TERESITA DIO, petitioner, vs.

SPOUSES VIRGILIO and LUZ ROCES

JAPOR and MARTA
[1]
JAPOR, respondents.
D E C I S I O N
QUISUMBING, J .:
For review on certiorari is the Decision,
[2]
dated February 22, 2002, of the
Court of Appeals, in the consolidated cases CA-G.R. CV No. 51521 and CA-
G.R. SP No. 40457. The decretal portion read:
WHEREFORE, premises considered, in CA-G.R. CV No. 51521, the decision of the
trial court is AFFIRMED with MODIFICATION. Judgment is rendered as follows:
1. Declaring the Real Estate Mortgage to be valid;
2. Fixing the interest at 12% per annum and an additional 1% penalty charge per
month such that plaintiffs-appellants contractual obligation under the deed of real
estate mortgage would amount toP1,252,674.00;
3. Directing defendant-appellee Dio to give the surplus of P2,247,326.00 to plaintiffs-
appellants; and
4. Affirming the dissolution of the writ of preliminary injunction previously issued by the
trial court.
No pronouncement as to costs.
The Petition in CA-G.R. SP No. 40457 is DENIED for being moot and academic.
SO ORDERED.
[3]

Equally assailed in this petition is the Resolution,
[4]
dated July 2, 2002, of
the appellate court, denying Teresita Dios Motion for Partial
Reconsideration of March 19, 2002 and the Spouses Japor and Marta
Japors Motion for Reconsideration dated March 20, 2002.
The antecedent facts are as follows:
Herein respondents Spouses Virgilio Japor and Luz Roces Japor were the
owners of an 845.5 square-meter residential lot including its improvements,
situated in Barangay Ibabang Mayao, Lucena City, as shown by Transfer
Certificate of Title (TCT) No. T-39514. Adjacent to the Japors lot is another
lot owned by respondent Marta Japor, which consisted of 325.5 square
meters and titled under TCT No. T-15018.
On August 23, 1982, the respondents obtained a loan of P90,000 from the
Quezon Development Bank (QDB), and as security therefor, they mortgaged
the lots covered by TCT Nos. T-39514 and T-15018 to QDB, as evidenced by
a Deed of Real Estate Mortgage duly executed by and between the
respondents and QDB.
On December 6, 1983, respondents and QDB amended the Deed of Real
Estate Mortgage increasing respondents loan to P128,000.
The respondents failed to pay their aforesaid loans. However, before the
bank could foreclose on the mortgage, respondents, thru their broker, one
Lucia G. Orian, offered to mortgage their properties to petitioner Teresita
Dio. Petitioner prepared a Deed of Real Estate Mortgage, whereby
respondents mortgaged anew the two properties already mortgaged with QDB
to secure the timely payment of a P350,000 loan that respondents had from
petitioner Dio. The Deed of Real Estate Mortgage, though dated January
1989, was actually executed on February 13, 1989 and notarized on February
17, 1989.
Under the terms of the deed, respondents agreed to pay the petitioner
interest at the rate of five percent (5%) a month, within a period of two months
or until April 14, 1989. In the event of default, an additional interest equivalent
to five percent (5%) of the amount then due, for every month of delay, would
be charged on them.
The respondents failed to settle their obligation to petitioner on April 14,
1989, the agreed deadline for settlement.
On August 27, 1991, petitioner made written demands upon the
respondents to pay their debt.
Despite repeated demands, respondents did not pay, hence petitioner
applied for extrajudicial foreclosure of the mortgage. The auction of the
unredeemed properties was set for February 26, 1992.
Meanwhile, on February 24, 1992, respondents filed an action for Fixing
of Contractual Obligation with Prayer for Preliminary Mandatory
Injunction/Restraining Order, docketed as Civil Case No. 92-26, with the
Regional Trial Court (RTC) of Lucena City. Respondents prayed that
judgment be rendered fixing the contractual obligations of plaintiffs with the
defendant Dio plus legal or allowable interests thereon.
[5]

The trial court issued an Order enjoining the auction sale of the
aforementioned mortgaged properties.
On June 15, 1992, the Japors filed a Motion to Admit Amended
Complaint with an attached copy of their Amended Complaint praying that
the Deed of Real Estate Mortgage dated February 13, 1989 be declared null
and void, but reiterating the plea that the trial court fix the contractual
obligations of the Japors with Dio. The trial court denied the motion.
On September 27, 1994, respondents filed with the appellate court, a
petition for certiorari, docketed as CA-G.R. SP No. 35315, praying that the
Court of Appeals direct the trial court to admit their Amended Complaint. The
appellate court denied said petition.
[6]

On December 11, 1995, the trial court handed down the following
judgment:
WHEREFORE, in view of the foregoing considerations, judgment is rendered:
1. Dismissing the complaint for failure of the plaintiffs to substantiate their affirmative
allegations;
2. Declaring the Real Estate Mortgage (Exhs. A to A-13/Exhs. 3 to 3-D) to be
valid and binding as between the parties, more particularly the plaintiffs Virgilio
Japor, Luz Japor and Marta Japor or the latters substituted heir or heirs, as the
case may be;
3. Dissolving the writ of preliminary injunction previously issued by this Court; and
4. To pay the cost of this suit.
SO ORDERED.
[7]

On January 17, 1996, respondents filed their notice of appeal. On April
26, 1996, they also filed a Petition for Temporary Restraining Order
And/Or Mandatory Injunction in Aid of Appellate Jurisdiction with the
Court of Appeals.
On May 8, 1996, petitioner Dio as the sole bidder in an auction purchased
the properties for P3,500,000.
On May 9, 1996, the Court of Appeals denied respondents application for
a temporary restraining order.
[8]

On October 9, 1996, the appellate court consolidated CA-G.R. CV No.
51521 and CA-G.R. SP No. 40457.
As stated at the outset, the appellate court affirmed the decision of the trial
court with respect to the validity of the Deed of Real Estate Mortgage, but
modified the interest and penalty rates for being unconscionable and
exorbitant.
Before us, petitioner assigns the following errors allegedly committed by
the appellate court:
I
THE ALLEGED INIQUITY OF THE STIPULATED INTEREST AND PENALTY
WAS NOT RAISED BEFORE THE TRIAL COURT NOR ASSIGNED AS AN
ERROR IN RESPONDENTS APPEAL.
II
THE STIPULATED INTEREST AND PENALTY ARE NOT EXCESSIVE,
INIQUITOUS, UNCONSCIONABLE, EXORBITANT AND CONTRARY TO
MORAL[S].
III
PAYMENT OF THE SURPLUS OF P2,247,326.00 TO RESPONDENTS WOULD
RESULT IN THEIR UNJUST ENRICHMENT.
IV
RESPONDENTS APPEAL SHOULD HAVE BEEN DISMISSED DUE TO FORUM
SHOPPING.
[9]

Simply stated, the issue is: Did the Court of Appeals err when it held that
the stipulations on interest and penalty in the Deed of Real Estate Mortgage is
contrary to morals, if not illegal? Corollarily, were respondents entitled to any
surplus on the auction sale price?
On the main issue, petitioner contends that The Usury Law
[10]
has been
rendered ineffective by Central Bank Circular No. 905, series of 1982 and
accordingly, usury has become legally non-existent in this jurisdiction, thus,
interest rates may accordingly be pegged at such levels or rates as the lender
and the borrower may agree upon. Petitioner avers she has not violated any
law considering she is not engaged in the business of money-
lending. Moreover, she claims she has suffered inconveniences and incurred
expenses for some 13 years now as a result of respondents failure to pay
her. Petitioner further points out that the 5% interest rate was proposed by
the respondents and have only themselves to blame if the interests and
penalties ballooned to its present amount due to their willful delay and default
in payment. The appellate court thus erred, petitioner now insists, in
applying Sps. Almeda v. Court of Appeals
[11]
and Medel v. Court of Appeals
[12]
to
reduce the interest rate to 12% per annum and the penalty to 1% per month.
Respondents admit they owe petitioner P350,000 and do not question any
lawful interest on their loan but they maintain that the Deed of Real Estate
Mortgage is null and void since it did not state the true intent of the parties,
which limited the 5% interest rate to only two (2) months from the date of the
loan and which did not provide for penalties and other charges in the event of
default or delay. Respondents vehemently contend that they never consented
to the said stipulations and hence, should not be bound by them.
On the first issue, we are constrained to rule against the petitioners
contentions.
Central Bank Circular No. 905, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and
unsecured loans, regardless of maturity. However, nothing in said Circular
grants lenders carte blanche authority to impose interest rates which would
result in the enslavement of their borrowers or to the hemorrhaging of their
assets.
[13]
While a stipulated rate of interest may not technically and necessarily
be usurious under Circular No. 905, usury now being legally non-existent in
our jurisdiction,
[14]
nonetheless, said rate may be equitably reduced should the
same be found to be iniquitous, unconscionable, and exorbitant, and hence,
contrary to morals (contra bonos mores), if not against the law.
[15]
What is
iniquitous, unconscionable, and exorbitant shall depend upon the factual
circumstances of each case.
In the instant case, the Court of Appeals found that the 5% interest rate
per month and 5% penalty rate per month for every month of default or delay
is in reality interest rate at 120% per annum. This Court has held that a
stipulated interest rate of 5.5% per month or 66% per annum is void for being
iniquitous or unconscionable.
[16]
We have likewise ruled that an interest rate of
6% per month or 72% per annum is outrageous and inordinate.
[17]
Conformably
to these precedent cases, a combined interest and penalty rate at 10% per
month or 120% per annum, should be deemed iniquitous, unconscionable,
and inordinate. Hence, we sustain the appellate court when it found the
interest and penalty rates in the Deed of Real Estate Mortgage in the present
case excessive, hence legally impermissible. Reduction is legally called for
now in rates of interest and penalty stated in the mortgage contract.
What then should the interest and penalty rates be?
The evidence shows that it was indeed the respondents who proposed the
5% interest rate per month for two (2) months. Having agreed to said rate, the
parties are now estopped from claiming otherwise. For the succeeding period
after the two months, however, the Court of Appeals correctly reduced the
interest rate to 12% per annum and the penalty rate to 1% per month, in
accordance with Article 2227
[18]
of the Civil Code.
But were respondents entitled to the surplus of P2,247,326
[19]
as a result
of the overpricing in the auction?
We note that the surplus was the result of the computation by the Court
of Appeals of respondents outstanding liability based on a reduced interest
rate of 12% per annum and the reduced penalty rate of 1% per month. The
court a quo then proceeded to apply our ruling in Sulit v. Court of Appeals,
[20]
to
the effect that in case of surplus in the purchase price, the mortgagee is liable
for such surplus as actually comes into his hands, but where he sells on credit
instead of cash, he must still account for the proceeds as if the price were
paid in cash, for such surplus stands in the place of the land itself with respect
to liens thereon or vested rights therein particularly those of the mortgagor or
his assigns.
In the instant case, however, there is no surplus to speak of. In adjusting
the interest and penalty rates to equitable and conscionable levels, what the
Court did was merely to reflect the true price of the land in the foreclosure
sale. The amount of the petitioners bid merely represented the true amount of
the mortgage debt. No surplus in the purchase price was thus created to
which the respondents as the mortgagors have a vested right.
WHEREFORE, the Decision dated February 22, 2002, of the Court of
Appeals in the consolidated cases CA-G.R. CV No. 51521 and CA-G.R. SP
No. 40457 is hereby AFFIRMED with MODIFICATION. The interest rate for
the subject loan owing to QDB, or whoever is now the party mortgagee, is
hereby fixed at five percent (5%) for the first two (2) months following the date
of execution of the Deed of Real Estate Mortgage, and twelve percent (12%)
for the succeeding period. The penalty rate thereafter shall be fixed at one
percent (1%) per month. Petitioner Teresita Dio is declared free of any
obligation to return to the respondents, the Spouses Virgilio Japor and Luz
Roces Japor and Marta Japor, any surplus in the foreclosure sale
price. There being no surplus, after the court below had applied our ruling
in Sulit,
[21]
respondents could not legally claim any overprice from the petitioner,
much less the amount of P2,247,326.00.
SO ORDERED.

THE CONSOLIDATED BANK AND TRUST CORPORATION
(SOLIDBANK), petitioner, vs. THE COURT OF APPEALS,
CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM
and SPOUSE, respondents.
D E C I S I O N
YNARES-SANTIAGO, J .:
The instant petition for review seeks to partially set aside the July 26, 1993
Decision
[1]
of respondent Court of Appeals in CA-G.R. CV No. 29950, insofar as it
orders petitioner to reimburse respondent Continental Cement Corporation the amount
of P490,228.90 with interest thereon at the legal rate from July 26, 1988 until fully
paid. The petition also seeks to set aside the March 8, 1994 Resolution
[2]
of
respondent Court of Appeals denying its Motion for Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement Corporation (hereinafter,
respondent Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained
from petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM-
23277 in the amount of P1,068,150.00 On the same date, respondent Corporation
paid a marginal deposit of P320,445.00 to petitioner. The letter of credit was used to
purchase around five hundred thousand liters of bunker fuel oil from Petrophil
Corporation, which the latter delivered directly to respondent Corporation in its
Bulacan plant. In relation to the same transaction, a trust receipt for the amount of
P1,001,520.93 was executed by respondent Corporation, with respondent Lim as
signatory.
Claiming that respondents failed to turn over the goods covered by the trust
receipt or the proceeds thereof, petitioner filed a complaint for sum of money with
application for preliminary attachment
[3]
before the Regional Trial Court of Manila. In
answer to the complaint, respondents averred that the transaction between them was a
simple loan and not a trust receipt transaction, and that the amount claimed by
petitioner did not take into account payments already made by them. Respondent Lim
also denied any personal liability in the subject transactions. In a Supplemental
Answer, respondents prayed for reimbursement of alleged overpayment to petitioner
of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on the following issues:
1) Whether or not the transaction involved is a loan transaction or a trust
receipt transaction;
2) Whether or not the interest rates charged against the defendants by the
plaintiff are proper under the letter of credit, trust receipt and under existing rules or
regulations of the Central Bank;
3) Whether or not the plaintiff properly applied the previous payment of
P300,456.27 by the defendant corporation on July 13, 1982 as payment for the latters
account; and
4) Whether or not the defendants are personally liable under the transaction
sued for in this case.
[4]

On September 17, 1990, the trial court rendered its Decision,
[5]
dismissing the
Complaint and ordering petitioner to pay respondents the following amounts under
their counterclaim: P490,228.90 representing overpayment of respondent
Corporation, with interest thereon at the legal rate from July 26, 1988 until fully paid;
P10,000.00 as attorneys fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the
Decision by deleting the award of attorneys fees in favor of respondents and, instead,
ordering respondent Corporation to pay petitioner P37,469.22 as and for attorneys
fees and litigation expenses.
Hence, the instant petition raising the following issues:
1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED
INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT
THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE
PETITIONER IN THE AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF
ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS
APPLICATION OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW
CIVIL CODE.
2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE
MARGINAL DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN
ACCORDANCE WITH BANKING PRACTICE.
3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS
TO THE FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE
JURISPRUDENCE AND THE RULES AND REGULATIONS OF THE CENTRAL
BANK.
4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT
GRIEVOUSLY ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR
AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF THE JUDICIAL
ADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR WHICH
RESPONDENTS ARE LIABLE THEREFOR.
5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT
GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES
LIABLE UNDER THE TRUST RECEIPT TRANSACTION.
[6]

The petition must be denied.
On the first issue respecting the fact of overpayment found by both the lower
court and respondent Court of Appeals, we stress the time-honored rule that findings
of fact by the Court of Appeals especially if they affirm factual findings of the trial
court will not be disturbed by this Court, unless these findings are not supported by
evidence.
[7]

Petitioner decries the lack of computation by the lower court as basis for its ruling
that there was an overpayment made. While such a computation may not have
appeared in the Decision itself, we note that the trial courts finding of overpayment is
supported by evidence presented before it. At any rate, we painstakingly reviewed
and computed the payments together with the interest and penalty charges due thereon
and found that the amount of overpayment made by respondent Bank to
petitioner, i.e., P563,070.13, was more than what was ordered reimbursed by the
lower court. However, since respondents did not file an appeal in this case, the
amount ordered reimbursed by the lower court should stand.
Moreover, petitioners contention that the marginal deposit made by respondent
Corporation should not be deducted outright from the amount of the letter of credit is
untenable. Petitioner argues that the marginal deposit should be considered only after
computing the principal plus accrued interests and other charges. However, to sustain
petitioner on this score would be to countenance a clear case of unjust enrichment, for
while a marginal deposit earns no interest in favor of the debtor-depositor, the bank is
not only able to use the same for its own purposes, interest-free, but is also able to
earn interest on the money loaned to respondent Corporation. Indeed, it would be
onerous to compute interest and other charges on the face value of the letter of credit
which the petitioner issued, without first crediting or setting off the marginal deposit
which the respondent Corporation paid to it. Compensation is proper and should take
effect by operation of law because the requisites in Article 1279 of the Civil Code are
present and should extinguish both debts to the concurrent amount.
[8]

Hence, the interests and other charges on the subject letter of credit should be
computed only on the balance of P681,075.93, which was the portion actually loaned
by the bank to respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside
as invalid the floating rate of interest exhorted by petitioner to be applicable. The
pertinent provision in the trust receipt agreement of the parties fixing the interest rate
states:
I, WE jointly and severally agree to any increase or decrease in the interest rate which
may occur after July 1, 1981, when the Central Bank floated the interest rate, and to
pay additionally the penalty of 1% per month until the amount/s or installment/s due
and unpaid under the trust receipt on the reverse side hereof is/are fully paid.
[9]

We agree with respondent Court of Appeals that the foregoing stipulation is
invalid, there being no reference rate set either by it or by the Central Bank, leaving
the determination thereof at the sole will and control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic
conditions, for banks to stipulate that interest rates on a loan not be fixed and instead
be made dependent upon prevailing market conditions, there should always be a
reference rate upon which to peg such variable interest rates. An example of such a
valid variable interest rate was found in Polotan, Sr. v. Court of Appeals.
[10]
In that
case, the contractual provision stating that if there occurs any change in the
prevailing market rates, the new interest rate shall be the guiding rate in computing
the interest due on the outstanding obligation without need of serving notice to the
Cardholder other than the required posting on the monthly statement served to the
Cardholder
[11]
was considered valid. The aforequoted provision was upheld
notwithstanding that it may partake of the nature of an escalation clause, because at
the same time it provides for the decrease in the interest rate in case the prevailing
market rates dictate its reduction. In other words, unlike the stipulation subject of the
instant case, the interest rate involved in the Polotan case is designed to be based on
the prevailing market rate. On the other hand, a stipulation ostensibly signifying an
agreement to any increase or decrease in the interest rate, without more, cannot be
accepted by this Court as valid for it leaves solely to the creditor the determination of
what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent
Corporation is really a trust receipt transaction instead of merely a simple loan, as
found by the lower court and the Court of Appeals.
The recent case of Colinares v. Court of Appeals
[12]
appears to be foursquare with
the facts obtaining in the case at bar. There, we found that inasmuch as the debtor
received the goods subject of the trust receipt before the trust receipt itself was entered
into, the transaction in question was a simple loan and not a trust receipt
agreement. Prior to the date of execution of the trust receipt, ownership over the
goods was already transferred to the debtor. This situation is inconsistent with what
normally obtains in a pure trust receipt transaction, wherein the goods belong in
ownership to the bank and are only released to the importer in trust after the loan is
granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the
goods subject of the trust receipt occurred long before the trust receipt itself was
executed. More specifically, delivery of the bunker fuel oil to respondent
Corporations Bulacan plant commenced on July 7, 1982 and was completed by July
19, 1982.
[13]
Further, the oil was used up by respondent Corporation in its normal
operations by August, 1982.
[14]
On the other hand, the subject trust receipt was only
executed nearly two months after full delivery of the oil was made to respondent
Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a trust receipt transaction was
explained in Colinares, to wit:
The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or goods to
the prejudice of another regardless of whether the latter is the owner. Here, it is
crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of
confidence in the handling of money to the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the
money for their personal use. The mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved to be present in Petitioners
situation. Petitioners employed no artifice in dealing with PBC and never did they
evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought
favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for
re-sale, contrary to the express provision embodied in the trust receipt. They are
contractors who obtained the fungible goods for their construction project. At no time
did title over the construction materials pass to the bank, but directly to the Petitioners
from CM Builders Centre. This impresses upon the trust receipt in question
vagueness and ambiguity, which should not be the basis for criminal prosecution in
the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to facilitate collection of
loans and place them under the threats of criminal prosecution should they be unable
to pay it may be unjust and inequitable, if not reprehensible. Such agreements are
contracts of adhesion which borrowers have no option but to sign lest their loan be
disapproved. The resort to this scheme leaves poor and hapless borrowers at the
mercy of banks, and is prone to misinterpretation, as had happened in this
case. Eventually, PBC showed its true colors and admitted that it was only after
collection of the money, as manifested by its Affidavit of Desistance.
Similarly, respondent Corporation cannot be said to have been dishonest in its
dealings with petitioner. Neither has it been shown that it has evaded payment of its
obligations. Indeed, it continually endeavored to meet the same, as shown by the
various receipts issued by petitioner acknowledging payment on the loan. Certainly,
the payment of the sum of P1,832,158.38 on a loan with a principal amount of only
P681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling of
funds on the part of respondent Corporation, which are the gravamen of a trust receipt
violation. Furthermore, respondent Corporation is not an importer which acquired the
bunker fuel oil for re-sale; it needed the oil for its own operations. More importantly,
at no time did title over the oil pass to petitioner, but directly to respondent
Corporation to which the oil was directly delivered long before the trust receipt was
executed. The fact that ownership of the oil belonged to respondent Corporation,
through its President, Gregory Lim, was acknowledged by petitioners own account
officer on the witness stand, to wit:
Q - After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the
defendants thereby paying the value of the bunker fuel oil what transpired next after that?
A - Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the
bunker fuel oil were transferred to them.
Q - You mentioned them to whom are you referring to?
A - To the Continental Cement Corp. upon the execution of the trust receipt acknowledging the
ownership of the bunker fuel oil this should be acceptable for whatever disposition he may make.
Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom?
A - By the Continental Cement Corp.
Q - So by your statement who really owns the bunker fuel oil?
ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that
question has already been answered.
ATTY. BAAGA:
That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:
Proceed.
ATTY. BAAGA:
Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.?
A - Gregory Lim.
[15]

By all indications, then, it is apparent that there was really no trust receipt
transaction that took place. Evidently, respondent Corporation was required to sign
the trust receipt simply to facilitate collection by petitioner of the loan it had extended
to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his spouse
should be personally liable under the subject trust receipt. Petitioners argument that
respondent Corporation and respondent Lim and his spouse are one and the same
cannot be sustained. The transactions sued upon were clearly entered into by
respondent Lim in his capacity as Executive Vice President of respondent
Corporation. We stress the hornbook law that corporate personality is a shield against
personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and
his spouse cannot be made personally liable since respondent Lim entered into and
signed the contract clearly in his official capacity as Executive Vice President. The
personality of the corporation is separate and distinct from the persons composing it.
[16]

WHEREFORE, in view of all the foregoing, the instant Petition for Review is
DENIED. The Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV
No. 29950 is AFFIRMED.
SO ORDERED.

ILEANA DR. MACALINAO,
Petitioner,

- versus -


BANK OF THE
PHILIPPINEISLANDS,
Respondent.

.
G.R. No. 175490

Present:

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Promulgated:

September 17, 2009
x-----------------------------------------------------------------------------------------x


D E C I S I O N


VELASCO, JR., J .:


The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court seeking to reverse and set aside the June 30, 2006 Decision
[1]
of the Court
of Appeals (CA) and its November 21, 2006 Resolution
[2]
denying petitioners
motion for reconsideration.
The Facts
Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard,
one of the credit card facilities of respondent Bank of the Philippine Islands
(BPI).
[3]
Petitioner Macalinao made some purchases through the use of the said
credit card and defaulted in paying for said purchases. She subsequently received a
letter dated January 5, 2004 from respondent BPI, demanding payment of the
amount of one hundred forty-one thousand five hundred eighteen pesos and thirty-
four centavos (PhP 141,518.34), as follows:
Statement
Date
Previous
Balance
Purchases
(Payments)
Penalty
Interest
Finance
Charges
Balance Due
10/27/2002 94,843.70 559.72 3,061.99 98,456.41
11/27/2002 98,465.41 (15,000) 0 2,885.61 86,351.02
12/31/2002 86,351.02 30,308.80 259.05 2,806.41 119,752.28
1/27/2003 119,752.28 618.23 3,891.07 124,234.58
2/27/2003 124,234.58 990.93 4,037.62 129,263.13
3/27/2003 129,263.13 (18,000.00) 298.72 3,616.05 115,177.90
4/27/2003 115,177.90 644.26 3,743.28 119,565.44
5/27/2003 119,565.44 (10,000.00) 402.95 3,571.71 113,540.10
6/29/2003 113,540.10 8,362.50
(7,000.00)
323.57 3,607.32 118,833.49
7/27/2003 118,833.49 608.07 3,862.09 123,375.65
8/27/2003 123,375.65 1,050.20 4,009.71 128,435.56
9/28/2003 128,435.56 1,435.51 4,174.16 134,045.23
10/28/2003
11/28/2003
12/28/2003
1/27/2004 141,518.34 8,491.10 4,599.34 154,608.78

Under the Terms and Conditions Governing the Issuance and Use of the BPI
Credit and BPI Mastercard, the charges or balance thereof remaining unpaid after
the payment due date indicated on the monthly Statement of Accounts shall bear
interest at the rate of 3% per month and an additional penalty fee equivalent to
another 3% per month. Particularly:
8. PAYMENT OF CHARGES BCC shall furnish the Cardholder a
monthly Statement of Account (SOA) and the Cardholder agrees that all charges
made through the use of the CARD shall be paid by the Cardholder as stated in
the SOA on or before the last day for payment, which is twenty (20) days from
the date of the said SOA, and such payment due date may be changed to an earlier
date if the Cardholders account is considered overdue and/or with balances in
excess of the approved credit limit, or to such other date as may be deemed proper
by the CARD issuer with notice to the Cardholder on the same monthly SOA. If
the last day fall on a Saturday, Sunday or a holiday, the last day for the payment
automatically becomes the last working day prior to said payment date. However,
notwithstanding the absence or lack of proof of service of the SOA of the
Cardholder, the latter shall pay any and all charges made through the use of the
CARD within thirty (30) days from date or dates thereof. Failure of the
Cardholder to pay the charges made through the CARD within the payment
period as stated in the SOA or within thirty (30) days from actual date or dates of
purchase whichever occur earlier, shall render him in default without the necessity
of demand from BCC, which the Cardholder expressly waives. The charges or
balance thereof remaining unpaid after the payment due date indicated on
the monthly Statement of Accounts shall bear interest at the rate of 3% per
month for BPI Express Credit, BPI Gold Mastercard and an additional
penalty fee equivalent to another 3% of the amount due for every month or a
fraction of a months delay. PROVIDED that if there occurs any change on the
prevailing market rates, BCC shall have the option to adjust the rate of interest
and/or penalty fee due on the outstanding obligation with prior notice to the
cardholder. The Cardholder hereby authorizes BCC to correspondingly increase
the rate of such interest [in] the event of changes in the prevailing market rates,
and to charge additional service fees as may be deemed necessary in order to
maintain its service to the Cardholder. A CARD with outstanding balance unpaid
after thirty (30) days from original billing statement date shall automatically be
suspended, and those with accounts unpaid after ninety (90) days from said
original billing/statement date shall automatically be cancel (sic), without
prejudice to BCCs right to suspend or cancel any card anytime and for whatever
reason. In case of default in his obligation as provided herein, Cardholder shall
surrender his/her card to BCC and in addition to the interest and penalty charges
aforementioned , pay the following liquidated damages and/or fees (a) a collection
fee of 25% of the amount due if the account is referred to a collection agency or
attorney; (b) service fee for every dishonored check issued by the cardholder in
payment of his account without prejudice, however, to BCCs right of considering
Cardholders account, and (c) a final fee equivalent to 25% of the unpaid balance,
exclusive of litigation expenses and judicial cost, if the payment of the account is
enforced though court action. Venue of all civil suits to enforce this Agreement or
any other suit directly or indirectly arising from the relationship between the
parties as established herein, whether arising from crimes, negligence or breach
thereof, shall be in the process of courts of the City of Makati or in other courts at
the option of BCC.
[4]
(Emphasis supplied.)

For failure of petitioner Macalinao to settle her obligations, respondent BPI
filed with the Metropolitan Trial Court (MeTC) of Makati City a complaint for a
sum of money against her and her husband, Danilo SJ. Macalinao. This was raffled
to Branch 66 of the MeTC and was docketed as Civil Case No. 84462
entitled Bank of the Philippine Islandsvs. Spouses Ileana Dr. Macalinao and
Danilo SJ. Macalinao.
[5]

In said complaint, respondent BPI prayed for the payment of the amount of
one hundred fifty-four thousand six hundred eight pesos and seventy-eight
centavos (PhP 154,608.78) plus 3.25% finance charges and late payment charges
equivalent to 6% of the amount due from February 29, 2004 and an amount
equivalent to 25% of the total amount due as attorneys fees, and of the cost of
suit.
[6]

After the summons and a copy of the complaint were served upon petitioner
Macalinao and her husband, they failed to file their Answer.
[7]
Thus, respondent
BPI moved that judgment be rendered in accordance with Section 6 of the Rule on
Summary Procedure.
[8]
This was granted in an Order dated June 16,
2004.
[9]
Thereafter, respondent BPI submitted its documentary evidence.
[10]

In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent
BPI and ordered petitioner Macalinao and her husband to pay the amount of PhP
141,518.34 plus interest and penalty charges of 2% per month, to wit:
WHEREFORE, finding merit in the allegations of the complaint supported
by documentary evidence, judgment is hereby rendered in favor of the
plaintiff, Bank of the Philippine Islands and against defendant-spouses Ileana
DR Macalinao and Danilo SJ Macalinao by ordering the latter to pay the
former jointly and severally the following:
1. The amount of PESOS: ONE HUNDRED FORTY ONE
THOUSAND FIVE HUNDRED EIGHTEEN AND 34/100
(P141,518.34) plus interest and penalty charges of 2% per month from
January 05, 2004 until fully paid;
2. P10,000.00 as and by way of attorneys fees; and
3. Cost of suit.

SO ORDERED.
[11]


Only petitioner Macalinao and her husband appealed to the Regional Trial
Court (RTC) of Makati City, their recourse docketed as Civil Case No. 04-1153. In
its Decision dated October 14, 2004, the RTC affirmed in toto the decision of the
MeTC and held:
In any event, the sum of P141,518.34 adjudged by the trial court appeared
to be the result of a recomputation at the reduced rate of 2% per month. Note that
the total amount sought by the plaintiff-appellee was P154,608.75 exclusive of
finance charge of 3.25% per month and late payment charge of 6% per month.

WHEREFORE, the appealed decision is hereby affirmed in toto.

No pronouncement as to costs.

SO ORDERED.
[12]



Unconvinced, petitioner Macalinao filed a petition for review with the CA,
which was docketed as CA-G.R. SP No. 92031. The CA affirmed with
modification the Decision of the RTC:
WHEREFORE, the appealed decision
is AFFIRMED but MODIFIED with respect to the total amount due
and interest rate. Accordingly, petitioners are jointly and severally
ordered to pay respondent Bank of the Philippine Islands the following:

1. The amount of One Hundred Twenty Six Thousand Seven
Hundred Six Pesos and Seventy Centavos plus interest and
penalty charges of 3% per month from January 5, 2004 until
fully paid;
2. P10,000.00 as and by way of attorneys fees; and
3. Cost of Suit.

SO ORDERED.
[13]


Although sued jointly with her husband, petitioner Macalinao was the only
one who filed the petition before the CA since her husband already passed away on
October 18, 2005.
[14]

In its assailed decision, the CA held that the amount of PhP 141,518.34 (the
amount sought to be satisfied in the demand letter of respondent BPI) is clearly not
the result of the re-computation at the reduced interest rate as previous higher
interest rates were already incorporated in the said amount. Thus, the said amount
should not be made as basis in computing the total obligation of petitioner
Macalinao. Further, the CA also emphasized that respondent BPI should not
compound the interest in the instant case absent a stipulation to that effect. The CA
also held, however, that the MeTC erred in modifying the amount of interest rate
from 3% monthly to only 2% considering that petitioner Macalinao freely availed
herself of the credit card facility offered by respondent BPI to the general public. It
explained that contracts of adhesion are not invalid per se and are not entirely
prohibited.
Petitioner Macalinaos motion for reconsideration was denied by the CA in
its Resolution dated November 21, 2006. Hence, petitioner Macalinao is now
before this Court with the following assigned errors:
I.
THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BE
UPHELD SINCE THE STIPULATED RATE OF INTEREST WAS
UNCONSCIONABLE AND INIQUITOUS, AND THUS ILLEGAL.
II.
THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCED
RATE OF INTEREST FROM 2% TO 3%, CONTRARY TO THE TENOR OF
ITS OWN DECISION.

III.
THE COURT A QUO, INSTEAD OF PROCEEDING WITH A
RECOMPUTATION, SHOULD HAVE DISMISSED THE CASE FOR
FAILURE OF RESPONDENT BPI TO PROVE THE CORRECT AMOUNT OF
PETITIONERS OBLIGATION, OR IN THE ALTERNATIVE, REMANDED
THE CASE TO THE LOWER COURT FOR RESPONDENT BPI TO PRESENT
PROOF OF THE CORRECT AMOUNT THEREOF.
Our Ruling
The petition is partly meritorious.
The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum
Should Be Reduced to 2% Per Month or 24% Per Annum
In its Complaint, respondent BPI originally imposed the interest and penalty
charges at the rate of 9.25% per month or 111% per annum. This was declared as
unconscionable by the lower courts for being clearly excessive, and was thus
reduced to 2% per month or 24% per annum. On appeal, the CA modified the rate
of interest and penalty charge and increased them to 3% per month or 36% per
annum based on the Terms and Conditions Governing the Issuance and Use of the
BPI Credit Card, which governs the transaction between petitioner Macalinao and
respondent BPI.
In the instant petition, Macalinao claims that the interest rate and penalty
charge of 3% per month imposed by the CA is iniquitous as the same translates to
36% per annum or thrice the legal rate of interest.
[15]
On the other hand, respondent
BPI asserts that said interest rate and penalty charge are reasonable as the same are
based on the Terms and Conditions Governing the Issuance and Use of the BPI
Credit Card.
[16]

We find for petitioner. We are of the opinion that the interest rate and
penalty charge of 3% per month should be equitably reduced to 2% per month or
24% per annum.
Indeed, in the Terms and Conditions Governing the Issuance and Use of the
BPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it
should be noted that this is not the first time that this Court has considered the
interest rate of 36% per annum as excessive and unconscionable. We held in Chua
vs. Timan:
[17]

The stipulated interest rates of 7% and 5% per month imposed on
respondents loans must be equitably reduced to 1% per month or
12% per annum. We need not unsettle the principle we had affirmed
in a plethora of cases that stipulated interest rates of 3% per month
and higher are excessive, iniquitous, unconscionable and exorbitant.
Such stipulations are void for being contrary to morals, if not
against the law. While C.B. Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling on interest rates for
both secured and unsecured loans, regardless of maturity, nothing in the
said circular could possibly be read as granting carte blanche authority
to lenders to raise interest rates to levels which would either enslave their
borrowers or lead to a hemorrhaging of their assets. (Emphasis supplied.)


Since the stipulation on the interest rate is void, it is as if there was no
express contract thereon. Hence, courts may reduce the interest rate as reason and
equity demand.
[18]

The same is true with respect to the penalty charge. Notably, under the
Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, it
was also stated therein that respondent BPI shall impose an additional penalty
charge of 3% per month. Pertinently, Article 1229 of the Civil Code states:
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.
In exercising this power to determine what is iniquitous and unconscionable,
courts must consider the circumstances of each case since what may be iniquitous
and unconscionable in one may be totally just and equitable in another.
[19]

In the instant case, the records would reveal that petitioner Macalinao made
partial payments to respondent BPI, as indicated in her Billing
Statements.
[20]
Further, the stipulated penalty charge of 3% per month or 36% per
annum, in addition to regular interests, is indeed iniquitous and unconscionable.
Thus, under the circumstances, the Court finds it equitable to reduce the
interest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge
fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or
24% per annum in line with the prevailing jurisprudence and in accordance with
Art. 1229 of the Civil Code.

There Is No Basis for the Dismissal of the Case,
Much Less a Remand of the Same for Further Reception of Evidence


Petitioner Macalinao claims that the basis of the re-computation of the CA,
that is, the amount of PhP 94,843.70 stated on the October 27, 2002 Statement of
Account, was not the amount of the principal obligation. Thus, this allegedly
necessitates a re-examination of the evidence presented by the parties. For this
reason, petitioner Macalinao further contends that the dismissal of the case or its
remand to the lower court would be a more appropriate disposition of the case.
Such contention is untenable. Based on the records, the summons and a copy
of the complaint were served upon petitioner Macalinao and her husband on May
4, 2004. Nevertheless, they failed to file their Answer despite such service. Thus,
respondent BPI moved that judgment be rendered accordingly.
[21]
Consequently, a
decision was rendered by the MeTC on the basis of the evidence submitted by
respondent BPI. This is in consonance with Sec. 6 of the Revised Rule on
Summary Procedure, which states:
Sec. 6. Effect of failure to answer. Should the defendant fail
to answer the complaint within the period above provided, the
court, motu proprio, or on motion of the plaintiff, shall render
judgment as may be warranted by the facts alleged in the complaint
and limited to what is prayed for therein: Provided, however, that the
court may in its discretion reduce the amount of damages and attorneys
fees claimed for being excessive or otherwise unconscionable. This is
without prejudice to the applicability of Section 3(c), Rule 10 of the
Rules of Court, if there are two or more defendants. (As amended by the
1997 Rules of Civil Procedure; emphasis supplied.)


Considering the foregoing rule, respondent BPI should not be made to suffer
for petitioner Macalinaos failure to file an answer and concomitantly, to allow the
latter to submit additional evidence by dismissing or remanding the case for further
reception of evidence. Significantly, petitioner Macalinao herself admitted the
existence of her obligation to respondent BPI, albeit with reservation as to the
principal amount. Thus, a dismissal of the case would cause great injustice to
respondent BPI. Similarly, a remand of the case for further reception of evidence
would unduly prolong the proceedings of the instant case and render inutile the
proceedings conducted before the lower courts.
Significantly, the CA correctly used the beginning balance of PhP 94,843.70
as basis for the re-computation of the interest considering that this was the first
amount which appeared on the Statement of Account of petitioner Macalinao.
There is no other amount on which the re-computation could be based, as can be
gathered from the evidence on record. Furthermore, barring a showing that the
factual findings complained of are totally devoid of support in the record or that
they are so glaringly erroneous as to constitute serious abuse of discretion, such
findings must stand, for this Court is not expected or required to examine or
contrast the evidence submitted by the parties.
[22]

In view of the ruling that only 1% monthly interest and 1% penalty charge
can be applied to the beginning balance of PhP 94,843.70, this Court finds the
following computation more appropriate:

Statement
Date
Previous
Balance
Purchases
(Payments)
Balance Interest
(1%)
Penalty
Charge
(1%)
Total
Amount
Due for
the Month
10/27/2002 94,843.70 94,843.70 948.44 948.44 96,740.58
11/27/2002 94,843.70 (15,000) 79,843.70 798.44 798.44 81,440.58
12/31/2002 79,843.70 30,308.80 110,152.50 1,101.53 1,101.53 112,355.56
1/27/2003 110,152.50 110,152.50 1,101.53 1,101.53 112,355.56
2/27/2003 110,152.50 110,152.50 1,101.53 1,101.53 112,355.56
3/27/2003 110,152.50 (18,000.00) 92,152.50 921.53 921.53 93,995.56
4/27/2003 92,152.50 92,152.50 921.53 921.53 93,995.56
5/27/2003 92,152.50 (10,000.00) 82,152.50 821.53 821.53 83,795.56
6/29/2003 82,152.50 8,362.50
(7,000.00)
83,515.00 835.15 835.15 85,185.30
7/27/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
8/27/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
9/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
10/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
11/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
12/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.30
1/27/2004 83,515.00 83,515.00 835.15 835.15 85,185.30
TOTAL 83,515.00 14,397.26 14,397.26 112,309.52











WHEREFORE, the petition is PARTLY GRANTED. The CA Decision
dated June 30, 2006 in CA-G.R. SP No. 92031 is hereby MODIFIED with respect
to the total amount due, interest rate, and penalty charge. Accordingly, petitioner
Macalinao is ordered to pay respondent BPI the following:

(1) The amount of one hundred twelve thousand three hundred nine
pesos and fifty-two centavos (PhP 112,309.52) plus interest and penalty charges
of 2% per month from January 5, 2004 until fully paid;

(2) PhP 10,000 as and by way of attorneys fees; and

(3) Cost of suit.

SO ORDERED.

CHINA BANKING CORPORATION, petitioner, vs. HON. COURT OF
APPEALS and ARMED FORCES AND POLICE SAVINGS & LOAN
ASSOCIATION, INC. (AFPSLAI), respondents.
D E C I S I O N
QUISUMBING, J .:
For review is the Decision
[1]
dated November 23, 2001 of the Court of
Appeals in CA-G.R. SP No. 65740, affirming the Orders
[2]
dated August 25,
2000 and April 17, 2001, of the Regional Trial Court of Quezon City, Branch
216, which denied petitioners motion to dismiss the civil action for a sum of
money filed by private respondent. Likewise impugned is
the Resolution
[3]
dated April 24, 2002 of the Court of Appeals denying
petitioners motion for reconsideration of said decision.
The antecedent facts, as summarized by the appellate court, are as
follows:
On September 24, 1996, private respondent Armed Forces and Police
Savings and Loan Association, Inc. (AFPSLAI) filed a complaint for a sum of
money against petitioner China Banking Corporation (CBC) with the Regional
Trial Court of Quezon City, Branch 216.
In its Answer,
[4]
the petitioner admitted being the registered owner of the
Home Notes, the subject matter of the complaint. These are instruments of
indebtedness issued in favor of a corporation named Fund Centrum Finance,
Inc. (FCFI) and were sold, transferred and assigned to private respondent.
Thus, the petitioner filed a Motion to Dismiss alleging that the real party in
interest was FCFI, which was not joined in the complaint, and that petitioner
was a mere trustee of FCFI.
The trial court denied the motion to dismiss. Petitioner filed a motion for
reconsideration, which the court a quo again denied. Petitioner elevated the
case to the Court of Appeals through a Petition for Certiorari and Prohibition.
The appellate court denied the petition for lack of merit. The petitioner then
brought the matter to this Court via a Petition for Certiorari, under Rule 65. We
dismissed the petition for being an improper remedy.
Petitioner filed another Motion to Dismiss, this time invoking
prescription. The lower court denied said motion to dismiss for lack of merit. It
held that it was not apparent in the complaint whether or not prescription had
set in. Thus, the trial judge directed petitioner to present its evidence.
However, petitioner instead filed a motion for reconsideration, which the trial
court denied, ratiocinating thus:
This Court finds that there are conflicting claims on the issue of whether or not the
action has already prescribed. A full blown trial is in order to determine fully the
rights of the contending parties.
[5]

Undeterred, petitioner impugned, through a petition under Rule 65, the two
orders of the trial court claiming before the appellate court that:
RESPONDENT COURT GROSSLY ERRED OR GRAVELY ABUSED ITS
DISCRETION AMOUNTING TO LACK OF JURISDICTION IN DENYING THE
MOTION TO DISMISS AND DECLARING THAT PRESCRIPTION HAS NOT
SET IN AGAINST PRIVATE RESPONDENT.
[6]

In its assailed Decision, the Court of Appeals dismissed the petition,
ruling that:
Since the defense of prescription under the facts obtaining did not rest on solid
ground, the trial court took a more judicious move to direct the defendant therein,
herein petitioner, to present its evidence. It is self-evident that with the evidence of
both parties adduced, the trial court could proceed to decide on the merits of the case
including prescription, and thus avoid collateral proceedings such as the one at bar
that unduly prolong the final determination of the controversy. After all, prescription
subsists as a valid issue in the decision process. The trial court wanted precisely a
definite and definitive-factual premise to determine whether or not the action has
prescribed. Surely, such exercise of judgment is not grave abuse of discretion
correctible by writ of certiorari. If ever he erred, it was error in judgment. Errors of
judgment may be reviewed only by appeal.
[7]

Undaunted, petitioner now comes to this Court raising a simple issue:
WHETHER [OR] NOT THE DATE OF MATURITY OF THE INSTRUMENTS IS
THE DATE OF ACCRUAL OF CAUSE OF ACTION.
[8]

Petitioner insists that upon the face of the complaint, prescription has set
in. It claims that the Home Notes annexed to the pleading bearing a uniform
maturity date of December 2, 1983 indicate the date of accrual of the cause of
action. Hence, argues petitioner, private respondents filing of the complaint
for sum of money on September 24, 1996, is way beyond the prescriptive
period of ten years under Article 1144
[9]
of the Civil Code. Citing Soriano v.
Ubat,
[10]
petitioner maintains the prescription period starts from the time when
the creditor may file an action, not from the time he wishes to do so.
However, private respondent counters that prescription is not apparent in
the complaint because the maturity date of the Home Notes attached thereto
is not the time of accrual of petitioners action. Relying on Elido, Sr. v. Court of
Appeals,
[11]
private respondent insists that the action accrued only on July 20,
1995, when demand to pay was made on petitioner. Private respondent also
points out that since both the trial court and the appellate court found that
prescription is not apparent on the face of the complaint, such factual finding
should therefore be binding on this Court.
We find the petition without merit. The Court of Appeals validly dismissed
the petition, there being no grave abuse of discretion committed by the trial
court in denying petitioners motion to dismiss the complaint on the ground of
prescription.
Well-settled is the rule that since a cause of action requires, as essential
elements, not only a legal right of the plaintiff and a correlative duty of the
defendant but also an act or omission of the defendant in violation of said
legal right, the cause of action does not accrue until the party obligated
refuses, expressly or impliedly, to comply with its duty.
[12]

Otherwise stated, a cause of action has three elements, to wit, (1) a right
in favor of the plaintiff by whatever means and under whatever law it arises or
is created; (2) an obligation on the part of the named defendant to respect or
not to violate such right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or constituting a breach of the
obligation of the defendant to the plaintiff.
[13]

It bears stressing that it is only when the last element occurs that a cause
of action arises. Accordingly, a cause of action on a written contract accrues
only when an actual breach or violation thereof occurs.
[14]

Applying the foregoing principle to the instant case, we rule that private
respondents cause of action accrued only on July 20, 1995, when its demand
for payment of the Home Notes was refused by petitioner. It was only at that
time, and not before that, when the written contract was breached and private
respondent could properly file an action in court.
The cause of action cannot be said to accrue on the uniform maturity date
of the Home Notes as petitioner posits because at that point, the third
essential element of a cause of action, namely, an act or omission on the part
of petitioner violative of the right of private respondent or constituting a breach
of the obligation of petitioner to private respondent, had not yet occurred.
The subject Home Notes, in fact, specifically states that payment of the
principal and interest due on the notes shall be made only upon presentation
for notation and/or surrender for cancellation of the notes, thus:
Payment of the principal amount and interest due on this Note shall be made by the
Company at the principal office of the Trustee herein referred to or at such other
office or agency that the Company may designate for the purpose, in such coin or
currency of the Republic of the Philippines as at the time of payment shall be legal
tender for payment of public and private debts, upon presentation for notation and/or
surrender for cancellation of this Note. . . .
[15]
(Emphasis supplied.)
Thus, the maturity date of the Home Notes is not controlling as far as
accrual of cause of action is concerned. What said date indicates is the time
when the obligation matures, when payment on the Notes would commence,
subject to presentation, notation and/or cancellation of those Notes. The date
for computing when prescription of the action for collection begins to set in is
properly a function related to the date of actual demand by the holder of the
Notes for payment by the obligor, herein petitioner bank.
Since the demand was made only on July 20, 1995, while the civil action
for collection of a sum of money was filed on September 24, 1996, within a
period of not more than ten years, such action was not yet barred by
prescription.
WHEREFORE, the petition is DENIED for lack of merit. The assailed
Decision dated November 23, 2001, and the Resolution dated April 24, 2002,
of the Court of Appeals are AFFIRMED. Costs against petitioner.
SO ORDERED.

MONDRAGON LEISURE AND
RESORTS CORPORATION,
Petitioner,



- versus -




G.R. No. 154188

Present:

Davide, Jr., C.J.,
(Chairman),
Quisumbing,
Ynares-Santiago,
Carpio, and
Azcuna, JJ.

COURT OF APPEALS, ASIAN
BANK CORPORATION, FAR
EAST BANK AND TRUST
COMPANY, and UNITED
COCONUT PLANTERS BANK,
Respondents.


Promulgated:

June 15, 2005
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
QUI SUMBI NG, J .:

In its Decision
[1]
dated March 12, 2002, the Court of Appeals in CA-G.R. SP
No. 61047 dismissed the petition for certiorari filed by Mondragon Leisure and
Resorts Corporation against the Order
[2]
dated March 9, 2000, of
the Regional Trial Court of Angeles City, Branch 61, in Civil Case No. 9527.
Likewise, in its Resolution dated July 3, 2002, the CA denied the motion for
reconsideration.
The facts of the case are undisputed.
On February 28, 1994, Mondragon International Philippines, Inc. (MIPI),
Mondragon Securities Corporation (MSC) and herein petitioner entered into a
lease agreement with the Clark Development Corporation (CDC) for the
development of what is now known as the Mimosa Leisure Estate.
To help finance the project, petitioner, on June 30, 1997, entered into an
Omnibus Loan and Security Agreement
[3]
(hereafter Omnibus Agreement) with
respondent banks for a syndicated term loan in the aggregate principal amount of
US$20M. Under the agreement, as amended on January 19, 1999,
[4]
the proceeds
of the loan were to be released through advances evidenced by promissory notes to
be executed by petitioner in favor of each lender-bank, and to be paid within a six-
year period from the date of initial advance inclusive of a one year and two
quarters grace period.
To secure the repayment of the loan, petitioner pledged in favor of
respondents US$20M worth of MIPI shares of stocks; assigned, transferred and
delivered all rights, title to and interest in the pledged shares; and assigned by way
of security its leasehold rights over the project and all the rights, title, interests and
benefits in, to and under any and all agreements in connection with the project.
On July 3, 1997, petitioner fully availed of and received the full amount of
the syndicated loan agreement. Petitioner, which had regularly paid the monthly
interests due on the promissory notes until October 1998, thereafter failed to make
payments. Consequently, on January 6 and February 5, 1999, written notices of
default, acceleration of payment and demand letters were sent by the lenders to the
petitioner. Then on August 27, 1999, respondents filed a complaint, docketed as
Civil Case No. 9527, for the foreclosure of leasehold rights against petitioner.
Petitioner moved for the dismissal of the complaint on the following
grounds: (1) a condition precedent for the filing of the complaint has not been
complied with and/or the instant complaint failed to state a cause of action, or
otherwise the filing was premature; (2) the certification of non-forum shopping
appended to the complaint was fatally defective since one of the plaintiffs, UCPB,
deliberately failed to mention that it had previously filed another complaint; and
(3) plaintiffs had engaged in forum shopping in filing the instant complaint.
The trial court denied the motion and ruled as follows:
. . .
After a careful study of the arguments of the parties, this court
finds that the motion to dismiss is without merit. As correctly pointed
out by the plaintiffs under par. 6.01, the borrower defaults when interests
due at stated maturity are not paid and the lenders are authorized to
accelerate any amount payable under the loan agreements. One of the
consequences of such default is the foreclosure of collaterals. This is the
action taken by the herein plaintiffs-lenders.
This court also finds the alleged force majeure baseless. The
same are not those provided for under Sec. 1, Article 41 of the loan
agreement.
As to the allegation of forum shopping, the herein parties Asian
Bank Corporation and Far East Bank and Trust Company are not parties
to this case in 9510 (sic). The subject matter of Civil Case No. 9527 is
not the same with the subject matter in Civil Case No. 9510.
Wherefore, premises considered, the motion to dismiss is
denied. The defendant is given 15 days from receipt hereof within
which to file its answer and/or responsive pleading.
SO ORDERED.
[5]

Petitioner moved for the reconsideration of the order and argued that the
complaint is premature, since it had not been validly declared in default.
[6]
The
trial court denied the motion for reconsideration. Seasonably, petitioner filed a
special civil action for certiorari with the Court of Appeals.
Before the appellate court, petitioner reiterated its arguments in its motion to
dismiss before the trial court, including the failure of the respondents to attach the
board resolutions authorizing them to file the complaint.
[7]

The Court of Appeals dismissed the petition and denied the subsequent
motion for reconsideration. Hence, this appeal by certiorari
[8]
imputing the
following errors:
I
THE RESPONDENT-APPELLEE COURT OF APPEALS
COMMITTED A SERIOUS ERROR OF LAW AND ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN RULING THAT THE COMPLAINT
IN CIVIL CASE NO. 9527 COMPLIED WITH THE MANDATORY
REQUIREMENTS OF CERTIFICATION OF NON-FORUM
SHOPPING.
II
THE RESPONDENT-APPELLEE COURT OF APPEALS
COMMITTED A SERIOUS ERROR OF LAW AND ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN NOT RULING THAT A
CONDITION PRECEDENT FOR THE FILING OF THE COMPLAINT
IN CIVIL CASE NO. 9527 HAS NOT BEEN COMPLIED WITH, OR
THAT IT IS OTHERWISE PREMATURE, AND/OR THAT IT FAILS
TO STATE A CAUSE OF ACTION AGAINST PETITIONER-
APPELLANT.

III
THE RESPONDENT-APPELLEE COURT OF APPEALS
COMMITTED A SERIOUS ERROR OF LAW AND ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN NOT RULING THAT
RESPONDENT-APPELLEE BANKS, IN FILING THE COMPLAINT
IN CIVIL CASE NO. 9527, DELIBERATELY ENGAGED IN FORUM
SHOPPING.
[9]

In brief, three issues are presented for resolution, namely, (1) Was the
certificate of non-forum shopping defective? (2) Did respondents engage in forum
shopping? and (3) Do respondents have a cause of action against the petitioner?
On the first issue, petitioner asserts that the verification and certificate of
forum shopping were defective because there was no proof as to the authority of
the signatories to file the complaint. Petitioner avers that UCPB Resolution 48-87,
which was only presented in the Court of Appeals, merely authorized the signatory
to appear, act for, or otherwise represent the bank in all judicial, quasi-judicial or
administrative hearings or incidents, including pre-trial conference, and in
connection therewith, to do any and all of the following acts and deeds and
clearly pertains to a pending proceeding.
Respondents, on the other hand, contend that the lack of authority of the
persons who verified and certified the complaint was neither raised in the motion
to dismiss nor in the motion for reconsideration of the petitioner. They aver that
the verification and certification of non-forum shopping contained a statement by
the persons who signed it that they had been so authorized by the board of directors
of their respective corporations.
Considering the submissions of the parties, we are constrained to agree with
the respondents contention. The trial court did not err in denying the motion to
dismiss. The issue concerning the signatories authorization was never raised
before it. Likewise, the appellate court did not err in refusing to take cognizance of
the issue, since the parties did not raise it beforehand. Issues not raised in the trial
court cannot be raised for the first time on appeal.
[10]

On the second issue, petitioner claims that respondent UCPB engaged in
forum shopping since it earlier instituted an action for foreclosure of mortgage
and/or collection, docketed as Civil Case No. 9510.
[11]
This claim, in our view, is
untenable. A comparison of the two complaints would show its utter lack of
merit.
Civil Case No. 9510 pertains to an Omnibus Credit and Security Agreement
executed by and between the petitioner and respondent UCPB on November 23,
1995. This is separate and distinct from the Omnibus Agreement involved in Civil
Case No. 9527. Moreover, respondents Asian Bank and Far East Bank are not
among the parties to Civil Case No. 9510.
As pointed out by the Court of Appeals, forum shopping exists when both
actions involve the same transactions, with the same essential facts and
circumstances; and where identical causes of actions, subject matter and issues are
raised. The test to determine the existence of forum shopping is whether the
elements of litis pendentia are present, or whether a final judgment in one case will
amount to res judicata in another.
[12]
The requisites in order that an action may be
dismissed on the ground of litis pendentia are (a) the identity of parties, or at least
such as representing the same interest in both actions; (b) the identity of rights
asserted and relief prayed for, the relief being founded on the same facts; and (c)
the identity of the two cases such that judgment in one, regardless of which party is
successful, would amount to res judicata in the other.
[13]
Such requisites are not
present in this controversy.
Apropos the third issue, petitioner contends the subject obligation of the
instant case is not yet due and demandable because the Omnibus Agreement allows
a full six-year term of payment. Even if it failed to pay some installments,
petitioner insists it is not in default because respondents merely sent collection and
demand letters, but failed to give the written notice of default required under their
agreement. Moreover, petitioner avers that the provisions on default in the
Omnibus Agreement have been rendered inapplicable and unenforceable by
fortuitous events, namely the Asian economic crisis and the closure of the Mimosa
Regency Casino, which was petitioners primary source of revenues.
Respondents counter that the Omnibus Agreement defines, as an event of
default, the failure of petitioner to pay when due at stated maturity, by acceleration
or otherwise, any amount payable under the loan documents. Since petitioner is
also required to pay interest, respondents posit that non-payment thereof
constituted a clear and unmistakable case of default. Respondents add that they
had properly advised the petitioner that it had been declared in default, referring to
the January 6 and February 5, 1999 letters as their compliance with the notice
requirement.
On this issue, we are unable to agree with the petitioner.
Section 2.06 (a) of Part B of the Omnibus Agreement provides that the
borrower shall pay interest on the advances outstanding from time to time on each
interest payment date, while Section 6 of Part A reads
6.01 Events of Default
Each of the following events shall constitute an Event of Default
under this Omnibus Agreement:
(a) Payment Default The BORROWER defaults in the
payment when due at stated maturity, by acceleration or
otherwise, of any amount payable under the Loan Documents.
[14]

. . .
Clearly, under the foregoing provisions of the Agreement, petitioner may be
validly declared in default for failure to pay the interest. As a consequence of
default, the unpaid amount shall earn default interest,
[15]
and the respondent-banks
have four alternative remedies without prejudice to the application of the
provisions on collaterals and any other steps or action which may be adopted by
the majority lender.
[16]

The four remedies are alternative, with the right of choice given to the
lenders, in this case the respondents. Under Article 1201 of the Civil Code, the
choice shall produce no effect except from the time it has been
communicated. This is the reason why a written notice is required under Section
6.02 of the Omnibus Agreement.
In the present case, we find that written notices were sent to the petitioner by
the respondents. The notices clearly indicate respondents choice of remedy: to
accelerate all payments payable under the loan agreement. On January 6, 1999,
respondents notified petitioner that it was in default, and demanded payment of the
stated amount within five days from receipt of the letter, otherwise all outstanding
availments of the US$20M term loan together with interests and other sum payable
shall be declared due and demandable.
[17]
The letter clearly indicated the choice of
remedy by the respondents, pursuant to the Omnibus Agreement.
Even though subsequent demand is waived by the petitioner in Section 6.02
of Part B of the Omnibus Agreement, on February 5, 1999, the respondents
nevertheless actually made their demand in writing for the payment of the principal
plus interest and penalty charges due on or before February 28, 1999, with express
notice that they would take all legal remedies available to protect the interests of
their clients.
[18]
Clearly, respondents have more than complied with the
requirement concerning notice to the petitioner.
It should be noted that the agreement also provides that the choice of remedy
is without prejudice to the action on the collaterals. Thus, respondents could
properly file an action for foreclosure of the leasehold rights to obtain payment for
the amount demanded.
Petitioners claim, that the respondents could not be held in default because
of a fortuitous event, is untenable. Said event, the Asian financial crisis of 1997, is
not among the fortuitous events contemplated under Article 1174
[19]
of the Civil
Code. To exempt the obligor from liability for a breach of an obligation by reason
of a fortuitous event, the following requisites must concur: (a) the cause of the
breach of the obligation must be independent of the will of the debtor; (b) the event
must be either unforeseeable or unavoidable; (c) the event must be such as to
render it impossible for the debtor to fulfill his obligation in a normal manner; and
(d) the debtor must be free from any participation in, or aggravation of the injury to
the creditor.
[20]

As pointed out by the respondents, the loan agreement was entered into
on June 30, 1997, or when the Asian economic crisis had already
started. Petitioner, as a long established corporation, should have been well aware
of the economic environment at that time, yet it still took the risk to expand
operations. Likewise, the closure of the Mimosa Regency Casino was not an
unforeseeable or unavoidable event, in the context of the contract of lease between
petitioner and CDC. Every business venture involves risks. Risks are not
unforeseeable; they are inherent in business.
Worthy of note, risk is an exception to the general rule on fortuitous
events. Under the law, these exceptions are: (1) when the law expressly so
specifies; (2) when it is otherwise declared by the parties; and (3) when the nature
of the obligation requires the assumption of risks.
[21]
We find that in the Omnibus
Agreement, the parties expressly agreed that any enactment, official action, act of
war, act of nature or other force majeure or other similar circumstances shall in no
way affect the obligation of the borrowers to make payments.
[22]

In sum, the appellate court did not err in dismissing petitioners action for
certiorari and in denying the motion for reconsideration. It committed no
reversible error, much less any grave abuse of discretion amounting to lack or
excess of jurisdiction, contrary to petitioners contentions.
WHEREFORE, the appeal is DENIED for lack of merit. The Decision
dated March 12, 2002 and the Resolution dated July 3, 2002 of the Court of
Appeals in CA-G.R. SP No. 61047 are hereby AFFIRMED.
Costs against petitioner.
SO ORDERED