of Appeals was resolute in its conclusion and denied the motions for reconsideration of appellee Custodio and
appellant MMTC in a resolution dated February 17, 1982, 15 thus prompting MMTC to file the instant petition invoking the
review powers of this Court over the decision of the Court of Appeals, raising as issues for resolution whether or not (1) the
documentary evidence to support the positive testimonies of witnesses Garbo and Bautista are still necessary; (2) the
testimonies of witnesses Garbo and Bautista may still be disturbed on appeal; and (3) the evidence presented during the
trial with respect to the proof of due diligence of petitioner MMTC in the selection and supervision of its employees,
particularly driver Leonardo, is sufficient.

Prefatorily, private respondent questions the timeliness of the filing of the petition at bar in view of the procedural stricture
that the timely perfection of an appeal is both a mandatory and jurisdictional requirement. This is a legitimate concern on the
part of private respondent and presents an opportune occasion to once again clarify this point as there appears to be some
confusion in the application of the rules and interpretative rulings regarding the computation of reglementary periods at this
stage of the proceedings.

The records of this case reveal that the decision of respondent Court of Appeals, dated October 31, 1991, was received by
MMTC on November 18, 1991 16 and it seasonably filed a motion for the reconsideration thereof on November 28,
1991. 17 Said motion for reconsideration was denied by respondent court in its resolution dated February 17, 1992, which in
turn was received by MMTC on March 9, 1992. 18 Therefore, it had, pursuant to Section 1, Rule 45 of the Rules of Court,
fifteen (15) days therefrom or up to March 24, 1992 within which to file its petition, for review on certiorari. Anticipating,
however, that it may not be able to file said petition before the lapse of the reglementary period therefor, MMTC filed a
motion on March 19, 1992 for an extension of thirty (30) days to file the present petition, with proof of service of copies
thereof to respondent court and the adverse parties. The Court granted said motion, with the extended period to be counted
from the expiration of the reglementary period. 19 Consequently, private respondent had thirty (30) days from March 24, 1992
within which to file its petition, or up to April 23, 1992, and the eventual filing of said petition on April 14, 1992 was well within
the period granted by the Court.

We digress to reiterate, in view of erroneous submissions that we continue to receive, that in the case of a petition for review
on certiorari from a decision rendered by the Court of Appeals, Section 1, Rule 45 of the Rules of Court, which has long
since been clarified in Lacsamana vs. The Hon. Second Special Cases Division of the Intermediate Appellate Court, et
al., 20 allows the same to be filed "within fifteen (15) days from notice of judgment or of the denial of the motion for
reconsideration filed in due time, and paying at the same time to the corresponding docket fee." In other words, in the event
a motion for reconsideration is filed and denied, the period of fifteen (15) days begins to run all over again from notice of the
denial resolution. Otherwise put, if a motion for reconsideration is filed, the reglementary period within which to appeal the
decision of the Court of Appeals to the Supreme Court is reckoned from the date the party who intends to appeal received
the order denying the motion for reconsideration. 21 Furthermore, a motion for extension of time to file a petition for review
may be filed with this Court within said reglementary period, paying at the same time the corresponding docket fee.

1. The first two issues raised by petitioner shall be correlatively discussed in view of their interrelation.

In its present petition, MMTC insists that the oral testimonies of its employees were presented as witnesses in its behalf
sufficiently prove, even without the presentation documentary evidence, that driver Leonardo had complied with all the hiring
and clearance requirements and had undergone all trainings, tests and examinations preparatory to actual employment, and
that said positive testimonies spell out the rigid procedure for screening of job applicants and the supervision of its
employees in the field. It underscored the fact that it had indeed complied with the measure of diligence in the selection and
supervision of its employees as enunciated in Campo, et al. vs. Camarote, et al. 22 requiring an employer, in the exercise of
the diligence of a good father of a family, to carefully examine the applicant for employment as to his qualifications,
experience and record service, and not merely be satisfied with the possession of a professional driver's license.

It goes on to say since the testimonies of these witnesses were allegedly neither discredited nor impeached by the adverse
party, they should be believed and not arbitrarily disregarded or rejected nor disturbed on appeal. It assiduously argues that
inasmuch as there is no law requiring that facts alleged by petitioner be established by documentary evidence, the probative
force and weight of their testimonies should not be discredited, with the further note that the lower court having passed upon
the relevancy of the oral testimonies and considered the same as unrebutted, its consideration should no longer be
disturbed on appeal. 23

Private respondent, on the other hand, retorts that the factual findings of respondent court are conclusive upon the High
Court which cannot be burdened with the task of analyzing and weighing the evidence all over again. 24

At this juncture, it suffices to note that factual findings of the trial court may be reversed by the Court of Appeals, which is
vested by law with the power to review both legal and factual issues, if on the evidence of record, it appears that the trial
court may have been mistaken 25 particularly in the appreciation of evidence, which is within the domain of the Court of
Appeals. 26 The general rule laid down in a plethora of cases is that such findings of fact by the Court of Appeals are
conclusive upon and beyond the power of review of the Supreme Court. 27 However, it is now well-settled that while the
findings of fact of the Court of Appeals are entitled to great respect, and even finality at times, that rule is not inflexible and is
subject to well established exceptions, to wit: (1) when the conclusion is a finding grounded entirely on speculation, surmises
and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is grave abuse
of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings, went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial
court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition, as well as in the petitioner's main and reply briefs are not disputed by the respondents and
(10) when the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and are
contradicted by the evidence on record. 28

When as in this case, the findings of the Court of Appeals and the trial court are contrary to each other, this court may
scrutinize the evidence on record, 29 in order to arrive at a correct finding based thereon. 30

A perusal of the same shows that since there is no dispute as to the finding of concurrent negligence on the part of the
defendant Calebag, the driver of the passenger jeepney, and co-defendant Leonardo, the bus driver of petitioner MMTC,
both of whom were solidarily held liable with defendant Lamayo, the owner of the jeepney, we are spared the necessity of
determining the sufficiency of evidence establishing the fact of negligence. 31 The contrariety is in the findings of the two
lower courts, and which is the subject of this present controversy, with regard to the liability of MMTC as employer of one the
erring drivers.

The trial court, in absolving MMTC from liability ruled that

 On the question as to whether defendant MMTC was successful in proving its defense that indeed it had
exercised the due diligence of a good father of a family in the selection and supervision of defendant
Leonardo, this Court finds that based on the evidence presented during the trial, defendant MMTC was
able to prove that it was not only careful and diligent in choosing and screening applicants for job
openings but also strict (and) diligent in supervising its employees by seeing to it that its employees were
in proper uniforms, briefed in traffic rules and regulations before the start of duty, checked employees to
determine whether they were positive for alcohol and followed other rules and regulations and guidelines
of the Bureau of Land Transportation as well as its company. Having successfully proven such defense,
defendant MMTC therefore, cannot be held liable for the accident.

Having reached this conclusion, the Court now, holds that defendant MMTC be totally absolved from
liability and that the complaint against it be dismissed. . . . 32

whereas respondent court was of the opinion that

It is surprising though that witness Milagros Garbo did not testify nor present any evidence that
defendant-appellee's driver, defendant Godofredo Leonardo has complied with or has undergone all
clearances and trainings she referred to. The clearances, result of seminars and tests which Godofredo
Leonardo submitted and complied with, if any, were not presented in court despite the fact that they are
obviously in the possession and control of defendant-appellee. Instead, it resorted to generalities. The
Court has ruled that due diligence in (the) selection and supervision of employee(s) are not proved by
mere testimonies to the effect that its applicant has complied with all the company requirements before
one is admitted as an employee but without proof thereof. . . .

On the part of Christian Bautista, the transport supervisor of defendant-appellee, he testified that it is his
duty to monitor the operation of buses in the field; to countercheck the dispatchers' duty prior to the
operation of the buses in the morning; to see to it that bus crew follows written guidelines of the company
(t.s.n., April 29, 1988, pp. 4-5), but when asked to present in court the alleged written guidelines of the
company he merely stated that he brought with him a "wrong document" and defendant-appellee's
counsel asked for reservation to present such written guidelines in the next hearing but the same was
(sic) never presented in court. 33

A thorough and scrupulous review of the records of this case reveals that the conclusion of respondent Court of Appeals is
more firmly grounded on jurisprudence and amply supported by the evidence of record than that of the court below.

It is procedurally required for each party in a case to prove his own affirmative assertion by the degree of evidence required
by law. 34 In civil cases, the degree of evidence required of a party in order to support his claim is preponderance of
evidence, or that evidence adduced by one party which is more conclusive and credible than that of the other party. It is,
therefore, incumbent on the plaintiff who is claiming a right to prove his case. Corollarily, defendant must likewise prove own
allegation to buttress its claim that it is not liable. 35

In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of presenting at the
trial such amount of evidence required by law to obtain a favorable judgment. 36 It is entirely within each of the parties
discretion, consonant with the theory of the case it or he seeks to advance and subject to such procedural strategy followed
thereby, to present all available evidence at its or his disposal in the manner which may be deemed necessary and beneficial
to prove its or his position, provided only that the same shall measure up to the quantum of evidence required by law. In
making proof in its or his case, it is paramount that the best and most complete evidence be formally entered. 37

Coming now to the case at bar, while there is no rule which requires that testimonial evidence, to hold sway, must be
corroborated by documentary evidence, or even subject evidence for that matter, inasmuch as the witnesses' testimonies
dwelt on mere generalities, we cannot consider the same as sufficiently persuasive proof that there was observance of due
diligence in the selection and supervision of employees. 38 Petitioner's attempt to prove its diligentissimi patris familias in the
selection and supervision of employees through oral evidence must fail as it was unable to buttress the same with any other
evidence, object or documentary, which might obviate the apparent biased nature of the testimony. 39

Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum as would convincingly and
undoubtedly prove its observance of the diligence of a good father of a family has its precursor in the underlying rationale
pronounced in the earlier case of Central Taxicab Corp. vs. Ex-Meralco Employees Transportation Co., et al., 40 set amidst
an almost identical factual setting, where we held that:
 . . . . This witness spoke of an "affidavit of experience" which a driver-applicant must accomplish before
he is employed by the company, a written "time schedule" for each bus, and a record of the inspections
and thorough checks pertaining to each bus before it leaves the car barn; yet no attempt was ever made
to present in evidence any of these documents, despite the fact that they were obviously in the
possession and control of the defendant company.

xxx xxx xxx

Albert also testified that he kept records of the preliminary and final tests given him as well as a record of
the qualifications and experience of each of the drivers of the company. It is rather strange, therefore,
that he failed to produce in court the all important record of Roberto, the driver involved in this case.

The failure of the defendant company to produce in court any "record" or other documentary proof
tending to establish that it had exercised all the diligence of a good father of a family in the selection and
supervision of its drivers and buses, notwithstanding the calls therefor by both the trial court and the
opposing counsel, argues strongly against its pretensions.

We are fully aware that there is no hard-and-fast rule on the quantum of evidence needed to prove due
observance of all the diligence of a good father of a family as would constitute a valid defense to the legal
presumption of negligence on the part of an employer or master whose employee has by his negligence,
caused damage to another. . . . (R)educing the testimony of Albert to its proper proportions, we do not
have enough trustworthy evidence left to go by. We are of the considered opinion, therefore, that the
believable evidence on the degree of care and diligence that has been exercised in the selection and
supervision of Roberto Leon y Salazar, is not legally sufficient to overcome the presumption of
negligence against the defendant company.

Whether or not the diligence of a good father of a family has been observed by petitioner is a matter of proof which under
the circumstances in the case at bar has not been clearly established. It is not felt by the Court that there is enough
evidence on record as would overturn the presumption of negligence, and for failure to submit all evidence within its control,
assuming the putative existence thereof, petitioner MMTC must suffer the consequences of its own inaction and indifference.

2. In any event, we do not find the evidence presented by petitioner sufficiently convincing to prove the diligence of a good
father of a family, which for an employer doctrinally translates into its observance of due diligence in the selection and
supervision of its employees but which mandate, to use an oft-quoted phrase, is more often honored in the breach than in
the observance.

Petitioner attempted to essay in detail the company's procedure for screening job applicants and supervising its employees
in the field, through the testimonies of Milagros Garbo, as its training officer, and Christian Bautista, as its transport
supervisor, both of whom naturally and expectedly testified for MMTC. It then concluded with its sweeping pontifications that
"thus, there is no doubt that considering the nature of the business of petitioner, it would not let any applicant-drivers to be
(sic) admitted without undergoing the rigid selection and training process with the end (in) view of protecting the public in
general and its passengers in particular; . . . thus, there is no doubt that applicant had fully complied with the said
requirements otherwise Garbo should not have allowed him to undertake the next set of requirements . . . and the training
conducted consisting of seminars and actual driving tests were satisfactory otherwise he should have not been allowed to
drive the subject vehicle. 41

These statements strike us as both presumptuous and in the nature of petitio principii, couched in generalities and shorn of
any supporting evidence to boost their verity. As earlier observed, respondent court could not but express surprise, and
thereby its incredulity, that witness Garbo neither testified nor presented any evidence that driver Leonardo had complied
with or had undergone all the clearances and trainings she took pains to recite and enumerate. The supposed clearances,
results of seminars and tests which Leonardo allegedly submitted and complied with were never presented in court despite
the fact that, if true, then they were obviously in the possession and control of petitioner. 42

The case at bar is clearly within the coverage of Article 2176 and 2177, in relation to Article 2180, of the Civil Code
provisions on quasi-delicts as all the elements thereof are present, to wit: (1) damages suffered by the plaintiff, (2) fault or
negligence of the defendant or some other person for whose act he must respond, and (3) the connection of cause and
effect between fault or negligence of the defendant and the damages incurred by plaintiff. 43 It is to be noted that petitioner
was originally sued as employer of driver Leonardo under Article 2180, the pertinent parts of which provides that:
 The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also
for those of persons for whom one is responsible.

xxx xxx xxx

Employers shall be liable for damages caused by their employees and household helpers acting within
the scope of their assigned tasks, even though the former are not engaged in any business or industry.

xxx xxx xxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damage.

The basis of the employer's vicarious liability has been explained under this ratiocination:

The responsibility imposed by this article arises by virtue of a presumption juris tantum of negligence on
the part of the persons made responsible under the article, derived from their failure to exercise due care
and vigilance over the acts of subordinates to prevent them from causing damage. Negligence is imputed
to them by law, unless they prove the contrary. Thus, the last paragraph of the article says that such
responsibility ceases if is proved that the persons who might be held responsible under it exercised the
diligence of a good father of a family (diligentissimi patris familias) to prevent damage. It is clear,
therefore, that it is not representation, nor interest, nor even the necessity of having somebody else
answer for the damages caused by the persons devoid of personality, but it is the non-performance of
certain duties of precaution and prudence imposed upon the persons who become responsible by civil
bond uniting the actor to them, which forms the foundation of such responsibility. 44

The above rule is, of course, applicable only where there is an employer-employee relationship, although it is not necessary
that the employer be engaged in business or industry. Whether or not engaged in any business or industry, the employer
under Article 2180 is liable for torts committed by his employees within the scope of their assigned tasks. But, it is necessary
first to establish the employment relationship. Once this is done, the plaintiff must show, to hold the employer liable, that the
employee was acting within the scope of his assigned task when the tort complained of was committed. It is only then that
the defendant, as employer, may find it necessary to interpose the defense of due diligence in the selection and supervision
of employees. 45 The diligence of a good father of a family required to be observed by employers to prevent damages under
Article 2180 refers to due diligence in the selection and supervision of employees in order to protect the public. 46

With the allegation and subsequent proof of negligence against the defendant driver and of an employer-employee relation
between him and his co-defendant MMTC in this instance, the case in undoubtedly based on a quasi-delict under Article
2180 47 When the employee causes damage due to his own negligence while performing his own duties, there arises
the juris tantum presumption that the employer is negligent, 48 rebuttable only by proof of observance of the diligence of a
good father of a family. For failure to rebut such legal presumption of negligence in the selection and supervision of
employees, the employer is likewise responsible for damages, 49 the basis of the liability being the relationship of pater
familias or on the employer's own negligence. 50

As early as the case of Gutierrez vs. Gutierrez, 51 and thereafter, we have consistently held that where the injury is due to the
concurrent negligence of the drivers of the colliding vehicles, the drivers and owners of the said vehicles shall be primarily,
directly and solidarily liable for damages and it is immaterial that one action is based on quasi-delict and the other on culpa
contractual, as the solidarily of the obligation is justified by the very nature thereof. 52

It should be borne in mind that the legal obligation of employers to observe due diligence in the selection and supervision of
employees is not to be considered as an empty play of words or a mere formalism, as appears to be the fashion of the
times, since the non-observance thereof actually becomes the basis of their vicarious liability under Article 2180.

On the matter of selection of employees, Campo vs. Camarote, supra, lays down this admonition:

. . . . In order tat the owner of a vehicle may be considered as having exercised all diligence of a good
father of a family, he should not have been satisfied with the mere possession of a professional driver's
license; he should have carefully examined the applicant for employment as to his qualifications, his
 experience and record of service. These steps appellant failed to observe; he has therefore, failed to
exercise all due diligence required of a good father of a family in the choice or selection of driver.

Due diligence in the supervision of employees, on the other hand, includes the formulation of suitable rules and regulations
for the guidance of employees and the issuance of proper instructions intended for the protection of the public and persons
with whom the employer has relations through his or its employees and the imposition of necessary disciplinary measures
upon employees in case of breach or as may be warranted to ensure the performance of acts indispensable to the business
of and beneficial to their employer. 53 To this, we add that actual implementation and monitoring of consistent compliance
with said rules should be the constant concern of the employer, acting through dependable supervisors who should regularly
report on their supervisory functions.

In order that the defense of due diligence in the selection and supervision of employees may be deemed sufficient and
plausible, it is not enough to emptily invoke the existence of said company guidelines and policies on hiring and supervision.
As the negligence of the employee gives rise to the presumption of negligence on the part of the employer, the latter has the
burden of proving that it has been diligent not only in the selection of employees but also in the actual supervision of their
work. The mere allegation of the existence of hiring procedures and supervisory policies, without anything more, is decidedly
not sufficient to overcome presumption.

We emphatically reiterate our holding, as a warning to all employers, that "(t)he mere formulation of various company
policies on safety without showing that they were being complied with is not sufficient to exempt petitioner from liability
arising from negligence of its employees. It is incumbent upon petitioner to show that in recruiting and employing the erring
driver the recruitment procedures and company policies on efficiency and safety were followed." 54 Paying lip-service to
these injunctions or merely going through the motions of compliance therewith will warrant stern sanctions from the Court.

These obligations, imposed by the law and public policy in the interests and for the safety of the commuting public, herein
petitioner failed to perform. Respondent court was definitely correct in ruling that ". . . due diligence in the selection and
supervision of employee (is) not proved by mere testimonies to the effect that its applicant has complied with all the
company requirements before one is admitted as an employee but without proof thereof." 55 It is further a distressing
commentary on petitioner that it is a government-owned public utility, maintained by public funds, and organized for the
public welfare.

The Court it is necessary to once again stress the following rationale behind these all-important statutory and jurisprudential
mandates, for it has been observed that despite its pronouncement in Kapalaran Bus Line vs. Coronado, et al., supra, there
has been little improvement in the transport situation in the country:

In requiring the highest possible degree of diligence from common carriers and creating a presumption of
negligence against them, the law compels them to curb the recklessness of their drivers. While the
immediate beneficiaries of the standard of extraordinary diligence are, of course, the passengers and
owners of the cargo carried by a common carrier, they are not the only persons that the law seeks to
benefit. For if common carriers carefully observe the statutory standard of extraordinary diligence in
respect of their own passengers, they cannot help but simultaneously benefit pedestrians and the owners
and passengers of other vehicles who are equally entitled to the safe and convenient use of our roads
and highways. The law seeks to stop and prevent the slaughter and maiming of people (whether
passengers or not) and the destruction of property (whether freight or not) on our highways by buses, the
very size and power of which seem often to inflame the minds of their drivers. . . .

Finally, we believe that respondent court acted in the exercise of sound discretion when it affirmed the trial court's award,
without requiring the payment of interest thereon as an item of damages just because of delay in the determination thereof,
especially since private respondent did not specifically pray therefor in her complaint. Article 2211 of the Civil Code provides
that in quasi-delicts, interest as a part of the damages may be awarded in the discretion of the court, and not as a matter of
right. We do not perceive that there have been international dilatory maneuvers or any special circumstances which would
justify that additional award and, consequently, we find no reason to disturb said ruling.

WHEREFORE, the impugned decision of respondent Court of Appeals is hereby AFFIRMED.

SO ORDERED.

[G.R. No. 96405. June 26, 1996]

BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; DOES NOT SPECIFY THAT THE WRITTEN AGREEMENT
BE A PUBLIC INSTRUMENT.- Clearly, the rule does not specify that the written agreement be a public
document. What is required is that the agreement be in writing as the rule is in fact founded on "long experience that
written evidence is so much more certain and accurate than that which rests in fleeting memory only, that it would be
unsafe, when parties have expressed the terms of their contract in writing, to admit weaker evidence to control and
vary the stronger and to show that the parties intended a different contract from that expressed in the writing signed by
them" [FRANCISCO, THE RULES OF COURT OF THE PHILIPPINES, Vol. VII, Part I, 1990 ed., p. 179] Thus, for the
parol evidence rule to apply, a written contract need not be in any particular form, or be signed by both parties. As a
general rule, bills, notes and other instruments of a similar nature are not subject to be varied or contradicted by parol
or extrinsic evidence.

2. CIVIL LAW; OBLIGATIONS; SOLIDARY OR JOINT AND SEVERAL OBLIGATION, DEFINED.- A solidary or joint and
several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand
the whole obligation. [TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. IV, 1991 ed., p. 217] Section 4, Chapter
3, Title 1, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there
are two or more debtors in one and the same obligation, the presumption is that the obligation is joint so that each of
the debtors is liable only for the proportionate part of the debt. There is a solidary liability only when the obligation
expressly so states, when the law so provides or when the nature of the obligation so requires. [Sesbreo v. Court of
Appeals, G.R. No. 89252, May 24, 1993, 222 SCRA 466, 481.]

3. ID.; GUARANTY; GUARANTOR AS DISTINGUISHED FROM SOLIDARY DEBTOR.- While a guarantor may bind
himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor. Thus,
Tolentino explains: "A guarantor who binds himself in solidum with the principal debtor under the provisions of the
second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a
solidary co-debtor, and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before
the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain
to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section
4, Chapter 3, Title 1, Book IV of the Civil Code." [Tolentino, Civil Code of the Philippines, Vol. V, 1992 ed., p. 502]

APPEARANCES OF COUNSEL

Emilio G. Abrogena for petitioner.

Teogenes X. Velez for private respondent.

DECISION

ROMERO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals affirming that of the Regional Trial Court
of Misamis Oriental, Branch 18,[1] which disposed of Civil Case No. 10507 for collection of a sum of money and damages, as
follows:

"WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily liable and ordered to pay to the plaintiff
Philippine Bank of Communications, Cagayan de Oro City, the amount of FIFTY THOUSAND PESOS (P50,000.00),with
interest thereon from May 5, 1983 at 16% per annum until fully paid; and 6% per annum on the total amount due, as
liquidated damages or penalty from May 5, 1983 until fully paid; plus 10% of the total amount due for expenses of litigation
and attorney's fees; and to pay the costs.

The counterclaim, as well as the cross claim, are dismissed for lack of merit.

SO ORDERED."
 Petitioner's liability resulted from the promissory note in the amount of P50,000.00 which he signed with Rene C.
Naybe and Gregorio D. Pantanosas on February 3, 1983, holding themselves jointly and severally liable to private
respondent Philippine Bank of Communications, Cagayan de Oro City branch. The promissory note was due on May 5,
1983.

Said due date expired without the promissors having paid their obligation. Consequently, on November 14, 1983 and
on June 8, 1984, private respondent sent petitioner telegrams demanding payment thereof. [2] On December 11, 1984 private
respondent also sent by registered mail a final letter of demand to Rene C. Naybe. Since both obligors did not respond to
the demands made, private respondent filed on January 24, 1986 a complaint for collection of the sum of P50,000.00
against the three obligors.

On November 25, 1986, the complaint was dismissed for failure of the plaintiff to prosecute the case. However, on
January 9, 1987, the lower court reconsidered the dismissal order and required the sheriff to serve the summonses. On
January 27, 1987, the lower court dismissed the case against defendant Pantanosas as prayed for by the private
respondent herein. Meanwhile, only the summons addressed to petitioner was served as the sheriff learned that defendant
Naybe had gone to Saudi Arabia.

In his answer, petitioner alleged that sometime in January 1983, he was approached by his friend, Rudy Campos, who
told him that he was a partner of Pio Tio, the branch manager of private respondent in Cagayan de Oro City, in the falcata
logs operation business. Campos also intimated to him that Rene C. Naybe was interested in the business and would
contribute a chainsaw to the venture. He added that, although Naybe had no money to buy the equipment Pio Tio had
assured Naybe of the approval of a loan he would make with private respondent.Campos then persuaded petitioner to act as
a "co-maker" in the said loan. Petitioner allegedly acceded but with the understanding that he would only be a co-maker for
the loan of P5,000.00.

Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by Campos at his
office. He affixed his signature thereto but in one copy, he indicated that he bound himself only for the amount of
P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was made liable for the amount of P50,000.00.

In the aforementioned decision of the lower court, it noted that the typewritten figure "P50,000-" clearly appears directly
below the admitted signature of the petitioner in the promissory note. [3] Hence, the latter's uncorroborated testimony on his
limited liability cannot prevail over the presumed regularity and fairness of the transaction, under Sec. 5 (q) of Rule 131. The
lower court added that it was "rather odd" for petitioner to have indicated in a copy and not in the original, of the promissory
note, his supposed obligation in the amount of P5,000.00 only.Finally, the lower court held that even granting that said
limited amount had actually been agreed upon, the same would have been merely collateral between him and Naybe and,
therefore, not binding upon the private respondent as creditor-bank.

The lower court also noted that petitioner was a holder of a Bachelor of Laws degree and a labor consultant who was
supposed to take due care of his concerns, and that, on the witness stand, Pio Tio denied having participated in the alleged
business venture although he knew for a fact that the falcata logs operation was encouraged by the bank for its export
potential.

Petitioner appealed the said decision to the Court of Appeals which, in its decision of August 31, 1990, affirmed that of
the lower court. His motion for reconsideration of the said decision having been denied, he filed the instant petition for review
on certiorari.

On February 6,1991, the Court denied the petition for failure of petitioner to comply with the Rules of Court and
paragraph 2 of Circular No. 1-88, and to sufficiently show that respondent court had committed any reversible error in its
questioned decision.[4] His motion for the reconsideration of the denial of his petition was likewise denied with finality in the
Resolution of April 24, 1991.[5] Thereafter, petitioner filed a motion for leave to file a second motion for reconsideration which,
in the Resolution of May 27, 1991, the Court denied. In the same Resolution, the Court ordered the entry of judgment in this
case.[6]

Unfazed, petitioner filed a motion for leave to file a motion for clarification. In the latter motion, he asserted that he had
attached Registry Receipt No. 3268 to page 14 of the petition in compliance with Circular No. 1-88. Thus, on August 7,1991,
the Court granted his prayer that his petition be given due course and reinstated the same. [7]

Nonetheless, we find the petition unmeritorious.

 Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after the rendition of the decision of the
lower court, by Gregorio Pantanosas, Jr., an MTCC judge and petitioner's co-maker in the promissory note. It supports
petitioner's allegation that they were induced to sign the promissory note on the belief that it was only for P5,000.00, adding
that it was Campos who caused the amount of the loan to be increased to P50,000.00.

The affidavit is clearly intended to buttress petitioner's contention in the instant petition that the Court of Appeals
should have declared the promissory note null and void on the following grounds: (a) the promissory note was signed in the
office of Judge Pantanosas, outside the premises of the bank; (b) the loan was incurred for the purpose of buying a second-
hand chainsaw which cost only P5,000.00; (c) even a new chainsaw would cost only P27,500.00; (d) the loan was not
approved by the board or credit committee which was the practice, at it exceeded P5,000.00; (e) the loan had no collateral;
(f) petitioner and Judge Pantanosas were not present at the time the loan was released in contravention of the bank
practice, and (g) notices of default are sent simultaneously and separately but no notice was validly sent to him. [8] Finally,
petitioner contends that in signing the promissory note, his consent was vitiated by fraud as, contrary to their agreement that
the loan was only for the amount of P5,000. 00, the promissory note stated the amount of P50,000.00.

The above-stated points are clearly factual. Petitioner is to be reminded of the basic rule that this Court is not a trier of
facts. Having lost the chance to fully ventilate his factual claims below, petitioner may no longer be accorded the same
opportunity in the absence of grave abuse of discretion on the part of the court below. Had he presented Judge Pantanosas'
affidavit before the lower court, it would have strengthened his claim that the promissory note did not reflect the correct
amount of the loan.

Nor is there merit in petitioner's assertion that since the promissory note "is not a public deed with the formalities
prescribed by law but x x x a mere commercial paper which does not bear the signature of x x x attesting witnesses," parol
evidence may "overcome" the contents of the promissory note.[9] The first paragraph of the parol evidence rule[10] states:

"When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and
there can be, between the parties and their successors-in-interest, no evidence of such terms other than the contents of the
written agreement."

Clearly, the rule does not specify that the written agreement be a public document.

What is required is that agreement be in writing as the rule is in fact founded on "long experience that written evidence
is so much more certain and accurate than that which rests in fleeting memory only, that it would be unsafe, when parties
have expressed the terms of their contract in writing, to admit weaker evidence to control and vary the stronger and to show
that the parties intended a different contract from that expressed in the writing signed by them." [11] Thus, for the parol
evidence rule to apply, a written contract need not be in any particular form, or be signed by both parties. [12] As a general
rule, bills, notes and other instruments of a similar nature are not subject to be varied or contradicted by parol or extrinsic
evidence.[13]

By alleging fraud in his answer,[14] petitioner was actually in the right direction towards proving that he and his co-
makers agreed to a loan of P5,000.00 only considering that, where a parol contemporaneous agreement was the inducing
and moving cause of the written contract, it may be shown by parol evidence. [15] However, fraud must be established by clear
and convincing evidence, mere preponderance of evidence, not even being adequate. [16] Petitioner's attempt to prove fraud
must, therefore, fail as it was evidenced only by his own uncorroborated and, expectedly, self-serving testimony.

Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and against Pantanosas,
his co-maker, constituted a release of his obligation, especially because the dismissal of the case against Pantanosas was
upon the motion of private respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code which
provides that:

"The guarantors, even though they be solidary, are released from their obligation whenever by some act of the creditor, they
cannot be subrogated to the rights, mortgages, and preferences of the latter."

It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as a
guarantor. This is patent even from the first sentence of the promissory note which states as follows:

"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE
BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY
(P50,000. 00) Pesos, Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per annum until
fully paid."

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor
is entitled to demand the whole obligation.[17] On the other hand, Article 2047 of the Civil Code states:

"By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case
the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall
be observed, In such a case the contract is called a suretyship." (Italics supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a
solidary debtor. Thus, Tolentino explains:

"A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not
become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor, and a fiador in
solidum (surety). The later, outside of the liability he assumes to pay the debt before the property of the principal debtor has
been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a
solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil
Code."[18]

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207
thereof, when there are two or more debtors in one and the same obligation, the presumption is that the obligation is joint so
that each of the debtors is liable only for a proportionate part of the debt. There is a solidarity liability only when the
obligation expressly so states, when the law so provides or when the nature of the obligation so requires. [19]

Because the promissory note involved in this case expressly states that the three signatories therein are jointly and
severally liable, any one, some or all of them may be proceeded against for the entire obligation. [20] The choice is left to the
solidary creditor to determine against whom he will enforce collection. [21] Consequently, the dismissal of the case against
Judge Pontanosas may not be deemed as having discharged petitioner from liability as well. As regards Naybe, suffice it to
say that the court never acquired jurisdiction over him.Petitioner, therefore, may only have recourse against his co-makers,
as provided by law.

WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned decision of the Court
of Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

SECOND DIVISION
 SHRIMP SPECIALISTS, INC., G.R. No. 168756
Petitioner,

- versus -

FUJI-TRIUMPH AGRI-INDUSTRIAL CORPORATION,

Respondent.
x-------------------------x

FUJI-TRIUMPH AGRI-INDUSTRIAL CORPORATION,

Petitioner,

G.R. No. 171476

- versus -
Present:

CARPIO, J., Chairperson,

CORONA,*
SHRIMP SPECIALISTS, INC. LEONARDO-DE CASTRO,**
and EUGENE LIM, BRION, and
Respondents. ABAD, JJ.

Promulgated:

December 7, 2009
x--------------------------------------------------x

DECISION

CARPIO, J.:

The Case
This is a consolidation of two separate petitions. In G.R. No. 168756, Shrimp Specialists, Inc. (Shrimp Specialists) filed a
Petition for Review on Certiorari[1] assailing the Court of Appeals Decision[2] dated 28 June 2005 in CA-G.R. CV No. 57420.
In the assailed decision, the Court of Appeals (CA) ordered Shrimps Specialists to pay Fuji-Triumph Agri-Industrial
Corporation (Fuji) the following:

1. the sum of P767,427.00 representing the principal amount for the deliveries
made by plaintiff from June to July 1989 inclusive plus six percent (6%) thereon
per annum computed from extrajudicial demand, February 2, 1990, until the
finality of the judgment plus twelve percent (12%) interest thereon per annum,
computed from the finality of this judgment until the amount is fully paid;
the sum of P30,000.00 as reasonable attorneys fees; and
the cost of this suit.[3]

The CA modified the Regional Trial Courts Decision [4] dated 15 April 1997 by dismissing the case against Eugene Lim,

President of Shrimp Specialists.

In G.R. No. 171476, Fuji filed a Petition for Review on Certiorari [5] assailing the CA Resolution dated 26 January 2006 in CA-

G.R. CV No. 57420, denying Fujis Motion for Reconsideration of the CA Decision dated 28 June 2005.

The Facts
Shrimp Specialists and Fuji entered into a Distributorship Agreement, under which Fuji agreed to supply prawn feeds on

credit basis to Shrimp Specialists. The prawn feeds would be used in prawn farms under Shrimp Specialists technical

supervision and management. In 1987, Shrimp Specialists began purchasing prawn feeds from Fuji and paid for them in the

regular course of business.[6]

From 3 June 1989 to 24 July 1989, Fuji delivered prawn feeds, and Shrimp Specialists issued 9 postdated checks as
payment.[7]

Shrimp Specialists alleges that it issued a stop-payment order for the checks because it discovered that earlier deliveries
were contaminated with aflatoxin. Shrimp Specialists claims that it verbally informed Fuji about the contamination and Fuji
promised to send stocks of better quality. Shrimp Specialists states that it continued to purchase prawn feeds from Fuji, but
the stocks were still contaminated with aflatoxin.[8]

Fuji denies that the feeds were contaminated. Fuji asserts that Shrimp Specialists requested to put on hold the deposit of the
checks due to insufficient funds. Fuji adds that when the checks were presented for payment, the drawee bank dishonored
all the checks due to a stop-payment order.[9]

In January 1990, Ervin Lim, Fujis Vice-President and owner, and Edward Lim, Shrimp Specialists Finance Officer, met in
Ozamiz City to discuss the unpaid deliveries. After the meeting, both agreed that Shrimp Specialists would issue another set
of checks to cover the ones issued earlier. This agreement was reduced into writing and signed by both parties on behalf of
their corporations.[10] The agreement reads:

Received from SSI the ff. checks representing full payment of the previous stopped (sic) payment checks
to Fuji as follows:

Ck # 158002 - P 153,485.40
003 - 153,485.40
004 - 153,485.40
005 - 153,485.40
006 - 153,485.40

To inform in advance in case the above checks cannot be deposited for failure to replace the defective feeds.

Prepared by: Received by:

(signed) Edward Lim (signed) Ervin Lim[11]

Fuji states that it accepted the checks in good faith and believed that the account would finally be paid since Edward Lim

assured Ervin Lim of the payment. However, upon presentment of the replacement checks, these were again dishonored

due to another stop-payment order issued by Shrimp Specialists. [12]

Shrimp Specialists argues that despite the written agreement, Fuji deposited these checks without first replacing the
defective feeds or at least informing Shrimp Specialists in advance that it would not replace the defective feeds. Thus,
Shrimp Specialists contends that it was constrained to issue another stop-payment order for these checks. [13]

Fuji claims that despite repeated demands for payment, Shrimp Specialists failed to comply with its obligation to make good
the replacement checks.[14]

Fuji filed criminal charges against the officers of Shrimp Specialists who signed the checks for violation of the Anti-Bouncing
Checks Law. The charges were all dismissed.[15]

On 26 October 1990, Fuji filed a civil complaint for sum of money against Shrimp Specialists and Eugene Lim. On 15 April
1997, the Regional Trial Court of Quezon City (trial court), Branch 76, rendered a decision finding Shrimp Specialists and
Eugene Lim solidarily liable to pay P767,427 representing the deliveries made from June to July 1989 plus interests. Fuji
was also awarded P30,000 as reasonable attorneys fees and the cost of the suit. [16]
Shrimp Specialists and Eugene Lim elevated the case to the CA. On 28 June 2005, the CA rendered a decision modifying
the trial courts decision. The CA affirmed the trial courts decision to hold Shrimp Specialists liable to pay Fuji P767,427 for
the prawn feeds delivered plus interests, P30,000 as attorneys fees and cost of suit. However, the CA absolved Eugene Lim
from any liability.

Aggrieved by the decision, both Shrimp Specialists and Fuji elevated the case before this Court.

The Ruling of the Regional Trial Court

In the Decision dated 15 April 1997, the trial court found Shrimp Specialists liable to pay Fuji P767,427 for the prawn feeds
delivered from June to July 1989. The trial court stated that since Eugene Lim negotiated with Fuji and signed the
Distributorship Agreement in his capacity as President of Shrimp Specialists, Eugene Lim was privy to the agreement and
hence, was also liable.[17]

After hearing the testimonies of Alphonsus Faigal, Fujis Internal Auditing Division manager,[18] Salvador P. Sequitin, Fujis
liaison officer,[19] Esteban del Mar, Shrimp Specialists managing director,[20] Jose Marquez, Provincial Fishery Officer of
Misamis Occidental and a member of the International Aquaculture Consultancy (IAC), [21] Joan Maria Antonia Sato, owner of
seven prawn ponds,[22] and Edward Lim, Shrimp Specialists' finance officer,[23] the trial court made the following findings:

1. Shrimp Specialists did not submit a proper complaint to Fuji when it found out that the
prawn growers allegedly experienced tremendous losses in their prawn harvest due to the
defective feeds.

2. Shrimp Specialists did not find it necessary to seek representation from Fuji to form part of
the group which conducted the inspection.

3. IACs findings were not reduced into writing as to put in question the veracity of its report.
Jose Marquezs testimony that he was part of the group who conducted the inspection on
the prawn ponds is not a substitute to the absence of a written report by IAC.

4. The alleged inspection was conducted on four prawn ponds only. Prawn ponds are
exposed to the harsh elements of nature. The supply of water, bacterial content, salinity,
and temperature are other factors which may contribute to the high mortality rate of
prawns.

5. The inspection was directed on the prawn ponds and not on the questioned feeds itself.
Hence, IACs findings that the feeds were contaminated with aflatoxin when these feeds
were not subjected to examination is without basis.

6. IACs existence as an entity was not duly proven. Fuji disputed the existence of IAC through
a certification issued by the Securities and Exchange Commission certifying that IAC was
not registered as a corporation or partnership. Further, no representative from IAC was
presented during the hearing to testify on its existence, expertise and authenticity of its
findings.[24]

The trial court ruled that the written agreement signed by Edward Lim and Ervin Lim does not suffice to convince the court

that the feeds delivered by Fuji were defective. The trial court explained that even if the agreement mentions Fuji as having

to replace the defective feeds, this statement is not tantamount to an express admission of the defective quality of the feeds

that were delivered.[25]

Citing Article 1249[26] of the Civil Code of the Philippines, the trial court held that the obligation of Shrimp Specialists to pay
Fuji still subsists because Edward Lim, Fujis finance officer, issued a stop-payment order, hence, the checks were never
cashed.[27]

The trial court held that Eugene Lim is solidarily liable with Shrimp Specialists. The trial court reasoned that Eugene Lim
negotiated with Fuji and signed the Distributorship Agreement in his capacity as president of Shrimp Specialists, hence, he
is privy to the agreement.[28]

The Ruling of the Court of Appeals

In resolving the petition, the CA agreed with the trial court that Shrimp Specialists failed to prove with certainty that Fuji
delivered defective feeds. Based on the records, the inspection and discovery of the alleged defect in Fuji's prawn feeds
were made as early as March 1989 while the feeds subject of this case were delivered to Shrimp Specialists only from 3
June to 24 July 1989. The CA added that Shrimp Specialists argument is inconsistent with the delivery receipts where the
representative from Shrimp Specialists acknowledged receipt of the feeds in good order and condition. [29]

The CA stated that the findings of the trial court deserve utmost consideration. The CA held that there was no credible
evidence showing that the feeds were contaminated with aflatoxin. No technical or scientific evidence was shown. In fact, no
laboratory tests were conducted. Only four ponds were inspected and on those occasions, there was no representative from
Fuji.[30]

The CA declared that the portion in the agreement, which states to inform in advance in case the same checks cannot be
deposited for failure to replace the defective feeds, is too nebulous to be taken as an admission on the part of Fuji's
representative that the feeds earlier delivered were defective. The CA doubted if Fuji really acknowledged that its earlier
feeds were defective because the agreement was just to acknowledge receipt of the checks. The qualification was not clear
as to its true import. To be an admission of any breach of warranty, the evidence must be clear and convincing. [31]

The CA dismissed the case against Eugene Lim. The CA found that based on a review of the evidentiary records, there was
no reason to pierce the corporate veil. The CA reasoned that the evidence should be more than just signing on behalf of the
corporation because these artificial entities cannot act except through a natural person. The CA added that there is no
evidence that Eugene Lim and Shrimp Specialists are one and the same and they dealt with Fuji in bad faith or that Eugene
Lim assumed solidary obligation with Shrimp Specialists for any liability which might arise under the Distributorship
Agreement.[32]

The Issue

In G.R. No. 168576, Shrimp Specialists assigns this error for our consideration: whether the CA erred in interpreting the

provision to inform in advance in case the same checks cannot be deposited for failure to replace the defective feeds.

In G.R. No. 171476, Fuji presents this sole issue: whether the CA erred in dismissing the case against respondent Eugene
Lim and freeing him from solidary liability with Shrimp Specialists.

The Ruling of the Court

An Admission must be expressed

in definite and unequivocal language

Shrimp Specialists maintains that the provision to inform in advance in case the same checks cannot be deposited for failure

to replace the defective feeds clearly shows that Fuji admitted that the feeds delivered were defective, otherwise, there

would be no reason to include the statement in an agreement that merely acknowledged receipt of the checks. [33] On the
other hand, Fuji asserts that the statement is too ambiguous to be considered an admission that Fuji delivered defective

feeds to Shrimp Specialists when there is evidence to support the contrary.[34]

In CMS Logging, Inc. v. Court of Appeals,[35] we held:

It is a rule that a statement is not competent as an admission where it does not, under a reasonable
construction, appear to admit or acknowledge the fact which is sought to be proved by it. An admission or
declaration to be competent must have been expressed in definite, certain and unequivocal language.

As correctly ruled by the CA, the statement to inform in advance in case the same checks cannot be deposited for failure to

replace the defective feeds is not expressed in definite, certain and unequivocal language that Fuji admitted to delivering

defective feeds. The CA also ruled that to be an admission of any breach of warranty, the evidence must be clear and

convincing. The CA pointed out that the inspection and discovery of the alleged defective feeds were made as early as

March 1989 while the feeds subject of this case were delivered to Shrimp Specialists only from 3 June to 24 July 1989. Even

assuming that Fuji admitted that the feeds delivered were defective, the question of whether Fuji had replaced the feeds is a

factual matter not usually reviewable in a petition filed under Rule 45. [36]

A petition for review under Rule 45 of the Rules of Court covers only questions of law. Questions of fact are not reviewable

by this Court because they are final and conclusive especially if borne out by the record or based on substantial evidence.
[37]
In Paterno v. Paterno,[38] the Court explained:

Such questions as whether certain items of evidence should be accorded probative value or weight, or
rejected as feeble or spurious, or whether or not the proofs on one side or the other are clear and
convincing and adequate to establish a proposition in issue, are without doubt questions of fact. Whether
or not the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence
submitted by adverse party, may be said to be strong, clear and convincing; whether or not certain
documents presented by one side should be accorded full faith and credit in the face of protests as to
their spurious character by the other side; whether or not inconsistencies in the body of proofs of a party
are of such gravity as to justify refusing to give said proofs weight all these are issues of fact. Questions
like these are not reviewable by this Court, which, as a rule, confines its review of cases decided by the
Court of Appeals only to questions of law raised in the petition and therein distinctly set forth.

Whether Fuji delivered defective feeds, or whether the statement is tantamount to an admission that the feeds delivered

were defective, or whether Fuji failed to replace defective feeds, are questions of fact which necessitate an examination of

the probative value of the evidence adduced before the trial court.

The written agreement signed by Edward Lim and Ervin Lim did not convince the trial and appellate courts that the feeds
supplied by Fuji were defective because evidence to the contrary exists, to wit:

a. No proper complaint was submitted to Fuji when the prawn growers allegedly experienced tremendous

losses;
b. Fuji was not represented in the group which conducted the inspection;
c. The existence of the IAC was not duly proven and its findings were not reduced into writing;
d. The inspection was conducted on four prawn ponds only, which could be exposed to other harsh elements of nature; and
e. No inspection was conducted on the prawn feeds itself, hence, the IACs findings that the feeds were contaminated with
aflatoxin is without basis.

The CA pointed out that a representative from Shrimp Specialists even acknowledged receipt of feeds in good order and

condition, hence, Shrimp Specialists argument is contrary to the evidence on record.

The factual findings of the trial court, when affirmed by the appellate court, are generally binding on the Supreme Court.
[39]
After a careful review of the records, the Court finds no reason to disturb the factual findings of the trial court and the
appellate court.

Solidary Liability

Fuji claims that the CA erred in dismissing the case against Eugene Lim and freeing him from solidary liability with Shrimp

Specialists to Fuji for the amount of the delivered feeds. [40] Fuji alleges that Eugene Lim, as President of Shrimp Specialists,

was the one who solicited and negotiated with Fuji for the purchase of prawn feeds. Fuji contends that it was primarily

because of Eugene Lims representation that Fuji entered into the Distributorship Agreement with Shrimp Specialists and

agreed to supply prawn feeds on credit.[41]

Shrimp Specialists asserts that Fuji has not presented any evidence to show that Eugene Lim acted in bad faith. Fuji also
failed to present any evidence to prove that Eugene Lim had maliciously and deliberately caused Shrimp Specialists to
default on its obligation without any valid reason. Hence, Eugene Lim cannot be made personally liable for the obligations of
Shrimp Specialists.[42]

A corporation is vested by law with a personality separate and distinct from the people comprising it. Ownership by a single
or small group of stockholders of nearly all of the capital stock of the corporation is not by itself a sufficient ground to
disregard the separate corporate personality. Thus, obligations incurred by corporate officers, acting as corporate agents,
are direct accountabilities of the corporation they represent.[43] In Uy v. Villanueva,[44] the Court explained:

The general rule is that obligations incurred by the corporation, acting through its directors, officers, and
employees, are its sole liabilities. However, solidary liability may be incurred, but only under the following
exceptional circumstances:

1. When directors and trustees or, in appropriate cases, the officers of a

corporation: (a) vote for or assent to patently unlawful acts of the
corporation; (b) act in bad faith or with gross negligence in directing the
corporate affairs; (c) are guilty of conflict of interest to the prejudice of
the corporation, its stockholders or members, and other persons;
When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection thereto;
When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with
the corporation; or
When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. [45]

In this case, none of these exceptional circumstances is present. In its decision, the trial court failed to provide a clear

ground why Eugene Lim was held solidarily liable with Shrimp Specialists. The trial court merely stated that Eugene Lim

signed on behalf of the Shrimp Specialists as President without explaining the need to disregard the separate corporate

personality. The CA correctly ruled that the evidence to hold Eugene Lim solidarily liable should be more than just signing on
behalf of the corporation because artificial entities can only act through natural persons. Thus, the CA was correct in

dismissing the case against Eugene Lim.

WHEREFORE, we DENY both petitions. We AFFIRM the Decision of the Court of Appeals dated 28 June 2005 and the

Resolution dated 26 January 2006 in CA-G.R. CV No. 57420.

SO ORDERED.

THIRD DIVISION

EPARWA SECURITY AND JANITORIAL SERVICES, INC., G.R. No. 150402

Petitioner,
Present:

QUISUMBING, J.,
- versus - Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

LICEO DE CAGAYAN UNIVERSITY,

Respondent.

Promulgated:
November 28, 2006
x--------------------------------------------------x

DECISION

CARPIO, J.:

The Case

This is a petition for certiorari[1] of the Decision[2] dated 20 April 2001 and the Resolution dated 21 September 2001 of the

Court of Appeals (appellate court) in CA-G.R. SP No. 59120, Liceo de Cagayan University v. The Hon. National Labor

Relations Commission, Fifth Division, Eparwa Security and Janitorial Services, Inc., et al. The appellate court reinstated

the 18 August 1999 decision[3] of the Labor Arbiter and remanded the case to the Regional Arbitration Board, Branch No. 10

of Cagayan de Oro City to compute what is due to Liceo de Cagayan University (LDCU) from Eparwa Security and Janitorial

Services, Inc. (Eparwa).

The Facts
On 1 December 1997, Eparwa and LDCU, through their representatives, entered into a Contract for Security Services. The

pertinent portion of the contract provides that:

5. For and in consideration of this security, protective and safety services, [LDCU] agrees to pay [Eparwa]
FIVE THOUSAND PESOS ONLY (P5,000.00), Philippine Currency per guard a month payable within
fifteen (15) days after [Eparwa] presents its service invoice. [Eparwa] shall furnish [LDCU] a monthly copy
of SSS contribution of guards and monthly payroll of each guard assigned at [LDCUs] premises on a
monthly basis[.][4]

Eparwa allocated the contracted amount of P5,000 per security guard per month in the following manner:

Basic Pay (P104.50 x 391.5/12) P3,409.31

Night Diff. Pay 113.64
13th mo. Pay 284.10
5 day incentive leave 43.54
Uniform allowance 50.00
Employers SSS, Medicare, ECC contribution 224.80
Agency share 420.53
VAT 454.59
CONTRACT RATE P5,000.50
(rounded off to P5,000.00)[5]

On 21 December 1998, 11 security guards (security guards) whom Eparwa assigned to LDCU from 1 December 1997 to 30

November 1998 filed a complaint before the National Labor Relations Commissions (NLRC) Regional Arbitration Branch No.

10 in Cagayan de Oro City. Docketed as NLRC-RABX Case No. 10-01-00102-99, the complaint was filed against

both Eparwa and LDCU for underpayment of salary, legal holiday pay, 13 th month pay, rest day, service incentive leave, night

shift differential, overtime pay, and payment for attorneys fees.

LDCU made a cross-claim and prayed that Eparwa should reimburse LDCU for any payment to the security guards.

The Ruling of the Labor Arbiter

In its decision dated 18 August 1999, the Labor Arbiter found that the security guards are entitled to wage differentials and

premium for holiday and rest day work. The Labor Arbiter held Eparwa and LDCU solidarily liable pursuant to Article 109 of

the Labor Code. The dispositive portion of the Labor Arbiters decision reads:

WHEREFORE, judgment is rendered[:]

1. Ordering respondents [LDCU] and [Eparwa] solidarily liable to pay [the security guards] for
underpayment, holiday and rest day, as follows:
 Name Amount
1. Casiero , Jovencio P 46,819.95
2. Villarino , Leonardo 46,819.95
3. Lumbab , Adriano 46,819.95
4. Caballero , Gregorio, Jr. 46,819.95
5. Cajilla , Delfin, Jr. 37,918.95
6. Paduanga , Arnold 20,321.10
7. Dungog , Achimedes 46,819.95
8. Magallanes , Eduardo 46,819.95
9. Dungog , Luigi 46,819.95
10. Dungog , Telford 46,819.95
11. Bahian , Wilfredo 30,741.30
P 463,540.95

2. Denying the claim of unpaid 13 th month pay, service incentive leave and night shift premium
pay for lack of merit;

3. Ordering respondent [Eparwa] to reimburse respondent [LDCU] for whatever amount the
latter may be required to pay [the security guards];

4. Ordering respondent [Eparwa] to pay respondent [LDCU] P20,000.00 and P5,000.00 each
of the [security guards], moral and exemplary damages;

5. Ordering [Eparwa] to pay 10% of attorneys fee[s][;]

6. The rest of the claims are denied for lack of merit.

So Ordered.[6]

LDCU filed an appeal before the NLRC. LDCU agreed with the Labor Arbiters decision on the security guards entitlement to

salary differential but challenged the propriety of the amount of the award. LDCU alleged that security guards not similarly

situated were granted uniform monetary awards and that the decision did not include the basis of the computation of the

amount of the award.

Eparwa also filed an appeal before the NLRC. For its part, Eparwa questioned its liability for the security guards claims and

the awarded cross-claim amounts.

The Ruling of the NLRC

The Fifth Division of the NLRC resolved Eparwa and LDCUs separate appeals in its Resolution[7] dated 19 January

2000. The NLRC found that the security guards are entitled to wage differentials and premium for holiday and rest day

work. Although the NLRC held Eparwa and LDCU solidarily liable for the wage differentials and premium for holiday and rest

day work, the NLRC did not require Eparwa to reimburse LDCU for its payments to the security guards. The NLRC also

ordered the recomputation of the monetary awards according to the dates actually worked by each security

guard. The dispositive portion of the NLRC Resolution reads thus:

WHEREFORE, the appealed decision is AFFIRMED, subject to the modification that the portions thereof
directing respondent EPARWA Security Agency and Janitorial Services, Inc. to reimburse
respondent Liceo de Cagayan University for whatever amount the latter may have paid complainants and
to pay respondent Liceo de Cagayan University the sum [sic] [of] P20,000.00 and P5,000.00,
representing moral and exemplary damages, respectively, of each complainants [sic], are deleted for lack
of legal basis. Further the monetary awards for wage differential and premiums for holiday and rest day
works shall be recomputed by the Regional Arbitration Branch of origin at the execution stage of the
proceedings.

Co[n]formably, the award of Attorneys fee[s] is equivalent to ten (10%) percent of the aggregate monetary
award as finally adjusted.

SO ORDERED.[8]

Eparwa and LDCU again filed separate motions for partial reconsideration of the 19 January 2000 NLRC Resolution. LDCU

questioned the NLRCs deletion of LDCUs entitlement to reimbursement by Eparwa. Eparwa, on the other hand, prayed that

LDCU be made to reimburse Eparwa for whatever amount it may pay to the security guards.

In its Resolution dated 14 March 2000, the NLRC declared that although Eparwa and LDCU are solidarily liable to the

security guards for the monetary award, LDCU alone is ultimately liable. The NLRC resolved the issue thus:

WHEREFORE, the assailed resolution, dated 19 January 2000, is MODIFIED in that

respondent Liceo de Cagayan University (LICEO) is ordered to reimburse respondent Eparwa Security
and Janitorial Services, Inc. (EPARWA) for whatever amount the latter may have paid to complainants
arising from this case.

SO ORDERED.[9]

LDCU filed a petition for certiorari [10] before the appellate court assailing the NLRCs decision. LDCU took issue with

the NLRCs order that LDCU should reimburse Eparwa.LDCU stated that this would free Eparwa from any liability for

payment of the security guards money claims.

The Ruling of the Appellate Court

In its Decision promulgated on 20 April 2001, the appellate court granted LDCUs petition and reinstated the Labor Arbiters

decision. The appellate court also allowed LDCU to claim reimbursement from Eparwa. The appellate courts decision reads

thus:

WHEREFORE, foregoing considered, the petition is hereby GRANTED. The decision dated August 18,
1999 of Labor Arbiter Celenito N. Daing is REINSTATED. The case is hereby REMANDED to the
Regional Arbitration Board, Branch No. 10 of Cagayan de Oro City to compute what is due to LDCU from
EPARWA.

SO ORDERED.[11]

Eparwa filed a motion for reconsideration of the appellate courts decision. Eparwa stressed that jurisprudence is consistent

in ruling that the ultimate liability for the payment of the monetary award rests with LDCU alone.

The appellate court denied Eparwas motion for reconsideration for lack of merit.

Hence, this petition.

The Issue

The petition raises this sole legal issue: Is LDCU alone ultimately liable to the security guards for the wage differentials and

premium for holiday and rest day pay?

The Ruling of the Court

The petition has merit.

Eparwa and LDCUs Solidary Liability and

LDCUs Ultimate Liability

Articles 106, 107 and 109 of the Labor Code read:

Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person
for the performance of the formers work, the employees of the contractor and of the latters subcontractor,
if any, shall be paid in accordance with the provisions of this Code.
 In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance
with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to
such employees to the extent of the work performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to
protect the rights of workers established under this Code. In so prohibiting or restricting, he may make
appropriate distinctions between labor-only contracting and job contracting as well as differentiations
within these types of contracting and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or circumvention of any provision of this
Code.

There is labor-only contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing activities which are directly
related to the principal business of the employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him.

Article 107. Indirect employer. The provisions of the immediately preceding Article shall likewise apply to
any person, partnership, association or corporation which, not being an employer, contracts with an
independent contractor for the performance of any work, task, job or project.

Article 109. Solidary liability. The provisions of existing laws to the contrary notwithstanding, every
employer or indirect employer shall be held responsible with his contractor or subcontractor for any
violation of any provision of this Code. For purposes of determining the extent of their civil liability under
this Chapter, they shall be considered as direct employers.

This Courts ruling in Eagle Security Agency, Inc. v. NLRC[12] squarely applies to the present case. In Eagle, we ruled that:

This joint and several liability of the contractor and the principal is mandated by the Labor Code to assure
compliance of the provisions therein including the statutory minimum wage [Article 99, Labor Code]. The
contractor is made liable by virtue of his status as direct employer. The principal, on the other hand, is
made the indirect employer of the contractors employees for purposes of paying the employees their
wages should the contractor be unable to pay them. This joint and several liability facilitates, if not
guarantees, payment of the workers performance of any work, task, job or project, thus giving the
workers ample protection as mandated by the 1987 Constitution [See Article II Sec. 18 and Article XIII
Sec. 3].

In the case at bar, it is beyond dispute that the security guards are the employees of EAGLE [See Article
VII Sec. 2 of the Contract for Security Services; G.R. No. 81447, Rollo, p. 34]. That they were assigned to
guard the premises of PTSI pursuant to the latters contract with EAGLE and that neither of these two
entities paid their wage and allowance increases under the subject wage orders are also admitted [See
Labor Arbiters Decision, p. 2; G.R. No. 81447, Rollo, p. 75]. Thus, the application of
the aforecited provisions of the Labor Code on joint and several liability of the principal and contractor is
appropriate [See Del Rosario & Sons Logging Enterprises, Inc. v. NLRC, G.R. No. 64204, May 31, 1985,
136 SCRA 669].

The solidary liability of PTSI and EAGLE, however, does not preclude the right of reimbursement from his
co-debtor by the one who paid [See Article 1217, Civil Code]. It is with respect to this right of
reimbursement that petitioners can find support in the aforecited contractual stipulation and Wage Order
provision.

The Wage Orders are explicit that payment of the increases are to be borne by the principal or client. To
be borne, however, does not mean that the principal, PTSI in this case, would directly pay the security
guards the wage and allowance increases because there is no privity of contract between them. The
security guards contractual relationship is with their immediate employer, EAGLE. As an employer,
 EAGLE is tasked, among others, with the payment of their wages [See Article VII Sec. 3 of the Contract
for Security Services, supra and Bautista v. Inciong, G.R. No. 52824, March 16, 1988, 158 SCRA 665].

On the other hand, there existed a contractual agreement between PTSI and EAGLE wherein the former
availed of the security services provided by the latter. In return, the security agency collects from its client
payment for its security services. This payment covers the wages for the security guards and also
expenses for their supervision and training, the guards bonds, firearms with ammunitions, uniforms and
other equipments, accessories, tools, materials and supplies necessary for the maintenance of a security
force.

Premises considered, the security guards immediate recourse for the payment of the increases is
with their direct employer, EAGLE. However, in order for the security agency to comply with the new
wage and allowance rates it has to pay the security guards, the Wage Orders made specific provision to
amend existing contracts for security services by allowing the adjustment of the consideration paid by the
principal to the security agency concerned. What the Wage Orders require, therefore, is the amendment
of the contract as to the consideration to cover the service contractors payment of the increases
mandated. In the end, therefore, ultimate liability for the payment of the increases rests with the principal.

In view of the foregoing, the security guards should claim the amount of the increases from EAGLE.
Under the Labor Code, in case the agency fails to pay them the amounts claimed, PTSI should be
held solidarily liable with EAGLE [Articles 106,107 and 109]. Should EAGLE pay, it can claim an
adjustment from PTSI for an increase in consideration to cover the increases payable to the security
guards.

However, in the instant case, the contract for security services had already expired without being
amended consonant with the Wage Orders. It is also apparent from a reading of a record that EAGLE
does not now demand from PTSI any adjustment in the contract price and its main concern is freeing
itself from liability. Given these peculiar circumstances, if PTSI pays the security guards, it cannot
claim reimbursement from EAGLE. But in case it is EAGLE that pays them, the latter can claim
reimbursement from PTSI in lieu of an adjustment, considering that the contract, [sic] had expired
and had not been renewed.[13] (Emphasis added)

We repeatedly upheld our ruling in Eagle regarding reimbursement in the subsequent cases of Spartan Security & Detective

Agency, Inc. v. NLRC,[14] Development Bank of the Philippines v. NLRC, [15] Alpha Investigation and Security Agency, Inc. v.

NLRC,[16] Helpmate, Inc. v. NLRC, et al.,[17] and Lapanday Agricultural Development Corporation v. Court of Appeals.[18]

For the security guards, the actual source of the payment of their wage differentials and premium for holiday and rest day

work does not matter as long as they are paid. This is the import of Eparwa and LDCUs solidary liability. Creditors, such as

the security guards, may collect from anyone of the solidary debtors. Solidary liability does not mean that, as between

themselves, two solidary debtors are liable for only half of the payment.

LDCUs ultimate liability comes into play because of the expiration of the Contract for Security Services. There is no privity of

contract between the security guards and LDCU, but LDCUs liability to the security guards remains because of Articles 106,

107 and 109 of the Labor Code. Eparwa is already precluded from asking LDCU for an adjustment in the contract price

because of the expiration of the contract, but Eparwas liability to the security guards remains because of their employer-

employee relationship. In lieu of an adjustment in the contract price, Eparwa may claim reimbursement from LDCU for any

payment it may make to the security guards. However, LDCU cannot claim any reimbursement from Eparwa for any

payment it may make to the security guards.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 20 April 2001 and the Resolution dated 21

September 2001 of the Court of Appeals. We REINSTATE the Resolutions dated 19 January 2000 and 14 March 2000 of the

National Labor Relations Commission.

SO ORDERED.

[G.R. No. 137549. February 11, 2005]

AURELIO P. ALONZO and TERESITA A. SISON, petitioners, vs. JAIME AND PERLITA SAN JUAN, respondents.

DECISION

CHICO-NAZARIO, J.:

A complaint for recovery of possession was filed by Aurelio P. Alonzo and Teresita A. Sison against Jaime and Perlita
San Juan docketed as Civil Case No. Q-96-29415 before the Regional Trial Court (RTC) of Quezon City, Branch 77. In their
Complaint, plaintiffs alleged that they are the registered owners of a parcel of land located at Lot 3, Block 11, M. Agoncillo
St., Novaliches, Quezon City, with an area of four hundred twenty-five (425) square meters, more or less, evidenced by
Transfer Certificate of Title (TCT) No. N-152153 issued by the Register of Deeds of Quezon City. At around June of 1996,
plaintiffs discovered that a portion on the left side of the said parcel of land with an area of one hundred twenty-five (125)
square meters, more or less, was occupied by the defendants for more than a year, without their prior knowledge or consent.
A demand letter was sent to the defendants in August of 1996 requiring them to vacate the property but they refused to
comply; hence, the filing of the Complaint. During the pendency of the case, the parties agreed to enter into a Compromise
Agreement which the trial court approved in a Judgment by Compromise dated 07 May 1997. [1]

Alleging that they failed to abide by the provisions of the Compromise Agreement by their failure to pay the amounts
due thereon, plaintiffs sent a letter demanding that the defendants vacate the premises. [2] Plaintiffs subsequently filed an
Amended Motion for Execution. [3] Acting on the motion, the trial court[4] issued its Order dated 11 August 1998[5] now assailed
before this Court.

The Order reads:

Before the Court for resolution is the plaintiffs Amended Motion For Execution, dated July 7, 1998.

Records show that, on May 5, 1997, the parties herein together with spouses Elbert and Susan Manalili, assisted by Atty.
Victor Rey Santos, submitted a Compromise Agreement, which was approved by the Court on May 7, 1997. On July 9,
1998, the plaintiff, through counsel, filed an Amended Motion For Execution, praying, pursuant to the Judgment by
Compromise Agreement, dated May 7, 1997, for the issuance of a writ of execution for the ejectment of the defendants-
spouses Jaime and Perlita San Juan and of the spouses Elbert and Susan Manalili from the property in question, and for the
payment to the plaintiff of the sum of P50,000.00 as attorneys fees, and another sum of P50,000.00 as moral damages.

In the Compromise Agreement, it was expressly stipulated that should any two of the installments of the purchase price be
not paid by the defendants, the said agreement (Compromise Agreement) shall be considered null and void.

The plaintiffs expressly admitted in their amended motion for execution that the defendants failed to pay the installments for
July 31, 1997 and August 31, 1997 on their due dates; hence, the Compromise Agreement submitted by the parties became
null and void. The Court, therefore, has no basis to direct the issuance of a writ of execution.

WHEREFORE, premises considered, the plaintiffs amended motion for execution should be, as it is hereby, denied.

Plaintiffs filed a motion for reconsideration [6] which the defendants opposed.[7] Maintaining that the trial court correctly
declared that the compromise agreement has been rendered null and void, defendants likewise remonstrated that they have
fully paid their obligation to the plaintiffs.
 In an Order of the trial court dated 17 February 1999, plaintiffs motion for reconsideration was denied in this wise:

After a careful consideration of the respective contentions of the parties, the Court finds no cogent reason to disturb its
Order of August 11, 1998.

It is the well-considered opinion of this court that there is no need to interpret the provisions of the Compromise Agreement
entered into by the parties, because paragraph 11 thereof clearly states that: Should any two (2) of the subsequent amounts
be not paid on the date fixed in the foregoing schedule, then this Agreement shall be considered as automatically and
without any further formality null and void and the amount of P44,117.65 initially paid hereunder shall be considered as
penalty as well as rentals and forfeited in favor of the plaintiffs.

The Compromise Agreement submitted by the parties having been rendered null and void, the Court has no basis to direct
the issuance of a writ of execution.

WHEREFORE, premises considered, plaintiffs motion for reconsideration is hereby denied. [8]

Understandably aggrieved, plaintiffs (petitioners) filed directly to this Court the instant petition for review on certiorari to
assail the Orders of the trial court dated 11 August 1998 and 17 February 1999 arguing that:

The instant petition ought to be allowed and given due course by this Honorable Court because the aforementioned Orders
dated August 11, 1998 and February 17, 1999 are both grossly erroneous, invalid and unlawful as the same directly
contravene and violate the express provisions of paragraph 12 of the Judgment by Compromise Agreement. [9]

In a resolution rendered by this Court dated 23 June 1999, defendants (respondents) were required to Comment on
the petition.[10] Respondents submitted their compliance on 11 October 1999. [11] Per the Courts resolution dated 18 October
1999,[12] petitioners were required to file their Reply which they did on 03 December 1999. [13]

On 14 June 2000, this Court resolved to give due course to the petition and required the parties to submit their
respective memorandum within thirty days from notice. [14] The petitioners and respondents submitted their memorandum on
01 September 2000[15] and 06 April 2001,[16] respectively.

The jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited
to reviewing only errors of law [17] and factual issues are not within its province [18] unless the factual findings complained of are
devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts.

It is at once apparent that the determination of the correctness of the trial courts interpretation of the provisions of the
Compromise Agreement involves a question of law.[19] However, the claim of payments raised by the respondents entails a
review of the evidences on record which is not proper in a petition for review under Rule 45. Be that as it may, the Court in
the exercise of its discretion, may set aside procedural rules and proceed to determine and resolve factual matters [20] to put
all issues to rest and avoid further delay. With this, we deem it necessary to first settle the issue of payment.

The terms and conditions of the Compromise Agreement are quoted as follows:

1. The Spouses Jaime San Juan and Perlita San Juan as well as the Spouses Elbert and his wife, Susan Y. Manalili have
occupied and continue to occupy a portion consisting of one hundred twenty-five (125) square meters, more or less, of that
parcel of land identified as Lot 3, Block 11 of the consolidation and subdivision plan PCS-4682, located along M. Agoncillo
Street, Dona Rosario Heights, Nova Proper, Novaliches, Quezon City, which is owned by and registered in the names of the
plaintiffs under Transfer Certificate of Title No. N-152153 issued by the Registry of Deeds for Quezon City;

2. Spouses Jaime and Perlita San Juan are occupying the front area, while Spouses Elbert and Susan Manalili are
occupying the rear area of the aforesaid 125 square meters portion of Plaintiffs parcel of land;

3. Said parties have occupied said portion of the Plaintiffs parcel of land without the knowledge or consent of the Plaintiffs;

4. By way of amicably settling the dispute in the instant case, the said parties have offered to purchase the said portion of
Plaintiffs parcel of land being occupied by them, to which the Plaintiffs had acceded, under the following terms and
conditions:
a. The purchase price for the said portion consisting of one hundred twenty-five (125) square meters, more [or] less, shall be
Two Hundred Thirty Five Thousand Two Hundred Ninety-Four Pesos (P235,294.00), Philippine Currency;

5. The aforesaid purchase price shall be paid in the following manner:

a. The sum of P44,117.65, Philippine Currency, upon the signing of this Agreement;

b. The sum of P44,117.65, Philippine Currency, on or before May 31, 1997;

c. The sum of P29,411.75, Philippine Currency, on or before June 30, 1997;

d. The sum of P58,823.50, Philippine Currency, on or before July 31, 1997;

e. The sum of P58,823.50, Philippine Currency, on or before August 31, 1997.

6. Upon full payment of the said purchase price, the herein Plaintiffs shall execute in favor of the Spouses Elbert Manalili and
Susan Manalili a Deed of Absolute Sale over the aforementioned portion subject of the instant Agreement;

7. The said Spouses Elbert Manalili and Susan Manalili shall take care of all expenses and taxes corresponding to the said
transaction, such as the capital gains tax, documentary stamps tax, notarial fees, registration fees and other expenses of the
said Deed of Absolute Sale, the registration thereof with the Registry of Deeds and the issuance of a new certificate of title in
favor of said spouses, as well [as] the expenses for the relocation and subdivision survey of the said parcel of land and the
real estate taxes due on the said property starting the year 1997;

8. It is agreed that the title to the said portion of Plaintiffs parcels of land shall remain with the Plaintiffs and shall pass to and
be transferred to the Spouses Elbert Manalili and Susan Manalili only upon complete payment of the full purchase price
agreed upon;

9. Before the purchase price shall have been paid in full, said Spouses Elbert Manalili and Susan Manalili hereby agree not
to alienate, encumber, assign or otherwise dispose in any manner of their rights under this Agreement without the prior
written consent of the Plaintiffs;

10. Should any two (2) of the subsequent amounts be not paid on the date fixed in the foregoing schedule, then this
Agreement shall be considered as automatically and without any further formality null and void and the amount of
P44,117.65 initially paid hereunder shall be considered as penalty as well as rentals and forfeited in favor of the Plaintiffs;

11. In the event of such non-payment, herein Defendants Jaime and Perlita San Juan and Spouses Elbert Manalili and
Susan Manalili hereby agree to vacate and surrender the possession of said portion of the parcel of land being occupied by
them within thirty (30) days upon demand by the Plaintiffs;

12. Should any of said parties fail and/or refuse to vacate and surrender the said parcel of land being occupied by them to
the Plaintiffs, the latter shall be entitled to obtain immediately from this Honorable Court the corresponding writ of execution
for the ejectment of the said party or parties, or other persons occupying said property for and on their behalf or upon their
authority from the said property in question. [21]

Indubitably, the schedule of payments as contained in the Compromise Agreement provides that initial payment in the
amount of P44,117.65 is due on 07 May 1997, the date when the agreement was signed. Respondents, to prove payment,
showed Equitable Bank Check No. 1050783228 payable to Petitioner Aurelio Alonzo, in the amount of P100,000 issued by a
certain Cirila C. Cruz and dated 23 September 1994. [22] A perfunctory examination of the check shows that it bears a date so
much earlier than the time the Compromise Agreement took place on 14 May 1997. Necessarily, in this instance, the claim of
payment is inconsequential and cannot be credited in favor of the respondents.

The next payment for the same amount of P44,117.65 was due on or before 31 May 1997, a little less than a month
after the date of the Compromise Agreement. To prove payment, respondents presented a check dated 30 April 1997,
[23]
payable to Petitioner Aurelio Alonzo, again issued by a certain Cirila Cruz for the amount of P150,000. The voucher
particulars state that the same is for partial payment and/or 1 st installment re: Compromise Agreements entered by Sps.
Antonio and Leonor B. Lazaro and Engr. and Mrs. Elbert Manalili and Mr. And Mrs. Jaime San Juan (respondents herein) re:
Lot 3, Block 11, Q. C.

The next check dated 24 June 1997 [24] again issued by Cirila Cruz in the amount of P150,000 payable to Aurelio P.
Alonzo provides in the cash voucher particulars that the same is an additional partial payment due on 31 May 1997 Re:
Compromise Agreement entered by the Sps. Lazaro, Manalili and San Juan.

Another check again issued by Cirila Cruz dated 29 July 1997 [25] in the amount of P100,000 payable to Mr. Aurelio P.
Alonzo, is accompanied by the same voucher particulars, i.e., it is an additional partial payment of the Compromise
Agreement entered into by the spouses Antonio and Leonor Lazaro and Mr. and Mrs. Elbert Manalili and Mr. and Mrs. Jaime
San Juan.

A subsequent check[26] again issued by Cirila Cruz dated 24 December 1997, payable to Aurelio Alonzo in the amount
of P50,000 is accompanied by a receipt stating that the amount RECEIVED from Cirila C. Cruz is an additional partial
payment for the account of Perlita San [Juan] and Mr. and Mrs. Lazaro.

Finally, a check[27] this time unaccompanied by any voucher or receipt, again issued by Cirila Cruz, payable to cash in
the amount of P25,000 was dated 25 July 1998, way past the period to make payments as specified in the Compromise
Agreement for which reason it cannot be credited to the account of the respondents.

The law requires in civil cases that the party who alleges a fact has the burden of proving it. [28] Section 1, Rule 131 of
the Rules of Court provides that the burden of proof is the duty of a party to prove the truth of his claim or defense, or any
fact in issue by the amount of evidence required by law. [29] In this case, the burden of proof is on the respondents because
they allege an affirmative defense, namely payment.[30] As a rule, one who pleads payment has the burden of proving it.
[31]
Even where the plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove nonpayment. The debtor has the burden of showing with legal certainty that the
obligation has been discharged by payment.[32]

In Jimenez v. NLRC,[33] this Court held that where one, sued for a debt, admits that the debt was originally owed, and
pleads payment in whole or in part, it is incumbent upon him to prove such payment. Indeed, though the plaintiff may admit
that some payments have been made, this admission does not change the burden of proof. The defendant still has the
burden of establishing payments beyond those admitted by the plaintiff.

In herein case, the respondents failed to discharge their burden of proving payment.

Apropos is the rule so well-settled that a receipt of payment is the best evidence of the fact of payment. [34] In Monfort v.
Aguinaldo,[35] the receipts of payment, although not exclusive, were deemed to be the best evidence.

A receipt is a written and signed acknowledgment that money has or goods have been delivered, [36] while a voucher is
a documentary record of a business transaction. [37] The references to alleged check payments in the vouchers presented do
not vest them with the character of receipts.

It should be noted that a voucher is not necessarily an evidence of payment. It is merely a way or method of recording
or keeping track of payments made. It must be supported by an actual payment of cash duly receipted for as is customary
among businessmen or the issuance of a check subsequently encashed. [38] The law provides that the delivery of mercantile
documents including checks shall produce the effect of payment only when they have been cashed. [39] In this case, it was
not shown that the checks were encashed by the petitioners.

Even assuming that payments were made, it has not been shown to the full satisfaction of this Court whether the
payments were made specifically to satisfy respondents obligation under the Compromise Agreement, nor were the
circumstances under which the payments were made explained, taking into consideration the conditions of the Compromise
Agreement. The dates, amounts and the person issuing the checks, which respondents claim were made in their behalf and
were issued in satisfaction of their obligation, do not really reconcile with the dates and amount due as to convince this Court
that the payments were really for the respondents obligation under the Compromise Agreement as intended. The checks
were all issued by a certain Cirila Cruz whose identity and relation to them the respondents never explained and each check
reflected an amount so much greater than what was due from the respondents. Respondents never endeavored to
rationalize or explain the disparity.
 Verily, an obligation may be extinguished by payment. [40] However, two requisites must concur: (1) identity of the
prestation, and (2) its integrity. The first means that the very thing due must be delivered or released; and the second, that
the prestation be fulfilled completely.[41] In this case the creditor must receive and acknowledge full payment from the debtor.
[42]
No such acknowledgment nor proof of full payment was shown to the satisfaction of the court. For this reason, claim of
payment made by the respondents must fail. What was due from the respondents was the payment of a sum of money. Not
only that, respondents must also pay the amount due in its entirety for their obligation to be considered extinguished by
payment.

The issue of payment having been put to rest, we now proceed to determine the correctness of the trial courts
interpretation of the compromise agreement entered into by the parties.

Compromise agreements are contracts, whereby the parties undertake reciprocal obligations to resolve their
differences[43] thus avoiding litigation,[44] or put an end to one already commenced.[45]

It is a cardinal rule in contract interpretation that the ascertainment of the intention of the contracting parties is to be
discharged by looking to the words they used to project that intention in their contract, that is, all the words, not just a
particular word or two, and words in context, not words standing alone. [46]

Article 1374 of the Civil Code requires that the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly.[47]

In this case, we find it was error on the part of the trial court to have interpreted the compromise agreement in the
manner it has done so.

Applying the rule that the various stipulations of a contract should be taken together, the trial court should have
interpreted paragraph 10, in relation to paragraphs 11 and 12. If we were to follow the interpretation of the trial court, the
respondents would only have to default in the payment of their obligation and the contract would be rendered null and void
to their benefit and advantage leaving the petitioners without any recourse at all. This surely was not what was envisioned
when the parties entered into the compromise. The Court itself would not have approved the same for being contrary to law,
morals and public policy. Certainly, to sustain the interpretation of the trial court would be to sanction an absurdity as it would
go against the very rationale of entering into a Compromise Agreement, i.e., to put an end to litigation. If we were to follow
the argument of the trial court to its logical conclusion, then it would mean that the parties would have to go back to square
one and re-litigate what they had already put to rest when they entered into the subject Compromise Agreement.

This is a good time as any to re-echo the fact that reciprocal concessions are the very heart and life of every
compromise agreement. By the nature of a compromise agreement, it brings the parties to agree to something which neither
of them may actually want, but for the peace it will bring them without a protracted litigation. Essentially, the parties to it have
to bend a little or else break in the process. [48] In Raneses v. Teves,[49] it was stated it is the trial courts duty to examine and
study the compromise agreement with utmost attention and caution and to assure itself that the stipulations thereof are valid
and proper so as to avoid misunderstanding and controversies. A casual or superficial perusal of the compromise agreement
should be eschewed. A watchful fidelity to this doctrinal yardstick has always been enjoined to arrive at a peaceful
settlement of a mired justiciable issue.

In the same vein, the principle of autonomy of contracts must be respected. [50] Respondents contract with the
petitioners have the force of law between them. [51] Respondents are thus bound to fulfill what has been expressly stipulated
therein.[52] Items 11 and 12 of the Compromise Agreement provided, in clear terms, that in case of failure to pay on the part
of the respondents, they shall vacate and surrender possession of the land that they are occupying and the petitioners shall
be entitled to obtain immediately from the trial court the corresponding writ of execution for the ejectment of the respondents.
This provision must be upheld, because the Agreement supplanted the Complaint itself. When the parties entered into a
Compromise Agreement, the original action for recovery of possession was set aside and the action was changed to a
monetary obligation. Once approved judicially, the Compromise Agreement can not and must not be disturbed except for
vices of consent or forgery.[53]

Courts do not have the power to relieve parties of obligations voluntarily assumed. [54]

For failure of the respondents to abide by the judicial compromise, petitioners are vested with the absolute right under
the law and the agreement to enforce it by asking for the issuance of the writ of execution. Doctrinally, a Compromise
Agreement is immediately final and executory.[55] Petitioners course of action, asking for the issuance of a writ of execution
was in accordance with the very stipulation in the agreement that the lower court could not change.

In Abinujar v. Court of Appeals,[56] this Court even went further and declared that the nonfulfillment of the terms and
conditions of a Compromise Agreement approved by the court justifies execution thereof and the issuance of the writ for the
said purpose is the courts ministerial duty enforceable by Mandamus.

WHEREFORE, the Petition is GRANTED. The Orders of the Regional Trial Court, Branch 77, Quezon City, dated 11
August 1998 and 17 February 1999 are hereby declared null and void and set aside and a new one entered directing the
trial court to issue the writ of execution prayed for by the Petitioners in accordance with the Compromise Agreement. With
costs.

SO ORDERED.

FIRST DIVISION

REPUBLIC OF THE PHILIPPINES, represented by G.R. No. 175021

the CHIEF OF THE PHILIPPINE NATIONAL POLICE,
Petitioner, Present:

VELASCO, JR .,*
Acting Chairperson,
LEONARDO-DE CASTRO,
- versus - BERSAMIN,**
DEL CASTILLO, and
PEREZ, JJ.
Promulgated:

THI THU THUY T. DE GUZMAN,

Respondent. June 15, 2011

x----------------------------------------------------x

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari[1] filed by Republic of the Philippines, as represented by the Chief of the

Philippine National Police (PNP), of the September 27, 2006 Decision[2] of the Court of Appeals in CA-G.R. CV No.

80623, which affirmed with modification the September 8, 2003 Decision [3] of the Regional Trial Court (RTC), Branch 222, of

Quezon City in Civil Case No. Q99-37717.

 Respondent is the proprietress of Montaguz General Merchandise (MGM), [4] a contractor accredited by the PNP for

the supply of office and construction materials and equipment, and for the delivery of various services such as printing and

rental, repair of various equipment, and renovation of buildings, facilities, vehicles, tires, and spare parts. [5]

On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition and Issue Voucher [6] for

the acquisition of various building materials amounting to Two Million Two Hundred Eighty-Eight Thousand Five Hundred

Sixty-Two Pesos and Sixty Centavos (P2,288,562.60) for the construction of a four-storey condominium building with roof

deck at Camp Crame, Quezon City.[7]

Respondent averred that on December 11, 1995, MGM and petitioner, represented by the PNP, through its chief,

executed a Contract of Agreement[8] (the Contract) wherein MGM, for the price of P2,288,562.60, undertook to procure and

deliver to the PNP the construction materials itemized in the purchase order [9] attached to the Contract.Respondent claimed

that after the PNP Chief approved the Contract and purchase order,[10] MGM, on March 1, 1996, proceeded with the delivery

of the construction materials, as evidenced by Delivery Receipt Nos. 151-153, [11] Sales Invoice Nos. 038 and 041, [12] and the

Report of Public Property Purchase [13] issued by the PNPs Receiving and Accounting Officers to their Internal Auditor

Chief. Respondent asseverated that following the PNPs inspection of the delivered materials on March 4, 1996, [14] the PNP

issued two Disbursement Vouchers; one in the amount of P2,226,147.26 in favor of MGM, [15] and the other, [16] in the amount

of P62,415.34, representing the three percent (3%) withholding tax, in favor of the Bureau of Internal Revenue (BIR). [17]

On November 5, 1997, the respondent, through counsel, sent a letter dated October 20, 1997 [18] to the PNP,

demanding the payment of P2,288,562.60 for the construction materials MGM procured for the PNP under their December

1995 Contract.

On November 17, 1997, the PNP, through its Officer-in-Charge, replied [19] to respondents counsel, informing her of

the payment made to MGM via Land Bank of the Philippines (LBP) Check No. 0000530631, [20] as evidenced by Receipt No.

001, [21] issued by the respondent to the PNP on April 23, 1996. [22]

On November 26, 1997, respondent, through counsel, responded by reiterating her demand [23] and denying having

ever received the LBP check, personally or through an authorized person. She also claimed that Receipt No. 001, a copy of

which was attached to the PNPs November 17, 1997 letter, could not support the PNPs claim of payment as the aforesaid

receipt belonged to Montaguz Builders, her other company, which was also doing business with the PNP, and not to MGM,

with which the contract was made.

On May 5, 1999, respondent filed a Complaint for Sum of Money against the petitioner, represented by the Chief of

the PNP, before the RTC, Branch 222 of Quezon City.[24] This was docketed as Civil Case No. Q99-37717.
 The petitioner filed a Motion to Dismiss[25] on July 5, 1999, on the ground that the claim or demand set forth in

respondents complaint had already been paid or extinguished, [26] as evidenced by LBP Check No. 0000530631 dated April

18, 1996, issued by the PNP to MGM, and Receipt No. 001, which the respondent correspondingly issued to the PNP. The

petitioner also argued that aside from the fact that the respondent, in her October 20, 1997 letter, demanded the incorrect

amount since it included the withholding tax paid to the BIR, her delay in making such demand [did] not speak well of the

worthiness of the cause she espouse[d].[27]

Respondent opposed petitioners motion to dismiss in her July 12, 1999 Opposition [28]and September 10, 1999

Supplemental Opposition to Motion to Dismiss. [29]Respondent posited that Receipt No. 001, which the petitioner claimed was

issued by MGM upon respondents receipt of the LBP check, was, first, under the business name Montaguz Builders, an

entity separate from MGM. Next, petitioners allegation that she received the LBP check on April 19, 1996 was belied by the

fact that Receipt No. 001, which was supposedly issued for the check, was dated four days later, or April 23,

1996. Moreover, respondent averred, the PNPs own Checking Account Section Logbook or the Warrant Register, showed

that it was one Edgardo Cruz (Cruz) who signed for the check due to MGM, [30] contrary to her usual practice of personally

receiving and signing for checks payable to her companies.

After conducting hearings on the Motion to Dismiss, the RTC issued an Order [31] on May 4, 2001, denying the

petitioners motion for lack of merit. The petitioner thereafter filed its Answer,[32] wherein it restated the same allegations in its

Motion to Dismiss.

Trial on the merits followed the pre-trial conference, which was terminated on June 25, 2002 when the parties

failed to arrive at an amicable settlement.[33]

On September 3, 2002, shortly after respondent was sworn in as a witness, and after her counsel formally offered

her testimony in evidence, Atty. Norman Bueno, petitioners counsel at that time, made the following stipulations in open

court:

Atty. Bueno (To Court)

Your Honor, in order to expedite the trial, we will admit that this witness was contracted to deliver the
construction supplies or materials. We will admit that she complied, that she
actually delivered the materials. We will admit that Land Bank Corporation check
was issued although we will not admit that the check was not released to her, as [a]
matter of fact, we have the copy of the check. We will admit that Warrant Register
indicated that the check was released although we will not admit that the check was
not received by the [respondent].

Court (To Atty. Albano)

So, the issues here are whether or not the [respondent] received the check for the payment of the
construction materials or supplies and who received the same. That is all.

Atty. Albano (To Court)

 Yes, your Honor.

Court (To Atty. Albano)

I think we have an abbreviated testimony here. Proceed.[34] (Emphasis ours.)

The stipulations made by the petitioner through Atty. Bueno were in consonance with the admissions it had

previously made, also through Atty. Bueno, in its Answer,[35]and pre-trial brief[36]:

Answer:

IX
It ADMITS the allegation in paragraph 9 of the Complaint that [respondent] delivered to the
PNP Engineering Service the construction materials. It also ADMITS the existence of Receipt Nos.
151, 152 and 153 alleged in the same paragraph, copies of which are attached to the Complaint as
Annexes G, G-1 and G-2.[37] (Emphasis ours.)

Pre-trial Brief:

III

ADMISSIONS

3.1. Facts and/or documents admitted

For brevity, [petitioner] admit[s] only the allegations in [respondents] Complaint and the annexes
thereto that were admitted in the Answer.[38] (Emphases ours.)

With the issue then confined to whether respondent was paid or not, the RTC proceeded with the trial.

Respondent, in her testimony, narrated that on April 18, 1996, she went to the PNP Finance Center to claim a

check due to one of her companies, Montaguz Builders. As the PNP required the issuance of an official receipt upon

claiming its checks, respondent, in preparation for the PNP check she expected, already signed Montaguz Builders Official

Receipt No. 001, albeit the details were still blank. However, upon arriving at the PNP Finance Center, respondent was told

that the check was still with the LBP, which could not yet release it. Respondent then left for the Engineering Services Office

to see Captain Rama, along with Receipt No. 001, which she had not yet issued. [39]Respondent claimed that after some time,

she left her belongings, including her receipt booklet, at a bench in Captain Ramas office when she went around the

Engineering Office to talk to some other people. [40] She reasoned that since she was already familiar and comfortable with

the people in the PNPES Office, she felt no need to ask anyone to look after her belongings, as it was her normal

practice[41] to leave her belongings in one of the offices there. The next day, respondent alleged that when she returned for

the check due to Montaguz Builders that she was not able to claim the day before, she discovered for the first time that

Receipt No. 001, which was meant for that check, was missing.Since she would not be able to claim her check without

issuing a receipt, she just informed the releaser of the missing receipt and issued Receipt No. 002 in its place. [42] After a few

months, respondent inquired with the PNP Finance Center about the payment due to MGM under the Contract of December

1995 and was surprised to find out that the check payable to MGM had already been released. Upon making some inquiries,
respondent learned that the check, payable to MGM, in the amount of P2,226,147.26, was received by Cruz, who signed the

PNPs Warrant Register. Respondent admitted to knowing Cruz, as he was connected with Highland Enterprises, a fellow

PNP-accredited contractor. However, she denied ever having authorized Cruz or Highland Enterprises to receive or claim

any of the checks due to MGM or Montaguz Builders. [43] When asked why she had not filed a case against Cruz or Herminio

Reyes, the owner of Highland Enterprises, considering the admitted fact that Cruz claimed the check due to her, respondent

declared that there was no reason for her to confront them as it was the PNPs fault that the check was released to the wrong

person. Thus, it was the PNPs problem to find out where the money had gone, while her course of action was to go after the

PNP, as the party involved in the Contract.[44]

On April 29, 2003, petitioner presented Ms. Jesusa Magtira, who was then the check releaser [45] of the PNP, to

prove that the respondent received the LBP check due to MGM, and that respondent herself gave the check to Cruz. [46] Ms.

Magtira testified that on April 23, 1996, she released the LBP check payable to the order of MGM, in the amount

of P2,226,147.26, to the respondent herein, whom she identified in open court. She claimed that when she released the

check to respondent, she also handed her a voucher, and a logbook also known as the Warrant Register, for signing.
[47]
When asked why Cruz was allowed to sign for the check, Ms. Magtira explained that this was allowed since the

respondent already gave her the official receipt for the check, and it was respondent herself who gave the logbook to Cruz

for signing.[48]

The petitioner next presented Edgardo Cruz for the purpose of proving that the payment respondent was claiming

rightfully belonged to Highland Enterprises. Cruz testified that Highland Enterprises had been an accredited contractor of the

PNP since 1975. In 1995, Cruz claimed that the PNPES was tasked to construct by administration a condominium

building. This meant that the PNPES had to do all the work, from the canvassing of the materials to the construction of the

building. The PNPES allegedly lacked the funds to do this and so asked for Highland Enterprisess help. [49] In a meeting with

its accredited contractors, the PNPES asked if the other contractors would agree to the use of their business name [50] for a

two percent (2%) commission of the purchase order price to avoid the impression that Highland Enterprises was

monopolizing the supply of labor and materials to the PNP.[51] Cruz alleged that on April 23, 1996, he and the respondent

went to the PNP Finance Center to claim the LBP check due to MGM. Cruz said that the respondent handed him the already

signed Receipt No. 001, which he filled up. He claimed that the respondent knew that the LBP check was really meant for

Highland Enterprises as she had already been paid her 2% commission for the use of her business name in the concerned

transaction.[52]

On September 8, 2003, the RTC rendered its Decision, the dispositive of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondent] and against
[petitioner] ordering the latter to pay [respondent] the following sums:

(1) P2,226,147.26 representing the principal sum plus interest at 14% per annum from April
18, 1996 until the same shall have been fully paid;
 (2) 20% of the sum to be collected as attorneys fees; and,

(3) Costs of suit.[53]

The RTC declared that while Cruzs testimony seemed to offer a plausible explanation on how and why the LBP

check ended up with him, the petitioner, already admitted in its Answer, and Pre-trial Brief, that MGM, did in fact deliver the

construction materials worth P2,288,562.60 to the PNP. The RTC also pointed out the fact that the petitioner made the same

admissions in open court to expedite the trial, leaving only one issue to be resolved: whether the respondent had been paid

or not. Since this was the only issue, the RTC said that it had no choice but to go back to the documents and the

documentary evidence clearly indicates that the check subject of this case was never received by [respondent]. [54] In

addition, the PNPs own Warrant Register showed that it was Edgardo Cruz who received the LBP check, and Receipt No.

001 submitted by the petitioner to support its claim was not issued by MGM, but by Montaguz Builders, a different

entity. Finally, the RTC held that Cruzs testimony, which appeared to be an afterthought to cover up the PNPs blunder, were

irreconcilable with the petitioners earlier declarations and admissions, hence, not credit-worthy.

The petitioner appealed this decision to the Court of Appeals, which affirmed with modification the RTCs ruling on

September 27, 2006:

WHEREFORE, the decision appealed from is AFFIRMED with the MODIFICATION that the
14% interest per annum imposed on the principal amount is ordered reduced to 12%, computed from
November 16, 1997 until fully paid. The order for the payment of attorneys fees and costs of the suit
is DELETED.[55]

The Court of Appeals, in deciding against the petitioner, held that the petitioners admissions and declarations,

made in various stages of the proceedings are express admissions, which cannot be overcome by allegations of

respondents implied admissions. Moreover, petitioner cannot controvert its own admissions and it is estopped from denying

that it had a contract with MGM, which MGM duly complied with. The Court of Appeals agreed with the RTC that the real

issue for determination was whether the petitioner was able to discharge its contractual obligation with the respondent. The

Court of Appeals held that while the PNPs own Warrant Register disclosed that the payment due to MGM was received by

Cruz, on behalf of Highland Enterprises, the PNPs contract was clearly with MGM, and not with Highland Enterprises. Thus,

in order to extinguish its obligation, the petitioner should have directed its payment to MGM unless MGM authorized a third

person to accept payment on its behalf.

The petitioner is now before this Court, praying for the reversal of the lower courts decisions on the ground that the

Court of Appeals committed a serious error in law by affirming the decision of the trial court. [56]

THE COURTS RULING:

 This case stemmed from a contract executed between the respondent and the petitioner. While the petitioner, in

proclaiming that the respondents claim had already been extinguished, initially insisted on having fulfilled its contractual

obligation, it now contends that the contract it executed with the respondent is actually a fictitious contract to conceal the fact

that only one contractor will be supplying all the materials and labor for the PNP condominium project.

Both the RTC and the Court of Appeals upheld the validity of the contract between the petitioner and the

respondent on the strength of the documentary evidence presented and offered in Court and on petitioners own stipulations

and admissions during various stages of the proceedings.

It is worthy to note that while this petition was filed under Rule 45 of the Rules of Court, the assertions and

arguments advanced herein are those that will necessarily require this Court to re-evaluate the evidence on record.

It is a well-settled rule that in a petition for review under Rule 45, only questions of law may be raised by the parties

and passed upon by this Court.[57]

This Court has, on many occasions, distinguished between a question of law and a question of fact. We held that

when there is doubt as to what the law is on a certain state of facts, then it is a question of law; but when the doubt arises as

to the truth or falsity of the alleged facts, then it is a question of fact. [58] Simply put, when there is no dispute as to fact, the

question of whether or not the conclusion drawn therefrom is correct, is a question of law. [59] To elucidate further, this Court,

in Hko Ah Pao v. Ting[60] said:

One test to determine if there exists a question of fact or law in a given case is whether the Court can
resolve the issue that was raised without having to review or evaluate the evidence, in which case, it is a
question of law; otherwise, it will be a question of fact. Thus, the petition must not involve the
calibration of the probative value of the evidence presented. In addition, the facts of the case must
be undisputed, and the only issue that should be left for the Court to decide is whether or not the
conclusion drawn by the CA from a certain set of facts was appropriate. [61] (Emphases ours.)

In this case, the circumstances surrounding the controversial LBP check are central to the issue before us, the

resolution of which, will require a perusal of the entire records of the case including the transcribed testimonies of the

witnesses. Since this is an appeal via certiorari, questions of fact are not reviewable. As a rule, the findings of fact of the

Court of Appeals are final and conclusive [62] and this Court will only review them under the following recognized exceptions:

(1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is a grave abuse of discretion; (3)

when the finding is grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the Court of

Appeals is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in

making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and

appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact

are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different

conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are

contradicted by the evidence on record.[63]

Although petitioners sole ground to support this petition was stated in such a manner as to impress upon this Court

that the Court of Appeals committed an error in law, what the petitioner actually wants us to do is to review and re-examine

the factual findings of both the RTC and the Court of Appeals.

Since the petitioner has not shown this Court that this case falls under any of the enumerated exceptions to the

rule, we are constrained to uphold the facts as established by both the RTC and the Court of Appeals, and, consequently,

the conclusions reached in the appealed decision.

Nonetheless, even if we were to exercise utmost liberality and veer away from the rule, the records will show that

the petitioner had failed to establish its case by a preponderance of evidence. [64] Section 1, Rule 133 of the Revised Rules of

Court provides the guidelines in determining preponderance of evidence:

SECTION 1. Preponderance of evidence, how determined. In civil cases, the party having the
burden of proof must establish his case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved lies, the court may consider all the
facts and circumstances of the case, the witnesses manner of testifying, their intelligence, their means
and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or want of interest, and also their
personal credibility so far as the same may legitimately appear upon the trial. The court may also
consider the number of witnesses, though the preponderance is not necessarily with the greater number.

Expounding on the concept of preponderance of evidence, this Court in Encinas v. National Bookstore, Inc.,
[65]
held:

Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and
is usually considered to be synonymous with the term greater weight of the evidence or greater weight of
the credible evidence. Preponderance of evidence is a phrase which, in the last analysis, means
probability of the truth. It is evidence which is more convincing to the court as worthy of belief than that
which is offered in opposition thereto.[66]

The petitioner avers that the Court of Appeals should not have relied heavily, if not solely [67] on the admissions

made by petitioners former counsel, thereby losing sight of the secret agreement between the respondent and Highland

Enterprises, which explains why all the documentary evidence were in respondents name. [68]

The petitioner relies mainly on Cruzs testimony to support its allegations. Not only did it not present any other

witness to corroborate Cruz, but it also failed to present any documentation to confirm its story. It is doubtful that the

petitioner or the contractors would enter into any secret agreement involving millions of pesos based purely on verbal
affirmations. Meanwhile, the respondent not only presented all the documentary evidence to prove her claims, even the

petitioner repeatedly admitted that respondent had fully complied with her contractual obligations.

The petitioner argued that the Court of Appeals should have appreciated the clear and adequate testimony of Cruz,

and should have given it utmost weight and credit especially since his testimony was a judicial admission against interest a

primary evidence which should have been accorded full evidentiary value. [69]

The trial courts appreciation of the witnesses testimonies is entitled to the highest respect since it was in a better

position to assess their credibility.[70] The RTC held Cruzs testimony to be not credit worthy[71] for being irreconcilable with

petitioners earlier admissions. Contrary to petitioners contentions, Cruzs testimony cannot be considered as a judicial

admission against his interest as he is neither a party to the case nor was his admission against his own interest, but

actually against either the petitioners or the respondents interest. Petitioners statements on the other hand, were deliberate,

clear, and unequivocal and were made in the course of judicial proceedings; thus, they qualify as judicial admissions.
[72]
In Alfelor v. Halasan,[73] this Court held that:

A party who judicially admits a fact cannot later challenge that fact as judicial admissions are a waiver of
proof; production of evidence is dispensed with. A judicial admission also removes an admitted fact from
the field of controversy. Consequently, an admission made in the pleadings cannot be controverted by the
party making such admission and are conclusive as to such party, and all proofs to the contrary or
inconsistent therewith should be ignored, whether objection is interposed by the party or not. The
allegations, statements or admissions contained in a pleading are conclusive as against the pleader. A
party cannot subsequently take a position contrary of or inconsistent with what was pleaded. [74]

The petitioner admitted to the existence and validity of the Contract of Agreement executed between the PNP and

MGM, as represented by the respondent, on December 11, 1995. It likewise admitted that respondent delivered the

construction materials subject of the Contract, not once, but several times during the course of the proceedings. The only

matter petitioner assailed was respondents allegation that she had not yet been paid. If Cruzs testimony were true, the

petitioner should have put respondent in her place the moment she sent a letter to the PNP, demanding payment for the

construction materials she had allegedly delivered. Instead, the petitioner replied that it had already paid respondent as

evidenced by the LBP check and the receipt she supposedly issued. This line of defense continued on, with the petitioner

assailing only the respondents claim of nonpayment, and not the rest of respondents claims, in its motion to dismiss, its

answer, its pre-trial brief, and even in open court during the respondents testimony. Section 4, Rule 129 of the Rules of Court

states:

SECTION 4. Judicial Admissions.An admission, verbal or written, made by a party in the course
of the proceedings in the same case, does not require proof. The admission may be contradicted only by
showing that it was made through palpable mistake or that no such admission was made.
 Petitioners admissions were proven to have been made in various stages of the proceedings, and since the

petitioner has not shown us that they were made through palpable mistake, they are conclusive as to the petitioner. Hence,

the only question to be resolved is whether the respondent was paid under the December 1995 Contract of Agreement.

The RTC and the Court of Appeals correctly ruled that the petitioners obligation has not been extinguished. The

petitioners obligation consists of payment of a sum of money. In order for petitioners payment to be effective in extinguishing

its obligation, it must be made to the proper person. Article 1240 of the Civil Code states:

Art. 1240. Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.

In Cembrano v. City of Butuan,[75] this Court elucidated on how payment will effectively extinguish an obligation, to

wit:

Payment made by the debtor to the person of the creditor or to one authorized by him or by the
law to receive it extinguishes the obligation. When payment is made to the wrong party, however, the
obligation is not extinguished as to the creditor who is without fault or negligence even if the debtor acted
in utmost good faith and by mistake as to the person of the creditor or through error induced by fraud of a
third person.

In general, a payment in order to be effective to discharge an obligation, must be made to the

proper person. Thus, payment must be made to the obligee himself or to an agent having authority,
express or implied, to receive the particular payment. Payment made to one having apparent authority to
receive the money will, as a rule, be treated as though actual authority had been given for its
receipt. Likewise, if payment is made to one who by law is authorized to act for the creditor, it will work a
discharge. The receipt of money due on a judgment by an officer authorized by law to accept it will,
therefore, satisfy the debt.[76]

The respondent was able to establish that the LBP check was not received by her or by her authorized

personnel. The PNPs own records show that it was claimed and signed for by Cruz, who is openly known as being

connected to Highland Enterprises, another contractor. Hence, absent any showing that the respondent agreed to the

payment of the contract price to another person, or that she authorized Cruz to claim the check on her behalf, the payment,

to be effective must be made to her.[77]

The petitioner also challenged the RTCs findings, on the ground that it overlooked material fact and circumstance

of significant weight and substance.[78] Invoking the doctrine of adoptive admission, the petitioner pointed out that the

respondents inaction towards Cruz, whom she has known to have claimed her check as early as 1996, should be taken

against her. Finally, the petitioner contends that Cruzs testimony should be taken against respondent as well, under Rule

130, Sec. 32 of the Revised Rules on Evidence, since she has not presented any controverting evidence x x x

notwithstanding that she personally heard it.[79]

 The respondent has explained her inaction towards Cruz and Highland Enterprises. Both the RTC and the Court of

Appeals have found her explanation sufficient and this Court finds no cogent reason to overturn the assessment by the trial

court and the Court of Appeals of the respondents testimony. It may be recalled that the respondent argued that since it was

the PNP who owed her money, her actions should be directed towards the PNP and not Cruz or Highland Enterprises,

against whom she has no adequate proof. [80] Respondent has also adequately explained her delay in filing an action against

the petitioner, particularly that she did not want to prejudice her other pending transactions with the PNP.[81]

The petitioner claims that the RTC overlooked material fact and circumstance of significant weight and substance,
[82]
but it ignores all the documentary evidence, and even its own admissions, which are evidence of the greater weight and

substance, that support the conclusions reached by both the RTC and the Court of Appeals.

We agree with the Court of Appeals that the RTC erred in the interest rate and other monetary sums awarded to

respondent as baseless. However, we must further modify the interest rate imposed by the Court of Appeals pursuant to the

rule laid down in Eastern Shipping Lines, Inc. v. Court of Appeals[83]:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title
XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.

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

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

3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.[84]

Since the obligation herein is for the payment of a sum of money, the legal interest rate to be imposed, under

Article 2209 of the Civil Code is six percent (6%) per annum:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
 interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per
annum.

Following the guidelines above, the legal interest of 6% per annum is to be imposed from November 16, 1997, the

date of the last demand, and 12% in lieu of 6% from the date this decision becomes final until fully paid.

Petitioners allegations of sham dealings involving our own government agencies are potentially disturbing and

alarming. If Cruzs testimony were true, this should be a lesson to the PNP not to dabble in spurious transactions. Obviously,

if it can afford to give a 2% commission to other contractors for the mere use of their business names, then the petitioner is

disbursing more money than it normally would in a legitimate transaction. It is recommended that the proper agency

investigate this matter and hold the involved personnel accountable to avoid any similar occurrence in the future.

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in C.A. G.R. CV No. 80623

dated September 27, 2006 is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT

(6%) per annum on the amount of P2,226,147.26, computed from the date of the last demand or on November 16, 1997. A

TWELVE PERCENT (12%) per annum interest in lieu of SIX PERCENT (6%) shall be imposed on such amount upon finality

of this decision until the payment thereof.

SO ORDERED.

G.R. No. 48049 June 29, 1989

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondents.

O.F. Santos & P.C. Nolasco for petitioners.

Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the Insurance
Commissioner which dismissed the petitioners' complaint against respondent Philippine American Life Insurance Company
for the recovery of the proceeds from their late father's policy. The facts of the case as found by the Court of Appeals are:

Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein petitioners'
complaint against respondent Philippine American Life Insurance Company for the recovery of the
proceeds of Policy No. 1082467 in the amount of P 80,000.00.

On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life insurance in the
amount of P 80,000.00 with respondent company. Said application was approved and Policy No.
1082467 was issued effective November 6,1973, with petitioners the beneficiaries thereof (Exhibit A).
 On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed with respondent
company their claim for the proceeds of the life insurance policy. However, in a letter dated September
11, 1975, respondent company denied petitioners' claim and rescinded the policy by reason of the
alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his
application for insurance (Exhibit 3). The premiums paid on the policy were thereupon refunded .

Alleging that respondent company's refusal to pay them the proceeds of the policy was unjustified and
unreasonable, petitioners filed on November 27, 1975, a complaint against the former with the Office of
the Insurance Commissioner, docketed as I.C. Case No. 218.

After hearing the evidence of both parties, the Insurance Commissioner rendered judgment on August 9,
1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)

The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for lack of merit

Hence, this petition.

The petitioners raise the following issues in their assignment of errors, to wit:

A. The conclusion in law of respondent Court that respondent insurer has the right to rescind the policy
contract when insured is already dead is not in accordance with existing law and applicable
jurisprudence.

B. The conclusion in law of respondent Court that respondent insurer may be allowed to avoid the policy
on grounds of concealment by the deceased assured, is contrary to the provisions of the policy contract
itself, as well as, of applicable legal provisions and established jurisprudence.

C. The inference of respondent Court that respondent insurer was misled in issuing the policy are
manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)

The petitioners contend that the respondent company no longer had the right to rescind the contract of insurance as
rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement of
action.

The contention is without merit.

The pertinent section in the Insurance Code provides:

Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of
this chapter, such right must be exercised previous to the commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in force during
the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.

According to the petitioners, the Insurance Law was amended and the second paragraph of Section 48 added to prevent the
insurance company from exercising a right to rescind after the death of the insured.

The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations or
concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for
at least two years during the insured's lifetime. The phrase "during the lifetime" found in Section 48 simply means that the
policy is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section 48 is
"for a period of two years."

As noted by the Court of Appeals, to wit:

 The policy was issued on November 6,1973 and the insured died on April 26,1975. The policy was thus
in force for a period of only one year and five months. Considering that the insured died before the two-
year period had lapsed, respondent company is not, therefore, barred from proving that the policy is
void ab initio by reason of the insured's fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and refunded the premiums paid on September
11, 1975, previous to the commencement of this action on November 27,1975. (Rollo, pp. 99-100)

xxx xxx xxx

The petitioners contend that there could have been no concealment or misrepresentation by their late father because Tan
Lee Siong did not have to buy insurance. He was only pressured by insistent salesmen to do so. The petitioners state:

Here then is a case of an assured whose application was submitted because of repeated visits and
solicitations by the insurer's agent. Assured did not knock at the door of the insurer to buy insurance. He
was the object of solicitations and visits.

Assured was a man of means. He could have obtained a bigger insurance, not just P 80,000.00. If his
purpose were to misrepresent and to conceal his ailments in anticipation of death during the two-year
period, he certainly could have gotten a bigger insurance. He did not.

Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano Guinto. It was he
who accomplished the application, Part II, medical. Philamlife did not.

Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a relative to Dr. Guinto,
Again Philamlife did not. (pp. 138139, Rollo)

xxx xxx xxx

This Honorable Supreme Court has had occasion to denounce the pressure and practice indulged in by
agents in selling insurance. At one time or another most of us have been subjected to that pressure, that
practice. This court took judicial cognizance of the whirlwind pressure of insurance selling-especially of
the agent's practice of 'supplying the information, preparing and answering the application, submitting the
application to their companies, concluding the transactions and otherwise smoothing out all difficulties.

We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at page 205:

It is of common knowledge that the selling of insurance today is subjected to the whirlwind pressure of
modern salesmanship.

Insurance companies send detailed instructions to their agents to solicit and procure applications.

These agents are to be found all over the length and breadth of the land. They are stimulated to more
active efforts by contests and by the keen competition offered by the other rival insurance companies.

They supply all the information, prepare and answer the applications, submit the applications to their
companies, conclude the transactions, and otherwise smooth out all difficulties.

The agents in short do what the company set them out to do.

The Insular Life case was decided some forty years ago when the pressure of insurance salesmanship
was not overwhelming as it is now; when the population of this country was less than one-fourth of what it
is now; when the insurance companies competing with one another could be counted by the fingers. (pp.
140-142, Rollo)

xxx xxx xxx

 In the face of all the above, it would be unjust if, having been subjected to the whirlwind pressure of
insurance salesmanship this Court itself has long denounced, the assured who dies within the two-year
period, should stand charged of fraudulent concealment and misrepresentation." (p. 142, Rollo)

The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by the second
paragraph of Section 48.

The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement within which to
contest the policy, whether or not, the insured still lives within such period. After two years, the defenses of concealment or
misrepresentation, no matter how patent or well founded, no longer lie. Congress felt this was a sufficient answer to the
various tactics employed by insurance companies to avoid liability. The petitioners' interpretation would give rise to the
incongruous situation where the beneficiaries of an insured who dies right after taking out and paying for a life insurance
policy, would be allowed to collect on the policy even if the insured fraudulently concealed material facts.

The petitioners argue that no evidence was presented to show that the medical terms were explained in a layman's
language to the insured. They state that the insurer should have presented its two medical field examiners as witnesses.
Moreover, the petitioners allege that the policy intends that the medical examination must be conducted before its issuance
otherwise the insurer "waives whatever imperfection by ratification."

We agree with the Court of Appeals which ruled:

On the other hand, petitioners argue that no evidence was presented by respondent company to show
that the questions appearing in Part II of the application for insurance were asked, explained to and
understood by the deceased so as to prove concealment on his part. The same is not well taken. The
deceased, by affixing his signature on the application form, affirmed the correctness of all the entries and
answers appearing therein. It is but to be expected that he, a businessman, would not have affixed his
signature on the application form unless he clearly understood its significance. For, the presumption is
that a person intends the ordinary consequence of his voluntary act and takes ordinary care of his
concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court].

The evidence for respondent company shows that on September 19,1972, the deceased was examined
by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that by January, 1973, the
deceased was complaining of progressive weight loss and abdominal pain and was diagnosed to be
suffering from hepatoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao
Vitug, testified that the deceased came to see him on December 14, 1973 for consolation and claimed to
have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6) Because of the concealment made
by the deceased of his consultations and treatments for hypertension, diabetes and liver disorders,
respondent company was thus misled into accepting the risk and approving his application as medically
standard (Exhibit 5- C) and dispensing with further medical investigation and examination (Exhibit 5-A).
For as long as no adverse medical history is revealed in the application form, an applicant for insurance
is presumed to be healthy and physically fit and no further medical investigation or examination is
conducted by respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98)

There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this case. (Sweet Lines, Inc.
v. Teves, 83 SCRA 361 [1978]). The petitioners cite:

It is a matter of common knowledge that large amounts of money are collected from ignorant persons by
companies and associations which adopt high sounding titles and print the amount of benefits they agree
to pay in large black-faced type, following such undertakings by fine print conditions which destroy the
substance of the promise. All provisions, conditions, or exceptions which in any way tend to work a
forfeiture of the policy should be construed most strongly against those for whose benefit they are
inserted, and most favorably toward those against whom they are meant to operate. (Trinidad v. Orient
Protective Assurance Assn., 67 Phil. 184)

There is no showing that the questions in the application form for insurance regarding the insured's medical history are in
smaller print than the rest of the printed form or that they are designed in such a way as to conceal from the applicant their
importance. If a warning in bold red letters or a boxed warning similar to that required for cigarette advertisements by the
Surgeon General of the United States is necessary, that is for Congress or the Insurance Commission to provide as
protection against high pressure insurance salesmanship. We are limited in this petition to ascertaining whether or not the
respondent Court of Appeals committed reversible error. It is the petitioners' burden to show that the factual findings of the
respondent court are not based on substantial evidence or that its conclusions are contrary to applicable law and
jurisprudence. They have failed to discharge that burden.

WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court of Appeals is
AFFIRMED.

SO ORDERED.

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,

vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

VITUG, J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be
a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the
payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the
date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve
percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to
the controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid
the consignee the value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro
Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to
the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of
the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against
defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
 As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of
said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs.
M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the complaint contending
that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from
the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment
was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record);
Metroport averred that although subject shipment was discharged unto its custody, portion of the same
was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action
against it, not having negligent or at fault for the shipment was already in damage and bad order
condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of

defendants (in whose respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's
Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as clearly
shown by the Bill of Lading and Commercial Invoice which do not indicate any
damages drum that was shipped (Exhs. B and C). But when on December 12, 1981
the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one
drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were

sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G),
with its "Additional Survey Notes", are considered. In the latter notes, it is stated that
when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila
on December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged
condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The
report further states that when defendant Allied Brokerage withdrew the shipment from
defendant arrastre operator's custody on January 7, 1982, one drum was found
opened without seal, cello bag partly torn but contents intact. Net unrecovered
spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one
drum was found with adulterated/faked contents. It is obvious, therefore, that these
losses/damages occurred before the shipment reached the consignee while under the
successive custodies of defendants. Under Art. 1737 of the New Civil Code, the
common carrier's duty to observe extraordinary diligence in the vigilance of goods
remains in full force and effect even if the goods are temporarily unloaded and stored
in transit in the warehouse of the carrier at the place of destination, until the consignee
has been advised and has had reasonable opportunity to remove or dispose of the
goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over
 Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981
one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from
October 1, 1982, the date of filing of this complaints, until fully paid (the liability of
defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value
of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc.
shall be to the extent of the actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the
Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of

defendant/cross-claimant Allied Brokerage Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct.
As there is sufficient evidence that the shipment sustained damage while in the successive possession of
appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the
consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court
a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of
the appellate court when

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE
OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED
IN THE QUESTIONED DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT
AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do
have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered
to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil
Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods
shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National
Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of
course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of
the Civil Code, are exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the
consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455),
we have explained, in holding the carrier and the arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the
consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern
Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take
good care of the goods that are in its custody and to deliver them in good condition to the consignee,
such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves
always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary
the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having
been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both
the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained
damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability
imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others
solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of
goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount
of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in
its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of
P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and
Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date
the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award
of legal interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate.
Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted
for judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable certainty."
And as was held by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit were for
damages, "unliquidated and not known until definitely ascertained, assessed and determined by the
courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and
Loss of Property." After trial, the lower court decreed:
 WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
against the defendants and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally
the following persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of
the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which
is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly
loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or
already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint
until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs.
(Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court
in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision
became final, the case was remanded to the lower court for execution, and this was when the trial court issued its
assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their
petition for review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall
take effect immediately. (Emphasis found in the text)

should have, instead, been applied. This Court 6 ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of
any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor
involving loans or forbearance of any money, goods or credits does not fall within the coverage of the
said law for it is not within the ambit of the authority granted to the Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for
Damages for injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private respondents, the law
applicable to the said case is Article 2209 of the New Civil Code which reads

Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case was for
damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat
actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint
until fully paid. Relying on the Reformina v. Tomol case, this Court 8 modified the interest award from 12% to 6% interest per
annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the collapse
of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the
filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court
of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was
decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We
do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman
Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to
cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including
interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos
as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to
pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned
amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except
Roman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per
cent per annum imposed on the total amount of the monetary award was in contravention of law." The
Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of
15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No.
416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of
any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986];
Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or
a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are
paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the
imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from
the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are
not applicable to the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review
on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of
moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution,
dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and
P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a
decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held
the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The
Court 12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private
respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach of
employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary
damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals,
the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October
31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-
appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive
portion of the decision, including the sum of P1,400.00 in concept of compensatory damages,
with interest at the legal rate from the date of the filing of the complaint until fully paid (Emphasis
supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an
entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory
 damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse
of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the
time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to
actions based on a breach of employment contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from the time the
complaint was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14decided on 08
May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent
domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for
their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per
annum under the Civil Code, the Court 15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation
regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages.
The legal interest required to be paid on the amount of just compensation for the properties expropriated
is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since
the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is
interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall
apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two
groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first
group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v. Manila
Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v. Intermediate
Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the
Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding
that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of money, goods
or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest
under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising
from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time
frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.

The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending
on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the
other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest
should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the
running of the legal interest.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo, explaining
that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the
courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced
a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until
paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until
the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided
by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest.
Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for
future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the
contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages. 20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. 22 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 23 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court 24 at the rate of 6% per annum. 25 No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable
certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed
on such amount upon finality of this decision until the payment thereof.

SO ORDERED.

G.R. No. 181045 July 2, 2014

SPOUSES EDUARDO and LYDIA SILOS, Petitioners,

vs.
PHILIPPINE NATIONAL BANK, Respondent.

DECISION

DEL CASTILLO, J.:

In loan agreements, it cannot be denied that the rate of interest is a principal condition, if not the most important component.
Thus, any modification thereof must be mutually agreed upon; otherwise, it has no binding effect. Moreover, the Court
cannot consider a stipulation granting a party the option to prepay the loan if said party is not agreeable to the arbitrary
interest rates imposed. Premium may not be placed upon a stipulation in a contract which grants one party the right to
choose whether to continue with or withdraw from the agreement if it discovers that what the other party has been doing all
along is improper or illegal.

This Petition for Review on Certiorari1 questions the May 8, 2007 Decision2 of the Court of Appeals (CA) in CA-G.R. CV No.
79650, which affirmed with modifications the February 28, 2003 Decision 3 and the June 4, 2003 Order4 of the Regional Trial
Court (RTC), Branch 6 of Kalibo, Aklan in Civil Case No. 5975.

Factual Antecedents
Spouses Eduardo and Lydia Silos (petitioners) have been in business for about two decades of operating a department
store and buying and selling of ready-to-wear apparel. Respondent Philippine National Bank (PNB) is a banking corporation
organized and existing under Philippine laws.

To secure a one-year revolving credit line of P150,000.00 obtained from PNB, petitioners constituted in August 1987 a Real
Estate Mortgage5 over a 370-square meter lot in Kalibo, Aklan covered by Transfer Certificate of Title No. (TCT) T-14250. In
July 1988,the credit line was increased to P1.8 million and the mortgage was correspondingly increased to P1.8 million.6

And in July 1989, a Supplement to the Existing Real Estate Mortgage7 was executed to cover the same credit line, which
was increased to P2.5 million, and additional security was given in the form of a 134-square meter lot covered by TCT T-
16208. In addition, petitioners issued eight Promissory Notes 8 and signed a Credit Agreement.9This July 1989 Credit
Agreement contained a stipulation on interest which provides as follows:

1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5% per annum. Interest shall be payable in advance
every one hundred twenty days at the rate prevailing at the time of the renewal.

(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending on whatever policy the Bank may
adopt in the future, including without limitation, the shifting from the floating interest rate system to the fixed interest rate
system, or vice versa. Where the Bank has imposed on the Loan interest at a rate per annum, which is equal to the Banks
spread over the current floating interest rate, the Borrower hereby agrees that the Bank may, without need of notice to the
Borrower, increase or decrease its spread over the floating interest rate at any time depending on whatever policy it may
adopt in the future.10 (Emphases supplied)

The eight Promissory Notes, on the other hand, contained a stipulation granting PNB the right to increase or reduce interest
rates "within the limits allowed by law or by the Monetary Board."11

The Real Estate Mortgage agreement provided the same right to increase or reduce interest rates "at any time depending on
whatever policy PNB may adopt in the future."12

Petitioners religiously paid interest on the notes at the following rates:

1. 1st Promissory Note dated July 24, 1989 19.5%;

2. 2nd Promissory Note dated November 22, 1989 23%;

3. 3rd Promissory Note dated March 21, 1990 22%;

4. 4th Promissory Note dated July 19, 1990 24%;

5. 5th Promissory Note dated December 17, 1990 28%;

6. 6th Promissory Note dated February 14, 1991 32%;

7. 7th Promissory Note dated March 1, 1991 30%; and

8. 8th Promissory Note dated July 11, 1991 24%.13

In August 1991, an Amendment to Credit Agreement14 was executed by the parties, with the following stipulation regarding
interest:

1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of each Availment up
to but not including the date of full payment thereof at the rate per annum which is determined by the Bank to be prime rate
plus applicable spread in effect as of the date of each Availment.15 (Emphases supplied)

Under this Amendment to Credit Agreement, petitioners issued in favor of PNB the following 18 Promissory Notes, which
petitioners settled except the last (the note covering the principal) at the following interest rates:

1. 9th Promissory Note dated November 8, 1991 26%;

 2. 10th Promissory Note dated March 19, 1992 25%;

3. 11th Promissory Note dated July 11, 1992 23%;

4. 12th Promissory Note dated November 10, 1992 21%;

5. 13th Promissory Note dated March 15, 1993 21%;

6. 14th Promissory Note dated July 12, 1993 17.5%;

7. 15th Promissory Note dated November 17, 1993 21%;

8. 16th Promissory Note dated March 28, 1994 21%;

9. 17th Promissory Note dated July 13, 1994 21%;

10. 18th Promissory Note dated November 16, 1994 16%;

11. 19th Promissory Note dated April 10, 1995 21%;

12. 20th Promissory Note dated July 19, 1995 18.5%;

13. 21st Promissory Note dated December 18, 1995 18.75%;

14. 22nd Promissory Note dated April 22, 1996 18.5%;

15. 23rd Promissory Note dated July 22, 1996 18.5%;

16. 24th Promissory Note dated November 25, 1996 18%;

17. 25th Promissory Note dated May 30, 1997 17.5%; and

18. 26th Promissory Note (PN 9707237) dated July 30, 1997 25%. 16

The 9th up to the 17th promissory notes provide for the payment of interest at the "rate the Bank may at any time without
notice, raise within the limits allowed by law x x x."17

On the other hand, the 18th up to the 26th promissory notes including PN 9707237, which is the 26th promissory note
carried the following provision:

x x x For this purpose, I/We agree that the rate of interest herein stipulated may be increased or decreased for the
subsequent Interest Periods, with prior notice to the Borrower in the event of changes in interest rate prescribed by law or
the Monetary Board of the Central Bank of the Philippines, or in the Banks overall cost of funds. I/We hereby agree that in
the event I/we are not agreeable to the interest rate fixed for any Interest Period, I/we shall have the option top repay the
loan or credit facility without penalty within ten (10) calendar days from the Interest Setting Date. 18 (Emphasis supplied)

Respondent regularly renewed the line from 1990 up to 1997, and petitioners made good on the promissory notes,
religiously paying the interests without objection or fail. But in 1997, petitioners faltered when the interest rates soared due to
the Asian financial crisis. Petitioners sole outstanding promissory note for P2.5 million PN 9707237 executed in July 1997
and due 120 days later or on October 28, 1997 became past due, and despite repeated demands, petitioners failed to
make good on the note.

Incidentally, PN 9707237 provided for the penalty equivalent to 24% per annum in case of default, as follows:

Without need for notice or demand, failure to pay this note or any installment thereon, when due, shall constitute default and
in such cases or in case of garnishment, receivership or bankruptcy or suit of any kind filed against me/us by the Bank, the
outstanding principal of this note, at the option of the Bank and without prior notice of demand, shall immediately become
due and payable and shall be subject to a penalty charge of twenty four percent (24%) per annum based on the defaulted
principal amount. x x x19 (Emphasis supplied)

PNB prepared a Statement of Account20 as of October 12, 1998, detailing the amount due and demandable from petitioners
in the total amount of P3,620,541.60, broken down as follows:

Principal P 2,500,000.00

Interest 538,874.94

Penalties 581,666.66

Total P 3,620,541.60

Despite demand, petitioners failed to pay the foregoing amount. Thus, PNB foreclosed on the mortgage, and on January 14,
1999, TCTs T-14250 and T-16208 were sold to it at auction for the amount of P4,324,172.96.21 The sheriffs certificate of sale
was registered on March 11, 1999.

More than a year later, or on March 24, 2000, petitioners filed Civil Case No. 5975, seeking annulment of the foreclosure
sale and an accounting of the PNB credit. Petitioners theorized that after the first promissory note where they agreed to pay
19.5% interest, the succeeding stipulations for the payment of interest in their loan agreements with PNB which allegedly
left to the latter the sole will to determine the interest rate became null and void. Petitioners added that because the
interest rates were fixed by respondent without their prior consent or agreement, these rates are void, and as a result,
petitioners should only be made liable for interest at the legal rate of 12%. They claimed further that they overpaid interests
on the credit, and concluded that due to this overpayment of steep interest charges, their debt should now be deemed paid,
and the foreclosure and sale of TCTs T-14250 and T-16208 became unnecessary and wrongful. As for the imposed penalty
of P581,666.66, petitioners alleged that since the Real Estate Mortgage and the Supplement thereto did not include
penalties as part of the secured amount, the same should be excluded from the foreclosure amount or bid price, even if such
penalties are provided for in the final Promissory Note, or PN 9707237. 22

In addition, petitioners sought to be reimbursed an alleged overpayment of P848,285.00 made during the period August 21,
1991 to March 5, 1998,resulting from respondents imposition of the alleged illegal and steep interest rates. They also
prayed to be awarded P200,000.00 by way of attorneys fees.23

In its Answer,24 PNB denied that it unilaterally imposed or fixed interest rates; that petitioners agreed that without prior notice,
PNB may modify interest rates depending on future policy adopted by it; and that the imposition of penalties was agreed
upon in the Credit Agreement. It added that the imposition of penalties is supported by the all-inclusive clause in the Real
Estate Mortgage agreement which provides that the mortgage shall stand as security for any and all other obligations of
whatever kind and nature owing to respondent, which thus includes penalties imposed upon default or non-payment of the
principal and interest on due date.

On pre-trial, the parties mutually agreed to the following material facts, among others:

a) That since 1991 up to 1998, petitioners had paid PNB the total amount of P3,484,287.00;25 and

b) That PNB sent, and petitioners received, a March 10, 2000 demand letter.26

During trial, petitioner Lydia Silos (Lydia) testified that the Credit Agreement, the Amendment to Credit Agreement, Real
Estate Mortgage and the Supplement thereto were all prepared by respondent PNB and were presented to her and her
husband Eduardo only for signature; that she was told by PNB that the latter alone would determine the interest rate; that as
to the Amendment to Credit Agreement, she was told that PNB would fill up the interest rate portion thereof; that at the time
the parties executed the said Credit Agreement, she was not informed about the applicable spread that PNB would impose
on her account; that the interest rate portion of all Promissory Notes she and Eduardo issued were always left in blank when
they executed them, with respondents mere assurance that it would be the one to enter or indicate thereon the prevailing
interest rate at the time of availment; and that they agreed to such arrangement. She further testified that the two Real
Estate Mortgage agreements she signed did not stipulate the payment of penalties; that she and Eduardo consulted with a
lawyer, and were told that PNBs actions were improper, and so on March 20, 2000, they wrote to the latter seeking a
recomputation of their outstanding obligation; and when PNB did not oblige, they instituted Civil Case No. 5975. 27
On cross-examination, Lydia testified that she has been in business for 20 years; that she also borrowed from other
individuals and another bank; that it was only with banks that she was asked to sign loan documents with no indicated
interest rate; that she did not bother to read the terms of the loan documents which she signed; and that she received
several PNB statements of account detailing their outstanding obligations, but she did not complain; that she assumed
instead that what was written therein is correct.28

For his part, PNB Kalibo Branch Manager Diosdado Aspa, Jr. (Aspa), the sole witness for respondent, stated on cross-
examination that as a practice, the determination of the prime rates of interest was the responsibility solely of PNBs
Treasury Department which is based in Manila; that these prime rates were simply communicated to all PNB branches for
implementation; that there are a multitude of considerations which determine the interest rate, such as the cost of money,
foreign currency values, PNBs spread, bank administrative costs, profitability, and the practice in the banking industry; that
in every repricing of each loan availment, the borrower has the right to question the rates, but that this was not done by the
petitioners; and that anything that is not found in the Promissory Note may be supplemented by the Credit Agreement. 29

Ruling of the Regional Trial Court

On February 28, 2003, the trial court rendered judgment dismissing Civil Case No. 5975. 30

It ruled that:

1. While the Credit Agreement allows PNB to unilaterally increase its spread over the floating interest rate at any
time depending on whatever policy it may adopt in the future, it likewise allows for the decrease at any time of the
same. Thus, such stipulation authorizing both the increase and decrease of interest rates as may be applicable is
valid,31 as was held in Consolidated Bank and Trust Corporation (SOLIDBANK) v. Court of Appeals; 32

2. Banks are allowed to stipulate that interest rates on loans need not be fixed and instead be made dependent on
prevailing rates upon which to peg such variable interest rates; 33

3. The Promissory Note, as the principal contract evidencing petitioners loan, prevails over the Credit Agreement
and the Real Estate Mortgage.

As such, the rate of interest, penalties and attorneys fees stipulated in the Promissory Note prevail over those
mentioned in the Credit Agreement and the Real Estate Mortgage agreements; 34

4. Roughly, PNBs computation of the total amount of petitioners obligation is correct; 35

5. Because the loan was admittedly due and demandable, the foreclosure was regularly made; 36

6. By the admission of petitioners during pre-trial, all payments made to PNB were properly applied to the principal,
interest and penalties.37

The dispositive portion of the trial courts Decision reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the respondent and against the petitioners by
DISMISSING the latters petition.

Costs against the petitioners.

SO ORDERED.38

Petitioners moved for reconsideration. In an Order39 dated June 4, 2003, the trial court granted only a modification in the
award of attorneys fees, reducing the same from 10% to 1%. Thus, PNB was ordered to refund to petitioner the excess in
attorneys fees in the amount of P356,589.90, viz:

WHEREFORE, judgment is hereby rendered upholding the validity of the interest rate charged by the respondent as well as
the extra-judicial foreclosure proceedings and the Certificate of Sale. However, respondent is directed to refund to the
petitioner the amount of P356,589.90 representing the excess interest charged against the latter.
No pronouncement as to costs.

SO ORDERED.40

Ruling of the Court of Appeals

Petitioners appealed to the CA, which issued the questioned Decision with the following decretal portion:

WHEREFORE, in view of the foregoing, the instant appeal is PARTLY GRANTED. The modified Decision of the Regional
Trial Court per Order dated June 4, 2003 is hereby AFFIRMED with MODIFICATIONS, to wit:

1. [T]hat the interest rate to be applied after the expiration of the first 30-day interest period for PN. No. 9707237
should be 12% per annum;

2. [T]hat the attorneys fees of10% is valid and binding; and

3. [T]hat [PNB] is hereby ordered to reimburse [petitioners] the excess in the bid price of P377,505.99 which is the
difference between the total amount due [PNB] and the amount of its bid price.

SO ORDERED.41

On the other hand, respondent did not appeal the June 4,2003 Order of the trial court which reduced its award of attorneys
fees. It simply raised the issue in its appellees brief in the CA, and included a prayer for the reversal of said Order.

In effect, the CA limited petitioners appeal to the following issues:

1) Whether x x x the interest rates on petitioners outstanding obligation were unilaterally and arbitrarily imposed by
PNB;

2) Whether x x x the penalty charges were secured by the real estate mortgage; and

3) Whether x x x the extrajudicial foreclosure and sale are valid. 42

The CA noted that, based on receipts presented by petitioners during trial, the latter dutifully paid a total of P3,027,324.60 in
interest for the period August 7, 1991 to August 6, 1997, over and above the P2.5 million principal obligation. And this is
exclusive of payments for insurance premiums, documentary stamp taxes, and penalty. All the while, petitioners did not
complain nor object to the imposition of interest; they in fact paid the same religiously and without fail for seven years. The
appellate court ruled that petitioners are thus estopped from questioning the same.

The CA nevertheless noted that for the period July 30, 1997 to August 14, 1997, PNB wrongly applied an interest rate of
25.72% instead of the agreed 25%; thus it overcharged petitioners, and the latter paid, an excess of P736.56 in interest.

On the issue of penalties, the CA ruled that the express tenor of the Real Estate Mortgage agreements contemplated the
inclusion of the PN 9707237-stipulated 24% penalty in the amount to be secured by the mortgaged property, thus

For and in consideration of certain loans, overdrafts and other credit accommodations obtained from the MORTGAGEE and
to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR, including
interest and expenses, and other obligations owing by the MORTGAGOR to the MORTGAGEE, whether direct or indirect,
principal or secondary, as appearing in the accounts, books and records of the MORTGAGEE, the MORTGAGOR does
hereby transfer and convey by way of mortgage unto the MORTGAGEE x x x 43 (Emphasis supplied)

The CA believes that the 24% penalty is covered by the phrase "and other obligations owing by the mortgagor to the
mortgagee" and should thus be added to the amount secured by the mortgages. 44

The CA then proceeded to declare valid the foreclosure and sale of properties covered by TCTs T-14250 and T-16208, which
came as a necessary result of petitioners failure to pay the outstanding obligation upon demand. 45The CA saw fit to increase
the trial courts award of 1% to 10%, finding the latter rate to be reasonable and citing the Real Estate Mortgage agreement
which authorized the collection of the higher rate.46
Finally, the CA ruled that petitioners are entitled to P377,505.09 surplus, which is the difference between PNBs bid price
of P4,324,172.96 and petitioners total computed obligation as of January 14, 1999, or the date of the auction sale, in the
amount of P3,946,667.87.47

Hence, the present Petition.

Issues

The following issues are raised in this Petition:

A. THE COURT OF APPEALS AS WELL AS THE LOWER COURT ERRED IN NOT NULLIFYING THE
INTEREST RATE PROVISION IN THE CREDIT AGREEMENT DATED JULY 24, 1989 X X X AND IN
THE AMENDMENT TO CREDIT AGREEMENT DATEDAUGUST 21, 1991 X X X WHICH LEFT TO THE
SOLE UNILATERAL DETERMINATION OF THE RESPONDENT PNB THE ORIGINAL FIXING OF
INTEREST RATE AND ITS INCREASE, WHICH AGREEMENT IS CONTRARY TO LAW, ART. 1308 OF
THE [NEW CIVIL CODE], AS ENUNCIATED IN PONCIANO ALMEIDA V. COURT OF APPEALS,G.R.
[NO.] 113412, APRIL 17, 1996, AND CONTRARY TO PUBLIC POLICY AND PUBLIC INTEREST, AND IN
APPLYING THE PRINCIPLE OF ESTOPPEL ARISING FROM THE ALLEGED DELAYED COMPLAINT
OF PETITIONER[S], AND [THEIR] PAYMENT OF THE INTEREST CHARGED.

B. CONSEQUENTLY, THE COURT OF APPEALS AND THE LOWER COURT ERRED IN NOT
DECLARING THAT PNB IS NOT AT ALL ENTITLED TO ANY INTEREST EXCEPT THE LEGAL RATE
FROM DATE OF DEMAND, AND IN NOT APPLYING THE EXCESS OVER THE LEGAL RATE OF THE
ADMITTED PAYMENTS MADE BY PETITIONER[S] FROM 1991-1998 IN THE ADMITTED TOTAL
AMOUNT OF P3,484,287.00, TO PAYMENT OF THE PRINCIPAL OF P2,500,000.[00] LEAVING AN
OVERPAYMENT OFP984,287.00 REFUNDABLE BY RESPONDENT TO PETITIONER[S] WITH
INTEREST OF 12% PER ANNUM.

II

THE COURT OF APPEALS AND THE LOWER COURT ERRED IN HOLDING THAT PENALTIES ARE INCLUDEDIN THE
SECURED AMOUNT, SUBJECT TO FORECLOSURE, WHEN NO PENALTIES ARE MENTIONED [NOR] PROVIDED FOR
IN THE REAL ESTATE MORTGAGE AS A SECURED AMOUNT AND THEREFORE THE AMOUNT OF PENALTIES
SHOULDHAVE BEEN EXCLUDED FROM [THE] FORECLOSURE AMOUNT.

III

THE COURT OF APPEALS ERRED IN REVERSING THE RULING OF THE LOWER COURT, WHICH REDUCED THE
ATTORNEYS FEES OF 10% OF THE TOTAL INDEBTEDNESS CHARGED IN THE X X X EXTRAJUDICIAL
FORECLOSURE TOONLY 1%, AND [AWARDING] 10% ATTORNEYS FEES.48

Petitioners Arguments

Petitioners insist that the interest rate provision in the Credit Agreement and the Amendment to Credit Agreement should be
declared null and void, for they relegated to PNB the sole power to fix interest rates based on arbitrary criteria or factors
such as bank policy, profitability, cost of money, foreign currency values, and bank administrative costs; spaces for interest
rates in the two Credit Agreements and the promissory notes were left blank for PNB to unilaterally fill, and their consent or
agreement to the interest rates imposed thereafter was not obtained; the interest rate, which consists of the prime rate plus
the bank spread, is determined not by agreement of the parties but by PNBs Treasury Department in Manila. Petitioners
conclude that by this method of fixing the interest rates, the principle of mutuality of contracts is violated, and public policy as
well as Circular 90549 of the then Central Bank had been breached.

Petitioners question the CAs application of the principle of estoppel, saying that no estoppel can proceed from an illegal act.
Though they failed to timely question the imposition of the alleged illegal interest rates and continued to pay the loan on the
basis of these rates, they cannot be deemed to have acquiesced, and hence could recover what they erroneously paid. 50

Petitioners argue that if the interest rates were nullified, then their obligation to PNB is deemed extinguished as of July 1997;
moreover, it would appear that they even made an over payment to the bank in the amount of P984,287.00.
Next, petitioners suggest that since the Real Estate Mortgage agreements did not include nor specify, as part of the secured
amount, the penalty of 24% authorized in PN 9707237, such amount of P581,666.66 could not be made answerable by or
collected from the mortgages covering TCTs T-14250 and T-16208. Claiming support from Philippine Bank of
Communications [PBCom] v. Court of Appeals,51 petitioners insist that the phrase "and other obligations owing by the
mortgagor to the mortgagee"52 in the mortgage agreements cannot embrace the P581,666.66 penalty, because, as held in
the PBCom case, "[a] penalty charge does not belong to the species of obligations enumerated in the mortgage, hence, the
said contract cannot be understood to secure the penalty"; 53while the mortgages are the accessory contracts, what items are
secured may only be determined from the provisions of the mortgage contracts, and not from the Credit Agreement or the
promissory notes.

Finally, petitioners submit that the trial courts award of 1% attorneys fees should be maintained, given that in foreclosures,
a lawyers work consists merely in the preparation and filing of the petition, and involves minimal study.54 To allow the
imposition of a staggering P396,211.00 for such work would be contrary to equity. Petitioners state that the purpose of
attorneys fees in cases of this nature "is not to give respondent a larger compensation for the loan than the law already
allows, but to protect it against any future loss or damage by being compelled to retain counsel x x x to institute judicial
proceedings for the collection of its credit."55 And because the instant case involves a simple extrajudicial foreclosure,
attorneys fees may be equitably tempered.

Respondents Arguments

For its part, respondent disputes petitioners claim that interest rates were unilaterally fixed by it, taking relief in the CA
pronouncement that petitioners are deemed estopped by their failure to question the imposed rates and their continued
payment thereof without opposition. It adds that because the Credit Agreement and promissory notes contained both an
escalation clause and a de-escalation clause, it may not be said that the bank violated the principle of mutuality. Besides, the
increase or decrease in interest rates have been mutually agreed upon by the parties, as shown by petitioners continuous
payment without protest. Respondent adds that the alleged unilateral imposition of interest rates is not a proper subject for
review by the Court because the issue was never raised in the lower court.

As for petitioners claim that interest rates imposed by it are null and void for the reasons that 1) the Credit Agreements and
the promissory notes were signed in blank; 2) interest rates were at short periods; 3) no interest rates could be charged
where no agreement on interest rates was made in writing; 4) PNB fixed interest rates on the basis of arbitrary policies and
standards left to its choosing; and 5) interest rates based on prime rate plus applicable spread are indeterminate and
arbitrary PNB counters:

a. That Credit Agreements and promissory notes were signed by petitioner[s] in blank Respondent claims that
this issue was never raised in the lower court. Besides, documentary evidence prevails over testimonial evidence;
Lydia Silos testimony in this regard is self-serving, unsupported and uncorroborated, and for being the lone
evidence on this issue. The fact remains that these documents are in proper form, presumed regular, and endure,
against arbitrary claims by Silos who is an experienced business person that she signed questionable loan
documents whose provisions for interest rates were left blank, and yet she continued to pay the interests without
protest for a number of years.56

b. That interest rates were at short periods Respondent argues that the law which governs and prohibits changes
in interest rates made more than once every twelve months has been removed57 with the issuance of Presidential
Decree No. 858.58

c. That no interest rates could be charged where no agreement on interest rates was made in writing in violation of
Article 1956 of the Civil Code, which provides that no interest shall be due unless it has been expressly stipulated
in writing Respondent insists that the stipulated 25% per annum as embodied in PN 9707237 should be imposed
during the interim, or the period after the loan became due and while it remains unpaid, and not the legal interest of
12% as claimed by petitioners.59

d. That PNB fixed interest rates on the basis of arbitrary policies and standards left to its choosing According to
respondent, interest rates were fixed taking into consideration increases or decreases as provided by law or by the
Monetary Board, the banks overall costs of funds, and upon agreement of the parties. 60

e. That interest rates based on prime rate plus applicable spread are indeterminate and arbitrary On this score,
respondent submits there are various factors that influence interest rates, from political events to economic
developments, etc.; the cost of money, profitability and foreign currency transactions may not be discounted. 61

On the issue of penalties, respondent reiterates the trial courts finding that during pre-trial, petitioners admitted that the
Statement of Account as of October 12, 1998 which detailed and included penalty charges as part of the total outstanding
obligation owing to the bank was correct. Respondent justifies the imposition and collection of a penalty as a normal
banking practice, and the standard rate per annum for all commercial banks, at the time, was 24%.

Respondent adds that the purpose of the penalty or a penal clause for that matter is to ensure the performance of the
obligation and substitute for damages and the payment of interest in the event of non-compliance. 62 And the promissory note
being the principal agreement as opposed to the mortgage, which is a mere accessory should prevail. This being the
case, its inclusion as part of the secured amount in the mortgage agreements is valid and necessary.

Regarding the foreclosure of the mortgages, respondent accuses petitioners of pre-empting consolidation of its ownership
over TCTs T-14250 and T-16208; that petitioners filed Civil Case No. 5975 ostensibly to question the foreclosure and sale of
properties covered by TCTs T-14250 and T-16208 in a desperate move to retain ownership over these properties, because
they failed to timely redeem them.

Respondent directs the attention of the Court to its petition in G.R. No. 181046, 63 where the propriety of the CAs ruling on
the following issues is squarely raised:

1. That the interest rate to be applied after the expiration of the first 30-day interest period for PN 9707237 should
be 12% per annum; and

2. That PNB should reimburse petitioners the excess in the bid price of P377,505.99 which is the difference
between the total amount due to PNB and the amount of its bid price.

Our Ruling

The Court grants the Petition.

Before anything else, it must be said that it is not the function of the Court to re-examine or re-evaluate evidence adduced by
the parties in the proceedings below. The rule admits of certain well-recognized exceptions, though, as when the lower
courts findings are not supported by the evidence on record or are based on a misapprehension of facts, or when certain
relevant and undisputed facts were manifestly overlooked that, if properly considered, would justify a different conclusion.
This case falls within such exceptions.

The Court notes that on March 5, 2008, a Resolution was issued by the Courts First Division denying respondents petition
in G.R. No. 181046, due to late filing, failure to attach the required affidavit of service of the petition on the trial court and the
petitioners, and submission of a defective verification and certification of non-forum shopping. On June 25, 2008, the Court
issued another Resolution denying with finality respondents motion for reconsideration of the March 5, 2008 Resolution. And
on August 15, 2008, entry of judgment was made. This thus settles the issues, as above-stated, covering a) the interest rate
or 12% per annum that applies upon expiration of the first 30 days interest period provided under PN 9707237, and b)the
CAs decree that PNB should reimburse petitioner the excess in the bid price of P377,505.09.

It appears that respondents practice, more than once proscribed by the Court, has been carried over once more to the
petitioners. In a number of decided cases, the Court struck down provisions in credit documents issued by PNB to, or
required of, its borrowers which allow the bank to increase or decrease interest rates "within the limits allowed by law at any
time depending on whatever policy it may adopt in the future." Thus, in Philippine National Bank v. Court of Appeals, 64 such
stipulation and similar ones were declared in violation of Article 130865 of the Civil Code. In a second case, Philippine
National Bank v. Court of Appeals,66 the very same stipulations found in the credit agreement and the promissory notes
prepared and issued by the respondent were again invalidated. The Court therein said:

The Credit Agreement provided inter alia, that

(a) The BANK reserves the right to increase the interest rate within the limits allowed by law at any time depending on
whatever policy it may adopt in the future; Provided, that the interest rate on this accommodation shall be correspondingly
decreased in the event that the applicable maximum interest is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in the
maximum interest rate.

The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time without notice, beyond the
stipulated rate of 12% but only "within the limits allowed by law."

The Real Estate Mortgage contract likewise provided that

(k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation secured by this mortgage as well as the
interest on the amount which may have been advanced by the MORTGAGEE, in accordance with the provision hereof, shall
be subject during the life of this contract to such an increase within the rate allowed by law, as the Board of Directors of the
MORTGAGEE may prescribe for its debtors.

xxxx

In making the unilateral increases in interest rates, petitioner bank relied on the escalation clause contained in their credit
agreement which provides, as follows:

The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever
policy it may adopt in the future and provided, that, the interest rate on this accommodation shall be correspondingly
decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either
case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in
maximum interest rate.

This clause is authorized by Section 2 of Presidential Decree (P.D.) No. 1684 which further amended Act No. 2655 ("The
Usury Law"), as amended, thus:

Section 2. The same Act is hereby amended by adding a new section after Section 7, to read as follows:

Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate
of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased bylaw or by
the Monetary Board; Provided, That such stipulation shall be valid only if there is also a stipulation in the agreement that the
rate of interest agreed upon 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 agreed upon shall take effect on or after
the effectivity of the increase or decrease in the maximum rate of interest.

Section 1 of P.D. No. 1684 also empowered the Central Banks Monetary Board to prescribe the maximum rates of interest
for loans and certain forbearances. Pursuant to such authority, the Monetary Board issued Central Bank (C.B.) Circular No.
905, series of 1982, Section 5 of which provides:

Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other Financial Intermediaries) is hereby amended to
read as follows:

Sec. 1303. Interest and Other Charges.

The rate of interest, including commissions, premiums, fees and other charges, on any loan, or forbearance of any
money, goods or credits, regardless of maturity and whether secured or unsecured, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended.

P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding any subsequent
adjustment in the interest rate that shall accrue on a loan or forbearance of money, goods or credits. In fine, they can agree
to adjust, upward or downward, the interest previously stipulated. However, contrary to the stubborn insistence of petitioner
bank, the said law and circular did not authorize either party to unilaterally raise the interest rate without the others consent.

It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of
the parties. If this assent is wanting on the part of the one who contracts, his act has no more efficacy than if it had been
done under duress or by a person of unsound mind.

Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet
as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan
contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital
venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.

We cannot countenance petitioner banks posturing that the escalation clause at bench gives it unbridled right to unilaterally
upwardly adjust the interest on private respondents loan. That would completely take away from private respondents the
right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. In
Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held
x x x The unilateral action of the PNB in increasing the interest rate on the private respondents loan violated the mutuality of
contracts ordained in Article 1308 of the Civil Code:

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality
between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting parties, is void . . . . Hence, even assuming that the . . . loan
agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to
increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of
the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of
adhesion, where the parties do not bargain on equal footing, the weaker partys (the debtor) participation being reduced to
the alternative "to take it or leave it" . . . . Such a contract is a veritable trap for the weaker party whom the courts of justice
must protect against abuse and imposition.67 (Emphases supplied)

Then again, in a third case, Spouses Almeda v. Court of Appeals,68 the Court invalidated the very same provisions in the
respondents prepared Credit Agreement, declaring thus:

The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any
obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the
parties based on their essential equality. Any contract which appears to be heavily weighed in favor of one of the parties so
as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left
solely to the will of one of the parties, is likewise, invalid.

It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally altered the terms of its
contract with petitioners by increasing the interest rates on the loan without the prior assent of the latter. In fact, the manner
of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be due
unless it has been expressly stipulated in writing." What has been "stipulated in writing" from a perusal of interest rate
provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest,
subject to a possible escalation or de-escalation, when 1) the circumstances warrant such escalation or de-escalation; 2)
within the limits allowed by law; and 3) upon agreement.

Indeed, the interest rate which appears to have been agreed upon by the parties to the contract in this case was the 21%
rate stipulated in the interest provision. Any doubt about this is in fact readily resolved by a careful reading of the credit
agreement because the same plainly uses the phrase "interest rate agreed upon," in reference to the original 21% interest
rate. x x x

xxxx

Petitioners never agreed in writing to pay the increased interest rates demanded by respondent bank in contravention to the
tenor of their credit agreement. That an increase in interest rates from 18% to as much as 68% is excessive and
unconscionable is indisputable. Between 1981 and 1984, petitioners had paid an amount equivalent to virtually half of the
entire principal (P7,735,004.66) which was applied to interest alone. By the time the spouses tendered the amount
of P40,142,518.00 in settlement of their obligations; respondent bank was demanding P58,377,487.00 over and above those
amounts already previously paid by the spouses.

Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on
reasonable and valid grounds. Here, as clearly demonstrated above, not only [are] the increases of the interest rates on the
basis of the escalation clause patently unreasonable and unconscionable, but also there are no valid and reasonable
standards upon which the increases are anchored.

xxxx

In the face of the unequivocal interest rate provisions in the credit agreement and in the law requiring the parties to agree to
changes in the interest rate in writing, we hold that the unilateral and progressive increases imposed by respondent PNB
were null and void. Their effect was to increase the total obligation on an eighteen million peso loan to an amount way over
three times that which was originally granted to the borrowers. That these increases, occasioned by crafty manipulations in
the interest rates is unconscionable and neutralizes the salutary policies of extending loans to spur business cannot be
disputed.69 (Emphases supplied)

Still, in a fourth case, Philippine National Bank v. Court of Appeals, 70 the above doctrine was reiterated:
The promissory note contained the following stipulation:

For value received, I/we, [private respondents] jointly and severally promise to pay to the ORDER of the PHILIPPINE
NATIONAL BANK, at its office in San Jose City, Philippines, the sum of FIFTEEN THOUSAND ONLY (P15,000.00),
Philippine Currency, together with interest thereon at the rate of 12% per annum until paid, which interest rate the Bank may
at any time without notice, raise within the limits allowed by law, and I/we also agree to pay jointly and severally ____% per
annum penalty charge, by way of liquidated damages should this note be unpaid or is not renewed on due dated.

Payment of this note shall be as follows:

*THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE

On the reverse side of the note the following condition was stamped:

All short-term loans to be granted starting January 1, 1978 shall be made subject to the condition that any and/or all
extensions hereof that will leave any portion of the amount still unpaid after 730 days shall automatically convert the
outstanding balance into a medium or long-term obligation as the case may be and give the Bank the right to charge the
interest rates prescribed under its policies from the date the account was originally granted.

To secure payment of the loan the parties executed a real estate mortgage contract which provided:

(k) INCREASE OF INTEREST RATE:

The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may
have been advanced by the MORTGAGEE, in accordance with the provision hereof, shall be subject during the life of this
contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for
its debtors.

xxxx

To begin with, PNBs argument rests on a misapprehension of the import of the appellate courts ruling. The Court of Appeals
nullified the interest rate increases not because the promissory note did not comply with P.D. No. 1684 by providing for a de-
escalation, but because the absence of such provision made the clause so one-sided as to make it unreasonable.

That ruling is correct. It is in line with our decision in Banco Filipino Savings & Mortgage Bank v. Navarro that although P.D.
No. 1684 is not to be retroactively applied to loans granted before its effectivity, there must nevertheless be a de-escalation
clause to mitigate the one-sidedness of the escalation clause. Indeed because of concern for the unequal status of
borrowers vis--vis the banks, our cases after Banco Filipino have fashioned the rule that any increase in the rate of interest
made pursuant to an escalation clause must be the result of agreement between the parties.

Thus in Philippine National Bank v. Court of Appeals, two promissory notes authorized PNB to increase the stipulated
interest per annum" within the limits allowed by law at any time depending on whatever policy [PNB] may adopt in the future;
Provided, that the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board." The real estate mortgage likewise provided:

The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may
have been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be subject during the life of this
contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for
its debtors.

Pursuant to these clauses, PNB successively increased the interest from 18% to 32%, then to 41% and then to 48%. This
Court declared the increases unilaterally imposed by [PNB] to be in violation of the principle of mutuality as embodied in
Art.1308 of the Civil Code, which provides that "[t]he contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them." As the Court explained:

In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality
between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555).
Hence, even assuming that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a
license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would
have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan
agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker
partys (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance
Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against
abuse and imposition.

A similar ruling was made in Philippine National Bank v. Court of Appeals. The credit agreement in that case provided:

The BANK reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever
policy it may adopt in the future: Provided, that the interest rate on this accommodation shall be correspondingly decreased
in the event that the applicable maximum interest is reduced by law or by the Monetary Board. . . .

As in the first case, PNB successively increased the stipulated interest so that what was originally 12% per annum became,
after only two years, 42%. In declaring the increases invalid, we held:

We cannot countenance petitioner banks posturing that the escalation clause at bench gives it unbridled right to unilaterally
upwardly adjust the interest on private respondents loan. That would completely take away from private respondents the
right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts.

Only recently we invalidated another round of interest increases decreed by PNB pursuant to a similar agreement it had with
other borrowers:

[W]hile the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said circular could possibly be
read as granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its
borrowers or lead to a hemorrhaging of their assets.

In this case no attempt was made by PNB to secure the conformity of private respondents to the successive increases in the
interest rate. Private respondents assent to the increases can not be implied from their lack of response to the letters sent
by PNB, informing them of the increases. For as stated in one case, no one receiving a proposal to change a contract is
obliged to answer the proposal.71 (Emphasis supplied)

We made the same pronouncement in a fifth case, New Sampaguita Builders Construction, Inc. v. Philippine National
Bank,72 thus

Courts have the authority to strike down or to modify provisions in promissory notes that grant the lenders unrestrained
power to increase interest rates, penalties and other charges at the latters sole discretion and without giving prior notice to
and securing the consent of the borrowers. This unilateral authority is anathema to the mutuality of contracts and enable
lenders to take undue advantage of borrowers. Although the Usury Law has been effectively repealed, courts may still
reduce iniquitous or unconscionable rates charged for the use of money. Furthermore, excessive interests, penalties and
other charges not revealed in disclosure statements issued by banks, even if stipulated in the promissory notes, cannot be
given effect under the Truth in Lending Act.73 (Emphasis supplied)

Yet again, in a sixth disposition, Philippine National Bank v. Spouses Rocamora, 74 the above pronouncements were
reiterated to debunk PNBs repeated reliance on its invalidated contract stipulations:

We repeated this rule in the 1994 case of PNB v. CA and Jayme Fernandez and the 1996 case of PNB v. CA and Spouses
Basco. Taking no heed of these rulings, the escalation clause PNB used in the present case to justify the increased interest
rates is no different from the escalation clause assailed in the 1996 PNB case; in both, the interest rates were increased
from the agreed 12% per annum rate to 42%. x x x

xxxx

On the strength of this ruling, PNBs argument that the spouses Rocamoras failure to contest the increased interest rates
that were purportedly reflected in the statements of account and the demand letters sent by the bank amounted to their
implied acceptance of the increase should likewise fail.

Evidently, PNBs failure to secure the spouses Rocamoras consent to the increased interest rates prompted the lower courts
to declare excessive and illegal the interest rates imposed. Togo around this lower court finding, PNB alleges that
the P206,297.47 deficiency claim was computed using only the original 12% per annum interest rate. We find this unlikely.
Our examination of PNBs own ledgers, included in the records of the case, clearly indicates that PNB imposed interest rates
higher than the agreed 12% per annum rate. This confirmatory finding, albeit based solely on ledgers found in the records,
reinforces the application in this case of the rule that findings of the RTC, when affirmed by the CA, are binding upon this
Court.75 (Emphases supplied)

Verily, all these cases, including the present one, involve identical or similar provisions found in respondents credit
agreements and promissory notes. Thus, the July 1989 Credit Agreement executed by petitioners and respondent contained
the following stipulation on interest:

1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5% [per annum]. Interest shall be payable in advance
every one hundred twenty days at the rate prevailing at the time of the renewal.

(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending on whatever policy the Bank may
adopt in the future, including without limitation, the shifting from the floating interest rate system to the fixed interest rate
system, or vice versa. Where the Bank has imposed on the Loan interest at a rate per annum which is equal to the Banks
spread over the current floating interest rate, the Borrower hereby agrees that the Bank may, without need of notice to the
Borrower, increase or decrease its spread over the floating interest rate at any time depending on whatever policy it may
adopt in the future.76 (Emphases supplied)

while the eight promissory notes issued pursuant thereto granted PNB the right to increase or reduce interest rates "within
the limits allowed by law or the Monetary Board"77 and the Real Estate Mortgage agreement included the same right to
increase or reduce interest rates "at any time depending on whatever policy PNB may adopt in the future." 78

On the basis of the Credit Agreement, petitioners issued promissory notes which they signed in blank, and respondent later
on entered their corresponding interest rates, as follows:

1st Promissory Note dated July 24, 1989 19.5%;

2nd Promissory Note dated November 22, 1989 23%;

3rd Promissory Note dated March 21, 1990 22%;

4th Promissory Note dated July 19, 1990 24%;

5th Promissory Note dated December 17, 1990 28%;

6th Promissory Note dated February 14, 1991 32%;

7th Promissory Note dated March 1, 1991 30%; and

8th Promissory Note dated July 11, 1991 24%.79

On the other hand, the August 1991 Amendment to Credit Agreement contains the following stipulation regarding interest:

1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of each Availment up
to but not including the date of full payment thereof at the rate per annum which is determined by the Bank to be prime rate
plus applicable spread in effect as of the date of each Availment.80 (Emphases supplied)

and under this Amendment to Credit Agreement, petitioners again executed and signed the following promissory notes in
blank, for the respondent to later on enter the corresponding interest rates, which it did, as follows:

9th Promissory Note dated November 8, 1991 26%;

10th Promissory Note dated March 19, 1992 25%;

11th Promissory Note dated July 11, 1992 23%;

 12th Promissory Note dated November 10, 1992 21%;

13th Promissory Note dated March 15, 1993 21%;

14th Promissory Note dated July 12, 1993 17.5%;

15th Promissory Note dated November 17, 1993 21%;

16th Promissory Note dated March 28, 1994 21%;

17th Promissory Note dated July 13, 1994 21%;

18th Promissory Note dated November 16, 1994 16%;

19th Promissory Note dated April 10, 1995 21%;

20th Promissory Note dated July 19, 1995 18.5%;

21st Promissory Note dated December 18, 1995 18.75%;

22nd Promissory Note dated April 22, 1996 18.5%;

23rd Promissory Note dated July 22, 1996 18.5%;

24th Promissory Note dated November 25, 1996 18%;

25th Promissory Note dated May 30, 1997 17.5%; and

26th Promissory Note (PN 9707237) dated July 30, 1997 25%.81

The 9th up to the 17th promissory notes provide for the payment of interest at the "rate the Bank may at any time without
notice, raise within the limits allowed by law x x x."82 On the other hand, the 18th up to the 26th promissory notes which
includes PN 9707237 carried the following provision:

x x x For this purpose, I/We agree that the rate of interest herein stipulated may be increased or decreased for the
subsequent Interest Periods, with prior notice to the Borrower in the event of changes in interest rate prescribed by law or
the Monetary Board of the Central Bank of the Philippines, or in the Banks overall cost of funds. I/We hereby agree that in
the event I/we are not agreeable to the interest rate fixed for any Interest Period, I/we shall have the option to prepay the
loan or credit facility without penalty within ten (10) calendar days from the Interest Setting Date. 83 (Emphasis supplied)

These stipulations must be once more invalidated, as was done in previous cases. The common denominator in these cases
is the lack of agreement of the parties to the imposed interest rates. For this case, this lack of consent by the petitioners has
been made obvious by the fact that they signed the promissory notes in blank for the respondent to fill. We find credible the
testimony of Lydia in this respect. Respondent failed to discredit her; in fact, its witness PNB Kalibo Branch Manager Aspa
admitted that interest rates were fixed solely by its Treasury Department in Manila, which were then simply communicated to
all PNB branches for implementation. If this were the case, then this would explain why petitioners had to sign the
promissory notes in blank, since the imposable interest rates have yet to be determined and fixed by respondents Treasury
Department in Manila.

Moreover, in Aspas enumeration of the factors that determine the interest rates PNB fixes such as cost of money, foreign
currency values, bank administrative costs, profitability, and considerations which affect the banking industry it can be
seen that considerations which affect PNBs borrowers are ignored. A borrowers current financial state, his feedback or
opinions, the nature and purpose of his borrowings, the effect of foreign currency values or fluctuations on his business or
borrowing, etc. these are not factors which influence the fixing of interest rates to be imposed on him. Clearly, respondents
method of fixing interest rates based on one-sided, indeterminate, and subjective criteria such as profitability, cost of money,
bank costs, etc. is arbitrary for there is no fixed standard or margin above or below these considerations.
The stipulation in the promissory notes subjecting the interest rate to review does not render the imposition by UCPB of
interest rates on the obligations of the spouses Beluso valid. According to said stipulation:

The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among others
the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or financial
institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the LENDER after due
consideration of all dealings with the BORROWER.

It should be pointed out that the authority to review the interest rate was given [to] UCPB alone as the lender. Moreover,
UCPB may apply the considerations enumerated in this provision as it wishes. As worded in the above provision, UCPB may
give as much weight as it desires to each of the following considerations: (1) the prevailing financial and monetary condition;
(2) the rate of interest and charges which other banks or financial institutions charge or offer to charge for similar
accommodations; and/or(3) the resulting profitability to the LENDER (UCPB) after due consideration of all dealings with the
BORROWER (the spouses Beluso). Again, as in the case of the interest rate provision, there is no fixed margin above or
below these considerations.

In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB as to the interest to be
imposed, as both options violate the principle of mutuality of contracts. 84 (Emphases supplied)

To repeat what has been said in the above-cited cases, any modification in the contract, such as the interest rates, must be
made with the consent of the contracting parties.1wphi1 The minds of all the parties must meet as to the proposed
modification, especially when it affects an important aspect of the agreement. In the case of loan agreements, the rate of
interest is a principal condition, if not the most important component. Thus, any modification thereof must be mutually agreed
upon; otherwise, it has no binding effect.

What is even more glaring in the present case is that, the stipulations in question no longer provide that the parties shall
agree upon the interest rate to be fixed; -instead, they are worded in such a way that the borrower shall agree to whatever
interest rate respondent fixes. In credit agreements covered by the above-cited cases, it is provided that:

The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever
policy it may adopt in the future: Provided, that, the interest rate on this accommodation shall be correspondingly decreased
in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in maximum
interest rate.85 (Emphasis supplied)

Whereas, in the present credit agreements under scrutiny, it is stated that:

IN THE JULY 1989 CREDIT AGREEMENT

(b) The Borrower agrees that the Bank may modify the interest rate on the Loan depending on whatever policy the Bank
may adopt in the future, including without limitation, the shifting from the floating interest rate system to the fixed interest rate
system, or vice versa. Where the Bank has imposed on the Loan interest at a rate per annum, which is equal to the Banks
spread over the current floating interest rate, the Borrower hereby agrees that the Bank may, without need of notice to the
Borrower, increase or decrease its spread over the floating interest rate at any time depending on whatever policy it may
adopt in the future.86 (Emphases supplied)

IN THE AUGUST 1991 AMENDMENT TO CREDIT AGREEMENT

1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of each Availment up
to but not including the date of full payment thereof at the rate per annum which is determined by the Bank to be prime rate
plus applicable spread in effect as of the date of each Availment.87 (Emphasis supplied)

Plainly, with the present credit agreement, the element of consent or agreement by the borrower is now completely lacking,
which makes respondents unlawful act all the more reprehensible.

Accordingly, petitioners are correct in arguing that estoppel should not apply to them, for "[e]stoppel cannot be predicated on
an illegal act. As between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is
against public policy."88
It appears that by its acts, respondent violated the Truth in Lending Act, or Republic Act No. 3765, which was enacted "to
protect x x x citizens from a lack of awareness of the true cost of credit to the user by using a full disclosure of such cost with
a view of preventing the uninformed use of credit to the detriment of the national economy." 89 The law "gives a detailed
enumeration of the specific information required to be disclosed, among which are the interest and other charges incident to
the extension of credit."90 Section 4 thereof provides that a disclosure statement must be furnished prior to the
consummation of the transaction, thus:

SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a
clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by
the Board, the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2);

(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the
transaction but which are not incident to the extension of credit;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos; and

(7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on
the outstanding unpaid balance of the obligation.

Under Section 4(6), "finance charge" represents the amount to be paid by the debtor incident to the extension of credit such
as interest or discounts, collection fees, credit investigation fees, attorneys fees, and other service charges. The total
finance charge represents the difference between (1) the aggregate consideration (down payment plus installments) on the
part of the debtor, and (2) the sum of the cash price and non-finance charges. 91

By requiring the petitioners to sign the credit documents and the promissory notes in blank, and then unilaterally filling them
up later on, respondent violated the Truth in Lending Act, and was remiss in its disclosure obligations. In one case, which the
Court finds applicable here, it was held:

UCPB further argues that since the spouses Beluso were duly given copies of the subject promissory notes after their
execution, then they were duly notified of the terms thereof, in substantial compliance with the Truth in Lending Act.

Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be
furnished prior to the consummation of the transaction:

SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a
clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by
the Board, the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2);

(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the
transaction but which are not incident to the extension of credit;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos; and
 (7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on
the outstanding unpaid balance of the obligation.

The rationale of this provision is to protect users of credit from a lack of awareness of the true cost thereof, proceeding from
the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest rates, deduction of
interests from the loaned amount, and the like. The law thereby seeks to protect debtors by permitting them to fully
appreciate the true cost of their loan, to enable them to give full consent to the contract, and to properly evaluate their
options in arriving at business decisions. Upholding UCPBs claim of substantial compliance would defeat these purposes of
the Truth in Lending Act. The belated discovery of the true cost of credit will too often not be able to reverse the ill effects of
an already consummated business decision.

In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not
sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently indicate with
particularity the interest rate to be applied to the loan covered by said promissory notes. 92(Emphases supplied)

However, the one-year period within which an action for violation of the Truth in Lending Act may be filed evidently
prescribed long ago, or sometime in 2001, one year after petitioners received the March 2000 demand letter which
contained the illegal charges.

The fact that petitioners later received several statements of account detailing its outstanding obligations does not cure
respondents breach. To repeat, the belated discovery of the true cost of credit does not reverse the ill effects of an already
consummated business decision.93

Neither may the statements be considered proposals sent to secure the petitioners conformity; they were sent after the
imposition and application of the interest rate, and not before. And even if it were to be presumed that these are proposals or
offers, there was no acceptance by petitioners. "No one receiving a proposal to modify a loan contract, especially regarding
interest, is obliged to answer the proposal."94

Loan and credit arrangements may be made enticing by, or "sweetened" with, offers of low initial interest rates, but actually
accompanied by provisions written in fine print that allow lenders to later on increase or decrease interest rates unilaterally,
without the consent of the borrower, and depending on complex and subjective factors. Because they have been lured into
these contracts by initially low interest rates, borrowers get caught and stuck in the web of subsequent steep rates and
penalties, surcharges and the like. Being ordinary individuals or entities, they naturally dread legal complications and cannot
afford court litigation; they succumb to whatever charges the lenders impose. At the very least, borrowers should be charged
rightly; but then again this is not possible in a one-sided credit system where the temptation to abuse is strong and the
willingness to rectify is made weak by the eternal desire for profit.

Given the above supposition, the Court cannot subscribe to respondents argument that in every repricing of petitioners loan
availment, they are given the right to question the interest rates imposed. The import of respondents line of reasoning
cannot be other than that if one out of every hundred borrowers questions respondents practice of unilaterally fixing interest
rates, then only the loan arrangement with that lone complaining borrower will enjoy the benefit of review or re-negotiation;
as to the 99 others, the questionable practice will continue unchecked, and respondent will continue to reap the profits from
such unscrupulous practice. The Court can no more condone a view so perverse. This is exactly what the Court meant in the
immediately preceding cited case when it said that "the belated discovery of the true cost of credit does not reverse the ill
effects of an already consummated business decision;" 95 as to the 99 borrowers who did not or could not complain, the
illegal act shall have become a fait accompli to their detriment, they have already suffered the oppressive rates.

Besides, that petitioners are given the right to question the interest rates imposed is, under the circumstances, irrelevant; we
have a situation where the petitioners do not stand on equal footing with the respondent. It is doubtful that any borrower who
finds himself in petitioners position would dare question respondents power to arbitrarily modify interest rates at any time. In
the second place, on what basis could any borrower question such power, when the criteria or standards which are really
one-sided, arbitrary and subjective for the exercise of such power are precisely lost on him?

For the same reasons, the Court cannot validly consider that, as stipulated in the 18th up to the 26th promissory notes,
petitioners are granted the option to prepay the loan or credit facility without penalty within 10 calendar days from the
Interest Setting Date if they are not agreeable to the interest rate fixed. It has been shown that the promissory notes are
executed and signed in blank, meaning that by the time petitioners learn of the interest rate, they are already bound to pay it
because they have already pre-signed the note where the rate is subsequently entered.

Besides, premium may not be placed upon a stipulation in a contract which grants one party the right to choose whether to
continue with or withdraw from the agreement if it discovers that what the other party has been doing all along is improper or
illegal.
Thus said, respondents arguments relative to the credit documents that documentary evidence prevails over testimonial
evidence; that the credit documents are in proper form, presumed regular, and endure, against arbitrary claims by
petitioners, experienced business persons that they are, they signed questionable loan documents whose provisions for
interest rates were left blank, and yet they continued to pay the interests without protest for a number of years deserve no
consideration.

With regard to interest, the Court finds that since the escalation clause is annulled, the principal amount of the loan is
subject to the original or stipulated rate of interest, and upon maturity, the amount due shall be subject to legal interest at the
rate of 12% per annum. This is the uniform ruling adopted in previous cases, including those cited here. 96 The interests paid
by petitioners should be applied first to the payment of the stipulated or legal and unpaid interest, as the case may be, and
later, to the capital or principal.97 Respondent should then refund the excess amount of interest that it has illegally imposed
upon petitioners; "[t]he amount to be refunded refers to that paid by petitioners when they had no obligation to do
so."98 Thus, the parties original agreement stipulated the payment of 19.5% interest; however, this rate was intended to
apply only to the first promissory note which expired on November 21, 1989 and was paid by petitioners; it was not intended
to apply to the whole duration of the loan. Subsequent higher interest rates have been declared illegal; but because only the
rates are found to be improper, the obligation to pay interest subsists, the same to be fixed at the legal rate of 12% per
annum. However, the 12% interest shall apply only until June 30, 2013. Starting July1, 2013, the prevailing rate of interest
shall be 6% per annum pursuant to our ruling in Nacar v. Gallery Frames 99 and Bangko Sentral ng Pilipinas-Monetary Board
Circular No. 799.

Now to the issue of penalty. PN 9707237 provides that failure to pay it or any installment thereon, when due, shall constitute
default, and a penalty charge of 24% per annum based on the defaulted principal amount shall be imposed. Petitioners
claim that this penalty should be excluded from the foreclosure amount or bid price because the Real Estate Mortgage and
the Supplement thereto did not specifically include it as part of the secured amount. Respondent justifies its inclusion in the
secured amount, saying that the purpose of the penalty or a penal clause is to ensure the performance of the obligation and
substitute for damages and the payment of interest in the event of non-compliance. 100 Respondent adds that the imposition
and collection of a penalty is a normal banking practice, and the standard rate per annum for all commercial banks, at the
time, was 24%. Its inclusion as part of the secured amount in the mortgage agreements is thus valid and necessary.

The Court sustains petitioners view that the penalty may not be included as part of the secured amount. Having found the
credit agreements and promissory notes to be tainted, we must accord the same treatment to the mortgages. After all, "[a]
mortgage and a note secured by it are deemed parts of one transaction and are construed together." 101 Being so tainted and
having the attributes of a contract of adhesion as the principal credit documents, we must construe the mortgage contracts
strictly, and against the party who drafted it. An examination of the mortgage agreements reveals that nowhere is it stated
that penalties are to be included in the secured amount. Construing this silence strictly against the respondent, the Court
can only conclude that the parties did not intend to include the penalty allowed under PN 9707237 as part of the secured
amount. Given its resources, respondent could have if it truly wanted to conveniently prepared and executed an
amended mortgage agreement with the petitioners, thereby including penalties in the amount to be secured by the
encumbered properties. Yet it did not.

With regard to attorneys fees, it was plain error for the CA to have passed upon the issue since it was not raised by the
petitioners in their appeal; it was the respondent that improperly brought it up in its appellees brief, when it should have
interposed an appeal, since the trial courts Decision on this issue is adverse to it. It is an elementary principle in the subject
of appeals that an appellee who does not himself appeal cannot obtain from the appellate court any affirmative relief other
than those granted in the decision of the court below.

x x x [A]n appellee, who is at the same time not an appellant, may on appeal be permitted to make counter assignments of
error in ordinary actions, when the purpose is merely to defend himself against an appeal in which errors are alleged to have
been committed by the trial court both in the appreciation of facts and in the interpretation of the law, in order to sustain the
judgment in his favor but not when his purpose is to seek modification or reversal of the judgment, in which case it is
necessary for him to have excepted to and appealed from the judgment. 102

Since petitioners did not raise the issue of reduction of attorneys fees, the CA possessed no authority to pass upon it at the
instance of respondent. The ruling of the trial court in this respect should remain undisturbed.

For the fixing of the proper amounts due and owing to the parties to the respondent as creditor and to the petitioners who
are entitled to a refund as a consequence of overpayment considering that they paid more by way of interest charges than
the 12% per annum103 herein allowed the case should be remanded to the lower court for proper accounting and
computation, applying the following procedure:

1. The 1st Promissory Note with the 19.5% interest rate is deemed proper and paid;
2. All subsequent promissory notes (from the 2nd to the 26th promissory notes) shall carry an interest rate of only
12% per annum.104 Thus, interest payment made in excess of 12% on the 2nd promissory note shall immediately
be applied to the principal, and the principal shall be accordingly reduced. The reduced principal shall then be
subjected to the 12%105 interest on the 3rd promissory note, and the excess over 12% interest payment on the 3rd
promissory note shall again be applied to the principal, which shall again be reduced accordingly. The reduced
principal shall then be subjected to the 12% interest on the 4th promissory note, and the excess over12% interest
payment on the 4th promissory note shall again be applied to the principal, which shall again be reduced
accordingly. And so on and so forth;

3. After the above procedure is carried out, the trial court shall be able to conclude if petitioners a) still have an
OUTSTANDING BALANCE/OBLIGATION or b) MADE PAYMENTS OVER AND ABOVE THEIR TOTAL
OBLIGATION (principal and interest);

4. Such outstanding balance/obligation, if there be any, shall then be subjected to a 12% per annum interest from
October 28, 1997 until January 14, 1999, which is the date of the auction sale;

5. Such outstanding balance/obligation shall also be charged a 24% per annum penalty from August 14, 1997 until
January 14, 1999. But from this total penalty, the petitioners previous payment of penalties in the amount
of P202,000.00made on January 27, 1998106 shall be DEDUCTED;

6. To this outstanding balance (3.), the interest (4.), penalties (5.), and the final and executory award of 1%
attorneys fees shall be ADDED;

7. The sum total of the outstanding balance (3.), interest (4.) and 1% attorneys fees (6.) shall be DEDUCTED from
the bid price of P4,324,172.96. The penalties (5.) are not included because they are not included in the secured
amount;

8. The difference in (7.) [P4,324,172.96 LESS sum total of the outstanding balance (3.), interest (4.), and 1%
attorneys fees (6.)] shall be DELIVERED TO THE PETITIONERS;

9. Respondent may then proceed to consolidate its title to TCTs T-14250 and T-16208;

10. ON THE OTHER HAND, if after performing the procedure in (2.), it turns out that petitioners made an
OVERPAYMENT, the interest (4.), penalties (5.), and the award of 1% attorneys fees (6.) shall be DEDUCTED
from the overpayment. There is no outstanding balance/obligation precisely because petitioners have paid beyond
the amount of the principal and interest;

11. If the overpayment exceeds the sum total of the interest (4.), penalties (5.), and award of 1% attorneys fees
(6.), the excess shall be RETURNED to the petitioners, with legal interest, under the principle of solutio indebiti; 107

12. Likewise, if the overpayment exceeds the total amount of interest (4.) and award of 1% attorneys fees (6.), the
trial court shall INVALIDATE THE EXTRAJUDICIAL FORECLOSURE AND SALE;

13. HOWEVER, if the total amount of interest (4.) and award of 1% attorneys fees (6.) exceed petitioners
overpayment, then the excess shall be DEDUCTED from the bid price of P4,324,172.96;

14. The difference in (13.) [P4,324,172.96 LESS sum total of the interest (4.) and 1% attorneys fees (6.)] shall be
DELIVERED TO THE PETITIONERS;

15. Respondent may then proceed to consolidate its title to TCTs T-14250 and T-16208. The outstanding penalties,
if any, shall be collected by other means.

From the above, it will be seen that if, after proper accounting, it turns out that the petitioners made payments
exceeding what they actually owe by way of principal, interest, and attorneys fees, then the mortgaged properties
need not answer for any outstanding secured amount, because there is not any; quite the contrary, respondent
must refund the excess to petitioners.1wphi1 In such case, the extrajudicial foreclosure and sale of the properties
shall be declared null and void for obvious lack of basis, the case being one of solutio indebiti instead. If, on the
other hand, it turns out that petitioners overpayments in interests do not exceed their total obligation, then the
respondent may consolidate its ownership over the properties, since the period for redemption has expired. Its only
 obligation will be to return the difference between its bid price (P4,324,172.96) and petitioners total obligation
outstanding except penalties after applying the latters overpayments.

WHEREFORE, premises considered, the Petition is GRANTED. The May 8, 2007 Decision of the Court of Appeals in CA-
G.R. CV No. 79650 is ANNULLED and SET ASIDE. Judgment is hereby rendered as follows:

1. The interest rates imposed and indicated in the 2nd up to the 26th Promissory Notes are DECLARED NULL
AND VOID, and such notes shall instead be subject to interest at the rate of twelve percent (12%) per annum up to
June 30, 2013, and starting July 1, 2013, six percent (6%) per annum until full satisfaction;

2. The penalty charge imposed in Promissory Note No. 9707237 shall be EXCLUDED from the amounts secured
by the real estate mortgages;

3. The trial courts award of one per cent (1%) attorneys fees is REINSTATED;

4. The case is ordered REMANDED to the Regional Trial Court, Branch 6 of Kalibo, Aklan for the computation of
overpayments made by petitioners spouses Eduardo and Lydia Silos to respondent Philippine National Bank,
taking into consideration the foregoing dispositions, and applying the procedure hereinabove set forth;

5. Thereafter, the trial court is ORDERED to make a determination as to the validity of the extrajudicial foreclosure
and sale, declaring the same null and void in case of overpayment and ordering the release and return of Transfer
Certificates of Title Nos. T-14250 and TCT T-16208 to petitioners, or ordering the delivery to the petitioners of the
difference between the bid price and the total remaining obligation of petitioners, if any;

6. In the meantime, the respondent Philippine National Bank is ENJOINED from consolidating title to Transfer
Certificates of Title Nos. T-14250 and T-16208 until all the steps in the procedure above set forth have been taken
and applied;

7. The reimbursement of the excess in the bid price of P377,505.99, which respondent Philippine National Bank is
ordered to reimburse petitioners, should be HELD IN ABEYANCE until the true amount owing to or owed by the
parties as against each other is determined;

8. Considering that this case has been pending for such a long time and that further proceedings, albeit
uncomplicated, are required, the trial court is ORDERED to proceed with dispatch.

SO ORDERED.

NEW SAMPAGUITA BUILDERS G.R. No. 148753

CONSTRUCTION, INC. (NSBCI)
and Spouses EDUARDO R. DEE Present:
and ARCELITA M. DEE,
Petitioners, Panganiban, J,
Chairman,
Sandoval-Gutierrez,
Corona,* and
- versus - Carpio Morales, JJ
PHILIPPINE NATIONAL BANK, Promulgated:
Respondent.
July 30, 2004
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:
 C
ourts have the authority to strike down or to modify provisions in promissory notes that grant the lenders unrestrained power

to increase interest rates, penalties and other charges at the latters sole discretion and without giving prior notice

to and securing the consent of the borrowers. This unilateral

__________________
* On leave.

authority is anathema to the mutuality of contracts and enable lenders to take undue advantage of borrowers. Although the

Usury Law has been effectively repealed, courts may still reduce iniquitous or unconscionable rates charged for the use of

money. Furthermore, excessive interests, penalties and other charges not revealed in disclosure statements issued by banks,

even if stipulated in the promissory notes, cannot be given effect under the Truth in Lending Act.

The Case

Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to nullify the June 20, 2001

Decision[2] of the Court of Appeals [3] (CA) in CA-GR CV No. 55231. The decretal portion of the assailed Decision reads as

follows:

WHEREFORE, the decision of the Regional Trial Court of Dagupan City, Branch 40 dated
December 28, 1995 is REVERSED and SET ASIDE. The foreclosure proceedings of the mortgaged
properties of defendants-appellees[4] and the February 26, 1992 auction sale are declared legal and valid
and said defendants-appellees are ordered to pay plaintiff-appellant PNB,[5] jointly and severally[,] the
amount of deficiency that will be computed by the trial court based on the original penalty of 6% per
annum as explicitly stated in the loan documents and to pay attorneys fees in an amount equivalent to x x
x 1% of the total amount due and the costs of suit and expenses of litigation. [6]

The Facts
The facts are narrated by the CA as follows:

On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by [Petitioner]
NSBCI [1)] authorizing the company to x x x apply for or secure a commercial loan with the PNB in an
aggregate amount of P8.0M, under such terms agreed by the Bank and the NSBCI, using or mortgaging
the real estate properties registered in the name of its President and Chairman of the Board [Petitioner]
Eduardo R. Dee as collateral; [and] 2) authorizing [petitioner-spouses] to secure the loan and to sign any
[and all] documents which may be required by [Respondent] PNB[,] and that [petitioner-spouses] shall act
as sureties or co-obligors who shall be jointly and severally liable with [Petitioner] NSBCI for the payment
of any [and all] obligations.

On August 15, 1989, Resolution No. 77 was approved by granting the request of [Respondent]
PNB thru its Board NSBCI for an P8 Million loan broken down into a revolving credit line of P7.7M and an
unadvised line of P0.3M for additional operating and working capital[7] to mobilize its various construction
projects, namely:

1) MWSS Watermain;
2) NEA-Liberty farm;
3) Olongapo City Pag-Asa Public Market;
4) Renovation of COA-NCR Buildings 1, 2 and 9;
5) Dupels, Inc., Extensive prawn farm development project;
6) Banawe Hotel Phase II;
7) Clark Air Base -- Barracks and Buildings; and
8) Others: EDSA Lighting, Roxas Blvd. Painting NEA Sapang Palay and Angeles City.

The loan of [Petitioner] NSBCI was secured by a first mortgage on the following: a) three (3)
parcels of residential land located at Mangaldan, Pangasinan with total land area of 1,214 square
meters[,] including improvements thereon and registered under TCT Nos. 128449, 126071, and 126072
of the Registry of Deeds of Pangasinan; b) six (6) parcels of residential land situated at San Fabian,
Pangasinan with total area of 1,767 square meters[,] including improvements thereon and covered by
TCT Nos. 144006, 144005, 120458, 120890, 144161[,] and 121127 of the Registry of Deeds of
Pangasinan; and c) a residential lot and improvements thereon located at Mangaldan, Pangasinan with
an area of 4,437 square meters and covered by TCT No. 140378 of the Registry of Deeds of
Pangasinan.

The loan was further secured by the joint and several signatures of [Petitioners] Eduardo Dee
and Arcelita Marquez Dee, who signed as accommodation-mortgagors since all the collaterals were
owned by them and registered in their names.

Moreover [Petitioner] NSBCI executed the following documents, viz: a) promissory note dated
June 29, 1989 in the amount of P5,000,000.00 with due date on October 27, 1989; [b)] promissory note
dated September 1, 1989 in the amount of P2,700,000.00 with due date on December 30, 1989; and c)
promissory note dated September 6, 1989 in the amount of P300,000.00 with maturity date on January 4,
1990.

In addition, [petitioner] corporation also signed the Credit Agreement dated August 31, 1989
relating to the revolving credit line of P7.7 Million x x x and the Credit Agreement dated September 5,
1989 to support the unadvised line of P300,000.00.

On August 31, 1989, [petitioner-spouses] executed a Joint and Solidary Agreement (JSA) in
favor of [Respondent] PNB unconditionally and irrevocably binding themselves to be jointly and severally
liable with the borrower for the payment of all sums due and payable to the Bank under the Credit
Document.

Later on, [Petitioner] NSBCI failed to comply with its obligations under the promissory notes.

On June 18, 1991, [Petitioner] Eduardo R. Dee on behalf of [Petitioner] NSBCI sent a letter to
the Branch Manager of the PNB Dagupan Branch requesting for a 90-day extension for the payment of
interests and restructuring of its loan for another term.
 Subsequently, NSBCI tendered payment to [Respondent] PNB [of] three (3) checks
aggregating P1,000,000.00, namely 1) check no. 316004 dated August 8, 1991 in the amount
of P200,000.00; 2) check no. 03499997 dated August 8, 1991 in the amount of P650,000.00; and 3)
check no. 03499998 dated August 15, 1991 in the amount of P150,000.00.[8]

In a meeting held on August 12, 1991, [Respondent] PNBs representative[,] Mr. Rolly Cruzabra,
was informed by [Petitioner] Eduardo Dee of his intention to remit to [Respondent] PNB post-dated
checks covering interests, penalties and part of the loan principals of his due account.

On August 22, 1991, [Respondent] banks Crispin Carcamo wrote [Petitioner] Eduardo Dee[,]
informing him that [Petitioner] NSBCIs proposal [was] acceptable[,] provided the total payment should
be P4,128,968.29 that [would] cover the amount of P1,019,231.33 as principal, P3,056,058.03 as
interests and penalties[,] and P53,678.93 for insurance[,] with the issuance of post-dated checks to be
dated not later than November 29, 1991.

On September 6, 1991, [Petitioner] Eduardo Dee wrote the PNB Branch Manager reiterating his
proposals for the settlement of [Petitioner] NSBCIs past due loan account amounting to P7,019,231.33.

[Petitioner] Eduardo Dee later tendered four (4) post-dated Interbank checks
aggregating P1,111,306.67 in favor of [Respondent] PNB, viz:

Check No. Date Amount

03500087 Sept. 29, 1991 P277,826.70

03500088 Oct. 29, 1991 P277,826.70
03500089 Nov. 29, 1991 P277,826.70
03500090 Dec. 20, 1991 P277,826.57

Upon presentment[,] however, x x x check nos. 03500087 and 03500088 dated September 29
and October 29, 1991 were dishonored by the drawee bank and returned due [to] a stop payment order
from [petitioners].

On November 12, 1991, PNBs Mr. Carcamo wrote [Petitioner] Eduardo Dee informing him that
unless the dishonored checks [were] made good, said PNB branch shall recall its recommendation to the
Head Office for the restructuring of the loan account and refer the matter to its legal counsel for legal
action.[][Petitioners] did not heed [respondents] warning and as a result[,] the PNB Dagupan Branch sent
demand letters to [Petitioner] NSBCI at its office address at 1611 ERDC Building, E. Rodriguez Sr.
Avenue, Quezon City[,] asking it to settle its past due loan account.

[Petitioners] nevertheless failed to pay their loan obligations within the [timeframe] given them
and as a result, [Respondent] PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition
for Sale under Act 3135, as amended[,] and Presidential Decree No. 385 dated January 30, 1992.

The notice of extra-judicial sale of the mortgaged properties relating to said PNBs [P]etition for
[S]ale was published in the February 8, 15 and 22, 1992 issues of the Weekly Guardian, allegedly a
newspaper of general circulation in the Province of Pangasinan, including the cities of Dagupan and San
Carlos. In addition[,] copies of the notice were posted in three (3) public places[,] and copies thereof
furnished [Petitioner] NSBCI at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City, [and at]
555 Shaw Blvd., Mandaluyong[, Metro Manila;] and [Petitioner] Sps. Eduardo and Arcelita Dee at 213
Wilson St., San Juan, Metro Manila.

On February 26, 1992, the Provincial Deputy Sheriff Cresencio F. Ferrer of Lingayen,
Pangasinan foreclosed the real estate mortgage and sold at public auction the mortgaged properties of
[petitioner-spouses,] with [Respondent] PNB being declared the highest bidder for the amount
of P10,334,000.00.

On March 2, 1992, copies of the Sheriffs Certificate of Sale were sent by registered mail to
[petitioner] corporations address at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City and
[petitioner-spouses] address at 213 Wilson St., San Juan, Metro Manila.

On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to [petitioners] at their
address at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City[,] informing them that the
properties securing their loan account [had] been sold at public auction, that the Sheriffs Certificate of
Sale had been registered with the Registry of Deeds of Pangasinan on March 13, 1992[,] and that a
period of one (1) year therefrom [was] granted to them within which to redeem their properties.
 [Petitioners] failed to redeem their properties within the one-year redemption period[,] and so
[Respondent] PNB executed a [D]eed of [A]bsolute [S]ale consolidating title to the properties in its
name. TCT Nos. 189935 to 189944 were later issued to [Petitioner] PNB by the Registry of Deeds of
Pangasinan.

On August 4, 1992, [Respondent] PNB informed [Petitioner] NSBCI that the proceeds of the
sale conducted on February 26, 1992 were not sufficient to cover its total claim amounting
to P12,506,476.43[,] and thus demanded from the latter the deficiency of P2,172,476.43 plus interest and
other charges[,] until the amount [was] fully paid.

[Petitioners] refused to pay the above deficiency claim which compelled [Respondent] PNB to
institute the instant [C]omplaint for the collection of its deficiency claim.

Finding that the PNB debt relief package automatically [granted] to [Petitioner] NSBCI the
benefits under the program, the court a quo ruled in favor of [petitioners] in its Decision dated December
28, 1995, the fallo of which reads:

In view of the foregoing, the Court believes and so holds that the
[respondent] has no cause of action against the [petitioners].

WHEREFORE, the case is hereby DISMISSED, without costs.[9]

On appeal, respondent assailed the trial courts Decision dismissing its deficiency claim on the mortgage debt. It

also challenged the ruling of the lower court that Petitioner NSBCIs loan account was bloated, and that the inadequacy of the

bid price was sufficient to set aside the auction sale.

Ruling of the Court of Appeals

Reversing the trial court, the CA held that Petitioner NSBCI did not avail itself of respondents debt relief package

(DRP) or take steps to comply with the conditions for qualifying under the program. The appellate court also ruled that

entitlement to the program was not a matter of right, because such entitlement was still subject to the approval of higher

bank authorities, based on their assessment of the borrowers repayment capability and satisfaction of other requirements.
 As to the misapplication of loan payments, the CA held that the subsidiary ledgers of NSBCIs loan accounts with

respondent reflected all the loan proceeds as well as the partial payments that had been applied either to the principal or to

the interests, penalties and other charges. Having been made in the ordinary and usual course of the banking business of

respondent, its entries were presumed accurate, regular and fair under Section 5(q) of Rule 131 of the Rules of

Court. Petitioners failed to rebut this presumption.

The increases in the interest rates on NSBCIs loan were also held to be authorized by law and the Monetary Board

and -- like the increases in penalty rates -- voluntarily and freely agreed upon by the parties in the Credit Agreements they

executed. Thus, these increases were binding upon petitioners.

However, after considering that two to three of Petitioner NSBCIs projects covered by the loan were affected by the

economic slowdown in the areas near the military bases in the cities of Angeles and Olongapo, the appellate court annulled

and deleted the adjustment in penalty from 6 percent to 36 percent per annum. Not only did respondent fail to demonstrate

the existence of market forces and economic conditions that would justify such increases; it could also have treated

petitioners request for restructuring as a request for availment of the DRP. Consequently, the original penalty rate of 6

percent per annum was used to compute the deficiency claim.

The auction sale could not be set aside on the basis of the inadequacy of the auction price, because in sales made

at public auction, the owner is given the right to redeem the mortgaged properties; the lower the bid price, the easier it is to
effect redemption or to sell such right. The bid price of P10,334,000.00 vis--vis respondents claim of P12,506,476.43 was

found to be neither shocking nor unconscionable.

The attorneys fees were also reduced by the appellate court from 10 percent to 1 percent of the total

indebtedness. First, there was no extreme difficulty in an extrajudicial foreclosure of a real estate mortgage, as this

proceeding was merely administrative in nature and did not involve a court litigation contesting the proceedings prior to the

auction sale. Second, the attorneys fees were exclusive of all stipulated costs and fees. Third, such fees were in the nature

of liquidated damages that did not inure to respondents salaried counsel.

Respondent was also declared to have the unquestioned right to foreclose the Real Estate Mortgage. It was

allowed to recover any deficiency in the mortgage account not realized in the foreclosure sale, since petitioner-spouses had

agreed to be solidarily liable for all sums due and payable to respondent.

Finally, the appellate court concluded that the extrajudicial foreclosure proceedings and auction sale were valid for

the following reasons: (1) personal notice to the mortgagors, although unnecessary, was actually made; (2) the notice of

extrajudicial sale was duly published and posted; (3) the extrajudicial sale was conducted through the deputy sheriff, under

the direction of the clerk of court who was concurrently the ex-oficio provincial sheriff and acting as agent of respondent; (4)

the sale was conducted within the province where the mortgaged properties were located; and (5) such sale was not shown

to have been attended by fraud.

Hence this Petition.[10]

 Issues

Petitioners submit the following issues for our consideration:

Whether or not the Honorable Court of Appeals correctly ruled that petitioners did not avail of PNBs debt
relief package and were not entitled thereto as a matter of right.

II

Whether or not petitioners have adduced sufficient and convincing evidence to overthrow the
presumption of regularity and correctness of the PNB entries in the subsidiary ledgers of the loan
accounts of petitioners.

III

Whether or not the Honorable Court of Appeals seriously erred in not holding that the Respondent PNB
bloated the loan account of petitioner corporation by imposing interests, penalties and attorneys fees
without legal, valid and equitable justification.

IV

Whether or not the auction price at which the mortgaged properties was sold was disproportionate to
their actual fair mortgage value.

Whether or not Respondent PNB is not entitled to recover the deficiency in the mortgage account not
realized in the foreclosure sale, considering that:

A. Petitioners are merely guarantors of the mortgage debt of petitioner corporation

which has a separate personality from the [petitioner-spouses].

B. The joint and solidary agreement executed by [petitioner- spouses] are contracts
of adhesion not binding on them;

C. The NSBCI Board Resolution is not valid and binding on [petitioner-spouses]

because they were compelled to execute the said Resolution[;] otherwise[,]
Respondent PNB would not grant petitioner corporation the loan;

D. The Respondent PNB had already in its possession the properties of the
[petitioner-spouses] which served as a collateral to the loan obligation of
petitioner corporation[,] and to still allow Respondent PNB to recover the
deficiency claim amounting to a very substantial amount of P2.1 million would
constitute unjust enrichment on the part of Respondent PNB.

VI

Whether or not the extrajudicial foreclosure proceedings and auction sale, including all subsequent
proceedings[,] are null and void for non-compliance with jurisdictional and other mandatory requirements;
whether or not the petition for extrajudicial foreclosure of mortgage was filed prematurely; and whether or
not the finding of fraud by the trial court is amply supported by the evidence on record. [11]
The foregoing may be summed up into two main issues: first, whether the loan accounts are bloated; and second, whether

the extrajudicial foreclosure and subsequent claim for deficiency are valid and proper.

The Courts Ruling

The Petition is partly meritorious.

First Main Issue:

Bloated Loan Accounts

At the outset, it must be stressed that only questions of law [12] may be raised in a petition for review on certiorari under Rule

45 of the Rules of Court. As a rule, questions of fact cannot be the subject of this mode of appeal, [13] for [t]he Supreme Court

is not a trier of facts. [14] As exceptions to this rule, however, factual findings of the CA may be reviewed on

appeal[15] when, inter alia, the factual inferences are manifestly mistaken; [16] the judgment is based on a misapprehension of

facts;[17] or the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a

different legal conclusion.[18] In the present case, these exceptions exist in various instances, thus prompting us to take

cognizance of factual issues and to decide upon them in the interest of justice and in the exercise of our sound discretion. [19]
 Indeed, Petitioner NSBCIs loan accounts with respondent appear to be bloated with some iniquitous imposition of

interests, penalties, other charges and attorneys fees. To demonstrate this point, the Court shall take up one by one the

promissory notes, the credit agreements and the disclosure statements.

Increases in Interest Baseless

Promissory Notes. In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 percent in the

first, and 21.5 percent in the second and again in the third. However, a uniform clause therein permitted respondent to

increase the rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future x x x,

[20]
without even giving prior notice to petitioners. The Court holds that petitioners accessory duty to pay interest [21] did not

give respondent unrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due,

unless expressly stipulated in writing. [22] It would be the zenith of farcicality to specify and agree upon rates that could be

subsequently upgraded at whim by only one party to the agreement.

The unilateral determination and imposition [23] of increased rates is violative of the principle of mutuality of contracts ordained

in Article 1308[24] of the Civil Code.[25] One-sided impositions do not have the force of law between the parties, because such

impositions are not based on the parties essential equality.

 Although escalation clauses[26] are valid in maintaining fiscal stability and retaining the value of money on long-term

contracts,[27] giving respondent an unbridled right to adjust the interest independently and upwardly would completely take

away from petitioners the right to assent to an important modification in their agreement [28] and would also negate the

element of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts dependent exclusively

upon the uncontrolled will[29] of respondent and was therefore void. Besides, the pro forma promissory notes have the

character of a contract dadhsion,[30] where the parties do not bargain on equal footing, the weaker partys [the debtors]

participation being reduced to the alternative to take it or leave it. [31]

While the Usury Law [32] ceiling on interest rates was lifted by [Central Bank] Circular No. 905, [33] nothing in the said Circular

grants lenders carte blancheauthority to raise interest rates to levels which will either enslave their borrowers or lead to a

hemorrhaging of their assets. [34] In fact, we have declared nearly ten years ago that neither this Circular nor PD 1684, which

further amended the Usury Law,

authorized either party to unilaterally raise the interest rate without the others consent. [35]

Moreover, a similar case eight years ago pointed out to the same respondent (PNB) that borrowing signified a

capital transfusion from lending institutions to businesses and industries and was done for the purpose of stimulating their

growth; yet respondents continued unilateral and lopsided policy [36] of increasing interest rates without the prior assent [37] of

the borrower not only defeats this purpose, but also deviates from this pronouncement. Although such increases are not

usurious, since the Usury Law is now legally inexistent [38] -- the interest ranging from 26 percent to 35 percent in the

statements of account[39] -- must be equitably reduced for being iniquitous, unconscionable and exorbitant. [40] Rates found to
be

iniquitous or unconscionable are void, as if it there were no express contract thereon. [41] Above all, it is undoubtedly against

public policy to charge excessively for the use of money.[42]

It cannot be argued that assent to the increases can be implied either from the June 18, 1991 request of petitioners for loan

restructuring or from their lack of response to the statements of account sent by respondent. Such request does not indicate

any agreement to an interest increase; there can be no implied waiver of a right when there is no clear, unequivocal and

decisive act showing such purpose.[43] Besides, the statements were not letters of information sent to secure their conformity;

and even if we were to presume these as an offer, there was no acceptance. No one receiving a proposal to modify a loan

contract, especially interest -- a vital component -- is obliged to answer the proposal. [44]

Furthermore, respondent did not follow the stipulation in the Promissory Notes providing for the automatic conversion of the

portion that remained unpaid after 730 days -- or two years from date of original release -- into a medium-term loan, subject

to the applicable interest rate to be applied from the dates of original release. [45]

In the first,[46] second[47] and third[48] Promissory Notes, the amount that remained unpaid as of October 27, 1989, December

1989 and January 4, 1990 -- their respective due dates -- should have been automatically converted by respondent into

medium-term loans on June 30, 1991, September 2, 1991, and September 7, 1991, respectively. And on this unpaid amount

should have been imposed the same interest rate charged by respondent on other medium-term loans; and the rate applied

from June 29, 1989, September 1, 1989 and September 6, 1989 -- their respective original release -- until paid. But these
steps were not taken. Aside from sending demand letters, respondent did not at all exercise its option to enforce collection

as of these Notes due dates. Neither did it renew or extend the account.

In these three Promissory Notes, evidently, no complaint for collection was filed with the courts. It was not until January 30,

1992 that a Petition for Sale of the mortgaged properties was filed -- with the provincial sheriff, instead. [49] Moreover,

respondent did not supply the interest rate to be charged on medium-term loans granted by automatic conversion. Because

of this deficiency, we shall use the legal rate of 12 percent per annum on loans and forbearance of money, as provided for by

CB Circular 416.[50]

Credit Agreements. Aside from the promissory notes, another main document involved in the principal obligation is the set

of credit agreements executed and their annexes.

The first Credit Agreement[51] dated June 19, 1989 -- although offered and admitted in evidence, and even referred to in the

first Promissory Note -- cannot be given weight.

First, it was not signed by respondent through its branch manager. [52] Apparently it was surreptitiously acknowledged before

respondents counsel, who unflinchingly declared that it had been signed by the parties on every page, although respondents

signature does not appear thereon.[53]

Second, it was objected to by petitioners, [54] contrary to the trial courts findings. [55] However, it was not the Agreement, but the

revolving credit line[56] of P5,000,000, that expired one year from the Agreements date of implementation. [57]
Third, there was no attached annex that contained the General Conditions. [58] Even the Acknowledgment did not allude to its

existence.[59] Thus, no terms or conditions could be added to the Agreement other than those already stated therein.

Since the first Credit Agreement cannot be given weight, the interest rate on the first availment pegged at 3 percent over and

above respondents prime rate[60]on the date of such availment[61] has no bearing at all on the loan. After the first Notes due

date, the rate

of 19 percent agreed upon should continue to be applied on the availment, until its automatic conversion to a medium-term

loan.

The second Credit Agreement[62] dated August 31, 1989, provided for interest -- respondents prime rate, plus the applicable

spread[63] in effect as of the date of each availment,[64] on a revolving credit line of P7,700,000[65] -- but did not state any

provision on its increase or decrease. [66] Consequently, petitioners could not be made to bear interest more than such prime

rate plus spread. The Court gives weight to this second Credit Agreement for the following reasons.

First, this document submitted by respondent was admitted by petitioners. [67] Again, contrary to their assertion, it

was not the Agreement -- but the credit line -- that expired one year from the Agreements date of implementation. [68] Thus,

the terms and conditions continued to apply, even if drawdowns could no longer be made.
Second, there was no 7-page annex[69] offered in evidence that contained the General Conditions, [70] notwithstanding the

Acknowledgment of its existence by respondents counsel. Thus, no terms or conditions could be appended to the

Agreement other than those specified therein.

Third, the 12-page General Conditions[71] offered and admitted in evidence had no probative value. There was no reference

to it in the Acknowledgment of the Agreement; neither was respondents signature on any of the pages thereof. Thus, the

General Conditions stipulations on interest adjustment, [72] whether on a fixed or a floating scheme, had no effect whatsoever

on the Agreement. Contrary to the trial courts findings, [73] the General Condition were correctly objected to by petitioners.

[74]
The rate of 21.5 percent agreed upon in the second Note thus continued to apply to the second availment, until its

automatic conversion into a medium-term loan.

The third Credit Agreement[75] dated September 5, 1989, provided for the same rate of interest as that in the second

Agreement. This rate was to be applied to availments of an unadvised line of P300,000. Since there was no mention in the

third Agreement, either, of any stipulation on increases or decreases [76] in interest, there would be no basis for imposing

amounts higher than the prime rate plus spread. Again, the 21.5 percent rate agreed upon would continue to apply to the

third availment indicated in the third Note, until such amount was automatically converted into a medium-term loan.

The Court also finds that, first, although this document was admitted by petitioners, [77] it was the credit line that expired one

year from the implementation of the Agreement. [78] The terms and conditions therein continued to apply, even if availments

could no longer be drawn after expiry.

Second, there was again no 7-page annex [79] offered that contained the General Conditions, [80] regardless of the

Acknowledgment by the same respondents counsel affirming its existence. Thus, the terms and conditions in this Agreement

relating to interest cannot be expanded beyond that which was already laid down by the parties.

Disclosure Statements. In the present case, the Disclosure Statements [81] furnished by respondent set forth the same

interest rates as those respectively indicated in the Promissory Notes. Although no method of computation was provided

showing how such rates were arrived at, we will nevertheless take up the Statements seriatim in order

to determine the applicable rates clearly.

As to the first Disclosure Statement on Loan/Credit Transaction [82] dated June 13, 1989, we hold that the 19.5 percent

effective interest rate per annum[83]would indeed apply to the first availment or drawdown evidenced by the first Promissory

Note. Not only was this Statement issued prior to the consummation of such availment or drawdown, but the rate shown

therein can also be considered equivalent to 3 percent over and above respondents prime rate in effect.Besides, respondent

mentioned no other rate that it considered to be the prime rate chargeable to petitioners. Even if we disregarded the related

Credit Agreement, we assume that this private transaction between the parties was fair and regular, [84] and that the ordinary

course of business was followed.[85]

As to the second Disclosure Statement on Loan/Credit Transaction [86] dated September 2, 1989, we hold that the 21.5

percent effective interest rate per annum [87] would definitely apply to the second availment or drawdown evidenced by the
second Promissory Note. Incidentally, this Statement was issued only after the consummation of its related availment or

drawdown, yet such rate can be deemed equivalent to the prime rate plus spread, as stipulated in the corresponding Credit

Agreement. Again, we presume that this private transaction was fair and regular, and that the ordinary course of business

was followed.That the related Promissory Note was pre-signed would also bolster petitioners claim although, under cross-

examination Efren Pozon -- Assistant Department Manager I [88] of PNB, Dagupan Branch -- testified that the Disclosure

Statements were the basis for preparing the Notes.[89]

As to the third Disclosure Statement on Loan/Credit Transaction [90] dated September 6, 1989, we hold that the same 21.5

percent effective interest rate per annum [91] would apply to the third

availment or drawdown evidenced by the third Promissory Note. This Statement was made available to petitioner-spouses,

only after the related Credit Agreement had been executed, but simultaneously with the consummation of the Statements

related availment or drawdown. Nonetheless, the rate herein should still be regarded as equivalent to the prime rate plus

spread, under the similar presumption that this private transaction was fair and regular and that the ordinary course of

business was followed.

In sum, the three disclosure statements, as well as the two credit agreements considered by this Court, did not provide for

any increase in the specified interest rates. Thus, none would now be permitted. When cross-examined, Julia Ang-Lopez,

Finance Account Analyst II of PNB, Dagupan Branch, even testified that the bases for computing such rates were those sent

by the head office from time to time, and not those indicated in the notes or disclosure statements. [92]
 In addition to the preceding discussion, it is then useless to labor the point that the increase in rates violates the

impairment[93] clause of the Constitution, [94] because the sole purpose of this provision is to safeguard the integrity of valid

contractual agreements against unwarranted interference by the State [95] in the form of laws. Private individuals intrusions on

interest rates is governed by statutory enactments like the Civil Code.

Penalty, or Increases
Thereof, Unjustified

No penalty charges or increases thereof appear either in the Disclosure Statements [96] or in any of the clauses in the second

and the third Credit Agreements [97] earlier discussed. While a standard penalty charge of 6 percent per annum has been

imposed on the amounts stated in all three Promissory Notes still remaining unpaid or unrenewed when they fell due,

[98]
there is no stipulation therein that would justify any increase in that charges. The effect, therefore, when the borrower is

not clearly informed of the Disclosure Statements -- prior to the consummation of the availment or drawdown -- is that the

lender will have no right to collect upon such charge [99] or increases thereof, even if stipulated in the Notes. The time is now

ripe to give teeth to the often ignored forty-one-year old Truth in Lending Act [100] and thus transform it from a snivelling paper

tiger to a growling financial watchdog of hapless borrowers.

Besides, we have earlier said that the Notes are contracts of adhesion; although not invalid per se, any apparent ambiguity

in the loan contracts -- taken as a whole -- shall be strictly construed against respondent who caused it. [101] Worse, in the

statements of account, the penalty rate has again been unilaterally increased by respondent to 36 percent without

petitioners consent. As a result of its move, such

liquidated damages intended as a penalty shall be equitably reduced by the Court to zilch [102] for being iniquitous or

unconscionable.[103]

Although the first Disclosure Statement was furnished Petitioner NSBCI prior to the execution of the transaction, it is not a

contract that can be modified by the related Promissory Note, but a mere statement in writing that reflects the true and

effective cost of loans from respondent. Novation can never be presumed,[104] and the animus novandi must appear by

express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. [105]To allow novation will

surely flout the policy of the State to protect

its citizens from a lack of awareness of the true cost of credit. [106]

With greater reason should such penalty charges be indicated in the second and third Disclosure Statements, yet

none can be found therein. While the charges are issued after the respective availment or drawdown, the disclosure

statements are given simultaneously therewith. Obviously, novation still does not apply.

Other Charges Unwarranted

In like manner, the other charges imposed by respondent are not warranted. No particular values or rates of service charge

are indicated in the Promissory Notes or Credit Agreements, and no total value or even the breakdown figures of such non-

finance charge are specified in the Disclosure Statements. Moreover, the provision in the Mortgage that requires the

payment of insurance and other charges is neither made part of nor reflected in such Notes, Agreements, or Statements. [107]
Attorneys Fees Equitably Reduced

We affirm the equitable reduction in attorneys fees. [108] These are not an integral part of the cost of borrowing, but arise only

when collecting upon the Notes becomes necessary. The purpose of these fees is not to give respondent a larger

compensation for the loan than the law already allows, but to protect it against any future loss or damage by being

compelled to retain counsel in-house or not -- to institute judicial proceedings for the collection of its credit. [109] Courts have

has the power[110] to determine their reasonableness [111] based on quantum meruit[112] and to reduce[113] the amount thereof if

excessive.[114]

In addition, the disqualification argument in the Affidavit of Publication raised by petitioners no longer holds water, inasmuch

as Act 496[115] has repealed the Spanish Notarial Law.[116] In the same vein, their engagement of their counsel in another

capacity concurrent with the practice of law is not prohibited, so long as the roles being assumed by such counsel is made

clear to the client.[117] The only reason for this clarification requirement is that certain ethical considerations operative in one

profession may not be so in the other.[118]

Debt Relief Package

Not Availed Of

We also affirm the CAs disquisition on the debt relief package (DRP).
Respondents Circular is not an outright grant of assistance or extension of payment, [119] but a mere offer subject to specific

terms and conditions.

Petitioner NSBCI failed to establish satisfactorily that it had been seriously and directly affected by the economic slowdown

in the peripheral areas of the then US military bases. Its allegations, devoid of any verification, cannot lead to a supportable

conclusion. In fact, for short-term loans, there is still a need to conduct a thorough review of the borrowers repayment

possibilities.[120]

Neither has Petitioner NSBCI shown enough margin of equity, [121] based on the latest loan value of hard collaterals, [122] to be

eligible for the package.Additional accommodations on an unsecured basis may be granted only when regular payment

amortizations have been established, or when the merits of the credit application would so justify.[123]

The branch managers recommendation to restructure or extend a total outstanding loan not exceeding P8,000,000

is not final, but subject to the approval of respondents Branches Department Credit Committee, chaired by its executive

vice-president.[124] Aside from being further conditioned on other pertinent policies of respondent, [125] such approval

nevertheless needs to be reported to its Board of Directors for confirmation. [126] In fact, under the General Banking Law of

2000,[127] banks shall grant loans and other credit accommodations only in amounts and for periods of time essential to the

effective completion of operations to be financed, consistent with safe and sound banking practices. [128] The Monetary Board

-- then and now -- still prescribes, by regulation, the conditions and limitations under which banks may grant extensions or

renewals of their loans and other credit accommodations.[129]

Entries in Subsidiary Ledgers

Regular and Correct

Contrary to petitioners assertions, the subsidiary ledgers of respondent properly reflected all entries pertaining to Petitioner

NSBCIs loan accounts. In accordance with the Generally Accepted Accounting Principles (GAAP) for the Banking Industry,

[130]
all interests accrued or earned on such loans, except those that were restructured and non-accruing, [131] have been

periodically taken into income. [132] Without a doubt, the subsidiary ledgers in a manual accounting system are mere private

documents[133] that support and are controlled by the general ledger.[134] Such ledgers are neither foolproof nor standard in

format, but are periodically subject to audit. Besides, we go by the presumption that the recording of private transactions has

been fair and regular, and that the ordinary course of business has been followed.

Second Main Issue:

Extrajudicial Foreclosure Valid, But

Deficiency Claims Excessive

Respondent aptly exercised its option to foreclose the mortgage, [135] after petitioners had failed to pay all the Notes in full

when they fell due.[136] The extrajudicial sale and subsequent proceedings are therefore valid, but the alleged deficiency

claim cannot be recovered.

Auction Price Adequate

In the accessory contract[137] of real mortgage,[138] in which immovable property or real rights thereto are used as

security[139] for the fulfillment of the principal loan obligation, [140] the bid price may be lower than the propertys fair market

value.[141] In fact, the loan value itself is only 70 percent of the appraised value. [142] As correctly emphasized by the appellate

court, a low bid price will make it

easier[143] for the owner to effect redemption[144] by subsequently reacquiring the property or by selling the right to redeem and

thus recover alleged losses.Besides, the public auction sale has been regularly and fairly conducted, [145] there has been

ample authority to effect the sale,[146] and the Certificates of Title can be relied upon. No personal notice[147] is even required,

[148]
because an extrajudicial foreclosure is an action in rem, requiring only notice by publication and posting, in order to bind

parties interested in the foreclosed property.[149]

As no redemption[150] was exercised within one year after the date of registration of the Certificate of Sale with the Registry of

Deeds,[151] respondent -- being the highest bidder -- has the right to a writ of possession, the final process that will

consummate the extrajudicial foreclosure. On the other hand, petitioner-spouses, who are mortgagors herein, shall lose all

their rights to the property.[152]

No Deficiency Claim Receivable

After the foreclosure and sale of the mortgaged property, the Real Estate Mortgage is extinguished. Although the

mortgagors, being third persons, are not liable for any deficiency in the absence of a contrary stipulation, [153] the action for

recovery of such amount -- being clearly sureties to the principal obligation -- may still be directed against them. [154] However,
respondent may impose only the stipulated interest rates of 19.5 percent and 21.5 percent on the respective availments --

subject to the 12 percent legal rate revision upon automatic conversion into medium-term loans -- plus 1 percent attorneys

fees, without additional charges on penalty, insurance or any increases thereof.

Accordingly, the excessive interest rates in the Statements of Account sent to petitioners are reduced to 19.5

percent and 21.5 percent, as stipulated in the Promissory Notes; upon loan conversion, these rates are further reduced to

the legal rate of 12 percent. Payments made by petitioners are pro-rated, the charges on penalty and insurance eliminated,

and the resulting total unpaid principal and interest of P6,582,077.70 as of the date of public auction is then subjected to 1

percent attorneys fees. The total outstanding obligation is compared to the bid price. On the basis of these rates and the

comparison made, the deficiency claim receivable amounting to P2,172,476.43 in fact vanishes. Instead, there is an

overpayment by more than P3 million, as shown in the following Schedules:

SCHEDULE 1: PN (1) drawdown amount on 6/29/89

Less: Interest deducted in advance (per 6/13/89 Disclosure Statement)
Net proceeds
Principal
Add:
Interest at 19.5% p.a.
10/28/89-12/31/89 (5,000,000 x 19.5% x [65/365])
1/1/90-1/5/90 (5,000,000 x 19.5% x [5/365])
Amount due as of 1/5/90
Less: Payment on 1/5/90 (pro-rated upon interest)
Balance
Add:
Interest at 19.5% p.a.
1/6/90-3/30/90 ([5,000,000-356,821.30] x 19.5% x [84/365])
Amount due as of 3/30/90
Less: Payment on 3/30/90 (pro-rated upon interest)
Balance
Add:
Interest at 19.5% p.a.
3/31/90-5/31/90 ([5,000,000-356,821.30] x 19.5% x [62/365])
Amount due as of 5/31/90
Less: Payment on 5/31/90 (pro-rated upon interest)
Balance
Add:
Interest at 19.5% p.a.
6/1/90-6/29/90 ([5,000,000-(356,821.30+821.33)] x 19.5% x [29/365])
Amount due as of 6/29/90
Less: Payment on 6/29/90 (pro-rated upon interest)
Balance

Add:
Interest at 19.5% p.a.
6/30/90-12/31/90 ([5,000,000-(356,821.30+821.33+767,087.92)] x 19.5% x [185/365])
1/1/91-6/29/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 19.5% x [180/365])
Interest at 12% p.a. upon automatic conversion
6/30/91-8/8/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [40/365])
Amount due as of 8/8/91
Less: Payment on 8/8/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
8/9/91-8/15/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [7/365])
Amount due as of 8/15/91
Less: Payment on 8/15/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
8/16/91-11/29/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [106/365])
Amount due as of 11/29/91
Less: Payment on 11/29/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
11/30/91-12/20/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [21/365])
Amount due as of 12/20/91
Less: Payment on 12/20/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
12/21/91-12/31/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [11/365])
1/1/92-2/26/92 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [57/365])
Amount due on PN (1) as of 2/26/92

SCHEDULE 2: PN (2) drawdown amount on 9/1/89

Less: Interest deducted in advance (per 9/1/89 Disclosure Statement)
Net proceeds
Principal
Add:
Interest at 21.5% p.a.
12/31/89 (2,700,000 x 21.5% x [1/365])
1/1/90-1/5/90 (2,700,000 x 21.5% x [5/365])
Amount due as of 1/5/90
Less: Payment on 1/5/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
1/6/90-3/30/90 ([2,700,000-18,209.65] x 21.5% x [84/365])
Amount due as of 3/30/90
Less: Payment on 3/30/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
3/31/90-5/31/90 ([2,700,000-18,209.65] x 21.5% x [62/365])
Amount due as of 5/31/90
Less: Payment on 5/31/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
6/1/90-6/29/90 ([2,700,000-(18,209.65+523.04)] x 21.5% x [29/365])
Amount due as of 6/29/90
Less: Payment on 6/29/90 (pro-rated upon interest)
Balance

Add:
Interest at 21.5% p.a.
6/30/90-12/31/90 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [185/365])
1/1/91-8/8/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [220/365])
Amount due as of 8/8/91
Less: Payment on 8/8/91 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
8/9/91-8/15/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [7/365])
Amount due as of 8/15/91
Less: Payment on 8/15/91 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
8/16/91-9/1/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [17/365])
Interest at 12% p.a. upon automatic conversion
9/2/91-11/29/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [89/365])
Amount due as of 11/29/91
Less: Payment on 11/29/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
11/30/91-12/20/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [21/365])
Amount due as of 12/20/91
Less: Payment on 12/20/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
12/21/91-12/31/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [11/365])
1/1/92-2/26/92 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [57/365])
Amount due on PN (2) as of 2/26/92

SCHEDULE 3: PN (3) drawdown amount on 9/6/89

Less: Interest deducted in advance (per 9/6/89 Disclosure Statement)
Net proceeds
Principal
Add:
Interest at 21.5% p.a.
1/5/90 (300,000 x 21.5% x [1/365])
Amount due as of 1/5/90
Less: Payment on 1/5/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
1/6/90-3/30/90 ([300,000-337.22] x 21.5% x [84/365])
Amount due as of 3/30/90
Less: Payment on 3/30/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
3/31/90-5/31/90 ([300,000-337.22] x 21.5% x [62/365])
Amount due as of 5/31/90
Less: Payment on 5/31/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
6/1/90-6/29/90 ([300,000-(337.22+58.44)] x 21.5% x [29/365])
Amount due as of 6/29/90
Less: Payment on 6/29/90 (pro-rated upon interest)
Balance

Add:
Interest at 21.5% p.a.
 6/30/90-12/31/90 ([300,000-(337.22+58.44+54,583.14)] x 21.5% x [185/365])
1/1/91-8/8/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% x [220/365])
Amount due as of 8/8/91
Less: Payment on 8/8/91 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
8/9/91-8/15/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% x [7/365])
Amount due as of 8/15/91
Less: Payment on 8/15/91 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
8/16/91-9/6/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% x [22/365])
Interest at 12% p.a. upon automatic conversion
9/7/91-11/29/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [84/365])
Amount due as of 11/29/91
Less: Payment on 11/29/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
11/30/91-12/20/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [21/365])
Amount due as of 12/20/91
Less: Payment on 12/20/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
12/21/91-12/31/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [11/365])
1/1/92-2/26/92 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [57/365])
Amount due on PN (3) as of 2/26/92

SCHEDULE 4: Application of Payments Upon Interest

Date Interest
Payable Pro-rated

1/5/90 PN (1) P 186,986.30 P 543,807.61

PN (2) 9,542.47 27,752.12
PN (3) 176.71 513.93
196,705.48 572,073.65

3/30/90 PN (1) 208,370.59 163,182.85

PN (2) 132,693.52 103,917.28
PN (3) 14,827.15 11,611.70
355,891.26 278,711.83
 5/31/90 PN (1) 198,985.09 199,806.42
PN (2) 126,716.69 127,239.72
PN (3) 14,159.30 14,217.74
339,861.08 341,263.89

6/29/90 PN (1) 71,924.74 839,012.66

PN (2) 45,801.92 534,286.14
PN (3) 5,117.90 59,701.04
122,844.56 1,432,999.84

8/8/91 PN (1) 806,639.99 493,906.31

PN (2) 523,113.94 320,303.08
PN (3) 58,452.66 35,790.61
1,388,206.59 850,000.00

8/15/91 PN (1) 321,652.11 86,593.37

PN (2) 211,852.33 57,033.69
PN (3) 23,672.34 6,372.93
557,176.79 150,000.00

11/29/91 PN (1) 370,109.22 161,096.81

PN (2) 240,937.94 104,872.65
PN (3) 27,241.23 11,857.24
638,288.39 277,826.70

12/20/91 PN (1) 235,767.70 162,115.78

PN (2) 151,204.51 103,969.45
PN (3) 17,075.64 11,741.35
P 404,047.85 P 277,826.57

In the preparation of the above-mentioned schedules, these basic legal principles were followed:

First, the payments were applied to debts that were already due. [155] Thus, when the first payment was made and

applied on January 5, 1990, all Promissory Notes were already due.

 Second, payments of the principal were not made until the interests had been covered. [156] For instance, the first

payment on January 15, 1990 had initially been applied to all interests due on the notes, before deductions were made from

their respective principal amounts. The resulting decrease in interest balances served as the bases for subsequent pro-

ratings.

Third, payments were proportionately applied to all interests that were due and of the same nature and burden.

[157]
This legal principle was the rationale for the pro-rated computations shown on Schedule 4.

Fourth, since there was no stipulation on capitalization, no interests due and unpaid were added to the principal;

hence, such interests did not earn any additional interest. [158] The simple -- not compounded -- method of interest

calculation[159] was used on all Notes until the date of public auction.

In fine, under solutio indebiti[160] or payment by mistake,[161] there is no deficiency receivable in favor of PNB, but rather an

excess claim or surplus[162]payable by respondent; this excess should immediately be returned to petitioner-spouses or their

assigns -- not to mention the buildings and improvements [163]on and the fruits of the property -- to the end that no one may be

unjustly enriched or benefited at

the expense of another.[164] Such surplus is in the amount of P3,686,101.52, computed as follows:

Total unpaid principal and interest on the

promissory notes as of February 26, 1992:
Drawdown on June 29, 1989
(Schedule 1) P 4,037,204.10
Drawdown on September 1, 1989
(Schedule 2) 2,289,040.38
Drawdown on September 6, 1989
(Schedule 3) 255,833.22
6,582,077.70
Add: 1% attorneys fees 65,820.78
Total outstanding obligation 6,647,898.48
Less: Bid price 10,334,000.00
Excess P 3,686,101.52

Joint and Solidary Agreement. Contrary to the contention of the petitioner-spouses, their Joint and Solidary Agreement

(JSA)[165] was indubitably a surety, not a guaranty.[166] They consented to be jointly and severally liable with Petitioner NSBCI

-- the borrower -- not only for the payment of all sums due and payable in favor of respondent, but also for the faithful and

prompt performance of all the terms and conditions thereof. [167] Additionally, the corporate secretary of Petitioner NSBCI

certified as early as February 23, 1989, that the spouses should act as such surety. [168] But, their solidary liability should be

carefully studied, not sweepingly assumed to cover all availments instantly.

First, the JSA was executed on August 31, 1989. As correctly adverted to by petitioners, [169] it covered only the Promissory

Notes of P2,700,000 and P300,000 made after that date. The terms of a contract of suretyship undeniably determine the

suretys liability[170] and cannot extend beyond what is stipulated therein. [171] Yet, the total amount petitioner-spouses agreed to

be held liable for was P7,700,000; by the time the JSA was executed, the first Promissory Note was still unpaid and was

thus brought within the JSAs ambit.[172]

Second, while the JSA included all costs, charges and expenses that respondent might incur or sustain in connection with

the credit documents,[173] only the interest was imposed under the pertinent Credit Agreements. Moreover, the relevant

Promissory Notes had to be resorted to for proper valuation of the interests charged.

Third, although the JSA, as a contract of adhesion, should be taken contra proferentum against the party who may have

caused any ambiguity therein, no such ambiguity was found. Petitioner-spouses, who agreed to be accommodation
mortgagors,[174] can no longer be held individually liable for the entire onerous obligation [175] because, as

it turned out, it was respondent that still owed them.

To summarize, to give full force to the Truth in Lending Act, only the interest rates of 19.5 percent and 21.5 percent

stipulated in the Promissory Notes may be imposed by respondent on the respective availments. After 730 days, the

portions remaining unpaid are automatically converted into medium-term loans at the legal rate of 12 percent. In all

instances, the simple method of interest computation is followed. Payments made by petitioners are applied and pro-rated

according to basic legal principles. Charges on penalty and insurance are eliminated, and 1 percent attorneys fees imposed

upon the total unpaid balance of the principal and interest as of the date of public auction. The P2 million deficiency claim

therefore vanishes, and a refund of P3,686,101.52 arises.

WHEREFORE, this Petition is hereby PARTLY GRANTED. The Decision of the Court of Appeals

is AFFIRMED, with the MODIFICATION that PNB is ORDERED to refund the sum of P3,686,101.52 representing the

overcollection computed above, plus interest thereon at the legal rate of six percent (6%) per annum from the filing of the

Complaint until the finality of this Decision. After this Decision becomes final and executory, the applicable rate shall be

twelve percent (12%) per annum until its satisfaction. No costs.

SO ORDERED.

G.R. No. 189871 August 13, 2013

DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
 DECISION

PERALTA, J.:

This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the Court of Appeals (CA) in
CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioners motion for reconsideration.

The factual antecedents are undisputed.

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National Labor
Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR
Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that he was dismissed from
employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of
reinstatement in the amount of P158,919.92. The dispositive portion of the decision, reads:

With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant was
dismissed from employment for a just or valid cause. All the more, it is clear from the records that complainant was never
afforded due process before he was terminated. As such, we are perforce constrained to grant complainants prayer for the
payments of separation pay in lieu of reinstatement to his former position, considering the strained relationship between the
parties, and his apparent reluctance to be reinstated, computed only up to promulgation of this decision as follows:

SEPARATION PAY

Date Hired = August 1990

Rate = P198/day

Date of Decision = Aug. 18, 1998

Length of Service = 8 yrs. & 1 month

P198.00 x 26 days x 8 months = P41,184.00

BACKWAGES

Date Dismissed = January 24, 1997

Rate per day = P196.00

Date of Decisions = Aug. 18, 1998

a) 1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos. = P62,986.56

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day = P62,986.00

P198.00 x 26 days x 6.4 mos. = P32,947.20

T O TAL = P95.933.76

xxxx

WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal and
are therefore, ordered:

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

All other claims are hereby dismissed for lack of merit.

SO ORDERED.4

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution 5 dated February 29, 2000.
Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but it was
denied.6

Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA issued a
Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise denied in a
Resolution dated May 8, 2001.7

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error on the
part of the CA, this Court denied the petition in the Resolution dated April 17, 2002. 8

An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27, 2002. 9 The case
was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was consequently scheduled, but
respondents failed to appear.10

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed from the
date of his dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme Court on May 27, 2002. 11 Upon
recomputation, the Computation and Examination Unit of the NLRC arrived at an updated amount in the sum
of P471,320.31.12

On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect from respondents
the total amount of P471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among other things, that
since the Labor Arbiter awarded separation pay of P62,986.56 and limited backwages of P95,933.36, no more
recomputation is required to be made of the said awards. They claimed that after the decision becomes final and executory,
the same cannot be altered or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an Order15 denying the
motion. Thus, an Alias Writ of Execution16 was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution 17 granting the appeal in favor of
the respondents and ordered the recomputation of the judgment award.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and executory.
Consequently, another pre-execution conference was held, but respondents failed to appear on time. Meanwhile, petitioner
moved that an Alias Writ of Execution be issued to enforce the earlier recomputed judgment award in the sum
of P471,320.31.18

The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the
judgment award of petitioner was reassessed to be in the total amount of only P147,560.19.

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

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

Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the
appropriate interests.19

On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount of P11,459.73. The
Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced considering that it was the one that
became final and executory. However, the Labor Arbiter reasoned that since the decision states that the separation pay and
backwages are computed only up to the promulgation of the said decision, it is the amount of P158,919.92 that should be
executed. Thus, since petitioner already received P147,560.19, he is only entitled to the balance of P11,459.73.

Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22 dated September 27,
2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Resolution 23dated January 31, 2007.

Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.

On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that since petitioner no longer
appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a belated correction
thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce the said judgment.
Consequently, it can no longer be modified in any respect, except to correct clerical errors or mistakes.

Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution 25 dated October 9, 2009.

Hence, the petition assigning the lone error:

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF
DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC
WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE
PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION
EXPRESSED IN THE BODY OF THE SAME DECISION.26

Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiters decision,
the same is not final until reinstatement is made or until finality of the decision, in case of an award of separation pay.
Petitioner maintains that considering that the October 15, 1998 decision of the Labor Arbiter did not become final and
executory until the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries
on May 27, 2002, the reckoning point for the computation of the backwages and separation pay should be on May 27, 2002
and not when the decision of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that he is also
entitled to the payment of interest from the finality of the decision until full payment by the respondents.

On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by the
October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made of said awards. Respondents
insist that since the decision clearly stated that the separation pay and backwages are "computed only up to [the]
promulgation of this decision," and considering that petitioner no longer appealed the decision, petitioner is only entitled to
the award as computed by the Labor Arbiter in the total amount of P158,919.92. Respondents added that it was only during
the execution proceedings that the petitioner questioned the award, long after the decision had become final and executory.
Respondents contend that to allow the further recomputation of the backwages to be awarded to petitioner at this point of
the proceedings would substantially vary the decision of the Labor Arbiter as it violates the rule on immutability of judgments.

The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth
Division),27 wherein the issue submitted to the Court for resolution was the propriety of the computation of the awards made,
and whether this violated the principle of immutability of judgment. Like in the present case, it was a distinct feature of the
judgment of the Labor Arbiter in the above-cited case that the decision already provided for the computation of the payable
separation pay and backwages due and did not further order the computation of the monetary awards up to the time of the
finality of the judgment. Also in Session Delights, the dismissed employee failed to appeal the decision of the labor arbiter.
The Court clarified, thus:

In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's original
computation of the awards made, pegged as of the time the decision was rendered and confirmed with modification by a
final CA decision, is legally proper. The question is posed, given that the petitioner did not immediately pay the awards
stated in the original labor arbiter's decision; it delayed payment because it continued with the litigation until final judgment at
the CA level.

A source of misunderstanding in implementing the final decision in this case proceeds from the way the original labor arbiter
framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is the
finding of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement, backwages, attorney's fees,
and legal interests.

The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows that it
was time-bound as can be seen from the figures used in the computation. This part, being merely a computation of what the
first part of the decision established and declared, can, by its nature, be re-computed. This is the part, too, that the petitioner
now posits should no longer be re-computed because the computation is already in the labor arbiter's decision that the CA
had affirmed. The public and private respondents, on the other hand, posit that a re-computation is necessary because the
relief in an illegal dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or up to the finality
of the decision, if separation pay is to be given in lieu reinstatement.

That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also made a
computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which
requires that a computation be made. This Section in part states:

[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall embody in any
such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision. As we noted
above, this implication is apparent from the terms of the computation itself, and no question would have arisen had the
parties terminated the case and implemented the decision at that point.

However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of illegality as well as on
all the consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in turn, affirmed the labor
arbiter's decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdictional grounds.

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed Rule 65
petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the payment of 13th month pay
and indemnity, lapsed to finality and was subsequently returned to the labor arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor arbiter's
decision, the implementing labor arbiter ordered the award re-computed; he apparently read the figures originally ordered to
be paid to be the computation due had the case been terminated and implemented at the labor arbiter's level. Thus, the
labor arbiter re-computed the award to include the separation pay and the backwages due up to the finality of the CA
decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's approved computation went beyond
the finality of the CA decision (July 29, 2003) and included as well the payment for awards the final CA decision had deleted
- specifically, the proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision now
questioned in the present petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the labor
arbiter's original decision in accordance with its basic component parts as we discussed above. To reiterate, the first part
contains the finding of illegality and its monetary consequences; the second part is the computation of the awards or
monetary consequences of the illegal dismissal, computed as of the time of the labor arbiter's original decision. 28

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the petitioner,
no essential change is made by a recomputation as this step is a necessary consequence that flows from the nature of the
illegality of dismissal declared by the Labor Arbiter in that decision. 29 A recomputation (or an original computation, if no
previous computation has been made) is a part of the law specifically, Article 279 of the Labor Code and the established
jurisprudence on this provision that is read into the decision. By the nature of an illegal dismissal case, the reliefs continue
to add up until full satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of the consequences
of illegal dismissal upon execution of the decision does not constitute an alteration or amendment of the final decision being
implemented. The illegal dismissal ruling stands; only the computation of monetary consequences of this dismissal is
affected, and this is not a violation of the principle of immutability of final judgments. 30

That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk that
it ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the consequences of
illegal dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the finality of the illegal dismissal decision becomes the reckoning point
instead of the reinstatement that the law decrees. In allowing separation pay, the final decision effectively declares that the
employment relationship ended so that separation pay and backwages are to be computed up to that point. 31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, 32 the
Court laid down the guidelines regarding the manner of computing legal interest, to wit:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

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

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.33

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16,
2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No.
799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which reads:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of
interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments,
in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections
4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended
accordingly.

This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties, the
rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no
longer be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping Lines 40 and Subsection X305.1 of
the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-
Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per annum
effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come
July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable.

Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral Monetary
Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled
that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of
any money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made
by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different
maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said judgments
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.1awp++i1

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines 42 are accordingly
modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.1wphi1

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

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 6% 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.

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

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed
and shall continue to be implemented applying the rate of interest fixed therein.

WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP No.
98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are Ordered to Pay
petitioner:

(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002,
when the Resolution of this Court in G.R. No. 151332 became final and executory;

(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of
service; and

(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June
30, 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and due to
petitioner in accordance with this Decision.

SO ORDERED.

G.R. No. 197861 June 5, 2013

SPOUSES FLORENTINO T. MALLARI and AUREA V. MALLARI, Petitioners,

vs.
PRUDENTIAL BANK (now BANK OF THE PHILIPPINE ISLANDS), Respondent.
 DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the Decision 1 dated June 17, 2010 and the
Resolution2 dated July 20, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 65993.

The antecedent facts are as follows:

On December 11, 1984, petitioner Florentino T. Mallari (Florentino) obtained from respondent Prudential Bank-Tarlac Branch
(respondent bank), a loan in the amount of P300,000.00 as evidenced by Promissory Note (PN) No. BD 84-055.3 Under the
promissory note, the loan was subject to an interest rate of 21% per annum (p.a.), attorney's fees equivalent to 15% of the
total amount due but not less than P200.00 and, in case of default, a penalty and collection charges of 12% p.a. of the total
amount due. The loan had a maturity date of January 10, 1985, but was renewed up to February 17, 1985. Petitioner
Florentino executed a Deed of Assignment4 wherein he authorized the respondent bank to pay his loan with his time deposit
with the latter in the amount of P300,000.00.

On December 22, 1989, petitioners spouses Florentino and Aurea Mallari (petitioners) obtained again from respondent bank
another loan of P1.7 million as evidenced by PN No. BDS 606-895 with a maturity date of March 22, 1990. They stipulated
that the loan will bear 23% interest p.a., attorney's fees equivalent to 15% p.a. of the total amount due, but not less
than P200.00, and penalty and collection charges of 12% p.a. Petitioners executed a Deed of Real Estate Mortgage 6 in favor
of respondent bank covering petitioners' property under Transfer Certificate of Title (TCT) No. T-215175 of the Register of
Deeds of Tarlac to answer for the said loan.

Petitioners failed to settle their loan obligations with respondent bank, thus, the latter, through its lawyer, sent a demand
letter to the former for them to pay their obligations, which when computed up to January 31, 1992, amounted
to P571,218.54 for PN No. BD 84-055 and P2,991,294.82 for PN No. BDS 606-89.

On February 25, 1992, respondent bank filed with the Regional Trial Court (RTC) of Tarlac, a petition for the extrajudicial
foreclosure of petitioners' mortgaged property for the satisfaction of the latter's obligation of P1,700,000.00 secured by such
mortgage, thus, the auction sale was set by the Provincial Sheriff on April 23, 1992. 7

On April 10, 1992, respondent bank's Assistant Manager sent petitioners two (2) separate Statements of Account as of April
23, 1992, i.e., the loan of P300,000.00 was increased to P594,043.54, while the P1,700,000.00 loan was
already P3,171,836.18.

On April 20, 1992, petitioners filed a complaint for annulment of mortgage, deeds, injunction, preliminary injunction,
temporary restraining order and damages claiming, among others, that: (1) the P300,000.00 loan obligation should have
been considered paid, because the time deposit with the same amount under Certificate of Time Deposit No. 284051 had
already been assigned to respondent bank; (2) respondent bank still added the P300,000.00 loan to the P1.7 million loan
obligation for purposes of applying the proceeds of the auction sale; and (3) they realized that there were onerous terms and
conditions imposed by respondent bank when it tried to unilaterally increase the charges and interest over and above those
stipulated. Petitioners asked the court to restrain respondent bank from proceeding with the scheduled foreclosure sale.

Respondent bank filed its Answer with counterclaim arguing that: (1) the interest rates were clearly provided in the
promissory notes, which were used in computing for interest charges; (2) as early as January 1986, petitioners' time deposit
was made to apply for the payment of interest of their P300,000.00 loan; and (3) the statement of account as of April 10,
1992 provided for a computation of interest and penalty charges only from May 26, 1989, since the proceeds of petitioners'
time deposit was applied to the payment of interest and penalty charges for the preceding period. Respondent bank also
claimed that petitioners were fully apprised of the bank's terms and conditions; and that the extrajudicial foreclosure was
sought for the satisfaction of the second loan in the amount of P1.7 million covered by PN No. BDS 606-89 and the real
estate mortgage, and not the P300,000.00 loan covered by another PN No. 84-055.

In an Order8 dated November 10, 1992, the RTC denied the Application for a Writ of Preliminary Injunction. However, in
petitioners' Supplemental Motion for Issuance of a Restraining Order and/or Preliminary Injunction to enjoin respondent bank
and the Provincial Sheriff from effecting or conducting the auction sale, the RTC reversed itself and issued the restraining
order in its Order9 dated January 14, 1993.
Respondent bank filed its Motion to Lift Restraining Order, which the RTC granted in its Order 10 dated March 9, 1993.
Respondent bank then proceeded with the extrajudicial foreclosure of the mortgaged property. On July 7, 1993, a Certificate
of Sale was issued to respondent bank being the highest bidder in the amount of P3,500,000.00.

Subsequently, respondent bank filed a Motion to Dismiss Complaint11 for failure to prosecute action for unreasonable length
of time to which petitioners filed their Opposition.12 On November 19, 1998, the RTC issued its Order13 denying respondent
bank's Motion to Dismiss Complaint.

Trial thereafter ensued. Petitioner Florentino was presented as the lone witness for the plaintiffs. Subsequently, respondent
bank filed a Demurrer to Evidence.

On November 15, 1999, the RTC issued its Order14 granting respondent's demurrer to evidence, the dispositive portion of
which reads:

WHEREFORE, this case is hereby ordered DISMISSED. Considering there is no evidence of bad faith, the Court need not
order the plaintiffs to pay damages under the general concept that there should be no premium on the right to litigate.

NO COSTS.

SO ORDERED.15

The RTC found that as to the P300,000.00 loan, petitioners had assigned petitioner Florentino's time deposit in the amount
of P300,000.00 in favor of respondent bank, which maturity coincided with petitioners' loan maturity. Thus, if the loan was
unpaid, which was later extended to February 17, 1985, respondent bank should had just applied the time deposit to the
loan. However, respondent bank did not, and allowed the loan interest to accumulate reaching the amount of P594,043.54
as of April 10, 1992, hence, the amount of P292,600.00 as penalty charges was unjust and without basis.

As to the P1.7 million loan which petitioners obtained from respondent bank after the P300,000.00 loan, it had reached the
amount of P3,171,836.18 per Statement of Account dated April 27, 1993, which was computed based on the 23% interest
rate and 12% penalty charge agreed upon by the parties; and that contrary to petitioners' claim, respondent bank did not add
the P300,000.00 loan to the P1.7 million loan obligation for purposes of applying the proceeds of the auction sale.

The RTC found no legal basis for petitioners' claim that since the total obligation was P1.7 million and respondent bank's bid
price was P3.5 million, the latter should return to petitioners the difference of P1.8 million. It found that since petitioners'
obligation had reached P2,991,294.82 as of January 31, 1992, but the certificate of sale was executed by the sheriff only on
July 7, 1993, after the restraining order was lifted, the stipulated interest and penalty charges from January 31, 1992 to July
7, 1993 added to the loan already amounted to P3.5 million as of the auction sale.

The RTC found that the 23% interest rate p.a., which was then the prevailing loan rate of interest could not be considered
unconscionable, since banks are not hospitable or equitable institutions but are entities formed primarily for profit. It also
found that Article 1229 of the Civil Code invoked by petitioners for the reduction of the interest was not applicable, since
petitioners had not paid any single centavo of the P1.7 million loan which showed they had not complied with any part of the
obligation.

Petitioners appealed the RTC decision to the CA. A Comment was filed by respondent bank and petitioners filed their Reply
thereto.

On June 17, 2010, the CA issued its assailed Decision, the dispositive portion of which reads:

WHEREFORE, the instant appeal is hereby DENIED. The Order dated November 15, 1999 issued by the Regional Trial
Court (RTC), Branch 64, Tarlac City, in Civil Case No. 7550 is hereby AFFIRMED. 16

The CA found that the time deposit of P300,000.00 was equivalent only to the principal amount of the loan of P300,000.00
and would not be sufficient to cover the interest, penalty, collection charges and attorney's fees agreed upon, thus, in the
Statement of Account dated April 10, 1992, the outstanding balance of petitioners' loan was P594,043.54. It also found not
persuasive petitioners' claim that the P300,000.00 loan was added to the P1.7 million loan. The CA, likewise, found that the
interest rates and penalty charges imposed were not unconscionable and adopted in toto the findings of the RTC on the
matter.

Petitioners filed their Motion for Reconsideration, which the CA denied in a Resolution dated July 20, 2011.

Hence, petitioners filed this petition for review arguing that:

THE HON. COURT OF APPEALS ERRED IN AFFIRMING THE ORDER OF THE RTC-BRANCH 64, TARLAC CITY, DATED
NOVEMBER 15, 1999, DESPITE THE FACT THAT THE SAME IS CONTRARY TO SETTLED JURISPRUDENCE ON THE
MATTER.17

The issue for resolution is whether the 23% p.a. interest rate and the 12% p.a. penalty charge on petitioners' P1,700,000.00
loan to which they agreed upon is excessive or unconscionable under the circumstances.

Parties are free to enter into agreements and stipulate as to the terms and conditions of their contract, but such freedom is
not absolute. As Article 1306 of the Civil Code provides, "The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public
order, or public policy." Hence, if the stipulations in the contract are valid, the parties thereto are bound to comply with them,
since such contract is the law between the parties. In this case, petitioners and respondent bank agreed upon on a 23% p.a.
interest rate on the P1.7 million loan. However, petitioners now contend that the interest rate of 23% p.a. imposed by
respondent bank is excessive or unconscionable, invoking our ruling in Medel v. Court of Appeals, 18 Toring v. Spouses
Ganzon-Olan,19 and Chua v. Timan.20

We are not persuaded.

In Medel v. Court of Appeals,21 we found the stipulated interest rate of 66% p.a. or a 5.5% per month on a P500,000.00 loan
excessive, unconscionable and exorbitant, hence, contrary to morals if not against the law and declared such stipulation
void. In Toring v. Spouses Ganzon-Olan,22 the stipulated interest rates involved were 3% and 3.81% per month on a P10
million loan, which we find under the circumstances excessive and reduced the same to 1% per month. While in Chua v.
Timan,23 where the stipulated interest rates were 7% and 5% a month, which are equivalent to 84% and 60% p.a.,
respectively, we had reduced the same to 1% per month or 12% p.a. We said that we need not unsettle the principle we had
affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, unconscionable and
exorbitant, hence, the stipulation was void for being contrary to morals. 24

In this case, the interest rate agreed upon by the parties was only 23% p.a., or less than 2% per month, which are much
lower than those interest rates agreed upon by the parties in the above-mentioned cases. Thus, there is no similarity of
factual milieu for the application of those cases.

We do not consider the interest rate of 23% p.a. agreed upon by petitioners and respondent bank to be unconscionable.

In Villanueva v. Court of Appeals,25 where the issue raised was whether the 24% p.a. stipulated interest rate is unreasonable
under the circumstances, we answered in the negative and held:

In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City Branch,
this Court held that the interest rate of 24% per annum on a loan of P244,000.00, agreed upon by the parties, may not be
considered as unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege on their obligation
to comply with what is incumbent upon them under the contract of loan as the said contract is the law between the parties
and they are bound by its stipulations.

Also, in Garcia v. Court of Appeals, this Court sustained the agreement of the parties to a 24% per annum interest on
an P8,649,250.00 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement
entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender.

Based on the above jurisprudence, the Court finds that the 24% per annum interest rate, provided for in the subject
mortgage contracts for a loan of P225,000.00, may not be considered unconscionable. Moreover, considering that the
mortgage agreement was freely entered into by both parties, the same is the law between them and they are bound to
comply with the provisions contained therein.26
Clearly, jurisprudence establish that the 24% p.a. stipulated interest rate was not considered unconscionable, thus, the 23%
p.a. interest rate imposed on petitioners' loan in this case can by no means be considered excessive or unconscionable.

We also do not find the stipulated 12% p.a. penalty charge excessive or unconscionable.

In Ruiz v. CA,27 we held:

The 1% surcharge on the principal loan for every month of default is valid.1wphi1 This surcharge or penalty stipulated in a
loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil Code, and
is separate and distinct from interest payment. Also referred to as a penalty clause, it is expressly recognized by law. It is an
accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. The obligor
would then be bound to pay the stipulated amount of indemnity without the necessity of proof on the existence and on the
measure of damages caused by the breach. x x x28 And in Development Bank of the Philippines v. Family Foods
Manufacturing Co., Ltd.,29 we held that:

x x x The enforcement of the penalty can be demanded by the creditor only when the non-performance is due to the fault or
fraud of the debtor. The non-performance gives rise to the presumption of fault; in order to avoid the payment of the penalty,
the debtor has the burden of proving an excuse - the failure of the performance was due to either force majeure or the acts
of the creditor himself.30

Here, petitioners defaulted in the payment of their loan obligation with respondent bank and their contract provided for the
payment of 12% p.a. penalty charge, and since there was no showing that petitioners' failure to perform their obligation was
due to force majeure or to respondent bank's acts, petitioners cannot now back out on their obligation to pay the penalty
charge. A contract is the law between the parties and they are bound by the stipulations therein.

WHEREFORE, the petition for review is DENIED. The Decision dated June 17, 2010 and the Resolution dated July 20, 2011
of the Court of Appeals are hereby AFFIRMED.

SO ORDERED.

[G.R. No. 141811. November 15, 2001]

FIRST METRO INVESTMENT CORPORATION, petitioner, vs. ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN
S. DAEZ, JR., MANUEL Q. SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO * M.
LADORES, VICENTE M. DE VERA, JR., and FELIPE B. SESE, respondents.

DECISION

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals [2] dated November 8, 1999 in
CA-G.R. CV No. 53328 reversing the Decision [3] of the Regional Trial Court of Pasig City, Branch 159 dated June 2, 1994 in
Civil Case No. 39224. Essentially, the Court of Appeals found and declared that the fees provided for in the Underwriting and
Consultancy Agreements executed by and between petitioner First Metro Investment Corp. (FMIC) and respondent Este del
Sol Mountain Reserve, Inc. (Este del Sol) simultaneously with the Loan Agreement dated January 31, 1978 were mere
subterfuges to camouflage the usurious interest charged by petitioner FMIC.

The facts of the case are as follows:

It appears that on January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three
Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction and development of the
Este del Sol Mountain Reserve, a sports/resort complex project located at Barrio Puray, Montalban, Rizal. [4]

Under the terms of the Loan Agreement, the proceeds of the loan were to be released on staggered basis. Interest on
the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance. The loan was payable in thirty-
six (36) equal and consecutive monthly amortizations to commence at the beginning of the thirteenth month from the date of
the first release in accordance with the Schedule of Amortization. [5] In case of default, an acceleration clause was, among
others, provided and the amount due was made subject to a twenty (20%) percent one-time penalty on the amount due and
such amount shall bear interest at the highest rate permitted by law from the date of default until full payment thereof plus
liquidated damages at the rate of two (2%) percent per month compounded quarterly on the unpaid balance and accrued
interests together with all the penalties, fees, expenses or charges thereon until the unpaid balance is fully paid, plus
attorneys fees equivalent to twenty-five (25%) percent of the sum sought to be recovered, which in no case shall be less
than Twenty Thousand Pesos (P20,000.00) if the services of a lawyer were hired.[6]

In accordance with the terms of the Loan Agreement, respondent Este del Sol executed several documents [7] as
security for payment, among them, (a) a Real Estate Mortgage dated January 31, 1978 over two (2) parcels of land being
utilized as the site of its development project with an area of approximately One Million Twenty-Eight Thousand and Twenty-
Nine (1,028,029) square meters and particularly described in TCT Nos. N-24332 and N-24356 of the Register of Deeds of
Rizal, inclusive of all improvements, as well as all the machineries, equipment, furnishings and furnitures existing thereon;
and (b) individual Continuing Suretyship agreements by co-respondents Valentin S. Daez, Jr., Manuel Q. Salientes, Ma.
Rocio A. De Vega, Alexander G. Asuncion, Alberto M. Ladores, Vicente M. De Vera, Jr. and Felipe B. Sese, all dated
February 2, 1978, to guarantee the payment of all the obligations of respondent Este del Sol up to the aggregate sum of
Seven Million Five Hundred Thousand Pesos (P7,500,000 00) each.[8]

Respondent Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting Agreement on
January 31, 1978 whereby petitioner FMIC shall underwrite on a best-efforts basis the public offering of One Hundred
Twenty Thousand (120,000) common shares of respondent Este del Sols capital stock for a one-time underwriting fee of
Two Hundred Thousand Pesos (P200,000.00). In addition to the underwriting fee, the Underwriting Agreement provided that
for supervising the public offering of the shares, respondent Este del Sol shall pay petitioner FMIC an annual supervision fee
of Two Hundred Thousand Pesos (P200,000.00) per annum for a period of four (4) consecutive years. The Underwriting
Agreement also stipulated for the payment by respondent Este del Sol to petitioner FMIC a consultancy fee of Three
Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for a period of four (4) consecutive
years. Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement, a Consultancy
Agreement was also executed on January 31, 1978 whereby respondent Este del Sol engaged the services of petitioner
FMIC for a fee as consultant to render general consultancy services. [9]

In three (3) letters all dated February 22, 1978 petitioner billed respondent Este del Sol for the amounts of [a] Two
Hundred Thousand Pesos (P200,000.00) as the underwriting fee of petitioner FMIC in connection with the public offering of
the common shares of stock of respondent Este del Sol; [b] One Million Three Hundred Thirty Thousand Pesos
(P1,330,000.00) as consultancy fee for a period of four (4) years; and [c] Two Hundred Thousand Pesos (P200,000.00) as
supervision fee for the year beginning February, 1978, in accordance to the Underwriting Agreement. [10] The said amounts of
fees were deemed paid by respondent Este del Sol to petitioner FMIC which deducted the same from the first release of the
loan.

Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of
Amortization, it appeared to have incurred a total obligation of Twelve Million Six Hundred Seventy-Nine Thousand Six
Hundred Thirty Pesos and Ninety-Eight Centavos (P12,679,630.98) per the petitioners Statement of Account dated June 23,
1980,[11] to wit:

STATEMENT OF ACCOUNT OF

ESTE DEL SOL MOUNTAIN RESERVE, INC.

AS OF JUNE 23, 1980

PARTICULARS AMOUNT

Total amount due as of 11-22-78 per

revised amortization schedule dated

1-3-78 P7,999,631.42

Interest on P7,999,631.42 @ 16% p.a. from

11-22-78 to 2-22-79 (92 days) 327,096.04

Balance 8,326,727.46

One time penalty of 20% of the entire unpaid

obligations under Section 6.02 (ii) of

Loan Agreement 1,665,345.49

Past due interest under Section 6.02 (iii)

of loan Agreement:

@ 19% p.a. from 2-22-79 to 11-30-79

(281 days) 1,481,879.93

@ 21% p.a. from 11-30-79 to 6-23-80

(206 days) 1,200,714.10

Other charges publication of extra judicial

foreclosure of REM made on

5-23-80 & 6-6-80 4,964.00

Total Amount Due and Collectible as of

June 23, 1980 P12,679,630.98

Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980. [12] At
the public auction, petitioner FMIC was the highest bidder of the mortgaged properties for Nine Million Pesos
(P9,000,000.00). The total amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and
Seventy-Five Centavos (P3,188,630.75) was deducted therefrom, that is, for the publication fee for the publication of the
Sheriffs Notice of Sale, Four Thousand Nine Hundred Sixty-Four Pesos (P4,964.00); for Sheriffs fees for conducting the
foreclosure proceedings, Fifteen Thousand Pesos (P15,000.00); and for Attorneys fees, Three Million One Hundred Sixty-
Eight Thousand Six Hundred Sixty-Six Pesos and Seventy-Five Centavos (P3,168,666.75). The remaining balance of Five
Million Eight Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and Twenty-Five Centavos (P5,811,369.25) was
applied to interests and penalty charges and partly against the principal, due as of June 23, 1980, thereby leaving a balance
of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos
(P6,863,297.73) on the principal amount of the loan as of June 23, 1980.[13]

Failing to secure from the individual respondents, as sureties of the loan of respondent Este del Sol by virtue of their
continuing surety agreements, the payment of the alleged deficiency balance, despite individual demands sent to each of
them,[14] petitioner instituted on November 11, 1980 the instant collection suit [15]against the respondents to collect the alleged
deficiency balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-
Three Centavos (P6,863,297.73) plus interest thereon at twenty-one (21%) percent per annum from June 24, 1980 until fully
paid, and twenty-five (25%) percent thereof as and for attorneys fees and costs.

In their Answer, the respondents sought the dismissal of the case and set up several special and affirmative defenses,
foremost of which is that the Underwriting and Consultancy Agreements executed simultaneously with and as integral parts
of the Loan Agreement and which provided for the payment of Underwriting, Consultancy and Supervision fees were in
reality subterfuges resorted to by petitioner FMIC and imposed upon respondent Este del Sol to camouflage the usurious
interest being charged by petitioner FMIC.[16]
 The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela, its former Senior Vice-President,
Felipe Neri, its Vice-President for Marketing, and Dennis Aragon, an Account Manager of its Account Management Group, as
well as documentary evidence. On the other hand, co-respondents Vicente M. De Vera, Jr. and Valentin S. Daez, Jr., and
Perfecto Doroja, former Senior Manager and Assistant Vice-President of FMIC, testified for the respondents.

After the trial, the trial court rendered its decision in favor of petitioner FMIC, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants jointly and
severally to pay to plaintiff the amount of P6,863,297.73 plus 21% interest per annum, from June 24, 1980, until the entire
amount is fully paid, plus the amount equivalent to 25% of the total amount due, as attorneys fees, plus costs of suit.

Defendants counterclaims are dismissed, for lack of merit.

Finding the decision of the trial court unacceptable, respondents interposed an appeal to the Court of Appeals. On
November 8, 1999, the appellate court reversed the challenged decision of the trial court. The appellate court found and
declared that the fees provided for in the Underwriting and Consultancy Agreements were mere subterfuges to camouflage
the excessively usurious interest charged by the petitioner FMIC on the loan of respondent Este del Sol; and that the
stipulated penalties, liquidated damages and attorneys fees were excessive, iniquitous, unconscionable and revolting to the
conscience, and declared that in lieu thereof, the stipulated one time twenty (20%) percent penalty on the amount due and
ten (10%) percent of the amount due as attorneys fees would be reasonable and suffice to compensate petitioner FMIC for
those items. Thus, the appellate court dismissed the complaint as against the individual respondents sureties and ordered
petitioner FMIC to pay or reimburse respondent Este del Sol the amount of Nine Hundred Seventy-One Thousand Pesos
(P971,000.00) representing the difference between what is due to the petitioner and what is due to respondent Este del Sol,
based on the following computation:[17]

A: DUE TO THE [PETITIONER]

Principal of Loan P7,382,500.00

Add: 20% one-time

Penalty 1,476,500.00

Attorneys fees 900,000.00 P9,759,000.00

Less: Proceeds of foreclosure

Sale 9,000,000.00

Deficiency P 759,000.00

B. DUE TO [RESPONDENT ESTE DEL SOL]

Return of usurious interest in the form of:

Underwriting fee P 200,000.00

Supervision fee 200,000.00

Consultancy fee 1,330,000.00

Total amount due Este P 1,730,000.00

The appellee is, therefore, obliged to return to the appellant Este del Sol the difference of P971,000.00 or (P1,730,000.00
less P759,000.00).
Petitioner moved for reconsideration of the appellate courts adverse decision. However, this was denied in a
Resolution[18]dated February 9, 2000 of the appellate court.

Hence, the instant petition anchored on the following assigned errors: [19]

THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND
WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT WHEN IT:

a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY AGREEMENTS SHOULD NOT BE
CONSIDERED SEPARATE AND DISTINCT FROM THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD BE
CONSIDERED AS A SINGLE CONTRACT.

b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS ARE MERE SUBTERFUGES TO
CAMOUFLAGE THE USURIOUS INTEREST CHARGED BY THE PETITIONER.

c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONERS WITNESSES ON THE SERVICES PERFORMED BY

PETITIONER.

d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD WAIVED THEIR RIGHT TO SEEK RECOVERY
OF THE AMOUNTS THEY PAID TO PETITIONER, AND [ii]THAT RESPONDENTS HAD ADMITTED THE VALIDITY OF
THE UNDERWRITING AND CONSULTANCY AGREEMENTS.

e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY WHAT IS DUE TO EACH PARTY AFTER THE
FORECLOSURE SALE, AS SHOWN IN PP. 34-35 OF THE ASSAILED DECISION, EVEN GRANTING JUST FOR THE
SAKE OF ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN STIGMATIZING [i] THE PROVISIONS OF
THE LOAN AGREEMENT THAT REFER TO STIPULATED PENALTIES, LIQUIDATED DAMAGES AND ATTORNEYS
FEES AS SUPPOSEDLY EXCESSIVE, INIQUITOUS AND UNCONSCIONABLE AND REVOLTING TO THE
CONSCIENCE AND [ii] THE UNDERWRITING, SUPERVISION AND CONSULTANCY SERVICES AGREEMENT AS
SUPPOSEDLY MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED UPON THE
RESPONDENT ESTE BY PETITIONER.

f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND THUS THE INDIVIDUAL RESPONDENTS,
ARE STILL OBLIGATED TO THE PETITIONER.

Petitioner essentially assails the factual findings and conclusion of the appellate court that the Underwriting and
Consultancy Agreements were executed to conceal a usurious loan. Inquiry upon the veracity of the appellate courts factual
findings and conclusion is not the function of this Court for the Supreme Court is not a trier of facts. Only when the factual
findings of the trial court and the appellate court are opposed to each other does this Court exercise its discretion to re-
examine the factual findings of both courts and weigh which, after considering the record of the case, is more in accord with
law and justice.

After a careful and thorough review of the record including the evidence adduced, we find no reason to depart from the
findings of the appellate court.

First, there is no merit to petitioner FMICs contention that Central Bank Circular No. 905 which took effect on January
1, 1983 and removed the ceiling on interest rates for secured and unsecured loans, regardless of maturity, should be applied
retroactively to a contract executed on January 31, 1978, as in the case at bar, that is, while the Usury Law was in full force
and effect. It is an elementary rule of contracts that the laws, in force at the time the contract was made and entered into,
govern it.[20] More significantly, Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply
suspended the latters effectivity.[21] 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.[22] Thus, retroactive application of a Central Bank Circular cannot, and
should not, be presumed.[23]

Second, when a contract between two (2) parties is evidenced by a written instrument, such document is ordinarily the
best evidence of the terms of the contract. Courts only need to rely on the face of written contracts to determine the intention
of the parties. However, this rule is not without exception. [24] The form of the contract is not conclusive for the law will not
permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document
though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent
that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however
ingenious, to becloud the crime of usury.[25]

In the instant case, several facts and circumstances taken altogether show that the Underwriting and Consultancy
Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to conceal and collect
excessively usurious interest, and these are:

a) The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the same date of the
Loan Agreement.[26] Furthermore, under the Underwriting Agreement payment of the supervision and consultancy fees was
set for a period of four (4) years [27] to coincide ultimately with the term of the Loan Agreement. [28] This fact means that all the
said agreements which were executed simultaneously were set to mature or shall remain effective during the same period of
time.

b) The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of an underwriting
agreement[29]and specifically mentioned that such underwriting agreement is a condition precedent [30]for petitioner FMIC to
extend the loan to respondent Este del Sol, indicating and as admitted by petitioner FMICs employees, [31] that such
Underwriting Agreement is part and parcel of the Loan Agreement.[32]

c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One Million Three Hundred Thirty Thousand
Pesos (P1,330,000.00)[33] as consultancy fee despite the clear provision in the Consultancy Agreement that the said
agreement is for Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for four (4) years and
that only the first year consultancy fee shall be due upon signing of the said consultancy agreement. [34]

d) The Underwriting, Supervision and Consultancy fees in the amounts of Two Hundred Thousand Pesos
(P200,000.00), Two Hundred Thousand Pesos (P200,000.00) and One Million Three Hundred Thirty Thousand Pesos
(P1,330,000.00), respectively, were billed by petitioner to respondent Este del Sol on February 22, 1978, [35] that is, on the
same occasion of the first partial release of the loan in the amount of Two Million Three Hundred Eighty-Two Thousand Five
Hundred Pesos (P2,382,500.00).[36] It is from this first partial release of the loan that the said corresponding bills for
Underwriting, Supervision and Consultancy fees were deducted and apparently paid, thus, reverting back to petitioner FMIC
the total amount of One Million Seven Hundred Thirty Thousand Pesos (P1,730,000.00) as part of the amount loaned to
respondent Este del Sol.[37]

e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell any share of stock of
respondent Este del Sol and much less to supervise such a syndicate, thus failing to comply with its obligation under the
Underwriting Agreement.[38] Besides, there was really no need for an Underwriting Agreement since respondent Este del Sol
had its own licensed marketing arm to sell its shares and all its shares have been sold through its marketing arm. [39]

f) Petitioner FMIC failed to comply with its obligation under the Consultancy Agreement, [40] aside from the fact that
there was no need for a Consultancy Agreement, since respondent Este del Sols officers appeared to be more competent to
be consultants in the development of the projected sports/resort complex. [41]

All the foregoing established facts and circumstances clearly belie the contention of petitioner FMIC that the Loan,
Underwriting and Consultancy Agreements are separate and independent transactions.The Underwriting and Consultancy
Agreements which were executed and delivered contemporaneously with the Loan Agreement on January 31, 1978 were
exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful loan is usurious when it is
intended that additional compensation for the loan be disguised by an ostensibly unrelated contract providing for payment by
the borrower for the lenders services which are of little value or which are not in fact to be rendered, such as in the instant
case.[42] In this connection, Article 1957 of the New Civil Code clearly provides that:

Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury
shall be void. The borrower may recover in accordance with the laws on usury.

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 .[43] The reason for this rule was
adequately explained in the case of Angel Jose Warehousing Co., Inc. v. Child Enterprises[44]where this Court held:
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of
the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest;
hence, being separable, the latter only should be deemed void, since it is the only one that is illegal.

Thus, the nullity of the stipulation on the usurious interest does not affect the lenders right to receive back the principal
amount of the loan. With respect to the debtor, the amount paid as interest under a usurious agreement is recoverable by
him, since the payment is deemed to have been made under restraint, rather than voluntarily.[45]

This Court agrees with the factual findings and conclusion of the appellate court, to wit:

We find the stipulated penalties, liquidated damages and attorneys fees, excessive, iniquitous and unconscionable and
revolting to the conscience as they hardly allow the borrower any chance of survival in case of default. And true enough,
ESTE folded up when the appellee extrajudicially foreclosed on its (ESTEs) development project and literally closed its
offices as both the appellee and ESTE were at the time holding office in the same building. Accordingly, we hold that 20%
penalty on the amount due and 10% of the proceeds of the foreclosure sale as attorneys fees would suffice to compensate
the appellee, especially so because there is no clear showing that the appellee hired the services of counsel to effect the
foreclosure; it engaged counsel only when it was seeking the recovery of the alleged deficiency.

Attorneys fees as provided in penal clauses are in the nature of liquidated damages. So long as such stipulation does
not contravene any law, morals, or public order, it is binding upon the parties.Nonetheless, courts are empowered to reduce
the amount of attorneys fees if the same is iniquitous or unconscionable. [46] Articles 1229 and 2227 of the New Civil Code
provide that:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied
with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.

In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and
Seventy-Five Centavos (P3,188,630.75) for the stipulated attorneys fees equivalent totwenty-five (25%) percent of the
alleged amount due, as of the date of the auction sale on June 23, 1980, is manifestly exorbitant and
unconscionable. Accordingly, we agree with the appellate court that a reduction of the attorneys fees to ten (10%) percent is
appropriate and reasonable under the facts and circumstances of this case.

Lastly, there is no merit to petitioner FMICs contention that the appellate court erred in awarding an amount allegedly
not asked nor prayed for by respondents. Whether the exact amount of the relief was not expressly prayed for is of no
moment for the reason that the relief was plainly warranted by the allegations of the respondents as well as by the facts as
found by the appellate court. A party is entitled to as much relief as the facts may warrant. [47]

In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its
challenged Decision.

WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the Court of Appeals is
AFFIRMED. Costs against petitioner.

SO ORDERED.