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II. INTEREST AND THE USURY LAW !

supportFootnotes][3][endif]
dated 19 June 2006 of the Court of
Appeals in CA-G.R. CV No. 71814, which affirmed in toto
1. SIGA-AN VS. VILLANUEVA the Decision,[if !supportFootnotes][4][endif] dated 26 January 2001,
of the Las Pinas City Regional Trial Court, Branch 255, in
SEBASTIAN SIGA-AN, G.R. No.
Civil
173227
Case No. LP-98-0068.
Petitioner,
Present: The facts gathered from the records are as
follows:
YNARES-SANTIAGO,
Chairperson, On 30 March 1998, respondent Alicia Villanueva
filed a complaint[if !supportFootnotes][5][endif] for sum of money
AUSTRIA-MARTINEZ,
-versus CHICO-NAZARIO,
against petitioner Sebastian Siga-an before the Las
NACHURA,
PinasandCity Regional Trial Court (RTC), Branch 255,
LEONARDO-DE
docketed CASTRO,*
as Civil CaseJJ. No. LP-98-0068. Respondent
alleged that she was a businesswoman engaged in
supplying office materials and equipments to the
Promulgated:
Philippine Navy Office (PNO) located at Fort Bonifacio,
ALICIA VILLANUEVA, Taguig City, while petitioner was a military officer and
Respondent. January
comptroller
20, 2009 of the PNO from 1991 to 1996.
x----------------------------------------
- - - - - - - - - -x Respondent claimed that sometime in 1992,
petitioner approached her inside the PNO and offered to
loan her the amount of P540,000.00. Since she needed
DECISION capital for her business transactions with the PNO, she
accepted petitioners proposal. The loan agreement was
CHICO-NAZARIO, J.: not reduced in writing. Also, there was no stipulation as
to the payment of interest for the loan.[if
Before Us is a Petition[if !supportFootnotes][1][endif] for !supportFootnotes][6][endif]

Review on Certiorari under Rule 45 of the Rules of Court


seeking to set aside the Decision,[if !supportFootnotes][2][endif] On 31 August 1993, respondent issued a check
dated 16 December 2005, and Resolution,[if worth P500,000.00 to petitioner as partial payment of the
loan. On 31 October 1993, she issued another check in her lawyer that she made overpayment to petitioner, she
the amount of P200,000.00 to petitioner as payment of sent a demand letter to petitioner asking for the return of
the remaining balance of the loan. Petitioner told her that the excess amount of P660,000.00. Petitioner, despite
since she paid a total amount of P700,000.00 for the receipt of the demand letter, ignored her claim for
P540,000.00 worth of loan, the excess amount of reimbursement.[if !supportFootnotes][8][endif]
P160,000.00 would be applied as interest for the loan.
Not satisfied with the amount applied as interest, Respondent prayed that the RTC render
petitioner pestered her to pay additional interest. judgment ordering petitioner to pay respondent (1)
Petitioner threatened to block or disapprove her P660,000.00 plus legal interest from the time of demand;
transactions with the PNO if she would not comply with (2) P300,000.00 as moral damages; (3) P50,000.00 as
his demand. As all her transactions with the PNO were exemplary damages; and (4) an amount equivalent to
subject to the approval of petitioner as comptroller of the 25% of P660,000.00 as attorneys fees.[if
PNO, and fearing that petitioner might block or unduly !supportFootnotes][9][endif]

influence the payment of her vouchers in the PNO, she


conceded. Thus, she paid additional amounts in cash In his answer[if !supportFootnotes][10][endif] to the
and checks as interests for the loan. She asked petitioner complaint, petitioner denied that he offered a loan to
for receipt for the payments but petitioner told her that it respondent. He averred that in 1992, respondent
was not necessary as there was mutual trust and approached and asked him if he could grant her a loan,
confidence between them. According to her computation, as she needed money to finance her business venture
the total amount she paid to petitioner for the loan and with the PNO. At first, he was reluctant to deal with
interest accumulated to P1,200,000.00.[if respondent, because the latter had a spotty record as a
!supportFootnotes][7][endif] supplier of the PNO. However, since respondent was an
acquaintance of his officemate, he agreed to grant her a
Thereafter, respondent consulted a lawyer loan. Respondent paid the loan in full.[if
regarding the propriety of paying interest on the loan !supportFootnotes][11][endif]

despite absence of agreement to that effect. Her lawyer


told her that petitioner could not validly collect interest on Subsequently, respondent again asked him to
the loan because there was no agreement between her give her a loan. As respondent had been able to pay the
and petitioner regarding payment of interest. Since she previous loan in full, he agreed to grant her another loan.
paid petitioner a total amount of P1,200,000.00 for the Later, respondent requested him to restructure the
P540,000.00 worth of loan, and upon being advised by payment of the loan because she could not give full
payment on the due date. He acceded to her request. settle her obligation but failed to do so. He maintained
Thereafter, respondent pleaded for another restructuring that to rule in favor of respondent is tantamount to
of the payment of the loan. This time he rejected her concluding that the loan was given interest-free. Based
plea. Thus, respondent proposed to execute a on the foregoing averments, he asked the RTC to
promissory note wherein she would acknowledge her dismiss respondents complaint.
obligation to him, inclusive of interest, and that she would
issue several postdated checks to guarantee the After trial, the RTC rendered a Decision on 26
payment of her obligation. Upon his approval of January 2001 holding that respondent made an
respondents request for restructuring of the loan, overpayment of her loan obligation to petitioner and that
respondent executed a promissory note dated 12 the latter should refund the excess amount to the former.
September 1994 wherein she admitted having borrowed It ratiocinated that respondents obligation was only to pay
an amount of P1,240,000.00, inclusive of interest, from the loaned amount of P540,000.00, and that the alleged
petitioner and that she would pay said amount in March interests due should not be included in the computation
1995. Respondent also issued to him six postdated of respondents total monetary debt because there was
checks amounting to P1,240,000.00 as guarantee of no agreement between them regarding payment of
compliance with her obligation. Subsequently, he interest. It concluded that since respondent made an
presented the six checks for encashment but only one excess payment to petitioner in the amount of
check was honored. He demanded that respondent settle P660,000.00 through mistake, petitioner should return
her obligation, but the latter failed to do so. Hence, he the said amount to respondent pursuant to the principle
filed criminal cases for Violation of the Bouncing Checks of solutio indebiti.[if !supportFootnotes][13][endif]
Law (Batas Pambansa Blg. 22) against respondent. The
cases were assigned to the Metropolitan Trial Court of The RTC also ruled that petitioner should pay
Makati City, Branch 65 (MeTC).[if !supportFootnotes][12][endif] moral damages for the sleepless nights and wounded
feelings experienced by respondent. Further, petitioner
Petitioner insisted that there was no should pay exemplary damages by way of example or
overpayment because respondent admitted in the latters correction for the public good, plus attorneys fees and
promissory note that her monetary obligation as of 12 costs of suit.
September 1994 amounted to P1,240,000.00 inclusive of
interests. He argued that respondent was already The dispositive portion of the RTC Decision
estopped from complaining that she should not have paid reads:
any interest, because she was given several times to
WHEREFORE, in view of the (4) Ordering defendant to pay
foregoing evidence and in the light of plaintiff the amount equivalent to 25%
the provisions of law and jurisprudence of P660,000.00 as attorneys fees; and
on the matter, judgment is hereby
rendered in favor of the plaintiff and
against the defendant as follows:

(5) Ordering defendant to pay


the costs of suit.[if !supportFootnotes][14][endif]

[if !supportLists](1) [endif]Ordering defendant to


pay plaintiff the amount of P660,000.00 plus legal interest
of 12% per annum computed from 3 March 1998 until the
amount is paid in full;
Petitioner appealed to the Court of Appeals. On
(2) Ordering defendant to pay
16 December 2005, the appellate court promulgated its
plaintiff the amount of P300,000.00 as Decision affirming in toto the RTC Decision, thus:
moral damages;
WHEREFORE, the foregoing
considered, the instant appeal is
hereby DENIED and the assailed
decision [is] AFFIRMED in toto.[if
!supportFootnotes][15][endif]
(3) Ordering defendant to pay
plaintiff the amount of P50,000.00 as
exemplary damages;

Petitioner filed a motion for reconsideration of


the appellate courts decision but this was denied. [if
!supportFootnotes][16][endif] Hence, petitioner lodged the instant

petition before us assigning the following errors: Interest is a compensation fixed by the parties
for the use or forbearance of money. This is referred to
I. as monetary interest. Interest may also be imposed by
law or by courts as penalty or indemnity for damages.
This is called compensatory interest.[if !supportFootnotes][18][endif]
The right to interest arises only by virtue of a contract or
by virtue of damages for delay or failure to pay the
principal loan on which interest is demanded.[if
THE RTC AND THE COURT OF APPEALS !supportFootnotes][19][endif]
ERRED IN RULING THAT NO
INTEREST WAS DUE TO
Article 1956 of the Civil Code, which refers to
PETITIONER;
monetary interest,[if !supportFootnotes][20][endif] specifically
mandates that no interest shall be due unless it has been
expressly stipulated in writing. As can be gleaned from
the foregoing provision, payment of monetary interest is
allowed only if: (1) there was an express stipulation for
the payment of interest; and (2) the agreement for the
II. payment of interest was reduced in writing. The
concurrence of the two conditions is required for the
payment of monetary interest. Thus, we have held that
collection of interest without any stipulation therefor in
writing is prohibited by law.[if !supportFootnotes][21][endif]
THE RTC AND THE COURT OF APPEALS
It appears that petitioner and respondent did not
ERRED IN APPLYING THE
PRINCIPLE OF SOLUTIO INDEBITI.[if agree on the payment of interest for the loan. Neither
!supportFootnotes][17][endif] was there convincing proof of written agreement between
the two regarding the payment of interest. Respondent
testified that although she accepted petitioners offer of
loan amounting to P540,000.00, there was, nonetheless,
no verbal or written agreement for her to pay interest on on the loan; that the agreed 7% rate of interest was duly
the loan.[if !supportFootnotes][22][endif] admitted by respondent in her testimony in the Batas
Pambansa Blg. 22 cases he filed against respondent;
Petitioner presented a handwritten promissory that despite such judicial admission by respondent, the
note dated 12 September 1994[if !supportFootnotes][23][endif] RTC and the Court of Appeals, citing Article 1956 of the
wherein respondent purportedly admitted owing petitioner Civil Code, still held that no interest was due him since
capital and interest. Respondent, however, explained that the agreement on interest was not reduced in writing; that
it was petitioner who made a promissory note and she the application of Article 1956 of the Civil Code should
was told to copy it in her own handwriting; that all her not be absolute, and an exception to the application of
transactions with the PNO were subject to the approval of such provision should be made when the borrower
petitioner as comptroller of the PNO; that petitioner admits that a specific rate of interest was agreed upon as
threatened to disapprove her transactions with the PNO if in the present case; and that it would be unfair to allow
she would not pay interest; that being unaware of the law respondent to pay only the loan when the latter very well
on interest and fearing that petitioner would make good knew and even admitted in the Batas Pambansa Blg. 22
of his threats if she would not obey his instruction to copy cases that there was an agreed 7% rate of interest on the
the promissory note, she copied the promissory note in loan.[if !supportFootnotes][25][endif]
her own handwriting; and that such was the same
promissory note presented by petitioner as alleged proof We have carefully examined the RTC Decision
of their written agreement on interest.[if and found that the RTC did not make a ruling therein that
!supportFootnotes][24][endif] Petitioner did not rebut the foregoing petitioner and respondent agreed on the payment of
testimony. It is evident that respondent did not really interest at the rate of 7% for the loan. The RTC clearly
consent to the payment of interest for the loan and that stated that although petitioner and respondent entered
she was merely tricked and coerced by petitioner to pay into a valid oral contract of loan amounting to
interest. Hence, it cannot be gainfully said that such P540,000.00, they, nonetheless, never intended the
promissory note pertains to an express stipulation of payment of interest thereon.[if !supportFootnotes][26][endif] While
interest or written agreement of interest on the loan the Court of Appeals mentioned in its Decision that it
between petitioner and respondent. concurred in the RTCs ruling that petitioner and
respondent agreed on a certain rate of interest as
Petitioner, nevertheless, claims that both the regards the loan, we consider this as merely an
RTC and the Court of Appeals found that he and inadvertence because, as earlier elucidated, both the
respondent agreed on the payment of 7% rate of interest RTC and the Court of Appeals ruled that petitioner is not
entitled to the payment of interest on the loan. The rule is
that factual findings of the trial court deserve great weight All the same, the interest under these two
and respect especially when affirmed by the appellate instances may be imposed only as a penalty or damages
court.[if !supportFootnotes][27][endif] We found no compelling for breach of contractual obligations. It cannot be
reason to disturb the ruling of both courts. charged as a compensation for the use or forbearance of
money. In other words, the two instances apply only to
Petitioners reliance on respondents alleged compensatory interest and not to monetary interest.[if
admission in the Batas Pambansa Blg. 22 cases that !supportFootnotes][29][endif] The case at bar involves petitioners

they had agreed on the payment of interest at the rate of claim for monetary interest.
7% deserves scant consideration. In the said case,
respondent merely testified that after paying the total Further, said compensatory interest is not
amount of loan, petitioner ordered her to pay interest.[if chargeable in the instant case because it was not duly
!supportFootnotes][28][endif] Respondent did not categorically proven that respondent defaulted in paying the loan.
declare in the same case that she and respondent made Also, as earlier found, no interest was due on the loan
an express stipulation in writing as regards payment of because there was no written agreement as regards
interest at the rate of 7%. As earlier discussed, monetary payment of interest.
interest is due only if there was an express stipulation in
writing for the payment of interest. Apropos the second assigned error, petitioner argues
that the principle of solutio indebiti does not apply to the
There are instances in which an interest may be instant case. Thus, he cannot be compelled to return the
imposed even in the absence of express stipulation, alleged excess amount paid by respondent as interest.[if
verbal or written, regarding payment of interest. Article !supportFootnotes][30][endif]

2209 of the Civil Code states that if the obligation


consists in the payment of a sum of money, and the Under Article 1960 of the Civil Code, if the
debtor incurs delay, a legal interest of 12% per annum borrower of loan pays interest when there has been no
may be imposed as indemnity for damages if no stipulation therefor, the provisions of the Civil Code
stipulation on the payment of interest was agreed upon. concerning solutio indebiti shall be applied. Article 2154
Likewise, Article 2212 of the Civil Code provides that of the Civil Code explains the principle of solutio indebiti.
interest due shall earn legal interest from the time it is Said provision provides that if something is received
judicially demanded, although the obligation may be when there is no right to demand it, and it was unduly
silent on this point. delivered through mistake, the obligation to return it
arises. In such a case, a creditor-debtor relationship is
created under a quasi-contract whereby the payor Records show that respondent received a loan
becomes the creditor who then has the right to demand amounting to P540,000.00 from petitioner.[if
the return of payment made by mistake, and the person !supportFootnotes][34][endif] Respondent issued two checks with a

who has no right to receive such payment becomes total worth of P700,000.00 in favor of petitioner as
obligated to return the same. The quasi-contract of payment of the loan.[if !supportFootnotes][35][endif] These checks
solutio indebiti harks back to the ancient principle that no were subsequently encashed by petitioner.[if
one shall enrich himself unjustly at the expense of !supportFootnotes][36][endif] Obviously, there was an excess of

another.[if !supportFootnotes][31][endif] The principle of solutio P160,000.00 in the payment for the loan. Petitioner
indebiti applies where (1) a payment is made when there claims that the excess of P160,000.00 serves as interest
exists no binding relation between the payor, who has no on the loan to which he was entitled. Aside from issuing
duty to pay, and the person who received the payment; the said two checks, respondent also paid cash in the
and (2) the payment is made through mistake, and not total amount of P175,000.00 to petitioner as interest.[if
through liberality or some other cause.[if !supportFootnotes][37][endif] Although no receipts reflecting the
!supportFootnotes][32][endif] We have held that the principle of same were presented because petitioner refused to issue
solutio indebiti applies in case of erroneous payment of such to respondent, petitioner, nonetheless, admitted in
undue interest.[if !supportFootnotes][33][endif] his Reply-Affidavit[if !supportFootnotes][38][endif] in the Batas
Pambansa Blg. 22 cases that respondent paid him a total
It was duly established that respondent paid amount of P175,000.00 cash in addition to the two
interest to petitioner. Respondent was under no duty to checks. Section 26 Rule 130 of the Rules of Evidence
make such payment because there was no express provides that the declaration of a party as to a relevant
stipulation in writing to that effect. There was no binding fact may be given in evidence against him. Aside from
relation between petitioner and respondent as regards the amounts of P160,000.00 and P175,000.00 paid as
the payment of interest. The payment was clearly a interest, no other proof of additional payment as interest
mistake. Since petitioner received something when there was presented by respondent. Since we have previously
was no right to demand it, he has an obligation to return found that petitioner is not entitled to payment of interest
it. and that the principle of solutio indebiti applies to the
instant case, petitioner should return to respondent the
We shall now determine the propriety of the excess amount of P160,000.00 and P175,000.00 or the
monetary award and damages imposed by the RTC and total amount of P335,000.00. Accordingly, the
the Court of Appeals. reimbursable amount to respondent fixed by the RTC and
the Court of Appeals should be reduced from discretion of the court according to the circumstances of
P660,000.00 to P335,000.00. each case. This discretion is limited by the principle that
the amount awarded should not be palpably excessive as
As earlier stated, petitioner filed five (5) criminal to indicate that it was the result of prejudice or corruption
cases for violation of Batas Pambansa Blg. 22 against on the part of the trial court.[if !supportFootnotes][40][endif] To our
respondent. In the said cases, the MeTC found mind, the amount of P150,000.00 as moral damages is
respondent guilty of violating Batas Pambansa Blg. 22 for fair, reasonable, and proportionate to the injury suffered
issuing five dishonored checks to petitioner. Nonetheless, by respondent.
respondents conviction therein does not affect our ruling
in the instant case. The two checks, subject matter of this Article 2232 of the Civil Code states that in a
case, totaling P700,000.00 which respondent claimed as quasi-contract, such as solutio indebiti, exemplary
payment of the P540,000.00 worth of loan, were not damages may be imposed if the defendant acted in an
among the five checks found to be dishonored or oppressive manner. Petitioner acted oppressively when
bounced in the five criminal cases. Further, the MeTC he pestered respondent to pay interest and threatened to
found that respondent made an overpayment of the loan block her transactions with the PNO if she would not pay
by reason of the interest which the latter paid to interest. This forced respondent to pay interest despite
petitioner.[if !supportFootnotes][39][endif] lack of agreement thereto. Thus, the award of exemplary
damages is appropriate. The amount of P50,000.00
Article 2217 of the Civil Code provides that imposed as exemplary damages by the RTC and the
moral damages may be recovered if the party underwent Court is fitting so as to deter petitioner and other lenders
physical suffering, mental anguish, fright, serious anxiety, from committing similar and other serious wrongdoings.[if
besmirched reputation, wounded feelings, moral shock, !supportFootnotes][41][endif]

social humiliation and similar injury. Respondent testified


that she experienced sleepless nights and wounded Jurisprudence instructs that in awarding
feelings when petitioner refused to return the amount attorneys fees, the trial court must state the factual, legal
paid as interest despite her repeated demands. Hence, or equitable justification for awarding the same.[if
the award of moral damages is justified. However, its !supportFootnotes][42][endif] In the case under consideration, the

corresponding amount of P300,000.00, as fixed by the RTC stated in its Decision that the award of attorneys
RTC and the Court of Appeals, is exorbitant and should fees equivalent to 25% of the amount paid as interest by
be equitably reduced. Article 2216 of the Civil Code respondent to petitioner is reasonable and moderate
instructs that assessment of damages is left to the considering the extent of work rendered by respondents
lawyer in the instant case and the fact that it dragged on judicial demand on 3 March 1998,[if !supportFootnotes][46][endif]
for several years.[if !supportFootnotes][43][endif] Further, up to the finality of this Decision. In addition, the interest
respondent testified that she agreed to compensate her shall become 12% per annum from the finality of this
lawyer handling the instant case such amount. [if Decision up to its satisfaction.
!supportFootnotes][44][endif] The award, therefore, of attorneys

fees and its amount equivalent to 25% of the amount WHEREFORE, the Decision of the Court of Appeals in
paid as interest by respondent to petitioner is proper. CA-G.R. CV No. 71814, dated 16 December 2005, is
hereby AFFIRMED with the following MODIFICATIONS:
Finally, the RTC and the Court of Appeals (1) the amount of P660,000.00 as refundable amount of
imposed a 12% rate of legal interest on the amount interest is reduced to THREE HUNDRED THIRTY FIVE
refundable to respondent computed from 3 March 1998 THOUSAND PESOS (P335,000.00); (2) the amount of
until its full payment. This is erroneous. P300,000.00 imposed as moral damages is reduced to
ONE HUNDRED FIFTY THOUSAND PESOS
We held in Eastern Shipping Lines, Inc. v. Court (P150,000.00); (3) an interest of 6% per annum is
of Appeals,[if !supportFootnotes][45][endif] that when an obligation, imposed on the P335,000.00, on the damages awarded
not constituting a loan or forbearance of money is and on the attorneys fees to be computed from the time
breached, an interest on the amount of damages of the extra-judicial demand on 3 March 1998 up to the
awarded may be imposed at the rate of 6% per annum. finality of this Decision; and (4) an interest of 12% per
We further declared that when the judgment of the court annum is also imposed from the finality of this Decision
awarding a sum of money becomes final and executory, up to its satisfaction. Costs against petitioner.
the rate of legal interest, whether it is a loan/forbearance
of money or not, shall be 12% per annum from such SO ORDERED.
finality until its satisfaction, this interim period being
deemed equivalent to a forbearance of credit. 2. GSIS VS CA

In the present case, petitioners obligation arose G.R. No. L-52478 October 30, 1986
from a quasi-contract of solutio indebiti and not from a THE GOVERNMENT SERVICE INSURANCE SYSTEM,
loan or forbearance of money. Thus, an interest of 6% petitioner-appellant,
per annum should be imposed on the amount to be vs.
refunded as well as on the damages awarded and on the HONORABLE COURT OF APPEALS, NEMENCIO R.
attorneys fees, to be computed from the time of the extra- MEDINA and JOSEFINA G. MEDINA, respondents-
appellants. P295,000.00. On April 4, 1962, the Medinas accepting
Coronel Law Office for private respondents. the reduced amount, executed a promissory note and a
Alberto C. Lerma collaborating counsel for private real estate mortgage in favor of GSIS. On May 29, 1962,
respondents the GSIS, and on June 6, 1962, the Office of the
Economic Coordinator, upon request of the Medinas,
PARAS, J.: both approved the restoration of the amount of
This is a petition for review on certiorari of the decision of P350,000.00 (P295,000.00 + P55,000.00) originally
the Court of Appeals in CA-G.R. No. 62541-R (Nemencio approved by the GSIS. This P350,000.00 loan was
R. Medina and Josefina G. Medina, Plaintiffs-Appellants denominated by the GSIS as Account No. 31055.
vs. The Government Service Insurance System, On July 6, 1962, the Medinas executed in favor of the
Defendant-Appellant) affirming the January 21, 1977 GSIS an Amendment of Real Estate Mortgage, the
Decision of the trial court, and at the same time ordering pertinent portion of which reads:
the GSIS to reimburse the amount of P9,580.00 as over- WHEREAS, on the 4th day of April, 1962, the Mortgagor
payment and to pay the spouses Nemencio R. Medina executed signed and delivered a real estate mortgage to
and Josefina G. Medina P3,000.00 and P1,000.00 as and in favor of the Mortgagee on real estate properties
attorney's fees and litigation expenses. located in the City of Manila, ... to secure payment to the
In 1961, herein private respondents spouses Nemencio mortgages of a loan of Two Hundred Ninety Five
R. Medina and Josefina G. Medina (Medinas for short) Thousand Pesos (P295,000.00) Philippine Currency,
applied with the herein petitioner Government Service granted by the mortgagee to the Mortgagors, ...;
Insurance System (GSIS for short) for a loan of WHEREAS, the parties herein have agreed as they
P600,000.00. The GSIS Board of Trustees, in its hereby agree to increase the aforementioned loan from
Resolution of December 20, 1961, approved under Two Hundred Ninety Five Thousand Pesos
Resolution No. 5041 only the amount of P350,000.00, (P295,000.00) to Three Hundred Fifty Thousand Pesos
subject to the following conditions: that the rate of interest (P350,000.00), Philippine Currency;
shall be 9% per annum compounded monthly; repayable NOW, THEREFORE, for and in consideration of the
in ten (10) years at a monthly amortization of P4,433.65 foregoing premises, the aforementioned parties have
including principal and interest, and that any installment amended and by these presents do hereby amend the
or amortization that remains due and unpaid shall bear said mortgage dated April 4, 1962, mentioned in the
interest at the rate of 9%/12% per month. The Office of second paragraph hereof by increasing the loan from
the Economic Coordinator, in a 2nd Indorsement dated Two Hundred Ninety Five Thousand Pesos
March 26, 1962, further reduced the approved amount to (P295,000.00) to Three Hundred Fifty Thousand Pesos
(P350,000.00) subject to this additional condition. had arrearages in the aggregate amount of P575,652.42
(1) That the mortgagor shall pay to the system P4,433.65 as of April 18, 1974 (Exhibit 9, p. 149, Joint Record on
monthly including principal and interest. Appeal, Rollo, p. 79), and demanded payment within
It is hereby expressly understood that with the foregoing seven (7) days from notice thereof, otherwise, it would
amendment, all other terms and conditions of the said foreclose the mortgage.
real estate mortgage dated April 4, 1962 insofar as they On April 21, 1975, the GSIS filed an Application for
are not inconsistent herewith, are hereby confirmed, Foreclosure of Mortgage with the Sheriff of the City of
ratified and continued in full force and effect and that the Manila (Exhibit "22," pp. 63 and 149; Rollo, p. 79). On
parties thereto agree that this amendment be an integral June 30, 1975, the Medinas filed with the Court of First
part of said real estate mortgage. (Rollo, p. 153-154). Instance of Manila a complaint, praying, among other
Upon application by the Medinas, the GSIS Board of things, that a restraining order or writ of preliminary
Trustees adopted Resolution No. 121 on January 18, injunction be issued to prevent the GSIS and the Sheriff
1963, as amended by Resolution No. 348 dated February of the City of Manila from proceeding with the extra-
25, 1963, approving an additional loan of P230,000.00 in judicial foreclosure of their mortgaged properties (CFI
favor of the Medinas on the security of the same Decision, p. 121; Rollo, p. 79). However, in view of
mortgaged properties and the additional properties Section 2 of Presidential Decree No. 385, no restraining
covered by TCT Nos. 49234, 49235 and 49236, to bear order or writ of preliminary injunction was issued by the
interest at 9% per annum compounded monthly and trial court (CFI Decision, p. 212; Rollo, p. 79). On April
repayable in ten years. This additional loan of 25, 1975, the Medinas made a last partial payment in the
P230,000.00 was denominated by the GSIS as Account amount of P209,662.80.
No. 31442. Under a Notice of Sale on Extra-Judicial Foreclosure
On March 18, 1963, the Economic Coordinator thru the dated June 18, 1975, the real properties of the Medinas
Auditor General interposed no objection thereto, subject covered by Transfer Certificates of Title Nos. 32231,
to the conditions of Resolution No. 121 as amended by 43527, 51394, 58626, 60534, 63304, 67550, 67551 and
Resolution No. 348 of the GSIS. 67552 of the Registry of Property of the City of Manila
Beginning 1965, the Medinas having defaulted in the were sold at public auction to the GSIS as the highest
payment of the monthly amortization on their loan, the bidder for the total amount of P440,080.00 on January
GSIS imposed 9%/12% interest on an installments due 12, 1976, and the corresponding Certificate of Sale was
and unpaid. In 1967, the Medinas began defaulting in the executed by the Sheriff of Manila on January 27, 1976
payment of fire insurance premiums. (CFI Decision, pp. 212-213; Rollo, p. 79).
On May 3, 1974, the GSIS notified the Medinas that they On January 30, 1976, the Medinas filed an Amended
Complaint with the trial court, praying for (a) the in all other respects, with costs against defendant GSIS."
declaration of nullity of their two real estate mortgage Hence this petition.
contracts with the GSIS as well as of the extra-judicial The Second Division of this Court, in a Resolution dated
foreclosure proceedings; and (b) the refund of excess April 25, 1980 (Rollo, p.. 88), resolved to deny the
payments, plus damages and attorney's fees (CFI petition for lack of merit.
Decision, p. 213; Rollo, p. 79). Petitioner filed on June 26, 1980 a Motion for
On March 19, 1976, the GSIS filed its Amended Answer Reconsideration dated June 17, 1980 (Rollo, pp. 95-103),
(Joint Record on Appeal, pp. 99-105; Rollo, p. 79). After of the above-stated Resolution and respondents in a
trial, the trial court rendered a Decision dated January 21, Resolution dated July 9, 1980 (Rollo, p. 105), were
1977 (Joint Record on Appeal, pp. 210-232), the required to comment thereon which comment they filed
pertinent dispositive portion of which reads: on August 6, 1980. (Rollo, pp. 106-116).
WHEREFORE, judgment is hereby rendered declaring The petition was given due course in the Resolution
the extra-judicial foreclosure conducted by the Sheriff of dated July 6, 1981 (Rollo, p. 128). Petitioner filed its brief
Manila of real estate mortgage contracts executed by on November 26, 1981 (Rollo, pp. 147-177); while private
plaintiffs on April 4, 1962, as amended on July 6, 1962, respondents filed their brief on January 27, 1982 (Rollo,
and February 17, 1963, null and void and the Sheriff's pp. 181-224), and the case was considered submitted for
Certificate of Sale dated January 27, 1976, in favor of the decision in the Resolution of July 19, 1982 (Rollo, p.
GSIS of no legal force and effect; and directing plaintiffs 229).
to pay the GSIS the sum of P1,611.12 in full payment of The issues in this case are:
their obligation to the latter with interest of 9% per annum 1. WHETHER OR NOT THE COURT OF APPEALS
from December 11, 1975, until fully paid. ERRED IN HOLDING THAT THE AMENDMENT OF
Dissatisfied with the said judgment, both parties REAL ESTATE MORTGAGE DATED JULY 6, 1962
appealed with the Court of Appeals. SUPERSEDED THE MORTGAGE CONTRACT DATED
The Court of Appeals, in a Decision promulgated on APRIL 4, 1962, PARTICULARLY WITH RESPECT TO
January 18, 1980 (Record, pp. 72-77), ruled in favor of COMPOUNDING OF INTEREST;
the Medinas 2. WHETHER OR NOT THE COURT OF APPEALS
WHEREFORE, the defendant GSIS is ordered to ERRED IN SUSTAINING THE RESPONDENT-
reimburse the amount of P9,580.00 as overpayment and APPELLEE SPOUSES MEDINA'S CLAIM OR
to pay plaintiffs P3,000.00 and Pl,000.00 as attorney's OVERPAYMENT, BY CREDITING THE FIRE
fees and litigation expenses, respectively. With these INSURANCE PROCEEDS IN THE SUM OF P11,152.02
modifications, the judgment appealed from is AFFIRMED TO THE TOTAL PAYMENT MADE BY SAID SPOUSES
AS OF DECEMBER 11, 1975; amount of P991,845.53 was applied as follows: the
3. WHETHER OR NOT THE COURT OF APPEALS amount of P600,495.51 to Account No. 31055,
ERRED IN HOLDING THAT THE INTEREST RATES ON P466,965.31 of which to interest and P133,530.20 to
THE LOAN ACCOUNTS OF RESPONDENT-APPELLEE principal and P390,845.66 to Account No. 31442,
SPOUSES ARE USURIOUS; P230,774.29 to interest and P159,971.37 to principal.
4. WHETHER OR NOT THE COURT OF APPEALS (Joint Record on Appeal, p. 216; Rollo, p. 79).
ERRED IN AFFIRMING THE ANNULMENT OF THE On the other hand the Medinas maintain that there is no
SUBJECT EXTRAJUDICIAL FORECLOSURE AND express stipulation on compounded interest in the
SHERIFF'S CERTIFICATE OF SALE; AND amendment of mortgage contract of July 6, 1962 so that
5. WHETHER OR NOT THE COURT OF APPEALS the compounded interest stipulation in the original
ERRED IN HOLDING THE GSIS LIABLE FOR mortgage contract of April 4, 1962 which has been
ATTORNEY'S FEES, EXPENSES OF LITIGATION AND superseded cannot be enforced in the later mortgage.
COSTS. (Rollo, p. 185).
The petition is impressed with merit. Hence the Medinas claim an overpayment in Account No.
There is no dispute as to the facts of the case. By 31055. The application of their total payment in the
agreement of the parties the issues in this case are amount of P991,845.53 as computed by the trial court
limited to the loan of P350,000.00 denominated as and by the Court of Appeals is as follows:
Account No. 31055 (Rollo, p. 79; Joint Record on Appeal, ... It appearing and so the parties admit in their own
p. 129) subject of the Amendment of Real Mortgage exhibits that as of December 11, 1975, plaintiffs had paid
dated July 6, 1962, the interpretation of which is the a total of P991,241.17 excluding fire insurance,
major issue in this case. P532,038.00 of said amount should have been applied to
GSIS claims that the amendment of the real estate the full payment of Acct. No. 31055 and the balance of
mortgage did not supersede the original mortgage P459,203.17 applied to the payment of Acct. No. 31442.
contract dated April 4, 1962 which was being amended According to the computation of the GSIS (Exhibit C, also
only with respect to the amount secured thereby, and the Exhibit 38) the total amounts, collected on Acct. No.
amount of monthly amortizations. All other provisions of 31442 as of December 11, 1975 total P390,745.66 thus
aforesaid mortgage contract including that on leaving an unpaid balance of P70,028.63. The total
compounding of interest were deemed rewritten and thus amount plaintiffs should pay on said account should
binding on and enforceable against the respondent therefore be P460,774.29. Deduct this amount from
spouses. (Rollo, pp. 162-166). P459,163.17 which has been shown to be the difference
Accordingly, payments made by the Medinas in the total between the total payments made by plaintiffs to the
G.S.I.S. as of December 11, 1975 and the amount said First, the title "Amendment of Real Estate Mortgage"
plaintiffs should pay under their Acct. No. 31055, there recognizes the existence and effectivity of the previous
remains an outstanding balance of P1,611.12. This mortgage contract. Second, nowhere in the aforesaid
amount represents the balance of the obligation of the Amendment did the parties manifest their intention to
plaintiffs to the G.S.I.S. on Acct. No. 31442 as of supersede the original contract. On the contrary in the
December 11, 1975." (Decision, Civil Case No. 98390; WHEREAS clauses, the existence of the previous
Joint Record on Appeal, pp. 227-228; Rollo, p. 79). mortgage contract was fully recognized and the fact that
To recapitulate, the difference in the computation lies in the same was just being amended as to amount and
the inclusion of the compounded interest as demanded amortization is fully established as to obviate any doubt.
by the GSIS on the one hand and the exclusion thereof, Third, the Amendment of Real Estate Mortgage dated
as insisted by the Medinas on the other. July 6, 1962 does not embody the act of conveyancing
It is a basic and fundamental rule in the interpretation of the subject properties by way of mortgage. In fact the
contract that if the terms thereof are clear and leave no intention of the parties to be bound by the unaffected
doubt as to the intention of the contracting parties, the provisions of the mortgage contract of April 4, 1962
literal meaning of the stipulations shall control but when expressed in unmistakable language is clearly evident in
the words appear contrary to the evident intention of the the last provision of the Amendment of Real Estate
parties, the latter shall prevail over, the former. In order to Mortgage dated July 6, 1962 which reads:
judge the intention of the parties, their contemporaneous It is hereby expressly understood that with the foregoing
and subsequent acts shall be principally considered. (Sy amendment, all other terms and conditions of the said
v. Court of Appeals, 131 SCRA 116; July 31, 1984). real estate mortgage dated April 4, 1962, insofar as they
There appears no ambiguity whatsoever in the terms and are not inconsistent herewith, are hereby confirmed,
conditions of the amendment of the mortgage contract ratified and continued to be in full force and effect, and
herein quoted earlier. On the contrary, an opposite that the parties hereto agree that the amendment be an
conclusion cannot be otherwise but absurd. integral part of said real estate mortgage. (Emphasis
As correctly stated by the GSIS in its brief (Rollo, pp. supplied).
162166), a careful perusal of the title, preamble and body A review of prior, contemporaneous, and subsequent
of the Amendment of Real Estate Mortgage dated July 6, acts supports the conclusion that both contracts are fully
1962, taking into account the prior, contemporaneous, subsisting insofar as the latter is not inconsistent with the
and subsequent acts of the parties, ineluctably shows former. The fact is the GSIS, as a matter of policy,
that said Amendment was never intended to completely imposes uniform terms and conditions for all its real
supersede the mortgage contract dated April 4, 1962. estate loans, particularly with respect to compounding of
interest. As shown in the case at bar, the original amount of P11,152.02 which had been previously
mortgage contract embodies the same terms and credited by petitioner-appellant GSIS (Rollo, pp. 170-
conditions as in the additional loan denominated as 171).
Account No. 31442 while the amendment carries the III.
provision that it shall be subject to the same terms and As to whether or not the interest rates on the loan
conditions as the real estate mortgage of April 4, 1962 accounts of the Medinas are usurious, it has already
except as to amount and amortization. been settled that the Usury Law applies only to interest
Furthermore, it would be contrary to human experience by way of compensation for the use or forbearance of
and to ordinary practice for the mortgagee to impose less money (Lopez v. Hernaez, 32 Phil. 631; Bachrach Motor
onerous conditions on an increased loan by the deletion Co. v. Espiritu, 52 Phil. 346; Equitable Banking
of compound interest exacted on a lesser loan. Corporation v. Liwanag, 32 SCRA 293, March 30, 1970).
II Interest by way of damages is governed by Article 2209
There is an obvious error in the ruling of the Court of of the Civil Code of the Philippines which provides:
Appeals in its Decision dated January 18, 1980, which Art. 2209. If the obligation consists in the payment of a
reads: sum of money, and the debtor incurs in delay, the
... We agree that plaintiff should be credited with indemnity for damages, there being no stipulation to the
P11,152.02 of the fire insurance proceeds as the same is contrary, shall be the payment of the interest agreed
admitted in paragraph (4) of its Answer and should be upon,...
added to their payments. (par. 13). In the Bachrach case (supra) the Supreme Court ruled
Contrary thereto, paragraph 4 of the Answer of the GSIS that the Civil Code permits the agreement upon a penalty
states: apart from the interest. Should there be such an
That they (GSIS) specifically deny the allegations in agreement, the penalty does not include the interest, and
Paragraph 11, the truth being that plaintiffs are not as such the two are different and distinct things which
entitled to a credit of P19,381.07 as fire insurance may be demanded separately. Reiterating the same
proceeds since they were only entitled to, and were principle in the later case of Equitable Banking Corp.
credited with, the amount of P11,152.02 as proceeds of (supra), where this Court held that the stipulation about
their fire insurance policy. (par. 4, Amended Answer). payment of such additional rate partakes of the nature of
As can be gleaned from the foregoing, petitioner- a penalty clause, which is sanctioned by law.
appellant GSIS had already credited the amount of IV.
P11,152.02. Thus, when the Court of Appeals made the Based on the finding that the GSIS had the legal right to
aforequoted ruling, it was actually doubly crediting the impose an interest 9% per annum, compounded monthly,
on the loans of the Medinas and an interest of 9%/12% 1963.
per annum on all due and unpaid amortizations or SO ORDERED.
installments, there is no question that the Medinas failed
to settle their accounts with the GSIS which as computed 3.
by the latter reached an outstanding balance of G.R. No. 192986 January 15, 2013
P630,130.55 as of April 12, 1975 and that the GSIS had ADVOCATES FOR TRUTH IN LENDING, INC. and
a perfect right to foreclose the mortgage. EDUARDO B. OLAGUER, Petitioners,
In the same manner, there is obvious error in invalidating vs.
the extra-judicial foreclosure on the basis of a BANGKO SENTRAL MONETARY BOARD,
typographical error in the Sheriff's Certificate of Sale represented by its Chairman, GOVERNOR ARMANDO
which stated that the mortgage was foreclosed on May M. TETANGCO, JR., and its incumbent members:
17, 1963 instead of February 17, 1963. JUANITA D. AMATONG, ALFREDO C. ANTONIO,
There is merit in GSIS' contention that the Sheriff's PETER FA VILA, NELLY F. VILLAFUERTE, IGNACIO
Certificate of Sale is merely provisional in character and R. BUNYE and CESAR V. PURISIMA, Respondents.
is not intended to operate as an absolute transfer of the DECISION
subject property, but merely to Identify the property, to REYES, J.:
show the price paid and the date when the right of Petitioners, claiming that they are raising issues of
redemption expires (Section 27, Rule 39, Rules of Court, transcendental importance to the public, filed directly with
Francisco, The Revised Rules of Court, 1972 Vol., IV-B, this Court this Petition for Certiorari under Rule 65 of the
Part I, p. 681). Hence the date of the foreclosed 1997 Rules of Court, seeking to declare that the Bangko
mortgage is not even a material content of the said Sentral ng Pilipinas Monetary Board (BSP-MB), replacing
Certificate. (Rollo, p. 174). the Central Bank Monetary Board (CB-MB) by virtue of
V. Republic Act (R.A.) No. 7653, has no authority to
PREMISES CONSIDERED, the decision of the Court of continue enforcing Central Bank Circular No. 905,1
Appeals, in CA-G.R. No. 62541-R Medina, et al. v. issued by the CB-MB in 1982, which "suspended" Act
Government Service Insurance System et al., is hereby No. 2655, or the Usury Law of 1916.
REVERSED and SET ASIDE, and a new one is hereby Factual Antecedents
RENDERED, affirming the validity of the extra-judicial Petitioner "Advocates for Truth in Lending, Inc." (AFTIL)
foreclosure of the real estate mortgages of the is a non-profit, non-stock corporation organized to
respondent-appellee spouses Medina dated April 4, engage in pro bono concerns and activities relating to
1962, as amended on July 6, 1962, and February 17, money lending issues. It was incorporated on July 9,
2010,2 and a month later, it filed this petition, joined by its charges, fees or payments of any sort. (Underlining ours)
founder and president, Eduardo B. Olaguer, suing as a On March 17, 1980, the Usury Law was amended by
taxpayer and a citizen. Presidential Decree (P.D.) No. 1684, giving the CB-MB
R.A. No. 265, which created the Central Bank (CB) of the authority to prescribe different maximum rates of interest
Philippines on June 15, 1948, empowered the CB-MB to, which may be imposed for a loan or renewal thereof or
among others, set the maximum interest rates which the forbearance of any money, goods or credits, provided
banks may charge for all types of loans and other credit that the changes are effected gradually and announced
operations, within limits prescribed by the Usury Law. in advance. Thus, Section 1-a of Act No. 2655 now
Section 109 of R.A. No. 265 reads: reads:
Sec. 109. Interest Rates, Commissions and Charges. Sec. 1-a. The Monetary Board is hereby authorized to
The Monetary Board may fix the maximum rates of prescribe the maximum rate or rates of interest for the
interest which banks may pay on deposits and on other loan or renewal thereof or the forbearance of any money,
obligations. goods or credits, and to change such rate or rates
The Monetary Board may, within the limits prescribed in whenever warranted by prevailing economic and social
the Usury Law fix the maximum rates of interest which conditions: Provided, That changes in such rate or rates
banks may charge for different types of loans and for any may be effected gradually on scheduled dates
other credit operations, or may fix the maximum announced in advance.
differences which may exist between the interest or In the exercise of the authority herein granted the
rediscount rates of the Central Bank and the rates which Monetary Board may prescribe higher maximum rates for
the banks may charge their customers if the respective loans of low priority, such as consumer loans or renewals
credit documents are not to lose their eligibility for thereof as well as such loans made by pawnshops,
rediscount or advances in the Central Bank. finance companies and other similar credit institutions
Any modifications in the maximum interest rates although the rates prescribed for these institutions need
permitted for the borrowing or lending operations of the not necessarily be uniform. The Monetary Board is also
banks shall apply only to future operations and not to authorized to prescribe different maximum rate or rates
those made prior to the date on which the modification for different types of borrowings, including deposits and
becomes effective. deposit substitutes, or loans of financial intermediaries.
In order to avoid possible evasion of maximum interest (Underlining and emphasis ours)
rates set by the Monetary Board, the Board may also fix In its Resolution No. 2224 dated December 3, 1982,3 the
the maximum rates that banks may pay to or collect from CB-MB issued CB Circular No. 905, Series of 1982,
their customers in the form of commissions, discounts, effective on January 1, 1983. Section 1 of the Circular,
under its General Provisions, removed the ceilings on Sec. 135. Repealing Clause. Except as may be
interest rates on loans or forbearance of any money, provided for in Sections 46 and 132 of this Act, Republic
goods or credits, to wit: Act No. 265, as amended, the provisions of any other
Sec. 1. The rate of interest, including commissions, law, special charters, rule or regulation issued pursuant
premiums, fees and other charges, on a loan or to said Republic Act No. 265, as amended, or parts
forbearance of any money, goods, or credits, regardless thereof, which may be inconsistent with the provisions of
of maturity and whether secured or unsecured, that may this Act are hereby repealed. Presidential Decree No.
be charged or collected by any person, whether natural 1792 is likewise repealed.
or juridical, shall not be subject to any ceiling prescribed Petition for Certiorari
under or pursuant to the Usury Law, as amended. To justify their skipping the hierarchy of courts and going
(Underscoring and emphasis ours) directly to this Court to secure a writ of certiorari,
The Circular then went on to amend Books I to IV of the petitioners contend that the transcendental importance of
CBs "Manual of Regulations for Banks and Other their Petition can readily be seen in the issues raised
Financial Intermediaries" (Manual of Regulations) by therein, to wit:
removing the applicable ceilings on specific interest a) Whether under R.A. No. 265 and/or P.D. No. 1684, the
rates. Thus, Sections 5, 9 and 10 of CB Circular No. 905 CB-MB had the statutory or constitutional authority to
amended Book I, Subsections 1303, 1349, 1388.1 of the prescribe the maximum rates of interest for all kinds of
Manual of Regulations, by removing the ceilings for credit transactions and forbearance of money, goods or
interest and other charges, commissions, premiums, and credit beyond the limits prescribed in the Usury Law;
fees applicable to commercial banks; Sections 12 and 17 b) If so, whether the CB-MB exceeded its authority when
removed the interest ceilings for thrift banks (Book II, it issued CB Circular No. 905, which removed all interest
Subsections 2303, 2349); Sections 19 and 21 removed ceilings and thus suspended Act No. 2655 as regards
the ceilings applicable to rural banks (Book III, usurious interest rates;
Subsection 3152.3-c); and, Sections 26, 28, 30 and 32 c) Whether under R.A. No. 7653, the new BSP-MB may
removed the ceilings for non-bank financial continue to enforce CB Circular No. 905.5
intermediaries (Book IV, Subsections 4303Q.1 to Petitioners attached to their petition copies of several
4303Q.9, 4303N.1, 4303P).4 Senate Bills and Resolutions of the 10th Congress, which
On June 14, 1993, President Fidel V. Ramos signed into held its sessions from 1995 to 1998, calling for
law R.A. No. 7653 establishing the Bangko Sentral ng investigations by the Senate Committee on Banks and
Pilipinas (BSP) to replace the CB. The repealing clause Financial Institutions into alleged unconscionable
thereof, Section 135, reads: commercial rates of interest imposed by these entities.
Senate Bill (SB) Nos. 376 and 1860,7 filed by Senator was clearly only to fix the banks maximum rates of
Vicente C. Sotto III and the late Senator Blas F. Ople, interest, but always within the limits prescribed by the
respectively, sought to amend Act No. 2655 by fixing the Usury Law.
rates of interest on loans and forbearance of credit; Thus, according to petitioners, CB Circular No. 905,
Philippine Senate Resolution (SR) No. 1053,8 10739 and which was promulgated without the benefit of any prior
1102,10 filed by Senators Ramon B. Magsaysay, Jr., public hearing, is void because it violated Article 5 of the
Gregorio B. Honasan and Franklin M. Drilon, New Civil Code, which provides that "Acts executed
respectively, urged the aforesaid Senate Committee to against the provisions of mandatory or prohibitory laws
investigate ways to curb the high commercial interest shall be void, except when the law itself authorizes their
rates then obtaining in the country; Senator Ernesto validity."
Maceda filed SB No. 1151 to prohibit the collection of They further claim that just weeks after the issuance of
more than two months of advance interest on any loan of CB Circular No. 905, the benchmark 91-day Treasury
money; and Senator Raul Roco filed SR No. 114411 bills (T-bills),13 then known as "Jobo" bills14 shot up to
seeking an investigation into an alleged cartel of 40% per annum, as a result. The banks immediately
commercial banks, called "Club 1821", reportedly behind followed suit and re-priced their loans to rates which were
the regime of high interest rates. The petitioners also even higher than those of the "Jobo" bills. Petitioners
attached news clippings12 showing that in February 1998 thus assert that CB Circular No. 905 is also
the banks prime lending rates, or interests on loans to unconstitutional in light of Section 1 of the Bill of Rights,
their best borrowers, ranged from 26% to 31%. which commands that "no person shall be deprived of
Petitioners contend that under Section 1-a of Act No. life, liberty or property without due process of law, nor
2655, as amended by P.D. No. 1684, the CB-MB was shall any person be denied the equal protection of the
authorized only to prescribe or set the maximum rates of laws."
interest for a loan or renewal thereof or for the Finally, petitioners point out that R.A. No. 7653 did not re-
forbearance of any money, goods or credits, and to enact a provision similar to Section 109 of R.A. No. 265,
change such rates whenever warranted by prevailing and therefore, in view of the repealing clause in Section
economic and social conditions, the changes to be 135 of R.A. No. 7653, the BSP-MB has been stripped of
effected gradually and on scheduled dates; that nothing the power either to prescribe the maximum rates of
in P.D. No. 1684 authorized the CB-MB to lift or suspend interest which banks may charge for different kinds of
the limits of interest on all credit transactions, when it loans and credit transactions, or to suspend Act No. 2655
issued CB Circular No. 905. They further insist that under and continue enforcing CB Circular No. 905.
Section 109 of R.A. No. 265, the authority of the CB-MB Ruling
The petition must fail. Locus standi is defined as "a right of appearance in a
A. The Petition is procedurally infirm. court of justice on a given question." In private suits,
The decision on whether or not to accept a petition for Section 2, Rule 3 of the 1997 Rules of Civil Procedure
certiorari, as well as to grant due course thereto, is provides that "every action must be prosecuted or
addressed to the sound discretion of the court.15 A defended in the name of the real party in interest," who is
petition for certiorari being an extraordinary remedy, the "the party who stands to be benefited or injured by the
party seeking to avail of the same must strictly observe judgment in the suit or the party entitled to the avails of
the procedural rules laid down by law, and non- the suit." Succinctly put, a partys standing is based on
observance thereof may not be brushed aside as mere his own right to the relief sought.21
technicality.16 Even in public interest cases such as this petition, the
As provided in Section 1 of Rule 65, a writ of certiorari is Court has generally adopted the "direct injury" test that
directed against a tribunal exercising judicial or quasi- the person who impugns the validity of a statute must
judicial functions.17 Judicial functions are exercised by a have "a personal and substantial interest in the case
body or officer clothed with authority to determine what such that he has sustained, or will sustain direct injury as
the law is and what the legal rights of the parties are with a result."22 Thus, while petitioners assert a public right to
respect to the matter in controversy. Quasi-judicial assail CB Circular No. 905 as an illegal executive action,
function is a term that applies to the action or discretion it is nonetheless required of them to make out a sufficient
of public administrative officers or bodies given the interest in the vindication of the public order and the
authority to investigate facts or ascertain the existence of securing of relief. It is significant that in this petition, the
facts, hold hearings, and draw conclusions from them as petitioners do not allege that they sustained any personal
a basis for their official action using discretion of a judicial injury from the issuance of CB Circular No. 905.
nature.18 Petitioners also do not claim that public funds were being
The CB-MB (now BSP-MB) was created to perform misused in the enforcement of CB Circular No. 905. In
executive functions with respect to the establishment, Kilosbayan, Inc. v. Morato,23 involving the on-line lottery
operation or liquidation of banking and credit institutions, contract of the PCSO, there was no allegation that public
and branches and agencies thereof.19 It does not perform funds were being misspent, which according to the Court
judicial or quasi-judicial functions. Certainly, the issuance would have made the action a public one, "and justify
of CB Circular No. 905 was done in the exercise of an relaxation of the requirement that an action must be
executive function. Certiorari will not lie in the instant prosecuted in the name of the real party-in-interest." The
case.20 Court held, moreover, that the status of Kilosbayan as a
B. Petitioners have no locus standi to file the Petition peoples organization did not give it the requisite
personality to question the validity of the contract. Thus: must be settled early; and
Petitioners do not in fact show what particularized (5) for legislators, there must be a claim that the official
interest they have for bringing this suit. It does not detract action complained of infringes upon their prerogatives as
from the high regard for petitioners as civic leaders to say legislators.
that their interest falls short of that required to maintain While the Court may have shown in recent decisions a
an action under the Rule 3, Sec. 2.24 certain toughening in its attitude concerning the question
C. The Petition raises no issues of transcendental of legal standing, it has nonetheless always made an
importance. exception where the transcendental importance of the
In the 1993 case of Joya v. Presidential Commission on issues has been established, notwithstanding the
Good Government,25 it was held that no question petitioners failure to show a direct injury.27 In CREBA v.
involving the constitutionality or validity of a law or ERC,28 the Court set out the following instructive guides
governmental act may be heard and decided by the court as determinants on whether a matter is of transcendental
unless there is compliance with the legal requisites for importance, namely: (1) the character of the funds or
judicial inquiry, namely: (a) that the question must be other assets involved in the case; (2) the presence of a
raised by the proper party; (b) that there must be an clear case of disregard of a constitutional or statutory
actual case or controversy; (c) that the question must be prohibition by the public respondent agency or
raised at the earliest possible opportunity; and (d) that instrumentality of the government; and (3) the lack of any
the decision on the constitutional or legal question must other party with a more direct and specific interest in the
be necessary to the determination of the case itself. questions being raised. Further, the Court stated in Anak
In Prof. David v. Pres. Macapagal-Arroyo,26 the Court Mindanao Party-List Group v. The Executive Secretary29
summarized the requirements before taxpayers, voters, that the rule on standing will not be waived where these
concerned citizens, and legislators can be accorded a determinants are not established.
standing to sue, viz: In the instant case, there is no allegation of misuse of
(1) the cases involve constitutional issues; public funds in the implementation of CB Circular No.
(2) for taxpayers, there must be a claim of illegal 905. Neither were borrowers who were actually affected
disbursement of public funds or that the tax measure is by the suspension of the Usury Law joined in this petition.
unconstitutional; Absent any showing of transcendental importance, the
(3) for voters, there must be a showing of obvious petition must fail.
interest in the validity of the election law in question; More importantly, the Court notes that the instant petition
(4) for concerned citizens, there must be a showing that adverted to the regime of high interest rates which
the issues raised are of transcendental importance which obtained at least 15 years ago, when the banks prime
lending rates ranged from 26% to 31%,30 or even 29 structure which would require the removal of the
years ago, when the 91-day Jobo bills reached 40% per government-imposed interest rate ceilings.35
annum. In contrast, according to the BSP, in the first two D. The CB-MB merely suspended the effectivity of the
(2) months of 2012 the bank lending rates averaged Usury Law when it issued CB Circular No. 905.
5.91%, which implies that the banks prime lending rates The power of the CB to effectively suspend the Usury
were lower; moreover, deposit interests on savings and Law pursuant to P.D. No. 1684 has long been recognized
long-term deposits have also gone very low, averaging and upheld in many cases. As the Court explained in the
1.75% and 1.62%, respectively.31 landmark case of Medel v. CA,36 citing several cases, CB
Judging from the most recent auctions of T-bills, the Circular No. 905 "did not repeal nor in anyway amend the
savings rates must be approaching 0%.1wphi1 In the Usury Law but simply suspended the latters effectivity;"37
auctions held on November 12, 2012, the rates of 3- that "a CB Circular cannot repeal a law, [for] only a law
month, 6-month and 1-year T-bills have dropped to can repeal another law;"38 that "by virtue of CB Circular
0.150%, 0.450% and 0.680%, respectively.32 According No. 905, the Usury Law has been rendered ineffective;" 39
to Manila Bulletin, this very low interest regime has been and "Usury has been legally non-existent in our
attributed to "high liquidity and strong investor demand jurisdiction. Interest can now be charged as lender and
amid positive economic indicators of the country."33 borrower may agree upon."40
While the Court acknowledges that cases of In First Metro Investment Corp. v. Este Del Sol Mountain
transcendental importance demand that they be settled Reserve, Inc.41 cited in DBP v. Perez,42 we also belied
promptly and definitely, brushing aside, if we must, the contention that the CB was engaged in self-
technicalities of procedure,34 the delay of at least 15 legislation. Thus:
years in the filing of the instant petition has actually Central Bank Circular No. 905 did not repeal nor in any
rendered moot and academic the issues it now raises. way amend the Usury Law but simply suspended the
For its part, BSP-MB maintains that the petitioners latters effectivity. The illegality of usury is wholly the
allegations of constitutional and statutory violations of CB creature of legislation. A Central Bank Circular cannot
Circular No. 905 are really mere challenges made by repeal a law. Only a law can repeal another law. x x x.43
petitioners concerning the wisdom of the Circular. It In PNB v. Court of Appeals,44 an escalation clause in a
explains that it was in view of the global economic loan agreement authorized the PNB to unilaterally
downturn in the early 1980s that the executive increase the rate of interest to 25% per annum, plus a
department through the CB-MB had to formulate policies penalty of 6% per annum on past dues, then to 30% on
to achieve economic recovery, and among these policies October 15, 1984, and to 42% on October 25, 1984. The
was the establishment of a market-oriented interest rate Supreme Court invalidated the rate increases made by
the PNB and upheld the 12% interest imposed by the CA, 135 of R.A. No. 7653, which expressly repealed R.A. No.
in this wise: 265. The petitioners point out that R.A. No. 7653 did not
P.D. No. 1684 and C.B. Circular No. 905 no more than reenact a provision similar to Section 109 of R.A. No.
allow contracting parties to stipulate freely regarding any 265.
subsequent adjustment in the interest rate that shall A closer perusal shows that Section 109 of R.A. No. 265
accrue on a loan or forbearance of money, goods or covered only loans extended by banks, whereas under
credits. In fine, they can agree to adjust, upward or Section 1-a of the Usury Law, as amended, the BSP-MB
downward, the interest previously stipulated. x x x.45 may prescribe the maximum rate or rates of interest for
Thus, according to the Court, by lifting the interest ceiling, all loans or renewals thereof or the forbearance of any
CB Circular No. 905 merely upheld the parties freedom money, goods or credits, including those for loans of low
of contract to agree freely on the rate of interest. It cited priority such as consumer loans, as well as such loans
Article 1306 of the New Civil Code, under which the made by pawnshops, finance companies and similar
contracting parties may establish such stipulations, credit institutions. It even authorizes the BSP-MB to
clauses, terms and conditions as they may deem prescribe different maximum rate or rates for different
convenient, provided they are not contrary to law, morals, types of borrowings, including deposits and deposit
good customs, public order, or public policy. substitutes, or loans of financial intermediaries.
E. The BSP-MB has authority to enforce CB Circular No. Act No. 2655, an earlier law, is much broader in scope,
905. whereas R.A. No. 265, now R.A. No. 7653, merely
Section 1 of CB Circular No. 905 provides that "The rate supplemented it as it concerns loans by banks and other
of interest, including commissions, premiums, fees and financial institutions. Had R.A. No. 7653 been intended to
other charges, on a loan or forbearance of any money, repeal Section 1-a of Act No. 2655, it would have so
goods, or credits, regardless of maturity and whether stated in unequivocal terms.
secured or unsecured, that may be charged or collected Moreover, the rule is settled that repeals by implication
by any person, whether natural or juridical, shall not be are not favored, because laws are presumed to be
subject to any ceiling prescribed under or pursuant to the passed with deliberation and full knowledge of all laws
Usury Law, as amended." It does not purport to suspend existing pertaining to the subject.46 An implied repeal is
the Usury Law only as it applies to banks, but to all predicated upon the condition that a substantial conflict
lenders. or repugnancy is found between the new and prior laws.
Petitioners contend that, granting that the CB had power Thus, in the absence of an express repeal, a subsequent
to "suspend" the Usury Law, the new BSP-MB did not law cannot be construed as repealing a prior law unless
retain this power of its predecessor, in view of Section an irreconcilable inconsistency and repugnancy exists in
the terms of the new and old laws.47 We find no such foreclose the mortgage subsists, and this right can be
conflict between the provisions of Act 2655 and R.A. No. exercised by the creditor upon failure by the debtor to
7653. pay the debt due. The debt due is considered as without
F. The lifting of the ceilings for interest rates does not the stipulated excessive interest, and a legal interest of
authorize stipulations charging excessive, 12% per annum will be added in place of the excessive
unconscionable, and iniquitous interest. interest formerly imposed,53following the guidelines laid
It is settled that nothing in CB Circular No. 905 grants down in the landmark case of Eastern Shipping Lines,
lenders a carte blanche authority to raise interest rates to Inc. v. Court of Appeals,54 regarding the manner of
levels which will either enslave their borrowers or lead to computing legal interest:
a hemorrhaging of their assets.48 As held in Castro v. II. With regard particularly to an award of interest in the
Tan:49 concept of actual and compensatory damages, the rate
The imposition of an unconscionable rate of interest on a of interest, as well as the accrual thereof, is imposed, as
money debt, even if knowingly and voluntarily assumed, follows:
is immoral and unjust. It is tantamount to a repugnant 1. When the obligation is breached, and it consists in the
spoliation and an iniquitous deprivation of property, payment of a sum of money, i.e., a loan or forbearance of
repulsive to the common sense of man. It has no support money, the interest due should be that which may have
in law, in principles of justice, or in the human conscience been stipulated in writing. Furthermore, the interest due
nor is there any reason whatsoever which may justify shall itself earn legal interest from the time it is judicially
such imposition as righteous and as one that may be demanded. In the absence of stipulation, the rate of
sustained within the sphere of public or private morals.50 interest shall be 12% per annum to be computed from
Stipulations authorizing iniquitous or unconscionable default, i.e., from judicial or extrajudicial demand under
interests have been invariably struck down for being and subject to the provisions of Article 1169 of the Civil
contrary to morals, if not against the law.51 Indeed, under Code.
Article 1409 of the Civil Code, these contracts are 2. When an obligation, not constituting a loan or
deemed inexistent and void ab initio, and therefore forbearance of money, is breached, an interest on the
cannot be ratified, nor may the right to set up their amount of damages awarded may be imposed at the
illegality as a defense be waived. discretion of the court at the rate of 6% per annum. No
Nonetheless, the nullity of the stipulation of usurious interest, however, shall be adjudged on unliquidated
interest does not affect the lenders right to recover the claims or damages except when or until the demand can
principal of a loan, nor affect the other terms thereof.52 be established with reasonable certainty. Accordingly,
Thus, in a usurious loan with mortgage, the right to where the demand is established with reasonable
certainty, the interest shall begin to run from the time the [adjudged] amount is fully paid." In either instance, the
claim is made judicially or extrajudicially (Art. 1169, Civil reckoning period for the commencement of the running of
Code) but when such certainty cannot be so reasonably the legal interest shall be subject to the condition "that
established at the time the demand is made, the interest the courts are vested with discretion, depending on the
shall begin to run only from the date the judgment of the equities of each case, on the award of interest."57
court is made (at which time the quantification of (Citations omitted)
damages may be deemed to have been reasonably WHEREFORE, premises considered, the Petition for
ascertained). The actual base for the computation of certiorari is DISMISSED.
legal interest shall, in any case, be on the amount finally SO ORDERED.
adjudged.
3. When the judgment of the court awarding a sum of ANTONIO TAN, petitioner, vs. COURT OF APPEALS
money becomes final and executory, the rate of legal and the CULTURAL CENTER OF THE PHILIPPINES,
interest, whether the case falls under paragraph 1 or respondents.
paragraph 2, above, shall be 12% per annum from such DECISION
finality until its satisfaction, this interim period being DE LEON, JR., J.:
deemed to be by then an equivalent to a forbearance of Before us is a petition for review of the Decision [if
credit.55 (Citations omitted) !supportFootnotes][1][endif] dated August 31, 1993 and
The foregoing rules were further clarified in Sunga-Chan Resolution[if !supportFootnotes][2][endif] dated July 13, 1994 of the
v. Court of Appeals, 56 as follows: Court of Appeals affirming the Decision[if
Eastern Shipping Lines, Inc. synthesized the rules on the !supportFootnotes][3][endif] dated May 8, 1991 of the Regional

imposition of interest, if proper, and the applicable rate, Trial Court (RTC) of Manila, Branch 27.
as follows: The 12% per annum rate under CB Circular The facts are as follows:
No. 416 shall apply only to loans or forbearance of On May 14, 1978 and July 6, 1978, petitioner
money, goods, or credits, as well as to judgments Antonio Tan obtained two (2) loans each in the principal
involving such loan or forbearance of money, goods, or amount of Two Million Pesos (P2,000,000.00), or in the
credit, while the 6% per annum under Art. 2209 of the total principal amount of Four Million Pesos
Civil Code applies "when the transaction involves the (P4,000,000.00) from respondent Cultural Center of the
payment of indemnities in the concept of damage arising Philippines (CCP, for brevity) evidenced by two (2)
from the breach or a delay in the performance of promissory notes with maturity dates on May 14, 1979
obligations in general," with the application of both rates and July 6, 1979, respectively. Petitioner defaulted but
reckoned "from the time the complaint was filed until the after a few partial payments he had the loans
restructured by respondent CCP, and petitioner money, docketed as Civil Case No. 84-26363, against
accordingly executed a promissory note (Exhibit A) on the petitioner after the latter failed to settle his said
August 31, 1979 in the amount of Three Million Four restructured loan obligation. The petitioner interposed the
Hundred Eleven Thousand Four Hundred Twenty-One defense that he merely accommodated a friend, Wilson
Pesos and Thirty-Two Centavos (P3,411,421.32) payable Lucmen, who allegedly asked for his help to obtain a loan
in five (5) installments. Petitioner Tan failed to pay any from respondent CCP. Petitioner claimed that he has not
installment on the said restructured loan of Three Million been able to locate Wilson Lucmen. While the case was
Four Hundred Eleven Thousand Four Hundred Twenty- pending in the trial court, the petitioner filed a
One Pesos and Thirty-Two Centavos (P3,411,421.32), Manifestation wherein he proposed to settle his
the last installment falling due on December 31, 1980. In indebtedness to respondent CCP by proposing to make a
a letter dated January 26, 1982, petitioner requested and down payment of One Hundred Forty Thousand Pesos
proposed to respondent CCP a mode of paying the (P140,000.00) and to issue twelve (12) checks every
restructured loan, i.e., (a) twenty percent (20%) of the beginning of the year to cover installment payments for
principal amount of the loan upon the respondent giving one year, and every year thereafter until the balance is
its conformity to his proposal; and (b) the balance on the fully paid. However, respondent CCP did not agree to the
principal obligation payable in thirty-six (36) equal petitioners proposals and so the trial of the case ensued.
monthly installments until fully paid. On October 20, On May 8, 1991, the trial court rendered a decision,
1983, petitioner again sent a letter to respondent CCP the dispositive portion of which reads:
requesting for a moratorium on his loan obligation until WHEREFORE, judgment is hereby rendered in favor of
the following year allegedly due to a substantial plaintiff and against defendant, ordering defendant to pay
deduction in the volume of his business and on account plaintiff, the amount of P7,996,314.67, representing
of the peso devaluation. No favorable response was defendants outstanding account as of August 28, 1986,
made to said letters. Instead, respondent CCP, through with the corresponding stipulated interest and charges
counsel, wrote a letter dated May 30, 1984 to the thereof, until fully paid, plus attorneys fees in an amount
petitioner demanding full payment, within ten (10) days equivalent to 25% of said outstanding account, plus
from receipt of said letter, of the petitioners restructured P50,000.00, as exemplary damages, plus costs.
loan which as of April 30, 1984 amounted to Six Million Defendants counterclaims are ordered dismissed, for
Eighty-Eight Thousand Seven Hundred Thirty-Five Pesos lack of merit.
and Three Centavos (P6,088,735.03). SO ORDERED.[if !supportFootnotes][4][endif]
On August 29, 1984, respondent CCP filed in the The trial court gave five (5) reasons in ruling in favor
RTC of Manila a complaint for collection of a sum of of respondent CCP. First, it gave little weight to the
petitioners contention that the loan was merely for the modification on the basis of alleged partial or irregular
accommodation of Wilson Lucmen for the reason that the performance, there being none. Appellants offer or tender
defense propounded was not credible in itself. Second, of payment cannot be deemed as a partial or irregular
assuming, arguendo, that the petitioner did not personally performance of the contract, not a single centavo
benefit from the said loan, he should have filed a third appears to have been paid by the defendant.
party complaint against Wilson Lucmen, the alleged However, the appellate court modified the decision
accommodated party but he did not. Third, for three (3) of the trial court by deleting the award for exemplary
times the petitioner offered to settle his loan obligation damages and reducing the amount of awarded attorneys
with respondent CCP. Fourth, petitioner may not avoid fees to five percent (5%), by ratiocinating as follows:
his liability to pay his obligation under the promissory Given the circumstances of the case, plus the fact that
note (Exh. A) which he must comply with in good faith plaintiff was represented by a government lawyer, We
pursuant to Article 1159 of the New Civil Code. Fifth, believe the award of 25% as attorneys fees and
petitioner is estopped from denying his liability or loan P500,000.00 as exemplary damages is out of proportion
obligation to the private respondent. to the actual damage caused by the non-performance of
The petitioner appealed the decision of the trial the contract and is excessive, unconscionable and
court to the Court of Appeals insofar as it charged iniquitous.
interest, surcharges, attorneys fees and exemplary In a Resolution dated July 13, 1994, the appellate
damages against the petitioner. In his appeal, the court denied the petitioners motion for reconsideration of
petitioner asked for the reduction of the penalties and the said decision.
charges on his loan obligation. He abandoned his alleged Hence, this petition anchored on the following
defense in the trial court that he merely accommodated assigned errors:
his friend, Wilson Lucmen, in obtaining the loan, and I
instead admitted the validity of the same. On August 31, THE HONORABLE COURT OF APPEALS COMMITTED
1993, the appellate court rendered a decision, the A MISTAKE IN GIVING ITS IMPRIMATUR TO THE
dispositive portion of which reads: DECISION OF THE TRIAL COURT WHICH
WHEREFORE, with the foregoing modification, the COMPOUNDED INTEREST ON SURCHARGES.
judgment appealed from is hereby AFFIRMED. II
SO ORDERED.[if !supportFootnotes][5][endif] THE HONORABLE COURT OF APPEALS ERRED IN
In affirming the decision of the trial court imposing NOT SUSPENDING IMPOSITION OF INTEREST FOR
surcharges and interest, the appellate court held that: THE PERIOD OF TIME THAT PRIVATE RESPONDENT
We are unable to accept appellants (petitioners) claim for HAS FAILED TO ASSIST PETITIONER IN APPLYING
FOR RELIEF OF LIABILITY THROUGH THE Article 1226 of the New Civil Code provides that:
COMMISSION ON AUDIT AND THE OFFICE OF THE In obligations with a penal clause, the penalty shall
PRESIDENT. substitute the indemnity for damages and the payment of
III interests in case of non-compliance, if there is no
THE HONORABLE COURT OF APPEALS ERRED IN stipulation to the contrary. Nevertheless, damages shall
NOT DELETING AWARD OF ATTORNEYS FEES AND be paid if the obligor refuses to pay the penalty or is
IN REDUCING PENALTIES. guilty of fraud in the fulfillment of the obligation.
Significantly, the petitioner does not question his The penalty may be enforced only when it is demandable
liability for his restructured loan under the promissory in accordance with the provisions of this Code.
note marked Exhibit A. The first question to be resolved In the case at bar, the promissory note (Exhibit A)
in the case at bar is whether there are contractual and expressly provides for the imposition of both interest and
legal bases for the imposition of the penalty, interest on penalties in case of default on the part of the petitioner in
the penalty and attorneys fees. the payment of the subject restructured loan. The
The petitioner imputes error on the part of the pertinent[if !supportFootnotes][6][endif] portion of the promissory
appellate court in not totally eliminating the award of note (Exhibit A) imposing interest and penalties provides
attorneys fees and in not reducing the penalties that:
considering that the petitioner, contrary to the appellate For value received, I/We jointly and severally promise to
courts findings, has allegedly made partial payments on pay to the CULTURAL CENTER OF THE PHILIPPINES
the loan. And if penalty is to be awarded, the petitioner is at its office in Manila, the sum of THREE MILLION FOUR
asking for the non-imposition of interest on the HUNDRED ELEVEN THOUSAND FOUR HUNDRED +
surcharges inasmuch as the compounding of interest on PESOS (P3,411,421.32) Philippine Currency, xxx.
surcharges is not provided in the promissory note marked xxx xxx xxx
Exhibit A. The petitioner takes exception to the With interest at the rate of FOURTEEN per cent (14%)
computation of the private respondent whereby the per annum from the date hereof until paid. PLUS THREE
interest, surcharge and the principal were added together PERCENT (3%) SERVICE CHARGE.
and that on the total sum interest was imposed. Petitioner In case of non-payment of this note at maturity/on
also claims that there is no basis in law for the charging demand or upon default of payment of any portion of it
of interest on the surcharges for the reason that the New when due, I/We jointly and severally agree to pay
Civil Code is devoid of any provision allowing the additional penalty charges at the rate of TWO per cent
imposition of interest on surcharges. (2%) per month on the total amount due until paid,
We find no merit in the petitioners contention. payable and computed monthly. Default of payment of
this note or any portion thereof when due shall render all damages, there being no stipulation to the contrary, shall
other installments and all existing promissory notes made be the payment of the interest agreed upon, and in the
by us in favor of the CULTURAL CENTER OF THE absence of stipulation, the legal interest, which is six per
PHILIPPINES immediately due and demandable. cent per annum.
(Underscoring supplied) The penalty charge of two percent (2%) per month
xxx xxx xxx in the case at bar began to accrue from the time of
The stipulated fourteen percent (14%) per annum default by the petitioner. There is no doubt that the
interest charge until full payment of the loan constitutes petitioner is liable for both the stipulated monetary
the monetary interest on the note and is allowed under interest and the stipulated penalty charge. The penalty
Article 1956 of the New Civil Code.[if !supportFootnotes][7][endif] charge is also called penalty or compensatory interest.
On the other hand, the stipulated two percent (2%) per Having clarified the same, the next issue to be resolved
month penalty is in the form of penalty charge which is is whether interest may accrue on the penalty or
separate and distinct from the monetary interest on the compensatory interest without violating the provisions of
principal of the loan. Article 1959 of the New Civil Code, which provides that:
Penalty on delinquent loans may take different Without prejudice to the provisions of Article 2212,
forms. In Government Service Insurance System v. Court interest due and unpaid shall not earn interest. However,
of Appeals,[if !supportFootnotes][8][endif] this Court has ruled that the contracting parties may by stipulation capitalize the
the New Civil Code permits an agreement upon a penalty interest due and unpaid, which as added principal, shall
apart from the monetary interest. If the parties stipulate earn new interest.
this kind of agreement, the penalty does not include the According to the petitioner, there is no legal basis
monetary interest, and as such the two are different and for the imposition of interest on the penalty charge for the
distinct from each other and may be demanded reason that the law only allows imposition of interest on
separately. Quoting Equitable Banking Corp. v. monetary interest but not the charging of interest on
Liwanag,[if !supportFootnotes][9][endif] the GSIS case went on to penalty. He claims that since there is no law that allows
state that such a stipulation about payment of an imposition of interest on penalties, the penalties should
additional interest rate partakes of the nature of a penalty not earn interest. But as we have already explained,
clause which is sanctioned by law, more particularly penalty clauses can be in the form of penalty or
under Article 2209 of the New Civil Code which provides compensatory interest. Thus, the compounding of the
that: penalty or compensatory interest is sanctioned by and
If the obligation consists in the payment of a sum of allowed pursuant to the above-quoted provision of Article
money, and the debtor incurs in delay, the indemnity for 1959 of the New Civil Code considering that:
First, there is an express stipulation in the applicable to the case at bar inasmuch as our ruling on
promissory note (Exhibit A) permitting the compounding the issue of interest in that NPC case was based on
of interest. The fifth paragraph of the said promissory equitable considerations and on the fact that the said
note provides that: Any interest which may be due if not case lasted for twenty-five (25) years through no fault of
paid shall be added to the total amount when due and the defendant. In the case at bar, however, equity cannot
shall become part thereof, the whole amount to bear be considered inasmuch as there is a contractual
interest at the maximum rate allowed by law.[if stipulation in the promissory note whereby the petitioner
!supportFootnotes][10][endif] Therefore, any penalty interest not expressly agreed to the compounding of interest in case
paid, when due, shall earn the legal interest of twelve of failure on his part to pay the loan at maturity. Inasmuch
percent (12%) per annum,[if !supportFootnotes][11][endif] in the as the said stipulation on the compounding of interest
absence of express stipulation on the specific rate of has the force of law between the parties and does not
interest, as in the case at bar. appear to be inequitable or unjust, the said written
Second, Article 2212 of the New Civil Code stipulation should be respected.
provides that Interest due shall earn legal interest from The private respondents Statement of Account
the time it is judicially demanded, although the obligation (marked Exhibits C to C-2)[if !supportFootnotes][13][endif] shows
may be silent upon this point. In the instant case, interest the following breakdown of the petitioners indebtedness
likewise began to run on the penalty interest upon the as of August 28, 1986:
filing of the complaint in court by respondent CCP on Principal P2,838,454.68
August 29, 1984. Hence, the courts a quo did not err in Interest P 576,167.89
ruling that the petitioner is bound to pay the interest on Surcharge P4,581,692.10
the total amount of the principal, the monetary interest P7,996,314.67
and the penalty interest. The said statement of account also shows that the above
The petitioner seeks the elimination of the amounts stated therein are net of the partial payments
compounded interest imposed on the total amount based amounting to a total of Four Hundred Fifty-Two Thousand
allegedly on the case of National Power Corporation v. Five Hundred Sixty-One Pesos and Forty-Three
National Merchandising Corporation,[if !supportFootnotes][12][endif] Centavos (P452,561.43) which were made during the
wherein we ruled that the imposition of interest on the period from May 13, 1983 to September 30, 1983. [if
damages from the filing of the complaint is unjust where !supportFootnotes][14][endif] The petitioner now seeks the
the litigation was prolonged for twenty-five (25) years reduction of the penalty due to the said partial payments.
through no fault of the defendant. However, the ruling in The principal amount of the promissory note (Exhibit A)
the said National Power Corporation (NPC) case is not was Three Million Four Hundred Eleven Thousand Four
Hundred Twenty-One Pesos and Thirty-Two Centavos and the fact he is liable under the note for the two
(P3,411,421.32) when the loan was restructured on percent (2%) penalty charge per month on the total
August 31, 1979. As of August 28, 1986, the principal amount due, compounded monthly, for twenty-one (21)
amount of the said restructured loan has been reduced to years since his default in 1980, we find it fair and
Two Million Eight Hundred Thirty-Eight Thousand Four equitable to reduce the penalty charge to a straight
Hundred Fifty-Four Pesos and Sixty-Eight Centavos twelve percent (12%) per annum on the total amount due
(P2,838,454.68). Thus, petitioner contends that reduction starting August 28, 1986, the date of the last Statement
of the penalty is justifiable pursuant to Article 1229 of the of Account (Exhibits C to C-2). We also took into
New Civil Code which provides that: The judge shall consideration the offers of the petitioner to enter into a
equitably reduce the penalty when the principal obligation compromise for the settlement of his debt by presenting
has been partly or irregularly complied with by the debtor. proposed payment schemes to respondent CCP. The
Even if there has been no performance, the penalty may said offers at compromise also showed his good faith
also be reduced by the courts if it is iniquitous or despite difficulty in complying with his loan obligation due
unconscionable. Petitioner insists that the penalty should to his financial problems. However, we are not unmindful
be reduced to ten percent (10%) of the unpaid debt in of the respondents long overdue deprivation of the use of
accordance with Bachrach Motor Company v. Espiritu.[if its money collectible from the petitioner.
!supportFootnotes][15][endif] The petitioner also imputes error on the part of the
There appears to be a justification for a reduction of appellate court for not declaring the suspension of the
the penalty charge but not necessarily to ten percent running of the interest during that period when the
(10%) of the unpaid balance of the loan as suggested by respondent allegedly failed to assist the petitioner in
petitioner. Inasmuch as petitioner has made partial applying for relief from liability. In this connection, the
payments which showed his good faith, a reduction of the petitioner referred to the private respondents letter[if
penalty charge from two percent (2%) per month on the !supportFootnotes][16][endif] dated September 28, 1988
total amount due, compounded monthly, until paid can addressed to petitioner which partially reads:
indeed be justified under the said provision of Article Dear Mr. Tan:
1229 of the New Civil Code. xxx xxx xxx
In other words, we find the continued monthly With reference to your appeal for condonation of interest
accrual of the two percent (2%) penalty charge on the and surcharge, we wish to inform you that the center will
total amount due to be unconscionable inasmuch as the assist you in applying for relief of liability through the
same appeared to have been compounded monthly. Commission on Audit and Office of the President xxx.
Considering petitioners several partial payments While your application is being processed and awaiting
approval, the center will be accepting your proposed contain any categorical agreement on the part of
payment scheme with the downpayment of P160,000.00 respondent CCP that the payment of the interest and
and monthly remittances of P60,000.00 xxx. surcharge on the loan is deemed suspended while his
xxx xxx xxx appeal for condonation of the interest and surcharge was
The petitioner alleges that his obligation to pay the being processed.
interest and surcharge should have been suspended Second, the private respondent correctly asserted
because the obligation to pay such interest and that it was the primary responsibility of petitioner to
surcharge has become conditional, that is dependent on inform the Commission on Audit and the Office of the
a future and uncertain event which consists of whether President of his application for condonation of interest
the petitioners request for condonation of interest and and surcharge. It was incumbent upon the petitioner to
surcharge would be recommended by the Commission bring his administrative appeal for condonation of interest
on Audit and the Office of the President to the House of and penalty charges to the attention of the said
Representatives for approval as required under Section government offices.
36 of Presidential Decree No. 1445. Since the condition On the issue of attorneys fees, the appellate court
has not happened allegedly due to the private ruled correctly and justly in reducing the trial courts
respondents reneging on its promise, his liability to pay award of twenty-five percent (25%) attorneys fees to five
the interest and surcharge on the loan has not arisen. percent (5%) of the total amount due.
This is the petitioners contention. WHEREFORE, the assailed Decision of the Court of
It is our view, however, that the running of the Appeals is hereby AFFIRMED with MODIFICATION in
interest and surcharge was not suspended by the private that the penalty charge of two percent (2%) per month on
respondents promise to assist the petitioners in applying the total amount due, compounded monthly, is hereby
for relief therefrom through the Commission on Audit and reduced to a straight twelve percent (12%) per annum
the Office of the President. starting from August 28, 1986. With costs against the
First, the letter dated September 28, 1988 alleged petitioner.
to have been sent by the respondent CCP to the SO ORDERED.
petitioner is not part of the formally offered documentary
evidence of either party in the trial court. That letter [G.R. Nos. 128833. April 20, 1998]
cannot be considered evidence pursuant to Rule 132, RIZAL COMMERCIAL BANKING CORPORATION, UY
Section 34 of the Rules of Court which provides that: The CHUN BING AND ELI D. LAO, petitioners, vs.
court shall consider no evidence which has not been COURT OF APPEALS and GOYU & SONS,
formally offered xxx. Besides, the said letter does not INC., respondents.
[G.R. No. 128834. April 20, 1998] petitions were consolidated.
RIZAL COMMERCIAL BANKING CORPORATION, The undisputed facts may be summarized as
petitioners, vs. COURT OF APPEALS, follows:
ALFREDO C. SEBASTIAN, GOYU & SONS, GOYU applied for credit facilities and
INC., GO SONG HIAP, SPOUSES GO TENG accommodations with RCBC at its Binondo Branch. After
KOK and BETTY CHIU SUK YING alias due evaluation, RCBC Binondo Branch, through its key
BETTY GO, respondents. officers, petitioners Uy Chun Bing and Eli D. Lao,
[G.R. No. 128866. April 20, 1998] recommended GOYUs application for approval by
MALAYAN INSURANCE INC., petitioner, vs. GOYU & RCBCs executive committee. A credit facility in the
SONS, INC. respondent. amount of P30 million was initially granted. Upon GOYUs
D EC I S I O N application and Uys and Laos recommendation, RCBCs
MELO, J.: executive committee increased GOYUs credit facility to
The issues relevant to the herein three consolidated P50 million, then to P90 million, and finally to P117
petitions revolve around the fire loss claims of million.
respondent Goyu & Sons, Inc. (GOYU) with petitioner As security for its credit facilities with RCBC, GOYU
Malayan Insurance Company, Inc. (MICO) in connection executed two real estate mortgages and two chattel
with the mortgage contracts entered into by and between mortgages in favor of RCBC, which were registered with
Rizal Commercial Banking Corporation (RCBC) and the Registry of Deeds at Valenzuela, Metro Manila.
GOYU. Under each of these four mortgage contracts, GOYU
The Court of Appeals ordered MICO to pay GOYU committed itself to insure the mortgaged property with an
its claims in the total amount of P74,040,518.58, plus insurance company approved by RCBC, and
37% interest per annum commencing July 27, 1992. subsequently, to endorse and deliver the insurance
RCBC was ordered to pay actual and compensatory policies to RCBC.
damages in the amount of P5,000,000.00. MICO and GOYU obtained in its name a total of ten insurance
RCBC were held solidarily liable to pay GOYU policies from MICO. In February 1992, Alchester
P1,500,000.00 as exemplary damages and Insurance Agency, Inc., the insurance agent where
P1,500,000.00 for attorneys fees. GOYUs obligation to GOYU obtained the Malayan insurance policies, issued
RCBC was fixed at P68,785,069.04 as of April 1992, nine endorsements in favor of RCBC seemingly upon
without any interest, surcharges, and penalties. RCBC instructions of GOYU (Exhibits 1-Malayan to 9-Malayan).
and MICO appealed separately but, in view of the On April 27, 1992, one of GOYUs factory buildings
common facts and issues involved, their individual in Valenzuela was gutted by fire. Consequently, GOYU
submitted its claim for indemnity on account of the loss judgment in favor of GOYU, disposing:
insured against. MICO denied the claim on the ground WHEREFORE, judgment is hereby rendered in favor of
that the insurance policies were either attached pursuant the plaintiff and against the defendant, Malayan
to writs of attachments/garnishments issued by various Insurance Company, Inc. and Rizal Commercial Banking
courts or that the insurance proceeds were also claimed Corporation, ordering the latter as follows:
by other creditors of GOYU alleging better rights to the 1. For defendant Malayan Insurance Co., Inc.:
proceeds than the insured. GOYU filed a complaint for a. To pay the plaintiff its fire loss claims in the total
specific performance and damages which was docketed amount of P74,040,518.58 less the
at the Regional Trial Court of the National Capital Judicial amount of P50,000,000.00 which is
Region (Manila, Branch 3) as Civil Case No. 93-65442, deposited with this Court;
now subject of the present G.R. No. 128833 and 128866. b. To pay the plaintiff damages by way of interest for the
RCBC, one of GOYUs creditors, also filed with duration of the delay since July 27,
MICO its formal claim over the proceeds of the insurance 1992 (ninety days after defendant
policies, but said claims were also denied for the same insurers receipt of the required proof of
reasons that MICO denied GOYUs claims. loss and notice of loss) at the rate of
In an interlocutory order dated October 12, 1993 twice the ceiling prescribed by the
(Record, pp. 311-312), the Regional Trial Court of Manila Monetary Board, on the following
(Branch 3), confirmed that GOYUs other creditors, amounts:
namely, Urban Bank, Alfredo Sebastian, and Philippine 1) P50,000,000.00 from July 27, 1992 up to the time said
Trust Company obtained their respective writs of amount was deposited with
attachments from various courts, covering an aggregate this Court on January 7, 1994;
amount of P14,938,080.23, and ordered that the 2) P24,040,518.58 from July 27, 1992 up to the time
proceeds of the ten insurance policies be deposited with when the writs of attachments
the said court minus the aforementioned P14,938,080.23. were received by defendant
Accordingly, on January 7, 1994, MICO deposited the Malayan;
amount of P50,505,594.60 with Branch 3 of the Manila 2. For defendant Rizal Commercial Banking Corporation:
RTC. a. To pay the plaintiff actual and compensatory damages
In the meantime, another notice of garnishment was in the amount of P2,000,000.00;
handed down by another Manila RTC sala (Branch 28) 3. For both defendants Malayan and RCBC:
for the amount of P8,696,838.75 (Exhibit 22-Malayan). a. To pay the plaintiff, jointly and severally, the following
After trial, Branch 3 of the Manila RTC rendered amounts:
1) P1,000,000.00 as exemplary damages; damages by way of interest commencing July 27, 1992
2) P1,000,000.00 as, and for, attorneys fees; until the time Goyu receives the said amount at the rate
3) Costs of suit. of thirty-seven (37%) percent per annum which is twice
and on the Counterclaim of defendant RCBC, ordering the ceiling prescribed by the Monetary Board.
the plaintiff to pay its loan obligations with 2. FOR DEFENDANT RIZAL COMMERCIAL BANKING
defendant RCBC in the amount of CORPORATION:
P68,785,069.04, as of April 27, 1992, with a) To pay the plaintiff actual and compensatory damages
interest thereon at the rate stipulated in the in the amount of P5,000,000.00.
respective promissory notes (without 3. FOR DEFENDANTS MALAYAN INSURANCE CO.,
surcharges and penalties) per computation, INC., RIZAL COMMERCIAL BANKING CORPORATION,
pp. 14-A, 14-B & 14-C. UY CHUN BING AND ELI D. LAO:
FURTHER, the Clerk of Court of the Regional Trial Court a) To pay the plaintiff jointly and severally the following
of Manila is hereby ordered to release immediately to the amounts:
plaintiff the amount of P50,000,000.00 deposited with the 1. P1,500,000.00 as exemplary damages;
Court by defendant Malayan, together with all the 2. P1,500,000.00 as and for attorneys fees.
interests earned thereon. 4. And on RCBCs Counterclaim, ordering the plaintiff
Goyu & Sons,( Inc. to pay its loan obligation with RCBC in
Record, pp. 478-479.) the amount of P68,785,069.04 as of April 27, 1992
From this judgment, all parties interposed their without any interest, surcharges and penalties.
respective appeals. GOYU was unsatisfied with the The Clerk of the Court of the Regional Trial Court of
amounts awarded in its favor. MICO and RCBC disputed Manila is hereby ordered to immediately release to Goyu
the trial courts findings of liability on their part. The Court & Sons, Inc. the amount of P50,505,594.60 (per O.R. No.
of Appeals partly granted GOYUs appeal, but sustained 3649285) deposited with it by Malayan Insurance Co.,
the findings of the trial court with respect to MICO and Inc., together with all the interests thereon.
RCBCs liabilities, thusly:
WHEREFORE, the decision of the lower court dated Rollo, p. 200.)
June 29, 1994 is hereby modified as follows: RCBC and MICO are now before us in G.R. No.
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC: 128833 and 128866, respectively, seeking review and
a) To pay the plaintiff its fire loss claim in the total amount consequent reversal of the above dispositions of the
of P74,040,518.58 less the amount of P50,505,594.60 Court of Appeals.
(per O.R. No. 3649285) plus deposited in court and In G.R. No. 128834, RCBC likewise appeals from
the decision in C.A. G.R. No. CV-48376, which case, by subject insurance policies, prepared the nine
virtue of the Court of Appeals resolution dated August 7, endorsements (see Exh. 1-Malayan to 9-Malayan; also
1996, was consolidated with C.A. G.R. No. CV-46162 Exh. 51-RCBC to 59-RCBC), copies of which were
(subject of herein G.R. No. 128833). At issue in said delivered to GOYU, RCBC, and MICO. However,
petition is RCBCs right to intervene in the action between because these endorsements do not bear the signature
Alfredo C. Sebastian (the creditor) and GOYU (the of any officer of GOYU, the trial court, as well as the
debtor), where the subject insurance policies were Court of Appeals, concluded that the endorsements are
attached in favor of Sebastian. defective.
After a careful review of the material facts as found We do not quite agree.
by the two courts below in relation to the pertinent and It is settled that a mortgagor and a mortgagee have
applicable laws, we find merit in the submissions of separate and distinct insurable interests in the same
RCBC and MICO. mortgaged property, such that each one of them may
The several causes of action pursued below by insure the same property for his own sole benefit. There
GOYU gave rise to several related issues which are now is no question that GOYU could insure the mortgaged
submitted in the petitions before us. This Court, however, property for its own exclusive benefit. In the present
discerns one primary and central issue, and this is, case, although it appears that GOYU obtained the
whether or not RCBC, as mortgagee, has any right over subject insurance policies naming itself as the sole
the insurance policies taken by GOYU, the mortgagor, in payee, the intentions of the parties as shown by their
case of the occurrence of loss. contemporaneous acts, must be given due consideration
As earlier mentioned, accordant with the credit in order to better serve the interest of justice and equity.
facilities extended by RCBC to GOYU, the latter It is to be noted that nine endorsement documents
executed several mortgage contracts in favor of RCBC. It were prepared by Alchester in favor of RCBC. The Court
was expressly stipulated in these mortgage contracts that is in a quandary how Alchester could arrive at the idea of
GOYU shall insure the mortgaged property with any of endorsing any specific insurance policy in favor of any
the insurance companies acceptable to RCBC. GOYU particular beneficiary or payee other than the insured had
indeed insured the mortgaged property with MICO, an not such named payee or beneficiary been specifically
insurance company acceptable to RCBC. Based on their disclosed by the insured itself. It is also significant that
stipulations in the mortgage contracts, GOYU was GOYU voluntarily and purposely took the insurance
supposed to endorse these insurance policies in favor of, policies from MICO, a sister company of RCBC, and not
and deliver them, to RCBC. Alchester Insurance Agency, just from any other insurance company. Alchester would
Inc., MICOs underwriter from whom GOYU obtained the not have found out that the subject pieces of property
were mortgaged to RCBC had not such information been these nine endorsement documents were sent to GOYU,
voluntarily disclosed by GOYU itself. Had it not been for and the others were sent to RCBC and MICO, while the
GOYU, Alchester would not have known of GOYUs fourth copies were retained for Alchesters file (tsn,
intention of obtaining insurance coverage in compliance February 23, pp. 7-8). GOYU has not denied having
with its undertaking in the mortgage contracts with received from Alchester the originals of these
RCBC, and verily, Alchester would not have endorsed endorsements.
the policies to RCBC had it not been so directed by RCBC, in good faith, relied upon the endorsement
GOYU. documents sent to it as this was only pursuant to the
On equitable principles, particularly on the ground stipulation in the mortgage contracts. We find such
of estoppel, the Court is constrained to rule in favor of reliance to be justified under the circumstances of the
mortgagor RCBC. The basis and purpose of the doctrine case. GOYU failed to seasonably repudiate the authority
was explained in Philippine National Bank vs. Court of of the person or persons who prepared such
Appeals (94 SCRA 357 [1979]), to wit: endorsements. Over and above this, GOYU continued, in
The doctrine of estoppel is based upon the grounds of the meantime, to enjoy the benefits of the credit facilities
public policy, fair dealing, good faith and justice, and its extended to it by RCBC. After the occurrence of the loss
purpose is to forbid one to speak against his own act, insured against, it was too late for GOYU to disown the
representations, or commitments to the injury of one to endorsements for any imagined or contrived lack of
whom they were directed and who reasonably relied authority of Alchester to prepare and issue said
thereon. The doctrine of estoppel springs from equitable endorsements. If there had not been actually an implied
principles and the equities in the case. It is designed to ratification of said endorsements by virtue of GOYUs
aid the law in the administration of justice where without inaction in this case, GOYU is at the very least estopped
its aid injustice might result. It has been applied by this from assailing their operative effects. To permit GOYU to
Court wherever and whenever special circumstances of a capitalize on its non-confirmation of these endorsements
case so demand. while it continued to enjoy the benefits of the credit
facilities of RCBC which( believed in good faith that there
p. 368.) was due endorsement pursuant to their mortgage
Evelyn Lozada of Alchester testified that upon contracts, is to countenance grave contravention of
instructions of Mr. Go, through a certain Mr. Yam, she public policy, fair dealing, good faith, and justice. Such an
prepared in quadruplicate on February 11, 1992 the nine unjust situation, the Court cannot sanction. Under the
endorsement documents for GOYUs nine insurance peculiar circumstances obtaining in this case, the Court is
policies in favor of RCBC. The original copies of each of bound to recognize RCBCs right to the proceeds of the
insurance policies if not for the actual endorsement of the 4. GOYU continued until the occurrence of the fire, to
policies, at least on the basis of the equitable principle of enjoy the benefits of the credit facilities extended by
estoppel. RCBC which was conditioned upon the endorsement of
GOYU cannot seek relief under Section 53 of the the insurance policies to be taken by GOYU to cover the
Insurance Code which provides that the proceeds of mortgaged properties.
insurance shall exclusively apply to the interest of the This Court can not over stress the fact that upon
person in whose name or for whose benefit it is made. receiving its copies of the endorsement documents
The peculiarity of the circumstances obtaining in the prepared by Alchester, GOYU, despite the absence of its
instant case presents a justification to take exception to written conformity thereto, obviously considered said
the strict application of said provision, it having been endorsement to be sufficient compliance with its
sufficiently established that it was the intention of the obligation under the mortgage contracts since RCBC
parties to designate RCBC as the party for whose benefit accordingly continued to extend the benefits of its credit
the insurance policies were taken out. Consider thus the facilities and GOYU continued to benefit therefrom. Just
following: as plain too is the intention of the parties to constitute
1. It is undisputed that the insured pieces of property RCBC as the beneficiary of the various insurance policies
were the subject of mortgage contracts entered into obtained by GOYU. The intention of the parties will have
between RCBC and GOYU in consideration of and for to be given full force and effect in this particular case.
securing GOYUs credit facilities from RCBC. The The insurance proceeds may, therefore, be exclusively
mortgage contracts contained common provisions applied to RCBC, which under the factual circumstances
whereby GOYU, as mortgagor, undertook to have the of the case, is truly the person or entity for whose benefit
mortgaged property properly covered against any loss by the policies were clearly intended.
an insurance company acceptable to RCBC. Moreover, the laws evident intention to protect the
2. GOYU voluntarily procured insurance policies to cover interests of the mortgagee upon the mortgaged property
the mortgaged property from MICO, no less than a sister is expressed in Article 2127 of the Civil Code which
company of RCBC and definitely an acceptable states:
insurance company to RCBC. ART. 2127. The mortgage extends to the natural
3. Endorsement documents were prepared by MICOs accessions, to the improvements, growing fruits, and the
underwriter, Alchester Insurance Agency, Inc., and rents or income not yet received when the obligation
copies thereof were sent to GOYU, MICO, and RCBC. becomes due, and to the amount of the indemnity
GOYU did not assail, until of late, the validity of said granted or owing to the proprietor from the insurers of the
endorsements. property mortgaged, or in virtue of expropriation for public
use, with the declarations, amplifications and limitations e. Policy Number : ACIA/F-114-07663 Exhibit 4-Malayan
established by law, whether the estate remains in the Issue Date : January 18, 1992
possession of the mortgagor, or it passes into the hands Expiry Date : February 9, 1993
of a third person. Amount : P9,457,972.76
Significantly, the Court notes that out of the 10 [if !supportEmptyParas] [endif]
insurance policies subject of this case, only 8 of them f. Policy Number : ACIA/F-114-07623 Exhibit 7-Malayan
appear to have been subject of the endorsements Issue Date : January 13, 1992
prepared and delivered by Alchester for and upon Expiry Date : January 13, 1993
instructions of GOYU as shown below: Amount : P24,750,000.00
INSURANCE POLICY PARTICULARS ENDORSEMENT [if !supportEmptyParas] [endif]
a. Policy Number : F-114-07795 None g. Policy Number : ACIA/F-174-07223 Exhibit 6-Malayan
Issue Date : March 18, 1992 Issue Date : May 29, 1991
Expiry Date : April 5, 1993 Expiry Date : June 27, 1992
Amount : P9,646,224.92 Amount : P6,000,000.00
[if !supportEmptyParas] [endif] [if !supportEmptyParas] [endif]
b. Policy Number : ACIA/F-174-07660 Exhibit 1-Malayan h. Policy Number : CI/F-128-03341 None
Issue Date : January 18, 1992 Issue Date : May 3, 1991
Expiry Date : February 9, 1993 Expiry Date : May 3, 1992
Amount : P4,307,217.54 Amount : P10,000,000.00
[if !supportEmptyParas] [endif] [if !supportEmptyParas] [endif]
[if !supportEmptyParas] [endif] i. Policy Number : F-114-07402 Exhibit 8-Malayan
c. Policy Number : ACIA/F-114-07661 Exhibit 2-Malayan Issue Date : September 16, 1991
Issue Date : January 18, 1992 Expiry Date : October 19, 1992
Expiry Date : February 15, 1993 Amount : P32,252,125.20
Amount : P6,603,586.43 [if !supportEmptyParas] [endif]
[if !supportEmptyParas] [endif] j. Policy Number : F-114-07525 Exhibit 9-Malayan
d. Policy Number : ACIA/F-114-07662 Exhibit 3-Malayan Issue Date : November 20, 1991
Issue Date : January 18, 1992 Expiry Date : December 5, 1992
Expiry Date : (not legible) Amount : P6,603,586.43
Amount : P6,603,586.43 [if !supportEmptyParas] [endif]
(pp. 456-457, Record; Folder of Exhibits for MICO.)
Policy Number F-114-07795 [(a) above] has not the other insurance policies above-listed which were
been endorsed. This fact was admitted by MICOs endorsed to RCBC, are, therefore, to be released from
witness, Atty. Farolan (tsn, February 16, 1994, p. 25). attachment, garnishment, and levy by the other creditors
Likewise, the record shows no endorsement for Policy of GOYU.
Number CI/F-128-03341 [(h) above]. Also, one of the This brings us to the next relevant issue to be
endorsement documents, Exhibit 5-Malayan, refers to a resolved, which is, the extent of GOYUs outstanding
certain insurance policy number ACIA-F-07066, which is obligation with RCBC which the proceeds of the 8
not among the insurance policies involved in the insurance policies will discharge and liquidate, or put
complaint. differently, the actual amount of GOYUs liability to RCBC.
The proceeds of the 8 insurance policies endorsed The Court of Appeals simply echoed the declaration
to RCBC aggregate to P89,974,488.36. Being exclusively of the trial court finding that GOYUS total obligation to
payable to RCBC by reason of the endorsement by RCBC was only P68,785,060.04 as of April 27, 1992,
Alchester to RCBC, which we already ruled to have the thus sanctioning the trial courts exclusion of Promissory
force and effect of an endorsement by GOYU itself, these Note No. 421-92 (renewal of Promissory Note No. 908-
8 policies can not be attached by GOYUs other creditors 91) and Promissory Note No. 420-92 (renewal of
up to the extent of the GOYUs outstanding obligation in Promissory Note No. 952-91) on the ground that their
RCBCs favor. Section 53 of the Insurance Code ordains execution is highly questionable for not only are these
that the insurance proceeds of the endorsed policies dated after the fire, but also because the signatures of
shall be applied exclusively to the proper interest of the either GOYU or any its representative are conspicuously
person for whose benefit it was made. In this case, to the absent. Accordingly, the Court of Appeals speculated
extent of GOYUs obligation with RCBC, the interest of thusly:
GOYU in the subject policies had been transferred to Hence, this Court is inclined to conclude that said
RCBC effective as of the time of the endorsement. These promissory notes were pre-signed by plaintiff in blank
policies may no longer be attached by the other creditors terms, as averred by plaintiff, in contemplation of the
of GOYU, like Alfredo Sebastian in the present G.R. No. speedy grant of future loans, for the same practice of
128834, which may nonetheless forthwith be dismissed procedure has always been adopted in its previous
for being moot and academic in view of the results dealings with the bank.
reached herein. Only the two other policies amounting to
P19,646,224.92 may be validly attached, garnished, and Rollo, pp. 181-182.)
levied upon by GOYUs other creditors. To the extent of The fact that the promissory notes bear dates
GOYUs outstanding obligation with RCBC, all the rest of posterior to the fire does not necessarily mean that the
documents are spurious, for it is presumed that the A: Yes, Your Honor.
ordinary course of business had been followed (tsn, Jan. 14, 1994, p. 26.)
(Metropolitan Bank and Trust Company vs. Quilts and All, Furthermore, aside from its judicial admission of
Inc., 222 SCRA 486 [1993]). The obligor and not the having received all the proceeds of the 29 promissory
holder of the negotiable instrument has the burden of notes as hereinabove quoted, GOYU also offered and
proof of showing that he no longer owes the obligee any admitted to RCBC that its obligation be fixed at
amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA P116,301,992.60 as shown in its letter dated March 9,
351 [1992]). 1993, which pertinently reads:
Even casting aside the presumption of regularity of We wish to inform you, therefore that we are ready and
private transactions, receipt of the loan amounting to willing to pay the current past due account of this
P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by company in the amount of P116,301,992.60 as of 21
GOYU as indicated in the testimony of Go Song Hiap January 1993, specified in pars. 15, p. 10, and 18, p. 13
when he answered the queries of the trial court: of your affidavits of Third Party Claims in the Urban case
ATTY. NATIVIDAD at Makati, Metro Manila and in the Zamboanga case at
Q: But insofar as the amount stated in Exhibits 1 to 29- Zamboanga city, respectively, less the total of
RCBC, you received all the amounts stated P8,851,519.71 paid from the Seaboard and Equitable
therein? insurance companies and other legitimate deductions.
A: Yes, sir, I received the amount. We accept and confirm this amount of P116,301,992.60
COURT as stated as true and correct.
He is asking if he received all the amounts stated in
Exhibits 1 to 29-RCBC? Exhibit BB.)
WITNESS: The Court of Appeals erred in placing much
Yes, Your Honor, I received all the amounts. significance on the fact that the excluded promissory
COURT notes are dated after the fire. It failed to consider that
Indicated in the Promissory Notes? said notes had for their origin transactions consummated
WITNESS prior to the fire. Thus, careful attention must be paid to
A. The promissory Notes they did not give to me but the the fact that Promissory Notes No. 420-92 and 421-92
amount I asked which is correct, Your Honor. are mere renewals of Promissory Notes No. 908-91 and
COURT 952-91, loans already availed of by GOYU.
Q: You mean to say the amounts indicated in Exhibits 1 The two courts below erred in failing to see that the
to 29-RCBC is correct? promissory notes which they ruled should be excluded for
bearing dates which are after that of the fire, are mere Insurance Company: 6,095,145.81
renewals of previous ones. The proceeds of the loan 2) Proceeds from
represented by these promissory notes were admittedly Equitable Insurance
received by GOYU. There is ample factual and legal Company: 2,756,373.00
basis for giving GOYUs judicial admission of liability in 3) Payment from
the amount of P116,301,992.60 full force and effect foreign department
It should, however, be quickly added that whatever negotiation: 203,584.89
amount RCBC may have recovered from the other 9,055,104.70[if !supportFootnotes][3][endif]
insurers of the mortgaged property will, nonetheless, NET AMOUNT as of January 21, 1993: P
have to be applied as payment against GOYUs 107,246,887.90
obligation. But, contrary to the lower courts findings, The need for the payment of interest due upon the
payments effected by GOYU prior to January 21, 1993 principal amount of the obligation, which is the cost of
should no longer be deducted. Such payments had money to RCBC, the primary end and the ultimate reason
obviously been duly considered by GOYU, in its for RCBCs existence and being, was duly recognized by
aforequoted letter dated March 9, 1993, wherein it the trial court when it ruled favorably on RCBCs
admitted that its past due account totaled counterclaim, ordering GOYU to pay its loan obligation
P116,301,992.60 as of January 21, 1993. with RCBC in the amount of P68,785,069.04, as of April
The net obligation of GOYU, after deductions, is 27,1992, with interest thereon at the rate stipulated in the
thus reduced to P107,246,887.90 as of January 21, respective promissory notes (without surcharges and
1993, to wit: penalties) per computation, pp. 14-A, 14-B, 14-C
Total Obligation as admitted by GOYU as of January 21, (Record, p. 479). Inexplicably, the Court of Appeals,
1993: P116,301,992.60 without even laying down the factual or legal justification
Broken down as follows for its ruling, modified the trial courts ruling and ordered
Principal[if !supportFootnotes][1][endif] Interest GOYU to pay the principal amount of P68,785,069.04
Regular 80,535,946.32 without any interest, surcharges and penalties (Rollo, p.
FDU 7,548,025.17 200).
____________ _____________ It is to be noted in this regard that even the trial
Total: 108,083,971.49 8,218,021.11[if !supportFootnotes][2][endif] court hedgingly and with much uncertainty deleted the
LESS: payment of additional interest, penalties, and charges, in
1) Proceeds from this manner:
Seaboard Eastern Regarding defendant RCBCs commitment not to charge
additional interest, penalties and surcharges, the same I. When an obligation, regardless of its source, i.e., law,
does not require that it be embodied in a document or contracts, quasi-contracts, delicts or quasi-delicts is
some form of writing to be binding and enforceable. The breached, the contravenor can be held liable for
principle is well known that generally a verbal agreement damages. The provisions under Title XVIII on Damages
or contract is no less binding and effective than a written of the Civil Code govern in determining the measure of
one. And the existence of such a verbal agreement has recoverable damages.
been amply established by the evidence in this case. In II. With regard particularly to an award of interest in the
any event, regardless of the existence of such verbal concept of actual and compensatory damages, the rate
agreement, it would still be unjust and inequitable for of interest, as well as the accrual thereof, is imposed, as
defendant RCBC to charge the plaintiff with surcharges follows:
and penalties considering the latters pitiful situation. 1. When the obligation is breached, and it consists in the
(Emphasis supplied.) payment of a sum of money, i.e., a loan or forbearance of
(Record, p. 476) money, the interest due should be that which may have
The essence or rationale for the payment of interest been stipulated in writing. Furthermore, the interest due
or cost of money is separate and distinct from that of shall itself earn legal interest from the time it is judicially
surcharges and penalties. What may justify a court in not demanded. In the absence of stipulation, the rate of
allowing the creditor to charge surcharges and penalties interest shall be 12% per annum to be computed from
despite express stipulation therefor in a valid agreement, default, i.e., from judicial or extrajudicial demand under
may not equally justify non-payment of interest. The and subject to the provisions of Article 1169 of the Civil
charging of interest for loans forms a very essential and Code.
fundamental element of the banking business, which may 2. When an obligation, not constituting a loan or
truly be considered to be at the very core of its existence forbearance of money, is breached, an interest on the
or being. It is inconceivable for a bank to grant loans for amount of damages awarded may be imposed at the
which it will not charge any interest at all. We fail to find discretion of the court at the rate of 6% per annum. No
justification for the Court of Appeals outright deletion of interest, however, shall be adjudged on unliquidated
the payment of interest as agreed upon in the respective claims or damages except when or until the demand can
promissory notes. This constitutes gross error. be established with reasonable certainty. Accordingly,
For the computation of the interest due to be paid to where the demand is established with reasonable
RCBC, the following rules of thumb laid down by this certainty, the interest shall begin to run from the time the
Court in Eastern Shipping Lines, Inc. vs. Court of claim is made judicially or extrajudicially (Art. 1169, Civil
Appeals (234 SCRA 78 [1994]), shall apply, to wit: Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest RCBC had thereby ipso facto effectively waived
shall begin to run only from the date of the judgment of collection of any additional interests, surcharges, and
the court is made (at which time the quantification of penalties from GOYU. Assurances of assistance are one
damages may be deemed to have been reasonably thing, but waiver of additional interests, surcharges, and
ascertained). The actual base for the computation of penalties is another.
legal interest shall, in any case, be on the amount finally Surcharges and penalties agreed to be paid by the
adjudged. debtor in case of default partake of the nature of
3. When the judgment of the court awarding a sum of liquidated damages, covered by Section 4, Chapter 3,
money becomes final and executory, the rate of legal Title XVIII of the Civil Code. Article 2227 thereof
interest, whether the case falls under paragraph 1 or provides:
paragraph 2, above, shall be 12% per annum from such ART. 2227. Liquidated damages, whether intended as a
finality until its satisfaction, this interim period being indemnity or penalty, shall be equitably reduced if they
deemed to be by then an equivalent to a forbearance of are iniquitous and unconscionable.
credit. In exercising this vested power to determine what is
iniquitous and unconscionable,
( the Court must consider
pp. 95-97.) the circumstances of each case. It should be stressed
There being written stipulations as to the rate of that the Court will not make any sweeping ruling that
interest owing on each specific promissory note as surcharges and penalties imposed by banks for non-
summarized and tabulated by the trial court in its decision payment of the loans extended by them are generally
(pp.470 and 471, Record) such agreed interest rates iniquitous and unconscionable. What may be iniquitous
must be followed. This is very clear from paragraph II, and unconscionable in one case, may be totally just and
sub-paragraph 1 quoted above. equitable in another. This provision of law will have to be
On the issue of payment of surcharges and applied to the established facts of any given case. Given
penalties, we partly agree that GOYUs pitiful situation the circumstances under which GOYU found itself after
must be taken into account. We do not agree, however, the occurrence of the fire, the Court rules the surcharges
that payment of any amount as surcharges and penalties rates ranging anywhere from 9% to 27%, plus the penalty
should altogether be deleted. Even assuming that RCBC, charges of 36%, to be definitely iniquitous and
through its responsible officers, herein petitioners Eli Lao unconscionable. The Court tempers these rates to 2%
and Uy Chun Bing, may have relayed its assurance for and 3%, respectively. Furthermore, in the light of GOYUs
assistance to GOYU immediately after the occurrence of offer to pay the amount of P116,301,992.60 to RCBC as
the fire, we cannot accept the lower courts finding that March 1993 (See: Exhibit BB), which RCBC refused, we
find it more in keeping with justice and equity for RCBC determination of who is the actual beneficiary of the
not to charge additional interest, surcharges, and insurance policies, aggravated by the claim of various
penalties from that time onward. creditors who wanted to partake of the insurance
Given the factual milieu spread hereover, we rule proceeds, not to mention the importance of the
that it was error to hold MICO liable in damages for endorsement to RCBC, to our mind, and as now borne
denying or withholding the proceeds of the insurance out by the outcome herein, justified MICO in withholding
claim to GOYU. payment to GOYU.
Firstly, by virtue of the mortgage contracts as well In adjudging RCBC liable in damages to GOYU, the
as the endorsements of the insurance policies, RCBC Court of Appeals said that RCBC cannot avail itself of
has the right to claim the insurance proceeds, in two simultaneous remedies in enforcing the claim of an
substitution of the property lost in the fire. Having unpaid creditor, one for specific performance and the
assigned its rights, GOYU lost its standing as the other for foreclosure. In doing so, said the appellate
beneficiary of the said insurance policies. court, the second action is deemed barred, RCBC having
Secondly, for an insurance company to be held split a single cause of action (Rollo, pp. 195-199). The
liable for unreasonably delaying and withholding payment Court of Appeals was too accommodating in giving due
of insurance proceeds, the delay must be wanton, consideration to this argument of GOYU, for the
oppressive, or malevolent (Zenith Insurance Corporation foreclosure suit is still pending appeal before the same
vs. CA, 185 SCRA 403 [1990]). It is generally agreed, Court of Appeals in CA G.R CV No. 46247, the case
however, that an insurer may in good faith and honesty having been elevated by RCBC.
entertain a difference of opinion as to its liability. In finding that the foreclosure suit cannot prosper,
Accordingly, the statutory penalty for vexatious refusal of the Fifteenth Division of the Court of Appeals pre-empted
an insurer to pay a claim should not be inflicted unless the resolution of said foreclosure case which is not before
the evidence and circumstances show that such refusal it. This is plain reversible error if not grave abuse of
was willful and without reasonable cause as the facts discretion.
appear to a reasonable and prudent man (Buffalo Ins. As held in Pea vs. Court of Appeals (245 SCRA
Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; 691[1995]):
Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 It should have been enough, nonetheless, for the
Am St Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo. appellate court to merely set aside the questioned orders
143, 281 SW 47, 45 ALR 189). The case at bar does not of the trial court for having been issued by the latter with
show that MICO wantonly and in bad faith delayed the grave abuse of discretion. In likewise enjoining
release of the proceeds. The problem in the permanently herein petitioner from entering in and
interfering with the use or occupation and enjoyment of 1. Dismissing the Complaint of private respondent GOYU
petitioners (now private respondent) residential house in Civil Case No. 93-65442 before Branch 3 of the Manila
and compound, the appellate court in effect, precipitately Regional Trial Court for lack of merit;
resolved with finality the case for injunction that was yet 2. Ordering Malayan Insurance Company, Inc. to deliver
to be heard on the merits by the lower court. Elevated to to Rizal Commercial Banking Corporation the proceeds
the appellate court, it might be stressed, were mere of the insurance policies in the amount of
incidents of the principal case still pending with the trial P51,862,390.94 (per report of adjuster Toplis & Harding
court. In Municipality of Bian, Laguna vs. Court of (Far East), Inc., Exhibits 2 and 2-1), less the amount of
Appeals, 219 SCRA 69, we ruled that the Court of P50,505,594.60 (per O.R. No. 3649285);
Appeals would have no jurisdiction in a certiorari 3. Ordering the Clerk of Court to release the amount of
proceeding involving an incident in a case to rule on the P50,505,594.60 including the interests earned to Rizal
merits of the main case itself which was not on appeal Commercial Banking Corporation;
before it. 4. Ordering Goyu & Sons, Inc. to pay its loan obligation
with Rizal Commercial Banking ( Corporation in the
pp. 701-702.) principal amount of P107,246,887.90, with interest at the
Anent the right of RCBC to intervene in Civil Case respective rates stipulated in each promissory note from
No. 1073, before the Zamboanga Regional Trial Court, January 21, 1993 until finality of this judgment, and
since it has been determined that RCBC has the right to surcharges at 2% and penalties at 3% from January 21,
the insurance proceeds, the subject matter of intervention 1993 to March 9, 1993, minus payments made by
is rendered moot and academic. Respondent Sebastian Malayan Insurance Company, Inc. and the proceeds of
must, however, yield to the preferential right of RCBC the amount deposited with the trial court and its earned
over the MICO insurance policies. It is basic and interest. The total amount due RCBC at the time of the
fundamental that the first mortgagee has superior rights finality of this judgment shall earn interest at the legal
over junior mortgagees or attaching creditors (Alpha rate of 12% in lieu of all other stipulated interests and
Insurance & Surety Co. vs. Reyes, 106 SCRA 274 charges until fully paid.
[1981]; Sun Life Assurance Co. of Canada vs. Gonzales The petition of Rizal Commercial Banking
Diaz, 52 Phil. 271 [1928]). Corporation against the respondent Court in CA-GR CV
WHEREFORE, the petitions are hereby GRANTED 48376 is DISMISSED for being moot and academic in
and the decision and resolution of December 16, 1996 view of the results herein arrived at. Respondent
and April 3, 1997 in CA-G.R. CV No. 46162 are hereby Sebastians right as attaching creditor must yield to the
REVERSED and SET ASIDE, and a new one entered: preferential rights of Rizal Commercial Banking
Corporation over the Malayan insurance policies as first interest at the rates of 4.5% and 5% per annum,
mortgagee. respectively, for the two loans, and not 4.5% and 5% per
SO ORDERED. month, respondent sought to recover the amounts she
allegedly paid in excess of her actual obligations.
FIRST FIL-SIN LENDING CORPORATION, petitioner, On October 12, 2001,[4] the trial court dismissed
vs. GLORIA D. PADILLO, respondent. respondents complaint, and on the counterclaim, ordered
DECISION her to pay petitioner P311,125.00 with legal interest from
YNARES-SANTIAGO, J.: February 3, 1999 until fully paid plus 10% of the amount
Before us is a petition for review under Rule 45 of the due as attorneys fees and costs of the suit.[5] The trial
Rules of Court, seeking a reversal of the Court of court ruled that by issuing checks representing interest
Appeals decision in CA-G.R. CV No. 75183[1] dated payments at 4.5% and 5% monthly interest rates,
October 16, 2003, which reversed and set aside the respondent is now estopped from questioning the
decision of the Regional Trial Court of Manila, Branch 21 provisions of the promissory notes.
in Civil Case No. 00-96235. On appeal, the Court of Appeals (CA) reversed and set
On July 22, 1997, respondent Gloria D. Padillo obtained aside the decision of the court a quo, the dispositive
a P500,000.00 loan from petitioner First Fil-Sin Lending portion of which reads:
Corp. On September 7, 1997, respondent obtained IN VIEW OF ALL THE FOREGOING, the appealed
another P500,000.00 loan from petitioner. In both decision is REVERSED and SET ASIDE and a new one
instances, respondent executed a promissory note and entered: (1) ordering First Fil-Sin Lending Corporation to
disclosure statement.[2] return the amount of P114,000.00 to Gloria D. Padillo,
For the first loan, respondent made 13 monthly interest and (2) deleting the award of attorneys fees in favor of
payments of P22,500.00 each before she settled the appellee. Other claims and counterclaims are dismissed
P500,000.00 outstanding principal obligation on February for lack of sufficient causes. No pronouncement as to
2, 1999. As regards the second loan, respondent made cost.
11 monthly interest payments of P25,000.00 each before SO ORDERED.[6]
paying the principal loan of P500,000.00 on February 2, The appellate court ruled that, based on the disclosure
1999.[3] In sum, respondent paid a total of P792,500.00 statements executed by respondent, the interest rates
for the first loan and P775,000.00 for the second loan. should be imposed on a monthly basis but only for the 3-
On January 27, 2000, respondent filed an action for sum month term of the loan. Thereafter, the legal interest rate
of money against herein petitioner before the Regional will apply. The CA also found the penalty charges
Trial Court of Manila. Alleging that she only agreed to pay pegged at 1% per day of delay highly unconscionable as
it would translate to 365% per annum. Thus, it was per annum penalty imposed by the CA in lieu of the 1%
reduced to 1% per month or 12% per annum. per day as agreed upon by the parties violates their
Hence, the instant petition on the following assignment of freedom to stipulate terms and conditions as they may
errors: deem proper.
I Petitioner finally contends that the CA erred in deleting
THE COURT OF APPEALS ERRED IN FINDING THAT the trial courts award of attorneys fees arguing that the
THE APPLICABLE INTEREST SHOULD BE THE LEGAL same is anchored on sound and legal ground.
INTEREST OF TWELVE PER CENT (12%) PER Respondent, on the other hand, avers that the interest on
ANNUM DESPITE THE CLEAR AGREEMENT OF THE the loans is per annum as expressly stated in the
PARTIES ON ANOTHER APPLICABLE RATE. promissory notes and disclosure statements. The
II provision as to annual interest rate is clear and requires
THE COURT OF APPEALS ERRED IN IMPOSING A no room for interpretation. Respondent asserts that any
PENALTY COMPUTED AT THE RATE OF TWELVE ambiguity in the promissory notes and disclosure
PER CENT (12%) PER ANNUM DESPITE THE CLEAR statements should not favor petitioner since the loan
AGREEMENT OF THE PARTIES ON ANOTHER documents were prepared by the latter.
APPLICABLE RATE. We agree with respondent.
III Perusal of the promissory notes and the disclosure
statements pertinent to the July 22, 1997 and September
7, 1997 loan obligations of respondent clearly and
unambiguously provide for interest rates of 4.5% per
annum and 5% per annum, respectively. Nowhere was it
THE COURT OF APPEALS ERRED IN DELETING THE
stated that the interest rates shall be applied on a
ATTORNEYS FEES AWARDED BY THE REGIONAL
monthly basis.
TRIAL COURT.[7]
Thus, when the terms of the agreement are clear and
Petitioner maintains that the trial court and the CA are
explicit that they do not justify an attempt to read into it
correct in ruling that the interest rates are to be imposed
any alleged intention of the parties, the terms are to be
on a monthly and not on a per annum basis. However, it
understood literally just as they appear on the face of the
insists that the 4.5% and 5% monthly interest shall be
contract.[8] It is only in instances when the language of a
imposed until the outstanding obligations have been fully
contract is ambiguous or obscure that courts ought to
paid.
apply certain established rules of construction in order to
As to the penalty charges, petitioner argues that the 12%
ascertain the supposed intent of the parties. However,
these rules will not be used to make a new contract for month.[11] Since the mistake is exclusively attributed to
the parties or to rewrite the old one, even if the contract is petitioner, the same should be charged against it. This
inequitable or harsh. They are applied by the court unilateral mistake cannot be taken against respondent
merely to resolve doubts and ambiguities within the who merely affixed her signature on the pro forma loan
framework of the agreement.[9] agreements. As between two parties to a written
The lower court and the CA mistook the Loan agreement, the party who gave rise to the mistake or
Transactions Summary for the Disclosure Statement. The error in the provisions of the same is estopped from
former was prepared exclusively by petitioner and merely asserting a contrary intention to that contained therein.
summarizes the payments made by respondent and the The checks issued by respondent do not clearly and
income earned by petitioner. There was no mention of convincingly prove that the real intent of the parties is to
any interest rates and having been prepared exclusively apply the interest rates on a monthly basis. Absent any
by petitioner, the same is self serving. On the contrary, proof of vice of consent, the promissory notes and
the Disclosure Statements were signed by both parties disclosure statements remain the best evidence to
and categorically stated that interest rates were to be ascertain the real intent of the parties.
imposed annually, not monthly. The same promissory note provides that x x x any and all
As such, since the terms and conditions contained in the remaining amount due on the principal upon maturity
promissory notes and disclosure statements are clear hereof shall earn interest at the rate of _____ from date
and unambiguous, the same must be given full force and of maturity until fully paid. The CA thus properly imposed
effect. The expressed intention of the parties as laid the legal interest of 12% per annum from the time the
down on the loan documents controls. loans matured until the same has been fully paid on
Also, reformation cannot be resorted to as the documents February 2, 1999. As decreed in Eastern Shipping Lines,
have not been assailed on the ground of mutual mistake. Inc. v. Court of Appeals,[12] in the absence of stipulation,
When a party sues on a written contract and no attempt the rate of interest shall be 12% per annum to be
is made to show any vice therein, he cannot be allowed computed from default.
to lay claim for more than what its clear stipulations As regards the penalty charges, we agree with the CA in
accord. His omission cannot be arbitrarily supplied by the ruling that the 1% penalty per day of delay is highly
courts by what their own notions of justice or equity may unconscionable. Applying Article 1229 of the Civil Code,
dictate.[10] courts shall equitably reduce the penalty when the
Notably, petitioner even admitted that it was solely principal obligation has been partly or irregularly
responsible for the preparation of the loan documents, complied with, or if it is iniquitous or unconscionable.
and that it failed to correct the pro forma note p.a. to per With regard to the attorneys fees, the CA correctly
deleted the award in favor of petitioner since the trial G.R. No. L-60907 June 28, 1989
courts decision does not reveal any explicit basis for such OVERSEAS BANK OF MANILA, petitioner,
an award. Attorneys fees are not automatically awarded vs.
to every winning litigant. It must be shown that any of the COURT OF APPEALS, INTEGRATED REALTY
instances enumerated under Art. 2208[13] of the Civil CORPORATION, and RAUL L. SANTOS, respondents.
Code exists to justify the award thereof.[14] Not one of
such instances exists here. Besides, by filing the REGALADO, J.:
complaint, respondent was merely asserting her rights In these petitions for review on certiorari, Integrated
which, after due deliberations, proved to be lawful, proper Realty Corporation and Raul Santos (G.R. No. 60705),
and valid. and Overseas Bank of Manila (G.R. No. 60907) appeal
WHEREFORE, in view of the foregoing, the from the decision of the Court of Appeals, 1 the decretal
October 16, 2003 decision of the Court of Appeals in CA- portion of which states:
G.R. CV No. 75183 is AFFIRMED with the WHEREFORE, with the modification that appellee
MODIFICATION that the interest rates on the July 22, Overseas Bank of Manila is ordered to pay to the
1997 and September 7, 1997 loan obligations of appellant Raul Santos the sum of P 700,000.00 due
respondent Gloria D. Padillo from petitioner First Fil-Sin under the time deposit certificates Nos. 2308 and 2367
Lending Corporation be imposed and computed on a per with 6 1/2 (sic) interest per annum from date of issue until
annum basis, and upon their respective maturities, the fully paid, the appealed decision is affirmed in all other
interest rate of 12% per annum shall be imposed until full respects.
payment. In addition, the penalty at the rate of 12% per In G.R. No. 60705, petitioners Integrated Realty
annum shall be imposed on the outstanding obligations Corporation (hereafter, IRC and Raul L. Santos
from date of default until full payment. (hereafter, Santos) seek the dismissal of the complaint
SO ORDERED. filed by the Philippine National Bank (hereafter, PNB), or
in the event that they be held liable thereunder, to revive
G.R. No. L-60705 June 28, 1989 and affirm that portion of the decision of the trial court
INTEGRATED REALTY CORPORATION and RAUL L. ordering Overseas Bank of Manila (hereafter, OBM) to
SANTOS, petitioners, pay IRC and Santos whatever amounts the latter will pay
vs. to PNB, with interest from the date of payment. 2
PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF On the other hand, in G.R. No. 60907, petitioner OBM
MANILA and THE HON. COURT OF APPEALS, challenges the decision of respondent court insofar as it
respondents. holds OBM liable for interest on the time deposit with it of
Santos corresponding to the period of its closure by order demanded payment from defendants IRC and Raul L.
of the Central Bank. 3 Santos (Exhibit K) and from defendant OBM (Exhibit L).
In its assailed decision, the respondent Court of Appeals, Defendants IRC and Raul L. Santos replied that the
quoting from the decision of the lower court, 4 narrated obligation (loan) of defendant IRC was deemed paid with
the antecedents of this case in this wise: the irrevocable assignment of the time deposit certificates
The facts of this case are not seriously disputed by any of (Exhibits 5 Santos, 6 Santos and 7 Santos).
the parties. They are set forth in the decision of the trial On April 6, 1969 (sic), ** PNB filed a complaint to collect
court as follows: from IRC and Santos the loan of P 700,000.00 with
Under date 11 January 1967 defendant Raul L. Santos interest as well as attomey's fees. It impleaded OBM as a
made a time deposit with defendant OBM in the amount defendant to compel it to redeem and pay to it Santos'
of P 500,000.00. (Exhibit-10 OBM) and was issued a time deposit certificates with interest, plus exemplary and
Certificate of Time Deposit No. 2308 (Exhibit 1 Santos, corrective damages, attorney's fees, and cost.
Exhibit D). Under date 6 February 1967 defendant Raul In their answer to the complaint, IRC and Santos alleged
L. Santos also made a time deposit with defendant OBM that PNB has no cause of action against them because
in the amount of P 200,000.00 (Exhibit 11 OBM and was their obligation to PNB was fully paid or extinguished
issued certificate of Time Deposit No. 2367 (Exhibit 2 upon the' irrevocable' assignment of the time deposit
Santos, Exhibit E). certificates, and that they are not answerable for the
Under date 9 February 1967 defendant IRC thru its insolvency of OBM They filed a counterclaim for
President-defendant Raul L. Santos, applied for a loan damages against PNB and a cross-claim against OBM
and/or credit line (Exhibit A) in the amount of P alleging that OBM acted fraudulently in refusing to pay
700,000.00 with plaintiff bank. To secure the said loan, the time deposit certificates to PNB resulting in the filing
defendant Raul L. Santos executed on August 11, 1967 a of the suit against them by PNB, and that, therefore,
Deed of Assignment (Exhibit C) of the two time deposits OBM should pay them whatever amount they may be
(Exhibits 1-Santos and 2 Santos, also Exhibits D and E) ordered by the court to pay PNB with interest. They also
in favor of plaintiff. Defendant OBM gave its conformity to asked that OBM be ordered to pay them compensatory,
the assignment thru letter dated 11 August 1967 (Exhibit moral, exemplary and corrective damages.
F). On the same date, defendant IRC thru its President In its answer to the complaint, OBM denied knowledge of
Raul L. Santos, also executed a Deed of Conformity to the time deposit certificates because the alleged time
Loan Conditions (Exhibit G). deposit of Santos 'does not appear in its books of
The defendant OBM after the due dates of the time account.
deposit certificates, did not pay plaintiff PNB. Plaintiff Whereupon, IRC and Santos, with leave of court, filed a
third-party complaint against Emerito B. Ramos, Jr., effective February 28, 1968 and additional penalty
president of OBM and Rodolfo R. Sunico, treasurer of interest of 1% per annum of the Id amount of P
said bank, who allegedly received the time deposits of 700,000.00 from the time of maturity of Id loan up to the
Santos and issued the certificates therefor. time the said amount of P 700,000.00 is actually paid to
Answering the third-party complaint, Ramos and Sunico the plaintiff;
alleged that IRC and Santos have no cause of action 2. The defendants topay l0% of the amount of P
against them because they received and signed the time 700,000.00 as and for attorney's fees;
deposit certificates as officers of OBM that the time 3. The defendant Overseas Bank of Manila to pay cross-
deposits are recorded in the subsidiary ledgers of the plaintiffs Integrated Realty Corporation and Raul L.
bank and are 'civil liabilities of the defendant OBM Santos whatever amounts the latter will pay to the
On November 18, 1970, OBM filed an amended or plaintiff with interest from date of payment;
supplemental answer to the complaint, acknowledging 4. The defendant Overseas Bank of Manila to pay cross-
the certificates of time deposit that it issued to Santos, plaintiffs Integrated Realty Corporation and Raul L.
and admitting its failure to pay the same due to its Santos the amount of P 10,000.00 as and for attorney's
distressed financial situation. As affirmative defenses, it fees;
alleged that by reason of its state of insolvency its 5. The third-party complaint and cross-claim dismissed;
operations have been suspended by the Central Bank 6. The defendant Overseas Bank of Manila to pay the
since August 1, 1968; that the time deposits ceased to costs.
earn interest from that date; that it may not give SO ORDERED. 5
preference to any depositor or creditor; and that payment IRC Santos and OBM all appealed to the respondent
of the plaintiffs claim is prohibited. Court of Appeals. As stated in limine, on March 16, 1982
On January 30, 1976, the lower court rendered judgment respondent court promulgated its appealed decision, with
for the plaintiff, the dispositive portion of which reads as a modification and the deletion of that portion of the
foIlows judgment of the trial court ordering OBM to pay IRC and
WHEREFORE, judgment is hereby rendered, ordering: Santos whatever amounts they will pay to PNB with
1. The defendant Integrated Realty Corporation and Raul interest from the date of payment.
L. Santos to pay the plaintiff, jointly and solidarily, the Therein defendants-appellants, through separate
total amount of P 700,000.00 plus interest at the rate of petitions, have brought the said decision to this Court for
9% per annum from maturity dates of the two promissory review.
notes on January 11 and February 6, 1968, respectively 1. The first issue posed before us for resolution is
(Exhibits M and I), plus 1-1/ 2% additional interest whether the liability of IRC and Santos with PNB should
be deemed to have been paid by virtue of the deed of assignment of the time deposit certificates to PNB
assignment made by the former in favor of PNB, which constituted payment' of their obligation to the latter is not
reads: well taken.
KNOW ALL MEN BY THESE PRESENTS; Where a certificate of deposit in a bank, payable at a
I, RAUL L. SANTOS, of legal age, Filipino, with residence future day, was handed over by a debtor to his creditor, it
and postal address at 661 Richmond St., Mandaluyong, was not payment, unless there was an express
Rizal for and in consideration of certain loans, overdrafts agreement on the part of the creditor to receive it as
and other credit accommodations granted or those that such, and the question whether there was or was not
may hereafter be granted to me/us by the PHILIPPINE such an agreement, was one of facts to be decided by
NATIONAL BANK, have assigned, transferred and the jury. (Downey vs. Hicks, 55 U.S. [14 How.] 240 L. Ed.
conveyed and by these presents, do hereby assign, 404; See also Michie, Vol. 5-B Banks and Banking, p.
transfer and convey by way of security unto said 200). 7
PHILIPPINE NATIONAL BANK its successors and We uphold respondent court on this score.
assigns the following Certificates of Time Deposit issued In Lopez vs. Court of appeals, et al., 8 petitioner Benito
by the OVERSEAS BANK OF MANILA, its Lopez obtained a loan for P 20,000.00 from the
CONFORMITY issued on August 11, 1967, hereto Prudential Bank and Trust Company. On the same day,
enclosed as Annex ' A', in favor of RAUL L. SANTOS he executed a promissory note in favor of the bank and,
and/or NORA S. SANTOS, in the aggregate sum of in addition, he executed a surety bond in which he, as
SEVEN HUNDRED THOUSAND PESOS ONLY (P principal, and Philippine American General Insurance
700,000.00), Philippine Currency, .... Co., Inc. (Philamgen), as surety, bound themselves
xxx xxx xxx jointly and severally in favor of the bank for the payment
It is also understood that the herein Assignor/s shall of the loan. On the same occasion, Lopez also executed
remain hable for any outstanding balance of his/their in favor of Philamgen an indemnity agreement whereby
obligation if the Bank is unable to actually receive or he agreed to indemnify the company against any
collect the above assigned sums , monies or properties damages which the latter may sustain in consequence of
resulting from any agreements, orders or decisions of the having become a surety upon the bond. At the same
court or for any other cause whatsoever. 6 time, Lopez executed a deed of assignment of his shares
xxx xxx xxx of stock in the Baguio Military Institute, Inc. in favor of
Respondent Court of Appeals did not consider the Philamgen. When Lopez' obligation matured without
aforesaid assignment as payment, thus: being settled, Philamgen caused the transfer of the
The contention of IRC and Santos that the irrevocable shares of stocks to its name in order that it may sell the
same and apply the proceeds thereof in payment of the considered together as related transactions because in
loan to the bank. However, when no payment was still order to judge the intention of the contracting parties,
made by the principal debtor or surety, the bank filed a their contemporaneous and subsequent acts shall be
complaint which compelled Philamgen to pay the bank. principally considered. (Article 1371, New Civil Code).
Thereafter, Philamgen filed an action to recover the Thus, considering that the indemnity agreement connotes
amount of the loan against Lopez. The trial court therein a continuing obligation of Lopez towards Philamgen while
held that the obligation of Lopez was deemed paid when the stock assignment indicates a complete discharge of
his shares of stocks were transferred in the name of the same obligation, the existence of the indemnity
Philamgen. On appeal, the Court of Appeals ruled that agreement whereby Lopez had to pay a premium of P
Lopez was still liable to Philamgen because, pending l,000.00 for a period of one year and agreed at all times
payment, Philamgen was merely holding the stock as to indemnify Philamgen of any and all kinds of losses
security for the payment of Lopez' obligation. which the latter might sustain by reason of it becoming a
In upholding the finding therein of the Court of Appeals, surety, is inconsistent with the theory of an absolute sale
We held that: for and in consideration of the same undertaking of
Notwithstanding the express terms of the 'Stock Philamgen. There would have been no necessity for the
Assignment Separate from Certificate', however, We hold execution of the indemnity agreement if the stock
and rule that the transaction should not be regarded as assignment was really intended as an absolute
an absolute conveyance in view of the circumstances conveyance. ...
obtaining at the time of the execution thereof. Along the same vein, in the case at bar it would not have
It should be remembered that on June 2, 1959, the day been necessary on the part of IRC and Santos to execute
Lopez obtained a loan of P 20,000.00 from Prudential promissory notes in favor of PNB if the assignment of the
Bank, Lopez executed a promissory note for P time deposits of Santos was really intended as an
20,000.00, plus interest at the rate of ten (10%) per cent absolute conveyance.
per annum, in favor of said Bank. He likewise posted a There are cogent reasons to conclude that the parties
surety bond to secure his full and faithful performance of intended said deed of assignment to complement the
his obligation under the promissory note with Philamgen promissory notes. In declaring that the deed of
as his surety. In return for the undertaking of Philamgen assignment did not operate as payment of the loan so as
under the surety bond, Lopez executed on the same day to extinguish the obligations of IRC and Santos with PNB,
not only an indemnity agreement but also a stock the trial court advanced several valid bases, to wit:
assignment. a. It is clear from the Deed of Assignment that it was only
The indemnity agreement and stock assignment must be by way of security;
xxx xxx xxx ownership will not be given that effect in such a
b. The promissory notes (Exhibits H and I) were executed transaction if they are also commonly used in pledges
on August 16, 1967. If defendants IRC and Raul L. and mortgages and therefore do not unqualifiedly
Santos, upon executing the Deed of Assignment on indicate a transfer of absolute ownership, in the absence
August 11, 1967 had already paid their loan of P of clear and unambiguous language or other
700,000.00 or otherwise extinguished the same, why circumstances excluding an intent to pledge. 10
were the promissory notes made on August 16, 1967 still The facts and circumstances leading to the execution of
executed by IRC and signed by Raul L. Santos as the deed of assignment, as found by the court a quo and
President? the respondent court, yield said conclusion that it is in
c. In the application for a credit line (Exhibit A),the time fact a pledge. The deed of assignment has satisfied the
deposits were offered as collateral. 9 requirements of a contract of pledge (1) that it be
For all intents and purposes, the deed of assignment in constituted to secure the fulfillment of a principal
this case is actually a pledge. Adverting again to the obligation; (2) that the pledgor be the absolute owner of
Court's pronouncements in Lopez, supra, we quote the thing pledged; (3) that the persons constituting the
therefrom: pledge have the free disposal of their property, and in the
The character of the transaction between the parties is to absence thereof, that they be legally authorized for the
be determined by their intention, regardless of what purpose. 11 The further requirement that the thing
language was used or what the form of the transfer was. pledged be placed in the possession of the creditor, or of
If it was intended to secure the payment of money, it a third person by common agreement 12 was complied
must be construed as a pledge; but if there was some with by the execution of the deed of assignment in favor
other intention, it is not a pledge. However, even though of PNB.
a transfer, if regarded by itself, appears to have been It must also be emphasized that Santos, as assignor,
absolute, its object and character might still be qualified made an express undertaking that he would remain liable
and explained by a contemporaneous writing declaring it for any outstanding balance of his obligation should PNB
to have been a deposit of the property as collateral be unable to actually receive or collect the assigned
security. It has been said that a transfer of property by sums resulting from any agreements, orders or decisions
the debtor to a creditor, even if sufficient on its face to of the court or for any other cause whatsoever. The term
make an absolute conveyance, should be treated as a "for any cause whatsoever" is broad enough to include
pledge if the debt continues in existence and is not the situation involved in the present case.
discharged by the transfer, and that accordingly, the use Under the foregoing circumstances and considerations,
of the terms ordinarily importing conveyance, of absolute the unavoidable conclusion is that IRC and Santos
should be held liable to PNB for the amount of the loan obligated to pay stipulated interest. Conventional wisdom
with the corresponding interest thereon. dictated; this inexorable fair and just conclusion. And it
2. We find nothing illegal in the interest of one and one- can be said that all who deposit money in banks are
half percent (1-1/2%) imposed by PNB pursuant to the aware of such a simple economic proposition petition.
resolution of its Board which presumably was done in Consequently, it should be deemed read into every
accordance with ordinary banking procedures. Not only contract of deposit with a bank that the obligation to pay
did IRC and Santos fail to overcome the presumption of interest on the deposit ceases the moment the operation
regularity of business transactions, but they are likewise of the bank is completely suspended by the duly
estopped from questioning the validity thereof for the first constituted authority, the Central Bank.
time in this petition. There is nothing in the records to We consider it of trivial consequence that the stoppage of
show that they raised this issue during the trial by the bank's operation by the Central Bank has been
presenting countervailing evidence. What was merely subsequently declared illegal by the Supreme Court, for
touched upon during the proceedings in the court below before the Court's order, the bank had no alternative
was the alleged lack of notice to them of the board under the law than to obey the orders of the Central
resolution, but not the veracity or validity thereof. Bank. Whatever be the juridical significance of the
3. On the issue of whether OBM should be held liable for subsequent action of the Supreme Court, the stubborn
interests on the time deposits of IRC and Santos from the fact remained that the petitioner was totally crippled from
time it ceased operations until it resumed its business, then on from earning the income needed to meet its
the answer is in the negative. obligations to its depositors. If such a situation cannot,
We have held in The Overseas Bank of Manila vs. Court strictly speaking, be legally denominated as 'force
of Appeals and Tony D. Tapia, 13 that: majeure', as maintained by private respondent, We hold it
It is a matter of common knowledge, which We take is a matter of simple equity that it be treated as such.
judicial notice of, that what enables a bank to pay The Court further adjured that:
stipulated interest on money deposited with it is that thru Parenthetically, We may add for the guidance of those
the other aspects of its operation it is able to generate who might be concerned, and so that unnecessary
funds to cover the payment of such interest. Unless a litigations be avoided from further clogging the dockets of
bank can lend money, engage in international the courts, that in the light of the considerations
transactions, acquire foreclosed mortgaged properties or expounded in the above opinion, the same formula that
their proceeds and generally engage in other banking exempts petitioner from the payment of interest to its
and financing activities from which it can derive income, it depositors during the whole period of factual stoppage of
is inconceivable how it can carry on as a depository its operations by orders of the Central Bank, modified in
effect by the decision as well as the approval of a formula earn from the time the bank's operations were stopped
of rehabilitation by this Court, should be, as a matter of until the date of payment of the deposits. As to the first-
consistency, applicable or followed in respect to all other class, we hold that it should be paid because such
obligations of petitioner which could not be paid during interest has been earned in the ordinary course of the
the period of its actual complete closure. bank's businesses and before the latter has been
We cannot accept the holding of the respondent Court of declared in a state of liquidation. Moreover, the bank
Appeals that the above-cited decisions apply only where being authorized by law to make use of the deposits with
the bank is in a state of liquidation. In the very case the limitation stated, to invest the same in its business
aforecited, this issue was likewise raised and We and other operations, it may be presumed that it bound
resolved: itself to pay interest to the depositors as in fact it paid
Thus, Our task is narrowed down to the resolution of the interest prior to the dates of the Id claims. As to the
legal problem of whether or not, for purposes of the interest which may be charged from the date the bank
payment of the interest here in question, stoppage of the ceased to do business because it was declared in a state
operations of a bank by a legal order of liquidation may of liquidation, we hold that the said interest should not be
be equated with actual cessation of the bank's operation, paid.
not different, factually speaking, in its effects, from legal The Court of Appeals considered this ruling inapplicable
liquidation the factual cessation having been ordered by to the instant case, precisely because, as contended by
the Central Bank. private respondent, the said Apothecaries case had in
In the case of Chinese Grocer's Association, et al. vs. fact in contemplation a valid order of liquidation of the
American Apothecaries, 65 Phil. 395, this Court held: bank concerned, whereas here, the order of the Central
As to the second assignment of error, this Court, in G.R. Bank of August 13, 1968 completely forbidding herein
No. 43682, In re Liquidation of the Mercantile Bank of petitioner to do business preparatory to its liquidation was
China, Tan Tiong Tick, claimant and appellant vs. first restrained and then nullified by this Supreme Court.
American Apothecaries, C., et al., claimants and In other words, as far as private respondent is
appellees, through Justice Imperial, held the following: concerned, it is the legal reason for cessation of
4. The court held that the appellant is not entitled to operations, not the actual cessation thereof, that matters
charge interest on the amounts of his claims, and this is and is decisive insofar as his right to the continued
the object of the second assignment of error, Upon this payment of the interest on his deposit during the period
point a distinction must be made between the interest of cessation is concerned.
which the deposits should earn from their existence until In the light of the peculiar circumstances of this particular
the bank ceased to operate, and that which they may case, We disagree. It is Our considered view, after
mature deliberation, that it is utterly unfair to award respondent Santos invested his money in time deposits
private respondent his prayer for payment of interest on with OBM they entered into a contract of simple loan or
his deposit during the period that petitioner bank was not mutuum, 18 not a contract of deposit.
allowed by the Central Bank to operate. While it is true that under Article 1956 of the Civil Code
4. Lastly, IRC and Santos claim that OBM should no interest shall be due unless it has been expressly
reimburse them for whatever amounts they may be stipulated in writing, this applies only to interest for the
adjudged to pay PNB by way of compensation for use of money. It does not comprehend interest paid as
damages incurred, pursuant to Articles 1170 and 2201 of damages. 19 OBM contends that it had agreed to pay
the Civil Code. interest only up to the dates of maturity of the certificates
It appears that as early as April, 1967, the financial of time deposit and that respondent Santos is not entitled
situation of OBM had already caused mounting concern to interest after the maturity dates had expired, unless
in the Central Bank. 14 On December 5, 1967, new the contracts are renewed. This is true with respect to the
directors and officers drafted from the Central Bank (CB) stipulated interest, but the obligations consisting as they
itself, the Philippine National Bank (PNB) and the did in the payment of money, under Article 1108 of the
Development Bank of the Philippines (DBP) were elected Civil Code he has the right to recover damages resulting
and installed and they took over the management and from the default of OBM and the measure of such
control of the Overseas Bank. 15 However, it was only on damages is interest at the legal rate of six percent (6%)
July 31, 1968 when OBM was excluded from clearing per annum on the amounts due and unpaid at the
with the CB under Monetary Board Resolution No. 1263. expiration of the periods respectively provided in the
Subsequently, on August 2, 1968, pursuant to Resolution contracts. In fine, OBM is being required to pay such
No. 1290 of the CB OBM's operations were suspended. interest, not as interest income stipulated in the
16 These CB resolutions were eventually annulled and set certificates of time deposit, but as damages for failure
aside by this Court on October 4, 1971 in the decision and delay in the payment of its obligations which thereby
rendered in the herein cited case of Ramos. compelled IRC and Santos to resort to the courts.
Thus, when PNB demanded from OBM payment of the The applicable rule is that legal interest, in the nature of
amounts due on the two time deposits which matured on damages for non-compliance with an obligation to pay a
January 11, 1968 and February 6, 1968, respectively, sum of money, is recoverable from the date judicial or
there was as yet no obstacle to the faithful compliance by extra-judicial demand is made, 20 Which latter mode of
OBM of its liabilities thereunder. Consequently, for having demand was made by PNB, after the maturity of the
incurred in delay in the performance of its obligation, certificates of time deposit, on March 1, 1968. 21 The
OBM should be held liable for damages. 17 When measure of such damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed total amount of seven hundred thousand pesos (P
upon in the certificates of deposit 22 Which is six and 700,000.00), with interest thereon at the rate of nine
onehalf percent (6-1/2%). Such interest due or accrued percent (9%) per annum from the maturity dates of the
shall further earn legal interest from the time of judicial two promissory notes on January 11 and February 6,
demand. 23 1968, respectively, plus one and one-half percent (1-
We reject the proposition of IRC and Santos that OBM 1/2%) additional interest per annum effective February
should reimburse them the entire amount they may be 28, 1968 and additional penalty interest of one percent
adjudged to pay PNB. It must be noted that their liability (1%) per annum of the said amount of seven hundred
to pay the various interests of nine percent (9%) on the thousand pesos (P 700,000.00) from the time of maturity
principal obligation, one and one-half percent (1-1/2%) of said loan up to the time the said amount of seven
additional interest and one percent (1%) penalty interest hundred thousand pesos (P 700,000.00) is fully paid to
is an offshoot of their failure to pay under the terms of the Philippine National Bank.
two promissory notes executed in favor of PNB. OBM 2. Integrated Realty Corporation and Raul L. Santos to
was never a party to Id promissory notes. There is, pay solidarily Philippine National Bank ten percent (10%)
therefore, no privity of contract between OBM and PNB of the amount of seven hundred thousand pesos (P
which will justify the imposition of the aforesaid interests 700,000.00) as and for attorney's fees.
upon OBM whose liability should be strictly confined to 3. Overseas Bank of Manila to pay Integrated Realty
and within the provisions of the certificates of time Corporation and Raul L. Santos the sum of seven
deposit involved in this case. In fact, as noted by hundred thousand pesos (P 700,000.00) due under Time
respondent court, when OBM assigned as error that Deposit Certificates Nos. 2308 and 2367, with interest
portion of the judgment of the court a quo requiring OBM thereon of six and one-half percent (6-1/2%) per annum
to make the disputed reimbursement, IRC and Santos did from their dates of issue on January 11, 1967 and
not dispute that objection of OBM Besides, IRC and February 6, 1967, respectively, until the same are fully
Santos are not without fault. They likewise acted in bad paid, except that no interest shall be paid during the
faith when they refuse to comply with their obligations entire period of actual cessation of operations by
under the promissory notes, thus incurring liability for all Overseas Bank of Manila;
damages reasonably attributable to the non-payment of 4. Overseas Bank of Manila to pay Integrated Realty
said obligations. 24 Corporation and Raul L. Santos six and one-half per cent
WHEREFORE, judgment is hereby rendered, ordering: (6-1/2%) interest in the concept of damages on the
1. Integrated Realty Corporation and Raul L. Santos to principal amounts of said certificates of time deposit from
pay Philippine National Bank, jointly and severally, the the date of extrajudicial demand by PNB on March 1,
1968, plus legal interest of six percent (6%) on said amount is paid in full;
interest from April 6, 1968, until fifth payment thereof, 2. The Appellant BSAI is hereby ordered to pay to the
except during the entire period of actual cessation of appellant Republic of the Philippines the amount of
operations of said bank. P50,000.00 as and by way of exemplary damages.
5. Overseas Bank of Manila to pay Integrated Realty No pronouncement as to cost.
Corporation and Raul L. Santos ten thousand pesos (P SO ORDERED.[if !supportFootnotes][2][endif]
l0,000.00) as and for attorney's fees. Petitioner Bataan Seedling Association, Inc. (BSAI
SO ORDERED. for brevity) entered into a Community Based
Reforestation Contract on October 26, 1990 with the
BATAAN SEEDLING ASSOCIATION, INC. and Republic of the Philippines, represented by the
CARLOS VALENCIA, petitioners, vs. Department of Environment and Natural Resources
REPUBLIC OF THE PHILIPPINES, (DENR). Under said contract, BSAI, in consideration of
represented by the DEPARTMENT OF the amount of Nine Hundred Seventy Five Thousand
ENVIRONMENT and NATURAL RESOURCES, One Hundred Twenty Six Pesos and Sixty One Centavos
respondent. (P975,126.61), bound itself to undertake the reforestation
RESOLUTION of a fifty-hectare open/denuded forest land in Barangay
AUSTRIA-MARTINEZ, J.: Liyang, Pilar, Bataan within a period of three (3) years.[if
Before us is a petition for review on certiorari under !supportFootnotes][3][endif] BSAI likewise undertook to report to

Rule 45 of the Rules of Court which seeks to set aside the DENR any event or condition which delays or may
the Decision promulgated on October 14, 1998 by the delay or prevent completion of the work,[if
Court of Appeals in CA-G.R. CV No. 52545,[if !supportFootnotes][4][endif] and submit progress billings and
!supportFootnotes][1][endif] affirming with modification the accomplishment reports.[if !supportFootnotes][5][endif]

decision of the Regional Trial Court of Quezon City. The Concomitant with the contract is the Project Development
dispositive portion of the assailed Decision reads: Plan and the Approved Schedule of Progress Payments
IN THE LIGHT OF ALL THE FOREGOING, the Decision detailing the annual cash flow and schedule of activities
appealed from is AFFIRMED with the following within the three-year period,[if !supportFootnotes][6][endif] and the
modifications: Contract of Undertaking providing for the mobilization
1. The Appellants are hereby ordered to pay, jointly and fund in the amount of Seventy Five Thousand Fifty Four
severally, to the Republic of the Philippines, the principal Pesos and Sixty Six Centavos (P75,054.66).[if
amount of P56,290.69, with interest thereon at the rate of !supportFootnotes][7][endif] Said fund was allotted and released

12% per annum, from January 27, 1994 until the said by respondent to enable BSAI to start with the project,
but the fund was to be returned to respondent upon !supportFootnotes][9][endif]

completion of the project or deducted from the periodic Due to their failure to respond to the notice of
release of moneys to petitioners.[if !supportFootnotes][8][endif] cancellation, as well as return the mobilization fund,
Believing that petitioners failed to comply with their respondent filed a Complaint for Damages against
obligations under the contract, respondent sent a notice petitioners,[if !supportFootnotes][10][endif] praying that the latter
of cancellation dated July 31, 1992 to petitioner Carlos jointly and solidarily pay actual damages in the amount of
Valencia, President of BSAI, asking the latter to show Seventy Five Thousand Fifty Four Pesos and Twenty
cause why the contract should not be terminated on the Five Centavos (P75,054.25) representing the portion of
following grounds: the mobilization fund released to them, and Sixty Two
1. Willful violation of the material terms and conditions, Thousand Pesos Four Hundred Fifty Pesos and Twenty
stipulations and covenants of the Contract, to wit: a) The Two Centavos (P62,450.22) as the amount paid under
association failed to fully plant/establish the whole 50- the accomplishment bills, totaling One Hundred Thirty
hectare contracted area during the first year of operations Seven Thousand Five Hundred Four Pesos and Forty
as provided for in the Contract; b) The seedlings raised in Seven Centavos (P137,504.47). Respondent also sought
the nursery were disposed of to other contractors and the liquidated damages equivalent to 0.1% of the total
seedlings left were practically overgrown indicating lack contract cost due to BSAIs delay in the performance of its
of proper care and maintenance; c) Inspite of the fact that obligations, and exemplary damages in the amount of
a forest fire occurred sometime in December, 1991, no Fifty Thousand Pesos (P50,000.00).[if !supportFootnotes][11][endif]
report was ever made to the DENR in violation of Article In their Amended Answer, petitioners deny the
1.1.5 of the Contract; d) The Association even failed to allegations, arguing that: (1) the whole area was totally
submit to the DENR accomplishment reports and other destroyed by a forest fire in December 1991 without their
relevant information required and expected from it. fault and negligence, which incident was duly reported to
2. Abandonment of the project area. The respondent, and (2) the cancellation was arbitrary.[if
PENRO/CENRO monitoring and Evaluation Team which !supportFootnotes][12][endif]

inspected the project area on March 18, 25 and 31, 1992 The Regional Trial Court of Quezon City, Branch
reported that except for the family that actually resides in 217, rendered its decision ordering petitioners to pay the
the bunkhouse, no laborers were observed at the project amount of Fifty Thousand Pesos (P50,000.00) as
area during the time of the field inspections. Even you exemplary damages.[if !supportFootnotes][13][endif] The trial court
failed to show up despite written and verbal notices held that respondent had sufficient grounds to cancel the
served to you. Finally, the photodocuments taken on the contract but saw no reason why the mobilization fund and
plantation illustrates clearly the abandoned project area.[if the advance payments should be refunded, or that
petitioners should be liable for liquidated damages. the fifty (50) hectares during the first (1st) year of the
Not satisfied, both respondent and petitioners program as their commitment under clause 1.1.9 of the
appealed the decision to the Court of Appeals. The Reforestation Contract was to turn-over to the DENR at
appellate court affirmed with modification the decision of the end of the third (3rd) year the contracted area of fifty
the trial court, adjudicating the balance of the mobilization hectares, fully planted and properly maintained.
fund refunded by petitioners in the amount of Fifty Six Petitioners also refute the finding that they abandoned
Thousand Two Hundred Ninety Pesos and Sixty Nine the project area, arguing that the investigation conducted
Centavos (P56,290.69) with 12% interest.[if by the PENCO/CENRO Monitoring and Evaluation Team
!supportFootnotes][14][endif] is suspect; and that its report ignored the fact that a
Hence, the petition for review on certiorari. forest fire occurred sometime in December 1991
Petitioners submit that the issues to be resolved are destroying the plants and seedlings already introduced in
as follows: the area. Petitioners further claim that their failure to
1. Whether the unilateral cancellation by the immediately report the fire and submit progress reports is
respondent of the Community-Based not a substantial breach of their undertaking to warrant
Reforestation Contract is invalid, being the cancellation of the contract; and that they cannot be
without factual and legal basis. made to refund the balance of the mobilization fund
because these correspond to the work already done in
the area. Finally, petitioners object to the award of
2. Whether the order to refund the amount of exemplary damages for being without legal and factual
P56,290.69 with interest at the rate of 12% basis.[if !supportFootnotes][16][endif]
per annum, representing the balance of On the issue of whether or not respondent had
the mobilization fund, is palpably sufficient basis to cancel the contract, both the trial and
erroneous as being contrary to the facts. [if appellate courts found that there was basis for the
!supportFootnotes][15][endif] cancellation. A perusal of the records of this case
confirms such finding.
True, under the reforestation contract, petitioners
At the outset, it must be stated that the foregoing were to turn over at the end of the third year the project
issues and the respective arguments in support thereof area fully planted and properly maintained.[if
!supportFootnotes][17][endif] However, the Project Development
have been raised by the parties and passed upon by both
the trial court and the appellate court. Plan, appended and made integral part of the contract,[if
!supportFootnotes][18][endif] specifically defines and details
Petitioners deny that they were bound to fully plant
petitioners undertaking. Under the Plan, the following they attempt to submit progress reports on the project,
tasks were to be completed during the first year of the which duties were expressly required of them under the
project: (1) survey and mapping of the whole fifty (50) contract. Thus, the appellate court correctly observed,
hectares; (2) nursery operations for fast-growth, medium- viz.:
growing, and slow-growth species; (3) plantation x x x The Appellant BSAI unabashedly admitted failing to
establishment, including site preparation, spot hoeing, establish/plant the project area. Under Section 1.1.5 of
staking, holing, and planting and seed transporting of the Contract, the Appellant BSAI was obliged to report to
83,333 pieces, medium-sized seedlings and sucklers in the DENR any event or condition which delayed or may
planting holes; and (4) infrastructure work, including the delay the progress or prevent the completion, of the work
development of footpath, graded trail, plantation road, under the time-table set forth under the contract or any
bunkhouse and look-out tower.[if !supportFootnotes][19][endif] relevant facts known to the Appellant BSAI. A fire in the
Spread out during the three-year period is the annual area which gutted the improvements in contract area
maintenance, protection, administration and supervision, occurred in December, 1991. However, the Appellant
and, monitoring and evaluation of the project area.[if BSAI never informed the DENR of said fire. Worse, the
!supportFootnotes][20][endif] Clearly, based on said schedule, Appellant BSAI did not anymore conduct any replanting
petitioners were to undertake the principal task of activities on the area, thus accounting, in part, for the
planting the fifty (50) hectare-project area during the 1st failure of the said Appellant to submit periodic progress
year of the project. What is to be carried out during the reports on its activities in said area. Even before the fire
entire 3-year period is the maintenance and aftercare of occurred, in December 1991, the Appellant BSAI already
the project site, and petitioners were to turn over the failed to submit any periodic reports of progress of its
project at the end of the third year fully planted and activities in the area. This prompted the DENR to conduct
established. Therefore, petitioners argument that they are an on the site inspection of the subject project area.
not bound to fully plant/establish the whole fifty (50) Indeed, Carlos Valencia and Hernani Salaya Jr., even
hectares during the 1st year of operations is without ignored the requests of DENR for them to be present
merit. during the said inspections. The DENR inspection team
Moreover, contrary to petitioners posture, there was found and discovered that the Appellant BSAI failed to
a material breach of the contract warranting its fully establish planting on the subject project area.
cancellation. One (1) year after the commencement of Instead of planting the seedlings on the project area, the
the project or sometime in December, 1991, a fire razed Appellant BSAI sold some of the seedlings because of its
the reforestation area. As admitted by petitioners, they failure to pay the nursery owner, Anilao Satellite Nursery,
failed to inform respondent of said incident. Neither did located in Pilar, Bataan for said seedlings. x x x[if
!supportFootnotes][21][endif] amended;[if !supportFootnotes][22][endif] (Emphasis Ours)
Petitioners attempt to trivialize their lapse, but the Court The amount of Seventy Five Thousand Fifty Four Pesos
believes that this is not merely a slight or casual breach, and Sixty Six Centavos (P75,054.66) advanced to BSAI,
but a substantial one giving sanction to the cancellation. represents 15% of Five Hundred Thousand Three
Under Clause 4.1 of the contract, respondents shall have Hundred Sixty One Pesos and Seventy Two Centavos
the right to suspend, terminate or cancel the contract (P500,361.72), the contract cost for the 1st year.[if
upon petitioners substantial failure to fulfill their !supportFootnotes][23][endif] When initial payment was made by

obligations, or a willful violation of the material conditions, respondent to petitioners on February 25, 1991, the
stipulations and covenants thereof. It can be concluded amount of Eighteen Thousand Seven Hundred Sixty
from the tenor of said clause that the parties intended Three Pesos and Fifty Six Centavos (P18,763.56), or 1/4
mandatory compliance with all the provisions of the of the mobilization fund, was deducted,[if
contract. As stated previously, among such provisions !supportFootnotes][24][endif] leaving a balance of Fifty Six

requiring strict adherence are the submission of progress Thousand Two Hundred Ninety Pesos and Sixty Nine
reports and the reporting of such event which may delay Centavos (P56,290.69). Respondent thereafter made no
or prevent the project. Hence, upon petitioners failure to deductions on the subsequent payments of the contract
comply with said obligations, respondent was well within price remitted to petitioners. Hence, they remain liable on
its right to cancel the contract by express grant of Clause the balance of said fund in the amount of Fifty Six
4.1. Thousand Two Hundred Ninety Pesos and Sixty Nine
Anent the refund of the mobilization fund, the Centavos (P56,290.69). We find no error committed by
Contract of Undertaking signed by petitioners is explicit in the Appellate Court on this matter.
this regard, to wit: Nevertheless, the appellate court erred in imposing
THAT BATAAN SEEDLING ASSOCIATION, a 12% interest on the amount due. In Eastern Shipping
INCORPORATED x x x, for and in consideration of the Lines, Inc. vs. Court of Appeals, we enunciated the
sum of Seventy Five Thousand Fifty four pesos and sixty following rules:
six centavos (P75,054.66) representing advance I. When an obligation, regardless of its source, i.e., law,
payment under said contract receipt of which is hereby contracts, quasi-contracts, delicts or quasi-delicts is
acknowledge in full, as hereby bind ourselves; breached, the contravenor can be held liable for
xxx damages. The provisions under Title XVIII on Damages
3. To repay the amount advanced in accordance with of the Civil Code govern in determining the measure of
the Contract of Reforestation and DENR recoverable damages.
Administration order No. 14 Series of 1989 as II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate 3. When the judgment of the court awarding a sum of
of interest, as well as the accrual thereof, is imposed, as money becomes final and executory, the rate of legal
follows: interest, whether the case falls under paragraph 1 or
1. When the obligation is breached, and it consists in the paragraph 2, above, shall be 12% per annum from such
payment of a sum of money, i.e., a loan or forbearance of finality until its satisfaction, this interim period being
money, the interest due should be that which may have deemed to be by then an equivalent to a forbearance of
been stipulated in writing. Furthermore, the interest due credit. [if !supportFootnotes][25][endif]
shall itself earn legal interest from the time it is judicially Interest at the rate of 12% per annum is imposable if
demanded. In the absence of stipulation, the rate of there is no stipulation in the contract. Herein subject
interest shall be 12% per annum to be computed from contract does not contain any stipulation as to interest.
default, i.e., from judicial or extrajudicial demand under However, the amount that is due the respondent does not
and subject to the provisions of Article 1169 of the Civil represent a loan or forbearance of money. The word
Code. forbearance is defined, within the context of usury law, as
2. When an obligation, not constituting a loan or a contractual obligation of lender or creditor to refrain,
forbearance of money, is breached, an interest on the during given period of time, from requiring borrower or
amount of damages awarded may be imposed at the debtor to repay loan or debt then due and payable. [if
discretion of the court at the rate of 6% per annum. No !supportFootnotes][26][endif] The contract between petitioner and

interest, however, shall be adjudged on unliquidated respondent is a Community Based Reforestation


claims or damages except when or until the demand can Contract by virtue of which petitioner undertook the
be established with reasonable certainty. Accordingly, reforestation of a fifty-hectare open/denuded forest land.
where the demand is established with reasonable The amount of Fifty Six Thousand Two Hundred Ninety
certainty, the interest shall begin to run from the time the Pesos and Sixty Nine Centavos (P56,290.69) due to
claim is made judicially or extrajudicially (Art. 1169, Civil respondent, represents the balance of the mobilization
Code) but when such certainty cannot be so reasonably fund which petitioner is obliged to return because of its
established at the time the demand is made, the interest failure to fully comply with its undertaking to plant the
shall begin to run only from the date the judgment of the entire area with seedlings within the period contracted for
court is made (at which time the quantification of reforestation. Under the reforestation contract, the fund
damages may be deemed to have been reasonably released to petitioner was supposed to be returned to
ascertained). The actual base for the computation of respondent upon completion of the project or deducted
legal interest shall, in any case, be on the amount finally from the periodic releases of money. Clearly therefrom,
adjudged. the amount of Fifty Six Thousand Two Hundred Ninety
Pesos and Sixty Nine Centavos (P56,290.69) was neither payment thereof.
a loan nor forbearance of money.
Thus, the above-quoted paragraph II, sub-
paragraph 1, applies to the present case. In the absence 2) The award of exemplary damages is reduced
of stipulation, the legal interest is six percent (6%) per from Fifty Thousand Pesos (P50,000.00)
annum[if !supportFootnotes][27][endif] on the amount finally to Twenty Thousand Pesos (P20,000.00).
adjudged by the Court.[if !supportFootnotes][28][endif]
In addition, under the above-quoted paragraph II,
sub-paragraph 3, the amount of Fifty Six Thousand Two SO ORDERED.
Hundred Ninety Pesos and Sixty Nine Centavos
(P56,290.69) shall earn 12% interest per annum from SPS. ERNESTO and MINA CATUNGAL, petitioners,
date of finality of herein judgment. vs. DORIS HAO, respondent.
Finally, the Court finds the award of Fifty Thousand DECISION
Pesos (P50,000.00) as exemplary damages to be KAPUNAN, J.:
excessive and should therefore be reduced to Twenty This is a petition for review of the Decision of the
Thousand Pesos (P20,000.00). Exemplary damages are Court of Appeals dated 10 March 1998 and Resolution
imposed not to enrich one party or impoverish another dated 30 July 1998 in the case entitled Doris Hao vs.
but to serve as a deterrent against or as a negative Sps. Ernesto and Mina Catungal docketed as CA-G.R.
incentive to curb socially deleterious actions.[if SP No. 46158. Said decision affirmed with modification
!supportFootnotes][29][endif]
the judgment rendered by the Regional Trial Court.
WHEREFORE, the petition is partly GRANTED and the The antecedents of this case are as follows:
assailed Decision is AFFIRMED with the following On December 28, 1972, the original owner, Aniana
MODIFICATIONS: Galang, leased a three-storey building situated at Quirino
1) The interest to be paid on the amount of Fifty Six Avenue, Baclaran, Paraaque, Metro Manila, to the Bank
Thousand Two Hundred Ninety Pesos and of the Philippine Islands (BPI) for a period of about fifteen
Sixty Nine Centavos (P56,290.69) shall be (15) years, to expire on June 20, 1986. During the
at the rate of 6% per annum from the Court existence of the lease, BPI subleased the ground floor of
of Appeals Decision dated October 14, said building to respondent Doris Hao.
1998. A twelve percent (12% ) interest, in On August 24, 1984, Galang and respondent
lieu of six percent (6%) shall be imposed executed a contract of lease on the second and third
upon finality of this decision, until full floors of the building. The lease was for a term of four (4)
years commencing on August 15, 1984 and ending on and the complaints in Civil Cases Nos. 88-491 and 90-
August 15, 1988. On August 15, 1986, petitioner spouses 758 were accordingly dismissed.
Ernesto and Mina Catungal bought the property from Not satisfied, respondent elevated the above
Aniana Galang. decision of the CA before this Court. We, however,
Invoking her right of first refusal purportedly based denied respondent's petition on April 10, 1996.[if
on the lease contract between her and Aniana Galang, !supportFootnotes][2][endif]

respondent filed a complaint for Annulment of Sale with The MeTC of Paraaque, after the reversal of the
Damages docketed as Civil Case No. 88-491 of the decision in Civil Case No. 90-758 for injunction,
Regional Trial Court (RTC) of Makati, Metro Manila. proceeded with the trial of the ejectment cases.
Meanwhile, the lease agreement between BPI and On January 22, 1997, the MeTC of Paraaque
Galang expired. rendered a Decision, the dispositive portion of which
Upon expiration of the lease agreements, petitioner reads:
spouses sent demand letters to respondent for her to In view of the foregoing, judgment is hereby rendered
vacate the building. The demand letters were unheeded ordering the defendant Doris T. Hao who is in actual
by respondent causing petitioners to file two complaints possession of the property and all persons claiming rights
for ejectment, docketed as Civil Cases Nos. 7666 and under her to vacate the premises in question and to pay
7667 of the Metropolitan Trial Court (MeTC) of Paraaque, the plaintiffs the amount of P20,000.00 a month from
Metro Manila. June 28, 1988, until she finally vacates the premises and
The institution of the ejectment cases prompted to pay attorneys fees of P20,000.00. With costs against
respondent to file an action for injunction docketed as the defendant.[if !supportFootnotes][3][endif]
Civil Case No. 90-758 of the RTC of Makati, to stop the Petitioners filed a motion for clarificatory or
MeTC of Paraaque from proceeding therewith pending amended judgment on the ground that although MeTC
the settlement of the issue of ownership raised in Civil "ordered the defendant to vacate the entire subject
Case No. 88-491. These two cases for annulment of sale property, it only awarded rent or compensation for the
and for injunction were also consolidated before Branch use of said property and attorney's fees for said ground
63 of the RTC of Makati which rendered a Decision dated floor and not the entire subject property. Compensation
September 19, 1991, granting the injunction and for the use of the subject property's second and third
annulling the contract of sale between Aniana Galang floors and attorney's fees as prayed for in Civil Case No.
and petitioners. 7767 were not awarded."[if !supportFootnotes][4][endif] In response
On appeal,[if !supportFootnotes][1][endif] the Court of to said motion, the MeTC issued an Order dated March
Appeals reversed and set aside the decision of the RTC 3, 1997, the dispositive portion of which reads:
In view of the foregoing, the Decision of this Court is disposition that this Court will award will still be subject to
hereby clarified in such a way that the dispositive portion the appeal taken by the defendant and considering
would read as follows: in view of the foregoing, judgment further that the supersedeas bond posted by the
is hereby rendered ordering the defendant Doris T. Hao defendant covered the increased rental.[if
who is in actual possession of the property and all !supportFootnotes][6][endif]

persons claiming rights under her to vacate the premises On September 30, 1997, the RTC of Paraaque,
and to pay the plaintiffs the amount of P8,000.00 a month Branch 259, rendered a Decision modifying that of the
in Civil Case No. 7666 for the use and occupancy of the MeTC, the dispositive portion of which reads:
first floor of the premises in question from June 28, 1998 In the Light of the foregoing, the appealed decision, being
until she finally vacates the premises and to pay the in accordance with law, is hereby affirmed as to the order
plaintiff a rental of P5,000.00 a month in Civil Case No. to vacate the property in question and modified as to the
7667 from June 28, 1988, until she finally vacates the amount of rentals which is hereby increased to
premises and to pay attorneys fees of P20,000.00. With P20,000.00 a month for the ground floor starting June 28,
costs against defendant. 1988 and P10,000.00 a month for the second floor and
So ordered.[if !supportFootnotes][5][endif] also P10,000.00 a month for the third floor (or) a total of
Petitioners sought reconsideration of the above P40,000.00 monthly rentals commencing June 28, 1988
order, praying that respondent be ordered to pay until the subject property has been vacated and
P20,000.00 monthly for the use and occupancy of the possession thereof turner [sic] over to the plaintiffs-
ground floor and P10,000.00 each monthly for the appellees; to pay attorneys fees in the amount of
second and third floors. P20,000.00; and with costs.[if !supportFootnotes][7][endif]
Respondent, on the other hand, filed a notice of In her Motion dated October 6, 1997, respondent
appeal. sought a reconsideration of the above ruling of the RTC.
Instead of resolving the motion for reconsideration, The same was denied on November 25, 1997.
on May 7, 1997, the MeTC of Paraaque issued an Order, Respondent elevated her case to the Court of
elevating the case to the Regional Trial Court: Appeals. The CA rendered the Decision subject of this
Considering the Motion for Reconsideration of the petition the dispositive portion thereof reads:
Order of this Court dated March 3, 1997 and the Wherefore, the decision appealed from is hereby
Comment and Opposition thereto of the counsel for the modified by reducing the amount of rentals for both the
defendant, the Court finds that the said Motion for second and third floors from P20,000.00 to P10,000.00
Reconsideration should already be addressed to the monthly. With this modification, the judgment below is
Regional Trial Court considering that whatever AFFIRMED in all other respects.[if !supportFootnotes][8][endif]
The parties filed their respective motions for IN THE ASSAILED DECISION, THE HONORABLE
reconsideration to the Court of Appeals. Petitioners COURT OF APPEALS GRAVELY ERRED IN
asked that the decision of the Regional Trial Court fixing REVERSING THE FINDINGS OF THE REGIONAL
the total monthly rentals at P40,000.00 be sustained. On TRIAL COURT BY USING AS BASIS FOR REDUCING
the other hand, respondent sought a revival of the THE RENTAL ONLY THE EVIDENCE SUBMITTED BY
decision of the MeTC on the ground that since petitioners THE PARTIES AND IGNORING CIRCUMSTANCES OF
did not interpose an appeal from the amended judgment WHICH THE REGIONAL TRIAL COURT PROPERLY
of the MeTC, the RTC could not validly increase the TOOK JUDICIAL NOTICE.
amount of rentals awarded by the former. B.
In its Resolution dated 30 July 1998, the Court of IN THE ASSAILED DECISION, THE HONORABLE
Appeals resolved the parties motions for reconsideration COURT OF APPEALS GRAVELY ERRED IN ITS
in favor of the respondent. It ruled that the motion for FINDINGS THAT THE REGIONAL TRIAL COURT HAD
reconsideration filed by the petitioners before the MeTC NO JURISDICTION TO MODIFY THE APPEALED
was a prohibited pleading under the Rules of Summary JUDGMENT BY INCREASING THE AWARD OF
Procedure. Such being the case, said motion for MONTHLY RENTALS FROM P13,000.00 TO
reconsideration did not produce any legal effect and thus P40,000.00.[if !supportFootnotes][10][endif]
the amended judgment of the MeTC had become final We required respondent to comment on the
and executory insofar as the petitioners are concerned. petition.[if !supportFootnotes][11][endif] In her
The dispositive portion of the CA's resolution reads as Comment/Compliance, respondent contends that the
follows: petition should be dismissed and the resolution of the
Wherefore, the decision appealed from is hereby case should be based on the following issues:
MODIFIED by reducing the monthly rentals for the 1. DID THE RESPONDENT APPELLATE COURT
first/ground floor from P20,000.00 to P8,000.00 and for COMMITTED [sic] ANY REVERSIBLE ERROR WHEN IT
the second and third floors from P10,000.00 each to CONSIDERED PETITIONERS' "MOTION FOR
P5,000.00 for both floors. With this modification the RECONSIDERATION" (ANNEX "I" - PETITION) FILED
judgment below is affirmed in all other respects. WITH THE MTC-COURT AS A PROHIBITVE [sic]
No pronouncement as to costs. PLEADING IN A SUMMARY PROCEDURE CASE SUCH
So ordered.[if !supportFootnotes][9][endif] AS THE ONE AT BAR[?]
Petitioners now come before this Court assigning 2. DID THE RESPONDENT APPELLATE COURT
the following errors: COMMITTED [sic] ANY REVERSIBLE ERROR WHEN IT
A. RESOLVED TO RESTORE, REINSTATE, AFFIRM AND
UPHOLD THE MTC - AMENDED JUDGMENT OF occupancy of the second and third floors of the building,
MARCH 3, 1997 FIXING THE TOTAL AWARD OF effective after the lapse of the original lease contract
P13,000.00 GROUNDED ON A PROHIBITIVE [sic] between respondent and the original owner of the
PLEADING AND FAILURE TO FILE A NOTICE OF building.
APPEAL[?] On the other hand, respondent insists on the ruling
3. DID THE APPELLATE COURT COMMITTED [sic] of the Metropolitan Trial Court, which was thereafter
ANY REVERSIBLEERROR WHEN IT RESOLVED TO reinstated by the Court of Appeals in its 30 July 1998
SUSTAIN RESPONDENT'S POSITION CONSISTENT Resolution, that the monthly rental rates of only
WITH THE LAW AND JURISPRUDENCE THAT FOR P8,000.00 for the first floor and P5,000.00 for each of the
PETITIONERS' FAILURE TO APPEAL AND HAVING second and third floors should prevail.
FILED A PROHIBITIVE [sic] PLEADING, THEY At the outset, it should be recalled that there existed
CANNOT ASK FOR AFFIRMATIVE RELIEF SUCH AS no consensual lessor-lessee relationship between the
INCREASE IN RENTAL[?][if !supportFootnotes][12][endif] parties. At most, what we have is a forced lessor-lessee
There is no question that after the expiration of the relationship inasmuch as the respondent, by way of
lease contracts which respondent contracted with Aniana detaining the property without the consent of herein
Galang and BPI, she lost her right to possess the petitioners, was in unlawful possession of the property
property since, as early as the actual expiration date of belonging to petitioner spouses.
the lease contract, petitioners were not negligent in We cannot allow the respondent to insist on the
enforcing their right of ownership over the property. payment of a measly sum of P8,000 for the rentals of the
While respondent was finally evicted from the first floor of the property in question and P5,000.00 for
leased premises, the amount of monthly rentals which each of the second and the third floors of the leased
respondent should pay the petitioners as forced lessors premises. The plaintiff in an ejectment case is entitled to
of said property from 20 June 1988 (for the ground floor) damages caused by his loss of the use and possession
and 15 August 1988 until 6 January 1998 (for the second of the premises.[if !supportFootnotes][13][endif] Damages in the
and third floors), or a period of almost ten years remains context of Section 17, Rule 70 of the 1997 Rules of Civil
to be resolved. Procedure is limited to rent or fair rental value or the
Petitioners, in the main, posit that there should be a reasonable compensation for the use and occupation of
reinstatement of the decision of the regional trial court the property.[if !supportFootnotes][14][endif] What therefore
which fixed the monthly rentals to be paid by herein constitutes the fair rental value in the case at bench?
respondent at the total of P40,000.00, P20,000.00 for the In ruling that the increased rental rates of
occupancy of the first floor, and P10,000.00 each for the P40,000.00 should be awarded the petitioners, the
regional trial court based its decision on the doctrine of P10,000.00 a month each for the second floor and third
judicial notice. The RTC held, thus: floor or a total of P40,000.00 monthly rentals as
While this Court is fully in agreement with the Court of appropriate and reasonable rentals for the use and
Origin that plaintiffs-appellees have the better right to the occupation of said premises.
possession of the premises in question being the present Finally, worth mentioning here as parallel is [the]
owners and the contract of lease between the former ruling of the Supreme Court in the case of Manila Bay
owner and herein defendant-appellant had already Club Corporation vs. Court of Appeals, 245 SCRA 715
expired, the amount of rentals as laid down in the and 731-732 citing Licmay vs. Court of Appeals, 215
Clarificatory Order dated 3 March 1997 is inadequate, if SCRA 1 (1992) and Commander Realty Inc. v. Court of
not unreasonable. Appeals, 168 SCRA 181. It reads as follows:
The Court a quo misappreciated the nature of the It is worth stressing at this juncture that the trial court had
property, its location and the business practice in the the authority to fix the reasonable value for the continued
vicinity and indeed committed an error in fixing the use and occupancy of the leased premises after the
amount of rentals in the aforementioned Order. Said termination of the lease contract, and that it was not
premises is situated along Quirino Avenue, a main bound by the stipulated rental in the contract of lease
thoroughfare in Barangay Baclaran, Paraaque, Metro since it is equally settled that upon termination or
Manila, a fully developed commercial area and the place expiration of the Contract of Lease, the rental stipulated
where the famous shrine of the Mother of Perpetual Help therein may no longer be the reasonable value for the
stands. Withal, devotees, traders, tourists and practically use and occupation of the premises as a result or by
people from all walks of life visit said barangay making it reason of the change or rise in values. Moreover, the trial
suitable for commerce, not to mention thousand of court can take judicial notice of the general increase in
residents therein. Needless to say, every square meter of rentals of real estate especially of business
said community is valuable for all kinds of business or establishments like the leased building owned by the
commerce of man. private respondents.[if !supportFootnotes][15][endif]
Further, considering that the questioned property We find that the RTC correctly applied and
has three floors and strategically located along the main construed the legal concept of judicial notice in the case
road and consistent with the prevailing rental rates in said at bench. Judicial knowledge may be defined as the
business area which is between P20,000.00 and cognizance of certain facts which a judge under rules of
P30,000.00 as testified to by Divina Q. Roco, a real legal procedure or otherwise may properly take or act
estate agent and Mina Catungal, this Court finds the upon without proof because they are already known to
amount of P20,000.00 a month for the ground floor and him, or is assumed to have, by virtue of his office.[if
!supportFootnotes][16][endif] Judicial cognizance is taken only of termination of the lease contract, and that it was not
those matters that are commonly known. The power of bound by the stipulated rental in the contract of lease
taking judicial notice is to be exercised by courts with since it is equally settled that upon termination or
caution; care must be taken that the requisite notoriety expiration of the contract of lease, the rental stipulated
exists; and every reasonable doubt on the subject should therein may no longer be the reasonable value for the
be promptly resolved in the negative.[if use and occupation of the premises as a result or by
!supportFootnotes][17][endif] Matters of judicial notice have three reason of the change or rise in values. Moreover, the trial
material requisites: (1) the matter must be one of court can take judicial notice of the general increase in
common and general knowledge; (2) it must be well and rentals of real estate especially of business
authoritatively settled and not doubtful or uncertain; and establishments like the leased building owned by the
(3) it must be known to be within the limits of jurisdiction private respondent.[if !supportFootnotes][19][endif]
of the court. The increased award of rentals ruled by the RTC is
The RTC correctly took judicial notice of the nature reasonable given the circumstances of the case at
of the leased property subject of the case at bench based bench. We note that respondent was able to deny
on its location and the commercial viability. The above petitioners the benefits, including possession, of their
quoted assessment by the RTC of the Baclaran area, rightful ownership over the subject property for almost a
where the subject property is located, is fairly grounded. decade.
Furthermore, the RTC also had factual basis in The Court of Appeals failed to justify its reduction of
arriving at the said conclusion, the same being based on the P40,000.00 fair rental value as determined by the
testimonies of witnesses, such as real estate broker RTC. Neither has respondent shown that the rental
Divina Roco and the petitioner Mina Catungal. pegged by the RTC is exorbitant or unconscionable. This
The RTC rightly modified the rental award from is because the burden of proof to show that the rental
P13,000.00 to P40,000.00, considering that it is settled demanded is unconscionable or exorbitant rests upon
jurisprudence that courts may take judicial notice of the private respondent as the lessee.[if !supportFootnotes][20][endif]
general increase in rentals of lease contract renewals Here, respondent neither discharged this burden when
much more with business establishments. Thus, We held she omitted to present any evidence at all on what she
in Manila Bay Club Corporation vs. Court of Appeals:[if considers to be fair rental value, nor did she controvert
!supportFootnotes][18][endif] the evidence submitted by petitioners by way of
It is worth stressing at this juncture that the trial court had testimonies of the real estate broker and petitioner Mina
the authority to fix the reasonable value for the continued Catungal. Thus, in Sia v. CA, we ruled:
use and occupancy of the leased premises after the xxx On the contrary, the records bear out that the
P5,000.00 monthly rental is a reasonable amount, perfected, thus:
considering that the subject lot is prime commercial real Considering the Motion for Reconsideration of the Order
property whose value has significantly increased and that of this Court dated March 3, 1997 and the Comment and
P5,000.00 is within the range of prevailing rental rates in Opposition thereto of the counsel for the defendant, the
that vicinity. Moreover, petitioner has not proffered Court finds the said Motion for Reconsideration should
controverting evidence to support what he believes to be already be addressed to the Regional Trial Court
the fair rental value of the leased building since the considering that whatever disposition that this Court will
burden of proof to show that the rental demanded is award will still be subject to the appeal taken by the
unconscionable or exorbitant rests upon the lessee. defendant and considering further that the supersedeas
Thus, here and now we rule, as we did in the case of bond posted by the defendant covered the increased
Manila Bay Club v. Court of Appeals, that petitioner rental.
having failed to prove its claim of excessive rentals, the In order that this case will be immediately forwarded to
valuation made by the Regional Trial Court, as affirmed the Regional Trial Court in view of the appeal of the
by the respondent Court of Appeals, stands.[if defendant, the Court deemed it wise not to act on the
!supportFootnotes][21][endif] said motion for reconsideration and submit the matter to
The Court of Appeals merely anchored its decision the Regional Trial Court who has the final say on whether
to reduce the P40,000.00 rental on procedural grounds. the rental or the premises in question will be raised or
According to the Court of Appeals, the motion for not.
reconsideration filed by petitioners before the MeTC is a It will be to the advantage of both parties that this Court
prohibited pleading under the Rule on Summary refrain from acting on the said Motion for Reconsideration
Procedure and did not have any effect in stalling the so as to expedite the remanding (sic) of this Court to the
running of the period to appeal the decision nor could it Regional Trial Court.[if !supportFootnotes][22][endif]
be considered as notice of appeal and consequently this When the MeTC referred petitioners motion to the
affected the elevation of the case to the RTC. Not having RTC for its disposition, respondent could have opposed
appealed the case to the RTC, the amended judgment of such irregularity in the proceeding.
the MeTC fixing the rental rate at P13,000.00 is final and This respondent failed to do. Before this Court,
executory as far as petitioners are concerned. respondent now insists that the petition should be denied
We disagree. A reading of the order issued by the on the ground that the Motion for Reconsideration filed
MeTC will show that said court elevated the issue on the before the MeTC is a prohibited pleading and hence
amount of rentals raised by the petitioner to the RTC could not be treated as a notice of appeal. Respondent is
because the appeal of respondent had already been precluded by estoppel from doing so. To grant
respondents prayer will not only do injustice to the above order. In fact, in their appeal memorandum,
petitioners, but also it will make a mockery of the judicial respondent spouses reiterated their claim, first ventilated
process as it will result in the nullity of the entire in their motion for reconsideration dated March 24, 1997,
proceedings already had on a mere technicality, a that the MTC grievously erred in finding that plaintiffs-
practice frowned upon by the Court. Our ruling in appellees are only entitled to a meager monthly rental of
Martinez, et al. vs. De la Merced, et al.[if P8,000.00 for the ground floor and P5,000.00 for the
!supportFootnotes][23][endif] is illustrative : second and third floors.
xxx In fine, these are acts amounting to a waiver of the Hence, while the entrenched procedure in this jurisdiction
irregularity of the proceedings. For it has been is that a party who has not himself appealed cannot
consistently held by this Court that while lack of obtain from the appellate court affirmative relief other
jurisdiction may be assailed at any stage, a party's active than those granted in the decision of the lower court, the
participation in the proceedings before a court without peculiar circumstances attendant to the ejectment cases
jurisdiction will estop such party from assailing such lack warrant a departure therefrom. The rule is premised on
of jurisdiction. the presumption that a party who did not interpose an
The Court of Appeals in the assailed Decision appeal is satisfied with the adjudication made by the
correctly observed that the peculiar circumstances lower court. Respondent spouses, far from showing
attendant to the ejectment cases warrant departure from satisfaction with the clarificatory order of March 3, 1997,
the presumption that a party who did not interject an assailed it in their motion for reconsideration which,
appeal is satisfied with the adjudication made by the however, was referred to the RTC for appropriate action
lower court: in view of the appeal taken by the petitioner. Clearly, the
As regard the issue on the propriety of the increase in the increase in the damages/rentals awarded by the MTC
award of damages/rentals made by the RTC, the Court was an issue the RTC could validly resolve in the
notes that, while respondent spouses did not formally ejectment cases.[if !supportFootnotes][24][endif]
appeal the decision in the ejectment cases, their motion Respondent, argues that ejectment cases are tried
for reconsideration assailing the clarificatory order under the Revised Rule on Summary Procedure,[if
reducing the award of damages/rentals was, by order of !supportFootnotes][25][endif] hence, the motion for reconsideration

the MTC, referred to the RTC for appropriate action. filed by petitioner was a prohibited pleading and could not
Reason for such action is stated in the Order of May 7, take the place of the required notice of appeal.
1997, thus: The argument by respondent is misleading. Simply
xxx because the case was one for ejectment does not
Neither petitioner nor respondent spouses assailed the automatically mean that the same was triable under the
Rules of Summary Procedure. At the time of the filing of petitioners had already moved for the execution of the
the complaint by petitioner in 1989, said Rules provide: decision awarding a smaller amount of damages or fair
SECTION 1. SCOPE - THIS RULE SHALL GOVERN rental value, the same is inconsistent with a petition
THE PROCEDURE IN THE METROPOLITAN TRIAL asking for a greater fair rental value and, therefore, a
COURTS, THE MUNICIPAL CIRCUIT TRIAL COURTS possible case of unjust enrichment in favor of the
IN THE FOLLOWING CASES: petitioners. We are not persuaded.
A. CIVIL CASES: In order to avoid further injustice to a lawful
(1) CASES OF FORCIBLE ENTRY AND UNLAWFUL possessor, an immediate execution of a judgment is
DETAINER, EXCEPT WHERE THE QUESTION OF mandated and the courts duty to order such execution is
OWNERSHIP IS INVOLVED, OR WHERE THE practically ministerial.[if !supportFootnotes][26][endif] In City of
DAMAGES OR UNPAID RENTALS SOUGHT TO BE Manila, et al. vs. CA, et al.,[if !supportFootnotes][27][endif] We held
RECOVERED BY THE PLAINTIFF EXCEED TWENTY that Section 8 (now Section 19), Rule 70, on execution
THOUSAND PESOS (P20,000.00) AT THE TIME OF pending appeal, also applies even if the plaintiff-lessor
THE FILING OF COMPLAINT. x x x appeals where, as in that case, judgment was rendered
In their complaint, petitioners prayed, among others, in favor of the lessor but it was not satisfied with the
for rentals for the period covering June 1988 to April increased rentals granted by the trial court, hence the
1989, at a rate of P20,000.00 for the first floor alone, as appeal xxx.
well as P10,000.00 for attorney's fees. Clearly, As above discussed, the petitioners have long been
considering the amount of rentals and damages claimed deprived of the exercise of their proprietary rights over
by petitioners, said case before the MeTC was not the leased premises and the rightful amount of rentals at
governed by the Rules on Summary Procedure. Said the rate of P40,000.00 a month. Consequently,
case was governed by the ordinary rules where the petitioners are entitled to accrued monthly rentals of
general proposition is that the filing of a motion for P27,000.00, which is the difference between P40,000.00
reconsideration of a final judgment is allowed. In the awarded by the Regional Trial Court and P13,000.00
interest of substantial justice, in this particular case, we awarded by the MeTC and affirmed by the Court of
rule that the MeTC did not err in treating the motion for Appeals. Said amount of P27,000.00 should rightly be
reconsideration filed by petitioner as a notice of appeal. the subject of another writ of execution being distinct
Finally, respondent questions why petitioners would from the subject of the first writ of execution filed by
want to reinstate the RTC decision when in fact they had petitioners.
already applied for a writ of execution of the 8 March The Court also awards interest in favor of
1997 Decision. Respondent is of the view that since petitioners. In Eastern Shipping Lines, Inc. vs. Court of
Appeals, we gave the following guidelines in the award of August 1988 (for the second and third floors) of the
interest: subject property until the time she vacated the premises
xxx on 7 January 1998;
II With regard particularly to an award of interest in the 2. Legal interest of twelve percent (12%) per annum on
concept of actual and compensatory damages, the rate the foregoing sum from the date of notice of demand on
of interest, as well as the accrual thereof, is imposed, as 27 September 1988 until fully paid;
follows: 3. The sum of Twenty Thousand Pesos (P20,000.00) as
1. When the obligation is breached, and it consists in the and for attorneys fees and;
payment of a sum of money, i.e., a loan or forbearance of 4. The costs of suit.
money, the interest due should be that which may have SO ORDERED.
been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
demanded. In the absence of stipulation, the rate of petitioners, vs. THE HON. COURT OF APPEALS, and
interest shall be 12% per annum to be computed from CALVIN & ELSA ARCILLA, respondents.
default, i.e., from judicial or extrajudicial demand under DECISION
and subject to the provisions of Article 1169 of the Civil GONZAGA_REYES, J.:
Code. Before us is a Petition for Review on Certiorari of the
The back rentals in this case being equivalent to a Decision of the Court of Appeals[if !supportFootnotes][1][endif] in
loan or forbearance of money, the interest due thereon in CA-G.R. CV No. 45891 entitled CALVIN S. ARCILLA and
twelve percent (12%) per annum from the time of extra- ELSA B. ARCILLA vs. BANCO FILIPINO SAVINGS and
judicial demand on September 27, 1988. MORTGAGE BANK, ET. AL. which affirmed the decision
WHEREFORE, premises considered, judgment is hereby of the Regional Trial Court (RTC), Branch 33, Manila
rendered in favor of petitioners by reinstating the ordering BANCO FILIPINO to pay CALVIN and ELSA
decision of the RTC, with modifications, and ordering ARCILLA the amount of P126,139.00 with interest
respondent to further pay: thereon at 12% per annum from the filing of the
1. The sum of Twenty Seven Thousand Pesos complaint.
(P27,000.00), corresponding to the difference between The undisputed facts as found by the Court of Appeals
the P40,000.00 awarded by the Regional Trial Court and are as follows:
the P13,000.00 awarded by the Metropolitan Trial Court, "Elsa Arcilla and her husband, Calvin Arcilla, the
as monthly arrears, computed from respondents unlawful Appellees in the present recourse,
detainer, 20 June 1988 (for the ground floor) and 15 secured, on three (3) occasions, loans
from the Banco Filipino Savings and security for the payment of said loans
Mortgage Bank, the Appellant in the were consolidated (pages 33-35,
present recourse, in the total amount of Record). Likewise, under said deed,
P107,946.00 as evidenced by the loan of the Appellees from the
"Promissory Note" executed by the Appellant was increased to
Appellees in favor of the Appellant. To P188,000.00. The Appellees executed
secure the payment of said loans, the a "Promissory Note", dated January 15,
Appellees executed "Real Estate 1975, whereby they bound and obliged
Mortgages" in favor of the Appellants themselves, jointly and severally, to
over their parcels of land located in BF- pay the Appellant the aforesaid amount
Paraaque, covered by Transfer of P188,000.00 with interest at the rate
Certificate of Title Nos. 444645, of 12% per annum, in nineteen (19)
450406, 450407 and 455410 of the years from date thereof, in stated
Registry of Deeds of Paraaque installments of P2,096.93 a month
(Annexes "B" to "B-2", Amended (page 32, Records).
Complaint). Under said deeds, the On January 2, 1976, the Central Bank of the Philippines
Appellant may increase the rate of issued Central Bank Circular No. 494, quoted infra, as
interest, on said loans, within the limits follows:
allowed by law, as Appellants Board of xxx
Directors may prescribe for its 3. The maximum rate of interest, including commissions,
borrowers. At that time, under the premiums, fees and other charges on
Usury Law, Act 2655, as amended, the loans with maturity of more than seven
maximum rate of interest for loans hundred thirty (730) days, by banking
secured by real estate mortgages was institutions, including thrift banks, or by
12% per annum. On January 10, 1975, financial intermediaries authorized to
the Appellees and the Appellant engage in quasi-banking functions
executed a "Deed of Consolidation and shall be nineteen percent (19%) per
Amendment of Real Estate Mortgage" annum.
whereby the aforementioned loans of xxx
the Appellees and the "Real Estate 7. Except as provided in this Circular and Circular No.
Mortgage" executed by them as 493, loans or renewals thereof shall
continue to be governed by the Usury petition, with the Provincial Sheriff, for the extrajudicial
Law, as amended. (idem, supra) foreclosure of Appellees "Real Esate Mortgage" in favor
In the meantime, the Skyline Builders, Inc., through its of the Appellant for the amount of P342,798.00 inclusive
President, Appellee Calvin Arcilla, secured loans from the of the 17% per annum which purportedly was the totality
Bank of the Philippine Islands in the total amount of of Appellees account with the Appellant on their loans.
P450,000.00. To insure payment of the aforesaid loan, The Appellant was the purchaser of the property at public
the FGU Insurance Corporation, issued PG Bond No. auction for the aforesaid amount of P324,798.00. On May
1003 for the amount of P225,000.00 (pages 434-436, 25, 1979, the Sheriff executed a "Certificate of Sale" over
Records) in favor of the Bank of the Philippine Islands. the aforesaid properties in favor of the Appellant for the
Skyline Buildings, Inc., and the Appellees executed an aforesaid amount (pages 37-38, Records).
"Agreement of Counter-Guaranty with Mortgage" in favor The Appellant filed a "Petition for a Writ of Possession"
of the FGU Insurance Corporation covering the aforesaid with the Regional Trial Court entitled "Banco Filipino
parcels of land to assure payment of any amount that the Savings and Mortgage Bank vs. Elsa Arcilla, et al., LRC
insurance company may pay on account of said loans Case No. P-7757-P". On February 28, 1980, the Court
(pages 429-436, Records). The mortgage was annotated rendered a Decision granting the Petition of the
as Entry No. 58009 at the dorsal portion of Appellees Appellant. The Appellees appealed to the Court of
titles. Appeals but the latter Court, on June 29, 1985,
After October 30, 1978, the Appellant prepared and promulgated a Decision affirming the Decision of the
issued a "Statement of Account" to the Appellees on their Regional Trial Court (pages 190-198, Records).
loan account to the effect that, as of October 30, 1978, In the meantime, the FGU Insurance Corporation, Inc.,
the balance of their loan account, inclusive of interests, redeemed the aforesaid properties from the Appellant by
computed at 17% per annum, amounted to 284,490.75 paying to the latter the amount of P389,289.41 inclusive
(page 555, Records). It turned out that the Appellant of interest computed at 17% per annum. The Appellant
unilaterally increased the rate of interest on the loan and FGU Insurance Corp., Inc., executed, on May 27,
account of the Appellees from 12% per annum, as 1980, a "Deed of Redemption" (pages 126-129,
covenanted in the "Real Estate Mortgage" and "Deed of Records).
Consolidated and Amended Real Estate Mortgage" to On September 2, 1985, the Appellees filed a complaint in
17% per annum on the authority of the aforequoted the Court a quo for the "Annulment of the Loan
Central Bank Circular. Contracts, Foreclose Sale with Prohibition and Injunction,
The Appellees failed to pay their monthly amortizations to Etc." entitled "Calvin Arcilla, et al. vs. Banco Filipino
Appellant. The latter forthwith filed, on April 3, 1979, a Savings and Mortgage Bank, et al." (pages 1-38,
Records). of P100,000.00 as moral
The Appellees averred, in their complaint, inter alia, that damages; P50,000.00 as
the loan contracts and mortgages between the Appellees attorney fees; and, costs of
and the Appellant were null and void because: (a) the suit.
interests, charges, etc., were deducted in advance from PLAINTIFFS further pray for such other reliefs and
the face value of the "Promissory Notes" executed by the remedies just and equitable in
Appellees; and (b) the rate of interests charged by the the premises." (pages 88-89,
Appellant were usurious. The Appellees prayed that Records)
judgment be rendered in their favor as follows: In its Answer to the Complaint, the Appellant averred that
"x x x the interests charged by it on
WHEREFORE, it is respectfully prayed Appellees loan accounts and that the
a) Pending hearing on the prayer for the issuance of the said loan contracts and mortgages
Writ of Preliminary Injunction, a were lawful. The Appellant further
restraining order be immediately issued averred that the Appellees action had
against the defendants or anyone already prescribed.
acting in their behalf from enforcing the In the interim, the Supreme Court promulgated its
writ of possession issued against the Decision in the precedent - setting
plaintiffs; case of "Banco Filipino Savings and
b) After notice and hearing, a writ of preliminary Mortgage Bank vs. Hon. Miguel
injunction be issued against the Navarro, et al., 152 SCRA 346" where
defendants, particularly defendants it declared that Central Bank Circular
FGU Insurance Corporation and the No. 494 was not the "law" envisaged in
City Sheriff of Pasay City, MM, or any the mortgage deeds of borrowers of
of his deputies or anyone acting in their the Bank; that the escalation clause
behalf from enforcing the writ of incorporated in said deeds giving
possession; authority to the Appellant to increase
c) After trial the rate of interests without the
1) To make the injunction permanent; corresponding deescalation clause
2) Declare the loan contracts null and void; should not be given effect because of
3) Declare the extrajudicial foreclosure null and void; its one-sidedness in favor of the
4) Ordering the defendants to pay the plaintiffs the sums Appellant; that the aforesaid Central
Bank Circular did not apply to loans and the latters defenses, to wit:
secured by real estate mortgages, and "x x x
that, therefore, the Appellant cannot On the part of the defendants Banco Filipino Savings to
rely said Circular as authority for it to simplify the case, it seeks to
unilaterally increase the rate of declare as null and void
interests on loans secured by Real plaintiffs loan contract with
Estate Mortgages. Banco Filipino obtained in
In the meantime, the FGU Insurance Corp., Inc., filed a May 1974, on the ground that
"Motion for Substitution" with the the interest agreed in the
Regional Trial Court, in LRC Case No. contract was usurious.
Pq-7757-P praying that it be Plaintiffs also seek to declare
substituted as the Petitioner in said as null and void the
case (pages 354-356, Records). The foreclosure of their mortgage
Appellees were served with a copy of by Banco Filipino on the
said motion and filed their Opposition ground that the loan with the
thereto. However, on November 10, said mortgagee foreclosure
1987, the Regional Trial Court maybe validly done.
rendered a Decision granting the DEFENSES
motion of FGU Insurance Company 1. Prescription
(page 369, Records) 2. Laches
On December 3, 1987, the Appellees filed a Motion, with 3. Estoppel" (page 496, Records)
the Court a quo, for leave to file an In the meantime, the Appellees and FGU Insurance
"Amended Complaint" to implead FGU Corporation entered into and forged a
Insurance Corporation as party "Compromise Agreement." The Court a
defendant (pages 83-129, Records). quo promulgated a Decision, dated
The Court granted said motion and April 3, 1991, based on said
admitted Appellees Amended "Compromise Agreement." Under the
Complaint. "Compromise Agreement", the
After the requisite pre-trial, the Court a quo issued a Pre- Appellees bound and obliged
Trial Order which defined, inter alia, themselves, jointly and severally, to
Appellees action against the Appellant, pay to FGU Insurance Corporation the
amount of P1,964,117.00 in three (3) of mortgage shall be for the
equal installments and that: account of plaintiffs Calvin S.
"x x x Arcilla and Elsa B. Arcilla.
6. Upon faithful compliance by plaintiffs Calvin S. Arcilla 7. Subject to the provisions of paragraph No. 4 of this
and Elsa B. Arcilla with their Compromise Agreement, the
Agreement, defendant FGU execution of this Compromise
Insurance Corporation shall Agreement shall be without
renounce in their favor all its prejudice to the prosecution of
rights, interests and claims to the claims of plaintiffs Calvin
the four (4) parcels of land S. Arcilla and Elsa B. Arcilla.
mentioned in paragraph No. 4 (pages 543-544, Records)
of this Compromise Thereafter, the Appellees and the Appellant agreed, upon
Agreement, together with all the prodding of the Court a quo, that
the improvements thereon, the only issue to be resolved by the
and plaintiffs Calvin S. Arcilla Court a quo was, whether or not the
and Elsa B. Arcilla shall be Appellees were entitled to the refund,
subrogated to all such rights, under the Decision of the Supreme
interests and claims. In Court in "Banco Filipino Savings and
addition, defendant FGU Mortgage Bank vs. Hon. Miguel
Insurance Corporation shall Navarro, et al.," supra. On November
execute in favor of plaintiffs 8, 1991, the Appellees filed a "Motion
Calvin S. Arcilla and Elsa B. for Summary Judgment" appending
Arcilla a deed of cancellation thereto, inter alia, the Affidavit of
of the real estate mortgage Appellee Calvin S. Arcilla and the
constituted in its favor on the appendages thereof (pages 550-555,
above-mentioned four (4) Records). Appellant filed its Opposition
parcels of land, together with but did not append any affidavit to said
all the improvements thereon. Opposition. On March 26, 1993, the
All documentary stamps and Court a quo promulgated a Decision,
expenses for registration of the decretal portion of which reads as
the said deed of cancellation follows:
WHEREFORE, premises considered, judgment is hereby II. THE HONORABLE COURT OF APPEALS ERRED
rendered in favor of the WHEN IT HELD THAT THE MATERIAL ALLEGATIONS
plaintiffs and against OF THE PRIVATE RESPONDENTS COMPLAINT
defendant Banco Filipino WERE SUFFICIENT TO WARRANT THE RELIEFS
ordering defendant Banco GRANTED TO THEM BY THE LOWER COURT,
Filipino to pay spouses Calvin PATICULARLY THE REFUND OF P126,139.00
S. Arcilla and Elsa B. Arcilla REPRESENTING ALLEGED EXCESS INTEREST PAID
the sum of P126,139.00 with ON THEIR LOAN.
interest thereon at 12% per III. THE HONORABLE COURT OF APPEALS ERRED
annum reckoned from the IN HOLDING THAT THE PRIVATE RESPONDENTS
filing of the complaint. WERE ENTITLED TO THE SAID REFUND OF
SO ORDERED. (pages 584-585, Records)"[if P126,139.00 CLAIMED BY THEM."[if
!supportFootnotes][2][endif] !supportFootnotes][5][endif]

Petitioner appealed to the Court of Appeals, which The petitioner maintains that the complaint filed by herein
affirmed the decision of the RTC the dispositive portion of private respondents was an action for Annulment of Loan
which reads: Contracts, foreclosure sale with prohibition and
"IN THE LIGHT OF ALL THE FOREGOING, the assailed injunction. It is contended that these causes of action
Decision is AFFIRMED. Appellants accrued on the date of the execution of the promissory
appeal is DISMISSED. With costs note and deed of mortgage on January 15, 1975 and not
against the Appellant. October 30, 1978 as found by the Court of Appeals.
SO ORDERED." !supportFootnotes][3][endif]
[if Thus, private respondents cause of action has already
Their Motion for Reconsideration[if !supportFootnotes][4][endif] was prescribed inasmuch as the case was filed on September
denied hence this petition where the petitioner assigns 2, 1985 or more than ten years thereafter. Petitioner
the following errors: further contends that private respondents cannot rely on
"I. THE HONORABLE COURT OF APPEALS ERRED the ruling in the case of Banco Filipino Savings &
WHEN IT HELD THAT THE CAUSE OF ACTION OF Mortgage Bank vs. Navarro[if !supportFootnotes][6][endif]
THE PRIVATE RESPONDENTS ACCRUED ON considering that they were not parties to said case.
OCTOBER 30, 1978, AND THEREFORE THE FILING Petitioner also maintains that the order of the lower court,
OF THEIR COMPLAINT FOR ANNULMENT OF THEIR which was affirmed by the Court of Appeals ordering the
LOAN CONTRACTS WITH THE PETITIONER IN 1985 petitioner to refund the excess interest paid by private
WAS NOT YET BARRED BY PRESCRIPTION. respondents in the amount of P126,318.00 was without
any legal basis since private respondents never raised The appeal is unmeritorious.
the issue of interest nor prayed for any relief with respect There are only two issues, which must be resolved in the
thereto. Moreover, the private respondents never paid present appeal. First, has the action of the private
said amount to the petitioner. While the amount was respondents prescribed; and second, are the
included in the bid price of the bank when it bought the respondents entitled to the refund of the alleged interest
mortgaged properties during the public auction, said bid overpayments.
price did not prejudice the private respondents because Petitioners claim that the action of the private
when the private respondents repurchased the respondents has prescribed is bereft of merit. Under
properties, the amount they paid was different and Article 1150 of the Civil Code, the time for prescription of
independent of the redemption price of the bank. all kinds of actions, when there is no special provision
Besides, the agreement between the private respondents which ordains otherwise, shall be counted from the day
and FGU Insurance Corporation was one of sale and not they may be brought. Thus, the period of prescription of
redemption. Thus, any amount paid by the private any cause of action is reckoned only from the date the
respondents to FGU was voluntarily entered into by them cause of action accrued.[if !supportFootnotes][7][endif] And a cause
and was not a consequence of the foreclosure of the of action arises when that which should have been done
mortgage properties. is not done, or that which should not have been done is
Conversely, private respondents allege that their action done.[if !supportFootnotes][8][endif] The period should not be made
has not prescribed considering that prescription begins to to retroact to the date of the execution of the contract on
run from the day the action may be brought; the date January 15, 1975 as claimed by the petitioner for at that
their right of action accrued. It is their contention that the time, there would be no way for the respondents to know
period of prescription of their action should commence to of the violation of their rights.[if !supportFootnotes][9][endif] The
run from October 30, 1978 when the petitioner Court of Appeals therefore correctly found that
unilaterally increased the rate of interest on private respondents cause of action accrued on October 30,
respondents loan to 17% per annum. Thus, when private 1978, the date they received the statement of account
respondents filed their action against the petitioner on showing the increased rate of interest, for it was only
September 2, 1985 or almost eight years thereafter, their from that moment that they discovered the petitioners
action had not yet prescribed. Moreover, private unilateral increase thereof. We quote with approval the
respondents aver that they are entitled to the refund pertinent portions of the Court of Appeals decision as
inasmuch as the escalation clause incorporated in the follows:
loan contracts do not have a corresponding de-escalation "It is the legal possibility of bringing the action that
clause and is therefore illegal. determines the starting point for the
computation of the period of cause of action has arisen
prescription (Constancia C. Telentino (Cole vs. Vda. De Gregorio,
vs. Court of Appeals, et al., 162 SCRA supra)" (Maria U. Espaol vs.
66). In fine, the ten-year prescriptive Chairman, etc., et al.,, 137
period is to be reckoned from the SCRA 314, page 318)
accrual of Appellees right of action, not More, the aggrieved must have either actual or
necessarily on the very date of the presumptive knowledge of the
execution of the contracts subject of violation, by the guilty party of his rights
the action (Naga Telepone Co. Inc. vs. either by an act or omission. The
Court of Appeals, et al., 230 SCRA question that now comes to the fore is
351). A partys right of action accrues when the Appellees became precisely
only when the confluence of the aware of the unilateral increase, by the
following elements is established: Appellant, of the rate of interest on
"xxx: a) a right in favor of the plaintiff by whatever means their loan account to 17% per annum.
and under whatever law it As can be ascertained from the
arises or is created; b) an records, the Appellees discovered or
obligation on the part of should have discovered, for the first
defendant to respect such time, the unilateral increase by the
right; and c) an act or Appellant of the rate of interest to 17%
omission on the part of such per annum when they received the
defendant violative of the right "Statement of Account" of the Appellant
of the plaintiff (Cole vs. Vda. as of October 30, 1978. Hence, it was
de Gregorio, 116 SCRA 670 only then that the prescriptive period
[1982]; Mathay vs. for the Appellees to institute their
Consolidated Bank & Trust action in the Court a quo commenced.
Co., 58 SCRA 559 [1974]; Since the Appellees filed their
Vda. de Enriquez vs. Dela complaint in the Court a quo on
Cruz, 54 SCRA 1 [1973]. It is September 2, 1985, the same was
only when the last element seasonably filed within the ten-year
occurs or takes place that it prescriptive period."[if
can be said in law that a !supportFootnotes][10][endif]
Anent the second issue as to whether the respondents loans not in accordance with the
are entitled to recover the alleged overpayments of contracts;
interest, we find that they are despite the absence of any 7. Even the loan contracts (Annexes "B" to "D", inclusive)
prayer therefor. This Court has ruled that it is the material required by defendant Banco Filipino to
allegations of fact in the complaint, not the legal be signed by the plaintiffs were
conclusion made therein or the prayer that determines contrary to and in violation of the then
the relief to which the plaintiff is entitled.[if Usury Law, as amended;
!supportFootnotes][11][endif] It is the allegations of the pleading 8. Assuming arguendo that the loan contracts between
which determine the nature of the action and the Court plaintiffs and defendant Banco Filipino
shall grant relief warranted by the allegations and the are valid, the extra-judicial foreclosure
proof even if no such relief is prayed for.[if of the properties of the plaintiffs on
!supportFootnotes][12][endif] Thus, even if the complaint seeks the May 24, 1979 was null and void for
declaration of nullity of the contract, the Court of Appeals having been conducted in clear
correctly ruled that the factual allegations contained violation of the law (Act 3135), namely:
therein ultimately seek the return of the excess interests a) lack of roper notice to the plaintiffs;
paid. b) lack of proper publication and
The amended complaint[if !supportFootnotes][13][endif] of herein posting as required by law; c) the
private respondents specifically allege that the contracts alleged sale was conducted at the
of loan entered into by them and the petitioner were place other than that prescribed by law,
contrary to and signed in violation of the Usury Law[if among others;
!supportFootnotes][14][endif] and consequentially pray that said 9. On May 27, 1990, defendant Banco Filipino
contracts be declared null and void. The amended purportedly executed in favor of
complaint reads: defendant FGU Insurance Corporation
"6. The aforementioned loans granted by defendant a Deed of Redemption over the
Banco Filipino to the plaintiffs as stated foreclosed properties of the plaintiffs,
on the face of the promissory note and again, without notice to the latter, as
real estate mortgage (Annexes "B" to evidenced by the said Deed of
"D", inclusive) were not actually Redemption, copy of which is hereto
received by the plaintiffs because attached and marked as Annex "F".
interests, charges, etc. were deducted 10. The Deed of Redemption (Annex "F") is clearly null
in advance from the face value of the and void for having been executed in
violation of Rule 39, Rules of Court, increase, within the limits allowed by
and other related provisions of the law, as the Board of Directors of the
Rules of Court."[if !supportFootnotes][15][endif] Mortgagee may prescribe for its
The loan contracts with real estate mortgage entered into debtors; xxx" (emphasis supplied)[if
by and between the petitioner and respondent stated that !supportFootnotes][18][endif]

the petitioner may increase the interest on said loans, In Banco Filipino Savings & Mortgage Bank vs. Navarro,[if
within the limits allowed by law, as petitioners Board of !supportFootnotes][19][endif] which involved a similar escalation

Directors may prescribe for its borrowers. At the time the clause[if !supportFootnotes][20][endif], we ruled that Central Bank
contracts were entered into, said escalation clause was Circular 494, although it has the force and effect of law, is
valid.[if !supportFootnotes][16][endif] It was only pursuant to P.D. not a law and is not the law contemplated by the parties
No. 1684 which became effective March 17, 1980 which authorizes the petitioner to unilaterally raise the
wherein to be valid, escalation clauses should provide: interest rate of the loan.[if !supportFootnotes][21][endif]
1.) that there can be an increase in interest if increased Consequently, the reliance by the petitioner on Central
by law or by the Monetary Board; and 2.) in order for Bank Circular 494 to unilaterally raise the interest rates
such stipulation to be valid, it must include a provision for on the loan in question was without any legal basis.
the reduction of the stipulated interest in the event that Petitioners argument that the Banco Filipino case cannot
the maximum rate of interest is reduced by law or by the be applied to the present case since the respondents
Monetary Board.[if !supportFootnotes][17][endif] were not intervenors therein is flawed. Only the judgment
Given the validity of the escalation clause, could the in said case cannot bind the respondents as they were
petitioner increase the stipulated interest pursuant to the not parties thereto, however, the doctrine enunciated
Central Bank Circular 494 from 12% to 17%. therein is a judicial decision and forms part of the legal
We rule that it may not. system of the land.[if !supportFootnotes][22][endif] It forms a
The escalation clause in the loan contracts reads as precedent, which must be adhered to under the doctrine
follows: of stare decisis.[if !supportFootnotes][23][endif] Thus, even if the
"xxx g) The rate of interest charged on the obligation respondents were not parties to the above-mentioned
secured by this mortgage, as well as case, the doctrine enunciated therein may be applied to
the interest on the amount which may the present case.
have been advanced by the Mortgagee WHEREFORE, the decision of the Court of Appeals in
in accordance with paragraph (b) and CA-G.R. CV No. 45891 is AFFIRMED and the instant
(d) hereof, shall be subject, during the petition is hereby DENIED.
terms of this contract, to such an No pronouncement as to costs.
SO ORDERED. from Petrophil Corporation, which the latter delivered
Melo, (Chairman), Vitug, and Purisima, JJ., concur. directly to respondent Corporation in its Bulacan plant. In
Panganiban, J., on leave. relation to the same transaction, a trust receipt for the
amount of P1,001,520.93 was executed by respondent
THE CONSOLIDATED BANK AND TRUST Corporation, with respondent Lim as signatory.
CORPORATION (SOLIDBANK), petitioner, vs. THE Claiming that respondents failed to turn over the
COURT OF APPEALS, CONTINENTAL CEMENT goods covered by the trust receipt or the proceeds
CORPORATION, GREGORY T. LIM and SPOUSE, thereof, petitioner filed a complaint for sum of money with
respondents. application for preliminary attachment[if !supportFootnotes][3][endif]
DECISION before the Regional Trial Court of Manila. In answer to
YNARES-SANTIAGO, J.: the complaint, respondents averred that the transaction
The instant petition for review seeks to partially set between them was a simple loan and not a trust receipt
aside the July 26, 1993 Decision[if !supportFootnotes][1][endif] of transaction, and that the amount claimed by petitioner did
respondent Court of Appeals in CA-G.R. CV No. 29950, not take into account payments already made by them.
insofar as it orders petitioner to reimburse respondent Respondent Lim also denied any personal liability in the
Continental Cement Corporation the amount of subject transactions. In a Supplemental Answer,
P490,228.90 with interest thereon at the legal rate from respondents prayed for reimbursement of alleged
July 26, 1988 until fully paid. The petition also seeks to overpayment to petitioner of the amount of P490,228.90.
set aside the March 8, 1994 Resolution[if At the pre-trial conference, the parties agreed on
!supportFootnotes][2][endif] of respondent Court of Appeals the following issues:
denying its Motion for Reconsideration. 1) Whether or not the transaction involved is a loan
The facts are as follows: transaction or a trust receipt transaction;
On July 13, 1982, respondents Continental Cement 2) Whether or not the interest rates charged against the
Corporation (hereinafter, respondent Corporation) and defendants by the plaintiff are proper under the letter of
Gregory T. Lim (hereinafter, respondent Lim) obtained credit, trust receipt and under existing rules or regulations
from petitioner Consolidated Bank and Trust Corporation of the Central Bank;
Letter of Credit No. DOM-23277 in the amount of 3) Whether or not the plaintiff properly applied the
P1,068,150.00 On the same date, respondent previous payment of P300,456.27 by the defendant
Corporation paid a marginal deposit of P320,445.00 to corporation on July 13, 1982 as payment for the latters
petitioner. The letter of credit was used to purchase account; and
around five hundred thousand liters of bunker fuel oil 4) Whether or not the defendants are personally liable
under the transaction sued for in this case.[if THE PARTIES AS TO THE FLOATING OF INTEREST
!supportFootnotes][4][endif] RATE IS VALID UNDER APPLICABLE
On September 17, 1990, the trial court rendered its JURISPRUDENCE AND THE RULES AND
Decision,[if !supportFootnotes][5][endif] dismissing the Complaint REGULATIONS OF THE CENTRAL BANK.
and ordering petitioner to pay respondents the following 4. WHETHER OR NOT THE RESPONDENT
amounts under their counterclaim: P490,228.90 APPELLATE COURT GRIEVOUSLY ERRED IN NOT
representing overpayment of respondent Corporation, CONSIDERING THE TRANSACTION AT BAR AS A
with interest thereon at the legal rate from July 26, 1988 TRUST RECEIPT TRANSACTION ON THE BASIS OF
until fully paid; P10,000.00 as attorneys fees; and costs. THE JUDICIAL ADMISSIONS OF THE PRIVATE
Both parties appealed to the Court of Appeals, RESPONDENTS AND FOR WHICH RESPONDENTS
which partially modified the Decision by deleting the ARE LIABLE THEREFOR.
award of attorneys fees in favor of respondents and, 5. WHETHER OR NOT THE RESPONDENT
instead, ordering respondent Corporation to pay APPELLATE COURT GRIEVOUSLY ERRED IN NOT
petitioner P37,469.22 as and for attorneys fees and HOLDING PRIVATE RESPONDENT SPOUSES LIABLE
litigation expenses. UNDER THE TRUST RECEIPT TRANSACTION.[if
Hence, the instant petition raising the following !supportFootnotes][6][endif]

issues: The petition must be denied.


1. WHETHER OR NOT THE RESPONDENT On the first issue respecting the fact of
APPELLATE COURT ACTED INCORRECTLY OR overpayment found by both the lower court and
COMMITTED REVERSIBLE ERROR IN HOLDING respondent Court of Appeals, we stress the time-honored
THAT THERE WAS OVERPAYMENT BY PRIVATE rule that findings of fact by the Court of Appeals
RESPONDENTS TO THE PETITIONER IN THE especially if they affirm factual findings of the trial court
AMOUNT OF P490,228.90 DESPITE THE ABSENCE will not be disturbed by this Court, unless these findings
OF ANY COMPUTATION MADE IN THE DECISION are not supported by evidence.[if !supportFootnotes][7][endif]
AND THE ERRONEOUS APPLICATION OF PAYMENTS Petitioner decries the lack of computation by the
WHICH IS IN VIOLATION OF THE NEW CIVIL CODE. lower court as basis for its ruling that there was an
2. WHETHER OR NOT THE MANNER OF overpayment made. While such a computation may not
COMPUTATION OF THE MARGINAL DEPOSIT BY THE have appeared in the Decision itself, we note that the trial
RESPONDENT APPELLATE COURT IS IN courts finding of overpayment is supported by evidence
ACCORDANCE WITH BANKING PRACTICE. presented before it. At any rate, we painstakingly
3. WHETHER OR NOT THE AGREEMENT AMONG reviewed and computed the payments together with the
interest and penalty charges due thereon and found that Neither do we find error when the lower court and
the amount of overpayment made by respondent Bank to the Court of Appeals set aside as invalid the floating rate
petitioner, i.e., P563,070.13, was more than what was of interest exhorted by petitioner to be applicable. The
ordered reimbursed by the lower court. However, since pertinent provision in the trust receipt agreement of the
respondents did not file an appeal in this case, the parties fixing the interest rate states:
amount ordered reimbursed by the lower court should I, WE jointly and severally agree to any increase or
stand. decrease in the interest rate which may occur after July
Moreover, petitioners contention that the marginal 1, 1981, when the Central Bank floated the interest rate,
deposit made by respondent Corporation should not be and to pay additionally the penalty of 1% per month until
deducted outright from the amount of the letter of credit is the amount/s or installment/s due and unpaid under the
untenable. Petitioner argues that the marginal deposit trust receipt on the reverse side hereof is/are fully paid.[if
should be considered only after computing the principal !supportFootnotes][9][endif]

plus accrued interests and other charges. However, to We agree with respondent Court of Appeals that the
sustain petitioner on this score would be to countenance foregoing stipulation is invalid, there being no reference
a clear case of unjust enrichment, for while a marginal rate set either by it or by the Central Bank, leaving the
deposit earns no interest in favor of the debtor-depositor, determination thereof at the sole will and control of
the bank is not only able to use the same for its own petitioner.
purposes, interest-free, but is also able to earn interest While it may be acceptable, for practical reasons
on the money loaned to respondent Corporation. Indeed, given the fluctuating economic conditions, for banks to
it would be onerous to compute interest and other stipulate that interest rates on a loan not be fixed and
charges on the face value of the letter of credit which the instead be made dependent upon prevailing market
petitioner issued, without first crediting or setting off the conditions, there should always be a reference rate upon
marginal deposit which the respondent Corporation paid which to peg such variable interest rates. An example of
to it. Compensation is proper and should take effect by such a valid variable interest rate was found in Polotan,
operation of law because the requisites in Article 1279 of Sr. v. Court of Appeals.[if !supportFootnotes][10][endif] In that case,
the Civil Code are present and should extinguish both the contractual provision stating that if there occurs any
debts to the concurrent amount.[if !supportFootnotes][8][endif] change in the prevailing market rates, the new interest
Hence, the interests and other charges on the rate shall be the guiding rate in computing the interest
subject letter of credit should be computed only on the due on the outstanding obligation without need of serving
balance of P681,075.93, which was the portion actually notice to the Cardholder other than the required posting
loaned by the bank to respondent Corporation. on the monthly statement served to the Cardholder[if
!supportFootnotes][11][endif] was considered valid. The In the case at bar, as in Colinares, the delivery to
aforequoted provision was upheld notwithstanding that it respondent Corporation of the goods subject of the trust
may partake of the nature of an escalation clause, receipt occurred long before the trust receipt itself was
because at the same time it provides for the decrease in executed. More specifically, delivery of the bunker fuel oil
the interest rate in case the prevailing market rates to respondent Corporations Bulacan plant commenced
dictate its reduction. In other words, unlike the stipulation on July 7, 1982 and was completed by July 19, 1982. [if
subject of the instant case, the interest rate involved in !supportFootnotes][13][endif] Further, the oil was used up by

the Polotan case is designed to be based on the respondent Corporation in its normal operations by
prevailing market rate. On the other hand, a stipulation August, 1982.[if !supportFootnotes][14][endif] On the other hand,
ostensibly signifying an agreement to any increase or the subject trust receipt was only executed nearly two
decrease in the interest rate, without more, cannot be months after full delivery of the oil was made to
accepted by this Court as valid for it leaves solely to the respondent Corporation, or on September 2, 1982.
creditor the determination of what interest rate to charge The danger in characterizing a simple loan as a
against an outstanding loan. trust receipt transaction was explained in Colinares, to
Petitioner has also failed to convince us that its wit:
transaction with respondent Corporation is really a trust The Trust Receipts Law does not seek to enforce
receipt transaction instead of merely a simple loan, as payment of the loan, rather it punishes the dishonesty
found by the lower court and the Court of Appeals. and abuse of confidence in the handling of money or
The recent case of Colinares v. Court of Appeals[if goods to the prejudice of another regardless of whether
!supportFootnotes][12][endif] appears to be foursquare with the the latter is the owner. Here, it is crystal clear that on the
facts obtaining in the case at bar. There, we found that part of Petitioners there was neither dishonesty nor
inasmuch as the debtor received the goods subject of the abuse of confidence in the handling of money to the
trust receipt before the trust receipt itself was entered prejudice of PBC. Petitioners continually endeavored to
into, the transaction in question was a simple loan and meet their obligations, as shown by several receipts
not a trust receipt agreement. Prior to the date of issued by PBC acknowledging payment of the loan.
execution of the trust receipt, ownership over the goods The Information charges Petitioners with intent to defraud
was already transferred to the debtor. This situation is and misappropriating the money for their personal use.
inconsistent with what normally obtains in a pure trust The mala prohibita nature of the alleged offense
receipt transaction, wherein the goods belong in notwithstanding, intent as a state of mind was not proved
ownership to the bank and are only released to the to be present in Petitioners situation. Petitioners
importer in trust after the loan is granted. employed no artifice in dealing with PBC and never did
they evade payment of their obligation nor attempt to the payment of the sum of P1,832,158.38 on a loan with
abscond. Instead, Petitioners sought favorable terms a principal amount of only P681,075.93 negates any
precisely to meet their obligation. badge of dishonesty, abuse of confidence or mishandling
Also noteworthy is the fact that Petitioners are not of funds on the part of respondent Corporation, which are
importers acquiring the goods for re-sale, contrary to the the gravamen of a trust receipt violation. Furthermore,
express provision embodied in the trust receipt. They are respondent Corporation is not an importer which acquired
contractors who obtained the fungible goods for their the bunker fuel oil for re-sale; it needed the oil for its own
construction project. At no time did title over the operations. More importantly, at no time did title over the
construction materials pass to the bank, but directly to oil pass to petitioner, but directly to respondent
the Petitioners from CM Builders Centre. This impresses Corporation to which the oil was directly delivered long
upon the trust receipt in question vagueness and before the trust receipt was executed. The fact that
ambiguity, which should not be the basis for criminal ownership of the oil belonged to respondent Corporation,
prosecution in the event of violation of its provisions. through its President, Gregory Lim, was acknowledged
The practice of banks of making borrowers sign trust by petitioners own account officer on the witness stand,
receipts to facilitate collection of loans and place them to wit:
under the threats of criminal prosecution should they be Q - After the bank opened a letter of credit in favor of
unable to pay it may be unjust and inequitable, if not Petrophil Corp. for the account of the defendants thereby
reprehensible. Such agreements are contracts of paying the value of the bunker fuel oil what transpired
adhesion which borrowers have no option but to sign lest next after that?
their loan be disapproved. The resort to this scheme A - Upon purchase of the bunker fuel oil and upon the
leaves poor and hapless borrowers at the mercy of requests of the defendant possession of the bunker fuel
banks, and is prone to misinterpretation, as had oil were transferred to them.
happened in this case. Eventually, PBC showed its true Q - You mentioned them to whom are you referring to?
colors and admitted that it was only after collection of the A - To the Continental Cement Corp. upon the execution
money, as manifested by its Affidavit of Desistance. of the trust receipt acknowledging the ownership of the
Similarly, respondent Corporation cannot be said to bunker fuel oil this should be acceptable for whatever
have been dishonest in its dealings with petitioner. disposition he may make.
Neither has it been shown that it has evaded payment of Q - You mentioned about acknowledging ownership of
its obligations. Indeed, it continually endeavored to meet the bunker fuel oil to whom by whom?
the same, as shown by the various receipts issued by A - By the Continental Cement Corp.
petitioner acknowledging payment on the loan. Certainly, Q - So by your statement who really owns the bunker fuel
oil? stress the hornbook law that corporate personality is a
ATTY. RACHON: shield against personal liability of its officers. Thus, we
Objection already answered. agree that respondents Gregory T. Lim and his spouse
COURT: cannot be made personally liable since respondent Lim
Give time to the other counsel to object. entered into and signed the contract clearly in his official
ATTY. RACHON: capacity as Executive Vice President. The personality of
He has testified that ownership was acknowledged in the corporation is separate and distinct from the persons
favor of Continental Cement Corp. so that question has composing it.[if !supportFootnotes][16][endif]
already been answered. WHEREFORE, in view of all the foregoing, the instant
ATTY. BAAGA: Petition for Review is DENIED. The Decision of the Court
That is why I made a follow up question asking of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950
ownership of the bunker fuel oil. is AFFIRMED.
COURT: SO ORDERED.
Proceed.
ATTY. BAAGA: DANILO D. MENDOZA, also doing business under the
Q - Who owns the bunker fuel oil after purchase from name and style of ATLANTIC EXCHANGE
Petrophil Corp.? PHILIPPINES, petitioner, vs. COURT OF APPEALS,
A - Gregory Lim.[if !supportFootnotes][15][endif] PHILIPPINE NATIONAL BANK, FERNANDO
By all indications, then, it is apparent that there was MARAMAG, JR., RICARDO G. DECEPIDA and
really no trust receipt transaction that took place. BAYANI A. BAUTISTA, respondents.
Evidently, respondent Corporation was required to sign DECISION
the trust receipt simply to facilitate collection by petitioner DE LEON, JR., J.:
of the loan it had extended to the former. Before us is a petition for review on certiorari of the
Finally, we are not convinced that respondent Decision[if !supportFootnotes][1][endif] dated August 8, 1994 of the
Gregory T. Lim and his spouse should be personally respondent Court of Appeals (Tenth Division) in CA-G.R.
liable under the subject trust receipt. Petitioners CV No. 38036 reversing the judgment[if
argument that respondent Corporation and respondent !supportFootnotes][2][endif] of the Regional Trial Court (RTC) and

Lim and his spouse are one and the same cannot be dismissing the complaint therein.
sustained. The transactions sued upon were clearly Petitioner Danilo D. Mendoza is engaged in the
entered into by respondent Lim in his capacity as domestic and international trading of raw materials and
Executive Vice President of respondent Corporation. We chemicals. He operates under the business name
Atlantic Exchange Philippines (Atlantic), a single Pesos (P150,000.00). The said 1979 promissory notes
proprietorship registered with the Department of Trade uniformly stipulated: "with interest thereon at the rate of
and Industry (DTI). Sometime in 1978 he was granted by 12% per annum, until paid, which interest rate the Bank
respondent Philippine National Bank (PNB) a Five may, at any time, without notice, raise within the limits
Hundred Thousand Pesos (P500,000.00) credit line and allowed by law xxx."[if !supportFootnotes][5][endif]
a One Million Pesos (P1,000,000.00) Letter of Petitioner made use of his LC/TR line to purchase
Credit/Trust Receipt (LC/TR) line. raw materials from foreign importers. He signed a total of
As security for the credit accommodations and for eleven (11) documents denominated as "Application and
those which may thereinafter be granted, petitioner Agreement for Commercial Letter of Credit,"[if
mortgaged to respondent PNB the following: 1) three (3) !supportFootnotes][6][endif] on various dates from February 8 to

parcels of land[if !supportFootnotes][3][endif] with improvements in September 11, 1979, which uniformly contained the
F. Pasco Avenue, Santolan, Pasig; 2) his house and lot following clause: "Interest shall be at the rate of 9% per
in Quezon City; and 3) several pieces of machinery and annum from the date(s) of the draft(s) to the date(s) of
equipment in his Pasig coco-chemical plant. arrival of payment therefor in New York. The Bank,
The real estate mortgage[if !supportFootnotes][4][endif] however, reserves the right to raise the interest charges
provided the following escalation clause: at any time depending on whatever policy it may follow in
(f) The rate of interest charged on the obligation secured the future."[if !supportFootnotes][7][endif]
by this mortgage as well as the interest on the amount In a letter dated January 3, 1980 and signed by
which may have been advanced by the Mortgagee in Branch Manager Fil S. Carreon Jr., respondent PNB
accordance with paragraph (d) of the conditions herein advised petitioner Mendoza that effective December 1,
stipulated shall be subject during the life of this contract 1979, the bank raised its interest rates to 14% per
to such increase within the rates allowed by law, as the annum, in line with Central Bank's Monetary Board
Board of Directors of the Mortgagee may prescribe for its Resolution No. 2126 dated November 29, 1979.
debtors. On March 9, 1981, he wrote a letter to respondent
Petitioner executed in favor of respondent PNB PNB requesting for the restructuring of his past due
three (3) promissory notes covering the Five Hundred accounts into a five-year term loan and for an additional
Thousand Pesos (P500,000.00) credit line, one dated LC/TR line of Two Million Pesos (P2,000,000.00).[if
March 8, 1979 for Three Hundred Ten Thousand Pesos !supportFootnotes][8][endif] According to the letter, because of the

(P310,000.00); another dated March 30, 1979 for Forty shut-down of his end-user companies and the huge
Thousand Pesos (P40,000.00); and the last dated amount spent for the expansion of his business,
September 27, 1979 for One Hundred Fifty Thousand petitioner failed to pay to respondent bank his LC/TR
accounts as they became due and demandable. recommended the implementation of the agreement.
Ceferino D. Cura, Branch Manager of PNB However, Fernando Maramag, PNB Executive Vice-
Mandaluyong replied on behalf of the respondent bank President, disapproved the proposed release of the
and required petitioner to submit the following documents mortgaged properties and reduced the proposed new
before the bank would act on his request: 1) Audited LC/TR line to One Million Pesos (P1,000,000.00).[if
Financial Statements for 1979 and 1980; 2) Projected !supportFootnotes][10][endif] Petitioner claimed he was forced to

cash flow (cash in - cash out) for five (5) years detailed agree to these changes and that he was required to
yearly; and 3) List of additional machinery and equipment submit a new formal proposal and to sign two (2) blank
and proof of ownership thereof. Cura also suggested that promissory notes.
petitioner reduce his total loan obligations to Three In a letter dated July 2, 1982, petitioner offered the
Million Pesos (P3,000,000.00) "to give us more following revised proposals to respondent bank: 1) the
justification in recommending a plan of payment or restructuring of past due accounts including interests and
restructuring of your accounts to higher authorities of the penalties into a 5-year term loan, payable semi-annually
Bank."[if !supportFootnotes][9][endif] with one year grace period on the principal; 2) payment
On September 25, 1981, petitioner sent another of Four Hundred Thousand Pesos (P400,000.00) upon
letter addressed to PNB Vice-President Jose Salvador, the approval of the proposal; 3) reduction of penalty from
regarding his request for restructuring of his loans. He 3% to 1%; 4) capitalization of the interest component with
offered respondent PNB the following proposals: 1) the interest rate at 16% per annum; 5) establishment of a
disposal of some of the mortgaged properties, more One Million Pesos (P1,000,000.00) LC/TR line against
particularly, his house and lot and a vacant lot in order to the mortgaged properties; 6) assignment of all his export
pay the overdue trust receipts; 2) capitalization and proceeds to respondent bank to guarantee payment of
conversion of the balance into a 5-year term loan payable his loans.
semi-annually or on annual installments; 3) a new Two According to petitioner, respondent PNB approved
Million Pesos (P2,000,000.00) LC/TR line in order to his proposal. He further claimed that he and his wife were
enable Atlantic Exchange Philippines to operate at full asked to sign two (2) blank promissory note forms.
capacity; 4) assignment of all his receivables to PNB According to petitioner, they were made to believe that
from all domestic and export sales generated by the the blank promissory notes were to be filled out by
LC/TR line; and 5) maintenance of the existing Five respondent PNB to conform with the 5-year restructuring
Hundred Thousand Pesos (P500,000.00) credit line. plan allegedly agreed upon. The first Promissory Note, [if
The petitioner testified that respondent PNB !supportFootnotes][11][endif] No. 127/82, covered the principal

Mandaluyong Branch found his proposal favorable and while the second Promissory Note,[if !supportFootnotes][12][endif]
No. 128/82, represented the accrued interest. interest rate is reduced by law or by the Monetary Board.
Petitioner testified that respondent PNB allegedly In either case, the adjustment in the interest rate agreed
contravened their verbal agreement by 1) affixing dates upon shall take effect on the effectivity date of the
on the two (2) subject promissory notes to make them increase or decrease in the maximum interest rate. x x x
mature in two (2) years instead of five (5) years as It appears from the record that the subject
supposedly agreed upon; 2) inserting in the first Promissory Notes Nos. 127/82 and 128/82 superseded
Promissory Note No. 127/82 an interest rate of 21% and novated the three (3) 1979 promissory notes and the
instead of 18%; 3) inserting in the second Promissory eleven (11) 1979 Application and Agreement for
Note No. 128/82, the amount stated therein representing Commercial Letter of Credit which the petitioner executed
the accrued interest as One Million Five Hundred Thirty in favor of respondent PNB.
Six Thousand Four Hundred Ninety Eight Pesos and According to the petitioner, sometime in June 1983
Seventy Three Centavos (P1,536,498.73) when it should the new PNB Mandaluyong Branch Manager Bayani A.
only be Seven Hundred Sixty Thousand Three Hundred Bautista suggested that he sell the coco-chemical plant
Ninety Eight Pesos and Twenty Three Centavos so that he could keep up with the semi-annual
(P760,398.23) and pegging the interest rate thereon at amortizations. On three (3) occasions, Bautista even
18% instead of 12%. showed up at the plant with some unidentified persons
The subject Promissory Notes Nos. 127/82 and who claimed that they were interested in buying the plant.
128/82 both dated December 29, 1982 in the principal Petitioner testified that when he confronted the PNB
amounts of Two Million Six Hundred Fifty One Thousand management about the two (2) Promissory Notes Nos.
One Hundred Eighteen Pesos and Eighty Six Centavos 127/82 and 128/82 (marked Exhibits BB and CC
(P2,651,118.86) and One Million Five Hundred Thirty Six respectively) which he claimed were improperly filled out,
Thousand Seven Hundred Ninety Eight and Seventy Bautista and Maramag assured him that the five-year
Three Centavos (P1,536,798.73) respectively and restructuring agreement would be implemented on the
marked Exhibits BB and CC respectively, were payable condition that he assigns 10% of his export earnings to
on equal semi-annual amortization and contained the the Bank.[if !supportFootnotes][13][endif] In a letter dated August
following escalation clause: 22, 1983, petitioner Mendoza consented to assign 10%
x x x which interest rate the BANK may increase within of the net export proceeds of a Letter of Credit covering
the limits allowed by law at any time depending on goods amounting to One Hundred Fourteen Thousand
whatever policy it may adopt in the future; Provided, that, Dollars ($114,000.00).[if !supportFootnotes][14][endif] However,
the interest rate on this note shall be correspondingly petitioner claimed that respondent PNB subsequently
decreased in the event that the applicable maximum debited 14% instead of 10% from his export proceeds.[if
!supportFootnotes][15][endif] obligations of the plaintiff to PNB; that Bautista purposely
Pursuant to the escalation clauses of the subject delayed payments on his exports and caused delays in
two (2) promissory notes, the interest rate on the the shipment of materials; that PNB withheld certain
principal amount in Promissory Note No. 127/82 was personal properties not covered by the chattel mortgage;
increased from 21% to 29% on May 28, 1984, and to and that the foreclosure of his mortgages was premature
32% on July 3, 1984 while the interest rate on the so that he was unable to service his foreign clients,
accrued interest per Promissory Note No. 128/82 was resulting in actual damages amounting to Two Million
increased from 18% to 29% on May 28, 1984, and to Four Thousand Four Hundred Sixty One Pesos
32% on July 3, 1984. (P2,004,461.00).
Petitioner failed to pay the subject two (2) On March 16, 1992, the trial court rendered
Promissory Notes Nos. 127/82 and 128/82 (Exhibits BB judgment in favor of the petitioner and ordered the
and CC) as they fell due. Respondent PNB extra- nullification of the extrajudicial foreclosure of the real
judicially foreclosed the real and chattel mortgages, and estate mortgage, the Sheriffs sale of the mortgaged real
the mortgaged properties were sold at public auction to properties by virtue of consolidation thereof and the
respondent PNB, as highest bidder, for a total of Three cancellation of the new titles issued to PNB; that PNB
Million Seven Hundred Ninety Eight Thousand Seven vacate the subject premises in Pasig and turn the same
Hundred Nineteen Pesos and Fifty Centavos over to the petitioner; and also the nullification of the
(P3,798,719.50). extrajudicial foreclosure and sheriff's sale of the
The petitioner filed in the RTC in Pasig, Rizal a mortgaged chattels, and that the chattels be returned to
complaint for specific performance, nullification of the petitioner Mendoza if they were removed from his Pasig
extra-judicial foreclosure and damages against premises or be paid for if they were lost or rendered
respondents PNB, Fernando Maramag Jr., Ricardo C. unserviceable.
Decepida, Vice-President for Metropolitan Branches, and The trial court also ordered respondent PNB to
Bayani A. Bautista. He alleged that the Extrajudicial restructure to five-years petitioner's principal loan of Two
Foreclosure Sale of the mortgaged properties was null Million Six Hundred Fifty One Thousand One Hundred
and void since his loans were restructured to a five-year Eighteen Pesos and Eighty Six Centavos
term loan; hence, it was not yet due and demandable; (P2,651,118.86) and the accumulated capitalized interest
that the escalation clauses in the subject two (2) on the same in the amount of Seven Hundred Sixty
Promissory Notes Nos. 127/82 and 128/82 were null and Thousand Three Hundred Eighty Nine Pesos and Twenty
void, that the total amount presented by PNB as basis of Three Centavos (P760,389.23) as of December 1982,
the foreclosure sale did not reflect the actual loan and that respondent PNB should compute the additional
interest from January 1983 up to October 15, 1984 only that petitioner's loan obligations were restructured to five
when respondent PNB took possession of the said (5) years and maintains that the subject two (2)
properties, at the rate of 12% and 9% respectively. Promissory Notes Nos. 127/82 and 128/82 were filled out
The trial court also ordered respondent PNB to regularly and became due as of December 29, 1984 as
grant petitioner Mendoza an additional Two Million Pesos shown on the face thereof.
(P2,000,000.00) loan in order for him to have the Respondent Court of Appeals held that there is no
necessary capital to resume operation. It also ordered evidence of a promise from respondent PNB, admittedly
respondents PNB, Bayani A. Bautista and Ricardo C. a banking corporation, that it had accepted the proposals
Decepida to pay to petitioner actual damages in the of the petitioner to have a five-year restructuring of his
amount of Two Million One Hundred Thirteen Thousand overdue loan obligations. It found and held, on the basis
Nine Hundred Sixty One Pesos (P2,113,961.00) and the of the evidence adduced, that "appellee's (Mendoza)
peso equivalent of Six Thousand Two Hundred Fifteen communications were mere proposals while the bank's
Dollars ($6,215.00) at the prevailing foreign exchange responses were not categorical that the appellee's
rate on October 11, 1983; and exemplary damages in the request had been favorably accepted by the bank."
amount of Two Hundred Thousand Pesos (P200,000.00). Contending that respondent PNB had allegedly
Respondent PNB appealed this decision of the trial approved his proposed five-year restructuring plan,
court to the Court of Appeals. And the Court of Appeals petitioner presented three (3) documents executed by
reversed the decision of the trial court and dismissed the respondent PNB officials. The first document is a letter
complaint. Hence, this petition. dated March 16, 1981 addressed to the petitioner and
It is the petitioners contention that the PNB signed by Ceferino D. Cura, Branch Manager of PNB
management restructured his existing loan obligations to Mandaluyong, which states:
a five-year term loan and granted him another Two x x x In order to study intelligently the feasibility of your
Million Pesos (P2,000,000.00) LC/TR line; that the above request, please submit the following
Promissory Notes Nos. 127/82 and 128/82 evidencing a documents/papers within thirty (30) days from the date
2-year restructuring period or with the due maturity date thereof, viz:
December 29, 1984 were filled out fraudulently by 1. Audited Financial Statements for 1979 and 1980;
respondent PNB, and contrary to his verbal agreement 2. Projected cash flow (cash in - cash out) for five years
with respondent PNB; hence, his indebtedness to detailed yearly; and
respondent PNB was not yet due and the extrajudicial 3. List of additional machinery and equipment and proof
foreclosure of his real estate and chattel mortgages was of ownership thereof.
premature. On the other hand, respondent PNB denies We would strongly suggest, however, that you reduce
your total obligations to at least P3 million (principal and matters of mutual interest with you.
interest and other charges) to give us more justification in xxx
recommending a plan of payment or restructuring of your Petitioner also presented a letter which he
accounts to higher authorities of this bank. addressed to Mr. Jose Salvador, Vice-President of the
The second document is a letter dated May 11, Metropolitan Branches of PNB, dated September 24,
1981 addressed to Mr. S. Pe Benito, Jr., Managing 1981, which reads:
Director of the Technological Resources Center and Re: Restructuring of our Account into a 5-year Term Loan
signed by said PNB Branch Manager, Ceferino D. Cura. and Request for the Establishment of a P2.0 Million
According to petitioner, this letter showed that LC/TR Line
respondent PNB seriously considered the restructuring of Dear Sir:
his loan obligations to a five-year term loan, to wit: In compliance with our discussion last September 17, we
xxx would like to formalize our proposal to support our above
At the request of our client, we would like to furnish you requested assistance from the Philippine National Bank.
with the following information pertinent to his accounts xxx
with us: Again we wish to express our sincere appreciation for
xxx your open-minded approach towards the solution of this
We are currently evaluating the proposal of the client to problem which we know and will be beneficial and to the
re-structure his accounts with us into a five-year plan. best interest of the bank and mutually advantageous to
We hope that the above information will guide you in your client.
evaluating the proposals of Mr. Danilo Mendoza. xxx
xxx Petitioner argues that he submitted the
The third document is a letter dated July 8, 1981 requirements according to the instructions given to him
addressed to petitioner and signed by PNB Assistant and that upon submission thereof, his proposed five-year
Vice-President Apolonio B. Francisco. restructuring plan was deemed automatically approved
xxx by respondent PNB.
Considering that your accounts/accommodations were We disagree.
granted and carried in the books of our Mandaluyong Nowhere in those letters is there a categorical
Branch, we would suggest that your requests and statement that respondent PNB had approved the
proposals be directed to Ceferino Cura, Manager of our petitioners proposed five-year restructuring plan. It is
said Branch. stretching the imagination to construe them as evidence
We feel certain that Mr. Cura will be pleased to discuss that his proposed five-year restructuring plan has been
approved by the respondent PNB which is admittedly a virtually to sanction the perpetration of fraud or would
banking corporation. Only an absolute and unqualified result in other injustice. In this respect, the reliance by the
acceptance of a definite offer manifests the consent promisee is generally evidenced by action or forbearance
necessary to perfect a contract.[if !supportFootnotes][16][endif] If on his part, and the idea has been expressed that such
anything, those correspondences only prove that the action or forbearance would reasonably have been
parties had not gone beyond the preparation stage, expected by the promissor. xxx
which is the period from the start of the negotiations until The doctrine of promissory estoppel is an exception
the moment just before the agreement of the parties. [if to the general rule that a promise of future conduct does
!supportFootnotes][17][endif] not constitute an estoppel. In some jurisdictions, in order
There is nothing in the record that even suggests to make out a claim of promissory estoppel, a party bears
that respondent PNB assented to the alleged five-year the burden of establishing the following elements: (1) a
restructure of petitioners overdue loan obligations to promise reasonably expected to induce action or
PNB. However, the trial court ruled in favor of petitioner forebearance; (2) such promise did in fact induce such
Mendoza, holding that since petitioner has complied with action or forebearance, and (3) the party suffered
the conditions of the alleged oral contract, the latter may detriment as a result.[if !supportFootnotes][19][endif]
not renege on its obligation to honor the five-year It is clear from the forgoing that the doctrine of
restructuring period, under the rule of promissory promissory estoppel presupposes the existence of a
estoppel. Citing Ramos v. Central Bank,[if promise on the part of one against whom estoppel is
!supportFootnotes][18][endif] the trial court said: claimed. The promise must be plain and unambiguous
The broad general rule to the effect that a promise to do and sufficiently specific so that the Judiciary can
or not to do something in the future does not work an understand the obligation assumed and enforce the
estoppel must be qualified, since there are numerous promise according to its terms.[if !supportFootnotes][20][endif] For
cases in which an estoppel has been predicated on petitioner to claim that respondent PNB is estopped to
promises or assurances as to future conduct. The deny the five-year restructuring plan, he must first prove
doctrine of promissory estoppel is by no means new, that respondent PNB had promised to approve the plan
although the name has been adopted only in in exchange for the submission of the proposal. As
comparatively recent years. According to that doctrine, discussed earlier, no such promise was proven,
an estoppel may arise from the making of a promise, therefore, the doctrine does not apply to the case at bar.
even though without consideration, if it was intended that A cause of action for promissory estoppel does not lie
the promise should be relied upon and in fact it was where an alleged oral promise was conditional, so that
relied upon, and if a refusal to enforce it would be reliance upon it was not reasonable.[if !supportFootnotes][21][endif]
It does not operate to create liability where it does not PNB, which is a banking corporation, this court will not be
otherwise exist.[if !supportFootnotes][22][endif] satisfied with anything but the most convincing evidence.
Since there is no basis to rule that petitioner's However, apart from petitioner's self-serving verbal
overdue loan obligations were restructured to mature in a declarations, we find no sufficient proof that the subject
period of five (5) years, we see no other option but to two (2) Promissory Notes Nos. 127/82 and 128/82 were
respect the two-year period as contained in the two (2) completed irregularly. Therefore, we rule that the
subject Promissory Notes Nos. 127/82 and 128/82, presumption has not been rebutted.
marked as Exhibits BB and CC respectively which Besides, it could be gleaned from the record that
superseded and novated all prior loan documents signed the petitioner is an astute businessman who took care to
by petitioner in favor of respondent PNB. Petitioner reduce in writing his business proposals to the
argues, in his memorandum, that "respondent Court of respondent bank. It is unthinkable that the same person
Appeals had no basis in saying that the acceptance of would commit the careless mistake of leaving his subject
the five-year restructuring is totally absent from the two (2) promissory notes in blank in the hands of other
record."[if !supportFootnotes][23][endif] On the contrary, the subject persons. As the respondent Court of Appeals correctly
Promissory Notes Nos. 127/82 and 128/82 are clear on pointed out:
their face that they were due on December 29, 1984 or Surely, plaintiff-appellee who is a C.P.A and a Tax
two (2) years from the date of the signing of the said Consultant (p. 3 TSN, January 9, 1990) will insist that the
notes on December 29, 1982. details of the two promissory notes he and his wife
Petitioner claims that the two (2) subject Promissory executed in 1982 should be specific to enable them to
Notes Nos. 127/82 and 128/82 were signed by him in make the precise computation in the event of default as
blank with the understanding that they were to be in the case at bench. In fact, his alleged omission as a
subsequently filled out to conform with his alleged oral C.P.A. and a Tax Consultant to insist that the two
agreements with PNB officials, among which is that they promissory notes be filled up on important details like the
were to become due only after five (5) years. If petitioner rates of interest is inconsistent with the legal presumption
were to be believed, the PNB officials concerned of a person who takes ordinary care of his concerns
committed a fraudulent act in filling out the subject two (Section 3 (c), Rule 131, Revised Rules on Evidence).
(2) promissory notes in question. Private transactions are As pointed out by the Court of Appeals, Orlando
presumed to be fair and regular.[if !supportFootnotes][24][endif] The Montecillo, Chief, Loans and Discounts, PNB
burden of presenting evidence to overcome this Mandaluyong Branch, testified that the said Promissory
presumption falls upon petitioner. Considering that Notes Nos. 127/82 and 128/82 were completely filled out
petitioner imputes a serious act of fraud on respondent when Danilo Mendoza signed them (Rollo, p. 14).
In a last-ditch effort to save his five-year loan petitioner. The petitioner did not agree to the increase in
restructuring theory, petitioner contends that respondent the stipulated interest rate of 21% per annum on
PNB's action of withholding 10% from his export Promissory Note No. 127/82 and 18% per annum on
proceeds is proof that his proposal had been accepted Promissory Note No. 128/82. As held in several cases,
and the contract had been partially executed. He claims the unilateral determination and imposition of increased
that he would not have consented to the additional interest rates by respondent bank is violative of the
burden if there were no corresponding benefit. This principle of mutuality of contracts ordained in Article 1308
contention is not well taken. There is no credible proof of the Civil Code.[if !supportFootnotes][26][endif] As held in one
that the 10% assignment of his export proceeds was not case:[if !supportFootnotes][27][endif]
part of the conditions of the two-year restructuring deal. It is basic that there can be no contract in the true sense
Considering that the resulting amount obtained from this in the absence of the element of agreement, or of mutual
assignment of export proceeds was not even enough to assent of the parties. If this assent is wanting on the part
cover the interest for the corresponding month,[if of one who contracts, his act has no more efficacy than if
!supportFootnotes][25][endif] we are hard-pressed to construe it as it had been done under duress or by a person of unsound
the required proof that respondent PNB allegedly mind.
approved the proposed five-year restructuring of Similarly, contract changes must be made with the
petitioners overdue loan obligations. consent of the contracting parties. The minds of all the
It is interesting to note that in his Complaint, parties must meet as to the proposed modification,
petitioner made no mention that the assignment of his especially when it affects an important aspect of the
export proceeds was a condition for the alleged approval agreement. In the case of loan contracts, it cannot be
of his proposed five-year loan restructuring plan. The gainsaid that the rate of interest is always a vital
Complaint merely alleged that "plaintiff in a sincere effort component, for it can make or break a capital venture.
to make payments on his obligations agreed to assign It has been held that no one receiving a proposal to
10% of his export proceeds to defendant PNB." This change a contract to which he is a party is obliged to
curious omission leads the court to believe that the answer the proposal, and his silence per se cannot be
alleged link between the petitioners assignment of export construed as an acceptance.[if !supportFootnotes][28][endif]
proceeds and the alleged five-year restructuring of his Estoppel will not lie against the petitioner regarding the
overdue loans was more contrived than real. increase in the stipulated interest on the subject
It appears that respondent bank increased the Promissory Notes Nos. 127/82 and 128/82 inasmuch as
interest rates on the two (2) subject Promissory Notes he was not even informed beforehand by respondent
Nos. 127/82 and 128/82 without the prior consent of the bank of the change in the stipulated interest rates.
However, we also note that the said two (2) subject It is clear, however, from the above-quoted
Promissory Notes Nos. 127/82 and 128/82 expressly provision of the said promissory notes that respondent
provide for a penalty charge of 3% per annum to be bank is authorized, in case of default, to sell things of
imposed on any unpaid amount when due. value belonging to the mortgagor which may be on its
Petitioner prays for the release of some of his hands for deposit or otherwise belonging to me/us and
movables[if !supportFootnotes][29][endif] being withheld by for this purpose. Besides the petitioner executed not only
respondent PNB, alleging that they were not included a chattel mortgage but also a real estate mortgage to
among the chattels he mortgaged to respondent bank. secure his loan obligations to respondent bank.
However, petitioner did not present any proof as to when A stipulation in the mortgage, extending its scope
he acquired the subject movables and hence, we are not and effect to after-acquired property is valid and binding
disposed to believe that the same were after-acquired where the after-acquired property is in renewal of, or in
chattels not covered by the chattel and real estate substitution for, goods on hand when the mortgage was
mortgages. executed, or is purchased with the proceeds of the sale
In asserting its rights over the subject movables, of such goods.[if !supportFootnotes][30][endif] As earlier pointed
respondent PNB relies on a common provision in the two out, the petitioner did not present any proof as to when
(2) subject Promissory Notes Nos. 127/82 and 128/82 the subject movables were acquired.
which states: More importantly, respondent bank makes a valid
In the event that this note is not paid at maturity or when argument for the retention of the subject movables.
the same becomes due under any of the provisions Respondent PNB asserts that those movables were in
hereof, we hereby authorized the BANK at its option and fact "immovables by destination" under Art. 415 (5) of the
without notice, to apply to the payment of this note, any Civil Code.[if !supportFootnotes][31][endif] It is an established rule
and all moneys, securities and things of value which may that a mortgage constituted on an immovable includes
be in its hands on deposit or otherwise belonging to not only the land but also the buildings, machinery and
me/us and for this purpose. We hereby, jointly and accessories installed at the time the mortgage was
severally, irrevocably constitute and appoint the BANK to constituted as well as the buildings, machinery and
be our true Attorney-in-Fact with full power and authority accessories belonging to the mortgagor, installed after
for us in our name and behalf and without prior notice to the constitution thereof.[if !supportFootnotes][32][endif]
negotiate, sell and transfer any moneys securities and Petitioner also contends that respondent PNBs bid
things of value which it may hold, by public or private sale prices for this foreclosed properties in the total amount of
and apply the proceeds thereof to the payment of this Three Million Seven Hundred Ninety Eight Thousand
note. Seven Hundred Nineteen Pesos and Fifty Centavos
(P3,798,719.50), were allegedly unconscionable and principal contracts are the Promissory Notes Nos. 127/82
shocking to the conscience of men. He claims that the and 128/82 which superseded and novated the 1979
fair market appraisal of his foreclosed plant site together promissory notes and the 1979 eleven (11) Applications
with the improvements thereon located in Pasig, Metro and Agreements for Commercial Letter of Credit.
Manila amounted to Five Million Four Hundred Forty One Finally, the record shows that petitioner did not
Thousand Six Hundred Fifty Pesos (P5,441,650.00) while even attempt to tender any redemption price to
that of his house and lot in Quezon City amounted to respondent PNB, as highest bidder of the said foreclosed
Seven Hundred Twenty Two Thousand Pesos real estate properties, during the one-year redemption
(P722,000.00) per the appraisal report dated September period.
20, 1990 of Cuervo Appraisers, Inc.[if !supportFootnotes][33][endif] In view of all the foregoing, it is our view and we
That contention is not well taken considering that: hold that the extrajudicial foreclosure of petitioners real
1. The total of the principal amounts alone of petitioners estate and chattel mortgages was not premature and that
subject Promissory Notes Nos. 127/82 and 128/82 which it was in fact legal and valid.
are both overdue amounted to Four Million One Hundred WHEREFORE, the petition is hereby DENIED. The
Eighty Seven Thousand Nine Hundred Seventeen Pesos challenged Decision of the Court of Appeals in CA-G.R.
and Fifty Nine Centavos (P4,187,917.59). CV No. 38036 is AFFIRMED with modification that the
2. While the appraisal of Cuervo Appraisers, Inc. was increase in the stipulated interest rates of 21% per
undertaken in September 1990, the extrajudicial annum and 18% per annum appearing on Promissory
foreclosure of petitioners real estate and chattel Notes Nos. 127/82 and 128/82 respectively is hereby
mortgages have been effected way back on October 15, declared null and void.
1984, October 23, 1984 and December 21, 1984.[if SO ORDERED.
!supportFootnotes][34][endif] Common experience shows that real

estate values especially in Metro Manila tend to go FIRST METRO INVESTMENT CORPORATION,
upward due to developments in the locality. petitioner, vs. ESTE DEL SOL MOUNTAIN RESERVE,
3. In the public auction/foreclosure sales, respondent INC., VALENTIN S. DAEZ, JR., MANUEL Q.
PNB, as mortgagee, was not obliged to bid more than its SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER
claims or more than the amount of petitioners loan G. ASUNCION, ALBERTO* M. LADORES, VICENTE M.
obligations which are all overdue. The foreclosed real DE VERA, JR., and FELIPE B. SESE, respondents.
estate and chattel mortgages which petitioner earlier DECISION
executed are accessory contracts covering the collaterals DE LEON, JR., J.:
or security of his loans with respondent PNB. The Before us is a petition for review on certiorari of the
Decision[if !supportFootnotes][1][endif]
of the Court of Appeals[if acceleration clause was, among others, provided and the
!supportFootnotes][2][endif]
dated November 8, 1999 in CA-G.R. amount due was made subject to a twenty (20%) percent
CV No. 53328 reversing the Decision[if !supportFootnotes][3][endif] one-time penalty on the amount due and such amount
of the Regional Trial Court of Pasig City, Branch 159 shall bear interest at the highest rate permitted by law
dated June 2, 1994 in Civil Case No. 39224. Essentially, from the date of default until full payment thereof plus
the Court of Appeals found and declared that the fees liquidated damages at the rate of two (2%) percent per
provided for in the Underwriting and Consultancy month compounded quarterly on the unpaid balance and
Agreements executed by and between petitioner First accrued interests together with all the penalties, fees,
Metro Investment Corp. (FMIC) and respondent Este del expenses or charges thereon until the unpaid balance is
Sol Mountain Reserve, Inc. (Este del Sol) simultaneously fully paid, plus attorneys fees equivalent to twenty-five
with the Loan Agreement dated January 31, 1978 were (25%) percent of the sum sought to be recovered, which
mere subterfuges to camouflage the usurious interest in no case shall be less than Twenty Thousand Pesos
charged by petitioner FMIC. (P20,000.00) if the services of a lawyer were hired.[if
The facts of the case are as follows: !supportFootnotes][6][endif]

It appears that on January 31, 1978, petitioner In accordance with the terms of the Loan
FMIC granted respondent Este del Sol a loan of Seven Agreement, respondent Este del Sol executed several
Million Three Hundred Eighty-Five Thousand Five documents[if !supportFootnotes][7][endif] as security for payment,
Hundred Pesos (P7,385,500.00) to finance the among them, (a) a Real Estate Mortgage dated January
construction and development of the Este del Sol 31, 1978 over two (2) parcels of land being utilized as the
Mountain Reserve, a sports/resort complex project site of its development project with an area of
located at Barrio Puray, Montalban, Rizal.[if approximately One Million Twenty-Eight Thousand and
!supportFootnotes][4][endif] Twenty-Nine (1,028,029) square meters and particularly
Under the terms of the Loan Agreement, the described in TCT Nos. N-24332 and N-24356 of the
proceeds of the loan were to be released on staggered Register of Deeds of Rizal, inclusive of all improvements,
basis. Interest on the loan was pegged at sixteen (16%) as well as all the machineries, equipment, furnishings
percent per annum based on the diminishing balance. and furnitures existing thereon; and (b) individual
The loan was payable in thirty-six (36) equal and Continuing Suretyship agreements by co-respondents
consecutive monthly amortizations to commence at the Valentin S. Daez, Jr., Manuel Q. Salientes, Ma. Rocio A.
beginning of the thirteenth month from the date of the first De Vega, Alexander G. Asuncion, Alberto M. Ladores,
release in accordance with the Schedule of Vicente M. De Vera, Jr. and Felipe B. Sese, all dated
Amortization.[if !supportFootnotes][5][endif] In case of default, an February 2, 1978, to guarantee the payment of all the
obligations of respondent Este del Sol up to the the public offering of the common shares of stock of
aggregate sum of Seven Million Five Hundred Thousand respondent Este del Sol; [b] One Million Three Hundred
Pesos (P7,500,000 00) each.[if !supportFootnotes][8][endif] Thirty Thousand Pesos (P1,330,000.00) as consultancy
Respondent Este del Sol also executed, as fee for a period of four (4) years; and [c] Two Hundred
provided for by the Loan Agreement, an Underwriting Thousand Pesos (P200,000.00) as supervision fee for
Agreement on January 31, 1978 whereby petitioner FMIC the year beginning February, 1978, in accordance to the
shall underwrite on a best-efforts basis the public offering Underwriting Agreement.[if !supportFootnotes][10][endif] The said
of One Hundred Twenty Thousand (120,000) common amounts of fees were deemed paid by respondent Este
shares of respondent Este del Sols capital stock for a del Sol to petitioner FMIC which deducted the same from
one-time underwriting fee of Two Hundred Thousand the first release of the loan.
Pesos (P200,000.00). In addition to the underwriting fee, Since respondent Este del Sol failed to meet the
the Underwriting Agreement provided that for supervising schedule of repayment in accordance with a revised
the public offering of the shares, respondent Este del Sol Schedule of Amortization, it appeared to have incurred a
shall pay petitioner FMIC an annual supervision fee of total obligation of Twelve Million Six Hundred Seventy-
Two Hundred Thousand Pesos (P200,000.00) per annum Nine Thousand Six Hundred Thirty Pesos and Ninety-
for a period of four (4) consecutive years. The Eight Centavos (P12,679,630.98) per the petitioners
Underwriting Agreement also stipulated for the payment Statement of Account dated June 23, 1980,[if
by respondent Este del Sol to petitioner FMIC a !supportFootnotes][11][endif] to wit:

consultancy fee of Three Hundred Thirty-Two Thousand STATEMENT OF ACCOUNT OF


Five Hundred Pesos (P332,500.00) per annum for a ESTE DEL SOL MOUNTAIN RESERVE, INC.
period of four (4) consecutive years. Simultaneous with AS OF JUNE 23, 1980
the execution of and in accordance with the terms of the PARTICULARS AMOUNT
Underwriting Agreement, a Consultancy Agreement was Total amount due as of 11-22-78 per
also executed on January 31, 1978 whereby respondent revised amortization schedule dated
Este del Sol engaged the services of petitioner FMIC for 1-3-78 P7,999,631.42
a fee as consultant to render general consultancy Interest on P7,999,631.42 @ 16% p.a. from
services.[if !supportFootnotes][9][endif] 11-22-78 to 2-22-79 (92 days) 327,096.04
In three (3) letters all dated February 22, 1978 Balance 8,326,727.46
petitioner billed respondent Este del Sol for the amounts One time penalty of 20% of the entire unpaid
of [a] Two Hundred Thousand Pesos (P200,000.00) as obligations under Section 6.02 (ii) of
the underwriting fee of petitioner FMIC in connection with Loan Agreement 1,665,345.49
Past due interest under Section 6.02 (iii) Million Eight Hundred Sixty-Three Thousand Two
of loan Agreement: Hundred Ninety-Seven Pesos and Seventy-Three
@ 19% p.a. from 2-22-79 to 11-30-79 Centavos (P6,863,297.73) on the principal amount of the
(281 days) 1,481,879.93 loan as of June 23, 1980.[if !supportFootnotes][13][endif]
@ 21% p.a. from 11-30-79 to 6-23-80 Failing to secure from the individual respondents,
(206 days) 1,200,714.10 as sureties of the loan of respondent Este del Sol by
Other charges publication of extra judicial virtue of their continuing surety agreements, the payment
foreclosure of REM made on of the alleged deficiency balance, despite individual
5-23-80 & 6-6-80 4,964.00 demands sent to each of them,[if !supportFootnotes][14][endif]
Total Amount Due and Collectible as of petitioner instituted on November 11, 1980 the instant
June 23, 1980 P12,679,630.98 collection suit[if !supportFootnotes][15][endif]against the
Accordingly, petitioner FMIC caused the respondents to collect the alleged deficiency balance of
extrajudicial foreclosure of the real estate mortgage on Six Million Eight Hundred Sixty-Three Thousand Two
June 23, 1980.[if !supportFootnotes][12][endif] At the public auction, Hundred Ninety-Seven Pesos and Seventy-Three
petitioner FMIC was the highest bidder of the mortgaged Centavos (P6,863,297.73) plus interest thereon at
properties for Nine Million Pesos (P9,000,000.00). The twenty-one (21%) percent per annum from June 24, 1980
total amount of Three Million One Hundred Eighty-Eight until fully paid, and twenty-five (25%) percent thereof as
Thousand Six Hundred Thirty Pesos and Seventy-Five and for attorneys fees and costs.
Centavos (P3,188,630.75) was deducted therefrom, that In their Answer, the respondents sought the
is, for the publication fee for the publication of the Sheriffs dismissal of the case and set up several special and
Notice of Sale, Four Thousand Nine Hundred Sixty-Four affirmative defenses, foremost of which is that the
Pesos (P4,964.00); for Sheriffs fees for conducting the Underwriting and Consultancy Agreements executed
foreclosure proceedings, Fifteen Thousand Pesos simultaneously with and as integral parts of the Loan
(P15,000.00); and for Attorneys fees, Three Million One Agreement and which provided for the payment of
Hundred Sixty-Eight Thousand Six Hundred Sixty-Six Underwriting, Consultancy and Supervision fees were in
Pesos and Seventy-Five Centavos (P3,168,666.75). The reality subterfuges resorted to by petitioner FMIC and
remaining balance of Five Million Eight Hundred Eleven imposed upon respondent Este del Sol to camouflage the
Thousand Three Hundred Sixty-Nine Pesos and Twenty- usurious interest being charged by petitioner FMIC.[if
Five Centavos (P5,811,369.25) was applied to interests !supportFootnotes][16][endif]

and penalty charges and partly against the principal, due The petitioner FMIC presented as its witnesses
as of June 23, 1980, thereby leaving a balance of Six during the trial: Cesar Valenzuela, its former Senior Vice-
President, Felipe Neri, its Vice-President for Marketing, stipulated one time twenty (20%) percent penalty on the
and Dennis Aragon, an Account Manager of its Account amount due and ten (10%) percent of the amount due as
Management Group, as well as documentary evidence. attorneys fees would be reasonable and suffice to
On the other hand, co-respondents Vicente M. De Vera, compensate petitioner FMIC for those items. Thus, the
Jr. and Valentin S. Daez, Jr., and Perfecto Doroja, former appellate court dismissed the complaint as against the
Senior Manager and Assistant Vice-President of FMIC, individual respondents sureties and ordered petitioner
testified for the respondents. FMIC to pay or reimburse respondent Este del Sol the
After the trial, the trial court rendered its decision in amount of Nine Hundred Seventy-One Thousand Pesos
favor of petitioner FMIC, the dispositive portion of which (P971,000.00) representing the difference between what
reads: is due to the petitioner and what is due to respondent
WHEREFORE, judgment is hereby rendered in favor of Este del Sol, based on the following computation:[if
plaintiff and against defendants, ordering defendants !supportFootnotes][17][endif]

jointly and severally to pay to plaintiff the amount of A: DUE TO THE [PETITIONER]
P6,863,297.73 plus 21% interest per annum, from June Principal of Loan P7,382,500.00
24, 1980, until the entire amount is fully paid, plus the Add: 20% one-time
amount equivalent to 25% of the total amount due, as Penalty 1,476,500.00
attorneys fees, plus costs of suit. Attorneys fees 900,000.00 P9,759,000.00
Defendants counterclaims are dismissed, for lack of Less: Proceeds of foreclosure
merit. Sale 9,000,000.00
Finding the decision of the trial court unacceptable, Deficiency P 759,000.00
respondents interposed an appeal to the Court of B. DUE TO [RESPONDENT ESTE DEL SOL]
Appeals. On November 8, 1999, the appellate court Return of usurious interest in the form of:
reversed the challenged decision of the trial court. The Underwriting fee P 200,000.00
appellate court found and declared that the fees provided Supervision fee 200,000.00
for in the Underwriting and Consultancy Agreements Consultancy fee 1,330,000.00
were mere subterfuges to camouflage the excessively Total amount due Este P 1,730,000.00
usurious interest charged by the petitioner FMIC on the The appellee is, therefore, obliged to return to the
loan of respondent Este del Sol; and that the stipulated appellant Este del Sol the difference of P971,000.00 or
penalties, liquidated damages and attorneys fees were (P1,730,000.00 less P759,000.00).
excessive, iniquitous, unconscionable and revolting to the Petitioner moved for reconsideration of the appellate
conscience, and declared that in lieu thereof, the courts adverse decision. However, this was denied in a
Resolution[if !supportFootnotes][18][endif]dated February 9, 2000 of GRANTING JUST FOR THE SAKE OF ARGUMENT
the appellate court. THAT THE APPELLATE COURT WAS CORRECT IN
Hence, the instant petition anchored on the STIGMATIZING [i] THE PROVISIONS OF THE LOAN
following assigned errors:[if !supportFootnotes][19][endif] AGREEMENT THAT REFER TO STIPULATED
THE APPELLATE COURT HAS DECIDED QUESTIONS PENALTIES, LIQUIDATED DAMAGES AND
OF SUBSTANCE IN A WAY NOT IN ACCORD WITH ATTORNEYS FEES AS SUPPOSEDLY EXCESSIVE,
LAW AND WITH APPLICABLE DECISIONS OF THIS INIQUITOUS AND UNCONSCIONABLE AND
HONORABLE COURT WHEN IT: REVOLTING TO THE CONSCIENCE AND [ii] THE
a] HELD THAT ALLEGEDLY THE UNDERWRITING UNDERWRITING, SUPERVISION AND
AND CONSULTANCY AGREEMENTS SHOULD NOT CONSULTANCY SERVICES AGREEMENT AS
BE CONSIDERED SEPARATE AND DISTINCT FROM SUPPOSEDLY MERE SUBTERFUGES TO
THE LOAN AGREEMENT, AND INSTEAD, THEY CAMOUFLAGE THE USURIOUS INTEREST
SHOULD BE CONSIDERED AS A SINGLE CHARGED UPON THE RESPONDENT ESTE BY
CONTRACT. PETITIONER.
b] HELD THAT THE UNDERWRITING AND f] REFUSED TO CONSIDER THE FACT THAT
CONSULTANCY AGREEMENTS ARE MERE RESPONDENT ESTE, AND THUS THE INDIVIDUAL
SUBTERFUGES TO CAMOUFLAGE THE USURIOUS RESPONDENTS, ARE STILL OBLIGATED TO THE
INTEREST CHARGED BY THE PETITIONER. PETITIONER.
c] REFUSED TO CONSIDER THE TESTIMONIES OF Petitioner essentially assails the factual findings and
PETITIONERS WITNESSES ON THE SERVICES conclusion of the appellate court that the Underwriting
PERFORMED BY PETITIONER. and Consultancy Agreements were executed to conceal
d] REFUSED TO CONSIDER THE FACT [i] THAT a usurious loan. Inquiry upon the veracity of the appellate
RESPONDENTS HAD WAIVED THEIR RIGHT TO courts factual findings and conclusion is not the function
SEEK RECOVERY OF THE AMOUNTS THEY PAID TO of this Court for the Supreme Court is not a trier of facts.
PETITIONER, AND [ii] THAT RESPONDENTS HAD Only when the factual findings of the trial court and the
ADMITTED THE VALIDITY OF THE UNDERWRITING appellate court are opposed to each other does this
AND CONSULTANCY AGREEMENTS. Court exercise its discretion to re-examine the factual
e] MADE AN ERRONEOUS COMPUTATION ON findings of both courts and weigh which, after considering
SUPPOSEDLY WHAT IS DUE TO EACH PARTY the record of the case, is more in accord with law and
AFTER THE FORECLOSURE SALE, AS SHOWN IN justice.
PP. 34-35 OF THE ASSAILED DECISION, EVEN After a careful and thorough review of the record
including the evidence adduced, we find no reason to transaction it becomes apparent that there exists a
depart from the findings of the appellate court. corrupt intention to violate the Usury Law, the courts
First, there is no merit to petitioner FMICs should and will permit no scheme, however ingenious, to
contention that Central Bank Circular No. 905 which took becloud the crime of usury.[if !supportFootnotes][25][endif]
effect on January 1, 1983 and removed the ceiling on In the instant case, several facts and circumstances
interest rates for secured and unsecured loans, taken altogether show that the Underwriting and
regardless of maturity, should be applied retroactively to Consultancy Agreements were simply cloaks or devices
a contract executed on January 31, 1978, as in the case to cover an illegal scheme employed by petitioner FMIC
at bar, that is, while the Usury Law was in full force and to conceal and collect excessively usurious interest, and
effect. It is an elementary rule of contracts that the laws, these are:
in force at the time the contract was made and entered a) The Underwriting and Consultancy Agreements
into, govern it.[if !supportFootnotes][20][endif] More significantly, are both dated January 31, 1978 which is the same date
Central Bank Circular No. 905 did not repeal nor in any of the Loan Agreement.[if !supportFootnotes][26][endif]

way amend the Usury Law but simply suspended the Furthermore, under the Underwriting Agreement payment
latters effectivity.[if !supportFootnotes][21][endif] The illegality of of the supervision and consultancy fees was set for a
usury is wholly the creature of legislation. A Central Bank period of four (4) years[if !supportFootnotes][27][endif] to coincide
Circular cannot repeal a law. Only a law can repeal ultimately with the term of the Loan Agreement.[if
another law.[if !supportFootnotes][22][endif] Thus, retroactive !supportFootnotes][28][endif] This fact means that all the said

application of a Central Bank Circular cannot, and should agreements which were executed simultaneously were
not, be presumed.[if !supportFootnotes][23][endif] set to mature or shall remain effective during the same
Second, when a contract between two (2) parties is period of time.
evidenced by a written instrument, such document is b) The Loan Agreement dated January 31, 1978
ordinarily the best evidence of the terms of the contract. stipulated for the execution and delivery of an
Courts only need to rely on the face of written contracts underwriting agreement[if !supportFootnotes][29][endif]and

to determine the intention of the parties. However, this specifically mentioned that such underwriting agreement
rule is not without exception.[if !supportFootnotes][24][endif] The is a condition precedent[if !supportFootnotes][30][endif]for petitioner
form of the contract is not conclusive for the law will not FMIC to extend the loan to respondent Este del Sol,
permit a usurious loan to hide itself behind a legal form. indicating and as admitted by petitioner FMICs
Parol evidence is admissible to show that a written employees,[if !supportFootnotes][31][endif] that such Underwriting
document though legal in form was in fact a device to Agreement is part and parcel of the Loan Agreement. [if
cover usury. If from a construction of the whole !supportFootnotes][32][endif]
c) Respondent Este del Sol was billed by petitioner a syndicate, thus failing to comply with its obligation
on February 28, 1978 One Million Three Hundred Thirty under the Underwriting Agreement.[if !supportFootnotes][38][endif]
Thousand Pesos (P1,330,000.00)[if !supportFootnotes][33][endif] as Besides, there was really no need for an Underwriting
consultancy fee despite the clear provision in the Agreement since respondent Este del Sol had its own
Consultancy Agreement that the said agreement is for licensed marketing arm to sell its shares and all its
Three Hundred Thirty-Two Thousand Five Hundred shares have been sold through its marketing arm.[if
Pesos (P332,500.00) per annum for four (4) years and !supportFootnotes][39][endif]

that only the first year consultancy fee shall be due upon f) Petitioner FMIC failed to comply with its obligation
signing of the said consultancy agreement.[if under the Consultancy Agreement,[if !supportFootnotes][40][endif]
!supportFootnotes][34][endif] aside from the fact that there was no need for a
d) The Underwriting, Supervision and Consultancy Consultancy Agreement, since respondent Este del Sols
fees in the amounts of Two Hundred Thousand Pesos officers appeared to be more competent to be
(P200,000.00), Two Hundred Thousand Pesos consultants in the development of the projected
(P200,000.00) and One Million Three Hundred Thirty sports/resort complex.[if !supportFootnotes][41][endif]
Thousand Pesos (P1,330,000.00), respectively, were All the foregoing established facts and
billed by petitioner to respondent Este del Sol on circumstances clearly belie the contention of petitioner
February 22, 1978,[if !supportFootnotes][35][endif] that is, on the FMIC that the Loan, Underwriting and Consultancy
same occasion of the first partial release of the loan in Agreements are separate and independent transactions.
the amount of Two Million Three Hundred Eighty-Two The Underwriting and Consultancy Agreements which
Thousand Five Hundred Pesos (P2,382,500.00).[if were executed and delivered contemporaneously with
!supportFootnotes][36][endif] It is from this first partial release of the Loan Agreement on January 31, 1978 were exacted
the loan that the said corresponding bills for by petitioner FMIC as essential conditions for the grant of
Underwriting, Supervision and Consultancy fees were the loan. An apparently lawful loan is usurious when it is
deducted and apparently paid, thus, reverting back to intended that additional compensation for the loan be
petitioner FMIC the total amount of One Million Seven disguised by an ostensibly unrelated contract providing
Hundred Thirty Thousand Pesos (P1,730,000.00) as part for payment by the borrower for the lenders services
of the amount loaned to respondent Este del Sol.[if which are of little value or which are not in fact to be
!supportFootnotes][37][endif] rendered, such as in the instant case.[if
e) Petitioner FMIC was in fact unable to organize an !supportFootnotes][42][endif] In this connection, Article 1957 of the

underwriting/selling syndicate to sell any share of stock of New Civil Code clearly provides that:
respondent Este del Sol and much less to supervise such Art. 1957. Contracts and stipulations, under any cloak or
device whatever, intended to circumvent the laws against and revolting to the conscience as they hardly allow the
usury shall be void. The borrower may recover in borrower any chance of survival in case of default. And
accordance with the laws on usury. true enough, ESTE folded up when the appellee
In usurious loans, the entire obligation does not extrajudicially foreclosed on its (ESTEs) development
become void because of an agreement for usurious project and literally closed its offices as both the appellee
interest; the unpaid principal debt still stands and and ESTE were at the time holding office in the same
remains valid but the stipulation as to the usurious building. Accordingly, we hold that 20% penalty on the
interest is void, consequently, the debt is to be amount due and 10% of the proceeds of the foreclosure
considered without stipulation as to the interest.[if sale as attorneys fees would suffice to compensate the
!supportFootnotes][43][endif] The reason for this rule was appellee, especially so because there is no clear showing
adequately explained in the case of Angel Jose that the appellee hired the services of counsel to effect
Warehousing Co., Inc. v. Child Enterprises[if the foreclosure; it engaged counsel only when it was
!supportFootnotes][44][endif]where this Court held: seeking the recovery of the alleged deficiency.
In simple loan with stipulation of usurious interest, the Attorneys fees as provided in penal clauses are in
prestation of the debtor to pay the principal debt, which is the nature of liquidated damages. So long as such
the cause of the contract (Article 1350, Civil Code), is not stipulation does not contravene any law, morals, or public
illegal. The illegality lies only as to the prestation to pay order, it is binding upon the parties. Nonetheless, courts
the stipulated interest; hence, being separable, the latter are empowered to reduce the amount of attorneys fees if
only should be deemed void, since it is the only one that the same is iniquitous or unconscionable.[if
is illegal. !supportFootnotes][46][endif] Articles 1229 and 2227 of the New

Thus, the nullity of the stipulation on the usurious Civil Code provide that:
interest does not affect the lenders right to receive back Art. 1229. The judge shall equitably reduce the penalty
the principal amount of the loan. With respect to the when the principal obligation has been partly or
debtor, the amount paid as interest under a usurious irregularly complied with by the debtor. Even if there has
agreement is recoverable by him, since the payment is been no performance, the penalty may also be reduced
deemed to have been made under restraint, rather than by the courts if it is iniquitous or unconscionable.
voluntarily.[if !supportFootnotes][45][endif] Art. 2227. Liquidated damages, whether intended as an
This Court agrees with the factual findings and indemnity or a penalty, shall be equitably reduced if they
conclusion of the appellate court, to wit: are iniquitous or unconscionable.
We find the stipulated penalties, liquidated damages and In the case at bar, the amount of Three Million One
attorneys fees, excessive, iniquitous and unconscionable Hundred Eighty-Eight Thousand Six Hundred Thirty
Pesos and Seventy-Five Centavos (P3,188,630.75) for AUSTRIA-MARTINEZ, J.:
the stipulated attorneys fees equivalent to twenty-five Before us is a Petition for Review on Certiorari filed by
(25%) percent of the alleged amount due, as of the date Bobie Rose V. Frias represented by her Attorney-in-fact,
of the auction sale on June 23, 1980, is manifestly Marie Regine F. Fujita (petitioner) seeking to annul the
exorbitant and unconscionable. Accordingly, we agree Decision1 dated June 18, 2002 and the Resolution2 dated
with the appellate court that a reduction of the attorneys September 11, 2002 of the Court of Appeals (CA) in CA-
fees to ten (10%) percent is appropriate and reasonable G.R. CV No. 52839.
under the facts and circumstances of this case. Petitioner is the owner of a house and lot located at No.
Lastly, there is no merit to petitioner FMICs 589 Batangas East, Ayala Alabang, Muntinlupa, Metro
contention that the appellate court erred in awarding an Manila, which she acquired from Island Masters Realty
amount allegedly not asked nor prayed for by and Development Corporation (IMRDC) by virtue of a
respondents. Whether the exact amount of the relief was Deed of Sale dated Nov. 16, 1990.3 The property is
not expressly prayed for is of no moment for the reason covered by TCT No. 168173 of the Register of Deeds of
that the relief was plainly warranted by the allegations of Makati in the name of IMRDC.4
the respondents as well as by the facts as found by the On December 7, 1990, petitioner, as the FIRST PARTY,
appellate court. A party is entitled to as much relief as the and Dra. Flora San Diego-Sison (respondent), as the
facts may warrant.[if !supportFootnotes][47][endif] SECOND PARTY, entered into a Memorandum of
In view of all the foregoing, the Court is convinced Agreement5 over the property with the following terms:
that the appellate court committed no reversible error in NOW, THEREFORE, for and in consideration of the sum
its challenged Decision. of THREE MILLION PESOS (P3,000,000.00) receipt of
WHEREFORE, the instant petition is hereby DENIED, which is hereby acknowledged by the FIRST PARTY
and the assailed Decision of the Court of Appeals is from the SECOND PARTY, the parties have agreed as
AFFIRMED. Costs against petitioner. follows:
SO ORDERED. 1. That the SECOND PARTY has a period of Six (6)
months from the date of the execution of this contract
G.R. No. 155223 April 4, 2007 within which to notify the FIRST PARTY of her intention
BOBIE ROSE V. FRIAS, represented by her Attorney- to purchase the aforementioned parcel of land together
in-fact, MARIE F. FUJITA, Petitioner, within (sic) the improvements thereon at the price of SIX
vs. MILLION FOUR HUNDRED THOUSAND PESOS
FLORA SAN DIEGO-SISON, Respondent. (P6,400,000.00). Upon notice to the FIRST PARTY of the
DECISION SECOND PARTYs intention to purchase the same, the
latter has a period of another six months within which to check stale.7 Petitioner then gave respondent TCT No.
pay the remaining balance of P3.4 million. 168173 in the name of IMRDC and the Deed of Absolute
2. That prior to the six months period given to the Sale over the property between petitioner and IMRDC.
SECOND PARTY within which to decide whether or not Respondent decided not to purchase the property and
to purchase the above-mentioned property, the FIRST notified petitioner through a letter8 dated March 20, 1991,
PARTY may still offer the said property to other persons which petitioner received only on June 11, 1991,9
who may be interested to buy the same provided that the reminding petitioner of their agreement that the amount
amount of P3,000,000.00 given to the FIRST PARTY BY of two million pesos which petitioner received from
THE SECOND PARTY shall be paid to the latter respondent should be considered as a loan payable
including interest based on prevailing compounded bank within six months. Petitioner subsequently failed to pay
interest plus the amount of the sale in excess of respondent the amount of two million pesos.
P7,000,000.00 should the property be sold at a price On April 1, 1993, respondent filed with the Regional Trial
more than P7 million. Court (RTC) of Manila, a complaint10 for sum of money
3. That in case the FIRST PARTY has no other buyer with preliminary attachment against petitioner. The case
within the first six months from the execution of this was docketed as Civil Case No. 93-65367 and raffled to
contract, no interest shall be charged by the SECOND Branch 30. Respondent alleged the foregoing facts and
PARTY on the P3 million however, in the event that on in addition thereto averred that petitioner tried to deprive
the sixth month the SECOND PARTY would decide not her of the security for the loan by making a false report11
to purchase the aforementioned property, the FIRST of the loss of her owners copy of TCT No. 168173 to the
PARTY has a period of another six months within which Tagig Police Station on June 3, 1991, executing an
to pay the sum of P3 million pesos provided that the said affidavit of loss and by filing a petition12 for the issuance
amount shall earn compounded bank interest for the last of a new owners duplicate copy of said title with the RTC
six months only. Under this circumstance, the amount of of Makati, Branch 142; that the petition was granted in an
P3 million given by the SECOND PARTY shall be treated Order13 dated August 31, 1991; that said Order was
as [a] loan and the property shall be considered as the subsequently set aside in an Order dated April 10, 199214
security for the mortgage which can be enforced in where the RTC Makati granted respondents petition for
accordance with law. relief from judgment due to the fact that respondent is in
x x x x.6 possession of the owners duplicate copy of TCT No.
Petitioner received from respondent two million pesos in 168173, and ordered the provincial public prosecutor to
cash and one million pesos in a post-dated check dated conduct an investigation of petitioner for perjury and false
February 28, 1990, instead of 1991, which rendered said testimony. Respondent prayed for the ex-parte issuance
of a writ of preliminary attachment and payment of two and to get the services of another lawyer to file a petition
million pesos with interest at 36% per annum from for the issuance of an owners duplicate copy; that the
December 7, 1991, P100,000.00 moral, corrective and petition for the issuance of a new owners duplicate copy
exemplary damages and P200,000.00 for attorneys fees. was filed on her behalf without her knowledge and
In an Order dated April 6, 1993, the Executive Judge of neither did she sign the petition nor testify in court as
the RTC of Manila issued a writ of preliminary attachment falsely claimed for she was abroad; that she was a victim
upon the filing of a bond in the amount of two million of the manipulations of Atty. Lozada and respondent as
pesos.15 shown by the filing of criminal charges for perjury and
Petitioner filed an Amended Answer16 alleging that the false testimony against her; that no interest could be due
Memorandum of Agreement was conceived and as there was no valid mortgage over the property as the
arranged by her lawyer, Atty. Carmelita Lozada, who is principal obligation is vitiated with fraud and deception.
also respondents lawyer; that she was asked to sign the She prayed for the dismissal of the complaint, counter-
agreement without being given the chance to read the claim for damages and attorneys fees.
same; that the title to the property and the Deed of Sale Trial on the merits ensued. On January 31, 1996, the
between her and the IMRDC were entrusted to Atty. RTC issued a decision,17 the dispositive portion of which
Lozada for safekeeping and were never turned over to reads:
respondent as there was no consummated sale yet; that WHEREFORE, judgment is hereby RENDERED:
out of the two million pesos cash paid, Atty. Lozada took 1) Ordering defendant to pay plaintiff the sum of P2
the one million pesos which has not been returned, thus Million plus interest thereon at the rate of thirty two (32%)
petitioner had filed a civil case against her; that she was per cent per annum beginning December 7, 1991 until
never informed of respondents decision not to purchase fully paid.
the property within the six month period fixed in the 2) Ordering defendant to pay plaintiff the sum of
agreement; that when she demanded the return of TCT P70,000.00 representing premiums paid by plaintiff on
No. 168173 and the Deed of Sale between her and the the attachment bond with legal interest thereon counted
IMRDC from Atty. Lozada, the latter gave her these from the date of this decision until fully paid.
documents in a brown envelope on May 5, 1991 which 3) Ordering defendant to pay plaintiff the sum of
her secretary placed in her attache case; that the P100,000.00 by way of moral, corrective and exemplary
envelope together with her other personal things were damages.
lost when her car was forcibly opened the following day; 4) Ordering defendant to pay plaintiff attorneys fees of
that she sought the help of Atty. Lozada who advised her P100,000.00 plus cost of litigation.18
to secure a police report, to execute an affidavit of loss The RTC found that petitioner was under obligation to
pay respondent the amount of two million pesos with to Atty. Lozada partly as her commission and partly as a
compounded interest pursuant to their Memorandum of loan; respondent did not replace the mistakenly dated
Agreement; that the fraudulent scheme employed by check of one million pesos because she had decided not
petitioner to deprive respondent of her only security to to buy the property and petitioner knew of her decision as
her loaned money when petitioner executed an affidavit early as April 1991; the award of moral damages was
of loss and instituted a petition for the issuance of an warranted since even granting petitioner had no hand in
owners duplicate title knowing the same was in the filing of the petition for the issuance of an owners
respondents possession, entitled respondent to moral copy, she executed an affidavit of loss of TCT No.
damages; and that petitioners bare denial cannot be 168173 when she knew all along that said title was in
accorded credence because her testimony and that of respondents possession; petitioners claim that she
her witness did not appear to be credible. thought the title was lost when the brown envelope given
The RTC further found that petitioner admitted that she to her by Atty. Lozada was stolen from her car was
received from respondent the two million pesos in cash hollow; that such deceitful conduct caused respondent
but the fact that petitioner gave the one million pesos to serious anxiety and emotional distress.
Atty. Lozada was without respondents knowledge thus it The CA concluded that there was no basis for petitioner
is not binding on respondent; that respondent had also to say that the interest should be charged for six months
proven that in 1993, she initially paid the sum of only and no more; that a loan always bears interest
P30,000.00 as premium for the issuance of the otherwise it is not a loan; that interest should commence
attachment bond, P20,000.00 for its renewal in 1994, and on June 7, 199120 with compounded bank interest
P20,000.00 for the renewal in 1995, thus plaintiff should prevailing at the time the two million was considered as a
be reimbursed considering that she was compelled to go loan which was in June 1991; that the bank interest rate
to court and ask for a writ of preliminary attachment to for loans secured by a real estate mortgage in 1991
protect her rights under the agreement. ranged from 25% to 32% per annum as certified to by
Petitioner filed her appeal with the CA. In a Decision Prudential Bank,21 that in fairness to petitioner, the rate to
dated June 18, 2002, the CA affirmed the RTC decision be charged should be 25% only.
with modification, the dispositive portion of which reads: Petitioners motion for reconsideration was denied by the
WHEREFORE, premises considered, the decision CA in a Resolution dated September 11, 2002.
appealed from is MODIFIED in the sense that the rate of Hence the instant Petition for Review on Certiorari filed
interest is reduced from 32% to 25% per annum, effective by petitioner raising the following issues:
June 7, 1991 until fully paid.19 (A) WHETHER OR NOT THE COMPOUNDED BANK
The CA found that: petitioner gave the one million pesos INTEREST SHOULD BE LIMITED TO SIX (6) MONTHS
AS CONTAINED IN THE MEMORANDUM OF law between the parties. In resolving an issue based
AGREEMENT. upon a contract, we must first examine the contract itself,
(B) WHETHER OR NOT THE RESPONDENT IS especially the provisions thereof which are relevant to the
ENTITLED TO MORAL DAMAGES. controversy.24 The general rule is that if the terms of an
(C) WHETHER OR NOT THE GRANT OF CORRECTIVE agreement are clear and leave no doubt as to the
AND EXEMPLARY DAMAGES AND ATTORNEYS intention of the contracting parties, the literal meaning of
FEES IS PROPER EVEN IF NOT MENTIONED IN THE its stipulations shall prevail.25 It is further required that the
TEXT OF THE DECISION.22 various stipulations of a contract shall be interpreted
Petitioner contends that the interest, whether at 32% per together, attributing to the doubtful ones that sense which
annum awarded by the trial court or at 25% per annum may result from all of them taken jointly.26
as modified by the CA which should run from June 7, In this case, the phrase "for the last six months only"
1991 until fully paid, is contrary to the parties should be taken in the context of the entire agreement.
Memorandum of Agreement; that the agreement provides We agree with and adopt the CAs interpretation of the
that if respondent would decide not to purchase the phrase in this wise:
property, petitioner has the period of another six months Their agreement speaks of two (2) periods of six months
to pay the loan with compounded bank interest for the each. The first six-month period was given to plaintiff-
last six months only; that the CAs ruling that a loan appellee (respondent) to make up her mind whether or
always bears interest otherwise it is not a loan is contrary not to purchase defendant-appellants (petitioner's)
to Art. 1956 of the New Civil Code which provides that no property. The second six-month period was given to
interest shall be due unless it has been expressly defendant-appellant to pay the P2 million loan in the
stipulated in writing. event that plaintiff-appellee decided not to buy the
We are not persuaded. subject property in which case interest will be charged
While the CAs conclusion, that a loan always bears "for the last six months only", referring to the second six-
interest otherwise it is not a loan, is flawed since a simple month period. This means that no interest will be charged
loan may be gratuitous or with a stipulation to pay for the first six-month period while appellee was making
interest,23 we find no error committed by the CA in up her mind whether to buy the property, but only for the
awarding a 25% interest per annum on the two-million second period of six months after appellee had decided
peso loan even beyond the second six months stipulated not to buy the property. This is the meaning of the phrase
period. "for the last six months only". Certainly, there is nothing in
The Memorandum of Agreement executed between the their agreement that suggests that interest will be
petitioner and respondent on December 7, 1990 is the charged for six months only even if it takes defendant-
appellant an eternity to pay the loan.27 validity of a 21% per annum interest on a P142,326.43
The agreement that the amount given shall bear loan. In Garcia v. Court of Appeals,31 we sustained the
compounded bank interest for the last six months only, agreement of the parties to a 24% per annum interest on
i.e., referring to the second six-month period, does not an P8,649,250.00 loan. Thus, the interest rate of 25% per
mean that interest will no longer be charged after the annum awarded by the CA to a P2 million loan is fair and
second six-month period since such stipulation was reasonable.
made on the logical and reasonable expectation that Petitioner next claims that moral damages were awarded
such amount would be paid within the date stipulated. on the erroneous finding that she used a fraudulent
Considering that petitioner failed to pay the amount given scheme to deprive respondent of her security for the
which under the Memorandum of Agreement shall be loan; that such finding is baseless since petitioner was
considered as a loan, the monetary interest for the last acquitted in the case for perjury and false testimony filed
six months continued to accrue until actual payment of by respondent against her.
the loaned amount. We are not persuaded.
The payment of regular interest constitutes the price or Article 31 of the Civil Code provides that when the civil
cost of the use of money and thus, until the principal sum action is based on an obligation not arising from the act
due is returned to the creditor, regular interest continues or omission complained of as a felony, such civil action
to accrue since the debtor continues to use such principal may proceed independently of the criminal proceedings
amount.28 It has been held that for a debtor to continue in and regardless of the result of the latter.32
possession of the principal of the loan and to continue to While petitioner was acquitted in the false testimony and
use the same after maturity of the loan without payment perjury cases filed by respondent against her, those
of the monetary interest, would constitute unjust actions are entirely distinct from the collection of sum of
enrichment on the part of the debtor at the expense of money with damages filed by respondent against
the creditor.29 petitioner.
Petitioner and respondent stipulated that the loaned We agree with the findings of the trial court and the CA
amount shall earn compounded bank interests, and per that petitioners act of trying to deprive respondent of the
the certification issued by Prudential Bank, the interest security of her loan by executing an affidavit of loss of the
rate for loans in 1991 ranged from 25% to 32% per title and instituting a petition for the issuance of a new
annum. The CA reduced the interest rate to 25% instead owners duplicate copy of TCT No. 168173 entitles
of the 32% awarded by the trial court which petitioner no respondent to moral damages.1a\^/phi1.net Moral
longer assailed.1awphi1.nt damages may be awarded in culpa contractual or breach
In Bautista v. Pilar Development Corp.,30 we upheld the of contract cases when the defendant acted fraudulently
or in bad faith. Bad faith does not simply connote bad the title was returned by Atty. Lozada in view of Ynfante's
judgment or negligence; it imports a dishonest purpose or testimony that after the brown envelope was given to
some moral obliquity and conscious doing of wrong. It petitioner, the latter passed it on to her and she placed it
partakes of the nature of fraud.33 in petitioners attach case36 and did not bother to look at
The Memorandum of Agreement provides that in the the envelope.37
event that respondent opts not to buy the property, the It is clear therefrom that petitioners execution of the
money given by respondent to petitioner shall be treated affidavit of loss became the basis of the filing of the
as a loan and the property shall be considered as the petition with the RTC for the issuance of new owners
security for the mortgage. It was testified to by duplicate copy of TCT No. 168173. Petitioners actuation
respondent that after they executed the agreement on would have deprived respondent of the security for her
December 7, 1990, petitioner gave her the owners copy loan were it not for respondents timely filing of a petition
of the title to the property, the Deed of Sale between for relief whereby the RTC set aside its previous order
petitioner and IMRDC, the certificate of occupancy, and granting the issuance of new title. Thus, the award of
the certificate of the Secretary of the IMRDC who signed moral damages is in order.
the Deed of Sale.34 However, notwithstanding that all The entitlement to moral damages having been
those documents were in respondents possession, established, the award of exemplary damages is
petitioner executed an affidavit of loss that the owners proper.38 Exemplary damages may be imposed upon
copy of the title and the Deed of Sale were lost. petitioner by way of example or correction for the public
Although petitioner testified that her execution of the good.39 The RTC awarded the amount of P100,000.00 as
affidavit of loss was due to the fact that she was of the moral and exemplary damages. While the award of moral
belief that since she had demanded from Atty. Lozada and exemplary damages in an aggregate amount may
the return of the title, she thought that the brown not be the usual way of awarding said damages,40 no
envelope with markings which Atty. Lozada gave her on error has been committed by CA. There is no question
May 5, 1991 already contained the title and the Deed of that respondent is entitled to moral and exemplary
Sale as those documents were in the same brown damages.
envelope which she gave to Atty. Lozada prior to the Petitioner argues that the CA erred in awarding attorneys
transaction with respondent.35 Such statement remained fees because the trial courts decision did not explain the
a bare statement. It was not proven at all since Atty. findings of facts and law to justify the award of attorneys
Lozada had not taken the stand to corroborate her claim. fees as the same was mentioned only in the dispositive
In fact, even petitioners own witness, Benilda Ynfante portion of the RTC decision.
(Ynfante), was not able to establish petitioner's claim that We agree.
Article 220841 of the New Civil Code enumerates the Present:
instances where such may be awarded and, in all cases,
it must be reasonable, just and equitable if the same - versus - PUNO, J.,
were to be granted.42 Attorney's fees as part of damages Chairman,
are not meant to enrich the winning party at the expense AUSTRIA-MARTINEZ,
of the losing litigant. They are not awarded every time a CALLEJO, SR.,
party prevails in a suit because of the policy that no ELEANOR CHUA and TINGA, and
premium should be placed on the right to litigate.43 The ELMA DY NG, CHICO-NAZARIO, JJ.
award of attorney's fees is the exception rather than the Respondents.
general rule. As such, it is necessary for the trial court to
make findings of facts and law that would bring the case P
within the exception and justify the grant of such award. ro
The matter of attorney's fees cannot be mentioned only in mu
the dispositive portion of the decision.44 They must be lga
clearly explained and justified by the trial court in the ted
body of its decision. On appeal, the CA is precluded from :
supplementing the bases for awarding attorneys fees
when the trial court failed to discuss in its Decision the September 30, 2005
reasons for awarding the same. Consequently, the award
of attorney's fees should be deleted. x-------------------------------------------------------------------x
WHEREFORE, in view of all the foregoing, the Decision
dated June 18, 2002 and the Resolution dated
September 11, 2002 of the Court of Appeals in CA-G.R. DECISION
CV No. 52839 are AFFIRMED with MODIFICATION that
the award of attorneys fees is DELETED. TINGA, J.:
No pronouncement as to costs.
SO ORDERED. Before this Court are two consolidated petitions
for review. The first, docketed as G.R. No. 150773,
SPOUSES DAVID B. CARPO G.R. Nos. 150773 & assails the Decision[1] of the Regional Trial Court (RTC),
and RECHILDA S. CARPO, 153599 Branch 26 of Naga City dated 26 October 2001 in Civil
Petitioners, Case No. 99-4376. RTC Judge Filemon B. Montenegro
dismissed the complaint[2] for annulment of real estate of redemption, a certificate of sale was issued on 5
mortgage and consequent foreclosure proceedings filed September 1997 by Sheriff Rolando A. Borja. TCT No.
by the spouses David B. Carpo and Rechilda S. Carpo 23180 was cancelled and in its stead, TCT No. 29338
(petitioners). was issued in the name of respondents.

The second, docketed as G.R. No. 153599, seeks to Despite the issuance of the TCT, petitioners
annul the Court of Appeals Decision[3] dated 30 April continued to occupy the said house and lot, prompting
2002 in CA-G.R. SP No. 57297. The Court of Appeals respondents to file a petition for writ of possession with
Third Division annulled and set aside the orders of Judge the RTC docketed as Special Proceedings (SP) No. 98-
Corazon A. Tordilla to suspend the sheriffs enforcement 1665. On 23 March 1999, RTC Judge Ernesto A. Miguel
of the writ of possession. issued an Order[4] for the issuance of a writ of
possession.
The cases stemmed from a loan contracted by
petitioners. On 18 July 1995, they borrowed from Eleanor On 23 July 1999, petitioners filed a complaint for
Chua and Elma Dy Ng (respondents) the amount of One annulment of real estate mortgage and the consequent
Hundred Seventy-Five Thousand Pesos (P175,000.00), foreclosure proceedings, docketed as Civil Case No. 99-
payable within six (6) months with an interest rate of six 4376 of the RTC. Petitioners consigned the amount of
percent (6%) per month. To secure the payment of the Two Hundred Fifty-Seven Thousand One Hundred
loan, petitioners mortgaged their residential house and lot Ninety-Seven Pesos and Twenty-Six Centavos
situated at San Francisco, Magarao, Camarines Sur, (P257,197.26) with the RTC.
which lot is covered by Transfer Certificate of Title (TCT)
No. 23180. Petitioners failed to pay the loan upon Meanwhile, in SP No. 98-1665, a temporary
demand. Consequently, the real estate mortgage was restraining order was issued upon motion on 3 August
extrajudicially foreclosed and the mortgaged property 1999, enjoining the enforcement of the writ of
sold at a public auction on 8 July 1996. The house and possession. In an Order[5] dated 6 January 2000, the
lot was awarded to respondents, who were the only RTC suspended the enforcement of the writ of
bidders, for the amount of Three Hundred Sixty-Seven possession pending the final disposition of Civil Case No.
Thousand Four Hundred Fifty-Seven Pesos and Eighty 99-4376. Against this Order, respondents filed a petition
Centavos (P367,457.80). for certiorari and mandamus before the Court of Appeals,
docketed as CA-G.R. SP No. 57297.
Upon failure of petitioners to exercise their right
During the pendency of the case before the comment.
Court of Appeals, RTC Judge Filemon B. Montenegro
dismissed the complaint in Civil Case No. 99-4376 on the On the other hand, petitioners argue in G.R. No. 153599
ground that it was filed out of time and barred by laches. that the RTC did not commit any grave abuse of
The RTC proceeded from the premise that the complaint discretion when it issued the orders dated 3 August 1999
was one for annulment of a voidable contract and thus and 6 January 2000, and that these orders could not
barred by the four-year prescriptive period. Hence, the have been the proper subjects of a petition for certiorari
first petition for review now under consideration was filed and mandamus. More accurately, the justiciable issues
with this Court, assailing the dismissal of the complaint. before us are whether the Court of Appeals could
properly entertain the petition for certiorari from the
The second petition for review was filed with the timeliness aspect, and whether the appellate court
Court after the Court of Appeals on 30 April 2002 correctly concluded that the writ of possession could no
annulled and set aside the RTC orders in SP No. 98- longer be stayed.
1665 on the ground that it was the ministerial duty of the
lower court to issue the writ of possession when title over
the mortgaged property had been consolidated in the We first resolve the petition in G.R. No. 150773.
mortgagee.
Petitioners contend that the agreed rate of
This Court ordered the consolidation of the two cases, on interest of 6% per month or 72% per annum is so
motion of petitioners. excessive, iniquitous, unconscionable and exorbitant that
it should have been declared null and void. Instead of
In G.R. No. 150773, petitioners claim that following the dismissing their complaint, they aver that the lower court
Courts ruling in Medel v. Court of Appeals[6] the rate of should have declared them liable to respondents for the
interest stipulated in the principal loan agreement is original amount of the loan plus 12% interest per annum
clearly null and void. Consequently, they also argue that and 1% monthly penalty charge as liquidated damages,[7]
the nullity of the agreed interest rate affects the validity of in view of the ruling in Medel v. Court of Appeals.[8]
the real estate mortgage. Notably, while petitioners were
silent in their petition on the issues of prescription and In Medel, the Court found that the interest
laches on which the RTC grounded the dismissal of the stipulated at 5.5% per month or 66% per annum was so
complaint, they belatedly raised the matters in their iniquitous or unconscionable as to render the stipulation
Memorandum. Nonetheless, these points warrant brief void.
to 18% per annum.
Nevertheless, we find the
interest at 5.5% per month, or 66% per There is no need to unsettle the principle affirmed in
annum, stipulated upon by the parties Medel and like cases. From that perspective, it is
in the promissory note iniquitous or apparent that the stipulated interest in the subject loan is
unconscionable, and, hence, contrary excessive, iniquitous, unconscionable and exorbitant.
to morals (contra bonos mores), if not Pursuant to the freedom of contract principle embodied in
against the law. The stipulation is void. Article 1306 of the Civil Code, contracting parties may
The Court shall reduce equitably establish such stipulations, clauses, terms and conditions
liquidated damages, whether intended as they may deem convenient, provided they are not
as an indemnity or a penalty if they are contrary to law, morals, good customs, public order, or
iniquitous or unconscionable.[9] public policy. In the ordinary course, the codal provision
may be invoked to annul the excessive stipulated
interest.

In the case at bar, the stipulated interest rate is


6% per month, or 72% per annum. By the standards set
In a long line of cases, this Court has invalidated
in the above-cited cases, this stipulation is similarly
similar stipulations on interest rates for being excessive,
invalid. However, the RTC refused to apply the principle
iniquitous, unconscionable and exorbitant. In Solangon v.
cited and employed in Medel on the ground that Medel
Salazar,[10] we annulled the stipulation of 6% per month
did not pertain to the annulment of a real estate
or 72% per annum interest on a P60,000.00 loan. In
mortgage,[15] as it was a case for annulment of the loan
Imperial v. Jaucian,[11] we reduced the interest rate from
contract itself. The question thus sensibly arises whether
16% to 1.167% per month or 14% per annum. In Ruiz v.
the invalidity of the stipulation on interest carries with it
Court of Appeals,[12] we equitably reduced the agreed 3%
the invalidity of the principal obligation.
per month or 36% per annum interest to 1% per month or
12% per annum interest. The 10% and 8% interest rates
The question is crucial to the present petition
per month on a P1,000,000.00 loan were reduced to 12%
even if the subject thereof is not the annulment of the
per annum in Cuaton v. Salud.[13] Recently, this Court, in
loan contract but that of the mortgage contract. The
Arrofo v. Quino,[14] reduced the 7% interest per month on
consideration of the mortgage contract is the same as
a P15,000.00 loan amounting to 84% interest per annum
that of the principal contract from which it receives life,
and without which it cannot exist as an independent that, in any event, the debtor in a usurious
contract. Being a mere accessory contract, the validity of contract of loan should pay the creditor the
the mortgage contract would depend on the validity of the amount which he justly owes him, citing in
loan secured by it.[16] support of this ruling its previous decisions
in Go Chioco, Supra, Aguilar vs. Rubiato, et
Notably in Medel, the Court did not invalidate the entire al., 40 Phil. 570, and Delgado vs. Duque
loan obligation despite the inequitability of the stipulated Valgona, 44 Phil. 739.
interest, but instead reduced the rate of interest to the
more reasonable rate of 12% per annum. The same
remedial approach to the wrongful interest rates involved
was employed or affirmed by the Court in Solangon,
Imperial, Ruiz, Cuaton, and Arrofo.
....
The Courts ultimate affirmation in the cases cited of the
validity of the principal loan obligation side by side with
the invalidation of the interest rates thereupon is
congruent with the rule that a usurious loan transaction is
not a complete nullity but defective only with respect to
the agreed interest.

We are aware that the Court of Appeals, on certain Then in Lopez and Javelona vs. El
occasions, had ruled that a usurious loan is wholly null Hogar Filipino, 47 Phil. 249, We also held
and void both as to the loan and as to the usurious that the standing jurisprudence of this Court
interest.[17] However, this Court adopted the contrary rule, on the question under consideration was
clearly to the effect that the Usury Law, by
its letter and spirit, did not deprive the
as comprehensively discussed in Briones v. lender of his right to recover from the
Cammayo:[18] borrower the money actually loaned to and
enjoyed by the latter. This Court went
In Gui Jong & Co. vs. Rivera, et al., further to say that the Usury Law did not
45 Phil. 778, this Court likewise declared provide for the forfeiture of the capital in
favor of the debtor in usurious contracts, against usury, shall be void, and that in
and that while the forfeiture might appear to such cases "the borrower may recover in
be convenient as a drastic measure to accordance with the laws on usury." From
eradicate the evil of usury, the legal this the conclusion is drawn that the whole
question involved should not be resolved on contract is void and that, therefore, the
the basis of convenience. creditor has no right to recover not even his
capital.

Other cases upholding the same


principle are Palileo vs. Cosio, 97 Phil. 919 The meaning and scope of our
and Pascua vs. Perez, L-19554, January ruling in the cases mentioned heretofore is
31, 1964, 10 SCRA 199, 200-202. In the clearly stated, and the view referred to in
latter We expressly held that when a the preceding paragraph is adequately
contract is found to be tainted with usury answered, in Angel Jose, etc. vs. Chelda
"the only right of the respondent (creditor) . . Enterprises, et al. (L-25704, April 24, 1968).
. was merely to collect the amount of the On the question of whether a creditor in a
loan, plus interest due thereon." usurious contract may or may not recover
the principal of the loan, and, in the
affirmative, whether or not he may also
recover interest thereon at the legal rate,
We said the following:
The view has been expressed,
however, that the ruling thus consistently
adhered to should now be abandoned
because Article 1957 of the new Civil Code
a subsequent law provides that contracts ....
and stipulations, under any cloak or device
whatever, intended to circumvent the laws
Code . . . .

Appealing
directly to Us, defendants
raise two questions of law:
(1) In a loan with usurious
interest, may the creditor
recover the principal of
the loan? (2) Should Since, according to the appellants, a
attorney's fees be usurious loan is void due
awarded in plaintiff's to illegality of cause or
favor?" object, the rule of pari
delicto expressed in
Article 1411, supra,
applies, so that neither
party can bring action
against each other. Said
rule, however, appellants
add, is modified as to the
borrower, by express
provision of the law (Art.
1413, New Civil Code),
allowing the borrower to
Great reliance is recover interest paid in
made by appellants on excess of the interest
Art. 1411 of the New Civil allowed by the Usury Law.
As to the lender, no with such reasoning.
exception is made to the Article 1411 of the New
rule; hence, he cannot Civil Code is not new; it is
recover on the contract. the same as Article 1305
So they continue the New of the Old Civil Code.
Civil Code provisions Therefore, said provision
must be upheld as against is no warrant for departing
the Usury Law, under from previous
which a loan with usurious interpretation that, as
interest is not totally void, provided in the Usury Law
because of Article 1961 of (Act No. 2655, as
the New Civil Code, that: amended), a loan with
"Usurious contracts shall usurious interest is not
be governed by the Usury totally void only as to the
Law and other special interest.
laws, so far as they are
not inconsistent with this
Code."

. . . [a]ppellants fail to consider that a contract of loan


with usurious interest consists of principal and
accessory stipulations; the principal one is to pay
We do not agree the debt; the accessory stipulation is to pay interest
thereon.

And said two stipulations are divisible in the sense


that the former can still stand without the latter.
Article 1273, Civil Code, attests to this: "The
renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter The principal
shall leave the former in force." debt remaining without
stipulation for payment of
interest can thus be
recovered by judicial
action. And in case of
such demand, and the
debtor incurs in delay, the
The question therefore to resolve is whether the debt earns interest from
illegal terms as to payment of interest likewise the date of the demand (in
renders a nullity the legal terms as to payments of this case from the filing of
the principal debt. Article 1420 of the New Civil Code the complaint). Such
provides in this regard: "In case of a divisible interest is not due to
contract, if the illegal terms can be separated from stipulation, for there was
the legal ones, the latter may be enforced." none, the same being
void. Rather, it is due to
In simple loan with stipulation of usurious interest, the general provision of
the prestation of the debtor to pay the principal debt, law that in obligations to
which is the cause of the contract (Article 1350, Civil pay money, where the
Code), is not illegal. The illegality lies only as to the debtor incurs in delay, he
prestation to pay the stipulated interest; hence, being has to pay interest by way
separable, the latter only should be deemed void, of damages (Art. 2209,
since it is the only one that is illegal. Civil Code). The court a
quo therefore, did not err
.... in ordering defendants to
pay the principal debt with allegation in the complaint that the consent of petitioners
interest thereon at the was vitiated through undue influence. While the RTC
legal rate, from the date of correctly acknowledged the rule of prescription for
filing of the complaint."[19] voidable contracts, it erred in applying the rule in this
case. We are hard put to conclude in this case that there
was any undue influence in the first place.

There is ultimately no showing that petitioners


consent to the loan and mortgage agreements was
vitiated by undue influence. The financial condition of
The Courts wholehearted affirmation of the rule that the petitioners may have motivated them to contract with
principal obligation subsists despite the nullity of the respondents, but undue influence cannot be attributed to
stipulated interest is evinced by its subsequent rulings, respondents simply because they had lent money.
cited above, in all of which the main obligation was Article 1391, in relation to Article 1390 of the Civil Code,
upheld and the offending interest rate merely corrected. grants the aggrieved party the right to obtain the
Hence, it is clear and settled that the principal loan annulment of contract on account of factors which vitiate
obligation still stands and remains valid. By the same consent. Article 1337 defines the concept of undue
token, since the mortgage contract derives its vitality from influence, as follows:
the validity of the principal obligation, the invalid
stipulation on interest rate is similarly insufficient to There is undue influence when
render void the ancillary mortgage contract. a person takes improper advantage of
his power over the will of another,
It should be noted that had the Court declared the loan depriving the latter of a reasonable
and mortgage agreements void for being contrary to freedom of choice. The following
public policy, no prescriptive period could have run. [20] circumstances shall be considered: the
Such benefit is obviously not available to petitioners. confidential, family, spiritual and other
relations between the parties or the fact
Yet the RTC pronounced that the complaint was that the person alleged to have been
barred by the four-year prescriptive period provided in unduly influenced was suffering from
Article 1391 of the Civil Code, which governs voidable mental weakness, or was ignorant or in
contracts. This conclusion was derived from the
financial distress. sale; then the issuance of TCT No.
29338 in favor of the defendants and
finally the petition for the issuance of the
writ of possession in favor of the
defendants, there is no showing that
While petitioners were allegedly financially distressed, it plaintiffs questioned the validity of these
must be proven that there is deprivation of their free proceedings. It was only after the
agency. In other words, for undue influence to be issuance of the writ of possession in
present, the influence exerted must have so overpowered favor of the defendants, that plaintiffs
or subjugated the mind of a contracting party as to allegedly tendered to the defendants the
destroy his free agency, making him express the will of amount of P260,000.00 which the
another rather than his own.[21] The alleged lingering defendants refused. In all these
financial woes of petitioners per se cannot be equated proceedings, why did plaintiffs sleep on
with the presence of undue influence. their rights?[22]

The RTC had likewise concluded that petitioners


were barred by laches from assailing the validity of the
real estate mortgage. We wholeheartedly agree. If indeed
petitioners unwillingly gave their consent to the
agreement, they should have raised this issue as early as
in the foreclosure proceedings. It was only when the writ
of possession was issued did petitioners challenge the Clearly then, with the absence of undue influence,
stipulations in the loan contract in their action for petitioners have no cause of action. Even assuming
annulment of mortgage. Evidently, petitioners slept on undue influence vitiated their consent to the loan
their rights. The Court of Appeals succinctly made the contract, their action would already be barred by
following observations: prescription when they filed it. Moreover, petitioners had
clearly slept on their rights as they failed to timely assail
In all these proceedings the validity of the mortgage agreement. The denial of the
starting from the foreclosure, followed by petition in G.R. No. 150773 is warranted.
the issuance of a provisional certificate
of sale; then the definite certificate of We now resolve the petition in G.R. No. 153599.
Order. Considering that the 3 August 1999 Order had
Petitioners claim that the assailed RTC orders dated 3 become functus officio in the first place, this argument
August 1999 and 6 January 2000 could no longer be deserves scant consideration.
questioned in a special civil action for certiorari and
mandamus as the reglementary period for such action Petitioners further claim that the 6 January 2000 Order
had already elapsed. could not have likewise been the subject of a special civil
action for certiorari, as it is according to them a final
It must be noted that the Order dated 3 August 1999 order, as opposed to an interlocutory order. That the 6
suspending the enforcement of the writ of possession January 2000 Order is interlocutory in nature should be
had a period of effectivity of only twenty (20) days from 3 beyond doubt. An order is interlocutory if its effects would
August 1999, or until 23 August 1999. Thus, upon the only be provisional in character and would still leave
expiration of the twenty (20)-day period, the said Order substantial proceedings to be further had by the issuing
became functus officio. Thus, there is really no sense in court in order to put the controversy to rest.[24] The
assailing the validity of this Order, mooted as it was. For injunctive relief granted by the order is definitely final, but
the same reason, the validity of the order need not have merely provisional, its effectivity hinging on the ultimate
been assailed by respondents in their special civil action outcome of the then pending action for annulment of real
before the Court of Appeals. estate mortgage. Indeed, an interlocutory order hardly
puts to a close, or disposes of, a case or a disputed issue
On the other hand, the Order dated 6 January 2000 is in leaving nothing else to be done by the court in respect
the nature of a writ of injunction whose period of efficacy thereto, as is characteristic of a final order.
is indefinite. It may be properly assailed by way of the
special civil action for certiorari, as it is interlocutory in Since the 6 January 2000 Order is not a final order, but
nature. rather interlocutory in nature, we cannot agree with
petitioners who insist that it may be assailed only through
As a rule, the special civil action for certiorari under Rule an appeal perfected within fifteen (15) days from receipt
65 must be filed not later than sixty (60) days from notice thereof by respondents. It is axiomatic that an
of the judgment or order.[23] Petitioners argue that the 3 interlocutory order cannot be challenged by an appeal,
August 1999 Order could no longer be assailed by
respondents in a special civil action for certiorari before
the Court of Appeals, as the petition was filed beyond but is susceptible to review only through the special civil
sixty (60) days following respondents receipt of the action of certiorari.[25] The sixty (60)-day reglementary
period for special civil actions under Rule 65 applies, and mortgage that serves as collateral security for it.
respondents petition was filed with the Court of Appeals
well within the period. WHEREFORE, in view of all the foregoing, the petitions
are DENIED. Costs against petitioners.
Accordingly, no error can be attributed to the Court of
Appeals in granting the petition for certiorari and SO ORDERED.
mandamus. As pointed out by respondents, the remedy
of mandamus lies to compel the performance of a TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA,
ministerial duty. The issuance of a writ of possession to a petitioners, vs. HON. COURT OF APPEALS &
purchaser in an extrajudicial foreclosure is merely a SECURITY BANK & TRUST COMPANY, respondents.
ministerial function.[26] DECISION
VITUG, J.:
Thus, we also affirm the Court of Appeals ruling Before the Court is a petition for review on certiorari
to set aside the RTC orders enjoining the enforcement of under Rule 45 of the Rules of Court, assailing the
the writ of possession.[27] The purchaser in a foreclosure decision and resolutions of the Court of Appeals in CA-
sale is entitled as a matter of right to a writ of possession, G.R. CV No. 34594, entitled "Security Bank and Trust
regardless of whether or not there is a pending suit for Co. vs. Tolomeo Ligutan, et al."
annulment of the mortgage or the foreclosure Petitioners Tolomeo Ligutan and Leonidas dela Llana
proceedings. An injunction to prohibit the issuance or obtained on 11 May 1981 a loan in the amount of
enforcement of the writ is entirely out of place.[28] P120,000.00 from respondent Security Bank and Trust
Company. Petitioners executed a promissory note
One final note. The issue on the validity of the binding themselves, jointly and severally, to pay the sum
stipulated interest rates, regrettably for petitioners, was borrowed with an interest of 15.189% per annum upon
not raised at the earliest possible opportunity. It should maturity and to pay a penalty of 5% every month on the
be pointed out though that since an excessive stipulated outstanding principal and interest in case of default. In
interest rate may be void for being contrary to public addition, petitioners agreed to pay 10% of the total
policy, an action to annul said interest rate does not amount due by way of attorneys fees if the matter were
prescribe. Such indeed is the remedy; it is not the action indorsed to a lawyer for collection or if a suit were
for annulment of the ancillary real estate mortgage. instituted to enforce payment. The obligation matured on
Despite the nullity of the stipulated interest rate, the 8 September 1981; the bank, however, granted an
principal loan obligation subsists, and along with it the extension but only up until 29 December 1981.
Despite several demands from the bank, petitioners per month penalty charge, commencing on 20 May 1982
failed to settle the debt which, as of 20 May 1982, until fully paid;
amounted to P114,416.10. On 30 September 1982, the "2. To pay the further sum equivalent to 10% of the total
bank sent a final demand letter to petitioners informing amount of indebtedness for and as attorneys fees; and
them that they had five days within which to make full "3. To pay the costs of the suit.[if !supportFootnotes][2][endif]
payment. Since petitioners still defaulted on their Petitioners interposed an appeal with the Court of
obligation, the bank filed on 3 November 1982, with the Appeals, questioning the rejection by the trial court of
Regional Trial Court of Makati, Branch 143, a complaint their motion to present evidence and assailing the
for recovery of the due amount. imposition of the 2% service charge, the 5% per month
After petitioners had filed a joint answer to the complaint, penalty charge and 10% attorney's fees. In its decision[if
the bank presented its evidence and, on 27 March 1985, !supportFootnotes][3][endif] of 7 March 1996, the appellate court

rested its case. Petitioners, instead of introducing their affirmed the judgment of the trial court except on the
own evidence, had the hearing of the case reset on two matter of the 2% service charge which was deleted
consecutive occasions. In view of the absence of pursuant to Central Bank Circular No. 783. Not fully
petitioners and their counsel on 28 August 1985, the third satisfied with the decision of the appellate court, both
hearing date, the bank moved, and the trial court parties filed their respective motions for reconsideration.[if
resolved, to consider the case submitted for decision. !supportFootnotes][4][endif] Petitioners prayed for the reduction of

Two years later, or on 23 October 1987, petitioners filed the 5% stipulated penalty for being unconscionable. The
a motion for reconsideration of the order of the trial court bank, on the other hand, asked that the payment of
declaring them as having waived their right to present interest and penalty be commenced not from the date of
evidence and prayed that they be allowed to prove their filing of complaint but from the time of default as so
case. The court a quo denied the motion in an order, stipulated in the contract of the parties.
dated 5 September 1988, and on 20 October 1989, it On 28 October 1998, the Court of Appeals resolved the
rendered its decision,[if !supportFootnotes][1][endif] the dispositive two motions thusly:
portion of which read: We find merit in plaintiff-appellees claim that the principal
WHEREFORE, judgment is hereby rendered in favor of sum of P114,416.00 with interest thereon must
the plaintiff and against the defendants, ordering the commence not on the date of filing of the complaint as
latter to pay, jointly and severally, to the plaintiff, as we have previously held in our decision but on the date
follows: when the obligation became due.
"1. The sum of P114,416.00 with interest thereon at the Default generally begins from the moment the creditor
rate of 15.189% per annum, 2% service charge and 5% demands the performance of the obligation. However,
demand is not necessary to render the obligor in default On 16 November 1998, petitioners filed an omnibus
when the obligation or the law so provides. motion for reconsideration and to admit newly discovered
In the case at bar, defendants-appellants executed a evidence,[if !supportFootnotes][6][endif] alleging that while the case
promissory note where they undertook to pay the was pending before the trial court, petitioner Tolomeo
obligation on its maturity date 'without necessity of Ligutan and his wife Bienvenida Ligutan executed a real
demand.' They also agreed to pay the interest in case of estate mortgage on 18 January 1984 to secure the
non-payment from the date of default. existing indebtedness of petitioners Ligutan and dela
xxxxxxxxx Llana with the bank. Petitioners contended that the
While we maintain that defendants-appellants must be execution of the real estate mortgage had the effect of
bound by the contract which they acknowledged and novating the contract between them and the bank.
signed, we take cognizance of their plea for the Petitioners further averred that the mortgage was
application of the provisions of Article 1229 x x x. extrajudicially foreclosed on 26 August 1986, that they
Considering that defendants-appellants partially complied were not informed about it, and the bank did not credit
with their obligation under the promissory note by the them with the proceeds of the sale. The appellate court
reduction of the original amount of P120,000.00 to denied the omnibus motion for reconsideration and to
P114,416.00 and in order that they will finally settle their admit newly discovered evidence, ratiocinating that such
obligation, it is our view and we so hold that in the a second motion for reconsideration cannot be
interest of justice and public policy, a penalty of 3% per entertained under Section 2, Rule 52, of the 1997 Rules
month or 36% per annum would suffice. of Civil Procedure. Furthermore, the appellate court said,
xxxxxxxxx the newly-discovered evidence being invoked by
WHEREFORE, the decision sought to be reconsidered is petitioners had actually been known to them when the
hereby MODIFIED. The defendants-appellants Tolomeo case was brought on appeal and when the first motion for
Ligutan and Leonidas dela Llana are hereby ordered to reconsideration was filed.[if !supportFootnotes][7][endif]
pay the plaintiff-appellee Security Bank and Trust Aggrieved by the decision and resolutions of the Court of
Company the following: Appeals, petitioners elevated their case to this Court on 9
1. The sum of P114,416.00 with interest thereon at the July 1999 via a petition for review on certiorari under
rate of 15.189% per annum and 3% per month penalty Rule 45 of the Rules of Court, submitting thusly -
charge commencing May 20, 1982 until fully paid; I. The respondent Court of Appeals seriously erred in not
2. The sum equivalent to 10% of the total amount of the holding that the 15.189% interest and the penalty of three
indebtedness as and for attorneys fees.[if (3%) percent per month or thirty-six (36%) percent per
!supportFootnotes][5][endif] annum imposed by private respondent bank on
petitioners loan obligation are still manifestly exorbitant, coercive force of the obligation[if !supportFootnotes][11][endif] and
iniquitous and unconscionable. to provide, in effect, for what could be the liquidated
II. The respondent Court of Appeals gravely erred in not damages resulting from such a breach. The obligor would
reducing to a reasonable level the ten (10%) percent then be bound to pay the stipulated indemnity without the
award of attorneys fees which is highly and grossly necessity of proof on the existence and on the measure
excessive, unreasonable and unconscionable. of damages caused by the breach.[if !supportFootnotes][12][endif]
III. The respondent Court of Appeals gravely erred in not Although a court may not at liberty ignore the freedom of
admitting petitioners newly discovered evidence which the parties to agree on such terms and conditions as they
could not have been timely produced during the trial of see fit that contravene neither law nor morals, good
this case. customs, public order or public policy, a stipulated
IV. The respondent Court of Appeals seriously erred in penalty, nevertheless, may be equitably reduced by the
not holding that there was a novation of the cause of courts if it is iniquitous or unconscionable or if the
action of private respondents complaint in the instant principal obligation has been partly or irregularly
case due to the subsequent execution of the real estate complied with.[if !supportFootnotes][13][endif]
mortgage during the pendency of this case and the The question of whether a penalty is reasonable or
subsequent foreclosure of the mortgage.[if iniquitous can be partly subjective and partly objective. Its
!supportFootnotes][8][endif] resolution would depend on such factors as, but not
Respondent bank, which did not take an appeal, would, necessarily confined to, the type, extent and purpose of
however, have it that the penalty sought to be deleted by the penalty, the nature of the obligation, the mode of
petitioners was even insufficient to fully cover and breach and its consequences, the supervening realities,
compensate for the cost of money brought about by the the standing and relationship of the parties, and the like,
radical devaluation and decrease in the purchasing the application of which, by and large, is addressed to the
power of the peso, particularly vis-a-vis the U.S. dollar, sound discretion of the court. In Rizal Commercial
taking into account the time frame of its occurrence. The Banking Corp. vs. Court of Appeals,[if !supportFootnotes][14][endif]
Bank would stress that only the amount of P5,584.00 had just an example, the Court has tempered the penalty
been remitted out of the entire loan of P120,000.00.[if charges after taking into account the debtors pitiful
!supportFootnotes][9][endif] situation and its offer to settle the entire obligation with
A penalty clause, expressly recognized by law,[if the creditor bank. The stipulated penalty might likewise
!supportFootnotes][10][endif] is an accessory undertaking to be reduced when a partial or irregular performance is
assume greater liability on the part of an obligor in case made by the debtor.[if !supportFootnotes][15][endif] The stipulated
of breach of an obligation. It functions to strengthen the penalty might even be deleted such as when there has
been substantial performance in good faith by the !supportFootnotes][19][endif]

obligor,[if !supportFootnotes][16][endif] when the penalty clause Petitioners next assail the award of 10% of the total
itself suffers from fatal infirmity, or when exceptional amount of indebtedness by way of attorney's fees for
circumstances so exist as to warrant it.[if being grossly excessive, exorbitant and unconscionable
!supportFootnotes][17][endif] vis-a-vis the time spent and the extent of services
The Court of Appeals, exercising its good judgment in the rendered by counsel for the bank and the nature of the
instant case, has reduced the penalty interest from 5% a case. Bearing in mind that the rate of attorneys fees has
month to 3% a month which petitioner still disputes. been agreed to by the parties and intended to answer not
Given the circumstances, not to mention the repeated only for litigation expenses but also for collection efforts
acts of breach by petitioners of their contractual as well, the Court, like the appellate court, deems the
obligation, the Court sees no cogent ground to modify the award of 10% attorneys fees to be reasonable.
ruling of the appellate court.. Neither can the appellate court be held to have erred in
Anent the stipulated interest of 15.189% per annum, rejecting petitioners' call for a new trial or to admit newly
petitioners, for the first time, question its reasonableness discovered evidence. As the appellate court so held in its
and prays that the Court reduce the amount. This resolution of 14 May 1999 -
contention is a fresh issue that has not been raised and Under Section 2, Rule 52 of the 1997 Rules of Civil
ventilated before the courts below. In any event, the Procedure, no second motion for reconsideration of a
interest stipulation, on its face, does not appear as being judgment or final resolution by the same party shall be
that excessive. The essence or rationale for the payment entertained. Considering that the instant motion is
of interest, quite often referred to as cost of money, is not already a second motion for reconsideration, the same
exactly the same as that of a surcharge or a penalty. A must therefore be denied.
penalty stipulation is not necessarily preclusive of Furthermore, it would appear from the records available
interest, if there is an agreement to that effect, the two to this court that the newly-discovered evidence being
being distinct concepts which may separately be invoked by defendants-appellants have actually been
demanded.[if !supportFootnotes][18][endif] What may justify a court existent when the case was brought on appeal to this
in not allowing the creditor to impose full surcharges and court as well as when the first motion for reconsideration
penalties, despite an express stipulation therefor in a was filed. Hence, it is quite surprising why defendants-
valid agreement, may not equally justify the non-payment appellants raised the alleged newly-discovered evidence
or reduction of interest. Indeed, the interest prescribed in only at this stage when they could have done so in the
loan financing arrangements is a fundamental part of the earlier pleadings filed before this court.
banking business and the core of a bank's existence.[if The propriety or acceptability of such a second motion for
reconsideration is not contingent upon the averment of novated by a new instrument which merely changes the
'new' grounds to assail the judgment, i.e., grounds other terms of payment or adding compatible covenants or
than those theretofore presented and rejected. where the old contract is merely supplemented by the
Otherwise, attainment of finality of a judgment might be new one.[if !supportFootnotes][24][endif] When not expressed,
stayed off indefinitely, depending on the partys incompatibility is required so as to ensure that the parties
ingenuousness or cleverness in conceiving and have indeed intended such novation despite their failure
formulating 'additional flaws' or 'newly discovered errors' to express it in categorical terms. The incompatibility, to
therein, or thinking up some injury or prejudice to the be sure, should take place in any of the essential
rights of the movant for reconsideration.[if elements of the obligation, i.e., (1) the juridical relation or
!supportFootnotes][20][endif] tie, such as from a mere commodatum to lease of things,
At any rate, the subsequent execution of the real estate or from negotiorum gestio to agency, or from a mortgage
mortgage as security for the existing loan would not have to antichresis,[if !supportFootnotes][25][endif] or from a sale to one
resulted in the extinguishment of the original contract of of loan;[if !supportFootnotes][26][endif] (2) the object or principal
loan because of novation. Petitioners acknowledge that conditions, such as a change of the nature of the
the real estate mortgage contract does not contain any prestation; or (3) the subjects, such as the substitution of
express stipulation by the parties intending it to a debtor[if !supportFootnotes][27][endif] or the subrogation of the
supersede the existing loan agreement between the creditor. Extinctive novation does not necessarily imply
petitioners and the bank.[if !supportFootnotes][21][endif] that the new agreement should be complete by itself;
Respondent bank has correctly postulated that the certain terms and conditions may be carried, expressly or
mortgage is but an accessory contract to secure the loan by implication, over to the new obligation.
in the promissory note. WHEREFORE, the petition is DENIED.
Extinctive novation requires, first, a previous valid SO ORDERED.
obligation; second, the agreement of all the parties to the
new contract; third, the extinguishment of the obligation; G.R. No. 97412 July 12, 1994
and fourth, the validity of the new one.[if EASTERN SHIPPING LINES, INC., petitioner,
!supportFootnotes][22][endif] In order that an obligation may be vs.
extinguished by another which substitutes the same, it is HON. COURT OF APPEALS AND MERCANTILE
imperative that it be so declared in unequivocal terms, or INSURANCE COMPANY, INC., respondents.
that the old and the new obligation be on every point Alojada & Garcia and Jimenea, Dala & Zaragoza for
incompatible with each other.[if !supportFootnotes][23][endif] An petitoner.
obligation to pay a sum of money is not extinctively Zapa Law Office for private respondent.
plaintiff.
VITUG, J.: On January 7, 1982 defendant Allied Brokerage
The issues, albeit not completely novel, are: (a) whether Corporation received the shipment from defendant Metro
or not a claim for damage sustained on a shipment of Port Service, Inc., one drum opened and without seal
goods can be a solidary, or joint and several, liability of (per "Request for Bad Order Survey." Exh. D).
the common carrier, the arrastre operator and the On January 8 and 14, 1982, defendant Allied Brokerage
customs broker; (b) whether the payment of legal interest Corporation made deliveries of the shipment to the
on an award for loss or damage is to be computed from consignee's warehouse. The latter excepted to one drum
the time the complaint is filed or from the date the which contained spillages, while the rest of the contents
decision appealed from is rendered; and (c) whether the was adulterated/fake (per "Bad Order Waybill" No.
applicable rate of interest, referred to above, is twelve 10649, Exh. E).
percent (12%) or six percent (6%). Plaintiff contended that due to the losses/damage
The findings of the court a quo, adopted by the Court of sustained by said drum, the consignee suffered losses
Appeals, on the antecedent and undisputed facts that totaling P19,032.95, due to the fault and negligence of
have led to the controversy are hereunder reproduced: defendants. Claims were presented against defendants
This is an action against defendants shipping company, who failed and refused to pay the same (Exhs. H, I, J, K,
arrastre operator and broker-forwarder for damages L).
sustained by a shipment while in defendants' custody, As a consequence of the losses sustained, plaintiff was
filed by the insurer-subrogee who paid the consignee the compelled to pay the consignee P19,032.95 under the
value of such losses/damages. aforestated marine insurance policy, so that it became
On December 4, 1981, two fiber drums of riboflavin were subrogated to all the rights of action of said consignee
shipped from Yokohama, Japan for delivery vessel "SS against defendants (per "Form of Subrogation",
EASTERN COMET" owned by defendant Eastern "Release" and Philbanking check, Exhs. M, N, and O).
Shipping Lines under Bill of Lading (pp. 85-86, Rollo.)
No. YMA-8 (Exh. B). The shipment was insured under There were, to be sure, other factual issues that
plaintiff's Marine Insurance Policy No. 81/01177 for confronted both courts. Here, the appellate court said:
P36,382,466.38. Defendants filed their respective answers, traversing the
Upon arrival of the shipment in Manila on December 12, material allegations of the complaint contending that: As
1981, it was discharged unto the custody of defendant for defendant Eastern Shipping it alleged that the
Metro Port Service, Inc. The latter excepted to one drum, shipment was discharged in good order from the vessel
said to be in bad order, which damage was unknown to unto the custody of Metro Port Service so that any
damage/losses incurred after the shipment was incurred Correspondingly, as to the second issue, it follows that
after the shipment was turned over to the latter, is no the losses/damages were sustained while in the
longer its liability (p. 17, Record); Metroport averred that respective and/or successive custody and possession of
although subject shipment was discharged unto its defendants carrier (Eastern), arrastre operator (Metro
custody, portion of the same was already in bad order (p. Port) and broker (Allied Brokerage). This becomes
11, Record); Allied Brokerage alleged that plaintiff has no evident when the Marine Cargo Survey Report (Exh. G),
cause of action against it, not having negligent or at fault with its "Additional Survey Notes", are considered. In the
for the shipment was already in damage and bad order latter notes, it is stated that when the shipment was
condition when received by it, but nonetheless, it still "landed on vessel" to dock of Pier # 15, South Harbor,
exercised extra ordinary care and diligence in the Manila on December 12, 1981, it was observed that "one
handling/delivery of the cargo to consignee in the same (1) fiber drum (was) in damaged condition, covered by
condition shipment was received by it. the vessel's Agent's Bad Order Tally Sheet No. 86427."
From the evidence the court found the following: The report further states that when defendant Allied
The issues are: Brokerage withdrew the shipment from defendant
1. Whether or not the shipment sustained arrastre operator's custody on January 7, 1982, one drum
losses/damages; was found opened without seal, cello bag partly torn but
2. Whether or not these losses/damages were sustained contents intact. Net unrecovered spillages was
while in the custody of defendants (in whose respective 15 kgs. The report went on to state that when the drums
custody, if determinable); reached the consignee, one drum was found with
3. Whether or not defendant(s) should be held liable for adulterated/faked contents. It is obvious, therefore, that
the losses/damages (see plaintiff's pre-Trial Brief, these losses/damages occurred before the shipment
Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's reached the consignee while under the successive
Records, p. 38). custodies of defendants. Under Art. 1737 of the New Civil
As to the first issue, there can be no doubt that the Code, the common carrier's duty to observe extraordinary
shipment sustained losses/damages. The two drums diligence in the vigilance of goods remains in full force
were shipped in good order and condition, as clearly and effect even if the goods are temporarily unloaded
shown by the Bill of Lading and Commercial Invoice and stored in transit in the warehouse of the carrier at the
which do not indicate any damages drum that was place of destination, until the consignee has been
shipped (Exhs. B and C). But when on December 12, advised and has had reasonable opportunity to remove
1981 the shipment was delivered to defendant Metro Port or dispose of the goods (Art. 1738, NCC). Defendant
Service, Inc., it excepted to one drum in bad order. Eastern Shipping's own exhibit, the "Turn-Over Survey of
Bad Order Cargoes" (Exhs. 3-Eastern) states that on The Court of Appeals thus affirmed in toto the judgment
December 12, 1981 one drum was found "open". of the court
and thus held: a quo.
WHEREFORE, PREMISES CONSIDERED, judgment is In this petition, Eastern Shipping Lines, Inc., the common
hereby rendered: carrier, attributes error and grave abuse of discretion on
A. Ordering defendants to pay plaintiff, jointly and the part of the appellate court when
severally: I. IT HELD PETITIONER CARRIER JOINTLY AND
1. The amount of P19,032.95, with the present legal SEVERALLY LIABLE WITH THE ARRASTRE
interest of 12% per annum from October 1, 1982, the OPERATOR AND CUSTOMS BROKER FOR THE
date of filing of this complaints, until fully paid (the liability CLAIM OF PRIVATE RESPONDENT AS GRANTED IN
of defendant Eastern Shipping, Inc. shall not exceed THE QUESTIONED DECISION;
US$500 per case or the CIF value of the loss, whichever II. IT HELD THAT THE GRANT OF INTEREST ON THE
is lesser, while the liability of defendant Metro Port CLAIM OF PRIVATE RESPONDENT SHOULD
Service, Inc. shall be to the extent of the actual invoice COMMENCE FROM THE DATE OF THE FILING OF
value of each package, crate box or container in no case THE COMPLAINT AT THE RATE OF TWELVE
to exceed P5,000.00 each, pursuant to Section 6.01 of PERCENT PER ANNUM INSTEAD OF FROM THE
the Management Contract); DATE OF THE DECISION OF THE TRIAL COURT AND
2. P3,000.00 as attorney's fees, and ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
3. Costs. PRIVATE RESPONDENT'S CLAIM BEING
B. Dismissing the counterclaims and crossclaim of INDISPUTABLY UNLIQUIDATED.
defendant/cross-claimant Allied Brokerage Corporation. The petition is, in part, granted.
SO ORDERED. (p. 207, Record). In this decision, we have begun by saying that the
Dissatisfied, defendant's recourse to US. questions raised by petitioner carrier are not all that
The appeal is devoid of merit. novel. Indeed, we do have a fairly good number of
After a careful scrutiny of the evidence on record. We find previous decisions this Court can merely tack to.
that the conclusion drawn therefrom is correct. As there The common carrier's duty to observe the requisite
is sufficient evidence that the shipment sustained diligence in the shipment of goods lasts from the time the
damage while in the successive possession of articles are surrendered to or unconditionally placed in
appellants, and therefore they are liable to the appellee, the possession of, and received by, the carrier for
as subrogee for the amount it paid to the consignee. (pp. transportation until delivered to, or until the lapse of a
87-89, Rollo.) reasonable time for their acceptance by, the person
entitled to receive them (Arts. 1736-1738, Civil Code; therefore charged with the obligation to deliver the goods
Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. in good condition to the consignee.
Dollar Steamship Lines, 52 Phil. 863). When the goods We do not, of course, imply by the above pronouncement
shipped either are lost or arrive in damaged condition, a that the arrastre operator and the customs broker are
presumption arises against the carrier of its failure to themselves always and necessarily liable solidarily with
observe that diligence, and there need not be an express the carrier, or vice-versa, nor that attendant facts in a
finding of negligence to hold it liable (Art. 1735, Civil given case may not vary the rule. The instant petition has
Code; Philippine National Railways vs. Court of Appeals, been brought solely by Eastern Shipping Lines, which,
139 SCRA 87; Metro Port Service vs. Court of Appeals, being the carrier and not having been able to rebut the
131 SCRA 365). There are, of course, exceptional cases presumption of fault, is, in any event, to be held liable in
when such presumption of fault is not observed but these this particular case. A factual finding of both the court a
cases, enumerated in Article 1734 1 of the Civil Code, are quo and the appellate court, we take note, is that "there is
exclusive, not one of which can be applied to this case. sufficient evidence that the shipment sustained damage
The question of charging both the carrier and the arrastre while in the successive possession of appellants" (the
operator with the obligation of properly delivering the herein petitioner among them). Accordingly, the liability
goods to the consignee has, too, been passed upon by imposed on Eastern Shipping Lines, Inc., the sole
the Court. In Fireman's Fund Insurance vs. Metro Port petitioner in this case, is inevitable regardless of whether
Services (182 SCRA 455), we have explained, in holding there are others solidarily liable with it.
the carrier and the arrastre operator liable in solidum, It is over the issue of legal interest adjudged by the
thus: appellate court that deserves more than just a passing
The legal relationship between the consignee and the remark.
arrastre operator is akin to that of a depositor and Let us first see a chronological recitation of the major
warehouseman (Lua Kian v. Manila Railroad Co., 19 rulings of this Court:
SCRA 5 [1967]. The relationship between the consignee The early case of Malayan Insurance Co., Inc., vs. Manila
and the common carrier is similar to that of the consignee Port Service, 2 decided 3 on 15 May 1969, involved a
and the arrastre operator (Northern Motors, Inc. v. Prince suit for recovery of money arising out of short deliveries
Line, et al., 107 Phil. 253 [1960]). Since it is the duty of and pilferage of goods. In this case, appellee Malayan
the ARRASTRE to take good care of the goods that are Insurance (the plaintiff in the lower court) averred in its
in its custody and to deliver them in good condition to the complaint that the total amount of its claim for the value
consignee, such responsibility also devolves upon the of the undelivered goods amounted to P3,947.20. This
CARRIER. Both the ARRASTRE and the CARRIER are demand, however, was neither established in its totality
nor definitely ascertained. In the stipulation of facts later WHEREFORE, judgment is hereby rendered in favor of
entered into by the parties, in lieu of proof, the amount of the plaintiffs and third party defendants and against the
P1,447.51 was agreed upon. The trial court rendered defendants and third party plaintiffs as follows:
judgment ordering the appellants (defendants) Manila Ordering defendants and third party plaintiffs Shell and
Port Service and Manila Railroad Company to pay Michael, Incorporated to pay jointly and severally the
appellee Malayan Insurance the sum of P1,447.51 with following persons:
legal interest thereon from the date the complaint was xxx xxx xxx
filed on 28 December 1962 until full payment thereof. The (g) Plaintiffs Pacita F. Reformina and Francisco
appellants then assailed, inter alia, the award of legal Reformina the sum of P131,084.00 which is the value of
interest. In sustaining the appellants, this Court ruled: the boat F B Pacita III together with its accessories,
Interest upon an obligation which calls for the payment of fishing gear and equipment minus P80,000.00 which is
money, absent a stipulation, is the legal rate. Such the value of the insurance recovered and the amount of
interest normally is allowable from the date of demand, P10,000.00 a month as the estimated monthly loss
judicial or extrajudicial. The trial court opted for judicial suffered by them as a result of the fire of May 6, 1969 up
demand as the starting point. to the time they are actually paid or already the total sum
But then upon the provisions of Article 2213 of the Civil of P370,000.00 as of June 4, 1972 with legal interest
Code, interest "cannot be recovered upon unliquidated from the filing of the complaint until paid and to pay
claims or damages, except when the demand can be attorney's fees of P5,000.00 with costs against
established with reasonable certainty." And as was held defendants and third party plaintiffs. (Emphasis supplied.)
by this Court in Rivera vs. Perez, 4 L-6998, February 29, On appeal to the Court of Appeals, the latter modified the
1956, if the suit were for damages, "unliquidated and not amount of damages awarded but sustained the trial court
known until definitely ascertained, assessed and in adjudging legal interest from the filing of the complaint
determined by the courts after proof (Montilla c. until fully paid. When the appellate court's decision
Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. became final, the case was remanded to the lower court
Guzman, for execution, and this was when the trial court issued its
38 Phil. 302)," then, interest "should be from the date of assailed resolution which applied the 6% interest per
the decision." (Emphasis supplied) annum prescribed in Article 2209 of the Civil Code. In
The case of Reformina vs. Tomol, 5 rendered on 11 their petition for review on certiorari, the petitioners
October 1985, was for "Recovery of Damages for Injury contended that Central Bank Circular
to Person and Loss of Property." After trial, the lower No. 416, providing thus
court decreed: By virtue of the authority granted to it under Section 1 of
Act 2655, as amended, Monetary Board in its Resolution Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The
No. 1622 dated July 29, 1974, has prescribed that the case was for damages occasioned by an injury to person
rate of interest for the loan, or forbearance of any money, and loss of property. The trial court awarded private
goods, or credits and the rate allowed in judgments, in respondent Pedro Manabat actual and compensatory
the absence of express contract as to such rate of damages in the amount of P72,500.00 with legal interest
interest, shall be twelve (12%) percent per annum. This thereon from the filing of the complaint until fully paid.
Circular shall take effect immediately. (Emphasis found in Relying on the Reformina v. Tomol case, this Court 8
the text) modified the interest award from 12% to 6% interest per
should have, instead, been applied. This Court 6 ruled: annum but sustained the time computation thereof, i.e.,
The judgments spoken of and referred to are judgments from the filing of the complaint until fully paid.
in litigations involving loans or forbearance of any money, In Nakpil and Sons vs. Court of Appeals, 9 the trial court,
goods or credits. Any other kind of monetary judgment in an action for the recovery of damages arising from the
which has nothing to do with, nor involving loans or collapse of a building, ordered,
forbearance of any money, goods or credits does not fall inter alia, the "defendant United Construction Co., Inc.
within the coverage of the said law for it is not within the (one of the petitioners)
ambit of the authority granted to the Central Bank. . . . to pay the plaintiff, . . . , the sum of P989,335.68 with
xxx xxx xxx interest at the legal rate from November 29, 1968, the
Coming to the case at bar, the decision herein sought to date of the filing of the complaint until full payment . . . ."
be executed is one rendered in an Action for Damages Save from the modification of the amount granted by the
for injury to persons and loss of property and does not lower court, the Court of Appeals sustained the trial
involve any loan, much less forbearances of any money, court's decision. When taken to this Court for review, the
goods or credits. As correctly argued by the private case, on 03 October 1986, was decided, thus:
respondents, the law applicable to the said case is Article WHEREFORE, the decision appealed from is hereby
2209 of the New Civil Code which reads MODIFIED and considering the special and
Art. 2209. If the obligation consists in the payment of a environmental circumstances of this case, we deem it
sum of money, and the debtor incurs in delay, the reasonable to render a decision imposing, as We do
indemnity for damages, there being no stipulation to the hereby impose, upon the defendant and the third-party
contrary, shall be the payment of interest agreed upon, defendants (with the exception of Roman Ozaeta) a
and in the absence of stipulation, the legal interest which solidary (Art. 1723, Civil Code, Supra.
is six percent per annum. p. 10) indemnity in favor of the Philippine Bar Association
The above rule was reiterated in Philippine Rabbit Bus of FIVE MILLION (P5,000,000.00) Pesos to cover all
damages (with the exception to attorney's fees) judgment, that will cause the imposition of the interest.
occasioned by the loss of the building (including interest It will be noted that in the cases already adverted to, the
charges and lost rentals) and an additional ONE rate of interest is imposed on the total sum, from the filing
HUNDRED THOUSAND (P100,000.00) Pesos as and for of the complaint until paid; in other words, as part of the
attorney's fees, the total sum being payable upon the judgment for damages. Clearly, they are not applicable to
finality of this decision. Upon failure to pay on such the instant case. (Emphasis supplied.)
finality, twelve (12%) per cent interest per annum shall be The subsequent case of American Express International,
imposed upon aforementioned amounts from finality until Inc., vs. Intermediate Appellate Court 11 was a petition for
paid. Solidary costs against the defendant and third-party review on certiorari from the decision, dated 27 February
defendants (Except Roman Ozaeta). (Emphasis 1985, of the then Intermediate Appellate Court reducing
supplied) the amount of moral and exemplary damages awarded
A motion for reconsideration was filed by United by the trial court, to P240,000.00 and P100,000.00,
Construction, contending that "the interest of twelve respectively, and its resolution, dated 29 April 1985,
(12%) per cent per annum imposed on the total amount restoring the amount of damages awarded by the trial
of the monetary award was in contravention of law." The court, i.e., P2,000,000.00 as moral damages and
Court 10 ruled out the applicability of the Reformina and P400,000.00 as exemplary damages with interest
Philippine Rabbit Bus Lines cases and, in its resolution of thereon at 12% per annum from notice of judgment, plus
15 April 1988, it explained: costs of suit. In a decision of 09 November 1988, this
There should be no dispute that the imposition of 12% Court, while recognizing the right of the private
interest pursuant to Central Bank Circular No. 416 . . . is respondent to recover damages, held the award,
applicable only in the following: (1) loans; (2) forbearance however, for moral damages by the trial court, later
of any money, goods or credit; and sustained by the IAC, to be inconceivably large. The
(3) rate allowed in judgments (judgments spoken of refer Court 12 thus set aside the decision of the appellate court
to judgments involving loans or forbearance of any and rendered a new one, "ordering the petitioner to pay
money, goods or credits. (Philippine Rabbit Bus Lines private respondent the sum of One Hundred Thousand
Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. (P100,000.00) Pesos as moral damages, with
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the six (6%) percent interest thereon computed from the
instant case, there is neither a loan or a forbearance, but finality of this decision until paid. (Emphasis supplied)
then no interest is actually imposed provided the sums Reformina came into fore again in the 21 February 1989
referred to in the judgment are paid upon the finality of case of Florendo v. Ruiz 13 which arose from a breach of
the judgment. It is delay in the payment of such final employment contract. For having been illegally
dismissed, the petitioner was awarded by the trial court Quite recently, the Court had another occasion to rule on
moral and exemplary damages without, however, the matter. National Power Corporation vs. Angas, 14
providing any legal interest thereon. When the decision decided on 08 May 1992, involved the expropriation of
was appealed to the Court of Appeals, the latter held: certain parcels of land. After conducting a hearing on the
WHEREFORE, except as modified hereinabove the complaints for eminent domain, the trial court ordered the
decision of the CFI of Negros Oriental dated October 31, petitioner to pay the private respondents certain sums of
1972 is affirmed in all respects, with the modification that money as just compensation for their lands so
defendants-appellants, except defendant-appellant expropriated "with legal interest thereon . . . until fully
Merton Munn, are ordered to pay, jointly and severally, paid." Again, in applying the 6% legal interest per annum
the amounts stated in the dispositive portion of the under the Civil Code, the Court 15 declared:
decision, including the sum of P1,400.00 in concept of . . . , (T)he transaction involved is clearly not a loan or
compensatory damages, with interest at the legal rate forbearance of money, goods or credits but expropriation
from the date of the filing of the complaint until fully paid of certain parcels of land for a public purpose, the
(Emphasis supplied.) payment of which is without stipulation regarding interest,
The petition for review to this Court was denied. The and the interest adjudged by the trial court is in the
records were thereupon transmitted to the trial court, and nature of indemnity for damages. The legal interest
an entry of judgment was made. The writ of execution required to be paid on the amount of just compensation
issued by the trial court directed that only compensatory for the properties expropriated is manifestly in the form of
damages should earn interest at 6% per annum from the indemnity for damages for the delay in the payment
date of the filing of the complaint. Ascribing grave abuse thereof. Therefore, since the kind of interest involved in
of discretion on the part of the trial judge, a petition for the joint judgment of the lower court sought to be
certiorari assailed the said order. This Court said: enforced in this case is interest by way of damages, and
. . . , it is to be noted that the Court of Appeals ordered not by way of earnings from loans, etc. Art. 2209 of the
the payment of interest "at the legal rate" from the time of Civil Code shall apply.
the filing of the complaint. . . Said circular [Central Bank Concededly, there have been seeming variances in the
Circular No. 416] does not apply to actions based on a above holdings. The cases can perhaps be classified into
breach of employment contract like the case at bar. two groups according to the similarity of the issues
(Emphasis supplied) involved and the corresponding rulings rendered by the
The Court reiterated that the 6% interest per annum on court. The "first group" would consist of the cases of
the damages should be computed from the time the Reformina v. Tomol (1985), Philippine Rabbit Bus Lines
complaint was filed until the amount is fully paid. v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the running of the legal interest.
"second group" would be Malayan Insurance Company v. Malayan held that the amount awarded should bear legal
Manila Port Service (1969), Nakpil and Sons v. Court of interest from the date of the decision of the court a quo,
Appeals (1988), and American Express International v. explaining that "if the suit were for damages,
Intermediate Appellate Court (1988). 'unliquidated and not known until definitely ascertained,
In the "first group", the basic issue focuses on the assessed and determined by the courts after proof,' then,
application of either the 6% (under the Civil Code) or interest 'should be from the date of the decision.'"
12% (under the Central Bank Circular) interest per American Express International v. IAC, introduced a
annum. It is easily discernible in these cases that there different time frame for reckoning the 6% interest by
has been a consistent holding that the Central Bank ordering it to be "computed from the finality of (the)
Circular imposing the 12% interest per annum applies decision until paid." The Nakpil and Sons case ruled that
only to loans or forbearance 16 of money, goods or 12% interest per annum should be imposed from the
credits, as well as to judgments involving such loan or finality of the decision until the judgment amount is paid.
forbearance of money, goods or credits, and that the 6% The ostensible discord is not difficult to explain. The
interest under the Civil Code governs when the factual circumstances may have called for different
transaction involves the payment of indemnities in the applications, guided by the rule that the courts are vested
concept of damage arising from the breach or a delay in with discretion, depending on the equities of each case,
the performance of obligations in general. Observe, too, on the award of interest. Nonetheless, it may not be
that in these cases, a common time frame in the unwise, by way of clarification and reconciliation, to
computation of the 6% interest per annum has been suggest the following rules of thumb for future guidance.
applied, i.e., from the time the complaint is filed until the I. When an obligation, regardless of its source, i.e., law,
adjudged amount is fully paid. contracts, quasi-contracts, delicts or quasi-delicts 18 is
The "second group", did not alter the pronounced rule on breached, the contravenor can be held liable for
the application of the 6% or 12% interest per annum, 17 damages. 19 The provisions under Title XVIII on
depending on whether or not the amount involved is a "Damages" of the Civil Code govern in determining the
loan or forbearance, on the one hand, or one of measure of recoverable damages. 20
indemnity for damage, on the other hand. Unlike, II. With regard particularly to an award of interest in the
however, the "first group" which remained consistent in concept of actual and compensatory damages, the rate
holding that the running of the legal interest should be of interest, as well as the accrual thereof, is imposed, as
from the time of the filing of the complaint until fully paid, follows:
the "second group" varied on the commencement of the 1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of finality until its satisfaction, this interim period being
money, the interest due should be that which may have deemed to be by then an equivalent to a forbearance of
been stipulated in writing. 21 Furthermore, the interest due credit.
shall itself earn legal interest from the time it is judicially WHEREFORE, the petition is partly GRANTED. The
demanded. 22 In the absence of stipulation, the rate of appealed decision is AFFIRMED with the
interest shall be 12% per annum to be computed from MODIFICATION that the legal interest to be paid is SIX
default, i.e., from judicial or extrajudicial demand under PERCENT (6%) on the amount due computed from the
and subject to the provisions of Article 1169 23 of the Civil decision, dated
Code. 03 February 1988, of the court a quo. A TWELVE
2. When an obligation, not constituting a loan or PERCENT (12%) interest, in lieu of SIX PERCENT (6%),
forbearance of money, is breached, an interest on the shall be imposed on such amount upon finality of this
amount of damages awarded may be imposed at the decision until the payment thereof.
discretion of the court 24 at the rate of 6% per annum. 25 SO ORDERED.
No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can G.R. No. 189871 August 13, 2013
be established with reasonable certainty. 26 Accordingly, DARIO NACAR, PETITIONER,
where the demand is established with reasonable vs.
certainty, the interest shall begin to run from the time the GALLERY FRAMES AND/OR FELIPE BORDEY, JR.,
claim is made judicially or extrajudicially (Art. 1169, Civil RESPONDENTS.
Code) but when such certainty cannot be so reasonably DECISION
established at the time the demand is made, the interest PERALTA, J.:
shall begin to run only from the date the judgment of the This is a petition for review on certiorari assailing the
court is made (at which time the quantification of Decision1 dated September 23, 2008 of the Court of
damages may be deemed to have been reasonably Appeals (CA) in CA-G.R. SP No. 98591, and the
ascertained). The actual base for the computation of Resolution2 dated October 9, 2009 denying petitioners
legal interest shall, in any case, be on the amount finally motion for reconsideration.
adjudged. The factual antecedents are undisputed.
3. When the judgment of the court awarding a sum of Petitioner Dario Nacar filed a complaint for constructive
money becomes final and executory, the rate of legal dismissal before the Arbitration Branch of the National
interest, whether the case falls under paragraph 1 or Labor Relations Commission (NLRC) against
paragraph 2, above, shall be 12% per annum from such respondents Gallery Frames (GF) and/or Felipe Bordey,
Jr., docketed as NLRC NCR Case No. 01-00519-97. P196.00/day x 12.36 mos. = P62,986.56
On October 15, 1998, the Labor Arbiter rendered a b) 2/6/98 to 8/18/98 = 6.4 months
Decision3 in favor of petitioner and found that he was Prevailing Rate per day = P62,986.00
dismissed from employment without a valid or just cause. P198.00 x 26 days x 6.4 mos. = P32,947.20
Thus, petitioner was awarded backwages and separation TOTAL = P95.933.76
pay in lieu of reinstatement in the amount of xxxx
P158,919.92. The dispositive portion of the decision, WHEREFORE, premises considered, judgment is hereby
reads: rendered finding respondents guilty of constructive
With the foregoing, we find and so rule that respondents dismissal and are therefore, ordered:
failed to discharge the burden of showing that To pay jointly and severally the complainant the amount
complainant was dismissed from employment for a just or of sixty-two thousand nine hundred eighty-six pesos and
valid cause. All the more, it is clear from the records that 56/100 (P62,986.56) Pesos representing his separation
complainant was never afforded due process before he pay;
was terminated. As such, we are perforce constrained to To pay jointly and severally the complainant the amount
grant complainants prayer for the payments of of nine (sic) five thousand nine hundred thirty-three and
separation pay in lieu of reinstatement to his former 36/100 (P95,933.36) representing his backwages; and
position, considering the strained relationship between All other claims are hereby dismissed for lack of merit.
the parties, and his apparent reluctance to be reinstated, SO ORDERED.4
computed only up to promulgation of this decision as Respondents appealed to the NLRC, but it was
follows: dismissed for lack of merit in the Resolution5 dated
SEPARATION PAY February 29, 2000. Accordingly, the NLRC sustained the
Date Hired = August 1990 decision of the Labor Arbiter. Respondents filed a motion
Rate = P198/day for reconsideration, but it was denied.6
Date of Decision = Aug. 18, 1998 Dissatisfied, respondents filed a Petition for Review on
Length of Service = 8 yrs. & 1 month Certiorari before the CA. On August 24, 2000, the CA
P198.00 x 26 days x 8 months
issued= P41,184.00
a Resolution dismissing the petition. Respondents
BACKWAGES filed a Motion for Reconsideration, but it was likewise
Date Dismissed = January 24, 1997 denied in a Resolution dated May 8, 2001.7
Rate per day = P196.00 Respondents then sought relief before the Supreme
Date of Decisions = Aug. 18, 1998 Court, docketed as G.R. No. 151332. Finding no
a) 1/24/97 to 2/5/98 = 12.36 mos. reversible error on the part of the CA, this Court denied
the petition in the Resolution dated April 17, 2002. 8 declaring the Resolution of the NLRC to be final and
An Entry of Judgment was later issued certifying that the executory. Consequently, another pre-execution
resolution became final and executory on May 27, 2002.9 conference was held, but respondents failed to appear on
The case was, thereafter, referred back to the Labor time. Meanwhile, petitioner moved that an Alias Writ of
Arbiter. A pre-execution conference was consequently Execution be issued to enforce the earlier recomputed
scheduled, but respondents failed to appear.10 judgment award in the sum of P471,320.31.18
On November 5, 2002, petitioner filed a Motion for The records of the case were again forwarded to the
Correct Computation, praying that his backwages be Computation and Examination Unit for recomputation,
computed from the date of his dismissal on January 24, where the judgment award of petitioner was reassessed
1997 up to the finality of the Resolution of the Supreme to be in the total amount of only P147,560.19.
Court on May 27, 2002.11 Upon recomputation, the Petitioner then moved that a writ of execution be issued
Computation and Examination Unit of the NLRC arrived ordering respondents to pay him the original amount as
at an updated amount in the sum of P471,320.31.12 determined by the Labor Arbiter in his Decision dated
On December 2, 2002, a Writ of Execution13 was issued October 15, 1998, pending the final computation of his
by the Labor Arbiter ordering the Sheriff to collect from backwages and separation pay.
respondents the total amount of P471,320.31. On January 14, 2003, the Labor Arbiter issued an Alias
Respondents filed a Motion to Quash Writ of Execution, Writ of Execution to satisfy the judgment award that was
arguing, among other things, that since the Labor Arbiter due to petitioner in the amount of P147,560.19, which
awarded separation pay of P62,986.56 and limited petitioner eventually received.
backwages of P95,933.36, no more recomputation is Petitioner then filed a Manifestation and Motion praying
required to be made of the said awards. They claimed for the re-computation of the monetary award to include
that after the decision becomes final and executory, the the appropriate interests.19
same cannot be altered or amended anymore.14 On On May 10, 2005, the Labor Arbiter issued an Order20
January 13, 2003, the Labor Arbiter issued an Order15 granting the motion, but only up to the amount of
denying the motion. Thus, an Alias Writ of Execution16 P11,459.73. The Labor Arbiter reasoned that it is the
was issued on January 14, 2003. October 15, 1998 Decision that should be enforced
Respondents again appealed before the NLRC, which on considering that it was the one that became final and
June 30, 2003 issued a Resolution17 granting the appeal executory. However, the Labor Arbiter reasoned that
in favor of the respondents and ordered the since the decision states that the separation pay and
recomputation of the judgment award. backwages are computed only up to the promulgation of
On August 20, 2003, an Entry of Judgment was issued the said decision, it is the amount of P158,919.92 that
should be executed. Thus, since petitioner already LABOR ARBITER LUSTRIA SUBSERVIENT TO AN
received P147,560.19, he is only entitled to the balance OPINION EXPRESSED IN THE BODY OF THE SAME
of P11,459.73. DECISION.26
Petitioner then appealed before the NLRC,21 which Petitioner argues that notwithstanding the fact that there
appeal was denied by the NLRC in its Resolution22 dated was a computation of backwages in the Labor Arbiters
September 27, 2006. Petitioner filed a Motion for decision, the same is not final until reinstatement is made
Reconsideration, but it was likewise denied in the or until finality of the decision, in case of an award of
Resolution23 dated January 31, 2007. separation pay. Petitioner maintains that considering that
Aggrieved, petitioner then sought recourse before the the October 15, 1998 decision of the Labor Arbiter did not
CA, docketed as CA-G.R. SP No. 98591. become final and executory until the April 17, 2002
On September 23, 2008, the CA rendered a Decision24 Resolution of the Supreme Court in G.R. No. 151332 was
denying the petition. The CA opined that since petitioner entered in the Book of Entries on May 27, 2002, the
no longer appealed the October 15, 1998 Decision of the reckoning point for the computation of the backwages
Labor Arbiter, which already became final and executory, and separation pay should be on May 27, 2002 and not
a belated correction thereof is no longer allowed. The CA when the decision of the Labor Arbiter was rendered on
stated that there is nothing left to be done except to October 15, 1998. Further, petitioner posits that he is
enforce the said judgment. Consequently, it can no also entitled to the payment of interest from the finality of
longer be modified in any respect, except to correct the decision until full payment by the respondents.
clerical errors or mistakes. On their part, respondents assert that since only
Petitioner filed a Motion for Reconsideration, but it was separation pay and limited backwages were awarded to
denied in the Resolution25 dated October 9, 2009. petitioner by the October 15, 1998 decision of the Labor
Hence, the petition assigning the lone error: Arbiter, no more recomputation is required to be made of
I said awards. Respondents insist that since the decision
WITH DUE RESPECT, THE HONORABLE COURT OF clearly stated that the separation pay and backwages are
APPEALS SERIOUSLY ERRED, COMMITTED GRAVE "computed only up to [the] promulgation of this decision,"
ABUSE OF DISCRETION AND DECIDED CONTRARY and considering that petitioner no longer appealed the
TO LAW IN UPHOLDING THE QUESTIONED decision, petitioner is only entitled to the award as
RESOLUTIONS OF THE NLRC WHICH, IN TURN, computed by the Labor Arbiter in the total amount of
SUSTAINED THE MAY 10, 2005 ORDER OF LABOR P158,919.92. Respondents added that it was only during
ARBITER MAGAT MAKING THE DISPOSITIVE the execution proceedings that the petitioner questioned
PORTION OF THE OCTOBER 15, 1998 DECISION OF the award, long after the decision had become final and
executory. Respondents contend that to allow the further decision in this case proceeds from the way the original
recomputation of the backwages to be awarded to labor arbiter framed his decision. The decision consists
petitioner at this point of the proceedings would essentially of two parts.
substantially vary the decision of the Labor Arbiter as it The first is that part of the decision that cannot now be
violates the rule on immutability of judgments. disputed because it has been confirmed with finality. This
The petition is meritorious. is the finding of the illegality of the dismissal and the
The instant case is similar to the case of Session awards of separation pay in lieu of reinstatement,
Delights Ice Cream and Fast Foods v. Court of Appeals backwages, attorney's fees, and legal interests.
(Sixth Division),27 wherein the issue submitted to the The second part is the computation of the awards made.
Court for resolution was the propriety of the computation On its face, the computation the labor arbiter made
of the awards made, and whether this violated the shows that it was time-bound as can be seen from the
principle of immutability of judgment. Like in the present figures used in the computation. This part, being merely a
case, it was a distinct feature of the judgment of the computation of what the first part of the decision
Labor Arbiter in the above-cited case that the decision established and declared, can, by its nature, be re-
already provided for the computation of the payable computed. This is the part, too, that the petitioner now
separation pay and backwages due and did not further posits should no longer be re-computed because the
order the computation of the monetary awards up to the computation is already in the labor arbiter's decision that
time of the finality of the judgment. Also in Session the CA had affirmed. The public and private respondents,
Delights, the dismissed employee failed to appeal the on the other hand, posit that a re-computation is
decision of the labor arbiter. The Court clarified, thus: necessary because the relief in an illegal dismissal
In concrete terms, the question is whether a re- decision goes all the way up to reinstatement if
computation in the course of execution of the labor reinstatement is to be made, or up to the finality of the
arbiter's original computation of the awards made, decision, if separation pay is to be given in lieu
pegged as of the time the decision was rendered and reinstatement.
confirmed with modification by a final CA decision, is That the labor arbiter's decision, at the same time that it
legally proper. The question is posed, given that the found that an illegal dismissal had taken place, also
petitioner did not immediately pay the awards stated in made a computation of the award, is understandable in
the original labor arbiter's decision; it delayed payment light of Section 3, Rule VIII of the then NLRC Rules of
because it continued with the litigation until final judgment Procedure which requires that a computation be made.
at the CA level. This Section in part states:
A source of misunderstanding in implementing the final [T]he Labor Arbiter of origin, in cases involving monetary
awards and at all events, as far as practicable, shall backwages due up to the finality of the CA decision that
embody in any such decision or order the detailed and fully terminated the case on the merits. Unfortunately, the
full amount awarded. labor arbiter's approved computation went beyond the
Clearly implied from this original computation is its finality of the CA decision (July 29, 2003) and included as
currency up to the finality of the labor arbiter's decision. well the payment for awards the final CA decision had
As we noted above, this implication is apparent from the deleted - specifically, the proportionate 13th month pay
terms of the computation itself, and no question would and the indemnity awards. Hence, the CA issued the
have arisen had the parties terminated the case and decision now questioned in the present petition.
implemented the decision at that point. We see no error in the CA decision confirming that a re-
However, the petitioner disagreed with the labor arbiter's computation is necessary as it essentially considered the
findings on all counts - i.e., on the finding of illegality as labor arbiter's original decision in accordance with its
well as on all the consequent awards made. Hence, the basic component parts as we discussed above. To
petitioner appealed the case to the NLRC which, in turn, reiterate, the first part contains the finding of illegality and
affirmed the labor arbiter's decision. By law, the NLRC its monetary consequences; the second part is the
decision is final, reviewable only by the CA on computation of the awards or monetary consequences of
jurisdictional grounds. the illegal dismissal, computed as of the time of the labor
The petitioner appropriately sought to nullify the NLRC arbiter's original decision.28
decision on jurisdictional grounds through a timely filed Consequently, from the above disquisitions, under the
Rule 65 petition for certiorari. The CA decision, finding terms of the decision which is sought to be executed by
that NLRC exceeded its authority in affirming the the petitioner, no essential change is made by a
payment of 13th month pay and indemnity, lapsed to recomputation as this step is a necessary consequence
finality and was subsequently returned to the labor arbiter that flows from the nature of the illegality of dismissal
of origin for execution. declared by the Labor Arbiter in that decision.29 A
It was at this point that the present case arose. Focusing recomputation (or an original computation, if no previous
on the core illegal dismissal portion of the original labor computation has been made) is a part of the law
arbiter's decision, the implementing labor arbiter ordered specifically, Article 279 of the Labor Code and the
the award re-computed; he apparently read the figures established jurisprudence on this provision that is read
originally ordered to be paid to be the computation due into the decision. By the nature of an illegal dismissal
had the case been terminated and implemented at the case, the reliefs continue to add up until full satisfaction,
labor arbiter's level. Thus, the labor arbiter re-computed as expressed under Article 279 of the Labor Code. The
the award to include the separation pay and the recomputation of the consequences of illegal dismissal
upon execution of the decision does not constitute an been stipulated in writing. Furthermore, the interest due
alteration or amendment of the final decision being shall itself earn legal interest from the time it is judicially
implemented. The illegal dismissal ruling stands; only the demanded. In the absence of stipulation, the rate of
computation of monetary consequences of this dismissal interest shall be 12% per annum to be computed from
is affected, and this is not a violation of the principle of default, i.e., from judicial or extrajudicial demand under
immutability of final judgments.30 and subject to the provisions of Article 1169 of the Civil
That the amount respondents shall now pay has greatly Code.
increased is a consequence that it cannot avoid as it is 2. When an obligation, not constituting a loan or
the risk that it ran when it continued to seek recourses forbearance of money, is breached, an interest on the
against the Labor Arbiter's decision. Article 279 provides amount of damages awarded may be imposed at the
for the consequences of illegal dismissal in no uncertain discretion of the court at the rate of 6% per annum. No
terms, qualified only by jurisprudence in its interpretation interest, however, shall be adjudged on unliquidated
of when separation pay in lieu of reinstatement is claims or damages except when or until the demand can
allowed. When that happens, the finality of the illegal be established with reasonable certainty. Accordingly,
dismissal decision becomes the reckoning point instead where the demand is established with reasonable
of the reinstatement that the law decrees. In allowing certainty, the interest shall begin to run from the time the
separation pay, the final decision effectively declares that claim is made judicially or extrajudicially (Art. 1169, Civil
the employment relationship ended so that separation Code) but when such certainty cannot be so reasonably
pay and backwages are to be computed up to that established at the time the demand is made, the interest
point.31 shall begin to run only from the date the judgment of the
Finally, anent the payment of legal interest. In the court is made (at which time the quantification of
landmark case of Eastern Shipping Lines, Inc. v. Court of damages may be deemed to have been reasonably
Appeals,32 the Court laid down the guidelines regarding ascertained). The actual base for the computation of
the manner of computing legal interest, to wit: legal interest shall, in any case, be on the amount finally
II. With regard particularly to an award of interest in the adjudged.
concept of actual and compensatory damages, the rate 3. When the judgment of the court awarding a sum of
of interest, as well as the accrual thereof, is imposed, as money becomes final and executory, the rate of legal
follows: interest, whether the case falls under paragraph 1 or
1. When the obligation is breached, and it consists in the paragraph 2, above, shall be 12% per annum from such
payment of a sum of money, i.e., a loan or forbearance of finality until its satisfaction, this interim period being
money, the interest due should be that which may have deemed to be by then an equivalent to a forbearance of
credit.33 Regulations for Banks and Sections 4305Q.1, 4305S.3
Recently, however, the Bangko Sentral ng Pilipinas and 4303P.1 of the Manual of Regulations for Non-Bank
Monetary Board (BSP-MB), in its Resolution No. 796 Financial Institutions, before its amendment by BSP-MB
dated May 16, 2013, approved the amendment of Circular No. 799 - but will now be six percent (6%) per
Section 234 of Circular No. 905, Series of 1982 and, annum effective July 1, 2013. It should be noted,
accordingly, issued Circular No. 799,35 Series of 2013, nonetheless, that the new rate could only be applied
effective July 1, 2013, the pertinent portion of which prospectively and not retroactively. Consequently, the
reads: twelve percent (12%) per annum legal interest shall apply
The Monetary Board, in its Resolution No. 796 dated 16 only until June 30, 2013. Come July 1, 2013 the new rate
May 2013, approved the following revisions governing of six percent (6%) per annum shall be the prevailing rate
the rate of interest in the absence of stipulation in loan of interest when applicable.
contracts, thereby amending Section 2 of Circular No. Corollarily, in the recent case of Advocates for Truth in
905, Series of 1982: Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Section 1. The rate of interest for the loan or forbearance Monetary Board,41 this Court affirmed the authority of the
of any money, goods or credits and the rate allowed in BSP-MB to set interest rates and to issue and enforce
judgments, in the absence of an express contract as to Circulars when it ruled that "the BSP-MB may prescribe
such rate of interest, shall be six percent (6%) per the maximum rate or rates of interest for all loans or
annum. renewals thereof or the forbearance of any money, goods
Section 2. In view of the above, Subsection X305.136 of or credits, including those for loans of low priority such as
the Manual of Regulations for Banks and Sections consumer loans, as well as such loans made by
4305Q.1,37 4305S.338 and 4303P.139 of the Manual of pawnshops, finance companies and similar credit
Regulations for Non-Bank Financial Institutions are institutions. It even authorizes the BSP-MB to prescribe
hereby amended accordingly. different maximum rate or rates for different types of
This Circular shall take effect on 1 July 2013. borrowings, including deposits and deposit substitutes, or
Thus, from the foregoing, in the absence of an express loans of financial intermediaries."
stipulation as to the rate of interest that would govern the Nonetheless, with regard to those judgments that have
parties, the rate of legal interest for loans or forbearance become final and executory prior to July 1, 2013, said
of any money, goods or credits and the rate allowed in judgments shall not be disturbed and shall continue to be
judgments shall no longer be twelve percent (12%) per implemented applying the rate of interest fixed
annum - as reflected in the case of Eastern Shipping therein.1awp++i1
Lines40 and Subsection X305.1 of the Manual of To recapitulate and for future guidance, the guidelines
laid down in the case of Eastern Shipping Lines42 are certainty, the interest shall begin to run from the time the
accordingly modified to embody BSP-MB Circular No. claim is made judicially or extrajudicially (Art. 1169, Civil
799, as follows: Code), but when such certainty cannot be so reasonably
I. When an obligation, regardless of its source, i.e., law, established at the time the demand is made, the interest
contracts, quasi-contracts, delicts or quasi-delicts is shall begin to run only from the date the judgment of the
breached, the contravenor can be held liable for court is made (at which time the quantification of
damages. The provisions under Title XVIII on "Damages" damages may be deemed to have been reasonably
of the Civil Code govern in determining the measure of ascertained). The actual base for the computation of
recoverable damages.1wphi1 legal interest shall, in any case, be on the amount finally
II. With regard particularly to an award of interest in the adjudged.
concept of actual and compensatory damages, the rate When the judgment of the court awarding a sum of
of interest, as well as the accrual thereof, is imposed, as money becomes final and executory, the rate of legal
follows: interest, whether the case falls under paragraph 1 or
When the obligation is breached, and it consists in the paragraph 2, above, shall be 6% per annum from such
payment of a sum of money, i.e., a loan or forbearance of finality until its satisfaction, this interim period being
money, the interest due should be that which may have deemed to be by then an equivalent to a forbearance of
been stipulated in writing. Furthermore, the interest due credit.
shall itself earn legal interest from the time it is judicially And, in addition to the above, judgments that have
demanded. In the absence of stipulation, the rate of become final and executory prior to July 1, 2013, shall
interest shall be 6% per annum to be computed from not be disturbed and shall continue to be implemented
default, i.e., from judicial or extrajudicial demand under applying the rate of interest fixed therein.
and subject to the provisions of Article 1169 of the Civil WHEREFORE, premises considered, the Decision dated
Code. September 23, 2008 of the Court of Appeals in CA-G.R.
When an obligation, not constituting a loan or SP No. 98591, and the Resolution dated October 9, 2009
forbearance of money, is breached, an interest on the are REVERSED and SET ASIDE. Respondents are
amount of damages awarded may be imposed at the Ordered to Pay petitioner:
discretion of the court at the rate of 6% per annum. No (1) backwages computed from the time petitioner was
interest, however, shall be adjudged on unliquidated illegally dismissed on January 24, 1997 up to May 27,
claims or damages, except when or until the demand can 2002, when the Resolution of this Court in G.R. No.
be established with reasonable certainty. Accordingly, 151332 became final and executory;
where the demand is established with reasonable (2) separation pay computed from August 1990 up to
May 27, 2002 at the rate of one month pay per year of The only issue posed before us is the propriety
service; and of the imposition of interest and attorneys fees.
(3) interest of twelve percent (12%) per annum of the
total monetary awards, computed from May 27, 2002 to Assailed in this Petition for Review[if !supportFootnotes][1][endif]
June 30, 2013 and six percent (6%) per annum from July filed under Rule 45 of the Rules of Court is the May 12,
1, 2013 until their full satisfaction. 2006 Decision[if !supportFootnotes][2][endif] of the Court of
The Labor Arbiter is hereby ORDERED to make another Appeals (CA) in CA-G.R. CV No. 83123, the dispositive
recomputation of the total monetary benefits awarded portion of which reads:
and due to petitioner in accordance with this Decision.
SO ORDERED. WHEREFORE, the appealed
decision is MODIFIED. The rate of
interest shall be six percent (6%) per
HERMOJINA ESTORES, G.R. No. annum,
175139 computed from September 27,
Petitioner, 2000 until its full payment before
Present: finality of the judgment. If the adjudged
principal and the interest (or any part
CORONA, C.J., Chairperson,
thereof) remain unpaid thereafter, the
- versus - LEONARDO-DE
interest CASTRO,
rate shall be adjusted to twelve
BERSAMIN, percent (12%) per annum, computed
DEL CASTILLO,
from theand time the judgment becomes
VILLARAMA,final JR.,
andJJ.executory until it is fully
SPOUSES ARTURO and satisfied. The award of attorneys fees
LAURA SUPANGAN, Promulgated:
is hereby reduced to P100,000.00.
Respondents. April 18, 2012
Costs against the defendants-
x---------------------------------------- appellants.
---------------------------x

DECISION

DEL CASTILLO, J.:


SO ORDERED.[if !supportFootnotes][3][endif] (sic):

Also assailed is the August 31, 2006 a) Letter request


Resolution[if !supportFootnotes][4][endif] denying the motion for
reconsideration.

Factual Antecedents
b) Title
On October 3, 1993, petitioner Hermojina Estores and
respondent-spouses Arturo and Laura Supangan entered
into a Conditional Deed of Sale[if !supportFootnotes][5][endif]
whereby petitioner offered to sell, and respondent- c) Tax Declaration
spouses offered to buy, a parcel of land covered by
Transfer Certificate of Title No. TCT No. 98720 located at
Naic, Cavite for the sum of P4.7 million. The parties
likewise stipulated, among others, to wit: d) Affidavit of Aggregate Landholding
Vendor/Vendee
xxxx

e) Certification from the Provl. Assessors as to


Landholdings of
Vendor/Vendee

1. Vendor will secure approved clearance from


DAR requirements of which are f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale

6. Regarding the house located within the


perimeter of the subject [lot]
owned by spouses [Magbago],
said house shall be moved outside
the perimeter of this subject
xxxx
property to the 300 sq. m. area
allocated for [it]. Vendor hereby
accepts the responsibility of
seeing to it that such agreement is
carried out before full payment of
the sale is made by vendee.

4. Vendee shall be informed as to the status of


DAR clearance within 10 days
upon signing of the documents.

7. If and after the vendor has completed all


necessary documents for
registration of the title and the
vendee fails to complete payment
as per agreement, a forfeiture fee
of 25% or downpayment, shall be
xxxx
applied. However, if the vendor
fails to complete necessary
documents within thirty days
without any sufficient reason, or
without informing the vendee of its
status, vendee has the right to
10. The vendor assures the vendee of a
demand return of full amount of
peaceful transfer of ownership.
down payment.

x x x x [if !supportFootnotes][6][endif]
xxxx

After almost seven years from the time of the


execution of the contract and notwithstanding payment of
P3.5 million on the part of respondent-spouses, petitioner
9. As to the boundaries and partition of the lots still failed to comply with her obligation as expressly
(15,018 sq. m. and 300 sq. m.) provided in paragraphs 4, 6, 7, 9 and 10 of the contract.
Vendee shall be informed Hence, in a letter[if !supportFootnotes][7][endif] dated September
immediately of its approval by the 27, 2000, respondent-spouses demanded the return of
LRC. the amount of P3.5 million within 15 days from receipt of
the letter. In reply,[if !supportFootnotes][8][endif] petitioner
acknowledged receipt of the P3.5 million and promised to
return the same within 120 days. Respondent-spouses !supportFootnotes][11][endif]

were amenable to the proposal provided an interest of


12% compounded annually shall be imposed on the P3.5
million.[if !supportFootnotes][9][endif] When petitioner still failed to In their Answer with Counterclaim,[if
return the amount despite demand, respondent-spouses !supportFootnotes][12][endif] petitioner and Arias averred that they

were constrained to file a Complaint[if !supportFootnotes][10][endif] are willing to return the principal amount of P3.5 million
for sum of money before the Regional Trial Court (RTC) but without any interest as the same was not agreed
of Malabon against herein petitioner as well as Roberto upon. In their Pre-Trial Brief,[if !supportFootnotes][13][endif] they
U. Arias (Arias) who allegedly acted as petitioners agent. reiterated that the only remaining issue between the
The case was docketed as Civil Case No. 3201-MN and parties is the imposition of interest. They argued that
raffled off to Branch 170. In their complaint, respondent- since the Conditional Deed of Sale provided only for the
spouses prayed that petitioner and Arias be ordered to: return of the downpayment in case of breach, they
cannot be held liable to pay legal interest as well.[if
[if !supportLists]1. [endif]Pay the principal amount !supportFootnotes][14][endif]

of P3,500,000.00 plus interest of 12% compounded


annually starting October 1, 1993 or an estimated In its Pre-Trial Order[if !supportFootnotes][15][endif] dated
amount of P8,558,591.65; June 29, 2001, the RTC noted that the parties agreed
that the principal amount of 3.5 million pesos should be
[if !supportLists]2. [endif]Pay the following items returned to the [respondent-spouses] by the [petitioner]
of damages: and the issue remaining [is] whether x x x [respondent-
spouses] are entitled to legal interest thereon, damages
[if !supportLists]a) [endif]Moral damages in the and attorneys fees.[if !supportFootnotes][16][endif]
amount of P100,000.00;
[if !supportLists]b) [endif]Actual damages in the Trial ensued thereafter. After the presentation of
amount of P100,000.00; the respondent-spouses evidence, the trial court set the
[if !supportLists]c) [endif]Exemplary damages in presentation of Arias and petitioners evidence on
the amount of P100,000.00; September 3, 2003.[if !supportFootnotes][17][endif] However,
[if !supportLists]d) [endif][Attorneys] fee in the despite several postponements, petitioner and Arias
amount of P50,000.00 plus 20% of recoverable amount failed to appear hence they were deemed to have waived
from the [petitioner]. the presentation of their evidence. Consequently, the
[if !supportLists]e) [endif][C]ost of suit.[if case was deemed submitted for decision.[if
!supportFootnotes][18][endif] Hundred Thousand pesos (P3,500,000.00) with an
interest of 6% compounded annually starting October 1,
Ruling of the Regional Trial Court 1993 and attorneys fee in the amount of Fifty Thousand
pesos (P50,000.00) plus 20% of the recoverable amount
On May 7, 2004, the RTC rendered its Decision[if from the defendants and cost of the suit.
!supportFootnotes][19][endif] finding respondent-spouses entitled

to interest but only at the rate of 6% per annum and not The Compulsory Counter
12% as prayed by them.[if !supportFootnotes][20][endif] It also Claim is hereby dismissed for lack of
found respondent-spouses entitled to attorneys fees as factual evidence.
they were compelled to litigate to protect their interest.[if
!supportFootnotes][21][endif]

The dispositive portion of the RTC Decision


reads:
SO ORDERED.[if
!supportFootnotes][22][endif]
WHEREFORE, premises
considered, judgment is hereby
rendered in favor of the [respondent-
spouses] and ordering the [petitioner
and Roberto Arias] to jointly and
severally:
Ruling of the Court of Appeals

Aggrieved, petitioner and Arias filed their notice of


appeal.[if !supportFootnotes][23][endif] The CA noted that the only
issue submitted for its resolution is whether it is proper to
impose interest for an obligation that does not involve a
loan or forbearance of money in the absence of
stipulation of the parties.[if !supportFootnotes][24][endif]
[if !supportLists]1. [endif]Pay [respondent-
spouses] the principal amount of Three Million Five On May 12, 2006, the CA rendered the assailed
Decision affirming the ruling of the RTC finding the (12%) per annum, computed from the
imposition of 6% interest proper.[if !supportFootnotes][25][endif] time the judgment becomes final and
However, the same shall start to run only from executory until it is fully satisfied. The
September 27, 2000 when respondent-spouses formally award of attorneys fees is hereby
demanded the return of their money and not from reduced to P100,000.00. Costs against
October 1993 when the contract was executed as held by the [petitioner].
the RTC. The CA also modified the RTCs ruling as
regards the liability of Arias. It held that Arias could not
be held solidarily liable with petitioner because he merely
acted as agent of the latter. Moreover, there was no
showing that he expressly bound himself to be personally
liable or that he exceeded the limits of his authority. More
importantly, there was even no showing that Arias was
authorized to act as agent of petitioner.[if
!supportFootnotes][26][endif] Anent the award of attorneys fees, SO ORDERED.[if !supportFootnotes][29][endif]
the CA found the award by the trial court (P50,000.00
plus 20% of the recoverable amount) excessive[if
!supportFootnotes][27][endif] and thus reduced the same to

P100,000.00.[if !supportFootnotes][28][endif]

The dispositive portion of the CA Decision reads: Petitioner moved for reconsideration which was denied in
the August 31, 2006 Resolution of the CA.
WHEREFORE, the appealed decision is
MODIFIED. The rate of interest shall Hence, this petition raising the sole issue of whether the
be six percent (6%) per annum, imposition of interest and attorneys fees is proper.
computed from September 27, 2000
until its full payment before finality of Petitioners Arguments
the judgment. If the adjudged principal
and the interest (or any part thereof) Petitioner insists that she is not bound to pay interest on
remain[s] unpaid thereafter, the interest the P3.5 million because the Conditional Deed of Sale
rate shall be adjusted to twelve percent
only provided for the return of the downpayment in case r
of failure to comply with her obligations. Petitioner also e
argues that the award of attorneys fees in favor of the s
respondent-spouses is unwarranted because it cannot be t
said that the latter won over the former since the CA
even sustained her contention that the imposition of 12% m
interest compounded annually is totally uncalled for. a
y
Respondent-spouses Arguments
b
Respondent-spouses aver that it is only fair that interest e
be imposed on the amount they paid considering that
petitioner failed to return the amount upon demand and i
had been using the P3.5 million for her benefit. Moreover, m
it is undisputed that petitioner failed to perform her p
obligations to relocate the house outside the perimeter of o
the subject property and to complete the necessary s
documents. As regards the attorneys fees, they claim e
that they are entitled to the same because they were d
forced to litigate when petitioner unjustly withheld the
amount. Besides, the amount awarded by the CA is even e
smaller compared to the filing fees they paid. v
e
Our Ruling n

The petition lacks merit. i


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We sustain the ruling of both the RTC and the t
CA that it is proper to impose interest notwithstanding the
absence of stipulation in the contract. Article 2210 of the t
Civil Code expressly provides that [i]nterest may, in the h
discretion of the court, be allowed upon damages e
awarded for breach of contract. In this case, there is no
question that petitioner is legally obligated to return the r
P3.5 million because of her failure to fulfill the obligation a
under the Conditional Deed of Sale, despite demand. t
She has in fact admitted that the conditions were not e
fulfilled and that she was willing to return the full amount
of P3.5 million but has not actually done so. Petitioner o
enjoyed the use of the money from the time it was given f
to her[if !supportFootnotes][30][endif] until now. Thus, she is already
in default of her obligation from the date of demand, i.e., 1
on September 27, 2000. 2
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Anent the interest rate, the general rule is that
i the applicable rate of interest shall be computed in
n accordance with the stipulation of the parties.[if
!supportFootnotes][31][endif] Absent any stipulation, the applicable

t rate of interest shall be 12% per annum when the


h obligation arises out of a loan or a forbearance of money,
e goods or credits. In other cases, it shall be six percent
(6%).[if !supportFootnotes][32][endif] In this case, the parties did not
i stipulate as to the applicable rate of interest. The only
n question remaining therefore is whether the 6% as
s provided under Article 2209 of the Civil Code, or 12%
t under Central Bank Circular No. 416, is due.
a
n The contract involved in this case is admittedly
t not a loan but a Conditional Deed of Sale. However, the
contract provides that the seller (petitioner) must return
c the payment made by the buyer (respondent-spouses) if
a the conditions are not fulfilled. There is no question that
s they have in fact, not been fulfilled as the seller
e (petitioner) has admitted this. Notwithstanding demand
. by the buyer (respondent-spouses), the seller (petitioner)
has failed to return the money and

should be considered in default from the time that


demand was made on September 27, 2000.

Even if the transaction involved a Conditional


Deed of Sale, can the stipulation governing the return of
the money be considered as a forbearance of money
which required payment of interest at the rate of 12%? money, absent any stipulation, should be the same rate
We believe so. of legal interest applicable to a loan since the use or
deprivation of funds is similar to a loan.
In Crismina Garments, Inc. v. Court of Appeals,[if
!supportFootnotes][33][endif] forbearance was defined as a Petitioners unwarranted withholding of the
contractual obligation of lender or creditor to refrain money which rightfully pertains to respondent-spouses
during a given period of time, from requiring the borrower amounts to forbearance of money which can be
or debtor to repay a loan or debt then due and payable. considered as an involuntary loan. Thus, the applicable
This definition describes a loan where a debtor is given a rate of interest is 12% per annum. In Eastern Shipping
period within which to pay a loan or debt. In such case, Lines, Inc. v. Court of Appeals,[if !supportFootnotes][35][endif]cited
forbearance of money, goods or credits will have no in Crismina Garments, Inc. v. Court of Appeals,[if
distinct definition from a loan. We believe however, that !supportFootnotes][36][endif] the Court suggested the following

the phrase forbearance of money, goods or credits is guidelines:


meant to have a separate meaning from a loan,
otherwise there would have been no need to add that [if !supportLists]I. [endif]When an obligation,
phrase as a loan is already sufficiently defined in the Civil regardless of its source, i.e., law, contracts, quasi-
Code.[if !supportFootnotes][34][endif] Forbearance of money, goods contracts, delicts or quasi-delicts is breached, the
or credits should therefore refer to arrangements other contravenor can be held liable for damages. The
than loan agreements, where a person acquiesces to the provisions under Title XVIII on Damages of the Civil
temporary use of his money, goods or credits pending Code govern in determining the measure of recoverable
happening of certain events or fulfillment of certain damages.
conditions. In this case, the respondent-spouses parted
with their money even before the conditions were fulfilled. [if !supportLists]II. [endif]With regard particularly
They have therefore allowed or granted forbearance to to an award of interest in the concept of actual and
the seller (petitioner) to use their money pending compensatory damages, the rate of interest, as well
fulfillment of the conditions. They were deprived of the as the accrual thereof, is imposed, as follows:
use of their money for the period pending fulfillment of
the conditions and when those conditions were breached, [if !supportLists]1. [endif]When the obligation is
they are entitled not only to the return of the principal breached, and it consists in the payment of a sum of
amount paid, but also to compensation for the use of money, i.e., a loan or forbearance of money, the
their money. And the compensation for the use of their interest due should be that which may have been
stipulated in writing. Furthermore, the interest due 12% per annum from such finality until its satisfaction,
shall itself earn legal interest from the time it is this interim period being deemed to be by then an
judicially demanded. In the absence of stipulation, equivalent to a forbearance of credit.[if !supportFootnotes][37][endif]
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 Eastern Shipping Lines, Inc. v. Court of Appeals[if
!supportFootnotes][38][endif]and its predecessor case, Reformina
provisions of Article 1169 of the Civil Code.
v. Tongol[if !supportFootnotes][39][endif] both involved torts cases
[if !supportLists]2. [endif]When an obligation, not and hence, there was no forbearance of money, goods,
constituting a loan or forbearance of money, is breached, or credits. Further, the amount claimed (i.e., damages)
an interest on the amount of damages awarded may be could not be established with reasonable certainty at the
imposed at the discretion of the court at the rate of 6% time the claim was made. Hence, we arrived at a different
per annum. No interest, however, shall be adjudged on ruling in those cases.
unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Since the date of demand which is September
Accordingly, where the demand is established with 27, 2000 was satisfactorily established during trial, then
reasonable certainty, the interest shall begin to run from the interest rate of 12% should be reckoned from said
the time the claim is made judicially or extrajudicially (Art. date of demand until the principal amount and the
1169, Civil Code) but when such certainty cannot be so interest thereon is fully satisfied.
reasonably established at the time the demand is made,
the interest shall begin to run only from the date the T
judgment of the court is made (at which time the h
quantification of damages may be deemed to have been e
reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the a
amount finally adjudged. w
a
[if !supportLists]3. [endif]When the judgment of r
the court awarding a sum of money becomes final and d
executory, the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2, above, shall be o
f

a Under Article 2208 of the Civil Code, attorneys fees may


t be recovered:
t
o
r xxxx
n
e
y
s

f
e
e
s (2) When the defendants act or omission has
compelled the plaintiff to litigate
i with third persons or to incur
s expenses to protect his interest;

w
a
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a
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t
e xxxx
d
.
WHEREFORE, the Petition for Review is DENIED. The
May 12, 2006 Decision of the Court of Appeals in CA-
G.R. CV No. 83123 is AFFIRMED with MODIFICATIONS
that the rate of interest shall be twelve percent (12%) per
[if !supportLists](11) [endif]In any other
annum, computed from September 27, 2000 until fully
case where the court deems it just and
satisfied. The award of attorneys fees is further reduced
equitable that attorneys fees and
to P50,000.00.
expenses of litigation should be
recovered.
SO ORDERED.

In all cases, the attorneys fees and expenses of


litigation must be reasonable.

Considering the circumstances of the instant


case, we find respondent-spouses entitled to recover
attorneys fees. There is no doubt that they were forced to
litigate to protect their interest, i.e., to recover their
money. However, we find the amount of P50,000.00
more appropriate in line with the policy enunciated in
Article 2208 of the Civil Code that the award of attorneys
fees must always be reasonable.