TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. "1. The sum of P114,416.
1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per
COURT OF APPEALS & SECURITY BANK & TRUST COMPANY, respondents.
Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court, assailing the decision and resolutions of the Court of Appeals in CA-
G.R. CV No. 34594, entitled "Security Bank and Trust Co. vs. Tolomeo Ligutan,
et al."
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981
a loan in the amount of P120,000.00 from respondent Security Bank and Trust
Company. Petitioners executed a promissory note binding themselves, jointly and
severally, to pay the sum borrowed with an interest of 15.189% per annum upon
maturity and to pay a penalty of 5% every month on the outstanding principal
and interest in case of default. In addition, petitioners agreed to pay 10% of the
total amount due by way of attorneys fees if the matter were indorsed to a lawyer
for collection or if a suit were instituted to enforce payment. The obligation
matured on 8 September 1981; the bank, however, granted an extension but only
up until 29 December 1981.
Despite several demands from the bank, petitioners failed to settle the debt
which, as of 20 May 1982, amounted to P114,416.10. On 30 September 1982,
the bank sent a final demand letter to petitioners informing them that they had
five days within which to make full payment. Since petitioners still defaulted on
their obligation, the bank filed on 3 November 1982, with the Regional Trial Court
of Makati, Branch 143, a complaint for recovery of the due amount.
After petitioners had filed a joint answer to the complaint, the bank presented its
evidence and, on 27 March 1985, rested its case. Petitioners, instead of
introducing their own evidence, had the hearing of the case reset on two
consecutive occasions. In view of the absence of petitioners and their counsel on
28 August 1985, the third hearing date, the bank moved, and the trial court
resolved, to consider the case submitted for decision.
Two years later, or on 23 October 1987, petitioners filed a motion for
reconsideration of the order of the trial court declaring them as having waived
their right to present evidence and prayed that they be allowed to prove their
case. The court a quo denied the motion in an order, dated 5 September 1988,
and on 20 October 1989, it rendered its decision,[1] the dispositive portion of
which read:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the defendants, ordering the latter to pay, jointly and severally, to the plaintiff,
as follows:
annum, 2% service charge and 5% per month penalty charge, commencing on
20 May 1982 until fully paid;
"2. To pay the further sum equivalent to 10% of the total amount of indebtedness
for and as attorneys fees; and
"3. To pay the costs of the suit.[2]
Petitioners interposed an appeal with the Court of Appeals, questioning the
rejection by the trial court of their motion to present evidence and assailing the
imposition of the 2% service charge, the 5% per month penalty charge and 10%
attorney's fees. In its decision[3] of 7 March 1996, the appellate court affirmed
the judgment of the trial court except on the matter of the 2% service charge
which was deleted pursuant to Central Bank Circular No. 783. Not fully satisfied
with the decision of the appellate court, both parties filed their respective motions
for reconsideration.[4] Petitioners prayed for the reduction of the 5% stipulated
penalty for being unconscionable. The bank, on the other hand, asked that the
payment of interest and penalty be commenced not from the date of filing of
complaint but from the time of default as so stipulated in the contract of the
parties.
On 28 October 1998, the Court of Appeals resolved the two motions thusly:
We find merit in plaintiff-appellees claim that the principal sum of P114,416.00
with interest thereon must commence not on the date of filing of the complaint
as we have previously held in our decision but on the date when the obligation
became due.
Default generally begins from the moment the creditor demands the performance
of the obligation. However, demand is not necessary to render the obligor in
default when the obligation or the law so provides.
In the case at bar, defendants-appellants executed a promissory note where they
undertook to pay the obligation on its maturity date 'without necessity of
demand.' They also agreed to pay the interest in case of non-payment from the
date of default.
xxxxxxxxx
While we maintain that defendants-appellants must be bound by the contract
which they acknowledged and signed, we take cognizance of their plea for the
application of the provisions of Article 1229 x x x.
Considering that defendants-appellants partially complied with their obligation
under the promissory note by the reduction of the original amount of
P120,000.00 to P114,416.00 and in order that they will finally settle their
obligation, it is our view and we so hold that in the interest of justice and public
policy, a penalty of 3% per month or 36% per annum would suffice.
xxxxxxxxx
WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The
defendants-appellants Tolomeo Ligutan and Leonidas dela Llana are hereby
ordered to pay the plaintiff-appellee Security Bank and Trust Company the
following:
1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per
annum and 3% per month penalty charge commencing May 20, 1982 until fully
paid;
2. The sum equivalent to 10% of the total amount of the indebtedness as and for
attorneys fees.[5]
On 16 November 1998, petitioners filed an omnibus motion for reconsideration
and to admit newly discovered evidence,[6] alleging that while the case was
pending before the trial court, petitioner Tolomeo Ligutan and his wife Bienvenida
Ligutan executed a real estate mortgage on 18 January 1984 to secure the
existing indebtedness of petitioners Ligutan and dela Llana with the bank.
Petitioners contended that the execution of the real estate mortgage had the effect
of novating the contract between them and the bank. Petitioners further averred
that the mortgage was extrajudicially foreclosed on 26 August 1986, that they
were not informed about it, and the bank did not credit them with the proceeds
of the sale. The appellate court denied the omnibus motion for reconsideration
and to admit newly discovered evidence, ratiocinating that such a second motion
for reconsideration cannot be entertained under Section 2, Rule 52, of the 1997
Rules of Civil Procedure. Furthermore, the appellate court said, the newly-
discovered evidence being invoked by petitioners had actually been known to
them when the case was brought on appeal and when the first motion for
reconsideration was filed.[7]
Aggrieved by the decision and resolutions of the Court of Appeals, petitioners
elevated their case to this Court on 9 July 1999 via a petition for review on
certiorari under Rule 45 of the Rules of Court, submitting thusly -
I. The respondent Court of Appeals seriously erred in not holding that the
15.189% interest and the penalty of three (3%) percent per month or thirty-six
(36%) percent per annum imposed by private respondent bank on petitioners
loan obligation are still manifestly exorbitant, iniquitous and unconscionable.
II. The respondent Court of Appeals gravely erred in not reducing to a reasonable
level the ten (10%) percent award of attorneys fees which is highly and grossly
excessive, unreasonable and unconscionable.
III. The respondent Court of Appeals gravely erred in not admitting petitioners
newly discovered evidence which could not have been timely produced during the
trial of this case.
IV. The respondent Court of Appeals seriously erred in not holding that there was
a novation of the cause of action of private respondents complaint in the instant
case due to the subsequent execution of the real estate mortgage during the
pendency of this case and the subsequent foreclosure of the mortgage.[8]
Respondent bank, which did not take an appeal, would, however, have it that the
penalty sought to be deleted by petitioners was even insufficient to fully cover
and compensate for the cost of money brought about by the radical devaluation
and decrease in the purchasing power of the peso, particularly vis-a-vis the U.S.
dollar, taking into account the time frame of its occurrence. The Bank would
stress that only the amount of P5,584.00 had been remitted out of the entire loan
of P120,000.00.[9]
A penalty clause, expressly recognized by law,[10] is an accessory undertaking
to assume greater liability on the part of an obligor in case of breach of an
obligation. It functions to strengthen the coercive force of the obligation[11] and
to provide, in effect, for what could be the liquidated damages resulting from such
a breach. The obligor would then be bound to pay the stipulated indemnity
without the necessity of proof on the existence and on the measure of damages
caused by the breach.[12] Although a court may not at liberty ignore the freedom
of the parties to agree on such terms and conditions as they see fit that
contravene neither law nor morals, good customs, public order or public policy,
a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is
iniquitous or unconscionable or if the principal obligation has been partly or
irregularly complied with.[13]
The question of whether a penalty is reasonable or iniquitous can be partly
subjective and partly objective. Its resolution would depend on such factors as,
but not necessarily confined to, the type, extent and purpose of the penalty, the
nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties, and the like,
the application of which, by and large, is addressed to the sound discretion of
the court. In Rizal Commercial Banking Corp. vs. Court of Appeals,[14] just an
example, the Court has tempered the penalty charges after taking into account
the debtors pitiful situation and its offer to settle the entire obligation with the
creditor bank. The stipulated penalty might likewise be reduced when a partial
or irregular performance is made by the debtor.[15] The stipulated penalty might
even be deleted such as when there has been substantial performance in good
faith by the obligor,[16] when the penalty clause itself suffers from fatal infirmity,
or when exceptional circumstances so exist as to warrant it.[17]
The Court of Appeals, exercising its good judgment in the instant case, has
reduced the penalty interest from 5% a month to 3% a month which petitioner
still disputes. Given the circumstances, not to mention the repeated acts of
breach by petitioners of their contractual obligation, the Court sees no cogent
ground to modify the ruling of the appellate court..
Anent the stipulated interest of 15.189% per annum, petitioners, for the first
time, question its reasonableness and prays that the Court reduce the amount.
This contention is a fresh issue that has not been raised and ventilated before
the courts below. In any event, the interest stipulation, on its face, does not
appear as being that excessive. The essence or rationale for the payment of
interest, quite often referred to as cost of money, is not exactly the same as that
of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of
interest, if there is an agreement to that effect, the two being distinct concepts
which may separately be demanded.[18] What may justify a court in not allowing
the creditor to impose full surcharges and penalties, despite an express
stipulation therefor in a valid agreement, may not equally justify the non-
payment or reduction of interest. Indeed, the interest prescribed in loan financing
arrangements is a fundamental part of the banking business and the core of a
bank's existence.[19]
Petitioners next assail the award of 10% of the total amount of indebtedness by
way of attorney's fees for being grossly excessive, exorbitant and unconscionable
vis-a-vis the time spent and the extent of services rendered by counsel for the
bank and the nature of the case. Bearing in mind that the rate of attorneys fees
has been agreed to by the parties and intended to answer not only for litigation
expenses but also for collection efforts as well, the Court, like the appellate court,
deems the award of 10% attorneys fees to be reasonable.
Neither can the appellate court be held to have erred in rejecting petitioners' call
for a new trial or to admit newly discovered evidence. As the appellate court so
held in its resolution of 14 May 1999 -
Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion
for reconsideration of a judgment or final resolution by the same party shall be
entertained. Considering that the instant motion is already a second motion for
reconsideration, the same must therefore be denied.
Furthermore, it would appear from the records available to this court that the
newly-discovered evidence being invoked by defendants-appellants have actually
been existent when the case was brought on appeal to this court as well as when
the first motion for reconsideration was filed. Hence, it is quite surprising why
defendants-appellants raised the alleged newly-discovered evidence only at this
stage when they could have done so in the earlier pleadings filed before this court.
The propriety or acceptability of such a second motion for reconsideration is not
contingent upon the averment of 'new' grounds to assail the judgment, i.e.,
grounds other than those theretofore presented and rejected. Otherwise,
attainment of finality of a judgment might be stayed off indefinitely, depending
on the partys ingenuousness or cleverness in conceiving and formulating
'additional flaws' or 'newly discovered errors' therein, or thinking up some injury
or prejudice to the rights of the movant for reconsideration.[20]
At any rate, the subsequent execution of the real estate mortgage as security for
the existing loan would not have resulted in the extinguishment of the original
contract of loan because of novation. Petitioners acknowledge that the real estate
mortgage contract does not contain any express stipulation by the parties
intending it to supersede the existing loan agreement between the petitioners and
the bank.[21] Respondent bank has correctly postulated that the mortgage is but
an accessory contract to secure the loan in the promissory note.
Extinctive novation requires, first, a previous valid obligation; second, the
agreement of all the parties to the new contract; third, the extinguishment of the
obligation; and fourth, the validity of the new one.[22] In order that an obligation
may be extinguished by another which substitutes the same, it is imperative that
it be so declared in unequivocal terms, or that the old and the new obligation be
on every point incompatible with each other.[23] An obligation to pay a sum of
money is not extinctively novated by a new instrument which merely changes the
terms of payment or adding compatible covenants or where the old contract is
merely supplemented by the new one.[24] When not expressed, incompatibility
is required so as to ensure that the parties have indeed intended such novation
despite their failure to express it in categorical terms. The incompatibility, to be
sure, should take place in any of the essential elements of the obligation, i.e., (1)
the juridical relation or tie, such as from a mere commodatum to lease of things,
or from negotiorum gestio to agency, or from a mortgage to antichresis,[25] or
from a sale to one of loan;[26] (2) the object or principal conditions, such as a
change of the nature of the prestation; or (3) the subjects, such as the
substitution of a debtor[27] or the subrogation of the creditor. Extinctive novation
does not necessarily imply that the new agreement should be complete by itself;
certain terms and conditions may be carried, expressly or by implication, over to
the new obligation.
WHEREFORE, the petition is DENIED.

Frias vs. San Diego Sison
April 4, 2007
x------------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias
represented by her Attorney-in-fact, Marie Regine F. Fujita (petitioner) seeking to
annul the Decision[1] dated June 18, 2002 and the Resolution[2] dated
September 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.
Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala
Alabang, Muntinlupa, Metro Manila, which she acquired from Island Masters
Realty and Development Corporation (IMRDC) by virtue of a Deed of Sale dated
Nov. 16, 1990.[3] The property is covered by TCT No. 168173 of the Register of
Deeds of Makati in the name of IMRDC.[4]
On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-
Sison (respondent), as the SECOND PARTY, entered into a Memorandum of
Agreement[5] over the property with the following terms:
NOW, THEREFORE, for and in consideration of the sum of THREE MILLION
PESOS (P3,000,000.00) receipt of which is hereby acknowledged by the FIRST
PARTY from the SECOND PARTY, the parties have agreed as follows:
1. That the SECOND PARTY has a period of Six (6) months from the date of
the execution of this contract within which to notify the FIRST PARTY of her
intention to purchase the aforementioned parcel of land together within (sic) the
improvements thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND
PESOS (P6,400,000.00). Upon notice to the FIRST PARTY of the SECOND
PARTYs intention to purchase the same, the latter has a period of another six
months within which to pay the remaining balance of P3.4 million.
2. That prior to the six months period given to the SECOND PARTY within
which to decide whether or not to purchase the above-mentioned property, the
FIRST PARTY may still offer the said property to other persons who may be
interested to buy the same provided that the amount of P3,000,000.00 given to
the FIRST PARTY BY THE SECOND PARTY shall be paid to the latter including
interest based on prevailing compounded bank interest plus the amount of the
sale in excess of P7,000,000.00 should the property be sold at a price more than
P7 million.
3. That in case the FIRST PARTY has no other buyer within the first six months
from the execution of this contract, no interest shall be charged by the SECOND
PARTY on the P3 million however, in the event that on the sixth month the
SECOND PARTY would decide not to purchase the aforementioned property, the
FIRST PARTY has a period of another six months within which to pay the sum of
P3 million pesos provided that the said amount shall earn compounded bank
interest for the last six months only. Under this circumstance, the amount of P3
million given by the SECOND PARTY shall be treated as [a] loan and the property
shall be considered as the security for the mortgage which can be enforced in
accordance with law.
x x x x.[6]
Petitioner received from respondent two million pesos in cash and one million
pesos in a post-dated check dated February 28, 1990, instead of 1991, which
rendered said check stale.[7] Petitioner then gave respondent TCT No. 168173 in
the name of IMRDC and the Deed of Absolute Sale over the property between
petitioner and IMRDC.
Respondent decided not to purchase the property and notified petitioner through
a letter[8] dated March 20, 1991, which petitioner received only on June 11,
1991,[9] reminding petitioner of their agreement that the amount of two million
pesos which petitioner received from respondent should be considered as a loan
payable within six months. Petitioner subsequently failed to pay respondent the
amount of two million pesos.
On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila,
a complaint[10] for sum of money with preliminary attachment against petitioner.
The case was docketed as Civil Case No. 93-65367 and raffled to Branch 30.
Respondent alleged the foregoing facts and in addition thereto averred that
petitioner tried to deprive her of the security for the loan by making a false
report[11] of the loss of her owners copy of TCT No. 168173 to the Tagig Police
Station on June 3, 1991, executing an affidavit of loss and by filing a petition[12]
for the issuance of a new owners duplicate copy of said title with the RTC of
Makati, Branch 142; that the petition was granted in an Order[13] dated August
31, 1991; that said Order was subsequently set aside in an Order dated April 10,
1992[14] where the RTC Makati granted respondents petition for relief from
judgment due to the fact that respondent is in possession of the owners duplicate
copy of TCT No. 168173, and ordered the provincial public prosecutor to conduct
an investigation of petitioner for perjury and false testimony. Respondent prayed
for the ex-parte issuance of a writ of preliminary attachment and payment of two
million pesos with interest at 36% per annum from December 7, 1991,
P100,000.00 moral, corrective and exemplary damages and P200,000.00 for
attorneys fees.
In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued
a writ of preliminary attachment upon the filing of a bond in the amount of two
million pesos.[15]
Petitioner filed an Amended Answer[16] alleging that the Memorandum of
Agreement was conceived and arranged by her lawyer, Atty. Carmelita Lozada,
who is also respondents lawyer; that she was asked to sign the agreement
without being given the chance to read the same; that the title to the property
and the Deed of Sale between her and the IMRDC were entrusted to Atty. Lozada
for safekeeping and were never turned over to respondent as there was no
consummated sale yet; that out of the two million pesos cash paid, Atty. Lozada
took the one million pesos which has not been returned, thus petitioner had filed
a civil case against her; that she was never informed of respondents decision not
to purchase the property within the six month period fixed in the agreement; that
when she demanded the return of TCT No. 168173 and the Deed of Sale between
her and the IMRDC from Atty. Lozada, the latter gave her these documents in a
brown envelope on May 5, 1991 which her secretary placed in her attache case;
that the envelope together with her other personal things were lost when her car
was forcibly opened the following day; that she sought the help of Atty. Lozada
who advised her to secure a police report, to execute an affidavit of loss and to
get the services of another lawyer to file a petition for the issuance of an owners
duplicate copy; that the petition for the issuance of a new owners duplicate copy
was filed on her behalf without her knowledge and neither did she sign the
petition nor testify in court as falsely claimed for she was abroad; that she was a
victim of the manipulations of Atty. Lozada and respondent as shown by the filing
of criminal charges for perjury and false testimony against her; that no interest
could be due as there was no valid mortgage over the property as the principal
obligation is vitiated with fraud and deception. She prayed for the dismissal of
the complaint, counter-claim for damages and attorneys fees.
Trial on the merits ensued. On January 31, 1996, the RTC issued a decision,[17]
the dispositive portion of which reads:
WHEREFORE, judgment is hereby RENDERED:
1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest
thereon at the rate of thirty two (32%) per cent per annum beginning December
7, 1991 until fully paid.
2) Ordering defendant to pay plaintiff the sum of P70,000.00 representing
premiums paid by plaintiff on the attachment bond with legal interest thereon
counted from the date of this decision until fully paid.
3) Ordering defendant to pay plaintiff the sum of P100,000.00 by way of moral,
corrective and exemplary damages.
4) Ordering defendant to pay plaintiff attorneys fees of P100,000.00 plus cost
of litigation.[18]
The RTC found that petitioner was under obligation to pay respondent the
amount of two million pesos with compounded interest pursuant to their
Memorandum of Agreement; that the fraudulent scheme employed by petitioner
to deprive respondent of her only security to her loaned money when petitioner
executed an affidavit of loss and instituted a petition for the issuance of an
owners duplicate title knowing the same was in respondents possession, entitled
respondent to moral damages; and that petitioners bare denial cannot be
accorded credence because her testimony and that of her witness did not appear
to be credible.
The RTC further found that petitioner admitted that she received from
respondent the two million pesos in cash but the fact that petitioner gave the one
million pesos to Atty. Lozada was without respondents knowledge thus it is not
binding on respondent; that respondent had also proven that in 1993, she
initially paid the sum of P30,000.00 as premium for the issuance of the
attachment bond, P20,000.00 for its renewal in 1994, and P20,000.00 for the
renewal in 1995, thus plaintiff should be reimbursed considering that she was
compelled to go to court and ask for a writ of preliminary attachment to protect
her rights under the agreement.
Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the
CA affirmed the RTC decision with modification, the dispositive portion of which
reads:
WHEREFORE, premises considered, the decision appealed from is MODIFIED in
the sense that the rate of interest is reduced from 32% to 25% per annum,
effective June 7, 1991 until fully paid.[19]
The CA found that: petitioner gave the one million pesos to Atty. Lozada partly
as her commission and partly as a loan; respondent did not replace the
mistakenly dated check of one million pesos because she had decided not to buy
the property and petitioner knew of her decision as early as April 1991; the award
of moral damages was warranted since even granting petitioner had no hand in
the filing of the petition for the issuance of an owners copy, she executed an
affidavit of loss of TCT No. 168173 when she knew all along that said title was in
respondents possession; petitioners claim that she thought the title was lost
when the brown envelope given to her by Atty. Lozada was stolen from her car
was hollow; that such deceitful conduct caused respondent serious anxiety and
emotional distress.
The CA concluded that there was no basis for petitioner to say that the interest
should be charged for six months only and no more; that a loan always bears
interest otherwise it is not a loan; that interest should commence on June 7,
1991[20] with compounded bank interest prevailing at the time the two million
was considered as a loan which was in June 1991; that the bank interest rate
for loans secured by a real estate mortgage in 1991 ranged from 25% to 32% per
annum as certified to by Prudential Bank,[21] that in fairness to petitioner, the
rate to be charged should be 25% only.
Petitioners motion for reconsideration was denied by the CA in a Resolution dated
September 11, 2002.
Hence the instant Petition for Review on Certiorari filed by petitioner raising the
following issues:
(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE
LIMITED TO SIX (6) MONTHS AS CONTAINED IN THE MEMORANDUM OF
AGREEMENT.
(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL
DAMAGES.
(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IS PROPER EVEN IF NOT MENTIONED IN
THE TEXT OF THE DECISION.[22]
Petitioner contends that the interest, whether at 32% per annum awarded by the
trial court or at 25% per annum as modified by the CA which should run from
June 7, 1991 until fully paid, is contrary to the parties Memorandum of
Agreement; that the agreement provides that if respondent would decide not to
purchase the property, petitioner has the period of another six months to pay the
loan with compounded bank interest for the last six months only; that the CAs
ruling that a loan always bears interest otherwise it is not a loan is contrary to
Art. 1956 of the New Civil Code which provides that no interest shall be due
unless it has been expressly stipulated in writing.
We are not persuaded.
While the CAs conclusion, that a loan always bears interest otherwise it is not a
loan, is flawed since a simple loan may be gratuitous or with a stipulation to pay
interest,[23] we find no error committed by the CA in awarding a 25% interest
per annum on the two-million peso loan even beyond the second six months
stipulated period.
The Memorandum of Agreement executed between the petitioner and respondent
on December 7, 1990 is the law between the parties. In resolving an issue based
upon a contract, we must first examine the contract itself, especially the
provisions thereof which are relevant to the controversy.[24] The general rule is
that if the terms of an agreement are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning of its stipulations shall prevail.[25]
It is further required that the various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly.[26]
In this case, the phrase for the last six months only should be taken in the
context of the entire agreement. We agree with and adopt the CAs interpretation
of the phrase in this wise:
Their agreement speaks of two (2) periods of six months each. The first six-month
period was given to plaintiff-appellee (respondent) to make up her mind whether
or not to purchase defendant-appellants (petitioner's) property. The second six-
month period was given to defendant-appellant to pay the P2 million loan in the
event that plaintiff-appellee decided not to buy the subject property in which case
interest will be charged for the last six months only, referring to the second six-
month period. This means that no interest will be charged for the first six-month
period while appellee was making up her mind whether to buy the property, but
only for the second period of six months after appellee had decided not to buy
the property. This is the meaning of the phrase for the last six months only.
Certainly, there is nothing in their agreement that suggests that interest will be
charged for six months only even if it takes defendant-appellant an eternity to
pay the loan.[27]
The agreement that the amount given shall bear compounded bank interest for
the last six months only, i.e., referring to the second six-month period, does not
mean that interest will no longer be charged after the second six-month period
since such stipulation was made on the logical and reasonable expectation that
such amount would be paid within the date stipulated. Considering that
petitioner failed to pay the amount given which under the Memorandum of
Agreement shall be considered as a loan, the monetary interest for the last six
months continued to accrue until actual payment of the loaned amount.
The payment of regular interest constitutes the price or cost of the use of money
and thus, until the principal sum due is returned to the creditor, regular interest
continues to accrue since the debtor continues to use such principal amount.[28]
It has been held that for a debtor to continue in possession of the principal of the
loan and to continue to use the same after maturity of the loan without payment
of the monetary interest, would constitute unjust enrichment on the part of the
debtor at the expense of the creditor.[29]
Petitioner and respondent stipulated that the loaned amount shall earn
compounded bank interests, and per the certification issued by Prudential Bank,
the interest rate for loans in 1991 ranged from 25% to 32% per annum. The CA
reduced the interest rate to 25% instead of the 32% awarded by the trial court
which petitioner no longer assailed.
In Bautista v. Pilar Development Corp.,[30] we upheld the validity of a 21% per
annum interest on a P142,326.43 loan. In Garcia v. Court of Appeals,[31] we
sustained the agreement of the parties to a 24% per annum interest on an
P8,649,250.00 loan. Thus, the interest rate of 25% per annum awarded by the
CA to a P2 million loan is fair and reasonable.
Petitioner next claims that moral damages were awarded on the erroneous
finding that she used a fraudulent scheme to deprive respondent of her security
for the loan; that such finding is baseless since petitioner was acquitted in the
case for perjury and false testimony filed by respondent against her.
We are not persuaded.
Article 31 of the Civil Code provides that when the civil action is based on an
obligation not arising from the act or omission complained of as a felony, such
civil action may proceed independently of the criminal proceedings and
regardless of the result of the latter.[32]
While petitioner was acquitted in the false testimony and perjury cases filed by
respondent against her, those actions are entirely distinct from the collection of
sum of money with damages filed by respondent against petitioner.
We agree with the findings of the trial court and the CA that petitioners act of
trying to deprive respondent of the security of her loan by executing an affidavit
of loss of the title and instituting a petition for the issuance of a new owners
duplicate copy of TCT No. 168173 entitles respondent to moral damages. Moral
damages may be awarded in culpa contractual or breach of contract cases when
the defendant acted fraudulently or in bad faith. Bad faith does not simply
connote bad judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong. It partakes of the nature of
fraud.[33]
The Memorandum of Agreement provides that in the event that respondent opts
not to buy the property, the money given by respondent to petitioner shall be
treated as a loan and the property shall be considered as the security for the
mortgage. It was testified to by respondent that after they executed the agreement
on December 7, 1990, petitioner gave her the owners copy of the title to the
property, the Deed of Sale between petitioner and IMRDC, the certificate of
occupancy, and the certificate of the Secretary of the IMRDC who signed the Deed
of Sale.[34] However, notwithstanding that all those documents were in
respondents possession, petitioner executed an affidavit of loss that the owners
copy of the title and the Deed of Sale were lost.
Although petitioner testified that her execution of the affidavit of loss was due to
the fact that she was of the belief that since she had demanded from Atty. Lozada
the return of the title, she thought that the brown envelope with markings which
Atty. Lozada gave her on May 5, 1991 already contained the title and the Deed of
Sale as those documents were in the same brown envelope which she gave to
Atty. Lozada prior to the transaction with respondent.[35] Such statement
remained a bare statement. It was not proven at all since Atty. Lozada had not
taken the stand to corroborate her claim. In fact, even petitioners own witness,
Benilda Ynfante (Ynfante), was not able to establish petitioner's claim that the
title was returned by Atty. Lozada in view of Ynfante's testimony that after the
brown envelope was given to petitioner, the latter passed it on to her and she
placed it in petitioners attach case[36] and did not bother to look at the
envelope.[37]
It is clear therefrom that petitioners execution of the affidavit of loss became the
basis of the filing of the petition with the RTC for the issuance of new owners
duplicate copy of TCT No. 168173. Petitioners actuation would have deprived
respondent of the security for her loan were it not for respondents timely filing of
a petition for relief whereby the RTC set aside its previous order granting the
issuance of new title. Thus, the award of moral damages is in order.
The entitlement to moral damages having been established, the award of
exemplary damages is proper.[38] Exemplary damages may be imposed upon
petitioner by way of example or correction for the public good.[39] The RTC
awarded the amount of P100,000.00 as moral and exemplary damages. While the
award of moral and exemplary damages in an aggregate amount may not be the
usual way of awarding said damages,[40] no error has been committed by CA.
There is no question that respondent is entitled to moral and exemplary damages.
Petitioner argues that the CA erred in awarding attorneys fees because the trial
courts decision did not explain the findings of facts and law to justify the award
of attorneys fees as the same was mentioned only in the dispositive portion of the
RTC decision.
We agree.
Article 2208[41] of the New Civil Code enumerates the instances where such may
be awarded and, in all cases, it must be reasonable, just and equitable if the
same were to be granted.[42] Attorney's fees as part of damages are not meant to
enrich the winning party at the expense of the losing litigant. They are not
awarded every time a party prevails in a suit because of the policy that no
premium should be placed on the right to litigate.[43] The award of attorney's
fees is the exception rather than the general rule. As such, it is necessary for the
trial court to make findings of facts and law that would bring the case within the
exception and justify the grant of such award. The matter of attorney's fees
cannot be mentioned only in the dispositive portion of the decision.[44] They
must be clearly explained and justified by the trial court in the 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
reasons for awarding the same. Consequently, the award of attorney's fees should
be deleted.

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. CV
No. 52839 are AFFIRMED with MODIFICATION that the award of attorneys fees
is DELETED.

No pronouncement as to costs.

Estores vs. Supagan
x------------------------------------------------------
-------------x
DECISION
DEL CASTILLO, J.:
The only issue posed before us is the propriety of the imposition of interest and
attorneys fees.
Assailed in this Petition for Review[1] filed under Rule 45 of the Rules of Court is
the May 12, 2006 Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No.
83123, the dispositive portion of which reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be
six percent (6%) per annum, computed from September 27, 2000 until its full
payment before finality of the judgment. If the adjudged principal and the interest
(or any part thereof) remain unpaid thereafter, the interest rate shall be adjusted
to twelve percent (12%) per annum, computed from the time the judgment
becomes final and executory until it is fully satisfied. The award of attorneys fees
is hereby reduced to P100,000.00. Costs against the defendants-appellants.
SO ORDERED.[3]
Also assailed is the August 31, 2006 Resolution[4] denying the motion for
reconsideration.
Factual Antecedents
On October 3, 1993, petitioner Hermojina Estores and respondent-spouses
Arturo and Laura Supangan entered into a Conditional Deed of Sale[5] whereby
petitioner offered to sell, and respondent-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:
xxxx
1. Vendor will secure approved clearance from DAR requirements of which are
(sic):
a) Letter request
b) Title
c) Tax Declaration
d) Affidavit of Aggregate Landholding Vendor/Vendee
e) Certification from the Provl. Assessors as to Landholdings of Vendor/Vendee
f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale
xxxx
4. Vendee shall be informed as to the status of DAR clearance within 10 days
upon signing of the documents.
xxxx
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 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.
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 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
demand return of full amount of down payment.
xxxx
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.)
Vendee shall be informed immediately of its approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of ownership.
x x x x [6]
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 still failed to comply with her obligation as expressly provided in
paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter[7] dated September
27, 2000, respondent-spouses demanded the return of the amount of P3.5
million within 15 days from receipt of the letter. In reply,[8] petitioner
acknowledged receipt of the P3.5 million and promised to return the same within
120 days. Respondent-spouses were amenable to the proposal provided an
interest of 12% compounded annually shall be imposed on the P3.5 million.[9]
When petitioner still failed to return the amount despite demand, respondent-
spouses were constrained to file a Complaint[10] for sum of money before the
Regional Trial Court (RTC) of Malabon against herein petitioner as well as Roberto
U. Arias (Arias) who allegedly acted as petitioners agent. The case was docketed
as Civil Case No. 3201-MN and raffled off to Branch 170. In their complaint,
respondent-spouses prayed that petitioner and Arias be ordered to:
1. Pay the principal amount of P3,500,000.00 plus interest of 12%
compounded annually starting October 1, 1993 or an estimated amount of
P8,558,591.65;
2. Pay the following items of damages:
a) Moral damages in the amount of P100,000.00;
b) Actual damages in the amount of P100,000.00;
c) Exemplary damages in the amount of P100,000.00;
d) [Attorneys] fee in the amount of P50,000.00 plus 20% of recoverable
amount from the [petitioner].
e) [C]ost of suit.[11]
In their Answer with Counterclaim,[12] petitioner and Arias averred that they are
willing to return the principal amount of P3.5 million but without any interest as
the same was not agreed upon. In their Pre-Trial Brief,[13] they reiterated that
the only remaining issue between the parties is the imposition of interest. They
argued that since the Conditional Deed of Sale provided only for the return of the
downpayment in case of breach, they cannot be held liable to pay legal interest
as well.[14]
In its Pre-Trial Order[15] dated June 29, 2001, the RTC noted that the parties
agreed that the principal amount of 3.5 million pesos should be returned to the
[respondent-spouses] by the [petitioner] and the issue remaining [is] whether x x
x [respondent-spouses] are entitled to legal interest thereon, damages and
attorneys fees.[16]
Trial ensued thereafter. After the presentation of the respondent-spouses
evidence, the trial court set the presentation of Arias and petitioners evidence on
September 3, 2003.[17] However, despite several postponements, petitioner and
Arias failed to appear hence they were deemed to have waived the presentation
of their evidence. Consequently, the case was deemed submitted for decision.[18]
Ruling of the Regional Trial Court
On May 7, 2004, the RTC rendered its Decision[19] finding respondent-spouses
entitled to interest but only at the rate of 6% per annum and not 12% as prayed
by them.[20] It also found respondent-spouses entitled to attorneys fees as they
were compelled to litigate to protect their interest.[21]
The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
[respondent-spouses] and ordering the [petitioner and Roberto Arias] to jointly
and severally:
1. Pay [respondent-spouses] the principal amount of Three Million Five
Hundred Thousand pesos (P3,500,000.00) with an interest of 6% compounded
annually starting October 1, 1993 and attorneys fee in the amount of Fifty
Thousand pesos (P50,000.00) plus 20% of the recoverable amount from the
defendants and cost of the suit.
The Compulsory Counter Claim is hereby dismissed for lack of factual evidence.
SO ORDERED.[22]
Ruling of the Court of Appeals
Aggrieved, petitioner and Arias filed their notice of appeal.[23] 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.[24]
On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of
the RTC finding the imposition of 6% interest proper.[25] However, the same shall
start to run only from September 27, 2000 when respondent-spouses formally
demanded the return of their money and not from October 1993 when the
contract was executed as held by 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.[26] Anent the
award of attorneys fees, the CA found the award by the trial court (P50,000.00
plus 20% of the recoverable amount) excessive[27] and thus reduced the same to
P100,000.00.[28]
The dispositive portion of the CA Decision reads:
WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be
six percent (6%) per annum, computed from September 27, 2000 until its full
payment before finality of the judgment. If the adjudged principal and the interest
(or any part thereof) remain[s] unpaid thereafter, the interest rate shall be
adjusted to twelve percent (12%) per annum, computed from the time the
judgment becomes final and executory until it is fully satisfied. The award of
attorneys fees is hereby reduced to P100,000.00. Costs against the [petitioner].
SO ORDERED.[29]
Petitioner moved for reconsideration which was denied in the August 31, 2006
Resolution of the CA.
Hence, this petition raising the sole issue of whether the imposition of interest
and attorneys fees is proper.
Petitioners Arguments
Petitioner insists that she is not bound to pay interest on the P3.5 million
because the Conditional Deed of Sale only provided for the return of the
downpayment in case of failure to comply with her obligations. Petitioner also
argues that the award of attorneys fees in favor of the respondent-spouses is
unwarranted because it cannot be said that the latter won over the former since
the CA even sustained her contention that the imposition of 12% interest
compounded annually is totally uncalled for.
Respondent-spouses Arguments
Respondent-spouses aver that it is only fair that interest be imposed on the
amount they paid considering that petitioner failed to return the amount upon
demand and had been using the P3.5 million for her benefit. Moreover, it is
undisputed that petitioner failed to perform her obligations to relocate the house
outside the perimeter of the subject property and to complete the necessary
documents. As regards the attorneys fees, they claim that they are entitled to the
same because they were forced to litigate when petitioner unjustly withheld the
amount. Besides, the amount awarded by the CA is even smaller compared to
the filing fees they paid.
Our Ruling
The petition lacks merit.
Interest may be imposed even in the absence of stipulation in the contract.
We sustain the ruling of both the RTC and the CA that it is proper to impose
interest notwithstanding the absence of stipulation in the contract. Article 2210
of the Civil Code expressly provides that [i]nterest may, in the discretion of the
court, be allowed upon damages awarded for breach of contract. In this case,
there is no question that petitioner is legally obligated to return the P3.5 million
because of her failure to fulfill the obligation under the Conditional Deed of Sale,
despite demand. She has in fact admitted that the conditions were not fulfilled
and that she was willing to return the full amount of P3.5 million but has not
actually done so. Petitioner enjoyed the use of the money from the time it was
given to her[30] until now. Thus, she is already in default of her obligation from
the date of demand, i.e., on September 27, 2000.
The interest at the rate of 12% is applicable in the instant case.
Anent the interest rate, the general rule is that the applicable rate of interest
shall be computed in accordance with the stipulation of the parties.[31] Absent
any stipulation, the applicable rate of interest shall be 12% per annum when the
obligation arises out of a loan or a forbearance of money, goods or credits. In
other cases, it shall be six percent (6%).[32] In this case, the parties did not
stipulate as to the applicable rate of interest. The only question remaining
therefore is whether the 6% as provided under Article 2209 of the Civil Code, or
12% under Central Bank Circular No. 416, is due.
The contract involved in this case is admittedly not a loan but a Conditional Deed
of Sale. However, the contract provides that the seller (petitioner) must return
the payment made by the buyer (respondent-spouses) if the conditions are not
fulfilled. There is no question that they have in fact, not been fulfilled as the seller
(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%? We believe so.
In Crismina Garments, Inc. v. Court of Appeals,[33] forbearance was defined as
a contractual obligation of lender or creditor to refrain during a given period of
time, from requiring the borrower or debtor to repay a loan or debt then due and
payable. This definition describes a loan where a debtor is given a period within
which to pay a loan or debt. In such case, forbearance of money, goods or credits
will have no distinct definition from a loan. We believe however, that the phrase
forbearance of money, goods or credits is meant to have a separate meaning from
a loan, otherwise there would have been no need to add that phrase as a loan is
already sufficiently defined in the Civil Code.[34] Forbearance of money, goods or
credits should therefore refer to arrangements other than loan agreements, where
a person acquiesces to the temporary use of his money, goods or credits pending
happening of certain events or fulfillment of certain conditions. In this case, the
respondent-spouses parted with their money even before the conditions were
fulfilled. They have therefore allowed or granted forbearance to the seller
(petitioner) to use their money pending fulfillment of the conditions. They were
deprived of the use of their money for the period pending fulfillment of the
conditions and when those conditions were breached, they are entitled not only
to the return of the principal amount paid, but also to compensation for the use
of their money. And the compensation for the use of their money, absent any
stipulation, should be the same rate of legal interest applicable to a loan since
the use or deprivation of funds is similar to a loan.
Petitioners unwarranted withholding of the money which rightfully pertains to
respondent-spouses amounts to forbearance of money which can be considered
as an involuntary loan. Thus, the applicable rate of interest is 12% per annum.
In Eastern Shipping Lines, Inc. v. Court of Appeals,[35]cited in Crismina
Garments, Inc. v. Court of Appeals,[36] the Court suggested the following
guidelines:
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on Damages of the Civil Code
govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual thereof,
is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment
of the court is made (at which time the quantification of damages may be deemed
to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an equivalent
to a forbearance of credit.[37]
Eastern Shipping Lines, Inc. v. Court of Appeals[38]and its predecessor case,
Reformina v. Tongol[39] both involved torts cases and hence, there was no
forbearance of money, goods, or credits. Further, the amount claimed (i.e.,
damages) could not be established with reasonable certainty at the time the claim
was made. Hence, we arrived at a different ruling in those cases.
Since the date of demand which is September 27, 2000 was satisfactorily
established during trial, then the interest rate of 12% should be reckoned from
said date of demand until the principal amount and the interest thereon is fully
satisfied.
The award of attorneys fees is warranted.
Under Article 2208 of the Civil Code, attorneys fees may be recovered:
xxxx
(2) When the defendants act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest;
xxxx
(11) In any other case where the court deems it just and equitable that
attorneys fees and expenses of litigation should be recovered.
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.

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
annum, computed from September 27, 2000 until fully satisfied. The award of
attorneys fees is further reduced to P50,000.00.

SO ORDERED.
[G.R. No. 116710. June 25, 2001]
DANILO D. MENDOZA, also doing business under the name and style of
ATLANTIC EXCHANGE PHILIPPINES, petitioner, vs. COURT OF APPEALS,
PHILIPPINE NATIONAL BANK, FERNANDO MARAMAG, JR., RICARDO G.
DECEPIDA and BAYANI A. BAUTISTA, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1] dated August 8,
1994 of the respondent Court of Appeals (Tenth Division) in CA-G.R. CV No.
38036 reversing the judgment[2] of the Regional Trial Court (RTC) and dismissing
the complaint therein.
Petitioner Danilo D. Mendoza is engaged in the domestic and international
trading of raw materials and chemicals. He operates under the business name
Atlantic Exchange Philippines (Atlantic), a single proprietorship registered with
the Department of Trade and Industry (DTI). Sometime in 1978 he was granted
by respondent Philippine National Bank (PNB) a Five Hundred Thousand Pesos
(P500,000.00) credit line and a One Million Pesos (P1,000,000.00) Letter of
Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for those which may thereinafter
be granted, petitioner mortgaged to respondent PNB the following: 1) three (3)
parcels of land[3] with improvements in F. Pasco Avenue, Santolan, Pasig; 2) his
house and lot in Quezon City; and 3) several pieces of machinery and equipment
in his Pasig coco-chemical plant.
The real estate mortgage[4] provided the following escalation clause:
(f) The rate of interest charged on the obligation secured by this mortgage as well
as the interest on the amount which may have been advanced by the Mortgagee
in accordance with paragraph (d) of the conditions herein stipulated shall be
subject during the life of this contract to such increase within the rates allowed
by law, as the Board of Directors of the Mortgagee may prescribe for its debtors.
Petitioner executed in favor of respondent PNB three (3) promissory notes
covering the Five Hundred Thousand Pesos (P500,000.00) credit line, one dated
March 8, 1979 for Three Hundred Ten Thousand Pesos (P310,000.00); another
dated March 30, 1979 for Forty Thousand Pesos (P40,000.00); and the last dated
September 27, 1979 for One Hundred Fifty Thousand Pesos (P150,000.00). The
said 1979 promissory notes uniformly stipulated: "with interest thereon at the
rate of 12% per annum, until paid, which interest rate the Bank may, at any
time, without notice, raise within the limits allowed by law xxx."[5]
Petitioner made use of his LC/TR line to purchase raw materials from foreign
importers. He signed a total of eleven (11) documents denominated as
"Application and Agreement for Commercial Letter of Credit,"[6] on various dates
from February 8 to September 11, 1979, which uniformly contained the following
clause: "Interest shall be at the rate of 9% per annum from the date(s) of the
draft(s) to the date(s) of arrival of payment therefor in New York. The Bank,
however, reserves the right to raise the interest charges at any time depending
on whatever policy it may follow in the future."[7]
In a letter dated January 3, 1980 and signed by Branch Manager Fil S. Carreon
Jr., respondent PNB advised petitioner Mendoza that effective December 1, 1979,
the bank raised its interest rates to 14% per annum, in line with Central Bank's
Monetary Board Resolution No. 2126 dated November 29, 1979.
On March 9, 1981, he wrote a letter to respondent PNB requesting for the
restructuring of his past due accounts into a five-year term loan and for an
additional LC/TR line of Two Million Pesos (P2,000,000.00).[8] According to the
letter, because of the shut-down of his end-user companies and the huge amount
spent for the expansion of his business, petitioner failed to pay to respondent
bank his LC/TR accounts as they became due and demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of the
respondent bank and required petitioner to submit the following documents
before the bank would act on his request: 1) Audited Financial Statements for
1979 and 1980; 2) Projected cash flow (cash in - cash out) for five (5) years
detailed yearly; and 3) List of additional machinery and equipment and proof of
ownership thereof. Cura also suggested that petitioner reduce his total loan
obligations to Three Million Pesos (P3,000,000.00) "to give us more justification
in recommending a plan of payment or restructuring of your accounts to higher
authorities of the Bank."[9]
On September 25, 1981, petitioner sent another letter addressed to PNB Vice-
President Jose Salvador, regarding his request for restructuring of his loans. He
offered respondent PNB the following proposals: 1) the disposal of some of the
mortgaged properties, more particularly, his house and lot and a vacant lot in
order to pay the overdue trust receipts; 2) capitalization and conversion of the
balance into a 5-year term loan payable semi-annually or on annual
installments; 3) a new Two Million Pesos (P2,000,000.00) LC/TR line in order to
enable Atlantic Exchange Philippines to operate at full capacity; 4) assignment
of all his receivables to PNB from all domestic and export sales generated by the
LC/TR line; and 5) maintenance of the existing Five Hundred Thousand Pesos
(P500,000.00) credit line.
The petitioner testified that respondent PNB Mandaluyong Branch found his
proposal favorable and recommended the implementation of the agreement.
However, Fernando Maramag, PNB Executive Vice-President, disapproved the
proposed release of the mortgaged properties and reduced the proposed new
LC/TR line to One Million Pesos (P1,000,000.00).[10] Petitioner claimed he was
forced to agree to these changes and that he was required to submit a new formal
proposal and to sign two (2) blank promissory notes.
In a letter dated July 2, 1982, petitioner offered the following revised proposals
to respondent bank: 1) the restructuring of past due accounts including interests
and penalties into a 5-year term loan, payable semi-annually with one year grace
period on the principal; 2) payment of Four Hundred Thousand Pesos
(P400,000.00) upon the approval of the proposal; 3) reduction of penalty from 3%
to 1%; 4) capitalization of the interest component with interest rate at 16% per
annum; 5) establishment of a One Million Pesos (P1,000,000.00) LC/TR line
against the mortgaged properties; 6) assignment of all his export proceeds to
respondent bank to guarantee payment of his loans.
According to petitioner, respondent PNB approved his proposal. He further
claimed that he and his wife were asked to sign two (2) blank promissory note
forms. According to petitioner, they were made to believe that the blank
promissory notes were to be filled out by respondent PNB to conform with the 5-
year restructuring plan allegedly agreed upon. The first Promissory Note,[11] No.
127/82, covered the principal while the second Promissory Note,[12] No. 128/82,
represented the accrued interest.
Petitioner testified that respondent PNB allegedly contravened their verbal
agreement by 1) affixing dates on the two (2) subject promissory notes to make
them mature in two (2) years instead of five (5) years as supposedly agreed upon;
2) inserting in the first Promissory Note No. 127/82 an interest rate of 21%
instead of 18%; 3) inserting in the second Promissory Note No. 128/82, the
amount stated therein representing the accrued interest as One Million Five
Hundred Thirty Six Thousand Four Hundred Ninety Eight Pesos and Seventy
Three Centavos (P1,536,498.73) when it should only be Seven Hundred Sixty
Thousand Three Hundred Ninety Eight Pesos and Twenty Three Centavos
(P760,398.23) and pegging the interest rate thereon at 18% instead of 12%.
The subject Promissory Notes Nos. 127/82 and 128/82 both dated December 29,
1982 in the principal amounts of Two Million Six Hundred Fifty One Thousand
One Hundred Eighteen Pesos and Eighty Six Centavos (P2,651,118.86) and One
Million Five Hundred Thirty Six Thousand Seven Hundred Ninety Eight and
Seventy Three Centavos (P1,536,798.73) respectively and marked Exhibits BB
and CC respectively, were payable on equal semi-annual amortization and
contained the following escalation clause:
x x x which interest rate the BANK may increase within the limits allowed by law
at any time depending on whatever policy it may adopt in the future; Provided,
that, the interest rate on this note shall be correspondingly decreased in the event
that the applicable maximum interest rate is reduced by law or by the Monetary
Board. In either case, the adjustment in the interest rate agreed upon shall take
effect on the effectivity date of the increase or decrease in the maximum interest
rate. x x x
It appears from the record that the subject Promissory Notes Nos. 127/82 and
128/82 superseded and novated the three (3) 1979 promissory notes and the
eleven (11) 1979 Application and Agreement for Commercial Letter of Credit
which the petitioner executed in favor of respondent PNB.
According to the petitioner, sometime in June 1983 the new PNB Mandaluyong
Branch Manager Bayani A. Bautista suggested that he sell the coco-chemical
plant so that he could keep up with the semi-annual amortizations. On three (3)
occasions, Bautista even showed up at the plant with some unidentified persons
who claimed that they were interested in buying the plant.
Petitioner testified that when he confronted the PNB management about the two
(2) Promissory Notes Nos. 127/82 and 128/82 (marked Exhibits BB and CC
respectively) which he claimed were improperly filled out, Bautista and Maramag
assured him that the five-year restructuring agreement would be implemented
on the condition that he assigns 10% of his export earnings to the Bank.[13] In
a letter dated August 22, 1983, petitioner Mendoza consented to assign 10% of
the net export proceeds of a Letter of Credit covering goods amounting to One
Hundred Fourteen Thousand Dollars ($114,000.00).[14] However, petitioner
claimed that respondent PNB subsequently debited 14% instead of 10% from his
export proceeds.[15]
Pursuant to the escalation clauses of the subject two (2) promissory notes, the
interest rate on the principal amount in Promissory Note No. 127/82 was
increased from 21% to 29% on May 28, 1984, and to 32% on July 3, 1984 while
the interest rate on the accrued interest per Promissory Note No. 128/82 was
increased from 18% to 29% on May 28, 1984, and to 32% on July 3, 1984.
Petitioner failed to pay the subject two (2) Promissory Notes Nos. 127/82 and
128/82 (Exhibits BB and CC) as they fell due. Respondent PNB extra-judicially
foreclosed the real and chattel mortgages, and the mortgaged properties were
sold at public auction to respondent PNB, as highest bidder, for a total of Three
Million Seven Hundred Ninety Eight Thousand Seven Hundred Nineteen Pesos
and Fifty Centavos (P3,798,719.50).
The petitioner filed in the RTC in Pasig, Rizal a complaint for specific
performance, nullification of the extra-judicial foreclosure and damages against
respondents PNB, Fernando Maramag Jr., Ricardo C. Decepida, Vice-President
for Metropolitan Branches, and Bayani A. Bautista. He alleged that the
Extrajudicial Foreclosure Sale of the mortgaged properties was null and void
since his loans were restructured to a five-year term loan; hence, it was not yet
due and demandable; that the escalation clauses in the subject two (2)
Promissory Notes Nos. 127/82 and 128/82 were null and void, that the total
amount presented by PNB as basis of the foreclosure sale did not reflect the
actual loan obligations of the plaintiff to PNB; that Bautista purposely delayed
payments on his exports and caused delays in the shipment of materials; that
PNB withheld certain personal properties not covered by the chattel mortgage;
and that the foreclosure of his mortgages was premature so that he was unable
to service his foreign clients, resulting in actual damages amounting to Two
Million Four Thousand Four Hundred Sixty One Pesos (P2,004,461.00).
On March 16, 1992, the trial court rendered judgment in favor of the petitioner
and ordered the nullification of the extrajudicial foreclosure of the real estate
mortgage, the Sheriffs sale of the mortgaged real properties by virtue of
consolidation thereof and the cancellation of the new titles issued to PNB; that
PNB vacate the subject premises in Pasig and turn the same over to the
petitioner; and also the nullification of the extrajudicial foreclosure and sheriff's
sale of the mortgaged chattels, and that the chattels be returned to petitioner
Mendoza if they were removed from his Pasig premises or be paid for if they were
lost or rendered unserviceable.
The trial court also ordered respondent PNB to restructure to five-years
petitioner's principal loan of Two Million Six Hundred Fifty One Thousand One
Hundred Eighteen Pesos and Eighty Six Centavos (P2,651,118.86) and the
accumulated capitalized interest on the same in the amount of Seven Hundred
Sixty Thousand Three Hundred Eighty Nine Pesos and Twenty Three Centavos
(P760,389.23) as of December 1982, and that respondent PNB should compute
the additional interest from January 1983 up to October 15, 1984 only when
respondent PNB took possession of the said properties, at the rate of 12% and
9% respectively.
The trial court also ordered respondent PNB to grant petitioner Mendoza an
additional Two Million Pesos (P2,000,000.00) loan in order for him to have the
necessary capital to resume operation. It also ordered respondents PNB, Bayani
A. Bautista and Ricardo C. Decepida to pay to petitioner actual damages in the
amount of Two Million One Hundred Thirteen Thousand Nine Hundred Sixty One
Pesos (P2,113,961.00) and the peso equivalent of Six Thousand Two Hundred
Fifteen Dollars ($6,215.00) at the prevailing foreign exchange rate on October 11,
1983; and exemplary damages in the amount of Two Hundred Thousand Pesos
(P200,000.00).
Respondent PNB appealed this decision of the trial court to the Court of Appeals.
And the Court of Appeals reversed the decision of the trial court and dismissed
the complaint. Hence, this petition.
It is the petitioners contention that the PNB management restructured his
existing loan obligations to a five-year term loan and granted him another Two
Million Pesos (P2,000,000.00) LC/TR line; that the Promissory Notes Nos.
127/82 and 128/82 evidencing a 2-year restructuring period or with the due
maturity date December 29, 1984 were filled out fraudulently by respondent
PNB, and contrary to his verbal agreement with respondent PNB; hence, his
indebtedness to respondent PNB was not yet due and the extrajudicial
foreclosure of his real estate and chattel mortgages was premature. On the other
hand, respondent PNB denies that petitioner's loan obligations were restructured
to five (5) years and maintains that the subject two (2) Promissory Notes Nos.
127/82 and 128/82 were filled out regularly and became due as of December 29,
1984 as shown on the face thereof.
Respondent Court of Appeals held that there is no evidence of a promise from
respondent PNB, admittedly a banking corporation, that it had accepted the
proposals of the petitioner to have a five-year restructuring of his overdue loan
obligations. It found and held, on the basis of the evidence adduced, that
"appellee's (Mendoza) communications were mere proposals while the bank's
responses were not categorical that the appellee's request had been favorably
accepted by the bank."
Contending that respondent PNB had allegedly approved his proposed five-year
restructuring plan, petitioner presented three (3) documents executed by
respondent PNB officials. The first document is a letter dated March 16, 1981
addressed to the petitioner and signed by Ceferino D. Cura, Branch Manager of
PNB Mandaluyong, which states:
x x x In order to study intelligently the feasibility of your above request, please
submit the following documents/papers within thirty (30) days from the date
thereof, viz:
1. Audited Financial Statements for 1979 and 1980;
2. Projected cash flow (cash in - cash out) for five years detailed yearly; and
3. List of additional machinery and equipment and proof of ownership thereof.
We would strongly suggest, however, that you reduce your total obligations to at
least P3 million (principal and interest and other charges) to give us more
justification in recommending a plan of payment or restructuring of your
accounts to higher authorities of this bank.
The second document is a letter dated May 11, 1981 addressed to Mr. S. Pe
Benito, Jr., Managing Director of the Technological Resources Center and signed
by said PNB Branch Manager, Ceferino D. Cura. According to petitioner, this
letter showed that respondent PNB seriously considered the restructuring of his
loan obligations to a five-year term loan, to wit:
xxx
At the request of our client, we would like to furnish you with the following
information pertinent to his accounts with us:
xxx
We are currently evaluating the proposal of the client to re-structure his accounts
with us into a five-year plan.
We hope that the above information will guide you in evaluating the proposals of
Mr. Danilo Mendoza.
xxx
The third document is a letter dated July 8, 1981 addressed to petitioner and
signed by PNB Assistant Vice-President Apolonio B. Francisco.
xxx
Considering that your accounts/accommodations were granted and carried in
the books of our Mandaluyong Branch, we would suggest that your requests and
proposals be directed to Ceferino Cura, Manager of our said Branch.
We feel certain that Mr. Cura will be pleased to discuss matters of mutual interest
with you.
xxx
Petitioner also presented a letter which he addressed to Mr. Jose Salvador, Vice-
President of the Metropolitan Branches of PNB, dated September 24, 1981, which
reads:
Re: Restructuring of our Account into a 5-year Term Loan and Request for the
Establishment of a P2.0 Million LC/TR Line
Dear Sir:
In compliance with our discussion last September 17, we would like to formalize
our proposal to support our above requested assistance from the Philippine
National Bank.
xxx
Again we wish to express our sincere appreciation for your open-minded
approach towards the solution of this problem which we know and will be
beneficial and to the best interest of the bank and mutually advantageous to your
client.
xxx
Petitioner argues that he submitted the requirements according to the
instructions given to him and that upon submission thereof, his proposed five-
year restructuring plan was deemed automatically approved by respondent PNB.
We disagree.
Nowhere in those letters is there a categorical statement that respondent PNB
had approved the petitioners proposed five-year restructuring plan. It is
stretching the imagination to construe them as evidence that his proposed five-
year restructuring plan has been approved by the respondent PNB which is
admittedly a banking corporation. Only an absolute and unqualified acceptance
of a definite offer manifests the consent necessary to perfect a contract.[16] If
anything, those correspondences only prove that the parties had not gone beyond
the preparation stage, which is the period from the start of the negotiations until
the moment just before the agreement of the parties.[17]
There is nothing in the record that even suggests that respondent PNB assented
to the alleged five-year restructure of petitioners overdue loan obligations to PNB.
However, the trial court ruled in favor of petitioner Mendoza, holding that since
petitioner has complied with the conditions of the alleged oral contract, the latter
may not renege on its obligation to honor the five-year restructuring period,
under the rule of promissory estoppel. Citing Ramos v. Central Bank,[18] the trial
court said:
The broad general rule to the effect that a promise to do or not to do something
in the future does not work an estoppel must be qualified, since there are
numerous cases in which an estoppel has been predicated on promises or
assurances as to future conduct. The doctrine of promissory estoppel is by no
means new, although the name has been adopted only in comparatively recent
years. According to that doctrine, an estoppel may arise from the making of a
promise, even though without consideration, if it was intended that the promise
should be relied upon and in fact it was relied upon, and if a refusal to enforce it
would be virtually to sanction the perpetration of fraud or would result in other
injustice. In this respect, the reliance by the promisee is generally evidenced by
action or forbearance on his part, and the idea has been expressed that such
action or forbearance would reasonably have been expected by the promissor.
xxx
The doctrine of promissory estoppel is an exception to the general rule that a
promise of future conduct does not constitute an estoppel. In some jurisdictions,
in order to make out a claim of promissory estoppel, a party bears the burden of
establishing the following elements: (1) a promise reasonably expected to induce
action or forebearance; (2) such promise did in fact induce such action or
forebearance, and (3) the party suffered detriment as a result.[19]
It is clear from the forgoing that the doctrine of promissory estoppel presupposes
the existence of a promise on the part of one against whom estoppel is claimed.
The promise must be plain and unambiguous and sufficiently specific so that the
Judiciary can understand the obligation assumed and enforce the promise
according to its terms.[20] For petitioner to claim that respondent PNB is
estopped to deny the five-year restructuring plan, he must first prove that
respondent PNB had promised to approve the plan in exchange for the
submission of the proposal. As discussed earlier, no such promise was proven,
therefore, the doctrine does not apply to the case at bar. A cause of action for
promissory estoppel does not lie where an alleged oral promise was conditional,
so that reliance upon it was not reasonable.[21] It does not operate to create
liability where it does not otherwise exist.[22]
Since there is no basis to rule that petitioner's overdue loan obligations were
restructured to mature in a period of five (5) years, we see no other option but to
respect the two-year period as contained in the two (2) subject Promissory Notes
Nos. 127/82 and 128/82, marked as Exhibits BB and CC respectively which
superseded and novated all prior loan documents signed by petitioner in favor of
respondent PNB. Petitioner argues, in his memorandum, that "respondent Court
of Appeals had no basis in saying that the acceptance of the five-year
restructuring is totally absent from the record."[23] On the contrary, the subject
Promissory Notes Nos. 127/82 and 128/82 are clear on their face that they were
due on December 29, 1984 or two (2) years from the date of the signing of the
said notes on December 29, 1982.
Petitioner claims that the two (2) subject Promissory Notes Nos. 127/82 and
128/82 were signed by him in blank with the understanding that they were to
be subsequently filled out to conform with his alleged oral agreements with PNB
officials, among which is that they were to become due only after five (5) years. If
petitioner were to be believed, the PNB officials concerned committed a
fraudulent act in filling out the subject two (2) promissory notes in question.
Private transactions are presumed to be fair and regular.[24] The burden of
presenting evidence to overcome this presumption falls upon petitioner.
Considering that petitioner imputes a serious act of fraud on respondent PNB,
which is a banking corporation, this court will not be satisfied with anything but
the most convincing evidence. However, apart from petitioner's self-serving verbal
declarations, we find no sufficient proof that the subject two (2) Promissory Notes
Nos. 127/82 and 128/82 were completed irregularly. Therefore, we rule that the
presumption has not been rebutted.
Besides, it could be gleaned from the record that the petitioner is an astute
businessman who took care to reduce in writing his business proposals to the
respondent bank. It is unthinkable that the same person would commit the
careless mistake of leaving his subject two (2) promissory notes in blank in the
hands of other persons. As the respondent Court of Appeals correctly pointed
out:
Surely, plaintiff-appellee who is a C.P.A and a Tax Consultant (p. 3 TSN, January
9, 1990) will insist that the details of the two promissory notes he and his wife
executed in 1982 should be specific to enable them to make the precise
computation in the event of default as in the case at bench. In fact, his alleged
omission as a C.P.A. and a Tax Consultant to insist that the two promissory notes
be filled up on important details like the rates of interest is inconsistent with the
legal presumption of a person who takes ordinary care of his concerns (Section
3 (c), Rule 131, Revised Rules on Evidence).
As pointed out by the Court of Appeals, Orlando Montecillo, Chief, Loans and
Discounts, PNB Mandaluyong Branch, testified that the said Promissory Notes
Nos. 127/82 and 128/82 were completely filled out when Danilo Mendoza signed
them (Rollo, p. 14).
In a last-ditch effort to save his five-year loan restructuring theory, petitioner
contends that respondent PNB's action of withholding 10% from his export
proceeds is proof that his proposal had been accepted and the contract had been
partially executed. He claims that he would not have consented to the additional
burden if there were no corresponding benefit. This contention is not well taken.
There is no credible proof that the 10% assignment of his export proceeds was
not part of the conditions of the two-year restructuring deal. Considering that
the resulting amount obtained from this assignment of export proceeds was not
even enough to cover the interest for the corresponding month,[25] we are hard-
pressed to construe it as the required proof that respondent PNB allegedly
approved the proposed five-year restructuring of petitioners overdue loan
obligations.
It is interesting to note that in his Complaint, petitioner made no mention that
the assignment of his export proceeds was a condition for the alleged approval of
his proposed five-year loan restructuring plan. The Complaint merely alleged that
"plaintiff in a sincere effort to make payments on his obligations agreed to assign
10% of his export proceeds to defendant PNB." This curious omission leads the
court to believe that the alleged link between the petitioners assignment of export
proceeds and the alleged five-year restructuring of his overdue loans was more
contrived than real.
It appears that respondent bank increased the interest rates on the two (2)
subject Promissory Notes Nos. 127/82 and 128/82 without the prior consent of
the petitioner. The petitioner did not agree to the increase in the stipulated
interest rate of 21% per annum on Promissory Note No. 127/82 and 18% per
annum on Promissory Note No. 128/82. As held in several cases, the unilateral
determination and imposition of increased interest rates by respondent bank is
violative of the principle of mutuality of contracts ordained in Article 1308 of the
Civil Code.[26] As held in one case:[27]
It is basic that there can be no contract in the true sense in the absence of the
element of agreement, or of mutual assent of the parties. If this assent is wanting
on the part of one who contracts, his act has no more efficacy than if it had been
done under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed modification,
especially when it affects an important aspect of the agreement. In the case of
loan contracts, it cannot be gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture.
It has been held that no one receiving a proposal to change a contract to which
he is a party is obliged to answer the proposal, and his silence per se cannot be
construed as an acceptance.[28] Estoppel will not lie against the petitioner
regarding the increase in the stipulated interest on the subject Promissory Notes
Nos. 127/82 and 128/82 inasmuch as he was not even informed beforehand by
respondent bank of the change in the stipulated interest rates. However, we also
note that the said two (2) subject Promissory Notes Nos. 127/82 and 128/82
expressly provide for a penalty charge of 3% per annum to be imposed on any
unpaid amount when due.
Petitioner prays for the release of some of his movables[29] being withheld by
respondent PNB, alleging that they were not included among the chattels he
mortgaged to respondent bank. However, petitioner did not present any proof as
to when he acquired the subject movables and hence, we are not disposed to
believe that the same were after-acquired chattels not covered by the chattel and
real estate mortgages.
In asserting its rights over the subject movables, respondent PNB relies on a
common provision in the two (2) subject Promissory Notes Nos. 127/82 and
128/82 which states:
In the event that this note is not paid at maturity or when the same becomes due
under any of the provisions hereof, we hereby authorized the BANK at its option
and without notice, to apply to the payment of this note, any and all moneys,
securities and things of value which may be in its hands on deposit or otherwise
belonging to me/us and for this purpose. We hereby, jointly and severally,
irrevocably constitute and appoint the BANK to be our true Attorney-in-Fact with
full power and authority for us in our name and behalf and without prior notice
to negotiate, sell and transfer any moneys securities and things of value which it
may hold, by public or private sale and apply the proceeds thereof to the payment
of this note.
It is clear, however, from the above-quoted provision of the said promissory notes
that respondent bank is authorized, in case of default, to sell things of value
belonging to the mortgagor which may be on its hands for deposit or otherwise
belonging to me/us and for this purpose. Besides the petitioner executed not
only a chattel mortgage but also a real estate mortgage to secure his loan
obligations to respondent bank.
A stipulation in the mortgage, extending its scope and effect to after-acquired
property is valid and binding where the after-acquired property is in renewal of,
or in substitution for, goods on hand when the mortgage was executed, or is
purchased with the proceeds of the sale of such goods.[30] As earlier pointed out,
the petitioner did not present any proof as to when the subject movables were
acquired.
More importantly, respondent bank makes a valid argument for the retention of
the subject movables. Respondent PNB asserts that those movables were in fact
"immovables by destination" under Art. 415 (5) of the Civil Code.[31] It is an
established rule that a mortgage constituted on an immovable includes not only
the land but also the buildings, machinery and accessories installed at the time
the mortgage was constituted as well as the buildings, machinery and accessories
belonging to the mortgagor, installed after the constitution thereof.[32]
Petitioner also contends that respondent PNBs bid prices for this foreclosed
properties in the total amount of Three Million Seven Hundred Ninety Eight
Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50),
were allegedly unconscionable and shocking to the conscience of men. He claims
that the fair market appraisal of his foreclosed plant site together with the
improvements thereon located in Pasig, Metro Manila amounted to Five Million
Four Hundred Forty One Thousand Six Hundred Fifty Pesos (P5,441,650.00)
while that of his house and lot in Quezon City amounted to Seven Hundred
Twenty Two Thousand Pesos (P722,000.00) per the appraisal report dated
September 20, 1990 of Cuervo Appraisers, Inc.[33] That contention is not well
taken considering that:
1. The total of the principal amounts alone of petitioners subject Promissory
Notes Nos. 127/82 and 128/82 which are both overdue amounted to Four Million
One Hundred Eighty Seven Thousand Nine Hundred Seventeen Pesos and Fifty
Nine Centavos (P4,187,917.59).

2. While the appraisal of Cuervo Appraisers, Inc. was undertaken in September

1990, the extrajudicial foreclosure of petitioners real estate and chattel
mortgages have been effected way back on October 15, 1984, October 23, 1984
and December 21, 1984.[34] Common experience shows that real estate values
especially in Metro Manila tend to go upward due to developments in the locality.

3. In the public auction/foreclosure sales, respondent PNB, as mortgagee, was

not obliged to bid more than its claims or more than the amount of petitioners
loan obligations which are all overdue. The foreclosed real estate and chattel
mortgages which petitioner earlier executed are accessory contracts covering the
collaterals or security of his loans with respondent PNB. The principal contracts
are the Promissory Notes Nos. 127/82 and 128/82 which superseded and
novated the 1979 promissory notes and the 1979 eleven (11) Applications and
Agreements for Commercial Letter of Credit.

Finally, the record shows that petitioner did not even attempt to tender any
redemption price to respondent PNB, as highest bidder of the said foreclosed real
estate properties, during the one-year redemption period.

In view of all the foregoing, it is our view and we hold that the extrajudicial
foreclosure of petitioners real estate and chattel mortgages was not premature
and that it was in fact legal and valid.

WHEREFORE, the petition is hereby DENIED. The challenged Decision of the

Court of Appeals in CA-G.R. CV No. 38036 is AFFIRMED with modification that
the increase in the stipulated interest rates of 21% per annum and 18% per
annum appearing on Promissory Notes Nos. 127/82 and 128/82 respectively is
hereby declared null and void.

SO ORDERED.

[G.R. No. 138569. September 11, 2003]
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs.
COURT OF APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision[1] of the Court of Appeals dated
27 October 1998 and its Resolution dated 11 May 1999. The assailed decision
reversed the Decision[2] of the Regional Trial Court of Manila, Branch 8,
absolving petitioner Consolidated Bank and Trust Corporation, now known as
Solidbank Corporation (Solidbank), of any liability. The questioned resolution of
the appellate court denied the motion for reconsideration of Solidbank but
modified the decision by deleting the award of exemplary damages, attorneys
fees, expenses of litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under
Philippine laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is
a professional partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank,
designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya
(Macaraya), filled up a savings (cash) deposit slip for P990 and a savings (checks)
deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael
Calapre (Calapre), to deposit the money with Solidbank. Macaraya also gave
Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and
the passbook. The teller acknowledged receipt of the deposit by returning to
Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the
deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK
HEAD OFFICE. Since the transaction took time and Calapre had to make another
deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank.
Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve
the passbook, Teller No. 6 informed him that somebody got the passbook.[3]
Calapre went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check
of P200,000. Macaraya, together with Calapre, went to Solidbank and presented
to Teller No. 6 the deposit slip and check. The teller stamped the words
DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate
copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told
Macaraya that someone got the passbook but she could not remember to whom
she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the
passbook, Teller No. 6 answered that someone shorter than Calapre got the
passbook. Calapre was then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the
deposit of a check for P90,000 drawn on Philippine Banking Corporation (PBC).
This PBC check of L.C. Diaz was a check that it had long closed.[4] PBC
subsequently dishonored the check because of insufficient funds and because
the signature in the check differed from PBCs specimen signature. Failing to get
back the passbook, Macaraya went back to her office and reported the matter to
the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer,
Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using the same
passbook until L.C. Diaz could open a new account.[5] On the same day, Diaz
formally wrote Solidbank to make the same request. It was also on the same day
that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August
1991, of P300,000 from its savings account. The withdrawal slip for the P300,000
bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and
Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip.
A certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger,
Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through
Falsification of Commercial Document. The Regional Trial Court of Manila
dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss
on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the
return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money
against Solidbank with the Regional Trial Court of Manila, Branch 8. After trial,
the trial court rendered on 28 December 1994 a decision absolving Solidbank
and dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the
Court of Appeals issued its Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion
for reconsideration of Solidbank. The appellate court, however, modified its
decision by deleting the award of exemplary damages and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account
written on the passbook. The rules state that possession of this book shall raise
the presumption of ownership and any payment or payments made by the bank
upon the production of the said book and entry therein of the withdrawal shall
have the same effect as if made to the depositor personally.[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession
of the passbook, he also presented a withdrawal slip with the signatures of the
authorized signatories of L.C. Diaz. The specimen signatures of these persons
were in the signature cards. The teller stamped the withdrawal slip with the
words Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere
Manuel (Manuel) for authentication. Manuel verified the signatures on the
withdrawal slip. The withdrawal slip was then given to another officer who
compared the signatures on the withdrawal slip with the specimen on the
signature cards. The trial court concluded that Solidbank acted with care and
observed the rules on savings account when it allowed the withdrawal of
P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to
prove that the signatures on the withdrawal slip were forged. The trial court
admonished L.C. Diaz for not offering in evidence the National Bureau of
Investigation (NBI) report on the authenticity of the signatures on the withdrawal
slip for P300,000. The trial court believed that L.C. Diaz did not offer this
evidence because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must
keep the passbook under lock and key.[10] When another person presents the
passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the
passbook, that person is considered as the owner of the passbook. The trial court
ruled that the passbook presented during the questioned transaction was now
out of the lock and key and presumptively ready for a business transaction.[11]
Solidbank did not have any participation in the custody and care of the passbook.
The trial court believed that Solidbanks act of allowing the withdrawal of
P300,000 was not the direct and proximate cause of the loss. The trial court held
that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts
establish L.C. Diazs negligence: (1) the possession of the passbook by a person
other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal
receipt by an unauthorized person; and (3) the possession by an unauthorized
person of a PBC check long closed by L.C. Diaz, which check was deposited on
the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the
precautionary procedures observed by the two parties whenever L.C. Diaz
withdrew significant amounts from its account. L.C. Diaz claimed that a letter
must accompany withdrawals of more than P20,000. The letter must request
Solidbank to allow the withdrawal and convert the amount to a managers check.
The bearer must also have a letter authorizing him to withdraw the same amount.
Another person driving a car must accompany the bearer so that he would not
walk from Solidbank to the office in making the withdrawal. The trial court
pointed out that L.C. Diaz disregarded these precautions in its past withdrawal.
On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of
authorization or any communication with Solidbank that the money be converted
into a managers check.
The trial court further justified the dismissal of the complaint by holding that the
case was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal
of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the
complaint.
The Court further renders judgment in favor of defendant bank pursuant to its
counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys
fees.
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate cause
of the unauthorized withdrawal of P300,000 from the savings account of L.C.
Diaz. The appellate court reached this conclusion after applying the provision of
the Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in
this case, namely: (a) damages suffered by the plaintiff; (b) fault or negligence of
the defendant, or some other person for whose acts he must respond; and (c) the
connection of cause and effect between the fault or negligence of the defendant
and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the
withdrawal slip for P300,000 allowed the withdrawal without making the
necessary inquiry. The appellate court stated that the teller, who was not
presented by Solidbank during trial, should have called up the depositor because
the money to be withdrawn was a significant amount. Had the teller called up
L.C. Diaz, Solidbank would have known that the withdrawal was unauthorized.
The teller did not even verify the identity of the impostor who made the
withdrawal. Thus, the appellate court found Solidbank liable for its negligence in
the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting
its deposits to its messenger and its messenger in leaving the passbook with the
teller, Solidbank could not escape liability because of the doctrine of last clear
chance. Solidbank could have averted the injury suffered by L.C. Diaz had it
called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is
more than that of a good father of a family. The business and functions of banks
are affected with public interest. Banks are obligated to treat the accounts of
their depositors with meticulous care, always having in mind the fiduciary nature
of their relationship with their clients. The Court of Appeals found Solidbank
remiss in its duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby
REVERSED and a new one entered.
1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay
plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300,000.00),
with interest thereon at the rate of 12% per annum from the date of filing of the
complaint until paid, the sum of P20,000.00 as exemplary damages, and
P20,000.00 as attorneys fees and expenses of litigation as well as the cost of suit;
and
2. Ordering the dismissal of defendant-appellees counterclaim in the amount of
P30,000.00 as attorneys fees.
SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court
affirmed its decision but modified the award of damages. The appellate court
deleted the award of exemplary damages and attorneys fees. Invoking Article
2231[14] of the Civil Code, the appellate court ruled that exemplary damages
could be granted if the defendant acted with gross negligence. Since Solidbank
was guilty of simple negligence only, the award of exemplary damages was not
justified. Consequently, the award of attorneys fees was also disallowed pursuant
to Article 2208 of the Civil Code. The expenses of litigation and cost of suit were
also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is
affirmed with modification by deleting the award of exemplary damages and
attorneys fees, expenses of litigation and cost of suit.
SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of Appeals
on these grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK
SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST
CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE
WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO
ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE
OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW,
WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE
DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A
SAVINGS ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST
CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANKS TELLER HAD
THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS
UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE
WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS PASSBOOK
WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT WAS
NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER
EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER
FINANCIAL DOCUMENTS.

III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT
CASE IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS
P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM
ITS EMPLOYEE EMERANO ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES
AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE,
NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS NEGLIGENCE
WAS ONLY CONTRIBUTORY.[16]
The Ruling of the Court
The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application
of the law. The trial court pinned the liability on L.C. Diaz based on the provisions
of the rules on savings account, a recognition of the contractual relationship
between Solidbank and L.C. Diaz, the latter being a depositor of the former. On
the other hand, the Court of Appeals applied the law on quasi-delict to determine
who between the two parties was ultimately negligent. The law on quasi-delict or
culpa aquiliana is generally applicable when there is no pre-existing contractual
relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa
contractual.
The contract between the bank and its depositor is governed by the provisions of
the Civil Code on simple loan.[17] Article 1980 of the Civil Code expressly
provides that x x x savings x x x deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan. There is
a debtor-creditor relationship between the bank and its depositor. The bank is
the debtor and the depositor is the creditor. The depositor lends the bank money
and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that determines
the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA 8791),[18] which took effect on
13 June 2000, declares that the State recognizes the fiduciary nature of banking
that requires high standards of integrity and performance.[19] This new provision
in the general banking law, introduced in 2000, is a statutory affirmation of
Supreme Court decisions, starting with the 1990 case of Simex International v.
Court of Appeals,[20] holding that the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.[21]
This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good father
of a family. Article 1172 of the Civil Code states that the degree of diligence
required of an obligor is that prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a family.[22] Section 2 of RA
8791 prescribes the statutory diligence required from banks that banks must
observe high standards of integrity and performance in servicing their depositors.
Although RA 8791 took effect almost nine years after the unauthorized
withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence[23]
at the time of the withdrawal already imposed on banks the same high standard
of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert
the contract between the bank and its depositors from a simple loan to a trust
agreement, whether express or implied. Failure by the bank to pay the depositor
is failure to pay a simple loan, and not a breach of trust.[24] The law simply
imposes on the bank a higher standard of integrity and performance in complying
with its obligations under the contract of simple loan, beyond those required of
non-bank debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust
agreement because banks do not accept deposits to enrich depositors but to earn
money for themselves. The law allows banks to offer the lowest possible interest
rate to depositors while charging the highest possible interest rate on their own
borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que
trust of banks, then the interest spread or income belongs to the depositors, a
situation that Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence
in the performance of every kind of obligation is demandable. For breach of the
savings deposit agreement due to negligence, or culpa contractual, the bank is
liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and
he had to go to Allied Bank for another transaction. The passbook was still in the
hands of the employees of Solidbank for the processing of the deposit when
Calapre left Solidbank. Solidbanks rules on savings account require that the
deposit book should be carefully guarded by the depositor and kept under lock
and key, if possible. When the passbook is in the possession of Solidbanks tellers
during withdrawals, the law imposes on Solidbank and its tellers an even higher
degree of diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring
that they return the passbook only to the depositor or his authorized
representative. The tellers know, or should know, that the rules on savings
account provide that any person in possession of the passbook is presumptively
its owner. If the tellers give the passbook to the wrong person, they would be
clothing that person presumptive ownership of the passbook, facilitating
unauthorized withdrawals by that person. For failing to return the passbook to
Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6
presumptively failed to observe such high degree of diligence in safeguarding the
passbook, and in insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a
presumption that the defendant was at fault or negligent. The burden is on the
defendant to prove that he was not at fault or negligent. In contrast, in culpa
aquiliana the plaintiff has the burden of proving that the defendant was
negligent. In the present case, L.C. Diaz has established that Solidbank breached
its contractual obligation to return the passbook only to the authorized
representative of L.C. Diaz. There is thus a presumption that Solidbank was at
fault and its teller was negligent in not returning the passbook to Calapre. The
burden was on Solidbank to prove that there was no negligence on its part or its
employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial
court Teller No. 6, the teller with whom Calapre left the passbook and who was
supposed to return the passbook to him. The record does not indicate that Teller
No. 6 verified the identity of the person who retrieved the passbook. Solidbank
also failed to adduce in evidence its standard procedure in verifying the identity
of the person retrieving the passbook, if there is such a procedure, and that Teller
No. 6 implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of
respondeat superior or command responsibility. The defense of exercising the
required diligence in the selection and supervision of employees is not a complete
defense in culpa contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it
must also insure that its employees do likewise because this is the only way to
insure that the bank will comply with its fiduciary duty. Solidbank failed to
present the teller who had the duty to return to Calapre the passbook, and thus
failed to prove that this teller exercised the high standards of integrity and
performance required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the
proximate cause of the unauthorized withdrawal. The trial court believed that
L.C. Diazs negligence in not securing its passbook under lock and key was the
proximate cause that allowed the impostor to withdraw the P300,000. For the
appellate court, the proximate cause was the tellers negligence in processing the
withdrawal without first verifying with L.C. Diaz. We do not agree with either
court.
Proximate cause is that cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury and without
which the result would not have occurred.[26] Proximate cause is determined by
the facts of each case upon mixed considerations of logic, common sense, policy
and precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor.
Solidbank was in possession of the passbook while it was processing the deposit.
After completion of the transaction, Solidbank had the contractual obligation to
return the passbook only to Calapre, the authorized representative of L.C. Diaz.
Solidbank failed to fulfill its contractual obligation because it gave the passbook
to another person.
Solidbanks failure to return the passbook to Calapre made possible the
withdrawal of the P300,000 by the impostor who took possession of the
passbook. Under Solidbanks rules on savings account, mere possession of the
passbook raises the presumption of ownership. It was the negligent act of
Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the
passbook. Had the passbook not fallen into the hands of the impostor, the loss
of P300,000 would not have happened. Thus, the proximate cause of the
unauthorized withdrawal was Solidbanks negligence in not returning the
passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of
the unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify
the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm
the withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this
effect. Even the agreement between Solidbank and L.C. Diaz pertaining to
measures that the parties must observe whenever withdrawals of large amounts
are made does not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their
representatives withdraw significant amounts from their accounts. L.C. Diaz
therefore had the burden to prove that it is the usual practice of Solidbank to call
up its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed
to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to
verify the withdrawal. Prior to the withdrawal of P300,000, the impostor
deposited with Teller No. 6 the P90,000 PBC check, which later bounced. The
impostor apparently deposited a large amount of money to deflect suspicion from
the withdrawal of a much bigger amount of money. The appellate court thus erred
when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the
withdrawal when no law requires this from banks and when the teller had no
reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal.
Solidbank claims that since Ilagan was also a messenger of L.C. Diaz, he was
familiar with its teller so that there was no more need for the teller to verify the
withdrawal. Solidbank relies on the following statements in the Booking and
Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and
indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and
Company. After successfully withdrawing this large sum of money, accused
Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a
taxicab in the amount of P1,000 to transport him (Ilagan) to his home province
at Bauan, Batangas. Ilagan extravagantly and lavishly spent his money but a big
part of his loot was wasted in cockfight and horse racing. Ilagan was apprehended
and meekly admitted his guilt.[28] (Emphasis supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who
withdrew the P300,000 was a certain Noel Tamayo. Both the trial and appellate
courts stated that this Noel Tamayo presented the passbook with the withdrawal
slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo
withdrew the P300,000. The Court is not a trier of facts. We find no justifiable
reason to reverse the factual finding of the trial court and the Court of Appeals.
The tellers who processed the deposit of the P90,000 check and the withdrawal
of the P300,000 were not presented during trial to substantiate Solidbanks claim
that Ilagan deposited the check and made the questioned withdrawal. Moreover,
the entry quoted by Solidbank does not categorically state that Ilagan presented
the withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but
the negligent act of one is appreciably later than that of the other, or where it is
impossible to determine whose fault or negligence caused the loss, the one who
had the last clear opportunity to avoid the loss but failed to do so, is chargeable
with the loss.[29] Stated differently, the antecedent negligence of the plaintiff
does not preclude him from recovering damages caused by the supervening
negligence of the defendant, who had the last fair chance to prevent the
impending harm by the exercise of due diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank
is liable for breach of contract due to negligence in the performance of its
contractual obligation to L.C. Diaz. This is a case of culpa contractual, where
neither the contributory negligence of the plaintiff nor his last clear chance to
avoid the loss, would exonerate the defendant from liability.[31] Such
contributory negligence or last clear chance by the plaintiff merely serves to
reduce the recovery of damages by the plaintiff but does not exculpate the
defendant from his breach of contract.[32]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the
courts, according to the circumstances. This means that if the defendant
exercised the proper diligence in the selection and supervision of its employee, or
if the plaintiff was guilty of contributory negligence, then the courts may reduce
the award of damages. In this case, L.C. Diaz was guilty of contributory
negligence in allowing a withdrawal slip signed by its authorized signatories to
fall into the hands of an impostor. Thus, the liability of Solidbank should be
reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held
the depositor guilty of contributory negligence, we allocated the damages between
the depositor and the bank on a 40-60 ratio. Applying the same ruling to this
case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded
by the appellate court. Solidbank must pay the other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner Solidbank Corporation shall pay private respondent
L.C. Diaz and Company, CPAs only 60% of the actual damages awarded by the
Court of Appeals. The remaining 40% of the actual damages shall be borne by
private respondent L.C. Diaz and Company, CPAs. Proportionate costs.
SO ORDERED.
SECOND DIVISION
[G.R. No. 141811. November 15, 2001]
FIRST METRO INVESTMENT CORPORATION, petitioner, vs. ESTE DEL SOL
MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q. SALIENTES,
MA. ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO* M. LADORES,
VICENTE M. DE VERA, JR., and FELIPE B. SESE, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1] of the Court of
Appeals[2] dated November 8, 1999 in CA-G.R. CV No. 53328 reversing the
Decision[3] of the Regional Trial Court of Pasig City, Branch 159 dated June 2,
1994 in Civil Case No. 39224. Essentially, the Court of Appeals found and
declared that the fees provided for in the Underwriting and Consultancy
Agreements executed by and between petitioner First Metro Investment Corp.
(FMIC) and respondent Este del Sol Mountain Reserve, Inc. (Este del Sol)
simultaneously with the Loan Agreement dated January 31, 1978 were mere
subterfuges to camouflage the usurious interest charged by petitioner FMIC.
The facts of the case are as follows:
It appears that on January 31, 1978, petitioner FMIC granted respondent Este
del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five
Hundred Pesos (P7,385,500.00) to finance the construction and development of
the Este del Sol Mountain Reserve, a sports/resort complex project located at
Barrio Puray, Montalban, Rizal.[4]
Under the terms of the Loan Agreement, the proceeds of the loan were to be
released on staggered basis. Interest on the loan was pegged at sixteen (16%)
percent per annum based on the diminishing balance. The loan was payable in
thirty-six (36) equal and consecutive monthly amortizations to commence at the
beginning of the thirteenth month from the date of the first release in accordance
with the Schedule of Amortization.[5] In case of default, an acceleration clause
was, among others, provided and the amount due was made subject to a twenty
(20%) percent one-time penalty on the amount due and such amount shall bear
interest at the highest rate permitted by law from the date of default until full
payment thereof plus liquidated damages at the rate of two (2%) percent per
month compounded quarterly on the unpaid balance and accrued interests
together with all the penalties, fees, expenses or charges thereon until the unpaid
balance is fully paid, plus attorneys fees equivalent to twenty-five (25%) percent
of the sum sought to be recovered, which in no case shall be less than Twenty
Thousand Pesos (P20,000.00) if the services of a lawyer were hired.[6]
In accordance with the terms of the Loan Agreement, respondent Este del Sol
executed several documents[7] as security for payment, among them, (a) a Real
Estate Mortgage dated January 31, 1978 over two (2) parcels of land being
utilized as the site of its development project with an area of approximately One
Million Twenty-Eight Thousand and Twenty-Nine (1,028,029) square meters and
particularly described in TCT Nos. N-24332 and N-24356 of the Register of Deeds
of Rizal, inclusive of all improvements, as well as all the machineries, equipment,
furnishings and furnitures existing thereon; and (b) individual Continuing
Suretyship agreements by co-respondents Valentin S. Daez, Jr., Manuel Q.
Salientes, Ma. Rocio A. De Vega, Alexander G. Asuncion, Alberto M. Ladores,
Vicente M. De Vera, Jr. and Felipe B. Sese, all dated February 2, 1978, to
guarantee the payment of all the obligations of respondent Este del Sol up to the
aggregate sum of Seven Million Five Hundred Thousand Pesos (P7,500,000 00)
each.[8]
Respondent Este del Sol also executed, as provided for by the Loan Agreement,
an Underwriting Agreement on January 31, 1978 whereby petitioner FMIC shall
underwrite on a best-efforts basis the public offering of One Hundred Twenty
Thousand (120,000) common shares of respondent Este del Sols capital stock for
a one-time underwriting fee of Two Hundred Thousand Pesos (P200,000.00). In
addition to the underwriting fee, the Underwriting Agreement provided that for
supervising the public offering of the shares, respondent Este del Sol shall pay
petitioner FMIC an annual supervision fee of Two Hundred Thousand Pesos
(P200,000.00) per annum for a period of four (4) consecutive years. The
Underwriting Agreement also stipulated for the payment by respondent Este del
Sol to petitioner FMIC a consultancy fee of Three Hundred Thirty-Two Thousand
Five Hundred Pesos (P332,500.00) per annum for a period of four (4) consecutive
years. Simultaneous with the execution of and in accordance with the terms of
the Underwriting Agreement, a Consultancy Agreement was also executed on
January 31, 1978 whereby respondent Este del Sol engaged the services of
petitioner FMIC for a fee as consultant to render general consultancy services.[9]
In three (3) letters all dated February 22, 1978 petitioner billed respondent Este
del Sol for the amounts of [a] Two Hundred Thousand Pesos (P200,000.00) as the
underwriting fee of petitioner FMIC in connection with the public offering of the
common shares of stock of respondent Este del Sol; [b] One Million Three
Hundred Thirty Thousand Pesos (P1,330,000.00) as consultancy fee for a period
of four (4) years; and [c] Two Hundred Thousand Pesos (P200,000.00) as
supervision fee for the year beginning February, 1978, in accordance to the
Underwriting Agreement.[10] The said amounts of fees were deemed paid by
respondent Este del Sol to petitioner FMIC which deducted the same from the
first release of the loan.
Since respondent Este del Sol failed to meet the schedule of repayment in
accordance with a revised Schedule of Amortization, it appeared to have incurred
a total obligation of Twelve Million Six Hundred Seventy-Nine Thousand Six Thousand Pesos (P15,000.00); and for Attorneys fees, Three Million One Hundred
Hundred Thirty Pesos and Ninety-Eight Centavos (P12,679,630.98) per the Sixty-Eight Thousand Six Hundred Sixty-Six Pesos and Seventy-Five Centavos
petitioners Statement of Account dated June 23, 1980,[11] to wit: (P3,168,666.75). The remaining balance of Five Million Eight Hundred Eleven
Thousand Three Hundred Sixty-Nine Pesos and Twenty-Five Centavos
STATEMENT OF ACCOUNT OF (P5,811,369.25) was applied to interests and penalty charges and partly against
ESTE DEL SOL MOUNTAIN RESERVE, INC. the principal, due as of June 23, 1980, thereby leaving a balance of Six Million
AS OF JUNE 23, 1980 Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and
Seventy-Three Centavos (P6,863,297.73) on the principal amount of the loan as
PARTICULARS AMOUNT of June 23, 1980.[13]

Total amount due as of 11-22-78 per Failing to secure from the individual respondents, as sureties of the loan of
revised amortization schedule dated respondent Este del Sol by virtue of their continuing surety agreements, the
1-3-78 P7,999,631.42 payment of the alleged deficiency balance, despite individual demands sent to
each of them,[14] petitioner instituted on November 11, 1980 the instant
Interest on P7,999,631.42 @ 16% p.a. from collection suit[15]against the respondents to collect the alleged deficiency
11-22-78 to 2-22-79 (92 days) 327,096.04 balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred
Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73) plus interest
Balance 8,326,727.46 thereon at twenty-one (21%) percent per annum from June 24, 1980 until fully
paid, and twenty-five (25%) percent thereof as and for attorneys fees and costs.
One time penalty of 20% of the entire unpaid
obligations under Section 6.02 (ii) of In their Answer, the respondents sought the dismissal of the case and set up
Loan Agreement 1,665,345.49 several special and affirmative defenses, foremost of which is that the
Underwriting and Consultancy Agreements executed simultaneously with and as
Past due interest under Section 6.02 (iii) integral parts of the Loan Agreement and which provided for the payment of
of loan Agreement: Underwriting, Consultancy and Supervision fees were in reality subterfuges
@ 19% p.a. from 2-22-79 to 11-30-79 resorted to by petitioner FMIC and imposed upon respondent Este del Sol to
(281 days) 1,481,879.93 camouflage the usurious interest being charged by petitioner FMIC.[16]
@ 21% p.a. from 11-30-79 to 6-23-80
(206 days) 1,200,714.10 The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela,
its former Senior Vice-President, Felipe Neri, its Vice-President for Marketing,
Other charges publication of extra judicial and Dennis Aragon, an Account Manager of its Account Management Group, as
foreclosure of REM made on well as documentary evidence. On the other hand, co-respondents Vicente M. De
5-23-80 & 6-6-80 4,964.00 Vera, Jr. and Valentin S. Daez, Jr., and Perfecto Doroja, former Senior Manager
and Assistant Vice-President of FMIC, testified for the respondents.
Total Amount Due and Collectible as of
June 23, 1980 P12,679,630.98 After the trial, the trial court rendered its decision in favor of petitioner FMIC,
the dispositive portion of which reads:
Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real
estate mortgage on June 23, 1980.[12] At the public auction, petitioner FMIC WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
was the highest bidder of the mortgaged properties for Nine Million Pesos defendants, ordering defendants jointly and severally to pay to plaintiff the
(P9,000,000.00). The total amount of Three Million One Hundred Eighty-Eight amount of P6,863,297.73 plus 21% interest per annum, from June 24, 1980,
Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) until the entire amount is fully paid, plus the amount equivalent to 25% of the
was deducted therefrom, that is, for the publication fee for the publication of the total amount due, as attorneys fees, plus costs of suit.
Sheriffs Notice of Sale, Four Thousand Nine Hundred Sixty-Four Pesos
(P4,964.00); for Sheriffs fees for conducting the foreclosure proceedings, Fifteen Defendants counterclaims are dismissed, for lack of merit.
Finding the decision of the trial court unacceptable, respondents interposed an
appeal to the Court of Appeals. On November 8, 1999, the appellate court
reversed the challenged decision of the trial court. The appellate court found and
declared that the fees provided for in the Underwriting and Consultancy
Agreements were mere subterfuges to camouflage the excessively usurious
interest charged by the petitioner FMIC on the loan of respondent Este del Sol;
and that the stipulated penalties, liquidated damages and attorneys fees were
excessive, iniquitous, unconscionable and revolting to the conscience, and
declared that in lieu thereof, the stipulated one time twenty (20%) percent penalty
on the amount due and ten (10%) percent of the amount due as attorneys fees
would be reasonable and suffice to compensate petitioner FMIC for those items.
Thus, the appellate court dismissed the complaint as against the individual
respondents sureties and ordered petitioner FMIC to pay or reimburse
respondent Este del Sol the amount of Nine Hundred Seventy-One Thousand
Pesos (P971,000.00) representing the difference between what is due to the
petitioner and what is due to respondent Este del Sol, based on the following
computation:[17]
A: DUE TO THE [PETITIONER]
Principal of Loan P7,382,500.00
Add: 20% one-time
Penalty 1,476,500.00
Attorneys fees 900,000.00 P9,759,000.00
Less: Proceeds of foreclosure
Sale 9,000,000.00
Deficiency P 759,000.00
B. DUE TO [RESPONDENT ESTE DEL SOL]
Return of usurious interest in the form of:
Underwriting fee P 200,000.00
Supervision fee 200,000.00
Consultancy fee 1,330,000.00
Total amount due Este P 1,730,000.00
The appellee is, therefore, obliged to return to the appellant Este del Sol the
difference of P971,000.00 or (P1,730,000.00 less P759,000.00).
Petitioner moved for reconsideration of the appellate courts adverse decision.
However, this was denied in a Resolution[18]dated February 9, 2000 of the
appellate court.
Hence, the instant petition anchored on the following assigned errors:[19]
THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY
NOT IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS
HONORABLE COURT WHEN IT:
a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY
AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND DISTINCT
FROM THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD BE
CONSIDERED AS A SINGLE CONTRACT.
b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS ARE
MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST
CHARGED BY THE PETITIONER.
c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONERS WITNESSES
ON THE SERVICES PERFORMED BY PETITIONER.
d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD WAIVED
THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY PAID TO
PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED THE VALIDITY OF
THE UNDERWRITING AND CONSULTANCY AGREEMENTS.
e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY WHAT IS DUE TO
EACH PARTY AFTER THE FORECLOSURE SALE, AS SHOWN IN PP. 34-35 OF
THE ASSAILED DECISION, EVEN GRANTING JUST FOR THE SAKE OF
ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN STIGMATIZING
[i] THE PROVISIONS OF THE LOAN AGREEMENT THAT REFER TO STIPULATED
PENALTIES, LIQUIDATED DAMAGES AND ATTORNEYS FEES AS SUPPOSEDLY
EXCESSIVE, INIQUITOUS AND UNCONSCIONABLE AND REVOLTING TO THE
CONSCIENCE AND [ii] THE UNDERWRITING, SUPERVISION AND
CONSULTANCY SERVICES AGREEMENT AS SUPPOSEDLY MERE
SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED
UPON THE RESPONDENT ESTE BY PETITIONER.
f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND THUS
THE INDIVIDUAL RESPONDENTS, ARE STILL OBLIGATED TO THE
PETITIONER.
Petitioner essentially assails the factual findings and conclusion of the appellate
court that the Underwriting and Consultancy Agreements were executed to
conceal a usurious loan. Inquiry upon the veracity of the appellate courts factual
findings and conclusion is not the function of this Court for the Supreme Court
is not a trier of facts. Only when the factual findings of the trial court and the
appellate court are opposed to each other does this Court exercise its discretion
to re-examine the factual findings of both courts and weigh which, after
considering the record of the case, is more in accord with law and justice.
After a careful and thorough review of the record including the evidence adduced,
we find no reason to depart from the findings of the appellate court.
First, there is no merit to petitioner FMICs contention that Central Bank Circular
No. 905 which took effect on January 1, 1983 and removed the ceiling on interest
rates for secured and unsecured loans, regardless of maturity, should be applied
retroactively to a contract executed on January 31, 1978, as in the case at bar,
that is, while the Usury Law was in full force and effect. It is an elementary rule
of contracts that the laws, in force at the time the contract was made and entered
into, govern it.[20] More significantly, Central Bank Circular No. 905 did not
repeal nor in any way amend the Usury Law but simply suspended the latters
effectivity.[21] The illegality of usury is wholly the creature of legislation. A
Central Bank Circular cannot repeal a law. Only a law can repeal another law.[22]
Thus, retroactive application of a Central Bank Circular cannot, and should not,
be presumed.[23]
Second, when a contract between two (2) parties is evidenced by a written
instrument, such document is ordinarily the best evidence of the terms of the
contract. Courts only need to rely on the face of written contracts to determine
the intention of the parties. However, this rule is not without exception.[24] The
form of the contract is not conclusive for the law will not permit a usurious loan
to hide itself behind a legal form. Parol evidence is admissible to show that a
written document though legal in form was in fact a device to cover usury. If from
a construction of the whole transaction it becomes apparent that there exists a
corrupt intention to violate the Usury Law, the courts should and will permit no
scheme, however ingenious, to becloud the crime of usury.[25]
In the instant case, several facts and circumstances taken altogether show that
the Underwriting and Consultancy Agreements were simply cloaks or devices to
cover an illegal scheme employed by petitioner FMIC to conceal and collect
excessively usurious interest, and these are:
a) The Underwriting and Consultancy Agreements are both dated January 31,
1978 which is the same date of the Loan Agreement.[26] Furthermore, under the
Underwriting Agreement payment of the supervision and consultancy fees was
set for a period of four (4) years[27] to coincide ultimately with the term of the
Loan Agreement.[28] This fact means that all the said agreements which were
executed simultaneously were set to mature or shall remain effective during the
same period of time.
b) The Loan Agreement dated January 31, 1978 stipulated for the execution and
delivery of an underwriting agreement[29]and specifically mentioned that such
underwriting agreement is a condition precedent[30]for petitioner FMIC to extend
the loan to respondent Este del Sol, indicating and as admitted by petitioner
FMICs employees,[31] that such Underwriting Agreement is part and parcel of
the Loan Agreement.[32]
c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One
Million Three Hundred Thirty Thousand Pesos (P1,330,000.00)[33] as
consultancy fee despite the clear provision in the Consultancy Agreement that
the said agreement is for Three Hundred Thirty-Two Thousand Five Hundred
Pesos (P332,500.00) per annum for four (4) years and that only the first year
consultancy fee shall be due upon signing of the said consultancy agreement.[34]
d) The Underwriting, Supervision and Consultancy fees in the amounts of Two
Hundred Thousand Pesos (P200,000.00), Two Hundred Thousand Pesos
(P200,000.00) and One Million Three Hundred Thirty Thousand Pesos
(P1,330,000.00), respectively, were billed by petitioner to respondent Este del Sol
on February 22, 1978,[35] that is, on the same occasion of the first partial release
of the loan in the amount of Two Million Three Hundred Eighty-Two Thousand
Five Hundred Pesos (P2,382,500.00).[36] It is from this first partial release of the
loan that the said corresponding bills for Underwriting, Supervision and
Consultancy fees were deducted and apparently paid, thus, reverting back to
petitioner FMIC the total amount of One Million Seven Hundred Thirty Thousand
Pesos (P1,730,000.00) as part of the amount loaned to respondent Este del
Sol.[37]
e) Petitioner FMIC was in fact unable to organize an underwriting/selling
syndicate to sell any share of stock of respondent Este del Sol and much less to
supervise such a syndicate, thus failing to comply with its obligation under the
Underwriting Agreement.[38] Besides, there was really no need for an
Underwriting Agreement since respondent Este del Sol had its own licensed
marketing arm to sell its shares and all its shares have been sold through its
marketing arm.[39]
f) Petitioner FMIC failed to comply with its obligation under the Consultancy
Agreement,[40] aside from the fact that there was no need for a Consultancy
Agreement, since respondent Este del Sols officers appeared to be more
competent to be consultants in the development of the projected sports/resort
complex.[41]
All the foregoing established facts and circumstances clearly belie the contention
of petitioner FMIC that the Loan, Underwriting and Consultancy Agreements are
separate and independent transactions. The Underwriting and Consultancy
Agreements which were executed and delivered contemporaneously with the
Loan Agreement on January 31, 1978 were exacted by petitioner FMIC as
essential conditions for the grant of the loan. An apparently lawful loan is
usurious when it is intended that additional compensation for the loan be
disguised by an ostensibly unrelated contract providing for payment by the
borrower for the lenders services which are of little value or which are not in fact
to be rendered, such as in the instant case.[42] In this connection, Article 1957
of the New Civil Code clearly provides that:
Art. 1957. Contracts and stipulations, under any cloak or device whatever,
intended to circumvent the laws against usury shall be void. The borrower may
recover in accordance with the laws on usury.
In usurious loans, the entire obligation does not become void because of an
agreement for usurious interest; the unpaid principal debt still stands and
remains valid but the stipulation as to the usurious interest is void,
consequently, the debt is to be considered without stipulation as to the
interest.[43] The reason for this rule was adequately explained in the case of
Angel Jose Warehousing Co., Inc. v. Child Enterprises[44]where this Court held:
In simple loan with stipulation of usurious interest, the prestation of the debtor
to pay the principal debt, which is the cause of the contract (Article 1350, Civil
Code), is not illegal. The illegality lies only as to the prestation to pay the
stipulated interest; hence, being separable, the latter only should be deemed
void, since it is the only one that is illegal.
Thus, the nullity of the stipulation on the usurious interest does not affect the
lenders right to receive back the principal amount of the loan. With respect to
the debtor, the amount paid as interest under a usurious agreement is
recoverable by him, since the payment is deemed to have been made under
restraint, rather than voluntarily.[45]
This Court agrees with the factual findings and conclusion of the appellate court,
to wit:
We find the stipulated penalties, liquidated damages and attorneys fees,
excessive, iniquitous and unconscionable and revolting to the conscience as they
hardly allow the borrower any chance of survival in case of default. And true
enough, ESTE folded up when the appellee extrajudicially foreclosed on its
(ESTEs) development project and literally closed its offices as both the appellee
and ESTE were at the time holding office in the same building. Accordingly, we
hold that 20% penalty on the amount due and 10% of the proceeds of the
foreclosure sale as attorneys fees would suffice to compensate the appellee,
especially so because there is no clear showing that the appellee hired the
services of counsel to effect the foreclosure; it engaged counsel only when it was
seeking the recovery of the alleged deficiency.
Attorneys fees as provided in penal clauses are in the nature of liquidated
damages. So long as such stipulation does not contravene any law, morals, or
public order, it is binding upon the parties. Nonetheless, courts are empowered
to reduce the amount of attorneys fees if the same is iniquitous or
unconscionable.[46] Articles 1229 and 2227 of the New Civil Code provide that:
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the courts if
it is iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty,
shall be equitably reduced if they are iniquitous or unconscionable.
In the case at bar, the amount of Three Million One Hundred Eighty-Eight
Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75)
for the stipulated attorneys fees equivalent to twenty-five (25%) percent of the
alleged amount due, as of the date of the auction sale on June 23, 1980, is
manifestly exorbitant and unconscionable. Accordingly, we agree with the
appellate court that a reduction of the attorneys fees to ten (10%) percent is
appropriate and reasonable under the facts and circumstances of this case.
Lastly, there is no merit to petitioner FMICs contention that the appellate court
erred in awarding an amount allegedly not asked nor prayed for by respondents.
Whether the exact amount of the relief was not expressly prayed for is of no
moment for the reason that the relief was plainly warranted by the allegations of
the respondents as well as by the facts as found by the appellate court. A party
is entitled to as much relief as the facts may warrant.[47]
In view of all the foregoing, the Court is convinced that the appellate court
committed no reversible error in its challenged Decision.
WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision
of the Court of Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
SECOND DIVISION
SPOUSES DAVID B. CARPO G.R. Nos. 150773 &
and RECHILDA S. CARPO, 153599
Petitioners,
Present:
- versus - PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
ELEANOR CHUA and TINGA, and
ELMA DY NG, CHICO-NAZARIO, JJ.
Respondents.
Promulgated:
September 30, 2005
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before this Court are two consolidated petitions for review. The first, docketed as
G.R. No. 150773, assails the Decision[1] of the Regional Trial Court (RTC),
Branch 26 of Naga City dated 26 October 2001 in Civil Case No. 99-4376. RTC
Judge Filemon B. Montenegro dismissed the complaint[2] for annulment of real
estate mortgage and consequent foreclosure proceedings filed by the spouses
David B. Carpo and Rechilda S. Carpo (petitioners).
The second, docketed as G.R. No. 153599, seeks to annul the Court of Appeals
Decision[3] dated 30 April 2002 in CA-G.R. SP No. 57297. The Court of Appeals
Third Division annulled and set aside the orders of Judge Corazon A. Tordilla to
suspend the sheriffs enforcement of the writ of possession.
The cases stemmed from a loan contracted by petitioners. On 18 July 1995, they
borrowed from Eleanor Chua and Elma Dy Ng (respondents) the amount of One
Hundred Seventy-Five Thousand Pesos (P175,000.00), payable within six (6)
months with an interest rate of six percent (6%) per month. To secure the
payment of the loan, petitioners mortgaged their residential house and lot
situated at San Francisco, Magarao, Camarines Sur, which lot is covered by
Transfer Certificate of Title (TCT) No. 23180. Petitioners failed to pay the loan
upon demand. Consequently, the real estate mortgage was extrajudicially
foreclosed and the mortgaged property sold at a public auction on 8 July 1996.
The house and lot was awarded to respondents, who were the only bidders, for
the amount of Three Hundred Sixty-Seven Thousand Four Hundred Fifty-Seven
Pesos and Eighty Centavos (P367,457.80).
Upon failure of petitioners to exercise their right of redemption, a certificate of
sale was issued on 5 September 1997 by Sheriff Rolando A. Borja. TCT No. 23180
was cancelled and in its stead, TCT No. 29338 was issued in the name of
respondents.
Despite the issuance of the TCT, petitioners continued to occupy the said house
and lot, prompting respondents to file a petition for writ of possession with the
RTC docketed as Special Proceedings (SP) No. 98-1665. On 23 March 1999, RTC
Judge Ernesto A. Miguel issued an Order[4]for the issuance of a writ of
possession.
On 23 July 1999, petitioners filed a complaint for annulment of real estate
mortgage and the consequent foreclosure proceedings, docketed as Civil Case No.
99-4376 of the RTC. Petitioners consigned the amount of Two Hundred Fifty-
Seven Thousand One Hundred Ninety-Seven Pesos and Twenty-Six Centavos
(P257,197.26) with the RTC.
Meanwhile, in SP No. 98-1665, a temporary restraining order was issued upon
motion on 3 August 1999, enjoining the enforcement of the writ of possession. In
an Order[5] dated 6 January 2000, the RTC suspended the enforcement of the
writ of possession pending the final disposition of Civil Case No. 99-4376. Against
this Order, respondents filed a petition for certiorari and mandamus before the
Court of Appeals, docketed as CA-G.R. SP No. 57297.
During the pendency of the case before the Court of Appeals, RTC Judge Filemon
B. Montenegro dismissed the complaint in Civil Case No. 99-4376 on the ground
that it was filed out of time and barred by laches. The RTC proceeded from the
premise that the complaint was one for annulment of a voidable contract and
thus barred by the four-year prescriptive period. Hence, the first petition for
review now under consideration was filed with this Court, assailing the dismissal
of the complaint.
The second petition for review was filed with the Court after the Court of Appeals
on 30 April 2002 annulled and set aside the RTC orders in SP No. 98-1665 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
mortgagee.
This Court ordered the consolidation of the two cases, on motion of petitioners.
In G.R. No. 150773, petitioners claim that following the Courts ruling in Medel
v. Court of Appeals[6] the rate of interest stipulated in the principal loan
agreement is clearly null and void. Consequently, they also argue that the nullity
of the agreed interest rate affects the validity of the real estate mortgage. Notably,
while petitioners were silent in their petition on the issues of prescription and
laches on which the RTC grounded the dismissal of the complaint, they belatedly
raised the matters in their Memorandum. Nonetheless, these points warrant brief
comment.
On the other hand, petitioners argue in G.R. No. 153599 that the RTC did not
commit any grave abuse of discretion when it issued the orders dated 3 August
1999 and 6 January 2000, and that these orders could not have been the proper
subjects of a petition for certiorari and mandamus. More accurately, the
justiciable issues before us are whether the Court of Appeals could properly
entertain the petition for certiorari from the timeliness aspect, and whether the
appellate court correctly concluded that the writ of possession could no longer
be stayed.
We first resolve the petition in G.R. No. 150773.
Petitioners contend that the agreed rate of interest of 6% per month or 72% per
annum is so excessive, iniquitous, unconscionable and exorbitant that it should
have been declared null and void. Instead of dismissing their complaint, they
aver that the lower court should have declared them liable to respondents for the
original amount of the loan plus 12% interest per annum and 1% monthly
penalty charge as liquidated damages,[7] in view of the ruling in Medel v. Court
of Appeals.[8]
In Medel, the Court found that the interest stipulated at 5.5% per month or 66%
per annum was so iniquitous or unconscionable as to render the stipulation void.
Nevertheless, we find the interest at 5.5% per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and, hence, contrary to morals (contra bonos mores), if not
against the law. The stipulation is void. The Court shall reduce equitably
liquidated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable.[9]
In a long line of cases, this Court has invalidated similar stipulations on interest
rates for being excessive, iniquitous, unconscionable and exorbitant. In Solangon
v. Salazar,[10] we annulled the stipulation of 6% per month or 72% per annum
interest on a P60,000.00 loan. In Imperial v. Jaucian,[11] we reduced the interest
rate from 16% to 1.167% per month or 14% per annum. In Ruiz v. Court of
Appeals,[12] we equitably reduced the agreed 3% per month or 36% per annum
interest to 1% per month or 12% per annum interest. The 10% and 8% interest
rates per month on a P1,000,000.00 loan were reduced to 12% per annum in
Cuaton v. Salud.[13] Recently, this Court, in Arrofo v. Quino,[14] reduced the 7%
interest per month on a P15,000.00 loan amounting to 84% interest per annum
to 18% per annum.
There is no need to unsettle the principle affirmed in Medel and like cases. From
that perspective, it is apparent that the stipulated interest in the subject loan is
excessive, iniquitous, unconscionable and exorbitant. Pursuant to the freedom
of contract principle embodied in Article 1306 of the Civil Code, contracting
parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. 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 the above-cited cases, this stipulation is similarly
invalid. However, the RTC refused to apply the principle cited and employed in
Medel on the ground that Medel did not pertain to the annulment of a real estate
mortgage,[15] as it was a case for annulment of the loan contract itself. The
question thus sensibly arises whether the invalidity of the stipulation on interest
carries with it the invalidity of the principal obligation.
The question is crucial to the present petition even if the subject thereof is not
the annulment of the loan contract but that of the mortgage contract. The
consideration of the mortgage contract is the same as that of the principal
contract from which it receives life, and without which it cannot exist as an
independent contract. Being a mere accessory contract, the validity of the
mortgage contract would depend on the validity of the loan secured by it.[16]
Notably in Medel, the Court did not invalidate the entire loan obligation despite
the inequitability of the stipulated 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 occasions, had ruled that a
usurious loan is wholly null and void both as to the loan and as to the usurious
interest.[17] However, this Court adopted the contrary rule,
as comprehensively discussed in Briones v. Cammayo:[18]
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared
that, in any event, the debtor in a usurious contract of loan should pay the
creditor the amount which he justly owes him, citing in support of this ruling its
previous decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570,
and Delgado vs. Duque Valgona, 44 Phil. 739.
....
Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that
the standing jurisprudence of this Court on the question under consideration
was clearly to the effect that the Usury Law, by its letter and spirit, did not deprive
the lender of his right to recover from the borrower the money actually loaned to
and enjoyed by the latter. This Court went further to say that the Usury Law did
not provide for the forfeiture of the capital in favor of the debtor in usurious
contracts, and that while the forfeiture might appear to be convenient as a drastic
measure to eradicate the evil of usury, the legal question involved should not be
resolved on the basis of convenience.
Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and
Pascua vs. Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the
latter We expressly held that when a contract is found to be tainted with usury
"the only right of the respondent (creditor) . . . was merely to collect the amount
of the loan, plus interest due thereon."
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 against usury, shall be void,
and that in such cases "the borrower may recover in accordance with the laws
on usury." From this the conclusion is drawn that the whole contract is void and
that, therefore, the creditor has no right to recover not even his capital.
The meaning and scope of our ruling in the cases mentioned heretofore is clearly
stated, and the view referred to in the preceding paragraph is adequately
answered, in Angel Jose, etc. vs. Chelda Enterprises, et al. (L-25704, April 24,
1968). On the question of whether a creditor in a 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:
....
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
attorney's fees be awarded in plaintiff's favor?"
Great reliance is made by appellants on Art. 1411 of the New Civil Code . . . .
Since, according to the appellants, a usurious loan is void due to illegality of
cause or 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 recover interest paid in
excess of the interest allowed by the Usury Law. As to the lender, no exception is
made to the rule; hence, he cannot recover on the contract. So they continue the
New Civil Code provisions must be upheld as against the Usury Law, under which
a loan with usurious interest is not totally void, because of Article 1961 of the
New Civil Code, that: "Usurious contracts shall be governed by the Usury Law
and other special laws, so far as they are not inconsistent with this Code."
We do not agree with such reasoning. Article 1411 of the New Civil Code is not
new; it is the same as Article 1305 of the Old Civil Code. Therefore, said provision
is no warrant for departing from previous interpretation that, as provided in the
Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally
void only as to the interest.
. . . [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 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 shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to payment of
interest likewise renders a nullity the legal terms as to payments of the principal
debt. Article 1420 of the New Civil Code provides in this regard: "In case of a
divisible contract, if the illegal terms can be separated from the legal ones, the
latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor
to pay the principal debt, which is the cause of the contract (Article 1350, Civil
Code), is not illegal. The illegality lies only as to the prestation to pay the
stipulated interest; hence, being separable, the latter only should be deemed
void, since it is the only one that is illegal.
....
The principal 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 debt earns interest from the date of the demand (in this case
from the filing of the complaint). Such interest is not due to stipulation, for there
was none, the same being void. Rather, it is due to the general provision of law
that in obligations to pay money, where the debtor incurs in delay, he has to pay
interest by way of damages (Art. 2209, Civil Code). The court a quo therefore, did
not err in ordering defendants to pay the principal debt with interest thereon at
the legal rate, from the date of filing of the complaint."[19]
The Courts wholehearted affirmation of the rule that the principal obligation
subsists despite the nullity of the stipulated interest is evinced by its subsequent
rulings, cited above, in all of which the main obligation was upheld and the
offending interest rate merely corrected. Hence, it is clear and settled that the
principal loan obligation still stands and remains valid. By the same token, since
the mortgage contract derives its vitality from the validity of the principal
obligation, the invalid stipulation on interest rate is similarly insufficient to
render void the ancillary mortgage contract.
It should be noted that had the Court declared the loan and mortgage agreements
void for being contrary to public policy, no prescriptive period could have run.[20]
Such benefit is obviously not available to petitioners.
Yet the RTC pronounced that the complaint was barred by the four-year
prescriptive period provided in Article 1391 of the Civil Code, which governs
voidable contracts. This conclusion was derived from the allegation in the
complaint that the consent of petitioners was vitiated through undue influence.
While the RTC correctly acknowledged the rule of prescription for 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
petitioners may have motivated them to contract with respondents, but undue
influence cannot be attributed to respondents simply because they had lent
money. Article 1391, in relation to Article 1390 of the Civil Code, grants the
aggrieved party the right to obtain the annulment of contract on account of
factors which vitiate consent. Article 1337 defines the concept of undue
influence, as follows:
There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice.
The following circumstances shall be considered: the confidential, family,
spiritual and other relations between the parties or the fact that the person
alleged to have been unduly influenced was suffering from mental weakness, or
was ignorant or in financial distress.
While petitioners were allegedly financially distressed, it must be proven that
there is deprivation of their free agency. In other words, for undue influence to
be present, the influence exerted must have so overpowered or subjugated the
mind of a contracting party as to destroy his free agency, making him express
the will of another rather than his own.[21] The alleged lingering financial woes
of petitioners per se cannot be equated with the presence of undue influence.
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 stipulations in the
loan contract in their action for annulment of mortgage. Evidently, petitioners
slept on their rights. The Court of Appeals succinctly made the following
observations:
In all these proceedings starting from the foreclosure, followed by the issuance
of a provisional certificate of sale; then the definite certificate of 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 plaintiffs questioned the validity of these proceedings. It was only
after the issuance of the writ of possession in favor of the defendants, that
plaintiffs allegedly tendered to the defendants the amount of P260,000.00 which
the defendants refused. In all these proceedings, why did plaintiffs sleep on their
rights?[22]
Clearly then, with the absence of undue influence, petitioners have no cause of
action. Even assuming undue influence vitiated their consent to the loan
contract, their action would already be barred by prescription when they filed it.
Moreover, petitioners had clearly slept on their rights as they failed to timely
assail the validity of the mortgage agreement. The denial of the petition in G.R.
No. 150773 is warranted.
We now resolve the petition in G.R. No. 153599.
Petitioners claim that the assailed RTC orders dated 3 August 1999 and 6
January 2000 could no longer be questioned in a special civil action for certiorari
and mandamus as the reglementary period for such action had already elapsed.
It must be noted that the Order dated 3 August 1999 suspending the enforcement
of the writ of possession had a period of effectivity of only twenty (20) days from
3 August 1999, or until 23 August 1999. Thus, upon the expiration of the twenty
(20)-day period, the said Order became functus officio. Thus, there is really no
sense in assailing the validity of this Order, mooted as it was. For the same
reason, the validity of the order need not have been assailed by respondents in
their special civil action before the Court of Appeals.
On the other hand, the Order dated 6 January 2000 is in the nature of a writ of
injunction whose period of efficacy is indefinite. It may be properly assailed by
way of the special civil action for certiorari, as it is interlocutory in nature.
As a rule, the special civil action for certiorari under Rule 65 must be filed not
later than sixty (60) days from notice of the judgment or order.[23]Petitioners
argue that the 3 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 sixty (60) days following respondents receipt of the Order.
Considering that the 3 August 1999 Orderhad become functus officio in the first
place, this argument deserves scant consideration.
Petitioners further claim that the 6 January 2000 Order could not have likewise
been the subject of a special civil action for certiorari, as it is according to them
a final order, as opposed to an interlocutory order. That the 6 January 2000
Order is interlocutory in nature should be beyond doubt. An order is
interlocutory if its effects would only be provisional in character and would still
leave substantial proceedings to be further had by the issuing court in order to
put the controversy to rest.[24] The injunctive relief granted by the order is
definitely final, but merely provisional, its effectivity hinging on the ultimate
outcome of the then pending action for annulment of real estate mortgage.
Indeed, an interlocutory order hardly puts to a close, or disposes of, a case or a
disputed issue leaving nothing else to be done by the court in respect thereto, as
is characteristic of a final order.
Thus, we also affirm the Court of Appeals ruling to set aside the RTC orders
enjoining the enforcement of the writ of possession.[27] The purchaser in a
foreclosure sale is entitled as a matter of right to a writ of possession, regardless
of whether or not there is a pending suit for annulment of the mortgage or the
foreclosure proceedings. An injunction to prohibit the issuance or enforcement
of the writ is entirely out of place.[28]
One final note. The issue on the validity of the stipulated interest rates,
regrettably for petitioners, was not raised at the earliest possible opportunity. It
should be pointed out though that since an excessive stipulated interest rate may
be void for being contrary to public policy, an action to annul said interest rate
does not prescribe. Such indeed is the remedy; it is not the action for annulment
of the ancillary real estate mortgage. Despite the nullity of the stipulated interest
rate, the principal loan obligation subsists, and along with it the mortgage that
serves as collateral security for it.
WHEREFORE, in view of all the foregoing, the petitions are DENIED. Costs
against petitioners.
SO ORDERED.

Since the 6 January 2000 Order is not a final order, but rather interlocutory in
nature, we cannot agree with petitioners who insist that it may be assailed only
through an appeal perfected within fifteen (15) days from receipt thereof by
respondents. It is axiomatic that an interlocutory order cannot be challenged by
an appeal,

but is susceptible to review only through the special civil action of certiorari.[25]
The sixty (60)-day reglementary period for special civil actions under Rule 65
applies, and respondents petition was filed with the Court of Appeals well within
the period.
Accordingly, no error can be attributed to the Court of Appeals in granting the
petition for certiorari and mandamus. As pointed out by respondents, the remedy
of mandamus lies to compel the performance of a ministerial duty. The issuance
of a writ of possession to a purchaser in an extrajudicial foreclosure is merely a
ministerial function.[26]