Philippine National Bank vs. Court of Appeals, G.R. No.

88880, 196 SCRA 536 , April 30, 1991 PETITION for certiorari to review the decision of the Court of Appeals. The facts are stated in the opinion of the Court. The Chief Legal Counsel for petitioner. Ambrosio Padilla, Mempin & Reyes Law Offices for private respondent. GRIO-AQUINO, J.: The Philippine National Bank (PNB) has appealed by certiorari from the decision promulgated on June 27, 1989 by the Court of Appeals in CA-G.R. CV No. 09791 entitled, AMBROSIO PADILLA, plaintiffappellant versus PHILIPPINE NATIONAL BANK, defendant-appellee, reversing the decision of the trial court which had dismissed the private respondents complaint to annul interest increases. (p. 32, Rollo.) The Court of Appeals rendered judgment: x x x declaring the questioned increases of interest as unreasonable, excessive and arbitrary and ordering the defendant-appellee [PNB] to refund to the plaintiff-appellant the amount of interest collected from July, 1984 in excess of twenty-four percent (24%) per annum. Costs against the defendant-appellee. (pp. 14-15, Rollo.) In July 1982, the private respondent applied for, and was granted by petitioner PNB, a credit line of P1.8 million, secured by a real estate mortgage, for a term of two (2) years, with 18% interest per annum. Private respondent executed in favor of the PNB a Credit Agreement, two (2) promissory notes in the amount of P900,000.00 each, and a Real Estate Mortgage Contract. The Credit Agreement provided that 9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules and regulations of the Central Bank and the current and general policies of the Bank and those which the Bank may adopt in the future, which may have relation to or in any way affect the Line, which rules, regulations and policies are incorporated herein by reference as if set forth herein in full. Promptly upon receipt of a written request from the Bank, the Borrowers shall execute and deliver such documents and instruments, in form and substance satisfactory to the Bank, in order to effectuate or otherwise comply with such rules, regulations and policies. (p. 85, Rollo.) The Promissory Notes, in turn, uniformly authorized the PNB to increase the stipulated 18% interest per annum within the limits allowed by law at any time depending on whatever policy it [PNB] may adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. (pp. 85 -86, Rollo; italics ours.) The Real Estate Mortgage Contract likewise provided that: (k) INCREASE OF INTEREST RATE The rate of interest charged on the obligation secured by this mortgage as well as the i nterest on the amount which may have been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be subject during the life of this contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors. (p. 86, Rollo; emphasis supplied.) Four (4) months advance interest and incidental expenses/ charges were deducted from the loan, the net proceeds of which were released to the private respondent by crediting or transferring the amount to his current account with the bank. On June 20, 1984, PNB informed the private respondent that (1) his credit line of P1.8 million will expire on July 4, 1984, (2) [i]f renewal of the line for another year is intended, please submit soones t possible your request, and (3) the present policy of the Bank requires at least 30% reduction of principal before your line can be renewed. (pp. 86-87, Rollo.) Complying, private respondent on June 25, 1984, paid PNB P540,000.00 (30% of P1.8 million) and requested that the balance of P1,260,000.00 be renewed for another period of two (2) years under the same arrangement and that the increase of the interest rate of my mortgage loan be from 18% to 21% (p. 87, Rollo.) On July 4, 1984, private respondent paid PNB P360,000.00. On July 18, 1984, private respondent reiterated in writing his request that the increase in the rate of interest from 18% be fixed at 21% of 24%. (p. 87, Rollo.) On July 26, 1984, private respondent made an additional payment of P100,000. On August 10, 1984, PNB informed private respondent that we can not give due course to your request for preferential interest rate in view of the following reasons: Existing Loan Policies of the bank requires 32% for loan of more than one year; Our present cost of funds has substantially increased. (pp. 87 -88, Rollo.) On August 17, 1984, private respondent further paid PNB P150,000.00.

In a letter dated August 24, 1984 to PNB, private respondent announced that he would continue making further payments, and instead of a loan of more than one year, I shall pay the said loan before the lapse of one year or before July 4, 1985. x x x I reiterate my request that the increase of my rate of interest from 18% be fixed at 21% or 24%. (p. 88, Rollo.) On September 12, 1984, private respondent paid PNB P160,000.00. In letters dated September 12, 1984 and September 13, 1984, PNB informed private respondent that the interest rate on your outstanding line/loan is hereby adjusted from 32% p.a. to 41% p.a. (35% prime rate + 6%) effective September 6, 1984; and further explained why we can not grant your request for a lower rate of 21% or 24%. (pp. 88-89, Rollo.) In a letter dated September 24, 1984 to PNB, private respondent registered his protest against the increase of interest rate from 18% to 32% on July 4, 1984 and from 32% to 41% on September 6, 1984. On October 15, 1984, private respondent reiterated his request that the interest rate should not be increased from 18% to 32% and from 32% to 41%. He also attached (as payment) a check for P140,000.00. Like rubbing salt on the private respondents wound, the petitioner informed private respondent on October 29, 1984, that the interest rate on your outstanding line/loan is hereby adjusted from 41% p.a. to 48% p.a. (42% prime rate plus 6% spread) effective 25 October 1984. (p. 89, Rollo.) In November 1984, private respondent paid PNB P50,000.00 thus reducing his principal loan obligation to P300,000.00. On December 18, 1984, private respondent filed in the Regional Trial Court of Manila a complaint against PNB entitled, AMBROSIO PADILLA vs. PHILIPPINE NATIONAL BANK (Civil Case No. 84 28391), praying that judgment be rendered: a. Declaring that the unilateral increase of interest rates from 18% to 32%, then to 41% and again to 48% are illegal, not valid nor binding on plaintiff, and that an adjustment of his interest rate from 18% to 24% is reasonable, fair and just; b. The interest rate on the P900,000.00 released on September 27, 1982 be counted from said date and not from July 4, 1984; c. The excess of interest payment collected by defendant bank by debiting plaintiffs current account be refunded to plaintiff or credited to his current account; d. Pending the determination of the merits of this case, a restraining order and/or a writ of preliminary injunction be issued (1) to restrain and/or enjoin defendant bank for [sic] collecting from plaintiff and/or debiting his current account with illegal and excessive increases of interest rates; and (2) to prevent defendant bank from declaring plaintiff in default for non-payment and from instituting any foreclosure proceeding, extrajudicial or judicial, of the valuable commercial property of plaintiff. (pp. 89 -90, Rollo.) In its answer to the complaint, PNB denied that the increases in interest rates were illegal, unilateral excessive and arbitrary and recited the reasons justifying said increases. On March 31, 1985, the private respondent paid the P300,000-balance of his obligation to PNBN (Exh. 5). The trial court rendered judgment on April 14, 1986, dismissing the complaint because the increases of interest were properly made. The private respondent appealed to the Court of Appeals. On June 27, 1989, the Court of Appeals reversed the trial court, hence, PNBs recourse to this Court by a petition for review under Rule 45 of the Rules of Court. The assignments of error raised in PNBs petition for review can be resolved into a single legal issue of whether the bank, within the term of the loan which it granted to the private respondent, may unilaterally change or increase the interest rate stipulated therein at will and as often as it pleased. The answer to that question is no. In the first place, although Section 2, P.D. No. 116 of January 29, 1973, authorizes the Monetary Board to prescribe the maximum rate or rates of interest for loans or renewal thereof and to change such rate or rates whenever warranted by prevailing economic and social conditions, it expressly provides that such changes shall not be made oftener than once every twelve months. In this case, PNB, over the objection of the private respondent, and without authority from the Monetary Board, within a period of only four (4) months, increased the 18% interest rate on the private respondents loan obligation three (3) times: (a) to 32% in July 1984; (b) to 41% in October 1984; and (c) to 48% in November 1984. Those increases were null and void, for if the Monetary Board itself was not authorized to make such changes oftener than once a year, even less so may a bank which is subordinate to the Board. Secondly, as pointed out by the Court of Appeals, while the private respondent-debtor did agree in the Deed of Real Estate Mortgage (Exh. 5) that the interest rate may be increased during the life of the contract to such increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE

may prescribe (Exh. 5-e-1) or within the limits allowed by law (Promissory Notes, Exhs. 2, 3, and 4), no law was ever passed in July to November 1984 increasing the interest rates on loans or renewals thereof to 32%, 41% and 48% (per annum), and no documents were executed and delivered by the debtor to effectuate the increases. The Court of Appeals observed. x x x We focus Our attention first of all on the agreement between the parties as embodied in the following instruments, to wit: (1) Exhibit 1Credit Agreement dated July 1, 1982; (2) Exhibit 2 Promissory Note dated July 5, 1982; (3) Exhibit 3Promissory Note dated January 3, 1983; (4) Exhibit 4Promissory Note, dated December 13, 1983; and (5) Exhibit 5Real Estate Mortgage contract dated July 1, 1982. Exhibit 1 states in its portion marked Exhibit 1-g-1: 9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules and regulations of the Central Bank and the current and general policies of the Bank and those which the Bank may adopt in the future, which may have relation to or in any way affect the Line, which rules, regulations and policies are incorporated herein by reference as if set forth herein in full. Promptly upon receipt of a written request from the Bank, the Borrowers shall execute and deliver such documents and instruments, in form and substance satisfactory to the Bank, in order to effectuate or otherwise comply with such rules, regulations and policies. Exhibits 2, 3, and 4 in their portions respectively marked Exhibits 2 -B, 3-B, and 4-B uniformly authorize the defendant bank to increase the stipualted interest rte of 18% per annum 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. Exhibit 5 in its portion marked Exhibit 5-e-1 stipulates: (k) INCREASE OF INTEREST RATE The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may have been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be subject during the life of this contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors. Clearly, then, the agreement between the parties auth orized the defendant bank to increase the interest rate beyond the original rate of 18% per annum but within the limits allowed by law or within the rate allowed by law, it being declared the obligation of the plaintiff as borrower to execute and deliv er the corresponding documents and instruments to effectuate the increase. (pp. 11 -12, Rollo.) In Banco Filipino Savings and Mortgage Bank vs. Navarro, 15 SCRA 346 (1987), this Court disauthorized the bank from raising the interest rate on the borrowers loan from 12% to 17% despite an escalation clause in the loan agreement signed by the debtors authorizing Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event a law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan. (italics supplied.) In the Banco Filipino case, the bank relied on Section 3 of CB Circular No. 494 dated July 1, 1976 (72 O.G. No. 3, p. 676-J) which provided that the maximum rate of interest, including commissions premiums, fees and other charges on loans with a maturity of more than 730 days by banking institution x x x shall be 19%. This Court disallowed the increase for the simple reason that said Circular No. 494, although it has the effect of law is not a law. Speaking through Mme. Justice Ameurfina M. Herrera, this Court held: It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated in terest in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board. (p. 111, Rollo.) In the present case, the PNB relied on its own Board Resolution No. 681 (Exh. 10), PNB Circular No. 4079-84 (Exh. 13), and PNB Circular No. 40-129-84 (Exh. 15), but those resolution and circulars are neither laws nor resolutions of the Monetary Board. CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates x x x increases in interest rates are not subject to any ceiling prescribed by the Usury Law.

but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively increase the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of P.D. 116 which limits such changes to once every twelve months. Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the private respondents loan, violated the mutuality of contracts ordained in Article 130 8 of the Civil Code: ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker partys (the debtor) participation being reduced to the alternative to take it or leave it (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. PNBs successive increases of the interest rate on the private respondents loan, over the latters protest, were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms may be amended only by an instrument in writing signed by the party to be bound as burdened by such amendment. The increases imposed by PNB also contravene Art. 1956 of the Civil Code which provides that no interest shall be due unless it has been expressly stipulated in writing. The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24% per annum, hence, he is not bound to pay a higher rate than that. That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive, as found by the Court of Appeals, is indisputable. WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. CV No. 09791, the Court resolved to deny the petition for review for lack of merit, with costs against the petitioner. SO ORDERED. Narvasa (Chairman), Cruz, Gancayco and Medialdea, JJ., concur. Petition denied. Note.Both Article 2212 of the Civil Code and Sec. 5 of the Usury Law refer to stipulated or conventional interest and does not apply where no interest was stipulated by the parties (Philippine American Accident Insurance Company, Inc. vs. Flores, 97 SCRA 811.) [Philippine National Bank vs. Court of Appeals, 196 SCRA 536(1991)] G.R. No. 123643 October 30, 1996 PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS and DR. ERLINDA G. IBARROLA, respondents. RESOLUTION FRANCISCO, J.:p As payments for the purchase of medicines, the Province of Isabela issued several checks drawn against its account with petitioner Philippine National Bank (PNB) in favor of the seller, Lyndon Pharmaceuticals Laboratories, a business operated by private respondent Ibarrola. The checks were delivered to the seller's agents 1 who turned them over to Ibarrola, except 23 checks amounting to P98,691.90, which the agents appropriated after negotiating them with PNB. For her failure to receive the full payment for the medicines, Ibarrola filed on November 6, 1974 before the Regional Trial Court (RTC) an "action for a sum of money and damages," docketed as Civil Case 4226-p, 2 against the Province of Isabela, its Treasurer, the two agents and PNB.

In its decision dated September 29, 1987, the trial court ordered all the defendants in said civil case, except the treasurer who died in the meantime, to "jointly and solidarily" pay Ibarrola several amounts, among which is: (1) P98,691.90 with interest thereon at the legal rate from the date of the filing of the complaint until the entire amount is fully paid; 3 (Emphasis supplied.) PNB's appeal to the Court of Appeals (CA) and later to the Supreme Court were denied and dismissed, respectively. All the three courts, however, did not specify whether the legal rate of interest referred to in the judgment is 6% or 12%. The judgment in Civil Case 4226-P became final and executory on November 26, 1993. At the execution stage, the sheriff computed the interest mentioned in the judgment at the rate of 12% which PNB opposed insisting that the rate should only be 6%. Ibarrola sought clarification from the same RTC which promulgated the decision. On August 4, 1994 said court issued an order clarifying that the rate is 12%. PNB's direct appeal to this court from that order was referred to the CA which affirmed the RTC order. Hence, this petition for review under Rule 45 where two legal issues are raised: (1) whether in an action for damages, the legal rate of interest is 6% as provided by Article 2209 6 of the New Civil Code or 12% as provided by CB Circular 416 series of 1974, 7 and (2) whether such rate shall be computed from the filing of the complaint until fully paid? The issues are not new. In the case of Estern Shipping Lines, Inc. v. CA, 8 this Court had provided a rule "of thumb for future guidance," 9 to wit: 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. 10 (Emphasis ours.) The case at bench does not involve a loan, forbearance of money or judgment involving a loan or forbearance of money as it arose from a contract of sale whereby Ibarrola did not receive full payment for her merchandise. When an obligation arises "from a contract of purchase and sale and not from a contract of loan or mutuum," the applicable rate is "6% per annum as provided in Article 2209 of the NCC and not the rate of 12% per annum as provided in (CB) Cir. No. 416." 11 Indeed, PNB's liability is based only on the RTC's judgment where it was held solidarily liable with the other defendants due to its negligence when it "failed to assure itself" if the Provincial Treasurer was "properly authorized" by Ibarrola to "make endorsements" of said checks. 12 The rate of 12% interest referred to in Cir. 416 applies only to: [L]oan or forbearance of money, or to cases where money is transferred from one person to another and the obligation to return the same or a portion thereof is adjudged. Any other monetary judgment which does not involve or which has nothing to do with loans or forbearance of any money, goods or credit does not fall within its coverage for such imposition is not within the ambit of the authority granted to the Central Bank. When an obligation not constituting a loan or forbearance of money is breached then an interest on the amount of damages
4 5

awarded may be imposed at the discretion of the court at the rate of 6% per annum in accordance with Art. 2209 of the Civil Code. Indeed, the monetary judgment in favor of private respondent does not involve a loan or forbearance of money, hence the proper imposable rate of interest is six (6%) per cent. 13 (Emphasis ours.) Applying the aforequoted rule, therefore, the proper rate of interest referred to in the judgment under execution is only 6%. This interest according to Eastern Shipping shall be computed from the time of the filing of the complaint considering that the amount adjudged (P98,691.90) can be established with reasonable certainty. Said amount being merely the uncollected balance of the purchase price covered by the 23 checks encashed and appropriated by Ibarrola's agents. However, once the judgment becomes final and executory, the "interim period from the finality of judgment awarding a monetary claim and until payment thereof, is deemed to be equivalent to a forbearance of credit." 14 Thus, in accordance with the pronouncement in Eastern Shipping the rate of 12% p.a. should be imposed, and to be computed from the time the judgment became final and executory until fully satisfied. The actual base for the computation of this 12% interest after the judgment in this damage suit became final shall be the amount adjudged (P98,691.90). ACCORDINGLY, the appealed decision is REVERSED. The rate of interest shall be 6% p.a. computed from the time of the filing of the complaint until its full payment before finality of judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% p.a. computed from the time the judgment became final and executory on November 26, 1993 until fully satisfied. SO ORDERED. G.R. No. L-35697-99 April 15, 1988 ELADlA DE LIMA, POTENCIANO REQUIJO, NEMESIO FLORES, REYNALDO REQUIJO, DOMINADOR REQUIJO and MARIO REQUIJO, petitioners, vs. LAGUNA TAYABAS CO., CLARO SAMONTE, SANTIAGO SYJUCO, INC., (SEVEN-UP BOTTLING CO., OF THE PHILIPPINES) and PORVENIR ABAJAR BARRETO, respondents. Leon O. Ty, Gesmundo and Gesmundo and Renato B. Vasquez for petitioners. Domingo E. de Lara and Associates for respondents. GANCAYCO, J.: Before Us is a petition for review on certiorari of the decision De Lima vs. Laguna Tayabas Co. of the Court of Appeals 1 affirming the decision of the court a quo with modification to include an award of legal interest on the amounts adjudged in favor of the petitioners from the date of the decision of the Court of Appeals to the time of actual payment. This present action arose from a collision between a passenger bus of the Laguna Tayabas Bus Co. (LTB) and a delivery truck of the Seven-up Bottling Co. of the Philippines which took place on June 3, 1958 resulting in the death of Petra de la Cruz and serious physical injuries of Eladia de Lima and Nemesio Flores, all passengers of the LTB bus. Three civil suits were filed against herein respondents which were consolidated for trial before the Court of First Instance of Laguna (San Pablo City).

On December 27, 1963, the court a quo rendered its decision, the dispositive part of which reads as follows: WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered against the defendants LTB Co. Inc. and Claro Samonte, who are hereby ordered to pay jointly and severally, the resolve plaintiffs. In Civil Case No. SP-239; Plaintiff Eladia de Lima:
1

vs. Lira, et al.) 4 For the loss of earning capacity for 5 years 5 For expenses of litigation and attorney's fees TOTAL 2,500.00 8,000.00

For loss of money and medical expenses. For loss of earnings from June 3, 1958 to November 3, 1958

P960.00

2.

. 924.00

P18,183.82

3.

For expenses of litigation and attorney's fees TOTAL . .1,000.00 P 2,884.00

In Civil Case No. SP-268: To Plaintiff Nemesio Flores:

1

For loss of earning capacity for 5 year from June 3, 1958 at the rate of P228.00 a month P 3,680.00

In Civil Case No. SP-240; Plaintiffs Requijos:

1

For the death of Petra de la Cruz including funeral expenses

P 3,883.82 2. For expenses of litigation and attorney's fees. TOTAL 800.00 1,000.00 P14,680.00

For the money lost during the trip Moral damages for mental anguish (of Mercado

Plaintiffs in Civil Cases Nos. SP-239 and SP-240 filed a motion for reconsideration of the decision seeking an award of legal interest on the amounts adjudged in their favor from the date of the said decision but their motion was not acted upon by the court a quo. All of the plaintiffs voluntarily desisted from appealing the decision by reason of financial necessity and in the hope that the defendants LTB Co. and its driver Claro Samonte will be persuaded to make immediate payment to them as adjudged by the court a quo. Only the said defendants appealed the decision to the Court of Appeals.

3,000.00

In the motion of petitioners dated December 29, 1971 filed with the Court of Appeals, 2 they sought for an immediate decision of the case with a prayer for the granting of legal interest from the date of the decision

of the court a quo and for the increase to P12,000.00 of the civil indemnity of P3,000.00 awarded for the death of Petra de la Cruz. On January 31, 1972, the now disputed decision of the Court of Appeals was promulgated. 3 Petitioners moved for a reconsideration of this decision 4 seeking its modification so that the legal interest awarded by the Appellate, Court will start to run from the date of the decision of the trial court on December 27, 1963 instead of January 31, 1972, the date of the decision of the Court of Appeals. Petitioner potenciano Requijo as heir of the deceased Petra de la Cruz further sought an increase in the civil indemnity of P3,000.00 to P 12,000.00. The Appellate Court denied the motion for reconsideration holding that since the plaintiffs did not appeal from the failure of the court a quo to award interest on the damages and that the court on its own discretion awarded such interest in view of Art. 2210 of the Civil Code, the effectivity of the interest should not be rolled back to the time the decision of the court a quo was rendered. 5 Hence this petition. The assignment of errors raised the following issues, to wit: 1) Whether or not the Court of Appeal; erred in granting legal interest on damages to start only from the date of its decision instead of from the date of the trial court's decision; 2) Whether or not the Court of Appeals erred in not increasing the indemnity for the death of Petra de La Cruz (in Civil Case No. SP-240) from P3,000 to P12,000.00. We find merit in the petition. Under the first issue, petitioners contend that the ruling of she Appellate Court departs from the consistent rulings of this court that the award of the legal rate of interest should be computed from the promulgation of the decision of the tonal court. Respondents counter that petitioners having failed to appeal from the lower court's decision they. are now precluded from questioning the ruling of the Court of Appeals. It is true that the rule is well-settled that a party cannot impugn the correctness of a judgment not appealed from by him, and while he may make counter assignment of errors, he can do so only to sustain the judgment on other grounds but not to seek modification or reversal thereof, 6 for in such case he must appeal. 7 A party who does not appeal from the decision may not obtain any affirmative relief from the appellate court other than what he has obtained from the lower court, if any, whose decision is brought up on appeal. 8 However, respondents failed to note that the legal interest was awarded by the Appellate Court in its discretion based on equitable grounds which is duly sanctioned by Art. 2210 of the Civil Code which provides Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. Thus, the Appellate Court pointed out

A further examination of the record will also show that the plaintiffs in Civil Cases Nos. SP-239 and SP-240 moved for the reconsideration of the decision appealed from to include the award of legal interest on the amounts adjudicated from the date of the decision, but said motion was not acted upon by the court a quo. Although said plaintiffs failed to appeal on this issue, and did not file their brief to reiterate their claim for interest thereon, the plaintiff in Civil Case No. SP-268, Nemesio Flores, filed his brief and prayed for the imposition of interest from the date of the decision. We are not left without discretion to resolve this issue, considering the provision of Article 2210, New Civil Code, stating that "Interest may, in the petition of the court, be allowed upon damages awarded for breach of contract." There is no doubt that the damages awarded in these civil cases arise from the breach of a contractual obligation on the part of the defendants- appellants. But to grant the imposition of interest on the amounts awarded to and as prayed for by one of the plaintiffs and deny the same to the others considering that the cases arose from one single incident would be, to Our mind, unfair and inequitous. In the light, therefore, not only of the provision of the Civil Code above referred to, but also the facts and circumstances obtaining in these cases. We believe that on equitable grounds legal interest, should be allowed on the amounts adjudged in favor of the plaintiffs from the date of this decision up to the time of actual payment thereof. Also noteworthy is the case of Fores v. Miranda 9 where this Court upheld the granting by the Court of Appeals of attorney's fees even if the respondent, a jeepney passenger injured in a vehicular accident, did not appeal from the decision of the trial court. The Appellate Court found the award to be justified because the respondent asked for damages in his answer and the said court considered the attorney's fees as included in the concept of damages which can be awarded whenever the court deems it just and equitable (Art. 2208, Civil Code of the Philippines). At any rate, this Court is inclined to adopt a liberal stance in this case as We have done in previous decisions where We have held that litigations should, as much as possible be decided on their merits and not on technicality.10 We take note of the fact that petitioners are litigating as paupers. Although they may not have appealed, they had filed their motion for reconsideration with the court a quo which unfortunately did not act on it. By reason of their indigence, they failed to appeal but petitioners De Lima and Requijo had filed their manifestation making reference to the law and jurisprudence upon which they base their prayer for relief while petitioner Flores filed his brief. Pleadings as well as remedial laws should be construed liberally in order that the litigants may have ample opportunity to pursue their respective claims and that a possible denial of substantial justice due to legal technicalities may be avoided. 11 Moreover, under the circumstances of this case where the heirs of the victim in the traffic accident chose not to appeal in the hope that the transportation company will pay the damages awarded by the lower court but unfortunately said company still appealed to the Court of Appeals, which step was obviously dilatory and oppressive of the rights of the said claimants: that the case had been pending in court for about 30 years from the date of the accident in 1958 so that as an exception to the general rule aforestated, the said heirs who did not appeal the judgment, should be afforded equitable relief by the courts as it must be vigilant for their protection. 12The claim for legal interest and increase in the indemnity should be entertained in spite of the failure of the claimants to appeal the judgment. We take exception to the ruling of the Appellate Court as to the date when the legal interest should commence to ran. In view of the consistent rulings of this Court, We hold that the legal interest of six percent (6) 13 on the amounts adjudged in favor of petitioners should start from the time of the rendition of the trial court's decision on December 27, 1963 instead of January 31, 1972, the promulgation of the decision of the Court of Appeals. 14

As to the second issue, civil indemnity for the death of Petra de la Cruz was properly awarded by virtue of Art. 1764 in relation to Art. 2206 of the Civil Code of the Philippines which allows a minimum indemnity of P3,000.00 for the death of a passenger caused by the breach of contract by a common carrier. In accordance with prevailing jurisprudence the indemnity of P3,000.00 should be increased to P30,000.00 and not P12,000.00 as prayed for by petitioner. If the transportation company had only accepted the judgment of the trial court and paid its just awards instead of appealing the same to the Court of Appeals, no further delay would have been occasioned on the simple issue of interest and indemnity. To mitigate the impact of such a great delay in this case the Court finds ample justification in the aforesaid award for interest and indemnity. We hope this relief is not too late. WHEREFORE, the petition is hereby GRANTED, the subject decision is modified in that the legal interest on the damages awarded to petitioners commences from the date of the decision of the court a quo until actual payment while the civil indemnity for the death of Petra de la Cruz is increased to P 30,000.00. This judgment is immediately executory and no motion for extension of time to file motion for reconsideration shall be entertained. SO ORDERED. G.R. No. L-28497 November 6, 1928

In connection with case 28498, it appears that on February 18, 1925 the defendant bought a oneton Whitetruck of the plaintiff corporation for the sum of P7,136.50, and after having deducted the P500 cash payment and the 12 per cent annual interest on the unpaid principal, obligated himself to make payment of this sum within the periods agreed upon. To secure this payment the defendant mortgaged to the plaintiff corporation the said truck purchased and two others, numbered 77197 and 92744, respectively, the same that were mortgaged in the purchase of the other truck referred to in the other case. The defendant failed to pay P4,208.28 of this sum. In both sales it was agreed that 12 per cent interest would be paid upon the unpaid portion of the price at the executon of the contracts, and in case of non-payment of the total debt upon its maturity, 25 per cent thereon, as penalty. In addition to the mortagage deeds referred to, which the defendant executed in favor of the plaintiff, the defendant at the same time also signed a promissory note solidarily with his brother Rosario Espiritu for the several sums secured by the two mortgages (Exhibits B and D). Rosario Espiritu appeared in these two cases as intervenor, alleging to be the exclusive owner of the two White trucks Nos. 77197 and 92744, which appear to have been mortgaged by the defendants to the plaintiff. lawphi1.net While these two cases were pending in the lower court the mortgaged trucks were sold by virtue of the mortgage, all of them together bringing in, after deducting the sheriff's fees and transportation charges to Manila, the net sum of P3,269.58. The judgment appealed from ordered the defendants and the intervenor to pay plaintiff in case 28497 the sum of P7,732.09 with interest at the rate of 12 per cent per annum from May 1, 1926 until fully paid, and 25 per cent thereof in addition as penalty. In case 28498, the trial court ordered the defendant and the intervenor to pay plaintiff the sum of P4,208.28 with interest at 12 per cent per annum from December 1, 1925 until fully paid, and 25 per cent thereon as penalty. The appellants contend that trucks 77197 and 92744 were not mortgaged, because, when the defendant signed the mortgage deeds these trucks were not included in those documents, and were only put in later, without defendant's knowledge. But there is positive proof that they were included at the time the defendant signed these documents. Besides, there were presented two of defendant's letters to Hidalgo, an employee of the plaintiff's written a few days before the transaction, acquiescing in the inclusion of all his White trucks already paid for, in the mortgage (Exhibit H-I). Appellants also alleged that on February 4, 1925, the defendant sold his rights in said trucks Nos. 77197 and 92744 to the intervenor, and that as the latter did not sign the mortgage deeds, such trucks cannot be considered as mortgaged. But the evidence shows that while the intervenor Rosario Espiritu did not sign the two mortgage deeds (Exhibits A and C), yet, together with the defendants Faustino Espiritu, he signed the two promissory notes (Exhibits B and D) secured by these two mortgages. All these instruments were executed at the same time, and when the trucks 77197 and 92744 were included in the mortgages, the intervenor Rosario Espiritu was aware of it and consented to such inclusion. These facts are supported by the testimony of Bachrach, manager of the plaintiff corporation, of Agustin Ramirez, who witnessed the execution of all these documents, and of Angel Hidalgo, who witnessed the execution of Exhibits B and D. We do not find the statement of the intervenor Rosario Espiritu that he did not sign promissory notes Exhibits B and C to be sufficient to overthrow this evidence. A comparison of his genuine signature on Exhibit AA with those appearing on promissory notes B and C, convinces us that the latter are his signatures. And such is our conclusion, notwithstanding the evidence presented to establish that on the date when Exhibits B appears to have been signed, that is July 25, 1925, the intervenor was in Batac, Ilocos Norte, many miles away from Manila. And the fact that on the 24th of said month of July, the

THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs. FAUSTINO ESPIRITU, defendant-appellant. -----------------------------G.R. No. L-28498 November 6, 1928

THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs. FAUSTINO ESPIRITU, defendant-appellant, and ROSARIO ESPIRITU, intervenor-appellant. Ernesto Zaragoza and Simeon Ramos for defendant-appellant. Benito Soliven and Jose Varela Calderon for intervenor-appellant. B. Francisco for appellee. AVANCEA, C. J.: These two cases, Nos. 28497 and 28948, were tried together. It appears, in connection with case 28497; that on July 28, 1925 the defendant Faustino Espiritu purchased of the plaintiff corporation a two-ton White truck for P11,983.50, paying P1,000 down to apply on account of this price, and obligating himself to pay the remaining P10,983.50 within the periods agreed upon. To secure the payment of this sum, the defendants mortgaged the said truck purchased and, besides, three others, two of which are numbered 77197 and 92744 respectively, and all of the White make (Exhibit A). These two trucks had been purchased from the same plaintiff and were fully paid for by the defendant and his brother Rosario Espiritu. The defendant failed to pay P10,477.82 of the price secured by this mortgage.

plaintiff sent some truck accessory parts by rail to Ilocos for the intervenor does not necessarily prove that the latter could not have been in Manila on the 25th of that month. In view of his conclusion that the intervenor signed the promissory notes secured by trucks 77197 and 92744 and consented to the mortgage of the same, it is immaterial whether he was or was not the exclusive owner thereof. It is finally contended that the 25 per cent penalty upon the debt, in addition to the interest of 12 per cent per annum, makes the contract usurious. Such a contention is not well founded. Article 1152 of the Civil Code permits the agreement upon a penalty apart from the interest. Should there be such an agreemnet, the penalty, as was held in the case of Lopez vs. Hernaez (32 Phil., 631), does not include the interest, and which may be demamded separetely. According to this, the penalty is not to be added to the interest for the determination of whether the interest exceeds the rate fixed by the law, since said rate was fixed only for the interest. But considering that the obligation was partly performed, and making use of the power given to the court by article 1154 of the Civil Code, this penalty is reduced to 10 per cent of the unpaid debt. With the sole modification that instead of 25 per cent upon the sum owed, the defendants need pay only 10 per cent thereon as penalty, the judgment appealed from is affired in all other respects without special pronouncement as to costs. So ordered. G.R. No. 82082 March 25, 1988 INSULAR BANK OF ASIA AND AMERICA,plaintiff-appellant, vs. SPOUSES EPIFANIA SALAZAR and RICARDO SALAZAR, defendants-appellees. GUTIERREZ, JR., J.: This is an appeal by the Insular Bank of Asia and America (IBAA) from the judgment of the Regional Trial Court of Leyte in Civil Case No. 6932 for collection of a sum of money with preliminary attachment. The appeal was originally brought to the Court of Appeals but was certified to us by that tribunal because it raises only a question of law. The facts are not disputed. On November 22, 1978, defendants-appellees Epifania Salazar and Ricardo Salazar obtained a loan from the plaintiff-appellant in the amount of Forty Two Thousand and Fifty Pesos ( P42,050.00 ) payable on or before December 12, 1980. This loan transaction was evidenced by a promissory note where the defendants-appellees bound themselves jointly and severally to pay the amount with interest at 19% per annum and with the express authority to increase without notice the rate of interest up to the maximum allowed by law and subject further to penalty charges or liquidated damages upon default equivalent to 2% per month on any amount due and unpaid. In the event the account was referred to an attorney for collection, the defendants-appellees were also bound to pay 25% of any amount due as attorney's fees plus expenses of litigation and costs. In accordance with the agreement, the plaintiff-appellant increased the rate of interest to 21% pursuant to Central Bank Circular No. 705 dated December 1, 1979. The promissory note matured but the defendants-appellees failed to pay their account. It was only after several demands that the defendants-appellees were able to make partial payment. As of November 25,

1983, they were able to pay a total of P68,676.75 which payments were applied to partially satisfy the penalty and interest charges. On September 12, 1984, the plaintiff-appellant filed a complaint with the Regional Trial Court alleging that the defendants-appellees were indebted to IBAA in the amount of P87,647.19 as of September 15, 1984. including interest at 21% per annum penalty charges, and attorney's fees. At the pre-trial on October 31, 1984, the parties and their counsels appeared. The defendant-spouses admitted the execution of the promissory note in consideration of P48,050.00. The trial court then rendered a summary judgment the dispositive portion of which reads: WHEREFORE, judgment is hereby ordered in favor of the plaintiff ordering the defendant spouses Ricardo Salazar and Epifania Salazar to pay Insular Bank of Asia and America (IBAA) the sum of Eleven Thousand Two Hundred Fifty Three Pesos and Twenty Five Centavos ( P11,253.25 ), with interest thereon at the rate of 19% per annum from the filing of the complaint on September 12, 1984 until fully paid. The defendants are further ordered to pay the plaintiff-attorney's fees in the amount of one Thousand Pesos ( P1,000.00 ) and to pay the costs. (p. 4, PlaintiffAppellant's Brief). Plaintiff-appellant now raises the following assigned errors: I THE LOWER COURT ERRED IN NOT AWARDING TO PLAINTIFF-APPELLANT PENALTY CHARGES OR LIQUIDATED DAMAGES IN THE AMOUNT OF 2% PER MONTH ON ALL AMOUNTS DUE AND UNPAID; II THE LOWER COURT ERRED IN NOT AWARDING INTEREST ON THE LOAN AT 21 % PER ANNUM. III THE LOWER COURT ERRED IN THE COMPUTATION OF THE AMOUNT OF OBLIGATION DUE FROM DEFENDANTS-APPELLEES APPELLEES IN FAVOR OF PLAINTIFF-APPELLANT III THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF- APPELLANT ATTORNEY'S FEES EQUIVALENT TO 25% OF THE AMOUNT DUE AND EXPENSES OF LITIGATION; and IV THE LOWER COURT ERRED IN NOT ORDERING DEFENDANTS-APELLEES TO JOINTLY AND SEVERALLY PAY THE OBLIGATION. (pp. 4-5, Plaintiff-Appellant's Brief) The Escalation Clause provided in the promissory note reads: The interest herein charged shall be subject to in , without notice, depending on whatever policy IBAA may in the future adopt conformable to law, especially to compensate for any in Central Bank interests or rediscounting rates. Finding strength in the argument that the promissory note is the contract between the parties and, under the law, obligations arising from contracts have the force of law between the parties, the plaintiff-appellant increased the interest rate to 21% per annum effective December 1, 1979 pursuant to Central Bank Circular No. 705. In line with the Court's ruling in the case of Banco Filipino v. Navarro (G.R. No. L-46591, July 28,1987), the interest rate may not be increased by the plaintiff-appellant in the instant case. It is the nile that

escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. However, the enforceability of such stipulations are subject to certain conditions. In the Banco Filipino case, the borrower questioned the additional interest charges on the loan of P41,300.00 she obtained when the interest rates were increased from 12% to 17% per Central Bank Circular No. 494, issued on January 2, 1976. In a letter written by the Central Bank to the borrower, some clarifications were made. Pertinent portions of the letter read: In this connection, please be advised that the Monetary Board, in its Resolution No. 1155 dated June 11, 1976 adopted the following guidelines to govern interest rate adjustments by banks and non-banks performing quasi- banking functions on loans already existing as of January 3, 1976, in the light of Central Rank Circulars Nos. 492-498: 1 Only banks and non-bank financial intermediaries performing quasi-banking functions may interest rates on I already existing as of January 2,1976, provided that: a. The pertinent loan contracts/documents contain escalation clauses expressly authorizing lending bank or non-bank performing quasi-banking functions to increase the rate of interest stipulated in the contract, in the event that any law or Central Bank regulation is promulgated increasing the maximum interest rate for loans; and b. Said loans were directly granted by them and the remaining maturities thereof were more than 730 days as of January 2, 1976, and 2. The increase in the rate of interest can be effective only as of January 2, 1976 or on a later date. (Emphasis supplied) Moreover, in its comment and supplemental comment submit, ted upon orders of this Court, the Central Bank took the position that the issuance of its circulars is a valid exercise of its authority to prescribe maximum rates of interest and based on the general principles of contract, the Escalation Clause is a valid provision in the loan agreement provided that- 41) the increased rate imposed or charged by petitioner does not exceed the ceiling fixed by law or the Monetary Board; (2) the increase is made effective not earlier than the effectivity of the law or regulation authorizing such an increase and (3) the remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation authorizing such an increase. (Emphasis supplied) In the case at bar, the loan was obtained on November 21, 1978 and was payable on or before November 12, 1980. Central Bank Circular No. 705, authorizing the increase from 19% to 21% was issued on December 1, 1979. Obviously, as of this date, December 1, 1979, the remaining maturity of the loan was less than 730 days. Hence, the plaintiff-appellant's second assignment of error is without merit. With respect to the penalty clause, we have upheld the validity of such agreements in several cases. As the Court stated in the case of Government Service Insurance System v. Court of appeals (145 SCRA 311, 321): In the Bachrach case (supra) the Supreme Court ruled that the Civil Code permits the agreement upon a penalty apart from the interest. Should there be such an

agreement, the penalty does not include the interest, and as such the two are different and distinct things which may be demanded separately. Reiterating the same principle in the later case of Equitable Banking Corp. (supra), where this Court held that the stipulation about payment of such additional rate partakes of the nature of a penalty clause, winch is sanctioned by law. In the case of Equitable Banking Corporation v. Liwanag (32 SCRA 293, 297), the Court explained: xxx xxx xxx ... We have not overlooked the 14% interest that appellant has been sentenced to pay. This may appear to be usurious, but it is not so. The rate stipulated was 9%, subject, however, to an additional rate of 5%, in the event of default. The stipulation about payment of such additional rate partakes of the nature of a penalty clause, which is sanctioned by law, (Art. 1226, Civil Code of the Philippines), although, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (Art 1229, Civil Code of the Philippines). ... Admittedly, the defendants-appellees in the instant case failed to pay the loan on the due date. However, with earnest efforts, they tried to pay the loan little by little so that as of November 25, 1983, a total of P68,676.75 had been paid. The plaintiff-appellant, on the other hand, merely applied this amount to satisfy the penalty and interest charges which it additionally imposed. We do not find any evidence of bad faith on the part of the defendants-appellees in their failure to pay the loan on time. Efforts were indeed made to make good their promise. We note the trial court's observation that the plaintiff-appellant did not even state in the complaint that the defendants-appellees had made partial payments, making it appear that the spouses Salazars refused to pay the loan. In their answer with counterclaim, the defendants-appellees alleged that the bank neglected to credit said payments in the defendant's account folio and subjected it as it did to the additional charges. Furthermore, we agree with the trial court that the bank has already profited considerably from the loan. In a span of about six (6) years, the bank was enriched by P 26,626.75 (p. 17, Records). The penalty charges of 2% a month are, therefore, out of proportion to the damage incurred by the bank. In accordance with Article 1229 of the Civil Code, the Court is constrained to reduce the penalty for being highly iniquitous With respect to the attorney's fees, the court is likewise empowered to reduce the same if they are unreasonable or unconscionable notwithstanding the express contract for attorney's fees. The award of one thousand ( P1,000.00 ) pesos by the trial court appears to be enough. The promissory note signed by the defendants-appellants states that the loan of P42,050.00 shall bear interest at the rate of 19% per annum. This would yield interest of P7,989.50 per annum or a total of P 46,339.10 from November 22, 1978 to September 12, 1984, the date of filing the complaint. Penalty interest of 1% a month or 12% per annum is reasonable so that from December 12, 1980 up to September 12, 1984, penalty charges should be P19,202.83. Considering that the defendants-appellees have paid the amount of P68,676.75, they, therefore, owed the bank the amount of P38,915.18 when the complaint was filed. There is no indication in the records as to the fluctuation of actual interest rates from 1984 and, therefore, we order interest at the legal rate of 12% per annum on the unpaid amount. WHEREFORE, the decision of the lower court is MODIFIED. The defendants-appellants Ricardo Salazar and Epifania Salazar are ordered to pay Insular Bank of Asia and America (IBAA) the sum of THIRTYEIGHT THOUSAND NINE HUNDRED PESOS and EIGHTEEN CENTAVOS (P38,915.18 ) with interest thereon at the rate of Twelve Percent (12%) per annum from the filing of the complaint until fully paid. SO ORDERED.

G.R. No. L-31125

January 21, 1930

TIBURCIO LUTERO, plaintiff-appellant, vs. SIULIONG and CO., defendant-appellant. Guevara, Francisco and Recto and Tiburcio Lutero for plaintiff-appellant. Power and Hill for defendant-appellant. VILLA-REAL, J.:

4. In not rendering judgment in favor of the defendant and against plaintiff for all of the amounts prayed for in defendant's counter-complaint, including interest, attorney's fees, penalties and payment for sugar at prices agreed upon in the contracts between plaintiff and defendant. The following facts were proved at the trial without dispute: On June 30, 1919, the plaintiff Tiburcio Lutero and the defendant Siuliong & Co. entered into a contract (Exhibit A), the pertinent parts of which are as follows: Know all men by these presents:

These are two appeals taken by plaintiff Tiburcio Lutero and by defendant Siuliong & Co. from the judgment of the Court of First Instance of Iloilo absolving the defendant from the complaint, and the plaintiff from the cross-complaint, without costs. In support of his appeal, the plaintiff assigns the following alleged errors as committed by the court below in its judgment, to wit: The lower court erred: 1. In refusing to permit witness Rufino Abordo to testify with regard to a conversation between the plaintiff and the deceased manager of the defendant. 2. In holding: (a) That Exhibits A and C are contracts of sale of sugar; (b) that the P3,000 and P5,600 mentioned in said contracts are advances on the selling price of 500 and 800 piculs of sugar, respectively. 3. In not holding: (a) That Exhibits A and C are contracts of loans of money payable in sugar; (b) that said contracts are usurious; (c) therefore, the current market price at the time of delivery, or P30 per picul, should be fixed as the price of the sugar delivered by the plaintiff to the defendant; (d) consequently, the plaintiff is entitled to a balance of P8,187.75 against the defendant. 4. In not ordering the defendant to pay plaintiff said amount of P8,187.75. 5. In denying the plaintiff's motion for a new trial. On the other hand, the defendant, in support of its appeal, assigns the following alleged errors as committed by the court below in its judgment, to wit: The court erred in all of the following particulars: 1. In finding that the defendant by its silence had renounced its rights under its contracts with the plaintiff. 2. In refusing to allow defendant interest at eight per cent per annum as provided for in Exhibit C. 3. In refusing to allow defendant attorney's fees as provided for in contracts Exhibits A and C.

That I, Tiburcio Lutero, of age, married, and a resident of the municipality of January, Province of Iloilo, Philippine Islands, DO HEREBY STATE: That I own a sugar plantation located in the municipality of January, Iloilo, called San Ramon, from which I expect a crop of at least 1,200 to 1,500 piculs of sugar, more or less. That I have agreed with the firm of Siuliong & Co., of this City of Iloilo, represented by Mr. Yap-Inchong, to fix the selling price of 500 piculs of my sugar crop from said plantation during the season of 1919-1920 at the rate of P12 per picul for high class No. 1 sugar; P11.50 for No. 2, and P11 for No. 3, to be delivered to said firm in the month of March of next year, 1920. That by virtue of this agreement to sell, the firm of Siuliong & Co., through its manager, binds, itself to advance to Mr. Tiburcio Lutero the amount of P3,000, Philippine currency, or, at the rate of P6 a picul for No. 1; and P0.50 less for each succeeding picul, as an advance upon the sale of said 500 piculs, and the remainder shall be paid to said Mr. Lutero from time to time, as he sends his sugar to the Iloilo market, until the full price of said 500 piculs of sugar is covered. I further state that should I be unable to deliver said 500 piculs, I bind myself to pay in specie to said form of Siuliong & Co., the price of the undelivered portion according to the current market price during said month of March. I state likewise that for the security of Siuliong & Co., I, Tiburcio Lutero, constitute a second mortgage in favor of said firm on a sugar plantation located in the barrio of Ramirez, municipality of Janiuay, Province of Iloilo, with all the improvements thereon, consisting of a six-horse power steam engine with an eight-horse power boiler; a battery with two ovens and eight cauas and a warehouse of mixed materials, which plantation is encumbered by a first mortgage in favor of the National Bank, and is described as follows: . . . . That for the security of Siuliong & Co., I, Maximino Jalandoni, farmer, landowner, and resident of the municipality of Jaro, Province of Iloilo, P. I., do hereby bind myself as joint and several surety for Mr. Tiburcio Lutero in favor of Messrs. Siuliong & Co., for the sum of three thousand pesos (P3,000) in case said Mr. Lutero should be unable to fulfill his obligations stipulated in this contract. "Any of the parties failing to fulfill the terms of this contract hereby binds himself to pay an indemnity of P200 as costs and attorney's fees. In witness whereof, we sign these presents in Iloilo, this thirtieth day of June, 1919.

(Sgd.) TIBURCIO LUTERO SIULIONG & CO. (Sgd.) YAP-INCHONG On August 21, 1919, the same parties entered into another contract (Exhibit C), the pertinent parts of which are as follows: Know all men by these presents: That I, Tiburcio Lutero, of age, married, and resident of the municipality of Janiuay, Province of Iloilo, P. I. DO HEREBY STATE: That I, Tiburcio Lutero, own a sugar plantation located in the municipality of Janiuay, Province of Iloilo, P. I., from which I expect a crop of one thousand two hundred to one thousand five hundred piculs of sugar more or less. That I have agreed with the firm Siuliong & Co., through its branch in this City of Iloilo, Province of Iloilo, to fix the selling price of Eight hundred (800) piculs of sugar from my crop from said plantation during the season of 1919-1920 at the rate of fourteen pesos (P14) a picul for No. 1 sugar; thirteen pesos and fifty centavos (P13.50) a picul for No. 2 sugar; thirteen pesos (P13) for No. 3; twelve pesos and fifty centavos (P12.50) for No. 4; and twelve pesos (P12) for No. 5; to be delivered to said firm in the months of December, January, February, March, and April of said year of 1920. That by virtue of this agreement to sell, the firm Siuliong & Co., through its manager, binds itself to advance to me the amount of five thousand six hundred pesos (P5,600), Philippine currency, that is, at the rate of P7 per picul as an advance payment upon the selling price of said eight hundred piculs of sugar, and the balance shall be paid to me from time to time as I forward my sugar to the Iloilo market, until the full price of said eight hundred piculs (800) is covered. I likewise state that should I be unable to deliver said eight hundred piculs of sugar of any part thereof, I bind myself to pay in specie the price of the undelivered portion to said firm of Siuliong & Co., according to the current market price in said months and on the day of the settlement of my account. I state further that to secure to said firm of Siuliong & Co., the sum of five thousand six hundred pesos (P5,600) which I have received from the same as an advance upon this sale, I hereby mortgaged to said firm all the sugar cane now planted on my said San Ramon plantation, situated in the municipality of Janiuay, Province of Iloilo, P. I., with the exception of the five hundred (500) piculs, which was the subject of my contract with the same firm of Siuliong & Co., dated June 30th of this year. That for a further security of said firm of Siuliong & Co., and by virtue of the power of attorney conferred upon me by Mr. Ramon Masa, attorney, farmer, and resident of the municipality of Sibalum, Province of Antique, P.I., which power remains to this day unrevoked, duly acknowledged before the justice of the peace of Sibalum, Province of Antique, Mr. Nicolas Tordecillas, on August 15, of this year, I do hereby mortgage in favor of said firm of Siuliong & Co., the forty head of cattle, consisting of cows and carabaos, all of which are at present on said Mr. Masa's farm in the municipality of San Remigio, Province of

Antique, which are free from all liens and incubrances, and of which the documents of ownership are described as follows: xxx xxx xxx

Should any or all of said animals thus mortgaged die, I bind myself to replace the loss with my own carabaos. I hereby state that the amount of five thousand six hundred pesos (P5,600) Philippine currency, advanced to me by the firm of Siuliong & Co., shall earn 8 per cent annual interest until full settlement of my account. I hereby state that the date of maturity of this contract was fixed as April 30, 1920. I, Florentino Magalona, of age, married, resident of the district of Molo, municipality of Iloilo, Province of Iloilo, P.I., farmer, landowner, do hereby state that I hereby bind myself as joint and several surety for Mr. Tiburcio Lutero in favor of the firm of Siuliong & Co., should he be unable to meet his obligation stipulated in this contract. Any of the parties who fails to comply with the terms of this contract shall be bound to pay an indemnity of five hundred pesos (P500) as costs and attorney's fees. In witness whereof, we have hereunto set our hands in Iloilo, this 21st day of August, 1919. (Sgd.) TIBURCIO LUTERO (Sgd.) FLORENTINO MAGALONA SIULIONG & CO. By (Sgd.) YAP-INCHONG By virtue of the contract Exhibit A, the plaintiff delivered to the defendant a total of 337 piculs and 57 cates of muscovado sugar of different classes, and on different dates, the total price of which amounts of P3,405.58 (Exhibit 1), leaving an undelivered balance of 162 piculs and 44 cates. The plaintiff received from the defendant in kind and specie the amount of P4,606.15. In conformity with the contract Exhibit C, the plaintiff delivered to the defendant 309 piculs and 77 cates of muscovado sugar, the total price of which amounts to P3,822.40 (Exhibit 2), leaving an undelivered balance of 490 piculs and 24 cates. The plaintiff received by virtue of said contract Exhibit C, in kind and specie, the sum of P6,862 (Exhibit 2). The first question to be decided in the present appeal is whether the contracts Exhibits A and C, entered into by and between the plaintiff Tiburcio Lutero and the defendant Siuliong & Co. are for usurious loans of money payable in sugar. By contract Exhibit A, the plaintiff bound himself to sell to the defendant during the month of March, 1920, 500 piculs of sugar from the crop of the agricultural year 1919-1920, at the rate of P12 a picul for No. 1 superior sugar; P11.50 for No. 2; and P11 for No. 3. By virtue of the second contract Exhibit C, the plaintiff bound himself to sell to the defendant 800 piculs of sugar from his crop of the agricultural year 1919-1920 at the rate of P14 a picul for No. 1 sugar; P13.50 for No. 2; P13 for No. 3; P12.50 for No. 4; and P12 for No. 5, to be delivered in the months of December, January, February, March, and April, of the year 1920.

It is contended by the plaintiff-appellant that the defendant having advanced money to the plaintiff upon both contracts, said money was given as a loan payable in sugar, which, according to the law, must be computed on the basis of the market price at the time of delivery; and that as the maximum price of sugar on the respective dates of delivery was P30, and the price stipulated in said contracts was not even onehalf of the market price, said contracts are usurious. According to both contracts, the defendant was bound to buy the 500 piculs of sugar mentioned in the contract Exhibit A, and the 800 piculs of sugar mentioned in the contract Exhibit C, at the price stipulated in said contracts. It is no contended by the plaintiff-appellant that contracts for the sale of agricultural products to be delivered in future cannot be entered into. If so, the contracts made by the plaintiff and the defendant are perfectly valid, and the fact that on the date of delivery of the sugar, its market price is higher than that stipulated, does not make them usurious or illegal, because the defendant assumed the same risk of a loss taken by the plaintiff, due to difference in price, and if the price, instead of rising, had slumped, the defendant would have had to pay the price stipulated, and not the market price, as has happened to many farmers and merchants due to the sudden slump of prices at the end of the world war. For the foregoing considerations, we are of the opinion and so hold that the contracts of sale of agricultural products to be delivered in future, fixing a selling price, are not usurious or illegal, even when the market price of the products sold should turn out to be higher at the time of delivery. The second question to be decided in the present appeal is whether or not the plaintiff must pay to be defendant for the sugar which the former failed to deliver in accordance with the aforesaid contracts, Exhibits A and C. The court below, considering the price of each picul of sugar to be P30, held that the defendant had been more than paid with the sugar delivered by the plaintiff, and considering also that from the month of July, 1921, when the defendant demanded of the plaintiff the delivery of the remaining portion of the sugar, until December 8, 1927, when the cross-complaint was filed, almost six years had elapsed, said court held that the defendant had renounced its rights and had been satisfied with the sugar theretofore received from plaintiff. This opinion of the court below is based neither on law nor on equity. That the defendant had not waived its rights to the balance of the amount of sugar specified in said contracts, is shown by the fact that it several times required the plaintiff, by means of letters, to deliver said balance and that the latter kept on asking for extension of time by reason of his critical financial situation. The defendant, taking this circumstance into account, did not press its demands on the plaintiff, and allowed some six years to elapse, until the plaintiff brought this action against the defendant, praying that said contracts be declared usurious, and that the defendant be sentenced to return the amount of P16,410, as the sum collected in excess of plaintiff's debt. For laches and neglect on the part of those, who, under the law are entitled to require of others the fulfillment of their obligations, the statute of limitations has been enacted, which provides that such rights prescribe after a certain period of time, in order that it may serve alike as a punishment for those who do not know how to look after their own interest, and as a source of reassurance to those who may have rested in the belief that their creditors had waived their rights, and also to insure economic stability and the certainty of rights. In the case before us, there are written contracts by virtue of which the parties incurred mutual obligations, and, according to section 43, No. 1 of the Code of Civil Procedure, the action which one of the parties may bring against the other to require the fulfillment of his obligation, does not prescribed until after ten years. Inasmuch as only six years, more or less, have elapsed from the time the defendant last demanded of the plaintiff the fulfillment of the obligation incurred by him by virtue of the contracts Exhibits A and C until it filed its counterclaim herein, said action has not prescribed, and the defendant is entitled to have a judicial pronouncement thereon. Now then, if the defendant is entitled to demand of the plaintiff the fulfillment of his obligations under the terms of the contracts Exhibits A and C, and if of the 500 piculs of sugar which the plaintiff bound himself to deliver in pursuance of the contract Exhibit A, he only delivered 337 piculs and 57 cates of sugar, thus incurring a shortage of 162 piculs and 44 cates; and if out of the 800 piculs of sugar which he bound

himself to deliver in accordance with the contract Exhibit C, he only delivered 309 piculs and 77 cates, thereby defaulting with respect to 490 piculs and 23 cates, and as he cannot now deliver said shortages since the period for delivery has elapsed, what damages is the defendant entitled to? Under contract Exhibit A, the plaintiff had received from the defendant in cash, goods, and other expenses the amount of P4,606.15. Having delivered 337 piculs and 57 cates of muscovado, the total value of which is P3,405.58, he had still a balance of P1,199.87 to pay, and 162 piculs and 44 cates of sugar to deliver. Under contract Exhibit C, the plaintiff received from the defendant in cash, goods, and other expenses the total sum of P6,862. Having delivered 319 piculs and 77 cates of muscovado, the full value whereof is P3,822.44, he had still a balance of P3,031.54 to pay, and 490 piculs and 24 cates of sugar to deliver. In accordance with contracts Exhibits A and C, mentioned above, the plaintiff bound himself to pay in cash, according to the current market price, for the undelivered difference. The minimum market price of muscovado in the month of May, 1920, was P19 per picul. Fixing the average price of the sugar, which the plaintiff failed to deliver to the defendant, according to the respective contracts, at P10 under the contract Exhibit A, and at P12 under the contract Exhibit C, the difference between said respective contracts and the minimum market price would be the loss sustained by the defendant through plaintiff's failure to deliver the sugar at the proper time according to said contracts. The undelivered quantity of 162 piculs and 44 cates of sugar under contract Exhibit A, at P19 a picul, yields a total sum of P3,086.36, and at P10 a picul, a total of P1,624.40, leaving a difference of P1,461.96. Inasmuch as under said contract the plaintiff owned the defendant P1,199.87, this amount and the difference just mentioned, give a total of P2,661.83, which is the aggregate amount which the plaintiff should pay to the defendant under said contract Exhibit A. The undelivered quantity of 490 piculs and 24 cates of sugar under the contract Exhibit C, at the minimum price of P19 yields a total of P9,314.56, and at P12, a total of P5,882.88, leaving a difference of P3,431.68. Inasmuch as the plaintiff owed a balance of P3,031.54, this amount and the difference just mentioned, give a total of P6,463.22, which is the aggregate amount which the plaintiff should pay to the defendant under the aforesaid contract Exhibit C. With respect to interest upon the sums advanced by the defendant to the plaintiff, and the attorney's fees, we do not believe it equitable to award them, considering the circumstances of this case. For the foregoing considerations, we are of opinion and so hold: (1) That the sale of sugar to be delivered at a future definite time and for a fixed price, a part of which is advanced by the purchaser to the vendor, is neither usurious nor illegal even though said price should prove to be much less than the market price on the date of delivery; (2) that the fact that the purchaser does not bring suit against the vendor immediately upon the latter's default in the delivery of the sugar sold, and that he allows six years to elapse, does not deprive him of his right to bring such action on account of laches, inasmuch as such action, arising from a written contract, does not prescribed until after ten years from the time the cause of action arises. (section 43, Code of Civil Procedure); and (3) that the purchaser is entitled to damages sustained on account of the vendor's default, said damages consisting in the difference between the price stipulated and the market price of the goods at the time delivery thereof should have been made. By virtue whereof, the judgment appealed from is reversed, and the defendant is absolved from the complaint; and the plaintiff is ordered, by virtue of the defendant's counterclaim to pay to the latter, under contract Exhibit A, the sum of P2,661.83 with legal interest from the date of the filing of the counterclaim until fully paid; and, under contract Exhibit C, the sum of P6,463.22 with legal interest from the date of the filing of the counterclaim until fully paid, with costs against the appellee. So ordered.

G.R. No. L-17165

July 31, 1962

EMMA R. GENIZA, AURELIO GENIZA, LORENZO RIVERA, CATALINA CARREON RIVERA and ZACARIAS RIVERA, plaintiffs-appellants, vs. HENRY SY and ASIA MERCANTILE CORPORATION, defendants-appellees. Vicente J. Francisco for plaintiffs-appellants. Dakila F. Castro for defendants-appellees. LABRADOR, J.: On July 8, 1959, Catalina Carreon, with the consent of her husband Zacarias Rivera, mortgaged to the defendant Asia Mercantile Corporation Lot No. 551 of the Piedad estate subdivision for P50,000.00, payable within period of thirty days with interest at the rate of 12% per annum. Paragraph 4 of the contract provides that upon failure of the mortgagor to pay the indebtedness and the interest when due, the mortgage shall become due and demandable, and without necessity of demand the mortgaged may immediately foreclose the mortgage, judicially or extrajudicially and for this purpose the mortgagor appoint the mortgagee as his attorney-in-fact to sell the properties and to sign all documents and perform any act requisite and necessary to accomplish said purpose. It was further expressly agreed that in case of foreclosure the mortgagor binds himself to pay the mortgagee 30% of the sum owing and unpaid as attorney's fees and liquidated damages, exclusive of costs and expenses of the sale. On the same date another mortgage was executed by plaintiffs Emma R. Geniza, Aurelio Geniza and Lorenzo Rivera over two parcels of registered land for the sum of P50,000.00, and with the same conditions as the mortgage executed by the spouses Catalina Carreon and Zacarias Rivera. Copies of the contracts of mortgage are annexed to the complaint in this case as Annex "A" and Annex "B". The mortgagors in both mortgage contracts defaulted in the payment of their respective obligations. The mortgage executed by Catalina Carreon Rivera and Zacarias Rivera was foreclosed extrajudicially and the proceeds of the sale of the land amounting to P68,567.57 was disposed of by the mortgagee as follows: Proceeds of Sale (TCT No. 7464) Less: Amount of Loan 12% Interest 5% Attorney's fees and liquidated damages Total Obligation Excess Recoverable P50,000.00 2,000.00 2,500.00 P68,567.57

The case having been tried in the Court of First Instance of Quezon City, Hon. Nicasio Yatco, presiding, rendered judgment dismissing the action of plaintiffs Emma Geniza and Aurelio Geniza as premature, and ordering the defendant Asia Mercantile Corporation to return plaintiff Catalina C. Rivera the sum of P13,567.57 which represents the excess of the total obligations of the mortgagor based on the following computation: Proceeds of Sale (TCT No. 7464) Less: Amount of Loan 12% Interest 5% Attorney's fees and liquidated damages Total Obligation Excess Recoverable P50,000.00 2,000.00 2,500.00 P68,567.57

P55,000.00 13,567.57

It is against the above judgment that the plaintiff have prosecuted the appeal to this Court, claiming the lower court erred in not reducing the liquidated damages and the attorney's fees to not more than P500.00 in not declaring the stipulation exacting attorney's fees and liquidated damages as a usurious stipulation, by reason of which plaintiffs (appellants herein) should be entitled to attorney's fees amounting to P5,000.00. In reducing the 30% attorney's fees and liquidated damages from 30% to 5%, the judge below appears to be fully justified. As the loan was for a period of thirty days only, damages amounting to 30% of the loan of P50,000 would appear to be iniquitous and subject to reduction in accordance with the provisions of Articles 1227 and 1229 of the Civil Code of the Philippines. We do not agree with counsel for plaintiffsappellants that the contract was a usurious contract there being no allegation of fact that the mortgagee's intention was to exact a usurious interest, nor evidence to that effect. Neither is there any allegation or claim that the mortgage is contra bonos mores, that we may assume that he demanded the insertion of the iniquitous clause or 30% damages to cover a usurious deal. Under these circumstances we cannot sustain claim of the plaintiffs-appellants that the agreement was usurious one; so that we hold that the trial court was fully justified in considering the provision only as iniquitous clause subject to reduction. We also find the reduced liquidated damages and attorney's fees to be fair and we find no reason for disturbing the discretion of the court below in this respect. WHEREFORE, the judgment appealed from is hereby affirmed, with costs against the plaintiffsappellants. So ordered.

P55,000.00 13,567.57

Plaintiffs brought this action to obtain a judicial declaration that the stipulation in the deeds of mortgage fixing the amount of 30% as attorney's fees and liquidated damages is excessive, unconscionable and iniquitous and that the same should be reduced to P200.00. The complainants also asked for P5,000.00 as attorney's fees for bringing this action. The defendants set up the defense that the complaint states no cause of action; that the mortgage executed by Emma R. Geniza and Aurelio Geniza has not yet been foreclosed; that the mortgagors are estopped from alleging that the stipulation regarding liquidated damages and attorney's fees is excessive and unreasonable.