SECONDDIVISION

[G.R.Nos.128833.April20,1998]
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.
LAO,petitioners,vs. COURT OF APPEALS and GOYU & SONS,
INC.,respondents.
[G.R.No.128834.April20,1998]
RIZAL COMMERCIAL BANKING CORPORATION,petitioners,vs. COURT OF
APPEALS,ALFREDOC.SEBASTIAN,GOYU&SONS,INC.,GOSONGHIAP,
SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY
GO,respondents.
[G.R.No.128866.April20,1998]
MALAYANINSURANCEINC.,petitioner,vs.GOYU&SONS,INC.respondent.
DECISION
MELO,J.:
Theissuesrelevanttothehereinthreeconsolidatedpetitionsrevolvearoundthefireloss
claimsofrespondentGoyu&Sons,Inc.(GOYU)withpetitionerMalayanInsuranceCompany,
Inc. (MICO) in connection with the mortgage contracts entered into by and between Rizal
CommercialBankingCorporation(RCBC)andGOYU.
The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of
P74,040,518.58,plus37%interestperannumcommencingJuly27,1992.RCBCwasorderedto
payactualandcompensatorydamagesintheamountofP5,000,000.00.MICOandRCBCwere
heldsolidarilyliabletopayGOYUP1,500,000.00asexemplarydamagesandP1,500,000.00for
attorneysfees.GOYUsobligationtoRCBCwasfixedatP68,785,069.04asofApril1992,
withoutanyinterest,surcharges,andpenalties.RCBCandMICOappealedseparatelybut,in
viewofthecommonfactsandissuesinvolved,theirindividualpetitionswereconsolidated.
Theundisputedfactsmaybesummarizedasfollows:
GOYU applied for credit facilities and accommodations with RCBC at its Binondo
Branch.Afterdueevaluation,RCBCBinondoBranch,throughitskeyofficers,petitionersUy
Chun Bing and Eli D. Lao, recommended GOYUs application for approval by RCBCs
executivecommittee.AcreditfacilityintheamountofP30millionwasinitiallygranted.Upon
GOYUs application and Uys and Laos recommendation, RCBCs executive committee
increasedGOYUscreditfacilitytoP50million,thentoP90million,andfinallytoP117million.
AssecurityforitscreditfacilitieswithRCBC,GOYUexecutedtworealestatemortgages
andtwochattelmortgagesinfavorofRCBC,whichwereregisteredwiththeRegistryofDeedsat
Valenzuela, Metro Manila.Under each of these four mortgage contracts, GOYU committed
itself to insurethemortgagedpropertywithan insurance company approvedby RCBC, and
subsequently,toendorseanddelivertheinsurancepoliciestoRCBC.
GOYUobtainedinitsnameatotalofteninsurancepoliciesfromMICO.InFebruary1992,
Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan
insurancepolicies,issuednineendorsementsinfavorofRCBCseeminglyuponinstructionsof
GOYU(Exhibits1Malayanto9Malayan).
On April 27, 1992, one of GOYUs factory buildings in Valenzuela was gutted by
fire.Consequently, GOYU submitted its claim for indemnity on account of the loss insured
against.MICOdeniedtheclaimonthegroundthattheinsurancepolicieswereeitherattached
pursuant to writs of attachments/garnishments issued by various courts or that the insurance
proceedswerealsoclaimedbyothercreditorsofGOYUallegingbetterrightstotheproceeds
thantheinsured.GOYUfiledacomplaintforspecificperformanceanddamageswhichwas
docketedattheRegionalTrialCourtoftheNationalCapitalJudicialRegion(Manila,Branch3)
asCivilCaseNo.9365442,nowsubjectofthepresentG.R.No.128833and128866.
RCBC,oneofGOYUscreditors,alsofiledwithMICOitsformalclaimovertheproceeds
oftheinsurancepolicies,butsaidclaimswerealsodeniedforthesamereasonsthatMICOdenied
GOYUsclaims.
InaninterlocutoryorderdatedOctober12,1993(Record,pp.311312),theRegionalTrial
Court of Manila (Branch 3), confirmed that GOYUs other creditors, namely, Urban Bank,
AlfredoSebastian,andPhilippineTrustCompanyobtainedtheirrespectivewritsofattachments
from various courts, covering an aggregate amount of P14,938,080.23, and ordered that the
proceedsoftheteninsurancepoliciesbedepositedwiththesaidcourtminustheaforementioned
P14,938,080.23.Accordingly, on January 7, 1994, MICO deposited the amount of
P50,505,594.60withBranch3oftheManilaRTC.

Inthemeantime,anothernoticeofgarnishmentwashandeddownbyanotherManilaRTC
sala(Branch28)fortheamountofP8,696,838.75(Exhibit22Malayan).
Aftertrial,Branch3oftheManilaRTCrenderedjudgmentinfavorofGOYU,disposing:
WHEREFORE,judgmentisherebyrenderedinfavoroftheplaintiffandagainstthedefendant,
MalayanInsuranceCompany,Inc.andRizalCommercialBankingCorporation,orderingthe
latterasfollows:
1.FordefendantMalayanInsuranceCo.,Inc.:
a.TopaytheplaintiffitsfirelossclaimsinthetotalamountofP74,040,518.58less
theamountofP50,000,000.00whichisdepositedwiththisCourt;
b.Topaytheplaintiffdamagesbywayofinterestforthedurationofthedelaysince
July27,1992(ninetydaysafterdefendantinsurersreceiptoftherequiredproof
oflossandnoticeofloss)attherateoftwicetheceilingprescribedbythe
MonetaryBoard,onthefollowingamounts:
1)P50,000,000.00fromJuly27,1992uptothetimesaidamountwas
depositedwiththisCourtonJanuary7,1994;
2)P24,040,518.58fromJuly27,1992uptothetimewhenthewritsof
attachmentswerereceivedbydefendantMalayan;
2.FordefendantRizalCommercialBankingCorporation:
a.Topaytheplaintiffactualandcompensatorydamagesintheamountof
P2,000,000.00;
3.ForbothdefendantsMalayanandRCBC:
a.Topaytheplaintiff,jointlyandseverally,thefollowingamounts:
1)P1,000,000.00asexemplarydamages;
2)P1,000,000.00as,andfor,attorneysfees;
3)Costsofsuit.
andontheCounterclaimofdefendantRCBC,orderingtheplaintifftopayitsloan
obligationswithdefendantRCBCintheamountofP68,785,069.04,asofApril27,
1992,withinterestthereonattheratestipulatedintherespectivepromissorynotes
(withoutsurchargesandpenalties)percomputation,pp.14A,14B&14C.
FURTHER,theClerkofCourtoftheRegionalTrialCourtofManilaisherebyorderedtorelease
immediatelytotheplaintifftheamountofP50,000,000.00depositedwiththeCourtbydefendant
Malayan,togetherwithalltheinterestsearnedthereon.
(Record,pp.478479.)
Fromthisjudgment,allpartiesinterposedtheirrespectiveappeals.GOYUwasunsatisfied
withtheamountsawardedinitsfavor.MICOandRCBCdisputedthetrialcourtsfindingsof
liabilityontheirpart.TheCourtofAppealspartlygrantedGOYUsappeal,butsustainedthe
findingsofthetrialcourtwithrespecttoMICOandRCBCsliabilities,thusly:
WHEREFORE,thedecisionofthelowercourtdatedJune29,1994isherebymodifiedas
follows:
1.FORDEFENDANTMALAYANINSURANCECO.,INC:
a)TopaytheplaintiffitsfirelossclaiminthetotalamountofP74,040,518.58lessthe
amountofP50,505,594.60(perO.R.No.3649285)plusdepositedincourtanddamagesbyway
ofinterestcommencingJuly27,1992untilthetimeGoyureceivesthesaidamountattherateof
thirtyseven(37%)percentperannumwhichistwicetheceilingprescribedbytheMonetary
Board.
2.FORDEFENDANTRIZALCOMMERCIALBANKINGCORPORATION:
a)TopaytheplaintiffactualandcompensatorydamagesintheamountofP5,000,000.00.
3.FORDEFENDANTSMALAYANINSURANCECO.,INC.,RIZALCOMMERCIAL
BANKINGCORPORATION,UYCHUNBINGANDELID.LAO:
a)Topaytheplaintiffjointlyandseverallythefollowingamounts:
1.P1,500,000.00asexemplarydamages;
2.P1,500,000.00asandforattorneysfees.
4.AndonRCBCsCounterclaim,orderingtheplaintiffGoyu&Sons,Inc.topayitsloan
obligationwithRCBCintheamountofP68,785,069.04asofApril27,1992withoutanyinterest,
surchargesandpenalties.
TheClerkoftheCourtoftheRegionalTrialCourtofManilaisherebyorderedtoimmediately
releasetoGoyu&Sons,Inc.theamountofP50,505,594.60(perO.R.No.3649285)deposited
withitbyMalayanInsuranceCo.,Inc.,togetherwithalltheintereststhereon.
(Rollo,p.200.)
RCBCandMICOarenowbeforeusinG.R.No.128833and128866,respectively,seeking
reviewandconsequentreversaloftheabovedispositionsoftheCourtofAppeals.

InG.R.No.128834,RCBClikewiseappealsfromthedecisioninC.A.G.R.No.CV48376,
whichcase,byvirtueoftheCourtofAppealsresolutiondatedAugust7,1996,wasconsolidated
withC.A.G.R.No.CV46162(subjectofhereinG.R.No.128833).Atissueinsaidpetitionis
RCBCsrighttointerveneintheactionbetweenAlfredoC.Sebastian(thecreditor)andGOYU
(thedebtor),wherethesubjectinsurancepolicieswereattachedinfavorofSebastian.
Afteracarefulreviewofthematerialfactsasfoundbythetwocourtsbelowinrelationto
thepertinentandapplicablelaws,wefindmeritinthesubmissionsofRCBCandMICO.
TheseveralcausesofactionpursuedbelowbyGOYUgaverisetoseveralrelatedissues
whicharenowsubmittedinthepetitionsbeforeus.ThisCourt,however,discernsoneprimary
and central issue, and this is, whether or not RCBC, as mortgagee, has any right over the
insurancepoliciestakenbyGOYU,themortgagor,incaseoftheoccurrenceofloss.
Asearliermentioned,accordantwiththecreditfacilitiesextendedbyRCBCtoGOYU,the
latterexecutedseveralmortgagecontractsinfavorofRCBC.Itwasexpresslystipulatedinthese
mortgagecontractsthatGOYUshallinsurethemortgagedpropertywithanyoftheinsurance
companiesacceptabletoRCBC.GOYUindeedinsuredthemortgagedpropertywithMICO,an
insurancecompanyacceptabletoRCBC.Basedontheirstipulationsinthemortgagecontracts,
GOYU was supposed to endorse these insurance policies in favor of, and deliver them, to
RCBC.AlchesterInsuranceAgency,Inc.,MICOsunderwriterfromwhomGOYUobtainedthe
subject insurance policies, prepared the nine endorsements (see Exh. 1Malayan to 9
Malayan;alsoExh.51RCBCto59RCBC),copiesofwhichweredeliveredtoGOYU,
RCBC, and MICO.However, because these endorsements do not bear the signature of any
officer of GOYU, the trial court, as well as the Court of Appeals, concluded that the
endorsementsaredefective.
Wedonotquiteagree.
Itissettledthatamortgagorandamortgageehaveseparateanddistinctinsurableinterestsin
thesamemortgagedproperty,suchthateachoneofthemmayinsurethesamepropertyforhis
ownsolebenefit.ThereisnoquestionthatGOYUcouldinsurethemortgagedpropertyforits
ownexclusivebenefit.Inthepresentcase,althoughitappearsthatGOYUobtainedthesubject
insurancepoliciesnamingitselfasthesolepayee,theintentionsofthepartiesasshownbytheir
contemporaneousacts,mustbegivendueconsiderationinordertobetterservetheinterestof
justiceandequity.
ItistobenotedthatnineendorsementdocumentswerepreparedbyAlchesterinfavorof
RCBC.TheCourtisinaquandaryhowAlchestercouldarriveattheideaofendorsingany
specificinsurancepolicyinfavorofanyparticularbeneficiaryorpayeeotherthantheinsuredhad
notsuchnamedpayeeorbeneficiarybeenspecificallydisclosedbytheinsureditself.Itisalso
significantthatGOYUvoluntarilyandpurposelytooktheinsurancepoliciesfromMICO,asister
companyofRCBC,andnotjustfromanyotherinsurancecompany.Alchesterwouldnothave
foundoutthatthesubjectpiecesofpropertyweremortgagedtoRCBChadnotsuchinformation
beenvoluntarilydisclosedbyGOYUitself.HaditnotbeenforGOYU,Alchesterwouldnot
have known of GOYUs intention of obtaining insurance coverage in compliance with its
undertakinginthemortgagecontractswithRCBC,andverily,Alchesterwouldnothaveendorsed
thepoliciestoRCBChaditnotbeensodirectedbyGOYU.
Onequitableprinciples,particularlyonthegroundofestoppel,theCourtisconstrainedto
rule in favor of mortgagor RCBC.The basis and purpose of the doctrine was explained
inPhilippineNationalBankvs.CourtofAppeals(94SCRA357[1979]),towit:
Thedoctrineofestoppelisbaseduponthegroundsofpublicpolicy,fairdealing,goodfaithand
justice,anditspurposeistoforbidonetospeakagainsthisownact,representations,or
commitmentstotheinjuryofonetowhomtheyweredirectedandwhoreasonablyrelied
thereon.Thedoctrineofestoppelspringsfromequitableprinciplesandtheequitiesinthe
case.Itisdesignedtoaidthelawintheadministrationofjusticewherewithoutitsaidinjustice
mightresult.IthasbeenappliedbythisCourtwhereverandwheneverspecialcircumstancesofa
casesodemand.
(p.368.)
EvelynLozadaofAlchestertestifiedthatuponinstructionsofMr.Go,throughacertainMr.
Yam,shepreparedinquadruplicateonFebruary11,1992thenineendorsementdocumentsfor
GOYUsnineinsurancepoliciesinfavorofRCBC.Theoriginalcopiesofeachofthesenine
endorsementdocumentsweresenttoGOYU,andtheothersweresenttoRCBCandMICO,
whilethefourthcopieswereretainedforAlchestersfile(tsn,February23,pp.78).GOYUhas
notdeniedhavingreceivedfromAlchestertheoriginalsoftheseendorsements.
RCBC,ingoodfaith,reliedupontheendorsementdocumentssenttoitasthiswasonly
pursuanttothestipulationinthemortgagecontracts.Wefindsuchreliancetobejustifiedunder
thecircumstancesofthecase.GOYUfailedtoseasonablyrepudiatetheauthorityoftheperson

or persons who prepared such endorsements. Over and above this, GOYU continued, in the
meantime, to enjoy the benefits of the credit facilities extended to it by RCBC.After the
occurrenceofthelossinsuredagainst,itwastoolateforGOYUtodisowntheendorsementsfor
any imagined or contrived lack of authority of Alchester to prepare and issue said
endorsements.Iftherehadnotbeenactuallyanimpliedratificationofsaidendorsementsby
virtueofGOYUsinactioninthiscase,GOYUisattheveryleastestoppedfromassailingtheir
operativeeffects.TopermitGOYUtocapitalizeonitsnonconfirmationoftheseendorsements
whileitcontinuedtoenjoythebenefitsofthecreditfacilitiesofRCBCwhichbelievedingood
faiththattherewasdueendorsementpursuanttotheirmortgagecontracts,istocountenance
grave contravention of public policy, fair dealing, good faith, and justice.Such an unjust
situation,theCourtcannotsanction.Underthepeculiarcircumstancesobtaininginthiscase,the
CourtisboundtorecognizeRCBCsrighttotheproceedsoftheinsurancepoliciesifnotforthe
actualendorsementofthepolicies,atleastonthebasisoftheequitableprincipleofestoppel.
GOYUcannotseekreliefunderSection53oftheInsuranceCodewhichprovidesthatthe
proceedsofinsuranceshallexclusivelyapplytotheinterestofthepersoninwhosenameorfor
whose benefit it is made.The peculiarity of the circumstances obtaining in the instant case
presentsajustificationtotakeexceptiontothestrictapplicationofsaidprovision,ithavingbeen
sufficientlyestablishedthatitwastheintentionofthepartiestodesignateRCBCasthepartyfor
whosebenefittheinsurancepoliciesweretakenout.Considerthusthefollowing:
1.Itisundisputedthattheinsuredpiecesofpropertywerethesubjectofmortgagecontracts
enteredintobetweenRCBCandGOYUinconsiderationofandforsecuringGOYUscredit
facilitiesfromRCBC.ThemortgagecontractscontainedcommonprovisionswherebyGOYU,
asmortgagor,undertooktohavethemortgagedpropertyproperlycoveredagainstanylossbyan
insurancecompanyacceptabletoRCBC.
2.GOYUvoluntarilyprocuredinsurancepoliciestocoverthemortgagedproperty
fromMICO,nolessthanasistercompanyofRCBCanddefinitelyanacceptableinsurance
companytoRCBC.
3.EndorsementdocumentswerepreparedbyMICOsunderwriter,AlchesterInsurance
Agency,Inc.,andcopiesthereofweresenttoGOYU,MICO,andRCBC.GOYUdidnotassail,
untiloflate,thevalidityofsaidendorsements.
4.GOYUcontinueduntiltheoccurrenceofthefire,toenjoythebenefitsofthecredit
facilitiesextendedbyRCBCwhichwasconditionedupontheendorsementoftheinsurance
policiestobetakenbyGOYUtocoverthemortgagedproperties.
ThisCourtcannotoverstressthefactthatuponreceivingitscopiesoftheendorsement
documentspreparedbyAlchester,GOYU,despitetheabsenceofitswrittenconformitythereto,
obviouslyconsideredsaidendorsementtobesufficientcompliancewithitsobligationunderthe
mortgage contracts since RCBC accordingly continued to extend the benefits of its credit
facilitiesandGOYUcontinuedtobenefittherefrom.Justasplaintooistheintentionofthe
parties to constitute RCBC as the beneficiary of the various insurance policies obtained by
GOYU.Theintentionofthepartieswillhavetobegivenfullforceandeffectinthisparticular
case.Theinsuranceproceedsmay,therefore,beexclusivelyappliedtoRCBC,whichunderthe
factualcircumstancesofthecase,istrulythepersonorentityforwhosebenefitthepolicieswere
clearlyintended.
Moreover,thelawsevidentintentiontoprotecttheinterestsofthemortgageeuponthe
mortgagedpropertyisexpressedinArticle2127oftheCivilCodewhichstates:
ART.2127.Themortgageextendstothenaturalaccessions,totheimprovements,growing
fruits,andtherentsorincomenotyetreceivedwhentheobligationbecomesdue,andtothe
amountoftheindemnitygrantedorowingtotheproprietorfromtheinsurersoftheproperty
mortgaged,orinvirtueofexpropriationforpublicuse,withthedeclarations,amplificationsand
limitationsestablishedbylaw,whethertheestateremainsinthepossessionofthemortgagor,orit
passesintothehandsofathirdperson.
Significantly,theCourtnotesthatoutofthe10insurancepoliciessubjectofthiscase,only8
ofthemappeartohavebeensubjectoftheendorsementspreparedanddeliveredbyAlchesterfor
anduponinstructionsofGOYUasshownbelow:
INSURANCEPOLICYPARTICULARS

ENDORSEMENT
a.PolicyNumber:F11407795None
IssueDate:March18,1992
ExpiryDate:April5,1993
Amount:P9,646,224.92

b.PolicyNumber:ACIA/F17407660Exhibit1Malayan
IssueDate:January18,1992

ExpiryDate:February9,1993
Amount:P4,307,217.54

c.PolicyNumber:ACIA/F11407661Exhibit2Malayan
IssueDate:January18,1992
ExpiryDate:February15,1993
Amount:P6,603,586.43

d.PolicyNumber:ACIA/F11407662Exhibit3Malayan
IssueDate:January18,1992
ExpiryDate:(notlegible)
Amount:P6,603,586.43

e.PolicyNumber:ACIA/F11407663Exhibit4Malayan
IssueDate:January18,1992
ExpiryDate:February9,1993
Amount:P9,457,972.76

f.PolicyNumber:ACIA/F11407623Exhibit7Malayan
IssueDate:January13,1992
ExpiryDate:January13,1993
Amount:P24,750,000.00

g.PolicyNumber:ACIA/F17407223Exhibit6Malayan
IssueDate:May29,1991
ExpiryDate:June27,1992
Amount:P6,000,000.00

h.PolicyNumber:CI/F12803341None
IssueDate:May3,1991
ExpiryDate:May3,1992
Amount:P10,000,000.00

i.PolicyNumber:F11407402Exhibit8Malayan
IssueDate:September16,1991
ExpiryDate:October19,1992
Amount:P32,252,125.20

j.PolicyNumber:F11407525Exhibit9Malayan
IssueDate:November20,1991
ExpiryDate:December5,1992
Amount:P6,603,586.43

(pp.456457,Record;FolderofExhibitsforMICO.)
PolicyNumberF11407795[(a)above]hasnotbeenendorsed.Thisfactwasadmittedby
MICOswitness,Atty.Farolan(tsn,February16,1994,p.25).Likewise,therecordshowsno
endorsement for Policy Number CI/F12803341 [(h) above].Also, one of the endorsement
documents,Exhibit5Malayan,referstoacertaininsurancepolicynumberACIAF07066,
whichisnotamongtheinsurancepoliciesinvolvedinthecomplaint.
The proceeds of the 8 insurance policies endorsed to RCBC aggregate to
P89,974,488.36.BeingexclusivelypayabletoRCBCbyreasonoftheendorsementbyAlchester
toRCBC,whichwealreadyruledtohavetheforceandeffectofanendorsementbyGOYUitself,
these8policiescannotbeattachedbyGOYUsothercreditorsuptotheextentoftheGOYUs
outstanding obligation in RCBCs favor.Section 53 of the Insurance Code ordains that the
insuranceproceedsoftheendorsedpoliciesshallbeappliedexclusivelytotheproperinterestof
thepersonforwhosebenefititwasmade.Inthiscase,totheextentofGOYUsobligationwith
RCBC,theinterestofGOYUinthesubjectpolicieshadbeentransferredtoRCBCeffectiveasof
thetimeoftheendorsement.Thesepoliciesmaynolongerbeattachedbytheothercreditorsof
GOYU,likeAlfredoSebastianinthepresentG.R.No.128834,whichmaynonethelessforthwith
bedismissedforbeingmootandacademicinviewoftheresultsreachedherein.Onlythetwo
otherpoliciesamountingtoP19,646,224.92maybevalidlyattached,garnished,andleviedupon

byGOYUsothercreditors.TotheextentofGOYUsoutstandingobligationwithRCBC,allthe
restoftheotherinsurancepoliciesabovelistedwhichwereendorsedtoRCBC,are,therefore,to
bereleasedfromattachment,garnishment,andlevybytheothercreditorsofGOYU.
Thisbringsustothenextrelevantissuetoberesolved,whichis,theextentofGOYUs
outstandingobligationwithRCBCwhichtheproceedsofthe8insurancepolicieswilldischarge
andliquidate,orputdifferently,theactualamountofGOYUsliabilitytoRCBC.
TheCourtofAppealssimplyechoedthedeclarationofthetrialcourtfindingthatGOYUS
totalobligationtoRCBCwasonlyP68,785,060.04asofApril27,1992,thussanctioningthetrial
courtsexclusionofPromissoryNoteNo.42192(renewalofPromissoryNoteNo.90891)and
PromissoryNoteNo.42092(renewalofPromissoryNoteNo.95291)onthegroundthattheir
executionishighlyquestionablefornotonlyarethesedatedafterthefire,butalsobecausethe
signaturesofeitherGOYUoranyitsrepresentativeareconspicuouslyabsent.Accordingly,the
CourtofAppealsspeculatedthusly:
Hence,thisCourtisinclinedtoconcludethatsaidpromissorynoteswerepresignedby
plaintiffinblankterms,asaverredbyplaintiff,incontemplationofthespeedygrantoffuture
loans,forthesamepracticeofprocedurehasalwaysbeenadoptedinitspreviousdealingswith
thebank.
(Rollo,pp.181
182.)
Thefactthatthepromissorynotesbeardatesposteriortothefiredoesnotnecessarilymean
thatthedocumentsarespurious,foritispresumedthattheordinarycourseofbusinesshadbeen
followed (Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 222 SCRA 486
[1993]).Theobligorandnottheholderofthenegotiableinstrumenthastheburdenofproofof
showingthathenolongerowestheobligeeanyamount(TravelOn,Inc.vs.CourtofAppeals,
210SCRA351[1992]).
Evencastingasidethepresumptionofregularityofprivatetransactions,receiptoftheloan
amountingtoP121,966,058.67(Exhibits129,RCBC)wasadmittedbyGOYUasindicatedin
thetestimonyofGoSongHiapwhenheansweredthequeriesofthetrialcourt:
ATTY.NATIVIDAD
Q:ButinsofarastheamountstatedinExhibits1to29RCBC,youreceivedalltheamounts
statedtherein?
A:Yes,sir,Ireceivedtheamount.
COURT
HeisaskingifhereceivedalltheamountsstatedinExhibits1to29RCBC?
WITNESS:
Yes,YourHonor,Ireceivedalltheamounts.
COURT
IndicatedinthePromissoryNotes?
WITNESS
A.ThepromissoryNotestheydidnotgivetomebuttheamountIaskedwhichiscorrect,
YourHonor.
COURT
Q:YoumeantosaytheamountsindicatedinExhibits1to29RCBCiscorrect?
A:Yes,YourHonor.
(tsn,Jan.14,1994,p.26.)
Furthermore,asidefromitsjudicialadmissionofhavingreceivedalltheproceedsofthe29
promissorynotesas hereinabovequoted,GOYUalsoofferedandadmittedtoRCBCthatits
obligation be fixed at P116,301,992.60 as shown in its letter dated March 9, 1993, which
pertinentlyreads:
Wewishtoinformyou,thereforethatwearereadyandwillingtopaythecurrentpastdue
accountofthiscompanyintheamountofP116,301,992.60asof21January1993,specifiedin
pars.15,p.10,and18,p.13ofyouraffidavitsofThirdPartyClaimsintheUrbancaseatMakati,
MetroManilaandintheZamboangacaseatZamboangacity,respectively,lessthetotalof
P8,851,519.71paidfromtheSeaboardandEquitableinsurancecompaniesandotherlegitimate
deductions.WeacceptandconfirmthisamountofP116,301,992.60asstatedastrueandcorrect.
(ExhibitBB.)
The Court of Appeals erred in placing much significance on the fact that the excluded
promissorynotesaredatedafterthefire.Itfailedtoconsiderthatsaidnoteshadfortheirorigin
transactionsconsummatedpriortothefire.Thus,carefulattentionmustbepaidtothefactthat
PromissoryNotesNo.42092and42192aremererenewalsofPromissoryNotesNo.90891and
95291,loansalreadyavailedofbyGOYU.

Thetwocourtsbelowerredinfailingtoseethatthepromissorynoteswhichtheyruled
should be excluded for bearing dates which are after that ofthe fire, are mererenewalsof
previousones.Theproceedsoftheloanrepresentedbythesepromissorynoteswereadmittedly
receivedbyGOYU.ThereisamplefactualandlegalbasisforgivingGOYUsjudicialadmission
ofliabilityintheamountofP116,301,992.60fullforceandeffect
Itshould,however,bequicklyaddedthatwhateveramountRCBCmayhaverecoveredfrom
theotherinsurersofthemortgagedpropertywill,nonetheless,havetobeappliedaspayment
againstGOYUsobligation.But,contrarytothelowercourtsfindings,paymentseffectedby
GOYUpriortoJanuary21,1993shouldnolongerbededucted.Suchpaymentshadobviously
been duly considered by GOYU, in its aforequoted letter dated March 9, 1993, wherein it
admittedthatitspastdueaccounttotaledP116,301,992.60asofJanuary21,1993.
ThenetobligationofGOYU,afterdeductions,isthusreducedtoP107,246,887.90asof
January21,1993,towit:
TotalObligationasadmittedbyGOYUasofJanuary21,1993:P116,301,992.60
Brokendownasfollows
Principal[1]Interest
Regular80,535,946.32
FDU7,548,025.17
_________________________
Total:108,083,971.498,218,021.11[2]
LESS:
1)Proceedsfrom
SeaboardEastern
InsuranceCompany:6,095,145.81
2)Proceedsfrom
EquitableInsurance
Company:2,756,373.00
3)Paymentfrom
foreigndepartment
negotiation:203,584.89
9,055,104.70

[3]
NETAMOUNTasofJanuary21,1993:P107,246,887.90
Theneedforthepaymentofinterestdueupontheprincipalamountoftheobligation,which
isthecostofmoneytoRCBC,theprimaryendandtheultimatereasonforRCBCsexistenceand
being,wasdulyrecognizedbythetrialcourtwhenitruledfavorablyonRCBCscounterclaim,
orderingGOYUtopayitsloanobligationwithRCBCintheamountofP68,785,069.04,asof
April 27,1992,with interest thereon at the rate stipulated in the respective promissory
notes(without surcharges and penalties) per computation, pp. 14A, 14B, 14C (Record, p.
479).Inexplicably, the Court of Appeals, without even laying down the factual or legal
justification for its ruling, modified the trial courts ruling and ordered GOYU to pay the
principalamountofP68,785,069.04withoutanyinterest,surchargesandpenalties(Rollo,p.
200).
Itistobenotedinthisregardthateventhetrialcourthedginglyandwithmuchuncertainty
deletedthepaymentofadditionalinterest,penalties,andcharges,inthismanner:
RegardingdefendantRCBCscommitmentnottochargeadditionalinterest,penalties
andsurcharges,thesamedoesnotrequirethatitbeembodiedinadocumentorsomeformof
writingtobebindingandenforceable.Theprincipleiswellknownthatgenerallyaverbal
agreementorcontractisnolessbindingandeffectivethanawrittenone.Andtheexistenceof
suchaverbalagreementhasbeenamplyestablishedbytheevidenceinthiscase.Inanyevent,
regardlessoftheexistenceofsuchverbalagreement,itwouldstillbeunjustandinequitablefor
defendantRCBCtochargetheplaintiffwithsurchargesandpenaltiesconsideringthelatters
pitifulsituation.(Emphasissupplied.)
(Record,p.476)
Theessenceorrationaleforthepaymentofinterestorcostofmoneyisseparateanddistinct
fromthatofsurchargesandpenalties.Whatmayjustifyacourtinnotallowingthecreditorto
chargesurchargesandpenaltiesdespiteexpressstipulationthereforinavalidagreement,maynot
equallyjustifynonpaymentofinterest.Thechargingofinterestforloansformsaveryessential
andfundamentalelementofthebankingbusiness,whichmaytrulybeconsideredtobeatthe
verycoreofitsexistenceorbeing.Itisinconceivableforabanktograntloansforwhichitwill
notchargeanyinterestatall.WefailtofindjustificationfortheCourtofAppealsoutright

deletion of the payment of interest as agreed upon in the respective promissory notes.This
constitutesgrosserror.
ForthecomputationoftheinterestduetobepaidtoRCBC,thefollowingrulesofthumb
laiddownbythisCourtinEasternShippingLines,Inc.vs.CourtofAppeals(234SCRA78
[1994]),shallapply,towit:
I.Whenanobligation,regardlessofitssource,i.e.,law,contracts,quasicontracts,delictsor
quasidelictsisbreached,thecontravenorcanbeheldliablefordamages.Theprovisionsunder
TitleXVIIIonDamagesoftheCivilCodegovernindeterminingthemeasureofrecoverable
damages.
II.Withregardparticularlytoanawardofinterestintheconceptofactualandcompensatory
damages,therateofinterest,aswellastheaccrualthereof,isimposed,asfollows:
1.Whentheobligationisbreached,anditconsistsinthepaymentofasumofmoney,i.e.,a
loanorforbearanceofmoney,theinterestdueshouldbethatwhichmayhavebeenstipulatedin
writing.Furthermore,theinterestdueshallitselfearnlegalinterestfromthetimeitisjudicially
demanded.Intheabsenceofstipulation,therateofinterestshallbe12%perannumtobe
computedfromdefault,i.e.,fromjudicialorextrajudicialdemandunderandsubjecttothe
provisionsofArticle1169oftheCivilCode.
2.Whenanobligation,notconstitutingaloanorforbearanceofmoney,isbreached,an
interestontheamountofdamagesawardedmaybeimposedatthediscretionofthecourtatthe
rateof6%perannum.Nointerest,however,shallbeadjudgedonunliquidatedclaimsor
damagesexceptwhenoruntilthedemandcanbeestablishedwithreasonable
certainty.Accordingly,wherethedemandisestablishedwithreasonablecertainty,theinterest
shallbegintorunfromthetimetheclaimismadejudiciallyorextrajudicially(Art.1169,Civil
Code)butwhensuchcertaintycannotbesoreasonablyestablishedatthetimethedemandis
made,theinterestshallbegintorunonlyfromthedateofthejudgmentofthecourtismade(at
whichtimethequantificationofdamagesmaybedeemedtohavebeenreasonably
ascertained).Theactualbaseforthecomputationoflegalinterestshall,inanycase,beonthe
amountfinallyadjudged.
3.Whenthejudgmentofthecourtawardingasumofmoneybecomesfinalandexecutory,
therateoflegalinterest,whetherthecasefallsunderparagraph1orparagraph2,above,shallbe
12%perannumfromsuchfinalityuntilitssatisfaction,thisinterimperiodbeingdeemedtobeby
thenanequivalenttoaforbearanceofcredit.
(pp.9597.)
Therebeingwrittenstipulationsastotherateofinterestowingoneachspecificpromissory
noteassummarizedandtabulatedbythetrialcourtinitsdecision(pp.470and471,Record)such
agreedinterestratesmustbefollowed.ThisisveryclearfromparagraphII,subparagraph1
quotedabove.
Ontheissueofpaymentofsurchargesandpenalties,wepartlyagreethatGOYUspitiful
situationmustbetakenintoaccount.Wedonotagree,however,thatpaymentofanyamountas
surchargesandpenaltiesshouldaltogetherbedeleted.EvenassumingthatRCBC,throughits
responsibleofficers,hereinpetitionersEliLaoandUyChunBing,mayhaverelayeditsassurance
forassistancetoGOYUimmediatelyaftertheoccurrenceofthefire,wecannotacceptthelower
courtsfindingthatRCBChadtherebyipsofactoeffectivelywaivedcollectionofanyadditional
interests, surcharges, and penalties from GOYU.Assurances of assistance are one thing, but
waiverofadditionalinterests,surcharges,andpenaltiesisanother.
Surchargesandpenaltiesagreedtobepaidbythedebtorincaseofdefaultpartakeofthe
nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil
Code.Article2227thereofprovides:
ART.2227.Liquidateddamages,whetherintendedasaindemnityorpenalty,shallbeequitably
reducediftheyareiniquitousandunconscionable.
In exercisingthis vested power todetermine what is iniquitous andunconscionable, the
Courtmustconsiderthecircumstancesofeachcase.ItshouldbestressedthattheCourtwillnot
makeanysweepingrulingthatsurchargesandpenaltiesimposedbybanksfornonpaymentofthe
loansextendedbythemaregenerallyiniquitousandunconscionable.Whatmaybeiniquitous
andunconscionableinonecase,maybetotallyjustandequitableinanother.Thisprovisionof
lawwillhavetobeappliedtotheestablishedfactsofanygivencase.Giventhecircumstances
underwhichGOYUfounditselfaftertheoccurrenceofthefire,theCourtrulesthesurcharges
rates ranging anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely
iniquitous and unconscionable.The Court tempers these rates to 2% and 3%,
respectively.Furthermore,inthelightofGOYUsoffertopaytheamountofP116,301,992.60to
RCBCasMarch1993(See:ExhibitBB),whichRCBCrefused,wefinditmoreinkeeping

withjusticeandequityforRCBCnottochargeadditionalinterest,surcharges,andpenaltiesfrom
thattimeonward.
Giventhefactualmilieuspreadhereover,werulethatitwaserrortoholdMICOliablein
damagesfordenyingorwithholdingtheproceedsoftheinsuranceclaimtoGOYU.
Firstly,byvirtueofthemortgagecontractsaswellastheendorsementsoftheinsurance
policies,RCBChastherighttoclaimtheinsuranceproceeds,insubstitutionofthepropertylost
inthefire.Havingassigneditsrights,GOYUlostitsstandingasthebeneficiaryofthesaid
insurancepolicies.
Secondly, for an insurance company to be held liable for unreasonably delaying and
withholdingpaymentofinsuranceproceeds,thedelaymustbewanton,oppressive,ormalevolent
(ZenithInsuranceCorporationvs.CA,185SCRA403[1990]).Itisgenerallyagreed,however,
that an insurer may in good faith and honesty entertain a difference of opinion as to its
liability.Accordingly,thestatutorypenaltyforvexatiousrefusalofaninsurertopayaclaim
shouldnotbeinflictedunlesstheevidenceandcircumstancesshowthatsuchrefusalwaswillful
andwithoutreasonablecauseasthefactsappeartoareasonableandprudentman( BuffaloIns.
Co.vs.Bommarito[CCA8th]42F[2d]53,70ALR1211;PhoenixIns.Co.vs.Clay,101Ga.331,
28SE853,65AmStRep307;Kusnetskyvs.SecurityIns.Co.,313Mo.143,281SW47,45
ALR189).ThecaseatbardoesnotshowthatMICOwantonlyandinbadfaithdelayedthe
releaseoftheproceeds.Theprobleminthedeterminationofwhoistheactualbeneficiaryofthe
insurancepolicies,aggravatedbytheclaimofvariouscreditorswhowantedtopartakeofthe
insuranceproceeds,nottomentiontheimportanceoftheendorsementtoRCBC,toourmind,and
asnowborneoutbytheoutcomeherein,justifiedMICOinwithholdingpaymenttoGOYU.
InadjudgingRCBCliableindamagestoGOYU,theCourtofAppealssaidthatRCBC
cannotavailitselfoftwosimultaneousremediesinenforcingtheclaimofanunpaidcreditor,one
forspecificperformanceandtheotherforforeclosure.Indoingso,saidtheappellatecourt,the
secondactionisdeemedbarred,RCBChavingsplitasinglecauseofaction(Rollo,pp.195
199).TheCourtofAppealswastooaccommodatingingivingdueconsiderationtothisargument
ofGOYU,fortheforeclosuresuitisstillpendingappealbeforethesameCourtofAppealsinCA
G.RCVNo.46247,thecasehavingbeenelevatedbyRCBC.
Infindingthattheforeclosuresuitcannotprosper,theFifteenthDivisionoftheCourtof
Appealspreemptedtheresolutionofsaidforeclosurecasewhichisnotbeforeit.Thisisplain
reversibleerrorifnotgraveabuseofdiscretion.
AsheldinPeavs.CourtofAppeals(245SCRA691[1995]):
Itshouldhavebeenenough,nonetheless,fortheappellatecourttomerelysetasidethequestioned
ordersofthetrialcourtforhavingbeenissuedbythelatterwithgraveabuseofdiscretion.In
likewiseenjoiningpermanentlyhereinpetitionerfromenteringinandinterferingwiththeuseor
occupationandenjoymentofpetitioners(nowprivaterespondent)residentialhouseand
compound,theappellatecourtineffect,precipitatelyresolvedwithfinalitythecasefor
injunctionthatwasyettobeheardonthemeritsbythelowercourt.Elevatedtotheappellate
court,itmightbestressed,weremereincidentsoftheprincipalcasestillpendingwiththetrial
court.InMunicipalityofBian,Lagunavs.CourtofAppeals,219SCRA69,weruledthatthe
CourtofAppealswouldhavenojurisdictioninacertiorariproceedinginvolvinganincidentin
acasetoruleonthemeritsofthemaincaseitselfwhichwasnotonappealbeforeit.
(pp.701702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga
RegionalTrialCourt,sinceithasbeendeterminedthatRCBChastherighttotheinsurance
proceeds, the subject matter of intervention is rendered moot and academic.Respondent
Sebastian must, however, yield to the preferential right of RCBC over the MICO insurance
policies.It is basic and fundamental that the first mortgagee has superior rights over junior
mortgagees or attaching creditors (Alpha Insurance & Surety Co. vs. Reyes, 106 SCRA 274
[1981];SunLifeAssuranceCo.ofCanadavs.GonzalesDiaz,52Phil.271[1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of
December16,1996andApril3,1997inCAG.R.CVNo.46162areherebyREVERSEDand
SETASIDE,andanewoneentered:
1.DismissingtheComplaintofprivaterespondentGOYUinCivilCaseNo.9365442before
Branch3oftheManilaRegionalTrialCourtforlackofmerit;
2.OrderingMalayanInsuranceCompany,Inc.todelivertoRizalCommercialBanking
CorporationtheproceedsoftheinsurancepoliciesintheamountofP51,862,390.94(perreportof
adjusterToplis&Harding(FarEast),Inc.,Exhibits2and21),lesstheamountof
P50,505,594.60(perO.R.No.3649285);
3.OrderingtheClerkofCourttoreleasetheamountofP50,505,594.60includingtheinterests
earnedtoRizalCommercialBankingCorporation;

4.OrderingGoyu&Sons,Inc.topayitsloanobligationwithRizalCommercialBanking
CorporationintheprincipalamountofP107,246,887.90,withinterestattherespectiverates
stipulatedineachpromissorynotefromJanuary21,1993untilfinalityofthisjudgment,and
surchargesat2%andpenaltiesat3%fromJanuary21,1993toMarch9,1993,minuspayments
madebyMalayanInsuranceCompany,Inc.andtheproceedsoftheamountdepositedwiththe
trialcourtanditsearnedinterest.ThetotalamountdueRCBCatthetimeofthefinalityofthis
judgmentshallearninterestatthelegalrateof12%inlieuofallotherstipulatedinterestsand
chargesuntilfullypaid.
ThepetitionofRizalCommercialBankingCorporationagainsttherespondentCourtinCA
GRCV48376isDISMISSEDforbeingmootandacademicinviewoftheresultshereinarrived
at.Respondent Sebastians right as attachingcreditor must yieldto the preferential rights of
RizalCommercialBankingCorporationovertheMalayaninsurancepoliciesasfirstmortgagee.
SOORDERED.
Regalado,(Chairman),Puno,Mendoza,andMartinez,JJ.,concur.

RepublicofthePhilippines
SUPREMECOURT
Manila
THIRDDIVISION

G.R.No.131622November27,1998
LETICIAY.MEDEL,DR.RAFAELMEDELandSERVANDOFRANCO,petitioners,
vs.
COURTOFAPPEALS,SPOUSESVERONICAR.GONZALESandDANILOG.
GONZALES,JR.doinglendingbusinessunderthetradenameandstyle"GONZALES
CREDITENTERPRISES",respondents.

PARDO,J.:
ThecasebeforetheCourtisapetitionforreviewoncertiorari,underRule45oftheRevised
RulesofCourt,seekingtosetasidethedecisionoftheCourtofAppeals, 1anditsresolution
denyingreconsideration,2thedispositiveportionofwhichdecisionreadsasfollows:
WHEREFORE,theappealedjudgmentisherebyMODIFIEDsuchthat
defendantsareherebyorderedtopaytheplaintiff:thesumofP500,000.00,plus
5.5%permonthinterestand2%servicechargeperannumeffectiveJuly23,
1986,plus1%permonthofthetotalamountdueanddemandableaspenalty
chargeseffectiveAugust23,1986,untiltheentireamountisfullypaid.
TheawardtotheplaintiffofP50,000.00asattorney'sfeesisaffirmed.Andsois
theimpositionofcostsagainstthedefendants.
SOORDERED.3
TheCourtrequiredtherespondentstocommentonthepetition, 4whichwasfiledonApril3,
1998,5andthepetitionerstoreplythereto,whichwasfiledonMay29,1998. 6Wenowresolveto
giveduecoursetothepetitionanddecidethecase.
Thefactsofthecase,asfoundbytheCourtofAppealsinitsdecision,whichareconsidered
bindingandconclusiveonthepartiesherein,astheappealislimitedtoquestionsoflaw,areas
follows:
OnNovember7,1985,ServandoFrancoandLeticiaMedel(hereafterServandoandLeticia)
obtainedaloanfromVeronicaR.Gonzales(hereafterVeronica),whowasengagedinthemoney
lendingbusinessunderthename"GonzalesCreditEnterprises",intheamountofP50,000.00,
payableintwomonths.VeronicagaveonlytheamountofP47,000.00,totheborrowers,asshe
retainedP3,000.00,asadvanceinterestforonemonthat6%permonth.ServandoandLeticia
executedapromissorynoteforP50,000.00,toevidencetheloan,payableonJanuary7,1986.
OnNovember19,1985,ServandoandLiticiaobtainedfromVeronicaanotherloanintheamount
ofP90,000.00,payableintwomonths,at6%interestpermonth.Theyexecutedapromissory
notetoevidencetheloan,maturingonJanaury19,1986.TheyreceivedonlyP84,000.00,outof
theproceedsoftheloan.
Onmaturityofthetwopromissorynotes,theborrowersfailedtopaytheindebtedness.
OnJune11,1986,ServandoandLeticiasecuredfromVeronicastillanotherloanintheamoutof
P300,000.00,maturinginonemonth,securedbyarealestatemortgageoverapropertybelonging

toLeticiaMakalintalYaptinchay,whoissuedaspecialpowerofattorneyinfavorofLeticia
Medel,authorizinghertoexecutethemortgage.ServandoandLeticiaexecutedapromissorynote
infavorofVeronicatopaythesumofP300,000.00,afteramonth,oronJuly11,1986.However,
onlythesumofP275.000.00,wasgiventothemoutoftheproceedsoftheloan.
Likethepreviousloans,ServandoandMedelfailedtopaythethirdloanonmaturity.
OnJuly23,1986,ServandoandLeticiawiththelatter'shusband,Dr.RafaelMedel,consolidated
alltheirpreviousunpaidloanstotalingP440,000.00,andsoughtfromVeronicaanotherloanin
theamountofP60,000.00,bringingtheirindebtednesstoatotalofP500,000.00,payableon
August23,1986.Theyexecutedapromissorynote,readingasfollows:
Baliwag,BulacanJuly23,1986
MaturityDateAugsut23,1986
P500,000.00
FORVALUERECEIVED,I/WEjointlyandseverallypromisetopaytothe
orderofVERONICAR.GONZALESdoingbusinessinthebusinessstyleof
GONZALESCREDITENTERPRISES,Filipino,oflegalage,marriedtoDanilo
G.Gonzales,Jr.,ofBaliwag,Bulacan,thesumofPESOS...FIVEHUNDRED
THOUSAND...(P500,000.00)PhilippineCurrencywithinterestthereonatthe
rateof5.5PERCENTpermonthplus2%servicechargeperannumfromdate
hereofuntilfullypaidaccordingtotheamortizationschedulecontainedherein.
(Emphasissupplied)
Paymentwillbemadeinfullatthematuritydate.
ShouldI/WEfailtopayanyamortizationorportionhereofwhendue,allthe
otherinstallmentstogetherwithallinterestaccruedshallimmediatelybedueand
payableandI/WEherebyagreetopayanadditionalamountequivalenttoone
percent(1%)permonthoftheamountdueanddemandableaspenaltycharges
intheformofliquidateddamagesuntilfullypaid;andthefurthersumof
TWENTYFIVEPERCENT(25%)thereofinfull,withoutdeductionsas
Attorney'sFeewhetheractuallyincurredornot,ofthetotalamountdueand
demandable,exclusiveofcostsandjudicialorextrajudicialexpenses.(Emphasis
supplied).
I,WEfurtheragreethatintheeventthepresentrateofinterestonloanis
increasedbylawortheCentralBankofthePhilippines,theholdershallhavethe
optiontoapplyandcollecttheincreasedinterestchargeswithoutnoticealthough
theoriginalinteresthavealreadybeencollectedwhollyorpartiallyunlessthe
contraryisrequiredbylaw.
Itisalsoaspecialconditionofthiscontractthatthepartieshereinagreethatthe
amountofpesoobligationunderthisagreementisbasedonthepresentvalueof
thepeso,andiftherebeanychangeinthevaluethereof,duetoextraordinary
inflationordeflation,oranyothercauseorreason,thenthepesoobligation
hereincontractedshallbeadjustedinaccordancewiththevalueofthepesothen
prevailingatthetimeofthecompletefulfillmentoftheobligation.
Demandandnoticeofdishonorwaived.Holdermayacceptpartialpaymentsand
grantrenewalsofthisnoteorextensionofpayments,reservingrightsagainst
eachandallindorsersandallpartiestothisnote.
INCASEOFJUDICIALExecutionofthisobligation,oranypartofit,the
debtorswaiveallhis/theirrightsundertheprovisionsofSection12,Rule39,of
theRevisedRulesofCourt.
Onmaturityoftheloan,theborrowersfailedtopaytheindebtednessofP500,000.00,plus
interestsandpenalties,evidencedbytheabovequotedpromissorynote.
OnFebruary20,1990,VeronicaR.Gonzales,joinedbyherhusbandDaniloG.Gonzales,filed
withtheRegionalTrialCourtofBulacan,Branch16,atMalolos,Bulacan,acomplaintfor
collectionofthefullamountoftheloanincludinginterestsandothercharges.
InhisanswertothecomplaintfiledwiththetrialcourtonApril5,1990,defendantServando
allegedthathedidnotobtainanyloanfromtheplaintiffs;thatitwasdefendantsLeticiaandDr.
RafaelMedelwhoborrowedfromtheplaintiffsthesumofP500,000.00,andactuallyreceivedthe
amountandbenefitedtherefrom;thattheloanwassecuredbyarealestatemortgageexecutedin
favoroftheplaintiffs,andthathe(ServandoFranco)signedthepromissorynoteonlyasa
witness.
IntheirseparateanswerfiledonApril10,1990,defendantsLeticiaandRafaelMedelallegedthat
theloanwasthetransactionofLeticiaYaptinchay,whoexecutedamortgageinfavorofthe
plaintiffsoveraparcelofrealestatesituatedinSanJuan,Batangas;thattheinterestrateis

excessiveat5.5%permonthwithadditionalservicechargeof2%perannum,andpenaltycharge
of1%permonth;thatthestipulationforattorney'sfeesof25%oftheamountdueis
unconscionable,illegalandexcessive,andthatsubstantialpaymentsmadewereappliedto
interest,penaltiesandothercharges.
Afterduetrial,thelowercourtdeclaredthatthedueexecutionandgenuinenessofthefour
promissorynoteshadbeendulyproved,andruledthatalthoughtheUsuryLawhadbeen
repealed,theinterestchargedbytheplaintiffsontheloanswasunconscionableand"revoltingto
theconscience".Hence,thetrialcourtapplied"theprovisionoftheNew[Civil]Code"thatthe
"legalrateofinterestforloanorforbearanceofmoney,goodsorcreditis12%perannum." 7
Accordingly,onDecember9,1991,thetrialcourtrenderedjudgment,thedispositiveportionof
whichreadsasfollows:
WHEREFORE,premisesconsidered,judgmentisherebyrendered,asfollows:
1.OrderingthedefendantsServandoFrancoandLeticiaMedel,jointlyand
severally,topayplaintiffstheamountofP47,000.00plus12%interestper
annumfromNovember7,1985and1%permonthaspenalty,untiltheentire
amountispaidinfull.
2.OrderingthedefendantsServandoFrancoandLeticiaY.Medeltoplaintiffs,
jointlyandseverallytheamountofP84,000.00with12%interestperannumand
1%percentpermonthaspenaltyfromNovember19,1985untilthewhole
amountisfullypaid;
3.Orderingthedefendantstopaytheplaintiffs,jointlyandseverally,theamount
ofP285,000.00plus12%interestperannumand1%permonthaspenaltyfrom
July11,1986,untilthewholeamountisfullypaid;
4.Orderingthedefendantstopayplaintiffs,jointlyandseverally,theamountof
P50,000.00asattorney'sfees;
5.Allcounterclaimsareherebydismissed.
Withcostsagainstthedefendants.8
Induetime,bothplaintiffsanddefendantsappealedtotheCourtofAppeals.
Intheirappeal,plaintiffsappellantsarguedthatthepromissorynote,whichconsolidatedallthe
unpaidloansofthedefendants,isthelawthatgovernstheparties.Theyfurtherarguedthat
CircularNo.416oftheCentralBankprescribingtherateofinterestforloansorforbearanceof
money,goodsorcreditat12%perannum,appliesonlyintheabsenceofastipulationoninterest
rate,butnotwhenthepartiesagreedthereon.
TheCourtofAppealssustainedtheplaintiffsappellants'contention.Itruledthat"theUsuryLaw
havingbecome'legallyinexistent'withthepromulgationbytheCentralBankin1982ofCircular
No.905,thelenderandborrowercouldagreeonanyinterestthatmaybechargedonthe
loan".9TheCourtofAppealsfurtherheldthat"theimpositionof'anadditionalamountequivalent
to1%permonthoftheamountdueanddemandableaspenaltychargesintheformofliquidated
damagesuntilfullypaid'wasallowedby
law".10
Accordingly,onMarch21,1997,theCourtofAppealspromulgateditsdecisionreversingthatof
theRegionalTrialCourt,disposingasfollows:
WHEREFORE,theappealedjudgmentisherebyMODIFIEDsuchthat
defendantsareherebyorderedtopaytheplaintiffsthesumofP500,000.00,plus
5.5%permonthinterestand2%servicechargeperannumeffectiveJuly23,
1986,plus1%permonthofthetotalamountdueanddemandableaspenalty
chargeseffectiveAugust24,1986,untiltheentireamountisfullypaid.
TheawardtotheplaintiffsofP50,000.00asattorney'sfeesisaffirmed.Andsois
theimpositionofcostsagainstthedefendants.
SOORDERED.11
OnApril15,1997,defendantsappellantsfiledamotionforreconsiderationofthesaiddecision.
ByresolutiondatedNovember25,1997,theCourtofAppealsdeniedthemotion.12
Hence,defendantsinterposedthepresentrecourseviapetitionforreviewoncertiorari.13
Wefindthepetitionmeritorious.
Basically,theissuerevolvesonthevalidityoftheinterestratestipulatedupon.Thus,thequestion
presentediswhetherornotthestipulatedrateofinterestat5.5%permonthontheloaninthesum
ofP500,000.00,thatplaintiffsextendedtothedefendantsisusurious.Inotherwords,istheUsury
Lawstilleffective,orhasitbeenrepealedbyCentralBankCircularNo.905,adoptedon
December22,1982,pursuanttoitspowersunderP.D.No.116,asamendedbyP.D.No.1684?
Weagreewithpetitionersthatthestipulatedrateofinterestat5.5%permonthonthe
P500,000.00loanisexcessive,iniquitous,unconscionableandexorbitant.13However,wecannot

considertherate"usurious"becausethisCourthasconsistentlyheldthatCircularNo.905ofthe
CentralBank,adoptedonDecember22,1982,hasexpresslyremovedtheinterestceilings
prescribedbytheUsuryLaw14andthattheUsuryLawisnow"legallyinexistent".15
InSecurityBankandTrustCompanyvs.RegionalTrialCourtofMakati,Branch6116theCourt
heldthatCBCircularNo.905"didnotrepealnorinanywayamendtheUsuryLawbutsimply
suspendedthelatter'seffectivity."Indeed,wehaveheldthat"aCentralBankCircularcannot
repealalaw.Onlyalawcanrepealanotherlaw."17IntherecentcaseofFlorendovs.Courtof
Appeals18,theCourtreiteratedtherulingthat"byvirtueofCBCircular905,theUsuryLawhas
beenrenderedineffective"."Usuryhasbeenlegallynonexistentinourjurisdiction.Interestcan
nowbechargedaslenderandborrowermayagreeupon."19
Nevertheless,wefindtheinterestat5.5%permonth,or66%perannum,stipulateduponbythe
partiesinthepromissorynoteiniquitousorunconscionable,and,hence,contrarytomorals
("contrabonosmores"),ifnotagainstthelaw.20Thestipulationisvoid.21Thecourtsshallreduce
equitablyliquidateddamages,whetherintendedasanindemnityorapenaltyiftheyareiniquitous
orunconscionable.22
Consequently,theCourtofAppealserredinupholdingthestipulationoftheparties.Rather,we
agreewiththetrialcourtthat,underthecircumstances,interestat12%perannum,andan
additional1%amonthpenaltychargeasliquidateddamagesmaybemorereasonable.
WHEREFORE,theCourtherebyREVERSESandSETSASIDEthedecisionoftheCourtof
AppealspromulgatedonMarch21,1997,anditsresolutiondatedNovember25,1997.Instead,
werenderjudgmentREVIVINGandAFFIRMINGthedecisiondatedDecember9,1991,ofthe
RegionalTrialCourtofBulacan,Branch16,Malolos,Bulacan,inCivilCaseNo.134M90,
involvingthesameparties.
Nopronouncementastocostsinthisinstance.
SOORDERED.
Narvasa,C.J.,Romero,KapunanandPurisima,JJ.,concur.

RepublicofthePhilippines
SUPREMECOURT
BaguioCity
FIRSTDIVISION
G.R.No.133498April18,2002
C.F.SHARP&CO.,INC.,petitioner,
vs.
NORTHWESTAIRLINES,INC.,respondent.
YNARESSANTIAGO,J.:
ThisisapetitionforreviewunderRule45oftheRulesofCourtassailingtheFebruary17,1997
Decision1andtheApril2,1998Resolution2oftheCourtofAppeals3inCAG.R.SPNo.40996.
Theundisputedfactsareasfollows:
OnMay9,1974,respondent,throughitsJapanBranch,enteredintoanInternationalPassenger
SalesAgencyAgreementwithpetitioner,authorizingthelattertosellitsairtransporttickets.
Petitionerfailedtoremittheproceedsoftheticketsales,forwhichreason,respondentfileda
collectionsuitagainstpetitionerbeforetheTokyoDistrictCourtwhichrenderedjudgmenton
January29,1981,orderingpetitionertopayrespondenttheamountof"83,158,195Yenand
damagesforthedelayattherateof6%perannumfromAugust28,1980uptoanduntilpayment
iscompleted."4UnabletoexecutethedecisioninJapan,respondentfiledacasetoenforcesaid
foreignjudgmentwiththeRegionalTrialCourtofManila,Branch54. 5However,thecasewas
dismissedonthegroundoffailureoftheJapaneseCourttoacquirejurisdictionoverthepersonof
thepetitioner.RespondentappealedtotheCourtofAppeals,whichaffirmedthedecisionofthe
trialcourt.1wphi1.nt
RespondentfiledapetitionforreviewwiththisCourt,docketedasG.R.No.112573.On
February9,1995,adecisionwasrendered,thedispositiveportionofwhichreads:
WHEREFORE,theinstantpetitionispartlyGRANTED,andthechallengeddecisionis
AFFIRMEDinsofarasitdeniedNORTHWESTsclaimsforattorneysfees,litigation
expenses,andexemplarydamagesbutREVERSEDinsofarasitsustainedthetrialcourts
dismissalofNORTHWESTscomplaintinCivilCaseNo.8317637ofBranch54ofthe
RegionalTrialCourtofManila,andanotherinitssteadisherebyrenderedORDERING
privaterespondentC.F.SHARP&COMPANY,INC.topaytoNORTHWESTthe

amountsadjudgedintheforeignjudgmentsubjectofsaidcase,withinterestthereonat
thelegalratefromthefilingofthecomplaintthereinuntilthesaidforeignjudgmentis
fullysatisfied.
Costsagainsttheprivaterespondent.
SOORDERED.6
Accordingly,theRegionalTrialCourtofManila,Branch54,issuedawritofexecutionofthe
foregoingdecision.7OnNovember22,1995,thetrialcourtmodifieditsorderfortheexecutionof
thedecision,viz:
WHEREFORE,inviewoftheforegoing,thisCourtherebyissuesanotherorder,as
follows:thewritofexecutionisissuedagainstdefendantC.F.Sharporderingsaid
defendanttopaytheplaintiffthesumof83,158,195Yenattheexchangerateprevailing
onthedateoftheforeignjudgmentonJanuary29,1981,plus6%perannumuntilMay
19,1983;andfromsaiddateuntilfullpayment,12%perannum(6%bywayofdamages
and6%interest)untiltheentireobligationisfullysatisfied.
SOORDERED.8
OnDecember18,1995,petitionerfiledapetitionforcertiorariunderRule65,docketedasG.R.
No.122890,assailingtheaforequotedorder.OnMay29,1996,thecasewasreferredtotheCourt
ofAppeals.Petitionercontendedthatithadalreadymadepartialpayments;hence,itwasliable
onlyfortheamountof61,734,633Yen.Moreover,itarguedthatitwasnotliabletopay
additionalinterestontopofthe6%interestimposedintheforeignjudgment.
TheCourtofAppealsrenderedtheassaileddecisiononFebruary17,1997.Itsustainedthe
impositionofadditionalinterestontheliabilityofpetitionerasadjudgedintheforeignjudgment.
Theappellatecourtlikewisecorrectedthereckoningdateoftheimpositionoftheinterestsin
accordancewiththeFebruary9,1995decisiontobeexecuted,butloweredtheadditionalinterest
from12%to6%perannum.Further,itruledthatthebasisoftheconversionofpetitioners
liabilityinitspesoequivalentshouldbetheprevailingrateatthetimeofpaymentandnottherate
onthedateoftheforeignjudgment.Thedispositiveportionofthesaiddecisionreads:
WHEREFORE,thepetitionisGRANTED.TheassailedOrdersdatedOctober13,1995
andNovember22,1995areannulledandsetasideonthegroundthattheyvariedthe
finaljudgmentoftheFirstDivisionoftheSupremeCourtinG.R.No.112573,entitled,
"NORTHWESTORIENTAIRLINES,INC.,Petitioner,versus,COURTOFAPPEALS
andC.F.SHARP&COMPANY,INC.,Respondents".
Respondentcourtisenjoinedtoexecutethesaidfinaljudgmentwithanunpaidprincipal
balanceofY61,734,633plusdamagesfordelayattherateof6%perannumfromAugust
28,1980,untilfullypaid,whichmaybepaidinlocalcurrencybasedontheconversion
rateprevailingatthetimeofpayment;plus6%legalinterestperannumfromAugust28,
1980,thedateofthefilingofthecomplaintintheforeignjudgment.
Nocosts.
SOORDERED.9
OnApril2,1998,theCourtofAppealsdeniedboththemotionforreconsiderationandthepartial
motionforreconsiderationfiledbypetitionerandrespondent,respectively.
Inthepresentrecourse,petitionerquestionstheapplicableconversionrateofitsliability,and
claimsthatarulingthereonbytheCourtofAppealseffectivelydepriveditofdueprocessoflaw
becausesaidratewasnotamongtheissuessubmittedforresolution.
Thepetitioniswithoutmerit.
Inrulingthattheapplicableconversionrateofpetitionersliabilityistherateatthetimeof
payment,theCourtofAppealscitedthecaseofZagalav.Jimenez,10interpretingtheprovisionsof
RepublicActNo.529,asamendedbyR.A.No.4100.Underthislaw,stipulationsonthe
satisfactionofobligationsinforeigncurrencyarevoid.Paymentsofmonetaryobligations,
subjecttocertainexceptions,shallbedischargedinthecurrencywhichisthelegaltenderinthe
Philippines.ButsinceR.A.No.529doesnotprovidefortherateofexchangeforthepaymentof
foreigncurrencyobligationsincurredafteritsenactment,theCourtheldinanumberof
cases11thattherateofexchangefortheconversioninthepesoequivalentshouldbetheprevailing
rateatthetimeofpayment.
Petitioner,however,contendsthatwiththerepealofR.A.No.529byR.A.No.8183, 12the
jurisprudencerelieduponbytheCourtofAppealsisnolongerapplicable.
RepublicActNo.529,asamendedbyR.A.No.4100,provides:
SECTION1.Everyprovisioncontainedin,ormadewithrespectto,anydomestic
obligationtowit,anyobligationcontractedinthePhilippineswhichprovisionpurportsto
givetheobligeetherighttorequirepaymentingoldorinaparticularkindofcoinor
currencyotherthanPhilippinecurrencyorinanamountofmoneyofthePhilippines
measuredthereby,beasitisherebydeclaredagainstpublicpolicy,andnull,void,andof

noeffect,andnosuchprovisionshallbecontainedin,ormadewithrespectto,any
obligationhereafterincurred.Theaboveprohibitionshallnotapplyto(a)transactions
wherethefundsinvolvedaretheproceedsofloansorinvestmentsmadedirectlyor
indirectly,throughbonafideintermediariesoragents,byforeigngovernments,their
agenciesandinstrumentalities,andinternationalfinancialbankinginstitutionssolongas
thefundsareidentifiable,ashavingemanatedfromthesourcesenumeratedabove;b)
transactionsaffectinghighpriorityeconomicprojectsforagricultural,industrialand
powerdevelopmentasmaybedeterminedbytheNationalEconomicCouncilwhichare
financedbyorthroughforeignfunds;(c)forwardexchangetransactionsenteredinto
betweenbanksorbetweenbanksandindividualsorjuridicalpersons;(d)importexport
andotherinternationalbanking,financialinvestmentandindustrialtransactions.Withthe
exceptionofthecasesenumeratedinitems(a),(b),(c)and(d)intheforegoingprovision,
inwhichcasesthetermsofthepartiesagreementshallapply,everyotherdomestic
obligationheretoforeorhereafterincurred,whetherornotanysuchprovisionasto
paymentiscontainedthereinormadewithrespectthereto,shallbedischargedupon
paymentinanycoinorcurrencywhichatthetimeofpaymentislegaltenderforpublic
andprivatedebts:Provided,Thatiftheobligationwasincurredpriortotheenactmentof
thisActandrequiredpaymentinaparticularkindofcoinorcurrencyotherthan
Philippinecurrency,itshallbedischargedinPhilippinecurrency,measuredatthe
prevailingratesofexchangeatthetimetheobligationwasincurred,exceptincaseofa
loanmadeinaforeigncurrencystipulatedtobepayableinthesamecurrencyinwhich
casetherateofexchangeprevailingatthetimeofthestipulateddateofpaymentshall
prevail.Allcoinandcurrency,includingCentralBanknotes,heretoforeorhereafter
issuedanddeclaredbytheGovernmentofthePhilippinesshallbelegaltenderforall
debts,publicandprivate.
PertinentportionofRepublicActNo.8183states:
SECTION1.AllmonetaryobligationsshallbesettledinthePhilippinecurrencywhichis
legaltenderinthePhilippines.However,thepartiesmayagreethattheobligationor
transactionshallbesettledinanyothercurrencyatthetimeofpayment.
SEC.2.RepublicActNumberedFiveHundredandTwentyNine(R.A.No.529),as
amended,entitled"AnActtoAssuretheUniformValueofPhilippineCoinand
Currency"isherebyrepealed.
TherepealofR.A.No.529byR.A.No.8183hastheeffectofremovingtheprohibitiononthe
stipulationofcurrencyotherthanPhilippinecurrency,suchthatobligationsortransactionsmay
nowbepaidinthecurrencyagreeduponbytheparties.JustlikeR.A.No.529,however,thenew
lawdoesnotprovidefortheapplicablerateofexchangefortheconversionofforeigncurrency
incurredobligationsintheirpesoequivalent.Itfollows,therefore,thatthejurisprudence
establishedinR.A.No.529regardingtherateofconversionremainsapplicable.Thus,inAsia
WorldRecruitment,Inc.v.NationalLaborRelationsCommission,13theCourt,applyingR.A.No.
8183,sustainedtherulingoftheNLRCthatobligationsinforeigncurrencymaybedischargedin
Philippinecurrencybasedontheprevailingrateatthetimeofpayment.Thewisdomonwhich
thejurisprudenceinterpretingR.A.No.529isbasedequallyholdstruewithR.A.No.8183.
Verily,itisjustandfairtopreservetherealvalueoftheforeignexchangeincurredobligationto
thedateofitspayment.14
Wefindnodenialofdueprocessintheinstantcase.Contrarytotheargumentofpetitioner,the
matteroftheapplicableconversionratewasoneoftheissuessubmittedforresolutionbeforethe
CourtofAppeals.Moreover,opportunitytobeheard,whichistheveryessenceofdueprocess,
wasaffordedpetitionerwhenitfiledamotionforreconsiderationoftheCourtofAppeals
decision.
PetitionerscontentionthatitisArticle125015oftheCivilCodethatshouldbeappliedis
untenable.Therulethatthevalueofthecurrencyatthetimeoftheestablishmentofthe
obligationshallbethebasisofpaymentfindsapplicationonlywhenthereisanofficial
pronouncementordeclarationoftheexistenceofanextraordinaryinflationordeflation. 16
Foritspart,respondentpraysforthemodificationoftheCourtofAppealsawardofinterest.
Whileasageneralrule,apartywhohasnotappealedisnotentitledtoaffirmativereliefother
thanwhatwasgrantedinthedecisionofthecourtbelow,lawandjurisprudenceauthorizea
tribunaltoconsidererrors,althoughunassigned,iftheyinvolve(1)errorsaffectingthelower
courtsjurisdictionoverthesubjectmatter,(2)plainerrorsnotspecified,and(3)clericalerrors. 17
Inthecaseatbar,theCourtofAppealsfailuretoapplythecorrectlegalrateofinterest,towhich
respondentislawfullyentitled,amountstoa"plainerror."InEasternShippingLines,Inc.v.
CourtofAppeals,18itwasheldthatabsentanystipulation,thelegalrateofinterestinobligations
whichconsistsinthepaymentofasumofmoney,asinthepresentcase,is12%perannum.As

statedinthedecisionoftheCourtinG.R.No.112573,whichisfinalandexecutory,petitioneris
liabletopayrespondenttheamountadjudgedintheforeignjudgment,with"interestthereonat
thelegalrate[12%perannum]fromthefilingofthecomplainttherein[onAugust28,1980]
untilthesaidforeignjudgmentisfullysatisfied."Sincepetitioneralreadymadepartialpayments,
hisobligationwasreducedto61,734,633Yen.Thus,petitionershouldpayrespondenttheamount
of61,734,633Yenplus"damagesforthedelayattherateof6%perannumfromAugust28,
1980uptoanduntilpaymentiscompleted,"withinterestthereonattherateof12%per
annumfromthefilingofthecomplaintonAugust28,1980,untilfullysatisfied.
TheCourtisclothedwithampleauthoritytoreviewmatters,eveniftheyarenotassignedas
errorsonappeal,ifitfindsthattheirconsiderationisnecessaryinarrivingatajustdecisionofthe
case.Rulesofprocedurearemeretoolsdesignedtofacilitatetheattainmentofjustice.Theirstrict
andrigidapplication,whichwouldresultintechnicalitiesthattendtofrustrateratherthan
promotesubstantialjustice,mustbeavoided.Hence,substantiverights,liketheapplicablelegal
rateofinterestonpetitionerslongdueanddemandableobligation,mustnotbeprejudicedbya
rigidandtechnicalapplicationoftherules.19
WHEREFORE,inviewofalltheforegoing,theinstantpetitionisDENIED.TheFebruary17,
1997decisionandtheApril2,1998resolutionoftheCourtofAppealsinCAG.R.SPNo.40996
areAFFIRMEDwithMODIFICATION.Petitionerisdirectedtopayrespondent61,734,633
Yenplusdamagesforthedelayattherateof6%perannumfromAugust28,1980uptoanduntil
paymentiscompleted,withinterestattherateof12%perannumcountedfromthedateoffiling
ofthecomplaintonAugust28,1980,untilfullysatisfied.Petitionersliabilitymaybepaidin
Philippinecurrency,computedattheexchangerateprevailingatthetimeof
payment.1wphi1.nt
SOORDERED.
Puno,andSandovalGutierrez,JJ.,concur.
Davide,Jr.,C.J.,AustriaMartinez,Kapunan,JJ.,onofficialleave.